Good morning and welcome to the Avis Budget group conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. David Crowther, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Jackie. Good morning, everyone, and thank you all for joining. On the call with me today are our Chairman and Chief Executive Officer, Ron Nelson; our President and Chief Operating Officer, Bob Salerno; and our Executive Vice President and Chief Financial Officer, David Wyshner. If you did not receive a copy of our press release, it is available on our website at www.avisbudgetgroup.com or on the First Call system. Before we discuss the results for the quarter, I would like to remind everyone that the company will be making statements about its future results, which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment and are inherently subject to significant economic, competitive, and other uncertainties and contingencies which are beyond the control of management. The company cautions that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are specified in our earnings release issued last night. Before I turn the call over to our CEO, let me briefly review the headlines of yesterday’s press release. Our revenue from vehicle rental operations increased to a record $5.6 billion for the year. Our vehicle rental operations earned full year pro forma EBITDA of $405 million and pro forma pretax income of $172 million, in line with our previous projections. Fourth quarter pro forma EBITDA from our vehicle rental operations was $88 million, also in line with our previous projections. Now I would like to turn the call over to Avis Budget Group’s Chairman and CEO, Ron Nelson. What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price?: This is exactly what Seeking Alpha is offering with transcript sponsorships. Seven types of companies are sponsoring earnings transcripts on Seeking Alpha:

Thanks, Dave, and good morning to everyone. 2006 was certainly an historic year for both Avis Budget Group and the car rental industry as ownership structures changed and the industry faced the twin challenges of significant fleet cost increases and weak domestic enplanements. Given this backdrop to the year, we are pleased that our fourth quarter results were in line with expectations and more importantly, the pro forma EBITDA from our vehicle rental operations increased year over year compared to declines in the previous two quarters. In addition, we maintained our position as the leading car rental company at U.S. airports and we expanded our off-airport business significantly -- all signifying positive momentum. Looking forward into 2007, I would like to spend my time this morning reviewing our strategic plan and how our accomplishments in 2006 set the stage for long-term growth. At its core, our strategic plan to create sustainable improvements in margins and earnings has three basic tenets: optimizing our two-brand strategy, expanding our revenue sources, realizing the opportunities we have to capture incremental profit. Our two-brand strategy distinguishes us from both our largest competitors. More importantly, our brands are well positioned to capture the two deepest pools of rental car demand. Avis is a premium brand for the corporate and leisure traveler, while Budget is a value brand for cost-conscious travelers. Given these distinct customer groups, we feel it is tremendously valuable to have two separate and distinct brands in order to segment market demand, properly target customers, maximize fleet utilization while at the same time meeting their needs and winning their loyalty. In 2006, we continued to provide products, service and pricing that complement each brand’s positioning in the market. For example, at Avis we rolled out a suite of productivity enhancements, including a portable navigation…

Thanks, Ron. Over the past couple of months, there have been many headlines from Detroit and other statements made about production cuts, reduced sales from OEMs to the car rental industry, and finally the availability of cars. First, the production cuts: the encouraging part of the recent production cuts is that capacity is being taken out as well. We view this as a positive step for the industry and ultimately a positive step for pricing. With capacity reduced and hopefully aligned with demand, there will be less opportunity for vehicles being pushed into the car rental channel, which in turn should keep the industry from an over-fleeted situation. With fleet more constrained, the industry should be better able to achieve needed pricing increases. Along the same lines, the likelihood of somewhat reduced fleet sales by OEMs should also be a positive for the industry because a more constrained supply should also lead to a more rational pricing environment. Now, what impact has this had on our ability to secure fleet that we need to operate the business? Really, none. We have two guaranteed supply contracts. In fact, we are the largest purchaser at Ford and the third-largest at General Motors. At the same time, we have significant purchasing relationships with Chrysler, Hyundai, Kia, Mitsubishi, Subaru, Suzuki and Toyota. We have been able to secure all the vehicles we need for 2007 for the risk of program and do not anticipate any issues for model year 2008 and beyond. I do not believe the major car rental companies will be impacted by reduced OEM fleet sales, other than being an incentive to hold cars a bit longer and probably purchase more risk cars, both of which should have a favorable impact on aggregate fleet costs. Let me make a quick comment…

Thanks, Bob. This morning, I would like to discuss our recent results and our outlook, focusing on the results of our vehicle rental business and its three operating segments. In 2006, we grew Avis Budget car rental revenue by 6% to a record $5.6 billion, generated pro forma EBITDA of $405 million, and generated pro forma pretax income of $172 million -- all in line with our July and November projections. In the fourth quarter, our revenue was $1.3 billion, as it was in 2005. More significantly, Avis Budget car rental’s pro forma EBITDA increased compared to last year. For the quarter, on a pro forma basis, ABCR generated EBITDA of $88 million and pretax income of $33 million. Our revenue growth was driven by a 6% increase in car time and mileage revenue per day and a 4% decline in car rental days versus the prior year. We have said that we are serious about taking price increases where possible and our fourth quarter results reflect that commitment and its favorable impact on margins. I should point out though that while our fourth quarter rental days declined 4% year over year, they have increased 12% versus 2004 levels. Clearly, we were facing a very difficult rental day comparison in the fourth quarter. Turning to our domestic car rental operations, revenue increased 2%, reflecting a 7% increase in time and mileage revenue per day, offset by a 5% decline in rental days. As Bob mentioned, we made the decision in the face of significant fleet cost increases to forego some marginal rentals, reduce fleet size, and strengthen our pricing. As a result of this dynamic and lower operating costs, domestic EBITDA increased significantly in the quarter to $52 million. Our average fleet size decreased 5% in line with our volume…

(Operator Instructions) Our first question comes from Jeff Kessler with Lehman Brothers. You may begin.

Thank you. I actually have about 40 questions but I will, instead of boring everybody, I will just ask a couple. First question is 10% fleet cost estimate for 2007. This is kind of in line. It is actually slightly lower than what you were alluding to a few months ago. Is this because you were looking at initial discussions with the auto manufacturers, or are you assuming that with such things as higher percentages of international cars coming into the mix, the OEMs are getting it that they can only raise pricing so much and maybe they have already gotten enough of what they wanted out of the program/non-program mix?

Let me answer your first one. I am not sure at what point in time we are trying to draw the distinction, Jeff, but early or at least in the middle of the summer, we were talking about 20% fleet cost increases, and those all related to cost of program cars. Over the course of the third and fourth quarter, by buying risk cars, by extending our fleet, changing the mix on our fleet, we have reduced the per unit cost down to 10%, which we feel pretty comfortable we are going to be able to sustain throughout the whole year. Program cars still went up 20%. There is no mistake about it but when you average them in with all the other actions we have taken with --

The point I am getting to is if you change slightly, given that the mix, you have gotten your non-program car mix up a little bit and maybe there we are seeing some more rational discussions with the OEMs on the program cars. Do you think this augers better for 2008? I know that Bob prefaced his whole thing by saying that we still have a ways to go before the discussion starts, but obviously a lot of investors are interested in what your take on 2008 fleet costs are going to be on a blended basis.

Let me say the following: I think the issues that were driving the significant increase in the program cars we think have largely been corrected, and those issues were the difference between the put price and the fair market value of the cars. As they have increased or reduced the put price, we think they have gotten the majority if not all of the squish out of the difference between the put price and the fair market value of the cars. So we take some comfort then that the price of fleet ought to rise in line with what their retail pricing is. I think that is what gives us some comfort, is they have taken care of the majority if not all of their problem.

Second question, you mentioned $750 million of off-airport. That was a significant increase against two years ago. It seems like it is a much smaller annualized increase, or maybe virtually no increase against 2005. Am I wrong? What type of growth are you seeing in the two? I know you mentioned 37% over two years. What are you really seeing at this point on an annualized basis in the off-airport business?

We were not trying to hide the tee. 2006 was up 18%, so they were both up about the same. The only thing I will say is when you look at where our increases are, the large majority of them are still in the local market general use. We have big percentage increases in insurance replacement but it is still a small component of our overall mix in the off-airport. I just want to add one point to your fleet thing, because I think it is important. In terms of considering what our composite fleet costs might be in ’08, don’t forget the fact that we still have the risk lever to pull. Our risk percentage is still relatively low compared to the rest of the industry. We have been very cautious wanting to understand how the redistribution of risk cars from car rental companies to dealer networks affected pricing. We still have the ability to substantially increase our risk component next year, which gives us, at least our P&L an advantage of being able to lower fleet costs in a manner we did this year.

Your collateral requirements that you are seeing on the part of the rating agencies, are those continuing to rise with respect to the two major players? Have they risen to a point at which there is almost no difference between a program car and a non-program car, at least in the eyes of the rating agencies versus the two U.S. OEMs?

That’s correct, Jeff. The way the agencies are looking at enhancement levels for our structures, they view Ford and GM cars as essentially equivalent to risk vehicles in terms of the enhancement that is required.

Okay, so is it fair to say that given the level that you are at, that we have already gotten to a point, unless the credit ratings for these companies completely explode downward, are we going to be seeing a little bit less of the second derivative, a little bit less of an acceleration in the amount of collateral that has been had to been put up versus what we have been seeing in the last couple of years at that collateral has risen? Is that rate of rising going to be slowing?

That rate is going to be slowing. The one issue we are still, that we have been expecting all along is that as our historical term ADS deals mature, we are going to be replacing them with new deals that have credit enhancement levels that are tied to the current way of looking at things, so that will cause the enhancement requirement in aggregate to continue to rise over the next few years. That is something we have been planning for for the last 12 or 15 months. But because those existing ADS deals roll off over a period of time, the rate at which we are going to see any increases is going to slow down.

One final question and I will leave for others; on pricing, can you sustain -- obviously you have been dependent on leisure pricing doing really well, and if a marketplace within the auto rental industry determines a lot how much you can get there, how long can you sustain high-single digit type of leisure pricing in your view without running into undercutting? On the commercial side, do you think that the combination of Dollar Thrifty with the server, with Vanguard, will provide more discipline on the commercial side?

On the first part, as long as the market continues to move along on the leisure price side, which it has been doing all throughout ’06 fairly well in sync, at least as well as I have ever seen it move, and it appears that this is continuing on at least early on in ’07, as long as that goes on, I think there is pricing ability here. Clearly there is pricing elasticity for the consumer in this area. There is a lot of room yet to continue to move car rental pricing that we have not tapped at all. I guess that is a long way around it, so as long as the industry allows it, I think leisure pricing will continue. On the commercial side, relative to Dollar Thrifty and Vanguard, I have no idea, Jeff. I don’t know what will go on over there with combinations or what that all means for commercial pricing. We have been attaining commercial pricing increases, just not at the rate that we want nor is it at a rate that I think the market would accept if we were allowed.

You know why I am asking that question. You have a competitor over there who has been let’s call it the force that has perhaps kept some of these pricing increases down below what you would have liked. Hopefully that is easing if these companies combine into a public entity.

I’m not sure, Jeff, that the competitive balance merging Dollar and National affects commercial pricing at all. Dollar Thrifty is by and large a leisure rental company. Frankly, when you look at the results of our acquiring Budget, the primary benefit you get is cost takeout. So if something happens between Dollar Thrifty and National, I assume there is going to be some cost takeout and they will be more profitable on a combined basis. I do not know the structure of the transaction so I do not know whether they will be all private or all public, but presuming that they will be all public, I think that adds an additional level of discipline on both fronts. Having a more profitable player in the business I think makes for a more profitable industry and that is good for everybody.

Thanks a lot, guys, and it was a surprising quarter. Thank you.

Thank you. Our next question is from Zafar Nazim with J.P. Morgan.

Good morning. Thank you for taking my question. On your financing, I was wondering, David, if you could tell us what amount of your [inaudible] financing will come up for review in ’07 and what does that do to your fleet [debt]?

About $700 million of our fleet debt rolls off this year and in the impact of that rolling off and in being replaced is not going to be material on our rate. It may work out to about a quarter of a point, depending on where rates are over the course of the year, but that run-off really does not have much of an impact on our bottom line.

You mentioned that maintenance and damage expenses are up in ’06. I was wondering if you could tell us what the total amount was and what the increase was and what your expectations are for this line in ’07?

I really can’t. It is a line that has increased along with the growth in leisure rentals. We have also had some changes in our terms and conditions that creates some line item geography within our detailed P&L, so it is a rather complicated answer. But we do feel that there is opportunity for us in terms of how we operate and manage the business to work on maintenance and damage costs and our recoveries of them, even while we continue to expand the leisure business that just by its nature has higher M&D rates associated with it. It really boils down to an area where we have seen some increases and we feel that there are operational and day-to-day actions we can take to help the bottom line there.

In the off-airport side, can you give us a dollar amount for the insurance business you have, [a percent of the total revenue]?

As I think we said, we estimate that we have about a 1% market share of about a $7 billion market.

In terms of your forward-looking guidance, you mentioned that the first half of ’07, margins are likely to be depressed. Any quantification of this? Is it 50 basis points you are talking about, 25, 75?

We have decided not to try to quantify any quarterly numbers. That said, that is going to be our approach as we go forward.

Lastly, some questions around free cash flow. Cash taxes in ’06, what were these?

I’m sorry, I missed your question.

Cash taxes in 2006, what were these?

The cash taxes really pertain to the international operations and some state taxes. We are still finalizing the exact number but it was relatively small in the $20 million range.

And your CapEx budget for ’07?

It is in line with our 2006 spending, probably in the $75 million to $85 million range.

Thank you very much.

Thank you, sir. Our next question is from Chris Agnew with Goldman Sachs.

Thank you. First question, a little bit of detail; did you provide the forecast for the average fleet increase in 2007?

Our estimate was an average per unit increase of about 10% in 2007, and then we have not talked about the aggregate cost increase, but as we grow volumes in the 6% to 8% range and then ideally have maybe some modest impact in utilization over the course of 2007, the per unit cost and the growth in volume in fleet end up being essentially multiplicative in terms of our growth, so it probably ends up being in the 15% to 17% range when you combine those two assumptions.

Okay, so you would be assuming an average fleet increase of about 5% to 7%?

We need to support the additional volume that we would expect to have in the 6% to 8% range.

What I was trying to do was back out what the implied utilization increase was.

And that, we are not talking specifically about a planned utilization increase. We are not issuing a specific forecast there but we are very focused on opportunities in the business to try to squeeze basis points and tens of basis points out of utilization where we can.

Would I be right in thinking that if your -- because you are talking about enplanement growth being moderate, and I am assuming that it sort of 2%, 2.5%, and therefore a lot of the rental day increase, we are talking 6% to 8%. You must have very high increase in rental days in your local segment business, and therefore because they are longer rental periods, you should be seeing a jump in your utilization. Am I thinking along the right lines there?

Yes. All those things are correct.

Okay, so would it be fair to think that -- maybe I will ask in another way. Given that the utilization is driven by this off-airport mix, and as you have shown in charts in your presentation before that for every 1% increase in utilization, you get around I think it is $19 million, $20 million of incremental EBITDA. Does that still hold true, given that it is being driven by off-airport?

No, I don’t think that is the case. I think in order to apply that sensitivity, I think you really have to look at on-airport and off-airport separately, so that if we improve on-airport utilization by a point and we improved off-airport utilization by a point, we would get that $20 million pick up. But we do not necessarily get that benefit from a mix shift because you need higher utilization, to your earlier point, you need higher utilization in the off-airport market to operate at the same margin levels.

Okay, so have you actually quantified? Do you think you can get your local rental business to achieve the same level of profitability as you are targeting for your overall business? Do you have a timeframe for that?

In terms of that question, our off-airport business is already profitable. We think that it is in the same margin range as the on-airport business. I would say, just to elaborate a little bit on the utilization question you were asking David, we have programmed about a half a point of utilization increase into our forecast for next year, and that is a composite across both the airport and off-airport. Since we only have one fleet and the hub of the fleet is really at the airport and effectively we move cars in and out of the off-airport market, it is hard to measure utilization in the on-airport and off-airport. Intuitively though, you are right, that off-airport utilization is probably going to be modestly lower than on-airport. But what you have going for you in the on-airport business is you have longer length of rentals, which tend to balance it and give you better utilization. The other thing that I just want to point out is that in terms of profitability, we have relatively low fixed costs at our off-airport business compared to our on-airport business, so the cost structure sort of offsets the impact of the lower rate, which is why when you look at it across the board, they both end up being about the same level of margin and profitability.

Thank you, and then one final question; reading in your outlook guidance and then comments on the call, I just want to clarify -- when you are talking about the seasonality, I know you are not going to give specific numbers, but are you talking about seasonality in the first-half of the year being lower than below normalized margins that you are thinking of achieving, or actually being below what they were year over year?

With respect to the seasonality, if you will, or the build out is tied to the progression we expect to have and in the first quarter, we are expecting a difficult or negative comparison, as I mentioned, improving to better comparisons in the back-half of the year.

And that is on a year-over-year basis, the comparison?

Year over year pro forma, so that we are comparing apples to apples.

Excellent. Thanks very much.

Thank you. We do have time for one last question from Christina Wu with Morgan Stanley.

I was hoping you could speak to the fleet holding period. You have mentioned that as a means of cost savings, you are holding your fleet for longer periods of time. What is the average mileage on the fleet in the past versus what your aim is?

The hold is going up approximately almost a full month. You could think about that as about 2,000 miles.

2,000, did you say?

Yes. When we did this, we paid a lot of attention to how this would be received by customers. In our opinion, it will almost be transparent.

And what percent of your fleet is up to date with its preventive maintenance?

We have been running preventive maintenance for the last 20 years. All our fleet is up to date on preventive maintenance and recalls and everything else.

Okay, so extending it by one month, you are not expecting a significant increase in the preventive maintenance costs?

No, we will be well below the threshold that that would occur. Preventive maintenance, tire rotation, oil change -- it is really nothing more than that. Until you really get a lot more miles than we put on the cars, you get into more significant cost increases.

Okay, and then you mentioned I think in response to Chris’ comments that you have the strategy of moving some cars in and out of the off-airport market, swapping them. As you look at expanding the off-airport business, particularly with the insurance replacement business, are you anticipating keeping a fleet of cars more readily available in the off-airport market?

We do not separate the fleet out. We think that is inefficient. However, having said that, we do keep a specific number of cars in the off-airport market that we think is necessary to service and grow the business, because the business there runs very differently from an advanced reservation standpoint than the airport market. We also spend a lot of time thinking about what cars go out there, the types, the size of car, the type of car, so that will continue on. We think it is also efficient to supplement the off-airport market in particular periods, slower periods on the airport market with cars and vice versa, so we do that. You could think about it as it is kind of a big fleet out there and then there is a little bit of fleet on the top that moves back and forth.

Are you anticipating any change year over year in the fleet strategy for off-airport to make sure that the off-airport operators have enough vehicles for the insurance replacements, for the growth? Or is it more that you are increasing your overall fleet?

Yes, only to the point the change is really a continuation of the strategy that we believe to grow this business, we would have to be out there and we have been a little more forgiving on the fleet being out in the off-airport locations than we are at the airport locations.

Okay. Great. Thank you.

Thank you. I would like to turn the conference back for any closing remarks.

I would just like to say thank you all for listening in today and asking what I think are some really good questions. We look forward to talking to you at the end of the first quarter. Goodbye.

Thank you for participating in today’s teleconference call. You may now disconnect.

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