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UNITED STATES
     SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




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FORM 10-Q/A

|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

OR

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

For the transition period from______________to______________

Commission file number 1-13647



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DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.

(Exact name of registrant as specified in its charter)


|                                                                             |  |                                                     
|---------------------------------------------------------------------------- |  | ----------------------------------------------------
|Delaware
     (State or other jurisdiction of incorporation or organization) |  | 73-1356520
     (I.R.S. Employer Identification No.)

5330 East 31st Street,
     Tulsa, Oklahoma 74135
     (Address of principal executive offices and zip code)

Registrants telephone number, including area code:  
        (918) 660-7700



Indicate by check mark whether the registrant  (1) has
     filed all reports
     required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
     1934 during the preceding 12 months (or for such shorter period that the
     registrant was required to file such reports), and  (2) has been subject to such
     filing requirements for the past 90 days:
Yes XNo



Indicate by check mark whether the
        registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer
        and large accelerated filer" in  Rule 12b-2 of the Exchange Act:



Large accelerated
        filerXAccelerated filerNon-accelerated filer



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
        of the Exchange Act):
Yes No X



The number of shares outstanding
        of the registrants Common Stock as of October 31, 2006 was 23,868,151.

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EXPLANATORY NOTE



This Form 10-Q/A amends the Companys quarterly report on Form 10-Q for the quarter ended September 30, 2006, which was filed on November 8, 2006.



The amendment is a result of the restatement of the Companys condensed consolidated financial statements and related financial information for the quarterly periods ended September 30, 2006 and 2005.



The Company is restating its previously filed financial statements and other financial information for the above referenced periods to correct the following:


        An error related to the Companys derivative accounting treatment under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS No. 133).



        An error related to determining the Companys effective state income tax rate under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, as amended (SFAS No. 109).



        An error in the classification of certain revenue-earning vehicle-related disposal costs from Direct Vehicle and Operating Expense to Vehicle Depreciation Expense.



        An error in the classification of tour operator incentives under Emerging Issues Task Force No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products) (EITF No. 01-9).  Correcting this error resulted in a reclassification of tour operator incentives from Direct Vehicle and Operating Expense to Vehicle Rental Revenue.  The Company also corrected the classification of interest earned on restricted cash and investments in the condensed consolidated statement of cash flows for the nine months ended September 30, 2005.




These errors are described in more detail in Item 2 - Managements Discussion
and Analysis of Financial Condition and Results of Operations and Note 17 to the Condensed Consolidated Financial Statements included in Item 1  Financial
Statements.  This restatement increased total stockholders equity at each balance sheet date covered by the restatement and has no effect on the Companys cash
position or liquidity.



The Company is also filing an amended Annual Report
        on Form 10-K for the year ended December 31, 2005 and amended Quarterly Reports on Form 10-Q for the quarters ended March 31,
        2006 and June 30, 2006 to correct the errors described above.



All of the information in this Form 10-Q/A is as of November
        8, 2006, the date the Company originally filed its Form 10-Q with the Securities and Exchange Commission, and does not reflect
        any subsequent information or events other than the restatement discussed in Note 17 to the Condensed Consolidated Financial
        Statements appearing in this Form 10-Q/A.  For the convenience of the reader, this Form 10-Q/A sets forth the originally filed
        Form 10-Q in its entirety.  However, the following items have been amended solely as a result of, and to reflect, the restatement,
        and no other information in the Form 10-Q/A is amended hereby as a result of the restatement:



Part I, Item 1  Financial Statements



Part I, Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations



Part I, Item 4  Controls and Procedures



Part II, Item 6  Exhibits



The Company is including currently dated Sarbanes-Oxley Act Section 302 and Section 906 certifications of the Chief Executive Officer and Chief Financial Officer that are attached to this Form 10-Q/A as Exhibits 31.37, 31.38, 32.37 and 32.38.



2



# DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.FORM
10-Q/A

# CONTENTS

| |  |  | Page
| |  |  | ----

|PART I  -  FINANCIAL INFORMATION | 
|-------------------------------- | 

| | ITEM | 1.    
     FINANCIAL STATEMENTS | 4
| | ---- | -------------------------------- | -

| | ITEM | 2.    
     MANAGEMENT'S DISCUSSION AND ANALYSIS OF | 
| | ---- | --------------------------------------------------- | 

| |  | FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 26
| |  | --------------------------------------------- | --

| | ITEM | 3.    
     QUANTITATIVE AND QUALITATIVE | 
| | ---- | ---------------------------------------- | 

| |  | DISCLOSURES ABOUT MARKET RISK | 38
| |  | ----------------------------- | --

| | ITEM | 4.    
     CONTROLS AND PROCEDURES | 38
| | ---- | ----------------------------------- | --

|PART II  -  OTHER INFORMATION | 
|----------------------------- | 

| | ITEM | 1.    
     LEGAL PROCEEDINGS | 39
| | ---- | ----------------------------- | --

| | ITEM | 1A. 
     RISK FACTORS | 40
| | ---- | ---------------------- | --

| | ITEM | 2.    
     UNREGISTERED SALES OF EQUITY SECURITIES | 
| | ---- | --------------------------------------------------- | 

| |  | AND USE OF PROCEEDS | 40
| |  | ------------------- | --

| | ITEM | 5.    
     OTHER INFORMATION | 41
| | ---- | ----------------------------- | --

| | ITEM | 6.    
     EXHIBITS | 42
| | ---- | -------------------- | --

|SIGNATURES | 44
|---------- | --

|INDEX TO EXHIBITS | 45
|----------------- | --

# FACTORS
AFFECTING FORWARD-LOOKING STATEMENTS



Some of the statements contained herein under Managements Discussion and Analysis of Financial Condition and Results of Operations may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Although Dollar Thrifty Automotive Group, Inc. believes such forward-looking statements are based upon reasonable assumptions, such statements are not guarantees of future performance and certain factors could cause results to differ materially from current expectations.  These factors include: price and product competition; access to reservation distribution channels; economic and competitive conditions in markets and countries where the companies customers reside and where the companies and their franchisees operate; natural hazards or catastrophes; incidents of terrorism; airline travel patterns; changes in capital
availability or cost; costs and other terms related to the acquisition and disposition of automobiles; systems or communications failures; costs of conducting business and changes in structure or operations; and certain regulatory and environmental matters and litigation risks.  Should one or more of these risks or uncertainties, among others, materialize, actual results could vary from those estimated, anticipated or projected. Dollar Thrifty Automotive Group, Inc. undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.



3



PART I  FINANCIAL INFORMATION






ITEM 1.
        FINANCIAL STATEMENTS (RESTATED)






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of

Dollar Thrifty Automotive Group, Inc.:



We have reviewed the accompanying condensed consolidated balance sheet of Dollar Thrifty Automotive Group, Inc. and subsidiaries (the Company) as of September 30, 2006, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2006 and 2005, and cash flows for the nine-month periods ended September 30, 2006 and 2005.  These interim financial statements are the responsibility of the Companys management.



We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.



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



As discussed in Note 17, the accompanying condensed consolidated financial statements have been restated.



We have previously audited, in accordance with the
        standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Dollar Thrifty
        Automotive Group, Inc. and subsidiaries as of December 31, 2005, and the related consolidated statements of income,
        stockholders equity and comprehensive income, and cash flows for the year then ended (not presented herein); and in
        our report dated March 14, 2006 (February 26, 2007, as to the effects of the restatement discussed in Note 22 of the Consolidated
        Financial Statements on Form 10-K/A), we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.





/s/ DELOITTE & TOUCHE LLP



Tulsa, Oklahoma

November 8, 2006  (February 26, 2007, as to the effects of the restatement discussed in Note 17)









4



## DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


---

(In Thousands Except Per Share Data)


|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |           |           |  |  |  | 
|---------------------------- | ------------------------------------------------ | ------------------------ | ------ | ------- | ------- | -------------------------- | ----------- | -------------------------- | ------------------- |  | -------------------------- | ------ | -------------------------- | --------- | - | ------- | --------- | --------- |  |  |  | 
|                             |                                                  |                          |        |         |         | Three Months               |             |                            | Nine Months         | 
|                             |                                                  |                          |        |         |         | Ended September 30,        |             |                            | Ended September 30, | 
|                             |                                                  |                          |        |         |         |                            |             |                            |                     | 
|                             |                                                  |                          |        |         |         |                            | (Unaudited) |                           
|                             |                                                  |                          |        |         |         | 2006                       |             | 2005                       |                     |  | 2006                       |        | 2005                       |          
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |          
|                             |                                                  |                          |        |         |         | (As Restated -see Note 17) |             | (As Restated -see Note 17) |                     |  | (As Restated -see Note 17) |        | (As Restated -see Note 17) |          
|REVENUES:                    |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|                             | Vehicle rentals                                  |                          | $      | 451,435 |         |                            | $           | 414,762                    |                     |  |                            | $      | 1,172,614                  |           |   | $       | 1,055,611 |          
|                             | Vehicle leasing                                  |                          |        | 17,680  |         |                            |             | 19,630                     |                     |  |                            |        | 45,686                     |           |   |         | 49,467    |          
|                             | Fees and services                                |                          |        | 12,786  |         |                            |             | 14,778                     |                     |  |                            |        | 37,507                     |           |   |         | 39,508    |          
|                             | Other                                            |                          |        | 2,806   |         |                            |             | 3,193                      |                     |  |                            |        | 12,036                     |           |   |         | 10,587    |          
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|                             |                                                  | Total revenues           |        |         | 484,707 |                            |             |                            | 452,363             |  |                            |        |                            | 1,267,843 |   |         |           | 1,155,173 | 
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|COSTS AND EXPENSES:          |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|                             | Direct vehicle and operating                     |                          |        | 233,113 |         |                            |             | 216,758                    |                     |  |                            |        | 628,393                    |           |   |         | 594,292   |          
|                             | Vehicle depreciation and lease charges, net      |                          |        | 122,503 |         |                            |             | 101,828                    |                     |  |                            |        | 275,716                    |           |   |         | 225,062   |          
|                             | Selling, general and administrative              |                          |        | 66,396  |         |                            |             | 61,486                     |                     |  |                            |        | 195,313                    |           |   |         | 176,470   |          
|                             | Interest expense, net of interest income         |                          |        | 33,005  |         |                            |             | 26,978                     |                     |  |                            |        | 72,882                     |           |   |         | 69,990    |          
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|                             |                                                  | Total costs and expenses |        |         | 455,017 |                            |             |                            | 407,050             |  |                            |        |                            | 1,172,304 |   |         |           | 1,065,814 | 
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|                             | (Increase) decrease in fair value of derivatives |                          |        | 25,391  |         |                            |             | (14,621                    | )                   |  |                            |        | 7,135                      |           |   |         | (24,917   | )        
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|INCOME BEFORE INCOME TAXES   |                                                  |                          | 4,299  |         |         |                            | 59,934      |                            |                     |  |                            | 88,404 |                            |           |   | 114,276 |          
|                            
|INCOME TAX EXPENSE (BENEFIT) |                                                  |                          | (1,585 | )       |         |                            | 22,524      |                            |                     |  |                            | 34,059 |                            |           |   | 46,092  |          
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|NET INCOME                   |                                                  | $                        | 5,884  |         |         | $                          | 37,410      |                            |                     |  | $                          | 54,345 |                            |           | $ | 68,184  |          
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|                            
|BASIC EARNINGS PER SHARE     |                                                  | $                        | 0.25   |         |         | $                          | 1.49        |                            |                     |  | $                          | 2.22   |                            |           | $ | 2.72    |          
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          
|                            
|DILUTED EARNINGS PER SHARE   |                                                  | $                        | 0.24   |         |         | $                          | 1.42        |                            |                     |  | $                          | 2.12   |                            |           | $ | 2.58    |          
|                             |                                                  |                          |        |         |         |                            |             |                            |                     |  |                            |        |                            |           |   |         |          

See notes to condensed consolidated financial statements.



5



## DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


SEPTEMBER 30, 2006 AND DECEMBER 31, 2005


---

(In Thousands Except Share and Per Share Data)


|                                                                                                                                                                                                      |  |   |           |                            |  |   |                            |           |  |              |   |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | --------- | -------------------------- |  | - | -------------------------- | --------- |  | ------------ | - | --------- | 
|                                                                                                                                                                                                      |  |   |           |                            |  |   | September 30,              |           |  | December 31, |  
|                                                                                                                                                                                                      |  |   |           |                            |  |   | 2006                       |           |  | 2005         |  
|                                                                                                                                                                                                      |  |   |           |                            |  |   |                            |           |  |              |  
|                                                                                                                                                                                                      |  |   |           |                            |  |   | (As Restated -see Note 17) |           |  |              |  
|                                                                                                                                                                                                      |  |   |           |                            |  |   | (Unaudited)                |          
|ASSETS:                                                                                                                                                                                               |  |   |           |                            |  |   |                            |          
|Cash and cash equivalents                                                                                                                                                                             |  | $ | 241,800   |                            |  | $ | 274,299                    |          
|Restricted cash and investments                                                                                                                                                                       |  |   | 259,740   |                            |  |   | 785,290                    |          
|Receivables, net                                                                                                                                                                                      |  |   | 232,637   |                            |  |   | 218,552                    |          
|Prepaid expenses and other assets                                                                                                                                                                     |  |   | 102,570   |                            |  |   | 89,299                     |          
|Revenue-earning vehicles, net                                                                                                                                                                         |  |   | 2,993,275 |                            |  |   | 2,202,890                  |          
|Property and equipment, net                                                                                                                                                                           |  |   | 111,343   |                            |  |   | 108,062                    |          
|Income taxes receivable                                                                                                                                                                               |  |   | 4,229     |                            |  |   | -                          |          
|Software and other intangible assets, net                                                                                                                                                             |  |   | 59,927    |                            |  |   | 28,270                     |          
|Goodwill                                                                                                                                                                                              |  |   | 280,395   |                            |  |   | 280,122                    |          
|                                                                                                                                                                                                      |  |   |           |                            |  |   |                            |           |  |              |  
|                                                                                                                                                                                                      |  |   |           |                            |  |   | $                          | 4,285,916 |  |              | $ | 3,986,784 | 
|                                                                                                                                                                                                      |  |   |           |                            |  |   |                            |           |  |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                  |  |   |           |                            |  |   |                            |          
|                                                                                                                                                                                                     
|LIABILITIES:                                                                                                                                                                                          |  |   |           |                            |  |   |                            |          
|Accounts payable                                                                                                                                                                                      |  | $ | 66,090    |                            |  | $ | 76,616                     |          
|Accrued liabilities                                                                                                                                                                                   |  |   | 190,426   |                            |  |   | 150,024                    |          
|Income taxes payable                                                                                                                                                                                  |  |   | -         |                            |  |   | 8,207                      |          
|Deferred income tax liability                                                                                                                                                                         |  |   | 267,793   |                            |  |   | 235,944                    |          
|Public liability and property damage                                                                                                                                                                  |  |   | 108,330   |                            |  |   | 100,613                    |          
|Vehicle debt and obligations                                                                                                                                                                          |  |   | 2,983,591 |                            |  |   | 2,724,952                  |          
|                                                                                                                                                                                                      |  |   |           |                            |  |   |                            |           |  |              |  
|                                                                                                                                                                                                      |  |   |           | Total liabilities          |  |   |                            | 3,616,230 |  |              |   | 3,296,356 | 
|                                                                                                                                                                                                      |  |   |           |                            |  |   |                            |           |  |              |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                         |  |   |           |                            |  |   |                            |          
|                                                                                                                                                                                                     
|STOCKHOLDERS EQUITY:                                                                                                                                                                                 |  |   |           |                            |  |   |                            |          
|Preferred stock, $.01 par value:
               Authorized 10,000,000 shares; none outstanding                                                                                                        |  |   | -         |                            |  |   | -                          |          
|Common stock, $.01 par value:
               Authorized 50,000,000 shares;  27,510,951 and 26,921,843 issued,
        respectively, and  23,850,451 and 25,370,243
         outstanding, respectively |  |   | 275       |                            |  |   | 269                        |          
|Additional capital                                                                                                                                                                                    |  |   | 789,849   |                            |  |   | 774,390                    |          
|Retained earnings (Accumulated deficit)                                                                                                                                                               |  |   | 10,435    |                            |  |   | (43,910                    | )        
|Accumulated other comprehensive income                                                                                                                                                                |  |   | 5,758     |                            |  |   | 4,397                      |          
|Treasury stock, at cost (3,660,500
                 and 1,551,600 shares, respectively)                                                                                                               |  |   | (136,631  | )                          |  |   | (44,718                    | )        
|                                                                                                                                                                                                      |  |   |           |                            |  |   |                            |           |  |              |  
|                                                                                                                                                                                                      |  |   |           | Total stockholders equity |  |   |                            | 669,686   |  |              |   | 690,428   | 
|                                                                                                                                                                                                      |  |   |           |                            |  |   |                            |          
|                                                                                                                                                                                                      |  |   |           |                            |  |   | $                          | 4,285,916 |  |              | $ | 3,986,784 | 
|                                                                                                                                                                                                      |  |   |           |                            |  |   |                            |           |  |              |  

See notes to condensed consolidated financial statements.

6



## DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


---

(In Thousands)


|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                            |          |   |                            |  |  |  | 
|------------------------------------- | -------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------- |  |  | - | ------- | ---------- | -------- | - | ----------- | -------------------------- | -------- | - | -------------------------- |  |  |  | 
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             | Nine Months                |         
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             | Ended September 30,        |         
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                            |         
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             | (Unaudited)                |         
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             | 2006                       |          |   | 2005                       | 
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                            |          |   |                            | 
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             | (As Restated -see Note 17) |          |   | (As Restated -see Note 17) | 
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                           
|                                      | Net income                                                                       |                                                           |                                           |  |  | $ | 54,345  |            |          | $ | 68,184      |                           
|                                      | Adjustments to reconcile net income to net cash provided byoperating activities: |                                                           |                                           |  |  |   |         |            |          |   |             |                           
|                                      |                                                                                  | Depreciation:                                             |                                           |  |  |   |         |            |          |   |             |                            |         
|                                      |                                                                                  |                                                           | Vehicle depreciation                      |  |  |   |         |            | 287,441  |   |             |                            | 253,830  |  
|                                      |                                                                                  |                                                           | Non-vehicle depreciation                  |  |  |   |         |            | 15,207   |   |             |                            | 15,290   |  
|                                      |                                                                                  | Net gains from disposition of revenue-earning vehicles    |                                           |  |  |   |         | (17,220    | )        |   |             | (35,890                    | )       
|                                      |                                                                                  | Amortization                                              |                                           |  |  |   |         | 4,801      |          |   |             | 4,523                      |         
|                                      |                                                                                  | Performance share incentive plan                          |                                           |  |  |   |         | 10,862     |          |   |             | 4,267                      |         
|                                      |                                                                                  | Interest income earned on restricted cash and investments |                                           |  |  |   |         | (11,135    | )        |   |             | (5,057                     | )       
|                                      |                                                                                  | Net (gains) / losses from sale of property and equipment  |                                           |  |  |   |         | 72         |          |   |             | (174                       | )        |  
|                                      |                                                                                  | Provision for losses on receivables                       |                                           |  |  |   |         | 20         |          |   |             | 2,345                      |         
|                                      |                                                                                  | Deferred income taxes                                     |                                           |  |  |   |         | 31,818     |          |   |             | 44,897                     |         
|                                      |                                                                                  | (Increase) decrease in fair value of derivatives          |                                           |  |  |   |         | 7,135      |          |   |             | (24,917                    | )       
|                                      |                                                                                  | Change in assets and liabilities, net of acquisitions:    |                                           |  |  |   |         |            |          |   |             |                            |         
|                                      |                                                                                  |                                                           | Income taxes receivable / payable         |  |  |   |         |            | (12,436  | ) |             |                            | 1,384    |  
|                                      |                                                                                  |                                                           | Receivables                               |  |  |   |         |            | (16,811  | ) |             |                            | (22,364  | )
|                                      |                                                                                  |                                                           | Prepaid expenses and other assets         |  |  |   |         |            | 1,839    |   |             |                            | (787     | )
|                                      |                                                                                  |                                                           | Accounts payable                          |  |  |   |         |            | (6,192   | ) |             |                            | (2,283   | ) |                           
|                                      |                                                                                  |                                                           | Accrued liabilities                       |  |  |   |         |            | 22,359   |   |             |                            | 21,651   |  
|                                      |                                                                                  |                                                           | Public liability and property damage      |  |  |   |         |            | 7,717    |   |             |                            | 15,844   |  
|                                      |                                                                                  |                                                           | Other                                     |  |  |   |         |            | 924      |   |             |                            | 1,216    |  
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                            |          |   |                           
|                                      |                                                                                  |                                                           | Net cash provided by operating activities |  |  |   |         |            | 380,746  |   |             |                            | 341,959  |  
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                            |          |   |                           
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                           
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                           
|                                      | Revenue-earning vehicles:                                                        |                                                           |                                           |  |  |   |         |            |          |   |             |                           
|                                      |                                                                                  | Purchases                                                 |                                           |  |  |   |         | (3,296,144 | )        |   |             | (3,139,082                 | )       
|                                      |                                                                                  | Proceeds from sales                                       |                                           |  |  |   |         | 2,234,741  |          |   |             | 2,437,217                  |         
|                                      | Net change in restricted cash and investments                                    |                                                           |                                           |  |  |   | 536,685 |            |          |   | 43,294      |                           
|                                      | Property, equipment and software:                                                |                                                           |                                           |  |  |   |         |            |          |   |             |                           
|                                      |                                                                                  | Purchases                                                 |                                           |  |  |   |         | (24,418    | )        |   |             | (22,675                    | )       
|                                      |                                                                                  | Proceeds from sales                                       |                                           |  |  |   |         | 3          |          |   |             | 3,266                      |         
|                                      | Acquisition of businesses, net of cash acquired                                  |                                                           |                                           |  |  |   | (29,583 | )          |          |   | (3,593      | )                         
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                            |          |   |                           
|                                      |                                                                                  |                                                           | Net cash used in investing activities     |  |  |   |         |            | (578,716 | ) |             |                            | (681,573 | )
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                            |          |   |                           
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                           
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   |             |                           
|                                      |                                                                                  |                                                           |                                           |  |  |   |         |            |          |   | (Continued) |                           



7



## DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


---

(In Thousands)


|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                            |  |  |  | 
|-------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- |  |  | - | ------- | ---------- | ------- | - | ------- | -------------------------- | ------- |  | -------------------------- |  |  |  | 
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         | Nine Months                |        
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         | Ended September 30,        |        
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |        
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         | (Unaudited)                |        
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         | 2006                       |         |  | 2005                       | 
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                            | 
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         | (As Restated -see Note 17) |         |  | (As Restated -see Note 17) | 
|CASH FLOWS FROM FINANCING ACTIVITIES:              |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                           
|                                                   | Vehicle debt and obligations:                                             |                                           |                                           |  |  |   |         |            |         |   |         |                           
|                                                   |                                                                           | Proceeds                                  |                                           |  |  |   | $       | 6,044,603  |         |   | $       | 3,841,528                  |        
|                                                   |                                                                           | Payments                                  |                                           |  |  |   |         | (5,785,971 | )       |   |         | (3,416,771                 | )      
|                                                   | Issunce of common shares                                                  |                                           |                                           |  |  |   | 6,139   |            |         |   | 16,877  |                           
|                                                   | Purchase of common stock for the treasury                                 |                                           |                                           |  |  |   | (91,913 | )          |         |   | (22,512 | )                         
|                                                   | Financing issue costs                                                     |                                           |                                           |  |  |   | (7,387  | )          |         |   | (5,179  | )                         
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                           
|                                                   |                                                                           |                                           | Net cash provided by financing activities |  |  |   |         |            | 165,471 |   |         |                            | 413,943 | 
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                           
|CHANGE IN CASH AND CASH EQUIVALENTS                |                                                                           |                                           |                                           |  |  |   | (32,499 | )          |         |   | 74,329  |                           
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                            |  | 
|CASH AND CASH EQUIVALENTS:                         |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                           
|                                                   | Beginning of period                                                       |                                           |                                           |  |  |   | 274,299 |            |         |   | 204,453 |                           
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                           
|                                                   | End of period                                                             |                                           |                                           |  |  | $ | 241,800 |            |         | $ | 278,782 |                           
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                           
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                           
|                                                   | Cash paid for/(refund of):                                                |                                           |                                           |  |  |   |         |            |         |   |         |                           
|                                                   |                                                                           | Income taxes to/(from) taxing authorities |                                           |  |  |   | $       | 14,193     |         |   | $       | (178                       | )      
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                           
|                                                   |                                                                           | Interest                                  |                                           |  |  |   | $       | 88,658     |         |   | $       | 73,437                     |        
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                           
|SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:    |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                           
|                                                   | Receivables from capital lease of vehicles to franchisees                 |                                           |                                           |  |  | $ | 917     |            |         | $ | 1,106   |                           
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                           
|                                                   | Purchases of property, equipment and software includedin accounts payable |                                           |                                           |  |  | $ | 853     |            |         | $ | 2,262   |                           
|                                                   |                                                                           |                                           |                                           |  |  |   |         |            |         |   |         |                            |         |  |                           

See notes to condensed consolidated financial statements.



8





DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005(Unaudited)






1.
        BASIS OF PRESENTATION




The accompanying condensed consolidated financial statements include the accounts of Dollar Thrifty Automotive Group, Inc. (DTG) and its subsidiaries.  DTGs significant wholly owned subsidiaries include DTG Operations, Inc., Thrifty, Inc.,  Dollar Rent A Car, Inc., Rental Car Finance Corp. (RCFC) and Dollar Thrifty Funding Corp.  Thrifty, Inc. is the parent company to Thrifty Rent-A-Car System, Inc., which is the parent company to Dollar Thrifty Automotive Group Canada Inc. (DTG Canada).  The term the Company is used to refer to DTG and subsidiaries, individually or collectively, as the context may require.



The accounting policies set forth in
        Note 2 to the restated consolidated financial statements contained in the Form 10-K/A for the year ended December 31, 2005, filed
        with the Securities and Exchange Commission on February 26, 2007 have been followed in preparing the accompanying condensed consolidated financial statements.



The condensed consolidated financial statements and notes thereto for interim periods included hereinhave notbeen audited by an independent registered public accounting firm.  The condensed consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the Companysopinion, all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the results of operations for the interim periods have been made.  Results for interim periods are not necessarily indicative of results for a full year.



2.
        SHARE-BASED PAYMENT PLANS




Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment (SFAS No. 123(R)) using the modified prospective application transition method.  SFAS No. 123(R) revises SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123).  The Company previously adopted the fair value based method of recording stock options consistent with SFAS No. 123 and accounted for the change in accounting principle using the prospective method in accordance with SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, an amendment of SFAS No. 123.  Under the prospective method, the Company expensed all stock based compensation granted since January 1, 2003 over the vesting period based on the fair value at the date
of grant. The fair value recognition provisions of SFAS No. 123 and SFAS No. 123(R) are materially consistent; therefore, the adoption of SFAS No. 123(R) did not have a material impact on the Companys condensed consolidated statements of financial condition, results of operations or cash flows.



SFAS No. 123(R) requires the Company to estimate forfeitures in calculating the expense relating to share-based compensation as opposed to recognizing these forfeitures and the corresponding reduction in expense as they occur, as was allowed under SFAS No. 123.





9



Long-Term Incentive Plan



The Company has a long-term incentive plan and director equity plan (LTIP) for employees and non-employee directors under which the Human Resources and Compensation Committee of the Board of Directors of the Company (the Committee) is authorized to provide for grants in the form of incentive option rights, non-qualified option rights, tandem appreciation rights, free-standing appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other awards to key employees and non-employee directors that may be payable or related to common stock or factors that may influence the value of common stock.At September 30, 2006, the Companys common stock authorized for issuance under the LTIP was 2,168,390 shares.  The Company has 181,434 shares available for future LTIP awards at
September 30, 2006 after reserving for the maximum potential shares that could be awarded under existing LTIP grants.  The Company issues new shares to satisfy LTIP awards.



Compensation cost for performance shares and restricted stock awards is recognized based on the fair value of the awards granted at the grant-date.The Company recognized compensation costs of $3.5 million and $10.9 million during the three months and nine months ended September 30, 2006, respectively, and $1.7 million and $4.3 million during the three months and nine months ended September 30, 2005, respectively, for such awards.  The increase in compensation costs for the nine months ended September 30, 2006 included $2.2 million related to a change in estimate for the final calculation of the vested 2003 performance share awards paid in 2006, $2.9 million for higher costs related to the 2006 performance share awards, and $1.5 million to reflect current performance estimates.



Option Rights Plan Under the LTIP, the Committee may grant non-qualified option rights to key employees and non-employee directors.  The exercise prices for non-qualified option rights are equal to the fair market value of the Companys common stock at the date of grant, except for the initial grant, which was made at the initial public offering price. The fair market value for each award is estimated using a Black-Scholes option valuation.The non-qualified option rights generally vest in three equal annual installments commencing on the first anniversary of the grant-date and have a term not exceeding ten years from the date of grant. The maximum number of shares for which option rights may be granted under the LTIP to any participant during any calendar year is 285,000.



As of the end of 2004, all stock option rights were fully vested.  Therefore, the disclosure of the pro forma results as if the fair value-based method of SFAS No. 123 had been applied is not required for the nine months ended September 30, 2005.  The Company has not granted stock option rights since January 1, 2003.



The following table sets forth the non-qualified option rights activity under the LTIP for the nine months ended September 30, 2006:



















10



| |                                           |  |  |                |   |  |  |                    |  |  |  |             |  |  |  |                     |  |  |  |  | 
| | ----------------------------------------- |  |  | -------------- | - |  |  | ------------------ |  |  |  | ----------- |  |  |  | ------------------- |  |  |  |  | 
| |                                           |  |  |                |   |  |  |                    |  |  |  | Weighted-   |  |  |  |                     | 
| |                                           |  |  |                |   |  |  | Weighted-          |  |  |  | Average     |  |  |  | Aggregate           | 
| |                                           |  |  | Number of      |   |  |  | Average            |  |  |  | Remaining   |  |  |  | Intrinsic           | 
| |                                           |  |  | Shares         |   |  |  | Exercise           |  |  |  | Contractual |  |  |  | Value               | 
| |                                           |  |  | (In Thousands) |   |  |  | Price              |  |  |  | Term        |  |  |  | (In Thousands)      | 
| |                                           |  |  |                |   |  |  |                    |  |  |  |             |  |  |  |                    
| | Outstanding at January 1, 2006            |  |  | 956            |   |  |  | $            17.44 |  |  |  |             |  |  |  |                     | 
| |                                           |  |  |                |   |  |  |                    |  |  |  |             |  |  |  |                    
| | Granted                                   |  |  | -              |   |  |  | -                  |  |  |  |             |  |  |  |                     | 
| | Exercised                                 |  |  | (351           | ) |  |  | 17.47              |  |  |  |             |  |  |  |                     | 
| | Forfeited                                 |  |  | (3             | ) |  |  | 17.19              |  |  |  |             |  |  |  |                     | 
| |                                           |  |  |                |   |  |  |                    |  |  |  |             |  |  |  |                     |  |  |  | 
| | Outstanding at September 30, 2006         |  |  | 602            |   |  |  | $            17.42 |  |  |  | 3.72        |  |  |  | $            16,354 | 
| |                                           |  |  |                |   |  |  |                    |  |  |  |             |  |  |  |                     |  |  |  |  | 
| | Options exercisable at September 30, 2006 |  |  | 602            |   |  |  | $            17.42 |  |  |  | 3.72        |  |  |  | $            16,354 | 



The total intrinsic value of options exercised during the three months and nine months ended September 30, 2006 was $2.7 million and $9.6 million, respectively, and during the three months and nine months ended September 30, 2005 was $0.2 million and $15.1 million, respectively.  Total cash received for non-qualified option rights exercised during the nine months ended September 30, 2006 and 2005 totaled $6.1 million and $16.9 million, respectively.



The following table summarizes information regarding fixed non-qualified option rights that were outstanding at September 30, 2006:

| |  |                     |  |  |  |  |  |  |                |                     |     |                     |                  |  |          |           |  |                |       |  |          |           |     |  |  |   |       |  |  | 
| |  | ------------------- |  |  |  |  |  |  | -------------- | ------------------- | --- | ------------------- | ---------------- |  | -------- | --------- |  | -------------- | ----- |  | -------- | --------- | --- |  |  | - | ----- |  |  | 
| |  |                     |  |  |  |  |  |  |                | Options Outstanding |     | Options Exercisable |                  | 
| |  |                     |  |  |  |  |  |  |                |                     |     |                     |                  | 
| |  |                     |  |  |  |  |  |  |                |                     |     |                     | Weighted-Average |  |          | Weighted- |  |                |       |  |          | Weighted- |     | 
| |  | Range of            |  |  |  |  |  |  | Number         |                     |     | Remaining           |                  |  | Average  |           |  | Number         |       |  | Average  |           |    
| |  | Exercise            |  |  |  |  |  |  | Outstanding    |                     |     | Contractual Life    |                  |  | Exercise |           |  | Exercisable    |       |  | Exercise |           |    
| |  | Prices              |  |  |  |  |  |  | (In Thousands) |                     |     | (In Years)          |                  |  | Price    |           |  | (In Thousands) |       |  | Price    |           |    
| |  |                     |  |  |  |  |  |  |                |                     |     |                     |                  |  |          |           |  |                |       |  |          |           |     |  |  |   |       |  | 
| |  | $10.50 - $17.6875   |  |  |  |  |  |  |                |                     | 191 |                     |                  |  | 4.37     |           |  | $              | 11.92 |  |          |           | 191 |  |  | $ | 11.92 |  | 
| |  |                     |  |  |  |  |  |  |                |                     |     |                     |                  |  |          |           |  |                |       |  |          |           |     |  |  |   |       |  | 
| |  | $18.375  -  $19.375 |  |  |  |  |  |  |                |                     | 296 |                     |                  |  | 3.65     |           |  |                | 19.30 |  |          |           | 296 |  |  |   | 19.30 |  | 
| |  |                     |  |  |  |  |  |  |                |                     |     |                     |                  |  |          |           |  |                |       |  |          |           |     |  |  |   |       |  | 
| |  | $20.50  -  $23.90   |  |  |  |  |  |  |                |                     | 115 |                     |                  |  | 2.82     |           |  |                | 21.68 |  |          |           | 115 |  |  |   | 21.68 |  | 
| |  |                     |  |  |  |  |  |  |                |                     |     |                     |                  |  |          |           |  |                |       |  |          |           |     |  |  |   |       | 
| |  | $10.50 - $23.90     |  |  |  |  |  |  |                |                     | 602 |                     |                  |  | 3.72     |           |  | $              | 17.42 |  |          |           | 602 |  |  | $ | 17.42 |  | 
| |  |                     |  |  |  |  |  |  |                |                     |     |                     |                  |  |          |           |  |                |       |  |          |           |     |  |  |   |       | 



Performance Shares Performance shares are granted to Company officers and certain key employees. The awards granted in 2006, 2005 and 2004 established a target number of shares that generally vest at the end of a three year requisite service period following the grant-date.  The number of performance shares ultimately earned will range from zero to 200% of the target award, depending on the level of corporate performance over each of the three years, which is considered the performance period. For the awards granted in 2006, the expense related to performance shares is based on a market based condition as defined in SFAS No. 123(R) for 50% of the target award and on defined performance indicators for the other 50% of the target award.  The grant-date fair value for the performance indicator portion of the award was based on the closing market price of
the Companys common shares at the date of grant.  The market condition based portion of the award was estimated on the date of grant using a lattice-based option valuation model and the assumptions noted in the following table:



11



| |  |                                           |  |  |  |  |  |  |  |  |  |  |  |        |  |  |  |  |  |  |  | 
| |  | ----------------------------------------- |  |  |  |  |  |  |  |  |  |  |  | ------ |  |  |  |  |  |  |  | 
| |  | Weighted-average expected life (in years) |  |  |  |  |  |  |  |  |  |  |  | 3      |  |  |  |  | 
| |  | Expected price volatility                 |  |  |  |  |  |  |  |  |  |  |  | 30.50% |  |  |  |  | 
| |  | Risk-free interest rate                   |  |  |  |  |  |  |  |  |  |  |  | 4.54%  |  |  |  |  | 



The target awards granted in 2005 and 2004 were valued at the closing market price of the Companys common shares at the date of grant.



Performance shares earned are delivered based upon vesting of the grant, provided the grantee is then employed by the Company. For instances of retirement, involuntary termination without cause, disability or death, performance share awards vest on a pro-rata basis at 100% of target, but will not be issued until the end of the performance period or earlier, if needed to comply with the Internal Revenue Code Section 409A.  Any performance share installments not earned at the end of the requisite service period are forfeited.  The following table presents the status of the Companys nonvested performance shares as of September 30, 2006 and any changes during the nine months ended September 30, 2006:

| |  |                                 |  |  |  |  |  |  |                |   |  |  |  |                             |  |  |  |  |  |  |  | 
| |  | ------------------------------- |  |  |  |  |  |  | -------------- | - |  |  |  | --------------------------- |  |  |  |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  |                |   |  |  |  | Weighted-Average            |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  | Shares         |   |  |  |  | Grant Date                  |  |  |  |  | 
| |  | Nonvested Shares                |  |  |  |  |  |  | (In Thousands) |   |  |  |  | Fair Value                  |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  |                |   |  |  |  |                             |  |  |  |  | 
| |  | Nonvested at January 1, 2006    |  |  |  |  |  |  | 814            |   |  |  |  | $                     26.16 |  |  |  |  | 
| |  | Granted                         |  |  |  |  |  |  | 214            |   |  |  |  | 45.80                       |  |  |  |  | 
| |  | Vested                          |  |  |  |  |  |  | (273           | ) |  |  |  | 16.31                       |  |  |  |  | 
| |  | Forfeited                       |  |  |  |  |  |  | (52            | ) |  |  |  | 23.45                       |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  |                |   |  |  |  |                             |  |  |  |  | 
| |  | Nonvested at September 30, 2006 |  |  |  |  |  |  | 703            |   |  |  |  | $                     35.68 |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  |                |   |  |  |  |                             |  |  |  |  | 



At September 30, 2006, the total compensation cost related to nonvested performance share awards not yet recognized is estimated at approximately $9.1 million, depending upon the Companys performance against targets specified in the performance share agreement.  This estimated compensation cost is expected to be recognized over the weighted-average period of 1.9 years.  Values of the performance shares earned will be recognized as compensation expense over the requisite service period.  The total intrinsic value of vested and issued performance shares during the nine months ended September 30, 2006 was $10.5 million.  The maximum amount of performance shares that may be granted under the LTIP during any year to any participant is 160,000 common shares.



Restricted Stock Units Under the LTIP, the Committee may grant restricted stock units to key employees and non-employee directors.  The Committee generally grants restricted stock units to non-employee directors.  These grants generally vest at the end of the fiscal year in which the grants were made.  For the awards granted in 2006 and 2005, the grant-date fair value of the award was based on the closing market price of the Companys common shares at the date of grant.  The following table presents the status of the Companys nonvested restricted stock units as of September 30, 2006 and any changes during the nine months ended September 30, 2006:





12



| |  |                                 |  |  |  |  |  |  |                |  |  |  |  |                                        |  |  |  |  |  |  |  | 
| |  | ------------------------------- |  |  |  |  |  |  | -------------- |  |  |  |  | -------------------------------------- |  |  |  |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  |                |  |  |  |  | Weighted-Average                       |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  | Shares         |  |  |  |  | Grant-Date                             |  |  |  |  | 
| |  | Nonvested Shares                |  |  |  |  |  |  | (In Thousands) |  |  |  |  | Fair Value                             |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  |                |  |  |  |  |                                        |  |  |  |  | 
| |  | Nonvested at January 1, 2006    |  |  |  |  |  |  | -              |  |  |  |  | $             
                      - |  |  |  |  | 
| |  | Granted                         |  |  |  |  |  |  | 28             |  |  |  |  | 38.06                                  |  |  |  |  | 
| |  | Vested                          |  |  |  |  |  |  | -              |  |  |  |  | -                                      |  |  |  |  | 
| |  | Forfeited                       |  |  |  |  |  |  | -              |  |  |  |  | -                                      |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  |                |  |  |  |  |                                        |  |  |  |  | 
| |  | Nonvested at September 30, 2006 |  |  |  |  |  |  | 28             |  |  |  |  | $                     38.06            |  |  |  |  | 
| |  |                                 |  |  |  |  |  |  |                |  |  |  |  |                                        |  |  |  |  | 



At September 30, 2006, the total compensation cost related to nonvested restricted stock unit awards not yet recognized is approximately $0.3 million, which is expected to be recognized over the next three months.



3.
        ACQUISITIONS




During the nine months ended September 30, 2006, the Company acquired certain assets and assumed certain liabilities relating to 31 locations from former franchisees in Tulsa and Oklahoma City, Oklahoma; Nashville, Tennessee; Little Rock, Arkansas; Providence, Rhode Island; Cincinnati, Ohio; Minneapolis, Minnesota; Milwaukee and Madison, Wisconsin; Pensacola, Florida; Phoenix, Arizona; Columbus and Dayton, Ohio; and El Paso, Texas.  Total cash paid during the nine months ended September 30, 2006, net of cash acquired for acquisitions, was $29.6 million.



Effective January 1, 2005, the Company adopted the provisions of Emerging Issues Task Force (EITF) No. 04-1, Accounting for Preexisting Relationships between the Parties to a Business Combination (EITF No. 04-1).EITF No. 04-1 affirms that a business combination between two parties that have a preexisting relationship should be accounted for as a multiple element transaction.  This includes determining how the cost of the combination should be allocated after considering the assets and liabilities that existed between the parties prior to the combination.Adoption of EITF No. 04-1 impacted the way in which the Company accounts for certain business combination transactions through establishing identifiable intangibles, other than goodwill, such as reacquired
franchise rights through the Companys acquisitions of franchisee operations.  The Company recognized an additional $28.9 million in unamortized intangible assets for reacquired franchise rights during the nine months ended September 30, 2006 (Note 7).  The Company did not recognize any goodwill related to these transactions.



Each of these transactions has been
        accounted for using the purchase method of accounting and operating results of the acquirees from the dates of acquisition are
        included in the condensed consolidated statements of income of the Company.  These acquisitions are not material individually or
        collectively to amounts presented for the nine months ended September 30, 2006.













13



4.
        VEHICLE DEPRECIATION AND LEASE CHARGES, NET (RESTATED)




Vehicle depreciation and lease charges includes the following (in thousands):

| |  |                                                     |         |         |   |         |                     |   |                     |         |            |         |            |   |  |  |  |  |  |  |  | 
| |  | --------------------------------------------------- | ------- | ------- | - | ------- | ------------------- | - | ------------------- | ------- | ---------- | ------- | ---------- | - |  |  |  |  |  |  |  | 
| |  |                                                     |         |         |   |         | Three Months        |   | Nine Months         |        
| |  |                                                     |         |         |   |         | Ended September 30, |   | Ended September 30, |        
| |  |                                                     |         |         |   |         |                     |   |                     |        
| |  |                                                     |         |         |   |         | (Restated)          |   | (Restated)          |         | (Restated) |         | (Restated) |  
| |  |                                                     |         |         |   |         |                     |   |                     |         |            |         |            |  
| |  |                                                     |         |         |   |         | 2006                |   | 2005                |         | 2006       |         | 2005       |  
| |  |                                                     |         |         |   |         |                     |   |                     |         |            |         |            |  
| |  | Depreciation of revenue-earning vehicles            | $       | 120,478 |   | $       | 102,201             |   | $                   | 287,441 |            | $       | 253,830    |  
| |  | Net gains from disposal of revenue-earning vehicles |         | (390    | ) |         | (3,138              | ) |                     | (17,220 | )          |         | (35,890    | )
| |  | Rents paid for vehicles leased                      |         | 2,415   |   |         | 2,765               |   |                     | 5,495   |            |         | 7,122      |  
| |  |                                                     |         |         |   |         |                     |   |                     |         |            |         |            |  
| |  | $                                                   | 122,503 |         | $ | 101,828 |                     | $ | 275,716             |         | $          | 225,062 |           
| |  |                                                     |         |         |   |         |                     |   |                     |         |            |         |            |  

5.
        EARNINGS PER SHARE (RESTATED)




Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is based on the combined weighted average number of common shares and dilutive potential common shares outstanding which include, where appropriate, the assumed exercise of options.  In computing diluted earnings per share, the Company has utilized the treasury stock method.



The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share (EPS) is shown below (in thousands, except share and per share data):

| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |   |            |            |  |  | 
| |  | ----------------------------- | ------------------------------------- | - | ---------- | ------------------- |  | ---------- | ------------------- | ---------- | ---------- |  | ---------- | ---------- | ---------- |  | - | ---------- | ---------- |  |  | 
| |  |                               |                                       |   |            | Three Months        |  |            | Nine Months         |           
| |  |                               |                                       |   |            | Ended September 30, |  |            | Ended September 30, |           
| |  |                               |                                       |   |            |                     |  |            |                     |           
| |  |                               |                                       |   |            | 2006                |  | 2005       |                     |            | 2006       |  | 2005       |           
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |           
| |  |                               |                                       |   |            | (Restated)          |  | (Restated) |                     |            | (Restated) |  | (Restated) |           
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |           
| |  | Net Income                    |                                       | $ | 5,884      |                     |  | $          | 37,410              |            |            |  | $          | 54,345     |            |  | $ | 68,184     |           
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  
| |  | Basic EPS:                    |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |   |            |           
| |  |                               | Weighted average common shares        |   |            | 23,884,407          |  |            |                     | 25,189,893 |            |  |            |            | 24,456,656 |  |   |            | 25,101,071 | 
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  
| |  | Basic EPS                     |                                       | $ | 0.25       |                     |  | $          | 1.49                |            |            |  | $          | 2.22       |            |  | $ | 2.72       |           
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  
| |  | Diluted EPS:                  |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |   |            |           
| |  |                               | Weighted average common shares        |   |            | 23,884,407          |  |            |                     | 25,189,893 |            |  |            |            | 24,456,656 |  |   |            | 25,101,071 | 
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  
| |  | Shares contingently issuable: |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |   |            |           
| |  |                               | Stock options                         |   |            | 244,603             |  |            |                     | 280,457    |            |  |            |            | 285,464    |  |   |            | 367,406    | 
| |  |                               | Performance awards                    |   |            | 377,338             |  |            |                     | 639,544    |            |  |            |            | 421,449    |  |   |            | 611,050    | 
| |  |                               | Shares held for compensation plans    |   |            | 359,928             |  |            |                     | 182,574    |            |  |            |            | 255,069    |  |   |            | 181,213    | 
| |  |                               | Director compensation shares deferred |   |            | 170,615             |  |            |                     | 139,639    |            |  |            |            | 168,096    |  |   |            | 136,686    | 
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  
| |  | Shares applicable to diluted  |                                       |   | 25,036,891 |                     |  |            | 26,432,107          |            |            |  |            | 25,586,734 |            |  |   | 26,397,426 |           
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  
| |  | Diluted EPS                   |                                       | $ | 0.24       |                     |  | $          | 1.42                |            |            |  | $          | 2.12       |            |  | $ | 2.58       |           
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  
| |  |                               |                                       |   |            |                     |  |            |                     |            |            |  |            |            |            |  |  



14



For the three months and nine months ended September 30, 2006 and 2005, all options to purchase shares of common stock were included in the computation of diluted earnings per share because no exercise price was greater than the average market price of the common shares.



6.
        RECEIVABLES (RESTATED)




Receivables consist of the following (in thousands):

| |  |                                        |  |   |         |               |  |   |              |         |  | 
| |  | -------------------------------------- |  | - | ------- | ------------- |  | - | ------------ | ------- |  | 
| |  |                                        |  |   |         | September 30, |  |   | December 31, |        
| |  |                                        |  |   |         | 2006          |  |   | 2005         |        
| |  |                                        |  |   |         |               |  |   |              |        
| |  |                                        |  |   |         | (Restated)    |  |   |              |        
| |  |                                        |  |   |         |               |  |   |              |        
| |  | Trade accounts receivable              |  | $ | 140,205 |               |  | $ | 130,953      |        
| |  | Notes receivable                       |  |   | 1,325   |               |  |   | 1,448        |        
| |  | Financing receivables, net             |  |   | 160     |               |  |   | 898          |        
| |  | Due from DaimlerChrysler               |  |   | 77,532  |               |  |   | 83,774       |        
| |  | Fair value of interest rate swap       |  |   | 17,279  |               |  |   | 20,903       |        
| |  | Other vehicle manufacturer receivables |  |   | 6,737   |               |  |   | 1,182        |        
| |  |                                        |  |   |         |               | 
| |  |                                        |  |   | 243,238 |               |  |   | 239,158      |        
| |  | Less:  Allowance for doubtful accounts |  |   | (10,601 | )             |  |   | (20,606      | )      
| |  |                                        |  |   |         |               | 
| |  |                                        |  |   | $       | 232,637       |  |   | $            | 218,552 | 
| |  |                                        |  |   |         |               | 



Trade accounts and notes receivableinclude primarily amounts due from rental customers, franchisees and tour operators arising from billings under standard credit terms for services provided in the normal course of business and amounts due from the sale of revenue-earning vehicles.  Notes receivable are generally issued by certain franchisees at current market interest rates with varying maturities and are generally guaranteed by franchisees.



Financing receivablesarise from direct financing and sales-type leases of vehicles with franchisees.  These receivables principally have terms up to one year and are collateralized by the vehicles.



Due from DaimlerChrysleris comprised primarily of amounts due under various guaranteed residual, buyback, incentive and promotion programs, which are paid according to contract terms and are generally received within 60 days.



Fair value of interest rate swaprepresents the fair market value on interest rate swap agreements (Note 10).



Other vehicle manufacturer receivablesinclude primarily amounts due under guaranteed residual, buyback and incentive programs, which are paid according to contract terms and are generally received within 60 days.













15



7.
        SOFTWARE AND OTHER INTANGIBLE ASSETS




Software and other intangible assets
        consist of the following (in thousands):



| |  |                                            |  |   |         |               |  |   |              |   |  | 
| |  | ------------------------------------------ |  | - | ------- | ------------- |  | - | ------------ | - |  | 
| |  |                                            |  |   |         | September 30, |  |   | December 31, |  
| |  |                                            |  |   |         | 2006          |  |   | 2005         |  
| |  |                                            |  |   |         |               |  |   |              |  
| |  | Amortized intangible assets                |  |   |         |               |  |   |              |  
| |  | Software and other intangible assets       |  | $ | 62,902  |               |  | $ | 55,305       |  
| |  | Less: accumulated amortization             |  |   | (35,411 | )             |  |   | (30,577      | )
| |  |                                            |  |   |         |               | 
| |  |                                            |  |   | 27,491  |               |  |   | 24,728       |  
| |  | Unamortized intangible assets              |  |   |         |               |  |   |              |  
| |  | Reacquired franchise rights                |  |   | 32,436  |               |  |   | 3,542        |  
| |  |                                            |  |   |         |               | 
| |  | Total software and other intangible assets |  | $ | 59,927  |               |  | $ | 28,270       |  
| |  |                                            |  |   |         |               | 



As discussed in Note 3, the Company adopted the provisions of EITF No. 04-1 on January 1, 2005.  In applying the provisions of EITF No. 04-1 to the acquisitions completed during the nine months ended September 30, 2006, the Company established unamortized separately identifiable intangible assets, referred to as reacquired franchise rights.  Intangible assets with indefinite useful lives, such as reacquired franchise rights, are not amortized, but are subject to impairment testing annually or more frequently if events and circumstances indicate there may be impairment.  The Company has elected to perform the annual impairment test on the indefinite lived intangible assets during the fourth quarter of each year, unless circumstances arise that require more frequent testing.  During the fourth quarter of 2005, the Company completed its annual impairment test of each reacquired franchise
right and concluded no impairment was indicated.  Intangible assets with finite useful lives are amortized over their respective useful lives.



8.
        GOODWILL




The Company has elected to perform the annual impairment test on goodwill during the second quarter of each year, unless circumstances arise that require more frequent testing.  During the second quarter of 2006, the Company completed the annual impairment test of goodwill and concluded goodwill was not impaired.











16



The changes in the carrying amount of goodwill for the nine months ended September 30, 2006 are as follows (in thousands):

| |  |                                                                                             |  |   |         |  |  |  |  |  |  | 
| |  | ------------------------------------------------------------------------------------------- |  | - | ------- |  |  |  |  |  |  | 
| |  | Balance as of January 1, 2006                                                               |  | $ | 280,122 |  |  |  |  | 
| |  | Goodwill through acquisitions or purchase
                price adjustments during the year |  |   | -       |  |  |  |  | 
| |  | Effect of change in rates used for foreign currency
                translation             |  |   | 273     |  |  |  |  | 
| |  |                                                                                             |  |   |         |  |  |  | 
| |  | Balance as of September 30, 2006                                                            |  | $ | 280,395 |  |  |  |  | 
| |  |                                                                                             |  |   |         |  |  |  | 



9.
        VEHICLE DEBT AND OBLIGATIONS




Vehicle debt and obligations as of September 30, 2006 and December 31, 2005 consist of the following (in thousands):

| |  |  |                                                                |                   |                                     |           |               |           |   |              |           |           |  
| |  |  | -------------------------------------------------------------- | ----------------- | ----------------------------------- | --------- | ------------- | --------- | - | ------------ | --------- | --------- | -
| |  |  |                                                                |                   |                                     |           | September 30, |           |   | December 31, |          
| |  |  |                                                                |                   |                                     |           | 2006          |           |   | 2005         |          
| |  |  |                                                                |                   |                                     |           |               |           |   |             
| |  |  | Asset backed notes:                                            |                   |                                     |           |               |           |   |              |          
| |  |  |                                                                | 2006 Series notes |                                     | $         | 600,000       |           |   | $            | -         |          
| |  |  |                                                                | 2005 Series notes |                                     |           | 400,000       |           |   |              | 400,000   |          
| |  |  |                                                                | 2004 Series notes |                                     |           | 500,000       |           |   |              | 500,000   |          
| |  |  |                                                                | 2003 Series notes |                                     |           | 375,000       |           |   |              | 375,000   |          
| |  |  |                                                                | 2001 Series notes |                                     |           | -             |           |   |              | 233,333   |          
| |  |  |                                                                |                   |                                     |           |               |           |   |             
| |  |  |                                                                |                   |                                     |           | 1,875,000     |           |   |              | 1,508,333 |          
| |  |  |                                                                |                   | Discounts on asset backed notes     |           |               | (34       | ) |              |           | (41       | )
| |  |  |                                                                |                   |                                     |           |               |           |   |             
| |  |  |                                                                |                   | Asset backed notes, net of discount |           |               | 1,874,966 |   |              |           | 1,508,292 |  
| |  |  | Conduit Facility                                               |                   |                                     | 425,000   |               |           |   | 375,000      |          
| |  |  | Commercial paper, net of
        discount of $1,313 and $2,554 |                   |                                     | 247,064   |               |           |   | 561,155      |          
| |  |  | Other vehicle debt                                             |                   |                                     | 237,592   |               |           |   | 166,183      |          
| |  |  | Limited partner interest in limited partnership                |                   |                                     | 198,969   |               |           |   | 114,322      |          
| |  |  |                                                                |                   |                                     |           |               |           |   |             
| |  |  | Total vehicle debt and obligations                             |                   | $                                   | 2,983,591 |               |           | $ | 2,724,952    |          
| |  |  |                                                                |                   |                                     |           |               |           |   |             



On March 28, 2006, the Company renewed its Variable Funding Note Purchase Facility (the Conduit Facility) for another 364-day period with a capacity of $425 million.



On March 28, 2006, the Company renewed its Commercial Paper Program for another 364-day period at a maximum size of $649 million backed by a renewal of the Liquidity Facility in the amount of $560 million.



On March 28, 2006, the Company issued $600 million of asset backed notes (the 2006 Series notes) to replace maturing asset backed notes and provide for growth in its fleet.  The 2006 Series notes consist of five-year floating rate notes at LIBOR plus 0.18%.  In conjunction with the issuance of the 2006 Series notes, the Company also entered into interest rate swap agreements to convert this floating rate debt to fixed rate debt at a 5.27% interest rate.



On April 4, 2006, an existing bank line of credit to finance vehicles was renewed and increased from $136 million to $150 million.





17



10.
        DERIVATIVE FINANCIAL INSTRUMENTS (RESTATED)




The Company is exposed to market risks,
        such as changes in interest rates.  Consequently, the Company manages the financial exposure as part of its risk management
        program, by striving to reduce the potentially adverse effects
        that the potential volatility of the financial markets may have on the Companys operating results.  In 2001, the Company began entering into interest rate swap agreements, in conjunction with each related new asset backed note issuance in 2001 through 2006, to convert variable interest rates on a total of $1.7 billion in asset backed notes to fixed interest rates.  These swaps have termination dates through May 2011.  The Company reflects these swaps on its condensed consolidated balance sheets at fair market value, which totaled $13.8 million at September 30, 2006, comprised of assets, included in receivables, of approximately $17.3 million and liabilities, included in accrued liabilities, of approximately $3.5 million.  At December 31, 2005, the fair market value of these swaps totaled approximately $20.9 million, which were assets, included
in receivables.  The Company recorded the related change in the fair value of the interest rate swap agreements of $25.4 million and $7.1 million as a net (increase) decrease in fair value of derivatives in the condensed consolidated statements of income for the three month and nine month periods ended September 30, 2006, respectively, and the related change in the fair value of the interest rate swaps of ($14.6) million and ($24.9) million as a net (increase) decrease in fair value of derivatives in the condensed consolidated statements of income for the three month and nine month periods ended September 30, 2005, respectively.  These swaps do not qualify for hedge accounting treatment under SFAS No. 133 (Note 17).



11.
        COMPREHENSIVE INCOME (RESTATED)




Comprehensive income is comprised of the following (in thousands):



| |  |                                         |   |       |   |   |                     |  |                     |        |            |   |            |  |  |  |  |  |  |  |  | 
| |  | --------------------------------------- | - | ----- | - | - | ------------------- |  | ------------------- | ------ | ---------- | - | ---------- |  |  |  |  |  |  |  |  | 
| |  |                                         |   |       |   |   | Three Months        |  | Nine Months         |       
| |  |                                         |   |       |   |   | Ended September 30, |  | Ended September 30, |       
| |  |                                         |   |       |   |   |                     |  |                     |       
| |  |                                         |   |       |   |   | 2006                |  | 2005                |        | 2006       |   | 2005       | 
| |  |                                         |   |       |   |   |                     |  |                     |        |            |   |            | 
| |  |                                         |   |       |   |   | (Restated)          |  | (Restated)          |        | (Restated) |   | (Restated) | 
| |  |                                         |   |       |   |   |                     |  |                     |        |            |   |            | 
| |  | Net income                              | $ | 5,884 |   | $ | 37,410              |  | $                   | 54,345 |            | $ | 68,184     | 
| |  |                                         |   |       |   |   |                     |  |                     |        |            |   |            |  |  |  | 
| |  | Foreign currency translation adjustment |   | (238  | ) |   | 1,979               |  |                     | 1,361  |            |   | 1,572      | 
| |  |                                         |   |       |   |   |                     |  |                     |        |            |   |            | 
| |  | Comprehensive income                    | $ | 5,646 |   | $ | 39,389              |  | $                   | 55,706 |            | $ | 69,756     | 
| |  |                                         |   |       |   |   |                     |  |                     |        |            |   |            | 



12.
        INCOME TAXES (RESTATED)




The Company has provided for income taxes in the U.S. and in Canada based on taxable income or loss and other tax attributes separately for each jurisdiction.  The Company has established tax provisions separately for U.S. taxable income and Canadian losses, for which no income tax benefit was recorded.  Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Companys assets and liabilities.  A valuation allowance is recorded for deferred income tax assets when management determines it is more likely than not that such assets will not be realized.



For the three months and nine months ended September 30, 2006, the overall effective tax rate of (36.9%) and 38.5%, respectively, differed from the U.S. statutory rate due primarily to the financial results of DTG Canada for which no benefit was recorded due to full valuation allowance and state and local taxes, including the higher effective state tax rate applied to the periodic change in fair value of derivatives based on the legal entity to which the interest rate swap agreements relate.





18



13.
        SHARE REPURCHASE PROGRAM




In February 2006, the Companys
        Board of Directors authorized a new $300 million share repurchase program to replace the $100 million
        share repurchase program of which $44.7 million had been used to repurchase shares.  During the nine months ended September 30, 2006, the Company repurchased 2,108,900 shares of common stock at an average price of $43.58 per share totaling $91.9 million.  Since inception of the share repurchase programs, the Company has repurchased 3,660,500 shares of common stock at an average price of $37.33 per share totaling $136.6 million, all of which were made in open market transactions.  At September 30, 2006, the $300 million share repurchase program has $208.1 million of remaining authorization to be completed by December 31, 2008.



14.
        COMMITMENTS AND CONTINGENCIES




On August 10, 2005, the federal Highway Bill was signed into law and removed unlimited vicarious liability for vehicle rental and leasing companies, limiting exposure to state minimum financial responsibility amounts.  This federal law supersedes all state laws on vicarious liability for automobile lessors.  Since the Highway Bill became law, its constitutionality has been challenged in some state courts, including subsequent appeals.  Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance.  Due to the limitation on vicarious liability, the Companys automobile liability accrual is principally limited to minimum financial responsibility.  When the Highway Bill became effective, the Company estimated an annual reduction in its automobile liability insurance expense of $12 million to $14 million.  The Company is unable to
reasonably estimate the cumulative impact on its results should the limitation on vicarious liability ultimately be reversed.



Various claims and legal proceedings have been asserted or instituted against the Company, including some purporting to be class actions, and some which demand large monetary damages or other relief which could result in significant expenditures.  Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance.  The Company is also subject to potential liability related to environmental matters.  The Company establishes reserves for litigation and environmental matters when the loss is probable and reasonably estimable.  It is reasonably possible that the final resolution of some of these matters may require the Company to make expenditures, in excess of established reserves, over an extended period of time and in a range of amounts that cannot be reasonably estimated.  The term reasonably possible is used herein to mean
that the chance of a future transaction or event occurring is more than remote but less than likely.  Although the final resolution of any such matters could have a material effect on the Companys consolidated operating results for the particular reporting period in which an adjustment of the estimated liability is recorded, the Company believes that any resulting liability would not materially affect its consolidated financial position.



15.
        NEW ACCOUNTING STANDARDS




In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN No. 48), an interpretation of SFAS No. 109, Accounting for Income Taxes.  FIN No. 48 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold for tax positions taken or expected to be taken in a tax return.  FIN No. 48 is effective for fiscal years beginning after December 15, 2006.  The Company is currently evaluating the impact, if any, FIN No. 48 will have on its consolidated financial position or results of operations.



In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which is effective for fiscal years beginning after November 15, 2007. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements.  The Company plans to adopt the provisions of SFAS No. 157 as required on January 1, 2008.  The Company is currently evaluating the impact SFAS No. 157 will have on its consolidated financial position and results of operations.



19



In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS No. 158).  This statement requires an entity to recognize on its balance sheet an asset for a defined benefit postretirement plans overfunded status or a liability for a plans underfunded status, measure a plans assets and obligations as of the end of the employers fiscal year and recognize changes in the funded status of a plan in comprehensive income in the year in which the changes occur.  This statement also expands the disclosure requirements associated with defined benefit postretirement plans.  This statement does not change the calculation of the net periodic benefit cost to be included in net income.  SFAS No. 158 is effective for
fiscal years ending after December 15, 2006, except for the provision that a plans assets and obligations be measured as of the end of the employers fiscal year which is effective for fiscal years ending after December 15, 2008.  SFAS No. 158 will have no impact on the Companys consolidated financial position or results of operations as the Company does not have defined benefit pension or other postretirement plans.



In September 2006, the FASB issued FASB Staff Position (FSP) AUG AIR-1, Accounting for Planned Major Maintenance Activities (FSP AUG AIR-1), which is applicable to entities in all industries and is effective for fiscal years beginning after December 15, 2006.  FSP AUG AIR-1 eliminates the accrue-in-advance method of accounting for planned major maintenance activities.  The Company plans to adopt this FSP as required on January 1, 2007.  The Company is currently evaluating the impact FSP AUG AIR-1 will have on its consolidated financial position and results of operations.



In September 2006, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB No. 108).  SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of determining whether the current years financial statements are materially misstated.  SAB No. 108 is effective for fiscal years ending after November 15, 2006. The Company will adopt SAB No. 108 as of December 31, 2006, as required.  Adoption of SAB No. 108 will not have a material impact on the consolidated financial position or results of operations of the Company.



16.
        SUBSEQUENT EVENTS




The Company acquired certain assets and assumed certain liabilities relating to its Thrifty franchisee locations in Reno, Nevada, effective October 1, 2006 and its Thrifty franchisee locations in San Antonio, Texas, effective November 6, 2006.



17.
        RESTATEMENT




Subsequent to the issuance of the Companys condensed consolidated financial statements for the three and nine months ended September 30, 2006, the Companys management determined that those financial statements contained the following:


        An error related to the Companys derivative accounting treatment under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS No. 133).



        An error related to determining the Companys effective state income tax rate under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, as amended (SFAS No. 109).



        An error in the classification of certain revenue-earning vehicle-related disposal costs from Direct Vehicle and Operating Expense to Vehicle Depreciation Expense.



        An error in the
        classification of tour operator incentives under Emerging Issues Task Force No. 01-9, Accounting for Consideration Given
        by a Vendor to a Customer (Including a Reseller of the Vendors Products) (EITF No. 01-9).  Correcting
        this error resulted in a reclassification of tour operator incentives from Direct Vehicle and Operating
        Expense to Vehicle Rental Revenue.  The Company
        also corrected the classification of interest earned on restricted cash and investments in the condensed consolidated statement
        of cash flows for the nine months ended September 30, 2005.




20





Interest Rate Swap Agreements The Company entered into interest rate swap agreements in connection with its asset-backed note issuances to reduce its exposure to market risks from fluctuating interest rates.  SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet as either an asset or liability measured at their fair value, and that changes in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met.  From inception of the Companys hedge program in 2001, the Company had applied a method of cash flow hedge accounting under SFAS No. 133 to account for the interest rate swap agreements that allowed the Company to assume no ineffectiveness in such agreements, called the short-cut method.  The Company recently concluded that its interest rate
swap agreements did not qualify for the short-cut method under SFAS No. 133 in prior periods because of certain prepayment clauses contained in the documents relating to the asset-backed note issuances.  Therefore, fluctuations in the interest rate swap agreements fair value should have been recorded through the consolidated statement of income instead of through other comprehensive income (loss), which is a component of stockholders equity.  The inability to retrospectively qualify for hedge accounting results in significant volatility in the Companys reported net income and earnings per share due to increases and decreases in the fair value of derivatives.  This correction of the accounting treatment of these derivative transactions does not change the highly effective nature of the interest rate swap agreements, nor does it have a net effect on operating cash flows or total stockholders equity.  Because the hedge documentation required for the
long-haul method was not in place at the inception of the hedge, hedge accounting under SFAS No. 133 is not allowed retrospectively.



State Income Tax Rate During 2006, the Company enhanced the process used to estimate the state income tax rate used to calculate its state deferred income tax liability under SFAS No. 109.  This change from an overall blended state income tax rate to a refined determination of the state income tax rate by entity and tax jurisdiction revealed an error in the Companys state income tax rate used prior to the fourth quarter of 2006.  The impact of this error resulted in a cumulative overstatement of the Companys net deferred state income tax liability of approximately $5 million at September 30, 2006.



Vehicle-Related Disposal
        Costs Additionally, the Company identified certain vehicle-related costs that should be
        reclassified in the Companys condensed consolidated statement of income from direct vehicle and operating expense to
        vehicle depreciation expense.  Certain costs have historically been accrued in direct vehicle and operating expense in the
        Companys condensed consolidated statement of income over the period that the Company holds its vehicles. However,
        these costs primarily relate directly to the disposal of the vehicles and, therefore, the Company has corrected the
        classification of these costs as vehicle depreciation expense.  This reclassification had no overall impact on the
        Companys previously reported net income.  Correspondingly, the Company also reclassified the related liabilities
        and receivable balances to revenue-earning vehicles as a component of net residual value.



Tour Operator Incentives and Other Prior to the restatement, the Company classified tour operator incentive costs as direct vehicle and operating expense in the Companys condensed consolidated statement of income.  The Company corrected the classification of these incentive costs as an offset to vehicle rental revenues in accordance with EITF No. 01-9.  The Company also corrected the classification of interest earned on restricted cash and investments in the condensed consolidated statement of cash flows for the nine months ended September 30, 2005.  These reclassifications had no overall impact on the Companys previously reported net income.



As a result of the above referenced errors, the condensed consolidated financial statements and other financial information for the three and nine months ended September 30, 2006 and 2005, have been restated from the amounts previously reported.  This restatement corrects the accounting treatment of each of the errors described above.





21



The following tables detail the effects of the restatement (in thousands, except per share amounts):

|                                             |   |                      |   |  |                   |        |   |                     |   |        |                              |  |   |                                 |   |  |            |   |  |  |   |           |  |  | 
|-------------------------------------------- | - | -------------------- | - |  | ----------------- | ------ | - | ------------------- | - | ------ | ---------------------------- |  | - | ------------------------------- | - |  | ---------- | - |  |  | - | --------- |  |  | 
|                                             |   | September 30, 2006   |  
|                                             |   |                      |  
|                                             |   |                      |   |  | Adjustments       |        |   |                     |   |        |                             
|                                             |   |                      |   |  |                   |        |   |                     |   |        |                             
|Condensed Consolidated Balance Sheet         |   | AsPreviouslyReported |   |  | InterestRateSwaps |        |   | StateIncome TaxRate |   |        | Vehicle-RelatedDisposalCosts |  |   | TourOperatorIncentivesand Other |   |  | AsRestated |  
|                                             |   |                     
|Receivables, net                             | $ | 238,936              |   |  | $                 | -      |   |                     | $ | -      |                              |  | $ | (6,299                          | ) |  | $          | - |  |  | $ | 232,637   | 
|Revenue-earning vehicles, net                |   | 3,006,441            |   |  |                   | -      |   |                     |   | -      |                              |  |   | (13,166                         | ) |  |            | - |  |  |   | 2,993,275 | 
|Total assets                                 |   | 4,305,381            |   |  |                   | -      |   |                     |   | -      |                              |  |   | (19,465                         | ) |  |            | - |  |  |   | 4,285,916 | 
|Accrued liabilities                          |   | 209,891              |   |  |                   | -      |   |                     |   | -      |                              |  |   | (19,465                         | ) |  |            | - |  |  |   | 190,426   | 
|Deferred income tax liability                |   | 273,770              |   |  |                   | -      |   |                     |   | (5,977 | )                            |  |   | -                               |   |  |            | - |  |  |   | 267,793   | 
|Total liabilities                            |   | 3,641,672            |   |  |                   | -      |   |                     |   | (5,977 | )                            |  |   | (19,465                         | ) |  |            | - |  |  |   | 3,616,230 | 
|Retained earnings (Accumulateddeficit)       |   | (3,941               | ) |  |                   | 8,399  |   |                     |   | 5,977  |                              |  |   | -                               |   |  |            | - |  |  |   | 10,435    | 
|Accumulated othercomprehensive income (loss) |   | 14,157               |   |  |                   | (8,399 | ) |                     |   | -      |                              |  |   | -                               |   |  |            | - |  |  |   | 5,758     | 
|Total stockholders equity                   |   | 663,709              |   |  |                   | -      |   |                     |   | 5,977  |                              |  |   | -                               |   |  |            | - |  |  |   | 669,686   | 
|Total liabilities and stockholdersequity    |   | 4,305,381            |   |  |                   | -      |   |                     |   | -      |                              |  |   | (19,465                         | ) |  |            | - |  |  |   | 4,285,916 | 







22





|                                                 |   |                                       |  |  |                   |         |   |                     |   |      |                              |  |   |                                 |   |  |            |        |   |  |   |         |   |  | 
|------------------------------------------------ | - | ------------------------------------- |  |  | ----------------- | ------- | - | ------------------- | - | ---- | ---------------------------- |  | - | ------------------------------- | - |  | ---------- | ------ | - |  | - | ------- | - |  | 
|                                                 |   | Three Months Ended September 30, 2006 | 
|                                                 |   |                                       | 
|                                                 |   |                                       |  |  | Adjustments       |         |   |                     |   |      |                             
|                                                 |   |                                       |  |  |                   |         |   |                     |   |      |                             
|Condensed ConsolidatedStatement of Income        |   | AsPreviouslyReported                  |  |  | InterestRateSwaps |         |   | StateIncome TaxRate |   |      | Vehicle-RelatedDisposalCosts |  |   | TourOperatorIncentivesand Other |   |  | AsRestated |       
|                                                 |   |                                      
|Vehicle rental revenues                          | $ | 454,247                               |  |  | $                 | -       |   |                     | $ | -    |                              |  | $ | -                               |   |  | $          | (2,812 | ) |  | $ | 451,435 |  
|Total revenues                                   |   | 487,519                               |  |  |                   | -       |   |                     |   | -    |                              |  |   | -                               |   |  |            | (2,812 | ) |  |   | 484,707 |  
|Direct vehicle and operating costs               |   | 244,713                               |  |  |                   | -       |   |                     |   | -    |                              |  |   | (8,788                          | ) |  |            | (2,812 | ) |  |   | 233,113 |  
|Vehicle depreciation and leasecharges, net       |   | 113,715                               |  |  |                   | -       |   |                     |   | -    |                              |  |   | 8,788                           |   |  |            | -      |   |  |   | 122,503 |  
|Total costs and expenses                         |   | 457,829                               |  |  |                   | -       |   |                     |   | -    |                              |  |   | -                               |   |  |            | (2,812 | ) |  |   | 455,017 |  
|(Increase) decrease in fair value of derivatives |   | -                                     |  |  |                   | 25,391  |   |                     |   | -    |                              |  |   | -                               |   |  |            | -      |   |  |   | 25,391  |  
|Income before income taxes                       |   | 29,690                                |  |  |                   | (25,391 | ) |                     |   | -    |                              |  |   | -                               |   |  |            | -      |   |  |   | 4,299   |  
|Income tax expense (benefit)                     |   | 9,081                                 |  |  |                   | (9,903  | ) |                     |   | (763 | )                            |  |   | -                               |   |  |            | -      |   |  |   | (1,585  | )
|Net income                                       |   | 20,609                                |  |  |                   | (15,488 | ) |                     |   | 763  |                              |  |   | -                               |   |  |            | -      |   |  |   | 5,884   |  
|Basic earnings per share (1)                     |   | 0.86                                  |  |  |                   | (0.65   | ) |                     |   | 0.03 |                              |  |   | -                               |   |  |            | -      |   |  |   | 0.25    |  
|Diluted earnings per share (1)                   |   | 0.82                                  |  |  |                   | (0.62   | ) |                     |   | 0.03 |                              |  |   | -                               |   |  |            | -      |   |  |   | 0.24    |  
|                                                 |   |                                       | 
|                                                 |   | Three Months Ended September 30, 2005 | 
|                                                 |   |                                       | 
|                                                 |   |                                       |  |  | Adjustments       |         |   |                     |   |      |                             
|                                                 |   |                                       |  |  |                   |         |   |                     |   |      |                             
|Condensed ConsolidatedStatement of Income        |   | AsPreviouslyReported                  |  |  | InterestRateSwaps |         |   | StateIncome TaxRate |   |      | Vehicle-RelatedDisposalCosts |  |   | TourOperatorIncentivesand Other |   |  | AsRestated |       
|                                                 |   |                                      
|Vehicle rental revenues                          | $ | 419,145                               |  |  | $                 | -       |   |                     | $ | -    |                              |  | $ | -                               |   |  | $          | (4,383 | ) |  | $ | 414,762 |  
|Total revenues                                   |   | 456,746                               |  |  |                   | -       |   |                     |   | -    |                              |  |   | -                               |   |  |            | (4,383 | ) |  |   | 452,363 |  
|Direct vehicle and operating costs               |   | 230,539                               |  |  |                   | -       |   |                     |   | -    |                              |  |   | (9,398                          | ) |  |            | (4,383 | ) |  |   | 216,758 |  
|Vehicle depreciation and leasecharges, net       |   | 92,430                                |  |  |                   | -       |   |                     |   | -    |                              |  |   | 9,398                           |   |  |            | -      |   |  |   | 101,828 |  
|Total costs and expenses                         |   | 411,433                               |  |  |                   | -       |   |                     |   | -    |                              |  |   | -                               |   |  |            | (4,383 | ) |  |   | 407,050 |  
|(Increase) decrease in fair value ofderivatives  |   | -                                     |  |  |                   | (14,621 | ) |                     |   | -    |                              |  |   | -                               |   |  |            | -      |   |  |   | (14,621 | )
|Income before income taxes                       |   | 45,313                                |  |  |                   | 14,621  |   |                     |   | -    |                              |  |   | -                               |   |  |            | -      |   |  |   | 59,934  |  
|Income tax expense                               |   | 16,918                                |  |  |                   | 5,702   |   |                     |   | (96  | )                            |  |   | -                               |   |  |            | -      |   |  |   | 22,524  |  
|Net income                                       |   | 28,395                                |  |  |                   | 8,919   |   |                     |   | 96   |                              |  |   | -                               |   |  |            | -      |   |  |   | 37,410  |  
|Basic earnings per share (1)                     |   | 1.13                                  |  |  |                   | 0.35    |   |                     |   | -    |                              |  |   | -                               |   |  |            | -      |   |  |   | 1.49    |  
|Diluted earnings per share (1)                   |   | 1.07                                  |  |  |                   | 0.34    |   |                     |   | -    |                              |  |   | -                               |   |  |            | -      |   |  |   | 1.42    |  
|                                                 |   |                                       | 







23





|                                                |   |                                      |  |  |                   |         |   |                     |   |      |                              |  |   |                                 |   |  |            |         |   |  |   |           |   |  | 
|----------------------------------------------- | - | ------------------------------------ |  |  | ----------------- | ------- | - | ------------------- | - | ---- | ---------------------------- |  | - | ------------------------------- | - |  | ---------- | ------- | - |  | - | --------- | - |  | 
|                                                |   | Nine Months Ended September 30, 2006 | 
|                                                |   |                                      | 
|                                                |   |                                      |  |  | Adjustments       |         |   |                     |   |      |                             
|                                                |   |                                      |  |  |                   |         |   |                     |   |      |                             
|Condensed ConsolidatedStatement of Income       |   | AsPreviouslyReported                 |  |  | InterestRateSwaps |         |   | StateIncome TaxRate |   |      | Vehicle-RelatedDisposalCosts |  |   | TourOperatorIncentivesand Other |   |  | AsRestated |        
|                                                |   |                                     
|Vehicle rental revenues                         | $ | 1,180,682                            |  |  | $                 | -       |   |                     | $ | -    |                              |  | $ | -                               |   |  | $          | (8,068  | ) |  | $ | 1,172,614 |  
|Total revenues                                  |   | 1,275,911                            |  |  |                   | -       |   |                     |   | -    |                              |  |   | -                               |   |  |            | (8,068  | ) |  |   | 1,267,843 |  
|Direct vehicle and operating costs              |   | 659,661                              |  |  |                   | -       |   |                     |   | -    |                              |  |   | (23,200                         | ) |  |            | (8,068  | ) |  |   | 628,393   |  
|Vehicle depreciation and leasecharges, net      |   | 252,516                              |  |  |                   | -       |   |                     |   | -    |                              |  |   | 23,200                          |   |  |            | -       |   |  |   | 275,716   |  
|Total costs and expenses                        |   | 1,180,372                            |  |  |                   | -       |   |                     |   | -    |                              |  |   | -                               |   |  |            | (8,068  | ) |  |   | 1,172,304 |  
|(Increase) decrease in fair value ofderivatives |   | -                                    |  |  |                   | 7,135   |   |                     |   | -    |                              |  |   | -                               |   |  |            | -       |   |  |   | 7,135     |  
|Income before income taxes                      |   | 95,539                               |  |  |                   | (7,135  | ) |                     |   | -    |                              |  |   | -                               |   |  |            | -       |   |  |   | 88,404    |  
|Income tax expense                              |   | 37,676                               |  |  |                   | (2,783  | ) |                     |   | (834 | )                            |  |   | -                               |   |  |            | -       |   |  |   | 34,059    |  
|Net income                                      |   | 57,863                               |  |  |                   | (4,352  | ) |                     |   | 834  |                              |  |   | -                               |   |  |            | -       |   |  |   | 54,345    |  
|Basic earnings per share (1)                    |   | 2.37                                 |  |  |                   | (0.18   | ) |                     |   | 0.03 |                              |  |   | -                               |   |  |            | -       |   |  |   | 2.22      |  
|Diluted earnings per share (1)                  |   | 2.26                                 |  |  |                   | (0.17   | ) |                     |   | 0.03 |                              |  |   | -                               |   |  |            | -       |   |  |   | 2.12      |  
|                                                |   |                                      | 
|                                                |   | Nine Months Ended September 30, 2005 | 
|                                                |   |                                      | 
|                                                |   |                                      |  |  | Adjustments       |         |   |                     |   |      |                             
|                                                |   |                                      |  |  |                   |         |   |                     |   |      |                             
|Condensed ConsolidatedStatement of Income       |   | AsPreviouslyReported                 |  |  | InterestRateSwaps |         |   | StateIncome TaxRate |   |      | Vehicle-RelatedDisposalCosts |  |   | TourOperatorIncentivesand Other |   |  | AsRestated |        
|                                                |   |                                     
|Vehicle rental revenues                         | $ | 1,067,660                            |  |  | $                 | -       |   |                     | $ | -    |                              |  | $ | -                               |   |  | $          | (12,049 | ) |  | $ | 1,055,611 |  
|Total revenues                                  |   | 1,167,222                            |  |  |                   | -       |   |                     |   | -    |                              |  |   | -                               |   |  |            | (12,049 | ) |  |   | 1,155,173 |  
|Direct vehicle and operating costs              |   | 631,150                              |  |  |                   | -       |   |                     |   | -    |                              |  |   | (24,809                         | ) |  |            | (12,049 | ) |  |   | 594,292   |  
|Vehicle depreciation and leasecharges, net      |   | 200,253                              |  |  |                   | -       |   |                     |   | -    |                              |  |   | 24,809                          |   |  |            | -       |   |  |   | 225,062   |  
|Total costs and expenses                        |   | 1,077,863                            |  |  |                   | -       |   |                     |   | -    |                              |  |   | -                               |   |  |            | (12,049 | ) |  |   | 1,065,814 |  
|(Increase) decrease in fair value ofderivatives |   | -                                    |  |  |                   | (24,917 | ) |                     |   | -    |                              |  |   | -                               |   |  |            | -       |   |  |   | (24,917   | )
|Income before income taxes                      |   | 89,359                               |  |  |                   | 24,917  |   |                     |   | -    |                              |  |   | -                               |   |  |            | -       |   |  |   | 114,276   |  
|Income tax expense                              |   | 36,643                               |  |  |                   | 9,718   |   |                     |   | (269 | )                            |  |   | -                               |   |  |            | -       |   |  |   | 46,092    |  
|Net income                                      |   | 52,716                               |  |  |                   | 15,199  |   |                     |   | 269  |                              |  |   | -                               |   |  |            | -       |   |  |   | 68,184    |  
|Basic earnings per share (1)                    |   | 2.10                                 |  |  |                   | 0.61    |   |                     |   | 0.01 |                              |  |   | -                               |   |  |            | -       |   |  |   | 2.72      |  
|Diluted earnings per share (1)                  |   | 2.00                                 |  |  |                   | 0.58    |   |                     |   | 0.01 |                              |  |   | -                               |   |  |            | -       |   |  |   | 2.58      |  
|                                                |   |                                      | 







24





|                                              |                                                          |                                      |           |   |                   |   |         |                     |  |   |                              |   |  |                                 |         |   |            |   |        |   |  |   |           |   | 
|--------------------------------------------- | -------------------------------------------------------- | ------------------------------------ | --------- | - | ----------------- | - | ------- | ------------------- |  | - | ---------------------------- | - |  | ------------------------------- | ------- | - | ---------- | - | ------ | - |  | - | --------- | - | 
|                                              |                                                          | Nine Months Ended September 30, 2006 |          
|                                              |                                                          |                                      |          
|                                              |                                                          |                                      |           |   | Adjustments       |   |         |                     |  |   |                             
|                                              |                                                          |                                      |           |   |                   |   |         |                     |  |   |                             
|Condensed Consolidated Statementof Cash Flows |                                                          | AsPreviouslyReported                 |           |   | InterestRateSwaps |   |         | StateIncome TaxRate |  |   | Vehicle-RelatedDisposalCosts |   |  | TourOperatorIncentivesand Other |         |   | AsRestated |  
|                                              |                                                          |                                     
|Cash flows from operating activities:         |                                                          |                                      |           |   |                   |   |         |                     |  |   |                              |   |  |                                 |         |   |            |   |        |   |  |   |          
|                                              | Net income                                               | $                                    | 57,863    |   |                   | $ | (4,352  | )                   |  | $ | 834                          |   |  | $                               | -       |   |            | $ | -      |   |  | $ | 54,345    |  
|                                              | Vehicle depreciation                                     |                                      | 264,241   |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | 23,200  |   |            |   | -      |   |  |   | 287,441   |  
|                                              | Deferred income taxes                                    |                                      | 35,435    |   |                   |   | (2,783  | )                   |  |   | (834                         | ) |  |                                 | -       |   |            |   | -      |   |  |   | 31,818    |  
|                                              | (Increase) decrease in fair valueof derivatives          |                                      | -         |   |                   |   | 7,135   |                     |  |   | -                            |   |  |                                 | -       |   |            |   | -      |   |  |   | 7,135     |  
|                                              | Receivables                                              |                                      | (18,456   | ) |                   |   | -       |                     |  |   | -                            |   |  |                                 | 1,645   |   |            |   | -      |   |  |   | (16,811   | )
|                                              | Accrued liabilities                                      |                                      | 25,069    |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | (2,710  | ) |            |   | -      |   |  |   | 22,359    |  
|                                              | Net cash provided by operatingactivities                 |                                      | 358,611   |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | 22,135  |   |            |   | -      |   |  |   | 380,746   |  
|Cash flows from investing activities:         |                                                          |                                      |           |   |                   |   |         |                     |  |   |                              |   |  |                                 |         |   |            |   |        |   |  |   |          
|                                              | Revenue-earning vehicles:Proceeds from sales             |                                      | 2,256,876 |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | (22,135 | ) |            |   | -      |   |  |   | 2,234,741 |  
|                                              | Net cash used in investing activities                    |                                      | (556,581  | ) |                   |   | -       |                     |  |   | -                            |   |  |                                 | (22,135 | ) |            |   | -      |   |  |   | (578,716  | )
|                                              |                                                          |                                      |          
|                                              |                                                          | Nine Months Ended September 30, 2005 |          
|                                              |                                                          |                                      |          
|                                              |                                                          |                                      |           |   | Adjustments       |   |         |                     |  |   |                             
|                                              |                                                          |                                      |           |   |                   |   |         |                     |  |   |                             
|Condensed Consolidated Statementof Cash Flows |                                                          | AsPreviouslyReported                 |           |   | InterestRateSwaps |   |         | StateIncome TaxRate |  |   | Vehicle-RelatedDisposalCosts |   |  | TourOperatorIncentivesand Other |         |   | AsRestated |  
|                                              |                                                          |                                     
|Cash flows from operating activities:         |                                                          |                                      |           |   |                   |   |         |                     |  |   |                              |   |  |                                 |         |   |            |   |        |   |  |   |          
|                                              | Net income                                               | $                                    | 52,716    |   |                   | $ | 15,199  |                     |  | $ | 269                          |   |  | $                               | -       |   |            | $ | -      |   |  | $ | 68,184    |  
|                                              | Vehicle depreciation                                     |                                      | 229,021   |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | 24,809  |   |            |   | -      |   |  |   | 253,830   |  
|                                              | Interest income earned on restrictedcash and investments |                                      | -         |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | -       |   |            |   | (5,057 | ) |  |   | (5,057    | )
|                                              | Deferred income taxes                                    |                                      | 35,448    |   |                   |   | 9,718   |                     |  |   | (269                         | ) |  |                                 | -       |   |            |   | -      |   |  |   | 44,897    |  
|                                              | (Increase) decrease in fair valueof derivatives          |                                      | -         |   |                   |   | (24,917 | )                   |  |   | -                            |   |  |                                 | -       |   |            |   | -      |   |  |   | (24,917   | )
|                                              | Receivables                                              |                                      | (21,607   | ) |                   |   | -       |                     |  |   | -                            |   |  |                                 | (757    | ) |            |   | -      |   |  |   | (22,364   | )
|                                              | Accrued liabilities                                      |                                      | 25,321    |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | (3,670  | ) |            |   | -      |   |  |   | 21,651    |  
|                                              | Net cash provided by operatingactivities                 |                                      | 326,634   |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | 20,382  |   |            |   | (5,057 | ) |  |   | 341,959   |  
|Cash flows from investing activities:         |                                                          |                                      |           |   |                   |   |         |                     |  |   |                              |   |  |                                 |         |   |            |   |        |   |  |   |          
|                                              | Revenue-earning vehicles:Proceeds from sales             |                                      | 2,457,599 |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | (20,382 | ) |            |   | -      |   |  |   | 2,437,217 |  
|                                              | Net change in restricted cash andinvestments             |                                      | 38,237    |   |                   |   | -       |                     |  |   | -                            |   |  |                                 | -       |   |            |   | 5,057  |   |  |   | 43,294    |  
|                                              | Net cash used in investing activities                    |                                      | (666,248  | ) |                   |   | -       |                     |  |   | -                            |   |  |                                 | (20,382 | ) |            |   | 5,057  |   |  |   | (681,573  | )







(1)   Since basic and diluted earnings per share are computed
        independently for each category, total per share amounts may not equal the sum of the respective categories.







*******



25





ITEM 2.
        MANAGEMENTS DISCUSSION AND ANALYSIS OF


FINANCIAL CONDITION AND RESULTS OF OPERATIONS (RESTATED)



Restatement



The financial statements in this Form 10-Q/A reflect the restatement for the following:


        An error related
        to the Companys derivative accounting treatment under SFAS No. 133, Accounting for Derivative Instruments and Hedging
        Activities, as amended (SFAS No. 133).  The Company recently concluded that its interest rate swap agreements
        did not qualify for the short-cut method of hedge accounting under SFAS No. 133 because of certain prepayment clauses
        contained in the documents relating to the asset-backed note issuances.  These prepayment clauses were identified by the Company
        and its independent registered public accounting firm at inception.  The prepayment clauses disqualify the Company from using
        the short-cut method of hedge accounting.  Additionally, because the hedge documentation
        required for the long-haul method was not in place at the inception of the hedge, hedge accounting under
        SFAS No. 133 is not allowed retrospectively.



        An error related
        to determining the Companys effective state income tax rate under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, as amended (SFAS No. 109).



        An error in the classification of certain revenue-earning vehicle-related disposal costs from Direct Vehicle and Operating Expense to Vehicle Depreciation Expense.



        An error in the classification of tour operator incentives under Emerging Issues Task Force No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products) (EITF No. 01-9).  Correcting this error resulted in a reclassification of tour operator incentives from Direct Vehicle and Operating Expense to Vehicle Rental Revenue.  The Company also corrected the classification of interest earned on restricted cash and investments in the condensed consolidated statement of cash flows for the nine months ended September 30, 2005.




This Managements Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement.



For additional information regarding the restatement, refer to Note 17 to the Condensed Consolidated Financial Statements in Item 1  Financial Statements.





26



Results of Operations



The following table sets forth the
        percentage of total revenues in the Companys condensed consolidated statements of income:

|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |            |  |  |  |  | 
|---------------------------- | ------------------------------------------------ | ------------------------ |  |  | ---- | ---- | ----- | ---- | ---- | ----------------------- |  | ---------- | ------------------- | ----- | ---------- | ---- | ---------- |  |  |  |  | 
|                             |                                                  |                          |  |  |      |      |       |      |      | Three Months            |  |            | Nine Months         |      
|                             |                                                  |                          |  |  |      |      |       |      |      | Ended September 30,     |  |            | Ended September 30, |      
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |      
|                             |                                                  |                          |  |  |      |      |       |      |      | (Percentage of Revenue) | 
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |           
|                             |                                                  |                          |  |  |      |      |       |      |      | 2006                    |  | 2005       |                     |       | 2006       |      | 2005       | 
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |            | 
|                             |                                                  |                          |  |  |      |      |       |      |      | (Restated)              |  | (Restated) |                     |       | (Restated) |      | (Restated) | 
|REVENUES:                    |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |           
|                             | Vehicle rentals                                  |                          |  |  |      | 93.1 | %     |      | 91.7 | %                       |  |            | 92.5                | %     |            | 91.4 | %         
|                             | Vehicle leasing                                  |                          |  |  |      | 3.7  |       |      | 4.3  |                         |  |            | 3.6                 |       |            | 4.3  |           
|                             | Fees and services                                |                          |  |  |      | 2.6  |       |      | 3.3  |                         |  |            | 3.0                 |       |            | 3.4  |           
|                             | Other                                            |                          |  |  |      | 0.6  |       |      | 0.7  |                         |  |            | 0.9                 |       |            | 0.9  |           
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |            | 
|                             |                                                  | Total revenues           |  |  |      |      | 100.0 |      |      | 100.0                   |  |            |                     | 100.0 |            |      | 100.0      | 
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |            | 
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |           
|COSTS AND EXPENSES:          |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |     
|                             | Direct vehicle and operating                     |                          |  |  |      | 48.1 |       |      | 47.9 |                         |  |            | 49.6                |       |            | 51.4 |           
|                             | Vehicle depreciation and lease charges, net      |                          |  |  |      | 25.3 |       |      | 22.5 |                         |  |            | 21.7                |       |            | 19.5 |           
|                             | Selling, general and administrative              |                          |  |  |      | 13.7 |       |      | 13.6 |                         |  |            | 15.4                |       |            | 15.3 |           
|                             | Interest expense, net of interest income         |                          |  |  |      | 6.8  |       |      | 6.0  |                         |  |            | 5.8                 |       |            | 6.1  |           
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |            | 
|                             |                                                  | Total costs and expenses |  |  |      |      | 93.9  |      |      | 90.0                    |  |            |                     | 92.5  |            |      | 92.3       | 
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |            | 
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |           
|                             | (Increase) decrease in fair value of derivatives |                          |  |  |      | 5.2  |       |      | (3.3 | )                       |  |            | 0.5                 |       |            | (2.2 | )         
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |            | 
|INCOME BEFORE INCOME TAXES   |                                                  |                          |  |  | 0.9  |      |       | 13.3 |      |                         |  | 7.0        |                     |       | 9.9        |     
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |           
|INCOME TAX EXPENSE (BENEFIT) |                                                  |                          |  |  | (0.3 | )    |       | 5.0  |      |                         |  | 2.7        |                     |       | 4.0        |     
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |            | 
|NET INCOME                   |                                                  |                          |  |  | 1.2  | %    |       | 8.3  | %    |                         |  | 4.3        | %                   |       | 5.9        | %   
|                             |                                                  |                          |  |  |      |      |       |      |      |                         |  |            |                     |       |            |      |            | 



27



The following table sets forth certain selected operating data of the Company:

|                                                       |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   |  |  | 
|------------------------------------------------------ |  |  |  | - | ---------- |  | ------------------- | ---------- | ---------- |  | ------ | - | ---------- | ------------------- | ---------- |  | - | ---------- |  |  | ------ | ---------- |  |  |  | ---------- | - |  |  | 
|                                                       |  |  |  |   |            |  | Three Months        |            |            |  |        |   |            | Nine Months         |            |  |   |           
|                                                       |  |  |  |   |            |  | Ended September 30, |            |            |  |        |   |            | Ended September 30, |            |  |   |           
|                                                       |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |           
|                                                       |  |  |  |   |            |  |                     |            |            |  |        | % |            |                     |            |  |   |            |  |  |        | %          | 
|U.S. and Canada                                        |  |  |  |   | 2006       |  |                     | 2005       |            |  | Change |   |            |                     | 2006       |  |   | 2005       |  |  | Change |           
|                                                       |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   |  | 
|                                                       |  |  |  |   | (Restated) |  |                     | (Restated) |            |  |        |   |            |                     | (Restated) |  |   | (Restated) |  |  |        |           
|                                                       |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   |  | 
|Vehicle Rental Data:
          (includes new stores)   |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   | 
|                                                       |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   |  | 
|Average number of vehicles operated                    |  |  |  |   | 137,481    |  |                     |            | 130,115    |  |        |   | 5.7%       |                     |            |  |   | 123,443    |  |  |        | 115,787    |  |  |  | 6.6%       |  
|Number of rental days                                  |  |  |  |   | 10,748,298 |  |                     |            | 10,392,740 |  |        |   | 3.4%       |                     |            |  |   | 28,494,264 |  |  |        | 26,907,381 |  |  |  | 5.9%       |  
|Vehicle utilization                                    |  |  |  |   | 85.0%      |  |                     |            | 86.8%      |  |        |   | (1.8) p.p. |                     |            |  |   | 84.6%      |  |  |        | 85.1%      |  |  |  | (0.5) p.p. |  
|Average revenue per day                                |  |  |  | $ | 42.00      |  |                     | $          | 39.91      |  |        |   | 5.2%       |                     |            |  | $ | 41.15      |  |  | $      | 39.23      |  |  |  | 4.9%       |  
|Monthly average revenue per vehicle                    |  |  |  | $ | 1,095      |  |                     | $          | 1,063      |  |        |   | 3.0%       |                     |            |  | $ | 1,055      |  |  | $      | 1,013      |  |  |  | 4.1%       |  
|                                                       |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   |  | 
|Same Store Vehicle Rental Data:  (excludes new stores) |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   | 
|                                                       |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   |  | 
|Average number of vehicles operated                    |  |  |  |   | 131,513    |  |                     |            | 130,115    |  |        |   | 1.1%       |                     |            |  |   | 119,496    |  |  |        | 115,787    |  |  |  | 3.2%       |  
|Number of rental days                                  |  |  |  |   | 10,283,106 |  |                     |            | 10,392,740 |  |        |   | (1.1%      | )                   |            |  |   | 27,598,264 |  |  |        | 26,907,381 |  |  |  | 2.6%       |  
|                                                       |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   |  | 
|Vehicle Leasing Data:                                  |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   | 
|                                                       |  |  |  |   |            |  |                     |            |            |  |        |   |            |                     |            |  |   |            |  |  |        |            |  |  |  |            |   |  | 
|Average number of vehicles leased                      |  |  |  |   | 11,866     |  |                     |            | 14,900     |  |        |   | (20.4%     | )                   |            |  |   | 10,712     |  |  |        | 12,928     |  |  |  | (17.1%     | )
|Monthly average revenue per vehicle                    |  |  |  | $ | 497        |  |                     | $          | 439        |  |        |   | 13.2%      |                     |            |  | $ | 474        |  |  | $      | 425        |  |  |  | 11.5%      |  



Three Months Ended September 30, 2006 Compared with Three Months Ended September 30, 2005



During the third quarter of 2006, the Company achieved revenue growth from higher revenue per day and volume related to franchise acquisitions.  The Company also experienced higher vehicle depreciation and interest costs during the quarter as well as transition costs relating to the outsourcing of information technology services.  These costs and other cost increases exceeded the revenue growth, and coupled with a decrease in the fair value of derivatives, resulted in lower profits for the third quarter of 2006 as compared to last years third quarter.



Operating Results



The Company had income of $4.3 million before income taxes for the third quarter of 2006, as compared to $59.9 million in the third quarter of 2005.













28





Revenues

| |                                        |  |   |            |  |  |                     |            |  |             |   |         |             |  |  |            |   |  |  |  | 
| | -------------------------------------- |  | - | ---------- |  |  | ------------------- | ---------- |  | ----------- | - | ------- | ----------- |  |  | ---------- | - |  |  |  | 
| |                                        |  |   |            |  |  | (in millions)       |           
| |                                        |  |   |            |  |  | Three Months        |            |  |             |   |         |             | 
| |                                        |  |   |            |  |  | Ended September 30, |            |  | $ Increase/ |   |         | % Increase/ | 
| |                                        |  |   |            |  |  | 2006                |            |  | 2005        |   |         | (decrease)  |  |  | (decrease) |  
| |                                        |  |   |            |  |  |                     |            |  |             |   |         |             |  |  |            |  
| |                                        |  |   |            |  |  | (Restated)          |            |  | (Restated)  |   |         |             |  |  |            |  
| |                                        |  |   |            |  |  |                     |           
| |                                        |  |   |            |  |  |                     |            |  |             |   |         |             |  |  |           
| | Vehicle rentals                        |  | $ | 451.4      |  |  | $                   | 414.8      |  |             | $ | 36.6    |             |  |  | 8.8%       |  
| | Vehicle leasing                        |  |   | 17.7       |  |  |                     | 19.6       |  |             |   | (1.9    | )           |  |  | (9.9%      | )
| | Fees and services                      |  |   | 12.8       |  |  |                     | 14.8       |  |             |   | (2.0    | )           |  |  | (13.5%     | )
| | Other                                  |  |   | 2.8        |  |  |                     | 3.2        |  |             |   | (0.4    | )           |  |  | (12.1%     | )
| |                                        |  |   |            |  |  |                     |            |  |             |   |         |             |  |  |            |  
| | Total revenues                         |  | $ | 484.7      |  |  | $                   | 452.4      |  |             | $ | 32.3    |             |  |  | 7.2%       |  
| |                                        |  |   |            |  |  |                     |            |  |             |   |         |             |  |  |            |  
| | Vehicle rental metrics:                |  |   |            |  |  |                     |            |  |             |   |         |             |  |  |            |  
| | Number of rental days                  |  |   | 10,748,298 |  |  |                     | 10,392,740 |  |             |   | 355,558 |             |  |  | 3.4%       |  
| | Average revenue per day                |  | $ | 42.00      |  |  | $                   | 39.91      |  |             | $ | 2.09    |             |  |  | 5.2%       |  
| |                                        |  |   |            |  |  |                     |            |  |             |   |         |             |  |  |           
| | Vehicle leasing metrics:               |  |   |            |  |  |                     |            |  |             |   |         |             |  |  |            |  
| | Average number of vehicles leased      |  |   | 11,866     |  |  |                     | 14,900     |  |             |   | (3,034  | )           |  |  | (20.4%     | )
| | Average monthly lease revenue per unit |  | $ | 497        |  |  | $                   | 439        |  |             | $ | 58      |             |  |  | 13.2%      |  



Vehicle rental revenue for the third quarter of 2006 increased 8.8%, due to a 5.2% increase in revenue per day totaling $22.4 million, coupled with a 3.4% increase in rental days totaling $14.2 million.  Vehicle rental revenue grew by 4.6% due to 2005 franchise acquisitions, 2006 franchise acquisitions and greenfield locations that had not yet annualized and 4.2% due to same store revenue growth.



Vehicle leasing revenue for the third quarter of 2006 decreased 9.9%, due to a 20.4% decrease in the average lease fleet totaling $4.0 million, partially offset by a 13.2% increase in the average lease rate totaling $2.1 million.  The decline in volume was due to fewer vehicles leased to franchisees, which is primarily attributable to the shift of several locations from franchised operations to corporate operations, and the lease rates increased as a result of higher vehicle depreciation and financing costs.



Fees and services revenue decreased 13.5%, primarily due to lower revenues from franchisees due to the shift of several locations from franchised operations to corporate operations.



Expenses

| |                                                  |  |   |       |  |  |                     |       |   |             |   |       |             |  |  |            |   |  |  |  | 
| | ------------------------------------------------ |  | - | ----- |  |  | ------------------- | ----- | - | ----------- | - | ----- | ----------- |  |  | ---------- | - |  |  |  | 
| |                                                  |  |   |       |  |  | (in millions)       |      
| |                                                  |  |   |       |  |  | Three Months        |       |   |             |   |       |             | 
| |                                                  |  |   |       |  |  | Ended September 30, |       |   | $ Increase/ |   |       | % Increase/ | 
| |                                                  |  |   |       |  |  | 2006                |       |   | 2005        |   |       | (decrease)  |  |  | (decrease) |  
| |                                                  |  |   |       |  |  |                     |       |   |             |   |       |             |  |  |            |  
| |                                                  |  |   |       |  |  | (Restated)          |       |   | (Restated)  |   |       |             |  |  |            |  
| |                                                  |  |   |       |  |  |                     |      
| |                                                  |  |   |       |  |  |                     |       |   |             |   |       |             |  |  |           
| | Direct vehicle and operating                     |  | $ | 233.1 |  |  | $                   | 216.8 |   |             | $ | 16.3  |             |  |  | 7.5%       |  
| | Vehicle depreciation and lease charges, net      |  |   | 122.5 |  |  |                     | 101.8 |   |             |   | 20.7  |             |  |  | 20.3%      |  
| | Selling, general and administrative              |  |   | 66.4  |  |  |                     | 61.5  |   |             |   | 4.9   |             |  |  | 8.0%       |  
| | Interest expense, net of interest income         |  |   | 33.0  |  |  |                     | 27.0  |   |             |   | 6.0   |             |  |  | 22.3%      |  
| |                                                  |  |   |       |  |  |                     |       |   |             |   |       |             |  |  |            |  
| | Total expenses                                   |  | $ | 455.0 |  |  | $                   | 407.1 |   |             | $ | 47.9  |             |  |  | 11.8%      |  
| |                                                  |  |   |       |  |  |                     |       |   |             |   |       |             |  |  |            |  
| |                                                  |  |   |       |  |  |                     |      
| | (Increase) decrease in fair value of derivatives |  | $ | 25.4  |  |  | $                   | (14.6 | ) |             | $ | (40.0 | )           |  |  | (273.7%    | )



29



Direct vehicle and operating expenses for the third quarter of 2006 increased $16.3 million, due to higher fleet and transaction levels, coupled with higher costs per transaction.  As a percent of revenue, direct vehicle and operating expenses were 48.1% in the third quarter of 2006, compared to 47.9% in the third quarter of 2005.



The increase in direct vehicle and operating expense in the third quarter of 2006 resulted from the following:



Ø
        Personnel related expenses increased $5.6 million.  Salary expenses increased approximately $3.7 million due to higher compensation costs per employee and $3.5 million from increases in the number of employees, partially offset by lower incentive compensation expense of $1.0 million and a reduction of $0.6 million related to costs in group health insurance.




Ø
        Commission expenses increased $4.7 million, which are primarily based on revenue and related to fees charged by travel agents, third party Internet sites and credit card companies.




Ø
        Airport concession expenses increased $3.5 million, which are primarily based on a percentage of revenue generated from the airport facility.




Ø
        Supplemental liability insurance expense increased $1.9 million to increase insurance reserves as a result of unfavorable developments in claims history.




Ø
        Bad debt expenses decreased $1.4 million due to improved performance relating to franchise and corporate receivables.




Ø
        Vehicle related costs decreased $0.3 million.  Vehicle damage expense decreased $3.7 million, vehicle liability insurance decreased $0.6 million, and other costs decreased $0.9 million.  These decreases in expenses were partially offset by an increase in gasoline expense of $4.9 million, which is generally recovered in revenue from customers.




Net vehicle depreciation and lease charges for the third quarter of 2006 increased $20.7 million.  As a percent of revenue, net vehicle depreciation and lease charges were 25.3% in the third quarter of 2006 compared to 22.5% in the third quarter of 2005.



The increase in net vehicle depreciation and lease charges resulted from the following:



Ø
        Vehicle depreciation expense increased $18.3 million, resulting primarily from a 13.7% increase in the average depreciation rate, coupled with a 3.6% increase in the depreciable fleet.  The increase in depreciation rate was primarily the result of an increase in depreciation rates on Program and Non-Program Vehicles, partially offset by a higher mix of Non-Program Vehicles.




Ø
        Net vehicle gains on disposal of Non-Program Vehicles, which reduce vehicle depreciation and lease charges, decreased $2.7 million.  This decrease primarily resulted from a lower average gain per unit, partially offset by an increase in the number of units sold.




Ø
        Lease charges, for vehicles leased from third parties, decreased $0.3 million due to a decrease in the average number of units leased.




Selling, general and administrative expenses for the third quarter of 2006 increased $4.9 million, resulting from a $4.2 million increase in general and administrative expenses and a $0.7 million increase in sales and marketing expense.  As a percent of revenue, selling, general and administrative expenses were 13.7% of revenue in the third quarter of 2006, compared to 13.6% in the third quarter of 2005.



30



The increase in selling, general and administrative expenses in the third quarter of 2006 resulted from the following:



Ø
        Transition costs relating to the outsourcing of information technology services were $2.8 million, including salary related expenses.




Ø
        Separation costs relating to the elimination of certain positions from the organizational structure were $1.4 million.




Ø
        Sales and marketing expense increased $0.7 million due primarily to increased Internet-related spending and other marketing related costs.




Net interest expense for the third quarter of 2006 increased $6.0 million due to higher interest rates and higher average vehicle debt, partially offset by higher interest rates on invested cash.  Net interest expense was 6.8% of revenue in the third quarter of 2006, compared to 6.0% in the third quarter of 2005.



The (increase) decrease in fair value of derivatives for the third quarter of 2006 decreased $40.0 million compared to the third quarter of 2005 due to a change in the fair value of the Companys interest rate swap agreements.



The income tax provision for the third quarter of 2006 was a benefit of $1.6 million.  The effective income tax rate for the third quarter of 2006 was (36.9%) compared to 37.6% for the third quarter of 2005.  This decrease in the effective tax rate was due primarily to higher Canadian pretax earnings in relationship to lower U.S. pretax earnings and the application of a higher effective state tax rate for the periodic change in fair value of derivatives based on the legal entity to which the interest rate swaps relate.  The Company reports taxable income for the U.S. and Canada in separate tax jurisdictions and establishes provisions separately for each jurisdiction.  On a separate, domestic basis, the U.S. effective tax rate approximates the statutory tax rate including the effect of state income taxes.



Interim reporting requirements for applying a higher state tax rate for the change in fair value of derivatives, along with applying separate, annual effective income tax rates to U.S. and Canadian operations, combined with the seasonal impact of Canadian operations, will cause significant variations in the Companys quarterly consolidated effective income tax rates.



Nine Months Ended September 30, 2006 Compared with Nine Months Ended September 30, 2005



During the nine months ended September 30, 2006, the Company achieved revenue growth from volume related to both existing corporate stores and franchise acquisitions and to higher revenue per day.  Additionally, the Company benefited from lower vehicle liability insurance costs resulting from the removal of unlimited vicarious liability and other cost savings initiatives.  The increase in revenue combined with these cost improvements offset higher vehicle depreciation costs and other cost increases, which resulted in higher profits for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005.



Operating Results



The Company had income of $88.4 million before income taxes for the nine months ended September 30, 2006, as compared to $114.3 million for the nine months ended September 30, 2005.







31



Revenues

| |                                        |  |   |            |  |  |                     |            |  |             |   |           |             |  |  |            |   |  |  |  | 
| | -------------------------------------- |  | - | ---------- |  |  | ------------------- | ---------- |  | ----------- | - | --------- | ----------- |  |  | ---------- | - |  |  |  | 
| |                                        |  |   |            |  |  | (in millions)       |           
| |                                        |  |   |            |  |  | Nine Months         |            |  |             |   |           |             | 
| |                                        |  |   |            |  |  | Ended September 30, |            |  | $ Increase/ |   |           | % Increase/ | 
| |                                        |  |   |            |  |  | 2006                |            |  | 2005        |   |           | (decrease)  |  |  | (decrease) |  
| |                                        |  |   |            |  |  |                     |            |  |             |   |           |             |  |  |            |  
| |                                        |  |   |            |  |  | (Restated)          |            |  | (Restated)  |   |           |             |  |  |            |  
| |                                        |  |   |            |  |  |                     |           
| |                                        |  |   |            |  |  |                     |            |  |             |   |           |             |  |  |           
| | Vehicle rentals                        |  | $ | 1,172.6    |  |  | $                   | 1,055.6    |  |             | $ | 117.0     |             |  |  | 11.1%      |  
| | Vehicle leasing                        |  |   | 45.7       |  |  |                     | 49.5       |  |             |   | (3.8      | )           |  |  | (7.6%      | )
| | Fees and services                      |  |   | 37.5       |  |  |                     | 39.5       |  |             |   | (2.0      | )           |  |  | (5.1%      | )
| | Other                                  |  |   | 12.0       |  |  |                     | 10.6       |  |             |   | 1.4       |             |  |  | 13.7%      |  
| |                                        |  |   |            |  |  |                     |            |  |             |   |           |             |  |  |            |  
| | Total revenues                         |  | $ | 1,267.8    |  |  | $                   | 1,155.2    |  |             | $ | 112.6     |             |  |  | 9.8%       |  
| |                                        |  |   |            |  |  |                     |            |  |             |   |           |             |  |  |            |  
| |                                        |  |   |            |  |  |                     |            |  |             |   |           |             |  |  |           
| | Vehicle rental metrics:                |  |   |            |  |  |                     |            |  |             |   |           |             |  |  |            |  
| | Number of rental days                  |  |   | 28,494,264 |  |  |                     | 26,907,381 |  |             |   | 1,586,883 |             |  |  | 5.9%       |  
| | Average revenue per day                |  | $ | 41.15      |  |  | $                   | 39.23      |  |             | $ | 1.92      |             |  |  | 4.9%       |  
| |                                        |  |   |            |  |  |                     |            |  |             |   |           |             |  |  |           
| | Vehicle leasing metrics:               |  |   |            |  |  |                     |            |  |             |   |           |             |  |  |            |  
| | Average number of vehicles leased      |  |   | 10,712     |  |  |                     | 12,928     |  |             |   | (2,216    | )           |  |  | (17.1%     | )
| | Average monthly lease revenue per unit |  | $ | 474        |  |  | $                   | 425        |  |             | $ | 49        |             |  |  | 11.5%      |  



Vehicle rental revenue for the nine months ended September 30, 2006 increased 11.1%, due to a 5.9% increase in rental days totaling $62.3 million, coupled with a 4.9% increase in revenue per day totaling $54.7 million.  Vehicle rental revenue grew by 7.4% due to same store revenue growth and 3.7% due to 2005 franchise acquisitions, 2006 franchise acquisitions and greenfield locations that had not yet annualized.



Vehicle leasing revenue for the nine months ended September 30, 2006 decreased 7.6%, due to a 17.1% decrease in the average lease fleet totaling $8.5 million, partially offset by an 11.5% increase in the average lease rate totaling $4.7 million.  The decline in volume was due to fewer vehicles leased to franchisees, which is primarily attributable to the shift of several locations from franchised operations to corporate operations, and the increase in lease rates resulted from higher vehicle depreciation and financing costs.



Fees and services revenue decreased 5.1% due to lower revenues from franchisees due to the shift of several locations from franchised operations to corporate operations.



Other revenue increased $1.4 million primarily due to an increase of $1.6 million in the market value of investments in the Companys deferred compensation and retirement plans.  The revenue is attributable to the mark to market valuation of the corresponding investments and is offset in selling, general and administrative expenses and, therefore, has no impact on net income.



















32



Expenses

| |                                                  |  |   |         |  |  |                     |         |   |             |   |       |             |  |  |            |   |  |  |  | 
| | ------------------------------------------------ |  | - | ------- |  |  | ------------------- | ------- | - | ----------- | - | ----- | ----------- |  |  | ---------- | - |  |  |  | 
| |                                                  |  |   |         |  |  | (in millions)       |        
| |                                                  |  |   |         |  |  | Nine Months         |         |   |             |   |       |             | 
| |                                                  |  |   |         |  |  | Ended September 30, |         |   | $ Increase/ |   |       | % Increase/ | 
| |                                                  |  |   |         |  |  | 2006                |         |   | 2005        |   |       | (decrease)  |  |  | (decrease) |  
| |                                                  |  |   |         |  |  |                     |         |   |             |   |       |             |  |  |            |  
| |                                                  |  |   |         |  |  | (Restated)          |         |   | (Restated)  |   |       |             |  |  |            |  
| |                                                  |  |   |         |  |  |                     |        
| |                                                  |  |   |         |  |  |                     |         |   |             |   |       |             |  |  |           
| | Direct vehicle and operating                     |  | $ | 628.4   |  |  | $                   | 594.3   |   |             | $ | 34.1  |             |  |  | 5.7%       |  
| | Vehicle depreciation and lease charges, net      |  |   | 275.7   |  |  |                     | 225.0   |   |             |   | 50.7  |             |  |  | 22.5%      |  
| | Selling, general and administrative              |  |   | 195.3   |  |  |                     | 176.5   |   |             |   | 18.8  |             |  |  | 10.7%      |  
| | Interest expense, net of interest income         |  |   | 72.9    |  |  |                     | 70.0    |   |             |   | 2.9   |             |  |  | 4.1%       |  
| |                                                  |  |   |         |  |  |                     |         |   |             |   |       |             |  |  |            |  
| | Total expenses                                   |  | $ | 1,172.3 |  |  | $                   | 1,065.8 |   |             | $ | 106.5 |             |  |  | 10.0%      |  
| |                                                  |  |   |         |  |  |                     |         |   |             |   |       |             |  |  |            |  
| |                                                  |  |   |         |  |  |                     |        
| | (Increase) decrease in fair value of derivatives |  | $ | 7.1     |  |  | $                   | (24.9   | ) |             | $ | (32.0 | )           |  |  | (128.6%    | )



Direct vehicle and operating expenses for the nine months ended September 30, 2006 increased $34.1 million, primarily due to higher fleet and transaction levels, partially offset by slightly lower costs per transaction.  As a percent of revenue, direct vehicle and operating expenses were 49.6% for the nine months ended September 30, 2006, compared to 51.4% for the nine months ended September 30, 2005.



The increase in direct vehicle and operating expense for the nine months ended September 30, 2006 resulted from the following:



Ø
        Personnel related expenses increased $16.7 million.  Salary expenses increased approximately $9.8 million due to higher compensation costs per employee and $7.0 million from increases in the number of employees.




Ø
        Commission expenses increased $9.6 million, which are primarily based on revenue and related to fees charged by travel agents, third party Internet sites and credit card companies.




Ø
        Airport concession expenses increased $8.6 million, which are primarily based on a percentage of revenue generated from the airport facility.




Ø
        Vehicle related costs decreased $4.5 million.  This decrease resulted from a decrease in vehicle insurance expense of $9.9 million primarily related to the change in the vicarious liability law, which previously imposed liability on vehicle owners in certain states for acts by vehicle drivers.  In addition to the decrease in vehicle insurance expense, vehicle damage expense decreased $5.1 million.  These decreases in expenses were partially offset by an increase in gasoline expense of $10.5 million, which is generally recovered in revenue from customers.




Net vehicle depreciation and lease charges for the nine months ended September 30, 2006 increased $50.7 million.  As a percent of revenue, net vehicle depreciation and lease charges were 21.7% for the nine months ended September 30, 2006 compared to 19.5% for the nine months ended September 30, 2005.



The increase in net vehicle depreciation and lease charges resulted from the following:



Ø
        Vehicle
        depreciation expense increased $33.6 million, resulting primarily from an 8.1% increase in the average depreciation rate,
        coupled with a 4.8% increase in the depreciable fleet.  The increase in depreciation rate was primarily the result of an
        increase in depreciation rates on Program and Non-Program Vehicles, partially offset by a higher mix of Non-Program Vehicles.




33



Ø
        Net vehicle gains on disposal of Non-Program Vehicles, which reduce vehicle depreciation and lease charges, decreased $18.7 million.  This decrease resulted from a lower average gain per unit, partially offset by an increase in the number of units sold.




Ø
        Lease charges, for vehicles leased from third parties, decreased $1.6 million due to a decrease in the average number of units leased.




Selling, general and administrative expenses for the nine months ended September 30, 2006 increased $18.8 million, resulting from a $15.5 million increase in general and administrative expenses and a $3.3 million increase in sales and marketing expense.  As a percent of revenue, selling, general and administrative expenses were 15.4% of revenue for the nine months ended September 30, 2006, compared to 15.3% for the nine months ended September 30, 2005.



The increase in selling, general and administrative expenses for the nine months ended September 30, 2006 resulted from the following:



Ø
        Personnel related expenses increased $7.9 million primarily due to a $6.6 million increase in performance share expense.  The increase in performance share expense included $2.2 million related to a change in estimate for the final calculation of the vested 2003 performance share awards paid in 2006, $2.9 million for higher costs related to the 2006 performance share awards and $1.5 million to reflect current performance estimates.




Ø
        Transition costs relating to the outsourcing of information technology services were $2.8 million, including salary related expenses.




Ø
        Professional fees increased $2.6 million due to costs of $1.9 million related to a review of strategic alternatives and $0.7 million related to higher consulting costs.




Ø
        The market value of investments in the Companys deferred compensation and retirement plans increased $1.6 million, which is offset in other revenue and, therefore, did not impact net income.




Ø
        Separation costs relating to the elimination of certain positions from the organizational structure were $1.4 million.




Ø
        Sales and marketing expense increased $3.3 million due primarily to increased Internet-related spending and other marketing related costs.




Net interest expense for the nine months ended September 30, 2006 increased $2.9 million due to higher interest rates and higher average vehicle debt, partially offset by higher cash balances and interest rates and to an increase in the rate received on interest reimbursements relating to vehicle programs.  Net interest expense was 5.8% of revenue for the nine months ended September 30, 2006, compared to 6.1% for the nine months ended September 30, 2005.



The (increase) decrease in fair value of derivatives for the nine months ended September 30, 2006 decreased $32.0 million compared to the nine months ended September 30, 2005 due to a change in the fair value of the Companys interest rate swap agreements.



The income tax provision for the nine
        months ended September 30, 2006 was $34.1 million.  The effective income tax rate for the nine months ended September 30, 2006
        was 38.5% compared to 40.3% for the nine months ended September 30, 2005.  This decrease in the effective tax rate was due
        primarily to higher U.S. pretax earnings in relationship to Canadian pretax losses.  The Company reports taxable income for
        the U.S. and Canada in separate tax jurisdictions and establishes provisions separately for each jurisdiction.  On a separate,
        domestic basis, the U.S. effective tax rate approximates the statutory tax rate including the effect of state income taxes.
        However, no income tax benefit was recorded for Canadian losses in 2006 or 2005, thus, increasing the
        consolidated effective tax rate compared to the U.S. effective tax rate.



34





Interim reporting requirements for applying separate, annual effective income tax rates to U.S. and Canadian operations, combined with the seasonal impact of Canadian operations, will cause significant variations in the Companys quarterly consolidated effective income tax rates.



Outlook



The Company expects the travel environment to be healthy for the foreseeable future.  Rental rates, which are highly competitive within the rental car industry, have increased throughout 2006 and the Company expects increased growth in rental rates into 2007 due to efforts by the industry to offset increased fleet costs.  The Company has implemented several cost savings initiatives that will reduce the Companys operating and administrative costs in the future and expects additional cost savings in 2007 from personnel reductions and other initiatives currently under review and is continuing to pursue franchise acquisitions.



Vehicle manufacturers are reducing total capacity and reducing vehicle supply to the rental car industry; however, the Company believes it has and will have adequate fleet to meet its forecasted growth in the upcoming year.  Vehicle manufacturers have also significantly increased industry vehicle costs by increasing Program Vehicle depreciation rates and lowering incentives for both Program and Non-Program Vehicles for the 2007 model year.  To offset a portion of the vehicle cost increases, the Company is operating a larger proportion of Non-Program Vehicles, which will increase its exposure to fluctuations in the used car market.



The Company also expects higher costs relating to commissions to continue in 2007, due to volume increases on the third party Internet reservation channels and will increase its investments in improved IT systems, marketing initiatives and infrastructure to facilitate additional growth.  Additionally other costs, such as interest costs due to higher interest rates, may continue to rise.  These higher costs, including vehicle depreciation, will negatively impact the Companys profits unless these increased costs can be fully passed on to customers through higher rental rates and by the Company achieving other cost reductions.



On August 1, 2006, the Company entered into a master services agreement (MSA) with Electronic Data Systems Corporation and EDS Information Systems, L.L.C. (collectively, EDS).  This MSA is a five-year, $150 million agreement, commencing on October 1, 2006, wherein EDS will provide a range of information technology (IT) services to the Company, including applications development and maintenance, network, workplace and storage management, back-up and recovery and mid-range hosting services.  The MSA will provide significant cost reductions to the Company over its term at current levels of IT development and support.  Transition costs will be incurred by the Company to transition the IT function to EDS, of which approximately $7 million is projected to be incurred in 2006.  For 2007, the Company expects this arrangement to be approximately cost neutral
with ongoing cost savings offset by the remaining transition costs.  The Company expects ongoing cost savings to continue in 2008 and beyond.



Seasonality



The Companys business is subject to seasonal variations in customer demand, with the summer vacation period representing the peak season for vehicle rentals.  During the peak season, the Company increases its rental fleet and workforce to accommodate increased rental activity.  As a result, any occurrence that disrupts travel patterns during the summer period could have a material adverse effect on the annual performance of the Company.  The first and fourth quarters for the Companys rental operations are generally the weakest, when there is limited leisure travel and a greater potential for adverse weather conditions.  Many of the operating expenses such as rent, general insurance and administrative personnel are fixed and cannot be reduced during periods of decreased rental demand.



35



Liquidity and Capital Resources



The Companys primary uses of liquidity are for the purchase of vehicles for its rental and leasing fleets, non-vehicle capital expenditures, franchisee acquisitions, share repurchases and for working capital.  The Company uses both cash and letters of credit to support asset backed vehicle financing programs.  The Company also uses letters of credit or insurance bonds to secure certain commitments related to airport concession agreements, insurance programs, and for other purposes.



The Companys primary sources of liquidity are cash generated from operations, secured vehicle financing, the Revolving Credit Facility (hereinafter defined) and insurance bonds.  Cash generated by operating activities of $380.7 million for the nine months ended September 30, 2006 was primarily the result of net income, adjusted for depreciation and deferred income taxes.  The liquidity necessary for purchasing vehicles is primarily obtained from secured vehicle financing, most of which is proceeds from sale of asset backed notes, sales proceeds from disposal of used vehicles and cash generated by operating activities.  The asset backed notes require varying levels of credit enhancement or overcollateralization, which are provided by a combination of cash, vehicles and letters of credit.  These letters of credit are provided under the Companys Revolving Credit Facility.



The Company believes that its cash generated from operations, availability under its Revolving Credit Facility, insurance bonding programs and secured vehicle financing programs are adequate to meet its liquidity requirements for the foreseeable future.  A significant portion of the secured vehicle financing consists of asset backed notes.  The Company generally issues additional notes each year to replace maturing notes and provide for growth in its fleet.  The Company believes the asset backed note market continues to be a viable source of vehicle financing.



Cash used in investing activities was $578.7 million.  The principal use of cash in investing activities during the nine months ended September 30, 2006, was the purchase of revenue-earning vehicles, which totaled $3.3 billion.   This use of cash was partially offset by $2.2 billion in proceeds from the sale of used revenue-earning vehicles and a reduction in restricted cash and investments of $536.7 million, due to increases in the rental fleet.  The Companys need for cash to finance vehicles is seasonal and typically peaks in the second and third quarters of the year when fleet levels build to meet seasonal rental demand.  The Company expects to continue to fund its revenue-earning vehicles with cash provided from operations and increased secured vehicle financing.  Restricted cash and investments, which totaled $259.7 million at September 30, 2006, are restricted for the
acquisition of revenue-earning vehicles and other specified uses as defined under the asset backed note program, the Canadian fleet securitization program and a like-kind exchange program.  The Company also used cash for non-vehicle capital expenditures of $24.4 million.  These expenditures consist primarily of airport facility improvements for the Companys rental locations and investments in information technology equipment and systems.  The Company also used $29.6 million of cash for franchisee acquisitions.  These expenditures were financed with cash provided from operations.



Cash provided by financing activities was $165.5 million primarily due to the issuance of $600 million in asset backed notes in March 2006, an increase of $50 million under the asset backed Variable Funding Note Purchase Facility (the Conduit Facility"), and an increase in other existing bank vehicle lines of credit of $156.1 million. Cash provided by financing activities was partially offset by the maturity of asset backed notes totaling $233.3 million, a $314.1 million net decrease in commercial paper and share repurchases totaling $91.9 million under the share repurchase program.



The Company has significant requirements to maintain letters of credit and surety bonds to support its insurance programs and airport concession commitments.  At September 30, 2006, the Company had $73.7 million in letters of credit, including $62.2 million in letters of credit already noted under the Revolving Credit Facility (see Revolving Credit Facility), and $38.0 million in surety bonds to secure these obligations.



36



Asset Backed Notes



The asset backed note program at September 30, 2006 was comprised of $1.88 billion in asset backed notes with maturities ranging from 2006 to 2011.  Borrowings under the asset backed notes are secured by eligible vehicle collateral.  Asset backed notes totaling $1.78 billion bear interest at fixed rates ranging from 3.64% to 5.27%, including certain floating rate notes swapped to fixed rates, and at floating rates on $100 million of LIBOR plus 0.17%.  On March 28, 2006, the Company issued an additional $600 million of five-year asset backed notes consisting of floating rate notes at LIBOR plus 0.18%.  In conjunction with the asset backed notes issuance, the Company also entered into interest rate swap agreements to convert this floating rate debt to fixed rate debt at a 5.27% interest rate.



Conduit Facility



Effective March 28, 2006, the Conduit Facility was renewed for another 364-day period with a capacity of $425 million.



Commercial Paper Program and Liquidity
        Facility




On March 28, 2006, the Company renewed its commercial paper program (the Commercial Paper Program) for another 364-day period at a maximum size of $649 million backed by a renewal of the Liquidity Facility in the amount of $560 million.  At September 30, 2006, the Company had $247.1 million in commercial paper outstanding under the Commercial Paper Program.



Vehicle Debt and Obligations



Vehicle manufacturer and bank lines of credit provided $327 million in capacity at September 30, 2006.  The Company had $237.6 million in borrowings outstanding under these lines at September 30, 2006.  All lines of credit are collateralized by the related vehicles.



The Company finances its Canadian vehicle fleet through a fleet securitization program.  Under this program, DTG Canada can obtain vehicle financing up to CND $300 million funded through a bank commercial paper conduit which expires May 31, 2010.  At September 30, 2006, DTG Canada had approximately CND $222.4 million (US $199.0 million) funded under this program.



Revolving Credit Facility



The Company has a $300 million five-year, senior secured, revolving credit facility (the "Revolving Credit Facility") that expires on April 1, 2009.  The Revolving Credit Facility permits letter of credit usage up to $300 million and working capital borrowing up to $100 million.  The availability of funds under the Revolving Credit Facility is subject to the Companys compliance with certain covenants, including a covenant that sets the maximum amount the Company can spend annually on the acquisition of non-vehicle capital assets, and certain financial covenants including a maximum leverage ratio, a minimum fixed charge coverage ratio and a limitation on cash dividends and share repurchases.  As of September 30, 2006, the Company is in compliance with all covenants.  The Company had letters of credit outstanding under the Revolving Credit Facility of approximately $166.5 million and
no working capital borrowings at September 30, 2006.



New Accounting Standards



For a discussion on new accounting standards refer to Note 15 of the Notes to condensed consolidated financial statements in Item 1  Financial Statements.





37



ITEM 3.
        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




The following information about the
        Companys market sensitive financial instruments constitutes a forward-looking statement.  The Companys
        primary market risk exposure is changing interest rates, primarily in the United States.  The Company manages
        interest rates through use of a combination of fixed and floating rate debt and interest rate swap agreements.  All items
        described are non-trading and are stated in U.S. dollars.  Because a portion of the Companys debt is denominated in
        Canadian dollars, its carrying value is impacted by exchange rate fluctuations.  However, this foreign currency risk is
        mitigated by the underlying collateral which is the Canadian fleet.  The fair value of the interest rate swaps is calculated
        using projected market interest rates over the term of the related debt instruments as provided by the counter parties.



Based on the Companys level of floating rate debt (excluding notes with floating interest rates swapped into fixed rates) at September 30, 2006, a 50 basis point fluctuation in interest rates would have an approximate $6 million impact on the Companys expected pretax income on an annual basis.  This impact on pretax income is reduced by earnings from cash and cash equivalents and restricted cash and investments, which are invested on a short-term basis and subject to fluctuations in interest rates.  At September 30, 2006, cash and cash equivalents totaled $241.8 million and restricted cash and investments totaled $259.7 million.  The Company estimates that, for 2006, approximately 40% of its average debt will bear interest at floating rates.



At September 30, 2006, there were no significant changes in the Companys quantitative disclosures about market risk compared to December 31, 2005, which is included under Item 7A of the Companys most recent Form 10-K/A, except for the net change of the derivative financial instruments noted in Notes 9 and 10 to the condensed consolidated financial statements.



ITEM 4.
        CONTROLS AND PROCEDURES (RESTATED)




Background of Restatement




Subsequent to the filing of the Companys Form 10-Q for the three and nine months ended September 30, 2006, the Companys management determined that the Companys previously issued financial statements and other financial information for the three and nine months ended September 30, 2006 and 2005 should be restated to correct certain errors related to the Companys (i) derivative accounting treatment under SFAS No. 133, (ii) determining the effective state income tax rate under SFAS No. 109, (iii) classification of certain revenue-earning vehicle-related disposal costs, and (iv) classification of tour operator incentives under EITF No. 01-9 and other.  Accordingly, the Company restated its condensed consolidated financial statements for the three and nine months ended September 30, 2006 and 2005, included in this Quarterly Report on Form 10-Q/A. The
restatement is further discussed in Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q/A, and in Note 17 to the Condensed Consolidated Financial Statements in Item 1  Financial Statements of this Form 10-Q/A.



Disclosure Controls and Procedures




The Companys management, with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2006 in connection with the filing of the original Form 10-Q on November 8, 2006.  Based on that evaluation, the Companys chief executive officer and chief financial officer concluded that these disclosure controls and procedures were effective.



Subsequent to the evaluation made in connection with the filing of the Form 10-Q for the three and nine months ended September 30, 2006 and in connection with the restatement and the filing of this Form 10-Q/A, the Companys management, with the participation of its chief executive officer and chief financial officer, reevaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures and concluded that the Companys disclosure controls and procedures were not effective as of September 30, 2006 due to the following material weaknesses:



38




        The Company did not
        maintain effective controls over the application of Statement of Financial Accounting Standards No. 133, Accounting for
        Derivative Instruments and Hedging Activities, as amended.  Specifically, the Companys controls, at inception of the
        interest rate swap agreements, did not operate effectively to appropriately determine how such agreements should be recorded
        under SFAS No. 133.  This resulted in the misapplication of the short-cut method
        of accounting for the Companys interest rate swap agreements.



        The Company did
        not maintain effective controls to provide reasonable assurance that deferred state income taxes were properly estimated and recorded.
        Specifically, the controls over the review and analysis of the deferred state income tax calculation were not sufficiently
        detailed, which resulted in errors in the recorded
        balance of the Companys deferred state income tax liability.




These material weaknesses resulted in the restatement of the Companys previously issued condensed consolidated financial statements as more fully described in Note 17 to the condensed consolidated financial statements.



Changes in Internal Control Over Financial Reporting




There has not been any change in the Company's internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, identified in connection with the evaluation of the Companys internal control performed during the fiscal quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, the Companys  internal control over financial reporting.



Subsequent to September 30, 2006, the Company has taken the following steps to remedy the material weaknesses in internal control over financial reporting identified above:


        Complete documentation and testing to assess the effectiveness of all interest rate swaps, as required under the long-haul method, on at least a quarterly basis to ensure the continuing qualification of hedge accounting.



        Continue to perform calculations of state income taxes utilizing enhanced processes to ensure proper accounting for deferred state income tax liabilities.




PART II - OTHER INFORMATION



ITEM 1.
        LEGAL PROCEEDINGS




Various legal actions, claims and governmental inquiries and proceedings are pending or may be instituted or asserted in the future against the Company and its subsidiaries.  Litigation is subject to many uncertainties, and the outcome of the individual litigated matters is not predictable with assurance.  It is possible that certain of the actions, claims, inquiries or proceedings could be decided unfavorably to the Company or the subsidiaries involved.  Although the final resolution of any such matters could have a material effect on the Company's consolidated operating results for a particular reporting period in which an adjustment of the estimated liability is recorded, the Company believes that any resulting liability should not materially affect its consolidated financial position.















39



ITEM 1A.
        RISK FACTORS




In addition to the risk factors disclosed in Item 1A or elsewhere in our most recent Form 10-K/A, we are adding the following risk factors for outsourcing of our information technology services and the litigation risk associated with the removal of unlimited vicarious liability:



Outsourcing of information technology



On August 1, 2006, we signed an agreement with EDS to handle a range of our information technology services beginning October 1, 2006.  If EDS fails to meet our required information technology needs due to a lack of technical ability or financial condition or otherwise, we may suffer a loss of business functionality and productivity, which would adversely affect our results.  Additionally, if there is a disruption in our relationship with EDS, we may not be able to secure another IT supplier to adequately meet our information technology needs on acceptable terms, which could result in performance issues and a significant increase in costs.



Litigation relating to the constitutionality of the removal of vicarious liability



On August 10, 2005, the federal Highway Bill was signed into law and removed unlimited vicarious liability for vehicle rental and leasing companies, limiting exposure to state minimum financial responsibility amounts.  Before vicarious liability was removed, the owner of a vehicle in certain states would be liable for acts by vehicle drivers even though the vehicle owner was not directly responsible.  This federal law supersedes all state laws on vicarious liability for automobile lessors.  Since the Highway Bill became law, its constitutionality has been challenged in some state courts, including subsequent appeals.  If the elimination of unlimited vicarious liability is overturned, we would be subject to significant exposure to insurance liabilities and higher insurance costs, which would materially impact our results.



ITEM 2.
        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




a)
        Recent Sales of Unregistered Securities




None.




b)
        Use of Proceeds




None.




c)
        Purchases of Equity Securities by the Issuer and Affiliated Purchasers


|                                      |  |  |              |         |  |            |   |       |                     |  |  |                       |  |  |   |             |  | 
|------------------------------------- |  |  | ------------ | ------- |  | ---------- | - | ----- | ------------------- |  |  | --------------------- |  |  | - | ----------- |  | 
|                                      |  |  |              |         |  |            |   |       | Total Number of     |  |  | Maximum               | 
|                                      |  |  |              |         |  |            |   |       | Shares Purchased    |  |  | Dollar Value of       | 
|                                      |  |  | Total Number |         |  | Average    |   |       | as Part of Publicly |  |  | Shares that May Yet   | 
|                                      |  |  | of Shares    |         |  | Price Paid |   |       | Announced Plans     |  |  | Be Purchased under    | 
|Period                                |  |  | Purchased    |         |  | Per Share  |   |       | or Programs         |  |  | the Plans or Programs | 
|                                      |  |  |              |         |  |            |   |       |                     |  |  |                       |  |  |   |             | 
|July 1, 2006 -July 31, 2006           |  |  |              | 296,000 |  |            | $ | 44.44 |                     |  |  | 296,000               |  |  | $ | 234,268,000 | 
|                                      |  |  |              |         |  |            |   |       |                     |  |  |                       |  |  |   |             | 
|August 1, 2006 -August 31, 2006       |  |  |              | 340,400 |  |            | $ | 41.20 |                     |  |  | 340,400               |  |  | $ | 220,243,000 | 
|                                      |  |  |              |         |  |            |   |       |                     |  |  |                       |  |  |   |             | 
|September 1, 2006 -September 30, 2006 |  |  |              | 282,200 |  |            | $ | 43.07 |                     |  |  | 282,200               |  |  | $ | 208,087,000 | 
|                                      |  |  |              |         |  |            |   |       |                     |  |  |                       |  |  |  
|Total                                 |  |  |              | 918,600 |  |            |   |       |                     |  |  | 918,600               |  |  |   |             | 
|                                      |  |  |              |         |  |            |   |       |                     |  |  |                       |  |  |  



40





In February 2006, the Companys Board of Directors authorized a new $300 million share repurchase program to replace the $100 million share repurchase program of which $44.7 million had been used to repurchase shares.  During the nine months ended September 30, 2006, the Company repurchased 2,108,900 shares of common stock at an average price of $43.58 per share totaling $91.9 million.  Since inception of the share repurchase programs, the Company has repurchased 3,660,500 shares of common stock at an average price of $37.33 per share totaling $136.6 million, all of which were made in open market transactions.  At September 30, 2006, the $300 million share repurchase program has $208.1 million of remaining authorization to be completed by December 31, 2008.



ITEM 5.
        OTHER INFORMATION




The Company has established the date for its next Annual Meeting of Stockholders which will be held on May 17, 2007.



41





ITEM 6.
        EXHIBITS (RESTATED)






5.4
        Opinion of Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C. regarding the legality of the Common Stock being registered, filed as the same numbered exhibit with DTGs Form S-8, Registration No. 333-136611, filed August 14, 2006*10.119
        Mandatory Retirement Policy approved by the Human Resources and Compensation Committee of the Board of Directors of Dollar Thrifty Automotive Group, Inc. on July 26, 2006, filed as the same numbered exhibit with DTGs Form 8-K, filed August 1, 2006, Commission File No. 1-13647*10.120
        Retirement and Separation Agreement by and between Donald M. Himelfarb and Dollar Thrifty Automotive Group, Inc. effective and enforceable on August 28, 2006, filed as the same numbered exhibit with DTGs Form 8-K, filed September 1, 2006, Commission File No. 1-13647*10.121
        Letter agreement effective as of September 8, 2006 between DaimlerChrysler Motors Company, LLC and Dollar Thrifty Automotive Group, Inc. to purchase additional vehicles for the 2007 model year, filed as the same numbered exhibit with DTGs Form 8-K, filed September 14, 2006, Commission File No. 1-13647*10.122
        Letter agreement effective as of September 8, 2006 extending the Vehicle Supply Agreement between DaimlerChrysler Motors Company, LLC and Dollar Thrifty Automotive Group, Inc., filed as the same numbered exhibit with DTGs Form 8-K, filed September 14, 2006, Commission File No. 1-13647*10.123
        Second Amended and Restated Data Processing Services Agreement dated as of August 1, 2006 by and among Dollar Thrifty Automotive Group, Inc., Electronic Data Systems Corporation and EDS Information Services L.L.C.*15.26
        Letter from Deloitte & Touche LLP regarding interim financial information**23.30
        Consent of Deloitte & Touche LLP, filed as the same numbered exhibit with DTGs Form S-8, Registration No. 333-136611, filed August 14, 2006*23.31
        Consent of Hall, Estill, Harwick, Gable, Golden & Nelson, P.C. (included in Exhibit 5.4), filed as the same numbered exhibit with DTGs Form S-8, Registration No. 333-136611, filed August 14, 2006*31.37
        Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**31.38
        Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**32.37
        Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**






42





32.38
        Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**99.31
        Press release
        regarding the signing of a Master Services Agreement with EDS issued by Dollar Thrifty Automotive Group, Inc. on August 2, 2006,
        filed as the same numbered exhibit with DTGs Form 8-K, filed August 7, 2006, Commission File No. 1-13647*99.32
        Press release regarding the anticipated earnings impact of a new IT services agreement issued by Dollar Thrifty Automotive Group, Inc. on August 2, 2006, filed as the samed numbered exhibit with DTGs Form 8-K, filed August 7, 2006, Commission File No. 1-13647*99.33
        Press release reporting the retirement of Donald M. Himelfarb, Chief Administrative Officer, issued by Dollar Thrifty Automotive Group, Inc. on October 26, 2006, filed as the same numbered exhibit with DTGs Form 8-K, filed October 26, 2006, Commission File No. 1-13647*99.34
        News release reporting Third Quarter Financial Results for 2006, issued by Dollar Thrifty Automotive Group, Inc. on October 26, 2006, filed as the same numbered exhibit with DTGs Form 8-K, filed October 26, 2006, Commission File No. 1-13647*




______________



*
        Incorporated by reference


**
        Filed herewith




43





SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.






|February 26, 2007 | By:                                              | /s/  GARY L. PAXTON
|----------------- | ------------------------------------------------ | -------------------
|                  | Gary L. Paxton                                   |                    
|                  | President, Chief Executive Officer and Principal |                    
|                  | Executive Officer                                |                    
|                  |                                                  |                    
|                  |                                                  |                    



|February 26, 2007 | By:                                                | /s/  STEVEN B. HILDEBRAND
|----------------- | -------------------------------------------------- | -------------------------
|                  | Steven B. Hildebrand                               |                          
|                  | Senior Executive Vice President, Chief Financial   |                          
|                  | Officer, Principal Financial Officer and Principal |                          
|                  | Accounting Officer                                 |                          
|                  |                                                    |                          







































44





INDEX TO EXHIBITS



Exhibit Number
        Description




15.26
        Letter from Deloitte & Touche LLP regarding interim financial information31.37
        Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.38
        Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.37
        Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.38
        Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002






45