**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.20549**

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**FORM 10-K**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 

**For thefiscal year ended December 31, 2006**

**OR**

**o**                                 TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**CommissionFile Number 001-07541**

**THE HERTZ CORPORATION**

**(Exactname of registrant as specified in its charter)**

| **Delaware**                     |   | **13-1938568**         |
|----------------------------------|--------|------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer       |
| incorporation or  organization)  |   | Identification Number) |

 

**225 BraeBoulevard**

**ParkRidge, New Jersey 07656-0713**

**(201) 307-2000**

(Address, including ZIP Code,and telephone number, 

including area code, ofregistrant’s principal executive offices)

**Securitiesregistered pursuant to Section 12(b) of the Act:     None**

**Securitiesregistered pursuant to Section 12(g) of the Act:     None**

**The Registrant meets the conditions set forth inGeneral Instruction I(1)(a) and (b) of Form 10-K and istherefore filing this Form with the reduced disclosure format aspermitted.**

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes o No ý

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o No ý

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

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. ý

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Largeaccelerated filer  o   Accelerated filer  o   Non-accelerated filer  ý

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes o No ý

No voting or non-voting commonequity of the registrant was held by non-affiliates of the registrant as of June 30,2006. As of March 30, 2007, all of the common stock of the registrant isowned by its affiliate, Hertz Investors, Inc. As of March 30, 2007,100 shares of the registrant’s common stock (par value $0.01) were outstanding.

**Documentsincorporated by reference:  **None

 

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**TABLE OFCONTENTS**

| **INTRODUCTORY NOTE** |   | 1          |
|-----------------------|--------|------------|
| **PART I**       |   |       |
| ** **            |   | ITEM 1.    |   | BUSINESS |   | 3 |
| ** **            |   | ITEM 1A.   |   | RISK FACTORS |   | 28 |
| ** **            |   | ITEM 1B.   |   | UNRESOLVED STAFF COMMENTS |   | 44 |
| ** **            |   | ITEM 2.    |   | PROPERTIES |   | 45 |
| ** **            |   | ITEM 3.    |   | LEGAL PROCEEDINGS |   | 45 |
| ** **            |   | ITEM 4.    |   | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |   | 48 |
| **PART II**      |   |       |
| ** **            |   | ITEM 5.    |   | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED  STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |   | 49 |
| ** **            |   | ITEM  6.   |   | SELECTED  FINANCIAL DATA |   | 49 |
| ** **            |   | ITEM 7.    |   | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS |   | 52 |
| ** **            |   | ITEM 7A.   |   | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET   RISK |   | 92 |
| ** **            |   | ITEM 8.    |   | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |   | 93 |
| ** **            |   |       |   | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING   FIRM |   | 93 |
| ** **            |   |       |   | CONSOLIDATED BALANCE SHEETS |   | 96 |
| ** **            |   |       |   | CONSOLIDATED STATEMENTS OF OPERATIONS |   | 97 |
| ** **            |   |       |   | CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY |   | 98 |
| ** **            |   |       |   | CONSOLIDATED STATEMENTS OF CASH FLOWS |   | 99 |
| ** **            |   |       |   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |   | 101 |
| ** **            |   | ITEM 9.    |   | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE |   | 168 |
| ** **            |   | ITEM 9A.   |   | CONTROLS AND PROCEDURES |   | 168 |
| ** **            |   | ITEM  9B.  |   | OTHER  INFORMATION |   | 168 |
| **PART III**          |   | ** ** |   |   |
| ** **            |   | ITEM 10.   |   | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |   | 169 |
| ** **            |   | ITEM 11.   |   | EXECUTIVE COMPENSATION |   | 169 |
| ** **            |   | ITEM 12.   |   | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS |   | 169 |
| ** **            |   | ITEM 13.   |   | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND  DIRECTOR INDEPENDENCE |   | 169 |
| ** **            |   | ITEM 14.   |   | PRINCIPAL ACCOUNTING FEES AND SERVICES |   | 169 |
| **PART IV**           |   | ** ** |   |   |
| ** **            |   | ITEM 15.   |   | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |   | 170 |
| **SIGNATURES**        |   | 186        |
| **EXHIBIT INDEX**     |   | 187        |

 

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**INTRODUCTORY NOTE**

*Unless the contextotherwise requires, in this Annual Report on Form 10-K, or “AnnualReport,” (i) “we,” “us” and “our” mean The Hertz Corporation and itsconsolidated subsidiaries, (ii) “Hertz Holdings” means Hertz GlobalHoldings, Inc., our top-level holding company, (iii) “Hertz” or the “Company”means The Hertz Corporation, our primary operating company and a direct whollyowned subsidiary of Hertz Investors, Inc., which is wholly owned by HertzHoldings, (iv) “HERC” means Hertz Equipment Rental Corporation, our whollyowned equipment rental subsidiary, together with our various other wholly ownedinternational subsidiaries that conduct our industrial, construction andmaterial handling equipment rental business, (v) “cars” means cars andlight trucks (including sport utility vehicles and, outside North America,light commercial vehicles), (vi) “equipment” means industrial,construction and material handling equipment, (vii) “EBITDA” meansconsolidated net income before net interest expense, consolidated income taxesand consolidated depreciation and amortization and (viii) “CorporateEBITDA” means “EBITDA” as that term is defined under our senior creditfacilities, which is generally consolidated net income before net interestexpense (other than interest expense relating to certain car rental fleetfinancing), consolidated income taxes, consolidated depreciation (other thandepreciation related to the car rental fleet) and amortization and beforecertain other items, in each case as more fully described in the agreementsgoverning our senior credit facilities.*

*On December 21,2005, or the “Closing Date,” an indirect, wholly owned subsidiary of HertzHoldings acquired all of our common stock from Ford Holdings LLC, or “FordHoldings,” pursuant to a Stock Purchase Agreement, dated as of September 12,2005, among Ford Motor Company, or “Ford,” Ford Holdings and Hertz Holdings(previously known as CCMG Holdings, Inc.). As a result of thistransaction, investment funds associated with or designated by Clayton,Dubilier & Rice, Inc. or “CD&R,” The Carlyle Group or “Carlyle”and Merrill Lynch Global Private Equity or “MLGPE,” or, collectively, the “Sponsors,”owned over 99% of the common stock of Hertz Holdings. As a result of theinitial public offering of the common stock of Hertz Holdings, the Sponsors nowown approximately 72% of the common stock of Hertz Holdings. We refer to theacquisition of all of Hertz’s common stock as the “Acquisition.” We refer tothe Acquisition, together with related transactions entered into to finance thecash consideration for the Acquisition, to refinance certain of our existingindebtedness and to pay related transaction fees and expenses, as the “Transactions.”The “Successor period ended December 31, 2005” refers to the 11-dayperiod from December 21, 2005 to December 31, 2005 and the “Predecessorperiod ended December 20, 2005” refers to the period from January 1,2005 to December 20, 2005. The term “Successor” refers to us following theAcquisition and the term “Predecessor” refers to us prior to the Closing Date.*

*Certain financial information in this Annual Reportfor the Predecessor period ended December 20, 2005 and Successor periodended December 31, 2005 has been presented on a combined basis. See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Resultsof Operations” for a discussion of the presentation of our results for the yearended December 31, 2005 on a combined basis.*

***Cautionary Note Regarding Forward-Looking Statements***

*Certain statements contained in this report under “Item1—Business,” “Item 3—Legal Proceedings” and “Item 7—Management’s Discussion andAnalysis of Financial Condition and Results of Operations” including, withoutlimitation, those concerning our liquidity and capital resources, include “forward-lookingstatements.” You should not place undue reliance on these statements. Forward-lookingstatements include information concerning our liquidity and our possible orassumed future results of operations, including descriptions of our businessstrategies. These statements often include words such as “believe,” “expect,” “anticipate,”“intend,” “plan,” “estimate,” “seek,” “will,” “may” or similar expressions.These statements are based on certain assumptions that we have made*

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*in light of our experience in the industry as well asour perceptions of historical trends, current conditions, expected futuredevelopments and other factors we believe are appropriate in thesecircumstances. As you read this Annual Report, you should understand that thesestatements are not guarantees of performance or results. They involve risks,uncertainties and assumptions. You should understand the risks anduncertainties discussed in “Item 1A—Risk Factors” and elsewhere in this AnnualReport, could affect our actual financial results and could cause actualresults to differ materially from those expressed in the forward-lookingstatements. Some important factors include:*

·       *our operations;*

·       *economic performance;*

·       *financialcondition;*

·       *management forecasts;*

·       *efficiencies;*

·       *cost savings and opportunities to increase productivity andprofitability;*

·       *income and margins;*

·       *liquidity;*

·       *anticipated growth;*

·       *economies of scale;*

·       *the economy;*

·       *future economic performance;*

·       *our ability to maintain profitability during adverse economic cyclesand unfavorable external events (including war, terrorist acts, naturaldisasters and epidemic disease);*

·       *future acquisitions and dispositions;*

·       *litigation;*

·       *potential and contingent liabilities;*

·       *management’s plans;*

·       *taxes; and*

·       *refinancing of existing debt.*

*In light of these risks, uncertainties andassumptions, the forward-looking statements contained in this AnnualReport might not prove to be accurate and you should not place undue relianceupon them. All forward-looking statements attributable to us or personsacting on our behalf are expressly qualified in their entirety by the foregoingcautionary statements. All such statements speak only as of the date made, andwe undertake no obligation to update or revise publicly any forward-lookingstatements, whether as a result of new information, future events or otherwise.*

***Market and Industry Data***

*Information in this Annual Report about the car andequipment rental industries, including our general expectations concerning theindustries and our market position and market share, are based in part onindustry data and forecasts obtained from industry publications and surveys andinternal company surveys. Third-party industry publications and forecastsgenerally state that the information contained therein has been obtained fromsources generally believed to be reliable. While we are not aware of anymisstatements regarding any industry data presented in this Annual Report, ourestimates, in particular as they relate to our general expectations concerningthe car and equipment rental industries, involve risks and uncertainties andare subject to change based on various factors, including those discussed underthe caption “Item 1A—Risk Factors.”*

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**PART I**

**ITEM 1.**                 BUSINESS

**Our Company**

We own what we believe is thelargest worldwide general use car rental brand and one of the largest equipmentrental businesses in the United States and Canada combined, both based onrevenues. Our Hertz brand name is one of the most recognized in the world,signifying leadership in quality rental services and products. In our carrental business segment, we and our independent licensees and associates acceptreservations for car rentals at approximately 7,600 locations in approximately145 countries. We are the only car rental company that has an extensive networkof company-operated rental locations both in the United States and in allmajor European markets. We maintain the leading airport car rental marketshare, by overall reported revenues, in the United States and at the 69 majorairports in Europe where we have company-operated locations and dataregarding car rental concessionaire activity is available. We believe that wealso maintain the second largest market share, by revenues, in the off-airportcar rental market in the United States. In our equipment rental businesssegment, we rent equipment through approximately 360 branches in the UnitedStates, Canada, France and Spain, as well as through our international licensees.We and our predecessors have been in the car rental business since 1918 and inthe equipment rental business since 1965. We have a diversified revenue baseand a highly variable cost structure and are able to dynamically manage fleetcapacity, the most significant determinant of our costs. This has helped us toearn a pre-tax profit in each year since our incorporation in 1967. Ourrevenues have grown at a compound annual growth rate of 7.7% over the last 20years, with year-over-year growth in 18 of those 20 years.

***Corporate History***

Hertz Holdings was incorporated by the Sponsors inDelaware in 2005 to serve as the top-level holding company for the consolidatedHertz business. Hertz was incorporated in Delaware in 1967. Hertz is asuccessor to corporations that have been engaged in the car and truck rentaland leasing business since 1918 and the equipment rental business since 1965.Ford acquired an ownership interest in Hertz in 1987. Prior to this, Hertz wasa subsidiary of UAL Corporation (formerly Allegis Corporation), which acquiredour outstanding capital stock from RCA Corporation in 1985.

On December 21,2005, investment funds associated with or designated by the Sponsors, throughan indirect, wholly owned subsidiary of Hertz Holdings acquired all of Hertz’scommon stock from a subsidiary of Ford in the Acquisition, for aggregateconsideration of $4,379 million in cash and debt refinanced or assumed of$10,116 million and transaction fees and expenses of $447 million. To financethe cash consideration for the Acquisition, to refinance certain of ourexisting indebtedness and to pay related transaction fees and expenses, theSponsors used:

·       equitycontributions totaling $2,295 million from the investment funds associated withor designated by the Sponsors;

·       netproceeds from a private placement by CCMG Acquisition Corporation of $1,800million aggregate principal amount of 8.875% Senior Notes due 2014, or the “SeniorDollar Notes,” $600 million aggregate principal amount of 10.5% Senior SubordinatedNotes due 2016, or the “Senior Subordinated Notes,” and €225million aggregate principal amount of 7.875% Senior Notes due 2014, or the “SeniorEuro Notes.” In connection with the Transactions, CCMG Acquisition Corporationmerged with and into Hertz, with Hertz as the surviving corporation of themerger. CCMG Acquisition Corporation had no operations prior to theAcquisition. We refer to the Senior Dollar Notes and the Senior Euro Notestogether as the “Senior Notes;”

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·       aggregateborrowings of approximately $1,707 million by us under a new senior termfacility, or the “Senior Term Facility,” which consists of (a) a maximumborrowing capacity of $2,000 million, which included a delayed draw facility of$293 million and (b) a synthetic letter of credit facility in an aggregateprincipal amount of $250 million;

·       aggregateborrowings of approximately $400 million by Hertz and one of its Canadiansubsidiaries under a new senior asset-based revolving loan facility, orthe “Senior ABL Facility,” with a maximum borrowing capacity of $1,600 million(which was increased in February 2007 to $1,800 million). We refer to theSenior Term Facility and the Senior ABL Facility together as the “Senior CreditFacilities;”

·       aggregateproceeds of offerings totaling approximately $4,300 million by a specialpurpose entity wholly owned by us of asset-backed securities backed byour U.S. car rental fleet, or the “U.S. Fleet Debt,” all of which we issuedunder our existing asset-backed notes program, or the “ABS Program”;under which an additional $600 million of previously issued asset-backedmedium term notes having maturities from 2007 to 2009 remain outstandingfollowing the closing of the Transactions, and in connection with whichapproximately $1,500 million of variable funding notes in two series were alsoissued, but not funded, on the closing date of the Acquisition;

·       aggregateborrowings of the foreign currency equivalent of approximately $1,781 millionby certain of our foreign subsidiaries under asset-based revolving loanfacilities with aggregate commitments equivalent to approximately $2,930million (calculated in each case at December 31, 2005), subject toborrowing bases comprised of rental vehicles, rental equipment, and relatedassets of certain of our foreign subsidiaries, (substantially all of which areorganized outside of the United States) or one or more special purposeentities, as the case may be, and, rental equipment and related assets ofcertain of our subsidiaries organized outside North America or one or morespecial purpose entities, as the case may be, which facilities (together withcertain capital lease obligations) are referred to collectively as the “InternationalFleet Debt;” and

·       ourcash on hand in an aggregate amount of approximately $6.1 million.

In connection with theTransactions, we also refinanced a significant portion of our existingindebtedness, which was repaid as follows:

·       therepurchase of approximately $3,700 million in aggregate principal amount ofexisting senior notes having maturities from May 2006 to January 2028,of which additional notes in the aggregate principal amount of approximately$803.3 million remained outstanding following the Transactions;

·       therepurchase of approximately €192.4 million (orapproximately $230.0 million, calculated as of December 31, 2005) inaggregate principal amount of existing Euro-denominated medium term notes witha maturity of July 2007, of which additional medium term notes in theaggregate principal amount of approximately €7.6 million remainedoutstanding following the Transactions;

·       therepayment of a $1,185 million intercompany note issued by Hertz to FordHoldings on June 10, 2005 that would have matured in June 2010;

·       therepayment of approximately $1,935 million under an interim credit facility thatwould have matured on February 28, 2006;

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·       therepayment of commercial paper, notes payable and other bank debt ofapproximately $1,212 million; and

·       the settlement of allaccrued interest and unamortized debt discounts relating to the above existingindebtedness.

***Our Markets***

We operate in the global carrental industry and in the equipment rental industry, primarily in the UnitedStates.

*Worldwide Car Rental*

We believe that the global carrental industry exceeds $30 billion in annual revenues. According to a 2007report appearing in Auto Rental News, car rental revenues in the United Statestotaled approximately $20 billion in 2006 and have grown at a 5.0% compoundannual growth rate since 1990, including 6.2% growth in 2006. We believe carrental revenues in Western Europe account for over $12.5 billion in annualrevenues, with the airport portion of the industry comprising approximately 40%of the total. Within Europe, the largest markets are Germany, the UnitedKingdom and France. We believe total rental revenues for the car rentalindustry in Europe in 2005 were approximately $10.5 billion in the ninecountries—France, Germany, Italy, the United Kingdom, Spain, the Netherlands,Switzerland, Belgium and Luxembourg—where we have company-operated rentallocations and over $2 billion in eight other countries—Greece, Ireland,Portugal, Sweden, Norway, Denmark, Austria and Finland—where our brand ispresent through our licensees.

We estimate that airportrentals account for approximately one-half of the total market in the UnitedStates. This portion of the market is significantly influenced by developmentsin the travel industry and particularly in airline passenger traffic, orenplanements. According to the FAA, enplanements in the United States onlycompleted their recovery and surpassed their pre-2001 levels in 2005. TheFAA projected in the first half of 2006 that domestic enplanements will grow ata compound annual rate of 3.2% from 2006 to 2017, consistent with long-termhistorical trends. The IATA projected in September 2006 that annualinternational enplanements would grow at a compound annual rate of 4.8% from2006 to 2010.

The off-airport part of theindustry has rental volume primarily driven by local business use, leisuretravel and the replacement of cars being repaired. Because Europe has generallydemonstrated a lower historical reliance on air travel, the Europeanoff-airport car rental market is significantly more developed than it is in theUnited States. However, we believe that in recent years, industry revenues fromoff-airport car rentals in the United States have grown faster than revenuesfrom airport rentals.

*Equipment Rental*

We estimate the size of theU.S. equipment rental industry, which is highly fragmented with few nationalcompetitors and many regional and local operators, to be approximately $35billion in annual revenues, but the part of the rental industry dealing withequipment of the type HERC rents is somewhat smaller than that. We believe thatthe industry grew at a 9.7% compound annual growth rate between 1991 and 2005.Other market data indicates that the equipment rental industries in France andSpain generate roughly $4 billion and $2 billion in annual revenues, respectively,although the portions of those markets in which HERC competes are smaller.

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The equipment rental industryserves a broad range of customers from small local contractors to largeindustrial national accounts and encompasses a wide range of rental equipmentfrom small tools to heavy earthmoving equipment. The industry is undergoing astrong recovery following the industrial recession and downturn innon-residential construction spending between 2001 and 2003. We believe U.S.non-residential construction spending grew at an annual rate of 14% in 2006 andis projected to grow at an annual rate of 4% in 2007. We also believe, based onan article in Rental Equipment Register published on February 1, 2006,that rental equipment accounted for approximately 30% to 40% of all equipmentsold into the U.S. construction industry in 2005, up from approximately 5% to10% in 1991. In addition, we believe that the trend toward rental instead ofownership of equipment in the U.S. construction industry will continue and thatas much as 50% of the equipment used in the industry could be rental equipmentwithin the next ten years.

**Our Business Segments**

Our business consists of two segments, car rental andequipment rental. In addition, “corporate and other” includes general corporateexpenses, as well as other business activities, such as third-party claimmanagement services.

Car Rental:   Our “company-operated” rentallocations are those through which we, or an agent of ours, rent cars that weown or lease. We maintain a substantial network of company-operated carrental locations both in the United States and internationally, and what webelieve to be the largest number of company-operated airport car rentallocations in the world, enabling us to provide consistent quality and serviceworldwide. For the year ended December 31, 2006, we derived approximately72% of our worldwide car rental revenues from airport locations. Our licenseesand associates also operate rental locations in over 140 countries andjurisdictions, including most of the countries in which we have company-operatedrental locations.

Equipment Rental:   Onthe basis of revenues, we believe HERC is the second largest equipment rentalcompany in the United States and Canada combined and one of the largest equipmentrental companies in France and Spain. HERCrents a broad range of earthmoving equipment, material handling equipment,aerial and electrical equipment, air compressors, generators, pumps, smalltools, compaction equipment and construction-related trucks. HERC alsoderives revenues from the sale of new equipment and consumables.

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Set forthbelow are charts showing revenues and operating income (loss), by segment, andrevenues by geographic area, all for the year ended December 31, 2006 andrevenue earning equipment at net book value, as of December 31, 2006 (themajority of our international operations are in Europe). See Note 10 to the Notes to ourconsolidated financial statements included in this Annual Report under thecaption “Item 8—Financial Statements and Supplementary Data.”
| **Revenues by Segment for  Year Ended December 31, 2006(1)**      |   | **Operating Income by Segment for  Year Ended December 31, 2006(2)**    |
|------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|
| ** **                                                             |   | ** **                                                                   |
| **$8.1 billion**                                                  |   | **$1.2 billion**                                                        |
|                                                                   |   |                                                                         |
|                                                                        |   |                                                                              |
| ** **                                                             |   | ** **                                                                   |
| ** **                                                             |   | ** **                                                                   |
| **Revenues by Geographic Area for  Year Ended December 31, 2006** |   | **Revenue Earning Equipment, net  book value as of  December 31, 2006** |
| ** **                                                             |   | ** **                                                                   |
| **$8.1 billion**                                                  |   | **$9.8 billion**                                                        |
|                                                                   |   |                                                                         |
|                                                                        |   |                                                                              |

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(1)            Car rental segmentrevenue includes fees and certain cost reimbursements from licensees. See Note10 to the Notes to our consolidated financial statements included in thisAnnual Report under the caption “Item 8—Financial Statements and SupplementaryData.”

(2)            Operating incomerepresents pre-tax income before interest expense and minority interest. Theabove chart excludes an operating loss of $105.8 million attributable to ourCorporate and Other activities.

For further information on ourbusiness segments, including financial information for the years ended December 31,2006, 2005 and 2004, see Note 10 to the Notes to our consolidated financialstatements included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

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**Worldwide Car Rental**

***Operations***

We rent a wide variety of makes and models of cars,nearly all of which are the current or previous year’s models. We generallyaccept reservations only for a class of vehicles, although we acceptreservations for specific makes and models of vehicles in our PrestigeCollection luxury rental program, our Fun Collection experiential rentalprogram, our Green Collection environmentally friendly rental program and alimited number of models in high-volume, leisure-oriented destinations.We rent cars on a daily, weekend, weekly, monthly or multi-month basis,with rental charges computed on a limited or unlimited mileage rate, or on atime rate plus a mileage charge. Our rates vary at different locationsdepending on local market conditions and other competitive and cost factors.While cars are usually returned to the locations from which they are rented, wealso allow one-way rentals from and to certain locations. In addition to car rentalsand licensee fees, we generate revenues from reimbursements by customers ofairport concession fees and vehicle licensing costs, fueling charges, andcharges for ancillary customer products and services such as supplementalequipment (child seats and ski racks), loss or collision damage waiver, theftprotection, liability and personal accident/effects insurance coverage, HertzNeverLost navigation systems and satellite radio services.

We have company-operated rental locations bothin the United States and internationally. The international car rentaloperations that generated the highest volumes of business from our company-operatedlocations for the year ended December 31, 2006 were, in descending orderof revenues, those conducted in France, Germany, Italy, the United Kingdom,Spain, Australia and Canada. We also have company-operated rentallocations in the Netherlands, Switzerland, Belgium, Luxembourg, New Zealand,Puerto Rico, Brazil and the U.S. Virgin Islands.

As of December 31, 2006, we had approximately1,700 staffed rental locations in the United States, of which approximatelyone-third were airport locations and two-thirds were off-airport locations, andwe regularly rent cars from over 950 other locations that are not staffed. Asof December 31, 2006, we had approximately 1,100 staffed rental locationsinternationally, of which approximately one-fifth were airport locations andfour-fifths were off-airport locations, and we regularly rent cars fromapproximately 80 other locations that are not staffed. We believe that ourextensive U.S. and international network of company-operated locationscontributes to the consistency of our service, cost control, fleet utilization,yield management, competitive pricing and ability to offer one-way rentals.

In order to operate airport rental locations, we haveobtained concessions or similar leasing, licensing or permitting agreements orarrangements, or “concessions,” granting us the right to conduct a car rentalbusiness at all major, and many other, airports with regularly scheduledpassenger service in each country where we have company-operated rentallocations, except for airports where our licensees operate rental locations andOrlando International Airport in Orlando, Florida. Our concessions were obtainedfrom the airports’ operators, which are typically governmental bodies orauthorities, following either negotiation or bidding for the right to operate acar rental business there. The terms of an airport concession typically requireus to pay the airport’s operator concession fees based upon a specifiedpercentage of the revenues we generate at the airport, subject to a minimumannual guarantee. Under most concessions, we must also pay fixed rent forterminal counters or other leased properties and facilities. Most concessionsare for a fixed length of time, while others create operating rights andpayment obligations that are terminable at any time.

The terms of our concessions typically do not forbid,and in a few instances actually require, us to seek reimbursement fromcustomers of concession fees we pay; however, in certain jurisdictions the lawlimits or forbids our doing so. Where we are required or permitted to seek suchreimbursement, it is our general practice to do so. The number of car rentalconcessions available at airports varies considerably, but, except at small,regional airports, it is rarely less than four. At Orlando International 

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Airport, where we do not have a car rental concession,we operate an airport rental location at a facility located near the airport’spremises and pick up and drop off our customers at the airport under a permitfrom the airport’s operator. Certain of our concession agreements require theconsent of the airport’s operator in connection with changes in ownership ofus. We sought those consents that were required in connection with the initialpublic offering of the common stock of Hertz Holdings, except where notobtaining them would not, in our view, have had a material adverse effect onour consolidated financial position or results of operations. See “Item 1A—RiskFactors—Risks Related to Our Business—We face risks related to changes in ourownership.”

The Hertz brand is one of the most recognized brandsin the world. It has been listed in Business Week’s “100 Most Valuable GlobalBrands” in 2005 and in every year that it was eligible for inclusion in thestudy since the study’s inception in 2001. We understand that this study islimited to companies with public equity and their subsidiaries, and as a result,Hertz was not eligible for inclusion in 2006. The Hertz brand has been the onlytravel company brand to appear in the study. Moreover, our customer surveysindicate that in the United States, Hertz is the car rental brand mostassociated with the highest quality service. This is consistent with numerouspublished best-in class car rental awards that we have won, both in the UnitedStates and internationally, over many years. We have sought to support ourreputation for quality and customer service in car rental through a variety ofinnovative service offerings, such as our customer loyalty program (Hertz #1Club), our global expedited rental program (Hertz #1 Club Gold), our one-wayrental program (Rent-it-Here/Leave-it-There), our national-scale luxuryrental program (Prestige Collection), our national-scale experientialrental program (Hertz Fun Collection), our environmentally friendly rentalprogram (Green Collection) and our in-car navigational services (HertzNeverLost). We intend to maintain our position as a premier company through anintense focus on service, quality and product innovation.

In the United States, the Hertzbrand had the highest market share, by revenues, in 2005 and in the first tenmonths of 2006 at the 180 largest airports where we operated. Out of theapproximately 150 major European airports at which we have company-operatedrental locations, data regarding car rental concessionaire activity for theyear ended December 31, 2005 was available at 69 of these airports. Basedupon this data, we believe that we were the largest airport car rental company,measured by aggregate airport rental revenues during that period, at those 69airports taken together. In the United States, we intend to maintain or expandour market share in the airport rental business. For a further description ofour competitors, market share and competitive position see “—Competition”below.

At our major airport rental locations, as well as atsome smaller airport and off-airport locations, customers participating in ourHertz #1 Club Gold program are able to rent vehicles in an expedited manner. Inthe United States, participants in Hertz #1 Club Gold often bypass the rentalcounter entirely and proceed directly to their vehicles upon arrival at ourfacility. For the year ended December 31, 2006, rentals by Hertz #1 ClubGold members accounted for approximately 41% of our worldwide rentaltransactions. We believe the Hertz #1 Club Gold program provides a significantcompetitive advantage to us, particularly among frequent travelers, and wehave, through travel industry relationships, targeted such travelers forparticipation in the program.

In addition to our airport locations, we operateoff-airport locations offering car rental services to a variety of customers. Ouroff-airport rental customers include people wishing to rent cars closer to homefor business or leisure purposes, as well as those needing to travel to or fromairports. Our off-airport customers also include people who have beenreferred by, or whose rental costs are being wholly or partially reimbursed by,insurance companies following accidents in which their cars were damaged, thoseexpecting to lease cars that are not yet available from their leasing companiesand those needing cars while theirs are being repaired or are temporarilyunavailable for other reasons; we call these customers “replacement renters.”At many of our off-airport locations we will provide pick-up and deliveryservices in connection with rentals.

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When compared to our airport rental locations, anoff-airport rental location typically services more types of customers, usessmaller rental facilities with fewer employees, conducts pick-up and deliveryservices and deals with replacement renters using specialized systems andprocesses. In addition, on average, off-airport locations generate fewertransactions per period than airport locations. At the same time, though, ourairport and off-airport rental locations employ common car fleets, aresupervised by common country, regional and local area management, use manycommon systems and rely on common maintenance and administrative centers.Moreover, airport and off-airport locations, outside the area of replacementrentals, are supported by a common commercial sales force, benefit from manycommon marketing activities and have many of the same customers. As aconsequence, we regard both types of locations as aspects of a single, unitary,car rental business.

We believe that the off-airport portion of the carrental market offers opportunities for us on several levels. First, presence inthe off-airport market can provide customers a more convenient andgeographically extensive network of rental locations, thereby creating revenueopportunities from replacement renters, non-airline travel renters and airlinetravelers with local rental needs. Second, it can give us a more balancedrevenue mix by reducing our reliance on airport travel and therefore limitingour risk exposure to external events that may disrupt airline travel trends.Third, it can produce higher fleet utilization as a result of the longeraverage rental periods associated with off-airport business, compared to thoseof airport rentals. Fourth, replacement rental volume is far less seasonal thanthat of other business and leisure rentals, which permits efficiencies in bothfleet and labor planning. Finally, cross-selling opportunities exist forus to promote off-airport rentals among frequent airport Hertz #1 Club rentersand, conversely, to promote airport rentals to off-airport renters. In view ofthose benefits, along with our belief that our market share for off-airportrentals is generally smaller than our market share for airport rentals, weintend to seek profitable growth in the off-airport rental market, both in theUnited States and internationally.

In the three years ended December 31, 2006, weincreased the number of our off-airport rental locations in the United Statesby approximately 32% to approximately 1,380 locations. In 2007 and subsequentyears, our strategy may include selected openings of new off-airport locations,the disciplined evaluation of existing locations and pursuit of same-storesales growth. We anticipate that same-store sales growth would be driven by ourtraditional leisure and business traveler customers and by increasingpenetration of the insurance replacement market, of which we currently have alow market share. In the United States during the year ended December 31,2006, approximately one-third of our rental revenues at off-airport locationswere related to replacement rentals. We believe that if we successfully pursueour strategy of profitable off-airport growth, the proportion of replacementrental revenues will increase. As we move forward, our determination of whetherto expand our U.S. off-airport network will be based upon a combinationof factors, including the concentration of target insurance company policy holders,car dealerships, auto body shops and other clusters of retail, commercialactivity and potential profitability. We also intend to increase the number ofour staffed off-airport rental locations internationally on the basis ofsimilar criteria.

In addition to renting cars, in Germany we also renttrucks of eight tons and over, including truck tractors. This truck rentalfleet consists of approximately 3,400 vehicles, which have either been acquiredunder repurchase programs similar to those under which we purchase program carsor are under operating leases. We believe we are a market leader in heavy truckrental in Germany. Also, we are engaged in a car leasing business in Brazil.Our truck rental activities in Germany and our car leasing activities in Brazilare treated as part of our international car rental business in ourconsolidated financial statements.

Our worldwide car rental operations generated $6,378.0million in revenues and $373.5 million in income before income taxes andminority interest during the year ended December 31, 2006.

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We may also, from time totime, pursue profitable growth within our car rental business by pursuingopportunistic acquisitions that would expand our global car rental business.

***Customers and Business Mix***

Wecategorize our car rental business based on two primary criteria—the purposefor which customers rent from us (business or leisure) and the type of locationfrom which they rent (airport or off-airport). The table below sets forth, forthe year ended December 31, 2006, the percentages of rental revenues andrental transactions in our U.S. and international operations derived frombusiness and leisure rentals and from airport and off-airport rentals.

| ** **             | ** ** | **Year ended December 31, 2006** | ** ** |
|------------------------|------------|------------------------------------------------------|------------|
| ** **             | ** ** | **U.S.**                                             | ** ** | **International** | ** ** |
| ** **             | ** ** | **Revenues**                                         | ** ** | **Transactions** | ** ** | **Revenues** | ** ** | **Transactions** | ** ** |
| **Type of Car Rental** |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| By Customer:           |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Business               |       |                                                 | 47         | % |   |   | 51 | % |   |   | 48 | % |   |   | 52 | % |   |
| Leisure                |       |                                                 | 53         |   |   |   | 49 |   |   |   | 52 |   |   |   | 48 |   |   |
|                   |       |                                                 | 100        | % |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |
| By Location:           |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Airport                |       |                                                 | 79         | % |   |   | 80 | % |   |   | 54 | % |   |   | 57 | % |   |
| Off-airport            |       |                                                 | 21         |   |   |   | 20 |   |   |   | 46 |   |   |   | 43 |   |   |
|                   |       |                                                 | 100        | % |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |

 

Customers who rent from us for “business” purposesinclude those who require cars in connection with commercial activities, theactivities of governments and other organizations or for temporary vehiclereplacement purposes. Most business customers rent cars from us on terms thatwe have negotiated with their employers or other entities with which they areassociated, and those terms can differ substantially from the terms on which werent cars to the general public. We have negotiated arrangements relating tocar rental with many large businesses, governments and other organizations,including most Fortune 500 companies.

Customers who rent from us for “leisure” purposesinclude not only individual travelers booking vacation travel rentals with usbut also people renting to meet other personal needs. Leisure rentals, taken asa whole, are longer in duration and generate more revenue per transaction thando business rentals, although some types of business rentals, such as rentalsto replace temporarily unavailable cars, have a long average duration. Businessrentals and leisure rentals have different characteristics and place differenttypes of demands on our operations. We believe that maintaining an appropriatebalance between business and leisure rentals is important to the profitabilityof our business and the consistency of our operations.

Our business and leisure customers rent from both ourairport and off-airport locations. Demand for airport rentals is correlatedwith airline travel patterns, and transaction volumes generally followenplanement trends on a global basis. Customers often make reservations forairport rentals when they book their flight plans, which makes our strong relationshipswith travel agents, associations and other partners (e.g., airlines) a keycompetitive advantage in generating consistent and recurring revenue streams.

Off-airport rentals typically involve people wishingto rent cars closer to home for business or leisure purposes, as well as thoseneeding to travel to or from airports. This category also includes people whohave been referred by, or whose rental costs are being wholly or partiallyreimbursed by, insurance companies because their cars have been damaged. Inorder to attract these renters, we must establish agreements with the referringinsurers establishing the relevant rental terms, including 

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the arrangements made for billing and payment. Whilewe estimate our share of the insurance replacement rental market wasapproximately 7% of the estimated rental revenue volume for the year ended December 31,2006, we have identified approximately 160 insurance companies, ranging fromlocal or regional carriers to large, national companies, as our target insurancereplacement market. Although Enterprise Rent-A-Car Company, or “Enterprise”currently has the largest share of the insurance replacement market, we believethat many of these companies are receptive to our replacement rental offeringsand prefer to have at least two national rental car suppliers. Enterprise hasasserted that certain systems we use to conduct insurance replacement rentalswould infringe on patent rights it expects to obtain. See “Item 1A—Risk Factors—RisksRelated to Our Business—Claims that the software products and informationsystems that we rely on are infringing on the intellectual property rights ofothers could increase our expenses or inhibit us from offering certainservices, which could adversely affect our results of operations.”

We conduct active sales and marketing programs toattract and retain customers. Our commercial and travel industry sales forcecalls on companies and other organizations whose employees and associates needto rent cars for business purposes, as well as on membership associations, touroperators, travel companies and other groups whose members, participants andcustomers rent cars for either business or leisure purposes. A specializedsales force calls on companies with replacement rental needs, includinginsurance and leasing companies and car dealers. We also advertise our carrental offerings through a variety of traditional media, such as television andnewspapers, direct mail and the Internet. In addition to advertising, we alsoconduct a variety of other forms of marketing and promotion, including travelindustry business partnerships and press and public relations activities.

In almost all cases, when we rent a car, we rent itdirectly to an individual who is identified in a written rental agreement thatwe prepare. Except when we are accommodating someone who cannot drive, theindividual to whom we rent a car is required to have a valid driver’s licenseand meet other rental criteria (including minimum age and creditworthinessrequirements) that vary on the basis of location and type of rental. Our rentalagreements permit only the individual renting the car, people signingadditional authorized operator forms and certain defined categories of otherindividuals (such as fellow employees, parking attendants and in some casesspouses or domestic partners) to operate the car.

With rare exceptions, individuals renting cars from usare personally obligated to pay all amounts due under their rental agreements.They typically pay us with a charge, credit or debit card issued by a thirdparty, although certain customers use a Hertz charge account that we haveestablished for them, usually as part of an agreement between us and theiremployer. For the year ended December 31, 2006, all amounts charged toHertz charge accounts established in the United States, and approximately 99%of amounts charged to Hertz charge accounts established by our internationalsubsidiaries, are billed directly to a company or other organization or areguaranteed by a company. The remainder of the amounts charged to Hertz chargeaccounts established by our international subsidiaries are billed to individualaccount holders whose obligations are not guaranteed by the holder’s employeror any other organization associated with the account holder. We also issuerental vouchers and certificates that may be used to pay rental charges, mostlyfor prepaid and tour-related rentals. In addition, where the law requires us todo so, we rent cars on a cash basis.

In the United States for theyear ended December 31, 2006, 86% of our car rental revenues came fromcustomers who paid us with third-party charge, credit or debit cards,while 8% came from customers using Hertz charge accounts, 4% came fromcustomers using rental vouchers or another method of payment and 2% came fromcash transactions. In our international operations for the year ended December 31,2006, 53% of our car rental revenues came from customers who paid us with third-partycharge, credit or debit cards, while 27% came from customers using Hertz chargeaccounts, 18% came from customers using rental vouchers or another method ofpayment and 2% came from cash transactions. For the year ended December 31,2006, we had bad debt expense ratios of 0.2% of car 

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rental revenues for our U.S. operationsand 0.4% of car rental revenues for our international operations.

***Reservations***

When customers reserve cars for rental from us and ourlicensees, they may seek to do so through travel agents or third-partytravel websites. In many of those cases, the travel agent or website willutilize a third-party operated computerized reservation system, alsoknown as a global distribution system, or “GDS,” to contact us and make thereservation. There are currently four principal GDSs, and we have contracts withall of them providing that we will process reservation requests made throughthe GDSs. Historically, GDSs were owned and operated by airlines and weresubject to extensive regulation along with their airline owners. In recentyears, however, airlines have greatly reduced their ownership interests in GDSsand the level of regulation to which GDSs are subject has substantiallydecreased. The owner of one of the four GDSs, Galileo, has recently enteredinto an agreement to acquire another GDS, Worldspan, which would result infurther concentration in that industry.

In major countries, including the United States andall other countries with company-operated locations, customers may alsoreserve cars for rental from us and our licensees worldwide through local,national or toll-free telephone calls to our reservations centers, directlythrough our rental locations or, in the case of replacement rentals, throughproprietary automated systems serving the insurance industry. Additionally, weaccept reservations for rentals from us and our licensees worldwide through ourwebsites. Our websites, which also allow customers to enroll in loyaltyprograms, obtain copies of bills for past transactions and obtain informationabout our rental offerings, have grown significantly in importance as areservations channel in recent years. Third-party travel websites havealso grown in importance to us as a reservations channel.

For the year ended December 31,2006, approximately 34% of the worldwide reservations we accepted came throughtravel agents using GDSs, while 30% came through phone calls to ourreservations centers, 25% through our websites, 7% through third-partywebsites and 4% through local booking sources.

***Fleet***

We believe we are one of the largest private sectorpurchasers of new cars in the world. During the year ended December 31,2006, we also purchased approximately 7,200 used cars that were similar toother cars in our rental fleet. During the year ended December 31, 2006,we operated a peak rental fleet in the United States of approximately 310,000cars and a combined peak rental fleet in our international operations ofapproximately 168,000 cars, in each case exclusive of our licensees’ fleet.During the year ended December 31, 2006, our approximate average holdingperiod for a rental car was ten months in the United States and nine months inour international operations.

Over the five years ended December 31, 2006, wehave acquired, subject to availability, over 70% of our cars pursuant tovarious fleet repurchase or guaranteed depreciation programs established byautomobile manufacturers. Under these programs, the manufacturers agree torepurchase cars at a specified price or guarantee the depreciation rate on thecars during established repurchase or auction periods, subject to, among otherthings, certain car condition, mileage and holding period requirements.Repurchase prices under repurchase programs are based on either a predeterminedpercentage of original car cost and the month in which the car is returned orthe original capitalized cost less a set daily depreciation amount. Guaranteeddepreciation programs guarantee on an aggregate basis the residual value of thecars covered by the programs upon sale according to certain parameters whichinclude the holding period, mileage and condition of the cars. These repurchaseand guaranteed depreciation programs limit our residual risk with respect tocars 

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purchased under the programs and allow us to determinedepreciation expense in advance. For this reason, cars purchased by car rentalcompanies under repurchase and guaranteed depreciation programs are sometimesreferred to by industry participants as “program” cars. Conversely, those carsnot purchased under repurchase or guaranteed depreciation programs for whichthe car rental company is exposed to residual risk are sometimes referred to as“risk” cars. For the year ended December 31, 2006, program cars as apercentage of all cars purchased by our U.S. operations were 61% and as apercentage of all cars purchased by our international operations wereapproximately 71%, or 64% when calculated on an aggregate worldwide basis.

We expect the percentage of our car rental fleetsubject to repurchase or guaranteed depreciation programs to decreasesubstantially due primarily to changes in the terms offered by automobilemanufacturers under repurchase programs. Accordingly, we expect to bearincreased risk relating to the residual market value and the relateddepreciation on our car rental fleet and to use different rotational techniquesto accommodate our seasonal peak demand for cars.

Over the five years ended December 31, 2006,approximately 47% of the cars acquired by us for our U.S. car rental fleet, andapproximately 32% of the cars acquired by us for our international fleet, weremanufactured by Ford and its subsidiaries. During the year ended December 31,2006, approximately 40% of the cars acquired by us domestically weremanufactured by Ford and its subsidiaries and approximately 30% of the carsacquired by us for our international fleet were manufactured by Ford and itssubsidiaries, which represented the largest percentage of any automobilemanufacturer during that period. The percentage of the fleet which we purchasefrom Ford may decline as a result of recent changes to the vehicle supplyarrangements between Ford and us. See “—Relationship with Ford” and Note 14 tothe Notes to our consolidated financial statements included in this AnnualReport under the caption “Item 8—Financial Statements and Supplementary Data.”Historically, we have also purchased a significant percentage of our car rentalfleet from General Motors Corporation, or “General Motors.” Over the five yearsended December 31, 2006, approximately 19% of the cars acquired by us forour U.S. car rental fleet, and approximately 15% of the cars acquired by us forour international fleet, were manufactured by General Motors. During the yearended December 31, 2006, approximately 17% of the cars acquired by ourU.S. car rental fleet, and approximately 13% of the cars acquired by us for ourinternational fleet, were manufactured by General Motors.

Purchases of cars are financed through funds providedfrom operations and by active and ongoing global borrowing programs. See “Item7—Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Liquidity and Capital Resources.”

We maintain automobile maintenance centers at certainairports and in certain urban and off-airport areas, providing maintenancefacilities for our car rental fleet. Many of these facilities, which includesophisticated car diagnostic and repair equipment, are accepted by automobilemanufacturers as eligible to perform and receive reimbursement for warrantywork. Collision damage and major repairs are generally performed by independentcontractors.

We dispose of risk cars, aswell as program cars that have for any reason become ineligible formanufacturer repurchase or guaranteed depreciation programs, through a varietyof disposition channels, including auctions, brokered sales, sales towholesalers and, to a lesser extent and primarily in the United States, salesat retail through a network of seven company-operated car sales locationsdedicated exclusively to the sale of used cars from our rental fleet. During theyear ended December 31, 2006, of the cars that were not repurchased bymanufacturers, we sold approximately 85% at auction or on a wholesale basis,while 8% were sold at retail and 7% through other channels. We closed 24 retailcar sales locations in the United States in the year ended December 31,2006. These closures did not have a significant impact on our results ofoperations for the year ended December 31, 2006.

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***Licensees***

We believe that our extensive worldwide ownership ofcar rental operations contributes to the consistency of our high-qualityservice, cost control, fleet utilization, yield management, competitive pricingand our ability to offer one-way rentals. However, in certain predominantlysmaller U.S. and international markets, we have found it more efficient toutilize independent licensees, which rent cars that they own. Our licenseesoperate locations in over 140 countries, including most of the countries wherewe have company-operated locations. As of December 31, 2006, weowned 96% of all the cars in the combined company-owned and licensee-ownedfleets in the United States.

We believe that our licensee arrangements areimportant to our business because they enable us to offer expanded national andinternational service and a broader one-way rental program. Licenses are issuedprincipally by our wholly owned subsidiaries, Hertz System, Inc., or “System,”and Hertz International, Ltd., or “HIL,” under franchise arrangements toindependent licensees and affiliates who are engaged in the car rental businessin the United States and in many foreign countries.

Licensees generally pay fees based on a percentage oftheir revenues or the number of cars they operate. The operations of alllicensees, including the purchase and ownership of vehicles, are financedindependently by the licensees, and we do not have any investment interest inthe licensees or their fleets. System licensees share in the cost of our U.S.advertising program, reservations system, sales force and certain otherservices. Our European and other international licensees also share in the costof our reservations system, sales force and certain other services. In return,licensees are provided the use of the Hertz brand name, management andadministrative assistance and training, reservations through our reservationschannels, the Hertz #1 Club and #1 Club Gold programs, our one-way rentalprogram and other services. In addition to car rental, certain licenseesoutside the United States engage in car leasing, chauffeur-driven rentalsand renting camper vans under the Hertz name.

System licensees ordinarilyare limited as to transferability without our consent and are terminable by usonly for cause or after a fixed term. Licensees in the United States maygenerally terminate for any reason on 90 days’ notice. In Europe and certainother international jurisdictions, licensees typically do not have earlytermination rights. Initial license fees or the price for the sale to alicensee of a company-owned location may be payable over a term ofseveral years. We continue to issue new licenses and, from time to time,purchase licensee businesses.

***Competition***

In the United States, our principal car rentalindustry competitors are Avis Budget Group, Inc., or “ABG,” whichcurrently operates the Avis and Budget brands, Vanguard Car Rental USA Group,or “Vanguard,” which operates the National Car Rental and Alamo brands, DollarThrifty Automotive Group, Inc., or “DTG,” which operates the Dollar andThrifty brands, and Enterprise, which operates the Enterprise brand.

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Thefollowing table lists our estimated market share, and the estimated marketshares of our principal competitors and their licensees, at the 180 largestU.S. airports at which we have company-operated locations, determined onthe basis of revenues reported to the airports’ operators on which concessionor off-airport permit fees are determined for the indicated periods. Completemarket share data is not available for any date later than for the ten monthsended October 31, 2006.

| ** **                          | ** ** | **Ten Months  Ended  October 31,** | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                          | ** ** | **2006**                                     | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Brand Name**                      |       |                                         |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Hertz                               |       |                                         | 28.4       | %                                           |       | 29.2 | % | 29.6 | % | 29.0 | % | 29.2 | % | 29.5 | % |
| Avis                                |       |                                         | 19.9       |                                        |       | 20.2 |   | 20.2 |   | 21.2 |   | 22.3 |   | 21.6 |   |
| Budget                              |       |                                         | 10.4       |                                        |       | 10.5 |   | 10.2 |   | 10.4 |   | 10.8 |   | 11.8 |   |
| ABG Brands(1)                       |       |                                         | 30.3       |                                        |       | 30.7 |   | 30.4 |   | 31.6 |   | 33.1 |   | 33.4 |   |
| National/Alamo (Vanguard Brands)(2) |       |                                         | 19.7       |                                        |       | 19.4 |   | 19.8 |   | 20.8 |   | 21.8 |   | 25.4 |   |
| Dollar                              |       |                                         | 7.2        |                                        |       | 7.1 |   | 7.7 |   | 7.4 |   | 7.2 |   | 7.1 |   |
| Thrifty                             |       |                                         | 4.4        |                                        |       | 4.3 |   | 4.5 |   | 4.4 |   | 3.2 |   | 1.8 |   |
| DTG Brands                          |       |                                         | 11.6       |                                        |       | 11.4 |   | 12.2 |   | 11.8 |   | 10.4 |   | 8.9 |   |
| Enterprise                          |       |                                         | 7.6        |                                        |       | 7.0 |   | 6.0 |   | 5.0 |   | 3.9 |   | 2.0 |   |
| Other                               |       |                                         | 2.4        |                                        |       | 2.3 |   | 2.0 |   | 1.8 |   | 1.6 |   | 0.8 |   |
| Total                               |       |                                         | 100.0      | %                                           |       | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |

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(1)            ABG acquired all ofthe outstanding shares of Avis Group Holdings, Inc. on March 1, 2001and acquired substantially all of the domestic assets of the vehicle rentalbusiness of Budget Group, Inc. on November 22, 2002.

(2)            National and Alamohave been owned by Vanguard since October 2003.

The U.S. off-airport rental market has historicallybeen dominated by Enterprise. We now have a significant presence in theoff-airport market, and ABG’s brands also are present. Many smaller companiesalso operate in the airport and off-airport rental markets.

In Europe, in addition to us, the principal pan-Europeanparticipants in the car rental industry are Avis Europe plc (which is not anaffiliate of ABG but is operating under a license from ABG), which operates theAvis and Budget brands, and Europcar, which was acquired from Volkswagen AG byEurazeo in 2006. In certain European countries, there are also other companiesand brands with substantial market shares, including Sixt AG (operating theSixt brand), Vanguard (operating both the National Car Rental and Alamo brands)in the United Kingdom and Germany, and through franchises in Spain, Italy andFrance, and Enterprise (operating the Enterprise brand) in the United Kingdom,Ireland and Germany. Europcar has acquired Vanguard’s European business and hasentered into an agreement relating to a trans-Atlantic alliance with Vanguard.In every European country, there are also national, regional or other, smallercompanies operating in the airport and off-airport rentals markets. Apart fromEnterprise-branded operations, all of which Enterprise owns, the othermajor car rental brands are present in European car rental markets through acombination of company-operated and franchisee- or licensee-operatedlocations.

Competition among car rental industry participants isintense and frequently takes the form of price competition. For the year ended December 31,2006, based on publicly available information, we believe some U.S. car rentalcompanies experienced transaction day growth and pricing increases compared tocomparable prior periods. For the year ended December 31, 2006, weexperienced a 

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less than one percentage point volume decline versusthe prior period in the United States, while pricing was up over threepercentage points. The volume decline was the result of a reduction in fleetvolume given significant fleet cost increases, higher leisure pricing for theperiod from March through May 2006 and the difficult comparison inthe quarter ending December 31, 2006 due to the extraordinarily highvolumes of post-hurricane rentals in the Gulf Coast and Florida areas in 2005.During the year ended December 31, 2006, we experienced low to mid singledigit transaction day growth in our European operations and our car rentalpricing was above the level of our pricing during the year ended December 31,2005.

Our competitors, some of whichmay have access to substantial capital or which may benefit from loweroperating costs, may seek to compete aggressively on the basis of pricing. Tothe extent that we match downward competitor pricing without reducing ouroperating costs, it could have an adverse impact on our results of operations.To the extent that we are not willing to match or remain within a reasonablecompetitive margin of our competitors’ pricing, it could also have an adverseimpact on our results of operations, as we may lose market share. As a resultof increased use of the Internet as a travel distribution channel, pricingtransparency has increased. See “Item 1A—Risk Factors—Risks Related to OurBusiness—We face intense competition that may lead to downward pricing, or aninability to increase prices, which could have a material adverse impact on ourresults of operations.” We believe, however, that the prominence and servicereputation of the Hertz brand and our extensive worldwide ownership of car rentaloperations provide us with a competitive advantage.

**Equipment Rental**

***Operations***

We, through HERC, operate anequipment rental business in the United States, Canada, France and Spain. Onthe basis of revenues, we believe HERC is the second largest equipment rentalcompany in the United States and Canada combined and one of the largest generalequipment rental companies in France and Spain. HERC has operated in the United States since 1965.

HERC’s principal business is the rental of equipment.HERC offers a broad range of equipment for rental; major categories includeearthmoving equipment, material handling equipment, aerial and electricalequipment, air compressors, pumps, generators, small tools, compactionequipment and construction-related trucks.

HERC’s comprehensive line of equipment enables it tosupply equipment to a wide variety of customers from local contractors to largeindustrial plants. The fact that many larger companies, particularly those withindustrial plant operations, now require single source vendors, not only forequipment rental, but also for management of their total equipment needs fitswell with HERC’s core competencies. Arrangements with such companies mayinclude maintenance of the tools and equipment they own, supplies and rentaltools for their labor force and custom management reports. HERC supports thisthrough its dedicated in-plant operations, tool trailers and plant managementsystems.

As of December 31, 2006, HERC operated 362equipment rental branches, of which 242 were in 40 states within the UnitedStates, 33 were in Canada, 79 were in France and 8 were in Spain. HERCgenerated same-store, year-over-year revenue growth for each of the lastthirteen quarters. HERC’s rental locations generally are situated in industrialor commercial zones. A growing number of locations have highway or majorthoroughfare visibility. The typical location is approximately three acres insize, though smaller in Europe, and includes a customer service center, anequipment service area and storage facilities for equipment. The branches arebuilt or conform to the specifications of the HERC prototype branch, whichstresses efficiency, safety and environmental compliance. Most branches havestand-alone maintenance and fueling facilities and showrooms.

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HERC slightly contracted its network of equipmentrental locations during the 2001 to 2003 downturn in construction activities.HERC added five new locations in the United States during 2004 and six during2005. During the year ended December 31, 2006, HERC added ten U.S.locations and two new Canadian locations. We expect HERC to add approximately15 to 20 additional locations in the United States and approximately threeadditional locations in Canada in 2007. In connection with its U.S. expansion,we expect HERC will incur non-fleet start-up costs of approximately $0.6million per location and additional fleet acquisition costs over an initialtwelve-month period of approximately $5.4 million per location.

Starting in 2004, HERC began to broaden its equipmentline in the United States and Canada to include more equipment with anacquisition cost of under $10,000 per unit, ranging from air compressors andgenerators to small tools and accessories, in order to supply customers who arelocal contractors with a greater proportion of their overall equipment rentalneeds. As of December 31, 2006, these activities, referred to as “generalrental activities,” were conducted at approximately 42% of HERC’s U.S. andCanadian rental locations. Before it begins to conduct general rentalactivities at a location, HERC typically renovates the location to make it moreappealing to walk-in customers and adds staff and equipment in anticipation ofsubsequent demand.

HERC’s operations generated$1,672.6 million in revenues and $269.5 million in income before income taxesand minority interest during the year ended December 31, 2006.

***Customers***

HERC’s customers consist predominantly of commercialaccounts and represent a wide variety of industries, such as construction,petrochemical, automobile manufacturing, railroad, power generation andshipbuilding. Serving a number of different industries enables HERC to reduceits dependence on a single or limited number of customers in the same businessand somewhat reduces the seasonality of HERC’s revenues and its dependence onconstruction cycles. HERC primarily targets customers in medium to largemetropolitan markets. For the year ended December 31, 2006, no customer ofHERC accounted for more than 1.0% of HERC’s rental revenues. Of HERC’s combinedU.S. and Canadian rental revenues for the year ended December 31, 2006,roughly half were derived from customers operating in the construction industry(the majority of which was in the nonresidential sector), while the remainingrevenues were derived from rentals to industrial, governmental and other typesof customers.

Unlike in our car rental business, where we enter intorental agreements with the people who will operate the cars being rented, HERCordinarily enters into a rental agreement with the legal entity—typically acompany, governmental body or other organization—seeking to rent HERC’sequipment. Moreover, unlike in our car rental business, where our cars arenormally picked up and dropped off by customers at our rental locations, HERCdelivers much of its rental equipment to its customers’ job sites and retrievesthe equipment from the job sites when the rentals conclude. Finally, unlike inour car rental business, HERC extends credit terms to many of its customers topay for rentals. Thus, for the year ended December 31, 2006, 95% of HERC’srevenues came from customers who were invoiced by HERC for rental charges,while 4% came from customers paying with third-party charge, credit ordebit cards and 1% came from customers who paid with cash or used anothermethod of payment. For the year ended December 31, 2006, HERC had a baddebt expense ratio of 0.3% of its revenues.

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***Fleet***

HERC acquires its equipment from a variety ofmanufacturers. The equipment is typically new at the time of acquisition and isnot subject to any repurchase program. The per-unit acquisition cost of unitsof rental equipment in HERC’s fleet vary from over $200,000 to under $100. Asof December 31, 2006, the average per-unit acquisition cost (excludingsmall equipment purchased for less than $5,000 per unit) for HERC’s fleet inthe United States was approximately $35,000. As of December 31, 2006, theaverage age of HERC’s rental fleet in the United States was 26 months. Webelieve that this fleet is one of the youngest fleets in the industry. Having ayounger fleet reduces maintenance expenses, which generally escalate asequipment ages. As of December 31, 2006, the average age of HERC’sinternational rental fleet was 31 months in Canada and 33 months in France andSpain, which we believe is roughly comparable to or younger than the averageages of the fleets of HERC’s principal competitors in those countries.

HERC disposes of its usedequipment through a variety of channels, including private sales to customersand other third parties, sales to wholesalers, brokered sales and auctions.Ancillary to its rental business, HERC is also a dealer of certain brands ofnew equipment in the United States and Canada, and sells consumables such asgloves and hardhats at many of its rental locations.

***Licensees***

HERC licenses the Hertz nameto equipment rental businesses in eight countries in Europe and the MiddleEast. The terms of those licenses are broadly similar to those we grant to ourinternational car rental licensees.

***Competition***

HERC’s competitors in the equipment rental industryrange from other large national companies to small regional and localbusinesses. In each of the four countries where HERC operates, the equipmentrental industry is highly fragmented, with large numbers of companies operatingon a regional or local scale. The number of industry participants operating ona national scale is, however, much smaller. HERC is one of the principalnational-scale industry participants in each of the four countries whereit operates. HERC’s operations in the United States represented approximately76% of our worldwide equipment rental revenues during the year ended December 31,2006. In the United States and Canada, the other top five national-scaleindustry participants are United Rentals, Inc., or “URI,” RSC EquipmentRental, Sunbelt Rentals, Home Depot Rentals and NES Rentals. A number ofindividual Caterpillar dealers also participate in the equipment rental marketin the United States, Canada, France and Spain. In France, the other principalnational-scale industry participants are Loxam, Kiloutou and Laho, whilein Spain, the other principal national-scale industry participants areGAM and Euroloc.

Competitionin the equipment rental industry is intense, and it often takes the form ofprice competition. HERC’s competitors, some of which may have access tosubstantial capital, may seek to compete aggressively on the basis of pricing.To the extent that HERC matches downward competitor pricing, it could have anadverse impact on our results of operations. To the extent that HERC is notwilling to match competitor pricing, it could also have an adverse impact onour results of operations due to lower rental volume. From 2001 to 2003, theequipment rental industry experienced downward pricing, measured by the rentalrates charged by rental companies. For the years ended December 31, 2004, 2005and 2006, we believe industry pricing, measured in the same way, improved inthe United States and Canada and only started to improve towards the end of2005 in France and Spain. HERC also experienced higher equipment rental volumesworldwide for the years ended December 31, 2005 and 2006. We believe that HERC’s competitive success hasbeen primarily the product of its 40 years of experience in the equipmentrental industry, its systems and procedures for monitoring, controlling and 

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developingits branch network, its capacity to maintain a comprehensive rental fleet, thequality of its sales force and its established national accounts program.

**Other Operations**

Our wholly owned subsidiary,Hertz Claim Management Corporation, or “HCM,” provides claim administrationservices to us and, to a lesser extent, to third parties. These servicesinclude investigating, evaluating, negotiating and disposing of a wide varietyof claims, including third-party, first-party, bodily injury,property damage, general liability and product liability, but not theunderwriting of risks. HCM conducts business at nine regional offices in theUnited States. Separate subsidiaries of ours conduct similar operations in ninecountries in Europe.

**Seasonality**

Car rental and equipment rental are seasonal businesses, with decreasedlevels of business in the winter months and heightened activity during thespring and summer. To accommodate increased demand, we increase our availablefleet and staff during the second and third quarters. As business demanddeclines, fleet and staff are decreased accordingly. However, certain operatingexpenses, including minimum concession fees, rent, insurance and administrativeoverhead, remain fixed and cannot be adjusted for seasonal demand. See “Item 1A—RiskFactors—Risks Related to Our Business—Our business is highly seasonal, and adisruption in rental activity during our peak season could materially adverselyaffect our results of operations.” The following tables set forth this seasonaleffect by providing quarterly revenues and operating income for each of thequarters in the year ended December 31, 2006.

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**Employees**

As of December 31, 2006, we employedapproximately 31,500 persons, consisting of 22,200 persons in our U.S.operations and 9,300 persons in our international operations. Employee benefitsin effect include group life insurance, hospitalization and surgical insurance,pension plans and a defined contribution plan. International employees arecovered by a wide variety of union contracts and governmental regulationsaffecting, among other things, compensation, job retention rights and pensions.Labor contracts covering the terms of employment of approximately 7,400employees in the United States (including those in U.S. territories) arepresently in effect under 140 active contracts with local unions, affiliatedprimarily with the International Brotherhood of Teamsters and the InternationalAssociation of Machinists. Labor contracts covering approximately 2,300 ofthese employees will 

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expire during 2007. We have had no material work stoppage asa result of labor problems during the last ten years, and we believe our laborrelations to be good. Nonetheless, we may be unable to negotiate new laborcontracts on terms advantageous to us, or without labor interruptions.

In addition to the employees referred to above, weemploy a substantial number of temporary workers, and engage outside services,as is customary in the industry, principally for the non-revenue movement ofrental cars and equipment between rental locations and the movement of rentalequipment to and from customers’ job sites.

As part of our effort to implement our strategy ofreducing operating costs, we are evaluating our workforce and operations andmaking adjustments, including headcount reductions and process improvements tooptimize work flow at rental locations and maintenance facilities as well asstreamlining our back-office operations, that we believe are necessary andappropriate.

On January 5, 2007 and February 28,2007, we announced job reductions affecting a total of approximately 1,550employees primarily in our U.S. car rental operations, with much smallerreductions occurring in U.S. equipment rental operations, the corporateheadquarters in Park Ridge, New Jersey, and the U.S. service center in OklahomaCity, as well as in Canada, Puerto Rico, Brazil, Australia and New Zealand.

**Risk Management**

Three types ofgenerally insurable risks arise in our operations:

·       legalliability arising from the operation of our cars and on-road equipment (vehicleliability);

·       legalliability to members of the public and employees from other causes (generalliability/workers’ compensation); and

·       riskof property damage and/or business interruption and/or increased cost ofworking as a consequence of property damage.

In addition, we offer optional liability insurance andother products providing insurance coverage, which create additional riskexposures for us. Our risk of property damage is also increased when we waivethe provisions in our rental contracts that hold a renter responsible for damageor loss under an optional loss or damage waiver that we offer. We bear theseand other risks, except to the extent the risks are transferred throughinsurance or contracts.

In many cases we self-insureour risks or reinsure risks through wholly owned insurance subsidiaries. Wemitigate our exposure to large liability losses by maintaining excess insurancecoverage, subject to deductibles and caps, through unaffiliated carriers withrespect to our domestic operations and our car rental operations in Europe. Forour international operations outside Europe and for HERC’s operations inEurope, we maintain some liability insurance coverage with unaffiliatedcarriers. We also maintain property insurance through our captive insurer,Probus Insurance Company Europe Limited, or “Probus” (with the risk reinsuredwith unaffiliated insurance carriers) domestically and in Europe, subject todeductibles.

***Third-Party Liability***

In our domestic operations, we are required byapplicable financial responsibility laws to maintain insurance against legalliability for bodily injury (including death) or property damage to thirdparties arising from the operation of our cars and on-road equipment, sometimescalled “vehicle liability,” in stipulated amounts. In most places, we satisfythose requirements by qualifying as a self-insurer, a process that typicallyinvolves governmental filings and demonstration of financial responsibility,which sometimes requires the posting of a bond or other security. In theremaining places, we obtain 

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an insurance policy from an unaffiliated insurancecarrier and indemnify the carrier for any amounts paid under the policy. As aresult of such arrangements, we bear economic responsibility for domesticvehicle liability, except to the extent we successfully transfer such liabilityto others through insurance or contractual arrangements.

For our car rental operations in Europe, we haveestablished two wholly owned insurance subsidiaries, Probus, a direct writer ofinsurance domiciled in Ireland, and Hertz International RE Limited, or “HIRE,”a reinsurer organized in Ireland. In European countries with company-operatedlocations, we purchase from Probus the vehicle liability insurance required bylaw, and Probus reinsures the risks under such insurance with HIRE. Effective January 1,2007 reinsurance is provided by another subsidiary of ours. Thus, as with ourdomestic operations, we bear economic responsibility for vehicle liability inour European car rental operations, except to the extent that we transfer suchliability to others through insurance or contractual arrangements. For ourinternational operations outside Europe and for HERC’s operations in Europe, wemaintain some form of vehicle liability insurance coverage. The nature of suchcoverage, and our economic responsibility for covered losses, variesconsiderably. In all cases, though, we believe the amounts and nature of thecoverage we obtain is adequate in light of the respective potential hazards.

Both domestically and in our international operations,from time to time in the course of our business we become legally responsibleto members of the public for bodily injury (including death) or property damagearising from causes other than the operation of our cars and on-road equipment,sometimes known as “general liability.” As with vehicle liability, we beareconomic responsibility for general liability losses, except to the extent wetransfer such losses to others through insurance or contractual arrangements.

To mitigate our exposure to large vehicle and generalliability losses domestically and in our car rental operations in Europe, wemaintain excess insurance coverage with unaffiliated insurance carriers againstsuch losses to the extent they exceed $10 million per occurrence (for occurrencesin Europe before December 15, 2003, to the extent such losses exceeded $5million per occurrence). The coverage provided under such excess insurancepolicies is limited to $100 million for the current policy year, which began onDecember 21, 2006 and ends on December 21, 2007 (for occurrencesbetween December 15, 2005 and December 20, 2005, the limit is $235million; between December 15, 2004 and December 14, 2005, $185million; between December 15, 2003 and December 14, 2004, $150million; and between December 15, 2002 and December 14, 2003, $675million). For our international operations outside Europe and for HERC’soperations in Europe, we also maintain liability insurance coverage withunaffiliated carriers in such amounts as we deem adequate in light of therespective potential hazards, where such insurance is obtainable oncommercially reasonable terms.

Our domestic rental contracts, both for car rental andfor equipment rental, typically provide that the renter will indemnify us forliability arising from the operation of the rented vehicle or equipment (forcar rentals in certain places, though, only to the extent such liabilityexceeds the amount stipulated in the applicable financial responsibility law).In addition, many of HERC’s domestic rental contracts require the renter tomaintain liability insurance under which HERC is entitled to coverage. Whilesuch provisions are sometimes effective to transfer liability to renters, theirvalue to us, particularly in cases of large losses, may be limited. The rentalcontracts used in our international operations sometimes contain provisionsrelating to insurance or indemnity, but they are typically more limited thanthose employed in our domestic operations.

In our domestic car rental operations, we offer anoptional liability insurance product, Liability Insurance Supplement, or “LIS,”that provides vehicle liability insurance coverage substantially higher thanstate minimum levels to the renter and other authorized operators of a rentedvehicle. LIS coverage is provided under excess liability insurance policiesissued by an unaffiliated insurance 

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carrier, the risks under which are reinsured with asubsidiary of ours. As a consequence of those reinsurance arrangements, rentalcustomers’ purchases of LIS do not reduce our economic exposure to vehicleliability. Instead, our exposure to vehicle liability is potentially increasedwhen LIS is purchased, because insured renters and other operators may havevehicle liability imposed on them in circumstances and in amounts where theapplicable rental agreement or applicable law would not, absent thearrangements just described, impose vehicle liability on us.

In both our domestic car rental operations and ourcompany-operated international car rental operations in many countries,we offer an optional product or products providing insurance coverage, or “PAI/PEC”coverage, to the renter and the renter’s immediate family members travelingwith the renter for accidental death or accidental medical expenses arisingduring the rental period or for damage or loss of their property during therental period. PAI/PEC coverage is provided under insurance policies issued byunaffiliated carriers or, in some parts of Europe, by Probus, and the risksunder such policies either are reinsured with HIRE or another subsidiary ofours or are the subject of indemnification arrangements between us and thecarriers. Rental customers’ purchases of PAI/PEC coverage create additionalrisk exposures for us, since we would not typically be liable for the risksinsured by PAI/PEC coverage if that coverage had not been purchased.

Our offering of LIS and PAI/PEC coverage in ourdomestic car rental operations is conducted pursuant to limited licenses orexemptions under state laws governing the licensing of insurance producers. Inour international car rental operations, our offering of PAI/PEC coveragehistorically has not been regulated; however, in the countries of the EuropeanUnion, the regulatory environment for insurance intermediaries is rapidlyevolving, and we cannot assure you either that we will be able to continueoffering PAI/PEC coverage without substantial changes in its offering processor in the terms of the coverage or that such changes, if required, would notrender uneconomic our continued offering of the coverage. Due to a change inlaw in Australia, we have discontinued the sales of insurance products there.

Provisions on our books forself-insured vehicle liability losses are made by charges to expense based uponevaluations of estimated ultimate liabilities on reported and unreportedclaims. As of December 31, 2006, this liability was estimated at $327.0million for our combined domestic and international operations.

***Damage to Our Property***

We bear the risk of damage to our property, unlesssuch risk is transferred through insurance or contractual arrangements.

To mitigate our risk of large, single-site propertydamage losses domestically and in Europe, we maintain property insurancethrough our captive insurer, Probus (with the risk reinsured with unaffiliatedinsurance carriers), generally with a per-occurrence deductible of $3.0 million($10 million effective April 30, 2006 in the United States) and $2.5million in respect of vehicle damage, and $50,000 in respect of all other losses,in Europe. For our international operations outside Europe, we also maintainproperty insurance coverage with unaffiliated carriers in such amounts as wedeem adequate in light of the respective hazards, where such insurance isavailable on commercially reasonable terms.

Our rental contracts typically provide that the renteris responsible for damage to or loss (including loss through theft) of rentedvehicles or equipment. We generally offer an optional rental product, known invarious countries as “loss damage waiver,” “collision damage waiver,” “theftprotection” or “accident excess reduction,” under which we waive or limit ourright to make a claim for such damage or loss. This product is not regulated asinsurance, but it is subject to specific laws in roughly half of the U.S.jurisdictions where we operate.

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Collision damage costs and thecosts of stolen or unaccounted-for vehicles and equipment, along with otherdamage to our property, are charged to expense as incurred.

***Other Risks***

To manage other risksassociated with our businesses, or to comply with applicable law, we purchaseother types of insurance carried by business organizations, such as worker’scompensation and employer’s liability (for which we, through contracts withinsurers domestically, bear the risk of the first $5 million of loss from anyoccurrence), commercial crime and fidelity, performance bonds and directors’and officers’ liability insurance, from unaffiliated insurance companies inamounts deemed by us to be adequate in light of the respective hazards, wheresuch coverage is obtainable on commercially reasonable terms.

**Governmental Regulationand Environmental Matters**

Throughout the world, we aresubject to numerous types of governmental controls, including those relating toprices and advertising, privacy and data protection, currency controls, labormatters, charge card operations, insurance, environmental protection, used carsales and licensing.

***Environmental***

The environmental requirements applicable to ouroperations generally pertain to (i) the operation and maintenance of cars,trucks and other vehicles, such as heavy equipment, buses and vans; (ii) theownership and operation of tanks for the storage of petroleum products,including gasoline, diesel fuel and oil; and (iii) the generation,storage, transportation and disposal of waste materials, including oil, vehiclewash sludge and waste water. We have made, and will continue to make,expenditures to comply with applicable environmental laws and regulations.

The use of cars and other vehicles is subject tovarious governmental requirements designed to limit environmental damage,including those caused by emissions and noise. Generally, these requirementsare met by the manufacturer, except in the case of occasional equipment failurerequiring repair by us. Measures are taken at certain locations in states thatrequire the installation of Stage II Vapor Recovery equipment to reduce theloss of vapor during the fueling process.

We utilize tanks worldwide, approximately 490 of whichare underground and 1,840 of which are aboveground, to store petroleumproducts, and we believe our tanks are maintained in material compliance withenvironmental regulations, including federal and state financial responsibilityrequirements for corrective action and third-party claims due toreleases. Our compliance program for our tanks is intended to ensure that (i) thetanks are properly registered with the state or other jurisdiction in which thetanks are located and (ii) the tanks have been either replaced or upgradedto meet applicable leak detection and spill, overfill and corrosion protectionrequirements.

We are also incurring and providing for expenses forthe investigation and cleanup of contamination from the discharge of petroleumsubstances at, or emanating from, currently and formerly owned and leasedproperties, as well as contamination at other locations at which our wasteshave reportedly been identified. The amount of any such expenses or relatednatural resource damages for which we may be held responsible could besubstantial. The probable losses that we expect to incur for such matters havebeen accrued, and those losses are reflected in our consolidated financialstatements. As of December 31, 2006 and December 31, 2005, theaggregate amounts accrued for environmental liabilities reflected in ourconsolidated balance sheet in “Other accrued liabilities” were $3.7 million and$3.9 million, respectively. The accrual generally represents the estimated costto study potential environmental issues at sites deemed to requireinvestigation or clean-up activities, and the estimated cost to implementremediation actions, including ongoing maintenance, as required. Cost estimatesare developed by site. Initial cost estimates are based on historicalexperience at similar sites and are 

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refined over time on the basis of in-depth studies ofthe site. For many sites, the remediation costs and other damages for which weultimately may be responsible cannot be reasonably estimated because of uncertaintieswith respect to factors such as our connection to the site, the nature of thecontamination, the involvement of other potentially responsible parties, theapplication of laws and other standards or regulations, site conditions, andthe nature and scope of investigations, studies, and remediation to beundertaken (including the technologies to be required and the extent, duration,and success of remediation).

With respect to cleanup expenditures for the dischargeof petroleum substances at, or emanating from, currently and formerly owned orleased properties, we have received reimbursement, in whole or in part, fromcertain U.S. states that maintain underground storage tank petroleum cleanupreimbursement funds. Such funds have been established to assist tank owners inthe payment of cleanup costs associated with releases from registered tanks.With respect to off-site U.S. locations at which our wastes have reportedlybeen identified, we have been and continue to be required to contribute to cleanupcosts due to strict joint and several cleanup liability imposed by the federalComprehensive Environmental Response, Compensation, and Liability Act of 1980and comparable state superfund statutes.

Environmental legislation andregulations and related administrative policies have changed rapidly in recentyears, both in the United States and in other countries. There is a risk thatgovernmental environmental requirements, or enforcement thereof, may becomemore stringent in the future and that we may be subject to legal proceedingsbrought by government agencies or private parties with respect to environmentalmatters. In addition, with respect to cleanup of contamination, additionallocations at which wastes generated by us or substances used by us may havebeen released or disposed, and of which we are currently unaware, may in thefuture become the subject of cleanup for which we may be liable, in whole orpart. Further, at airport-leased properties, we may be subject toenvironmental requirements imposed by airports that are more restrictive thanthose obligations imposed by environmental regulatory agencies. Accordingly,while we believe that we are in substantial compliance with applicablerequirements of environmental laws, we cannot offer assurance that our futureenvironmental liabilities will not be material to our consolidated financialposition, results of operations or cash flows.

***Dealings with Renters***

In the United States, car and equipment rentaltransactions are generally subject to Article 2A of the Uniform CommercialCode, which governs “leases” of tangible personal property. Car rental is alsospecifically regulated in more than half of the states of the United States.The subjects of state regulation include the methods by which we advertise,quote and charge prices, the consequences of failing to honor reservations, theterms on which we deal with vehicle loss or damage (including the protectionswe provide to renters purchasing loss or damage waivers) and the terms andmethod of sale of the optional insurance coverage that we offer. Some states(including California, New York, Nevada and Illinois) regulate the price atwhich we may sell loss or damage waivers, and many state insurance regulatorshave authority over the prices and terms of the optional insurance coverage weoffer. See “—Risk Management” above for further discussion regarding the lossor damage waivers and optional insurance coverages that we offer renters.Internationally, regulatory regimes vary greatly by jurisdiction, but they donot generally prevent us from dealing with customers in a manner similar tothat employed in the United States.

Both in the United States andinternationally, we are subject to increasing regulation relating to customerprivacy and data protection. In general, we are limited in the uses to which wemay put data that we collect about renters, including the circumstances inwhich we may communicate with them. In addition, we are generally obligated totake reasonable steps to protect customer data while it is in 

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our possession. Our failure todo so could subject us to substantial legal liability or seriously damage ourreputation.

***Changes in Regulation***

Changes in government regulation of our business havethe potential to alter our business practices, or our profitability,materially. Depending on the jurisdiction, those changes may come about throughnew legislation, the issuance of new regulations or changes in theinterpretation of existing laws and regulations by a court, regulatory body orgovernmental official. Sometimes those changes may have not just prospectivebut also retroactive effect; this is particularly true when a change is madethrough reinterpretation of laws or regulations that have been in effect forsome time. Moreover, changes in regulation that may seem neutral on their facemay have either more or less impact on us than on our competitors, depending onthe circumstances. Recent or potential changes in law or regulation that affectus relate to insurance intermediaries, customer privacy and data security andrate regulation, each as described under “Item 1A—Risk Factors—Risks Related toOur Business—Changes in the U.S. and foreign legal and regulatory environmentthat impact our operations, including laws and regulations relating to theinsurance products we sell, customer privacy, data security, insurance ratesand expenses we pass through to customers by means of separate charges, coulddisrupt our business, increase our expenses or otherwise could have a materialadverse effect on our results of operations.”

In addition, our operations,as well as those of our competitors, also could be affected by any limitationin the fuel supply or by any imposition of mandatory allocation or rationingregulations. We are not aware of any current proposal to impose such a regimein the United States or internationally. Such a regime could, however, bequickly imposed if there were a serious disruption in supply for any reason,including an act of war, terrorist incident or other problem affectingpetroleum supply, refining, distribution or pricing.

**Relationship with Ford**

Prior to the Acquisition, Ford, through its whollyowned subsidiary Ford Holdings, was Hertz’s only stockholder. As a result ofthe Acquisition, Hertz Holdings indirectly owns all of Hertz’s outstandingcommon stock. As a result of Hertz Holdings’ initial public offering,investment funds associated with or designated by the Sponsors currently ownapproximately 72% of Hertz Holdings’ outstanding common stock.

Set forth below are descriptionsof certain agreements, relationships and transactions between us and Ford thatsurvived the completion of the Acquisition.

***Supply and Advertising Arrangements***

On July 5, 2005, we, one of our wholly ownedsubsidiaries and Ford signed a Master Supply and Advertising Agreement,effective July 5, 2005 and expiring August 31, 2010, that covers the2005 through 2010 vehicle model years.

The terms of the Master Supply and AdvertisingAgreement only apply to our fleet requirements and advertising in the UnitedStates and to Ford, Lincoln or Mercury brand vehicles, or “Ford Vehicles.”Under the Master Supply and Advertising Agreement, Ford has agreed to supply tous and we have agreed to purchase from Ford, during each of the 2005 through2010 vehicle model years, a specific number of Ford Vehicles. Ford has alsoagreed in the Master Supply and Advertising Agreement to pay us a contributiontoward the cost of our advertising of Ford Vehicles equal to one-half of ourtotal expenditure on such advertising, up to a specified maximum amount. To beeligible for advertising cost contribution under the Master Supply andAdvertising Agreement, the advertising must meet certain conditions, includingthe condition that we feature Ford Vehicles in a manner and with a 

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prominence that is reasonably satisfactory to Ford. Itfurther provides that the amounts Ford will be obligated to pay to us for ouradvertising costs will be increased or reduced according to the number of FordVehicles acquired by us in any model year, provided Ford will not be requiredto pay any amount for our advertising costs for any year if the number of FordVehicles acquired by us in the corresponding model year is less than aspecified minimum except to the extent that our failure to acquire the specifiedminimum number of Ford Vehicles is attributable to the availability of FordVehicles or Ford vehicle production is disrupted for reasons beyond the controlof Ford. To the extent we acquire less than a specified minimum number of FordVehicles in any model year, we have agreed to pay Ford a specified amount pervehicle below the minimum.

The advertising contributions paid by Ford for the2006 vehicle model year were slightly higher than the advertising contributionswe received from Ford for the 2005 model year due to an increase in the numberof Ford Vehicles acquired and an increase in the per car contribution. Weexpect that contributions in future years will be below levels for the 2006model year based upon anticipated reductions in the number of Ford Vehicles tobe acquired. We do not expect that the reductions in Ford’s advertisingcontributions will have a material adverse effect on our results of operations.

Under the terms of the Master Supply and AdvertisingAgreement, we are able to enter into vehicle advertising and supply agreementswith other automobile manufacturers in the United States and in othercountries, and we intend to explore those opportunities. However, we cannotoffer assurance that we will be able to obtain advertising contributions fromother automobile manufacturers that will mitigate reductions in Ford’sadvertising contributions.

Ford subsidiaries andaffiliates also supply other brands of cars, including Jaguar, Volvo, Mazda andLand Rover cars, to us in the United States under arrangements separate fromthe Master Supply and Advertising Agreement. In addition, Ford and itssubsidiaries and affiliates are significant suppliers of cars to ourinternational operations.

***Other Relationships and Transactions***

We and Ford also engage in other transactions in theordinary course of our respective businesses. These transactions include HERC’sproviding equipment rental services to Ford, our providing insurance andinsurance claim management services to Ford and our providing car rentalservices to Ford. In addition, Ford subsidiaries are our car rental licenseesin Scandinavia and Finland.

We may be exposed toliabilities for regulatory or tax contingencies of Ford arising from the periodduring which we were a consolidated subsidiary of Ford. While Ford has agreedto indemnify us for certain liabilities pursuant to the arrangements relatingto our separation from Ford, we cannot offer assurance that any payments inrespect of these indemnification arrangements will be made available.

**Available Information**

We file annual and quarterlyreports and other information with the United States Securities and ExchangeCommission, or the “SEC.” You may read and copy any documents that we file atthe SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549.Please call the SEC at 1-800-SEC-0330 for further informationabout the public reference room. In addition, the SEC maintains an Internetwebsite (www.sec.gov) that contains reports and other information about issuersthat file electronically with the SEC, including Hertz and Hertz Holdings. Youmay also access, free of charge, our reports filed with the SEC (for example,our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Qand our Current Reports on Form 8-K and any amendments to thoseforms) indirectly through our Internet website (www.hertz.com). Reports filedwith or furnished to the SEC will be available as soon as reasonablypracticable after they are filed with or furnished to the SEC. The informationfound on our website is not part of this or any other report filed with orfurnished to the SEC.

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**ITEM 1A.**        RISKFACTORS

*Our business is subjectto a number of important risks and uncertainties, some of which are describedbelow. The risks described below, however, are not the only risks that we face.Additional risks and uncertainties not currently known to us or that wecurrently deem to be immaterial may also impair our business operations. Any ofthese risks may have a material adverse effect on our business, financialcondition, results of operations and cash flows.*

**Risks Related to OurBusiness**

***An economic downturn could result in a decline inbusiness and leisure travel and non-residential capital investment, which couldharm our business.***

Our results of operations are affected by manyeconomic factors, including the level of economic activity in the markets inwhich we operate. A decline in economic activity either in the United States orin international markets may have a material adverse effect on our business. Inthe car rental business, a decline in economic activity typically results in adecline in both business and leisure travel and, accordingly, a decline in thevolume of car rental transactions. In the equipment rental business, a declinein economic activity typically results in a decline in activity innon-residential construction and other businesses in which our equipment rentalcustomers operate and, therefore, results in a decline in the volume ofequipment rental transactions. In the case of a decline in car or equipmentrental activity, we may reduce rental rates to meet competitive pressures,which could have a material adverse effect on our results of operations. Adecline in economic activity also may have a material adverse effect onresidual values realized on the disposition of our revenue earning cars and/orequipment.

***We face intense competition that may lead to downwardpricing, or an inability to increase prices, which could have a materialadverse impact on our results of operations.***

The markets in which we operate are highlycompetitive. See “Item 1—Business—Worldwide Car Rental—Competition” and “Item 1—Business—EquipmentRental—Competition.” We believe that price is one of the primary competitivefactors in the car and equipment rental markets. Our competitors, some of whommay have access to substantial capital, may seek to compete aggressively on thebasis of pricing. To the extent that we match competitors’ downward pricing, itcould have a material adverse impact on our results of operations. To theextent that we do not match or remain within a reasonable competitive distancefrom our competitors’ pricing, it could also have a material adverse impact onour results of operations, as we may lose rental volume. The Internet hasincreased pricing transparency among car rental companies by enablingcost-conscious customers, including business travelers, to more easily obtainthe lowest rates available from car rental companies for any given trip. Thistransparency may increase the prevalence and intensity of price competition inthe future.

***Our car rental business is dependent on the air travelindustry, and disruptions in air travel patterns could harm our business.***

We estimate that approximately 72% of our worldwidecar rental revenues during the year ended December 31, 2006 were generatedat our airport rental locations. Significant capacity reductions or airfareincreases (e.g., due to an increase in fuel costs) could result in reduced airtravel and have a material adverse effect on our results of operations. Inaddition, any event that disrupts or reduces business or leisure air travelcould have a material adverse effect on our results of operations. Inparticular, many U.S. airlines have experienced economic distress in recentyears. Any further deterioration in the economic condition of U.S. andinternational airlines could exacerbate reductions in air travel. Other eventsthat impact air travel could include work stoppages, military conflicts,terrorist incidents, natural disasters, epidemic diseases, or the response ofgovernments to any of 

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these events. For example, shortly before the September 11,2001 terrorist attacks, we estimated that we would earn a pre-tax profit ofapproximately $250 million in 2001; by contrast, our actual pre-tax profit for2001 was only approximately $3 million, and we continued to feel the adverseeffects of the attacks well into the following year. On a smaller scale, the2003 outbreak of Severe Acute Respiratory Syndrome, or “SARS,” in the Toronto,Canada area and parts of Asia, significantly reduced our 2003 results ofoperations in Canada.

***Our business is highly seasonal, and a disruption inrental activity during our peak season could materially adversely affect ourresults of operations.***

Certain significant components of our expenses,including real estate taxes, rent, utilities, maintenance and other facility-relatedexpenses, the costs of operating our information systems and minimum staffingcosts, are fixed in the short-run. Seasonal changes in our revenues do notalter those fixed expenses, typically resulting in higher profitability inperiods when our revenues are higher and lower profitability in periods whenour revenues are lower. The second and third quarters of the year havehistorically been our strongest quarters due to their increased levels ofleisure travel and construction activity. In 2006, the second and thirdquarters accounted for approximately 25% and 28% of total revenues and 24% and78% of income before income taxes and minority interest, respectively. Anyoccurrence that disrupts rental activity during the second or third quarterscould have a disproportionately material adverse effect on our liquidity and/orresults of operations. See “Item 7—Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and Capital Resources.”

***We may not be successful in our business strategy toexpand into the off-airport rental market, including marketing to replacementrenters and insurance companies that reimburse or pay for such rentals.***

We have been increasing our presence in the off-airportcar rental market in the United States. We currently intend to pursueprofitable growth opportunities in the off-airport market. We may do thisthrough a combination of selected new location openings, a disciplinedevaluation of existing locations and the pursuit of same-store sales growth. Inorder to increase revenues at our existing and any new off-airport locations,we will need to successfully market to insurance companies and other companiesthat provide rental referrals to those needing cars while their vehicles arebeing repaired or are temporarily unavailable for other reasons, as well as tothe renters themselves. This could involve a significant number of additionaloff-airport locations or strategic changes with respect to our existing locations.We incur minimal non-fleet costs in opening our new off-airport locations, butnew off-airport locations, once opened, take time to generate their fullpotential revenues. As a result, revenues at new locations do not initiallycover their start-up costs and often do not, for some time, cover the costs oftheir ongoing operation. See “Item 1—Business—Worldwide Car Rental—Operations.”The results of this strategy and the success of our implementation of thisstrategy will not be known for a number of years. If we are unable to growprofitably in our off-airport network, properly react to changes in marketconditions or successfully market to replacement renters and the insurancecompanies covering the cost of their rentals, our financial condition, resultsof operations and cash flows could be materially adversely affected.

***We face risks of increased costs of cars and ofdecreased profitability, including as a result of limited supplies ofcompetitively priced cars.***

We believe we are one of the largest private sectorpurchasers of new cars in the world for our rental fleet, and during the yearended December 31, 2006, our approximate average holding period for arental car was ten months in the United States and nine months in ourinternational car rental operations. In recent years, the average cost of newcars has increased. In the United States, increases of approximately 17% inmonthly per-car depreciation costs for 2006 model year program cars beganto adversely affect our results of operations in the fourth quarter of 2005, asthose cars 

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began to enter our fleet. On a comparable basis, weexpect 2007 model year program vehicle depreciation costs to rise approximately20% and per-car depreciation costs for 2007 model year U.S. risk cars todecline slightly. As a consequence of those changes in per-car costs, as wellas the larger proportion of our U.S. fleet we expect to purchase as risk carsand other actions we expect to take to mitigate program car cost increases, weexpect our net per-car depreciation costs for 2007 model year cars in theUnited States will increase by approximately 5% from our net per-cardepreciation costs for 2006 model year U.S. cars. We began to experience theimpact of those cost changes and mitigation actions in the fourth quarter of2006, as substantial numbers of 2007 model year cars began to enter our U.S.rental fleet. We may not be able to offset these car cost increases to a degreesufficient to maintain our profitability.

Historically, we have purchased more of the cars we rentfrom Ford than from any other automobile manufacturer. Over the five yearsended December 31, 2006, approximately 47% of the cars acquired by us forour U.S. car rental fleet, and approximately 32% of the cars acquired by us forour international fleet, were manufactured by Ford and its subsidiaries. Duringthe year ended December 31, 2006, approximately 40% of the cars acquiredby us domestically were manufactured by Ford and its subsidiaries andapproximately 30% of the cars acquired by us for our international fleet weremanufactured by Ford and its subsidiaries, which represented the largestpercentage of any automobile manufacturer during that period. Under our MasterSupply and Advertising Agreement with Ford, Ford has agreed to develop fleet offeringsin the United States that are generally competitive with terms and conditionsof similar offerings by other automobile manufacturers. The Master Supply andAdvertising Agreement expires in 2010. See “Item 1—Business—Relationship withFord—Supply and Advertising Arrangements.” We cannot assure you that we will beable to extend the Master Supply and Advertising Agreement beyond its currentterm or enter into similar agreements at reasonable terms. In the future, weexpect to buy a smaller proportion of our car rental fleet from Ford than wehave in the past. If Ford does not offer us competitive terms and conditions,and we are not able to purchase sufficient quantities of cars from otherautomobile manufacturers on competitive terms and conditions, then we may beforced to purchase cars at higher prices, or on terms less competitive, thanfor cars purchased by our competitors. Historically, we have also purchased asignificant percentage of our car rental fleet from General Motors. Over thefive years ended December 31, 2006, approximately 19% of the cars acquiredby us for our U.S. car rental fleet, and approximately 15% of the cars acquiredby us for our international fleet, were manufactured by General Motors. Duringthe year ended December 31, 2006, approximately 17% of the cars acquiredby our U.S. car rental fleet, and approximately 13% of the cars acquired by usfor our international fleet, were manufactured by General Motors.

To date we have not entered into any long-term carsupply arrangements with manufacturers other than Ford. In addition, certaincar manufacturers, including Ford, have adopted strategies to de-emphasizesales to the car rental industry which they view as less profitable due tohistorical sales incentive and other discount programs that tended to lower theaverage cost of cars for fleet purchasers such as us. Reduced or limitedsupplies of equipment together with increased prices are risks that we alsoface in our equipment rental business. We cannot offer assurance that we willbe able to pass on increased costs of cars or equipment to our rentalcustomers. Failure to pass on significant cost increases to our customers wouldhave a material adverse impact on our results of operations and financialcondition.

***We face risks related to decreased acquisition ordisposition of cars through repurchase and guaranteed depreciation programs.***

For the year ended December 31, 2006,approximately 64% of the cars purchased in our combined U.S. and internationalcar rental fleet were subject to repurchase by car manufacturers undercontractual repurchase or guaranteed depreciation programs. Under theseprograms, car manufacturers agree to repurchase cars at a specified price orguarantee the depreciation rate on the 

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cars during a specified time period, typically subjectto certain car condition and mileage requirements. These repurchase andguaranteed depreciation programs limit the risk to us that the market value ofa car at the time of its disposition will be less than its estimated residual valueat such time. We refer to this risk as “residual risk.” For this reason, carspurchased by car rental companies under repurchase and guaranteed depreciationprograms are sometimes referred to by industry participants as “program” cars.Conversely, those cars not purchased under repurchase or guaranteeddepreciation programs for which the car rental company is exposed to residualrisk are sometimes referred to as “risk” cars.

Repurchase and guaranteed depreciation programs enableus to determine our depreciation expense in advance. This predictability isuseful to us, since depreciation is a significant cost factor in ouroperations. Repurchase and guaranteed depreciation programs are also useful inmanaging our seasonal peak demand for fleet, because some of them permit us toacquire cars and dispose of them after relatively short periods of time. Atrade-off we face when we purchase program cars is that we typically paythe manufacturer of a program car more than we would pay to buy the same car asa risk car. Program cars thus involve a larger initial investment than theirrisk counterparts. If a program car is damaged or otherwise becomes ineligiblefor return or sale under the relevant program, our loss upon the disposition ofthe car will be larger than if the car had been a risk car, because our initialinvestment in the car was larger.

We expect the percentage of our car rental fleetsubject to repurchase or guaranteed depreciation programs to decreasesubstantially due primarily to changes in the terms offered by automobilemanufacturers under repurchase programs. Accordingly, we expect to bearincreased risk relating to the residual market value and the relateddepreciation on our car rental fleet and to use different rotational techniquesto accommodate our seasonal peak demand for cars.

Repurchase and guaranteed depreciation programsgenerally provide us with flexibility to reduce the size of our fleet byreturning cars sooner than originally expected without risk of loss in theevent of an economic downturn or to respond to changes in rental demand. Thisflexibility will be reduced as the percentage of program cars in our car rentalfleet decreases materially. See “Item 1—Business—Worldwide Car Rental—Fleet”and “Item 7—Management’s Discussion and Analysis of Financial Condition andResults of Operations—Overview.”

In the future, car manufacturers could modify oreliminate their repurchase or guaranteed depreciation programs or change theirreturn policies (which include condition, mileage and holding periodrequirements for returned cars) from one program year to another to make itdisadvantageous to acquire certain cars. Any such modification or eliminationwould increase our exposure to the risks described in the preceding paragraphs.In addition, because we obtain a substantial portion of our financing inreliance on repurchase and guaranteed depreciation programs, the modificationor elimination of those programs, or the associated return policies, bymanufacturers or significant adverse changes in the financial condition ofmanufacturers could make needed vehicle-related debt financingsignificantly more difficult to obtain on reasonable terms. See “—Our relianceon asset-backed financing to purchase cars subjects us to a number ofrisks, many of which are beyond our control.”

***We could be harmed by a decline in the results ofoperations or financial condition of the manufacturers of our cars,particularly if they are unable, or reject their obligations, to repurchaseprogram cars from us or to guarantee the depreciation of program cars.***

In 2005 and 2006, Ford and General Motors, which arethe principal suppliers of cars to us on both a program and risk basis, haveexperienced deterioration in their operating results and significant declinesin their credit ratings. A severe or persistent decline in the results ofoperations or financial condition of a manufacturer of cars that we own couldreduce the cars’ residual values, particularly to the extent that themanufacturer unexpectedly announced the eventual elimination of its models or 

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nameplates or ceased manufacturing them altogether.Such a reduction could cause us to sustain a loss on the ultimate sale of riskcars, on which we bear the risk of such declines in residual value, or requireus to depreciate those cars on a more rapid basis while we own them.

In addition, if a decline in results or conditionswere so severe as to cause a manufacturer to default on an obligation torepurchase or guarantee the depreciation of program cars we own, or to cause amanufacturer to commence bankruptcy reorganization proceedings, and reject itsrepurchase or guaranteed depreciation obligations, we would have to dispose ofthose program cars without the benefits of the associated programs. This couldsignificantly increase our expenses. In addition, disposing of program carsfollowing a manufacturer default or rejection of the program in bankruptcycould result in losses similar to those associated with the disposition of carsthat have become ineligible for return or sale under the applicable program.Such losses could be material if a large number of program cars were affected.For example, we estimate that if Ford Motor Company, but not its subsidiaries,were to file for bankruptcy reorganization and reject all its commitments torepurchase program cars from us, we would sustain material losses, which couldbe as high as over one hundred million dollars, upon disposition of those cars.A reduction in the number of program cars that we buy would reduce the magnitudeof this exposure, but it would simultaneously increase our exposure to residualvalue risk. See “—We face risks related to decreased acquisition or dispositionof cars through repurchase and guaranteed depreciation programs.”

Any default or reorganization of a manufacturer thathas sold us program cars might also leave us with a substantial unpaid claimagainst the manufacturer with respect to program cars that were sold andreturned to the car manufacturer but not paid for, or that were sold for less thantheir agreed repurchase price or guaranteed value. For the year ended December 31,2006, outstanding month-end receivables for cars sold to manufacturers were asmuch as $805 million, with the highest amount for a single manufacturer being$204 million owed by Ford. A decline in the economic and business prospects ofcar manufacturers, including any economic distress impacting the suppliers ofcar components to manufacturers, could also cause manufacturers to raise theprices we pay for cars or reduce their supply to us. In addition, eventsnegatively affecting the car manufacturers could affect how much we may borrowunder our asset-backed financing. See “—Our reliance on asset-backedfinancing to purchase cars subjects us to a number of risks, many of which arebeyond our control.”

***We may not be successful in implementing our strategyof reducing operating costs and our cost reduction initiatives may have otheradverse consequences.***

We are implementing initiatives to reduce ouroperating expenses. These initiatives include headcount reductions, as well asother expense controls. We cannot assure you that we will be able to implementour cost reduction initiatives successfully, or at all. Even if we aresuccessful in our cost reduction initiatives, we may face other risksassociated with our plans, including declines in employee morale or the levelof customer service we provide. Any of these risks could materialize andtherefore may have a material adverse impact on our results of operations,financial condition and cash flows.

***Our reliance on asset-backed financing topurchase cars subjects us to a number of risks, many of which are beyond ourcontrol.***

We rely significantlyon asset-backed financing to purchase cars for our domestic andinternational car rental fleets. In connection with the Acquisition, abankruptcy-remote special purpose entity wholly owned by us issuedapproximately $4,300 million of new debt (plus an additional $1,500 million inthe form of variable funding notes issued but not funded at the closing of theAcquisition) backed by our U.S. car rental fleet under our U.S. asset-backedsecurities program, or our “ABS Program.” In addition, we issued $600 millionof medium term notes backed by our U.S. car rental fleet prior to the Acquisition,or the “pre-Acquisition ABS Notes,” all of which remain outstanding. As part ofthe Acquisition, various of our non-U.S. subsidiaries and certain specialpurpose entities issued approximately $1,781 million of debt under loanfacilities secured by rental vehicles and related assets 

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of certain of oursubsidiaries (all of which are organized outside the United States) or byrental equipment and related assets of certain of our subsidiaries organizedoutside North America, as well as (subject to certain limited exceptions)substantially all our other assets outside North America. The asset-backeddebt issued in connection with the Transactions has expected final paymentdates ranging from 2008 to 2010 and the pre-Acquisition ABS Notes have expectedfinal payment dates ranging from 2007 to 2009. Based upon these repaymentdates, this debt will need to be refinanced within five years from the date ofthe closing of the Transactions. Consequently, if our access to asset-backedfinancing were reduced or were to become significantly more expensive for anyreason, we cannot assure you that we would be able to refinance or replace ourexisting asset-backed financing or continue to finance new caracquisitions through asset-backed financing on favorable terms, or at all.Our asset-backed financing capacity could be decreased, or financingcosts and interest rates could be increased, as a result of risks andcontingencies, many of which are beyond our control, including, withoutlimitation:

·       ratingagencies that provide credit ratings for our asset-backed indebtedness,third-party credit enhancers that insure our asset-backedindebtedness or other third parties requiring changes in the terms andstructure of our asset-backed financing, including increased creditenhancement (i) in connection with the incurrence of additional orrefinancing of existing asset-backed debt, (ii) upon the occurrenceof external events, such as changes in general economic and market conditionsor further deterioration in the credit ratings of our principal carmanufacturers, including Ford and General Motors, or (iii) or otherwise;

·       theterms and availability of third-party credit enhancement at the time ofthe incurrence of additional or refinancing of existing asset-backeddebt;

·       theinsolvency or deterioration of the financial condition of one or more of thethird-party credit enhancers that insure our asset-backedindebtedness;

·       theoccurrence of certain events that, under the agreements governing our asset-backedfinancing, could result, among other things, in (i) an amortization eventpursuant to which payments of principal and interest on the affected series ofasset-backed notes may be accelerated, or (ii) a liquidation eventof default pursuant to which the trustee or holders of asset-backed noteswould be permitted to require the sale of fleet vehicles or equipment thatcollateralize the asset-backed financing; or

·       changesin law that negatively impact our asset-backed financing structure.

Any disruption in our ability to refinance or replaceour existing asset-backed financing or to continue to finance new caracquisitions through asset-backed financing, or any negative developmentin the terms of the asset-backed financing available to us, could causeour cost of financing to increase significantly and have a material adverseeffect on our financial condition and results of operations. The assets thatcollateralize our asset-backed financing will not be available to satisfythe claims of our general creditors. The terms of our senior credit facilitiespermit us to finance or refinance new car acquisitions through other means,including secured financing that is not limited to the assets of specialpurpose entity subsidiaries. We may seek in the future to finance or refinancenew car acquisitions, including cars excluded from the ABS Program, throughsuch other means. No assurances can be given, however, as to whether suchfinancing will be available, or as to whether the terms of such financing willbe comparable to the debt issued under the ABS Program.

Most of our asset-backed debt outside the UnitedStates was issued under an interim facility which provided for increasedmargins if the debt was not refinanced by March 21, 2007. We are in theprocess of negotiating new financing facilities to enable us to refinance thisdebt. However, we cannot assure you that these efforts will be successful or,if they are successful, that the new facilities will enable us to finance ouroperations at rates which are as favorable to us as those of the existing 

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facility. On March 21, 2007, the existingfacility was amended and restated to, among other things, modify the provisionswhich provide for increased margins. The effect of these changes will be toreduce or eliminate the adverse consequences of these provisions to us for aninterim period that will end on December 21, 2007 in order to give usadditional time to refinance the interim facility. As a result of the changes,there was no increase in margins on March 21, 2007. The extent of therelief that we will receive during the remainder of the interim period willdepend upon our ability to achieve certain interim goals during that period. Wecannot assure you that we will be successful in achieving these interim goals.

***Fluctuations in fuel costs or reduced supplies couldharm our business.***

We could be adversely affected by limitations on fuelsupplies, the imposition of mandatory allocations or rationing of fuel orsignificant increases in fuel prices. A severe or protracted disruption of fuelsupplies or significant increases in fuel prices could have a material adverseeffect on our financial condition and results of operations, either by directlyinterfering with our normal activities or by disrupting the air travel on whicha significant portion of our car rental business relies. See “—Our car rentalbusiness is dependent on the air travel industry, and disruptions in air travelpatterns could harm our business.”

***Manufacturer safety recalls could create risks to ourbusiness.***

Our cars may be subject to safety recalls by theirmanufacturers. Under certain circumstances, the recalls may cause us to attemptto retrieve cars from renters or to decline to re-rent returned cars until wecan arrange for the steps described in the recalls to be taken. If a largenumber of cars are the subject of simultaneous recalls, or if neededreplacement parts are not in adequate supply, we may not be able to re-rentrecalled cars for a significant period of time. We could also face liabilityclaims if recalls affect cars that we have already sold. Depending on theseverity of the recall, it could materially adversely affect our revenues,create customer service problems, reduce the residual value of the carsinvolved and harm our general reputation.

***We face risks arising from our heavy reliance oncommunications networks and centralized information systems.***

We rely heavily on information systems to acceptreservations, process rental and sales transactions, manage our fleets of carsand equipment, account for our activities and otherwise conduct our business.We have centralized our information systems in two redundant facilities inOklahoma City, Oklahoma, and we rely on communications service providers tolink our systems with the business locations these systems serve. Asimultaneous loss of both facilities, or a major disruption of communicationsbetween the systems and the locations they serve, could cause a loss ofreservations, interfere with our ability to manage our fleet, slow rental andsales processes and otherwise materially adversely affect our ability to manageour business effectively. Our systems back-up plans, business continuity plansand insurance programs are designed to mitigate such a risk, not to eliminateit. In addition, because our systems contain information about millions ofindividuals and businesses, our failure to maintain the security of the data wehold, whether the result of our own error or the malfeasance or errors ofothers, could harm our reputation or give rise to legal liabilities leading tolower revenues, increased costs and other material adverse effects on ourresults of operations.

***The concentration of our reservations, accounting andinformation technology functions at a limited number of facilities in Oklahoma,Alabama and Ireland creates risks for us.***

We have concentrated our reservations functions forthe United States in two facilities, one in Oklahoma City, Oklahoma, and one inSaraland (Mobile County), Alabama, and we have concentrated our accountingfunctions for the United States in two facilities in Oklahoma City. Similarly,we have concentrated reservations and accounting functions for our Europeanoperations in a single facility near Dublin, Ireland. In addition, our majorinformation systems are centralized in two 

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of our facilities in Oklahoma City. A disruption ofnormal business at any of our principal facilities in Oklahoma City, Saralandor Dublin, whether as the result of localized conditions (such as a fire orexplosion) or as the result of events or circumstances of broader geographicimpact (such as an earthquake, storm, flood, epidemic, strike, act of war,civil unrest or terrorist act), could materially adversely affect our businessby disrupting normal reservations, customer service, accounting and systems activities.Our systems designs, business continuity plans and insurance programs aredesigned to mitigate those risks, not to eliminate them, and this isparticularly true with respect to events of broad geographic impact.

***Claims that the software products and informationsystems that we rely on are infringing on the intellectual property rights ofothers could increase our expenses or inhibit us from offering certainservices, which could adversely affect our results of operations.***

A number of entities, including some of ourcompetitors, have sought, or may in the future obtain, patents and otherintellectual property rights that cover or affect software products and othercomponents of information systems that we rely on to operate our business. Forexample, Enterprise has asserted that certain systems we use to conductinsurance replacement rentals would infringe on patent rights it would obtainif it were granted certain patents for which it has applied. One of the patentapplications has received a notice of allowance and we expect that Enterprisewill be issued a patent pursuant to that application in the near future.

Litigation may be necessary to determine the validityand scope of third-party rights or to defend against claims ofinfringement. If a court determines that one or more of the software productsor other components of information systems we use infringe on intellectualproperty owned by others or we agree to settle such a dispute, we may be liablefor money damages. In addition, we may be required to cease using thoseproducts and components unless we obtain licenses from the owners of theintellectual property, redesign those products and components in such a way asto avoid infringement or cease altogether the use of those products and components.Each of these alternatives could increase our expenses materially or impact themarketability of our services. Any litigation, regardless of the outcome, couldresult in substantial costs and diversion of resources and could have amaterial adverse effect on our business. In addition, a third-partyintellectual property owner might not allow us to use its intellectual propertyat any price, or on terms acceptable to us, which could materially affect ourcompetitive position and our results of operations.

For example, if Enterprise obtains the patent referredto above and after that were to pursue and prevail on claims of infringementsimilar to those it has previously asserted, it could have a material adverseeffect on our insurance replacement business and, in turn, our off-airportbusiness. We have already commenced litigation against Enterprise with respectto claims it has made to third parties regarding the patent rights referred toabove. See “Item 3—Legal Proceedings” for more information regarding thatlitigation.

***If we acquire any businesses in the future, they couldprove difficult to integrate, disrupt our business, or have an adverse effecton our results of operations.***

We intend to pursuegrowth primarily through internal growth, but from time to time we may consideropportunistic acquisitions which may be significant. Any future acquisitionwould involve numerous risks including, without limitation:

·       potentialdisruption of our ongoing business and distraction of management;

·       difficultyintegrating the acquired business; and

·       exposureto unknown liabilities, including litigation against the companies we mayacquire.

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If we make acquisitions in thefuture, acquisition-related accounting charges may affect our balancesheet and results of operations. In addition, the financing of any significantacquisition may result in changes in our capital structure, including theincurrence of additional indebtedness. We may not be successful in addressingthese risks or any other problems encountered in connection with anyacquisitions.

***We face risks relatedto changes in our ownership.***

A substantial number of ourairport concession agreements, as well as certain of our other agreements withthird parties, require the consent of the airports’ operators or other partiesin connection with any change in ownership of us. Changes in ownership of uscould also require the approval of other governmental authorities (includinginsurance regulators, regulators of our retail used car sales activities andantitrust regulators), and we cannot offer assurance that those approvals wouldbe obtained on terms acceptable to us. If our owners were to proceed to changetheir ownership of us without obtaining necessary approvals, or if significantconditions on our operations were imposed in connection with obtaining suchapprovals, our ability to conduct our business could be impaired, resulting ina material adverse effect on our results of operations and financial condition.

***We face risks relatedto liabilities and insurance.***

Our businesses expose us toclaims for personal injury, death and property damage resulting from the use ofthe cars and equipment rented or sold by us and for workers’ compensationclaims and other employment-related claims by our employees. Currently,we generally self-insure up to $10 million per occurrence in the United Statesand Europe for vehicle and general liability exposures and maintain insurancewith unaffiliated carriers in excess of such levels up to $100 million peroccurrence, or in the case of equipment rental in Europe and internationaloperations outside of Europe, in such lower amounts as we deem adequate giventhe risks. We cannot assure you that we will not be exposed to uninsuredliability at levels in excess of our historical levels resulting from multiplepayouts or otherwise, that liabilities in respect of existing or future claimswill not exceed the level of our insurance, that we will have sufficientcapital available to pay any uninsured claims or that insurance with unaffiliatedcarriers will continue to be available to us on economically reasonable termsor at all. See “Item 1—Business—Risk Management” and “Item 3—Legal Proceedings.”

***We could facesignificant withdrawal liability if we withdraw from participation in one ormore multiemployer pension plans in which we participate.***

We participate in various “multiemployer”pension plans administered by labor unions representing some of our employees.We make periodic contributions to these plans to allow them to meet their pensionbenefit obligations to their participants. In the event that we withdrew fromparticipation in one or more of these plans, then applicable law could requireus to make an additional lump-sum contribution to those plans, and we wouldhave to reflect that on our balance sheet and statement of operations. Ourwithdrawal liability for any multiemployer plan would depend on the extent ofthe plan’s funding of vested benefits. We currently do not expect to incur anywithdrawal liability in the near future. However, in the ordinary course of ourrenegotiation of collective bargaining agreements with labor unions thatmaintain these plans, we could decide to discontinue participation in a plan,and in that event, we could face a withdrawal liability. Some multiemployerplans, including ones in which we participate, are reported to havesignificantly underfunded liabilities. Such underfunding could increase thesize of our potential withdrawal liability.

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***We have received an informal request from the SEC toprovide information about car rental services that we provide to ourindependent registered public accounting firm in the ordinary course ofbusiness.***

In July 2005, the Division of Enforcement of theSEC informed us that it was conducting an informal inquiry and asked us tovoluntarily provide documents and information related to car rental servicesthat we provide to our independent registered public accounting firmPricewaterhouseCoopers LLP, or “PwC.” The SEC noted in its letter that theinquiry should not be construed as an indication by the SEC or its staff thatany violations of law have occurred, or as a reflection upon any person, entityor security. We cooperated with the SEC by providing it with certain requestedinformation in July and September 2005. Since then, we have receivedno further requests from the SEC with respect to this informal inquiry, butneither have we been advised that it has been closed.

After learning of this informal inquiry, our auditcommittee and representatives of PwC discussed PwC’s independence with respectto us. PwC reconfirmed that it has been and remains independent with respect tous. In making this determination, PwC considered, among other things, itsbelief that PwC’s arrangements with us represent arm’s-lengthtransactions that were negotiated in the normal course of business, and,therefore, that the commercial relationship does not impair PwC’s independencewith respect to us. If the SEC were to take a different view and it wereultimately determined that PwC was not independent with respect to us forcertain periods, our filings with the SEC which contain our consolidatedfinancial statements for such periods would be non-compliant with applicablesecurities laws. A determination that PwC was not independent with respect tous could, among other things, cause us to be in violation of, or in defaultunder, the instruments governing our indebtedness and airport concessionagreements, limit our access to capital markets and result in regulatorysanctions. Also, in the event of such a determination, we may be required tohave independent audits conducted on our previously audited financialstatements by another independent registered public accounting firm for the affectedperiods. The time involved to conduct such independent audits may make it moredifficult to obtain capital on favorable terms, or at all, pending thecompletion of such audits. Any of the foregoing could have a material adverseeffect on our results of operations, liquidity and financial condition.

***Environmental laws andregulations and the costs of complying with them, or any liability orobligation imposed under them, could adversely affect our financial position,results of operations or cash flows.***

We are regulated by federal, state, local and foreignenvironmental laws and regulations in connection with our operations,including, among other things, with respect to the ownership and operation oftanks for the storage of petroleum products, such as gasoline, diesel fuel andmotor and waste oils. We have established a compliance program for our tanksthat is intended to ensure that the tanks are properly registered with thestate or other jurisdiction in which the tanks are located and have been eitherreplaced or upgraded to meet applicable leak detection and spill, overfill andcorrosion protection requirements. However, we cannot assure you that thesetank systems will at all times remain free from undetected leaks or that theuse of these tanks will not result in significant spills.

We have made, and will continue to make, expendituresto comply with environmental laws and regulations, including, among others,expenditures for the cleanup of contamination at or emanating from, currentlyand formerly owned and leased properties, as well as contamination at otherlocations at which our wastes have reportedly been identified. We cannot assureyou that compliance with existing or future environmental legislation andregulations will not require material expenditures by us or otherwise have amaterial adverse effect on our consolidated financial position, results ofoperations or cash flows. See “Item 1—Business—Governmental Regulation andEnvironmental Matters” and “Item 3—Legal Proceedings.”

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***Changes in the U.S. and foreign legal and regulatoryenvironment that impact our operations, including laws and regulations relatingto the insurance products we sell, customer privacy, data security, insurancerates and expenses we pass through to customers by means of separate charges,could disrupt our business, increase our expenses or otherwise could have amaterial adverse effect on our results of operations.***

We are subject to a wide variety of laws andregulations in the United States and the other countries and jurisdictions inwhich we operate, and changes in the level of government regulation of ourbusiness have the potential to materially alter our business practices or ourprofitability. Depending on the jurisdiction, those changes may come aboutthrough new legislation, the issuance of new laws and regulations or changes inthe interpretation of existing laws and regulations by a court, regulatory bodyor governmental official. Sometimes those changes may have not just prospectivebut also retroactive effect, which is particularly true when a change is madethrough reinterpretation of laws or regulations that have been in effect forsome time. Moreover, changes in regulation that may seem neutral on their facemay have either more or less impact on us than on our competitors, depending onthe circumstances.

The optional liability insurance policies and productsproviding insurance coverage in our domestic car rental operations areconducted pursuant to limited licenses or exemptions under state laws governingthe licensing of insurance producers. In our international car rentaloperations, our offering of optional products providing insurance coveragehistorically has not been regulated. Any changes in the law in the UnitedStates or internationally that change our operating requirements with respectto insurance could increase our costs of compliance or make it uneconomical tooffer such products, which would lead to a reduction in revenues. For instance,in the countries of the European Union, the regulatory environment forinsurance intermediaries is rapidly evolving, and we cannot assure you eitherthat we will be able to continue offering such coverage without substantialchanges in our offering process or in the terms of the coverage or that suchchanges, if required, would not render uneconomic our continued offering of thecoverage. Due to a change in law in Australia, we have discontinued sales ofinsurance products there. See “Item 1—Business—Risk Management” for furtherdiscussion regarding how changes in the regulation of insurance intermediariesmay affect us internationally.

Laws in many countries and jurisdictions limit thetypes of information we may collect about individuals with whom we deal orpropose to deal, as well as how we collect, retain and use the information thatwe are permitted to collect. In addition, the centralized nature of ourinformation systems requires the routine flow of information about customersand potential customers across national borders, particularly into the UnitedStates. If this flow of information were to become illegal, or subject toonerous restrictions, our ability to serve our customers could be seriouslyimpaired for an extended period of time. Other changes in the regulation ofcustomer privacy and data security could likewise have a material adverseeffect on our business. Privacy and data security are rapidly evolving areas ofregulation, and additional regulation in those areas, some of it potentiallydifficult for us to accommodate, is frequently proposed and occasionallyadopted. Thus, changes in the worldwide legal and regulatory environment in theareas of customer privacy, data security and cross-border data flowscould have a material adverse effect on our business, primarily through theimpairment of our marketing and transaction processing activities.

Further, the substantive regulation of the rates wecharge car renters, either through direct price regulation or a requirementthat we disregard a customer’s source market (location or place of residence)for rate purposes, could reduce our revenues or increase our expenses. We setrates based on a variety of factors including the sources of rentalreservations geographically and the means through which the reservations weremade, all of which are in response to various market factors and costs. TheEuropean Commission is considering a directive that could restrict our abilityto take into account the country of residence of European Union residents forrate purposes, and bills 

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have been introduced into the New York Statelegislature that would seek to prohibit us from charging higher rates torenters residing in certain boroughs of New York City. The adoption of any suchmeasures could have a material adverse impact on our revenues and results ofoperations.

In most places where we operate, we pass throughvarious expenses, including the recovery of vehicle licensing costs and airportconcession fees, to our rental customers as separate charges. The AttorneysGeneral of Massachusetts, Virginia, Montana and Alaska have in the past twoyears taken positions that car rental companies may not pass through tocustomers, by means of separate charges, certain of their expenses, such asvehicle licensing costs and airport concession fees, or that car rental companies’ability to pass through such expenses is limited. In addition, we are currentlya defendant in an action challenging the propriety of certain expense pass-throughcharges in Nevada. We believe our expense pass-through charges, where imposed,are lawful, and expense pass-throughs have, when challenged, been upheld incourts of other states. The position of the Attorney General of Virginia wasreversed by subsequent legislation, while the concerns of the Attorney Generalof Montana, which related primarily to our licensees’ passing through ofvehicle licensing costs, were resolved by assurances of voluntary compliance byour licensees (which permitted passing through of such costs subject to certainlimitations of small operational significance). Nonetheless, we cannot offerassurance that the Attorney General of Massachusetts or Alaska, or of anotherstate, will not take enforcement action against us with respect to our carrental expense pass-throughs. If such action were taken and an Attorney Generalwere to prevail, it could have a material adverse impact on our revenues andresults of operations. In the United States, our revenues from car rentalexpense pass-throughs for the year ended December 31, 2006, wereapproximately $311.5 million.

***The misuse or theft of information we possess couldharm our reputation or competitive position or give rise to materialliabilities.***

We possess non-public information with respectto millions of individuals, including our customers and our current and formeremployees, and thousands of businesses, as well as non-public informationwith respect to our own affairs. The misuse or theft of that information byeither our employees or third parties could result in material damage to ourbrand, reputation or competitive position. In addition, depending on the typeof information involved, the nature of our relationship with the person orentity to which the information relates, the cause and the jurisdiction whoselaws are applicable, such misuse or theft of information could result ingovernmental investigations or material civil or criminal liability. The lawsthat would be applicable to such a failure are rapidly evolving and becomingmore burdensome. See “—Changes in the U.S. and foreign legal and regulatoryenvironment that impact our operations, including laws and regulations relatingto the insurance products we sell, customer privacy, data security, insurancerates and expenses we pass through to customers by means of separate charges,could disrupt our business, increase our expenses or otherwise could have amaterial adverse effect on our results of operations.”

***The Sponsors control us and may have conflicts ofinterest with us in the future.***

Clayton, Dubilier & Rice Fund VII, L.P. andrelated funds, Carlyle Partners IV, L.P. and related funds and ML GlobalPrivate Equity Fund, L.P. and related funds currently beneficially ownapproximately 24.2%, 23.9% and 23.5%, respectively, of the outstanding sharesof the common stock of Hertz Holdings. These funds and Hertz Holdings areparties to a Stockholders Agreement, pursuant to which the funds have agreed tovote in favor of nominees to our board of directors nominated by the otherfunds. As a result, the Sponsors will continue to exercise control over mattersrequiring stockholder approval and our policy and affairs, for example, bybeing able to direct the use of proceeds received from future securitiesofferings. See “Item 13—Certain Relationships and Related Transactions, andDirector Independence.”

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Additionally, the Sponsors arein the business of making investments in companies and may from time to timeacquire and hold interests in businesses that compete directly or indirectlywith us. One or more of the Sponsors may also pursue acquisition opportunitiesthat may be complementary to our business and, as a result, those acquisitionopportunities may not be available to us. So long as investment fundsassociated with or designated by the Sponsors continue to indirectly own asignificant amount of the outstanding shares of the common stock of HertzHoldings, even if such amount is less than 50%, the Sponsors will continue tobe able to strongly influence or effectively control our decisions. While wehave adopted a code of ethics and business conduct that applies to all ourdirectors, it does not preclude the Sponsors from becoming engaged inbusinesses that compete with us or preclude our directors from taking advantageof business opportunities other than those made available to them through theuse of their position as directors or the use of our property.

**Risks Relating to OurSubstantial Indebtedness**

***We have substantial debt and may incur substantialadditional debt, which could adversely affect our financial condition, ourability to obtain financing in the future and our ability to react to changesin our business.***

We have a significant amount of debt. As of December 31,2006, we had an aggregate principal amount of debt outstanding of $12,359.4million and a debt to equity ratio, calculated using the total amount of ouroutstanding debt net of unamortized discounts of 4.9 to 1.

Our substantial debtcould have important consequences to you. For example, it could:

·       makeit more difficult for us to satisfy our obligations to the holders of ouroutstanding debt securities and to the lenders under our senior creditfacilities and the U.S. and international fleet debt financings entered into aspart of the Transactions, resulting in possible defaults on and acceleration ofsuch indebtedness;

·       requireus to dedicate a substantial portion of our cash flows from operations to makepayments on our debt, which would reduce the availability of our cash flowsfrom operations to fund working capital, capital expenditures or other generalcorporate purposes;

·       increaseour vulnerability to general adverse economic and industry conditions,including interest rate fluctuations, because a portion of our borrowings,including under the agreements governing our U.S. and international fleet debtfinancings entered into as part of the Transactions and our senior creditfacilities, is at variable rates of interest;

·       placeus at a competitive disadvantage to our competitors with proportionately lessdebt or comparable debt at more favorable interest rates;

·       limitour ability to refinance our existing indebtedness or borrow additional fundsin the future;

·       limitour flexibility in planning for, or reacting to, changing conditions in ourbusiness and industry; and

·       limitour ability to react to competitive pressures, or make it difficult for us tocarry out capital spending that is necessary or important to our growthstrategy and our efforts to improve operating margins.

Any of the foregoing impacts of our substantialindebtedness could have a material adverse effect on our business, financialcondition and results of operations.

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***Despite our currentindebtedness levels, we, Hertz Holdings and our subsidiaries may be able toincur substantially more debt. This could further exacerbate the risksassociated with our substantial indebtedness.***

We, Hertz Holdings and our subsidiaries may be able toincur substantial additional indebtedness in the future. The terms of theinstruments governing our indebtedness fully prohibit us, our subsidiaries orHertz Holdings from doing so. As of December 31, 2006, our senior creditfacilities provided us commitments for additional aggregate borrowings (subjectto borrowing base limitations) of approximately $1,611.1 million, and permittedadditional borrowings beyond those commitments under certain circumstances. Asof December 31, 2006, our U.S. fleet debt facilities, international fleetdebt facilities and our fleet financing facility for our fleet in Hawaii,Kansas, Puerto Rico and St. Thomas, the U.S. Virgin Islands provided uscommitments for additional aggregate borrowings of approximately $1,500.0million, the foreign currency equivalent of $1,236.4 million and $107.0million, respectively, subject to borrowing base limitations. If new debt isadded to our current debt levels, the related risks that we now face wouldincrease. In addition, the instruments governing our indebtedness do notprevent us, our subsidiaries or Hertz Holdings from incurring obligations thatdo not constitute indebtedness. On June 30, 2006, Hertz Holdings enteredinto a $1.0 billion loan facility in order to finance the payment of a specialcash dividend of $4.32 per share on June 30, 2006. Although this facilitywas repaid in full with the proceeds from Hertz Holdings’ initial publicoffering, we cannot assure you that Hertz Holdings will not enter into similartransactions in the future.

***We may not be able to generate sufficient cash toservice all of our debt, and may be forced to take other actions to satisfy ourobligations under such indebtedness, which may not be successful.***

Our ability to make scheduled payments on ourindebtedness, or to refinance our obligations under our debt agreements, willdepend on the financial and operating performance of us and our subsidiaries,which, in turn, will be subject to prevailing economic and competitiveconditions and to the financial and business risk factors, many of which may bebeyond our control, as described under “—Risks Related to Our Business” above.

We cannot assure you that we will maintain a level ofcash flows from operating activities sufficient to permit us to pay theprincipal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources areinsufficient to fund our debt service obligations, we may be forced to reduceor delay capital expenditures, sell assets, seek to obtain additional equitycapital or restructure our indebtedness. In the future, our cash flows andcapital resources may not be sufficient for payments of interest on andprincipal of our debt, and such alternative measures may not be successful andmay not permit us to meet scheduled debt service obligations. We also cannotassure you that we will be able to refinance any of our indebtedness or obtainadditional financing, particularly because of our high levels of debt and thedebt incurrence restrictions imposed by the agreements governing our debt, aswell as prevailing market conditions. In the absence of such operating resultsand resources, we could face substantial liquidity problems and might berequired to dispose of material assets or operations to meet our debt serviceand other obligations. The instruments governing our indebtedness restrict ourability to dispose of assets and restrict the use of proceeds from any suchdispositions. We cannot assure you we will be able to consummate those sales,or, if we do, what the timing of the sales will be or whether the proceeds thatwe realize will be adequate to meet debt service obligations when due.

***A significant portion of our outstanding indebtednessis secured by substantially all of our consolidated assets. As a result ofthese security interests, such assets would only be available to satisfy claimsof our general creditors or to holders of our equity securities if we were tobecome insolvent to the extent the value of such assets exceeded the amount ofour***

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***indebtedness and other obligations. In addition, theexistence of these security interests may adversely affect our financialflexibility.***

Indebtedness under our senior credit facilities issecured by a lien on substantially all our assets (other than assets of foreignsubsidiaries), including pledges of all or a portion of the capital stock ofcertain of our subsidiaries. Our senior notes and senior subordinated notes areunsecured and therefore do not have the benefit of such collateral.Accordingly, if an event of default were to occur under our senior creditfacilities, the senior secured lenders under such facilities would have a priorright to our assets, to the exclusion of our general creditors, including theholders of our senior notes and senior subordinated notes. In that event, ourassets would first be used to repay in full all indebtedness and otherobligations secured by them (including all amounts outstanding under our seniorcredit facilities), resulting in all or a portion of our assets beingunavailable to satisfy the claims of our unsecured indebtedness. Furthermore,many of the subsidiaries that hold our U.S. and international car rental fleetsin connection with our asset-backed financing programs are intended to bebankruptcy remote and the assets held by them may not be available to ourgeneral creditors in a bankruptcy unless and until they are transferred to anon-bankruptcy remote entity. As of December 31, 2006, substantially allof our consolidated assets, including our car and equipment rental fleets, havebeen pledged for the benefit of the lenders under our senior credit facilitiesor are subject to securitization facilities in connection with our U.S. andinternational fleet debt facilities. As a result, the lenders under thesefacilities would have a prior claim on such assets in the event of ourbankruptcy, insolvency, liquidation or reorganization, and we may not havesufficient funds to pay all of our creditors and holders of our unsecured indebtednessmay receive less, ratably, than the holders of our senior debt, and may not befully paid, or may not be paid at all, even when other creditors receive fullpayment for their claims. In that event, holders of our equity securities wouldnot be entitled to receive any of our assets or the proceeds therefrom. Asdiscussed below, the pledge of these assets and other restrictions may limitour flexibility in raising capital for other purposes. Because substantiallyall of our assets are pledged under these financing arrangements, our abilityto incur additional secured indebtedness or to sell or dispose of assets toraise capital may be impaired, which could have an adverse effect on ourfinancial flexibility.

***Restrictive covenants in certain of the agreements andinstruments governing our indebtedness may adversely affect our financialflexibility.***

Our senior creditfacilities and the indentures governing our senior notes and seniorsubordinated notes contain covenants that, among other things, restrict ourability to:

·       disposeof assets;

·       incuradditional indebtedness;

·       incurguarantee obligations;

·       prepayother indebtedness or amend other debt instruments;

·       paydividends;

·       createliens on assets;

·       enterinto sale and leaseback transactions;

·       makeinvestments, loans or advances;

·       makeacquisitions;

·       engagein mergers or consolidations;

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·       change the businessconducted by us; and

·       engagein certain transactions with affiliates.

In addition, under our Senior Credit Facilities, weare required to comply with financial covenants. If we fail to maintain aspecified minimum level of borrowing capacity under our Senior ABL Facility, wewill then be subject to financial covenants under that facility, includingcovenants that will obligate us to maintain a specified debt to CorporateEBITDA leverage ratio and a specified Corporate EBITDA to fixed chargescoverage ratio. The financial covenants in our Senior Term Facility includeobligations to maintain a specified debt to Corporate EBITDA leverage ratio anda specified Corporate EBITDA to interest expense coverage ratio for specifiedperiods. Both our Senior ABL Facility and our Senior Term Facility also imposelimitations on the amount of our capital expenditures. Our ability to complywith these covenants in future periods will depend on our ongoing financial andoperating performance, which in turn will be subject to economic conditions andto financial, market and competitive factors, many of which are beyond ourcontrol. Our ability to comply with these covenants in future periods will alsodepend substantially on the pricing of our products and services, our successat implementing cost reduction initiatives and our ability to successfullyimplement our overall business strategy. Our ability to comply with the covenants and restrictions contained inour senior credit facilities and the indentures for our senior notes and seniorsubordinated notes may be affected by economic, financial and industryconditions beyond our control. The breach of any of these covenants orrestrictions could result in a default under either our senior creditfacilities or the indentures that would permit the applicable lenders orholders of the senior notes and senior subordinated notes, as the case may be,to declare all amounts outstanding thereunder to be due and payable, togetherwith accrued and unpaid interest. In any such case, we may be unable to makeborrowings under the senior credit facilities and may not be able to repay theamounts due under the senior credit facilities and the senior notes and seniorsubordinated notes. This could have serious consequences to our financialcondition and results of operations and could cause us to become bankrupt orinsolvent.

We are also subject to operational limitations underthe terms of our ABS Program. For example, there are contractual limitationswith respect to the cars that secure our ABS Program. These limitations arebased on the identity or credit ratings of the cars’ manufacturers, theexistence of satisfactory repurchase or guaranteed depreciation arrangementsfor the cars or the physical characteristics of the cars. As a result, we maybe required to limit the percentage of cars from any one manufacturer orincrease the credit enhancement related to the program and may not be able totake advantage of certain cost savings that might otherwise be availablethrough manufacturers. If these limitations prevented us from purchasing, orretaining in our fleet, cars on terms that we would otherwise findadvantageous, our results of operations could be adversely affected.

Further, the facilitiesrelating to our international fleet financing contain a number of covenants,including a covenant that restricts the ability of Hertz International, Ltd., asubsidiary of ours that is the direct or indirect holding company ofsubstantially all of our non-U.S. operating subsidiaries, to make dividends andother restricted payments (which may include payments of intercompanyindebtedness), in an amount greater than €100million plus a specified excess cash flow amount, calculated by reference toexcess cash flow in earlier periods. Subject to certain exceptions, until thelater of one year from the Closing Date and such time as 50% of the commitmentsunder the facilities on the Closing Date have been replaced by permanenttake-out international asset-based facilities, the specified excess cashflow amount will be zero. Thereafter, this specified excess cash flow amountwill be between 50% and 100% of excess cash flow based on the percentage offacilities relating to our international fleet debt at the closing of theAcquisition that have been replaced by permanent take-out international asset-basedfacilities. These restrictions will limit the availability of funds from HertzInternational, Ltd. and its subsidiaries to help us make payments on ourindebtedness. Certain 

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of these permanenttake-out international asset-based facilities are expected to be noveland complicated structures. We cannot assure you that we will be able tocomplete such permanent take-out financings on terms acceptable to us or on atimely basis, if at all; if we are unable to do so, our liquidity and interestcosts may be adversely affected. See “—Our reliance on asset-backed financingto purchase cars subjects us to a number of risks, many of which are beyond ourcontrol.”

Certain of our Canadiansubsidiaries are parties to our Senior ABL Facility and are not subject tothese International Fleet Debt restrictions. Our non-U.S. subsidiaries, includingthe operations of these Canadian subsidiaries, accounted for approximately 30%of our total revenues and 24% of our Corporate EBITDA for the year endedDecember 31, 2006. See Note 10 to the Notes to our consolidated financialstatements included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

***An increase in interestrates would increase the cost of servicing our debt and could reduce ourprofitability.***

A significant portion of ouroutstanding debt, including borrowings under our Senior Credit Facilities,International Fleet Debt and certain of our other outstanding debt securities,bear interest at variable rates. As a result, an increase in interest rates,whether because of an increase in market interest rates or an increase in ourown cost of borrowing, would increase the cost of servicing our debt and couldmaterially reduce our profitability, including, in the case of the U.S. FleetDebt and the International Fleet Debt, our Corporate EBITDA. The impact of suchan increase would be more significant than it would be for some other companiesbecause of our substantial debt. For a discussion of how we manage our exposureto changes in interest rates through the use of interest rate swap agreementson certain portions of our outstanding debt, see “Item 7—Management’sDiscussion and Analysis of Financial Condition and Results of Operations—MarketRisks—Interest Rate Risk.”

***The instrumentsgoverning our debt contain cross default or cross acceleration provisions thatmay cause all of the debt issued under such instruments to become immediatelydue and payable as a result of a default under an unrelated debt instrument.***

The indentures governing oursenior notes and senior subordinated notes and the agreements governing oursenior credit facilities contain numerous covenants and require us to meetcertain financial ratios and tests which utilize Corporate EBITDA. Our failureto comply with the obligations contained in these agreements or otherinstruments governing our indebtedness could result in an event of defaultunder the applicable instrument, which could result in the related debt and thedebt issued under other instruments becoming immediately due and payable. Insuch event, we would need to raise funds from alternative sources, which fundsmay not be available to us on favorable terms, on a timely basis or at all.Alternatively, such a default could require us to sell our assets and otherwisecurtail our operations in order to pay our creditors. Such alternative measurescould have a material adverse effect on our business, financial condition andresults of operations.

**ITEM 1B.**        UNRESOLVEDSTAFF COMMENTS

None.

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**ITEM 2.**                 PROPERTIES

We operate car rentallocations at or near airports and in central business districts and suburbanareas of major cities in North America (the United States, including PuertoRico and the U.S. Virgin Islands, and Canada), Europe (France, Germany, Italy,the United Kingdom, Spain, the Netherlands, Switzerland, Belgium andLuxembourg), the Pacific (Australia and New Zealand) and Brazil, as well asretail used car sales locations in the United States and France. We operateequipment rental locations in North America (the United States and Canada) andEurope (France and Spain). We also operate headquarters, sales offices andservice facilities in the foregoing countries in support of our car rental andequipment rental operations, as well as small car rental sales offices andservice facilities in a select number of other countries in Europe and Asia.

Of such locations, fewer than10% are owned by us. The remaining locations are leased or operated underconcessions from governmental authorities and private entities. Those leasesand concession agreements typically require the payment of minimum rents orminimum concession fees and often also require us to pay or reimburse operatingexpenses; to pay additional rent, or concession fees above guaranteed minimums,based on a percentage of revenues or sales arising at the relevant premises; orto do both. See Note 9 to the Notes to our consolidated financial statementsincluded in this Annual Report under the caption “Item 8—Financial Statementsand Supplementary Data.”

We own four major facilitiesin the vicinity of Oklahoma City, Oklahoma at which reservations for our carrental operations are processed, global information systems are serviced andmajor domestic and international accounting functions are performed. We alsohave a long-term lease for a reservation and financial center near Dublin,Ireland, at which we have centralized our European car rental reservation andcustomer relations and accounting functions, and we lease a reservation center inSaraland (Mobile County), Alabama to supplement the capacity of our OklahomaCity car rental reservation center. We maintain our executive offices in anowned facility in Park Ridge, New Jersey, and lease a European headquartersoffice in Uxbridge, England.

**ITEM 3.**                 LEGALPROCEEDINGS

**Fuel—Related Class Actions**

We are a defendant in fourpurported class actions—filed in Texas, Oklahoma, New Mexico and Nevada—inwhich the plaintiffs have put forth alternate theories to challenge theapplication of our Fuel and Service Charge, or “FSC,” on rentals of cars thatare returned with less fuel than when rented.

1.   Texas

On March 15,2004, *Jose M. Gomez, individually and onbehalf of all other similarly situated persons, v. The Hertz Corporation*was commenced in the 214th Judicial District Court of Nueces County,Texas. Gomez purports to be a class action filed alternatively on behalf of allpersons who were charged a FSC by us or all Texas residents who were charged aFSC by us. The petition alleged that the FSC is an unlawful penalty and that,therefore, it is void and unenforceable. The plaintiff seeks an unspecifiedamount of compensatory damages, with the return of all FSC paid or thedifference between the FSC and our actual costs, disgorgement of unearned profits,attorneys’ fees and costs. In response to various motions by us, the plaintifffiled two amended petitions which scaled back the putative class from anationwide class to a class of all Texas residents who were charged a FSC by usor by our Corpus Christi licensee. A new cause of action was also added forconversion for which the plaintiff is seeking punitive damages. After somelimited discovery, we filed a motion for summary judgment in December 2004.That motion was denied in January 2005. The parties then engaged in moreextensive discovery. In April 2006, the plaintiff further amended his 

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petitionby adding a cause of action for fraudulent misrepresentation and, at theplaintiff’s request, a hearing on the plaintiff’s motion for classcertification was scheduled for August 2006. In May 2006, theplaintiff filed a fourth amended petition which deleted the cause of action forconversion and the plaintiff also filed a first amended motion for classcertification in anticipation of the August 2006 hearing on classcertification. After the hearing, the plaintiff filed a fifth amended petitionseeking to further refine the putative class as including all Texas residentswho were charged a FSC in Texas after February 6, 2000. In October 2006,the judge entered a class certification order which certified a class of allTexas residents who were charged an FSC in Texas after February 6, 2000.We are appealing the order.

2.               Oklahoma

On November 18,2004, *Keith Kochner, individually and onbehalf of all similarly situated persons, v. The Hertz Corporation*was commenced in the District Court in and for Tulsa County, State of Oklahoma.As with the Gomez case, Kochner purports to be a class action, this time onbehalf of Oklahoma residents who rented from us and incurred our FSC. Thepetition alleged that the imposition of the FSC is a breach of contract andamounts to an unconscionable penalty or liquidated damages in violation of Article 2Aof the Oklahoma Uniform Commercial Code. The plaintiff seeks an unspecified amountof compensatory damages, with the return of all FSC paid or the differencebetween the FSC and our actual costs, disgorgement of unearned profits,attorneys’ fees and costs. In March 2005, the trial court granted ourmotion to dismiss the action but also granted the plaintiff the right toreplead. In April 2005, the plaintiff filed an amended class actionpetition, newly alleging that our FSC violates the Oklahoma Consumer ProtectionAct and that we have been unjustly enriched, and again alleging that our FSC isunconscionable under Article 2A of the Oklahoma Uniform Commercial Code.In May 2005, we filed a motion to dismiss the amended class actionpetition. In October 2005, the court granted our motion to dismiss, butallowed the plaintiff to file a second amended complaint and we then answeredthe complaint. Discovery has now commenced.

3.               NewMexico

On December 13,2005, Janelle Johnson, individually and on behalf of all other similarlysituated persons v. The Hertz Corporation was filed in the Second JudicialDistrict Court of the County of Bernalillo, New Mexico. As with the Gomez andKochner cases, Johnson purports to be a class action, this time on behalf ofall New Mexico residents who rented from us and who were charged a FSC. Thecomplaint alleges that the FSC is unconscionable as a matter of law underpertinent sections of the New Mexico Uniform Commercial Code and that, underNew Mexico common law, the collection of FSC does not constitute validliquidated damages, but rather is a void penalty. The plaintiff seeks anunspecified amount of compensatory damages, with the return of all FSC paid orthe difference between the FSC and its actual cost. In the alternative, theplaintiff requests that the court exercise its equitable jurisdiction and orderus to cease and desist from our unlawful conduct and to modify our leaseprovisions to conform with applicable provisions of New Mexico statutory andcommon law. The complaint also asks for attorneys’ fees and costs. We haveremoved the action to the U.S. District Court for the District of New Mexicoand, in lieu of an answer, filed a motion to dismiss. In November 2006,the judge granted our motion to dismiss the liquidated damages claim and thesubstantive unconscionability claim but did not grant our motion to dismiss theprocedural unconscionability claim or the claim for equitable relief. Plaintiffthen amended her complaint to replead the unconscionability claim and to add afraudulent misrepresentation claim. In December 2006, we filed a motion todismiss the amended 

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complaintand, in January 2007, the court quickly dismissed the new fraud claim andreaffirmed the dismissal of the substantive unconscionability claim. In February 2007,the plaintiff dismissed the case with prejudice.

4.               Nevada

On January 10, 2007, *Marlena Guerra, individually and on behalf of all other similarlysituated persons, v. The Hertz Corporation* was filed in the UnitedStates District Court for the District of Nevada. As with the Gomez and Kochnercases, Guerra purports to be a class action on behalf of all individuals andbusiness entities who rented vehicles at Las Vegas McCarran InternationalAirport and were charged a FSC. The complaint alleged that those customers whopaid the FSC were fraudulently charged a surcharge required for fuel inviolation of Nevada’s Deceptive Trade Practices Act. The plaintiff also allegedthe FSC violates the Nevada Uniform Commercial Code, or “UCC,” since it isunconscionable and operates as an unlawful liquidated damages provision.Finally, the plaintiff claimed that we breached our own rental agreement—whichthe plaintiff claims to have been modified so as not to violate Nevada law—bycharging the FSC, since such charges violate the UCC and/or the prohibitionagainst fuel surcharges. The plaintiff seeks compensatory damages, includingthe return of all FSC paid or the difference between the FSC and its actualcosts, plus prejudgment interest, attorneys’ fees and costs. In March 2007,we filed a motion to dismiss.

**Other Consumer or Supplier Class Actions**

1.               HERCLDW

On August 15,2006, *Davis Landscape, Ltd., individually and on behalfof all others similarly situated, v. Hertz Equipment Rental Corporation*,or “HERC,” was filed in the United States District Court for the District ofNew Jersey. Davis Landscape, Ltd., purports to be a nationwide class action onbehalf of all persons and business entities who rented equipment from HERC andwho paid a Loss Damage Waiver, or “LDW,” charge. The complaint alleges that theLDW is deceptive and unconscionable as a matter of law under pertinent sectionsof New Jersey law, including the New Jersey Consumer Fraud Act and the NewJersey Uniform Commercial Code. The plaintiff seeks an unspecified amount ofstatutory damages under the New Jersey Consumer Fraud Act, an unspecifiedamount of compensatory damages with the return of all LDW charges paid,declaratory relief and an injunction prohibiting HERC from engaging in actswith respect to the LDW charge that violate the New Jersey Consumer Fraud Act.The complaint also asks for attorneys’ fees and costs. In October 2006, wefiled an answer to the complaint. In November 2006, the plaintiff filed anamended complaint adding an additional plaintiff, Miguel V. Pro, an individualresiding in Texas, and new claims relating to HERC’s charging of an “EnvironmentalRecovery Fee.” Causes of action for breach of contract and breach of impliedcovenant of good faith and fair dealing were also added. In January 2007,we filed an answer to the amended complaint. Discovery has now commenced.

2.               ConcessionFee Recoveries

On October 13, 2006, *Janet Sobel, Daniel Dugan Ph.D., and Lydia Lee, individually and onbehalf of all others similarly situated, v. The Hertz Corporation andEnterprise Rent-A-Car Company was* filed in the United StatesDistrict Court for the District of Nevada. Sobel purports to be a nationwideclass action on behalf of all persons who rented cars from Hertz or Enterpriseat airports in Nevada and whom Hertz or Enterprise charged airport concessionrecovery fees. The complaint alleged that the airport concession recovery feesviolate certain provisions of Nevada law, including Nevada’s Deceptive TradePractices Act. The plaintiffs 

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seek an unspecified amount ofcompensatory damages, restitution of any charges found to be improper and aninjunction prohibiting Hertz and Enterprise from quoting or charging any of thefees prohibited by Nevada law. The complaint also asks for attorneys’ fees andcosts. In November 2006, the plaintiffs and Enterprise stipulated and agreedthat claims against Enterprise would be dismissed without prejudice. In January 2007,we filed a motion to dismiss.

We believe that we havemeritorious defenses in the foregoing matters and will defend ourselvesvigorously.

In addition, we are currentlya defendant in numerous actions and have received numerous claims on whichactions have not yet been commenced for public liability and property damagearising from the operation of motor vehicles and equipment rented from us andour licensees. In the aggregate, we can be expected to expend material sums todefend and settle public liability and property damage actions and claims or topay judgments resulting from them.

On February 19, 2007, *The Hertz Corporation and TSD Rental LLC v.Enterprise Rent-A-Car Company and The Crawford Group, Inc.*wasfiled in the United States District Court for the District of Massachusetts. Inthis action, we and our co-plaintiff seek damages and injunctive relief basedupon allegations that Enterprise and its corporate parent, The Crawford Group, Inc.,unlawfully engaged in anticompetitive and unfair and deceptive businesspractices by claiming to customers of Hertz that once Enterprise obtains apatent that it has applied for relating to its insurance replacement reservationsystem, Hertz will be prevented from using the co-plaintiff’s EDiCAR system,which Hertz currently uses in its insurance replacement business. The complaintalleges, among other things, that Enterprise’s threats are improper because theEnterprise patent, once issued, should be invalid and unenforceable. See “Item1A—RiskFactors—Risks Related to Our Business—Claims that the software products andinformation systems that we rely on are infringing on the intellectual propertyrights of others could increase our expenses or inhibit us from offeringcertain services, which could adversely affect our results of operations.”

In addition to the foregoing,various legal actions, claims and governmental inquiries and proceedings arepending or may be instituted or asserted in the future against us and oursubsidiaries. Litigation is subject to many uncertainties, and the outcome ofthe individual litigated matters is not predictable with assurance. It ispossible that certain of the actions, claims, inquiries or proceedings,including those discussed above, could be decided unfavorably to us or any ofour subsidiaries involved. Although the amount of liability with respect tothese matters cannot be ascertained, potential liability in excess of relatedaccruals is not expected to materially affect our consolidated financialposition, results of operations or cash flows but it could be material in theperiod in which it is recorded.

**ITEM 4.**                 SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to GeneralInstruction I to Form 10-K.

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**PART II**

**ITEM 5.**                 MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

There is no established public trading market for thecommon stock of Hertz. Hertz Investors, Inc., which is wholly owned by Hertz Holdings, owns all of the outstandingcommon stock of Hertz.

We do not expect to pay dividends on our common stockfor the foreseeable future. The agreements governing our indebtedness restrictour ability to pay dividends. See “Item 7—Management’s Discussion and Analysisof Financial Condition and Results of Operations—Liquidity and CapitalResources—Financing.”

During the fourth quarter of 2006, Hertz declared andpaid cash dividends in the aggregate amount of $15.5 million to its immediateparent, Hertz Investors, Inc., who in turn paid cash dividends in the sameaggregate amount to its parent, Hertz Global Holdings, Inc.

On December 21, 2005,immediately prior to the Acquisition, Hertz paid a cash dividend in theaggregate amount of $1,185.0 million to its then parent, Ford Holdings LLC.

**ITEM 6.**                 SELECTEDFINANCIAL DATA

The following table presents selected consolidatedfinancial information and other data for our business. The selectedconsolidated statement of operations data for the year ended December 31,2006, the Successor period ended December 31, 2005, the Predecessor periodended December 20, 2005 and the year ended December 31, 2004 and theselected consolidated balance sheet data as of December 31, 2006 and 2005presented below were derived from our consolidated financial statements and therelated notes thereto included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

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You shouldread the following information in conjunction with the section of this AnnualReport entitled “Item 7—Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and our consolidated financial statementsand related notes thereto included in this Annual Report under the caption “Item8—Financial Statements and Supplementary Data.”

| ** **                                                                                                                                                                                                                   | ** ** | **Successor** | ** ** | ** **                                   | ** ** | **Predecessor**                                              | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                   | ** ** | ** **    | ** ** | **For the Periods From**      | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(In millions of dollars, except  per share data)                       ** | ** ** | ** **    | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** ** | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** | **Year ended  December 31,  2003** | ** ** | **Year ended  December 31,  2002** | ** ** |
| **Statement of Operations Data**                                                                                                                                                                                             | ** ** |          | ** ** | ** **                                   |       |                                                         | ** ** |   |   |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Revenues:                                                                                                                                                                                                                    |       |          |       |                                         |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                                                                                                                                                                                                   |       |          | $          | 6,273.6                                      |       |                                                         |       | $ | 129.4 |   |   |   |   |   | $ | 5,820.5 |   |   |   | $ | 5,430.8 |   |   |   | $ | 4,819.3 |   |   |   | $ | 4,537.6 |   |   |
| Equipment rental                                                                                                                                                                                                             |       |          | 1,672.1    |                                         |       |                                                         | 22.5       |   |   |   |   |   | 1,392.4 |   |   |   | 1,162.0 |   |   |   | 1,037.8 |   |   |   | 1,018.7 |   |   |
| Other(a)                                                                                                                                                                                                                     |       |          | 112.7      |                                         |       |                                                         | 2.6        |   |   |   |   |   | 101.8 |   |   |   | 83.2 |   |   |   | 76.6 |   |   |   | 82.1 |   |   |
| Total revenues                                                                                                                                                                                                               |       |          | 8,058.4    |                                         |       |                                                         | 154.5      |   |   |   |   |   | 7,314.7 |   |   |   | 6,676.0 |   |   |   | 5,933.7 |   |   |   | 5,638.4 |   |   |
| Expenses:                                                                                                                                                                                                                    |       |          |       |                                         |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct operating                                                                                                                                                                                                             |       |          | 4,476.0    |                                         |       |                                                         | 103.0      |   |   |   |   |   | 4,086.3 |   |   |   | 3,734.4 |   |   |   | 3,316.1 |   |   |   | 3,093.0 |   |   |
| Depreciation of revenue earning equipment(b)                                                                                                                                                                                 |       |          | 1,757.2    |                                         |       |                                                         | 43.8       |   |   |   |   |   | 1,555.9 |   |   |   | 1,463.3 |   |   |   | 1,523.4 |   |   |   | 1,499.5 |   |   |
| Selling, general and administrative                                                                                                                                                                                          |       |          | 723.8      |                                         |       |                                                         | 15.1       |   |   |   |   |   | 623.4 |   |   |   | 591.3 |   |   |   | 501.7 |   |   |   | 463.1 |   |   |
| Interest, net of interest income(c)                                                                                                                                                                                          |       |          | 860.7      |                                         |       |                                                         | 25.8       |   |   |   |   |   | 474.2 |   |   |   | 384.4 |   |   |   | 355.0 |   |   |   | 366.4 |   |   |
| Total expenses                                                                                                                                                                                                               |       |          | 7,817.7    |                                         |       |                                                         | 187.7      |   |   |   |   |   | 6,739.8 |   |   |   | 6,173.4 |   |   |   | 5,696.2 |   |   |   | 5,422.0 |   |   |
| Income (loss) before income taxes and minority  interest                                                                                                                                                                     |       |          | 240.7      |                                         |       |                                                         | (33.2      | ) |   |   |   |   | 574.9 |   |   |   | 502.6 |   |   |   | 237.5 |   |   |   | 216.4 |   |   |
| (Provision) benefit for taxes on income(d)                                                                                                                                                                                   |       |          | (83.7      | )                                            |       |                                                         | 12.2       |   |   |   |   |   | (191.3 | ) |   |   | (133.9 | ) |   |   | (78.9 | ) |   |   | (72.4 | ) |   |
| Minority interest                                                                                                                                                                                                            |       |          | (16.7      | )                                            |       |                                                         | (0.3       | ) |   |   |   |   | (12.3 | ) |   |   | (3.2 | ) |   |   | — |   |   |   | — |   |   |
| Income (loss) before cumulative effect of change in  accounting principle                                                                                                                                                    |       |          | 140.3      |                                         |       |                                                         | (21.3      | ) |   |   |   |   | 371.3 |   |   |   | 365.5 |   |   |   | 158.6 |   |   |   | 144.0 |   |   |
| Cumulative effect of change in accounting  principle(e)                                                                                                                                                                      |       |          | —     |                                         |       |                                                         | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (294.0 | ) |   |
| Net income (loss)                                                                                                                                                                                                            |       |          | $          | 140.3                                        |       |                                                         |       | $ | (21.3 | ) |   |   |   |   | $ | 371.3 |   |   |   | $ | 365.5 |   |   |   | $ | 158.6 |   |   |   | $ | (150.0 | ) |   |
| **Other Financial Data**                                                                                                                                                                                                     | ** ** |          | ** ** | ** **                                   |       |                                                         | ** ** |   |   |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net non-fleet capital expenditures                                                                                                                                                                                           |       |          | $          | 159.8                                        |       |                                                         |       | $ | 7.3 |   |   |   |   |   | $ | 261.9 |   |   |   | $ | 227.1 |   |   |   | $ | 172.1 |   |   |   | $ | 189.2 |   |   |
| Ratio of earnings to  fixed charges(f)                                                                                                                                                                                       |       |          | 1.2        |                                         |       |                                                         | —     |   |   |   |   |   | 1.9 |   |   |   | 1.9 |   |   |   | 1.5 |   |   |   | 1.4 |   |   |
|                                                                                                                                                                                                                              |            |               |            |                                              |            |                                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                                      | ** ** | **Successor**         | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|------------|------------|-----------------|------------|
| ** **                                      | ** ** | **December 31,** | ** ** |
| ** **                                      | ** ** | **2006**              | ** ** | **2005**   | ** ** | ** **      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Balance Sheet Data**                          |       |                  |       |       |       |            |       |   |   |   |   |   |   |
| Cash and equivalents and short-term investments |       | $                     | 671.8      |       | $          | 843.9           |       |   |   | $ | 1,235.0 |   | $ | 1,110.1 |   | $ | 601.3 |   |
| Total assets (g)                                |       | 18,675.7              |       | 18,580.9   |       |            |       | 14,096.4 |   | 12,579.0 |   | 11,128.9 |   |
| Total debt                                      |       | 12,276.2              |       | 12,515.0   |       |            |       | 8,428.0 |   | 7,627.9 |   | 7,043.2 |   |
| Stockholder’s equity  (h)                  |       | 2,518.5               |       | 2,266.2    |       |            |       | 2,670.2 |   | 2,225.4 |   | 1,921.9 |   |
|                                                 |            |                       |            |            |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |

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(a)            Includesfees and certain cost reimbursements from our licensees and revenues from ourcar leasing operations and third-party claim management services.

(b)           Forthe year ended December 31, 2006, the Successor period ended December 31,2005 and the Predecessor period ended December 20, 2005, depreciation ofrevenue earning equipment was reduced by $13.1 million, $1.2 million and $33.8million, respectively, resulting from the net effects of changing depreciationrates to reflect changes in the estimated residual value of revenue earningequipment. For the year ended December 31, 2006, the Successor periodended December 31, 2005, the Predecessor period ended December 20,2005, and the years ended December 31, 2004, 2003 and 2002, depreciationof revenue earning equipment includes net gains of $35.9 million, $2.1 million,$68.3 million, $57.2 million, a net loss of $0.8 million and a net gain of$10.8 million, respectively, from the disposal of revenue earning equipment.

(c)            Forthe year ended December 31, 2006, the Successor period ended December 31,2005, the Predecessor period ended December 20, 2005, and the years ended December 31,2004, 2003 

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and 2002, interestincome was $42.3 million, $1.1 million, $36.1 million, $23.7 million, $17.9 millionand $10.3 million, respectively.

(d)           Forthe year ended December 31, 2006, we established valuation allowances of$9.8 million relating to the realization of deferred tax assets attributable tonet operating losses and other temporary differences in certain Europeancountries. Additionally, certain tax reserves were recorded for certain federaland state contingencies. The Predecessor period ended December 20, 2005includes the reversal of a valuation allowance on foreign tax creditcarryforwards of $35.0 million (established in 2004) and favorable foreign taxadjustments of $5.3 million relating to periods prior to 2005, partly offset bya $31.3 million provision relating to the repatriation of foreign earnings. ThePredecessor period ended December 31, 2004 includes benefits of $46.6million relating to net adjustments to federal and foreign tax accruals.

(e)            Cumulativeeffect of change in accounting principle represents a non-cash charge for theyear ended December 31, 2002, related to impairment of goodwill in ourequipment rental business, recognized in accordance with the adoption ofStatement of Financial Accounting Standards No. 142, “Goodwill and OtherIntangible Assets.”

(f)                Earningshave been calculated by adding interest expense and the portion of rentestimated to represent the interest factor implicit in our operating leases toincome before income taxes and minority interest. Fixed charges includeinterest charges (including capitalized interest) and the portion of rentestimated to represent the interest factor implicit in our operating leases.Earnings for the Successor period ended December 31, 2005 were inadequateto cover fixed charges for the period by $33.3 million.

(g)           Substantiallyall of our revenue earning equipment, as well as certain related assets, areowned by special purpose entities, or are subject to liens in favor of ourlenders under our Senior ABL Facility, our asset-backed securitiesprogram, our International Fleet Debt Facilities or the fleet financingfacility relating to our car rental fleet in Hawaii, Kansas, Puerto Rico andSt. Thomas, the U.S. Virgin Islands. Substantially all our other assets in theUnited States are also subject to liens in favor of our lenders under ourSenior Credit Facilities, and substantially all our other assets outside theUnited States are (with certain limited exceptions) subject to liens in favorof our lenders under our International Fleet Debt Facilities or (in the case ofour Canadian HERC business) our Senior ABL Facility. None of such assets areavailable to satisfy the claims of our general creditors. For a description ofthose facilities, see “Item 7—Management’s Discussion and Analysis of FinancialConditions and Results of Operations—Liquidity and Capital Resources.”

(h)            Includesequity contributions totaling $2,295 million to Hertz Holdings from investmentfunds associated with or designated by the Sponsors on or prior to December 21,2005.

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**ITEM 7.**                 MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*The following discussion and analysis of our resultsof operations and financial condition covers periods prior to the consummationof the Transactions. Accordingly, the discussion and analysis of historicalperiods prior to the year ended December 31, 2006 does not reflect thesignificant impact that the Transactions had on us, including significantlyincreased leverage and liquidity requirements. The statements in the discussionand analysis regarding industry outlook, our expectations regarding theperformance of our business and the other non-historical statements are forward-lookingstatements. These forward-looking statements are subject to numerousrisks and uncertainties, including, but not limited to, the risks anduncertainties described in “Item 1A—Risk Factors.” The following discussion andanalysis provides information that we believe to be relevant to anunderstanding of our consolidated financial condition and results ofoperations. Our actual results may differ materially from those contained in orimplied by any forward-looking statements. You should read the followingdiscussion together with the sections entitled “Cautionary Note RegardingForward-Looking Statements,” “Item 1A—Risk Factors,” “Item 6—SelectedFinancial Data” and our consolidated financial statements and related notesincluded in this Annual Report under the caption “Item 8—Financial Statementsand Supplementary Data.”*

**Overview**

We are engaged principally in the business of rentingcars and renting equipment.

Our revenues primarilyare derived from rental and related charges and consist of:

·       Carrental revenues (revenues from all company-operated car rentaloperations, including charges to customers for the reimbursement of costsincurred relating to airport concession fees and vehicle license fees, thefueling of vehicles and the sale of loss or collision damage waivers, liabilityinsurance coverage and other products);

·       Equipmentrental revenues (revenues from all company-operated equipment rentaloperations, including amounts charged to customers for the fueling and deliveryof equipment and sale of loss damage waivers); and

·       Otherrevenues (fees and certain cost reimbursements from our licensees and revenuesfrom our car leasing operations and our third-party claim managementservices).

Our equipment rental business also derives revenuesfrom the sale of new equipment and consumables.

Our expenses primarilyconsist of:

·       Directoperating expenses (primarily wages and related benefits; commissions andconcession fees paid to airport authorities, travel agents and others;facility, self-insurance and reservations costs; the cost of new equipment andconsumables purchased for resale; and other costs relating to the operation andrental of revenue earning equipment, such as damage, maintenance and fuelcosts);

·       Depreciationexpense relating to revenue earning equipment (including net gains or losses onthe disposal of such equipment). Revenue earning equipment includes cars andequipment;

·       Selling,general and administrative expenses (including advertising); and

·       Interestexpense, net of interest income.

The car and equipment rental industries aresignificantly influenced by general economic conditions. The car rentalindustry is also significantly influenced by developments in the travelindustry, and, 

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particularly, in airline passenger traffic. Ourprofitability is primarily a function of the volume and pricing of rentaltransactions and the utilization of cars and equipment. Significant changes inthe purchase price of cars and equipment or interest rates can also have asignificant effect on our profitability depending on our ability to adjustpricing for these changes. In the United States, increases of approximately 17%in monthly per-car depreciation costs for 2006 model year program carsbegan to adversely affect our results of operations in the fourth quarter of2005, as those cars began to enter our fleet. On a comparable basis, we expect2007 model year program vehicle depreciation costs to rise approximately 20%and per-car depreciation costs for 2007 model year U.S. risk cars to declineslightly. As a consequence of those changes in per-car costs, as well as thelarger proportion of our U.S. fleet we expect to purchase as risk cars andother actions we expect to take to mitigate program car cost increases, weexpect our net per-car depreciation costs for 2007 model year cars in theUnited States will increase by approximately 5% from our net per-cardepreciation costs for 2006 model year U.S. cars. We began to experience theimpact of those cost changes and mitigation actions in the fourth quarter of2006, as substantial numbers of 2007 model year cars began to enter our U.S. rentalfleet. Our business requires significant expenditures for cars and equipment,and consequently we require substantial liquidity to finance such expenditures.

Our car rental and equipment rental operations areseasonal businesses, with decreased levels of business in the winter months andheightened activity during the spring and summer. We have the ability todynamically manage fleet capacity, the most significant portion of our coststructure, to meet market demand. For instance, to accommodate increaseddemand, we increase our available fleet and staff during the second and thirdquarters of the year. As business demand declines, fleet and staff aredecreased accordingly. A number of our other major operating costs, includingairport concession fees, commissions and vehicle liability expenses, aredirectly related to revenues or transaction volumes. In addition, ourmanagement expects to utilize enhanced process improvements, includingefficiency initiatives and use of our information systems, to help manage ourvariable costs. Approximately two-thirds of our typical annual operatingcosts represent variable costs, while the remaining one-third are fixedor semi-fixed. We also maintain a flexible workforce, with a significantnumber of part time and seasonal workers. However, certain operating expenses,including minimum concession fees, rent, insurance, and administrativeoverhead, remain fixed and cannot be adjusted for seasonal demand.

As part of our effort to implement our strategy ofreducing operating costs, we are evaluating our workforce and operations andmaking adjustments, including headcount reductions and process improvements tooptimize work flow at rental locations and maintenance facilities as well asstreamlining our back-office operations, that we believe are necessary andappropriate. When we make adjustments to our workforce and operations, we mayincur incremental expenses that delay the benefit of a more efficient workforceand operating structure, but we believe that increasing our operatingefficiency and reducing the costs associated with the operation of our businessare important to our long-term competitiveness.

On January 5, 2007, we announced the first in aseries of initiatives to further improve our competitiveness through targetedjob reductions affecting approximately 200 employees primarily at our corporateheadquarters in Park Ridge, New Jersey and our U.S. service center in OklahomaCity. These reductions are expected to result in annualized savings of up to$15.8 million. We expect to incur an estimated $3.3 million to $3.8 millionrestructuring charge in the first quarter of 2007 for severance and relatedcosts arising from these reductions.

On February 28, 2007, we announced the secondinitiative to further improve our competitiveness and industry leadershipthrough targeted job reductions affectingapproximately 1,350 employees primarily in our U.S. car rental operations, withmuch smaller reductions occurring in U.S. equipment rental operations, thecorporate headquarters in Park Ridge, New Jersey, and the U.S. service centerin Oklahoma City, as well as in Canada, Puerto Rico, Brazil, Australia and NewZealand. These 

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reductions are expected to result in annualizedsavings of up to $125.0 million. Weexpect to incur an estimated $9.0 million to $11.0 million restructuring chargein the first quarter of 2007 for severance and related costs arising from thesereductions.

Further cost reduction initiatives are in process. Wecurrently anticipate incurring future charges to earnings in connection withthose initiatives; however, we have not yet developed detailed estimates ofthese expenses.

In the United States, industry revenues from airportrentals only in 2004 returned to levels seen before the 2001 recession and theSeptember 11, 2001 terrorist attacks. For the year ended December 31,2006, based on publicly available information, we believe some U.S. car rentalcompanies experienced transaction day growth and pricing increases compared tocomparable prior periods. For the year ended December 31, 2006, weexperienced a less than one percentage point volume decline versus the priorperiod in the U.S., while pricing was up over three percentage points. Thevolume decline was the result of a reduction in fleet volume given significantfleet cost increases, higher leisure pricing for the period fromMarch through May 2006 and the difficult comparison in the quarterending December 31, 2006 due to the extraordinarily high volumes ofpost-hurricane rentals in the Gulf Coast and Florida areas in 2005. During theyear ended December 31, 2006, we experienced low to mid single digittransaction day growth in our European operations and our car rental pricingwas above the level of our pricing during the year ended December 31,2005.

In the three years ended December 31, 2006, weincreased the number of our off-airport rental locations in the United Statesby approximately 32% to approximately 1,380 locations. Revenues from our U.S.off-airport operations grew during the same period, representing $885.2million, $843.7 million, $697.4 and $576.9 million of our total car rentalrevenues in the years ended December 31, 2006, 2005, 2004 and 2003,respectively. In 2007 and subsequent years our strategy may include selectedopenings of new off-airport locations, the disciplined evaluation of existinglocations and the pursuit of same-store sales growth. When we open a newoff-airport location, we incur a number of costs, including those relating tosite selection, lease negotiation, recruitment of employees, selection anddevelopment of managers, initial sales activities and integration of oursystems with those of the companies who will reimburse the location’sreplacement renters for their rentals. A new off-airport location, once opened,takes time to generate its full potential revenues, and as a result revenues atnew locations do not initially cover their start-up costs and often do not, forsome time, cover the costs of their ongoing operation.

From 2001 to 2003, the equipment rental industryexperienced downward pricing, measured by the rental rates charged by rentalcompanies. For the yearsended December 31, 2004, 2005 and 2006, we believe industry pricing,measured in the same way, improved in the United States and Canada and onlystarted to improve towards the end of 2005 in France and Spain. HERC alsoexperienced higher equipment rental volumes worldwide for the years endedDecember 31, 2005 and 2006. HERC slightly contracted its network ofequipment rental locations during the 2001 to 2003 downturn in constructionactivities. HERC added five new locations in the United States in 2004 and sixnew locations in 2005. During the year ended December 31, 2006, HERC addedten new U.S. locations and two new Canadian locations. HERC expects to addapproximately 15 to 20 additional new locations in the United States and threeadditional locations in Canada in 2007. In its U.S. expansion, we expect HERCwill incur non-fleet start-up costs of approximately $0.6 million per locationand additional fleet acquisition costs over an initial twelve-monthperiod of approximately $5.4 million per location.

Property damage and businessinterruption from the 2005 hurricanes in Florida and other Gulf Coast statesdid not have a material effect on our results of operations for the year endedDecember 31, 2005.

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**Critical AccountingPolicies and Estimates**

Our discussion and analysis of financial condition andresults of operations are based upon our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America, or “GAAP.” The preparation of thesefinancial statements requires management to make estimates and judgments thataffect the reported amounts in our financial statements and accompanying notes.

We believe the followingcritical accounting policies affect the more significant judgments andestimates used in the preparation of our financial statements and changes inthese judgments and estimates may impact our future results of operations andfinancial condition. For additional discussion of our accounting policies, seeNote 1 to the Notes to our consolidated financial statements included in thisAnnual Report under the caption “Item 8—Financial Statements and SupplementaryData.”

***Revenue Earning Equipment***

Our principal assets arerevenue earning equipment, which represented approximately 53% of our totalassets as of December 31, 2006. Revenue earning equipment consists ofvehicles utilized in our car rental operations and equipment utilized in ourequipment rental operations. For the year ended December 31, 2006, 64% ofthe vehicles purchased for our U.S. and international car rental fleet weresubject to repurchase by automobile manufacturers under contractual repurchaseand guaranteed depreciation programs, subject to certain manufacturers’ carcondition and mileage requirements, at a specific price during a specified timeperiod. These programs limit our residual risk with respect to vehiclespurchased under the programs. For all other vehicles, as well as equipmentacquired by our equipment rental business, we use historical experience andmonitor market conditions to set depreciation rates. When revenue earningequipment is acquired, we estimate the period that we will hold the asset.Depreciation is recorded on a straight-line basis over the estimated holdingperiod, with the objective of minimizing gain or loss on the disposition of therevenue earning equipment. Depreciation rates are reviewed on an ongoing basisbased on management’s routine review of present and estimated future marketconditions and their effect on residual values at the time of disposal. Upondisposal of the revenue earning equipment, depreciation expense is adjusted forthe difference between the net proceeds received and the remaining net bookvalue. As market conditions change, we adjust our depreciation ratesprospectively, over the remaining holding period, to reflect these changes inmarket conditions. See Note 7 to the Notes to our consolidated financialstatements included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

***Public Liability and Property Damage***

The obligation for publicliability and property damage on self-insured U.S. and international vehiclesand equipment represents an estimate for both reported accident claims not yetpaid, and claims incurred but not yet reported. The related liabilities arerecorded on a non-discounted basis. Reserve requirements are based on actuarialevaluations of historical accident claim experience and trends, as well asfuture projections of ultimate losses, expenses, premiums and administrativecosts. The adequacy of the liability is regularly monitored based on evolvingaccident claim history. If our estimates change or if actual results differfrom these assumptions, the amount of the recorded liability is adjusted toreflect these results.

***Pensions***

Our employee pension costs and obligations aredependent on our assumptions used by actuaries in calculating such amounts.These assumptions include discount rates, salary growth, long-term return 

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on plan assets, retirement rates, mortality rates andother factors. Actual results that differ from our assumptions are accumulatedand amortized over future periods and, therefore, generally affect ourrecognized expense in such future periods. While we believe that theassumptions used are appropriate, significant differences in actual experienceor significant changes in assumptions would affect our pension costs andobligations.

In September 2006,the FASB issued Statementof Financial Accounting Standards, or “SFAS” No. 158, or “SFAS No. 158,”“Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans.” SFAS No. 158 requires employers to fully recognize the obligationsassociated with single-employer defined benefit pension plans, retireehealthcare and other postretirement plans in their financial statements. Theprovisions of SFAS No. 158 were effective as of our fiscal year ending December 31,2006. The effect of applying SFAS No. 158as of December 31, 2006 was as follows (in thousands of dollars):

| ** **                               | ** ** | **Before application**        | ** ** | **Adjustments  Increase** | ** ** | **After application**         | ** ** |
|------------------------------------------|------------|------------------------------------|------------|---------------------------|------------|------------------------------------|------------|
| ** **                               | ** ** | **of SFAS No. 158** | ** ** | **(Decrease)**            | ** ** | **of SFAS No. 158** | ** ** |
| Accrued salaries and  other compensation |       |                               | $          | 474,777                   |       |                               |       | $ | (11,311 | ) |   |   | $ | 463,466 |   |   |
| Deferred taxes on  income                |       |                               | 1,811,933  |                      |       |                               | 4,873      |   |   |   | 1,816,806 |   |   |
| Total liabilities                        |       |                               | 16,148,902 |                      |       |                               | (6,438     | ) |   |   | 16,142,464 |   |   |
| Accumulated other  comprehensive income  |       |                               | 88,090     |                      |       |                               | 6,438      |   |   |   | 94,528 |   |   |
| Total stockholder’s equity          |       |                               | 2,512,013  |                      |       |                               | 6,438      |   |   |   | 2,518,451 |   |   |

 

See Note 5 to the Notes to ourconsolidated financial statements included in this Annual Report under thecaption “Item 8—Financial Statements and Supplementary Data.”

***Goodwill and Other Intangible Assets***

We review goodwill for impairment whenever events orchanges in circumstances indicate that the carrying amount of the goodwill maynot be recoverable, and also review goodwill annually in accordance with SFAS No. 142,“Goodwill and Other Intangible Assets.” Our annual review is conducted in thesecond quarter of each year. Under SFAS No. 142, goodwill impairment isdeemed to exist if the carrying value of goodwill exceeds its fair value. Inaddition, SFAS No. 142 requires that goodwill be tested at least annuallyusing a two-step process. The first step is to identify any potentialimpairment by comparing the carrying value of the reporting unit to its fairvalue. If a potential impairment is identified, the second step is to comparethe implied fair value of goodwill with its carrying amount to measure theimpairment loss. We estimate the fair value of our reporting units using adiscounted cash flow methodology. A significant decline in the projected cashflows used to determine fair value could result in a goodwill impairmentcharge.

The Acquisition was recorded by allocating the cost ofthe assets acquired, including intangible assets and liabilities assumed, basedon their estimated fair values at the Acquisition date. Consequently, as aresult of the Acquisition, we have recognized significant intangible assets. Inaccordance with SFAS No. 142, we reevaluate the estimated useful lives ofour intangible assets annually or as circumstances change. Those intangibleassets considered to have indefinite useful lives are evaluated for impairmenton an annual basis, by comparing the fair value of the intangible asset to itscarrying value. In addition, whenever events or changes in circumstancesindicate that the carrying value of intangible assets might not be recoverable,we will perform an impairment review. We estimate the fair value of ourintangible assets using a discounted cash flow methodology. Intangible assetswith finite useful lives are amortized over their respective estimated usefullives and reviewed for impairment in accordance with SFAS No. 144, “Accountingfor Impairment or Disposal of Long-Lived Assets.”

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Our estimates are based upon historical trends,management’s knowledge and experience and overall economic factors. While webelieve our estimates are reasonable, different assumptions regarding itemssuch as future cash flows and volatility in the markets we serve could affectour evaluations and result in an impairment charge to the carrying amount ofour goodwill and our intangible assets.

See Note 2 to the Notes to ourconsolidated financial statements included in this Annual Report under thecaption “Item 8—Financial Statements and Supplementary Data.”

***Income Taxes***

Deferred tax assets and liabilities are recognized forthe future tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases. Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effectof a change in tax rates is recognized in income in the period that includesthe enactment date. Valuation allowances are recorded to reduce deferred taxassets when it is more likely than not that a tax benefit will not be realized.

During 2006, a third party was engaged to perform acomprehensive analysis of our deferred taxes in order to remediate asignificant deficiency noted during the 2005 testing of internal controls overfinancial reporting related to income taxes. The domestic deferred tax analysiswas finalized in the fourth quarter of 2006 and resulted in a $159.4 million decreaseto our deferred tax liability and a $156.3 million decrease to ourgoodwill. We have determined that these adjustments were not material to ourcurrent or previously issued consolidated financial statements.

See Note 8 to the Notes to ourconsolidated financial statements included in this Annual Report under thecaption “Item 8—Financial Statements and Supplementary Data.”

***Stock-Based Compensation***

In December 2004, the Financial AccountingStandards, or “FASB,” revised its SFAS, No. 123, with SFAS No. 123R, “Share-BasedPayment.” The revised statement requires a public entity to measure the cost ofemployee services received in exchange for an award of equity instruments basedon the grant-date fair value of the award. That cost is to be recognized overthe period during which the employee is required to provide service in exchangefor the award. The non-cash stock-based compensation expense associated withthe Hertz Global Holdings, Inc. Stock Incentive Plan is pushed down fromHertz Holdings and recorded on the books at the Hertz level. We have accountedfor our employee stock-based compensation awards in accordance with SFAS No. 123R.As disclosed in Note 6 to the Notes to our consolidated financial statementsincluded in this AnnualReport under the caption “Item 8—Financial Statements and SupplementaryData,” we estimated the fair value of options issued at the date of grant usinga Black-Scholes option-pricing model, which includes assumptionsrelated to volatility, expected term, dividend yield, risk-free interest rateand forfeiture rate.

As described under “—Hertz Holdings Stock IncentivePlan,” Hertz Holdings granted or modified options to purchase shares of itscommon stock and sold shares of its common stock to certain of its employees inMay, June and August of 2006. Hertz Holdings’ management and thecompensation committee of its Board of Directors determined that the fair valueper share of its common stock was $10.00 ($4.56 after giving effect to specialcash dividends paid on June 30, 2006 and November 21, 2006) as of May 15,2006, $12.00 per share ($6.56 after giving effect to special cash dividends paidon June 30, 2006 and November 21, 2006) as of June 30, 2006 and$6.56 as of August 15, 2006 (after adjustment for the special cashdividend paid on November 21, 2006). Determining the fair value of thecommon stock of Hertz Holdings as of each of these dates required makingsubjective judgments. 

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Hertz engaged an independent valuation specialist toperform a valuation of the common stock of Hertz Holdings as of May 15,2006, June 30, 2006 and August 15, 2006 to assist Hertz Holdings’management and the compensation committee of its Board of Directors inconnection with the determination of the fair market value of the common stockof Hertz Holdings as of these dates.

Several events that occurred over the period from lateAugust through September 2006, as well as the proximity of thethen-proposed initial public offering of the common stock of Hertz Holdings,led Hertz Holdings to reconsider the method used for estimating the fair valueof its common stock under SFAS No. 123R as of August 15, 2006, andHertz Holdings has subsequently determined that the fair value of its commonstock as of August 15, 2006 should be $16.37 per share, rather than $7.68($6.56 after adjustment for the special cash dividend paid on November 21,2006) as had originally been determined at that time. In determining the fairvalue per share of the common stock of Hertz Holdings as of the August 15,2006 date, Hertz Holdings placed significantly greater weight on theseadditional events than on the valuation report prepared by the independentvaluation specialist as of August 15, 2006.

The events that led Hertz Holdings to reconsider thefair value of its common stock as of August 15, 2006, in addition to theproximity of the offering, include the emergence of an actively traded car rentalindustry participant comparable in size to Hertz Holdings, ABG, and the relatedincrease in analyst coverage of the car rental industry, with the associatedemergence of coverage that includes fully developed, forward-lookingincome statement, balance sheet and revenue models and price targets andmultiples for industry participants that utilize a more standardized valuationmetric that utilizes measures similar to what we and Hertz Holdings refer to as“Corporate EBITDA.” Before ABG’s emergence as a stand-alone publiccompany and the industry research that has been associated with it, there waslimited forward-looking industry trend information or valuationinformation available to provide forward-looking valuation benchmarks forcompanies in the car rental industry. This situation changed in August andSeptember 2006 as analysts from major investment banking firms developeddetailed projections models and provided their views of industry trends. Alsoin September 2006, analysts from two major investment banking firms eachpublished their views with respect to trends in the car rental industry and ofthe appropriate valuation for ABG, including forward-looking pricetargets for ABG’s stock. Each of these factors was also considered importantwhen determining the initial public offering price range for the common stockof Hertz Holdings.

Hertz Holdings determined the fair value of its commonstock as of August 15, 2006 for financial reporting purposes by applying amarketability discount, reflecting the likelihood and timing of the successfulcompletion of the then-proposed initial public offering of the common stock ofHertz Holdings as of August 15, 2006, to the assumed initial publicoffering price range of $16.00 or $18.00 per share.

The options granted on August 15, 2006 wereissued at strike prices of $7.68 per share ($6.56 after adjustment for thespecial cash dividend paid on November 21, 2006), $10.68 per share ($9.56after adjustment for the special cash dividend paid on November 21, 2006)and $15.68 per share ($14.56 after adjustment for the special cash dividendpaid on November 21, 2006), and we will record compensation expensetotaling $19.0 million based on a fair value per share of $16.37 that will beamortized over the service period that began on the grant date. We alsorecognized compensation expense of $13.2 million associated with the differencebetween the price of $7.68 per share ($6.56 after adjustment for the specialcash dividend paid on November 21, 2006) paid for the stock issued on August 15,2006 and the reassessed fair value per share of $16.37 in the third quarter of2006.

Because the shares of common stock of Hertz Holdingssold in May 2006 were issued at a price at least equal to the fair marketvalue of the common stock of Hertz Holdings on the date of the issuances, wewere not required to recognize compensation expense associated with theseissuances. The compensation expense for the stock options Hertz Holdings issuedin May and 

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June 2006 was initially determined to be $72.9 million,which we will recognize over the service period that began on the grant dates.As a result of a modification of these options made in June 2006 inconnection with the special cash dividend paid on June 30, 2006, anadditional $14.1 million of compensation expense will also be recognized overthe remaining service period of the options. In June 2006 Hertz Holdingssold shares to Craig R. Koch, our former Chief Executive Officer, for less thantheir fair value as determined as of the date of issuance, and recognizedcompensation expense of $0.2 million as a result. See “—Hertz Holdings StockIncentive Plan.”

If the fair value of the common stock of HertzHoldings exceeded the May 2006 option strike price by $1.00, we would havehad to record additional compensation expense of $10.8 million in the aggregateover the service period of those options beginning in the second quarter of2006, as well as a charge of $1.8 million in the aggregate as compensationexpense associated with the May 2006 stock sales, the full amount of whichwould have been required to be recorded in the second quarter of 2006. If thefair value of the common stock of Hertz Holdings had been $1.00 higher at thetime of the special cash dividend paid on June 30, 2006, we would have hadto recognize additional expense, related to the modification of the exerciseprice of the options, of $1.5 million, to be amortized over the service periodof those options.

Prior to the consummation ofthe initial public offering of the common stock of Hertz Holdings on November 21,2006, Hertz Holdings declared a special cash dividend, to be paid promptlyfollowing the completion of the offering. In connection with the special cashdividend, Hertz Holdings’ outstanding stock options were adjusted to preservethe intrinsic value of the options, consistent with applicable tax law and theterms of the Stock Incentive Plan. The Board of Directors of Hertz Holdingsapproved this modification on October 12, 2006. Beginning on that date,the cost of the modification was recognized ratably over the remainder of therequisite service period for each grant. Because the modification was effectivebefore the amount of the dividend was known, the cost of the modificationreflected the assumption that the dividend would be funded by the proceeds toHertz Holdings from the sale of the common stock after deducting underwritingdiscounts and commissions and offering expenses. The assumed proceeds from thesale of the common stock were determined by assuming an offering priceequivalent to the midpoint of the range set forth on the cover page ofHertz Holdings’ initial public offering prospectus (or $17.00 per share) andresulted in an estimated dividend of $1.83 per share. The actual dividenddeclared was $1.12 per share. We will recognize incremental compensation costof $14.2 million related to the cost of modifying the exercise prices of thestock options for the special cash dividend paid on November 21, 2006 overthe remainder of the five-year requisite service period. This charge is basedon the estimated dividend, rather than the actual dividend paid.

**Results of Operations**

In thefollowing discussion, comparisons are made between the years ended December 31,2006 and December 31, 2005 (combined) and December 31, 2005 (combined)and December 31, 2004, notwithstanding the presentation in ourconsolidated statements of operations for the year ended December 31,2006, the Successor period ended December 31, 2005 and the Predecessorperiod ended December 20, 2005. A split presentation of an annual periodis required under GAAP when a change in accounting basis occurs. Consequently,the combined presentation for 2005 is not a recognized presentation under GAAP.Accounting for an acquisition requires that the historical carrying values ofassets acquired and liabilities assumed be adjusted to fair value. A resultinghigher cost basis associated with the allocation of the purchase price impactspost-acquisition period results, which impacts period-to-period comparisons. Webelieve a discussion of the separate periods presented for the year ended December 31,2005 in our consolidated statements of operations may impede understanding ofour operating performance. The impact of the Acquisition on the 11-daySuccessor period ended December 31, 2005 does not materially affect thecomparison of the annual 

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periodsand, accordingly, we have prepared the discussion of our results of operationsby comparing the year ended December 31, 2005 (combined) with the yearended December 31, 2006 and 2004 without regard to the differentiationbetween Predecessor and Successor results of operations for the Predecessorperiod ended December 20, 2005 and the Successor period ended December 31,2005.

| ** **                                                | ** ** | **Successor**                               | ** ** | **Combined**                                | ** ** | **Successor**                                                  | ** ** | ** ** | ** ** | **Predecessor**                                              | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------------|------------|
| ** **                                                | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | **For the periods from**                        | ** ** | ** ** | ** ** |
| **(In thousands of dollars)**              | ** ** | **Year Ended  December 31,** 2006 | ** ** | **Year Ended  December 31,** 2005 | ** ** | **December 21, 2005** to December 31, 2005 | ** ** | ** ** | ** ** | **January 1, 2005** to December 20, 2005 | ** ** | **Year ended  December 31,**2004 | ** ** |
| Revenues:                                                 |       |                                        |       |                                        |       |                                                           |       |       |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                                |       |                                        | $          | 6,273,612                                   |       |                                                           |       | $          | 5,949,921  |                                                         |       |   | $ | 129,448 |   |   |   |   |   | $ | 5,820,473 |   |   |   | $ | 5,430,805 |   |   |
| Equipment rental                                          |       |                                        | 1,672,093  |                                        |       |                                                           | 1,414,891  |       |       |                                                         | 22,430     |   |   |   |   |   | 1,392,461 |   |   |   | 1,161,955 |   |   |
| Other                                                     |       |                                        | 112,700    |                                        |       |                                                           | 104,402    |       |       |                                                         | 2,591      |   |   |   |   |   | 101,811 |   |   |   | 83,192 |   |   |
| Total revenues                                            |       |                                        | 8,058,405  |                                        |       |                                                           | 7,469,214  |       |       |                                                         | 154,469    |   |   |   |   |   | 7,314,745 |   |   |   | 6,675,952 |   |   |
| Expenses:                                                 |       |                                        |       |                                        |       |                                                           |       |       |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct operating                                          |       |                                        | 4,475,974  |                                        |       |                                                           | 4,189,302  |       |       |                                                         | 102,958    |   |   |   |   |   | 4,086,344 |   |   |   | 3,734,361 |   |   |
| Depreciation of revenue earning equipment                 |       |                                        | 1,757,202  |                                        |       |                                                           | 1,599,689  |       |       |                                                         | 43,827     |   |   |   |   |   | 1,555,862 |   |   |   | 1,463,258 |   |   |
| Selling, general and administrative                       |       |                                        | 723,829    |                                        |       |                                                           | 638,553    |       |       |                                                         | 15,167     |   |   |   |   |   | 623,386 |   |   |   | 591,317 |   |   |
| Interest, net of interest income                          |       |                                        | 860,671    |                                        |       |                                                           | 499,982    |       |       |                                                         | 25,735     |   |   |   |   |   | 474,247 |   |   |   | 384,464 |   |   |
| Total expenses                                            |       |                                        | 7,817,676  |                                        |       |                                                           | 6,927,526  |       |       |                                                         | 187,687    |   |   |   |   |   | 6,739,839 |   |   |   | 6,173,400 |   |   |
| Income (loss) before income taxes and minority   interest |       |                                        | 240,729    |                                        |       |                                                           | 541,688    |       |       |                                                         | (33,218    | ) |   |   |   |   | 574,906 |   |   |   | 502,552 |   |   |
| (Provision) benefit for taxes on income                   |       |                                        | (83,727    | )                                           |       |                                                           | (179,089   | )          |       |                                                         | 12,243     |   |   |   |   |   | (191,332 | ) |   |   | (133,870 | ) |   |
| Minority interest                                         |       |                                        | (16,714    | )                                           |       |                                                           | (12,622    | )          |       |                                                         | (371       | ) |   |   |   |   | (12,251 | ) |   |   | (3,211 | ) |   |
| Net income (loss)                                         |       |                                        | $          | 140,288                                     |       |                                                           |       | $          | 349,977    |                                                         |       |   | $ | (21,346 | ) |   |   |   |   | $ | 371,323 |   |   |   | $ | 365,471 |   |   |

 

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Thefollowing table sets forth for each of the periods indicated, the percentage oftotal revenues represented by the various line items consolidated statements ofoperations:

| ** **                                               | ** ** | **Successor**                          | ** ** | **Combined**                           | ** ** | **Successor**                                              | ** ** | ** ** | ** ** | **Predecessor**                                         | ** ** |
|----------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|------------------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|
| ** **                                               | ** ** | ** **                             | ** ** | ** **                             | ** ** | **For the periods from**                    | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | **December 21, 2005  to December 31,** | ** ** | ** ** | ** ** | **January 1, 2005** to December 20, | ** ** | **Year ended  December 31,** | ** ** |
| ** **                                               | ** ** | **2006**                               | ** ** | **2005**                               | ** ** | **2005**                                                   | ** ** | ** ** | ** ** | **2005**                                                | ** ** | **2004** | ** ** |
| Revenues:                                                |       |                                   |       |                                   |       |                                                       |       |       |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                               |       |                                   | 77.9       | %                                      |       |                                                       | 79.7       | %          |       |                                                    | 83.8       | % |   |   |   |   | 79.6 | % |   |   | 81.3 | % |   |
| Equipment rental                                         |       |                                   | 20.7       |                                   |       |                                                       | 18.9       |       |       |                                                    | 14.5       |   |   |   |   |   | 19.0 |   |   |   | 17.4 |   |   |
| Other                                                    |       |                                   | 1.4        |                                   |       |                                                       | 1.4        |       |       |                                                    | 1.7        |   |   |   |   |   | 1.4 |   |   |   | 1.3 |   |   |
| Total revenues                                           |       |                                   | 100.0      |                                   |       |                                                       | 100.0      |       |       |                                                    | 100.0      |   |   |   |   |   | 100.0 |   |   |   | 100.0 |   |   |
| Expenses:                                                |       |                                   |       |                                   |       |                                                       |       |       |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct operating                                         |       |                                   | 55.5       |                                   |       |                                                       | 56.1       |       |       |                                                    | 66.6       |   |   |   |   |   | 55.9 |   |   |   | 55.9 |   |   |
| Depreciation of revenue earning equipment                |       |                                   | 21.8       |                                   |       |                                                       | 21.4       |       |       |                                                    | 28.4       |   |   |   |   |   | 21.3 |   |   |   | 21.9 |   |   |
| Selling, general and administrative                      |       |                                   | 9.0        |                                   |       |                                                       | 8.5        |       |       |                                                    | 9.8        |   |   |   |   |   | 8.5 |   |   |   | 8.9 |   |   |
| Interest, net of interest income                         |       |                                   | 10.7       |                                   |       |                                                       | 6.7        |       |       |                                                    | 16.7       |   |   |   |   |   | 6.4 |   |   |   | 5.8 |   |   |
| Total expenses                                           |       |                                   | 97.0       |                                   |       |                                                       | 92.7       |       |       |                                                    | 121.5      |   |   |   |   |   | 92.1 |   |   |   | 92.5 |   |   |
| Income (loss) before  income taxes and minority interest |       |                                   | 3.0        |                                   |       |                                                       | 7.3        |       |       |                                                    | (21.5      | ) |   |   |   |   | 7.9 |   |   |   | 7.5 |   |   |
| (Provision) benefit  for taxes on income                 |       |                                   | (1.0       | )                                      |       |                                                       | (2.4       | )          |       |                                                    | 7.9        |   |   |   |   |   | (2.6 | ) |   |   | (2.0 | ) |   |
| Minority interest                                        |       |                                   | (0.2       | )                                      |       |                                                       | (0.2       | )          |       |                                                    | (0.2       | ) |   |   |   |   | (0.2 | ) |   |   | — |   |   |
| Net income (loss)                                        |       |                                   | 1.8        | %                                      |       |                                                       | 4.7        | %          |       |                                                    | (13.8      | )% |   |   |   |   | 5.1 | % |   |   | 5.5 | % |   |

 

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Thefollowing table sets forth certain of our selected car rental, equipment rentaland other operating data for each of the periods indicated:

| ** **                                                                                        | ** ** | **Successor**                                                        | ** ** | **Combined** | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|--------------|------------|------------|------------|-----------------|------------|
| ** **                                                                                        | ** ** | **Years Ended, or as of December 31,** | ** ** |
| ** **                                                                                        | ** ** | **2006**                                                             | ** ** | **2005**     | ** ** | ** ** | ** ** | **2004**        | ** ** |
| Selected Car Rental Operating Data:                                                               |       |                                                                 |       |         |       |       |       |            |       |   |   |
| Worldwide transaction days (in thousands)(a)                                                      |       | 123,462                                                              |       | 122,102      |       |       |       |            | 115,246    |   |   |
| Domestic                                                                                          |       | 85,931                                                               |       | 86,116       |       |       |       |            | 81,262     |   |   |
| International                                                                                     |       | 37,531                                                               |       | 35,986       |       |       |       |            | 33,984     |   |   |
| Worldwide rental rate revenue per transaction day(b)                                              |       | $                                                                    | 43.15      |         | $          | 42.03      |       |            |       |   | $ | 41.92 |   |   |
| Domestic                                                                                          |       | $                                                                    | 43.86      |         | $          | 42.43      |       |            |       |   | $ | 41.85 |   |   |
| International                                                                                     |       | $                                                                    | 41.53      |         | $          | 41.10      |       |            |       |   | $ | 42.10 |   |   |
| Worldwide average number of company-operated cars during the period                               |       | 438,100                                                              |       | 438,800      |       |       |       |            | 414,700    |   |   |
| Domestic                                                                                          |       | 296,400                                                              |       | 301,400      |       |       |       |            | 285,500    |   |   |
| International                                                                                     |       | 141,700                                                              |       | 137,400      |       |       |       |            | 129,200    |   |   |
| Worldwide revenue earning equipment, net (in millions of dollars)                                 |       | $                                                                    | 7,366.4    |         | $          | 7,399.5    |       |            |       |   | $ | 7,597.2 |   |   |
| Selected Worldwide  Equipment Rental Operating Data:                                              |       |                                                                 |       |         |       |       |       |            |       |   |   |
| Rental and rental related revenue (in millions of   dollars)(c)                                   |       | $                                                                    | 1,462.6    |         | $          | 1,254.3    |       |            |       |   | $ | 1,032.5 |   |   |
| Same store revenue growth(d)                                                                      |       | 16.8                                                                 | %          | 21.6         | %          |       |       |            | 13.3       | % |   |
| Average acquisition cost of rental equipment operated during the  period (in millions of dollars) |       | $                                                                    | 3,018.3    |         | $          | 2,588.0    |       |            |       |   | $ | 2,305.7 |   |   |
| Revenue earning equipment, net (in millions of dollars)                                           |       | $                                                                    | 2,439.1    |         | $          | 2,075.5    |       |            |       |   | $ | 1,525.7 |   |   |
| Other Operating Data:                                                                             |       |                                                                 |       |         |       |       |       |            |       |   |   |
| Cash flows from operating activities (in million of dollars)                                      |       | $                                                                    | 2,647.3    |         | $          | 1,458.6    |       |            |       |   | $ | 2,251.4 |   |   |
| EBITDA (in millions of dollars)(e)                                                                |       | 3,100.8                                                              |       | 2,819.5      |       |       |       |            | 2,525.3    |   |   |
| Corporate EBITDA (in  millions of dollars)(e)                                                     |       | 1,378.8                                                              |       | 1,141.3      |       |       |       |            | N/A        |   |   |
|                                                                                                   |            |                                                                      |            |              |            |            |            |                 |            |  |  |  |  |  |  |  |

 

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(a)            Transaction daysrepresents the total number of days that vehicles were on rent in a givenperiod.

(b)           Carrental rate revenue consists of all revenue, net of discounts, associated withthe rental of cars including charges for optional insurance products, butexcluding revenue derived from fueling and concession and other expensepass-throughs, NeverLost units and certain ancillary revenue. Rental raterevenue per transaction day is calculated as total rental rate revenue, dividedby the total number of transaction days, with all periods adjusted to eliminatethe effect of fluctuations in foreign currency. Our management believeseliminating the effect of fluctuations in foreign currency is appropriate so asnot to affect the comparability of underlying trends. This statistic isimportant to management as it represents the best measurement of the changes inunderlying pricing in the car rental business and encompasses the elements incar rental pricing that 

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management has the ability to control. The following table reconcilesour car rental revenue to our rental rate revenue and rental rate revenue pertransaction day (in millions of dollars, except as noted):

| ** **                                                  | ** ** | **Successor**                               | ** ** | **Combined** | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------|------------|--------------|------------|------------|------------|-----------------|------------|
| ** **                                                  | ** ** | **Years Ended December 31,** | ** ** |
| ** **                                                  | ** ** | **2006**                                    | ** ** | **2005**     | ** ** | ** ** | ** ** | **2004**        | ** ** |
| Car rental revenue per statement of operations              |       | $                                           | 6,273.6    |         | $          | 5,949.9    |       |            |       |   | $ | 5,430.8 |   |   |
| Non-rental rate revenue                                     |       | (836.8                                      | )          | (758.2       | )          |       |       |            | (561.4     | ) |   |
| Foreign currency adjustment                                 |       | (109.5                                      | )          | (59.2        | )          |       |       |            | (37.8      | ) |   |
| Rental rate revenue                                         |       | $                                           | 5,327.3    |         | $          | 5,132.5    |       |            |       |   | $ | 4,831.6 |   |   |
| Transaction days (in thousands)                             |       | 123,462                                     |       | 122,102      |       |       |       |            | 115,246    |   |   |
| Rental  rate revenue per transaction day (in whole dollars) |       | $                                           | 43.15      |         | $          | 42.03      |       |            |       |   | $ | 41.92 |   |   |

 

(c)            Equipmentrental and rental related revenue consists of all revenue, net of discounts,associated with the rental of equipment including charges for delivery, lossdamage waivers and fueling, but excluding revenue arising from the sale ofequipment, parts and supplies and certain other ancillary revenue. Rental andrental related revenue is adjusted in all periods to eliminate the effect offluctuations in foreign currency. Our management believes eliminating theeffect of fluctuations in foreign currency is appropriate so as not to affectthe comparability of underlying trends. This statistic is important to ourmanagement as it is utilized in the measurement of rental revenue generated perdollar invested in fleet on an annualized basis and is comparable with thereporting of other industry participants. The following table reconciles our equipment rental revenueto our equipment rental and rental related revenue (in millions of dollars):

| ** **                                           | ** ** | **Successor**                              | ** ** | **Combined** | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|--------------|------------|------------|------------|-----------------|------------|
| ** **                                           | ** ** | **Year ended December 31,** | ** ** |
| ** **                                           | ** ** | **2006**                                   | ** ** | **2005**     | ** ** | ** ** | ** ** | **2004**        | ** ** |
| Equipment rental revenue per statement of operations |       |                                       | $          | 1,672.1      |       |       |       | $               | 1,414.9    |   |   |   |   |   | $ | 1,162.0 |   |   |
| Equipment sales and other revenue                    |       |                                       | (193.6     | )            |       |       | (158.8     | )               |       |   |   |   | (134.2 | ) |   |
| Foreign currency adjustment                          |       |                                       | (15.9      | )            |       |       | (1.8       | )               |       |   |   |   | 4.7 |   |   |
| Rental  and rental related revenue                   |       |                                       | $          | 1,462.6      |       |       |       | $               | 1,254.3    |   |   |   |   |   | $ | 1,032.5 |   |   |

 

(d)           Same store revenuegrowth represents the change in the current period total same store revenueover the prior period total same store revenue as a percentage of the priorperiod. The same store revenue amounts are adjusted in all periods to eliminatethe effect of fluctuations in foreign currency. Our management believeseliminating the effect of fluctuations in foreign currency is appropriate so asnot to affect the comparability of underlying trends.

(e)            We present EBITDA andCorporate EBITDA in this report to provide investors with supplemental measuresof our operating performance and liquidity and, in the case of CorporateEBITDA, information utilized in the calculation of the financial covenantsunder our senior credit facilities. EBITDA, as used in this report, is definedas consolidated net income before net interest expense, consolidated incometaxes and consolidated depreciation and amortization. Corporate EBITDA differsfrom the term “EBITDA” as it is commonly used. Corporate EBITDA, as used inthis report, means “EBITDA” as that term is defined under our senior creditfacilities, which is generally consolidated net income before net interestexpense (other than interest expense relating to certain car rental fleetfinancing), consolidated income taxes, consolidated depreciation (other thandepreciation related to the car rental fleet) and amortization and beforecertain other items, in each case as more fully defined in the agreementsgoverning our senior credit facilities. The other items excluded in thiscalculation include, but are not limited to: non-cash expenses and 

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charges; extraordinary,unusual or non-recurring gains or losses; gains or losses associated with thesale or writedown of assets not in the ordinary course of business; certainmanagement fees paid to the Sponsors; and earnings to the extent of cashdividends or distributions paid from non-controlled affiliates. Further, thecovenants in our senior credit facilities are calculated using Corporate EBITDAfor the most recent four fiscal quarters as a whole. As a result, the measurecan be disproportionately affected by a particularly strong or weak quarter.Further, it may not be comparable to the measure for any subsequentfour-quarter period or for any complete fiscal year.

Management uses EBITDA and Corporate EBITDA asperformance and cash flow metrics for internal monitoring and planningpurposes, including the preparation of our annual operating budget and monthlyoperating reviews, as well as to facilitate analysis of investment decisions.In addition, both metrics are important to allow us to evaluate profitabilityand make performance trend comparisons between us and our competitors. Further,we believe EBITDA and Corporate EBITDA are frequently used by securities analysts,investors and other interested parties in the evaluation of companies in ourindustries.

EBITDA is also used by management and investors toevaluate our operating performance exclusive of financing costs anddepreciation policies. Further, because we have two business segments that arefinanced differently and have different underlying depreciationcharacteristics, EBITDA enables investors to isolate the effects onprofitability of operating metrics such as revenue, operating expenses andselling, general and administrative expenses. In addition to its use to monitorperformance trends, EBITDA provides a comparative metric to management andinvestors that is consistent across companies with different capital structuresand depreciation policies. This enables management and investors to compare ourperformance on a consolidated basis and on a segment basis to that of ourpeers. In addition, our management uses consolidated EBITDA as a proxy for cashflow available to finance fleet expenditures and the costs of our capitalstructure on a day-to-day basis so that we can more easily monitor our cashflows when a full statement of cash flows is not available.

Corporate EBITDA also serves as an important measureof our performance. Corporate EBITDA for our car rental segment enables us toassess our operating performance inclusive of fleet management performance,depreciation assumptions and the cost of financing our fleet. In addition,Corporate EBITDA for our car rental segment allows us to compare our performance,inclusive of fleet mix and financing decisions, to the performance of ourcompetitors. Since most of our competitors utilize asset-backed fleetdebt to finance fleet acquisitions, this measure is relevant for evaluating ouroperating efficiency inclusive of our fleet acquisition and utilization. Forour equipment rental segment, Corporate EBITDA provides an appropriate measureof performance because the investment in our equipment fleet is longer-term innature than for our car rental segment and, therefore, Corporate EBITDA allowsmanagement to assess operating performance exclusive of interim changes indepreciation assumptions. Further, unlike our car rental segment, our equipmentrental fleet is not financed through separate securitization-based fleetfinancing facilities, but rather through our corporate debt. Corporate EBITDAfor our equipment rental segment is a key measure used to make investmentdecisions because it enables us to evaluate return on investments. For bothsegments, Corporate EBITDA provides a relevant profitability metric for use incomparison of our performance against our public peers, many of whom publiclydisclose a comparable metric. In addition, we believe that investors, analystsand rating agencies consider EBITDA and Corporate EBITDA useful in measuringour ability to meet our debt service obligations and make capital expenditures.Several of our material debt covenants are based on financial ratios utilizingCorporate EBITDA and non-compliance with those covenants could result in therequirement to immediately repay all amounts outstanding 

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under those agreements, which could have a materialadverse effect on our results of operations, financial position and cash flows.

EBITDA and Corporate EBITDA are not recognizedmeasurements under GAAP. When evaluating our operating performance orliquidity, investors should not consider EBITDA and Corporate EBITDA inisolation of, or as a substitute for, measures of our financial performance andliquidity as determined in accordance with GAAP, such as net income, operatingincome or net cash provided by operating activities. EBITDA and CorporateEBITDA may have material limitations as performance measures because theyexclude items that are necessary elements of our costs and operations. Becauseother companies may calculate EBITDA and Corporate EBITDA differently than wedo, EBITDA may not be, and Corporate EBITDA as presented in this filing is not,comparable to similarly titled measures reported by other companies.

The calculation of Pro forma Corporate EBITDA in thetable below reflects historical financial data except for car rental fleetinterest and non-cash amortization of debt costs for the Predecessor periodspresented which have been calculated on a pro forma basis to give effect to ournew capital structure as if the fleet financings associated with theTransactions had occurred on January 1, 2005. This calculation may not berepresentative of the calculation of Corporate EBITDA under our senior creditfacilities for any period prior to December 31, 2006 because consolidatedinterest expense (as defined in the agreements governing our senior creditfacilities), a component of Corporate EBITDA, is calculated on a transitionalbasis until such date. For periods prior to December 31, 2006, CorporateEBITDA under this transitional formula would have been higher than the amountshown in the table below. Accordingly, we believe that the presentation of thisamount would be misleading to investors and have instead provided what we believeto be a more meaningful calculation of Corporate EBITDA.

Borrowings under our senior credit facilities are akey source of our liquidity. Our ability to borrow under these senior creditfacilities depends upon, among other things, the maintenance of a sufficientborrowing base and compliance with the financial ratio covenants based onCorporate EBITDA set forth in the credit agreements for our senior creditfacilities. Our senior term loan facility requires us to maintain a specifiedconsolidated leverage ratio and consolidated interest expense coverage ratiobased on Corporate EBITDA, while our senior asset-based loan facilityrequires that a specified consolidated leverage ratio and consolidated fixedcharge coverage ratio be maintained for periods during which there is less than$200 million of available borrowing capacity under the senior asset-basedloan facility. These financial covenants became applicable to us beginning September 30,2006, reflecting the four quarter period ending thereon. Failure to comply withthese financial ratio covenants would result in a default under the creditagreements for our senior credit facilities and, absent a waiver or anamendment from the lenders, permit the acceleration of all outstandingborrowings under the senior credit facilities. As of December 31, 2006, weperformed the calculations associated with the above noted financial covenantsand determined that we are in compliance with such covenants.

As of December 31, 2006, Hertz had an aggregateprincipal amount outstanding of $1,986.3 million pursuant to its senior termloan facility and no borrowings outstanding under its senior asset-basedloan facility. For the year ended December 31, 2006, Hertz is requiredunder the senior term loan facility to have a consolidated leverage ratio ofnot more than 6.25:1 and a consolidated interest expense coverage ratio of notless than 1.50:1. In addition, under its senior asset-based loanfacility, if there is less than $200 million of available borrowing capacityunder that facility as of December 31, 2006, Hertz is required to have aconsolidated leverage ratio of not more than 6.25:1 and a consolidated fixedcharge coverage ratio of not less than 1:1 for the year then ended. Under thesenior term loan facility, for the year ended December 31, 2006, we had aconsolidated leverage ratio of approximately 3.5:1 and a consolidated interestexpense coverage ratio of approximately 3.2:1. Since we have maintainedsufficient borrowing capacity 

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under our senior asset-based loan facility as ofDecember 31, 2006, and expect to maintain such capacity in the future, theconsolidated fixed charge coverage ratio was not deemed relevant forpresentation. For further information on the terms of our senior creditfacilities, see Note 3 to the Notes to our consolidated financial statementsincluded in this Annual Report under the caption “Item 8—Financial Statementsand Supplementary Data.” We have a significant amount of debt. For a discussionof the risks associated with our significant leverage, see “Item 1A—RiskFactors—Risks Relating to Our Substantial Indebtedness.”

Forpurposes of consistency, we have revised our calculation of Corporate EBITDAfor 2005 and 2006 so that the identified extraordinary, unusual ornon-recurring gains or losses are consistent with those used in thecalculations of certain other non-GAAP measures. The following table reconcileshistorical net income (loss) (i) on an actual basis to Corporate EBITDAfor the Successor year ended December 31, 2006, (ii) on a pro formabasis, as it relates to car rental fleet interest and non-cash amortization ofdebt costs, to Corporate EBITDA for the combined year ended December 31,2005, the Successor period ended December 31, 2005 and the Predecessorperiod ended December 20, 2005 and (iii) to EBITDA for thePredecessor year ended December 31, 2004 (in millions of dollars):

| ** **                                                 | ** ** | **Successor**                          | ** ** | **Combined**                           | ** ** | **Successor**                                          | ** ** | ** ** | ** ** | **Predecessor**                                          | ** ** |
|------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------|------------|------------|------------|----------------------------------------------------------|------------|
| ** **                                                 | ** ** | ** **                             | ** ** | ** **                             | ** ** | **For the Periods From**                     | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | **Year ended  December 31,** | ** ** | **Year ended  December 31,** | ** ** | **December 21,  2005 to  December 31,** | ** ** | ** ** | ** ** | **January 1, 2005  to December 20,** | ** ** | **Year ended  December 31,** | ** ** |
| ** **                                                 | ** ** | **2006**                               | ** ** | **2005**                               | ** ** | **2005**                                               | ** ** | ** ** | ** ** | **2005**                                                 | ** ** | **2004** | ** ** |
| Net income (loss)(1)                                       |       |                                   | $          | 140.3                                  |       |                                                   |       | $          | 350.0      |                                                     |       |   | $ | (21.3 | ) |   |   |   |   | $ | 371.3 |   |   |   | $ | 365.5 |   |   |
| Depreciation and  amortization(2)                          |       |                                   | 2,016.1    |                                   |       |                                                   | 1,790.4    |       |       |                                                     | 51.4       |   |   |   |   |   | 1,739.0 |   |   |   | 1,641.5 |   |   |
| Interest, net of  interest income(1)(3)                    |       |                                   | 860.7      |                                   |       |                                                   | 500.0      |       |       |                                                     | 25.8       |   |   |   |   |   | 474.2 |   |   |   | 384.4 |   |   |
| Provision (benefit)  for taxes on income                   |       |                                   | 83.7       |                                   |       |                                                   | 179.1      |       |       |                                                     | (12.2      | ) |   |   |   |   | 191.3 |   |   |   | 133.9 |   |   |
| EBITDA                                                     |       |                                   | 3,100.8    |                                   |       |                                                   | 2,819.5    |       |       |                                                     | 43.7       |   |   |   |   |   | 2,775.8 |   |   |   | $ | 2,525.3 |   |   |
| Adjustments:                                               |       |                                   |       |                                   |       |                                                   |       |       |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental fleet  interest(4)                              |       |                                   | (400.0     | )                                      |       |                                                   | (406.9     | )          |       |                                                     | (11.7      | ) |   |   |   |   | (395.2 | ) |   |   |   |   |   |
| Car rental fleet  depreciation(5)                          |       |                                   | (1,479.6   | )                                      |       |                                                   | (1,381.5   | )          |       |                                                     | (37.4      | ) |   |   |   |   | (1,344.1 | ) |   |   |   |   |   |
| Non-cash  expenses and charges(6)                          |       |                                   | 130.6      |                                   |       |                                                   | 106.2      |       |       |                                                     | 2.5        |   |   |   |   |   | 103.7 |   |   |   |   |   |   |
| Extraordinary, unusual or non-recurring gains or losses(7) |       |                                   | 23.8       |                                   |       |                                                   | 4.0        |       |       |                                                     | —     |   |   |   |   |   | 4.0 |   |   |   |   |   |   |
| Sponsors’ fees                                        |       |                                   | 3.2        |                                   |       |                                                   | —     |       |       |                                                     | —     |   |   |   |   |   | — |   |   |   |   |   |   |
| Pro forma Corporate EBITDA(8)                              |       |                                   | $          | 1,378.8                                |       |                                                   |       | $          | 1,141.3    |                                                     |       |   | $ | (2.9 | ) |   |   |   |   | $ | 1,144.2 |   |   |   |   |   |   |

 

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(1)           For the year ended December 31,2006, includes corporate audit fees of $0.1 million and $40.0 million ($26.0million, net of tax) of interest expense attributable to Hertz Holdings. Forthe year ended December 31, 2006, the Successor period ended December 31,2005, the Predecessor period ended December 20, 2005 and the year ended December 31,2004, includes corporate minority interest of $16.7 million, $0.3 million,$12.3 million and $3.2 million, respectively.

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(2)           For the year ended December 31,2006, the Successor period ended December 31, 2005, the Predecessor periodended December 20, 2005 and the year ended December 31, 2004,depreciation and amortization was $1,659.8 million, $42.6 million, $1,485.9million and $1,365.3 million, respectively, in our car rental segment and$350.3 million, $8.6 million, $248.2 million and $271.4 million, respectively,in our equipment rental segment.

(3)           For the year ended December 31,2006, the Successor period ended December 31, 2005, the Predecessor periodended December 20, 2005 and the year ended December 31, 2004,interest, net of interest income was $424.1 million, $15.8 million, $349.2million and $305.0 million, respectively, in our car rental segment and $140.0million, $3.4 million, $86.4 million and $72.0 million, respectively, in ourequipment rental segment.

(4)           As defined in thecredit agreements governing our senior credit facilities, Corporate EBITDAincludes a reduction for certain car rental fleet related interest. For thePredecessor period presented, car rental fleet interest has been calculated ona pro forma basis to give effect to the U.S. and international fleet debtfinancings entered into as part of the Transactions as if they had occurred on January 1,2005. For the Successor periods presented, car rental fleet interest is basedon actual results.

(5)           As defined in thecredit agreements governing our senior credit facilities, Corporate EBITDAincludes a reduction for car rental fleet depreciation. For all periodspresented car rental fleet depreciation does not vary from the historicalamounts.

(6)           For the year ended December 31,2006, the Successor period ended December 31, 2005 and the Predecessorperiod ended December 20, 2005, non-cash expenses and charges were$73.0 million, $2.5 million and $92.4 million, respectively, in our car rentalsegment and $(0.4) million, $0.0 million and $1.0 million, respectively, in ourequipment rental segment.

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As defined in the credit agreements governing oursenior credit facilities, Corporate EBITDA excludes the impact of certainnon-cash expenses and charges. For the Predecessor period ended December 20,2005, non-cash amortization of debt costs included in car rental fleet interesthas been calculated on a pro forma basis to give effect to the U.S. andinternational fleet debt financings entered into as part of the Transactions asif they had occurred on January 1, 2005. For the Successor periodspresented, non-cash amortization of debt costs included in car rental fleetinterest is based on actual results. The adjustments reflect the following (inmillions of dollars):

| ** **                                                                            | ** ** | **Successor**                                | ** ** | **Combined**                                 | ** ** | **Successor**                                                    | ** ** | ** ** | ** ** | **Predecessor**                                                | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                            | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | **For the Periods From**                          | ** ** |
| ** **                                                                            | ** ** | **Year ended  December 31,  2006** | ** ** | **Year ended  December 31,  2005** | ** ** | **December 21, 2005  to December 31,  2005** | ** ** | ** ** | ** ** | **January 1, 2005  to December 20,  2005** | ** ** |
| Corporate non-cash  stock-based employee compensation charges                         |       |                                         | $          | 27.2                                         |       |                                                             |       | $          | 10.5       |                                                           |       |   | $ | — |   |   |   |   |   | $ | 10.5 |   |   |
| Corporate unrealized  losses on currency translation of Euro-denominated senior notes |       |                                         | 19.2       |                                         |       |                                                             | —     |       |       |                                                           | —     |   |   |   |   |   | — |   |   |
| Non-cash  amortization of debt costs included in car rental fleet interest            |       |                                         | 71.6       |                                         |       |                                                             | 83.2       |       |       |                                                           | 2.5        |   |   |   |   |   | 80.7 |   |   |
| Non-cash  charges for workers’ compensation                                      |       |                                         | 1.0        |                                         |       |                                                             | 12.5       |       |       |                                                           | —     |   |   |   |   |   | 12.5 |   |   |
| Corporate non-cash  charges for pension                                               |       |                                         | 9.1        |                                         |       |                                                             | —     |       |       |                                                           | —     |   |   |   |   |   | — |   |   |
| Corporate unrealized  loss on derivatives                                             |       |                                         | 2.5        |                                         |       |                                                             | —     |       |       |                                                           | —     |   |   |   |   |   | — |   |   |
| Total                                                                                 |       |                                         | $          | 130.6                                        |       |                                                             |       | $          | 106.2      |                                                           |       |   | $ | 2.5 |   |   |   |   |   | $ | 103.7 |   |   |

 

(7)            Asdefined in the credit agreements governing our senior credit facilities,Corporate EBITDA excludes the impact of extraordinary, unusual or non-recurringgains or losses or charges or credits. The adjustments reflect the following(in millions of dollars):

| ** **                                             | ** ** | **Successor**                                | ** ** | **Combined**                                 | ** ** | **Successor**                                                    | ** ** | ** ** | ** ** | **Predecessor**                                                | ** ** |
|--------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------|------------|
| ** **                                             | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | **For the Periods From**                          | ** ** |
| ** **                                             | ** ** | **Year ended  December 31,  2006** | ** ** | **Year ended  December 31,  2005** | ** ** | **December 21, 2005  to December 31,  2005** | ** ** | ** ** | ** ** | **January 1, 2005 to  December 20,  2005** | ** ** |
| European headquarters  relocation costs                |       |                                         | $          | —                                       |       |                                                             |       | $          | 4.0        |                                                           |       |   | $ | — |   |   |   |   |   | $ | 4.0 |   |   |
| Corporate Chief  Executive Officer transition payments |       |                                         | 9.8        |                                         |       |                                                             | —     |       |       |                                                           | —     |   |   |   |   |   | — |   |   |
| Corporate Sponsor fee  termination costs               |       |                                         | 15.0       |                                         |       |                                                             | —     |       |       |                                                           | —     |   |   |   |   |   | — |   |   |
| Gain  on sale of swap derivative                       |       |                                         | (1.0       | )                                            |       |                                                             | —     |       |       |                                                           | —     |   |   |   |   |   | — |   |   |
| Total                                                  |       |                                         | $          | 23.8                                         |       |                                                             |       | $          | 4.0        |                                                           |       |   | $ | — |   |   |   |   |   | $ | 4.0 |   |   |

 

(8)            For the Predecessorperiod presented, car rental fleet interest has been presented on a pro formabasis to give effect to the U.S. and international fleet debt financingsentered into as part of the 

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Transactions as if they hadoccurred on January 1, 2005 for all periods presented. For the Successorperiods presented, car rental fleet interest is based on actual results.

Thefollowing table reconciles historical net cash provided by (used in) operatingactivities to EBITDA for the year ended December 31, 2006, the combinedyear ended December 31, 2005, the Successor period ended December 31,2005, the Predecessor period ended December 20, 2005 and the year ended December 31,2004, respectively (in millions of dollars):

| ** **                                                            | ** ** | **Successor**                                | ** ** | **Combined**                                 | ** ** | **Successor**                                                    | ** ** | ** ** | ** ** | **Predecessor**                                                | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------|------------|
| ** **                                                            | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | **For the Periods From**                          | ** ** | ** ** | ** ** |
| ** **                                                            | ** ** | **Year ended  December 31,  2006** | ** ** | **Year ended  December 31,  2005** | ** ** | **December 21, 2005  to December 31,  2005** | ** ** | ** ** | ** ** | **January 1, 2005  to December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Net cash provided by (used in) operating activities                   |       |                                         | $          | 2,647.3                                      |       |                                                             |       | $          | 1,458.6    |                                                           |       |   | $ | (277.5 | ) |   |   |   |   | $ | 1,736.1 |   |   |   | $ | 2,251.4 |   |   |
| Stock-based  employee compensation                                    |       |                                         | (27.2      | )                                            |       |                                                             | (10.5      | )          |       |                                                           | —     |   |   |   |   |   | (10.5 | ) |   |   | (5.6 | ) |   |
| Provision for public  liability and property damage                   |       |                                         | (169.1     | )                                            |       |                                                             | (160.0     | )          |       |                                                           | (1.9       | ) |   |   |   |   | (158.1 | ) |   |   | (153.1 | ) |   |
| Minority interest                                                     |       |                                         | (16.7      | )                                            |       |                                                             | (12.6      | )          |       |                                                           | (0.3       | ) |   |   |   |   | (12.3 | ) |   |   | (3.2 | ) |   |
| Deferred taxes on  income                                             |       |                                         | (46.1      | )                                            |       |                                                             | 423.7      |       |       |                                                           | 12.2       |   |   |   |   |   | 411.5 |   |   |   | (129.6 | ) |   |
| Payments of public  liability and property damage claims and expenses |       |                                         | 192.5      |                                         |       |                                                             | 163.8      |       |       |                                                           | 7.9        |   |   |   |   |   | 155.9 |   |   |   | 178.7 |   |   |
| Provision (benefit)  for taxes on income                              |       |                                         | 83.7       |                                         |       |                                                             | 179.1      |       |       |                                                           | (12.2      | ) |   |   |   |   | 191.3 |   |   |   | 133.9 |   |   |
| Interest  expense, net of interest income                             |       |                                         | 860.7      |                                         |       |                                                             | 500.0      |       |       |                                                           | 25.8       |   |   |   |   |   | 474.2 |   |   |   | 384.4 |   |   |
| Net changes in assets  and liabilities                                |       |                                         | (424.3     | )                                            |       |                                                             | 277.4      |       |       |                                                           | 289.7      |   |   |   |   |   | (12.3 | ) |   |   | (131.6 | ) |   |
| EBITDA                                                                |       |                                         | $          | 3,100.8                                      |       |                                                             |       | $          | 2,819.5    |                                                           |       |   | $ | 43.7 |   |   |   |   |   | $ | 2,775.8 |   |   |   | $ | 2,525.3 |   |   |

 

**Year Ended December 31,2006 Compared with Year Ended December 31, 2005 (Combined)**

***Revenues***

Total revenues of $8,058.4 million for the year ended December 31,2006 increased by 7.9% from $7,469.2 million for the year ended December 31,2005.

Revenues from our car rental operations of $6,273.6million for the year ended December 31, 2006 increased by $323.7 million,or 5.4%, from $5,949.9 million for the year ended December 31, 2005. Theincrease was primarily the result of a 1.1% increase in car rental volumeworldwide, a 2.7% increase in pricing worldwide, increases in airportconcession recovery and refueling fees, license and tax reimbursement fees andthe effects of foreign currency translation of approximately $36.4 million.

Revenues from our equipment rental operations of$1,672.1 million for the year ended December 31, 2006 increased by $257.2million, or 18.2%, from $1,414.9 million for the year ended December 31,2005. The increase was primarily due to higher rental volume and improvedpricing in the United States and Canada and the effects of foreign currencytranslation of approximately $18.9 million.

Revenues from all othersources of $112.7 million for the year ended December 31, 2006 increasedby $8.3 million, or 7.9%, from $104.4 million for the year ended December 31,2005, primarily due to the increase in car rental licensee revenue and theeffects of foreign currency translation.

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***Expenses***

Total expenses of $7,817.7 million for the year ended December 31,2006 increased by 12.8% from $6,927.5 million for the year ended December 31,2005 and total expenses as a percentage of revenues increased to 97.0% for theyear ended December 31, 2006 compared with 92.7% for the year ended December 31,2005.

Direct operating expenses of $4,476.0 million for theyear ended December 31, 2006 increased by $286.7 million, or 6.8%, from$4,189.3 million for the year ended December 31, 2005. The increase wasthe result of increases in personnel related expenses, fleet related expensesand other direct operating expenses.

Personnel related expenses increased $21.7 million, or1.4%. The increase primarily related to an increase in wages and the effects offoreign currency translation of approximately $8.3 million, partly offset by adecrease in benefits due to a decrease in the number of employees.

Fleet related expenses increased $69.2 million, or7.1%. The majority of the increase primarily related to the increase inworldwide rental volume and included increases in gasoline costs of $28.9million, which also reflects the higher price of gasoline, vehicle damage andmaintenance expense of $25.1 million, vehicle excise tax of $5.4 million andself-insurance expense of $4.1 million and the effects of foreigncurrency translation of approximately $8.7 million.

Other direct operating expenses increased $195.8million, or 12.0%. The majority of the increase related to the increase inworldwide rental volume and included increases in concession fees in our carrental operations of $35.2 million, commission fees of $21.7 million, facilityexpenses of $21.4 million, customer service costs of $11.5 million andguaranteed charge card fees of $10.7 million. Additionally, there wereincreases in the amortization of other intangible assets of $59.4 million, thecost of equipment and supplies sold of $24.7 million and the effects of foreigncurrency translation of approximately $13.1 million.

Depreciation of revenue earning equipment for our carrental operations of $1,479.6 million for the year ended December 31, 2006increased by 7.1% from $1,381.5 million for the year ended December 31,2005. The increase was primarily due to higher depreciation costs for 2006 and 2007 model year program cars,lower net proceeds received in excess of book value on the disposal of usedcars in the United States and a $9.0 million increase in depreciation for ourinternational car rental operations due to increases in depreciation rates madeduring 2006 to reflect changes in the estimated residual values of cars. Thisincrease was partly offset by a $3.7 million net reduction in depreciation inour domestic car rental operations resulting from a decrease in depreciation rateseffective January 1, 2006 to reflect changes in the estimated residualvalues of cars. Depreciation of revenue earning equipment for ourequipment rental operations of $277.6 million for the year ended December 31,2006 increased by 27.2% from $218.2 million for the year ended December 31,2005 due an increase in the quantity of equipment operated and lower netproceeds received in excess of book value on the disposal of used equipment inthe United States. This increase was partly offset by a $15.3 million and $3.1million net reduction in depreciation for our United States and Canadianoperations combined and our French equipment rental operations, respectively,resulting from decreases in depreciation rates during 2006 to reflect changesin the estimated residual values of equipment.

Selling, general and administrative expenses of $723.8million for the year ended December 31, 2006 increased by 13.4% from$638.5 million for the year ended December 31, 2005. The increase wasprimarily due to increases in administrative and sales promotion expenses. The increase in administrative expenses wasprimarily the result of an increase in consulting and legal fees of $23.6million, foreign currency transaction losses of $22.1 million associated withthe Euro-denominated debt and non-cash stock purchase and stock optioncompensation charges of $16.7 million. The 

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increase in sales promotionexpenses was primarily the result of increased sales commissions, salaries andincentive compensation.

Interest expense, net of interest income, of $860.7million for the year ended December 31, 2006 increased by 72.1% from$500.0 million for the year ended December 31, 2005, primarily due toincreases in the weighted average interest rate and the weighted average debtoutstanding. The increase was partly offset by an increase in interest income.

The provision for taxes on income of $83.7 million forthe year ended December 31, 2006 decreased by 53.2% from $179.1 millionfor the year ended December 31, 2005, primarily due to a decrease inincome before income taxes and minority interest for the year endedDecember 31, 2006 as compared to the year ended December 31, 2005 anda $31.3 million provision relating to the repatriation of foreign earnings forthe year ended December 31, 2005. The decrease was partly offset by theestablishment of valuation allowances of $9.8 million relating to therealization of deferred tax assets in certain European countries and theestablishment of certain federal and state contingencies for the year endedDecember 31, 2006 and the reversal of a valuation allowance on foreign taxcredit carryforwards of $35.0 million and favorable foreign tax adjustments of$5.3 million for the year ended December 31, 2005. The effective tax ratefor the year ended December 31, 2006 was 34.8% as compared to 33.1% forthe year ended December 31, 2005. See Note 8 to the Notes to ourconsolidated financial statements included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

Minority interest of $16.7million for the year ended December 31, 2006 increased $4.1 million from$12.6 million for the year ended December 31, 2005. The increase was dueto an increase in our majority-owned subsidiary Navigation Solutions, L.L.C.’s,or “Navigation Solutions’,” net income in the year ended December 31,2006. See Note 4 to the Notes to our consolidated financial statements includedin this Annual Reportunder the caption “Item 8—Financial Statements and Supplementary Data.”

**Net Income**

We had net income of $140.3million for the year ended December 31, 2006, representing a decrease of $209.7million, or 59.9%, from $350.0 million for the year ended December 31,2005. The decrease in net income was primarily due to the 72.1% increase ininterest expense over the year ended December 31, 2005, as well as the neteffect of other contributing factors noted above. The impact of changes inexchange rates on net income was mitigated by the fact that not only foreignrevenues but also most foreign expenses were incurred in local currencies.

***Effects of Acquisition***

Increased interest expense resulting from our higherdebt levels and increased depreciation and amortization expense resulting fromthe revaluation of our tangible assets and the recognition of certainidentified intangible assets, all in connection with the Acquisition, had asignificant adverse impact on full year 2006 income before income taxes andminority interest.

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Thefollowing table summarizes the purchase accounting effects of the Acquisitionon our results of operations for the year ended December 31, 2006 (inmillions of dollars):
| Depreciation and  amortization of tangible and intangible assets:   |   |   |   |
|---------------------------------------------------------------------|--------|--------|--------|
| Other intangible assets                                             |   | $      | 61.2   |   |
| Revenue earning equipment                                           |   | 13.8   |   |
| Property and equipment                                              |   | 10.0   |   |
| Accretion of revalued liabilities:                                  |   |   |   |
| Discount on debt                                                    |   | 8.8    |   |
| Workers’ compensation and public liability and property damage |   | 5.4    |   |
|                                                                |   | $      | 99.2   |   |

 

**Year EndedDecember 31, 2005 (Combined) with Year Ended December 31, 2004**

***Revenues***

Total revenues of $7,469.2 million for the year endedDecember 31, 2005 increased by 11.9% from $6,676.0 million for the yearended December 31, 2004.

Revenues from our car rental operations of $5,949.9million for the year ended December 31, 2005 increased by $519.1 million,or 9.6%, from $5,430.8 million for the year ended December 31, 2004. Theincrease was primarily the result of a 4.1% increase in car rental volumeworldwide, a 0.2% increase in pricing worldwide, an increase in airportconcession recovery and refueling fees and the effects of foreign currencytranslation of approximately $23.1 million.

Revenues from our equipment rental operations of$1,414.9 million for the year ended December 31, 2005 increased by $252.9million, or 21.8%, from $1,162.0 million for the year ended December 31,2004. The increase was primarily due to higher rental volume and improvedpricing in the United States and Canada and the effects of foreign currencytranslation of approximately $12.3 million.

Revenues from all othersources of $104.4 million for the year ended December 31, 2005 increasedby $21.2 million, or 25.5%, from $83.2 million for the year endedDecember 31, 2004, primarily due to the increase in car rental licenseerevenue and the effects of foreign currency translation.

***Expenses***

Total expenses of $6,927.5 million for the year endedDecember 31, 2005 increased by 12.2% from $6,173.4 million for the yearended December 31, 2004, principally due to the increase in revenues.Total expenses as a percentage of revenues increased to 92.7% for the yearended December 31, 2005 compared with 92.5% for the year endedDecember 31, 2004.

Direct operating expenses of $4,189.3 million for theyear ended December 31, 2005 increased by $454.9 million (inclusive of$22.1 million related to the effects of foreign currency translation), or12.2%, from $3,734.4 million for the year ended December 31, 2004. Theincrease was the result of increases in personnel related expenses, fleetrelated expenses and other direct operating expenses.

Personnel related expenses increased $139.8 million,or 9.7%. The increase primarily related to an increase in the number ofemployees and higher health care costs.

Fleet related expenses increased $94.9 million, or10.8%. The majority of the increase primarily related to the increase inworldwide rental volume and included increases in gasoline costs of $49.3million, which also reflects the higher price of gasoline, self-insuranceof $16.4 million and vehicle damage and maintenance expense of $9.1 million.

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Other direct operatingexpenses increased $220.3 million, or 15.7%. The majority of the increaseprimarily related to the increase in worldwide rental volume and includedincreases in commission fees of $51.0 million, facility expenses of $49.1million (which includes a gain in 2004 of $7.5 million from the condemnation ofa car rental and support facility in Florida), concession fees in our carrental operations of $25.9 million, customer service costs of $17.5 million andguaranteed charge card fees of $10.9 million. Additionally, there wereincreases in the cost of equipment sold of $18.7 million, equipment rental costof $10.0 million and the receipt in 2004 of $7.0 million for claims made by uson our insurance policies for business interruption losses resulting from theterrorist attacks of September 11, 2001.

Depreciation of revenueearning equipment for our car rental operations of $1,381.5 million for theyear ended December 31, 2005 increased by 12.4% from $1,228.6 million forthe year ended December 31, 2004. The increase was primarily due to theincrease in the average number of vehicles worldwide, higher cost of vehiclesin the U.S., lower net proceeds received in excess of book value on thedisposal of vehicles and the effects of foreign currency translation. Thisincrease was partly offset by a $21.8 million net reduction in depreciation forour domestic car rental operations resulting from a decrease in depreciationrates to reflect changes in the estimated residual values of vehicles. Depreciationof revenue earning equipment for our equipment rental operations of $218.2million for the year ended December 31, 2005 decreased by 7.0% from $234.7million for the year ended December 31, 2004 due to higher net proceedsreceived in excess of book value on the disposal of used equipment in theUnited States, and a $13.2 million net reduction in depreciation resulting fromthe effects of changes in depreciation rates of equipment in the U.S. andCanada, partly offset by an increase in the quantity of equipment operated.

Selling, general andadministrative expenses of $638.5 million for the year ended December 31,2005 increased by 8.0% from $591.3 million for the year ended December 31,2004. The increase was primarily due to increases in administrative and salespromotion expenses and the effects of foreign currency translation. Theincreases in administrative and sales promotion expenses were primarily due toincreases in salaries, commissions and benefits relating to the improvement inearnings for the year ended December 31, 2005.

Interest expense, net ofinterest income, of $500.0 million for the year ended December 31, 2005increased by 30.0% from $384.4 million for the year ended December 31,2004, primarily due to increases in the weighted average debt outstanding, theweighted average interest rate and $35.6 million of interest expense on the$1,185.0 million Intercompany Note payable to Ford Holdings LLC relating to adividend declared and paid to Ford Holdings LLC on June 10, 2005. Theincrease was partly offset by an increase in interest income.

The provision for taxes onincome of $179.1 million for the year ended December 31, 2005 increased by33.8% from $133.9 million for the year ended December 31, 2004, primarilydue to an increase in income before income taxes and minority interest and a$31.3 million provision relating to the repatriation of foreign earnings forthe year ended December 31, 2005, and net favorable tax adjustments in2004 totaling $46.6 million, principally relating to the evaluation of certainfederal and foreign tax accruals and foreign tax credits. The increase waspartly offset by the reversal of a valuation allowance on foreign tax creditcarryforwards of $35.0 million and favorable foreign tax adjustments of $5.3million. The effective tax rate for the year ended December 31, 2005 was33.1% as compared to 26.6% for the year ended December 31, 2004. See Notes1 and 8 to the Notes to our consolidated financial statements included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

Minority interest of $12.6million for the year ended December 31, 2005 increased $9.4 million from$3.2 million for the year ended December 31, 2004. The increase was due toonly two quarters of earnings being included in 2004 as we increased ourownership interest in Navigation Solutions 

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beginning in July 2004.See Note 4 to the Notes to our consolidated financial statements included inthis Annual Report underthe caption “Item 8—Financial Statements and Supplementary Data.”

***Net Income***

We had net income of $350.0million for the year ended December 31, 2005, representing a decrease of$15.5 million, or 4.2%, from $365.5 million for the year ended December 31,2004. The decrease in net income was primarily due to the one-time $31.3million tax provision relating to the repatriation of foreign earnings, as wellas the net effect of other contributing factors noted above. The impact ofchanges in exchange rates on net income was mitigated by the fact that not onlyforeign revenues but also most foreign expenses were incurred in localcurrencies.

***Effects of Acquisition***

The loss for the Successorperiod ended December 31, 2005 relates to lower rental demand due to theseasonality of the business and costs associated with the Transactions.Increased interest expense resulting from our higher debt levels and increaseddepreciation and amortization expense resulting from the revaluation of ourassets and the recognition of certain identified intangible assets, all inconnection with the Acquisition, had a significant adverse impact on full year2006 income before income taxes and minority interest.

**Liquidity and Capital Resources**

As of December 31, 2006,we had cash and equivalents of $671.8 million, a decrease of $172.1 millionfrom December 31, 2005. As of December 31, 2006, we had $552.5million of restricted cash to be used for the purchase of revenue earningvehicles, the repayment of outstanding indebtedness primarily under our ABSProgram and to satisfy certain of our self-insurance reserve requirements.

Our domestic and foreignoperations are funded by cash provided by operating activities and by extensivefinancing arrangements maintained by us in the United States, Europe, PuertoRico, Australia, New Zealand, Canada and Brazil. Net cash provided by operatingactivities during the year ended December 31, 2006 was $2,647.3 million,an increase of $1,188.7 million from the year ended December 31, 2005.This increase was primarily due to a decrease in year-over-year changes in ourreceivables and an increase in year-over-year changes in our deferred taxes,partly offset by a decrease in accrued taxes.

Our primary use of cash ininvesting activities is for the acquisition of revenue earning equipment, whichconsists of cars and equipment. Net cash used in investing activities duringthe year ended December 31, 2006 was $2,287.9 million, a decrease of$4,205.0 million from the year ended December 31, 2005. The decrease isprimarily due to thepurchase of predecessor company stock in 2005 and a decrease in revenue earningequipment expenditures, partly offset by a decrease in proceeds from thedisposal of revenue earning equipment and proceeds from the sale of short-terminvestments in 2005. For the year ended December 31, 2006, ourexpenditures for revenue earning equipment were $11,420.9 million, partiallyoffset by proceeds from the disposal of such equipment of $9,555.0 million.These assets are purchased by us in accordance with the terms of programsnegotiated with the car and equipment manufacturers.

For the year ended December 31,2006, our capital expenditures for property and non-revenue earning equipmentwere $223.9 million. For the year ended December 31, 2006, we experienceda decreased level of net expenditures for revenue earning equipment andproperty and non-revenue earning equipment compared to the year ended December 31,2005. This decrease was primarily due to the change in fleet mix, a decrease inthe percentage of program cars purchased and an increase in the percentage oflower cost non-program cars purchased for the year ended December 31,2006. 

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For 2007, we expect the levelof net expenditures for revenue earning equipment to be lower than 2006 and thelevel of expenditures for property and non-revenue earning equipment to besimilar to that of 2006. See “—Capital Expenditures” below.

Our car rental and equipmentrental operations are seasonal businesses with decreased levels of business inthe winter months and heightened activity during the spring and summer. This isparticularly true of our airport car rental operations and our equipment rentaloperations. To accommodate increased demand, we maintain a larger fleet byholding vehicles and equipment and purchasing additional fleet which increasesour financing requirements in the second and third quarters of the year. Theseseasonal financing needs are funded by increasing the utilization of our bankcredit facilities and the variable funding notes portion of our U.S. Fleet DebtFacilities and, in past years, our commercial paper program. As business demandmoderates during the winter, we reduce our fleet accordingly and dispose ofvehicles and equipment. The disposal proceeds are used to reduce debt.

We are highly leveraged and asubstantial portion of our liquidity needs arise from debt service onindebtedness incurred in connection with the Transactions and from the fundingof our costs of operations, working capital and capital expenditures.

As of December 31, 2006,we had approximately $12,276.2 million of total indebtedness outstanding. Cashpaid for interest during the year ended December 31, 2006, was $647.0million, net of amounts capitalized.

We rely significantly on asset-backedfinancing to purchase cars for our domestic and international car rentalfleets. For further information concerning our asset-backed financingprograms, see “—U.S. Fleet Debt” and “—International Fleet Debt” below. For adiscussion of risks related to our reliance on asset-backed financing topurchase cars, see “Item 1A—Risk Factors—Risks Related to Our Business—Ourreliance on asset-backed financing to purchase cars subjects us to anumber of risks, many of which are beyond our control.”

Also, substantially all of ourrevenue earning equipment and certain related assets are owned by specialpurpose entities, or are subject to liens in favor of our lenders under theSenior ABL Facility, the ABS Program, the International Fleet Debt Facilitiesor the fleet financing facility relating to our car rental fleet in Hawaii, Kansas,Puerto Rico and St. Thomas, the U.S. Virgin Islands, all as described in moredetail below. Substantially all our other assets in the United States are alsosubject to liens in favor of our lenders under the Senior Credit Facilities,and substantially all of our other assets outside the United States are (withcertain limited exceptions) subject to liens in favor of our lenders under theInternational Fleet Debt Facilities or (in the case of our Canadian HERCbusiness) the Senior ABL Facility. None of such assets will be available tosatisfy the claims of our general creditors.

We believe that cash generatedfrom operations, together with amounts available under the Senior CreditFacilities, asset-backed financing and other available financingarrangements will be adequate to permit us to meet our debt serviceobligations, ongoing costs of operations, working capital needs and capitalexpenditure requirements for the foreseeable future. Our future financial andoperating performance, ability to service or refinance our debt and ability tocomply with covenants and restrictions contained in our debt agreements will besubject to future economic conditions and to financial, business and otherfactors, many of which are beyond our control. See “Cautionary Note RegardingForward-Looking Statements” and “Item 1A—Risk Factors.”

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***Financing***

*Senior Credit Facilities*

*Senior Term Facility.**  *In connection with the Acquisition,Hertz entered into a credit agreement with respect to its Senior Term Facilitywith Deutsche Bank AG, New York Branch as administrative agent and collateralagent, Lehman Commercial Paper Inc. as syndication agent, Merrill Lynch &Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated asdocumentation agent, and the other financial institutions party thereto fromtime to time. The facility consisted of a $2,000.0 million secured term loanfacility providing for loans denominated in U.S. dollars, which included adelayed draw facility of $293.0 million. In addition, there is a pre-fundedsynthetic letter of credit facility in an aggregate principal amount of $250.0million. On the Closing Date, Hertz utilized $1,707.0 million of the SeniorTerm Facility and $182.2 million in letters of credit. As of December 31,2006, we had $1,947.9 million in borrowings outstanding under this facility,which is net of a discount of $38.4 million and had issued $238.9 million inletters of credit. The term loan facility and the synthetic letter of creditfacility will mature on December 21, 2012.

*Senior ABL Facility.**  *Hertz, Hertz Equipment RentalCorporation and certain other subsidiaries of Hertz also entered into a creditagreement with respect to the Senior ABL Facility with Deutsche Bank AG, NewYork Branch as administrative agent and collateral agent, Deutsche Bank AG,Canada Branch as Canadian Agent and Canadian collateral agent, LehmanCommercial Paper Inc. as syndication agent, Merrill Lynch & Co.,Merrill Lynch, Pierce, Fenner & Smith Incorporated as documentationagent and the financial institutions party thereto from time to time. Thisfacility provided (subject to availability under a borrowing base) foraggregate maximum borrowings of $1,600.0 million (which was increased in February 2007to $1,800.0 million) under a revolving loan facility providing for loansdenominated in U.S. dollars, Canadian dollars, Euros and Pounds Sterling. Up to$200.0 million of the revolving loan facility is available for the issuance ofletters of credit. Hertz and Hertz Equipment Rental Corporation are the U.S.borrowers under the Senior ABL Facility and Matthews Equipment Limited and itssubsidiary Western Shut-Down (1995) Ltd. are the Canadian borrowers under theSenior ABL Facility. At December 31, 2006, net of a discount of $22.2million, Hertz and Matthews Equipment Limited collectively had no borrowingsoutstanding under this facility and issued $18.2 million in letters of credit.The Senior ABL Facility will mature on December 21, 2010.

Hertz’s obligations under theSenior Term Facility and the Senior ABL Facility are guaranteed by HertzInvestors, Inc., our immediate parent, and most of our direct and indirectdomestic subsidiaries (subject to certain exceptions, including forsubsidiaries involved in the U.S. Fleet Debt Facility and similar specialpurpose financings), though HERC does not guarantee Hertz’s obligations underthe Senior ABL Facility because it is a borrower under that facility. Inaddition, the obligations of the Canadian borrowers under the Senior ABLFacility are guaranteed by their respective subsidiaries, if any, subject tolimited exceptions. The lenders under each of the Senior Term Facility and theSenior ABL Facility have received a security interest in substantially all ofthe tangible and intangible assets of the borrowers and guarantors under thosefacilities, including pledges of the stock of certain of their respectivesubsidiaries, subject in each case to certain exceptions (including in respectof the U.S. Fleet Debt, the International Fleet Debt and, in the case of theSenior ABL Facility, other secured fleet financing.) Consequently, these assetswill not be available to satisfy the claims of our general creditors.

The Senior Credit Facilitiescontain a number of covenants that, among other things, limit or restrict theability of the borrowers and the guarantors to dispose of assets, incuradditional indebtedness, incur guarantee obligations, prepay otherindebtedness, make dividends and other restricted payments, create liens, makeinvestments, make acquisitions, engage in mergers, change the nature of theirbusiness, make capital expenditures, or engage in certain transactions withaffiliates. Under the Senior Term Facility, the borrowers are subject tofinancial covenants, including a requirement to 

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maintain a specified debt toCorporate EBITDA leverage ratio and a specified Corporate EBITDA to interestexpense coverage ratio for specified periods (the requirements for both ofthese ratios vary throughout the term of the loan.) Also, under the Senior ABLFacility, if the borrowers fail to maintain a specified minimum level ofborrowing capacity, they will then be subject to financial covenants under suchfacility, including a specified debt to Corporate EBITDA leverage ratio (theratio varies throughout the term of the loan) and a specified Corporate EBITDAto fixed charges coverage ratio of one to one. Failure to comply with thefinancial covenants under the Senior Credit Facilities would result in adefault under the credit agreements governing our Senior Credit Facilities and,absent a waiver or an amendment from our lenders, permit the acceleration ofall outstanding borrowings under the Senior Credit Facilities. As of December 31,2006, we performed the calculations associated with the above noted financialcovenants and determined that we were in compliance with such financialcovenants. The Senior Credit Facilities are subject to certain mandatoryprepayment requirements and provide for customary events of default.

On June 30, 2006, weentered into amendments to each of our Senior Term Facility and Senior ABLFacility. The amendments provide, among other things, for additional capacityunder the covenants in these credit facilities to enter into certain sale andleaseback transactions, to pay dividends and, in the case of the amendment tothe Senior Term Facility, to make investments. These amendments also have theeffect of reducing the restrictions in the Senior Credit Facilities on Hertz’sability to provide cash to Hertz Holdings (whether in the form of a loan or adividend) that would enable Hertz Holdings to service its indebtedness. Theamendment to the Senior Term Facility also permits us to use proceeds of theunused portion of the $293.0 million delayed draw facility to repay borrowingsoutstanding under the Senior ABL Facility, in addition to repaying certain ofour other outstanding indebtedness. As previously noted, on July 10, 2006,the remaining $208.1 million of the delayed draw facility was drawn down to paydown the equivalent amount of borrowings outstanding under the Senior ABLFacility.

On February 9, 2007,Hertz entered into an amendment to its Senior Term Facility. The amendment wasentered into for the purpose of (i) lowering the interest rates payable onthe Senior Term Facility by up to 50 basis points from the interest ratespreviously payable thereunder, and revising financial ratio requirements forspecific interest rate levels; (ii) eliminating certain mandatoryprepayment requirements; (iii) increasing the amounts of certain othertypes of indebtedness that Hertz and its subsidiaries may incur outside of theSenior Term Facility; (iv) permitting certain additional assetdispositions and sale and leaseback transactions; and (v) effectingcertain technical and administrative changes to the Senior Term Facility.

On February 15, 2007,Hertz, Hertz Equipment Rental Corporation and certain other subsidiariesentered into an amendment to their Senior ABL Facility. The amendment wasentered into for the purpose of (i) lowering the interest rates payable onthe Senior ABL Facility by up to 25 basis points from the interest ratespreviously payable thereunder, and revising financial ratio requirements forspecific interest rate levels; (ii) increasing the availability under theSenior ABL Facility from $1,600.0 million to $1,800.0 million; (iii) extendingthe term of the commitments under the Senior ABL Facility to February 15,2012; (iv) increasing the amounts of certain other types of indebtednessthat the borrowers and their subsidiaries may incur outside of the Senior ABLFacility; (iv) permitting certain additional asset dispositions and saleand leaseback transactions; and (v) effecting certain technical and administrative changes tothe Senior ABL Facility.

*Senior Notes and Senior Subordinated Notes*

In connection with theAcquisition, CCMG Acquisition Corporation, an indirect subsidiary of HertzHoldings, issued the Senior Notes and the Senior Subordinated Notes underseparate indentures between CCMG Acquisition Corporation and Wells Fargo Bank,National Association, as trustee. Hertz 

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and the guarantors enteredinto supplemental indentures, dated as of the Closing Date, pursuant to whichHertz assumed the obligations of CCMG Acquisition Corporation under the SeniorNotes, the Senior Subordinated Notes and the respective indentures, and theguarantors issued the related guarantees. CCMG Acquisition Corporationsubsequently merged with and into Hertz, with Hertz as the surviving entity.

As of December 31, 2006,$2,097.0 million and $600.0 million in borrowings were outstanding under theSenior Notes and Senior Subordinated Notes, respectively. Prior to October 1, 2006, our SeniorEuro Notes were not designated as a net investment hedge of ourEuro-denominated net investments in our foreign operations. For the nine monthsended September 30, 2006, we incurred unrealized exchange transactionlosses of $19.2 million resulting from the translation of theseEuro-denominated notes into the U.S. dollar, which are recorded in ourconsolidated statement of operations in “Selling, general and administrative”expenses. On October 1, 2006, we designated our Senior Euro Notes as aneffective net investment hedge of our Euro-denominated net investment in ourforeign operations. As a result of this net investment hedge designation, as ofDecember 31, 2006, $7.1 million of losses, which is net of tax of $4.6million, attributable to the translation of our Senior Euro Notes into the U.S.dollar, are recorded in our consolidated balance sheet in “Accumulated othercomprehensive income (loss).” The Senior Notes will mature on January 1,2014, and the Senior Subordinated Notes will mature on January 1, 2016.The Senior Dollar Notes bear interest at a rate per annum of 8.875%, the SeniorEuro Notes bear interest at a rate per annum of 7.875% and the SeniorSubordinated Notes bear interest at a rate per annum of 10.5%. Hertz’sobligations under the indentures are guaranteed by each of its direct andindirect domestic subsidiaries that is a guarantor under the Senior Term Facility.

Both the indenture for theSenior Notes and the indenture for the Senior Subordinated Notes containcovenants that, among other things, limit the ability of Hertz and itsrestricted subsidiaries, described in the respective indentures, to incur more debt,pay dividends, redeem stock or make other distributions, make investments,create liens, transfer or sell assets, merge or consolidate and enter intocertain transactions with our affiliates. The indenture for the SeniorSubordinated Notes also contains subordination provisions and limitations onthe types of senior subordinated debt that may be incurred. The indentures alsocontain certain mandatory and optional prepayment or redemption provisions andprovide for customary events of default.

On January 12, 2007,Hertz completed exchange offers for the outstanding Senior Notes and SeniorSubordinated Notes whereby over 99% of the outstanding notes were exchanged fora like principal amount of new notes with identical terms that were registeredunder the Securities Act of 1933 pursuant to a registration statement on Form S-4.

*Fleet Financing*

*U.S. Fleet Debt.**  *In connection with the Acquisition,Hertz Vehicle Financing LLC, or “HVF,” a bankruptcy-remote specialpurpose entity wholly owned by Hertz, entered into an amended and restated baseindenture, or the “ABS Indenture,” dated as of the Closing Date, with BNYMidwest Trust Company as trustee, and a number of related supplements to theABS Indenture, each dated as of the Closing Date, with BNY Midwest TrustCompany as trustee and securities intermediary, or, collectively, the “ABSSupplement.” On the Closing Date, HVF, as issuer, issued approximately $4,300.0million of new medium term asset-backed notes consisting of 11 classes ofnotes in two series under the ABS Supplement. HVF also issued approximately$1,500.0 million of variable funding notes in two series, none of which werefunded at closing. As of December 31, 2006, $4,299.9 million, net of a$0.1 million discount, in medium term notes were outstanding and no aggregateborrowings were outstanding in the form of variable funding notes.

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Each class of notes maturesthree, four or five years from the Closing Date. The variable funding noteswill be funded through the bank multi seller commercial paper market. Theassets of HVF, including the U.S. car rental fleet owned by HVF and certainrelated assets, collateralize the U.S. Fleet Debt and Pre-Acquisition ABSNotes. Consequently, these assets will not be available to satisfy the claimsof our general creditors.

In connection with theAcquisition and the issuance of $3,550.0 million of floating rate U.S. FleetDebt, HVF entered into seven interest rate swap agreements, or the “HVF Swaps,”with us, effective December 21, 2005, which qualify as cash flow hedginginstruments in accordance with SFAS 133 “Accounting for Derivative Instrumentsand Hedging Activities.” These agreements mature at various terms, inconnection with the scheduled maturity of the associated debt obligations,through November 25, 2011. Under these agreements, HVF pays monthlyinterest at a fixed rate of 4.5% per annum in exchange for monthly amounts atone-month LIBOR, effectively transforming the floating rate U.S. Fleet Debt tofixed rate obligations. As of December 31, 2006 and December 31,2005, the fair value of the HVF Swaps were $50.6 million and $37.0 million,respectively, which are reflected in our consolidated balance sheet in “Prepaidexpenses and other assets.” For the year ended December 31, 2006, werecorded a benefit of $1.0 million in our consolidated statement of operations,in “Interest, net of interest income,” associated with previously recognizedineffectiveness of the HVF Swaps.

HVF is subject to numerousrestrictive covenants under the ABS Indenture and the other agreementsgoverning the U.S. Fleet Debt, including restrictive covenants with respect toliens, indebtedness, benefit plans, mergers, disposition of assets, acquisitionof assets, dividends, officers’ compensation, investments, agreements, thetypes of business it may conduct and other customary covenants for a bankruptcy-remotespecial purpose entity. The U.S. Fleet Debt is subject to events of default andamortization events that are customary in nature for U.S. rental car asset-backedsecuritizations of this type. The occurrence of an amortization event or eventof default could result in the acceleration of principal of the notes and aliquidation of the U.S. car rental fleet.

*International Fleet Debt.*   Inconnection with the Acquisition, Hertz International, Ltd., or “HIL,” aDelaware corporation organized as a foreign subsidiary holding company and adirect subsidiary of Hertz, and certain of its subsidiaries (all of which areorganized outside the United States), together with certain bankruptcy-remotespecial purpose entities (whether organized as HIL’s subsidiaries or asnon-affiliated “orphan” companies), or “SPEs,” entered into revolving bridgeloan facilities providing commitments to lend, in various currencies, up to anaggregate foreign currency equivalent of approximately $3,197.0 million(calculated as of December 31, 2006), subject to borrowing bases comprisedof rental vehicles and related assets of certain of HIL’s subsidiaries (all ofwhich are organized outside the United States) or one or more SPEs, as the casemay be, and rental equipment and related assets of certain of HIL’ssubsidiaries organized outside North America or one or more SPEs, as the casemay be. As of December 31, 2006, the foreign currency equivalent of$1,954.6 million in borrowings was outstanding under these facilities, net of a$4.4 million discount. These facilities are referred to collectively as the “InternationalFleet Debt Facilities.”

The International Fleet DebtFacilities contain a number of covenants (including, without limitation,covenants customary for transactions similar to the International Fleet DebtFacilities) that, among other things, limit or restrict the ability of HIL, theborrowers and the other subsidiaries of HIL to dispose of assets, incuradditional indebtedness, incur guarantee obligations, create liens, makeinvestments, make acquisitions, engage in mergers, make negative pledges,change the nature of their business or engage in certain transactions withaffiliates. In addition, HIL is restricted from making dividends and otherrestricted payments (which may include payments of intercompany indebtedness)in an amount greater than €100 million plus aspecified excess cash flow amount calculated by reference to excess cash flowin earlier periods. Subject to certain exceptions, until the 

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later of one year from theClosing Date and such time as 50% of the commitments under the InternationalFleet Debt Facilities as of the closing of the Acquisition have been replacedby permanent take-out international asset-based facilities, the specifiedexcess cash flow amount will be zero. Thereafter, this specified excess cashflow amount will be between 50% and 100% of cumulative excess cash flow basedon the percentage of the International Fleet Debt Facilities that have beenreplaced by permanent take-out international asset-based facilities. As aresult of the contractual restrictions on HIL’s ability to pay dividends toHertz as of December 31, 2006, the restricted net assets of ourconsolidated subsidiaries exceeded 25% of our total consolidated net assets.

The subsidiaries conductingthe car rental business in certain European jurisdictions may, at their option,continue to engage in capital lease financings relating to revenue earningequipment outside the International Fleet Debt Facilities. As of December 31,2006, there were $33.2 million of capital lease financings outstanding. Thesecapital lease financings are included in the International Fleet Debt total.

In May 2006, inconnection with the forecasted issuance of the permanent take-out internationalasset-based facilities, HIL purchased two swaptions for €3.3million, to protect itself from interest rate increases. These swaptions giveHIL the right, but not the obligation, to enter into three year interest rateswaps, based on a total notional amount of €600 million at an interestrate of 4.155%. As of December 31, 2006, the fair value of the swaptionswas €1.3million (or $1.7 million), which is reflected in our consolidated balance sheet in “Prepaid expenses and other assets.”During the year ended December 31, 2006, the fair value adjustment relatedto these swaps was a loss of $2.6 million, which was recorded in ourconsolidated statement of operations in “Selling, general and administrative”expenses. The swaptions were renewed in 2007 prior to their scheduledexpiration date of March 15, 2007 and now expire on September 5,2007. See Note 15 to the Notes to our consolidated financial statementsincluded in this Annual Report under the caption “Item 8—Financial Statementsand Supplementary Data.”

On March 21, 2007,certain amendments to the International Fleet Debt Facilities were entered intofor the purpose of, among other things, extending the dates when margins on theaffected facilities are scheduled to step up. See Note 15—SubsequentEvents.

*Fleet Financing Facility.**  *On September 29, 2006, Hertzand PUERTO RICANCARS, INC., a Puerto Rican corporation and wholly ownedindirect subsidiary of Hertz, or “PR Cars,” entered into a credit agreement tofinance the acquisition of our and/or PR Cars’ fleet in Hawaii, Kansas, PuertoRico and St. Thomas, the U.S. Virgin Islands, or the “Fleet Financing Facility,”with the several banks and other financial institutions from time to time partythereto as lenders, GELCO Corporation d.b.a. GE Fleet Services, or the “FleetFinancing Agent,” as administrative agent, as collateral agent for collateralowned by Hertz and as collateral agent for collateral owned by PR Cars.Affiliates of Merrill Lynch & Co. are lenders under the FleetFinancing Facility.

The Fleet Financing Facilityprovides (subject to availability under a borrowing base) a revolving creditfacility of up to $275.0 million to Hertz and PR Cars. On September 29,2006, Hertz borrowed $124.0 million under this facility to refinance otherdebt. The borrowing base formula is subject to downward adjustment upon theoccurrence of certain events and (in certain other instances) at the permitteddiscretion of the Fleet Financing Agent. As of December 31, 2006, Hertzand PR Cars had $144.9 million (net of a $2.1 million discount) and $21.0million, respectively, of borrowings outstanding.

The Fleet Financing Facilitywill mature on December 21, 2011, but Hertz and PR Cars may terminate orreduce the commitments of the lenders thereunder at any time. The FleetFinancing Facility is subject to mandatory prepayment in the amount by whichoutstanding extensions of credit to Hertz or PR Cars exceed the lesser of theHertz or PR Cars borrowing base, as applicable, and the commitments then ineffect.

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The obligations of each of theborrowers under the Fleet Financing Facility are guaranteed by each of Hertz’sdirect and indirect domestic subsidiaries (other than subsidiaries whose onlymaterial assets consist of securities and debt of foreign subsidiaries andrelated assets, subsidiaries involved in the ABS Program or other similarspecial purpose financings, subsidiaries with minority ownership positions,certain subsidiaries of foreign subsidiaries and certain immaterialsubsidiaries). In addition, the obligations of PR Cars are guaranteed by Hertz.The obligations of Hertz under the Fleet Financing Facility and the other loandocuments, including, without limitation, its guarantee of PR Cars’ obligationsunder the Fleet Financing Facility, are secured by security interests in ourrental car fleet in Hawaii and by certain assets related to our rental carfleet in Hawaii and Kansas, including, without limitation, manufacturerrepurchase program agreements. PR Cars’ obligations under the Fleet FinancingFacility and the other loan documents are secured by security interests in PRCars’ rental car fleet in Puerto Rico and St. Thomas, the U.S. Virgin Islandsand by certain assets related thereto.

At the applicable borrower’selection, the interest rates per annum applicable to the loans under the FleetFinancing Facility will be based on a fluctuating rate of interest measured byreference to either (1) LIBOR plus a borrowing margin of 125 basis pointsor (2) an alternate base rate of the prime rate plus a borrowing margin of25 basis points. As of December 31, 2006, the average interest rate was6.6% (LIBOR based).

The Fleet Financing Facilitycontains a number of covenants that, among other things, limit or restrict theability of the borrowers and their subsidiaries to create liens, dispose ofassets, engage in mergers, enter into agreements which restrict liens on theFleet Financing Facility collateral or our rental car fleet in Kansas or changethe nature of their business.

During the fourth quarter of2006, certain of the documents relating to the Fleet Financing Facility wereamended to make certain technical and administrative changes.

*Pre-Acquisition Financing*

As of December 31, 2006,we had approximately $633.5 million (net of a $5.5 million discount) outstandingin pre-Acquisition promissory notes issued under three separate indentures atan average interest rate of 7.2%. These pre-Acquisition promissory notes havematurities ranging from 2007 to 2028.

As of December 31, 2006,we had approximately €7.6 million (or $10.0million) outstanding in pre-Acquisition Euro-denominated medium term notes, inconnection with which we entered into an interest rate swap agreement on December 21,2005, effective January 16, 2006 and maturing on July 16, 2007. The purposeof this interest rate swap is to lock in the interest cash outflows at a fixedrate of 4.1% on the variable rate Euro-denominated medium term notes. Fundssufficient to repay all obligations associated with the remaining €7.6million of Euro-denominated medium term notes at maturity have been placed inescrow for satisfaction of these obligations.

We also had outstanding as of December 31,2006 approximately $545.3 million in borrowings, net of a $10.5 milliondiscount, consisting of pre-Acquisition ABS Notes with an average interest rateof 3.2%. These pre-Acquisition ABS Notes have maturities ranging from 2007 to2009. See “U.S. Fleet Debt” for a discussion of the collateralization of thepre-Acquisition ABS Notes.

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*Credit Facilities*

As of December 31,2006, the following credit facilities were available for the use of Hertz andits subsidiaries:

·       TheSenior Term Facility had $11.1 million available under the letter of creditfacility. No amounts were available to refinance certain existing debt underthe delayed draw facility.

·       TheSenior ABL Facility had the foreign currency equivalent of approximately$1,600.0 million of remaining capacity, all of which was available under theborrowing base limitation and $181.8 million of which was available underthe letter of credit facility sublimit.

·       TheInternational Fleet Debt Facilities had the foreign currency equivalent ofapproximately $1,236.4 million of remaining capacity and $231.4 millionavailable under the borrowing base limitation.

·       TheU.S. Fleet Debt had approximately $1,500.0 million of remaining capacity and$34.3 million available under the borrowing base limitation. No additionalamounts were available under the letter of credit facility.

·       TheFleet Financing Facility had approximately $107.0 million of remaining capacityand $16.5 million available under the borrowing base limitation.

As of December 31, 2006,substantially all of our assets are pledged under one or more of the facilitiesnoted above. We are currently in compliance with all of the covenants containedin the various facilities noted above that are currently applicable to us.

***Contractual Obligations***

Thefollowing table details the contractual cash obligations for debt and relatedinterest payable, operating leases and concession agreements and other purchaseobligations as of December 31, 2006 (in millions of dollars):

| ** **                                      | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                                      | ** ** | **Total**  | ** ** | **2007**                                  | ** ** | **2008 to  2009** | ** ** | **2010 to  2011** | ** ** | **After 2011** | ** ** |
| Debt (1)                                        |       | $          | 12,359.4   |                                      | $          | 2,543.2 |   | $ | 1,863.2 |   | $ | 3,045.0 |   |   | $ | 4,908.0 |   |   |
| Interest on debt (2)                            |       | 3,504.6    |       | 737.2                                     |       | 1,149.7 |   | 850.1 |   |   | 767.6 |   |   |
| Operating leases and  concession agreements (3) |       | 1,740.2    |       | 385.2                                     |       | 502.2 |   | 269.9 |   |   | 582.9 |   |   |
| Purchase obligations (4)                        |       | 5,699.8    |       | 5,595.1                                   |       | 104.1 |   | 0.6 |   |   | — |   |   |
| Total                                           |       | $          | 23,304.0   |                                      | $          | 9,260.7 |   | $ | 3,619.2 |   | $ | 4,165.6 |   |   | $ | 6,258.5 |   |   |

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(1)            Amountsrepresent aggregate debt obligations included in “Debt” in our consolidatedbalance sheet and include $2,162.6 million of commercial paper and othershort-term borrowings. These amounts exclude estimated payments under interestrate swap agreements. See Note 3 to the Notes to our consolidated financialstatements included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

(2)            Amountsrepresent the estimated interest payments based on the principal amounts,minimum non-cancelable maturity dates and applicable interest rates onthe debt at December 31, 2006. The minimum non-cancelableobligations under the International Fleet Debt, Senior ABL Facility and theFleet Financing Facility matured between January and March 2007.While there was no requirement to do so, these obligations were subsequentlyrenewed.

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(3)            Includesobligations under various concession agreements, which provide for payment ofrents and a percentage of revenue with a guaranteed minimum, and leaseagreements for real estate, revenue earning equipment and office and computerequipment. Such obligations are reflected to the extent of their minimumnon-cancelable terms. See Note 9 to the Notes to our consolidated financialstatements included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

(4)            Purchaseobligations represent agreements to purchase goods or services that are legallybinding on us and that specify all significant terms, including fixed orminimum quantities; fixed, minimum or variable price provisions; and theapproximate timing of the transaction. Only the minimum non-cancelable portionof purchase agreements and related cancellation penalties are included asobligations. In the case of contracts, which state minimum quantities of goodsor services, amounts reflect only the stipulated minimums; all other contractsreflect estimated amounts. Of the total purchase obligations as of December 31,2006, $5,499.0 million represent fleet purchases where contracts have beensigned or are pending with committed orders under the terms of sucharrangements. We do not regard our employment relationships with our employeesas “agreements to purchase services” for these purposes.

***Other Factors***

*Goodwill and Other Intangible Assets Following theAcquisition*

We have recognized asignificant amount of goodwill and other intangible assets in connection withthe Acquisition. We perform an impairment analysis with respect to our goodwilland indefinite-lived intangible assets at least annually, or morefrequently if changes in circumstances indicate that the carrying amount of thegoodwill or other intangible assets may not be recoverable. If we identify animpairment in goodwill or other intangible assets we may be required to take acharge that could negatively impact our future earnings.

*Foreign Currency*

Provisions are not made forU.S. income taxes on undistributed earnings of foreign subsidiaries that areintended to be indefinitely reinvested outside the United States or areexpected to be remitted free of taxes. Foreign operations have been financed toa substantial extent through loans from local lending sources in the currencyof the countries in which such operations are conducted. Car rental operationsin foreign countries are, from time to time, subject to governmentalregulations imposing varying degrees of currency restrictions. Currencyrestrictions and other regulations historically have not had a material impacton our operations as a whole.

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***Capital Expenditures***

The tablebelow shows revenue earning equipment and property and equipment capitalexpenditures and related disposal proceeds received by quarter for 2006, 2005and 2004 (in millions of dollars):
|                                                   | ** ** | **Revenue Earning Equipment** | ** ** | **Property and Equipment** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                                        | ** ** | **Capital  Expenditures**               | ** ** | **Disposal  Proceeds**               | ** ** | **Net Capital  Expenditures  (Proceeds)** | ** ** | **Capital  Expenditures** | ** ** | **Disposal  Proceeds** | ** ** | **Net Capital  Expenditures** | ** ** |
| **2006**                                          | ** ** |                                    | ** ** | ** **                           |       | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| **Successor**                                     | ** ** |                                    | ** ** | ** **                           |       | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| First Quarter                                     |       |                                    | $          | 3,862.1                              | ** ** |   | $ | (2,591.3 | ) |   | $ | 1,270.8 |   |   |   | $ | 64.7 | ** ** |   |   | $ | (19.8 | ) |   |   | $ | 44.9 | ** ** |   |
| Second Quarter                                    |       |                                    | 3,678.2    | ** **                           |       | (2,308.2 | ) |   | 1,370.0 |   |   |   | 65.9 | ** ** |   |   | (8.7 | ) |   |   | 57.2 | ** ** |   |
| Third Quarter                                     |       |                                    | 1,814.5    | ** **                           |       | (2,099.0 | ) |   | (284.5 | ) |   |   | 50.5 | ** ** |   |   | (19.3 | ) |   |   | 31.2 | ** ** |   |
| Fourth Quarter                                    |       |                                    | 2,066.1    | ** **                           |       | (2,556.5 | ) |   | (490.4 | ) |   |   | 42.8 | ** ** |   |   | (16.3 | ) |   |   | 26.5 | ** ** |   |
| Total Year                                        |       |                                    | $          | 11,420.9                             | ** ** |   | $ | (9,555.0 | ) |   | $ | 1,865.9 |   |   |   | $ | 223.9 | ** ** |   |   | $ | (64.1 | ) |   |   | $ | 159.8 | ** ** |   |
| **2005**                                          | ** ** |                                    | ** ** | ** **                           |       | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| **Predecessor**                                   | ** ** |                                    | ** ** | ** **                           |       | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| First Quarter                                     |       |                                    | $          | 3,600.2                              | ** ** |   | $ | (2,307.4 | ) |   | $ | 1,292.8 |   |   |   | $ | 81.3 | ** ** |   |   | $ | (9.0 | ) |   |   | $ | 72.3 | ** ** |   |
| Second Quarter                                    |       |                                    | 4,040.4    | ** **                           |       | (2,304.3 | ) |   | 1,736.1 |   |   |   | 105.5 | ** ** |   |   | (21.3 | ) |   |   | 84.2 | ** ** |   |
| Third Quarter                                     |       |                                    | 2,377.5    | ** **                           |       | (2,579.5 | ) |   | (202.0 | ) |   |   | 92.9 | ** ** |   |   | (19.0 | ) |   |   | 73.9 | ** ** |   |
| Fourth Quarter  (Oct. 1-Dec. 20, 2005)  |       |                                    | 2,168.1    | ** **                           |       | (2,915.1 | ) |   | (747.0 | ) |   |   | 54.8 | ** ** |   |   | (23.3 | ) |   |   | 31.5 | ** ** |   |
| **Successor**                                     | ** ** |                                    | ** ** | ** **                           |       | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Fourth Quarter  (Dec. 21-Dec. 31, 2005) |       |                                    | 234.8      | ** **                           |       | (199.7 | ) |   | 35.1 |   |   |   | 8.5 | ** ** |   |   | (1.2 | ) |   |   | 7.3 | ** ** |   |
| Total Year                                        |       |                                    | $          | 12,421.0                             | ** ** |   | $ | (10,306.0 | ) |   | $ | 2,115.0 |   |   |   | $ | 343.0 | ** ** |   |   | $ | (73.8 | ) |   |   | $ | 269.2 | ** ** |   |
| **2004**                                          | ** ** |                                    | ** ** | ** **                           |       | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| **Predecessor**                                   | ** ** |                                    | ** ** | ** **                           |       | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| First Quarter                                     |       |                                    | $          | 2,916.1                              | ** ** |   | $ | (1,860.7 | ) |   | $ | 1,055.4 |   |   |   | $ | 61.2 | ** ** |   |   | $ | (11.7 | ) |   |   | $ | 49.5 | ** ** |   |
| Second Quarter                                    |       |                                    | 3,804.1    | ** **                           |       | (1,921.2 | ) |   | 1,882.9 |   |   |   | 82.8 | ** ** |   |   | (20.9 | ) |   |   | 61.9 | ** ** |   |
| Third Quarter                                     |       |                                    | 2,179.0    | ** **                           |       | (2,321.8 | ) |   | (142.8 | ) |   |   | 74.6 | ** ** |   |   | (19.4 | ) |   |   | 55.2 | ** ** |   |
| Fourth Quarter                                    |       |                                    | 2,410.9    | ** **                           |       | (2,637.2 | ) |   | (226.3 | ) |   |   | 67.8 | ** ** |   |   | (7.3 | ) |   |   | 60.5 | ** ** |   |
| Total Year                                        |       |                                    | $          | 11,310.1                             | ** ** |   | $ | (8,740.9 | ) |   | $ | 2,569.2 |   |   |   | $ | 286.4 | ** ** |   |   | $ | (59.3 | ) |   |   | $ | 227.1 | ** ** |   |

 

Revenue earning equipment expenditures in our carrental operations were $10,545.7 million, $11,493.9 million and $10,665.4million for the years ended December 31, 2006, 2005 and 2004,respectively. Revenue earning equipment expenditures in our equipment rentaloperations were $875.2 million, $927.1 million and $644.7 million for the yearsended December 31, 2006, 2005 and 2004, respectively.

Revenue earning equipment expenditures in our carrental and equipment rental operations for the year ended December 31,2006 decreased by 8.2% and 5.6%, respectively, compared to the year ended December 31,2005. The decrease in ourcar rental revenue earning equipment expenditures is due to the change in themix of purchases made during the year ended December 31, 2006 as comparedto the year ended December 31, 2005. Revenue earning equipmentexpenditures in our car rental and equipment rental operations for the yearended December 31, 2005 increased by 7.8% and 43.8%, respectively,compared to the year ended December 31, 2004. The increase in equipmentrental revenue earning equipment expenditures is primarily the result of higherrental volume.

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Property and equipment expenditures in our car rentaloperations were $166.4 million, $271.1 million and $220.3 million for the yearsended December 31, 2006, 2005 and 2004, respectively. Property andequipment expenditures in our equipment rental operations were $54.4 million$69.0 million and $63.1 million for the years ended December 31,2006, 2005 and 2004, respectively. Property and equipment expenditures in our “corporateand other” activities were $3.1 million, $2.9 million and $3.0 million forthe years ended December 31, 2006, 2005 and 2004, respectively.

Property and equipment expenditures in our car rental,equipment rental and “corporate and other” operations for the year ended December 31,2006 decreased by 38.6%, 21.2% and increased by 6.9%, respectively, compared tothe year ended December 31, 2005. Property and equipment expenditures inour car rental, equipment rental and “corporate and other” operations for theyear ended December 31, 2005 increased by 23.0%, 9.4% and decreased by3.3%, respectively, compared to the year ended December 31, 2004.

For the year ended December 31, 2006, weexperienced a level of net expenditures for revenue earning equipment andproperty and equipment slightly lower than our net expenditures in 2005. Thisdecrease was due to a decrease in the percentage of program cars purchased andan increase in the percentage of lower cost non-program cars purchased for theyear ended December 31, 2006.

For the year ended December 31,2005, we experienced a level of net expenditures for revenue earning equipmentand property and equipment slightly lower than our net expenditures in 2004.The net capital expenditures decrease was due to increased disposals partlyoffset by increases in the prices of 2006 model year vehicles acquiredbeginning in the fourth quarter of 2005, together with capital expendituresrelating to the expansion of our off-airport locations.

**Off-Balance SheetCommitments**

As of December 31, 2006and 2005, the following guarantees (including indemnification commitments) wereissued and outstanding:

***Indemnifications***

In the ordinary course ofbusiness, we execute contracts involving indemnifications standard in therelevant industry and indemnifications specific to a transaction such as thesale of a business. These indemnifications might include claims relating to thefollowing: environmental matters; intellectual property rights; governmentalregulations and employment-related matters; customer, supplier and othercommercial contractual relationships; and financial matters. Performance underthese indemnities would generally be triggered by a breach of terms of thecontract or by a third-party claim. We regularly evaluate the probabilityof having to incur costs associated with these indemnifications and haveaccrued for expected losses that are probable and estimable. The types ofindemnifications for which payments are possible include the following:

*Sponsors; Directors*

On the Closing Date, Hertzentered into customary indemnification agreements with Hertz Holdings, theSponsors and Hertz Holdings’ stockholders affiliated with the Sponsors,pursuant to which Hertz Holdings and Hertz will indemnify the Sponsors, HertzHoldings’ stockholders affiliated with the Sponsors and their respectiveaffiliates, directors, officers, partners, members, employees, agents,representatives and controlling persons, against certain liabilities arisingout of performance of a consulting agreement with Hertz Holdings and each ofthe Sponsors and certain other claims and liabilities, including liabilitiesarising out of financing arrangements or securities offerings. We do notbelieve that these indemnifications are reasonably likely to have a material impacton us. Hertz Holdings has also entered into indemnification agreements witheach of our directors.

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*Environmental*

We have indemnified variousparties for the costs associated with remediating numerous hazardous substancestorage, recycling or disposal sites in many states and, in some instances, fornatural resource damages. The amount of any such expenses or related naturalresource damages for which we may be held responsible could be substantial. Theprobable losses that we expect to incur for such matters have been accrued, andthose losses are reflected in our consolidated financial statements. As of December 31, 2006and December 31, 2005, the aggregate amounts accrued for environmentalliabilities, including liability for environmental indemnities, reflected inour consolidated balance sheetin “Other accrued liabilities” were $3.7 million and $3.9 million,respectively. The accrual generally represents the estimated cost to studypotential environmental issues at sites deemed to require investigation orclean-up activities, and the estimated cost to implement remediation actions,including ongoing maintenance, as required. Cost estimates are developed bysite. Initial cost estimates are based on historical experience at similarsites and are refined over time on the basis of in-depth studies of the sites.For many sites, the remediation costs and other damages for which we ultimatelymay be responsible cannot be reasonably estimated because of uncertainties withrespect to factors such as our connection to the site, the materials there, theinvolvement of other potentially responsible parties, the application of lawsand other standards or regulations, site conditions, and the nature and scopeof investigations, studies, and remediation to be undertaken (including thetechnologies to be required and the extent, duration, and success ofremediation).

**Risk Management**

For a discussion of additionalrisks arising from our operations, including vehicle liability, generalliability and property damage insurable risks, see “Item 1—Business—RiskManagement.”

**Market Risks**

We are exposed to a variety ofmarket risks, including the effects of changes in interest rates and foreigncurrency exchange rates. We manage our exposure to these market risks throughour regular operating and financing activities and, when deemed appropriate,through the use of derivative financial instruments. Derivative financialinstruments are viewed as risk management tools and historically have not beenused for speculative or trading purposes. In addition, derivative financialinstruments are entered into with a diversified group of major financialinstitutions in order to manage our exposure to counterparty nonperformance onsuch instruments. For more information on these exposures, see Note 13 to theNotes to our consolidated financial statements included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

***Interest Rate Risk***

From time to time, we enter into interest rate swapagreements to manage interest rate risk. Effective September 30, 2003, weentered into interest rate swap agreements relating to the issuance of our 4.7%notes due October 2, 2006. Effective June 3, 2004, we entered intointerest rate swap agreements relating to the issuance of our 6.35% notes due June 15,2010. Under these agreements, we paid interest at a variable rate in exchangefor fixed rate receipts, effectively transforming these notes to floating rateobligations. As a result of the Acquisition, a significant portion of theunderlying fixed rate debt was tendered, causing the interest rate swaps to beineffective as of December 21, 2005. Consequently, any changes in the fairvalue of the derivatives were recognized in the statement of operations.Between December 21, 2005 (the date the hedge accounting was discontinued)and December 31, 2005, the fair value adjustment related to these interestrate swaps was a gain of $2.7 million, which was recorded in ourconsolidated statement of operations in “Selling, general and administrative”expenses. During January 2006, we assigned these interest rate swaps to athird party in return for cash. As a result of the assignment of these interestrate swaps, we recorded a gain of 

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$1.0 million which is reflected in our consolidatedstatement of operations in “Selling, general and administrative” expenses.

In connection with the Acquisition and the issuance ofthe $3,550.0 million of floating rate U.S. Fleet Debt, HVF and Hertz enteredinto seven interest rate swap agreements, or the “HVF Swaps,” effective December 21,2005. These agreements mature at various terms, in connection with thescheduled maturity of the associated debt obligations, through November 25,2011. Under these agreements, we pay monthly interest at a fixed rate of 4.5%per annum in exchange for monthly amounts at one-month LIBOR, effectivelytransforming the floating rate U.S. Fleet Debt to fixed rate obligations.

In connection with the remaining €7.6million untendered balance of our Euro-denominated medium term notes, weentered into an interest rate swap agreement on December 21, 2005,effective January 16, 2006, and maturing on July 16, 2007. Thepurpose of this interest rate swap is to lock in the interest cash outflows ata fixed rate of 4.1% on the variable rate Euro-denominated medium term notes.

In May 2006, in connection with the forecastedissuance of the permanent take-out international asset-based facilities,HIL purchased two swaptions for €3.3 million, to protectitself from interest rate increases. These swaptions give HIL the right, butnot the obligation, to enter into three year interest rate swaps based on atotal notional amount of €600 million at an interest rate of 4.155%.The swaptions were renewed in 2007 prior to their scheduled expiration date of March 15,2007 and now expire on September 5, 2007.

See Notes 3, 13 and 16 to the Notes to ourconsolidated financial statements included in this Annual Report under the caption “Item 8—FinancialStatements and Supplementary Data.”

We have a significant amount of debt (including underour U.S. and International Fleet Debt and Senior ABL Facility) with variablerates of interest based generally on LIBOR, EURIBOR or their equivalents for localcurrencies plus an applicable margin. Increases in interest rates couldtherefore significantly increase the associated interest payments that we arerequired to make on this debt.

We have assessed our exposure to changes in interestrates by analyzing the sensitivity to our earnings assuming various changes inmarket interest rates. Assuming a hypothetical increase of one percentage pointin interest rates on our debt portfolio as of December 31, 2006, our netinterest expense would increase by an estimated $15.9 million over a twelve-monthperiod.

Consistent with the terms ofthe agreements governing the respective debt obligations, we may hedge aportion of the floating rate interest exposure under the Senior CreditFacilities and the U.S. and International Fleet Debt to provide protection inrespect of such exposure.

***Foreign Currency Risk***

We manage our foreign currency risk primarily byincurring, to the extent practicable, operating and financing expenses in thelocal currency in the countries in which we operate, including making fleet andequipment purchases and borrowing for working capital needs. Also, we havepurchased foreign exchange options to manage exposure to fluctuations inforeign exchange rates for selected marketing programs. The effect of exchangerate changes on these financial instruments would not materially affect ourconsolidated financial position, results of operations or cash flows. Our riskswith respect to currency option contracts are limited to the premium paid forthe right to exercise the option and the future performance of the option’scounterparty. Premiums paid for options outstanding as of December 31,2006, were approximately $0.3 million, and we limit counterparties to financialinstitutions that have strong credit ratings.

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We also manage exposure to fluctuations in currencyrisk on intercompany loans we make to certain of our subsidiaries by enteringinto foreign currency forward contracts at the time of the loans. The forwardrate is reflected in the intercompany loan rate to the subsidiaries, and as aresult, the forward contracts have no material impact on our results ofoperations.

Inconnection with the Transactions, we issued €225 million of unhedged Senior EuroNotes. Prior to October 1,2006, our Senior Euro Notes were not designated as a net investment hedge ofour Euro-denominated net investments. For the nine months ended September 30,2006, we incurred unrealized exchange transaction losses of $19.2 millionresulting from the translation of these Euro-denominated notes into the U.S.dollar, which are recorded in our consolidated statement of operations in “Selling,general and administrative” expenses. On October 1, 2006, we designatedour Senior Euro Notes as an effective net investment hedge of ourEuro-denominated net investment in our foreign operations. As a result of thisnet investment hedge designation, as of December 31, 2006, $7.1 million oflosses attributable to the translation of our Senior Euro Notes into the U.S.dollar are recorded in our consolidated balance sheet in “Accumulated othercomprehensive income (loss).”

**Inflation**

The increased acquisition costof vehicles is the primary inflationary factor affecting us. Many of our otheroperating expenses are also expected to increase with inflation, includinghealth care costs. Management does not expect that the effect of inflation onour overall operating costs will be greater for us than for our competitors.

**Like-Kind ExchangeProgram**

In January 2006, weimplemented a like-kind exchange program for our U.S. car rental business.Pursuant to the program, we dispose of vehicles and acquire replacementvehicles in a form intended to allow such dispositions and replacements toqualify as tax-deferred “like-kind exchanges” pursuant to section 1031 of theInternal Revenue Code. The program has resulted in a material deferral offederal and state income taxes for fiscal 2006. A like-kind exchange programfor HERC has been in place for several years. We cannot, however, offerassurance that the expected tax deferral will be achieved or that the relevantlaw concerning the programs will remain in its current form. In addition, thebenefit of deferral is subject to recapture, if, for example, there were amaterial downsizing of our fleet.

**Employee RetirementBenefits**

***Pension***

We sponsor defined benefit pension plans worldwide.Pension obligations give rise to significant expenses that are dependent onassumptions discussed in Note 5 of the Notes to our consolidated financialstatements included in this AnnualReport under the caption “Item 8—Financial Statements and Supplementary Data.” Our2006 worldwide pre-tax pension expense was approximately $35.6 million, whichis a decrease of $1.9 million from 2005 primarily attributable to theelimination of the amortization of net loss component of 2006 net periodicpension cost because of the purchase accounting charges that were recognized in2005. As of the Acquisition date, a liability was recorded for the projectedbenefit obligation in excess of plan assets, which eliminated any previouslyexisting unrecognized net gain or loss, or unrecognized prior service cost.

The funded status (i.e., the dollar amount by whichthe present value of projected benefit obligations exceeded the market value ofpension plan assets) of our U.S. qualified plan, in which most domesticemployees participate, declined as of December 31, 2006, compared with December 31,2005. The ratio of assets to the projected benefit obligation was consistentfrom December 31, 2005 to 

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December 31, 2006. The primary reason for thedecline in dollar terms is that no contributions were made in 2006.

We review our pension assumptions regularly and fromtime to time make contributions beyond those legally required. For example, nodiscretionary contributions were made to our U.S. qualified plan in the yearended December 31, 2006 and $28.0 million and $48.0 million were made toour U.S. qualified plan for the years ended December 31, 2005 and 2004,respectively. After giving effect to these contributions, based on currentinterest rates and on our return assumptions and assuming no additionalcontributions, we do not expect to be required to pay any variable-ratepremiums to the Pension Benefit Guaranty Corporation before 2010. For the yearended December 31, 2006, we contributed $28.8 million to our worldwidepension plans, including a discretionary contribution of $15.6 million to ourU.K. defined benefit pension plan and benefit payments made through unfundedplans.

We participate in various “multiemployer”pension plans administrated by labor unions representing some of our employees.We make periodic contributions to these plans to allow them to meet theirpension benefit obligations to their participants. In the event that wewithdrew from participation in one of these plans, then applicable law couldrequire us to make an additional lump-sum contribution to the plan, and wewould have to reflect that as an expense in our statement of operations and asa liability on our balance sheet. Our withdrawal liability for anymultiemployer plan would depend on the extent of the plan’s funding of vestedbenefits. We currently do not expect to incur any material withdrawal liabilityin the near future. However, in the ordinary course of our renegotiation ofcollective bargaining agreements with labor unions that maintain these plans,we could decide to discontinue participation in a plan, and in that event wecould face a withdrawal liability. Some multiemployer plans, including one inwhich we participate, are reported to have significant underfunded liabilities.Such underfunding could increase the size of our potential withdrawalliability.

***Other Postretirement Benefits***

We provide limitedpostretirement health care and life insurance for employees of our domesticoperations with hire dates prior to January 1, 1990. There are no planassets associated with this plan. We provide for these postretirement coststhrough monthly accruals. The net periodic postretirement benefit cost for theyear ended December 31, 2006 was $1.1 million and the accumulated benefitobligation as of December 31, 2006 was $16.6 million compared to a netperiodic postretirement benefit cost of $1.6 million for the year ended December 31,2005 and an accumulated benefit obligation of $18.2 million as of December 31,2005. The decrease in the accumulated benefit obligation was primarilyattributable to the increase in the discount rate from 5.5% as of December 31,2005 to 5.7% as of December 31, 2006.

**Hertz Holdings StockIncentive Plan**

On February 15, 2006, the Boards of Directors ofHertz and Hertz Holdings jointly approved the Hertz Global Holdings, Inc.Stock Incentive Plan, or the “Stock Incentive Plan.” The Stock Incentive Planprovides for the sale of shares of the common stock of Hertz Holdings to ourexecutive officers, other key employees and directors as well as the grant ofstock options to purchase shares of Hertz Holdings to those individuals. The non-cashstock-based compensation expense associated with the Hertz Global Holdings, Inc.Stock Incentive Plan is pushed down from Hertz Holdings and recorded on thebooks at the Hertz level.

During the second quarter of 2006, Hertz Holdings madean equity offering to approximately 350 of our executives and key employees(not including Craig R. Koch, our former Chairman of the Board and ChiefExecutive Officer). The shares sold and options granted to our employees inconnection with this equity offering are subject to and governed by the termsof the Stock Incentive Plan. The 

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offering closed on May 5, 2006. In connectionwith this offering, Hertz Holdings sold 1,757,354 shares at a purchase price of$10.00 per share and granted options to purchase an additional 2,786,354 sharesat an exercise price of $10.00 per share ($4.56 after adjustment for special cash dividends paid on June 30,2006 and November 21, 2006). In addition, on May 18, 2006,Hertz Holdings granted our key executives and employees (except for Mr. Koch)options to acquire an additional 9,515,000 shares of the common stock of HertzHoldings at $10.00 per share ($4.56 after adjustment for special cash dividends paid on June 30,2006 and November 21, 2006), 800,000 shares at $15.00 per share($9.56 after adjustment for special cashdividends paid on June 30, 2006 and November 21, 2006) and800,000 shares at $20.00 per share ($14.56 after adjustment for special cash dividends paid on June 30,2006 and November 21, 2006). These options are subject to andgoverned by the Stock Incentive Plan.

On June 12, 2006, Mr. Koch purchased 50,000shares of the common stock of Hertz Holdings at a purchase price of $10.00 pershare and received options to purchase an additional 100,000 shares at apurchase price of $10.00 per share ($5.68 after adjustment for the special cash dividend paid on June 30,2006). On August 15, 2006, the options issued to Mr. Koch in June 2006were cancelled and he was issued options to purchase 112,000 shares of commonstock of Hertz Holdings at an exercise price of $7.68 per share ($6.56 afteradjustment for the special cash dividendpaid on November 21, 2006). Hertz Holdings made a payment to Mr. Kochin connection with his share purchase equal to $80,000.

On August 15, 2006, certain newly-hiredemployees purchased an aggregate of 20,000 shares at a purchase price of $7.68per share and were granted options to purchase 220,000 shares of the commonstock of Hertz Holdings at an exercise price of $7.68 per share ($6.56 afteradjustment for the special cash dividend paid on November 21, 2006). Alsoon August 15, 2006, in accordance with the terms of his employmentagreement, Mr. Frissora purchased 1,056,338 shares of the common stock ofHertz Holdings at a price of $5.68 per share and was granted options topurchase 800,000 shares of common stock of Hertz Holdings at an exercise priceof $7.68 per share ($6.56 after adjustment for the special cash dividend paidon November 21, 2006), 400,000 options at an exercise price of $10.68 pershare ($9.56 after adjustment for the special cash dividend paid on November 21,2006) and 400,000 options at an exercise price of $15.68 per share ($14.56after adjustment for the special cash dividend paid on November 21, 2006).All of Mr. Frissora’s options will vest 20% per year on the first fiveanniversaries of the date of commencement of his employment and will have a tenyear term.

During September 2006, Hertz Holdings determinedthat the fair value of its common stock as of August 15, 2006 was $16.37per share, rather than the $7.68 that had originally been determined at thattime and which Hertz Holdings uses for purposes of the Stock Incentive Plan andfederal income tax purposes. Consequently, Hertz Holdings recognizedcompensation expense of approximately $13.0 million, including amounts for atax gross-up on the initial $2.00 discount to fair market value inaccordance with Mr. Frissora’s employment agreement, in the quarter ended September 30,2006.

In order to assist management and the CompensationCommittee of the Board of Directors of Hertz Holdings in their determination ofthe value of the common stock of Hertz Holdings, Hertz engaged an independentvaluation specialist to perform a valuation of the common stock of HertzHoldings at May 15, 2006 and June 30, 2006. The May 15th date isclose to the initial stock purchase and option grant date of May 5, 2006and the second option grant date of May 18, 2006. The June 30th datecoincides with the payment of the special cash dividend of $4.32 per share.

The independent valuation specialist weighted each ofthe income, market transaction and market comparable valuation approachesequally. Management and the Compensation Committee of the Board of Directors ofHertz Holdings believe that the valuation approaches employed are appropriatefor an enterprise such as Hertz Holdings, which has an established financialhistory of profitable 

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operations and generation of positive cash flows. Theresults of the approaches were not significantly different from one another.

In connection with the authorization of the special cash dividend of $4.32 per share paidon June 30, 2006, the Board of Directors of Hertz Holdingsauthorized the modification of the option exercise prices downward by an amountequal to the per share amount of the specialcash dividend paid on June 30, 2006, thereby preserving theintrinsic value of the options, consistent with applicable tax law. In order toassist management and the Compensation Committee of the Board of Directors ofHertz Holdings in their determination of the value of the common stock of HertzHoldings, an independent valuation was performed as of immediately before andafter the modification. We will recognize incremental compensation cost ofapproximately $14.1 million related to the cost of modifying the exerciseprices of the stock options for the special cash dividend over the remainder ofthe five-year requisite vesting period that began on the grant date.

Prior to the consummation ofthe initial public offering of the common stock of Hertz Holdings on November 21,2006, Hertz Holdings declared a special cash dividend, to be paid promptlyfollowing the completion of the offering. In connection with the special cashdividend, Hertz Holdings’ outstanding stock options were adjusted to preservethe intrinsic value of the options, consistent with applicable tax law and theterms of the Stock Incentive Plan. The Board of Directors of Hertz Holdingsapproved this modification on October 12, 2006. Beginning on that date,the cost of the modification was recognized ratably over the remainder of therequisite service period for each grant. Because the modification was effectivebefore the amount of the dividend was known, the cost of the modificationreflected the assumption that the dividend would be funded by the proceeds toHertz Holdings from the sale of the common stock after deducting underwritingdiscounts and commissions and offering expenses. The assumed proceeds from thesale of the common stock were determined by assuming an offering priceequivalent to the midpoint of the range set forth on the cover page of theinitial public offering prospectus (or $17.00 per share) and resulted in anestimated dividend of $1.83 per share. The actual dividend declared was $1.12per share. We will recognize incremental compensation cost of $14.2 millionrelated to the cost of modifying the exercise prices of the stock options forthe special cash dividend paid on November 21, 2006 over the remainder ofthe five-year requisite service period. This charge was based on the estimateddividend, rather than the actual dividend paid.

**Share Purchase by OurChief Executive Officer**

On July 10, 2006, Mark P.Frissora accepted an offer of employment to serve as our Chief ExecutiveOfficer. On August 15, 2006, Mr. Frissora purchased 1,056,338 sharesof the common stock of Hertz Holdings at a price of $5.68 per share, which was$2.00 below the fair market value of $7.68 on that date. As discussed under “—CriticalAccounting Policies and Estimates—Stock-Based Compensation,” HertzHoldings has subsequently determined that the fair value of its common stock asof August 15, 2006 should be $16.37 per share, rather than $7.68 as hadoriginally been determined at that time. Consequently, we recognizedcompensation expense of approximately $13.0 million, including amounts for atax gross-up on the initial $2.00 discount to fair market value inaccordance with Mr. Frissora’s employment agreement, in the third quarterof 2006.

**Recent AccountingPronouncements**

In June 2006, the FASB issued FASB InterpretationNo. 48, or “FIN 48,” “Accounting for Uncertainty in Income Taxes.” FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with SFAS No. 109, “Accountingfor Income Taxes.” FIN 48 prescribes a recognition threshold and measurementattribute for financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. FIN 48 is effective for fiscal yearsbeginning after December 15, 

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2006. The impact of FIN 48 on our financial positionas of January 1, 2007 is estimated to be up to a $30.0 million increase intotal liabilities.

In June 2006, the Emerging Issues Task Force, or “EITF,”issued EITF No. 06-3, or “EITF 06-3,” “How Taxes Collectedfrom Customers and Remitted to Governmental Authorities Should Be Presented inthe Income Statement (That Is, Gross versus Net Presentation),” which relatesto any tax assessed by a governmental authority that is directly imposed on arevenue-producing transaction. EITF 06-3 states that thepresentation of the taxes, either on a gross (included in revenues and costs)or a net basis (excluded from revenues), is an accounting policy decision thatshould be disclosed pursuant to Accounting Principles Board Opinion No. 22,“Disclosure of Accounting Policies,” if those amounts are significant. EITF 06-3should be applied to financial reports for interim and annual reporting periodsbeginning after December 15, 2006. Sales tax amounts collected fromcustomers have been recorded on a net basis. The adoption of EITF 06-3 willnot have any impact on our financial position or results of operations.

In September 2006, the United States Securitiesand Exchange Commission or the “SEC,” issued Staff Accounting Bulletin No. 108,or “SAB No. 108.” “Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108provides guidance on how prior year misstatements should be taken intoconsideration when quantifying misstatements in current year financialstatements for purposes of determining whether the current year’s financialstatements are materially misstated. SAB No. 108 requires registrants toapply the new guidance to material errors in existence at the beginning of thefirst fiscal year ending after November 15, 2006 by correcting thoseerrors through a one-time cumulative effect adjustment to beginning-of-yearretained earnings. The adoption of SAB No. 108 did not have any impact onour financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157or “SFAS No. 157”, “Fair Value Measurements,” SFAS No. 157 definesfair value, establishes a framework for measuring fair value in accordance withgenerally accepted accounting principles and expands disclosures about fairvalue measurements. The provisions of SFAS No. 157 are effective for thefiscal year beginning after November 15, 2007. We are currently reviewingSFAS No. 157 to determine its impact, if any, on our financial position orresults of operations.

In February 2007, the FASBissued SFAS No. 159, or “SFAS No. 159,” “The Fair Value Option forFinancial Assets and Financial Liabilities.” SFAS 159 permits entities tochoose to measure many financial instruments and certain other items at fairvalue. The provisions of SFAS 159 are effective as of January 1,2008. We are currently reviewing SFAS 159 to determine its impact, if any,on our financial position or results of operations.

**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 7—Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Market Risks,” which appears on pages 86to 88 of this Annual Report.

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**ITEM 8.**                 FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To The Board of DirectorsandShareholder of The Hertz Corporation:

We have completed integratedaudits of The Hertz Corporation's 2006 and 2005 consolidated****financialstatements and of its internal control over financial reporting as of December31, 2006 in accordance with the standards of the Public Company AccountingOversight Board (United States). Ouropinions, based on our audits, are presented below.

*Consolidated financial statements and financial statementschedules*

In our opinion, the consolidated financial statements listed inthe index appearing under Item 15(a)(1) present fairly, in allmaterial respects, the financial position of The Hertz Corporation and itssubsidiaries (Successor Company) at December 31, 2006 and December 31,2005, and the results of their operations and their cash flows for the yearended December 31, 2006 and for the period from December 21, 2005 toDecember 31, 2005 in conformity with accounting principles generallyaccepted in the United States of America. In addition, in our opinion, thefinancial statement schedules listed in the index appearing under Item 15(a)(2)present fairly, in all material respects, the information set forth thereinwhen read in conjunction with the related consolidated financial statements.  These financial statements andfinancial statement schedules are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements and financial statement schedulesbased on our audits.  We conducted ouraudits of these statements in accordance with the standards of the PublicCompany Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  An audit of financial statements includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

*Internal control overfinancial reporting*

Also, in our opinion,management’s assessment, included in Management’s Report on Internal ControlOver Financial Reporting appearing under Item 9A, that the Companymaintained effective internal control over financial reporting as of December 31,2006based on criteriaestablished in *Internal Control - Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO), is fairly stated, in all material respects, based on those criteria.Furthermore, in our opinion, the Company maintained, in all material respects,effective internal control over financial reporting as of December 31,2006, based on criteria established in *Internal Control -Integrated Framework* issued by the COSO. The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting.  Our responsibility is toexpress opinions on management’s assessment and on the effectiveness ofthe Company’s internal control over financial reporting based on our audit. Weconducted our audit of internal control over financial reporting in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. An audit of internal control over financial reportingincludes obtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we consider necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinions. 

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A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.  A company’s internal control over financialreporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company;(ii) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of managementand directors of the company; and (iii) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, ordisposition of the company’s assets that could have a material effect on thefinancial statements. 

Because ofits inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

/s/ PricewaterhouseCoopers LLPFlorham Park, New JerseyMarch 30, 2007

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To The Board ofDirectors and Shareholder of The Hertz Corporation:

In our opinion, theconsolidated financial statements listed in the index appearing under Item15(a)(1) present fairly, in all material respects, the results of operationsand cash flows of The Hertz Corporation and its subsidiaries (PredecessorCompany) for the period from January 1, 2005 to December 20, 2005 and for theyear ended December 31, 2004 in conformity with accounting principles generallyaccepted in the United States of America. In addition, in our opinion, thefinancial statement schedules listed in the index appearing under Item 15(a)(2)presents fairly, in all material respects, the information set forth thereinwhen read in conjunction with the related consolidated****financial statements. These financialstatements and financial statement schedules are the responsibility of theCompany’s management.  Our responsibilityis to express an opinion on these financial statements and financial statementschedules based on our audits.  Weconducted our audits of these statements in accordance with the standards ofthe Public Company Accounting Oversight Board (United States).  These standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLPFlorham Park, New JerseyApril 4, 2006, except for the effects of the restatement describedin Note 1A (not presented herein) to the consolidated financialstatements appearing under Item 8 of the Company's AnnualReport on Form 10-K/A for the year ended December 31, 2005,as to which the date is July 14, 2006, and Note 16 as to whichthe date is November 3, 2006

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**THE HERTZCORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In Thousands of Dollars)**
|                                                                                                  | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                       | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Cash and equivalents                                                                             |       | $                           | 671,831    |                        | $          | 843,908 |   |
| Restricted cash                                                                                  |       | 552,516                     |       | 289,201                     |       |
| Receivables, less  allowance for doubtful accounts of $1,989 and $460                            |       | 1,657,587                   |       | 1,823,188                   |       |
| Inventories, at lower  of cost or market                                                         |       | 112,119                     |       | 105,532                     |       |
| Prepaid expenses and  other assets                                                               |       | 369,922                     |       | 396,415                     |       |
| Revenue earning equipment, at cost:                                                              |       |                        |       |                        |       |
| Cars                                                                                             |       | 8,188,794                   |       | 7,439,579                   |       |
| Less accumulated depreciation                                                                    |       | (822,387                    | )          | (40,114                     | )          |
| Other equipment                                                                                  |       | 2,686,947                   |       | 2,083,299                   |       |
| Less accumulated depreciation                                                                    |       | (247,846                    | )          | (7,799                      | )          |
| Total revenue earning equipment                                                                  |       | 9,805,508                   |       | 9,474,965                   |       |
| Property and equipment, at cost:                                                                 |       |                        |       |                        |       |
| Land, buildings and leasehold improvements                                                       |       | 969,195                     |       | 921,421                     |       |
| Service equipment                                                                                |       | 597,882                     |       | 474,110                     |       |
|                                                                                             |       | 1,567,077                   |       | 1,395,531                   |       |
| Less accumulated depreciation                                                                    |       | (199,020                    | )          | (5,507                      | )          |
| Total property and equipment                                                                     |       | 1,368,057                   |       | 1,390,024                   |       |
| Other intangible  assets, net                                                                    |       | 3,173,495                   |       | 3,235,265                   |       |
| Goodwill                                                                                         |       | 964,693                     |       | 1,022,381                   |       |
| Total assets                                                                                     |       | $                           | 18,675,728 |                        | $          | 18,580,879 |   |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                   | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Accounts payable                                                                                 |       | $                           | 654,327    |                        | $          | 621,876 |   |
| Accrued salaries and  other compensation                                                         |       | 463,466                     |       | 433,636                     |       |
| Other accrued  liabilities                                                                       |       | 512,188                     |       | 446,292                     |       |
| Accrued taxes                                                                                    |       | 92,469                      |       | 115,462                     |       |
| Debt                                                                                             |       | 12,276,184                  |       | 12,515,005                  |       |
| Public liability and  property damage                                                            |       | 327,024                     |       | 320,955                     |       |
| Deferred taxes on  income                                                                        |       | 1,816,806                   |       | 1,852,542                   |       |
| Total liabilities                                                                                |       | 16,142,464                  |       | 16,305,768                  |       |
| Commitments and  contingencies                                                                   |       |                        |       |                        |       |
| Minority interest                                                                                |       | 14,813                      |       | 8,929                       |       |
| Stockholder’s equity:                                                                       |       |                        |       |                        |       |
| Common Stock, $0.01 par value, 3,000 shares authorized, 100 shares  issued   |       | —                      |       | —                      |       |
| Additional capital  paid-in                                                                      |       | 2,320,452                   |       | 2,295,000                   |       |
| Retained earnings  (deficit)                                                                     |       | 103,471                     |       | (21,346                     | )          |
| Accumulated other  comprehensive income (loss)                                                   |       | 94,528                      |       | (7,472                      | )          |
| Total stockholder’s equity                                                                  |       | 2,518,451                   |       | 2,266,182                   |       |
| Total liabilities and  stockholder’s equity                                                 |       | $                           | 18,675,728 |                        | $          | 18,580,879 |   |

 

The accompanying notes are an integral part of these financial statements.

96

----

**THE HERTZCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In Thousands of Dollars, except share data)**
|                                                                           | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** **                                                                | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Revenues:                                                                 |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                                                |       |                                         | $          | 6,273,612                                                    |       |            |       | $ | 129,448 |   |   |   |   |   | $ | 5,820,473 |   |   |   | $ | 5,430,805 |   |   |
| Equipment rental                                                          |       |                                         | 1,672,093  |                                                         |       |            | 22,430     |   |   |   |   |   | 1,392,461 |   |   |   | 1,161,955 |   |   |
| Other                                                                     |       |                                         | 112,700    |                                                         |       |            | 2,591      |   |   |   |   |   | 101,811 |   |   |   | 83,192 |   |   |
| Total revenues                                                            |       |                                         | 8,058,405  |                                                         |       |            | 154,469    |   |   |   |   |   | 7,314,745 |   |   |   | 6,675,952 |   |   |
| Expenses:                                                                 |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct operating                                                          |       |                                         | 4,475,974  |                                                         |       |            | 102,958    |   |   |   |   |   | 4,086,344 |   |   |   | 3,734,361 |   |   |
| Depreciation of revenue earning equipment                                 |       |                                         | 1,757,202  |                                                         |       |            | 43,827     |   |   |   |   |   | 1,555,862 |   |   |   | 1,463,258 |   |   |
| Selling, general and administrative                                       |       |                                         | 723,829    |                                                         |       |            | 15,167     |   |   |   |   |   | 623,386 |   |   |   | 591,317 |   |   |
| Interest, net of interest income of $42,303, $1,077, $36,156 and  $23,707 |       |                                         | 860,671    |                                                         |       |            | 25,735     |   |   |   |   |   | 474,247 |   |   |   | 384,464 |   |   |
| Total expenses                                                            |       |                                         | 7,817,676  |                                                         |       |            | 187,687    |   |   |   |   |   | 6,739,839 |   |   |   | 6,173,400 |   |   |
| Income (loss) before income taxes and minority interest                   |       |                                         | 240,729    |                                                         |       |            | (33,218    | ) |   |   |   |   | 574,906 |   |   |   | 502,552 |   |   |
| (Provision) benefit  for taxes on income                                  |       |                                         | (83,727    | )                                                            |       |            | 12,243     |   |   |   |   |   | (191,332 | ) |   |   | (133,870 | ) |   |
| Minority interest                                                         |       |                                         | (16,714    | )                                                            |       |            | (371       | ) |   |   |   |   | (12,251 | ) |   |   | (3,211 | ) |   |
| Net income (loss)                                                         |       |                                         | $          | 140,288                                                      |       |            |       | $ | (21,346 | ) |   |   |   |   | $ | 371,323 |   |   |   | $ | 365,471 |   |   |

 

The accompanying notes are an integral part of these financial statements.

97

----

**THE HERTZCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY(In Thousands of Dollars, except share data)**

| ** **                                                                                | ** ** | **Number  of Shares** | ** ** | **Common  Stock** | ** ** | **Additional  Capital  Paid-In** | ** ** | **Retained  Earnings  (Deficit)** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total  Stockholder’s  Equity** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------|------------|----------------------------------|------------|-----------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------|------------|
| **Predecessor**                                                                           |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |
| Balance at:                                                                               |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |
| DECEMBER 31, 2003                                                                         |       |                       | 100        |              |       |                             | $          | —                            |       |                                                      | $          | 983,132                               |       | $ | 1,113,746 |   |   | $ | 128,513 |   |   |   | $ | 2,225,391 |   |   |
| Net income                                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       | 365,471                               |       |   |   |   |   |   | 365,471 |   |   |
| Translation adjustment changes                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 83,420 |   |   |   | 83,420 |   |   |
| Unrealized holding losses on securities, net of tax  of $8                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (82 | ) |   |   | (82 | ) |   |
| Minimum pension liability adjustment, net of tax of  $1,076                               |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (3,953 | ) |   |   | (3,953 | ) |   |
| Total Comprehensive Income                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   | 444,856 |   |   |
| DECEMBER 31, 2004                                                                         |       |                       | 100        |              |       |                             | —     |                              |       | 983,132                                                   |       | 1,479,217                             |       |   | 207,898 |   |   |   | 2,670,247 |   |   |
| Net income                                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       | 371,323                               |       |   |   |   |   |   | 371,323 |   |   |
| Change in fair value of derivatives qualifying as  cash flow hedges, net of tax of $281   |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 424 |   |   |   | 424 |   |   |
| Translation adjustment changes                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (123,893 | ) |   |   | (123,893 | ) |   |
| Unrealized holding losses on securities, net of tax  of $5                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (37 | ) |   |   | (37 | ) |   |
| Minimum pension liability adjustment, net of tax of  $5,891                               |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (12,076 | ) |   |   | (12,076 | ) |   |
| Total Comprehensive Income                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   | 235,741 |   |   |
| Dividend to Ford Motor Company                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       | (1,185,000                            | )          |   |   |   |   |   | (1,185,000 | ) |   |
| DECEMBER 20, 2005                                                                         |       |                       | 100        |              |       |                             | —     |                              |       | 983,132                                                   |       | 665,540                               |       |   | 72,316 |   |   |   | 1,720,988 |   |   |
| **Successor**                                                                             |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |
| Balance at:                                                                               |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |
| DECEMBER 21, 2005                                                                         |       |                       | —     |              |       |                             | —     |                              |       | —                                                    |       | —                                |       |   | — |   |   |   | — |   |   |
| Capital contributions                                                                     |       |                       |       |              |       |                             |       |                              |       | 2,295,000                                                 |       |                                  |       |   |   |   |   |   | 2,295,000 |   |   |
| Net loss                                                                                  |       |                       |       |              |       |                             |       |                              |       |                                                      |       | (21,346                               | )          |   |   |   |   |   | (21,346 | ) |   |
| Change in fair value of derivatives qualifying as cash  flow hedges, net of tax of $2,704 |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (4,078 | ) |   |   | (4,078 | ) |   |
| Translation adjustment changes                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (3,394 | ) |   |   | (3,394 | ) |   |
| Total Comprehensive Loss                                                                  |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   | (28,818 | ) |   |
| DECEMBER 31, 2005                                                                         |       |                       | 100        |              |       |                             | —     |                              |       | 2,295,000                                                 |       | (21,346                               | )          |   | (7,472 | ) |   |   | 2,266,182 |   |   |
| Net income                                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       | 140,288                               |       |   |   |   |   |   | 140,288 |   |   |
| Translation adjustment changes                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 95,023 |   |   |   | 95,023 |   |   |
| Unrealized holding losses on securities, net of tax  of $4                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (30 | ) |   |   | (30 | ) |   |
| Unrealized loss on Euro-denominated debt, net of tax  of $4,648                           |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (7,066 | ) |   |   | (7,066 | ) |   |
| Change in fair value of derivatives qualifying as  cash flow hedges, net of tax of $5,023 |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 7,621 |   |   |   | 7,621 |   |   |
| Adjustment to initially apply FASB Statement  No. 158, net of tax of $4,873          |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 6,438 |   |   |   | 6,438 |   |   |
| Minimum pension liability adjustment, net of tax of  $9                                   |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 14 |   |   |   | 14 |   |   |
| Total Comprehensive Income                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   | 242,288 |   |   |
| Dividends paid to Hertz Holdings                                                          |       |                       |       |              |       |                             |       |                              |       |                                                      |       | (15,471                               | )          |   |   |   |   |   | (15,471 | ) |   |
| Stock-based employee compensation                                                         |       |                       |       |              |       |                             |       |                              |       | 25,452                                                    |       |                                  |       |   |   |   |   |   | 25,452 |   |   |
| DECEMBER 31, 2006                                                                         |       |                       | 100        |              |       |                             | $          | —                            |       |                                                      | $          | 2,320,452                             |       | $ | 103,471 |   |   | $ | 94,528 |   |   |   | $ | 2,518,451 |   |   |

 

The accompanying notes are an integral part of these financial statements.

98

----

**THE HERTZCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands of Dollars)**

| ** **                                                           | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                           | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** **                                                           | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Cash flows from operating activities:                                |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                    |       |                                         | $          | 140,288                                                      |       |            |       | $ | (21,346 | ) |   |   |   |   | $ | 371,323 |   |   |   | $ | 365,471 |   |   |
| Non-cash  expenses:                                                  |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation of revenue earning equipment                            |       |                                         | 1,757,202  |                                                         |       |            | 43,827     |   |   |   |   |   | 1,555,862 |   |   |   | 1,463,258 |   |   |
| Depreciation of property and equipment                               |       |                                         | 197,230    |                                                         |       |            | 5,511      |   |   |   |   |   | 182,363 |   |   |   | 177,597 |   |   |
| Amortization of other intangible assets                              |       |                                         | 61,614     |                                                         |       |            | 2,075      |   |   |   |   |   | 749 |   |   |   | 607 |   |   |
| Amortization of deferred financing costs                             |       |                                         | 65,622     |                                                         |       |            | 1,304      |   |   |   |   |   | 5,299 |   |   |   | 4,960 |   |   |
| Amortization of debt discount                                        |       |                                         | 33,872     |                                                         |       |            | 456        |   |   |   |   |   | 1,999 |   |   |   | 2,543 |   |   |
| Stock-based employee compensation                                    |       |                                         | 27,179     |                                                         |       |            | —     |   |   |   |   |   | 10,496 |   |   |   | 5,584 |   |   |
| Provision for public liability and property damage                   |       |                                         | 169,143    |                                                         |       |            | 1,918      |   |   |   |   |   | 158,050 |   |   |   | 153,139 |   |   |
| Loss (gain) on revaluation of foreign denominated debt               |       |                                         | 19,233     |                                                         |       |            | (2,826     | ) |   |   |   |   | — |   |   |   | — |   |   |
| Provision for losses on doubtful accounts                            |       |                                         | 17,132     |                                                         |       |            | 462        |   |   |   |   |   | 11,447 |   |   |   | 14,133 |   |   |
| Minority interest                                                    |       |                                         | 16,714     |                                                         |       |            | 371        |   |   |   |   |   | 12,251 |   |   |   | 3,211 |   |   |
| Deferred taxes on income                                             |       |                                         | 46,087     |                                                         |       |            | (12,243    | ) |   |   |   |   | (411,461 | ) |   |   | 129,576 |   |   |
| Changes in assets and  liabilities, net of effects of acquisition:   |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                          |       |                                         | 228,618    |                                                         |       |            | (121,497   | ) |   |   |   |   | (547,302 | ) |   |   | 57,303 |   |   |
| Due from affiliates                                                  |       |                                         | —     |                                                         |       |            | 107,791    |   |   |   |   |   | 83,868 |   |   |   | 75,607 |   |   |
| Inventories, prepaid expenses and other assets                       |       |                                         | (16,623    | )                                                            |       |            | (166,545   | ) |   |   |   |   | (134,052 | ) |   |   | (27,778 | ) |   |
| Accounts payable                                                     |       |                                         | (4,708     | )                                                            |       |            | (58,565    | ) |   |   |   |   | (32,676 | ) |   |   | (58,318 | ) |   |
| Accrued liabilities                                                  |       |                                         | 85,013     |                                                         |       |            | (52,157    | ) |   |   |   |   | 51,364 |   |   |   | 50,831 |   |   |
| Accrued taxes                                                        |       |                                         | (3,789     | )                                                            |       |            | 1,881      |   |   |   |   |   | 572,452 |   |   |   | 12,315 |   |   |
| Payments of public liability and property damage claims and expenses |       |                                         | (192,524   | )                                                            |       |            | (7,938     | ) |   |   |   |   | (155,904 | ) |   |   | (178,654 | ) |   |
| Net cash provided by  (used in) operating activities                 |       |                                         | $          | 2,647,303                                                    |       |            |       | $ | (277,521 | ) |   |   |   |   | $ | 1,736,128 |   |   |   | $ | 2,251,385 |   |   |

 

The accompanying notes are an integral part of these financial statements.

99

----

**THE HERTZCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**(In Thousands ofDollars)

| ** **                                                         | ** ** | **Successor**                                | ** **  | ** **                                                   | ** ** | **Predecessor** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------------|-------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                         | ** ** | ** **                                   | ** **  | **For the  periods from**                                    | ** ** | ** **      | ** ** |
| ** **                                                         | ** ** | **Year ended  December 31,  2006** | ** **  | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Cash flows from investing activities:                              |       |                                         |        |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net change in restricted cash                                      |       |                                         | $           | (260,212                                                     | )          |            |       | $ | (273,640 | ) |   |   |   |   | $ | (12,660 | ) |   |   | $ | (2,901 | ) |   |
| Purchase of predecessor company stock                              |       |                                         | —      |                                                         |       |            | (4,379,374 | ) |   |   |   |   | — |   |   |   | — |   |   |
| Proceeds from sales (purchases) of short-term  investments, net    |       |                                         | —      |                                                         |       |            | —     |   |   |   |   |   | 556,997 |   |   |   | (56,889 | ) |   |
| Revenue earning equipment expenditures                             |       |                                         | (11,420,898 | )                                                            |       |            | (234,757   | ) |   |   |   |   | (12,186,205 | ) |   |   | (11,310,032 | ) |   |
| Proceeds from disposal of revenue earning equipment                |       |                                         | 9,555,025   |                                                         |       |            | 199,711    |   |   |   |   |   | 10,106,260 |   |   |   | 8,740,920 |   |   |
| Property and equipment expenditures                                |       |                                         | (223,943    | )                                                            |       |            | (8,503     | ) |   |   |   |   | (334,543 | ) |   |   | (286,428 | ) |   |
| Proceeds from disposal of property and equipment                   |       |                                         | 64,144      |                                                         |       |            | 1,246      |   |   |   |   |   | 72,572 |   |   |   | 59,253 |   |   |
| Available-for-sale  securities:                                    |       |                                         |        |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchases                                                          |       |                                         | (2,464      | )                                                            |       |            | —     |   |   |   |   |   | (243 | ) |   |   | (11,261 | ) |   |
| Sales                                                              |       |                                         | 514         |                                                         |       |            | —     |   |   |   |   |   | 245 |   |   |   | 19,448 |   |   |
| Other                                                              |       |                                         | (66         | )                                                            |       |            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Changes in investment in joint venture                             |       |                                         | —      |                                                         |       |            | —     |   |   |   |   |   | — |   |   |   | 2,000 |   |   |
| Net cash used in investing activities                              |       |                                         | (2,287,900  | )                                                            |       |            | (4,695,317 | ) |   |   |   |   | (1,797,577 | ) |   |   | (2,845,890 | ) |   |
| Cash flows from  financing activities:                             |       |                                         |        |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of an intercompany note                                   |       |                                         | —      |                                                         |       |            | —     |   |   |   |   |   | 1,185,000 |   |   |   | — |   |   |
| Proceeds from issuance of long-term debt                           |       |                                         | 309,437     |                                                         |       |            | 8,643,894  |   |   |   |   |   | 27,162 |   |   |   | 1,985,981 |   |   |
| Repayment of long-term debt                                        |       |                                         | (247,425    | )                                                            |       |            | (5,118,559 | ) |   |   |   |   | (619,402 | ) |   |   | (913,635 | ) |   |
| Short-term  borrowings:                                            |       |                                         |        |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                                                           |       |                                         | 747,469     |                                                         |       |            | 10,333     |   |   |   |   |   | 3,208,085 |   |   |   | 1,382,587 |   |   |
| Repayments                                                         |       |                                         | (901,123    | )                                                            |       |            | (1,357,614 | ) |   |   |   |   | (2,263,346 | ) |   |   | (973,659 | ) |   |
| Ninety-day term or less, net                                       |       |                                         | (465,595    | )                                                            |       |            | 364,009    |   |   |   |   |   | 270,715 |   |   |   | (846,780 | ) |   |
| Dividends paid                                                     |       |                                         | (15,471     | )                                                            |       |            | —     |   |   |   |   |   | (1,185,000 | ) |   |   | — |   |   |
| Proceeds from the sale of stock                                    |       |                                         | —      |                                                         |       |            | 2,295,000  |   |   |   |   |   | — |   |   |   | — |   |   |
| Distributions to minority interest                                 |       |                                         | (10,830     | )                                                            |       |            | —     |   |   |   |   |   | (8,614 | ) |   |   | — |   |   |
| Payment of financing costs                                         |       |                                         | (35,783     | )                                                            |       |            | (192,419   | ) |   |   |   |   | — |   |   |   | — |   |   |
| Net cash (used in) provided by financing activities                |       |                                         | (619,321    | )                                                            |       |            | 4,644,644  |   |   |   |   |   | 614,600 |   |   |   | 634,494 |   |   |
| Effect of foreign exchange rate changes on cash and  equivalents   |       |                                         | 87,841      |                                                         |       |            | (1,894     | ) |   |   |   |   | (57,120 | ) |   |   | 27,990 |   |   |
| Net (decrease) increase in cash and equivalents  during the period |       |                                         | (172,077    | )                                                            |       |            | (330,088   | ) |   |   |   |   | 496,031 |   |   |   | 67,979 |   |   |
| Cash and equivalents at beginning of period                        |       |                                         | 843,908     |                                                         |       |            | 1,173,996  |   |   |   |   |   | 677,965 |   |   |   | 609,986 |   |   |
| Cash and equivalents at end of period                              |       |                                         | $           | 671,831                                                      |       |            |       | $ | 843,908 |   |   |   |   |   | $ | 1,173,996 |   |   |   | $ | 677,965 |   |   |
| Supplemental  disclosures of cash flow information:                |       |                                         |        |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash paid (received) during the period for:                        |       |                                         |        |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest (net of amounts capitalized)                              |       |                                         | $           | 646,998                                                      |       |            |       | $ | 124,005 |   |   |   |   |   | $ | 416,436 |   |   |   | $ | 377,279 |   |   |
| Income taxes                                                       |       |                                         | 33,645      |                                                         |       |            | (379       | ) |   |   |   |   | 29,883 |   |   |   | (4,149 | ) |   |
| Non-cash  transactions excluded from cash flow presentation:       |       |                                         |        |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revaluation of net assets to fair market value, net  of tax        |       |                                         | $           | 75,459                                                       |       |            |       | $ | 2,145,563 |   |   |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Non-cash  settlement of outstanding balances with Ford             |       |                                         | —      |                                                         |       |            | 112,490    |   |   |   |   |   | — |   |   |   | — |   |   |

 

The accompanying notes are an integral part of these financial statements.

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**THE HERTZ CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Note 1—Summary ofSignificant Accounting Policies**

***Backgroundand Change in Ownership***

***Background***

The Hertz Corporation together with its subsidiaries,are referred to herein as “we,” “our” and “us.” The Hertz Corporation isreferred to herein as “Hertz.”

Hertz was incorporated inDelaware in 1967 and is a successor to corporations that have been engaged inthe automobile and truck rental and leasing business since 1918. Ford MotorCompany, or “Ford,” first acquired an ownership interest in Hertz in 1987. Previously,Hertz had been a subsidiary of UAL Corporation (formerly Allegis Corporation),which had acquired Hertz’s outstanding capital stock from RCA Corporation in1985. Hertz became a wholly owned subsidiary of Ford as a result of a series oftransactions in 1993 and 1994. Hertz continued as a wholly owned subsidiary ofFord until April 1997. In 1997, we completed a public offering ofapproximately 50.6% of Hertz’s Class A Common Stock, or the “Class ACommon Stock,” which represented approximately 19.1% of Hertz’s economicinterest. In March 2001, Ford, through a subsidiary, acquired all of ouroutstanding Class A Common Stock that it did not already own for $35.50per share, or approximately $735 million. As a result of that acquisition,Hertz’s Class A Common Stock ceased to be traded on the New York StockExchange. However, because certain of Hertz’s debt securities were sold throughpublic offerings, Hertz continued to file periodic reports under the SecuritiesExchange Act of 1934.

***TheAcquisition and Related Transactions***

On December 21,2005, or the “Closing Date,” investment funds associated with or designated byClayton, Dubilier & Rice, Inc., or “CD&R,” The Carlyle Group,or “Carlyle,” and Merrill Lynch Global Private Equity, or “MLGPE,” or collectivelythe “Sponsors,” through an indirect, wholly owned subsidiary of Hertz GlobalHoldings, Inc., or “Hertz Holdings,” acquired all of Hertz’s common stockfrom a subsidiary of Ford, or the “Acquisition,” for aggregate consideration of$4,379 million in cash and debt refinanced or assumed of $10,116 million andtransaction fees and expenses of $447 million. To finance the cashconsideration for the Acquisition, to refinance certain of our existingindebtedness and to pay related transaction fees and expenses, or the “Transactions,”the Sponsors used:

·       equitycontributions totaling $2,295 million from the investment funds associated withor designated by the Sponsors;

·       netproceeds from a private placement by CCMG Acquisition Corporation, a whollyowned subsidiary of Hertz Holdings, of $1,800 million aggregate principalamount of 8.875% Senior Notes due 2014, or the “Senior Dollar Notes,” $600million aggregate principal amount of 10.5% Senior Subordinated Notes due 2016,or the “Senior Subordinated Notes,” and €225 million aggregateprincipal amount of 7.875% Senior Notes due 2014, or the “Senior Euro Notes.”In connection with the Transactions, CCMG Acquisition Corporation merged withand into Hertz, with Hertz as the surviving corporation of the merger. CCMG AcquisitionCorporation had no operations prior to the Acquisition. We refer to the SeniorDollar Notes and the Senior Euro Notes together as the “Senior Notes.” See Note3**—**Debt;

·       aggregateborrowings of approximately $1,707 million by us under a new senior termfacility, or the “Senior Term Facility,” which consists of (a) a maximumborrowing capacity of $2,000 million, which included a delayed draw facility of$293 million and (b) a synthetic letter of credit facility in an aggregateprincipal amount of $250 million. See Note 15**—**SubsequentEvents;

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**THE HERTZ CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

·       aggregateborrowings of approximately $400 million by Hertz and one of its Canadiansubsidiaries under a new senior asset-based revolving loan facility, orthe “Senior ABL Facility,” with a maximum borrowing capacity of $1,600 million(which was increased in February 2007 to $1,800 million). We refer to theSenior Term Facility and the Senior ABL Facility together as the “Senior CreditFacilities.” See Note 15**—**SubsequentEvents;

·       aggregateproceeds of offerings totaling approximately $4,300 million by a specialpurpose entity wholly owned by us of asset-backed securities backed byour U.S. car rental fleet, or the “U.S. Fleet Debt,” all of which we issuedunder our existing asset-backed notes program, or the “ABS Program”;under which an additional $600 million of previously issued asset-backedmedium term notes having maturities from 2007 to 2009 remain outstandingfollowing the closing of the Transactions, and in connection with whichapproximately $1,500 million of variable funding notes in two series were alsoissued, but not funded, on the closing date of the Acquisition;

·       aggregateborrowings of the foreign currency equivalent of approximately $1,781 millionby certain of our foreign subsidiaries under asset-based revolving loanfacilities with aggregate commitments equivalent to approximately $2,930million (calculated in each case at December 31, 2005), subject toborrowing bases comprised of rental vehicles, rental equipment, and relatedassets of certain of our foreign subsidiaries, (all of which are organizedoutside of the United States) or one or more special purpose entities, as thecase may be, and, rental equipment and related assets of certain of oursubsidiaries organized outside North America or one or more special purposeentities, as the case may be, which facilities (together with certain capitallease obligations) are referred to collectively as the “International FleetDebt;” and

·       ourcash on hand in an aggregate amount of approximately $6.1 million.

In connection with theTransactions, we also refinanced a significant portion of our existingindebtedness, which was repaid as follows:

·       therepurchase of approximately $3,700 million in aggregate principal amount ofexisting senior notes having maturities from May 2006 to January 2028,of which additional notes in the aggregate principal amount of approximately$803.3 million remained outstanding following the Transactions;

·       therepurchase of approximately €192.4 million (orapproximately $230.0 million, calculated as of December 31, 2005) inaggregate principal amount of existing Euro-denominated medium term notes witha maturity of July 2007, of which additional medium term notes in theaggregate principal amount of approximately €7.6 million remainedoutstanding following the Transactions;

·       therepayment of a $1,185 million intercompany note issued by Hertz to FordHoldings on June 10, 2005 that would have matured in June 2010;

·       therepayment of approximately $1,935 million under an interim credit facility thatwould have matured on February 28, 2006;

·       therepayment of commercial paper, notes payable and other bank debt ofapproximately $1,212 million; and

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**THE HERTZ CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

·       thesettlement of all accrued interest and unamortized debt discounts relating tothe above existing indebtedness.

The term “Successor” refers to us following theAcquisition. The term “Predecessor” refers to us prior to the Acquisition. The “Successorperiod ended December 31, 2005” refers to the period from December 21,2005 to December 31, 2005 and the “Predecessor period ended December 20,2005” refers to the period from January 1, 2005 to December 20, 2005.

The Acquisition was recorded by allocating the cost ofthe assets acquired, including intangible assets and liabilities assumed, basedon their estimated fair values at the Acquisition date. Consequently, theexcess of the cost of the Acquisition over the net of amounts assigned to thefair value of assets acquired and the liabilities assumed is recorded togoodwill.

The Acquisition has been accounted for as a purchasein accordance with Financial Accounting Standards Board, or “FASB,” Statementof Financial Accounting Standards, or “SFAS,” No. 141, “BusinessCombinations,” with intangible assets recorded in conformity with SFAS No. 142,“Goodwill and Other Intangible Assets,” requiring an allocation of the purchaseprice to the tangible and intangible net assets acquired based on theirrelative fair values as of the date of acquisition. The allocation of purchaseprice is based on management’s judgment after evaluating several factors,including actuarial estimates for pension liabilities, fair values of ourindebtedness and other liabilities, and valuation assessments of our tangibleand intangible assets determined with the assistance of a valuation specialist.

Thefollowing table summarizes the fair values of the assets purchased andliabilities assumed as of the Acquisition date (in millions of dollars):

| Cash, cash  equivalents and restricted cash |   | $       | 1,184  |   |
|---------------------------------------------|--------|---------|--------|--------|
| Receivables                                 |   | 1,813   |   |
| Inventories                                 |   | 104     |   |
| Prepaid expenses and  other assets          |   | 405     |   |
| Revenue earning  equipment, cars            |   | 7,415   |   |
| Revenue earning  equipment, other equipment |   | 2,075   |   |
| Property and  equipment                     |   | 1,380   |   |
| Other intangible  assets                    |   | 3,237   |   |
| Goodwill                                    |   | 952     |   |
| Accounts payable and  accrued liabilities   |   | (1,670  | )      |
| Debt                                        |   | (12,512 | )      |
| Public liability and  property damage       |   | (348    | )      |
| Deferred taxes on  income                   |   | (1,731  | )      |
| Minority interest                           |   | (9      | )      |
| Total contributed  capital                  |   | $       | 2,295  |   |

 

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**THE HERTZ CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Thefollowing table summarizes the allocation of the Acquisition purchase price (inmillions of dollars):

| **Purchase price allocation:**                |   |   |   |   |   |
|-----------------------------------------------|--------|--------|--------|--------|--------|
| Purchase price                                |   |   |   | $      | 14,495 |   |
| Estimated transaction  fees and expenses      |   |   |   | 447    |   |
| Total cash estimated  purchase price          |   |   |   | 14,942 |   |
| Less:                                         |   |   |   |   |   |
| Debt refinanced                               |   | $      | 8,346  |   |   |   |
| Assumption of remaining existing debt         |   | 1,770  |   |   |   |
| Fair value adjustment to tangible assets      |   | 322    |   |   |   |
| Other intangible assets acquired              |   | 3,237  |   |   |   |
| Deferred financing fees                       |   | 315    |   | 13,990 |   |
| Excess purchase price  attributed to goodwill |   |   |   | $      | 952    |   |
|                                               |        |        |        |        |        |  |  |

 

*The foreigncurrency impact on goodwill subsequent to the Acquisition date totaledapproximately $13 million.*

*Initial Public Offering*

In November 2006, Hertz Holdings completed itsinitial public offering of 88,235,000 shares of common stock at a per shareprice of $15.00, with proceeds to Hertz Holdings before underwriting discountsand offering expenses of approximately $1.3 billion. The proceeds were used torepay borrowings that were outstanding under a $1.0 billion loan facilityentered into by Hertz Holdings, or the “Hertz Holdings Loan Facility,” and topay related transaction fees and expenses. The proceeds were also used to payspecial cash dividends of $1.12 per share on November 21, 2006 to stockholdersof record of Hertz Holdings immediately prior to the initial public offering.Immediately following the initial public offering, the Sponsors’ ownershippercentage in Hertz Holdings decreased to approximately 71.6%.

***Principles ofConsolidation***

The consolidated financialstatements include the accounts of The Hertz Corporation and our domestic andforeign subsidiaries. All significant intercompany transactions have beeneliminated.

***Revenue Recognition***

Rental and rental-related revenue (includingcost reimbursements from customers where we consider ourselves to be theprincipal versus an agent) are recognized over the period the revenue earningequipment is rented based on the terms of the rental or leasing contract.

***Cash and Equivalents***

We consider all highly liquid debt instrumentspurchased with an original maturity of three months or less to be cashequivalents.

***Restricted Cash***

Restricted cash includes cash and equivalents that arenot readily available for our normal disbursements. Restricted cash and equivalentsare restricted for the acquisition of vehicles and other specified uses underour asset backed notes program and to satisfy certain of our self insurancereserve requirements. As of December 31, 2006 and 2005, the portion oftotal restricted cash that was associated with our Fleet debt was $487.0million and $191.5 million, respectively.

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**THE HERTZ CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

***Depreciable Assets***

Theprovisions for depreciation and amortization are computed on a straight-linebasis over the estimated useful lives of the respective assets, as follows:

| Revenue Earning Equipment:          |   |                                                    |   |
|-------------------------------------|--------|---------------------------------------------------------|--------|
| Cars                                |   | 5 to 16  months                                         |   |
| Other equipment                     |   | 24 to  108 months                                       |   |
| Buildings                           |   | 20 to 50  years                                         |   |
| Capitalized internal  use software  |   | 1 to 10  years                                          |   |
| Service cars and  service equipment |   | 1 to 25  years                                          |   |
| Other intangible  assets            |   | 5 to 10  years                                          |   |
| Leasehold improvements              |   | The shorter of their  economic lives or the lease term. |   |

 

We follow the practice of charging maintenance andrepairs, including the cost of minor replacements, to maintenance expenseaccounts. Costs of major replacements of units of property are capitalized toproperty and equipment accounts and depreciated on the basis indicated above.Gains and losses on dispositions of property and equipment are included inincome as realized. When revenue earning equipment is acquired, we estimate theperiod we will hold the asset. Depreciation is recorded on a straight-linebasis over the estimated holding period, with the objective of minimizing gainor loss on the disposition of the revenue earning equipment. Depreciation ratesare reviewed on an ongoing basis based on management’s routine review ofpresent and estimated future market conditions and their effect on residualvalues at the time of disposal. Upon disposal of the revenue earning equipment,depreciation expense is adjusted for the difference between the net proceedsreceived and the remaining net book value.

***EnvironmentalLiabilities***

The use of automobiles and other vehicles is subjectto various governmental controls designed to limit environmental damage,including that caused by emissions and noise. Generally, these controls are metby the manufacturer, except in the case of occasional equipment failurerequiring repair by us. To comply with environmental regulations, measures aretaken at certain locations to reduce the loss of vapor during the fuelingprocess and to maintain, upgrade and replace underground fuel storage tanks. Wealso incur and provide for expenses for the cleanup of petroleum discharges andother alleged violations of environmental laws arising from the disposition ofwaste products. We do not believe that we will be required to make any materialcapital expenditures for environmental control facilities or to make any othermaterial expenditures to meet the requirements of governmental authorities inthis area. Liabilities for these expenditures are recorded at undiscountedamounts when it is probable that obligations have been incurred and the amountscan be reasonably estimated.

***Public Liability andProperty Damage***

The obligation for public liability and propertydamage on self-insured U.S. and international vehicles and equipment representsan estimate for both reported accident claims not yet paid, and claims incurredbut not yet reported. The related liabilities are recorded on a non-discountedbasis. Reserve requirements are based on actuarial evaluations of historicalaccident claim experience and trends, as well as future projections of ultimatelosses, expenses, premiums and administrative costs. The adequacy of theliability is regularly monitored based on evolving accident claim history. Ifour estimates change or if actual results differ from these assumptions, theamount of the recorded liability is adjusted to reflect these results. As ofthe Acquisition date, this liability was revalued on a discounted basis whichapproximated its fair value.

105

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**THE HERTZ CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

***Pensions***

Our employee pension costs and obligations aredependent on our assumptions used by actuaries in calculating such amounts.These assumptions include discount rates, salary growth, long-term return onplan assets, retirement rates, mortality rates and other factors. Actualresults that differ from our assumptions are accumulated and amortized overfuture periods and, therefore, generally affect our recognized expense in suchfuture periods. While we believe that the assumptions used are appropriate,significant differences in actual experience or significant changes inassumptions would affect our pension costs and obligations. As of theAcquisition date, a liability was recorded for the projected benefit obligationin excess of plan assets which eliminated any previously existing unrecognizednet gain or loss, or unrecognized prior service cost.

In September 2006,the FASB issued SFAS No. 158, or “SFAS No. 158,” “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS No. 158requires employers to fully recognize the obligations associated with single-employerdefined benefit pension plans, retiree healthcare and other postretirementplans in their financial statements. The provisions of SFAS No. 158 wereeffective as of our fiscal year ending December 31, 2006. The effect of applying SFAS No. 158 asof December 31, 2006 was as follows (in thousands of dollars):

| ** **                               | ** ** | **Before application  of SFAS No. 158** | ** ** | **Adjustments  Increase  (Decrease)** | ** ** | **After application  of SFAS No. 158** | ** ** |
|------------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------|------------|------------------------------------------------------------|------------|
| Accrued salaries and  other compensation |       |                                                        | $          | 474,777                               |       |                                                       |       | $ | (11,311 | ) |   |   | $ | 463,466 |   |   |
| Deferred taxes on  income                |       |                                                        | 1,811,933  |                                  |       |                                                       | 4,873      |   |   |   | 1,816,806 |   |   |
| Total liabilities                        |       |                                                        | 16,148,902 |                                  |       |                                                       | (6,438     | ) |   |   | 16,142,464 |   |   |
| Accumulated other  comprehensive income  |       |                                                        | 88,090     |                                  |       |                                                       | 6,438      |   |   |   | 94,528 |   |   |
| Total stockholder’s equity          |       |                                                        | 2,512,013  |                                  |       |                                                       | 6,438      |   |   |   | 2,518,451 |   |   |

 

***Foreign Currency Translation***

Assets and liabilities offoreign subsidiaries are translated at the rate of exchange in effect on thebalance sheet date; income and expenses are translated at the average rate ofexchange prevailing during the year. The related translation adjustments arereflected in “Accumulated other comprehensive income (loss)” in the stockholder’sequity section of our consolidated balance sheet. As of December 31, 2006,the accumulated foreign currency translation gain was $91.6 million and as of December 31,2005, the accumulated foreign currency loss was of $3.4 million. On theAcquisition date, the existing accumulated foreign currency translation gainsand losses were eliminated from “Accumulated other comprehensive income (loss)”on our consolidated balance sheet. Foreign currency gains and losses resultingfrom transactions are included in earnings.

***Income Taxes***

Deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled. The effect of a change in tax rates is recognized inincome in the period that includes the enactment date. Valuation allowances arerecorded to reduce deferred tax assets when it is more likely than not that atax benefit will not be realized.

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**THE HERTZ CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Prior to the Acquisition, Hertz and its domesticsubsidiaries filed a consolidated federal income tax return with Ford. Pursuantto a tax sharing agreement, or the “Agreement,” with Ford, current and deferredtaxes were reported and paid to Ford, as if Hertz had filed its ownconsolidated tax returns with its domestic subsidiaries. The Agreement providedthat Hertz was reimbursed for foreign tax credits in accordance with theutilization of those credits by the Ford consolidated tax group.

On December 21, 2005, in connection with theAcquisition, the Agreement with Ford was terminated. Upon termination, all taxpayables and receivables with Ford were cancelled and neither Hertz nor Fordhas any future rights or obligations under the Agreement. Hertz may be exposed to tax liabilities,attributable to periods during which it was a consolidated subsidiary ofFord. While Ford has agreed to indemnify Hertz for certain tax liabilitiespursuant to the arrangements relating to our separation from Ford, we cannotoffer assurance that payments in respect of the indemnification agreement willbe available.

During 2006, a third party was engaged to perform acomprehensive analysis of our deferred taxes. The domestic deferred taxanalysis was finalized in the fourth quarter of 2006 and resulted in a $159.4 milliondecrease to our deferred tax liability and a $156.3 million decrease to ourgoodwill. We have determined that these adjustments are not material to ourcurrent or previously issued consolidated financial statements.

***Advertising***

Advertising and salespromotion costs are expensed as incurred.

***Legal Fees***

We accrue for legal fees andother directly related costs of third parties when it is probable that suchfees and costs will be incurred and the amounts can be reasonably estimated.

***Impairment of Long-Lived Assets and Intangibles***

We evaluate the carrying value of goodwill andindefinite-lived intangible assets for impairment at least annually inaccordance with SFAS No. 142 “Goodwill and Other Intangible Assets.” SeeNote 2—Goodwill and Other Intangible Assets. Long-lived assets, other thangoodwill and indefinite-lived intangible assets, are reviewed for impairment inaccordance with SFAS No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets.” Under SFAS No. 144, these assets are tested forimpairment whenever events or changes in circumstances indicate that thecarrying amounts of long-lived assets may not be recoverable. The carryingamounts of the assets are based upon our estimates of the undiscounted cashflows that are expected to result from the use and eventual disposition of theassets. An impairment charge is recognized for the amount, if any, by which thecarrying value of an asset exceeds its fair value.

***Stock Options (Predecessor only)***

Prior to the Acquisition, certain of our employeeswere granted options to purchase shares of Ford common stock under Ford’s 1998Long-Term Incentive Plan, or the “1998 Plan.” Effective January 1, 2003,we adopted the fair value recognition provisions of SFAS No. 123, “Accountingfor Stock-Based Compensation.”

Effective with theAcquisition, all unvested options became vested and exercisable. The totalstock-based compensation expense, net of related tax effects, was $6.8million for the Predecessor period ended December 20, 2005 and $3.6million for the year ended December 31, 2004.

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

***Stock-Based Compensation***

In December 2004, the FASB revised SFASNo. 123 with SFAS No. 123R, “Share-Based Payment.” The revisedstatement requires a public entity to measure the cost of employee servicesreceived in exchange for an award of equity instruments based on the grant-datefair value of the award. That cost is to be recognized over the period duringwhich the employee is required to provide service in exchange for the award.Beginning January 1, 2006, we accounted for our employee stock-basedcompensation awards in accordance with SFAS No. 123R. We have estimatedthe fair value of options issued at the date of grant using a Black-Scholesoption-pricing model, which includes assumptions related to volatility,expected life, dividend yield, risk-free interest rate and forfeiture rate. SeeNote 6—Hertz Holdings Stock Incentive Plan.

**Use of Estimates andAssumptions**

Use of estimates andassumptions as determined by management are required in the preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America, or “GAAP.” Actual resultscould differ from those estimates and assumptions.

**Reclassifications**

Certain prior year amountshave been reclassified to conform with current reporting.

**Recent AccountingPronouncements**

In June 2006, the FASB issued FASB InterpretationNo. 48, or “FIN 48,” “Accounting for Uncertainty in Income Taxes.” FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with SFAS No. 109, “Accountingfor Income Taxes.” FIN 48 prescribes a recognition threshold and measurementattribute for financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. FIN 48 is effective for fiscal yearsbeginning after December 15, 2006. The impact of FIN 48 on our financialposition as of January 1, 2007 is estimated to be up to a $30.0 millionincrease in total liabilities.

In June 2006, the Emerging Issues Task Force, or “EITF,”issued EITF No. 06-3, or “EITF 06-3,” “How Taxes Collected fromCustomers and Remitted to Governmental Authorities Should Be Presented in theIncome Statement (That Is, Gross versus Net Presentation),” which relates toany tax assessed by a governmental authority that is directly imposed on arevenue-producing transaction. EITF 06-3 states that thepresentation of the taxes, either on a gross (included in revenues and costs)or a net basis (excluded from revenues), is an accounting policy decision thatshould be disclosed pursuant to Accounting Principles Board Opinion No. 22,“Disclosure of Accounting Policies,” if those amounts are significant. EITF 06-3should be applied to financial reports for interim and annual reporting periodsbeginning after December 15, 2006. Sales tax amounts collected fromcustomers have been recorded on a net basis. The adoption of EITF 06-3will not have any impact on our financial position or results of operations.

In September 2006, the United States Securitiesand Exchange Commission, or the “SEC,” issued Staff Accounting Bulletin No. 108,or “SAB No. 108,” “Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108

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

provides guidance on how prior year misstatementsshould be taken into consideration when quantifying misstatements in currentyear financial statements for purposes of determining whether the current year’sfinancial statements are materially misstated. SAB No. 108 requiresregistrants to apply the new guidance to material errors in existence at the beginningof the first fiscal year ending after November 15, 2006 by correctingthose errors through a one-time cumulative effect adjustment to beginning-of-yearretained earnings. The adoption of SAB No. 108 did not have any impact onour financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157,or “SFAS No. 157,” “Fair Value Measurements.” SFAS No. 157 definesfair value, establishes a framework for measuring fair value in accordance withGAAP and expands disclosures about fair value measurements. The provisions ofSFAS No. 157 are effective for the fiscal year beginning after November 15,2007. We are currently reviewing SFAS No. 157 to determine its impact, ifany, on our financial position or results of operations.

In February 2007, theFASB issued SFAS No. 159, or “SFAS No. 159,” “The Fair Value Optionfor Financial Assets and Financial Liabilities.” SFAS 159 permits entities tochoose to measure many financial instruments and certain other items at fairvalue. The provisions of SFAS 159 are effective as of January 1,2008. We are currently reviewing SFAS 159 to determine its impact, if any,on our financial position or results of operations.

**Note 2—Goodwill andOther Intangible Assets**

We account for our goodwill under SFAS No. 142.Under SFAS No. 142, goodwill is no longer amortized, but instead must betested for impairment at least annually. We conducted the required annualgoodwill and indefinite-lived intangible asset impairment test in the secondquarter of 2006 and determined that there was no impairment. The Acquisitionwas recorded by allocating the cost of the assets acquired, includingintangible assets and liabilities assumed, based on their estimated fair valuesat the Acquisition date. Consequently, the excess of the cost of theAcquisition over the net of amounts assigned to the fair value of assetsacquired and the liabilities assumed is recorded to goodwill.

The Acquisition has been accounted for as a purchasein accordance with SFAS No. 141, with intangible assets recorded inconformity with SFAS No. 142, requiring an allocation of the purchaseprice to the tangible and intangible net assets acquired based on theirrelative fair values as of the date of acquisition. The allocation of purchaseprice is based on management’s judgment after evaluating several factors,including actuarial estimates for pension liabilities, fair values of ourindebtedness and other liabilities, and valuation assessments of our tangibleand intangible assets determined with the assistance of a valuation specialist.

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

The following summarizes thechanges in our goodwill, by segment, for the periods presented (in thousands ofdollars):

| ** **                                              | ** ** | **Car Rental** | ** ** | **Equipment  Rental** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|-----------|------------|
| Balance as of  December 31, 2005                   |       | $                   | 393,395    |                  | $          | 628,986   |       | $ | 1,022,381 |   |
| Change as result of purchase  accounting adjustments(1) |       | (63,591             | )          | (6,587                | )          | (70,178   | )          |
| Other changes(2)                                        |       | 6,775               |       | 5,715                 |       | 12,490    |       |
| Balance as of  December 31, 2006                   |       | $                   | 336,579    |                  | $          | 628,114   |       | $ | 964,693 |   |

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(1)            Consists of a decreaseof approximately $156.5 million relating to tax adjustments booked in thefourth quarter of 2006 for tax liabilities indemnified by Ford at the date ofsale, partly offset by: (i) a revision to estimated federal and state taxliabilities as of the date of acquisition, based on the tax returns filed,totaling $60.5 million; (ii) adjustments made to the fair value of certainestimated liabilities as of the date of acquisition of $23.9 million, partlyoffset by the tax effect of these adjustments; and (iii) further revisionsto the valuation of certain tangible assets, partly offset by the tax effect ofthese adjustments.

(2)            Consists of changesprimarily resulting from the translation of foreign currencies at differentexchange rates from the beginning of the period to the end of the period.

Other intangible assets, net consisted of the following major classes(in thousands of dollars):

| ** **                          | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                          | ** ** | **Gross  Carrying  Amount**     | ** ** | **Accumulated  Amortization**   | ** ** | **Net Carrying  Value** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Value** | ** ** |
| Amortized intangible assets:        |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Customer-related                    |       | $                               | 611,783    |                            |       | $ | (63,046 | ) |   |   | $ | 548,737 |   |   | $ | 612,000 |   |   | $ | (1,844 | ) |   |   | $ | 610,156 |   |   |
| Other                               |       | 1,270                           |       |                            | (512       | ) |   |   | 758 |   |   | 1,209 |   |   | (100 | ) |   |   | 1,109 |   |   |
| Total                               |       | 613,053                         |       |                            | (63,558    | ) |   |   | 549,495 |   |   | 613,209 |   |   | (1,944 | ) |   |   | 611,265 |   |   |
| Indefinite-lived intangible assets: |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade name                          |       | 2,624,000                       |       |                            | —     |   |   |   | 2,624,000 |   |   | 2,624,000 |   |   | — |   |   |   | 2,624,000 |   |   |
| Total other intangible  assets, net |       | $                               | 3,237,053  |                            |       | $ | (63,558 | ) |   |   | $ | 3,173,495 |   |   | $ | 3,237,209 |   |   | $ | (1,944 | ) |   |   | $ | 3,235,265 |   |   |

 

Amortization of otherintangible assets for the year ended December 31, 2006, the Successorperiod ended December 31, 2005 and the Predecessor period ended December 20,2005 and the year ended December 31, 2004 and was $61.6 million, $2.1million, $0.7 million, $0.6 million, respectively. Future amortization expenseof other intangible assets is expected to be approximately $61.2 million peryear for each of the next five years.

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**Note 3—Debt**

Our debt consists of thefollowing (in thousands of dollars):

| ** **                                                                                                                                                                                                            | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                            | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Corporate Debt                                                                                                                                                                                                        |       |                  |       |                  |       |
| Senior Term Facility,  average interest rate: 2006, 7.4%; 2005, 8.5% (effective average interest  rate: 2006, 7.5%;  2005, 8.7%); net of unamortized discount: 2006, $38,378; 2005, $44,806                           |       | $                     | 1,947,907  |                  | $          | 1,662,194 |   |
| Senior ABL Facility,  average interest rate: 2006, N/A; 2005, 6.5% (effective average interest rate:  2006, N/A;  2005, 6.9%); net of unamortized discount: 2006, $22,188; 2005, $27,832                              |       | (22,188               | )          | 471,202               |       |
| Senior Notes, average  interest rate: 2006, 8.7%;  2005, 8.7% (effective average interest rate: 2006, 8.7%; 2005, 8.7%);                                                                                              |       | 2,097,030             |       | 2,066,083             |       |
| Senior Subordinated  Notes, average interest rate: 2006, 10.5%; 2005, 10.5% (effective average interest  rate: 2006, 10.5%;  2005, 10.5%);                                                                            |       | 600,000               |       | 600,000               |       |
| Promissory notes,  average interest rate: 2006, 7.2%; 2005, 6.9% (effective average interest rate:  2006, 7.3%;  2005, 7.0%); net of unamortized discount: 2006, $5,545; 2005, $4,875;.                               |       | 633,463               |       | 798,422               |       |
| Notes payable,  including commercial paper, average interest rate: 2006, 4.1%; 2005, 4.3%                                                                                                                             |       | 6,175                 |       | 100,362               |       |
| Foreign subsidiaries’ debt in foreign currencies:                                                                                                                                                                |       |                  |       |                  |       |
| Short-term  borrowings:                                                                                                                                                                                               |       |                  |       |                  |       |
| Banks, average interest rate: 2006, 13.4%; 2005, 3.6%                                                                                                                                                                 |       | 2,340                 |       | 3,139                 |       |
| Commercial paper, average interest rate: 2005, 2.8%                                                                                                                                                                   |       | —                |       | 47,284                |       |
| Other borrowings, average interest rate: 2006, 5.1%; 2005, 4.4%                                                                                                                                                       |       | 12,546                |       | 14,419                |       |
| Total Corporate Debt                                                                                                                                                                                                  |       | 5,277,273             |       | 5,763,105             |       |
| Fleet Debt                                                                                                                                                                                                            |       |                  |       |                  |       |
| U.S. Fleet Debt and  pre-Acquisition ABS Notes, average interest rate: 2006, 4.4%; 2005, 4.4%  (effective average interest rate: 2006, 4.5%; 2005, 4.4%); net of unamortized discount:  2006, $10,631;  2005, $19,822 |       | 4,845,202             |       | 4,920,178             |       |
| International Fleet  Debt in foreign currencies, average interest rate: 2006, 5.4%; 2005, 4.4%  (effective average interest rate: 2006, 5.4%; 2005, 4.5%); net of unamortized discount:  2006, $4,443;  2005, $16,063 |       | 1,987,787             |       | 1,831,722             |       |
| Fleet Financing  Facility, average interest rate: 2006, 6.6% (effective average interest rate:  2006, 6.7%); net of unamortized discount: 2006, $2,078                                                                |       | 165,922               |       | —                |       |
| Total Fleet Debt                                                                                                                                                                                                      |       | 6,998,911             |       | 6,751,900             |       |
| Total Debt                                                                                                                                                                                                            |       | $                     | 12,276,184 |                  | $          | 12,515,005 |   |

 

The aggregate amounts ofmaturities of debt (in millions of dollars) are as follows: 2007, $2,543.2 (including $2,162.6 of othershort-term borrowings); 2008, $842.1;2009, $1,021.1;2010, $2,924.1;2011, $120.9;after 2011, $4,908.0.

During the year ended December 31,2006, short-term borrowings (in millions of dollars) were as follows: maximummonth end amounts outstanding of $11.1 of commercial paper and $3,077.5 of 

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bank borrowings; monthlyaverage amounts outstanding of $12.4 of commercial paper (weighted-averageinterest rate 0.6%) and $2,509.9 of bank borrowings (weighted-averageinterest rate 5.2%).

During the year ended December 31,2005, short-term borrowings (in millions of dollars) were as follows: maximummonth end amounts outstanding of $2,052.7 of commercial paper and $3,113.7 ofbank borrowings; monthly average amounts outstanding of $1,569.5 of commercialpaper (weighted-average interest rate 3.1%) and $1,798.3 of bank borrowings(weighted-average interest rate 5.2%).

As of December 31, 2006,there were standby letters of credit issued totaling $460.9 million. Of thisamount, $234.0 million has been issued for the benefit of the ABS Program($200.0 million of which was issued by Ford and $34.0 million of which relatesto the Senior Credit Facilities below) and the remainder is primarily tosupport self-insurance programs (including insurance policies with respect towhich we have indemnified the issuers for any losses) in the United States,Canada and Europe and to support airport concession obligations in the UnitedStates and Canada. As of December 31, 2006, the full amount of theseletters of credit was undrawn.

**Senior CreditFacilities**

In connection with the Acquisition, Hertz entered intoa credit agreement with respect to its Senior Term Facility with Deutsche BankAG, New York Branch as administrative agent and collateral agent, LehmanCommercial Paper Inc. as syndication agent, Merrill Lynch & Co.,Merrill Lynch, Pierce, Fenner & Smith Incorporated as documentationagent, and the other financial institutions party thereto from time to time.The facility consisted of a $2,000.0 million secured term loan facilityproviding for loans denominated in U.S. dollars, which included a delayed drawfacility of $293.0 million. In addition, there is a pre-funded synthetic letterof credit facility in an aggregate principal amount of $250.0 million. On theClosing Date, Hertz utilized $1,707.0 million of the Senior Term Facility and$182.2 million in letters of credit. As of December 31, 2006, we had$1,947.9 million in borrowings outstanding under this facility, which is net ofa discount of $38.4 million and had issued $238.9 million in letters of credit.The term loan facility and the synthetic letter of credit facility will matureon December 21, 2012. The term loan will amortize in nominal quarterlyinstallments (not exceeding one percent of the aggregate principal amountthereof per annum) until the maturity date. At the borrower’s election, theinterest rates per annum applicable to the loans under the Senior Term Facilitywill be based on a fluctuating rate of interest measured by reference to either(1) an adjusted London inter-bank offered rate, or “LIBOR,” plus aborrowing margin or (2) an alternate base rate plus a borrowing margin. Inaddition, the borrower pays fees on the unused term loan commitments of thelenders, letter of credit participation fees on the full amount of thesynthetic letter of credit facility plus fronting fees for the letter of creditissuing banks and other customary fees in respect of the Senior Term Facility.

Hertz, Hertz Equipment Rental Corporation and certainother subsidiaries of Hertz also entered into a credit agreement with respectto the Senior ABL Facility with Deutsche Bank AG, New York Branch asadministrative agent and collateral agent, Deutsche Bank AG, Canada Branch asCanadian Agent and Canadian collateral agent, Lehman Commercial Paper Inc. assyndication agent, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &Smith Incorporated as documentation agent and the financial institutions partythereto from time to time. This facility provided (subject to availabilityunder a borrowing base) for aggregate maximum borrowings of $1,600.0 million (which was increased in February 2007to $1,800.0 million) under a revolving loan facility providing for loansdenominated in 

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

U.S. dollars, Canadian dollars, Euros and PoundsSterling. Up to $200.0 million of the revolving loan facility is available forthe issuance of letters of credit. Hertz and Hertz Equipment Rental Corporationare the U.S. borrowers under the Senior ABL Facility and Matthews EquipmentLimited and its subsidiary Western Shut-Down (1995) Ltd. are the Canadianborrowers under the Senior ABL Facility. At December 31, 2006, net of adiscount of $22.2 million, Hertz and Matthews Equipment Limited collectivelyhad no borrowings outstanding under this facility and issued $18.2 million inletters of credit. The Senior ABL Facility will mature on December 21,2010. At the borrower’s election, the interest rates per annum applicable tothe loans under the Senior ABL Facility will be based on a fluctuating rate ofinterest measured by reference to either (1) adjusted LIBOR plus aborrowing margin or (2) an alternate base rate plus a borrowing margin.The borrower will pay customary commitment and other fees in respect of theSenior ABL Facility.

Hertz’s obligationsunder the Senior Term Facility and the Senior ABL Facility are guaranteed byHertz Investors, Inc., our immediate parent, and most of our direct andindirect domestic subsidiaries (subject to certain exceptions, including forsubsidiaries involved in the U.S. Fleet Debt Facility and similar specialpurpose financings), though Hertz Equipment Rental Corporation does notguarantee our obligationsunder the Senior ABL Facility because it is a borrower under that facility. Inaddition, the obligations of the Canadian borrowers under the Senior ABLFacility are guaranteed by their respective subsidiaries, if any, subject tolimited exceptions. The lenders under each of the Senior Term Facility and theSenior ABL Facility have received a security interest in substantially all ofthe tangible and intangible assets of the borrowers and guarantors under thosefacilities, including pledges of the stock of certain of their respectivesubsidiaries, subject in each case to certain exceptions (including in respectof the U.S. Fleet Debt, the International Fleet Debt and, in the case of theSenior ABL Facility, other secured fleet financing.) Consequently, these assetswill not be available to satisfy the claims of our general creditors.

The Senior Credit Facilities contain a number ofcovenants that, among other things, limit or restrict the ability of theborrowers and the guarantors to dispose of assets, incur additionalindebtedness, incur guarantee obligations, prepay other indebtedness, makedividends and other restricted payments, create liens, make investments, make acquisitions,engage in mergers, change the nature of their business, make capitalexpenditures, or engage in certain transactions with affiliates. Under theSenior Term Facility, the borrower is required to comply with specifiedfinancial ratios and tests, including a minimum interest expense coverage ratioand a maximum leverage ratio. Under the Senior ABL Facility, upon excessavailability falling below certain levels, specified financial ratios andtests, including a minimum fixed charge coverage ratio and a maximum leverageratio, will apply. The Senior Credit Facilities are subject to certainmandatory prepayment requirements and provide for customary events of default.

Restrictive covenants in the Senior Term Facility (asamended) permit cash dividends to be paid to Hertz Holdings (i) in anaggregate amount not to exceed the greater of a specified minimum amount and1.0% of consolidated tangible assets less certain investments, (ii) inadditional amounts at any time, up to a specified available amount determinedby reference to, among other things, consolidated net income from October 1,2005 to the end of the most recent fiscal quarter for which consolidatedfinancial statements of Hertz are available and (iii) in additionalamounts at any time, up to a specified amount of certain equity contributionsmade by Hertz Holdings to Hertz.

Restrictive covenants in the Senior ABL Facility (asamended) permit cash dividends to be paid to Hertz Holdings in an aggregateamount, taken together with certain other investments, acquisitions 

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

and optional prepayments, not to exceed $100 million.Hertz may also pay additional cash dividends under the Senior ABL Facility atany time, and in any amount, so long as (a) there is at least $250 millionof availability under the facility after giving effect to the proposeddividend, (b) if certain other payments when taken together with theproposed dividend would exceed $50 million in a 30-day period, Hertz candemonstrate projected average availability in the following six-month period of$250 million or more and (c) (i) Hertz can demonstrate pro formacompliance with the consolidated leverage ratio and consolidated fixed chargecoverage ratio set forth in the Senior ABL Facility or (ii) the amount ofthe proposed dividend does not exceed the sum of (x) the greater of aspecified minimum amount and 1.0% of consolidated tangible assets plus (y) aspecified available amount determined by reference to, among other things,consolidated net income from October 1, 2005 to the end of the most recentfiscal quarter for which consolidated financial statements of Hertz areavailable plus (z) a specified amount of certain equity contributions madeby Hertz Holdings to the borrowers under such facility.

On June 30, 2006, we entered into amendments toeach of our Senior Term Facility and Senior ABL Facility. The amendmentsprovide, among other things, for additional capacity under the covenants inthese credit facilities to enter into certain sale and leaseback transactions,to pay dividends (subject to the limitations described above) and, in the caseof the amendment to the Senior Term Facility, to make investments. These amendments also have the effect ofreducing the restrictions in the Senior Credit Facilities on Hertz’s ability toprovide cash to Hertz Holdings (whether in the form of a loan or a dividend)that would enable Hertz Holdings to service its indebtedness. Theamendment to the Senior Term Facility also permits us to use proceeds of theunused portion of the $293.0 million delayed draw facility to repay borrowingsoutstanding under the Senior ABL Facility. On July 10, 2006, the remaining$208.1 million of the delayed draw facility was drawn down to pay down theequivalent amount of borrowings under the Senior ABL Facility.

In February 2007, we entered into amendments toeach of our Senior Term Facility and Senior ABL Facility, see Note 15—SubsequentEvents.

***Senior Notes and Senior Subordinated Notes***

In connection with the Acquisition, CCMG AcquisitionCorporation, an indirect subsidiary of Hertz Holdings, issued the Senior Notesand the Senior Subordinated Notes under separate indentures between CCMGAcquisition Corporation and Wells Fargo Bank, National Association, as trustee.Hertz and the guarantors entered into supplemental indentures, dated as of theClosing Date, pursuant to which Hertz assumed the obligations of CCMGAcquisition Corporation under the Senior Notes, the Senior Subordinated Notesand the respective indentures, and the guarantors issued the relatedguarantees. CCMG Acquisition Corporation subsequently merged with and intoHertz, with Hertz as the surviving entity.

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

As of December 31, 2006, $2,097.0 million and$600.0 million in borrowings were outstanding under the Senior Notes and SeniorSubordinated Notes, respectively. Prior to October 1, 2006, our Senior Euro Notes were not designatedas a net investment hedge of our Euro-denominated net investments in ourforeign operations. For the nine months ended September 30, 2006, weincurred unrealized exchange transaction losses of $19.2 million resulting fromthe translation of these Euro-denominated notes into the U.S. dollar, which arerecorded in our consolidated statement of operations in “Selling, general andadministrative” expenses. On October 1, 2006, we designated our SeniorEuro Notes as an effective net investment hedge of our Euro-denominated netinvestment in our foreign operations. As a result of this net investment hedgedesignation, as of December 31, 2006, $7.1 million of losses, which is netof tax of $4.6 million, attributable to the translation of our Senior EuroNotes into the U.S. dollar, are recorded in our consolidated balance sheet in“Accumulated other comprehensive income (loss).” The Senior Notes willmature on January 1, 2014, and the Senior Subordinated Notes will matureon January 1, 2016. The Senior Dollar Notes bear interest at a rate per annumof 8.875%, the Senior Euro Notes bear interest at a rate per annum of 7.875%and the Senior Subordinated Notes bear interest at a rate per annum of 10.5%. Hertz’s obligations under theindentures are guaranteed by each of its direct and indirect domesticsubsidiaries that is a guarantor under the Senior Term Facility.

Both the indenture for the Senior Notes and theindenture for the Senior Subordinated Notes contain covenants that, among otherthings, limit the ability of Hertz and its restricted subsidiaries, describedin the respective indentures, to incur more debt, pay dividends, redeem stockor make other distributions, make investments, create liens, transfer or sellassets, merge or consolidate and enter into certain transactions with ouraffiliates. The indenture for the Senior Subordinated Notes also containssubordination provisions and limitations on the types of senior subordinateddebt that may be incurred. The indentures also contain certain mandatory andoptional prepayment or redemption provisions and provide for customary eventsof default.

The restrictive covenants in the indentures governingthe Senior Notes and the Senior Subordinated Notes permit Hertz to make loans,advances, dividends or distributions to Hertz Holdings in an amount determinedby reference to consolidated net income for the period from October 1,2005 to the end of the most recently ended fiscal quarter for whichconsolidated financial statements of Hertz are available, so long as ourconsolidated coverage ratio remains greater than or equal to 2.00:1.00 aftergiving pro forma effect to such restricted payments. Hertz is also permitted tomake restricted payments to Hertz Holdings in an amount not exceeding thegreater of a specified minimum amount and 1% of consolidated tangible assets(which payments are deducted in determining the amount available as describedin the preceding sentence), and in an amount equal to certain equitycontributions to Hertz. Hertz is also permitted to make restricted payments toits parent company in an amount not to exceed in any fiscal year 6% of theaggregate gross proceeds received by The Hertz Corporation through acontribution to equity capital from such offering to enable the public parentcompany to pay dividends to its stockholders.

***Fleet Financing***

*U.S. Fleet Debt**.**  **In connection with the Acquisition,Hertz Vehicle Financing LLC, or “HVF,” a bankruptcy-remote specialpurpose entity wholly-owned by Hertz, entered into an amended andrestated base indenture, or the “ABS Indenture,” dated as of the Closing Date,with BNY Midwest Trust Company as trustee, and a number of related supplementsto the ABS Indenture, each dated as of the Closing Date, with BNY Midwest TrustCompany as trustee and securities intermediary, or,*

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

*collectively,the “ABS Supplement.” On the Closing Date, HVF, as issuer, issued approximately$4,300.0 million of new medium term asset-backed notes consisting of 11classes of notes in two series under the ABS Supplement. HVF also issuedapproximately $1,500.0 million of variable funding notes in two series, none ofwhich were funded at closing. As of December 31, 2006, $*4,299.9*million, net of a $*0.1*million discount,*in medium term notes were outstandingand no aggregate borrowings were outstanding in the form of variable fundingnotes.

Each class of notes matures three, four or five yearsfrom the Closing Date. The variable funding notes will be funded through thebank multi-seller commercial paper market. The assets of HVF, includingthe U.S. car rental fleet owned by HVF and certain related assets,collateralize the U.S. Fleet Debt and pre-Acquisition ABS Notes. Consequently,these assets will not be available to satisfy the claims of our generalcreditors.

The various series of U.S. Fleet Debt have eitherfixed or floating rates of interest. The interest rate per annum applicable toany floating rate notes (other than any variable funding asset-backeddebt) is based on a fluctuating rate of interest measured by reference toone-month LIBOR plus a spread, although HVF intends to maintain hedgingtransactions so that it will not be required to pay a rate in excess of 4.87%per annum in order to receive the LIBOR amounts due from time to time on suchfloating rate notes. The interest rate per annum applicable to any variable fundingasset-backed debt is either the blended average commercial paper rate, iffunded through the commercial paper market, or if commercial paper is not beingissued, the greater of the prime rate or the federal funds rate, or ifrequisite notice is provided, the Eurodollar rate plus a spread.

In connection with the Acquisition and the issuance of$3,550.0 million of floating rate U.S. Fleet Debt, HVF entered into seveninterest rate swap agreements, or the “HVF Swaps,” with us, effective December 21,2005, which qualify as cash flow hedging instruments in accordance with SFAS133 “Accounting for Derivative Instruments and Hedging Activities.” Theseagreements mature at various terms, in connection with the scheduled maturityof the associated debt obligations, through November 25, 2011. Under theseagreements, HVF pays monthly interest at a fixed rate of 4.5% per annum inexchange for monthly amounts at one-month LIBOR, effectively transforming thefloating rate U.S. Fleet Debt to fixed rate obligations. As of December 31,2006 and December 31, 2005, the fair value of the HVF Swaps were $50.6million and $37.0 million, respectively, which are reflected in ourconsolidated balance sheet in “Prepaid expenses and other assets.” For the yearended December 31, 2006, we recorded a benefit of $1.0 million in ourconsolidated statement of operations, in “Interest, net of interest income,”associated with previously recognized ineffectiveness of the HVF Swaps.

The U.S. Fleet Debt issued on the closing date of theAcquisition has the benefit of financial guaranty insurance policies underwhich either MBIA Insurance Corporation or Ambac Assurance Corporation willguarantee the timely payment of interest on and ultimate payment of principalof such notes.

HVF is subject to numerous restrictive covenants underthe ABS Indenture and the other agreements governing the U.S. Fleet Debt,including restrictive covenants with respect to liens, indebtedness, benefitplans, mergers, disposition of assets, acquisition of assets, dividends,officers’ compensation, investments, agreements, the types of business it mayconduct and other customary covenants for a bankruptcy-remote specialpurpose entity. The U.S. Fleet Debt is subject to events of default andamortization events that are customary in nature for U.S. rental car assetbacked securitizations of this type. The occurrence of an amortization event orevent of default could result in the acceleration of principal of the notes anda liquidation of the U.S. car rental fleet.

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

*InternationalFleet Debt.**  *Inconnection with the Acquisition, Hertz International, Ltd., or “HIL,” aDelaware corporation organized as a foreign subsidiary holding company and adirect subsidiary of Hertz, and certain of its subsidiaries (all of which areorganized outside the United States), together with certain bankruptcy-remotespecial purpose entities (whether organized as HIL’s subsidiaries or asnon-affiliated “orphan” companies), or “SPEs,” entered into revolving bridgeloan facilities providing commitments to lend, in various currencies up to anaggregate foreign currency equivalent of approximately $3,197.0 million(calculated as of December 31, 2006), subject to borrowing bases comprisedof rental vehicles and related assets of certain of HIL’s subsidiaries (all ofwhich are organized outside the United States) or one or more SPEs, as the casemay be, and rental equipment and related assets of certain of HIL’ssubsidiaries organized outside North America or one or more SPEs, as the casemay be. As of December 31, 2006, the foreign currency equivalent of$1,954.6 million in borrowings was outstanding under these facilities, net of a$4.4 million discount. These facilities are referred to collectively as the “InternationalFleet Debt Facilities.”

The International Fleet Debt Facilities consist offour revolving loan tranches (Tranches A1, A2, B and C), each subject toborrowing bases comprising the revenue earning equipment and related assets ofeach applicable borrower (or, in the case of a borrower that is a SPEon-lending loan proceeds to a fleet-owning SPE or subsidiary, as the casemay be, the rental vehicles and related assets of such fleet-owning SPEor subsidiary). A portion of the Tranche C loan will be available for theissuance of letters of credit.

The obligations of the borrowers under theInternational Fleet Debt Facilities are guaranteed by HIL, and by the otherborrowers and certain related entities under the applicable tranche, in eachcase subject to certain legal, tax, cost and other structuring considerations.The obligations and the guarantees of the obligations of the Tranche Aborrowers under the Tranche A2 loans are subordinated to the obligations andthe guarantees of the obligations of such borrowers under the Tranche A1 loans.Subject to legal, tax, cost and other structuring considerations and to certainexceptions, the International Fleet Debt Facilities are secured by a materialpart of the assets of each borrower, certain related entities and eachguarantor, including pledges of the capital stock of each borrower and certainrelated entities. The obligations of the Tranche A borrowers under the TrancheA2 loans and the guarantees thereof are secured on a junior second prioritybasis by any assets securing the obligations of the Tranche A borrowers underthe Tranche A1 loans and the guarantees thereof. In addition, Hertz hasguaranteed the obligations of its Brazilian subsidiary with respect to anaggregate principal amount of the Tranche B loan not exceeding $52.0 million(or such other principal amount as may be agreed to by the Senior CreditFacilities lenders). That guarantee is secured equally and ratably withborrowings under the Senior Term Facility. The assets that collateralize theInternational Fleet Debt Facilities will not be available to satisfy the claimsof Hertz’s generalcreditors.

The facilities under each of the tranches mature fiveyears from the Closing Date. Subject to certain exceptions, the loans aresubject to mandatory prepayment and reduction in commitment amounts equal tothe net proceeds of specified types of take-out financing transactions andasset sales.

The interest rates per annum applicable to loans underthe International Fleet Debt Facilities are based on fluctuating rates ofinterest measured by reference to one-month LIBOR, EURIBOR or their equivalentsfor local currencies as appropriate (in the case of the Tranche A1 and A2loans); relevant local currency base rates (in the case of Tranche B loans); orone-month EURIBOR (in the case of the Tranche C loans), in each case plus aborrowing margin. In addition, the borrowers under each of Tranche A1, TrancheA2, Tranche B and Tranche C of the International Fleet Debt Facilities will pay

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

fees on the unused commitments of the lenders underthe applicable tranche, and other customary fees and expenses in respect ofsuch facilities, and the Tranche A1 and A2 borrowing margins are subject toincrease if HIL does not repay borrowings thereunder within specified periodsof time and upon the occurrence of other specified events.

The International Fleet Debt Facilities contain anumber of covenants (including, without limitation, covenants customary fortransactions similar to the International Fleet Debt Facilities) that, amongother things, limit or restrict the ability of HIL, the borrowers and the othersubsidiaries of HIL to dispose of assets, incur additional indebtedness, incurguarantee obligations, create liens, make investments, make acquisitions,engage in mergers, make negative pledges, change the nature of their business orengage in certain transactions with affiliates. In addition, HIL is restrictedfrom making dividends and other restricted payments (which may include paymentsof intercompany indebtedness) in an amount greater than €100million plus a specified excess cash flow amount calculated by reference toexcess cash flow in earlier periods. Subject to certain exceptions, until thelater of one year from the Closing Date and such time as 50% of the commitmentsunder the International Fleet Debt Facilities as of the closing of theAcquisition have been replaced by permanent take-out international asset-basedfacilities, the specified excess cash flow amount will be zero. Thereafter,this specified excess cash flow amount will be between 50% and 100% ofcumulative excess cash flow based on the percentage of the International FleetDebt Facilities that have been replaced by permanent take-out internationalasset-based facilities. As a result of the contractual restrictions onHIL’s ability to pay dividends to Hertz as of December 31, 2006, therestricted net assets of our consolidated subsidiaries exceeded 25% of ourtotal consolidated net assets.

The subsidiaries conducting the car rental business incertain European jurisdictions may, at their option, continue to engage incapital lease financings relating to revenue earning equipment outside theInternational Fleet Debt Facilities. As of December 31, 2006 and December 31,2005, there were $33.2 million and $95.6 million, respectively, of such capitallease financings outstanding. These capital lease financings are included inthe International Fleet Debt total.

In May 2006, in connection with the forecastedissuance of the permanent take-out international asset-based facilities, HILpurchased two swaptions for €3.3 million, to protectitself from interest rate increases. These swaptions give HIL the right, butnot the obligation, to enter into three year interest rate swaps, based on atotal notional amount of €600 million at an interest rate of 4.155%. Asof December 31, 2006, the fair value of the swaptions was €1.3million (or $1.7 million), which is reflected in our consolidated balance sheetin “Prepaid expenses and other assets.” During the year ended December 31,2006, the fair value adjustment related to these swaps was a loss of $2.6million, which was recorded in our consolidatedstatement of operations in “Selling, general and administrative” expenses. Theswaptions were renewed in 2007 prior to their scheduled expiration date of March 15,2007 and now expire on September 5, 2007. See Note 15—Subsequent Events.

On March 21, 2007, certain amendments to theInternational Fleet Debt Facilities were entered into for the purpose of, amongother things, extending the dates when margins on the affected facilities arescheduled to step up. See Note 15—Subsequent Events.

*FleetFinancing Facility.**  *OnSeptember 29, 2006, Hertz and PUERTO RICANCARS, INC., a Puerto Ricancorporation and wholly owned indirect subsidiary of Hertz, or ‘‘PR Cars,’’entered into a credit agreement to finance the acquisition of our and/or PRCars’ fleet in Hawaii, Kansas, Puerto Rico and St. Thomas, U.S. Virgin Islands,dated as of September 29, 2006, or the ‘‘Fleet Financing Facility,’’ withthe several banks and other financial institutions from time to time partythereto as lenders, 

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

GELCO Corporation d.b.a. GE Fleet Services, or the ‘‘FleetFinancing Agent,’’ as administrative agent, as collateral agent for collateralowned by Hertz and as collateral agent for collateral owned by PR Cars.Affiliates of Merrill Lynch & Co. are lenders under the FleetFinancing Facility.

The Fleet Financing Facility provides (subject toavailability under a borrowing base) a revolving credit facility of up to$275.0 million to Hertz and PR Cars. On September 29, 2006, Hertz borrowed$124.0 million under this facility to refinance other debt. The borrowing baseformula is subject to downward adjustment upon the occurrence of certain eventsand (in certain other instances) at the permitted discretion of the FleetFinancing Agent. As of December 31, 2006, Hertz and PR Cars had $144.9million (net of a $2.1 million discount) and $21.0 million, respectively, ofborrowings outstanding.

The Fleet Financing Facility will mature on December 21,2011, but Hertz and PR Cars may terminate or reduce the commitments of thelenders thereunder at any time. The Fleet Financing Facility is subject tomandatory prepayment in the amount by which outstanding extensions of credit toHertz or PR Cars exceed the lesser of the Hertz or PR Cars borrowing base, asapplicable, and the commitments then in effect.

The obligations of each of the borrowers under theFleet Financing Facility are guaranteed by each of our direct and indirectdomestic subsidiaries (other than subsidiaries whose only material assetsconsist of securities and debt of foreign subsidiaries and related assets,subsidiaries involved in the ABS Program or other similar special purposefinancings, subsidiaries with minority ownership positions, certain subsidiariesof foreign subsidiaries and certain immaterial subsidiaries). In addition, theobligations of PR Cars are guaranteed by Hertz. The obligations of Hertz underthe Fleet Financing Facility and the other loan documents, including, withoutlimitation, its guarantee of PR Cars’ obligations under the Fleet FinancingFacility, are secured by security interests in our rental car fleet in Hawaiiand by certain assets related to our rental car fleet in Hawaii and Kansas,including, without limitation, manufacturer repurchase program agreements. PRCars’ obligations under the Fleet Financing Facility and the other loandocuments are secured by security interests in PR Cars’ rental car fleet inPuerto Rico and St. Thomas, U.S. Virgin Islands and by certain assets relatedthereto.

At the applicable borrower’s election, the interestrates per annum applicable to the loans under the Fleet Financing Facility willbe based on a fluctuating rate of interest measured by reference to either (1) LIBORplus a borrowing margin of 125 basis points or (2) an alternate base rateof the prime rate plus a borrowing margin of 25 basis points. As of December 31,2006, the average interest rate was 6.6% (LIBOR based).

The Fleet Financing Facility contains a number ofcovenants that, among other things, limit or restrict the ability of theborrowers and their subsidiaries to create liens, dispose of assets, engage inmergers, enter into agreements which restrict liens on the Fleet FinancingFacility collateral or our rental car fleet in Kansas or change the nature oftheir business.

During the fourth quarter of 2006, certain of thedocuments relating to the Fleet Financing Facility were amended to make certaintechnical and administrative changes.

**Pre-Acquisition Debt**

As of December 31, 2006, we had approximately $633.5 million (net ofa $5.5 milliondiscount) outstanding in pre-Acquisition promissory notes issued under threeseparate indentures at an average interest rate of 7.2%. These pre-Acquisition promissory notes havematurities ranging from 2007 to 2028.

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

As of December 31, 2006, we had approximately €7.6million (or $10.0million) outstanding in pre-Acquisition Euro-denominated medium term notes, inconnection with which we entered into an interest rate swap agreement onDecember 21, 2005, effective January 16, 2006 and maturing onJuly 16, 2007. The purpose of this interest rate swap is to lock in theinterest cash outflows at a fixed rate of 4.1% on the variable rateEuro-denominated medium term notes. Funds sufficient to repay all obligationsassociated with the remaining €7.6 million ofEuro-denominated medium term notes at maturity have been placed in escrow forsatisfaction of these obligations.

We also had outstanding as of December 31, 2006approximately $545.3million in borrowings, net of a $10.5million discount, consisting of pre-Acquisition ABS Notes with an averageinterest rate of 3.2%.These pre-Acquisition ABS Notes have maturities ranging from 2007 to 2009. See“U.S. Fleet Debt” for a discussion of the collateralization of thepre-Acquisition ABS Notes.

**Credit Facilities**

As of December 31,2006, the following credit facilities were available for the use of Hertz andits subsidiaries:

·       TheSenior Term Facility had $11.1 million available under the letter of creditfacility. No amounts were available to refinance certain existing debt underthe delayed draw facility.

·       TheSenior ABL Facility had the foreign currency equivalent of approximately$1,600.0 million of remaining capacity, all of which was available under theborrowing base limitation and $181.8 million of which is available under theletter of credit facility sublimit.

·       TheInternational Fleet Debt Facilities had the foreign currency equivalent ofapproximately $1,236.4million of remaining capacity and $231.4million available under the borrowing base limitation.

·       TheU.S. Fleet Debt had approximately $1,500.0million of remaining capacity and $34.3million available under the borrowing base limitation. No additional amountswere available under the letter of credit facility.

·       TheFleet Financing Facility had approximately $107.0 million of remaining capacityand $16.5 million available under the borrowing base limitation.

As of December 31, 2006,substantially all of our assets are pledged under one or more of the facilitiesnoted above. We are currently in compliance with all of the covenants containedin the various facilities noted above that are currently applicable to us.

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

**Note 4—Purchases andSales of Operations**

In June 1999, Hertzentered into a Limited Liability Company Agreement, or “LLC Agreement,” with asubsidiary of Orbital Sciences Corporation, or “Orbital,” whereby NavigationSolutions, L.L.C., or “Navigation Solutions,” a limited liability company, wasformed to purchase NeverLost vehicle navigation systems for installation inselected vehicles in our North American fleet. In July 2001, Orbital’ssubsidiary sold its membership interest in Navigation Solutions to a subsidiaryof Thales North America, Inc., or “Thales.” During 2004 (prior to July 1),we received distributions of $2.0 million under the LLC Agreement, whichrepresented our 40% ownership interest. In January 2004, along withThales, Hertz amended the LLC Agreement to provide for Hertz to increase itsownership interest to 65% and for Navigation Solutions to purchase additionalNeverLost vehicle navigation systems. For those periods prior to July 1,2004, the results of operations and investment in this joint venture had beenreported using the equity method of accounting. On July 1, 2004, ourownership interest in Navigation Solutions increased from 40% to 65% as aresult of an equity distribution by Navigation Solutions to the other member ofNavigation Solutions, effectively reducing their ownership interest to 35%.Based upon this ownership change, we began consolidating 100% of NavigationSolutions’ balance sheet and results of operations into our financialstatements and deducting the minority interest share relating to the 35%member.

**Note 5—EmployeeRetirement Benefits**

Qualified U.S. employees, after completion ofspecified periods of service, are eligible to participate in The HertzCorporation Account Balance Defined Benefit Pension Plan, or “Hertz RetirementPlan,” a cash balance plan. Under this qualified Hertz Retirement Plan, we paythe entire cost and employees are not required to contribute.

Most of our foreign subsidiaries have defined benefitretirement plans or participate in various insured or multiemployer plans. Incertain countries, when the subsidiaries make the required funding payments,they have no further obligations under such plans. We participate in variousmultiemployer pension plans administered by labor unions representing some ofour employees. We make periodic contributions to these plans to allow them tomeet their pension benefit obligations to their participants. Contributions toU.S. multiemployer plans were $7.7 million, $7.2 million and $7.1 million for2006, 2005 and 2004, respectively.

Company plans are generally funded, except for certainnonqualified U.S. defined benefit plans and in Germany, where unfundedliabilities are recorded.

We sponsor defined contribution plans for certaineligible U.S. and non-U.S. employees. We match contributions of participatingemployees on the basis specified in the plans.

We also sponsor postretirement health care and lifeinsurance benefits for a limited number of employees with hire dates prior to January 1,1990. The postretirement health care plan is contributory with participants’contributions adjusted annually. An unfunded liability is recorded. In 2006, werecognized a liability of $1.0 million for a key officer post-retirement carbenefit. This plan provides the use of a vehicle for retired Senior VicePresidents and above who have a minimum of 20 years of service and who retiredat age 58 or above.

We use a December 31 measurement date for all ourplans.

Thefollowing tables set forth the funded status and the net periodic pension costof the Hertz Retirement Plan, other postretirement benefit plans (includinghealth care and life insurance plans covering domestic (“U.S.”) employees) andthe retirement plans for foreign operations (“Non-U.S.”), 

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

togetherwith amounts included in our consolidated balance sheet and statement ofoperations (in millions of dollars):

| ** **                                                                                                                                   | ** ** | **Pension Benefits** | ** ** | **Postretirement** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|--------------------|------------|
| ** **                                                                                                                                   | ** ** | **U.S.**                  | ** ** | **Non-U.S.**       | ** ** | **Benefits (U.S.)** | ** ** |
| ** **                                                                                                                                   | ** ** | **2006**                  | ** ** | **2005**           | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Change  in Benefit Obligation**                                                                                                            |       |                      |       |               |       |   |   |   |   |   |   |   |   |
| Benefit obligation at  January 1                                                                                                        |       | $                         | 400.0      |               | $          | 339.2 |   | $ | 160.3 |   | $ | 132.2 |   | $ | 18.2 |   | $ | 17.3 |   |
| Service cost                                                                                                                                 |       | 28.0                      |       | 24.4               |       | 9.6 |   | 7.1 |   | 0.4 |   | 0.4 |   |
| Interest cost                                                                                                                                |       | 22.2                      |       | 19.6               |       | 8.4 |   | 6.3 |   | 0.8 |   | 1.0 |   |
| Employee  contributions                                                                                                                      |       | —                    |       | —             |       | 1.5 |   | 1.4 |   | 0.1 |   | 0.1 |   |
| Plan amendments                                                                                                                              |       | 0.1                       |       | —             |       | — |   | — |   | 1.0 |   | — |   |
| Benefits paid                                                                                                                                |       | (15.6                     | )          | (10.7              | )          | (2.4 | ) | (2.2 | ) | (0.2 | ) | (0.4 | ) |
| Foreign exchange  translation                                                                                                                |       | —                    |       | —             |       | 21.1 |   | (17.8 | ) | — |   | — |   |
| Actuarial loss (gain)                                                                                                                        |       | 2.9                       |       | 27.5               |       | 10.6 |   | 33.3 |   | (3.7 | ) | (0.2 | ) |
| Benefit obligation at  December 31                                                                                                      |       | $                         | 437.6      |               | $          | 400.0 |   | $ | 209.1 |   | $ | 160.3 |   | $ | 16.6 |   | $ | 18.2 |   |
| **Change  in Plan Assets**                                                                                                                   |       |                      |       |               |       |   |   |   |   |   |   |   |   |
| Fair value of plan  assets at January 1                                                                                                 |       | $                         | 310.2      |               | $          | 270.5 |   | $ | 95.1 |   | $ | 83.9 |   | $ | — |   | $ | — |   |
| Actual return on plan  assets                                                                                                                |       | 39.3                      |       | 18.0               |       | 14.0 |   | 17.2 |   | — |   | — |   |
| Company contributions                                                                                                                        |       | 4.9                       |       | 32.4               |       | 23.9 |   | 5.6 |   | 0.1 |   | 0.3 |   |
| Employee  contributions                                                                                                                      |       | —                    |       | —             |       | 1.5 |   | 1.4 |   | 0.1 |   | 0.1 |   |
| Benefits paid                                                                                                                                |       | (15.6                     | )          | (10.7              | )          | (2.4 | ) | (2.2 | ) | (0.2 | ) | (0.4 | ) |
| Foreign exchange  translation                                                                                                                |       | —                    |       | —             |       | 12.8 |   | (10.5 | ) | — |   | — |   |
| Other                                                                                                                                        |       | —                    |       | —             |       | (0.2 | ) | (0.3 | ) | — |   | — |   |
| Fair value of plan  assets at December 31                                                                                               |       | $                         | 338.8      |               | $          | 310.2 |   | $ | 144.7 |   | $ | 95.1 |   | $ | — |   | $ | — |   |
| **Funded  Status of the Plan**                                                                                                               |       |                      |       |               |       |   |   |   |   |   |   |   |   |
| Plan assets less than  benefit obligation                                                                                                    |       | $                         | (98.8      | )                  | $          | (89.8 | ) | $ | (64.4 | ) | $ | (65.2 | ) | $ | (16.6 | ) | $ | (18.2 | ) |
| Unamortized:                                                                                                                                 |       |                      |       |               |       |   |   |   |   |   |   |   |   |
| Transition obligation                                                                                                                        |       | —                    |       | —             |       | — |   | — |   | — |   | — |   |
| Prior service cost                                                                                                                           |       | —                    |       | —             |       | — |   | — |   | — |   | — |   |
| Net losses and other                                                                                                                         |       | —                    |       | (0.7               | )          | — |   | — |   | — |   | — |   |
| Net amount recognized                                                                                                                        |       | $                         | (98.8      | )                  | $          | (90.5 | ) | $ | (64.4 | ) | $ | (65.2 | ) | $ | (16.6 | ) | $ | (18.2 | ) |
| **Amounts  Recognized in the Balance Sheet Assets/(Liabilities) (Prior to the adoption of  SFAS 158)**                                       |       |                      |       |               |       |   |   |   |   |   |   |   |   |
| Intangible assets (including  prepaid assets)                                                                                                |       |                      |       | $                  | —     |   |   |   | $ | — |   |   |   | $ | — |   |
| Accrued liabilities                                                                                                                          |       |                      |       | (90.5              | )          |   |   | (65.2 | ) |   |   | (18.2 | ) |
| Deferred taxes on income                                                                                                                     |       |                      |       | —             |       |   |   | — |   |   |   | — |   |
| Accumulated other  comprehensive loss, net of tax                                                                                            |       |                      |       | —             |       |   |   | — |   |   |   | — |   |
| Net amount recognized                                                                                                                        |       |                      |       | $                  | (90.5      | ) |   |   | $ | (65.2 | ) |   |   | $ | (18.2 | ) |
| **Pension  Plans in Which Accumulated Benefit Obligation Exceeds Plan Assets at  December 31 (Prior to the adoption of SFAS 158)** |       |                      |       |               |       |   |   |   |   |   |   |   |   |
| Projected benefit obligation                                                                                                                 |       |                      |       | $                  | 64.2       |   |   |   | $ | 155.0 |   |   |   |   |   |
| Accumulated benefit  obligation                                                                                                              |       |                      |       | 51.1               |       |   |   | 127.6 |   |   |   |   |   |
| Fair value of plan assets                                                                                                                    |       |                      |       | —             |       |   |   | 90.8 |   |   |   |   |   |

 

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

 

| ** **                                                                                                                             | ** ** | **Pension Benefits** | ** ** | **Postretirement** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|--------------------|------------|
| ** **                                                                                                                             | ** ** | **U.S.**                  | ** ** | **Non-U.S.**       | ** ** | **Benefits (U.S.)** | ** ** |
| **For 2006 after the adoption of  SFAS 158:**                                                                                          | ** ** | ** **                | ** ** |               | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Liabilities                                                                                                                            |       | $                         | (98.8      | )                  |       | $ | (64.4 | ) |   |   | $ | (16.6 | ) |   |
| Net obligation recognized in the balance sheet                                                                                         |       | $                         | (98.8      | )                  |       | $ | (64.4 | ) |   |   | $ | (16.6 | ) |   |
| Initial net asset (obligation)                                                                                                         |       | $                         | —     |               |       | $ | — |   |   |   | $ | — |   |   |
| Prior service credit (cost)                                                                                                            |       | (0.2                      | )          |               | —     |   |   |   | — |   |   |
| Net gain (loss)                                                                                                                        |       | 13.1                      |       |               | (5.2       | ) |   |   | 3.6 |   |   |
| Accumulated other comprehensive income (loss)                                                                                          |       | 12.9                      |       |               | (5.2       | ) |   |   | 3.6 |   |   |
| Prepaid (unfunded accrued) pension or postretirement (benefit) cost                                                                    |       | (111.7                    | )          |               | (59.2      | ) |   |   | (20.2 | ) |   |
| Net asset (obligation) recognized in the balance sheet                                                                                 |       | $                         | (98.8      | )                  |       | $ | (64.4 | ) |   |   | $ | (16.6 | ) |   |
| **Changes  due to minimum pension liability and intangible asset recognition prior to  the adoption of SFAS 158:**                     |       |                      |       |               |       |   |   |   |   |   |   |
| Other comprehensive income (loss)                                                                                                      |       | $                         | —     |               |       | $ | — |   |   |   | $ | — |   |   |
| **Changes  in plan assets and benefit obligations recognized in other comprehensive  income (loss):**                                  |       |                      |       |               |       |   |   |   |   |   |   |
| Total recognized in other comprehensive income (loss)                                                                                  |       | $                         | —     |               |       | $ | — |   |   |   | $ | — |   |   |
| Total recognized in net periodic benefit cost and other comprehensive  loss (income)                                                   |       | $                         | 26.2       |               |       | $ | 9.4 |   |   |   | $ | 1.1 |   |   |
| **Estimated  amounts that will be amortized from accumulated other comprehensive income  over the next fiscal year:**                  |       |                      |       |               |       |   |   |   |   |   |   |
| Net gain (loss)                                                                                                                        |       | $                         | —     |               |       | $ | — |   |   |   | $ | 0.2 |   |   |
| Balance sheet  adjustment: Increase in accumulated other comprehensive (income) loss (before  tax) to reflect the adoption of SFAS 158 |       | $                         | (12.9      | )                  |       | $ | 5.2 |   |   |   | $ | (3.6 | ) |   |

 

| ** **                                              | ** ** | **Pension Benefits** | ** ** | **Postretirement** | ** ** |
|---------------------------------------------------------|------------|---------------------------|------------|--------------------|------------|
| ** **                                              | ** ** | **U.S.**                  | ** ** | **Non-U.S.**       | ** ** | **Benefits (U.S.)** | ** ** |
| ** **                                              | ** ** | **2006**                  | ** ** | **2005**           | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Accumulated  Benefit Obligation at December 31** |       | $                         | 365.4      |               | $          | 330.1 |   | $ | 164.0 |   | $ | 131.3 |   | N/A |   | N/A |   |
| **Weighted-average assumptions as of December 31** |       |                      |       |               |       |   |   |   |   |   |   |   |   |
| Discount rate                                           |       | 5.70                      | %          | 5.50               | %          | 4.81 | % | 4.65 | % | 5.70 | % | 5.50 | % |
| Expected return on assets                               |       | 8.75                      | %          | 8.75               | %          | 7.22 | % | 6.88 | % | N/A |   | N/A |   |
| Average rate of increase in compensation                |       | 4.3                       | %          | 4.3                | %          | 3.8 | % | 3.6 | % | N/A |   | N/A |   |
| Initial health care cost trend rate                     |       | —                    |       | —             |       | — |   | — |   | 9.5 | % | 10.0 | % |
| Ultimate health care cost trend rate                    |       | —                    |       | —             |       | — |   | — |   | 5.0 | % | 5.0 | % |
| Number of years to  ultimate trend rate                 |       | —                    |       | —             |       | — |   | — |   | 8 |   | 8 |   |
|                                                         |            |                           |            |                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The discount rate used to determine the December 31,2006 benefit obligations for U.S. pension plans is based on an average of threeindices of high quality corporate bonds whose duration closely matches that ofour plans. The rates on these bond indices are adjusted to reflect callableissues. For 

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

our plans outside the U.S., the discount rate reflectsthe market rates for high-quality corporate bonds currently available. Thediscount rate in a country was determined based on a yield curve constructedfrom high quality corporate bonds in that country. The rate selected from theyield curve has a duration that matches our plan.

Theexpected return on plan assets for each funded plan is based on expected futureinvestment returns considering the target investment mix of plan assets.

| ** **                                    | ** ** | **Pension Benefits**                    | ** ** |
|-----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                    | ** ** | ** **                                   | ** ** | **U.S.** | ** ** | ** ** | ** ** | ** ** | ** ** | **Non-U.S.** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Successor**                                | ** ** | ** ** | ** ** | **Predecessor** | ** ** | **Successor** | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
| ** **                                    | ** ** | ** **                                   | ** ** | **For the periods from** | ** ** | ** ** | ** ** | ** ** | ** ** | **For the periods from** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** ** | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** ** | ** ** | **January 1,  2005 to  December  20, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** |
| **Components  of Net Periodic Benefit Cost:** | ** ** |                                         | ** ** | ** ** |   |   | ** ** | ** ** |   |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
|                                               |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Service cost                                                 |   |   | $      | 28.0   |   |   |   | $      | 0.7    |   |   |   |   |   | $      | 23.7   |   |   |   | $      | 21.1   |   |   |   | $      | 9.5    |   |   |   | $      | 0.2    |   |   |   |   |   | $      | 6.9 |   |   |   | $ | 5.4 |   |   |
|--------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----|--------|--------|--------|---|-----|--------|--------|
| Interest cost                                                |   |   | 22.2   |   |   |   | 0.6    |   |   |   |   |   | 19.0   |   |   |   | 17.7   |   |   |   | 8.4    |   |   |   | 0.2    |   |   |   |   |   | 6.1    |   |   |   | 5.4    |   |   |
| Expected return on plan assets                               |   |   | (24.0  | )      |   |   | (0.6   | )      |   |   |   |   | (20.8  | )      |   |   | (17.9  | )      |   |   | (8.5   | )      |   |   | (0.2   | )      |   |   |   |   | (5.4   | )      |   |   | (4.5   | )      |   |
| Amortization:                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transition                                                   |   |   | — |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Amendments                                                   |   |   | — |   |   |   | — |   |   |   |   |   | 0.5    |   |   |   | 0.5    |   |   |   | — |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Losses and other                                             |   |   | — |   |   |   | 0.1    |   |   |   |   |   | 3.5    |   |   |   | 1.8    |   |   |   | — |   |   |   | 0.1    |   |   |   |   |   | 1.8    |   |   |   | 1.2    |   |   |
| Settlement loss                                              |   |   | — |   |   |   | — |   |   |   |   |   | 1.1    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Net pension expense                                          |   |   | $      | 26.2   |   |   |   | $      | 0.8    |   |   |   |   |   | $      | 27.0   |   |   |   | $      | 23.2   |   |   |   | $      | 9.4    |   |   |   | $      | 0.3    |   |   |   |   |   | $      | 9.4 |   |   |   | $ | 7.5 |   |   |
| Weighted-average discount rate for expense                   |   |   | 5.50   | %      |   |   | 5.75   | %      |   |   |   |   | 5.75   | %      |   |   | 6.25   | %      |   |   | 4.65   | %      |   |   | 5.14   | %      |   |   |   |   | 5.14   | %      |   |   | 5.52   | %      |   |
| Weighted-average  assumed long-term rate of return on assets |   |   | 8.75   | %      |   |   | 8.75   | %      |   |   |   |   | 8.75   | %      |   |   | 8.75   | %      |   |   | 6.88   | %      |   |   | 6.90   | %      |   |   |   |   | 6.90   | %      |   |   | 6.93   | %      |   |

 

| ** **                                    | ** ** | **Postretirement Benefits (U.S.)** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                    | ** ** | **Successor**                                | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
| ** **                                    | ** ** | ** **                                   | ** ** | **For the periods from** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** ** | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| **Components of Net Periodic  Benefit Cost:** | ** ** |                                         | ** ** | ** ** |   |   | ** ** |   |   |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                  |       |                                         | $          | 0.4 |   |   |   | $ | — |   |   |   |   |   | $ | 0.4 |   |   |   | $ | 0.4 |   |   |
| Interest cost                                 |       |                                         | 0.8        |   |   |   | 0.1 |   |   |   |   |   | 0.9 |   |   |   | 1.0 |   |   |
| Amortization:                                 |       |                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Losses and other                              |       |                                         | (0.1       | ) |   |   | — |   |   |   |   |   | 0.2 |   |   |   | 0.2 |   |   |
| Net postretirement expense                    |       |                                         | $          | 1.1 |   |   |   | $ | 0.1 |   |   |   |   |   | $ | 1.5 |   |   |   | $ | 1.6 |   |   |
| Weighted-average discount rate for expense    |       |                                         | 5.50       | % |   |   | 5.75 | % |   |   |   |   | 5.75 | % |   |   | 6.25 | % |   |
| Initial health care cost trend rate           |       |                                         | 10.0       | % |   |   | 11.0 | % |   |   |   |   | 11.0 | % |   |   | 10.0 | % |   |
| Ultimate health care cost trend rate          |       |                                         | 5.0        | % |   |   | 5.0 | % |   |   |   |   | 5.0 | % |   |   | 5.0 | % |   |
| Number of years to  ultimate trend rate       |       |                                         | 8          |   |   |   | 9 |   |   |   |   |   | 9 |   |   |   | 10 |   |   |

 

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

Changingthe assumed health care cost trend rates by one percentage point is estimatedto have the following effects (in millions of dollars):

| ** **                                               | ** ** | **One Percentage  Point Increase** | ** ** | **One Percentage  Point Decrease** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| Effect on total of  service and interest cost components |       |                                         | $          | 0.1                                          |       |   |   | $ | (0.1 | ) |   |
| Effect on postretirement  benefit obligation             |       |                                         | $          | 1.0                                          |       |   |   | $ | (0.9 | ) |   |

 

The provisions charged to income for the year ended December 31,2006, the Successor period ended December 31, 2005 and the Predecessor periodended December 20, 2005 and the year ended December 31, 2004 for allother pension plans were approximately (in millions of dollars) $8.0, $0.2,$8.0 and $7.8, respectively.

The provisions charged toincome for the year ended December 31, 2006, the Successor period endedDecember 31, 2005 and the Predecessor period ended December 20, 2005and the year ended December 31, 2004 for the defined contribution planswere approximately (in millions of dollars) $15.1, $0.5, $14.8 and $13.7, respectively.

***Plan Assets***

Our majorU.S. and Non-U.S. pension plans’ weighted-average asset allocations atDecember 31, 2006 and 2005, by asset category, are as follows:

| ** **               | ** ** | **Plan Assets** | ** ** |
|--------------------------|------------|----------------------|------------|
| **Asset Category**  | ** ** | ** **           | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **               | ** ** | **U.S.**             | ** ** | **Non-U.S.** | ** ** |
| Equity securities        |       | 72.4                 | %          | 70.6 | % | 85.0 | % | 86.2 | % |
| Fixed income  securities |       | 27.6                 |       | 29.4 |   | 15.0 |   | 13.8 |   |
| Total                    |       | 100.0                | %          | 100.0 | % | 100.0 | % | 100.0 | % |
|                          |            |                      |            |  |  |  |  |  |  |  |  |

 

We have a long-term investment outlook for the assetsheld in our Company sponsored plans, which is consistent with the long-termnature of each plan’s respective liabilities. We have two major plans whichreside in the U.S. and the United Kingdom.

The U.S. Plan, or the “Plan,” currently has a targetasset allocation of 70% equity and 30% fixed income. The equity portion of thePlan is invested in one passively managed index fund, one actively managed U.S.small/midcap fund and one actively managed international portfolio. The fixedincome portion of the Plan is actively managed by a professional investmentmanager and is benchmarked to the Lehman Long Govt/Credit Index. The Plancurrently assumes an 8.75% rate of return on assets which represents theexpected long-term annual weighted-average return for the Plan in total.The annualized long-term performance of the Plan has generally been in excessof the long-term rate of return assumptions.

The U.K. Plan currentlyinvests in a professionally managed Balanced Consensus Index Fund which has theinvestment objective of achieving a total return relatively equal to itsbenchmark. The benchmark is based upon the average asset weightings of a broaduniverse of U.K. pension funds invested in pooled investment vehicles and eachof their relevant indices. The asset allocation as of December 31, 2006,was 85.0% equity and 15.0% fixed income. The U.K. Plan currently assumes a rateof return on assets of 7.3%, which represents the expected long-term annualweighted-average return.

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

***Contributions***

Our policy for funded plans isto contribute annually, at a minimum, amounts required by applicable laws,regulations, and union agreements. From time to time we make contributionsbeyond those legally required. In 2006, we made no discretionary cashcontributions to our U.S. pension plan, while in 2005, we made discretionarycash contributions of $28.0 million to our U.S. pension plan. In 2007, weexpect to contribute, at a minimum, approximately $27.8 million to ourworldwide pension plans, including contributions required by fundingregulations, discretionary contributions and benefit payments for unfundedplans.

***Estimated Future Benefit Payments***

Thefollowing table presents estimated future benefit payments (in millions ofdollars):

| ** ** | ** ** | **Pension Benefits** | ** ** | **Postretirement  Benefits (U.S.)** | ** ** |
|------------|------------|---------------------------|------------|------------------------------------------|------------|
| 2007       |       |                      | $          | 34.6                                     |       |   |   | $ | 0.6 |   |   |
| 2008       |       |                      | 18.7       |                                     |       |   | 0.7 |   |   |
| 2009       |       |                      | 23.3       |                                     |       |   | 0.8 |   |   |
| 2010       |       |                      | 25.1       |                                     |       |   | 1.0 |   |   |
| 2011       |       |                      | 27.8       |                                     |       |   | 1.1 |   |   |
| 2012-2016  |       |                      | 199.2      |                                     |       |   | 7.0 |   |   |

 

The expected benefit paymentsfor 2007 include a lump sum payment of $17.9 million to our former ChiefExecutive Officer, Craig R. Koch.

**Note 6—Hertz HoldingsStock Incentive Plan**

On February 15, 2006, the Boards of Directors ofHertz and Hertz Holdings jointly approved the Hertz Global Holdings, Inc.Stock Incentive Plan, or the “Stock Incentive Plan.” The Stock Incentive Planprovides for the sale of Hertz Holdings common stock to our executive officers,other key employees and directors as well as the grant of stock options topurchase shares of Hertz Holdings common stock to those individuals. The Boardof Directors of Hertz Holdings, or a committee designated by it, selects theofficers, employees and directors eligible to participate in the StockIncentive Plan and either the Board or the Compensation Committee of HertzHoldings may determine the specific number of shares to be offered or optionsto be granted to an individual employee or director. A maximum of 25 millionshares are reserved for issuance under the Stock Incentive Plan. Hertz Holdingscurrently intends to satisfy any need for shares of common stock of HertzHoldings associated with the exercise of options issued under the StockIncentive Plan through those new shares reserved for issuance, not through theuse of Treasury shares or open market purchases of shares. The Stock IncentivePlan was approved by the stockholders of Hertz Holdings on March 8, 2006.

All option grants will be non-qualified options with aper-share exercise price no less than fair market value of one share of HertzHoldings stock on the grant date. Any stock options granted will generally havea term of ten years, and unless otherwise determined by the Board of Directorsor the Compensation Committee of Hertz Holdings, will vest in five equal annualinstallments. The Board of Directors or Compensation Committee of HertzHoldings may accelerate the vesting of an option at any time. In addition,vesting of options will be accelerated if Hertz Holdings experiences a changein control (as defined in the Stock Incentive Plan) unless options withsubstantially equivalent terms and 

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

economic value are substituted for existing options inplace of accelerated vesting. Vesting of options will also be accelerated inthe event of an employee’s death or disability (as defined in the Stock IncentivePlan). Upon a termination for cause (as defined in the Stock Incentive Plan),all options held by an employee are immediately cancelled. Following atermination without cause, vested options will generally remain exercisablethrough the earliest of the expiration of their term or 60 days followingtermination of employment (180 days in the case of death, disability orretirement at normal retirement age).

Unless sooner terminated by the Board of Directors ofHertz Holdings, the Stock Incentive Plan will remain in effect until February 15,2016.

During the second quarter of 2006, Hertz Holdings madean equity offering to approximately 350 of our executives and key employees(not including Craig R. Koch, our former Chairman of the Board and ChiefExecutive Officer). The shares sold and options granted to our employees inconnection with this equity offering are subject to and governed by the termsof the Stock Incentive Plan. The offering closed on May 5, 2006. Inconnection with this offering, Hertz Holdings sold 1,757,354 shares at apurchase price of $10.00 per share and granted options to purchase anadditional 2,786,354 shares at an exercise price of $10.00 per share ($4.56 pershare after adjustment for special cash dividends paid on June 30,2006 and November 21, 2006). In addition, on May 18, 2006,Hertz Holdings granted our key executives and employees (except for Mr. Koch)options to acquire an additional 9,515,000 shares of Hertz Holdings commonstock at $10.00 per share ($4.56 per share after adjustment for special cashdividends paid on June 30, 2006 and November 21, 2006),800,000 shares at $15.00 per share ($9.56 per share after adjustment for special cashdividends paid on June 30, 2006 and November 21, 2006) and800,000 shares at $20.00 per share ($14.56 per share after adjustment for special cashdividends paid on June 30, 2006 and November 21, 2006). Theseoptions are subject to and governed by the terms of the Stock Incentive Plan.The $10.00 per share purchase price and exercise price was based on thedetermination of the Board of Directors of Hertz Holdings, of the fair marketvalue of the common stock of Hertz Holdings as of the grant date, as supportedby an independent third party valuation.

On June 12, 2006, Mr. Koch purchased 50,000shares of common stock of Hertz Holdings at a purchase price of $10.00 pershare and received options to purchase an additional 100,000 shares at apurchase price of $10.00 per share ($5.68 per share after adjustment for the special cashdividend paid on June 30, 2006). On August 15, 2006, theoptions issued to Mr. Koch in June 2006 were cancelled and he wasissued options to purchase 112,000 shares of common stock of Hertz Holdings atan exercise price of $7.68 per share ($6.56 after adjustment for the specialcash dividend paid on November 21, 2006). Hertz Holdings made a payment to Mr. Koch in connection with hisshare purchase equal to $80,000.

On August 15, 2006, certain newly-hired employeespurchased an aggregate of 20,000 shares at a price of $7.68 per share and weregranted options to purchase 220,000 shares of Hertz Holdings stock at anexercise price of $7.68 per share ($6.56 after adjustment for the special cashdividend paid on November 21, 2006). Also on August 15, 2006, inaccordance with the terms of his employment agreement, Mr. Frissorapurchased 1,056,338 shares of common stock of Hertz Holdings at a price of$5.68, which was $2.00 below the fair market value of $7.68 on that date, andwas granted options to purchase 800,000 shares of Hertz Holdings at an exerciseprice of $7.68 per share ($6.56 after adjustment for the special cash dividendpaid on November 21, 2006), 400,000 options at an exercise price of $10.68per share ($9.56 after adjustment for the special cash dividend paid on November 21,2006) and 400,000 options at an exercise price of $15.68 per share ($14.56after adjustment for the special cash dividend paid on November 21, 2006).All of Mr. Frissora’s options will vest 20% per year 

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

on the first five anniversaries of the date of commencementof his employment and will have a ten year term.

In September 2006, Hertz Holdings determined thatthe fair value of the common stock of Hertz Holdings as of August 15, 2006was $16.37 per share, rather than the $7.68 that had originally been determinedat that time and which we used for purposes of the Stock Incentive Plan andfederal income tax purposes. Consequently, we recognized compensation expenseof $13.2 million, including amounts for a tax gross-up on the initial $2.00discount to fair market value in accordance with Mr. Frissora’s employmentagreement, in the quarter ended September 30, 2006.

The five-year vesting period is the requisite serviceperiod over which compensation cost will be recognized for all grants exceptthe one to Mr. Koch. For all grants except the one for Mr. Koch, wewill recognize compensation cost on a straight-line basis over the five-yearvesting period. For Mr. Koch, all of the compensation costs wererecognized over his expected service period in 2006. The options will beaccounted for as equity-classified awards.

The value of each option award is estimated on thegrant date using a Black-Scholes option valuation model that incorporates theassumptions noted in the following table. Because the stock of Hertz Holdingswas not publicly traded at the time of these grants, we have used thecalculated value method, substituting the historical volatility of anappropriate industry sector index for the expected volatility of Hertz Holdings’common stock price as an assumption in the valuation model. We measure thecompensation cost related to employee stock options based on the calculatedvalue instead of fair value of the options because we cannot reasonablyestimate the volatility of Hertz Holdings’ common stock. We selected the DowJones Specialized Consumer Services sub-sector within the consumer servicesindustry, and we used the U.S. large capitalization component, which includesthe top 70% of the index universe (by market value).

The calculation of the historical volatility of theindex was made using the daily historical closing values of the index for thepreceding 6.5 years, because that is the expected term of the options using thesimplified approach allowed under SAB No. 107.

Therisk-free interest rate is the implied zero-coupon yield for U.S. Treasurysecurities having a maturity of 6.5 years as of the grant date, which is theexpected term of the options. The assumed dividend yield is zero. We assumethat each year 1% of the options that are outstanding but not vested will beforfeited because of employee attrition.

| **Assumption**             | ** ** | ** **   | ** ** | **2006 Grants** | ** ** |
|----------------------------|------------|--------------|------------|----------------------|------------|
| Expected volatility        |       | 50.2         | %          |
| Expected dividends         |       | 0.0          | %          |
| Expected term (years)      |       | 6.5          |       |
| Risk-free rate             |       | 4.89% - 5.07 | %          |
| Forfeiture rate (per year) |       | 1.0          | %          |

 

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

A summaryof option activity under the Stock Incentive Plan as of December 31, 2006is presented below. All of the outstanding options are non-vested and notexercisable.

| ** **                               | ** ** | **Non-vested  Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Weighted-  Average Grant-  Date Calculated  Value** | ** ** |
|------------------------------------------|------------|------------------------|------------|---------------------------------------------|------------|-----------------------------------------------------------------|------------|
| Non-vested as of  January 1, 2006   |       | —                 |       |                                        | $          | —                                                          |       |   |   | $ | — |   |   |
| Granted                                  |       | 15,833,354             |       |                                        | $          | 5.85                                                            |       |   |   | $ | 5.99 |   |   |
| Forfeited or Expired                     |       | (85,000                | )          |                                        | $          | —                                                          |       |   |   | $ | 5.63 |   |   |
| Non-vested as of  December 31, 2006 |       | 15,748,354             |       |                                        | $          | 5.85                                                            |       |   |   | $ | 5.99 |   |   |

 

During the year ended December 31,2006, we recognized compensation cost of approximately $13.8 million ($8.3million, net of tax), and, as of December 31, 2006, there wasapproximately $106.2 million of total unrecognized compensation cost related tonon-vested stock options granted by Hertz Holdings under the Stock IncentivePlan, including costs related to modifying the exercise prices of certainoption grants in order to preserve the intrinsic value of the options,consistent with applicable tax law, to reflect the special cash dividend of$4.32 per share that was paid on June 30, 2006 and $1.12 that was paid on November 21,2006. These remaining costs are expected to be recognized over the remaining4.4 years of the five-year requisite service period that began on the grantdates.

**Note 7—Depreciation ofRevenue Earning Equipment**

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

| ** **                                                 | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                 | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** **                                                 | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Depreciation of  revenue earning equipment                 |       | $                                            | 1,761,804  |                                                         |       | $               | 45,362     |   |   |   |   | $ | 1,605,243 |   | $ | 1,506,988 |   |
| Adjustment of  depreciation upon disposal of the equipment |       | (35,857                                      | )          |                                                         | (2,123     | )               |       |   |   | (68,307 | ) | (57,212 | ) |
| Rents paid for  vehicles leased                            |       | 31,255                                       |       |                                                         | 588        |            |       |   |   | 18,926 |   | 13,482 |   |
| Total                                                      |       | $                                            | 1,757,202  |                                                         |       | $               | 43,827     |   |   |   |   | $ | 1,555,862 |   | $ | 1,463,258 |   |

 

The adjustment of depreciation upon disposal ofrevenue earning equipment for the year ended December 31, 2006, theSuccessor period ended December 31, 2005, the Predecessor period ended December 20,2005 and the year ended December 31, 2004 included (in millions ofdollars) net gains of $16.3, $1.3, $41.8 and $25.8, respectively, on thedisposal of industrial and construction equipment used in our equipment rentaloperations, and net gains of $19.6, $0.8, $26.5 and $31.4, respectively, on thedisposal of vehicles used in the car rental operations. Depreciation ratesbeing used to compute the provision for depreciation of revenue earningequipment were decreased for all vehicles effective January 1, 2006 in ourdomestic car rental operations and in our U.S. and Canadian equipment rentaloperations to reflect changes in the estimated residual values to be realizedwhen revenue earning equipment is sold. Depreciation rates on certain vehicleswere increased effective October 1, 2006 in our domestic car rentaloperations. Depreciation rates were also decreased effective April 1, 2006in our French equipment rental operations. Depreciation rates were increasedduring 2006 in our international car rental operations to reflect changes inthe estimated residual values of vehicles. The rate changes resulted in a netreduction of $3.7 million in our domestic car 

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

rental depreciation expense, a net reduction of $15.3million in our combined U.S. and Canadian equipment rental operationsdepreciation expense, a net reduction of $3.1 million in our French equipmentrental operations depreciation expense and a net increase of $9.0 million inour international car rental operations depreciation expense.

As a result of the Acquisition, the net book value ofour revenue earning equipment was adjusted to its estimated fair value,resulting in a net increase of $93.1 million. This net increase in net bookvalue resulted in an increase in depreciation expense of approximately $13.8million and $0.5 million for the year ended December 31, 2006 and theSuccessor period ended December 31, 2005, respectively.

**Note 8—Taxes on Income**

Thecomponents of income (loss) before income taxes and minority interest for theperiods were as follows (in thousands of dollars):

| ** ** | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** ** | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** ** | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Domestic   |       |                                         | $          | 137,122                                                      |       |            |       | $ | (19,144 | ) |   |   |   |   | $ | 371,570 |   |   |   | $ | 322,759 |   |   |
| Foreign    |       |                                         | 103,607    |                                                         |       |            | (14,074    | ) |   |   |   |   | 203,336 |   |   |   | 179,793 |   |   |
| Total      |       |                                         | $          | 240,729                                                      |       |            |       | $ | (33,218 | ) |   |   |   |   | $ | 574,906 |   |   |   | $ | 502,552 |   |   |

 

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

| ** **                 | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|----------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                 | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** **                 | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Current:                   |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                    |       |                                         | $          | 6,576                                                        |       |            |       | $ | — |   |   |   |   |   | $ | 577,573 |   |   |   | $ | (22,950 | ) |   |
| Foreign                    |       |                                         | 28,527     |                                                         |       |            | —     |   |   |   |   |   | 17,550 |   |   |   | 16,679 |   |   |
| State and local            |       |                                         | 2,537      |                                                         |       |            | —     |   |   |   |   |   | 7,670 |   |   |   | 10,565 |   |   |
| Total current              |       |                                         | 37,640     |                                                         |       |            | —     |   |   |   |   |   | 602,793 |   |   |   | 4,294 |   |   |
| Deferred:                  |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                    |       |                                         | 41,609     |                                                         |       |            | (5,711     | ) |   |   |   |   | (435,037 | ) |   |   | 132,877 |   |   |
| Foreign                    |       |                                         | 11,148     |                                                         |       |            | (4,822     | ) |   |   |   |   | 11,224 |   |   |   | (11,801 | ) |   |
| State and local            |       |                                         | (6,670     | )                                                            |       |            | (1,710     | ) |   |   |   |   | 12,352 |   |   |   | 8,500 |   |   |
| Total deferred             |       |                                         | 46,087     |                                                         |       |            | (12,243    | ) |   |   |   |   | (411,461 | ) |   |   | 129,576 |   |   |
| Total provision  (benefit) |       |                                         | $          | 83,727                                                       |       |            |       | $ | (12,243 | ) |   |   |   |   | $ | 191,332 |   |   |   | $ | 133,870 |   |   |

 

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

The principal items ofthe U.S. and foreign net deferred tax liability at December 31, 2006 and2005 are as follows (in thousands of dollars):

| ** **                                                                    | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Deferred Tax Assets:                                                          |       |       |       |       |       |
| Employee benefit plans                                                        |       | $          | 130,966    |       | $          | 126,454 |   |
| Net operating loss carryforwards                                              |       | 396,012    |       | 101,156    |       |
| Foreign tax credit carryforwards                                              |       | 14,604     |       | —     |       |
| Federal and state alternative minimum tax credit carryforwards                |       | 4,683      |       | 4,464      |       |
| Accrued and prepaid expenses deducted for tax purposes when paid or  incurred |       | 89,809     |       | 145,608    |       |
| Total Deferred Tax Assets                                                     |       | 636,074    |       | 377,682    |       |
| Less: Valuation Reserves                                                      |       | (31,191    | )          | (21,377    | )          |
| Total Net Deferred Tax Assets                                                 |       | 604,883    |       | 356,305    |       |
| Deferred Tax  Liabilities:                                                    |       |       |       |       |       |
| Depreciation on tangible assets                                               |       | (1,207,796 | )          | (1,027,906 | )          |
| Intangible assets                                                             |       | (1,213,893 | )          | (1,180,941 | )          |
| Total Deferred Tax Liabilities                                                |       | (2,421,689 | )          | (2,208,847 | )          |
| Net Deferred Tax  Liability                                                   |       | $          | (1,816,806 | )          | $          | (1,852,542 | ) |

 

At December 31, 2006, deferred tax assets of$355.6 million related to U.S. Net Operating Loss, or “NOL,” carryforwards of$796.8 million were recorded. These NOLs begin to expire in 2025.

At December 31, 2006, deferred tax assets of$40.4 million related to foreign NOL carryforwards were recorded. All of theseNOLs have an indefinite carryforward period. A valuation allowance of  $31.2 million at December 31, 2006 wasrecorded against the deferred tax asset as those deferred tax assets relate tojurisdictions which have historical losses. The valuation allowance relates tothe likelihood that a portion of the NOL carryforwards may not be utilized inthe future.

The American Jobs Creation Act, or “the Act,” wasenacted in October 2004. The Act contained a provision allowing a one-timefavorable tax benefit in 2005 related to the repatriation of foreign earningsto the U.S. During 2005, in connection with the Acquisition, $547.8 million offoreign earnings from certain foreign subsidiaries of Hertz were repatriated tothe U.S. The repatriation generated $168.2 million of tax expense, of which$136.9 million was mitigated by foreign tax credits, resulting in a net taxexpense of $31.3 million.

On July 13, 2006, the FASB issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes-an Interpretationof FASB Statement No. 109”, or “FIN No. 48.” FIN No. 48clarifies the criteria that must be met prior to recognition of the financialstatement benefit of a position taken in a tax return. FIN No. 48 willrequire companies to include additional qualitative and quantitativedisclosures within their financial statements. The disclosures will includepotential tax benefits from positions taken for tax return purposes that havenot been recognized for financial reporting purposes and a tabular presentationof significant changes during each period. The disclosures will also include adiscussion of the nature of uncertainties, factors which could cause a change,and an estimated range of reasonably possible changes in tax uncertainties. FINNo. 48 will also require a company to recognize a financial statementbenefit for a position taken for tax return purposes when it is more likelythan not that the position will be sustained. FIN No. 48 will be effectivefor fiscal years beginning after December 15, 2006. Tax positions taken inprior years are being evaluated under FIN No. 48 and management anticipatesa decrease to the opening balance of retained earnings as of January 1,2007 of up to $30.0 million.

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

The significant itemsin the reconciliation of the statutory and effective income tax rates consistedof the following:

| ** **                                                                                     | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                     | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** **                                                                                     | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Statutory Federal Tax  Rate                                                                    |       |                                         | 35.0       | %                                                            |       |            | 35.0       | % |   |   |   |   | 35.0 | % |   |   | 35.0 | % |   |
| Foreign tax  differential                                                                      |       |                                         | (4.0       | )                                                            |       |            | (2.8       | ) |   |   |   |   | 2.7 |   |   |   | (3.8 | ) |   |
| State and local  income taxes, net of federal income tax benefit                               |       |                                         | 2.6        |                                                         |       |            | 3.4        |   |   |   |   |   | 2.3 |   |   |   | 2.5 |   |   |
| Increase (decrease) in  valuation allowance                                                    |       |                                         | 4.1        |                                                         |       |            | —     |   |   |   |   |   | (6.1 | ) |   |   | 6.9 |   |   |
| Adjustments made to  federal and foreign tax accruals in connection with tax audit evaluations |       |                                         | 0.6        |                                                         |       |            | —     |   |   |   |   |   | — |   |   |   | (13.9 | ) |   |
| Change in statutory  rates                                                                     |       |                                         | (4.5       | )                                                            |       |            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| All other items, net                                                                           |       |                                         | 1.0        |                                                         |       |            | 1.3        |   |   |   |   |   | (0.6 | ) |   |   | (0.1 | ) |   |
| Effective Tax Rate                                                                             |       |                                         | 34.8       | %                                                            |       |            | 36.9       | % |   |   |   |   | 33.3 | % |   |   | 26.6 | % |   |

 

The effective income tax rate on earnings beforeincome taxes and minority interest for the successor periods ended December 31,2006 and December 31, 2005 was 34.8% and 36.9%, respectively. Theeffective income tax rate for the predecessor periods ended December 20,2005 and December 31, 2004 was 33.3% and 26.6%, respectively. The lowereffective tax rate in 2004 was attributable to an audit settlement of the 1999through 2003 income tax years.

As of December 31, 2006, approximately $417.0 millionof undistributed earnings of foreign subsidiaries existed for which U.S.deferred taxes have not been recorded because it is management’s currentintention to permanently reinvest these undistributed earnings offshore. If inthe future these earnings are repatriated to the United States, or it isdetermined such earnings will be repatriated in the foreseeable future,additional tax provisions will be recorded.

**Note 9—Lease andConcession Agreements**

We havevarious concession agreements, which provide for payment of rents and a percentageof revenue with a guaranteed minimum, and real estate leases under which thefollowing amounts were expensed (in thousands of dollars):

| ** **                             | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                             | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** **                             | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Rents                                  |       |                                         | $          | 120,726                                                      |       |            |       | $ | 3,500 |   |   |   |   |   | $ | 112,627 |   |   |   | $ | 100,243 |   |   |
| Concession fees:                       |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Minimum fixed obligations              |       |                                         | 279,487    |                                                         |       |            | 7,653      |   |   |   |   |   | 246,304 |   |   |   | 227,535 |   |   |
| Additional amounts, based on  revenues |       |                                         | 194,220    |                                                         |       |            | 5,544      |   |   |   |   |   | 178,431 |   |   |   | 182,069 |   |   |
| Total                                  |       |                                         | $          | 594,433                                                      |       |            |       | $ | 16,697 |   |   |   |   |   | $ | 537,362 |   |   |   | $ | 509,847 |   |   |

 

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

As of December 31,2006, minimum obligations under existing agreements referred to above areapproximately as follows (in thousands of dollars):

| ** **       | ** ** | **Rents** | ** ** | **Concessions** | ** ** |
|------------------|------------|-----------|------------|-----------------|------------|
| 2007             |       | $         | 105,836    |            |       | $ | 247,444 |   |   |
| 2008             |       | 89,275    |       |            | 186,131    |   |   |
| 2009             |       | 68,838    |       |            | 143,653    |   |   |
| 2010             |       | 52,252    |       |            | 101,765    |   |   |
| 2011             |       | 41,201    |       |            | 74,518     |   |   |
| Years after 2011 |       | 188,315   |       |            | 394,591    |   |   |
|                  |            |           |            |                 |            |  |  |  |  |

 

Many of our concession agreements and real estateleases require us to pay or reimburse operating expenses, such as common areacharges and real estate taxes, to pay concession fees above guaranteed minimumsor additional rent based on a percentage of revenues or sales (as defined inthose agreements) arising at the relevant premises, or both. Such obligationsare not reflected in the table of minimum future obligations appearingimmediately above.

Inaddition to the above, we have various leases on revenue earning equipment andoffice and computer equipment under which the following amounts were expensed(in thousands of dollars):

| ** **                     | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|--------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                     | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** **                     | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Revenue earning  equipment     |       |                                         | $          | 31,255                                                       |       |            |       | $ | 588 |   |   |   |   |   | $ | 18,926 |   |   |   | $ | 13,482 |   |   |
| Office and computer  equipment |       |                                         | 14,718     |                                                         |       |            | 466        |   |   |   |   |   | 14,984 |   |   |   | 15,338 |   |   |
| Total                          |       |                                         | $          | 45,973                                                       |       |            |       | $ | 1,054 |   |   |   |   |   | $ | 33,910 |   |   |   | $ | 28,820 |   |   |

 

As of December 31, 2006, minimum obligationsunder existing agreements referred to above that have a maturity of more thanone year are as follows (in thousands of dollars): 2007, $31,962; 2008,$11,658; 2009, $2,615; 2010, $123; 2011, $4; years after 2011, $0.

**Note 10—SegmentInformation**

We follow SFAS No. 131, “Disclosures about Segmentsof an Enterprise and Related Information.” The statement requires companies todisclose segment data based on how management makes decisions about allocatingresources to segments and measuring their performance.

Our operating segments areaggregated into reportable business segments based primarily upon similareconomic characteristics, products, services, customers, and delivery methods.We have identified two reportable segments: rental of cars and light trucks, or“car rental”; and rental of industrial, construction and material handlingequipment, or “equipment rental.” The contribution of these segments, as wellas “corporate and other,” for the year ended December 31, 2006, theSuccessor period ended December 31, 2005, the Predecessor period ended December 20,2005 and the year ended December 31, 2004 are summarized below (inmillions of dollars). “Corporate and other” includes general corporateexpenses, certain interest expense (including, in Successor periods, netinterest on corporate debt), as well as other business activities, such as ourthird-party claim management services.

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

 

| ** **                                               | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                                               | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** **                                               | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Revenues                                                 |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                               |       |                                         | $          | 6,378.0                                                      |       |            |       | $ | 131.8 |   |   |   |   |   | $ | 5,915.0 |   |   |   | $ | 5,507.7 |   |   |
| Equipment rental                                         |       |                                         | 1,672.6    |                                                         |       |            | 22.5       |   |   |   |   |   | 1,392.8 |   |   |   | 1,162.2 |   |   |
| Corporate and other                                      |       |                                         | 7.8        |                                                         |       |            | 0.2        |   |   |   |   |   | 6.9 |   |   |   | 6.1 |   |   |
| Total                                                    |       |                                         | $          | 8,058.4                                                      |       |            |       | $ | 154.5 |   |   |   |   |   | $ | 7,314.7 |   |   |   | $ | 6,676.0 |   |   |
| Income (loss) before income  taxes and minority interest |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                               |       |                                         | $          | 373.5                                                        |       |            |       | $ | (16.2 | ) |   |   |   |   | $ | 390.8 |   |   |   | $ | 437.7 |   |   |
| Equipment rental                                         |       |                                         | 269.5      |                                                         |       |            | (11.4      | ) |   |   |   |   | 250.5 |   |   |   | 87.8 |   |   |
| Corporate and other                                      |       |                                         | (402.3     | )                                                            |       |            | (5.6       | ) |   |   |   |   | (66.4 | ) |   |   | (22.9 | ) |   |
| Total                                                    |       |                                         | $          | 240.7                                                        |       |            |       | $ | (33.2 | ) |   |   |   |   | $ | 574.9 |   |   |   | $ | 502.6 |   |   |
| Depreciation of revenue  earning equipment               |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                               |       |                                         | $          | 1,479.6                                                      |       |            |       | $ | 37.4 |   |   |   |   |   | $ | 1,344.1 |   |   |   | $ | 1,228.6 |   |   |
| Equipment rental                                         |       |                                         | 277.6      |                                                         |       |            | 6.4        |   |   |   |   |   | 211.8 |   |   |   | 234.7 |   |   |
| Corporate and other                                      |       |                                         | —     |                                                         |       |            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Total                                                    |       |                                         | $          | 1,757.2                                                      |       |            |       | $ | 43.8 |   |   |   |   |   | $ | 1,555.9 |   |   |   | $ | 1,463.3 |   |   |
| Depreciation of property and  equipment                  |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                               |       |                                         | $          | 150.8                                                        |       |            |       | $ | 4.1 |   |   |   |   |   | $ | 141.1 |   |   |   | $ | 136.1 |   |   |
| Equipment rental                                         |       |                                         | 40.5       |                                                         |       |            | 1.2        |   |   |   |   |   | 36.4 |   |   |   | 36.7 |   |   |
| Corporate and other                                      |       |                                         | 5.9        |                                                         |       |            | 0.2        |   |   |   |   |   | 4.9 |   |   |   | 4.8 |   |   |
| Total                                                    |       |                                         | $          | 197.2                                                        |       |            |       | $ | 5.5 |   |   |   |   |   | $ | 182.4 |   |   |   | $ | 177.6 |   |   |
| Amortization of other  intangible assets                 |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                               |       |                                         | $          | 29.4                                                         |       |            |       | $ | 1.1 |   |   |   |   |   | $ | 0.7 |   |   |   | $ | 0.6 |   |   |
| Equipment rental                                         |       |                                         | 32.2       |                                                         |       |            | 1.0        |   |   |   |   |   | — |   |   |   | — |   |   |
| Corporate and other                                      |       |                                         | —     |                                                         |       |            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Total                                                    |       |                                         | $          | 61.6                                                         |       |            |       | $ | 2.1 |   |   |   |   |   | $ | 0.7 |   |   |   | $ | 0.6 |   |   |
| Interest expense, net of  interest income                |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                               |       |                                         | $          | 424.1                                                        |       |            |       | $ | 15.8 |   |   |   |   |   | $ | 349.2 |   |   |   | $ | 305.0 |   |   |
| Equipment rental                                         |       |                                         | 140.0      |                                                         |       |            | 3.4        |   |   |   |   |   | 86.4 |   |   |   | 72.0 |   |   |
| Corporate and other                                      |       |                                         | 296.6      |                                                         |       |            | 6.6        |   |   |   |   |   | 38.6 |   |   |   | 7.4 |   |   |
| Total                                                    |       |                                         | $          | 860.7                                                        |       |            |       | $ | 25.8 |   |   |   |   |   | $ | 474.2 |   |   |   | $ | 384.4 |   |   |
| Revenue earning equipment and  property and equipment    |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Car rental                                               |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Expenditures                                             |       |                                         | $          | 10,712.1                                                     |       |            |       | $ | 234.9 |   |   |   |   |   | $ | 11,530.1 |   |   |   | $ | 10,885.7 |   |   |
| Proceeds from disposals                                  |       |                                         | (9,362.7   | )                                                            |       |            | (199.8     | ) |   |   |   |   | (9,927.2 | ) |   |   | (8,554.3 | ) |   |
| Net expenditures                                         |       |                                         | $          | 1,349.4                                                      |       |            |       | $ | 35.1 |   |   |   |   |   | $ | 1,602.9 |   |   |   | $ | 2,331.4 |   |   |
| Equipment rental                                         |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Expenditures                                             |       |                                         | $          | 929.6                                                        |       |            |       | $ | 8.2 |   |   |   |   |   | $ | 987.9 |   |   |   | $ | 707.8 |   |   |
| Proceeds from disposals                                  |       |                                         | (256.5     | )                                                            |       |            | (1.1       | ) |   |   |   |   | (251.4 | ) |   |   | (245.5 | ) |   |
| Net expenditures                                         |       |                                         | $          | 673.1                                                        |       |            |       | $ | 7.1 |   |   |   |   |   | $ | 736.5 |   |   |   | $ | 462.3 |   |   |
| Corporate and other Expenditures                         |       |                                         | $          | 3.1                                                          |       |            |       | $ | 0.2 |   |   |   |   |   | $ | 2.7 |   |   |   | $ | 3.0 |   |   |
| Proceeds from disposals                                  |       |                                         | —     |                                                         |       |            | —     |   |   |   |   |   | (0.3 | ) |   |   | (0.4 | ) |   |
| Net expenditures                                         |       |                                         | $          | 3.1                                                          |       |            |       | $ | 0.2 |   |   |   |   |   | $ | 2.4 |   |   |   | $ | 2.6 |   |   |

 

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

| ** **                                     | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Total assets at end of year                    |       |                  |       |   |   |
| Car rental                                     |       | $                     | 10,597.0   |   | $ | 11,456.4 |   |
| Equipment rental                               |       | 4,475.9               |       | 3,418.8 |   |
| Corporate and other                            |       | 3,602.8               |       | 3,705.7 |   |
| Total                                          |       | $                     | 18,675.7   |   | $ | 18,580.9 |   |
| Revenue earning equipment, net, at end of year |       |                  |       |   |   |
| Car rental                                     |       | $                     | 7,366.4    |   | $ | 7,399.5 |   |
| Equipment rental                               |       | 2,439.1               |       | 2,075.5 |   |
| Corporate and other                            |       | —                |       | — |   |
| Total                                          |       | $                     | 9,805.5    |   | $ | 9,475.0 |   |

 

We operatein the United States and in foreign countries. Foreign operations aresubstantially in Europe. The operations within major geographic areas aresummarized below (in millions of dollars):

| ** **                                               | ** ** | **Successor**                                  | ** ** | ** **                                                      | ** ** | **Predecessor** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------|------------|
| ** **                                               | ** ** | ** **                                     | ** ** | **For the periods from**                         | ** ** | ** **      | ** ** |
| ** **                                               | ** ** | **Year ended   December 31,   2006** | ** ** | **December 21,   2005 to   December 31,   2005** | ** ** | ** **      | ** ** | **January 1,   2005 to   December 20,   2005** | ** ** | **Year ended   December 31,   2004** | ** ** |
| Revenues                                                 |       |                                           |       |                                                            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| United States                                            |       |                                           | $          | 5,631.2                                                         |       |            |       | $ | 123.7 |   |   |   |   |   | $ | 5,150.5 |   |   |   | $ | 4,678.2 |   |   |
| Foreign                                                  |       |                                           | 2,427.2    |                                                            |       |            | 30.8       |   |   |   |   |   | 2,164.2 |   |   |   | 1,997.8 |   |   |
| Total                                                    |       |                                           | $          | 8,058.4                                                         |       |            |       | $ | 154.5 |   |   |   |   |   | $ | 7,314.7 |   |   |   | $ | 6,676.0 |   |   |
| Income (loss) before income taxes and minority  interest |       |                                           |       |                                                            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| United States                                            |       |                                           | $          | 101.1                                                           |       |            |       | $ | (19.1 | ) |   |   |   |   | $ | 371.6 |   |   |   | $ | 322.8 |   |   |
| Foreign                                                  |       |                                           | 139.6      |                                                            |       |            | (14.1      | ) |   |   |   |   | 203.3 |   |   |   | 179.8 |   |   |
| Total                                                    |       |                                           | $          | 240.7                                                           |       |            |       | $ | (33.2 | ) |   |   |   |   | $ | 574.9 |   |   |   | $ | 502.6 |   |   |
| Depreciation of revenue earning equipment                |       |                                           |       |                                                            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| United States                                            |       |                                           | $          | 1,333.2                                                         |       |            |       | $ | 35.5 |   |   |   |   |   | $ | 1,179.8 |   |   |   | $ | 1,107.3 |   |   |
| Foreign                                                  |       |                                           | 424.0      |                                                            |       |            | 8.3        |   |   |   |   |   | 376.1 |   |   |   | 356.0 |   |   |
| Total                                                    |       |                                           | $          | 1,757.2                                                         |       |            |       | $ | 43.8 |   |   |   |   |   | $ | 1,555.9 |   |   |   | $ | 1,463.3 |   |   |
| Depreciation of property and equipment                   |       |                                           |       |                                                            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| United States                                            |       |                                           | $          | 150.7                                                           |       |            |       | $ | 4.6 |   |   |   |   |   | $ | 140.3 |   |   |   | $ | 136.4 |   |   |
| Foreign                                                  |       |                                           | 46.5       |                                                            |       |            | 0.9        |   |   |   |   |   | 42.1 |   |   |   | 41.2 |   |   |
| Total                                                    |       |                                           | $          | 197.2                                                           |       |            |       | $ | 5.5 |   |   |   |   |   | $ | 182.4 |   |   |   | $ | 177.6 |   |   |
| Amortization of other intangible assets                  |       |                                           |       |                                                            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| United States                                            |       |                                           | $          | 43.1                                                            |       |            |       | $ | 1.3 |   |   |   |   |   | $ | 0.1 |   |   |   | $ | — |   |   |
| Foreign                                                  |       |                                           | 18.5       |                                                            |       |            | 0.8        |   |   |   |   |   | 0.6 |   |   |   | 0.6 |   |   |
| Total                                                    |       |                                           | $          | 61.6                                                            |       |            |       | $ | 2.1 |   |   |   |   |   | $ | 0.7 |   |   |   | $ | 0.6 |   |   |
| Interest expense, net of interest income                 |       |                                           |       |                                                            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| United States                                            |       |                                           | $          | 706.0                                                           |       |            |       | $ | 22.0 |   |   |   |   |   | $ | 414.4 |   |   |   | $ | 338.5 |   |   |
| Foreign                                                  |       |                                           | 154.7      |                                                            |       |            | 3.8        |   |   |   |   |   | 59.8 |   |   |   | 45.9 |   |   |
| Total                                                    |       |                                           | $          | 860.7                                                           |       |            |       | $ | 25.8 |   |   |   |   |   | $ | 474.2 |   |   |   | $ | 384.4 |   |   |

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

 

| Revenue earning equipment and property and equipment |   |   |     |    |   |   |   |   |   |   |   |   |     |   |   |    |     |   |   |
|------------------------------------------------------|--------|--------|----------|---------|--------|--------|--------|--------|--------|--------|--------|--------|----------|--------|--------|---------|----------|--------|--------|
| United States                                        |   |   |     |    |   |   |   |   |   |   |   |   |     |   |   |    |     |   |   |
| Expenditures                                         |   |   | $        | 8,037.8 |   |   |   | $      | 188.9  |   |   |   |     |   | $      | 8,762.3 |     |   |   | $ | 7,928.5 |   |   |
| Proceeds from disposals                              |   |   | (6,613.0 | )       |   |   | (131.8 | )      |   |   |   |   | (6,940.8 | )      |   |    | (5,818.6 | )      |   |
| Net expenditures                                     |   |   | $        | 1,424.8 |   |   |   | $      | 57.1   |   |   |   |     |   | $      | 1,821.5 |     |   |   | $ | 2,109.9 |   |   |
| Foreign                                              |   |   |     |    |   |   |   |   |   |   |   |   |     |   |   |    |     |   |   |
| Expenditures                                         |   |   | $        | 3,607.0 |   |   |   | $      | 54.4   |   |   |   |     |   | $      | 3,758.4 |     |   |   | $ | 3,668.0 |   |   |
| Proceeds from disposals                              |   |   | (3,006.2 | )       |   |   | (69.1  | )      |   |   |   |   | (3,238.1 | )      |   |    | (2,981.6 | )      |   |
| Net expenditures                                     |   |   | $        | 600.8   |   |   |   | $      | (14.7  | )      |   |   |     |   | $      | 520.3   |     |   |   | $ | 686.4 |   |   |

 

| ** **                                     | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Total assets at end of year                    |       |                  |       |   |   |
| United States                                  |       | $                     | 14,055.7   |   | $ | 13,981.0 |   |
| Foreign                                        |       | 4,620.0               |       | 4,599.9 |   |
| Total                                          |       | $                     | 18,675.7   |   | $ | 18,580.9 |   |
| Revenue earning equipment, net, at end of year |       |                  |       |   |   |
| United States                                  |       | $                     | 7,243.3    |   | $ | 7,270.9 |   |
| Foreign                                        |       | 2,562.2               |       | 2,204.1 |   |
| Total                                          |       | $                     | 9,805.5    |   | $ | 9,475.0 |   |

 

**Note 11—Litigation andGuarantees**

***Legal Proceedings***

**Fuel—Related Class Actions**

We are adefendant in four purported class actions—filed in Texas, Oklahoma, New Mexicoand Nevada—in which the plaintiffs have put forth alternate theories tochallenge the application of our Fuel and Service Charge, or “FSC,” on rentalsof cars that are returned with less fuel than when rented.

1.                Texas

On March 15,2004, *Jose M. Gomez, individually and onbehalf of all other similarly situated persons, v. The Hertz Corporation*was commenced in the 214th Judicial District Court of Nueces County,Texas. Gomez purports to be a class action filed alternatively on behalf of allpersons who were charged a FSC by us or all Texas residents who were charged aFSC by us. The petition alleged that the FSC is an unlawful penalty and that,therefore, it is void and unenforceable. The plaintiff seeks an unspecifiedamount of compensatory damages, with the return of all FSC paid or thedifference between the FSC and our actual costs, disgorgement of unearnedprofits, attorneys’ fees and costs. In response to various motions by us, theplaintiff filed two amended petitions which scaled back the putative class froma nationwide class to a class of all Texas residents who were charged a FSC byus or by our Corpus Christi licensee. A new cause of action was also added forconversion for which the plaintiff is seeking punitive damages. 

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

After somelimited discovery, we filed a motion for summary judgment in December 2004.That motion was denied in January 2005. The parties then engaged in moreextensive discovery. In April 2006, the plaintiff further amended hispetition by adding a cause of action for fraudulent misrepresentation and, atthe plaintiff’s request, a hearing on the plaintiff’s motion for classcertification was scheduled for August 2006. In May 2006, theplaintiff filed a fourth amended petition which deleted the cause of action forconversion and the plaintiff also filed a first amended motion for classcertification in anticipation of the August 2006 hearing on classcertification. After the hearing, the plaintiff filed a fifth amended petitionseeking to further refine the putative class as including all Texas residentswho were charged a FSC in Texas after February 6, 2000. In October 2006,the judge entered a class certification order which certified a class of allTexas residents who were charged an FSC in Texas after February 6, 2000.We are appealing the order.

2.                Oklahoma

On November 18,2004, *Keith Kochner, individually and onbehalf of all similarly situated persons, v. The Hertz Corporation*was commenced in the District Court in and for Tulsa County, State of Oklahoma.As with the Gomez case, Kochner purports to be a class action, this time onbehalf of Oklahoma residents who rented from us and incurred our FSC. The petitionalleged that the imposition of the FSC is a breach of contract and amounts toan unconscionable penalty or liquidated damages in violation of Article 2Aof the Oklahoma Uniform Commercial Code. The plaintiff seeks an unspecifiedamount of compensatory damages, with the return of all FSC paid or thedifference between the FSC and our actual costs, disgorgement of unearnedprofits, attorneys’ fees and costs. In March 2005, the trial court grantedour motion to dismiss the action but also granted the plaintiff the right toreplead. In April 2005, the plaintiff filed an amended class actionpetition, newly alleging that our FSC violates the Oklahoma Consumer ProtectionAct and that we have been unjustly enriched, and again alleging that our FSC isunconscionable under Article 2A of the Oklahoma Uniform Commercial Code.In May 2005, we filed a motion to dismiss the amended class actionpetition. In October 2005, the court granted our motion to dismiss, butallowed the plaintiff to file a second amended complaint and we then answeredthe complaint. Discovery has now commenced.

3.                NewMexico

On December 13,2005, Janelle Johnson, individually and on behalf of all other similarlysituated persons v. The Hertz Corporation was filed in the Second JudicialDistrict Court of the County of Bernalillo, New Mexico. As with the Gomez andKochner cases, Johnson purports to be a class action, this time on behalf ofall New Mexico residents who rented from us and who were charged a FSC. Thecomplaint alleges that the FSC is unconscionable as a matter of law underpertinent sections of the New Mexico Uniform Commercial Code and that, underNew Mexico common law, the collection of FSC does not constitute validliquidated damages, but rather is a void penalty. The plaintiff seeks anunspecified amount of compensatory damages, with the return of all FSC paid orthe difference between the FSC and its actual cost. In the alternative, theplaintiff requests that the court exercise its equitable jurisdiction and orderus to cease and desist from our unlawful conduct and to modify our leaseprovisions to conform with applicable provisions of New Mexico statutory andcommon law. The complaint also asks for attorneys’ fees and costs. We haveremoved the action to the U.S. District Court for the District of New Mexicoand, in lieu of an answer, filed a motion to dismiss. In November 2006,the judge granted our motion to dismiss the liquidated damages claim and thesubstantive unconscionability claim but did not grant our motion to dismiss theprocedural unconscionability claim or the claim for equitable relief. Plaintiffthen amended her complaint to replead the unconscionability claim and to add afraudulent 

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

misrepresentationclaim. In December 2006, we filed a motion to dismiss the amendedcomplaint and, in January 2007, the court quickly dismissed the new fraudclaim and reaffirmed the dismissal of the substantive unconscionability claim.In February 2007, the plaintiff dismissed the case with prejudice.

4.                Nevada

On January 10, 2007, *Marlena Guerra, individually and on behalf of all other similarlysituated persons, v. The Hertz Corporation* was filed in the UnitedStates District Court for the District of Nevada. As with the Gomez and Kochnercases, Guerra purports to be a class action on behalf of all individuals andbusiness entities who rented vehicles at Las Vegas McCarran InternationalAirport and were charged a FSC. The complaint alleged that those customers whopaid the FSC were fraudulently charged a surcharge required for fuel in violationof Nevada’s Deceptive Trade Practices Act. The plaintiff also alleged the FSCviolates the Nevada Uniform Commercial Code, or “UCC,” since it isunconscionable and operates as an unlawful liquidated damages provision.Finally, the plaintiff claimed that we breached our own rental agreement—whichthe plaintiff claims to have been modified so as not to violate Nevada law—bycharging the FSC, since such charges violate the UCC and/or the prohibitionagainst fuel surcharges. The plaintiff seeks compensatory damages, includingthe return of all FSC paid or the difference between the FSC and its actualcosts, plus prejudgment interest, attorneys’ fees and costs. In March 2007,we filed a motion to dismiss.

**Other Consumer or Supplier Class Actions**

1.                HERCLDW

On August 15,2006, *Davis Landscape, Ltd., individually and on behalfof all others similarly situated, v. Hertz Equipment Rental Corporation*,or “HERC,” was filed in the United States District Court for the District ofNew Jersey. Davis Landscape, Ltd., purports to be a nationwide class action onbehalf of all persons and business entities who rented equipment from HERC andwho paid a Loss Damage Waiver, or “LDW,” charge. The complaint alleges that theLDW is deceptive and unconscionable as a matter of law under pertinent sectionsof New Jersey law, including the New Jersey Consumer Fraud Act and the NewJersey Uniform Commercial Code. The plaintiff seeks an unspecified amount ofstatutory damages under the New Jersey Consumer Fraud Act, an unspecified amountof compensatory damages with the return of all LDW charges paid, declaratoryrelief and an injunction prohibiting HERC from engaging in acts with respect tothe LDW charge that violate the New Jersey Consumer Fraud Act. The complaintalso asks for attorneys’ fees and costs. In October 2006, we filed ananswer to the complaint. In November 2006, the plaintiff filed an amendedcomplaint adding an additional plaintiff, Miguel V. Pro, an individual residingin Texas, and new claims relating to HERC’s charging of an “EnvironmentalRecovery Fee.” Causes of action for breach of contract and breach of impliedcovenant of good faith and fair dealing were also added. In January 2007,we filed an answer to the amended complaint. Discovery has now commenced.

2.                ConcessionFee Recoveries

On October 13, 2006,Janet Sobel, Daniel Dugan Ph.D., and Lydia Lee, individually and on behalf ofall others similarly situated, v. The Hertz Corporation and EnterpriseRent-A-Car Company was filed in the United States District Court for theDistrict of Nevada. Sobel purports to be a nationwide class action on behalf ofall persons who rented cars from Hertz or Enterprise at airports in Nevada andwhom Hertz or Enterprise charged airport concession recovery fees. Thecomplaint alleged that the airport concession recovery fees violate certainprovisions of Nevada 

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

law, including Nevada’sDeceptive Trade Practices Act. The plaintiffs seek an unspecified amount ofcompensatory damages, restitution of any charges found to be improper and aninjunction prohibiting Hertz and Enterprise from quoting or charging any of thefees prohibited by Nevada law. The complaint also asks for attorneys’ fees andcosts. In November 2006, the plaintiffs and Enterprise stipulated andagreed that claims against Enterprise would be dismissed without prejudice. In January 2007,we filed a motion to dismiss.

We believe that we havemeritorious defenses in the foregoing matters and will defend ourselvesvigorously.

In addition, we are currentlya defendant in numerous actions and have received numerous claims on whichactions have not yet been commenced for public liability and property damagearising from the operation of motor vehicles and equipment rented from us andour licensees. In the aggregate, we can be expected to expend material sums todefend and settle public liability and property damage actions and claims or topay judgments resulting from them.

On February 19, 2007, *The Hertz Corporation and TSD Rental LLC v.Enterprise Rent-A-Car Company and The Crawford Group, Inc.*wasfiled in the United States District Court for the District of Massachusetts. Inthis action, we and our co-plaintiff seek damages and injunctive relief basedupon allegations that Enterprise and its corporate parent, The Crawford Group, Inc.,unlawfully engaged in anticompetitive and unfair and deceptive businesspractices by claiming to customers of Hertz that once Enterprise obtains apatent that it has applied for relating to its insurance replacementreservation system, Hertz will be prevented from using the co-plaintiff’sEDiCAR system, which Hertz currently uses in its insurance replacementbusiness. The complaint alleges, among other things, that Enterprise’s threatsare improper because the Enterprise patent, once issued, should be invalid andunenforceable.

In addition to the foregoing,various legal actions, claims and governmental inquiries and proceedings arepending or may be instituted or asserted in the future against us and oursubsidiaries. Litigation is subject to many uncertainties, and the outcome ofthe individual litigated matters is not predictable with assurance. It ispossible that certain of the actions, claims, inquiries or proceedings,including those discussed above, could be decided unfavorably to us or any ofour subsidiaries involved. Although the amount of liability with respect tothese matters cannot be ascertained, potential liability in excess of relatedaccruals is not expected to materially affect our consolidated financialposition, results of operations or cash flows but it could be material in theperiod in which it is recorded.

***Guarantees***

At December 31, 2006, thefollowing guarantees (including indemnification commitments) were issued andoutstanding.

*Indemnifications*

In the ordinary course of business,we execute contracts involving indemnifications standard in the relevantindustry and indemnifications specific to a transaction such as sale of abusiness. These indemnifications might include claims relating to thefollowing: environmental matters; intellectual property rights; governmentalregulations and employment-related matters; customer, supplier and othercommercial contractual relationships; and financial matters. Performance underthese indemnities would generally be triggered by a breach of terms of thecontract or by a third party claim. We regularly evaluate the probability ofhaving to incur costs associated with these indemnifications and have accruedfor expected losses that are probable and estimable. The types ofindemnifications for which payments are possible include the following:

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

*Sponsors; Directors*

On the Closing Date, Hertzentered into customary indemnification agreements with Hertz Holdings, theSponsors and Hertz Holdings’ stockholders affiliated with the Sponsors,pursuant to which Hertz Holdings and Hertz will indemnify the Sponsors, HertzHoldings’ stockholders affiliated with the Sponsors and their respectiveaffiliates, directors, officers, partners, members, employees, agents,representatives and controlling persons, against certain liabilities arisingout of performance of a consulting agreement with Hertz Holdings and each ofthe Sponsors and certain other claims and liabilities, including liabilitiesarising out of financing arrangements or securities offerings. We do notbelieve that these indemnifications are reasonably likely to have a materialimpact on us. Hertz Holdings has also entered into indemnification agreementswith each of our directors.

*Environmental*

We have indemnified variousparties for the costs associated with remediating numerous hazardous substancestorage, recycling or disposal sites in many states and, in some instances, fornatural resource damages. The amount of any such expenses or related naturalresource damages for which we may be held responsible could be substantial. Theprobable losses that we expect to incur for such matters have been accrued andthose losses are reflected in our consolidated financial statements. As of December 31,2006 and 2005, the aggregate amounts accrued for environmental liabilitiesincluding liability for environmental indemnities, reflected in our consolidated balance sheet in “Otheraccrued liabilities” were $3.7 million and $3.9 million, respectively. Theaccrual generally represents the estimated cost to study potentialenvironmental issues at sites deemed to require investigation or clean-upactivities, and the estimated cost to implement remediation actions, includingongoing maintenance, as required. Cost estimates are developed by site. Initialcost estimates are based on historical experience at similar sites and arerefined over time on the basis of in-depth studies of the site. For many sites,the remediation costs and other damages for which we ultimately may beresponsible cannot be reasonably estimated because of uncertainties withrespect to factors such as our connection to the site, the materials there, theinvolvement of other potentially responsible parties, the application of lawsand other standards or regulations, site conditions, and the nature and scopeof investigations, studies, and remediation to be undertaken (including thetechnologies to be required and the extent, duration, and success ofremediation).

**Note 12—Quarterly FinancialInformation (Unaudited)**

A summaryof the quarterly operating results during 2006 and 2005 were as follows (inthousands of dollars):

| ** **                                                                      | ** ** | **Successor**            | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                      | ** ** | **First  Quarter  2006** | ** ** | **Second  Quarter  2006** | ** ** | **Third  Quarter  2006** | ** ** | **Fourth  Quarter  2006** | ** ** |
| Revenues                                                                        |       | $                        | 1,786,594  |   | $ | 2,040,633 |   | $ | 2,240,594 |   | $ | 1,990,584 |   |
| Operating income: pre-tax  income before interest expense and minority interest |       | 147,013                  | (1)(2)     | 269,932 | (4) | 413,704 | (6) | 270,751 | (8) |
| (Loss) income before  income taxes and minority interest                        |       | (63,300                  | )(1)(2)(3) | 57,549 | (4)(5) | 187,533 | (6)(7) | 58,947 | (8)(9)(10) |
| Net (loss) income                                                               |       | (49,236                  | )          | 17,981 |   | 121,474 |   | 50,069 | (11) |
|                                                                                 |            |                          |            |  |  |  |  |  |  |  |  |  |  |

 

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

| ** **                                                                                    | ** ** | **Predecessor**          | ** ** | ** **                | ** ** | **Successor**            | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------------|------------|---------------------------|------------|--------------------------|------------|
| ** **                                                                                    | ** ** | ** **               | ** ** | ** **                | ** ** | ** **               | ** ** | **For the periods from** | ** ** |
| ** **                                                                                    | ** ** | **First  Quarter  2005** | ** ** | **Second  Quarter  2005** | ** ** | **Third  Quarter  2005** | ** ** | **October 1,  2005 to  December 20,  2005** | ** ** | ** ** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** |
| Revenues                                                                                      |       | $                        | 1,640,573  |                      | $          | 1,862,329                |       | $ | 2,123,630 |   |   | $ | 1,688,213 |   |   |   |   |   | $ | 154,469 |   |   |
| Operating income (loss): pre-tax income (loss)  before interest expense and minority interest |       | 134,691                  |       | 267,386                   | (12        | 405,460                  | (13)       |   | 241,616 | (16) |   |   |   |   | (7,483 | )(16) |   |
| Income (loss) before income taxes and minority  interest                                      |       | 35,479                   |       | 154,554                   | (12        | 264,296                  | (13)(14)   |   | 120,577 | (16)(17) |   |   |   |   | (33,218 | )(16) |   |
| Net  income (loss)                                                                            |       | 20,875                   |       | 99,200                    |       | 205,221                  | (15)       |   | 46,027 | (18) |   |   |   |   | (21,346 | ) |   |
|                                                                                               |            |                          |            |                           |            |                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

  (1)                 Includesa $3.6 million and a $5.1 million decrease in depreciation expenserelated to a change in revenue earning equipment depreciation rates in ourdomestic car rental operations and our combined U.S. and Canadian equipmentrental operations, respectively.

  (2)                 Includesa gain of $6.6 million related to the assignment of certain interest rateswaps. See note (9).

  (3)                 Includes$76.5 million of net interest expense on corporate debt.

  (4)                 Includesa $5.4 million and $1.1 million decrease in depreciation expenserelated to a change in revenue earning equipment depreciation rates in ourcombined U.S. and Canadian and our French equipment rental operations,respectively, and a $1.0 million increase in depreciation expense relatedto a change in revenue earning equipment depreciation rates in ourinternational car rental operations.

  (5)                 Includes$74.3 million of net interest expense on corporate debt.

  (6)                 Includesa $0.5 million, $2.7 million and a $1.0 million decrease indepreciation expense related to a change in revenue earning equipmentdepreciation rates in our domestic car rental operations, our combined U.S. andCanadian and our French equipment rental operations, respectively, and a$3.0 million increase in depreciation expense related to a change inrevenue earning equipment depreciation rates in our international car rentaloperations.

  (7)                 Includes$73.5 million of net interest expense on corporate debt.

  (8)                 Includesa $2.1 million and $1.0 million decrease in depreciation expenserelated to a change in revenue earning equipment depreciation rates in ourcombined U.S. and Canadian and our French equipment rental operations,respectively, and a $4.9 million increase in depreciation expense relatedto a change in revenue earning equipment depreciation rates in our domestic andinternational car rental operations.

  (9)                 Includesan adjustment of $5.6 million to correct the original gain amount of$6.6 million disclosed in the first quarter of 2006, which did not takeinto account the relinquishment of a counter-party receivable in the amount of$5.6 million—see note (2). This adjustment had no effect on CorporateEBITDA.

(10)                  Includes$72.3 million of net interest expense on corporate debt.

(11)                  Includedfavorable net tax adjustments of $2.9 million related to prior periods,which had no effect on Corporate EBITDA.

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

(12)                  Includesa $14.9 million decrease in depreciation expense related to a change in revenueearning equipment depreciation rates in our domestic car rental operations andour combined U.S. and Canadian equipment rental operations.

(13)                  Includesa $9.8 million decrease in depreciation expense related to a change in revenueearning equipment depreciation rates in our domestic car rental operations andour combined U.S. and Canadian equipment rental operations.

(14)                  Includesinterest expense of $16.3 million on the Intercompany note payable to FordHoldings LLC (relating to the dividend declared and paid on June 10,2005).

(15)                  Includesthe reversal of a valuation allowance on foreign tax credit carryforwards of$35.0 million.

(16)                  Thetotal combined fourth quarter of 2005 includes a $10.3 million decrease indepreciation expense related to a change in revenue earning equipmentdepreciation rates in our domestic car rental operations and our combined U.S.and Canadian equipment rental operations.

(17)                  Includesinterest expense of $15.6 million on the Intercompany note payable to FordHoldings LLC (relating to the dividend declared and paid on June 10, 2005)for the Predecessor period October 1, 2005 to December 20, 2005. Thenote was repaid on December 21, 2005.

(18)                  Includesa $31.3 million provision relating to the repatriation of foreign earnings andfavorable foreign tax adjustments of $5.3 million relating to years prior to2005.

**Note 13—FinancialInstruments**

Financial instruments, whichpotentially subject us to concentrations of credit risk, consist principally ofcash equivalents, short term investments and trade receivables. We place ourcash equivalents with a number of financial institutions and investment fundsto limit the amount of credit exposure to any one financial institution. Concentrationsof credit risk with respect to trade receivables are limited due to the largenumber of customers comprising our customer base, and their dispersion acrossdifferent businesses and geographic areas. As of December 31, 2006, we hadno significant concentration of credit risk.

***Cash and Equivalents and Restricted Cash***

Fair value approximates costindicated on the balance sheet at December 31, 2006 because of theshort-term maturity of these instruments.

***Debt***

For borrowings with an initialmaturity of 93 days or less, fair value approximates carrying value because ofthe short-term nature of these instruments. For all other debt, fair value isestimated based on quoted market rates as well as borrowing rates currentlyavailable to us for loans with similar terms and average maturities. Theaggregate fair value of all debt at December 31, 2006 approximated$12.5 billion, compared to its aggregate carrying value of $12.4 billion.Since all debt was recorded at fair value on December 21, 2005 due to theAcquisition, the fair value approximated carrying value at December 31,2005.

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

***Derivative Instruments and Hedging Activities***

We utilize certain derivativeinstruments to enhance our ability to manage risk relating to cash flow andinterest rate exposure. Derivative instruments are entered into for periodsconsistent with the related underlying exposures. We document all relationshipsbetween hedging instruments and hedged items, as well as our risk-managementobjectives and strategies for undertaking various hedge transactions.

*Interest Rate Risk*

From time to time, we enter into interest rate swapagreements to manage interest rate risk. Effective September 30, 2003, weentered into interest rate swap agreements relating to the issuance of our 4.7%notes due October 2, 2006. Effective June 3, 2004, we entered intointerest rate swap agreements relating to the issuance of our 6.35% notes due June 15,2010. Under these agreements, we paid interest at a variable rate in exchangefor fixed rate receipts, effectively transforming these notes to floating rateobligations. As a result of the Acquisition, a significant portion of theunderlying fixed rate debt was tendered, causing the interest rate swaps to beineffective as of December 21, 2005. Consequently, any changes in the fairvalue of the interest rate swaps were recognized in the statement ofoperations. Between December 21, 2005 (the date the hedge accounting wasdiscontinued) and December 31, 2005, the fair value adjustment related tothese interest rate swaps was a gain of $2.7 million, which was recordedin our consolidated statement of operations in “Selling, general andadministrative” expenses. During January 2006, we assigned these interestrate swaps to a third party in return for cash. As a result of the assignmentof these interest rate swaps, we recorded a gain of $1.0 million, which isreflected in our consolidated statement of operations in “Selling, general andadministrative” expenses. See Note 12 to the Notes to our consolidatedfinancial statements included in this Annual Report under caption “Item 8—Financial Statements andSupplementary Data.”

In connection with the Acquisition and the issuance of$3,550.0 million of floating rate U.S. Fleet Debt, HVF entered into seveninterest rate swap agreements, or the “HVF swaps,” with us, effective December 21,2005, which qualify as cash flow hedging instruments in accordance withSFAS 133. The HVF swaps were entered into for the purpose of locking inthe interest cash outflows on the floating rate U.S. Fleet Debt. Theseagreements mature at various terms, in connection with the scheduled maturityof the associated debt obligations, through November 25, 2011. Under theseagreements, HVF pays monthly interest at a fixed rate of 4.5% per annum inexchange for monthly amounts at one-month LIBOR, effectively transforming thefloating rate U.S. Fleet Debt to fixed rate obligations. For the Successorperiod ended December 31, 2005, we recognized $1.0 million ofinterest expense in our consolidated statement of operations, which resultedfrom the inherent ineffectiveness associated with the HVF swaps, as theseinterest rate swaps were entered into at off-market rates. For the year ended December 31,2006, we recorded a benefit of $1.0 million in our consolidated statementof operations, in “Interest,net of interest income,” associated with previously recognizedineffectiveness of the HVF Swaps. As of December 31, 2006, the fair valueof HVF swaps was $50.6 million, which is reflected in our consolidatedbalance sheet in “Prepaid expenses and other assets.” Additionally, as of December 31,2006, $3.5 million, net of $2.4 million of tax, was reflected in ourconsolidated balance sheet in “Accumulated other comprehensive income (loss).”

Also in connection with the issuance of $3,550.0 millionof floating rate U.S. Fleet Debt, we entered into seven differential interestrate swap agreements, or the “differential swaps.” These differential swapswere required to be put in place to protect the counterparties to the HVF swapsin the event of a default by HVF on the asset backed notes, which will cause a “rapidamortization” of the notes. In 

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the event of a “rapid amortization period,” thedifferential is transferred to us. There was no initial payment associated withthese differential swaps and their notional amounts are and will continue to bezero unless 1) there is an amortization event, which causes the rapidamortization of the loan balance, 2) there is an increased probabilitythat an amortization event will occur, which would cause the rapid amortizationof the loan balance, or 3) the debt is prepaid. Given this and that theinitial assessment of the probability of the occurrence of an amortizationevent is considered remote, the current fair value of the differential swaps isconsidered to be zero. Should any of the above events occur, then thedifferential swaps will have a fair value, which will result in thedifferential swaps being recorded at fair value on the balance sheet, with acorresponding amount affecting earnings, as there is no qualifying hedgerelationship.

In connection with our Euro-denominated medium termnotes that were not tendered to us in connection with the Acquisition, weentered into an interest rate swap agreement on December 21, 2005, effectiveJanuary 16, 2006, maturing on July 16, 2007. The purpose of thisinterest rate swap is to lock in the interest cash outflows at a fixed rate of4.1% on the variable rate Euro-denominated medium term notes. As the criticalterms of the swap and remaining portion of the Euro-denominated medium termnotes match, the swap qualifies for cash flow hedge accounting and the shortcutmethod of assessing effectiveness, in accordance with SFAS 133. Therefore,the fair value of the swap will be carried on the balance sheet, withoffsetting gains or losses recorded in other comprehensive income. At December 31,2006, the fair value of this swap was $0.1 million.

In May 2006, inconnection with the forecasted issuance of the permanent take-out internationalasset-based facilities, HIL purchased two swaptions for €3.3 million,to protect itself from interest rate increases. These swaptions give HIL theright, but not the obligation, to enter into three year interest rate swaps,based on a total notional amount of €600 million at aninterest rate of 4.155%. As of December 31, 2006, the fair value of theswaptions was €1.3 million(or $1.7 million), which is reflected in our consolidated balance sheet in“Prepaid expenses and other assets.” During the year ended December 31,2006, the fair value adjustment related to these swaps was a loss of $2.6 million,which was recorded in our consolidated statement of operations in “Selling,general and administrative” expenses. The swaptions were renewed in 2007 priorto their scheduled expiration date of March 15, 2007 and now expire on September 5,2007. See Note 15—Subsequent Events.

*Foreign Currency Risk*

We manage our foreign currency risk primarily byincurring, to the extent practicable, operating and financing expenses in thelocal currency in the countries in which we operate, including making fleet andequipment purchases and borrowing for working capital needs. Also, we havepurchased foreign exchange options to manage exposure to fluctuations inforeign exchange rates for selected marketing programs. At December 31,2006, the total notional amount of these foreign exchange options was$9.7 million, maturing at various dates in 2007, and the fair value of alloutstanding foreign exchange options, was approximately $0.3 million. Thefair value of the foreign currency options were estimated using market pricesprovided by financial institutions. Gains and losses resulting from changes inthe fair value of these options are included in our results of operations. Thetotal notional amount included options to buy Euro in the amount of $5.9million and sell yen and Canadian dollars in the amounts of $2.3 millionand $1.5 million, respectively.

We also manage exposure to fluctuations in currencyrisk on intercompany loans we make to certain of our subsidiaries by enteringinto foreign currency forward contracts, or “forwards,” at the time of theloans. The forward rate is reflected in the intercompany loan rate to thesubsidiaries, and as a result, the forwards have no material impact on ourresults of operations. At December 31, 2006, the total 

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notional amount of these forwards was $252.7 million,maturing within one month. The total notional amount includes forwards to sellCanadian dollars and Euro in the notional amounts of $189.1 million and$63.7 million, respectively.

In connection with theTransactions, Hertz issued €225 million ofunhedged Senior Euro Notes. Prior to October 1, 2006, our Senior EuroNotes were not designated as a net investment hedge of our Euro-denominated netinvestments in our foreign operations. For the nine months ended September 30,2006, we incurred unrealized exchange transaction losses of $19.2 millionresulting from the translation of these Euro-denominated notes into the U.S.dollar, which are recorded in our consolidated statement of operations in “Selling,general and administrative” expenses. On October 1, 2006, we designatedour Senior Euro Notes as an effective net investment hedge of ourEuro-denominated net investment in our foreign operations. As a result of thisnet investment hedge designation, as of December 31, 2006, $7.1 millionof losses, which is net of tax of $4.6 million, attributable to thetranslation of our Senior Euro Notes into the U.S. dollar are recorded in ourconsolidated balance sheet in “Accumulated other comprehensive income (loss).”

**Note 14—Related PartyTransactions**

**Relationship with Ford**

Prior to the Acquisition, wewere an indirect, wholly owned subsidiary of Ford. We and certain of oursubsidiaries had entered into contracts, or other transactions orrelationships, with Ford or subsidiaries of Ford, the most significant of whichare described below.

***Car purchases/repurchases and advertising arrangements***

Over the three years ended December 31, 2006, ona weighted average basis, approximately 41% of the cars acquired by us for ourU.S. car rental fleet, and approximately 32% of the cars acquired by us for ourinternational fleet, were manufactured by Ford and subsidiaries. During theyear ended December 31, 2006, approximately 40% of the cars we acquireddomestically were manufactured by Ford and subsidiaries and approximately 30%of the cars we acquired for our international fleet were manufactured by Fordand subsidiaries, which represented the largest percentage of any automobilemanufacturer in that year.

On July 5, 2005, Hertz, one of its wholly ownedsubsidiaries and Ford signed a Master Supply and Advertising Agreement,effective July 5, 2005 and expiring August 31, 2010, that covers the2005 through 2010 vehicle model years. This agreement replaces and supersedespreviously existing joint advertising and vehicle supply agreements that wouldhave expired August 31, 2007.

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

The terms of the Master Supply and AdvertisingAgreement only apply to our fleet requirements and advertising in the UnitedStates and to Ford, Lincoln or Mercury brand vehicles, or “Ford Vehicles.”Under the Master Supply and Advertising Agreement, Ford has agreed to supply tous and we have agreed to purchase from Ford, during each of the 2005 through2010 vehicle model years, a specific number of Ford Vehicles. Ford has alsoagreed in the Master Supply and Advertising Agreement to pay us a contributiontoward the cost of our advertising of Ford Vehicles equal to one-half of ourtotal expenditure on such advertising, up to a specified maximum amount. To beeligible for advertising cost contribution under the Master Supply andAdvertising Agreement, the advertising must meet certain conditions, includingthe condition that we feature Ford Vehicles in a manner and with a prominencethat is reasonably satisfactory to Ford. It further provides that the amountsFord will be obligated to pay to us for our advertising costs will be increasedor reduced according to the number of Ford Vehicles acquired by us in any modelyear, provided Ford will not be required to pay any amount for our advertisingcosts for any year if the number of Ford Vehicles acquired by us in thecorresponding model year is less than a specified minimum except to the extentthat our failure to acquire the specified minimum number of Ford Vehicles isattributable to the availability of Ford Vehicles or Ford vehicle production isdisrupted for reasons beyond the control of Ford. To the extent we acquire lessthan a specified minimum number of Ford Vehicles in any model year, we haveagreed to pay Ford a specified amount per vehicle below the minimum.

The amounts contributed by Ford for the year ended December 31,2006, the Successor period ended December 31, 2005, the Predecessor periodended December 20, 2005 and the year ended December 31, 2004 were (inmillions of dollars) $42.7, $1.3, $42.4 and $38.1, respectively. Theadvertising contributions paid by Ford for the 2006 vehicle model year underthe Master Supply and Advertising Agreement were more than the advertisingcontributions we received from Ford for the 2005 model year due to an increasein the number of Ford Vehicles acquired and an increase in the per carcontribution. We expect that contributions in future years will be below levelsfor the 2006 model year based upon anticipated reductions in the number of FordVehicles to be acquired. We do not expect that the reductions in Ford’s advertisingcontributions will have a material adverse effect on our results of operations.We incurred net advertising expense for the year ended December 31, 2006,the Successor period ended December 31, 2005, the Predecessor period endedDecember 20, 2005 and the year ended December 31, 2004 of (inmillions of dollars) $154.5, $5.0, $159.9 and $168.3, respectively.

Under the terms of the Master Supply and AdvertisingAgreement we will be able to enter into vehicle advertising and supplyagreements with other automobile manufacturers in the United States and inother countries, and we intend to explore those opportunities. However, wecannot offer assurance that we will be able to obtain advertising contributionsfrom other automobile manufacturers that will mitigate the reduction in Ford’sadvertising contributions.

Ford subsidiaries and affiliates also supply otherbrands of cars, including Jaguar, Volvo, Mazda and Land Rover cars, to us inthe United States under arrangements separate from the Master Supply andAdvertising Agreement. In addition, Ford, its subsidiaries and affiliates aresignificant suppliers of cars to our international operations.

During the year ended December 31,2006, the Successor period ended December 31, 2005, the Predecessor periodended December 20, 2005 and the year ended December 31, 2004, wepurchased cars from Ford and its subsidiaries at a cost of approximately (inbillions of dollars) $4.1, $0.1, $4.7 and $4.4, respectively, and sold cars toFord and its subsidiaries under various repurchase programs for approximately(in billions of dollars) $3.1, $0.1, $3.5 and $3.3, respectively.

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

***Stock option plan***

Certain employees of oursparticipate in the stock option plan of Ford under Ford’s 1998 Long-TermIncentive Plan. As a result of the Acquisition, all outstanding options becamevested. See Note 1—Summary of Significant Accounting Policies.

***Taxes***

Prior to the Acquisition, Hertz and its domesticsubsidiaries filed a consolidated federal income tax return with Ford. Pursuantto a tax sharing agreement, or the “Agreement,” with Ford, current and deferredtaxes were reported, and paid to Ford, as if Hertz had filed its ownconsolidated tax returns with its domestic subsidiaries. The Agreement providedthat Hertz was reimbursed for foreign tax credits in accordance with theutilization of those credits by the Ford consolidated tax group.

On December 21, 2005, inconnection with the Acquisition, the Agreement with Ford was terminated. Upontermination, all tax payables and receivables with Ford were cancelled andneither Hertz nor Ford has any future rights or obligations under theAgreement. We may be exposed to liabilities for regulatory or tax contingenciesof Ford arising from the period during which we were a consolidated subsidiaryof Ford. While Ford has agreed to indemnify us for certain liabilities pursuantto the arrangements relating to our separation from Ford, we cannot offerassurance that any payments in respect of these indemnification arrangementswill be made available.

***Other relationships and transactions***

We and Ford also engage inother transactions in the ordinary course of our respective businesses. Thesetransactions include providing equipment rental services to Ford, our providinginsurance and insurance claim management services to Ford and our providing carrental services to Ford. In addition, Ford subsidiaries are our car rentallicensees in Scandinavia and Finland.

**Relationship with HertzHoldings, Hertz Investors, Inc. and the Sponsors**

**Stockholders Agreement**

In connection with the Acquisition, Hertz Holdingsentered into a stockholders agreement, or the “Stockholders Agreement,” withinvestment funds associated with or designated by the Sponsors. TheStockholders Agreement contains agreements that entitle investment fundsassociated with or designated by the Sponsors to nominate all of the HertzHoldings’ directors. The director nominees are to include three nominees of aninvestment fund associated with CD&R (one of whom shall serve as thechairman), two nominees of investment funds associated with Carlyle, twonominees of an investment fund associated with MLGPE and three independentdirectors, subject to adjustment in the case that the applicable investmentfund sells more than a specified amount of its shareholdings in Hertz Holdings.Upon completion of the initial public offering of the common stock of HertzHoldings, the Stockholders Agreement was amended and restated among otherthings, to reflect an agreement of the Sponsors to increase the size of theBoard of Directors of Hertz Holdings. Each Sponsor will continue to have theright with respect to director nominees described above, but up to anadditional three independent directors may also be nominated, subject tounanimous consent of the directors (other than the independent directors)nominated by the investment funds associated with or designated by theSponsors. In addition, the Stockholders Agreement, as amended, provides thatone of the nominees of an investment fund associated with CD&R shall serveas the chairman of the executive and governance committee and, unless otherwiseagreed by this fund, as Chairman of the Board. On October 12, 2006, ourBoard and the Board of Hertz Holdings elected four independent 

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directors, effective from completion of the initialpublic offering of the common stock of Hertz Holdings.

The Stockholders Agreement also granted to theinvestment funds associated with or designated by the Sponsors specialgovernance rights, including rights of approval over the budget of Hertz Holdingsand its subsidiaries, certain business combination transactions, the incurrenceof additional material indebtedness, amendments to the Hertz Holdings’certificate of incorporation and certain other transactions and grants toinvestment funds associated with CD&R or to the majority of directorsnominated by the Sponsors the right to remove Hertz’s chief executive officer.Any replacement chief executive officer requires the consent of investmentfunds associated with CD&R as well as investment funds associated with atleast one other Sponsor. The rights described above apply only for so long asthe investment funds associated with the applicable Sponsor maintain certainspecified minimum levels of shareholdings in Hertz Holdings. The StockholdersAgreement also gives investment funds associated with the Sponsors preemptiverights with respect to certain issuances of equity securities of Hertz Holdingsand its subsidiaries, including Hertz, subject to certain exceptions. It alsocontains restrictions on the transfer of shares of Hertz Holdings, as well astag-along and drag along rights and rights of first offer. Upon the completionof the initial public offering of the common stock of Hertz Holdings, thisagreement was amended and restated to remove these rights of approval (otherthan the approval and retention rights relating to our chief executive officer)and preemptive rights and to retain tag-along and drag-along rights, andrestrictions on transfers of shares of Hertz Holdings, in certain circumstances.

In addition, the StockholdersAgreement limits the rights of the investment funds associated with ordesignated by the Sponsors that have invested in the common stock of HertzHoldings and their affiliates, subject to several exceptions, to own, manage,operate or control any of our competitors (as defined in the StockholdersAgreement). The Stockholders Agreement may be amended from time to time in thefuture to eliminate or modify these restrictions without our consent.

**Registration RightsAgreement**

On the Closing Date, HertzHoldings entered into a registration rights agreement, or the “RegistrationRights Agreement,” with investment funds associated with or designated by theSponsors. The Registration Rights Agreement grants to certain of these investmentfunds the right, following the earlier of the initial public offering of commonstock of Hertz Holdings and the eighth anniversary of the Closing Date, tocause Hertz Holdings, at its own expense, to use its best efforts to registersuch securities held by the investment funds for public resale, subject tocertain limitations. The exercise of this right was limited to three requestsby the group of investment funds associated with each Sponsor, except forregistrations effected pursuant to Form S-3, which are unlimited,subject to certain limitations, if Hertz Holdings is eligible to use Form S-3.In the event Hertz Holdings registers any of its common stock following itsinitial public offering, these investment funds also have the right to requireHertz Holdings to use its best efforts to include shares of common stock ofHertz Holdings held by them, subject to certain limitations, including asdetermined by the underwriters. The Registration Rights Agreement also providesfor Hertz Holdings to indemnify the investment funds party to that agreementand their affiliates in connection with the registration of our securities.

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

***Consulting agreements***

*Sponsor ConsultingAgreements*

On the Closing Date, weentered into consulting agreements, or the “Consulting Agreements,” with HertzHoldings and each of the Sponsors (or one of their affiliates), pursuant towhich such Sponsor or its affiliate agreed to provide Hertz Holdings and oursubsidiaries with financial advisory and management consulting services. Pursuantto the Consulting Agreements, we agreed to pay to each of the three Sponsors orits affiliate an annual fee of $1 million for such services, plus expenses,unless the Sponsors unanimously agreed to a higher amount. If an individualdesignated by CD&R, serves as both Chairman of our board of directors andChief Executive Officer for any quarter, we agreed to pay CD&R anadditional fee of $500,000 for that quarter. The Sponsor or its affiliate undereach Consulting Agreement also agreed to provide Hertz Holdings, us and oursubsidiaries with financial, investment banking, management advisory and otheragreed upon services with respect to proposed transactions, including anyproposed acquisition, merger, full or partial recapitalization, reorganization ofour structure or shareholdings, or sales of assets or equity interests. Inconnection with such transactional services, each Consulting Agreement providedthat we would pay a fee (together with expenses) to be based on a percentage ofthe transaction value, as defined in the agreements. No transactional servicesfees were paid under the Consulting Agreements in connection with the initialpublic offering of Hertz Holdings, and none were paid in connection with theHertz Holdings Loan Facility. Each Consulting Agreement provided fortermination upon the first to occur of (i) the consummation of an initialpublic offering by Hertz Holdings, if a majority of the Sponsor-designateddirectors have requested the termination of all Consulting Agreements, (ii) December 21,2015, (iii) the date the applicable Sponsor and its affiliates cease toown at least 25% of the Hertz Holdings common stock it held on the ClosingDate, and (iv) upon notice by the applicable Sponsor or its affiliate.Hertz Holdings reevaluated its need for the Consulting Agreements in connectionwith the initial public offering. In connection with this reevaluation, HertzHoldings determined it would be in its best interest to terminate theConsulting Agreements following the consummation of the initial public offeringof Hertz Holdings common stock, and the Sponsors agreed to terminate theseagreements at that time for a fee of $5 million ($15 million in the aggregate)which is recorded in Hertz Holdings’ consolidated statement of operations in “Selling,general and administrative” expenses.

*Other ConsultingArrangements*

On September 29, 2006,Hertz entered into an agreement with Tenzing Consulting LLC, a managementconsulting firm in which Thomas McLeod, who is the brother-in-law of ourdirector David H. Wasserman, is a principal. Under the arrangement, which hasnow been fully performed, Tenzing Consulting LLC provided supply chainmanagement and corporate purchasing management consulting. In exchange forthese services, Tenzing Consulting LLC received fees of $25,000 per week, plusreimbursement of out-of-pocket expenses. For the year ended December 31,2006, the total amount of such fees and expenses paid to Tenzing Consulting LLCunder this agreement was approximately $0.2 million.

***Guarantees***

Our obligations under theSenior Term Facility and Senior ABL Facility are guaranteed by our immediateparent, Hertz Investors, Inc. (previously known as CCMG Corporation.)Hertz Holdings is not a guarantor of these facilities. See Note 3—Debt.

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***Indemnification agreements***

On the Closing Date, Hertz entered into customaryindemnification agreements with Hertz Holdings, the Sponsors and Hertz Holdingsstockholders affiliated with the Sponsors, pursuant to which Hertz Holdings andHertz will indemnify the Sponsors, the Hertz Holdings stockholders affiliatedwith the Sponsors and their respective affiliates, directors, officers,partners, members, employees, agents, representatives and controlling persons,against certain liabilities arising out of the performance of a consultingagreement with Hertz Holdings and each of the Sponsors and certain other claimsand liabilities, including liabilities arising out of financing arrangements orsecurities offerings. We have not recorded any liability because these liabilitiesare considered to be de minimis.

***Director Stock Incentive Plan***

On October 12, 2006, the Board of Directors ofHertz Holdings approved a Director Stock Incentive Plan. The stockholders ofHertz Holdings approved the Director Stock Incentive Plan on October 20,2006. The Director Stock Incentive Plan provides for the grant of shares ofcommon stock of Hertz Holdings, options to purchase shares of common stock ofHertz Holdings and “phantom shares,” which are the right to receive shares ofcommon stock of Hertz Holdings at a specified point in the future. A maximum of3,500,000 shares are reserved for issuance under the Director Stock IncentivePlan.

Options granted under the Director Stock IncentivePlan must be granted at an exercise price no less than fair market value ofsuch shares on the date of grant. Options granted as part of a director’sannual retainer fee will be fully vested at the time of grant and willgenerally have a 10-year term.

A director may generally elect to receive all or aportion of fees that would otherwise be payable in cash in the form of sharesof common stock of Hertz Holdings having a fair market value at such time equalto the amount of such fees. Any such shares will be paid to the director whencash fees would otherwise be payable, although, if a director so chooses, theseshares may be payable on a tax-deferred basis in phantom shares, in which casethe actual shares of the common stock of Hertz Holdings will be paid to thedirector promptly following the date on which he or she ceases to serve as adirector (or, if earlier, upon a change in control).

A director will recognizeordinary income upon exercising options granted under the Director StockIncentive Plan in an amount equal to the fair market value of the sharesacquired on the date of exercise, less the exercise price, and Hertz Holdingswill have a corresponding tax deduction at that time. In the case of sharesissued in lieu of cash fees, a director who is an individual will generallyrecognize ordinary income equal to the fair market value of such shares on thedate such shares are paid to the director and Hertz Holdings will have acorresponding tax deduction at that time.

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***Other***

In connection with theAcquisition, Hertz paid a fee of $25 million to each Sponsor and reimbursedcertain expenses of the Sponsors and their affiliates. Of this amount, $35million has been recorded as deferred finance charges and $40 million has beenrecorded as direct costs of the Acquisition. In addition, an affiliate of oneof the Sponsors was engaged to provide advisory services to the Sponsors andwas paid a fee of $5 million. This affiliate is in the business of providingsuch services and was engaged by the Sponsors in an arm’s-lengthtransaction.

**Financing Arrangementswith Related Parties**

Affiliates of ML GlobalPrivate Equity, L.P. and its related funds, which are stockholders of HertzHoldings, and of Merrill Lynch & Co., one of the underwriters in theinitial public offering of the common stock of Hertz Holdings, were lendersunder the Hertz Holdings Loan Facility; are lenders under the original andamended Senior Term Facility, the original and amended Senior ABL Facility andthe Fleet Financing Facility; acted as initial purchasers with respect to theofferings of the Senior Notes and the Senior Subordinated Notes; acted asstructuring advisors and agents under our asset-backed facilities; andacted as dealer managers and solicitation agents for our tender offers for itsexisting debt securities in connection with the Acquisition. See Note 3—Debt.

**Other SponsorRelationships**

In connection with our car andequipment rental businesses, we enter into millions of rental transactionsevery year involving millions of customers. In order to conduct thosebusinesses, we also procure goods and services from thousands of vendors. Someof those customers and vendors may be affiliated with the Sponsors or membersof our Board of Directors. We believe that all such rental and procurementtransactions have been conducted on an arms-length basis and involved terms noless favorable to us than those that we believe we would have obtained in theabsence of such affiliation. It is our management’s practice to bring to theattention of our Board of Directors any transaction, even if it arises in theordinary course of business, in which our management believes that the termsbeing sought by transaction participants affiliated with the Sponsors or ourDirectors would be less favorable to us than those to which we would agreeabsent such affiliation.

**Note 15—SubsequentEvents**

***Restructuring***

As part of our effort to implement our strategy ofreducing operating costs, we are evaluating our workforce and operations andmaking adjustments, including headcount reductions and process improvements tooptimize work flow at rental locations and maintenance facilities as well asstreamlining our back-office operations, that we believe are necessary andappropriate. When we make adjustments to our workforce and operations, we mayincur incremental expenses that delay the benefit of a more efficient workforceand operating structure, but we believe that increasing our operatingefficiency and reducing the costs associated with the operation of our businessare important to our long-term competitiveness.

On January 5, 2007, we announced the first in aseries of initiatives to further improve our competitiveness through targetedjob reductions affecting approximately 200 employees primarily at our corporateheadquarters in Park Ridge, New Jersey and our U.S. service center in OklahomaCity. We expect to incur an estimated $3.3 million to $3.8 millionrestructuring charge in the first quarter of 2007 for severance and relatedcosts arising from these reductions.

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On February 28, 2007, we announced the secondinitiative to further improve our competitiveness and industry leadershipthrough targeted job reductions affectingapproximately 1,350 employees primarily in our U.S. car rental operations, withmuch smaller reductions occurring in U.S. equipment rental operations, thecorporate headquarters in Park Ridge, New Jersey, and the U.S. service centerin Oklahoma City, as well as in Canada, Puerto Rico, Brazil, Australia and NewZealand. We expect to incur anestimated $9.0 million to $11.0 million restructuring charge in the firstquarter of 2007 for severance and related costs arising from these reductions.

Further cost reductioninitiatives are in process. We currently anticipate incurring future charges toearnings in connection with those initiatives; however, we have not yetdeveloped detailed estimates of these expenses.

***Exchange Offers***

On January 12, 2007,Hertz completed exchange offers for the outstanding Senior Notes and Senior SubordinatedNotes whereby over 99% of the outstanding notes were exchanged for a likeprincipal amount of new notes with identical terms that were registered underthe Securities Act of 1933 pursuant to a registration statement on Form S-4.

***Amendments to the Senior Term Facility and the SeniorABL Facility***

On February 9, 2007, Hertz entered into anamendment to its Senior Term Facility. The amendment was entered into for thepurpose of (i) lowering the interest rate on the Senior Term Facility by50 basis points from the interest rate previously in effect, and revisingfinancial ratio requirements for specific interest rate levels; (ii) eliminatingcertain mandatory prepayment requirements; (iii) increasing the amounts ofcertain other types of indebtedness that Hertz and its subsidiaries may incuroutside of the Senior Term Facility; (iv) permitting certain additionalasset dispositions and sale and leaseback transactions; and (v) effectingcertain technical and administrative changes to the Senior Term Facility.

On February 15, 2007,Hertz, Hertz Equipment Rental Corporation and certain other subsidiariesentered into an amendment to their Senior ABL Facility. The amendment wasentered into for the purpose of (i) lowering the interest rate on theSenior ABL Facility by 25 basis points from the interest rate previously ineffect, and revising financial ratio requirements for specific interest ratelevels; (ii) increasing the availability under the Senior ABL Facilityfrom $1,600.0 million to $1,800.0 million; (iii) extending the term of thecommitments under the Senior ABL Facility to February 15, 2012; (iv) increasingthe amounts of certain other types of indebtedness that the borrowers and theirsubsidiaries may incur outside of the Senior ABL Facility; (iv) permittingcertain additional asset dispositions and sale and leaseback transactions; and (v) effectingcertain technical and administrative changes to the Senior ABL Facility.

***Amendments to certain of the agreements relating tothe International Debt Facilities***

On March 21, 2007, certain of the agreementsrelating to the International Fleet Debt Facilities were amended and restatedfor the purpose of (i) extending the dates when margins on the facilitiesare scheduled to step up, subject to satisfaction of interim goals pertainingto the execution of agreements with automobile manufacturers and dealers thatare required in connection with the planned securitization of the internationalcar rental fleet and the take-out of the Tranche A1 and Tranche A2loans; (ii) subject to certain conditions, permitting the financing ofvalue-added tax receivables under the facilities; and (iii) effectingcertain technical and administrative changes to the terms of the facilities.

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***HIL Swaption Extension and Payment***

On February 8, 2007, the €600million HIL swaptions that were to expire on March 15, 2007 were extendedat a cost of €1.8million. The HIL swaptions now expire on September 5, 2007.

**Note 16—Guarantor andNon-Guarantor Condensed Consolidating Financial Statements**

The following condensed consolidating financial information presentsthe Condensed Consolidating Balance Sheets as of December 31, 2006 and2005 and the Condensed Consolidating Statements of Operations and Statements ofCash Flows for the year ended December 31, 2006, periods ended December 31,2005 and December 20, 2005 and for the year ended December 31, 2004,of (a) The Hertz Corporation, or “the Parent”; (b) the guarantorsubsidiaries; (c) the non-guarantor subsidiaries; (d) eliminationentries necessary to consolidate the Parent with the guarantor andnon-guarantor subsidiaries; and (e) the Company on a consolidated basis.

Investments in subsidiaries are accounted for usingthe equity method for purposes of the consolidating presentation. The principalelimination entries relate to investments in subsidiaries and intercompanybalances and transactions. Separate financial statements and other disclosureswith respect to the subsidiary guarantors have not been provided as managementbelieves the following information is sufficient, as the guarantor subsidiariesare 100 percent owned by the parent and all guarantees are full andunconditional. Additionally, substantially all of the assets of the GuarantorSubsidiaries are pledged under the Senior Credit Facilities, and consequentlywill not be available to satisfy the claims of our general creditors.

153

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**THE HERTZCORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEETDecember 31, 2006(In Thousands of Dollars)**

| ** **                                         | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|----------------------------------------------------------|------------|
| **ASSETS**                                         |       |                                      |       |                        |       |                            |       |             |       |                                                     |       |   |   |
| Cash and equivalents                               |       | $                                         | 212,709    |                        | $          | 65,083                          |       |             | $          | 394,039                                                  |       |   | $ | — |   | $ | 671,831 |   |
| Restricted cash                                    |       | —                                    |       | —                      |       |                            | 552,516    |             |       | —                                                   |       | 552,516 |   |
| Receivables, less  allowance for doubtful accounts |       | 252,486                                   |       | 246,643                     |       |                            | 1,158,458  |             |       | —                                                   |       | 1,657,587 |   |
| Due from Hertz  affiliates                         |       | 4,008,898                                 |       | 35,028                      |       |                            | 2,110,105  |             |       | (6,154,031                                               | )          | — |   |
| Inventories, at lower  cost or market              |       | 22,794                                    |       | 49,642                      |       |                            | 39,683     |             |       | —                                                   |       | 112,119 |   |
| Prepaid expenses and  other assets                 |       | 180,184                                   |       | 6,986                       |       |                            | 182,752    |             |       | —                                                   |       | 369,922 |   |
| Revenue earning  equipment, net                    |       | 163,739                                   |       | 1,993,523                   |       |                            | 7,648,246  |             |       | —                                                   |       | 9,805,508 |   |
| Property and  equipment, net                       |       | 822,195                                   |       | 231,924                     |       |                            | 313,938    |             |       | —                                                   |       | 1,368,057 |   |
| Investment in  subsidiaries, net                   |       | 5,239,901                                 |       | 29,710                      |       |                            | —     |             |       | (5,269,611                                               | )          | — |   |
| Other intangible  assets, net                      |       | 179,528                                   |       | 2,830,273                   |       |                            | 163,694    |             |       | —                                                   |       | 3,173,495 |   |
| Goodwill                                           |       | 94,282                                    |       | 519,498                     |       |                            | 350,913    |             |       | —                                                   |       | 964,693 |   |
| Total assets                                       |       | $                                         | 11,176,716 |                        | $          | 6,008,310                       |       |             | $          | 12,914,344                                               |       |   | $ | (11,423,642 | ) | $ | 18,675,728 |   |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**     |       |                                      |       |                        |       |                            |       |             |       |                                                     |       |   |   |
| Due to Hertz  affiliates                           |       | $                                         | 2,143,433  |                        | $          | 1,516,655                       |       |             | $          | 2,493,943                                                |       |   | $ | (6,154,031 | ) | $ | — |   |
| Accounts payable                                   |       | 190,018                                   |       | 67,561                      |       |                            | 396,748    |             |       | —                                                   |       | 654,327 |   |
| Accrued liabilities                                |       | 579,259                                   |       | 37,887                      |       |                            | 358,508    |             |       | —                                                   |       | 975,654 |   |
| Accrued taxes                                      |       | 55,543                                    |       | 18,159                      |       |                            | 18,767     |             |       | —                                                   |       | 92,469 |   |
| Debt                                               |       | 5,414,619                                 |       | 58                          |       |                            | 6,861,507  |             |       | —                                                   |       | 12,276,184 |   |
| Public liability and  property damage              |       | 159,124                                   |       | 23,569                      |       |                            | 144,331    |             |       | —                                                   |       | 327,024 |   |
| Deferred taxes on  income                          |       | 116,269                                   |       | 1,591,782                   |       |                            | 108,755    |             |       | —                                                   |       | 1,816,806 |   |
| Total liabilities                                  |       | 8,658,265                                 |       | 3,255,671                   |       |                            | 10,382,559 |             |       | (6,154,031                                               | )          | 16,142,464 |   |
| Minority interest                                  |       | —                                    |       | —                      |       |                            | 14,813     |             |       | —                                                   |       | 14,813 |   |
| Stockholder’s Equity                          |       | 2,518,451                                 |       | 2,752,639                   |       |                            | 2,516,972  |             |       | (5,269,611                                               | )          | 2,518,451 |   |
| Total liabilities and  stockholder’s equity   |       | $                                         | 11,176,716 |                        | $          | 6,008,310                       |       |             | $          | 12,914,344                                               |       |   | $ | (11,423,642 | ) | $ | 18,675,728 |   |

 

154

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**THE HERTZCORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEETDecember 31, 2005(In Thousands of Dollars)**

| ** **                                         | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|----------------------------------------------------------|------------|
| **ASSETS**                                         |       |                                      |       |                        |       |                            |       |             |       |                                                     |       |   |   |
| Cash and equivalents                               |       | $                                         | 150,757    |                        | $          | 48,347                          |       |             | $          | 644,804                                                  |       |   | $ | — |   | $ | 843,908 |   |
| Restricted cash                                    |       | —                                    |       | —                      |       |                            | 289,201    |             |       | —                                                   |       | 289,201 |   |
| Receivables, less  allowance for doubtful accounts |       | 212,085                                   |       | 223,415                     |       |                            | 1,387,688  |             |       | —                                                   |       | 1,823,188 |   |
| Due from Hertz  affiliates                         |       | 3,374,318                                 |       | 33,550                      |       |                            | 2,289,545  |             |       | (5,697,413                                               | )          | — |   |
| Inventories, at lower  cost or market              |       | 23,570                                    |       | 46,542                      |       |                            | 35,420     |             |       | —                                                   |       | 105,532 |   |
| Prepaid expenses and  other assets                 |       | 328,972                                   |       | 6,271                       |       |                            | 120,440    |             |       | (59,268                                                  | )          | 396,415 |   |
| Revenue earning  equipment, net                    |       | 171,780                                   |       | 1,726,164                   |       |                            | 7,577,021  |             |       | —                                                   |       | 9,474,965 |   |
| Property and  equipment, net                       |       | 873,023                                   |       | 223,831                     |       |                            | 293,170    |             |       | —                                                   |       | 1,390,024 |   |
| Investment in  subsidiaries, net                   |       | 5,272,035                                 |       | 100                         |       |                            |       |             |       | (5,272,135                                               | )          | — |   |
| Other intangible  assets, net                      |       | 199,515                                   |       | 2,853,307                   |       |                            | 182,443    |             |       | —                                                   |       | 3,235,265 |   |
| Goodwill                                           |       | 281,173                                   |       | 502,529                     |       |                            | 238,679    |             |       | —                                                   |       | 1,022,381 |   |
| Total assets                                       |       | $                                         | 10,887,228 |                        | $          | 5,664,056                       |       |             | $          | 13,058,411                                               |       |   | $ | (11,028,816 | ) | $ | 18,580,879 |   |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**     |       |                                      |       |                        |       |                            |       |             |       |                                                     |       |   |   |
| Due to Hertz  affiliates                           |       | $                                         | 2,284,911  |                        | $          | 1,249,742                       |       |             | $          | 2,162,760                                                |       |   | $ | (5,697,413 | ) | $ | — |   |
| Accounts payable                                   |       | 176,547                                   |       | 85,081                      |       |                            | 360,248    |             |       | —                                                   |       | 621,876 |   |
| Accrued liabilities                                |       | 470,298                                   |       | 39,762                      |       |                            | 369,868    |             |       | —                                                   |       | 879,928 |   |
| Accrued taxes                                      |       | 1,934                                     |       | 72,304                      |       |                            | 41,224     |             |       | —                                                   |       | 115,462 |   |
| Debt                                               |       | 5,517,810                                 |       | 881                         |       |                            | 6,996,314  |             |       | —                                                   |       | 12,515,005 |   |
| Public liability and  property damage              |       | 169,546                                   |       | 21,871                      |       |                            | 129,538    |             |       | —                                                   |       | 320,955 |   |
| Deferred taxes on  income                          |       | —                                    |       | 1,442,605                   |       |                            | 469,205    |             |       | (59,268                                                  | )          | 1,852,542 |   |
| Total liabilities                                  |       | 8,621,046                                 |       | 2,912,246                   |       |                            | 10,529,157 |             |       | (5,756,681                                               | )          | 16,305,768 |   |
| Minority interest                                  |       | —                                    |       | —                      |       |                            | 8,929      |             |       | —                                                   |       | 8,929 |   |
| Stockholder’s Equity                          |       | 2,266,182                                 |       | 2,751,810                   |       |                            | 2,520,325  |             |       | (5,272,135                                               | )          | 2,266,182 |   |
| Total liabilities and  stockholder’s equity   |       | $                                         | 10,887,228 |                        | $          | 5,664,056                       |       |             | $          | 13,058,411                                               |       |   | $ | (11,028,816 | ) | $ | 18,580,879 |   |

 

155

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**THE HERTZCORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONSFor the Year Ended December 31, 2006(In Thousands of Dollars)**

| ** **                                                                                            | ** ** | **Successor**                             | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                            | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
| Total revenues                                                                                        |       | $                                         | 4,213,233  |   | $ | 1,270,990 |   | $ | 4,607,600 |   | $ | (2,033,418 | ) |   | $ | 8,058,405 |   |   |
| Expenses:                                                                                             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Direct operating                                                                                      |       | 2,407,773                                 |       | 621,921 |   | 1,446,280 |   | — |   |   | 4,475,974 |   |   |
| Depreciation of revenue  earning equipment                                                            |       | 1,943,279                                 |       | 207,967 |   | 1,639,374 |   | (2,033,418 | ) |   | 1,757,202 |   |   |
| Selling, general and  administrative                                                                  |       | 322,736                                   |       | 109,007 |   | 292,086 |   | — |   |   | 723,829 |   |   |
| Interest, net of interest  income                                                                     |       | 341,056                                   |       | 107,577 |   | 412,038 |   | — |   |   | 860,671 |   |   |
| Total expenses                                                                                        |       | 5,014,844                                 |       | 1,046,472 |   | 3,789,778 |   | (2,033,418 | ) |   | 7,817,676 |   |   |
| (Loss) income before income  taxes, minority interest and equity in earnings (losses) of subsidiaries |       | (801,611                                  | )          | 224,518 |   | 817,822 |   | — |   |   | 240,729 |   |   |
| Benefit (provision) for  taxes on income                                                              |       | 316,760                                   |       | (80,361 | ) | (320,126 | ) | — |   |   | (83,727 | ) |   |
| Minority interest                                                                                     |       | —                                    |       | — |   | (16,714 | ) | — |   |   | (16,714 | ) |   |
| Equity in earnings (losses)  of subsidiaries (net of tax)                                             |       | 625,139                                   |       | 31,215 |   | — |   | (656,354 | ) |   | — |   |   |
| Net income (loss)                                                                                     |       | $                                         | 140,288    |   | $ | 175,372 |   | $ | 480,982 |   | $ | (656,354 | ) |   | $ | 140,288 |   |   |

 

**THE HERTZCORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONSFor the Period December 21, 2005 to December 31, 2005(In Thousands of Dollars)**

| ** **                                                                                   | ** ** | **Successor**                             | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                   | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
| Total revenues                                                                               |       |                                      | $          | 101,762 |   |   |   | $ | 18,628 |   |   |   | $ | 81,965 |   |   |   | $ | (47,886 | ) |   |   | $ | 154,469 |   |   |
| Expenses:                                                                                    |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct operating                                                                             |       |                                      | 60,700     |   |   |   | 15,928 |   |   |   | 26,330 |   |   |   | — |   |   |   | 102,958 |   |   |
| Depreciation of revenue  earning equipment                                                   |       |                                      | 46,898     |   |   |   | 5,711 |   |   |   | 39,104 |   |   |   | (47,886 | ) |   |   | 43,827 |   |   |
| Selling, general and  administrative                                                         |       |                                      | 4,788      |   |   |   | 3,276 |   |   |   | 7,103 |   |   |   | — |   |   |   | 15,167 |   |   |
| Interest, net of interest  income                                                            |       |                                      | 10,722     |   |   |   | 2,943 |   |   |   | 12,070 |   |   |   | — |   |   |   | 25,735 |   |   |
| Total expenses                                                                               |       |                                      | 123,108    |   |   |   | 27,858 |   |   |   | 84,607 |   |   |   | (47,886 | ) |   |   | 187,687 |   |   |
| Loss before income taxes,  minority interest and equity in earnings (losses) of subsidiaries |       |                                      | (21,346    | ) |   |   | (9,230 | ) |   |   | (2,642 | ) |   |   | — |   |   |   | (33,218 | ) |   |
| Benefit (provision) for  taxes on income                                                     |       |                                      | 10,587     |   |   |   | 2,807 |   |   |   | (1,151 | ) |   |   | — |   |   |   | 12,243 |   |   |
| Minority interest                                                                            |       |                                      | —     |   |   |   | — |   |   |   | (371 | ) |   |   | — |   |   |   | (371 | ) |   |
| Equity in earnings (losses)  of subsidiaries (net of tax)                                    |       |                                      | (10,587    | ) |   |   | (1,605 | ) |   |   | — |   |   |   | 12,192 |   |   |   | — |   |   |
| Net (loss) income                                                                            |       |                                      | $          | (21,346 | ) |   |   | $ | (8,028 | ) |   |   | $ | (4,164 | ) |   |   | $ | 12,192 |   |   |   | $ | (21,346 | ) |   |

** **

156

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**THE HERTZCORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONSFor the Period January 1, 2005 to December 20, 2005(In Thousands of Dollars)**

| ** **                                                                                            | ** ** | **Predecessor**                           | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                            | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
| Total revenues                                                                                        |       | $                                         | 3,944,249  |   | $ | 1,071,592 |   | $ | 3,839,956 |   | $ | (1,541,052 | ) |   | $ | 7,314,745 |   |   |
| Expenses:                                                                                             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Direct operating                                                                                      |       | 2,275,201                                 |       | 542,063 |   | 1,269,080 |   | — |   |   | 4,086,344 |   |   |
| Depreciation of revenue  earning equipment                                                            |       | 1,582,039                                 |       | 145,031 |   | 1,369,844 |   | (1,541,052 | ) |   | 1,555,862 |   |   |
| Selling, general and  administrative                                                                  |       | 242,287                                   |       | 98,343 |   | 282,756 |   | — |   |   | 623,386 |   |   |
| Interest, net of interest  income                                                                     |       | 303,084                                   |       | 69,497 |   | 101,666 |   | — |   |   | 474,247 |   |   |
| Total expenses                                                                                        |       | 4,402,611                                 |       | 854,934 |   | 3,023,346 |   | (1,541,052 | ) |   | 6,739,839 |   |   |
| (Loss) income before income  taxes, minority interest and equity in earnings (losses) of subsidiaries |       | (458,362                                  | )          | 216,658 |   | 816,610 |   | — |   |   | 574,906 |   |   |
| Benefit (provision) for  taxes on income                                                              |       | 182,513                                   |       | (85,760 | ) | (288,085 | ) | — |   |   | (191,332 | ) |   |
| Minority interest                                                                                     |       | —                                    |       | — |   | (12,251 | ) | — |   |   | (12,251 | ) |   |
| Equity in earnings (losses)  of subsidiaries (net of tax)                                             |       | 647,172                                   |       | — |   | — |   | (647,172 | ) |   | — |   |   |
| Net income (loss)                                                                                     |       | $                                         | 371,323    |   | $ | 130,898 |   | $ | 516,274 |   | $ | (647,172 | ) |   | $ | 371,323 |   |   |

 

**THE HERTZCORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONSFor the Year Ended December 31, 2004(In Thousands of Dollars)**

| ** **                                                                                            | ** ** | **Predecessor**                           | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                            | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
| Total revenues                                                                                        |       | $                                         | 3,700,251  |   |   | $ | 886,038 |   |   |   | $ | 3,404,541 |   |   | $ | (1,314,878 | ) |   | $ | 6,675,952 |   |   |
| Expenses:                                                                                             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct operating                                                                                      |       | 2,069,575                                 |       |   | 494,560 |   |   |   | 1,170,226 |   |   | — |   |   | 3,734,361 |   |   |
| Depreciation of revenue  earning equipment                                                            |       | 1,336,538                                 |       |   | 168,051 |   |   |   | 1,273,547 |   |   | (1,314,878 | ) |   | 1,463,258 |   |   |
| Selling, general and  administrative                                                                  |       | 248,343                                   |       |   | 92,217 |   |   |   | 250,757 |   |   | — |   |   | 591,317 |   |   |
| Interest, net of interest  income                                                                     |       | 258,395                                   |       |   | 59,517 |   |   |   | 66,552 |   |   | — |   |   | 384,464 |   |   |
| Total expenses                                                                                        |       | 3,912,851                                 |       |   | 814,345 |   |   |   | 2,761,082 |   |   | (1,314,878 | ) |   | 6,173,400 |   |   |
| (Loss) income before income  taxes, minority interest and equity in earnings (losses) of subsidiaries |       | (212,600                                  | )          |   | 71,693 |   |   |   | 643,459 |   |   | — |   |   | 502,552 |   |   |
| Benefit (provision) for  taxes on income                                                              |       | 83,654                                    |       |   | (28,698 | ) |   |   | (188,826 | ) |   | — |   |   | (133,870 | ) |   |
| Minority interest                                                                                     |       | —                                    |       |   | — |   |   |   | (3,211 | ) |   | — |   |   | (3,211 | ) |   |
| Equity in earnings (losses)  of subsidiaries (net of tax)                                             |       | 494,417                                   |       |   | — |   |   |   | — |   |   | (494,417 | ) |   | — |   |   |
| Net income (loss)                                                                                     |       | $                                         | 365,471    |   |   | $ | 42,995 |   |   |   | $ | 451,422 |   |   | $ | (494,417 | ) |   | $ | 365,471 |   |   |

 

157

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**THE HERTZ CORPORATIONAND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSFor the Year Ended December 31, 2006(In Thousands of Dollars)**

| ** **                                                         | ** ** | **Successor**                             | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                         | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
| Net cash provided by operating  activities                         |       |                                      | $          | 358,610 |   |   |   | $ | 533,545 |   |   | $ | 1,755,148 |   |   | $ | — |   |   | $ | 2,647,303 |   |
| Cash flows from investing activities:                              |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net change in restricted  cash                                     |       |                                      | —     |   |   |   | — |   |   | (260,212 | ) |   | — |   |   | (260,212 | ) |
| Revenue earning equipment  expenditures                            |       |                                      | (226,023   | ) |   |   | (673,036 | ) |   | (10,521,839 | ) |   | — |   |   | (11,420,898 | ) |
| Proceeds from disposal of  revenue earning equipment               |       |                                      | 200,502    |   |   |   | 197,709 |   |   | 9,156,814 |   |   | — |   |   | 9,555,025 |   |
| Property and equipment  expenditures                               |       |                                      | (101,237   | ) |   |   | (44,355 | ) |   | (78,351 | ) |   | — |   |   | (223,943 | ) |
| Proceeds from disposal of  property and equipment                  |       |                                      | 32,470     |   |   |   | 3,695 |   |   | 27,979 |   |   | — |   |   | 64,144 |   |
| Other investing activities                                         |       |                                      | —     |   |   |   | — |   |   | (2,016 | ) |   | — |   |   | (2,016 | ) |
| Net cash used in investing  activities                             |       |                                      | (94,288    | ) |   |   | (515,987 | ) |   | (1,677,625 | ) |   | — |   |   | (2,287,900 | ) |
| Cash flows from financing activities:                              |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from issuance of  long-term debt                          |       |                                      | 293,656    |   |   |   | — |   |   | 15,781 |   |   | — |   |   | 309,437 |   |
| Repayment of long-term  debt                                       |       |                                      | (184,795   | ) |   |   | (822 | ) |   | (61,808 | ) |   | — |   |   | (247,425 | ) |
| Short-term borrowings:                                             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                                                           |       |                                      | —     |   |   |   | — |   |   | 747,469 |   |   | — |   |   | 747,469 |   |
| Repayments                                                         |       |                                      | (86,266    | ) |   |   | — |   |   | (814,857 | ) |   | — |   |   | (901,123 | ) |
| Ninety days or less, net                                           |       |                                      | (173,711   | ) |   |   | — |   |   | (291,884 | ) |   | — |   |   | (465,595 | ) |
| Dividends paid                                                     |       |                                      | (15,471    | ) |   |   | — |   |   | — |   |   | — |   |   | (15,471 | ) |
| Distributions to minority  interest                                |       |                                      | —     |   |   |   | — |   |   | (10,830 | ) |   | — |   |   | (10,830 | ) |
| Payment of financing costs                                         |       |                                      | (35,783    | ) |   |   | — |   |   | — |   |   | — |   |   | (35,783 | ) |
| Net cash used in financing  activities                             |       |                                      | (202,370   | ) |   |   | (822 | ) |   | (416,129 | ) |   | — |   |   | (619,321 | ) |
| Effect of foreign exchange  rate changes on cash and equivalents   |       |                                      | —     |   |   |   | — |   |   | 87,841 |   |   | — |   |   | 87,841 |   |
| Net increase (decrease) in  cash and equivalents during the period |       |                                      | 61,952     |   |   |   | 16,736 |   |   | (250,765 | ) |   | — |   |   | (172,077 | ) |
| Cash and equivalents at  beginning of period                       |       |                                      | 150,757    |   |   |   | 48,347 |   |   | 644,804 |   |   | — |   |   | 843,908 |   |
| Cash and equivalents at end of period                              |       |                                      | $          | 212,709 |   |   |   | $ | 65,083 |   |   | $ | 394,039 |   |   | $ | — |   |   | $ | 671,831 |   |

** **

158

----

**THE HERTZCORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSFor the Period December 21, 2005 to December 31, 2005(In Thousands of Dollars)**

| ** **                                                         | ** ** | **Successor**                             | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                         | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
| Net cash provided by (used  in) operating activities               |       | $                                         | 3,560,740  |   |   | $ | 30,586 |   |   | $ | (3,868,847 | ) |   | $ | — |   |   |   | $ | (277,521 | ) |   |
| Cash flows from investing  activities:                             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net change in restricted  cash                                     |       | —                                    |       |   | — |   |   | (273,640 | ) |   | — |   |   |   | (273,640 | ) |   |
| Revenue earning equipment  expenditures                            |       | (3,396                                    | )          |   | (5,329 | ) |   | (226,032 | ) |   | — |   |   |   | (234,757 | ) |   |
| Proceeds from disposal of  revenue earning equipment               |       | 3,058                                     |       |   | (1,002 | ) |   | 197,655 |   |   | — |   |   |   | 199,711 |   |   |
| Property and equipment  expenditures                               |       | 23,859                                    |       |   | (11,054 | ) |   | (21,308 | ) |   | — |   |   |   | (8,503 | ) |   |
| Proceeds from disposal of  property and equipment                  |       | 145                                       |       |   | 4 |   |   | 1,097 |   |   | — |   |   |   | 1,246 |   |   |
| Purchase predecessor company  stock                                |       | (4,379,374                                | )          |   | — |   |   | — |   |   | — |   |   |   | (4,379,374 | ) |   |
| Net cash used in investing  activities                             |       | (4,355,708                                | )          |   | (17,381 | ) |   | (322,228 | ) |   | — |   |   |   | (4,695,317 | ) |   |
| Cash flows from financing  activities:                             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from issuance of  long-term debt                          |       | 4,340,352                                 |       |   | — |   |   | 4,303,542 |   |   | — |   |   |   | 8,643,894 |   |   |
| Repayment of long-term  debt                                       |       | (4,886,310                                | )          |   | (41 | ) |   | (232,208 | ) |   | — |   |   |   | (5,118,559 | ) |   |
| Short-term borrowings:                                             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                                                           |       | (13,861                                   | )          |   | — |   |   | 24,194 |   |   | — |   |   |   | 10,333 |   |   |
| Repayments                                                         |       | (1,357,614                                | )          |   | — |   |   | — |   |   | — |   |   |   | (1,357,614 | ) |   |
| Ninety days or less, net                                           |       | 186,971                                   |       |   | — |   |   | 177,038 |   |   | — |   |   |   | 364,009 |   |   |
| Capital invested by third  parties                                 |       | 2,295,000                                 |       |   | — |   |   | — |   |   | — |   |   |   | 2,295,000 |   |   |
| Payment of financing costs                                         |       | (173,901                                  | )          |   | — |   |   | (18,518 | ) |   | — |   |   |   | (192,419 | ) |   |
| Net cash provided by (used  in) financing activities               |       | 390,637                                   |       |   | (41 | ) |   | 4,254,048 |   |   | — |   |   |   | 4,644,644 |   |   |
| Effect of foreign exchange  rate changes on cash and equivalents   |       | —                                    |       |   | — |   |   | (1,894 | ) |   | — |   |   |   | (1,894 | ) |   |
| Net (decrease) increase in  cash and equivalents during the period |       | (404,331                                  | )          |   | 13,164 |   |   | 61,079 |   |   | — |   |   |   | (330,088 | ) |   |
| Cash and equivalents at  beginning of period                       |       | 555,088                                   |       |   | 35,183 |   |   | 583,725 |   |   | — |   |   |   | 1,173,996 |   |   |
| Cash and equivalents at end of period                              |       | $                                         | 150,757    |   |   | $ | 48,347 |   |   | $ | 644,804 |   |   | $ | — |   |   |   | $ | 843,908 |   |   |

 

159

----

**THE HERTZCORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSFor the Period January 1, 2005 to December 20, 2005(In Thousands of Dollars)**

| ** **                                                       | ** ** | **Predecessor**                           | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                       | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
| Net cash (used in) provided  by operating activities             |       | $                                         | (312,602   | ) |   | $ | 623,357 |   |   | $ | 1,425,373 |   |   | $ | — |   |   | $ | 1,736,128 |   |
| Cash flows from investing activities:                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net change in restricted  cash                                   |       | —                                    |       |   | — |   |   | (12,660 | ) |   | — |   |   | (12,660 | ) |
| Proceeds from sales of short-term  investments, net              |       | 556,997                                   |       |   | — |   |   | — |   |   | — |   |   | 556,997 |   |
| Revenue earning equipment  expenditures                          |       | (109,353                                  | )          |   | (762,218 | ) |   | (11,314,634 | ) |   | — |   |   | (12,186,205 | ) |
| Proceeds from disposal of  revenue earning equipment             |       | 98,390                                    |       |   | 210,210 |   |   | 9,797,660 |   |   | — |   |   | 10,106,260 |   |
| Property and equipment  expenditures                             |       | (177,008                                  | )          |   | (54,066 | ) |   | (103,469 | ) |   | — |   |   | (334,543 | ) |
| Proceeds from disposal of  property and equipment                |       | 35,152                                    |       |   | (4,165 | ) |   | 41,585 |   |   | — |   |   | 72,572 |   |
| Other investing activities                                       |       | —                                    |       |   | — |   |   | 2 |   |   | — |   |   | 2 |   |
| Net cash provided by (used  in) investing activities             |       | 404,178                                   |       |   | (610,239 | ) |   | (1,591,516 | ) |   | — |   |   | (1,797,577 | ) |
| Cash flows from financing activities:                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of an intercompany  note                                |       | 1,185,000                                 |       |   | — |   |   | — |   |   | — |   |   | 1,185,000 |   |
| Proceeds from issuance of  long-term debt                        |       | 18,732                                    |       |   | 338 |   |   | 8,092 |   |   | — |   |   | 27,162 |   |
| Repayment of long-term  debt                                     |       | (611,347                                  | )          |   | (811 | ) |   | (7,244 | ) |   | — |   |   | (619,402 | ) |
| Short-term borrowings:                                           |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                                                         |       | 2,304,699                                 |       |   | — |   |   | 903,386 |   |   | — |   |   | 3,208,085 |   |
| Repayments                                                       |       | (1,071,760                                | )          |   | — |   |   | (1,191,586 | ) |   | — |   |   | (2,263,346 | ) |
| Ninety days or less, net                                         |       | (351,568                                  | )          |   | — |   |   | 622,283 |   |   | — |   |   | 270,715 |   |
| Dividends paid                                                   |       | (1,185,000                                | )          |   | — |   |   | — |   |   | — |   |   | (1,185,000 | ) |
| Distributions to minority  interest                              |       | —                                    |       |   | — |   |   | (8,614 | ) |   | — |   |   | (8,614 | ) |
| Net cash provided by (used  in) financing activities             |       | 288,756                                   |       |   | (473 | ) |   | 326,317 |   |   | — |   |   | 614,600 |   |
| Effect of foreign exchange  rate changes on cash and equivalents |       | —                                    |       |   | — |   |   | (57,120 | ) |   | — |   |   | (57,120 | ) |
| Net increase in cash and  equivalents during the period          |       | 380,332                                   |       |   | 12,645 |   |   | 103,054 |   |   | — |   |   | 496,031 |   |
| Cash and equivalents at  beginning of year                       |       | 174,756                                   |       |   | 22,538 |   |   | 480,671 |   |   | — |   |   | 677,965 |   |
| Cash and equivalents at end of period                            |       | $                                         | 555,088    |   |   | $ | 35,183 |   |   | $ | 583,725 |   |   | $ | — |   |   | $ | 1,173,996 |   |

** **

160

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**THE HERTZCORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSFor the Year Ended December 31, 2004(In Thousands of Dollars)**

| ** **                                                       | ** ** | **Predecessor**                           | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                       | ** ** | **Parent  (The Hertz  Corporation)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **The Hertz  Corporation &  Subsidiaries** | ** ** |
| Net cash provided by  operating activities                       |       | $                                         | 60,692     |   |   | $ | 391,705 |   |   | $ | 1,798,988 |   |   | $ | — |   |   | $ | 2,251,385 |   |
| Cash flows from investing  activities:                           |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net change in restricted  cash                                   |       | —                                    |       |   | — |   |   | (2,901 | ) |   | — |   |   | (2,901 | ) |
| Purchases of short-term  investments, net                        |       | (56,889                                   | )          |   | — |   |   | — |   |   | — |   |   | (56,889 | ) |
| Revenue earning equipment  expenditures                          |       | (914,104                                  | )          |   | (535,307 | ) |   | (9,860,621 | ) |   | — |   |   | (11,310,032 | ) |
| Proceeds from disposal of  revenue earning equipment             |       | 711,108                                   |       |   | 201,864 |   |   | 7,827,948 |   |   | — |   |   | 8,740,920 |   |
| Property and equipment  expenditures                             |       | (160,434                                  | )          |   | (47,807 | ) |   | (78,187 | ) |   | — |   |   | (286,428 | ) |
| Proceeds from disposal of  property and equipment                |       | 31,134                                    |       |   | 4,401 |   |   | 23,718 |   |   | — |   |   | 59,253 |   |
| Other investing activities                                       |       | —                                    |       |   | — |   |   | 10,187 |   |   | — |   |   | 10,187 |   |
| Net cash used in investing  activities                           |       | (389,185                                  | )          |   | (376,849 | ) |   | (2,079,856 | ) |   | — |   |   | (2,845,890 | ) |
| Cash flows from financing  activities:                           |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from issuance of  long-term debt                        |       | 1,100,803                                 |       |   | 2,027 |   |   | 883,151 |   |   | — |   |   | 1,985,981 |   |
| Repayment of long-term  debt                                     |       | (900,000                                  | )          |   | (632 | ) |   | (13,003 | ) |   | — |   |   | (913,635 | ) |
| Short-term borrowings:                                           |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                                                         |       | 481,533                                   |       |   | — |   |   | 901,054 |   |   | — |   |   | 1,382,587 |   |
| Repayments                                                       |       | (311,604                                  | )          |   | — |   |   | (662,055 | ) |   | — |   |   | (973,659 | ) |
| Ninety days or less, net                                         |       | 84,214                                    |       |   | — |   |   | (930,994 | ) |   | — |   |   | (846,780 | ) |
| Net cash provided by  financing activities                       |       | 454,946                                   |       |   | 1,395 |   |   | 178,153 |   |   | — |   |   | 634,494 |   |
| Effect of foreign exchange  rate changes on cash and equivalents |       | —                                    |       |   | — |   |   | 27,990 |   |   | — |   |   | 27,990 |   |
| Net increase (decrease) in  cash and equivalents during the year |       | 126,453                                   |       |   | 16,251 |   |   | (74,725 | ) |   | — |   |   | 67,979 |   |
| Cash and equivalents at  beginning of year                       |       | 48,303                                    |       |   | 6,287 |   |   | 555,396 |   |   | — |   |   | 609,986 |   |
| Cash and equivalents at end of year                              |       | $                                         | 174,756    |   |   | $ | 22,538 |   |   | $ | 480,671 |   |   | $ | — |   |   | $ | 677,965 |   |

 

161

----

**SCHEDULE I**

**CONDENSED FINANCIAL INFORMATION OF REGISTRANTTHE HERTZ CORPORATIONPARENT COMPANY ONLYCONDENSED BALANCE SHEETS(In Thousands of Dollars)**

| ** **                                                          | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                          |       |                        |       |                        |       |
| Cash and equivalents                                                |       | $                           | 212,709    |                        | $          | 150,757 |   |
| Receivables, less allowance  for doubtful accounts                  |       | 252,486                     |       | 212,085                     |       |
| Due from Hertz affiliates                                           |       | 4,008,898                   |       | 3,374,318                   |       |
| Inventories, at lower of  cost or market                            |       | 22,794                      |       | 23,570                      |       |
| Prepaid expenses and other  assets                                  |       | 180,184                     |       | 328,972                     |       |
| Revenue earning equipment,  net                                     |       | 163,739                     |       | 171,780                     |       |
| Property and equipment, net                                         |       | 822,195                     |       | 873,023                     |       |
| Investments in subsidiaries,  net                                   |       | 5,239,901                   |       | 5,272,035                   |       |
| Other intangible assets, net                                        |       | 179,528                     |       | 199,515                     |       |
| Goodwill                                                            |       | 94,282                      |       | 281,173                     |       |
| Total assets                                                        |       | $                           | 11,176,716 |                        | $          | 10,887,228 |   |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                       |       |                        |       |                        |       |
| Due to Hertz affiliates                                             |       | $                           | 2,143,433  |                        | $          | 2,284,911 |   |
| Accounts payable                                                    |       | 190,018                     |       | 176,547                     |       |
| Accrued liabilities                                                 |       | 579,259                     |       | 470,298                     |       |
| Accrued taxes                                                       |       | 55,543                      |       | 1,934                       |       |
| Debt                                                                |       | 5,414,619                   |       | 5,517,810                   |       |
| Public liability and  property damage                               |       | 159,124                     |       | 169,546                     |       |
| Deferred taxes on income                                            |       | 116,269                     |       | —                      |       |
| Total Liabilities                                                   |       | 8,658,265                   |       | 8,621,046                   |       |
| Stockholder’s equity:                                          |       |                        |       |                        |       |
| Common Stock, $0.01 par  value, 3,000 shares authorized, 100 shares |       | —                      |       | —                      |       |
| Additional capital paid-in                                          |       | 2,320,452                   |       | 2,295,000                   |       |
| Retained earnings (deficit)                                         |       | 103,471                     |       | (21,346                     | )          |
| Accumulated other  comprehensive income (loss)                      |       | 94,528                      |       | (7,472                      | )          |
| Total stockholder’s equity                                     |       | 2,518,451                   |       | 2,266,182                   |       |
| Total liabilities and stockholder’s equity                     |       | $                           | 11,176,716 |                        | $          | 10,887,228 |   |

 

The accompanying notes are an integral part of these financial statements.

162

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**THE HERTZ CORPORATIONPARENT COMPANY ONLYCONDENSED STATEMENTS OF OPERATIONS(In Thousands of Dollars)**

| ** **                                                | ** ** | **Successor**                                | ** ** | ** **                                                         | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                | ** ** | ** **                                   | ** ** | **For the periods from**                            | ** ** | ** **      | ** ** |
| ** **                                                | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,   2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Total revenues                                            |       |                                         | $          | 4,213,233                                                          |       |            |       | $ | 101,762 |   |   |   |   |   | $ | 3,944,249 |   |   |   | $ | 3,700,251 |   |   |
| Expenses:                                                 |       |                                         |       |                                                               |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct operating                                          |       |                                         | 2,407,773  |                                                               |       |            | 60,700     |   |   |   |   |   | 2,275,201 |   |   |   | 2,069,575 |   |   |
| Depreciation of revenue earning equipment                 |       |                                         | 1,943,279  |                                                               |       |            | 46,898     |   |   |   |   |   | 1,582,039 |   |   |   | 1,336,538 |   |   |
| Selling, general and administrative                       |       |                                         | 322,736    |                                                               |       |            | 4,788      |   |   |   |   |   | 242,287 |   |   |   | 248,343 |   |   |
| Interest, net of interest income                          |       |                                         | 341,056    |                                                               |       |            | 10,722     |   |   |   |   |   | 303,084 |   |   |   | 258,395 |   |   |
| Total expenses                                            |       |                                         | 5,014,844  |                                                               |       |            | 123,108    |   |   |   |   |   | 4,402,611 |   |   |   | 3,912,851 |   |   |
| Income (loss) before  income taxes and minority interest  |       |                                         | (801,611   | )                                                                  |       |            | (21,346    | ) |   |   |   |   | (458,362 | ) |   |   | (212,600 | ) |   |
| (Provision) benefit  for taxes on income                  |       |                                         | 316,760    |                                                               |       |            | 10,587     |   |   |   |   |   | 182,513 |   |   |   | 83,654 |   |   |
| Equity in earnings  (losses) of subsidiaries (net of tax) |       |                                         | 625,139    |                                                               |       |            | (10,587    | ) |   |   |   |   | 647,172 |   |   |   | 494,417 |   |   |
| Net income (loss)                                         |       |                                         | $          | 140,288                                                            |       |            |       | $ | (21,346 | ) |   |   |   |   | $ | 371,323 |   |   |   | $ | 365,471 |   |   |

 

The accompanying notes are an integral part of these financial statements.

163

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**THE HERTZ CORPORATIONPARENT COMPANY ONLYCONDENSED STATEMENTS OF STOCKHOLDER’S EQUITY(In Thousands of Dollars, except share data)**

| ** **                                                                                | ** ** | **Number  of Shares** | ** ** | **Common  Stock** | ** ** | **Additional  Capital  Paid-In** | ** ** | **Retained  Earnings  (Deficit)** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total  Stockholder’s  Equity** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------|------------|----------------------------------|------------|-----------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------|------------|
| **Predecessor**                                                                           |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |
| Balance at:                                                                               |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |
| DECEMBER 31, 2003                                                                         |       |                       | 100        |              |       |                             | $          | —                            |       |                                                      | $          | 983,132                               |       | $ | 1,113,746 |   |   | $ | 128,513 |   |   |   | $ | 2,225,391 |   |   |
| Net income                                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       | 365,471                               |       |   |   |   |   |   | 365,471 |   |   |
| Translation adjustment changes                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 83,420 |   |   |   | 83,420 |   |   |
| Unrealized holding losses on securities, net of tax  of $8                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (82 | ) |   |   | (82 | ) |   |
| Minimum pension liability adjustment, net of tax of  $1,076                               |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (3,953 | ) |   |   | (3,953 | ) |   |
| Total Comprehensive Income                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   | 444,856 |   |   |
| DECEMBER 31, 2004                                                                         |       |                       | 100        |              |       |                             | —     |                              |       | 983,132                                                   |       | 1,479,217                             |       |   | 207,898 |   |   |   | 2,670,247 |   |   |
| Net income                                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       | 371,323                               |       |   |   |   |   |   | 371,323 |   |   |
| Change in fair value of derivatives qualifying as  cash flow hedges, net of tax of $281   |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 424 |   |   |   | 424 |   |   |
| Translation adjustment changes                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (123,893 | ) |   |   | (123,893 | ) |   |
| Unrealized holding losses on securities, net of tax  of $5                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (37 | ) |   |   | (37 | ) |   |
| Minimum pension liability adjustment, net of tax of  $5,891                               |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (12,076 | ) |   |   | (12,076 | ) |   |
| Total Comprehensive Income                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   | 235,741 |   |   |
| Dividend to Ford Motor Company                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       | (1,185,000                            | )          |   |   |   |   |   | (1,185,000 | ) |   |
| DECEMBER 20, 2005                                                                         |       |                       | 100        |              |       |                             | —     |                              |       | 983,132                                                   |       | 665,540                               |       |   | 72,316 |   |   |   | 1,720,988 |   |   |
| **Successor**                                                                             |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |
| Balance at:                                                                               |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |
| DECEMBER 21, 2005                                                                         |       |                       | —     |              |       |                             | —     |                              |       | —                                                    |       | —                                |       |   | — |   |   |   | — |   |   |
| Capital contributions                                                                     |       |                       |       |              |       |                             |       |                              |       | 2,295,000                                                 |       |                                  |       |   |   |   |   |   | 2,295,000 |   |   |
| Net loss                                                                                  |       |                       |       |              |       |                             |       |                              |       |                                                      |       | (21,346                               | )          |   |   |   |   |   | (21,346 | ) |   |
| Change in fair value of derivatives qualifying as cash  flow hedges, net of tax of $2,704 |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (4,078 | ) |   |   | (4,078 | ) |   |
| Translation adjustment changes                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (3,394 | ) |   |   | (3,394 | ) |   |
| Total Comprehensive Loss                                                                  |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   | (28,818 | ) |   |
| DECEMBER 31, 2005                                                                         |       |                       | 100        |              |       |                             | —     |                              |       | 2,295,000                                                 |       | (21,346                               | )          |   | (7,472 | ) |   |   | 2,266,182 |   |   |
| Net income                                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       | 140,288                               |       |   |   |   |   |   | 140,288 |   |   |
| Translation adjustment changes                                                            |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 95,023 |   |   |   | 95,023 |   |   |
| Unrealized holding losses on securities, net of tax  of $4                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (30 | ) |   |   | (30 | ) |   |
| Unrealized loss on Euro-denominated debt, net of  tax of $4,648                           |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | (7,066 | ) |   |   | (7,066 | ) |   |
| Change in fair value of derivatives qualifying as  cash flow hedges, net of tax of $5,023 |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 7,621 |   |   |   | 7,621 |   |   |
| Adjustment to initially apply FASB Statement  No. 158, net of tax of $4,873          |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 6,438 |   |   |   | 6,438 |   |   |
| Minimum pension liability adjustment, net of  tax of $9                                   |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   | 14 |   |   |   | 14 |   |   |
| Total Comprehensive Income                                                                |       |                       |       |              |       |                             |       |                              |       |                                                      |       |                                  |       |   |   |   |   |   | 242,288 |   |   |
| Dividends paid to Hertz Holdings                                                          |       |                       |       |              |       |                             |       |                              |       |                                                      |       | (15,471                               | )          |   |   |   |   |   | (15,471 | ) |   |
| Stock-based employee compensation                                                         |       |                       |       |              |       |                             |       |                              |       | 25,452                                                    |       |                                  |       |   |   |   |   |   | 25,452 |   |   |
| DECEMBER 31, 2006                                                                         |       |                       | 100        |              |       |                             | $          | —                            |       |                                                      | $          | 2,320,452                             |       | $ | 103,471 |   |   | $ | 94,528 |   |   |   | $ | 2,518,451 |   |   |

 

The accompanying notes are an integral part of these financial statements.

164

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**THE HERTZ CORPORATIONPARENT COMPANY ONLYCONDENSED STATEMENTS OF CASH FLOWS(In Thousands of Dollars)**

| ** **                                                                                         | ** ** | **Successor**                                | ** ** | ** **                                                   | ** ** | **Predecessor** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                         | ** ** | ** **                                   | ** ** | **For the periods from**                      | ** ** | ** **      | ** ** |
| ** **                                                                                         | ** ** | **Year ended  December 31,  2006** | ** ** | **December 21,  2005 to  December 31,  2005** | ** ** | ** **      | ** ** | **January 1,  2005 to  December 20,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
| Cash flows from operating activities:                                                              |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                  |       |                                         | $          | 140,288                                                      |       |            |       | $ | (21,346 | ) |   |   |   |   | $ | 371,323 |   |   |   | $ | 365,471 |   |   |
| Adjustments to reconcile net income (loss) to net cash provided by  (used in) operating activities |       |                                         | 218,322    |                                                         |       |            | 3,582,086  |   |   |   |   |   | (683,925 | ) |   |   | (304,779 | ) |   |
| Net cash provided by (used in) operating activities                                                |       |                                         | 358,610    |                                                         |       |            | 3,560,740  |   |   |   |   |   | (312,602 | ) |   |   | 60,692 |   |   |
| Cash flows from investing activities:                                                              |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchase of predecessor company stock                                                              |       |                                         | —     |                                                         |       |            | (4,379,374 | ) |   |   |   |   | — |   |   |   | — |   |   |
| Proceeds from sales (purchases) of short-term investments, net                                     |       |                                         | —     |                                                         |       |            | —     |   |   |   |   |   | 556,997 |   |   |   | (56,889 | ) |   |
| Revenue earning equipment expenditures                                                             |       |                                         | (226,023   | )                                                            |       |            | (3,396     | ) |   |   |   |   | (109,353 | ) |   |   | (914,104 | ) |   |
| Proceeds from disposal of revenue earning equipment                                                |       |                                         | 200,502    |                                                         |       |            | 3,058      |   |   |   |   |   | 98,390 |   |   |   | 711,108 |   |   |
| Property and equipment expenditures                                                                |       |                                         | (101,237   | )                                                            |       |            | 23,859     |   |   |   |   |   | (177,008 | ) |   |   | (160,434 | ) |   |
| Proceeds from disposal of property and equipment                                                   |       |                                         | 32,470     |                                                         |       |            | 145        |   |   |   |   |   | 35,152 |   |   |   | 31,134 |   |   |
| Net cash (used in) provided by investing activities                                                |       |                                         | (94,288    | )                                                            |       |            | (4,355,708 | ) |   |   |   |   | 404,178 |   |   |   | (389,185 | ) |   |
| Cash flows from  financing activities:                                                             |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of an intercompany note                                                                   |       |                                         | —     |                                                         |       |            | —     |   |   |   |   |   | 1,185,000 |   |   |   | — |   |   |
| Proceeds from issuance of long-term debt                                                           |       |                                         | 293,656    |                                                         |       |            | 4,340,352  |   |   |   |   |   | 18,732 |   |   |   | 1,100,803 |   |   |
| Repayment of long-term debt                                                                        |       |                                         | (184,795   | )                                                            |       |            | (4,886,310 | ) |   |   |   |   | (611,347 | ) |   |   | (900,000 | ) |   |
| Short-term  borrowings:                                                                            |       |                                         |       |                                                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                                                                                           |       |                                         | —     |                                                         |       |            | (13,861    | ) |   |   |   |   | 2,304,699 |   |   |   | 481,533 |   |   |
| Repayments                                                                                         |       |                                         | (86,266    | )                                                            |       |            | (1,357,614 | ) |   |   |   |   | (1,071,760 | ) |   |   | (311,604 | ) |   |
| Ninety-day term or less, net                                                                       |       |                                         | (173,711   | )                                                            |       |            | 186,971    |   |   |   |   |   | (351,568 | ) |   |   | 84,214 |   |   |
| Dividends paid                                                                                     |       |                                         | (15,471    | )                                                            |       |            | —     |   |   |   |   |   | (1,185,000 | ) |   |   | — |   |   |
| Capital invested by third parties                                                                  |       |                                         | —     |                                                         |       |            | 2,295,000  |   |   |   |   |   | — |   |   |   | — |   |   |
| Payment of financing costs                                                                         |       |                                         | (35,783    | )                                                            |       |            | (173,901   | ) |   |   |   |   | — |   |   |   | — |   |   |
| Net cash (used in) provided by financing activities                                                |       |                                         | (202,370   | )                                                            |       |            | 390,637    |   |   |   |   |   | 288,756 |   |   |   | 454,946 |   |   |
| Net increase (decrease) in cash and equivalents during the period                                  |       |                                         | 61,952     |                                                         |       |            | (404,331   | ) |   |   |   |   | 380,332 |   |   |   | 126,453 |   |   |
| Cash and equivalents  at beginning of period                                                       |       |                                         | 150,757    |                                                         |       |            | 555,088    |   |   |   |   |   | 174,756 |   |   |   | 48,303 |   |   |
| Cash and equivalents at end  of period                                                             |       |                                         | $          | 212,709                                                      |       |            |       | $ | 150,757 |   |   |   |   |   | $ | 555,088 |   |   |   | $ | 174,756 |   |   |

 

The accompanying notes are an integral part of these financial statements.

165

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**THE HERTZ CORPORATIONPARENT COMPANY ONLYNOTES TO CONDENSED FINANCIAL STATEMENTS**

**Note 1—Background andBasis of Presentation**

The accompanying condensed financial statementsinclude only the accounts of The Hertz Corporation, or the “Company.”Investments in the Company’s subsidiaries are accounted for under the equitymethod. These parent company financial statements have been prepared inaccordance with Rule 12-04 of Regulation S-X, as restricted netassets of the Company’s subsidiaries exceed 25% of the Company’s consolidatednet assets as of December 31, 2006.

Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been condensed or omitted since this information is included inthe Company’s annual consolidated financial statements included in this AnnualReport under the caption “Item 8—Financial Statements and Supplementary Data.”

**Note 2—Commitments andContingencies**

Thefollowing table details the contractual cash obligations of the Company fordebt (excluding obligations for interest and estimated payments under interestrate swap agreements) as of December 31, 2006 (in thousands of dollars):

| ** ** | ** ** | **Total** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** |
|------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|
| Debt       |       | $         | 5,414,619  |     | $          | 260,589  |       | $        | 49,357     |     | $          | 70,228   |       | $              | 48,293     |   | $ | 120,412 |   | $ | 4,865,740 |   |
|            |            |           |            |          |            |          |            |          |            |          |            |          |            |                |            |  |  |  |  |  |  |  |

 

Thefollowing table details the contractual cash obligations of the Company foroperating leases and purchase obligations as of December 31, 2006 (inthousands of dollars):

| ** **                                  | ** ** | **Total** | ** ** | **Less than  1 Year** | ** ** | **1–3  Years** | ** ** | **3–5  Years** | ** ** | **More than  5 Years** | ** ** |
|---------------------------------------------|------------|-----------|------------|---------------------------------|------------|---------------------|------------|---------------------|------------|----------------------------------|------------|
| Operating leases and  concession agreements |       | $         | 1,227,477  |                            | $          | 248,341             |       | $                   | 334,609    |                             | $          | 184,653 |   | $ | 459,874 |   |
| Purchase obligations                        |       | 4,042,700 |       | 4,015,000                       |       | 27,100              |       | 600                 |       | —                           |       |
| Total                                       |       | $         | 5,270,177  |                            | $          | 4,263,341           |       | $                   | 361,709    |                             | $          | 185,253 |   | $ | 459,874 |   |

 

**Note 3—Dividends**

Thefollowing table details cash dividends received by the Company from itssubsidiaries during 2006, 2005 and 2004 (in thousands of dollars):

| ** **     | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------|------------|----------|------------|----------|------------|----------|------------|
| Cash dividends |       | $        | 710,150    |     | $          | 86,950   |       | $ | 83,533 |   |
|                |            |          |            |          |            |          |            |  |  |  |

 

166

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**SCHEDULE II**

**VALUATION AND QUALIFYING ACCOUNTS** THE HERTZ CORPORATION AND SUBSIDIARIES (In Thousands of Dollars)

| ** **                                                            | ** ** | ** **                                     | ** ** | **Additions**                | ** ** | ** **                   | ** ** | ** **     | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|----------------|------------|
| ** **                                                            | ** ** | **Balance at  Beginning of  Period** | ** ** | **Charged to  Expense** | ** ** | **Translation  Adjustments** | ** ** | **Deductions** | ** ** | **Balance at  End of Period** | ** ** |
| Allowance for doubtful accounts:                                      |       |                                           |       |                         |       |                         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Successor**                                                         |       |                                           |       |                         |       |                         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Year  ended December 31, 2006                                    |       |                                           | $          | 460                          |       |                         |       | $              | 17,132     |   |   |   | $ | 401 |   |   |   | $ | 16,004 | (b) |   |   | $ | 1,989 |   |   |
| For the  period from December 21, 2005 to December 31, 2005 |       |                                           | $          | —                       | (a)        |                         |       | $              | 462        |   |   |   | $ | (10 | ) |   |   | $ | (8 | (b) |   |   | $ | 460 |   |   |
| **Predecessor**                                                       |       |                                           |       |                         |       |                         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| For the  period from January 1, 2005 to December 20, 2005   |       |                                           | $          | 30,447                       |       |                         |       | $              | 11,447     |   |   |   | $ | (1,202 | ) |   |   | $ | 22,529 | (b) |   |   | $ | 18,163 |   |   |
| Year ended December 31, 2004                                     |       |                                           | $          | 35,758                       |       |                         |       | $              | 14,133     |   |   |   | $ | 1,123 |   |   |   | $ | 20,567 | (b) |   |   | $ | 30,447 |   |   |

----

(a)            Theunderlying accounts receivable were revalued at their estimated net realizablevalue as of the date of the Acquisition. Accordingly, the allowance fordoubtful accounts was valued at zero.

(b)           Amounts written off, net of recoveries.

167

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**ITEM 9.**                 CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES

**Evaluation of Disclosure Controls and Procedures**

Disclosure controls andprocedures are controls and other procedures that are designed to ensure thatinformation required to be disclosed in company reports filed or submittedunder the Exchange Act of 1934 is recorded, processed, summarized and reported,within the time periods specified in the SEC’s rules and forms. Disclosurecontrols and procedures include, without limitation, controls and proceduresdesigned to ensure that information required to be disclosed in company reportsfiled under the Exchange Act is accumulated and communicated to management,including our Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

An evaluation of theeffectiveness of our disclosure controls and procedures was performed under thesupervision of, and with the participation of, management, including our ChiefExecutive Officer and Chief Financial Officer, as of the end of the periodcovered by this report. Based upon this evaluation, our management, includingour Chief Executive Officer and Chief Financial Officer, concluded that ourdisclosure controls and procedures are effective.

**Management’s Report on Internal Control Over FinancialReporting**

Our management is responsiblefor establishing and maintaining adequate internal control over financialreporting, as such term is defined in Exchange Act Rule 13a-15(f) underthe Securities Exchange Act of 1934, as amended. We are not, however, anaccelerated filer and are therefore not yet required to report on ourassessment of our internal control over financial reporting under Rule 13a-15(f).Our internal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

Under the supervision and withthe participation of our management, including our Chief Executive Officer andChief Financial Officer, we conducted an assessment of the effectiveness of ourinternal control over financial reporting as of December 31, 2006. Theassessment was based on criteria established in the framework *Internal Control—Integrated Framework*, issuedby the Committee of Sponsoring Organizations of the Treadway Commission. Basedon this assessment, management concluded that our internal control overfinancial reporting was effective as of December 31, 2006.PricewaterhouseCoopers LLP, our independent registered public accounting firm,has issued an attestation report on management’s assessment of internal controlover financial reporting. Their report is included herein.

**Changes in Internal Control Over Financial Reporting**

No changes in our internalcontrol over financial reporting occurred during the fiscal quarter endedDecember 31, 2006 that have materially affected, or are reasonably likelyto materially affect, our internal control over financial reporting.

**ITEM 9B.**        OTHERINFORMATION

None.

168

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**PART III**

**ITEM 10.**          DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Omitted pursuant to GeneralInstruction I to Form 10-K.

**ITEM 11.**          EXECUTIVECOMPENSATION

Omitted pursuant to GeneralInstruction I to Form 10-K.

**ITEM 12.**          SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

Omitted pursuant to GeneralInstruction I to Form 10-K.

**ITEM 13.**          CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Omitted pursuant to GeneralInstruction I to Form 10-K.

**ITEM 14.**          PRINCIPALACCOUNTING FEES AND SERVICES

**Fees**

PricewaterhouseCoopersLLP, or “PwC,” served as our independent registered public accounting firm, or“independent auditor” for the fiscal years ended December 31, 2006 and2005. All fees and expenses for services rendered by PwC in 2006 and 2005 wereapproved by our Audit Committee. PwC’s fees and expenses for services renderedto us for the past two fiscal years are set forth in the table below. We havedetermined that the provision of these services is compatible with maintainingthe independence of our independent auditors. The aggregate fees billed by PwCwere as follows (in thousands of dollars):

| ** **    | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------|------------|----------|------------|----------|------------|
| Fees:         |       |     |       |     |       |
| Audit         |       | $        | 7,073      |     | $          | 5,479 |   |
| Audit-related |       | 579      |       | 492      |       |
| Tax           |       | 774      |       | 1,687    |       |
| All  other    |       | 62       |       | 13       |       |
| Total         |       | $        | 8,488      |     | $          | 7,671 |   |

 

Audit fees were for services in connection with theaudit of the consolidated financial statements included in our Annual Report onForm 10-K, reviews of the condensed consolidated financial statementsincluded in our Quarterly Reports on Form 10-Q, attestation of theeffectiveness of our internal controls over financial reporting and providingcomfort letters in connection with our funding transactions. Audit-related feeswere for services in connection with due diligence, assurance services andemployee benefit plan audits. Tax fees related to tax compliance, preparationof tax returns, tax planning and tax assistance for international serviceemployees. All other fees primarily related to insurance advisory services.

Our Audit Committee’s charter requires the AuditCommittee to pre-approve all audit and permitted non-audit services to beperformed by the our independent registered public accounting firm; however,the Audit Committee is permitted to delegate pre-approval authority to asubcommittee consisting of one or more Audit Committee members who areindependent directors, and who must then provide a report to the full Audit Committeeat its next scheduled meeting. All audit and non-audit fees were pre-approvedby the Audit Committee in 2006.

169

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**PART IV**

**ITEM 15.**          EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

Thefollowing documents are filed as part of this report:

|   |        | ** ** | ** **                                                                                                                | ** ** | **Page** |
|--------|--------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|----------|
| (a)    | 1.     | * *   | *Financial Statements:*                                                                                                   |       |     |
|   |   | * *   | Our financial statements filed herewith are set forth in  Part II, Item 8 of this Annual Report as follows:     |       |     |
|   |   |       | The Hertz Corporation and Subsidiaries—                                                                              |       |     |
|   |   |       | Report of Independent Registered Public Accounting Firm                                                                   |       | 93       |
|   |   |       | Consolidated Balance Sheets                                                                                               |       | 96       |
|   |   |       | Consolidated Statements of Operations                                                                                     |       | 97       |
|   |   |       | Consolidated Statements of Stockholder’s Equity                                                                      |       | 98       |
|   |   |       | Consolidated Statements of Cash Flows                                                                                     |       | 99       |
|   |   |       | Notes to Consolidated Financial Statements                                                                                |       | 101      |
|   | 2.     | * *   | *Financial Statement Schedules:*                                                                                          |       |     |
|   |   | * *   | Our financial statement schedules filed herewith are set  forth in Part II, Item 8 of this Annual Report as follows: |       |     |
|   |   |       | The Hertz Corporation and Subsidiaries—                                                                              |       |     |
|   |   |       | Schedule I—Condensed Financial Information of Registrant                                                             |       | 162      |
|   |   |       | Schedule II—Valuation and Qualifying Accounts                                                                        |       | 167      |
|   | 3.     | * *   | *Exhibits:*                                                                                                               |       |     |

 

| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                                                                                                       |
|--------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                |       | Stock Purchase Agreement,  dated as of September 12, 2005, among CCMG Holdings, Inc., Ford Holdings LLC  and Ford Motor Company (Incorporated by reference to Exhibit 2 to the  Quarterly Report on Form 10-Q of Ford Motor Company, as filed on November 7,  2005.)                  |
| 3.1                |       | Restated Certificate of  Incorporation of The Hertz Corporation, dated April 30, 1997 (Incorporated by  reference to Exhibit 3(a) to our Current Report on Form 8-K, as filed on May  1, 1997)                                                                                        |
| 3.2                |       | Certificate of Amendment,  dated May 2, 2001, of Restated Certificate of Incorporation of The Hertz  Corporation (Incorporated by reference to Exhibit 3(i) to our Quarterly  Report on Form 10-Q, as filed on August 7, 2001)                                                        |
| 3.3                |       | Certificate of Amendment,  dated November 20, 2006, of Restated Certificate of Incorporation of The  Hertz Corporation (Incorporated by reference to Exhibit 3.1.1 to Amendment  No. 3 to our Registration Statement on Form S-4 (File No. 333-13849), as  filed on December 4, 2006) |
| 3.4                |       | Amended and Restated By-Laws  of The Hertz Corporation (Incorporated by reference to the exhibit of the  same number to the Amendment No. 3 to our Registration Statement on Form S-4  (File No. 333-13849), as filed on December 4, 2006)                                            |

170

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| 4.1.1 |   | Indenture, dated as of December  21, 2005, by and between CCMG Acquisition Corporation, as Issuer, the  Subsidiary Guarantors from time to time parties thereto, and Wells Fargo  Bank, National Association, as Trustee, governing the U.S. Dollar 8.875%  Senior Notes due 2014 and the Euro 7.875% Senior Notes due 2014**                                                                                  |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.1.2 |   | Merger Supplemental  Indenture, dated as of December 21, 2005, by and between The Hertz  Corporation and Wells Fargo Bank, National Association, as Trustee, relating  to the U.S. Dollar 8.875% Senior Notes due 2014 and the Euro 7.875% Senior  Notes due 2014**                                                                                                                                            |
| 4.1.3 |   | Supplemental Indenture in  Respect of Subsidiary Guarantee, dated as of December 21, 2005, by and  between The Hertz Corporation, the Subsidiary Guarantors named therein, and  Wells Fargo Bank, National Association, as Trustee, relating to the U.S.  Dollar 8.875% Senior Notes due 2014 and the Euro 7.875% Senior Notes due  2014**                                                                     |
| 4.1.4 |   | Third Supplemental  Indenture, dated as of July 7, 2006, by and between The Hertz Corporation,  the Subsidiary Guarantors named therein, and Wells Fargo Bank, National  Association, as Trustee, relating to the U.S. Dollar 8.875% Senior Notes due  2014 and the Euro 7.875% Senior Notes due 2014 (Incorporated by reference to  Exhibit 4.3 to our Current Report on Form 8-K, as filed on July 7, 2006.) |
| 4.2.1 |   | Indenture, dated as of  December 21, 2005, by and between CCMG Acquisition Corporation, as Issuer,  the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo  Bank, National Association, as Trustee, governing the 10.5% Senior  Subordinated Notes due 2016**                                                                                                                            |
| 4.2.2 |   | Merger Supplemental  Indenture, dated as of December 21, 2005, by and between The Hertz  Corporation and Wells Fargo Bank, National Association, as Trustee, relating  to the 10.5% Senior Subordinated Notes due 2016**                                                                                                                                                                                       |
| 4.2.3 |   | Supplemental Indenture in  Respect of Subsidiary Guarantee, dated as of December 21, 2005, by and  between The Hertz Corporation, the Subsidiary Guarantors named therein, and  Wells Fargo Bank, National Association, as Trustee, relating to the 10.5%  Senior Subordinated Notes due 2016**                                                                                                                |
| 4.2.4 |   | Third Supplemental  Indenture, dated as of July 7, 2006, by and between The Hertz Corporation,  the Subsidiary Guarantors named therein, and Wells Fargo Bank, National  Association, as Trustee, relating to the 10.5% Senior Subordinated Notes due  2016 (Incorporated by reference to Exhibit 4.4 to our Current Report on Form  8-K, as filed on July 7, 2006.)                                           |
| 4.3.1 |   | Exchange and Registration  Rights Agreement, dated as of December 21, 2005, by and between CCMG  Acquisition Corporation, Deutsche Bank Securities Inc. and the other  financial institutions named therein, relating to the 8.875% Senior Notes due  2014 and the 7.875% Senior Notes due 2014**                                                                                                              |
| 4.3.2 |   | Joinder Agreement to the  Exchange and Registration Rights Agreement, dated as of December 21, 2005, of  The Hertz Corporation relating to the 8.875% Senior Notes due 2014 and the  7.875% Senior Notes due 2014**                                                                                                                                                                                            |
| 4.3.3 |   | Joinder Agreement to the  Exchange and Registration Rights Agreement, dated as of December 21, 2005, of  the Subsidiary Guarantors named therein, relating to the 8.875% Senior Notes  due 2014 and the 7.875% Senior Notes due 2014**                                                                                                                                                                         |

171

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| 4.4.1  |   | Exchange and Registration  Rights Agreement, dated as of December 21, 2005, by and between CCMG  Acquisition Corporation, Deutsche Bank Securities Inc. and the other  financial institutions named therein, relating to the 10.5% Senior  Subordinated Notes due 2016**                                                                                                                                                                                                                                                     |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.4.2  |   | Joinder Agreement to the  Exchange and Registration Rights Agreement, dated as of December 21, 2005, of  The Hertz Corporation, relating to the 10.5% Senior Subordinated Notes due  2016**                                                                                                                                                                                                                                                                                                                                  |
| 4.4.3  |   | Joinder Agreement to the  Exchange and Registration Rights Agreement, dated as of December 21, 2005, of  the Subsidiary Guarantors named therein, relating to the 10.5% Senior  Subordinated Notes due 2016**                                                                                                                                                                                                                                                                                                                |
| 4.5.1  |   | Senior Bridge Facilities  Agreement, dated as of December 21, 2005, by and between Hertz International,  Ltd., certain of its subsidiaries, Hertz Europe Limited, as Coordinator, BNP  Paribas and The Royal Bank of Scotland plc, as Mandated Lead Arrangers,  Calyon, as Co-Arranger, BNP Paribas, The Royal Bank of Scotland plc, and  Calyon, as Joint Bookrunners, BNP Paribas, as Facility Agent, BNP Paribas, as  Security Agent, BNP Paribas, as Global Coordinator, and the financial  institutions named therein** |
| 4.5.2  |   | Intercreditor Deed, dated as  of December 21, 2005, by and between Hertz International, Ltd., as Parent,  Hertz Europe Limited, as Coordinator, certain of its subsidiaries, BNP  Paribas as A/C Facility Agent and NZ Facility Agent, BNP Paribas as Security  Agent, Banco BNP Paribas Brasil S.A., as Brazilian Facility Agent, BNP  Paribas, as Australian Security Trustee, the financial institutions named  therein, and The Hertz Corporation**                                                                      |
| 4.5.3  |   | Australian Purchaser Charge  (Project H)—Unlimited, dated as of December 21, 2005, by and between Hertz  Australia Pty Limited and HA Funding Pty Limited**                                                                                                                                                                                                                                                                                                                                                             |
| 4.5.4  |   | Australian Purchaser Charge  (Project H)—South Australia, dated as of December 21, 2005, by and between  Hertz Australia Pty Limited and HA Funding Pty Limited**                                                                                                                                                                                                                                                                                                                                                       |
| 4.5.5  |   | Australian Purchaser Charge  (Project H)—Queensland, dated as of December 21, 2005, by and between Hertz  Australia Pty Limited and HA Funding Pty Limited**                                                                                                                                                                                                                                                                                                                                                            |
| 4.5.6  |   | Australian Share Mortgage of  Purchaser Shares (Project H), dated as of December 21, 2005, by and between  Hertz Investment (Holdings) Pty Limited and HA Funding Pty Limited**                                                                                                                                                                                                                                                                                                                                              |
| 4.5.7  |   | Australian Issuer Charge  (Project H), dated as of December 21, 2005, by and between Hertz Note Issuer  Pty Limited and HA Funding Pty Limited**                                                                                                                                                                                                                                                                                                                                                                             |
| 4.5.8  |   | Australian Borrower Charge  (Project H), dated as of December 20, 2005, by and between HA Funding Pty  Limited and the BNP Paribas**                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.5.9  |   | Australian Security Trust  Deed (Project H), dated as of December 21, 2005, between HA Funding Pty Limited  and BNP Paribas**                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.5.10 |   | Business Pledge Agreement,  dated as of December 21, 2005, by and between Hertz Belgium N.V., as Pledgor,  and BNP Paribas S.A., as Pledgee (English language version)**                                                                                                                                                                                                                                                                                                                                                     |

172

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| 4.5.11   |   | Receivables and Bank Account  Pledge Agreement, dated as of December 21, 2005, by and between Hertz Belgium  NV as Pledgor, and BNP Paribas, as Pledgee**                                                                                                                                                                        |
|----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5.12   |   | Share Pledge Agreement,  dated as of December 21, 2005, by and between Hertz Holdings Netherlands  B.V., as Pledgor, and BNP Paribas, as Pledgee**                                                                                                                                                                               |
| 4.5.13   |   | Security Agreement, dated as  of December 21, 2005, by and between Hertz Canada Limited, as Obligor, and  BNP Paribas (Canada), as Security Agent**                                                                                                                                                                              |
| 4.5.14.1 |   | Deed of Hypothec, dated as  of December 21, 2005, by and between Hertz Canada Limited and BNP Paribas  (Canada), and related Bond and Bond Pledge Agreement**                                                                                                                                                                    |
| 4.5.14.2 |   | Bond Pledge Agreement, dated  as of December 21, 2005, by and between Hertz Canada Limited, as Pledgor, and  BNP Paribas (Canada), as Security Agent**                                                                                                                                                                           |
| 4.5.15   |   | Security Agreement, dated as  of December 21, 2005, by and between 1677932 Ontario Limited, as Obligor, and  BNP Paribas (Canada), as Security Agent**                                                                                                                                                                           |
| 4.5.16   |   | Security Agreement, dated as  of December 21, 2005, by and between CMGC Canada Acquisition ULC, as Obligor,  and BNP Paribas (Canada), as Security Agent**                                                                                                                                                                       |
| 4.5.17   |   | Pledge of a Business as a  Going Concern (Acte de Nantissement de Fonds de Commerce), dated as of  December 21, 2005, by and between Hertz France, as Pledgor, and BNP Paribas,  as Security Agent, and the beneficiaries described therein (English language  version)**                                                        |
| 4.5.18   |   | Bank Account Pledge  Agreement (Acte de Nantissement de Solde de Compte Bancaire), dated as of  December 21, 2005, by and between Hertz France, as Pledgor, and BNP Paribas,  as Security Agent, and the beneficiaries described therein (English language  version)**                                                           |
| 4.5.19   |   | Share Account Pledge  Agreement (Acte de Nantissement de Compte d'Instruments Financiers), dated as  of December 21, 2005, by and between Hertz France, as Pledgor, BNP Paribas,  as Security Agent, Hertz Equipement France, as Account Holder, BNP Paribas,  as Bank Account Holder, and the beneficiaries described therein** |
| 4.5.20   |   | Pledge of a Business as a  Going Concern (Acte de Nantissement de Fonds de Commerce), dated as of  December 21, 2005, by and between Hertz Equipement France, as Pledgor, BNP  Paribas, as Security Agent, and the beneficiaries described therein (English  language version)**                                                 |
| 4.5.21   |   | Bank Account Pledge  Agreement (Acte de Nantissement de Solde de Compte Bancaire), dated as of  December 21, 2005, by and between Hertz Equipement France, as Pledgor, BNP  Paribas, as Security Agent, and the beneficiaries described therein (English  language version)**                                                    |
| 4.5.22   |   | Master Agreement For  Assignment of Receivables (Contrat Cadre de Cession de Creances  Professionnelles a Titre de Garantie), dated as of December 21, 2005, by and  between Hertz Equipement France, as Assignor, BNP Paribas, as Security Agent,  and the assignees described therein**                                        |
| 4.5.23   |   | Pledge of a Business as a  Going Concern (Acte de Nantissement de Fonds de Commerce), dated as of  December 21, 2005, by and between Equipole Finance Services, as Pledgor, BNP  Paribas, as Security Agent, and the beneficiaries described therein (English  language version)**                                               |

173

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| 4.5.24 |   | Master Agreement for  Assignment of Receivables (Contrat Cadre de Cession de Creances  Professionnelles a Titre de Garantie), dated as of December 21, 2005, by and  between Equipole Finance Services, as Assignor, BNP Paribas, as Security  Agent, and the assignees described therein**                                     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5.25 |   | Bank Account Pledge  Agreement (Acte de Nantissement de Solde de Compte Bancaire), dated as of  December 21, 2005, by and between Equipole Finance Services, as Pledgor, BNP  Paribas, as Security Agent, and the beneficiaries described therein (English  language version)**                                                 |
| 4.5.26 |   | Shares Account Pledge  Agreement (Acte de Nantissement de Compte d'Instruments Financiers), dated as  of December 21, 2005, by and between Equipole, as Pledgor, BNP Paribas, as  Security Agent, Equipole Finance Services, as Account Holder, BNP Paribas, as  Bank Account Holder, and the beneficiaries described therein** |
| 4.5.27 |   | Share Account Pledge  Agreement (Acte de Nantissement de Compte d'Instruments Financiers), dated as  of December 21, 2005, by and between Equipole, as Pledgor, BNP Paribas, as  Security Agent, Hertz France, as Account Holder, BNP Paribas, as Bank Account  Holder, and the beneficiaries described therein**               |
| 4.5.28 |   | Shares Account Pledge  Agreement (Acte de Nantissement de Compte d'Instruments Financiers), dated as  of December 21, 2005, by and between Equipole, as Pledgor, BNP Paribas, as  Security Agent, Hertz Equipement France, as Account Holder, BNP Paribas, as  Bank Account Holder, and the beneficiaries described therein**   |
| 4.5.29 |   | Account Pledge Agreement,  dated as of December 21, 2005, among Hertz Autovermietung GmbH, The Royal  Bank of Scotland plc, Calyon, BNP Paribas (Canada) and Indosuez Finance  (U.K.) Limited as Pledgees and BNP Paribas S.A. as Security Agent**                                                                              |
| 4.5.30 |   | Global Assignment Agreement,  dated as of December 21, 2005, between Hertz Autoverrmietung GmbH as assignor  and BNP Paribas S.A. as Security Agent and lender (English language  version)**                                                                                                                                    |
| 4.5.31 |   | Security Transfer of  Moveable Assets, dated as of December 21, 2005, between Hertz Autovermietung GmbH  as assignor and BNP Paribas S.A. as Security Agent and lender**                                                                                                                                                        |
| 4.5.32 |   | Share Pledge Agreement,  dated as of December 21, 2005, among Equipole S.A. (France), The Royal Bank  of Scotland plc, Calyon, BNP Paribas (Canada), Indosuez Finance (U.K.)  Limited and BNP Paribas S.A., as Security Agent**                                                                                                 |
| 4.5.33 |   | Security Assignment of  Receivables, dated as of December 21, 2005, between Hertz Italiana S.p.A. as  assignor and BNP Paribas S.A. as Security Agent**                                                                                                                                                                         |
| 4.5.34 |   | Pledge Agreement over the  Balance of Bank Account, dated as of December 21, 2005, between Hertz  Italiana S.p.A. as pledgor and BNP Paribas S.A. as Pledgee and Security  Agent**                                                                                                                                              |
| 4.5.35 |   | Pledge Agreement over the  Balance of Bank Account, dated as of December 21, 2005, between Hertz  Italiana S.p.A., as Pledgor, and BNP Paribas S.A., as Pledgee and Security  Agent**                                                                                                                                           |

174

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| 4.5.36 |   | Pledge Agreement over Hertz  Italiana S.p.A. shares, dated as of December 21, 2005, between Hertz Holding  South Europe S.r.l as Pledgor and BNP Paribas S.A. as Pledgee and Security  Agent**                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5.37 |   | Deed of Non-Possessory  Pledge of Movables, dated as of December 21, 2005, between Stuurgroep Holland  B.V., as Pledgor, and BNS Automobile Funding B.V. and BNP Paribas as Security  Agent, as Pledgees**                                       |
| 4.5.38 |   | Deed of Disclosed Pledge of  Receivables, dated as of December 21, 2005, between Stuurgroep Holland B.V.,  as Pledgor, and BNS Automobile Funding B.V. and BNP Paribas as Security  Agent, as Pledgees**                                         |
| 4.5.39 |   | Deed of Undisclosed Pledge  of Receivables between Stuurgroep Holland B.V., as Pledgor, and BNS  Automobile Funding B.V. and BNP Paribas as Security Agent, as Pledgees**                                                                        |
| 4.5.40 |   | Deed of Pledge of Registered  Shares, dated as of December 21, 2005, between Stuurgroep Holland B.V., as  Pledgor, BNS Automobile Funding B.V. and BNP Paribas, as Pledgees, and Hertz  Automobielen Netherlands B.V.**                          |
| 4.5.41 |   | Deed of Pledge on Registered  Shares, dated as of December 21, 2005, between Hertz Holdings Netherlands  B.V., as Pledgor, BNS Automobile Funding B.V., as Pledgee, and Stuurgroep  Holland B.V.**                                               |
| 4.5.42 |   | Deed of Disclosed Pledge of  Receivables between BNS Automobile Funding B.V., as Pledgor, and BNP Paribas  as Security Agent, as Pledgee**                                                                                                       |
| 4.5.43 |   | Pledges of Shares Contract,  dated as of December 21, 2005, among Hertz de España, S.A, Hertz Alquiler de Maquinaria,  S.L., BNS Automobile Funding B.V. and BNP Paribas S.A. as Security Agent  relating to Hertz Alquiler de Maquinaria** |
| 4.5.44 |   | Contract on Pledges of  Credit Rights, dated as of December 21, 2005, among Hertz de España, S.A.,  BNS Automobile Funding B.V. and BNP Paribas S.A. as Security Agent**                                                                    |
| 4.5.45 |   | Pledge of Credit Rights of  Insurance Policies Contract, dated as of December 21, 2005, among Hertz de  España, S.A., BNS Automobile Funding B.V. and BNP Paribas S.A. as Security  Agent**                                                 |
| 4.5.46 |   | Pledge of Credit Rights of  Bank Accounts, dated as of December 21, 2005 among Hertz de España, S.A., as  Pledgor, BNS Automobile Funding B.V. and BNP Paribas S.A., as Security  Agent**                                                   |
| 4.5.47 |   | Pledges over VAT Credit  Rights Contract, dated as of December 21, 2005, among Hertz de España, S.A.,  as Pledgor, BNS Automobile Funding B.V. and BNP Paribas S.A., as Security  Agent**                                                   |
| 4.5.48 |   | Contract on Pledges of  Credit Rights, dated as of December 21, 2005, among Hertz Alquiler de  Maquinaria, S.L., as Pledgor, BNS Automobile Funding B.V. and BNP Paribas  S.A., as Security Agent**                                              |
| 4.5.49 |   | Pledge of Credit Rights of  Bank Accounts Contract, dated as of December 21, 2005, among Hertz Alquiler  de Maquinaria, S.L., as Pledgor, BNS Automobile Funding B.V. and BNP Paribas  S.A., as Security Agent**                                 |

175

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| 4.5.50 |   | Pledges of Credit Rights of  Insurance Policies Contract, dates as of December 21, 2005, among Hertz  Alquiler de Maquinaria, S.L., as Pledgor, BNS Automobile Funding B.V. and BNP  Paribas S.A., as Security Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5.51 |   | Pledges over VAT Credit  Rights Contracts, dated as of December 21, 2005, among Hertz Alquiler de  Maquinaria S.L., as Pledgor, BNS Automobile Funding B.V., and BNP Paribas  S.A., as Security Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.5.52 |   | Pledges of Credit Rights  Contract, dated as of December 21, 2005, among BNS Automobile Funding B.V.,  as Pledgor, Hertz de Espana S.A., Hertz Alquiler de Maquinaria, S.L., and BNP  Paribas S.A., as Security Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.5.53 |   | Pledges of Shares Contract,  dated as of December 21, 2005, among Hertz International Ltd., Hertz  Equipment Rental International, Limited, Hertz de España, S.A., and BNP  Paribas S.A., as Security Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.5.54 |   | Share Pledge Agreement,  dated as of December 21, 2005, between Hertz AG and BNP Paribas S.A. as  Security Agent relating to the pledge of the entire share capital of Züri-Leu  Garage AG and Société Immobilière Fair Play**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.5.55 |   | Assignment Agreement, dated  as of December 21, 2005, between Hertz AG and BNP Paribas S.A. as Security  Agent relating to the assignment and transfer of trade receivables, insurance  claims, inter-company receivables and bank accounts**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.5.56 |   | Share Pledge Agreement,  dated as of December 21, 2005, between Hertz Holdings South Europe S.r.l and  BNP Paribas S.A. as Security Agent relating to the pledge of the entire share  capital of Hertz AG**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.5.57 |   | Deed of Charge, dated as of  December 21, 2005, between Hertz (U.K.) Limited as Chargor and BNP Paribas as  Security Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.5.58 |   | Deed of Charge over Shares,  in Hertz (U.K.) Limited, dated as of December 21, 2005, between Hertz  Holdings II U.K. Limited as Chargor and BNP Paribas as Security Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.5.59 |   | Deed of Charge over Shares  in Hertz Holdings III UK Limited, dated as of December 21, 2005, between  Hertz International, Ltd. and BNP Paribas as Security Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.5.60 |   | Deed of Charge, dated as of  December 21, 2005, between BNS Automobile Funding B.V. as Chargor and BNP  Paribas as Security Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.6.1  |   | Credit Agreement, dated as  of December 21, 2005, by and between The Hertz Corporation, the several  lenders from time to time parties thereto, Deutsche Bank AG, New York Branch,  as Administrative Agent and Collateral Agent, Lehman Commercial Paper Inc.,  as Syndication Agent, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner  and Smith Incorporated, as Documentation Agent, Deutsche Bank Securities  Inc., Lehman Brothers Inc., and Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner and Smith Incorporated, as Joint Lead Arrangers, and BNP  Paribas, The Royal Bank of Scotland plc, and Calyon New York Branch, as  Co-Arrangers, and Deutsche Bank Securities Inc., Lehman Brothers, Inc.,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith  Incorporated, Goldman Sachs Credit Partners L.P., and JPMorgan Chase Bank,  N.A., as Joint Bookrunning Managers** |

176

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| 4.6.2 |   | Guarantee and Collateral  Agreement, dated as of December 21, 2005, by and between CCMG Corporation,  The Hertz Corporation, certain of its subsidiaries, and Deutsche Bank AG, New  York Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.6.3 |   | Copyright Security Agreement,  dated as of December 21, 2005, by and between The Hertz Corporation, certain  of its subsidiaries, and Deutsche Bank AG, New York Branch, as Administrative  Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.6.4 |   | Trademark Security  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, certain of its subsidiaries, and Deutsche Bank AG, New York  Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.6.5 |   | Deed of Trust, Security  Agreement, and Assignment of Leases and Rents and Fixture Filing, dated as of  December 21, 2005, among the Hertz Corporation and Deutsche Bank AG, New York  Branch**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.6.6 |   | Term Loan Mortgage Schedule  listing the material differences in mortgages from Exhibit 4.6.5 for each of  the mortgaged properties**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.6.7 |   | Amendment, dated as of June  30, 2006, among The Hertz Corporation, Deutsche Bank AG, New York Branch, and  the other parties signatory thereto, to the Credit Agreement, dated as of  December 21, 2005, by and between The Hertz Corporation, the several lenders  from time to time parties thereto, Deutsche Bank AG, New York Branch, as  Administrative Agent and Collateral Agent, Lehman Commercial Paper Inc., as  Syndication Agent, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and  Smith Incorporated, as Documentation Agent, Deutsche Bank Securities Inc.,  Lehman Brothers Inc., and Merrill Lynch & Co., Merrill Lynch, Pierce,  Fenner and Smith Incorporated, as Joint Lead Arrangers, and BNP Paribas, The  Royal Bank of Scotland plc, and Calyon New York Branch, as Co-Arrangers, and  Deutsche Bank Securities Inc., Lehman Brothers, Inc., Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner and Smith Incorporated, Goldman Sachs  Credit Partners L.P., and JPMorgan Chase Bank, N.A., as Joint Bookrunning  Managers (Incorporated by reference to Exhibit 4.1 to our Current Report on  Form 8-K, as filed on July 7, 2006.) |
| 4.6.8 |   | Second Amendment, dated as  of February 9, 2007, among The Hertz Corporation, Deutsche Bank AG, New York  Branch, and the other parties signatory thereto, to the Credit Agreement,  dated as of December 21, 2005, by and between The Hertz Corporation, the  several lenders from time to time parties thereto, Deutsche Bank AG, New York  Branch, as Administrative Agent and Collateral Agent, Lehman Commercial Paper  Inc., as Syndication Agent, Merrill Lynch & Co., Merrill Lynch, Pierce,  Fenner and Smith Incorporated, as Documentation Agent, Deutsche Bank  Securities Inc., Lehman Brothers Inc., and Merrill Lynch & Co., Merrill  Lynch, Pierce, Fenner and Smith Incorporated, as Joint Lead Arrangers, and  BNP Paribas, The Royal Bank of Scotland plc, and Calyon New York Branch, as  Co-Arrangers, and Deutsche Bank Securities Inc., Lehman Brothers, Inc.,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith  Incorporated, Goldman Sachs Credit Partners L.P., and JPMorgan Chase Bank,  N.A., as Joint Bookrunning Managers***                                                                                             |

177

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| 4.7.1 |   | Credit Agreement, dated as  of December 21, 2005, by and between Hertz Equipment Rental Corporation, The  Hertz Corporation, the Canadian Borrowers parties thereto, the several  lenders from time to time parties thereto, Deutsche Bank AG, New York Branch,  as Administrative Agent and Collateral Agent, Deutsche Bank AG, Canada  Branch, as Canadian Agent and Canadian Collateral Agent, Lehman Commercial  Paper Inc., as Syndication Agent, Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner and Smith Incorporated, as Documentation Agent, Deutsche Bank  Securities Inc., Lehman Brothers Inc., and Merrill Lynch & Co., Merrill  Lynch, Pierce, Fenner and Smith Incorporated, as Joint Lead Arrangers, BNP  Paribas, The Royal Bank of Scotland plc, and Calyon New York Branch, as  Co-Arrangers, and Deutsche Bank Securities Inc., Lehman Brothers Inc.,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith  Incorporated, Goldman Sachs Credit Partners L.P., and JPMorgan Chase Bank,  N.A., as Joint Bookrunning Managers** |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.7.2 |   | U.S. Guarantee and  Collateral Agreement, dated as of December 21, 2005, by and between CCMG  Corporation, The Hertz Corporation, certain of its subsidiaries, and Deutsche  Bank AG, New York Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.7.3 |   | Canadian Guarantee and  Collateral Agreement, dated as of December 21, 2005, by and between Matthews  Equipment Limited, Western Shut-Down (1995) Limited, certain of its  subsidiaries, and Deutsche Bank AG, Canada Branch, as Canadian Agent and  Canadian Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.7.4 |   | Copyright Security  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, certain of its subsidiaries, and Deutsche Bank AG, New York Branch,  as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.7.5 |   | Trademark Security  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, certain of its subsidiaries, and Deutsche Bank AG, New York  Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.7.6 |   | Trademark Security  Agreement, dated as of December 21, 2005, by and between Matthews Equipment  Limited and Deutsche Bank AG, Canada Branch, as Canadian Agent and Canadian  Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.7.7 |   | Deed of Trust, Security  Agreement, and Assignment of Leases and Rents and Fixture Filing, dated as of  December 21, 2005, among the Hertz Corporation and Deutsche Bank AG, New York  Branch**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.7.8 |   | Term Loan Mortgage Schedule  listing the material differences in mortgages from Exhibit 4.7.7 for each of  the mortgaged properties**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

178

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| 4.7.9  |   | Amendment, dated as of June  30, 2006, among Hertz Equipment Rental Corporation, The Hertz Corporation,  Matthews Equipment Limited, Western Shut-Down (1995) Limited, Deutsche Bank  AG, New York Branch, Deutsche Bank AG, Canada Branch, and the other parties  signatory thereto, to the Credit Agreement, dated as of December 21, 2005, by  and between Hertz Equipment Rental Corporation, The Hertz Corporation, the  Canadian Borrowers parties thereto, the several lenders from time to time  parties thereto, Deutsche Bank AG, New York Branch, as Administrative Agent  and Collateral Agent, Deutsche Bank AG, Canada Branch, as Canadian Agent and  Canadian Collateral Agent, Lehman Commercial Paper Inc., as Syndication  Agent, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith  Incorporated, as Documentation Agent, Deutsche Bank Securities Inc., Lehman  Brothers Inc., and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and  Smith Incorporated, as Joint Lead Arrangers, BNP Paribas, The Royal Bank of  Scotland plc, and Calyon New York Branch, as Co-Arrangers, and Deutsche Bank  Securities Inc., Lehman Brothers Inc., Merrill Lynch & Co., Merrill  Lynch, Pierce, Fenner and Smith Incorporated, Goldman Sachs Credit Partners  L.P., and JPMorgan Chase Bank, N.A., as Joint Bookrunning Managers  (Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K,  as filed on July 7, 2006.) |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.7.10 |   | Second Amendment, dated as  of February 15, 2007, among Hertz Equipment Rental Corporation, The Hertz  Corporation, Matthews Equipment Limited, Western Shut-Down (1995) Limited,  Deutsche Bank AG, New York Branch, Deutsche Bank AG, Canada Branch, and the  other parties signatory thereto, to the Credit Agreement, dated as of  December 21, 2005, by and between Hertz Equipment Rental Corporation, The  Hertz Corporation, the Canadian Borrowers parties thereto, the several  lenders from time to time parties thereto, Deutsche Bank AG, New York Branch,  as Administrative Agent and Collateral Agent, Deutsche Bank AG, Canada  Branch, as Canadian Agent and Canadian Collateral Agent, Lehman Commercial  Paper Inc., as Syndication Agent, Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner and Smith Incorporated, as Documentation Agent, Deutsche Bank  Securities Inc., Lehman Brothers Inc., and Merrill Lynch & Co., Merrill  Lynch, Pierce, Fenner and Smith Incorporated, as Joint Lead Arrangers, BNP  Paribas, The Royal Bank of Scotland plc, and Calyon New York Branch, as  Co-Arrangers, and Deutsche Bank Securities Inc., Lehman Brothers Inc.,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith  Incorporated, Goldman Sachs Credit Partners L.P., and JPMorgan Chase Bank,  N.A., as Joint Bookrunning Managers***                                                                                            |
| 4.8    |   | Intercreditor Agreement,  dated as of December 21, 2005, by and between Deutsche Bank AG, New York  Branch, as ABL Agent, Deutsche Bank AG, New York Branch, as Term Agent, as  acknowledged by CCMG Corporation, The Hertz Corporation and certain of its  subsidiaries**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.9.1  |   | Second Amended and Restated  Base Indenture, dated as of August 1, 2006, between Hertz Vehicle Financing  LLC, as Issuer, and BNY Midwest Trust Company, as Trustee***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.9.2  |   | Amended and Restated Series  2005-1 Supplement to the Second Amended and Restated Base Indenture, dated as  of August 1, 2006, between Hertz Vehicle Financing LLC, as Issuer, and BNY  Midwest Trust Company, as Trustee and Securities Intermediary***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

 

179

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| 4.9.3  |   | Amended and Restated Series  2005-2 Supplement to the Second Amended and Restated Base Indenture, dated as  of August 1, 2006, between Hertz Vehicle Financing LLC, as Issuer, and BNY  Midwest Trust Company, as Trustee and Securities Intermediary***                                                                                                                                                                                                                |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.9.4  |   | Amended and Restated Series  2005-3 Supplement to the Second Amended and Restated Base Indenture, dated as  of August 1, 2006, between Hertz Vehicle Financing LLC, as Issuer, and BNY  Midwest Trust Company, as Trustee and Securities Intermediary***                                                                                                                                                                                                                |
| 4.9.5  |   | Amended and Restated Series  2005-4 Supplement to the Second Amended and Restated Base Indenture, dated as  of August 1, 2006, between Hertz Vehicle Financing LLC, as Issuer, and BNY  Midwest Trust Company, as Trustee and Securities Intermediary***                                                                                                                                                                                                                |
| 4.9.6  |   | Second Amended and Restated  Series 2004-1 Supplement to the Second Amended and Restated Base Indenture,  dated as of August 1, 2006, between Hertz Vehicle Financing LLC, as Issuer,  and BNY Midwest Trust Company, as Trustee and Securities Intermediary***                                                                                                                                                                                                         |
| 4.9.7  |   | Second Amended and Restated  Master Motor Vehicle Operating Lease and Servicing Agreement, dated as of  August 1, 2006, between The Hertz Corporation, as Lessee and Servicer, and  Hertz Vehicle Financing LLC, as Lessor***                                                                                                                                                                                                                                           |
| 4.9.8  |   | Amended and Restated  Participation, Purchase and Sale Agreement, dated as of December 21, 2005, by  and between Hertz General Interest LLC, Hertz Vehicle Financing LLC and The  Hertz Corporation, as Lessee and Servicer**                                                                                                                                                                                                                                           |
| 4.9.9  |   | Purchase and Sale Agreement,  dated as of December 21, 2005, by and between The Hertz Corporation, Hertz  Vehicle Financing LLC and Hertz Funding Corp.**                                                                                                                                                                                                                                                                                                               |
| 4.9.10 |   | Contribution Agreement,  dated as of December 21, 2005, by and between Hertz Vehicle Financing LLC and  The Hertz Corporation**                                                                                                                                                                                                                                                                                                                                         |
| 4.9.11 |   | Second Amended and Restated  Collateral Agency Agreement, dated as of January 26, 2007, among Hertz  Vehicle Financing LLC, as a Grantor, Hertz General Interest LLC, as a  Grantor, The Hertz Corporation, as Servicer, BNY Midwest Trust Company, as Collateral  Agent, BNY Midwest Trust Company, as Trustee and a Secured Party, and The  Hertz Corporation, as a Secured Party***                                                                                  |
| 4.9.12 |   | Amended and Restated  Administration Agreement, dated as of December 21, 2005, by and between The  Hertz Corporation, Hertz Vehicle Financing LLC, and BNY Midwest Trust  Company, as Trustee**                                                                                                                                                                                                                                                                         |
| 4.9.13 |   | Amended and Restated Master  Exchange Agreement, dated as of January 26, 2007, among The Hertz  Corporation, Hertz Vehicle Financing LLC, Hertz General Interest LLC, Hertz  Car Exchange Inc., and J.P. Morgan Property Holdings LLC***                                                                                                                                                                                                                                |
| 4.9.14 |   | Amended and Restated Escrow  Agreement, dated as of January 26, 2007, among The Hertz Corporation, Hertz  Vehicle Financing LLC, Hertz General Interest LLC, Hertz Car Exchange Inc.,  and J.P. Morgan Chase Bank, N.A.***                                                                                                                                                                                                                                              |
| 4.9.15 |   | Amended and Restated Class  A-1 Note Purchase Agreement (Series 2005-3 Variable Funding Rental Car Asset  Backed Notes, Class Aa-1), dated as of March 3, 2006, by and between Hertz  Vehicle Financing LLC, The Hertz Corporation, as Administrator, certain  Conduit Investors, each as a Conduit Investor, certain Financial  Institutions, each as a Committed Note Purchaser, certain Funding Agents, and  Lehman Commercial Paper Inc., as Administrative Agent** |

180

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| 4.9.16 |   | Amended and Restated Class  A-2 Note Purchase Agreement (Series 2005-3 Variable Funding Rental Car Asset  backed Notes, Class A-2), dated as of March 3, 2006, by and between Hertz  Vehicle Financing LLC, The Hertz Corporation, as Administrator, certain  Conduit Investors, each as a Conduit Investor, certain Financial  Institutions, each as a Committed Note Purchaser, certain Funding Agents, and  Lehman Commercial Paper Inc., as Administrative Agent**                          |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.9.17 |   | Amended and Restated Class A  Note Purchase Agreement (Series 2005-4 Variable Funding Rental Car Asset  Backed Notes, Class A), dated as of March 3, 2006, by and between Hertz  Vehicle Financing LLC, The Hertz Corporation, as Administrator, certain  Conduit Investors, each as a Conduit Investor, certain Financial  Institutions, each as a Committed Note Purchaser, certain Funding Agents, and  Lehman Commercial Paper Inc., as Administrative Agent**                              |
| 4.9.18 |   | Letter of Credit Facility  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, Hertz Vehicle Financing LLC, and Ford Motor Company**                                                                                                                                                                                                                                                                                                                               |
| 4.9.19 |   | Insurance Agreement, dated  as of December 21, 2005, by and between MBIA Insurance Corporation, as  Insurer, Hertz Vehicle Financing LLC, as Issuer, and BNY Midwest Trust  Company, as Trustee**                                                                                                                                                                                                                                                                                               |
| 4.9.20 |   | Insurance Agreement, dated  as of December 21, 2005, by and between Ambac Assurance Corporation, as  Insurer, Hertz Vehicle Financing LLC, as Issuer, and BNY Midwest Trust  Company, as Trustee**                                                                                                                                                                                                                                                                                              |
| 4.9.21 |   | Note Guaranty Insurance  Policy, dated as of December 21, 2005, of MBIA Insurance Corporation,  relating to Series 2005-1 Rental Car Asset Backed Notes**                                                                                                                                                                                                                                                                                                                                       |
| 4.9.22 |   | Note Guaranty Insurance  Policy, dated as of December 21, 2005, of MBIA Insurance Corporation,  relating to Series 2005-4 Rental Car Asset Backed Notes**                                                                                                                                                                                                                                                                                                                                       |
| 4.9.23 |   | Note Guaranty Insurance  Policy, dated as of December 21, 2005, of Ambac Assurance Corporation,  relating to Series 2005-2 Rental Car Asset Backed Notes**                                                                                                                                                                                                                                                                                                                                      |
| 4.9.24 |   | Note Guaranty Insurance  Policy, dated as of December 21, 2005, of Ambac Assurance Corporation,  relating to Series 2005-3 Rental Car Asset Backed Notes**                                                                                                                                                                                                                                                                                                                                      |
| 4.9.25 |   | Supplement to Second Amended  and Restated Collateral Agency Agreement, dated as of January 26, 2007, among  The Hertz Corporation, as Grantor, Gelco Corporation d/b/a GE Fleet Services,  as Secured Party and BNY Midwest Trust Company as Collateral Agent***                                                                                                                                                                                                                               |
| 4.10   |   | Amended and Restated  Stockholders Agreement, dated as of November 20, 2006, among Hertz Global  Holdings, Inc., Clayton, Dubilier & Rice Fund VII, L.P., CDR CCMG  Co-Investor L.P., CD&R Parallel Fund VII, L.P., Carlyle Partners IV,  L.P., CP IV Coinvestment, L.P., CEP II U.S. Investments, L.P., CEP II  Participations S.à.r.l SICAR, ML Global Private Equity Fund, L.P., Merrill  Lynch Ventures L.P. 2001, ML Hertz Co-Investor, L.P. and CMC-Hertz Partners,  L.P.*** |

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| 4.11   |   | Registration Rights  Agreement, dated as of December 21, 2005, among CCMG Holdings, Inc. (now  known as Hertz Global Holdings, Inc.), Clayton, Dubilier & Rice Fund VII,  L.P., CDR CCMG Co-Investor L.P., Carlyle Partners IV, L.P., CP IV Coinvestment,  L.P., CEP II U.S. Investments, L.P., CEP II Participations S.à.r.l, ML Global  Private Equity Fund, L.P., Merrill Lynch Ventures L.P. 2001, ML Hertz  Co-Investor, L.P. and CMC-Hertz Partners, L.P. (filed as the exhibit of the  same number to Amendment No. 3 to the Registration Statement on Form S-1 of  Hertz Global Holdings, Inc. (File No. 333-135782) filed on October 23, 2006) |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.12   |   | Amendment No. 1, dated as of  November 20, 2006, to the Registration Rights Agreement, dated as of December  21, 2005, among CCMG Holdings, Inc. (now known as Hertz Global Holdings,  Inc.), Clayton, Dubilier & Rice Fund VII, L.P., CDR CCMG Co-Investor  L.P., CD&R Parallel Fund VII, L.P., Carlyle Partners IV, L.P., CP IV  Coinvestment, L.P., CEP II U.S. Investments, L.P., CEP II Participations  S.à.r.l SICAR, ML Global Private Equity Fund, L.P., Merrill Lynch Ventures  L.P. 2001, ML Hertz Co-Investor, L.P. and CMC-Hertz Partners, L.P.***                                                                                      |
| 4.13   |   | Credit Agreement, dated as  of September 29, 2006, among The Hertz Corporation, Puerto Ricancars, Inc.,  the several banks and other financial institutions from time to time parties  as lenders thereto and Gelco Corporation d.b.a. GE Fleet Services, as  administrative agent and collateral agents for the lenders thereunder (filed  as the exhibit of the same number to Amendment No. 4 to the Registration  Statement on Form S-1 of Hertz Global Holdings, Inc. (File No. 333-135782)  filed on October 27, 2006)                                                                                                                                     |
| 4.13.1 |   | First Amendment, dated as of  October 6, 2006, to the Credit Agreement, dated as of September 29, 2006,  among The Hertz Corporation, Puerto Ricancars, Inc., the several banks and  other financial institutions from time to time parties as lenders thereto and  Gelco Corporation d.b.a. GE Fleet Services, as administrative agent and  collateral agents for the lenders thereunder (filed as the exhibit of the  same number to Amendment No. 4 to the Registration Statement on Form S-1 of  Hertz Global Holdings, Inc. (File No. 333-135782) filed on October 27, 2006)                                                                                |
| 4.13.2 |   | Second Amendment, dated as  of October 31, 2006, to the Credit Agreement, dated as of September 29, 2006,  among The Hertz Corporation, Puerto Ricancars, Inc., the several banks and  other financial institutions from time to time parties as lenders thereto and  Gelco Corporation d.b.a. GE Fleet Services, as administrative agent and  collateral agents for the lenders thereunder***                                                                                                                                                                                                                                                                   |
| 10.1   |   | Hertz Global Holdings, Inc.  Stock Incentive Plan* **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.1.1 |   | First Amendment to the Hertz  Global Holdings, Inc. Stock Incentive Plan (filed as the exhibit of the same  number to Amendment No. 4 to the Registration Statement on Form S-1 of Hertz  Global Holdings, Inc. (File No. 333-135782) filed on October 27, 2006)*                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.2   |   | Form of Stock Subscription  Agreement under Stock Incentive Plan* **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.3   |   | Form of Stock Option Agreement  under Stock Incentive Plan* **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.4   |   | Employment Agreement between  The Hertz Corporation and Craig R. Koch (Incorporated by reference to Exhibit  10.4(3) to our Registration Statement No. 333-125764)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

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| 10.5  |   | Form of Change in Control  Agreement (and certain terms related thereto) among The Hertz Corporation,  Ford Motor Company and each of Messrs. Koch, Nothwang, Siracusa, Taride and  Plescia (Incorporated by reference to Exhibit 10.5 to our Registration  Statement No. 333-125764)* |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.6  |   | Non-Compete Agreement, dated  April 10, 2000, between Hertz Europe Limited and Michel Taride (Incorporated  by reference to Exhibit 10.6 to our Registration Statement No. 333-125764)*                                                                                                |
| 10.7  |   | The Hertz Corporation  Compensation Supplemental Retirement and Savings Plan (Incorporated by  reference to Exhibit 10.7 to our Registration Statement No. 333-125764)*                                                                                                                |
| 10.8  |   | The Hertz Corporation  Executive Long Term Incentive Compensation Plan (Incorporated by reference to  Exhibit 10.8 to our Registration Statement No. 333-125764)*                                                                                                                      |
| 10.9  |   | The Hertz Corporation  Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit  10.9 to our Registration Statement No. 333-125764)*                                                                                                                               |
| 10.10 |   | The Hertz Corporation  Benefit Equalization Plan (Incorporated by reference to Exhibit 10.10 to our  Registration Statement No. 333-125764)*                                                                                                                                           |
| 10.11 |   | The Hertz Corporation Key  Officer Postretirement Assigned Car Benefit Plan (Incorporated by reference  to Exhibit 10.11 to our Registration Statement No. 333-125764)*                                                                                                                |
| 10.12 |   | The Hertz Corporation  Retirement Plan (Incorporated by reference to Exhibit 10.12 to our  Registration Statement No. 333-125764)*                                                                                                                                                     |
| 10.13 |   | The Hertz Corporation (UK)  1972 Pension Plan (Incorporated by reference to Exhibit 10.13 to our  Registration Statement No. 333-125764)*                                                                                                                                              |
| 10.14 |   | The Hertz Corporation (UK)  Supplementary Unapproved Pension Scheme (Incorporated by reference to Exhibit  10.14 to our Registration Statement No. 333-125764)*                                                                                                                        |
| 10.15 |   | RCA Executive Deferred  Compensation Plan and Employee Participation Agreement, dated May 29, 1985,  between Craig R. Koch and The Hertz Corporation (Incorporated by reference to  Exhibit 10.15 to our Registration Statement No. 333-125764)*                                       |
| 10.16 |   | The Hertz Corporation 2005  Executive Incentive Compensation Plan* **                                                                                                                                                                                                                  |
| 10.17 |   | Letter Agreement, dated October  19, 2005, as amended and restated as of November 15, 2005, between CCMG  Holdings, Inc. (now known as Hertz Global Holdings, Inc.) and Craig R. Koch*  **                                                                                             |
| 10.18 |   | Amended and Restated  Indemnification Agreement, dated as of December 21, 2005, by and between The  Hertz Corporation, Hertz Vehicles LLC, Hertz Funding Corp., Hertz General  Interest LLC, and Hertz Vehicle Financing LLC**                                                         |
| 10.19 |   | Consulting Agreement, dated  as of December 21, 2005, by and between CCMG Holdings, Inc. (now known as  Hertz Global Holdings, Inc.), The Hertz Corporation, and Clayton, Dubilier  & Rice, Inc.**                                                                                 |
| 10.20 |   | Consulting Agreement, dated  as of December 21, 2005, by and between CCMG Holdings, Inc. (now known as  Hertz Global Holdings, Inc.), The Hertz Corporation, and TC Group IV, L.L.C.**                                                                                                 |

183

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| 10.21 |   | Consulting Agreement, dated  as of December 21, 2005, by and between CCMG Holdings, Inc. (now known as  Hertz Global Holdings, Inc.), The Hertz Corporation, and Merrill Lynch Global  Partners, Inc.**                                                                                                                                                                                                                                                                                                    |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.22 |   | Indemnification Agreement,  dated as of December 21, 2005, by and between CCMG Holdings, Inc. (now known  as Hertz Global Holdings, Inc.), The Hertz Corporation, Clayton, Dubilier  & Rice Fund VII, L.P., CDR CCMG Co-Investor L.P., and Clayton, Dubilier  & Rice, Inc.**                                                                                                                                                                                                                       |
| 10.23 |   | Indemnification Agreement,  dated as of December 21, 2005, by and between CCMG Holdings, Inc. (now known  as Hertz Global Holdings, Inc.), The Hertz Corporation, Carlyle Partners IV,  L.P., CP IV Coinvestment L.P., CEP II U.S. Investments, L.P., CEP II  Participations S.à.r.l., and TC Group IV, L.L.C.**                                                                                                                                                                                      |
| 10.24 |   | Indemnification Agreement,  dated as of December 21, 2005, by and between CCMG Holdings, Inc. (now known  as Hertz Global Holdings, Inc.), The Hertz Corporation, ML Global Private  Equity Fund, L.P., Merrill Lynch Ventures L.P. 2001, CMC-Hertz Partners,  L.P., ML Hertz Co-Investor, L.P., and Merrill Lynch Global Partners, Inc.**                                                                                                                                                                 |
| 10.25 |   | Tax Sharing Agreement, dated  as of December 21, 2005, by and between CCMG Holdings, Inc. (now known as  Hertz Global Holdings, Inc.), CCMG Corporation, The Hertz Corporation, and  Hertz International, Ltd.**                                                                                                                                                                                                                                                                                           |
| 10.26 |   | Tax Sharing Agreement, dated  as of December 21, 2005, by and between CCMG Holdings, Inc. (now known as  Hertz Global Holdings, Inc.), CCMG Corporation, and The Hertz Corporation**                                                                                                                                                                                                                                                                                                                       |
| 10.27 |   | Master Supply and  Advertising Agreement, dated as of July 5, 2005, by and between Ford Motor  Company, The Hertz Corporation and Hertz General Interest LLC (Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the  Securities and Exchange Commission on July 11, 2005. Such Exhibit omits  certain information that has been filed separately with the Securities and  Exchange Commission and submitted pursuant to an application for confidential  treatment.) |
| 10.28 |   | Employment letter agreement,  dated as of July 10, 2006, between Hertz Global Holdings, Inc. and Mark P.  Frissora (Incorporated by reference to Exhibit 10.1 to our Quarterly Report  on Form 10-Q filed with the Securities and Exchange Commission on August 14,  2006.)                                                                                                                                                                                                                                |
| 10.29 |   | Form of Director  Indemnification Agreement (filed as the exhibit of the same number to  Amendment No. 3, filed on October 23, 2006, to the Registration Statement on  Form S-1 of Hertz Global Holdings, Inc. (File No. 333-135782)                                                                                                                                                                                                                                                                       |
| 10.30 |   | Termination letter agreement,  dated as of November 20, 2006, among Hertz Global Holdings, Inc. (formerly  known as CCMG Holdings, Inc.), The Hertz Corporation and Clayton, Dubilier  & Rice, Inc., terminating the Consulting Agreement, dated as of December  21, 2005, among Hertz Global Holdings, Inc., the Hertz Corporation and  Clayton, Dubilier & Rice, Inc.***                                                                                                                         |
| 10.31 |   | Termination letter  agreement, dated as of November 20, 2006, among Hertz Global Holdings, Inc.  (formerly known as CCMG Holdings, Inc.), The Hertz Corporation and TC Group IV,  L.L.C., terminating the Consulting Agreement, dated as of December 21, 2005,  among Hertz Global Holdings, Inc., the Hertz Corporation and TC Group IV,  L.L.C.***                                                                                                                                                       |

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| 10.32          |   | Termination letter  agreement, dated as of November 20, 2006, among Hertz Global Holdings, Inc.  (formerly known as CCMG Holdings, Inc.), The Hertz Corporation and Merrill  Lynch Global Partners, Inc., terminating the Consulting Agreement, dated as  of December 21, 2005, among Hertz Global Holdings, Inc., the Hertz  Corporation and Merrill Lynch Global Partners, Inc.*** |
|----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.33          |   | Hertz Global Holdings, Inc.  Director Stock Incentive Plan* (filed as the exhibit of the same number to  Amendment No. 6 to the Registration Statement on Form S-1 of Hertz Global  Holdings, Inc. (File No. 333-135782) filed on November 7, 2006)                                                                                                                                  |
| 12             |   | Computation of Consolidated  Ratio of Earnings to Fixed Charges for the year ended December 31, 2006, the  periods ended December 31, 2005 and December 20, 2005 and each of the three  years in the period ended December 31, 2004.                                                                                                                                                 |
| 21             |   | List of subsidiaries  (Omitted pursuant to General Instruction I of Form 10-K)                                                                                                                                                                                                                                                                                                       |
| 23.1           |   | Consent of  PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                                                                               |
| 31.1–31.2 |   | Rule 13a-14(a)/15d-14(a)  Certifications of Chief Executive Officer and Chief Financial Officer                                                                                                                                                                                                                                                                                      |
| 32.1–32.2 |   | Section 1350 Certifications  of Chief Executive Officer and Chief Financial Officer                                                                                                                                                                                                                                                                                                  |

----

*                    Indicatesmanagement compensation plan. 

**             Incorporated byreference to the exhibit of the same number to our Current Report on Form 8-K,as filed with the Securities and Exchange Commission on March 31, 2006. 

***      Incorporated by reference tothe exhibit of the same number to the Annual Report on Form 10-K of HertzGlobal Holdings, Inc., as filed on March 30, 2007.

As of December 31, 2006, we had various additionalobligations which could be considered long-term debt, none of which exceeded10% of our total assets on a consolidated basis. We agree to furnish to the SECupon request a copy of any such instrument defining the rights of the holdersof such long-term debt.

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

**SUPPLEMENTALINFORMATION**

The Registrant is an indirect wholly owned subsidiaryof Hertz Global Holdings, Inc. No annual report to security holderscovering the Registrant’s last fiscal year or proxy statement, form of proxy orother proxy soliciting material has been sent to security holders.

185

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, in the borough of ParkRidge, and state of New Jersey, on the 30th day of March, 2007.
|        |     | THE HERTZ CORPORATION |                                                   |
|--------|----------|-----------------------|--------------------------------------------------------|
|   |     | (Registrant)          |                                                   |
|   |     | By:                   | /s/ PAUL J. SIRACUSA                                   |
|   |     | Name:                 | Paul J. Siracusa                                       |
|   | * * | Title:                | *Executive Vice President and Chief Financial Officer* |
|        |          |                       |                                                        |  |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities indicated on March 30, 2007:
|                        | **Signature** | ** **                                                         | ** ** | ** ** | **Title** | ** ** |
|------------------------|---------------|--------------------------------------------------------------------|------------|------------|-----------|------------|
| /s/ GEORGE W.  TAMKE   | * *      | *Lead Director*                                                    |
| George W. Tamke        | * *      | * *                                                           |
| /s/ MARK P. FRISSORA   | * *      | *Chief  Executive Officer and  Chairman of the Board of Directors* |
| Mark P. Frissora       | * *      | * *                                                           |
| /s/ PAUL J. SIRACUSA   | * *      | *Executive  Vice President and  Chief Financial Officer*           |
| Paul J. Siracusa       | * *      | * *                                                           |
| /s/ RICHARD J. FOTI    | * *      | *Staff  Vice President and Controller*                             |
| Richard J. Foti        | * *      | * *                                                           |
| /s/ NATHAN K. SLEEPER  | * *      | *Director*                                                         |
| Nathan K. Sleeper      | * *      | * *                                                           |
| /s/ DAVID H. WASSERMAN | * *      | *Director*                                                         |
| David H. Wasserman     | * *      | * *                                                           |
| /s/ BRIAN A. BERNASEK  | * *      | *Director*                                                         |
| Brian A. Bernasek      | * *      | * *                                                           |
| /s/ GREGORY S. LEDFORD | * *      | *Director*                                                         |
| Gregory S. Ledford     | * *      | * *                                                           |
| /s/ GEORGE A. BITAR    | * *      | *Director*                                                         |
| George A. Bitar        | * *      | * *                                                           |
| /s/ ROBERT F. END      | * *      | *Director*                                                         |
| Robert F. End          | * *      | * *                                                           |
| /s/ BARRY H. BERACHA   | * *      | *Independent  Director*                                            |
| Barry H. Beracha       | * *      | * *                                                           |
| /s/ CARL T. BERQUIST   | * *      | *Independent  Director*                                            |
| Carl T. Berquist       | * *      | * *                                                           |
| /s/ MICHAEL J. DURHAM  | * *      | *Independent  Director*                                            |
| Michael J. Durham      | * *      | * *                                                           |
| /s/HENRY C. WOLF       | * *      | *Independent Director*                                             |
| Henry C. Wolf          | * *      | * *                                                           |

 

186

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**EXHIBITINDEX**
| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Stock Purchase  Agreement, dated as of September 12, 2005, among CCMG Holdings, Inc., Ford  Holdings LLC and Ford Motor Company (Incorporated by reference to Exhibit 2  to the Quarterly Report on Form 10-Q of Ford Motor Company, as filed on  November 7, 2005.)                                                                                                                                 |
| 3.1              |       | Restated Certificate  of Incorporation of The Hertz Corporation, dated April 30, 1997  (Incorporated by reference to Exhibit 3(a) to our Current Report on Form 8-K,  as filed on May 1, 1997)                                                                                                                                                                                                       |
| 3.2              |       | Certificate of  Amendment, dated May 2, 2001, of Restated Certificate of Incorporation of The  Hertz Corporation (Incorporated by reference to Exhibit 3(i) to our Quarterly  Report on Form 10-Q, as filed on August 7, 2001)                                                                                                                                                                                 |
| 3.3              |       | Certificate of  Amendment, dated November 20, 2006, of Restated Certificate of Incorporation  of The Hertz Corporation (Incorporated by reference to Exhibit 3.1.1 to  Amendment No. 3 to our Registration Statement on Form S-4 (File No.  333-13849), as filed on December 4, 2006)                                                                                                                          |
| 3.4              |       | Amended and Restated  By-Laws of The Hertz Corporation (Incorporated by reference to the exhibit of  the same number to the Amendment No. 3 to our Registration Statement on Form  S-4 (File No. 333-13849), as filed on December 4, 2006)                                                                                                                                                                     |
| 4.1.1            |       | Indenture, dated as  of December 21, 2005, by and between CCMG Acquisition Corporation, as Issuer,  the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo  Bank, National Association, as Trustee, governing the U.S. Dollar 8.875%  Senior Notes due 2014 and the Euro 7.875% Senior Notes due 2014**                                                                                  |
| 4.1.2            |       | Merger Supplemental  Indenture, dated as of December 21, 2005, by and between The Hertz  Corporation and Wells Fargo Bank, National Association, as Trustee, relating  to the U.S. Dollar 8.875% Senior Notes due 2014 and the Euro 7.875% Senior  Notes due 2014**                                                                                                                                            |
| 4.1.3            |       | Supplemental  Indenture in Respect of Subsidiary Guarantee, dated as of December 21,  2005, by and between The Hertz Corporation, the Subsidiary Guarantors named therein,  and Wells Fargo Bank, National Association, as Trustee, relating to the U.S.  Dollar 8.875% Senior Notes due 2014 and the Euro 7.875% Senior Notes due  2014**                                                                |
| 4.1.4            |       | Third Supplemental  Indenture, dated as of July 7, 2006, by and between The Hertz Corporation,  the Subsidiary Guarantors named therein, and Wells Fargo Bank, National  Association, as Trustee, relating to the U.S. Dollar 8.875% Senior Notes due  2014 and the Euro 7.875% Senior Notes due 2014 (Incorporated by reference to  Exhibit 4.3 to our Current Report on Form 8-K, as filed on July 7, 2006.) |
| 4.2.1            |       | Indenture, dated as  of December 21, 2005, by and between CCMG Acquisition Corporation, as Issuer,  the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo  Bank, National Association, as Trustee, governing the 10.5% Senior  Subordinated Notes due 2016**                                                                                                                            |
| 4.2.2            |       | Merger Supplemental  Indenture, dated as of December 21, 2005, by and between The Hertz  Corporation and Wells Fargo Bank, National Association, as Trustee, relating  to the 10.5% Senior Subordinated Notes due 2016**                                                                                                                                                                                       |

187

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| 4.2.3 |   | Supplemental  Indenture in Respect of Subsidiary Guarantee, dated as of December 21, 2005,  by and between The Hertz Corporation, the Subsidiary Guarantors named  therein, and Wells Fargo Bank, National Association, as Trustee, relating to  the 10.5% Senior Subordinated Notes due 2016**                                                                                                                                                                                                                              |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.2.4 |   | Third Supplemental  Indenture, dated as of July 7, 2006, by and between The Hertz Corporation,  the Subsidiary Guarantors named therein, and Wells Fargo Bank, National Association,  as Trustee, relating to the 10.5% Senior Subordinated Notes due 2016  (Incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K,  as filed on July 7, 2006.)                                                                                                                                                         |
| 4.3.1 |   | Exchange and  Registration Rights Agreement, dated as of December 21, 2005, by and between  CCMG Acquisition Corporation, Deutsche Bank Securities Inc. and the other  financial institutions named therein, relating to the 8.875% Senior Notes due  2014 and the 7.875% Senior Notes due 2014**                                                                                                                                                                                                                            |
| 4.3.2 |   | Joinder Agreement to  the Exchange and Registration Rights Agreement, dated as of December 21,  2005, of The Hertz Corporation relating to the 8.875% Senior Notes due 2014  and the 7.875% Senior Notes due 2014**                                                                                                                                                                                                                                                                                                          |
| 4.3.3 |   | Joinder Agreement to  the Exchange and Registration Rights Agreement, dated as of December 21,  2005, of the Subsidiary Guarantors named therein, relating to the 8.875%  Senior Notes due 2014 and the 7.875% Senior Notes due 2014**                                                                                                                                                                                                                                                                                       |
| 4.4.1 |   | Exchange and  Registration Rights Agreement, dated as of December 21, 2005, by and between  CCMG Acquisition Corporation, Deutsche Bank Securities Inc. and the other  financial institutions named therein, relating to the 10.5% Senior  Subordinated Notes due 2016**                                                                                                                                                                                                                                                     |
| 4.4.2 |   | Joinder Agreement to  the Exchange and Registration Rights Agreement, dated as of December 21,  2005, of The Hertz Corporation, relating to the 10.5% Senior Subordinated  Notes due 2016**                                                                                                                                                                                                                                                                                                                                  |
| 4.4.3 |   | Joinder Agreement to  the Exchange and Registration Rights Agreement, dated as of December 21,  2005, of the Subsidiary Guarantors named therein, relating to the 10.5%  Senior Subordinated Notes due 2016**                                                                                                                                                                                                                                                                                                                |
| 4.5.1 |   | Senior Bridge  Facilities Agreement, dated as of December 21, 2005, by and between Hertz  International, Ltd., certain of its subsidiaries, Hertz Europe Limited, as  Coordinator, BNP Paribas and The Royal Bank of Scotland plc, as Mandated Lead  Arrangers, Calyon, as Co-Arranger, BNP Paribas, The Royal Bank of Scotland  plc, and Calyon, as Joint Bookrunners, BNP Paribas, as Facility Agent, BNP  Paribas, as Security Agent, BNP Paribas, as Global Coordinator, and the  financial institutions named therein** |
| 4.5.2 |   | Intercreditor Deed,  dated as of December 21, 2005, by and between Hertz International, Ltd., as  Parent, Hertz Europe Limited, as Coordinator, certain of its subsidiaries,  BNP Paribas as A/C Facility Agent and NZ Facility Agent, BNP Paribas as  Security Agent, Banco BNP Paribas Brasil S.A., as Brazilian Facility Agent,  BNP Paribas, as Australian Security Trustee, the financial institutions named  therein, and The Hertz Corporation**                                                                      |
| 4.5.3 |   | Australian Purchaser  Charge (Project H)—Unlimited, dated as of December 21, 2005, by and between  Hertz Australia Pty Limited and HA Funding Pty Limited**                                                                                                                                                                                                                                                                                                                                                             |
| 4.5.4 |   | Australian Purchaser  Charge (Project H)—South Australia, dated as of December 21, 2005, by and  between Hertz Australia Pty Limited and HA Funding Pty Limited**                                                                                                                                                                                                                                                                                                                                                       |

188

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| 4.5.5    |   | Australian Purchaser  Charge (Project H)—Queensland, dated as of December 21, 2005, by and between  Hertz Australia Pty Limited and HA Funding Pty Limited**                                                                                                                                                                |
|----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5.6    |   | Australian Share  Mortgage of Purchaser Shares (Project H), dated as of December 21, 2005, by  and between Hertz Investment (Holdings) Pty Limited and HA Funding Pty  Limited**                                                                                                                                                 |
| 4.5.7    |   | Australian Issuer  Charge (Project H), dated as of December 21, 2005, by and between Hertz Note  Issuer Pty Limited and HA Funding Pty Limited**                                                                                                                                                                                 |
| 4.5.8    |   | Australian Borrower  Charge (Project H), dated as of December 20, 2005, by and between HA Funding  Pty Limited and the BNP Paribas**                                                                                                                                                                                             |
| 4.5.9    |   | Australian Security  Trust Deed (Project H), dated as of December 21, 2005, between HA Funding Pty  Limited and BNP Paribas**                                                                                                                                                                                                    |
| 4.5.10   |   | Business Pledge  Agreement, dated as of December 21, 2005, by and between Hertz Belgium N.V.,  as Pledgor, and BNP Paribas S.A., as Pledgee (English language version)**                                                                                                                                                         |
| 4.5.11   |   | Receivables and Bank  Account Pledge Agreement, dated as of December 21, 2005, by and between Hertz  Belgium NV as Pledgor, and BNP Paribas, as Pledgee**                                                                                                                                                                        |
| 4.5.12   |   | Share Pledge  Agreement, dated as of December 21, 2005, by and between Hertz Holdings  Netherlands B.V., as Pledgor, and BNP Paribas, as Pledgee**                                                                                                                                                                               |
| 4.5.13   |   | Security Agreement,  dated as of December 21, 2005, by and between Hertz Canada Limited, as  Obligor, and BNP Paribas (Canada), as Security Agent**                                                                                                                                                                              |
| 4.5.14.1 |   | Deed of Hypothec,  dated as of December 21, 2005, by and between Hertz Canada Limited and BNP  Paribas (Canada), and related Bond and Bond Pledge Agreement**                                                                                                                                                                    |
| 4.5.14.2 |   | Bond Pledge  Agreement, dated as of December 21, 2005, by and between Hertz Canada  Limited, as Pledgor, and BNP Paribas (Canada), as Security Agent**                                                                                                                                                                           |
| 4.5.15   |   | Security Agreement,  dated as of December 21, 2005, by and between 1677932 Ontario Limited, as  Obligor, and BNP Paribas (Canada), as Security Agent**                                                                                                                                                                           |
| 4.5.16   |   | Security Agreement,  dated as of December 21, 2005, by and between CMGC Canada Acquisition ULC, as  Obligor, and BNP Paribas (Canada), as Security Agent**                                                                                                                                                                       |
| 4.5.17   |   | Pledge of a Business  as a Going Concern (Acte de Nantissement de Fonds de Commerce), dated as of  December 21, 2005, by and between Hertz France, as Pledgor, and BNP Paribas,  as Security Agent, and the beneficiaries described therein (English language  version)**                                                        |
| 4.5.18   |   | Bank Account Pledge  Agreement (Acte de Nantissement de Solde de Compte Bancaire), dated as of  December 21, 2005, by and between Hertz France, as Pledgor, and BNP Paribas,  as Security Agent, and the beneficiaries described therein (English language  version)**                                                           |
| 4.5.19   |   | Share Account Pledge  Agreement (Acte de Nantissement de Compte d'Instruments Financiers), dated as  of December 21, 2005, by and between Hertz France, as Pledgor, BNP Paribas,  as Security Agent, Hertz Equipement France, as Account Holder, BNP Paribas,  as Bank Account Holder, and the beneficiaries described therein** |

189

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| 4.5.20 |   | Pledge of a Business  as a Going Concern (Acte de Nantissement de Fonds de Commerce), dated as of  December 21, 2005, by and between Hertz Equipement France, as Pledgor, BNP  Paribas, as Security Agent, and the beneficiaries described therein (English  language version)**                                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5.21 |   | Bank Account Pledge  Agreement (Acte de Nantissement de Solde de Compte Bancaire), dated as of  December 21, 2005, by and between Hertz Equipement France, as Pledgor, BNP  Paribas, as Security Agent, and the beneficiaries described therein (English  language version)**                                                   |
| 4.5.22 |   | Master Agreement For  Assignment of Receivables (Contrat Cadre de Cession de Creances  Professionnelles a Titre de Garantie), dated as of December 21, 2005, by and  between Hertz Equipement France, as Assignor, BNP Paribas, as Security Agent,  and the assignees described therein**                                       |
| 4.5.23 |   | Pledge of a Business  as a Going Concern (Acte de Nantissement de Fonds de Commerce), dated as of  December 21, 2005, by and between Equipole Finance Services, as Pledgor, BNP  Paribas, as Security Agent, and the beneficiaries described therein (English  language version)**                                              |
| 4.5.24 |   | Master Agreement for  Assignment of Receivables (Contrat Cadre de Cession de Creances  Professionnelles a Titre de Garantie), dated as of December 21, 2005, by and  between Equipole Finance Services, as Assignor, BNP Paribas, as Security  Agent, and the assignees described therein**                                     |
| 4.5.25 |   | Bank Account Pledge  Agreement (Acte de Nantissement de Solde de Compte Bancaire), dated as of  December 21, 2005, by and between Equipole Finance Services, as Pledgor, BNP  Paribas, as Security Agent, and the beneficiaries described therein (English  language version)**                                                 |
| 4.5.26 |   | Shares Account Pledge  Agreement (Acte de Nantissement de Compte d'Instruments Financiers), dated as  of December 21, 2005, by and between Equipole, as Pledgor, BNP Paribas, as  Security Agent, Equipole Finance Services, as Account Holder, BNP Paribas, as  Bank Account Holder, and the beneficiaries described therein** |
| 4.5.27 |   | Share Account Pledge  Agreement (Acte de Nantissement de Compte d'Instruments Financiers), dated as  of December 21, 2005, by and between Equipole, as Pledgor, BNP Paribas, as  Security Agent, Hertz France, as Account Holder, BNP Paribas, as Bank Account  Holder, and the beneficiaries described therein**               |
| 4.5.28 |   | Shares Account Pledge  Agreement (Acte de Nantissement de Compte d'Instruments Financiers), dated as  of December 21, 2005, by and between Equipole, as Pledgor, BNP Paribas, as  Security Agent, Hertz Equipement France, as Account Holder, BNP Paribas, as  Bank Account Holder, and the beneficiaries described therein**   |
| 4.5.29 |   | Account Pledge  Agreement, dated as of December 21, 2005, among Hertz Autovermietung GmbH,  The Royal Bank of Scotland plc, Calyon, BNP Paribas (Canada) and Indosuez  Finance (U.K.) Limited as Pledgees and BNP Paribas S.A. as Security Agent**                                                                              |
| 4.5.30 |   | Global Assignment  Agreement, dated as of December 21, 2005, between Hertz Autoverrmietung GmbH  as assignor and BNP Paribas S.A. as Security Agent and lender (English  language version)**                                                                                                                                    |

190

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| 4.5.31 |   | Security Transfer of  Moveable Assets, dated as of December 21, 2005, between Hertz Autovermietung  GmbH as assignor and BNP Paribas S.A. as Security Agent and lender**                                                                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5.32 |   | Share Pledge  Agreement, dated as of December 21, 2005, among Equipole S.A. (France), The  Royal Bank of Scotland plc, Calyon, BNP Paribas (Canada), Indosuez Finance  (U.K.) Limited and BNP Paribas S.A., as Security Agent**                  |
| 4.5.33 |   | Security Assignment  of Receivables, dated as of December 21, 2005, between Hertz Italiana S.p.A.  as assignor and BNP Paribas S.A. as Security Agent**                                                                                          |
| 4.5.34 |   | Pledge Agreement over  the Balance of Bank Account, dated as of December 21, 2005, between Hertz  Italiana S.p.A. as pledgor and BNP Paribas S.A. as Pledgee and Security  Agent**                                                               |
| 4.5.35 |   | Pledge Agreement over  the Balance of Bank Account, dated as of December 21, 2005, between Hertz  Italiana S.p.A., as Pledgor, and BNP Paribas S.A., as Pledgee and Security  Agent**                                                            |
| 4.5.36 |   | Pledge Agreement over  Hertz Italiana S.p.A. shares, dated as of December 21, 2005, between Hertz  Holding South Europe S.r.l as Pledgor and BNP Paribas S.A. as Pledgee and  Security Agent**                                                   |
| 4.5.37 |   | Deed of  Non-Possessory Pledge of Movables, dated as of December 21, 2005, between  Stuurgroep Holland B.V., as Pledgor, and BNS Automobile Funding B.V. and BNP  Paribas as Security Agent, as Pledgees**                                       |
| 4.5.38 |   | Deed of Disclosed  Pledge of Receivables, dated as of December 21, 2005, between Stuurgroep  Holland B.V., as Pledgor, and BNS Automobile Funding B.V. and BNP Paribas as  Security Agent, as Pledgees**                                         |
| 4.5.39 |   | Deed of Undisclosed  Pledge of Receivables between Stuurgroep Holland B.V., as Pledgor, and BNS  Automobile Funding B.V. and BNP Paribas as Security Agent, as Pledgees**                                                                        |
| 4.5.40 |   | Deed of Pledge of  Registered Shares, dated as of December 21, 2005, between Stuurgroep Holland  B.V., as Pledgor, BNS Automobile Funding B.V. and BNP Paribas, as Pledgees,  and Hertz Automobielen Netherlands B.V.**                          |
| 4.5.41 |   | Deed of Pledge on  Registered Shares, dated as of December 21, 2005, between Hertz Holdings  Netherlands B.V., as Pledgor, BNS Automobile Funding B.V., as Pledgee, and  Stuurgroep Holland B.V.**                                               |
| 4.5.42 |   | Deed of Disclosed  Pledge of Receivables between BNS Automobile Funding B.V., as Pledgor, and  BNP Paribas as Security Agent, as Pledgee**                                                                                                       |
| 4.5.43 |   | Pledges of Shares  Contract, dated as of December 21, 2005, among Hertz de España, S.A, Hertz  Alquiler de Maquinaria, S.L., BNS Automobile Funding B.V. and BNP Paribas  S.A. as Security Agent relating to Hertz Alquiler de Maquinaria** |
| 4.5.44 |   | Contract on Pledges  of Credit Rights, dated as of December 21, 2005, among Hertz de España, S.A.,  BNS Automobile Funding B.V. and BNP Paribas S.A. as Security Agent**                                                                    |
| 4.5.45 |   | Pledge of Credit  Rights of Insurance Policies Contract, dated as of December 21, 2005, among  Hertz de España, S.A., BNS Automobile Funding B.V. and BNP Paribas S.A. as  Security Agent**                                                 |

191

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| 4.5.46 |   | Pledge of Credit  Rights of Bank Accounts, dated as of December 21, 2005 among Hertz de España,  S.A., as Pledgor, BNS Automobile Funding B.V. and BNP Paribas S.A., as  Security Agent**                                                     |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5.47 |   | Pledges over VAT Credit  Rights Contract, dated as of December 21, 2005, among Hertz de España, S.A.,  as Pledgor, BNS Automobile Funding B.V. and BNP Paribas S.A., as Security  Agent**                                                     |
| 4.5.48 |   | Contract on Pledges  of Credit Rights, dated as of December 21, 2005, among Hertz Alquiler de  Maquinaria, S.L., as Pledgor, BNS Automobile Funding B.V. and BNP Paribas  S.A., as Security Agent**                                                |
| 4.5.49 |   | Pledge of Credit  Rights of Bank Accounts Contract, dated as of December 21, 2005, among Hertz  Alquiler de Maquinaria, S.L., as Pledgor, BNS Automobile Funding B.V. and BNP  Paribas S.A., as Security Agent**                                   |
| 4.5.50 |   | Pledges of Credit  Rights of Insurance Policies Contract, dates as of December 21, 2005, among  Hertz Alquiler de Maquinaria, S.L., as Pledgor, BNS Automobile Funding B.V.  and BNP Paribas S.A., as Security Agent**                             |
| 4.5.51 |   | Pledges over VAT  Credit Rights Contracts, dated as of December 21, 2005, among Hertz Alquiler  de Maquinaria S.L., as Pledgor, BNS Automobile Funding B.V., and BNP Paribas  S.A., as Security Agent**                                            |
| 4.5.52 |   | Pledges of Credit  Rights Contract, dated as of December 21, 2005, among BNS Automobile Funding  B.V., as Pledgor, Hertz de Espana S.A., Hertz Alquiler de Maquinaria, S.L.,  and BNP Paribas S.A., as Security Agent**                            |
| 4.5.53 |   | Pledges of Shares  Contract, dated as of December 21, 2005, among Hertz International Ltd.,  Hertz Equipment Rental International, Limited, Hertz de España, S.A., and BNP  Paribas S.A., as Security Agent**                                 |
| 4.5.54 |   | Share Pledge  Agreement, dated as of December 21, 2005, between Hertz AG and BNP Paribas  S.A. as Security Agent relating to the pledge of the entire share capital of  Züri-Leu Garage AG and Société Immobilière Fair Play** |
| 4.5.55 |   | Assignment Agreement,  dated as of December 21, 2005, between Hertz AG and BNP Paribas S.A. as  Security Agent relating to the assignment and transfer of trade receivables,  insurance claims, inter-company receivables and bank accounts**      |
| 4.5.56 |   | Share Pledge  Agreement, dated as of December 21, 2005, between Hertz Holdings South Europe  S.r.l and BNP Paribas S.A. as Security Agent relating to the pledge of the  entire share capital of Hertz AG**                                        |
| 4.5.57 |   | Deed of Charge, dated  as of December 21, 2005, between Hertz (U.K.) Limited as Chargor and BNP  Paribas as Security Agent**                                                                                                                       |
| 4.5.58 |   | Deed of Charge over  Shares, in Hertz (U.K.) Limited, dated as of December 21, 2005, between Hertz  Holdings II U.K. Limited as Chargor and BNP Paribas as Security Agent**                                                                        |
| 4.5.59 |   | Deed of Charge over  Shares in Hertz Holdings III UK Limited, dated as of December 21, 2005,  between Hertz International, Ltd. and BNP Paribas as Security Agent**                                                                                |
| 4.5.60 |   | Deed of Charge, dated  as of December 21, 2005, between BNS Automobile Funding B.V. as Chargor and  BNP Paribas as Security Agent**                                                                                                                |

192

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| 4.6.1 |   | Credit Agreement,  dated as of December 21, 2005, by and between The Hertz Corporation, the  several lenders from time to time parties thereto, Deutsche Bank AG, New York  Branch, as Administrative Agent and Collateral Agent, Lehman Commercial Paper  Inc., as Syndication Agent, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner  and Smith Incorporated, as Documentation Agent, Deutsche Bank Securities  Inc., Lehman Brothers Inc., and Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner and Smith Incorporated, as Joint Lead Arrangers, and BNP  Paribas, The Royal Bank of Scotland plc, and Calyon New York Branch, as  Co-Arrangers, and Deutsche Bank Securities Inc., Lehman Brothers, Inc.,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith  Incorporated, Goldman Sachs Credit Partners L.P., and JPMorgan Chase Bank,  N.A., as Joint Bookrunning Managers**                                                                                                                                                                                                                                                                |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.6.2 |   | Guarantee and  Collateral Agreement, dated as of December 21, 2005, by and between CCMG  Corporation, The Hertz Corporation, certain of its subsidiaries, and Deutsche  Bank AG, New York Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.6.3 |   | Copyright Security  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, certain of its subsidiaries, and Deutsche Bank AG, New York  Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.6.4 |   | Trademark Security  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, certain of its subsidiaries, and Deutsche Bank AG, New York  Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.6.5 |   | Deed of Trust,  Security Agreement, and Assignment of Leases and Rents and Fixture Filing,  dated as of December 21, 2005, among the Hertz Corporation and Deutsche Bank  AG, New York Branch**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.6.6 |   | Term Loan Mortgage  Schedule listing the material differences in mortgages from Exhibit 4.6.5 for  each of the mortgaged properties**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.6.7 |   | Amendment, dated as  of June 30, 2006, among The Hertz Corporation, Deutsche Bank AG, New York  Branch, and the other parties signatory thereto, to the Credit Agreement,  dated as of December 21, 2005, by and between The Hertz Corporation, the  several lenders from time to time parties thereto, Deutsche Bank AG, New York  Branch, as Administrative Agent and Collateral Agent, Lehman Commercial Paper  Inc., as Syndication Agent, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner  and Smith Incorporated, as Documentation Agent, Deutsche Bank Securities  Inc., Lehman Brothers Inc., and Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner and Smith Incorporated, as Joint Lead Arrangers, and BNP  Paribas, The Royal Bank of Scotland plc, and Calyon New York Branch, as  Co-Arrangers, and Deutsche Bank Securities Inc., Lehman Brothers, Inc.,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith  Incorporated, Goldman Sachs Credit Partners L.P., and JPMorgan Chase Bank,  N.A., as Joint Bookrunning Managers (Incorporated by reference to Exhibit 4.1  to our Current Report on Form 8-K, as filed on July 7, 2006.) |

193

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| 4.6.8 |   | Second Amendment,  dated as of February 9, 2007, among The Hertz Corporation, Deutsche Bank AG,  New York Branch, and the other parties signatory thereto, to the Credit  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, the several lenders from time to time parties thereto, Deutsche  Bank AG, New York Branch, as Administrative Agent and Collateral Agent,  Lehman Commercial Paper Inc., as Syndication Agent, Merrill Lynch & Co.,  Merrill Lynch, Pierce, Fenner and Smith Incorporated, as Documentation Agent,  Deutsche Bank Securities Inc., Lehman Brothers Inc., and Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner and Smith Incorporated, as Joint Lead  Arrangers, and BNP Paribas, The Royal Bank of Scotland plc, and Calyon New  York Branch, as Co-Arrangers, and Deutsche Bank Securities Inc., Lehman  Brothers, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and  Smith Incorporated, Goldman Sachs Credit Partners L.P., and JPMorgan Chase  Bank, N.A., as Joint Bookrunning Managers*** |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.7.1 |   | Credit Agreement,  dated as of December 21, 2005, by and between Hertz Equipment Rental  Corporation, The Hertz Corporation, the Canadian Borrowers parties thereto,  the several lenders from time to time parties thereto, Deutsche Bank AG, New  York Branch, as Administrative Agent and Collateral Agent, Deutsche Bank AG,  Canada Branch, as Canadian Agent and Canadian Collateral Agent, Lehman  Commercial Paper Inc., as Syndication Agent, Merrill Lynch & Co., Merrill  Lynch, Pierce, Fenner and Smith Incorporated, as Documentation Agent,  Deutsche Bank Securities Inc., Lehman Brothers Inc., and Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner and Smith Incorporated, as Joint Lead  Arrangers, BNP Paribas, The Royal Bank of Scotland plc, and Calyon New York  Branch, as Co-Arrangers, and Deutsche Bank Securities Inc., Lehman Brothers  Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith  Incorporated, Goldman Sachs Credit Partners L.P., and JPMorgan Chase Bank,  N.A., as Joint Bookrunning Managers**         |
| 4.7.2 |   | U.S. Guarantee and  Collateral Agreement, dated as of December 21, 2005, by and between CCMG  Corporation, The Hertz Corporation, certain of its subsidiaries, and Deutsche  Bank AG, New York Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.7.3 |   | Canadian Guarantee  and Collateral Agreement, dated as of December 21, 2005, by and between  Matthews Equipment Limited, Western Shut-Down (1995) Limited, certain of its  subsidiaries, and Deutsche Bank AG, Canada Branch, as Canadian Agent and  Canadian Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.7.4 |   | Copyright Security  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, certain of its subsidiaries, and Deutsche Bank AG, New York  Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.7.5 |   | Trademark Security  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, certain of its subsidiaries, and Deutsche Bank AG, New York  Branch, as Administrative Agent and Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.7.6 |   | Trademark Security  Agreement, dated as of December 21, 2005, by and between Matthews Equipment  Limited and Deutsche Bank AG, Canada Branch, as Canadian Agent and Canadian  Collateral Agent**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.7.7 |   | Deed of Trust,  Security Agreement, and Assignment of Leases and Rents and Fixture Filing,  dated as of December 21, 2005, among the Hertz Corporation and Deutsche Bank  AG, New York Branch**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

194

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| 4.7.8  |   | Term Loan Mortgage  Schedule listing the material differences in mortgages from Exhibit 4.7.7 for  each of the mortgaged properties**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.7.9  |   | Amendment, dated as  of June 30, 2006, among Hertz Equipment Rental Corporation, The Hertz  Corporation, Matthews Equipment Limited, Western Shut-Down (1995) Limited,  Deutsche Bank AG, New York Branch, Deutsche Bank AG, Canada Branch, and the  other parties signatory thereto, to the Credit Agreement, dated as of  December 21, 2005, by and between Hertz Equipment Rental Corporation, The  Hertz Corporation, the Canadian Borrowers parties thereto, the several  lenders from time to time parties thereto, Deutsche Bank AG, New York Branch,  as Administrative Agent and Collateral Agent, Deutsche Bank AG, Canada  Branch, as Canadian Agent and Canadian Collateral Agent, Lehman Commercial  Paper Inc., as Syndication Agent, Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner and Smith Incorporated, as Documentation Agent, Deutsche Bank  Securities Inc., Lehman Brothers Inc., and Merrill Lynch & Co., Merrill  Lynch, Pierce, Fenner and Smith Incorporated, as Joint Lead Arrangers, BNP  Paribas, The Royal Bank of Scotland plc, and Calyon New York Branch, as  Co-Arrangers, and Deutsche Bank Securities Inc., Lehman Brothers Inc.,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith Incorporated,  Goldman Sachs Credit Partners L.P., and JPMorgan Chase Bank, N.A., as Joint  Bookrunning Managers (Incorporated by reference to Exhibit 4.2 to our Current  Report on Form 8-K, as filed on July 7, 2006.) |
| 4.7.10 |   | Second Amendment,  dated as of February 15, 2007, among Hertz Equipment Rental Corporation, The  Hertz Corporation, Matthews Equipment Limited, Western Shut-Down (1995)  Limited, Deutsche Bank AG, New York Branch, Deutsche Bank AG, Canada Branch,  and the other parties signatory thereto, to the Credit Agreement, dated as of  December 21, 2005, by and between Hertz Equipment Rental Corporation, The  Hertz Corporation, the Canadian Borrowers parties thereto, the several  lenders from time to time parties thereto, Deutsche Bank AG, New York Branch,  as Administrative Agent and Collateral Agent, Deutsche Bank AG, Canada  Branch, as Canadian Agent and Canadian Collateral Agent, Lehman Commercial  Paper Inc., as Syndication Agent, Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner and Smith Incorporated, as Documentation Agent, Deutsche Bank  Securities Inc., Lehman Brothers Inc., and Merrill Lynch & Co., Merrill  Lynch, Pierce, Fenner and Smith Incorporated, as Joint Lead Arrangers, BNP  Paribas, The Royal Bank of Scotland plc, and Calyon New York Branch, as Co-Arrangers,  and Deutsche Bank Securities Inc., Lehman Brothers Inc., Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner and Smith Incorporated, Goldman Sachs  Credit Partners L.P., and JPMorgan Chase Bank, N.A., as Joint Bookrunning  Managers***                                                                                            |
| 4.8    |   | Intercreditor  Agreement, dated as of December 21, 2005, by and between Deutsche Bank AG,  New York Branch, as ABL Agent, Deutsche Bank AG, New York Branch, as Term  Agent, as acknowledged by CCMG Corporation, The Hertz Corporation and certain  of its subsidiaries**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.9.1  |   | Second Amended and  Restated Base Indenture, dated as of August 1, 2006, between Hertz Vehicle  Financing LLC, as Issuer, and BNY Midwest Trust Company, as Trustee***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.9.2  |   | Amended and Restated  Series 2005-1 Supplement to the Second Amended and Restated Base Indenture,  dated as of August 1, 2006, between Hertz Vehicle Financing LLC, as Issuer,  and BNY Midwest Trust Company, as Trustee and Securities Intermediary***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.9.3  |   | Amended and Restated  Series 2005-2 Supplement to the Second Amended and Restated Base Indenture,  dated as of August 1, 2006, between Hertz Vehicle Financing LLC, as Issuer,  and BNY Midwest Trust Company, as Trustee and Securities Intermediary***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

195

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| 4.9.4  |   | Amended and Restated  Series 2005-3 Supplement to the Second Amended and Restated Base Indenture,  dated as of August 1, 2006, between Hertz Vehicle Financing LLC, as Issuer,  and BNY Midwest Trust Company, as Trustee and Securities Intermediary***                                                                                                                                                                                                                |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.9.5  |   | Amended and Restated  Series 2005-4 Supplement to the Second Amended and Restated Base Indenture,  dated as of August 1, 2006, between Hertz Vehicle Financing LLC, as Issuer,  and BNY Midwest Trust Company, as Trustee and Securities Intermediary***                                                                                                                                                                                                                |
| 4.9.6  |   | Second Amended and  Restated Series 2004-1 Supplement to the Second Amended and Restated Base  Indenture, dated as of August 1, 2006, between Hertz Vehicle Financing LLC,  as Issuer, and BNY Midwest Trust Company, as Trustee and Securities  Intermediary***                                                                                                                                                                                                        |
| 4.9.7  |   | Second Amended and  Restated Master Motor Vehicle Operating Lease and Servicing Agreement, dated  as of August 1, 2006, between The Hertz Corporation, as Lessee and Servicer,  and Hertz Vehicle Financing LLC, as Lessor***                                                                                                                                                                                                                                           |
| 4.9.8  |   | Amended and Restated  Participation, Purchase and Sale Agreement, dated as of December 21, 2005, by  and between Hertz General Interest LLC, Hertz Vehicle Financing LLC and The  Hertz Corporation, as Lessee and Servicer**                                                                                                                                                                                                                                           |
| 4.9.9  |   | Purchase and Sale  Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, Hertz Vehicle Financing LLC and Hertz Funding Corp.**                                                                                                                                                                                                                                                                                                               |
| 4.9.10 |   | Contribution  Agreement, dated as of December 21, 2005, by and between Hertz Vehicle  Financing LLC and The Hertz Corporation**                                                                                                                                                                                                                                                                                                                                         |
| 4.9.11 |   | Second Amended and  Restated Collateral Agency Agreement, dated as of January 26, 2007, among  Hertz Vehicle Financing LLC, as a Grantor, Hertz General Interest LLC, as a  Grantor, The Hertz Corporation, as Servicer, BNY Midwest Trust Company, as  Collateral Agent, BNY Midwest Trust Company, as Trustee and a Secured Party,  and The Hertz Corporation, as a Secured Party***                                                                                  |
| 4.9.12 |   | Amended and Restated  Administration Agreement, dated as of December 21, 2005, by and between The  Hertz Corporation, Hertz Vehicle Financing LLC, and BNY Midwest Trust  Company, as Trustee**                                                                                                                                                                                                                                                                         |
| 4.9.13 |   | Amended and Restated  Master Exchange Agreement, dated as of January 26, 2007, among The Hertz  Corporation, Hertz Vehicle Financing LLC, Hertz General Interest LLC, Hertz  Car Exchange Inc., and J.P. Morgan Property Holdings LLC***                                                                                                                                                                                                                                |
| 4.9.14 |   | Amended and Restated  Escrow Agreement, dated as of January 26, 2007, among The Hertz Corporation,  Hertz Vehicle Financing LLC, Hertz General Interest LLC, Hertz Car Exchange  Inc., and J.P. Morgan Chase Bank, N.A.***                                                                                                                                                                                                                                              |
| 4.9.15 |   | Amended and Restated  Class A-1 Note Purchase Agreement (Series 2005-3 Variable Funding Rental Car  Asset Backed Notes, Class Aa-1), dated as of March 3, 2006, by and between  Hertz Vehicle Financing LLC, The Hertz Corporation, as Administrator, certain  Conduit Investors, each as a Conduit Investor, certain Financial  Institutions, each as a Committed Note Purchaser, certain Funding Agents, and  Lehman Commercial Paper Inc., as Administrative Agent** |

196

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| 4.9.16 |   | Amended and Restated  Class A-2 Note Purchase Agreement (Series 2005-3 Variable Funding Rental Car  Asset backed Notes, Class A-2), dated as of March 3, 2006, by and between  Hertz Vehicle Financing LLC, The Hertz Corporation, as Administrator, certain  Conduit Investors, each as a Conduit Investor, certain Financial  Institutions, each as a Committed Note Purchaser, certain Funding Agents, and  Lehman Commercial Paper Inc., as Administrative Agent**                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.9.17 |   | Amended and Restated  Class A Note Purchase Agreement (Series 2005-4 Variable Funding Rental Car  Asset Backed Notes, Class A), dated as of March 3, 2006, by and between Hertz  Vehicle Financing LLC, The Hertz Corporation, as Administrator, certain  Conduit Investors, each as a Conduit Investor, certain Financial  Institutions, each as a Committed Note Purchaser, certain Funding Agents, and  Lehman Commercial Paper Inc., as Administrative Agent**                             |
| 4.9.18 |   | Letter of Credit  Facility Agreement, dated as of December 21, 2005, by and between The Hertz  Corporation, Hertz Vehicle Financing LLC, and Ford Motor Company**                                                                                                                                                                                                                                                                                                                              |
| 4.9.19 |   | Insurance Agreement,  dated as of December 21, 2005, by and between MBIA Insurance Corporation, as  Insurer, Hertz Vehicle Financing LLC, as Issuer, and BNY Midwest Trust  Company, as Trustee**                                                                                                                                                                                                                                                                                              |
| 4.9.20 |   | Insurance Agreement,  dated as of December 21, 2005, by and between Ambac Assurance Corporation, as  Insurer, Hertz Vehicle Financing LLC, as Issuer, and BNY Midwest Trust  Company, as Trustee**                                                                                                                                                                                                                                                                                             |
| 4.9.21 |   | Note Guaranty  Insurance Policy, dated as of December 21, 2005, of MBIA Insurance  Corporation, relating to Series 2005-1 Rental Car Asset Backed Notes**                                                                                                                                                                                                                                                                                                                                      |
| 4.9.22 |   | Note Guaranty  Insurance Policy, dated as of December 21, 2005, of MBIA Insurance  Corporation, relating to Series 2005-4 Rental Car Asset Backed Notes**                                                                                                                                                                                                                                                                                                                                      |
| 4.9.23 |   | Note Guaranty  Insurance Policy, dated as of December 21, 2005, of Ambac Assurance  Corporation, relating to Series 2005-2 Rental Car Asset Backed Notes**                                                                                                                                                                                                                                                                                                                                     |
| 4.9.24 |   | Note Guaranty  Insurance Policy, dated as of December 21, 2005, of Ambac Assurance  Corporation, relating to Series 2005-3 Rental Car Asset Backed Notes**                                                                                                                                                                                                                                                                                                                                     |
| 4.9.25 |   | Supplement to Second  Amended and Restated Collateral Agency Agreement, dated as of January 26,  2007, among The Hertz Corporation, as Grantor, Gelco Corporation d/b/a GE  Fleet Services, as Secured Party and BNY Midwest Trust Company as Collateral  Agent***                                                                                                                                                                                                                             |
| 4.10   |   | Amended and Restated  Stockholders Agreement, dated as of November 20, 2006, among Hertz Global  Holdings, Inc., Clayton, Dubilier & Rice Fund VII, L.P., CDR CCMG  Co-Investor L.P., CD&R Parallel Fund VII, L.P., Carlyle Partners IV,  L.P., CP IV Coinvestment, L.P., CEP II U.S. Investments, L.P., CEP II Participations  S.à.r.l SICAR, ML Global Private Equity Fund, L.P., Merrill Lynch Ventures  L.P. 2001, ML Hertz Co-Investor, L.P. and CMC-Hertz Partners, L.P.*** |

197

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| 4.11   |   | Registration Rights  Agreement, dated as of December 21, 2005, among CCMG Holdings, Inc. (now  known as Hertz Global Holdings, Inc.), Clayton, Dubilier & Rice Fund VII,  L.P., CDR CCMG Co-Investor L.P., Carlyle Partners IV, L.P., CP IV  Coinvestment, L.P., CEP II U.S. Investments, L.P., CEP II Participations  S.à.r.l, ML Global Private Equity Fund, L.P., Merrill Lynch Ventures L.P.  2001, ML Hertz Co-Investor, L.P. and CMC-Hertz Partners, L.P. (filed as the  exhibit of the same number to Amendment No. 3 to the Registration Statement  on Form S-1 of Hertz Global Holdings, Inc. (File No. 333-135782) filed on  October 23, 2006) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.12   |   | Amendment No. 1,  dated as of November 20, 2006, to the Registration Rights Agreement, dated as  of December 21, 2005, among CCMG Holdings, Inc. (now known as Hertz Global  Holdings, Inc.), Clayton, Dubilier & Rice Fund VII, L.P., CDR CCMG  Co-Investor L.P., CD&R Parallel Fund VII, L.P., Carlyle Partners IV,  L.P., CP IV Coinvestment, L.P., CEP II U.S. Investments, L.P., CEP II  Participations S.à.r.l SICAR, ML Global Private Equity Fund, L.P., Merrill  Lynch Ventures L.P. 2001, ML Hertz Co-Investor, L.P. and CMC-Hertz Partners,  L.P.***                                                                                      |
| 4.13   |   | Credit Agreement,  dated as of September 29, 2006, among The Hertz Corporation, Puerto  Ricancars, Inc., the several banks and other financial institutions from time  to time parties as lenders thereto and Gelco Corporation d.b.a. GE Fleet  Services, as administrative agent and collateral agents for the lenders  thereunder (filed as the exhibit of the same number to Amendment No. 4 to the  Registration Statement on Form S-1 of Hertz Global Holdings, Inc. (File No.  333-135782) filed on October 27, 2006)                                                                                                                                      |
| 4.13.1 |   | First Amendment,  dated as of October 6, 2006, to the Credit Agreement, dated as of September  29, 2006, among The Hertz Corporation, Puerto Ricancars, Inc., the several  banks and other financial institutions from time to time parties as lenders  thereto and Gelco Corporation d.b.a. GE Fleet Services, as administrative  agent and collateral agents for the lenders thereunder (filed as the exhibit  of the same number to Amendment No. 4 to the Registration Statement on Form  S-1 of Hertz Global Holdings, Inc. (File No. 333-135782) filed on October 27,  2006)                                                                                |
| 4.13.2 |   | Second Amendment,  dated as of October 31, 2006, to the Credit Agreement, dated as of September  29, 2006, among The Hertz Corporation, Puerto Ricancars, Inc., the several  banks and other financial institutions from time to time parties as lenders  thereto and Gelco Corporation d.b.a. GE Fleet Services, as administrative  agent and collateral agents for the lenders thereunder***                                                                                                                                                                                                                                                                    |
| 10.1   |   | Hertz Global Holdings,  Inc. Stock Incentive Plan* **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.1.1 |   | First Amendment to  the Hertz Global Holdings, Inc. Stock Incentive Plan (filed as the exhibit of  the same number to Amendment No. 4 to the Registration Statement on Form S-1  of Hertz Global Holdings, Inc. (File No. 333-135782) filed on October 27,  2006)*                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.2   |   | Form of Stock  Subscription Agreement under Stock Incentive Plan* **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.3   |   | Form of Stock Option  Agreement under Stock Incentive Plan* **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.4   |   | Employment Agreement  between The Hertz Corporation and Craig R. Koch (Incorporated by reference to  Exhibit 10.4(3) to our Registration Statement No. 333-125764)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.5   |   | Form of Change in  Control Agreement (and certain terms related thereto) among The Hertz  Corporation, Ford Motor Company and each of Messrs. Koch, Nothwang, Siracusa,  Taride and Plescia (Incorporated by reference to Exhibit 10.5 to our  Registration Statement No. 333-125764)*                                                                                                                                                                                                                                                                                                                                                                            |

198

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| 10.6  |   | Non-Compete  Agreement, dated April 10, 2000, between Hertz Europe Limited and Michel  Taride (Incorporated by reference to Exhibit 10.6 to our Registration  Statement No. 333-125764)*                                                         |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.7  |   | The Hertz Corporation  Compensation Supplemental Retirement and Savings Plan (Incorporated by  reference to Exhibit 10.7 to our Registration Statement No. 333-125764)*                                                                          |
| 10.8  |   | The Hertz Corporation  Executive Long Term Incentive Compensation Plan (Incorporated by reference to  Exhibit 10.8 to our Registration Statement No. 333-125764)*                                                                                |
| 10.9  |   | The Hertz Corporation  Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit  10.9 to our Registration Statement No. 333-125764)*                                                                                         |
| 10.10 |   | The Hertz Corporation  Benefit Equalization Plan (Incorporated by reference to Exhibit 10.10 to our  Registration Statement No. 333-125764)*                                                                                                     |
| 10.11 |   | The Hertz Corporation  Key Officer Postretirement Assigned Car Benefit Plan (Incorporated by  reference to Exhibit 10.11 to our Registration Statement No. 333-125764)*                                                                          |
| 10.12 |   | The Hertz Corporation  Retirement Plan (Incorporated by reference to Exhibit 10.12 to our  Registration Statement No. 333-125764)*                                                                                                               |
| 10.13 |   | The Hertz Corporation  (UK) 1972 Pension Plan (Incorporated by reference to Exhibit 10.13 to our  Registration Statement No. 333-125764)*                                                                                                        |
| 10.14 |   | The Hertz Corporation  (UK) Supplementary Unapproved Pension Scheme (Incorporated by reference to  Exhibit 10.14 to our Registration Statement No. 333-125764)*                                                                                  |
| 10.15 |   | RCA Executive  Deferred Compensation Plan and Employee Participation Agreement, dated May  29, 1985, between Craig R. Koch and The Hertz Corporation (Incorporated by  reference to Exhibit 10.15 to our Registration Statement No. 333-125764)* |
| 10.16 |   | The Hertz Corporation  2005 Executive Incentive Compensation Plan* **                                                                                                                                                                            |
| 10.17 |   | Letter Agreement,  dated October 19, 2005, as amended and restated as of November 15, 2005,  between CCMG Holdings, Inc. (now known as Hertz Global Holdings, Inc.) and  Craig R. Koch* **                                                       |
| 10.18 |   | Amended and Restated  Indemnification Agreement, dated as of December 21, 2005, by and between The  Hertz Corporation, Hertz Vehicles LLC, Hertz Funding Corp., Hertz General  Interest LLC, and Hertz Vehicle Financing LLC**                   |
| 10.19 |   | Consulting Agreement,  dated as of December 21, 2005, by and between CCMG Holdings, Inc. (now known  as Hertz Global Holdings, Inc.), The Hertz Corporation, and Clayton, Dubilier  & Rice, Inc.**                                           |
| 10.20 |   | Consulting Agreement,  dated as of December 21, 2005, by and between CCMG Holdings, Inc. (now known  as Hertz Global Holdings, Inc.), The Hertz Corporation, and TC Group IV,  L.L.C.**                                                          |
| 10.21 |   | Consulting Agreement,  dated as of December 21, 2005, by and between CCMG Holdings, Inc. (now known  as Hertz Global Holdings, Inc.), The Hertz Corporation, and Merrill Lynch  Global Partners, Inc.**                                          |

199

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| 10.22 |   | Indemnification  Agreement, dated as of December 21, 2005, by and between CCMG Holdings, Inc.  (now known as Hertz Global Holdings, Inc.), The Hertz Corporation, Clayton,  Dubilier & Rice Fund VII, L.P., CDR CCMG Co-Investor L.P., and Clayton,  Dubilier & Rice, Inc.**                                                                                                                                                                                                                       |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.23 |   | Indemnification  Agreement, dated as of December 21, 2005, by and between CCMG Holdings, Inc.  (now known as Hertz Global Holdings, Inc.), The Hertz Corporation, Carlyle  Partners IV, L.P., CP IV Coinvestment L.P., CEP II U.S. Investments, L.P.,  CEP II Participations S.à.r.l., and TC Group IV, L.L.C.**                                                                                                                                                                                      |
| 10.24 |   | Indemnification  Agreement, dated as of December 21, 2005, by and between CCMG Holdings, Inc.  (now known as Hertz Global Holdings, Inc.), The Hertz Corporation, ML Global  Private Equity Fund, L.P., Merrill Lynch Ventures L.P. 2001, CMC-Hertz  Partners, L.P., ML Hertz Co-Investor, L.P., and Merrill Lynch Global  Partners, Inc.**                                                                                                                                                                |
| 10.25 |   | Tax Sharing  Agreement, dated as of December 21, 2005, by and between CCMG Holdings, Inc.  (now known as Hertz Global Holdings, Inc.), CCMG Corporation, The Hertz  Corporation, and Hertz International, Ltd.**                                                                                                                                                                                                                                                                                           |
| 10.26 |   | Tax Sharing  Agreement, dated as of December 21, 2005, by and between CCMG Holdings, Inc.  (now known as Hertz Global Holdings, Inc.), CCMG Corporation, and The Hertz  Corporation**                                                                                                                                                                                                                                                                                                                      |
| 10.27 |   | Master Supply and  Advertising Agreement, dated as of July 5, 2005, by and between Ford Motor  Company, The Hertz Corporation and Hertz General Interest LLC (Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the  Securities and Exchange Commission on July 11, 2005. Such Exhibit omits  certain information that has been filed separately with the Securities and  Exchange Commission and submitted pursuant to an application for confidential  treatment.) |
| 10.28 |   | Employment letter  agreement, dated as of July 10, 2006, between Hertz Global Holdings, Inc. and  Mark P. Frissora (Incorporated by reference to Exhibit 10.1 to our Quarterly  Report on Form 10-Q filed with the Securities and Exchange Commission on  August 14, 2006.)                                                                                                                                                                                                                                |
| 10.29 |   | Form of Director  Indemnification Agreement (filed as the exhibit of the same number to  Amendment No. 3, filed on October 23, 2006, to the Registration Statement on  Form S-1 of Hertz Global Holdings, Inc. (File No. 333-135782)                                                                                                                                                                                                                                                                       |
| 10.30 |   | Termination letter  agreement, dated as of November 20, 2006, among Hertz Global Holdings, Inc.  (formerly known as CCMG Holdings, Inc.), The Hertz Corporation and Clayton,  Dubilier & Rice, Inc., terminating the Consulting Agreement, dated as of  December 21, 2005, among Hertz Global Holdings, Inc., the Hertz Corporation  and Clayton, Dubilier & Rice, Inc.***                                                                                                                         |
| 10.31 |   | Termination letter  agreement, dated as of November 20, 2006, among Hertz Global Holdings, Inc.  (formerly known as CCMG Holdings, Inc.), The Hertz Corporation and TC Group  IV, L.L.C., terminating the Consulting Agreement, dated as of December 21,  2005, among Hertz Global Holdings, Inc., the Hertz Corporation and TC Group  IV, L.L.C.***                                                                                                                                                       |
| 10.32 |   | Termination letter  agreement, dated as of November 20, 2006, among Hertz Global Holdings, Inc.  (formerly known as CCMG Holdings, Inc.), The Hertz Corporation and Merrill  Lynch Global Partners, Inc., terminating the Consulting Agreement, dated as  of December 21, 2005, among Hertz Global Holdings, Inc., the Hertz  Corporation and Merrill Lynch Global Partners, Inc.***                                                                                                                       |

200

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| 10.33          |   | Hertz Global  Holdings, Inc. Director Stock Incentive Plan* (filed as the exhibit of the  same number to Amendment No. 6 to the Registration Statement on Form S-1 of  Hertz Global Holdings, Inc. (File No. 333-135782) filed on November 7, 2006) |
|----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 12             |   | Computation of  Consolidated Ratio of Earnings to Fixed Charges for the year ended December  31, 2006, the periods ended December 31, 2005 and December 20, 2005 and each  of the three years in the period ended December 31, 2004.                |
| 21             |   | List of subsidiaries  (Omitted pursuant to General Instruction I of Form 10-K)                                                                                                                                                                      |
| 23.1           |   | Consent of  PricewaterhouseCoopers LLP                                                                                                                                                                                                              |
| 31.1–31.2 |   | Rule  13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief  Financial Officer                                                                                                                                                    |
| 32.1–32.2 |   | Section 1350  Certifications of Chief Executive Officer and Chief Financial Officer                                                                                                                                                                 |

----

*                    Indicatesmanagement compensation plan. 

**             Incorporatedby reference to the exhibit of the same number to our Current Report on Form8-K, as filed with the Securities and Exchange Commission on March 31, 2006. 

***      Incorporatedby reference to the exhibit of the same number to the Annual Report on Form10-K of Hertz Global Holdings, Inc., as filed on March 30, 2007.

As of December 31, 2006, we had various additionalobligations which could be considered long-term debt, none of which exceeded10% of our total assets on a consolidated basis. We agree to furnish to the SECupon request a copy of any such instrument defining the rights of the holdersof such long-term debt.

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

201

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