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

FORM 10-Q ~~FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 (MARK ONE) |X|~~

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 1515(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 ~~OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)~~
For the quarterly period ended June 30, 2002
COMMISSION FILE NUMBER: 1-13315 ~~--------~~

AVIS GROUP HOLDINGS, INC. ~~(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 11-3347585 (State~~
(Exact name of Incorporation) (I.R.S. Employer Identification No.) 6 SYLVAN WAY PARSIPPANY, NEW JERSEY 07054 (Address of Principal Executive Offices) (Zip Code) Registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		11-3347585 (I.R.S. Employer Identification No.)
6 SYLVAN WAY PARSIPPANY, NJ (Address of principal executive offices)		07054 (Zip Code)

(973) 496-3500
(Registrant's telephone number, including area code: (973) 496-3500 900 OLD COUNTRY ROAD GARDEN CITY, NEW YORK 11530 (Former address) Securities registered pursuant to Sectioncode)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) ~~of the Act: NONE Securities registered pursuant to Section (g) of the Act: 11% SENIOR SUBORDINATED NOTES DUE 2009~~ OF THE ACT:
None

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

Indicate by check mark whether the ~~registrant:~~Registrant (1) has filed all reports required to be filed byin 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~~Registrant was required to file such reports), and (2) has been subject to such filing requirements, for the past 90 ~~days.~~days: Yes ~~|X|~~o No ~~|_|~~ ~~AVIS GROUP HOLDINGS, INC. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:~~ ý

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of the Registrant's common stock was 5,537 shares as of July 31, 2002.

Avis Group Holdings, Inc. meets the conditions set forth in General Instructions H (1) (a) and (b) to Form 10-Q and is therefore filing this form with the reduced disclosure format.

Avis Group Holdings, Inc. and Subsidiaries

Index

~~PAGE ----~~
		Page
PART I	Financial Information
Item 1.	Financial Statements
	Independent Accountants' Report	1
	Consolidated Condensed Statements ~~of:~~of Operations for the three months ended ~~September~~June 30, ~~2001~~2002 and ~~2000 ................................................................ 1~~2001	2
	Consolidated Condensed Statements of Operations for the six months ended June 30, 2002, the period March 1, 2001 (Date of Acquisition) to ~~September~~June 30, 2001 and the two months ended February 28, 2001 ~~and the nine months ended September 30, 2000 .................................... 2 Financial Position~~	3
	Consolidated Condensed Balance Sheets as of ~~September~~June 30, ~~2001~~2002 and December 31, ~~2000 ................................................... 3~~2001	4
	Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2002, the period March 1, 2001 (Date of Acquisition) to ~~September~~June 30, 2001 and the two months ended February 28, 2001 ~~and the nine months ended September 30, 2000 ............................ 4~~	5
	Notes to the Consolidated Condensed ~~Consolidated~~ Financial Statements ~~.................................................... 5-21 ITEM~~	7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............................................................. 22-29 ITEM	Management's Narrative Analysis of the Results of Operations	19
Item 3. ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS ...................................................... 30~~	Quantitative and Qualitative Disclosure about Market Risks	22
PART ~~II. OTHER INFORMATION~~ II	Other Information
Item 6.	Exhibits and Report on Form 8-K	23
	Signatures .............................................................. 31 ITEM 6(a). EXHIBITS ................................................................ 32 ITEM 6(b). REPORT ON FORM 8-K ...................................................... 35	24

PART ~~1 -~~ I—FINANCIAL INFORMATION ~~ITEM 1: FINANCIAL STATEMENTS AVIS GROUP HOLDINGS, INC.~~

Item 1. Financial Statements

INDEPENDENT ACCOUNTANTS' REPORT

To the Board of Directors and Stockholder of
Avis Group Holdings, Inc.
Parsippany, New Jersey

We have reviewed the accompanying consolidated condensed balance sheet of Avis Group Holdings, Inc. and subsidiaries (successor to Avis Rent A Car System, Inc. and subsidiaries, Avis Fleet Leasing and Management Corp., and subsidiaries and Reserve Claims Management Co., collectively the "Predecessor Companies") (collectively referred to as the "Company") as of June 30, 2002, and the related consolidated condensed statements of operations and cash flows for the three and six month period ended June 30, 2002, the period March 1, 2001 (Date of Acquisition) to June 30, 2001, and as to the Predecessor Companies for the period January 1, 2001 to February 28, 2001. These financial statements are the responsibility of the Company's management.

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

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

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of December 31, 2001, and the related consolidated statements of operations, common stockholders' equity, and cash flows for the period March 1, 2001 (Date of Acquisition) to December 31, 2001 and as to the Predecessor Companies, the consolidated related statements of operations, common stockholders' equity and cash flows for the period January 1, 2001 to February 28, 2001 (not presented herein); and in our report dated January 23, 2002, we expressed an unqualified opinion (and included an explanatory paragraph relating to a change in accounting for derivative instruments and hedging activities) on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2001 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP
August 12, 2002
New York, New York

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF OPERATIONS ~~(IN THOUSANDS)~~
PREDECESSOR COMPANIES --------------------- THREE MONTHS THREE MONTHS ENDED ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ------------------ --------------------- Revenue ........................................................................ $ 650,368 $733,694 --------- -------- Cost and expenses: Direct operating, net .......................................................... 238,657 259,573 Vehicle depreciation and lease charges, net .................................... 194,350 191,346 Selling, general and administrative ............................................ 122,094 121,101 Interest, net .................................................................. 70,440 86,992 Non-vehicle depreciation and amortization ...................................... 5,449 12,647 Amortization of cost in excess of net assets acquired and other intangibles .... 8,095 3,133 Unusual charges ................................................................ 60,062 --------- -------- 699,147 674,792 --------- -------- Income (loss) before provision for income taxes ................................ (48,779) 58,902 Provision (benefit) for income taxes ........................................... (24,033) 30,573 --------- -------- Income (loss) from continuing operations ....................................... (24,746) 28,329 Income from discontinued operations, net of income taxes of $5,938 ............. 20,068 --------- -------- Net income (loss) .............................................................. $ (24,746) $ 48,397 ========= ========

(In thousands)

		Three Months Ended June 30, 2002		Three Months Ended June 30, 2001
Revenues		$	650,631	$	628,893

Expenses
	Operating, net		256,366		232,168
	Vehicle depreciation and lease charges, net		161,401		170,982
	Selling, general and administrative		121,929		116,540
	Vehicle interest, net		51,339		55,899
	Non-vehicle interest, net		10,823		14,577
	Non-vehicle depreciation and amortization		9,445		15,075

Total expenses			611,303		605,241

Income before income taxes			39,328		23,652
Provision for income taxes			16,518		13,753

Net income		$	22,810	$	9,899

See ~~notes~~Notes to ~~the condensed consolidated financial statements. 1~~ ~~AVIS GROUP HOLDINGS, INC.~~Consolidated Condensed Financial Statements.

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF OPERATIONS ~~(IN THOUSANDS)~~
PREDECESSOR COMPANIES --------------------------------- MARCH 1, 2001 TWO MONTHS NINE MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30, 2001 2001 2000 --------------------- ------------ ------------- Revenue ..................................................... $ 1,497,258 $385,821 $1,989,167 ----------- -------- ---------- Costs and expenses: Direct operating, net ....................................... 549,021 173,830 715,581 Vehicle depreciation and lease charges, net ................. 423,110 111,966 510,674 Selling, general and administrative ......................... 276,213 83,229 355,240 Interest , net .............................................. 166,547 52,792 278,228 Non-vehicle depreciation and amortization ................... 12,235 4,154 22,260 Amortization of cost in excess of net assets acquired and other intangibles ..................................... 18,604 2,087 9,414 Unusual charges ............................................. 60,062 ----------- -------- ---------- 1,505,792 428,058 1,891,397 ----------- -------- ---------- Income (loss) before provision (benefit) for income taxes ... (8,534) (42,237) 97,770 Provision (benefit) for income taxes ........................ (2,381) (15,783) 47,976 ----------- -------- ---------- Income (loss) from continuing operations .................... (6,153) (26,454) 49,794 Income from discontinued operation, net of income taxes of $5,045 for the two months ended February 28, 2001 and $35,186 for the nine months ended September 30, 2000 .................................. 4,947 55,621 ----------- -------- ---------- Income (loss) before cumulative effect of accounting change .................................................... (6,153) (21,507) 105,415 Cumulative effect of accounting change, net of income tax benefit of $3,331 ..................................... (7,612) ----------- -------- ---------- Net income (loss) ........................................... $ (6,153) $(29,119) $ 105,415 =========== ======== ==========

(In thousands)

						Predecessor Companies
				March 1, 2001 (Date of Acquisition) to June 30, 2001		Predecessor Companies
		Six Months Ended June 30, 2002		March 1, 2001 (Date of Acquisition) to June 30, 2001		Two Months Ended February 28, 2001
Revenues		$	1,215,234	$	846,889	$	385,821

Expenses
	Operating, net		480,401		310,979		174,087
	Vehicle depreciation and lease charges, net		321,251		225,172		110,117
	Selling, general and administrative		236,860		154,115		83,229
	Vehicle interest, net		101,986		76,446		43,625
	Non-vehicle interest, net		21,618		19,663		9,167
	Non-vehicle depreciation and amortization		17,943		20,268		7,833

Total expenses			1,180,059		806,643		428,058

Income (loss) before income taxes			35,175		40,246		(42,237	)
Provision (benefit) for income taxes			14,774		21,652		(15,783	)

Income (loss) from continuing operations			20,401		18,594		(26,454	)
Income from discontinued operations, net of tax			—		—		4,947

Income (loss) before cumulative effect of accounting change			20,401		18,594		(21,507	)
Cumulative effect of accounting change, net of tax			—		—		(7,612	)

Net income (loss)		$	20,401	$	18,594	$	(29,119	)

See ~~notes~~Notes to ~~the condensed consolidated financial statements. 2~~ ~~AVIS GROUP HOLDINGS, INC.~~Consolidated Condensed Financial Statements.

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)

		June 30, 2002			December 31, 2001
ASSETS
	Cash and cash equivalents	$	40,669		$	13,311
	Receivables, net		165,755			168,372
	Prepaid expenses		40,966			42,543
	Deferred income taxes		556,148			548,087
	Property and equipment, net		256,217			245,276
	Goodwill, net		1,254,909			1,271,192
	Other assets		145,054			146,608

Total assets exclusive of assets under management programs			2,459,718			2,435,389

Assets under management programs:
	Restricted cash		9,306			581,187
	Vehicles, net		4,226,575			3,428,893
	Due from vehicle manufacturers		64,492			92,614

			4,300,373			4,102,694

Total assets		$	6,760,091		$	6,538,083

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
	Accounts payable	$	245,132		$	363,891
	Accrued liabilities		447,341			434,665
	Due to Cendant Corporation and affiliates, net		514,007			514,433
	Non-vehicle debt		575,856			588,259
	Public liability, property damage and other insurance liabilities		215,877			228,503

Total liabilities exclusive of liabilities under management programs			1,998,213			2,129,751

Liabilities under management programs:
	Vehicle debt		4,115,860			3,771,341
	Deferred income taxes		307,296			315,905

			4,423,156			4,087,246

Commitments and contingencies (Note 6)
Stockholder's equity:
	Common stock, $.01 par value—authorized 10,000 shares; issued 5,537 shares		—			—
	Additional paid-in-capital		168,832			168,832
	Retained earnings		209,707			189,306
	Accumulated other comprehensive loss		(39,817	)		(37,052	)

Total stockholder's equity			338,722			321,086

Total liabilities and stockholder's equity		$	6,760,091		$	6,538,083

See Notes to Consolidated Condensed Financial Statements.

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED ~~STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS)~~
PREDECESSOR COMPANIES ------------ SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ ASSETS Cash and cash equivalents .................................. $ 43,021 $ 80,368 Restricted cash ............................................ 43,953 41,280 Accounts receivable, net ................................... 206,176 189,662 Prepaid expenses ........................................... 57,896 47,924 Property and equipment, net ................................ 198,425 181,504 Other assets ............................................... 35,090 78,972 Net assets of discontinued operation ....................... 880,300 Deferred income tax assets, net ............................ 489,911 349,268 Customer lists ............................................. 18,392 Cost in excess of net assets acquired, net ................. 1,220,530 453,450 ----------- ----------- Total assets exclusive of assets under programs ............ 2,313,394 2,302,728 ----------- ----------- Assets under management programs: Restricted cash ......................................... 151,046 126,202 Vehicles ................................................ 3,554,442 3,761,454 Due from vehicle manufacturers .......................... 590,551 318,666 ----------- ----------- 4,296,039 4,206,322 ----------- ----------- Total assets ........................................... $ 6,609,433 $ 6,509,050 =========== =========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Accounts payable ........................................... $ 262,096 $ 283,556 Accrued liabilities ........................................ 386,884 263,277 Due to Cendant Corporation and affiliates, net ............. 410,471 36,117 Public liability, property damage and other insurance liabilities, net ........................................ 227,668 247,567 Non-vehicle debt ........................................... 594,594 730,333 ----------- ----------- Total liabilities exclusive of liabilities under programs .. 1,881,713 1,560,850 ----------- ----------- Liabilities under management programs: Vehicle debt ............................................ 3,934,969 3,816,682 Deferred income taxes ................................... 370,765 376,404 Other ................................................... 67,933 ----------- ----------- 4,373,667 4,193,086 ----------- ----------- Total liabilities ...................................... 6,255,380 5,753,936 ----------- ----------- Commitments and contingencies: Common stock ............................................... Class A Common stock ....................................... 359 Additional paid-in-capital ................................. 156,065 593,829 Retained earnings .......................................... 242,207 277,460 Treasury stock ............................................. (96,538) Accumulated comprehensive loss ............................. (44,219) (19,996) ----------- ----------- Total common stockholders' equity ...................... 354,053 755,114 ----------- ----------- Total liabilities and common stockholders' equity ...... $ 6,609,433 $ 6,509,050 =========== ===========
~~See notes to the condensed consolidated financial statements. 3~~ ~~AVIS GROUP HOLDINGS, INC.~~ CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF CASH FLOWS ~~(IN THOUSANDS)~~
PREDECESSOR COMPANIES ----------------------------- MARCH 1, 2001 TWO MONTHS NINE MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30, 2001 2001 2000 ------------------ ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ...................................................... $ (6,153) $ (29,119) $ 105,415 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Non-vehicle depreciation and amortization .............................. 30,839 6,241 31,674 Changes in operating assets and liabilities: Accounts receivable ................................................. 6,887 10,108 (23,688) Accounts payable .................................................... 124,495 (33,889) 46,573 Due to Cendant-trading accounts ..................................... (169,144) (45,096) 1,076,008 Accrued liabilities ................................................. 114,432 1,486 (36,342) Other, net .......................................................... (71,064) (7,180) 33,955 ----------- ----------- ----------- Net cash provided by (used in) operating activities exclusive of management programs ................................................. 30,292 (97,449) 1,233,595 ----------- ----------- ----------- Management programs: Vehicle depreciation ................................................ 395,985 105,928 488,538 Deferred income taxes ............................................... (12,488) (17,744) (14,056) ----------- ----------- ----------- 383,497 88,184 474,482 ----------- ----------- ----------- Net cash provided by (used in) operating activities ................. 413,789 (9,265) 1,708,077 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Increase (decrease) in restricted cash ........................... (36,855) 10,978 (36,963) Increase (decrease) in due (from) to vehicle manufacturers ....... (284,433) 16,368 (54,882) Payments for vehicle additions ................................... (3,407,418) (943,102) (3,907,439) Vehicle deletions ................................................ 3,057,001 813,460 2,794,366 ----------- ----------- ----------- (671,705) (102,296) (1,204,918) ----------- ----------- ----------- Payments for additions to property and equipment ....................... (22,957) (3,278) (29,800) Retirements of property and equipment .................................. 3,219 (380) 5,618 Payment for purchase of rental car franchise licensees ................. (28,261) Decrease in net assets and preferred stock of discontinued operation ... (291) (41,566) ----------- ----------- ----------- Net cash used in investing activities, exclusive of management programs. (47,999) (3,949) (65,748) ----------- ----------- ----------- Net cash used in investing activities .................................. (719,704) (106,245) (1,270,666) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Changes in vehicle debt: Proceeds ......................................................... 1,111,524 132,294 1,392,856 Repayments ....................................................... (1,025,222) (31,087) (865,804) ----------- ----------- ----------- Net increase in vehicle debt ..................................... 86,302 101,207 527,052 Changes in non-vehicle debt: Proceeds ......................................................... 140,000 161,000 Repayments ....................................................... (457,928) (77) (1,118,328) ----------- ----------- ----------- Net decrease in non-vehicle debt ....................................... (317,928) (77) (957,328) Increase in due to Cendant-intercompany financing, net ................. 394,950 Payments for debt issuance costs ....................................... (4,593) (12) (9,525) Capital contribution from Cendant ...................................... 125,000 Other .................................................................. 140 271 Net cash provided by (used in) financing activities, exclusive of ----------- ----------- ----------- management programs ................................................. 197,429 51 (966,582) ----------- ----------- ----------- Net cash provided by (used in) financing activities .................... 283,731 101,258 (439,530) ----------- ----------- ----------- Effect of exchange rate changes on cash ................................ (900) (11) (390) ----------- ----------- ----------- Net decrease in cash and cash equivalents .............................. (23,084) (14,263) (2,509) Cash and cash equivalents at beginning of period ....................... 66,105 80,368 31,901 ----------- ----------- ----------- Cash and cash equivalents at end of period ............................. $ 43,021 $ 66,105 $ 29,392 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid ..................................................... $ 189,230 $ 44,315 $ 176,538 =========== =========== =========== Cash income taxes paid ................................................. $ 11,690 $ 1,962 $ 10,625 =========== =========== =========== Businesses acquired: Fair value of assets acquired, net of cash acquired of $182 ............ $ 30,283 Liabilities assumed .................................................... 2,022 ----------- Net cash paid for rental car franchise licensees ....................... $ 28,261 ===========

(In thousands)

									Predecessor Companies
						March 1, 2001 (Date of Acquisition) to June 30, 2001			Predecessor Companies
			Six Months Ended June 30, 2002			March 1, 2001 (Date of Acquisition) to June 30, 2001			Two Months Ended February 28, 2001
Operating Activities
Net income (loss)			$	20,401		$	18,594		$	(29,119	)
Adjustments to arrive at income (loss) from continuing operations				—			—			2,665

Income (loss) from continuing operations				20,401			18,594			(26,454	)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities:
	Non-vehicle depreciation and amortization			17,943			20,268			7,833
	Net change in operating assets and liabilities, excluding the impact of acquisitions and dispositions:
		Receivables		(12,664	)		(12,108	)		10,108
		Accounts payable		(9,766	)		(12,531	)		(30,518	)
		Accrued liabilities		848			(3,789	)		1,486
		Other, net		(10,935	)		(4,082	)		(30,923	)

Net cash provided by (used in) operating activities exclusive of management programs				5,827			6,352			(68,468	)

Management programs:
	Vehicle depreciation			312,221			211,602			104,336

Net cash provided by operating activities				318,048			217,954			35,868

Investing Activities
Property and equipment additions				(24,807	)		(25,658	)		(5,821	)
Retirements of property and equipment				778			8,375			433
Payment for purchase of rental car franchise licensees				(3,087	)		(19,047	)		—

Net cash used in investing activities exclusive of management programs				(27,116	)		(36,330	)		(5,388	)

Management programs:
	Decrease in restricted cash			571,881			5,208			10,978
	Decrease in due from vehicle manufacturers			29,348			131,813			16,368
	Investment in vehicles			(2,684,823	)		(1,900,052	)		(940,559	)
	Payments received on investment in vehicles			1,472,033			1,412,819			812,647

				(611,561	)		(350,212	)		(100,566	)

Net cash used in investing activities				(638,677	)		(386,542	)		(105,954	)

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)

								Predecessor Companies
					March 1, 2001 (Date of Acquisition) to June 30, 2001			Predecessor Companies
		Six Months Ended June 30, 2002			March 1, 2001 (Date of Acquisition) to June 30, 2001			Two Months Ended February 28, 2001
Financing Activities
Proceeds from borrowings			—			140,000			—
Principal payments on borrowings			(253	)		(457,806	)		(77	)
Increase (decrease) in due to Cendant Corporation and affiliates, net			(2,667	)		316,882			(45,818	)
Payments for debt issuance costs			(131	)		(4,231	)		(12	)
Issuances of common stock			—			—			140

Net cash used in financing activities exclusive of management programs			(3,051	)		(5,155	)		(45,767	)

Management programs:
	Proceeds from borrowings		650,431			916,633			132,294
	Principal payments on borrowings		(299,818	)		(786,470	)		(31,087	)

			350,613			130,163			101,207

Net cash provided by financing activities			347,562			125,008			55,440

Effect of changes in net assets of discontinued operations			—			—			394
Effect of changes in exchange rates on cash and cash equivalents			425			(117	)		(11	)

Net increase (decrease) in cash and cash equivalents			27,358			(43,697	)		(14,263	)
Cash and cash equivalents, beginning of period			13,311			66,105			80,368

Cash and cash equivalents, end of period		$	40,669		$	22,408		$	66,105

Supplemental disclosure of Cash Flow Information:
Interest payments		$	130,775		$	108,764		$	44,315
Income tax payments, net		$	485		$	8,889		$	1,962

See ~~notes~~Notes to ~~the condensed consolidated financial statements 4~~ ~~AVIS GROUP HOLDINGS, INC.~~ Consolidated Condensed Financial Statements.

Avis Group Holdings, Inc. and Subsidiaries
NOTES TO ~~THE~~CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ FINANCIAL STATEMENTS ~~NOTE 1-BASIS OF PRESENTATION GENERAL Prior to March 1, 2001, the~~
(Unless otherwise noted, all amounts are in thousands)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited ~~condensed consolidated financial statements included~~Consolidated Condensed Financial Statements include the accounts and transactions of Avis Group Holdings, Inc. and its subsidiaries ~~(the "Predecessor" or "Predecessor Companies"~~(collectively, "the Company"),.

Avis Group Holdings, Inc. is a holding company that operates through a wholly-owned subsidiary, Avis Rent A Car System, Inc. ~~("Vehicle Rental")~~, ~~Avis Fleet Leasing and Management Corp. ("Vehicle Leasing") and Reserve Claims Management Co.~~the second largest general use car rental brand in the world. On ~~November 11, 2000,~~March 1, 2001, all the Company's common stock not then-owned by Cendant Corporation ("Cendant") entered into an Agreement and Plan of Merger with the Predecessor (the "Cendant Merger Agreement") whereby Cendant would acquire all of the outstanding shares of the Predecessor's Class A Common stock that were not ownedwas acquired by Cendant at the price of $33.00 per share, in cash and convert certain Avis Group Holdings, Inc. stock options to Cendant stock options which were then valued at approximately $17 million (the "Cendant Consideration"). Pursuant to the Cendant Merger Agreement, all outstanding and unexercised options to purchase Class A Common stock of the Predecessor were either cancelled upon the merger in exchange for a cash payment equal to the excess of the merger consideration over the per share exercise price of each option or converted into options to purchase Cendant common stock. Approximately 24.9 million outstanding shares of the Predecessor's Class A Common stock were not owned by Cendant and approximately 6.7 million unexercised non-converted options were outstanding at February 28, 2001. The merger was approved on February 28, 2001, by a majority of the Predecessor's shareholders who were unaffiliated with Cendant and closed on March 1, 2001 (the "Date of Acquisition") at a cost to Cendant of approximately $994 million, including $40 million of transaction costs and expenses (the "Acquisition"). Concurrent with the Acquisition, Avis Group Holdings, Inc.'s common stock was recapitalized. As a result of the recapitalization, 10,000 shares were authorized, of which 5,537 shares were issued and outstanding at March 1, 2001 and September 30, 2001. These shares, which have a par value of $0.01 per share, are 100% owned by a subsidiary of Cendant. In addition, Avis Group Holdings, Inc. sold its investment in Vehicle Leasing to PHH Corporation ("PHH Corp."), a wholly-owned subsidiary of Cendant for ~~$800 million. The proceeds from~~approximately $994 million with the ~~sale were used to retire acquisition indebtedness (see Note 5).~~Company emerging as the surviving legal entity. Accordingly, the ~~unaudited condensed consolidated financial statements~~Consolidated Condensed Financial Statements as of and for the three and six months ended June 30, 2002, for the period ~~from the Date~~March 1, 2001 (Date of ~~Acquisition through September~~Acquisition) to June 30, 2001 and ~~the three months ended September 30,~~as of December 31, 2001 include the ~~consolidated accounts~~financial statements of Avis Group Holdings, Inc.~~, Avis Rent A Car System, Inc.~~ and ~~Reserve Claims Management Co., (collectively referred to as the "Company" or "Successor Company"). As a result of the sale of Vehicle Leasing to PHH Corp., the~~its subsidiaries. The Consolidated Condensed ~~Consolidated~~Financial Statements ~~of Operations~~ for the two months ended February 28, 2001 ~~and~~include the ~~three and nine months ended September 30, 2000~~financial statements of the ~~Predecessor present Vehicle Leasing~~Company and its former fleet management and fuel card businesses, which are presented as a discontinued operation ~~net of the related provision for income taxes (see Note 3)~~(the "Predecessor Companies"). The Series A, B, and C Preferred stock, which was originally issued by Vehicle Leasing, is excluded from the Successor Company's Condensed Statement of Financial Position at September 30, 2001. The Acquisition was accounted for under the purchase method. The purchase price has been allocated among the Predecessor Companies based upon their estimated fair values at the Date of Acquisition. Because of this purchase price allocation, the condensed consolidated financial statements of the Predecessor Companies are not comparable to the condensed consolidated financial statements of the Successor Company. The excess of the purchase price over the estimated fair value of the underlying net assets acquired was allocated to goodwill, which is being amortized over 40 years on a straight-line basis until the adoption of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (see below). The allocation of the excess purchase price was based upon preliminary estimates and assumptions and is subject to revision when appraisals and integration costs have been finalized. Accordingly, revisions to the allocation will be recorded by the Company as further adjustments to the purchase price allocation. The preliminary allocation of the purchase price is summarized as follows (in thousands):
~~AMOUNT -----------~~ Cash consideration ................................................................... $ 937,554 Fair value of converted options ...................................................... 17,000 Transaction costs and expenses ....................................................... 40,000 ----------- Total purchase price ................................................................. 994,554 Book value of Cendant's existing net investment in Avis Group ........................ 408,957 ----------- Cendant's basis in Predecessor Companies ............................................. 1,403,511 Portion of basis attributable to Vehicle Leasing ..................................... (1,000,000) ----------- Cendant's basis in the Successor Company ............................................ 403,511 Intercompany loan assumed by Successor Company ....................................... (137,554) ----------- Cendant's adjusted basis in Successor Company ........................................ 265,957 Fair value of liabilities assumed in excess of assets acquired of Successor Company .. 953,020 ----------- Excess purchase price over net assets acquired ....................................... $ 1,218,977 ===========
5 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1-BASIS OF PRESENTATION (CONTINUED) Certain reclassifications have been made to conform to the current period presentation.

In management's opinion, the ~~condensed consolidated financial statements~~Consolidated Condensed Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim ~~results reported.~~results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. In addition, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. The ~~condensed consolidated financial statements~~Consolidated Condensed Financial Statements should be read in conjunction with the ~~Predecessor's~~Company's Annual Report on Form 10-K dated March 29, 2002.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

Pursuant to certain covenant requirements in an indenture under which the Company issued debt, the Company continues to operate and maintain its status as a separate public reporting entity.

Assets used by the Company to generate revenue are classified as assets under management programs. Funding for such assets is primarily provided by secured financing arrangements, which are classified as liabilities under management programs. Revenues generated from these assets are used, in part, to repay the ~~year ended December 31, 2000. CHANGE IN ACCOUNTING PRINCIPLE FOR DERIVATIVE INSTRUMENTS~~interest and principal associated with the debt. Cash inflows and outflows relating to the generation and acquisition of assets and the principal debt repayment or financing of such assets are classified as activities of the Company's management programs.

Changes in Accounting Policies

On January 1, ~~2001,~~2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") as amended. SFAS No. 133, established accounting and reporting standards for derivative instruments, including freestanding and embedded derivatives, and hedging activities. The Company has recorded all such derivatives at fair value at January 1, 2001. The adoption of SFAS No. 133 resulted in the recognition of a non-cash charge of $12.5 million ($7.6 million, after tax) in the Condensed Consolidated Statement of Operations for the two months ended February 28, 2001 to account for the cumulative effect of the accounting change relating to derivatives not qualifying as hedges prior to that date. The Company also recognized a cumulative-effect-type adjustment in the amount of $2.4 million in accumulated comprehensive loss in the Condensed Consolidated Balance Sheet attributable to derivatives designated as cash flow like hedges prior to the adoption of SFAS No. 133. The Company uses derivative financial instruments as part of its overall strategy to manage its exposure to market risks associated with interest rate risks. As a matter of policy, the Company does not use derivatives for trading or speculative purposes. All derivatives are recorded at fair value either as assets or liabilities. Gains or losses on derivatives designated in cash flow hedges, to the extent the hedge is effective, are recorded in other comprehensive income (loss). Any ineffectiveness resulting from these cash flow hedges is reported currently in earnings. Amounts accumulated in other comprehensive income are reclassified into earnings in the same period during which the hedged item affects earnings. Gains and losses on derivatives not designated as hedging instruments are recognized currently in earnings. RECENT ACCOUNTING STANDARDS Recent pronouncements of the Financial Accounting Standards Board which are not required to be adopted at this date include Statement of Financial Accounting Standards ("SFAS") No. ~~141 "Business Combinations" ("SFAS No. 141"), SFAS No.~~ 142 "Goodwill and Other Intangible Assets" ~~("SFAS No. 142"), and SFAS No. 144 "Accounting for~~in its entirety. Prior to the Impairment or Disposal of Long Lived Assets" ("SFAS No. 144"). SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001 and requires additional disclosures for material business combinations completed after such date. This standard also addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination acquisition. On July 1, 2001, the Company adopted the provisions relating to acquisitions made subsequent to June 30, 2001, as required. The provisions regarding the classification of previously acquired intangible asset will be adopted simultaneously with the provisionsadoption of SFAS No. 142, all intangible assets were amortized on ~~January 1, 2002, as required. 6~~ ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - BASIS OF PRESENTATION (CONTINUED) RECENT ACCOUNTING STANDARDS (CONTINUED)~~a straight-line basis over their estimated periods to be benefited. Subsequent to the adoption, the Company did not amortize any goodwill or indefinite-lived intangible assets during 2002.

In connection with the implementation of SFAS No. 142, addresses financial accounting and reporting for intangible assets acquired outside of a business combination. The standard also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. Thethe Company ~~will be~~is required to assess goodwill and ~~other~~indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate ~~a potential impairment. On July 1, 2001,~~impairment may have occurred. The Company reviewed the ~~Company adopted the provisions requiring that~~carrying value of all its goodwill and ~~certain~~ other intangible assets ~~acquired after June 30, 2001~~by comparing such amounts to their fair value and determined that the carrying amounts of such assets did not ~~be amortized. The Company will adopt~~exceed their respective fair values. Accordingly, the ~~remaining provisions~~initial implementation of this standard did not result in a charge and, as such, did not impact the Company's results of operations during 2002.

2. Related Party Transactions

Expenses of the Company include the following items charged by Cendant and affiliates, which include allocations from Cendant for services provided to the Company:

	Three Months Ended June 30, 2002		Three Months Ended June 30, 2001
Royalties	$	27,977	$	26,610
Reservations		16,639		14,031
Data processing		9,475		15,657
Rent, corporate overhead allocations and other		15,300		10,957
Interest, net		2,959		7,011

Total	$	72,350	$	74,266

					Predecessor Companies
			March 1, 2001 (Date of Acquisition) to June 30, 2001		Predecessor Companies
	Six Months Ended June 30, 2002		March 1, 2001 (Date of Acquisition) to June 30, 2001		Two Months Ended February 28, 2001
Royalties	$	52,253	$	35,810	$	16,205
Reservations		29,321		19,186		8,496
Data processing		17,740		20,141		11,395
Rent, corporate overhead allocations and other		29,079		11,629		1,456
Interest, net		6,358		7,011		—

Total	$	134,751	$	93,777	$	37,552

On the Consolidated Condensed Statements of Operations, the royalty and reservation charges are included within selling, general and administration expenses, the rent and other and data processing expenses are included within operating, net and interest expense is included within non-vehicle interest, net. These charges, including corporate overhead allocations, are determined in accordance with various intercompany agreements, which are based upon factors, such as square footage, employee salaries and computer usage time.

3. Restricted Cash

Restricted cash includes cash and investments that are not readily available for normal Company disbursements that have been set aside as required under the Company's debt covenants. The restricted cash balance at December 31, 2001 was held as collateral for outstanding vehicle debt that was not callable and, therefore, could not be immediately repaid. During 2002, the restricted cash was depleted through the normal purchase of vehicles.

4. Intangible Assets

Intangible assets consisted of:

		June 30, 2002				December 31, 2001
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized Intangible Assets
	Customer lists	$	18,952	$	1,280	$	18,952	$	800

Unamortized Intangible Assets
	Goodwill	$	1,254,909			$	1,297,774	$	26,582

Customer lists are included in other assets on ~~January 1,~~the Company's Consolidated Condensed Balance Sheet. Amortization expense relating to customer lists during the three and six months ended June 30, 2002 ~~as required. Transition-related impairment losses, if any, resulting form the initial assessment of goodwill~~was approximately $240 thousand and ~~certain other~~$480 thousand, respectively. Amortization expense relating to all intangible assets will be recognized by the Company as a cumulative effect of accounting change as of January 1, 2002. The Company is currently evaluating the impact of adopting the remaining provisions on its financial position and results of operations. Based upon a preliminary assessment of previously acquired goodwill and certain other intangible assets that will no longer be amortized upon the adoption of SFAS No. 142, the Company expects that the related reduction to amortization expense during ~~the seven months ended September 30, 2001,~~ the two months ended February 28, 2001 and the ~~nine months ended September~~period March 1, 2001 (Date of Acquisition) to June 30, ~~2000 would approximate $18.6 million, $2~~2001, was approximately $2.1 million and ~~$9.2~~$10.5 million, respectively, including the amortization of goodwill of $2.1 million and $10.2 million, respectively. ~~SFAS No. 144 addresses financial accounting and reporting~~The Company expects amortization expense on intangible assets for the ~~impairment~~remainder of ~~disposal~~2002 to approximate $480 thousand and $1 million for each of ~~long-lived assets. This statement supersedes SFAS No. 121, "Accounting for~~ the ~~Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and replaces~~succeeding five years.

The changes in the accounting and reporting provisions of APB Opinion No. 30, "Reporting Results of Operations - Reporting the Effect of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" as it relates to the disposal of a segment of a business. SFAS No. 144 requires the use of a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations, by requiring those long-lived assets to be measured at the lower of carrying amount ~~or fair value less cost to sell. The impairment recognition and measurement~~of goodwill for 2002 are as follows:

Balance as of January 1, 2002	$	1,271,192
Goodwill acquired during 2002		1,836
Other		(18,119	)

Balance as of June 30, 2002	$	1,254,909

Had the Company applied the non-amortization provisions of SFAS No. 121 were retained for all long-lived assets to be held and used with the exception of goodwill. The Company will adopt this standard on January 1, 2002. NOTE 2-UNUSUAL CHARGES During the third quarter 2001, unusual charges of $60.1 million were recorded as a result of the September 11, 2001 terrorist attacks on the World Trade Center ("Terrorist Attacks"). The unusual charges include 1) an asset impairment loss arising from the return of Regular Program vehicles, $43.8 million, 2) a reserve for anticipated decline in market value on the sale of Non-Program vehicles, $5.8 million, 3) a reserve142 for the ~~cancellation~~three months ended June 30, 2001 and for the period March 1, 2001 (Date of ~~marketing programs, $0.9 million, 4) a reserve for severance costs, $0.5 million~~Acquisition) to June 30, 2001 and ~~5) other costs, $9.1 million, principally related to redundancies caused by~~ the Terrorist Attacks. The asset impairment loss of $43.8 million relates to the disposal of Program Vehicles under repurchase programs. Prices under these repurchase programs are based on either 1) a specified percentage of original vehicle costs, depending on the month the vehicle is returned to the manufacturers or 2) the original capitalized cost less a set depreciation amount. Unlike Program Vehicles, the resale of Non-Program Vehicles is determined by current market conditions. Due to the excessive number of vehicles being returned by Avis and other car rental companies subsequent to the Terrorist Attacks, the Company has experienced a sharp decline in the resale value of these Non-Program vehicles. A reserve in the amount of $5.8 million was established anticipating losses on the disposal of Non-Program vehicles.two months ended February 28, 2001, net income (loss) would have been as follows:

					Predecessor Companies
			March 1, 2001 (Date of Acquisition) to June 30, 2001		Predecessor Companies
	Three Months Ended June 30, 2001		March 1, 2001 (Date of Acquisition) to June 30, 2001		Two Months Ended February 28, 2001
Reported net income (loss)	$	9,899	$	18,594	$	(29,119	)
Add back: Goodwill amortization, net of tax		3,108		4,708		1,307

Pro forma net income (loss)	$	13,007	$	23,302	$	(27,812	)

5. Vehicle Debt

Vehicle debt consisted of:

	June 30, 2002		December 31, 2001
Commercial paper notes	$	299,030	$	119,998
Series 2001-2 auction rate rental car asset-backed notes		385,000		40,000
Series 1997-1B 6.40% asset-backed medium-term notes		566,667		850,000
Series 1998-1 6.14% asset-backed medium-term notes		600,000		600,000
Series 2000-1 floating rate rental car asset-backed notes		250,000		250,000
Series 2000-2 floating rate rental car asset-backed notes		300,000		300,000
Series 2000-3 floating rate rental car asset-backed notes		200,000		200,000
Series 2000-4 floating rate rental car asset-backed notes		500,000		500,000
Series 2001-1 floating rate rental car asset-backed notes		750,000		750,000
Other		265,163		161,343

	$	4,115,860	$	3,771,341

As of ~~September~~June 30, ~~2001, a reserve~~2002, the Company's asset-backed funding arrangements under the AESOP Funding program provided for the issuance of ~~$35 million remains for those Program Vehicles which have not been disposed. The remaining vehicles will be disposed~~up to $4.14 billion of ~~as soon as possible. Also included in~~debt. Amounts outstanding under the ~~unusual charge were costs~~AESOP Funding program approximated $3.85 billion. As of ~~commissions payable to agencies for advertising placement. Prior to the Terrorist Attacks,~~June 30, 2002, the Company had ~~committed to a level~~an additional $291 million of ~~advertising placement commissions based on anticipated advertising spending. As a result of~~availability under the Terrorist Attacks, the Company has significantly curtailed its advertising spending, it remains, however, obligated to pay commissions based on budgeted advertising spending. As of September 30, 2001, the entire amount of advertising placement commission had been paid.AESOP Funding program. In addition, the Company ~~has initiated~~had other outstanding vehicle debt of approximately $265 million and availability of approximately $112 million under other funding arrangements as of June 30, 2002.

6. Commitments and Contingencies

The Company is involved in pending litigation in the usual course of business. In the opinion of management, such litigation will not have a ~~formal plan to terminate certain employees~~material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

7. Comprehensive Income (Loss)

The components of comprehensive income (loss) are summarized as follows:

		Three Months Ended June 30, 2002			Three Months Ended June 30, 2001
Net income		$	22,810		$	9,899
Other comprehensive income (loss):
	Currency translation adjustment		3,660			2,239
	Unrealized losses on cash flow hedges, net of tax		(17,466	)		(1,395	)

Total comprehensive income		$	9,004		$	10,743

								Predecessor Companies
					March 1, 2001 (Date of Acquisition) to June 30, 2001			Predecessor Companies
		Six Months Ended June 30, 2002			March 1, 2001 (Date of Acquisition) to June 30, 2001			Two Months Ended February 28, 2001
Net income (loss)		$	20,401		$	18,594		$	(29,119	)
Other comprehensive income (loss):
	Currency translation adjustment		4,451			(1,175	)		(1,758	)
	Unrealized gains (losses) on cash flow hedges, net of tax		(5,880	)		(2,766	)		561
	Minimum pension liability adjustment		(1,336	)		—			—
	Cumulative effect from change in accounting policy for derivative instruments, net of tax		—			—			1,464

Total comprehensive income (loss)		$	17,636		$	14,653		$	(28,852	)

The after-tax components of accumulated other comprehensive income (loss) for the six months ended June 30, 2002 are as follows:

	Currency Translation Adjustments			Unrealized Losses on Cash Flows Hedges			Minimum Pension Liability Adjustment			Accumulated Other Comprehensive Loss
Balance, January 1, 2002	$	(2,469	)	$	(34,583	)	$	—		$	(37,052	)
Current period change		4,451			(5,880	)		(1,336	)		(2,765	)

Balance June 30, 2002	$	1,982		$	(40,463	)	$	(1,336	)	$	(39,817	)

8. Subsequent Event

On July 25, 2002, the Company issued $750 million of rental car asset backed notes under its AESOP Funding Program. Approximately $500 million of such notes bear interest at ~~field locations~~a fixed rate of 3.85% and approximately $250 million of such notes bear interest at ~~corporate headquarters. As~~a floating rate of ~~September~~LIBOR plus 29 basis points.

9. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements

The following consolidating condensed financial information presents the Consolidating Condensed Balance Sheets as of June 30, 2002 and December 31, 2001, the Consolidated Condensed Statements of Operations for the three months ended June 30, 2002 and June 30, 2001 and the Company had accrued $0.5 million for severance and other related costs for employees so notified. The Company expects all affected employees will be terminated prior to December 31, 2001. Other costs of $9.1 million associated with the Terrorist Attacks have been classified within the StatementConsolidating Condensed Statements of Operations toand Statements of Cash Flows for the Unusual Charge. Amounts classified comprise $7.2 million of estimated payroll costs for underutilized employees (the majority of which have been terminated) and $1.9 million of minimum airport commission guarantees. 7 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3-DISCONTINUED OPERATION In connection with~~six months ended June 30, 2002, the ~~acquisition of the Company by Cendant on~~period March 1, 2001 (Date of Acquisition) to June 30, 2001, and as to the Predecessor Companies for the two months ended February 28, 2001 of (a) Avis Group Holdings, Inc. ("the Parent"); (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; (d) elimination entries necessary to consolidate the Parent with the guarantor and non-guarantor subsidiaries; and (e) the Company ~~sold its investment~~on a consolidated basis.

Investments in ~~Vehicle Leasing~~subsidiaries are accounted for ~~$800~~using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been provided as management believes the following information is sufficient.

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months ended June 30, 2002

		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Avis Group Holdings, Inc. Consolidated
Revenues		$	—		$	591,572	$	59,059	$	—		$	650,631

Expenses
	Operating, net		—			227,135		29,231		—			256,366
	Vehicle depreciation and lease charges, net		—			146,991		14,410		—			161,401
	Selling, general and administrative		—			113,735		8,194		—			121,929
	Vehicle interest, net		459			50,544		336		—			51,339
	Non-vehicle interest, net		7,658			3,165		—		—			10,823
	Non-vehicle depreciation and amortization		240			8,439		766		—			9,445

Total expenses			8,357			550,009		52,937		—			611,303

Income (loss) before equity in earnings of subsidiaries			(8,357	)		41,563		6,122		—			39,328
Equity in earnings of subsidiaries			26,166			3,550		—		(29,716	)		—

Income before income taxes			17,809			45,113		6,122		(29,716	)		39,328
Provision (benefit) for income taxes			(5,001	)		18,947		2,572		—			16,518

Net income		$	22,810		$	26,166	$	3,550	$	(29,716	)	$	22,810

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2001

		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Avis Group Holdings, Inc. Consolidated
Revenues		$	—		$	570,551	$	58,342	$	—		$	628,893

Expenses
	Operating, net		—			206,665		25,503		—			232,168
	Vehicle depreciation and lease charges, net		—			158,512		12,470		—			170,982
	Selling, general and administrative		—			108,548		7,992		—			116,540
	Vehicle interest, net		3,459			52,015		425		—			55,899
	Non-vehicle interest, net		8,350			6,227		—		—			14,577
	Non-vehicle depreciation and amortization		4,746			9,505		824		—			15,075

Total expenses			16,555			541,472		47,214		—			605,241

Income (loss) before equity in earnings of subsidiaries			(16,555	)		29,079		11,128		—			23,652
Equity in earnings of subsidiaries			14,176			4,674		—		(18,850	)		—

Income (loss) before income taxes			(2,379	)		33,753		11,128		(18,850	)		23,652
Provision (benefit) for income taxes			(12,278	)		19,577		6,454		—			13,753

Net income		$	9,899		$	14,176	$	4,674	$	(18,850	)	$	9,899

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Six Months ended June 30, 2002

		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Avis Group Holdings, Inc. Consolidated
Revenues		$	—		$	1,098,987	$	116,247	$	—		$	1,215,234

Expenses
	Operating, net		—			422,895		57,506		—			480,401
	Vehicle depreciation and lease charges, net		—			289,810		31,441		—			321,251
	Selling, general and administrative		—			221,329		15,531		—			236,860
	Vehicle interest, net		918			100,524		544		—			101,986
	Non-vehicle interest, net		15,315			6,303		—		—			21,618
	Non-vehicle depreciation and amortization		479			15,919		1,545		—			17,943

Total expenses			16,712			1,056,780		106,567		—			1,180,059

Income (loss) before equity in earnings of subsidiaries			(16,712	)		42,207		9,680		—			35,175
Equity in earnings of subsidiaries			27,737			5,614		—		(33,351	)		—

Income before income taxes			11,025			47,821		9,680		(33,351	)		35,175
Provision (benefit) for income taxes			(9,376	)		20,084		4,066		—			14,774

Net income		$	20,401		$	27,737	$	5,614	$	(33,351	)	$	20,401

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Period March 1, 2001 (Date of Acquisition) to June 30, 2001

		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Avis Group Holdings, Inc. Consolidated
Revenues		$	—		$	767,986	$	78,903	$	—		$	846,889

Expenses
	Operating, net		—			276,363		34,616		—			310,979
	Vehicle depreciation and lease charges, net		—			206,553		18,619		—			225,172
	Selling, general and administrative		—			143,494		10,621		—			154,115
	Vehicle interest, net		4,612			70,973		861		—			76,446
	Non-vehicle interest, net		11,634			8,029		—		—			19,663
	Non-vehicle depreciation and amortization		6,574			12,599		1,095		—			20,268

Total expenses			22,820			718,011		65,812		—			806,643

Income (loss) before equity in earnings of subsidiaries			(22,820	)		49,975		13,091		—			40,246
Equity in earnings of subsidiaries			25,759			6,022		—		(31,781	)		—

Income before income taxes			2,939			55,997		13,091		(31,781	)		40,246
Provision (benefit) for income taxes			(15,655	)		30,238		7,069		—			21,652

Net income		$	18,594		$	25,759	$	6,022	$	(31,781	)	$	18,594

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Predecessor Companies)
For the Two Months Ended February 28, 2001

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Avis Group Holdings, Inc. Consolidated
Revenues		$	—		$	344,496		$	41,325		$	—	$	385,821

Expenses
	Operating, net		—			154,747			19,340			—		174,087
	Vehicle depreciation and lease charges, net		—			100,718			9,399			—		110,117
	Selling, general and administrative		—			77,866			5,363			—		83,229
	Vehicle interest, net		2,306			40,375			944			—		43,625
	Non-vehicle interest, net		9,167			—			—			—		9,167
	Non-vehicle depreciation and amortization		—			7,282			551			—		7,833

Total expenses			11,473			380,988			35,597			—		428,058

Income (loss) before equity in earnings (losses) of subsidiaries			(11,473	)		(36,492	)		5,728			—		(42,237	)
Equity in earnings (losses) of subsidiaries			(25,645	)		9,950			—			15,695		—

Income (loss) before income taxes			(37,118	)		(26,542	)		5,728			15,695		(42,237	)
Provision (benefit) for income taxes			(7,999	)		(9,926	)		2,142			—		(15,783	)

Income (loss) from continuing operations			(29,119	)		(16,616	)		3,586			15,695		(26,454	)
Income (loss) from discontinued operations, net of tax			—			(6,358	)		11,305			—		4,947

Income (loss) before cumulative effect of accounting change			(29,119	)		(22,974	)		14,891			15,695		(21,507	)
Cumulative effect of accounting change, net of tax			—			(2,671	)		(4,941	)		—		(7,612	)

Net income (loss)		$	(29,119	)	$	(25,645	)	$	9,950		$	15,695	$	(29,119	)

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
June 30, 2002

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Avis Group Holdings, Inc. Consolidated
ASSETS
	Cash and cash equivalents	$	98		$	7,887		$	32,684		$	—		$	40,669
	Receivables, net		—			135,094			30,661			—			165,755
	Prepaid expenses		—			33,109			7,857			—			40,966
	Due from affiliate		(328,977	)		178,602			150,375			—			—
	Deferred income taxes		218,280			336,241			1,627			—			556,148
	Property and equipment, net		—			241,383			14,834			—			256,217
	Investment in consolidated subsidiaries		707,986			644,419			—			(1,352,405	)		—
	Goodwill		806,809			444,667			3,433			—			1,254,909
	Other assets		15,541			34,113			95,400			—			145,054

Total assets exclusive of assets under management programs			1,419,737			2,055,515			336,871			(1,352,405	)		2,459,718

Assets under management programs:
	Restricted cash		—			174			9,132			—			9,306
	Vehicles, net		—			(97,824	)		4,324,399			—			4,226,575
	Due from vehicle manufacturers		—			5,399			59,093			—			64,492

			—			(92,251	)		4,392,624			—			4,300,373

Total assets		$	1,419,737		$	1,963,264		$	4,729,495		$	(1,352,405	)	$	6,760,091

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
	Accounts payable	$	(16,459	)	$	166,744		$	94,847		$	—		$	245,132
	Accrued liabilities		107,466			306,005			33,870			—			447,341
	Due to Cendant Corporation and affiliates, net		418,617			275,723			(180,333	)		—			514,007
	Non-vehicle debt		571,391			4,465			—			—			575,856
	Public liability, property damage and other insurance liabilities		—			144,141			71,736			—			215,877

Total liabilities exclusive of liabilities under management programs			1,081,015			897,078			20,120			—			1,998,213

Liabilities under management programs:
	Vehicle debt		—			80,490			4,035,370			—			4,115,860
	Deferred income taxes		—			277,710			29,586			—			307,296

			—			358,200			4,064,956			—			4,423,156

Stockholder's equity			338,722			707,986			644,419			(1,352,405	)		338,722

Total liabilities and stockholder's equity		$	1,419,737		$	1,963,264		$	4,729,495		$	(1,352,405	)	$	6,760,091

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2001

		Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Avis Group Holdings, Inc. Consolidated
ASSETS
	Cash and cash equivalents	$	18	$	5,210		$	8,083		$	—		$	13,311
	Receivables, net		—		142,386			25,986			—			168,372
	Prepaid expenses		—		34,569			7,974			—			42,543
	Deferred income tax		221,741		326,332			14			—			548,087
	Property and equipment, net		—		230,429			14,847			—			245,276
	Investment in consolidated subsidiaries		677,401		628,280			—			(1,305,681	)		—
	Goodwill		825,234		443,000			2,958			—			1,271,192
	Other assets		16,020		34,791			95,797			—			146,608

Total assets exclusive of assets under management programs			1,740,414		1,844,997			155,659			(1,305,681	)		2,435,389

Assets under management programs:
	Restricted cash		—		9,457			571,730			—			581,187
	Vehicles, net		—		(128,932	)		3,557,825			—			3,428,893
	Due from vehicle manufacturers		—		7,855			84,759			—			92,614

			—		(111,620	)		4,214,314			—			4,102,694

Total assets		$	1,740,414	$	1,733,377		$	4,369,973		$	(1,305,681	)	$	6,538,083

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
	Accounts payable	$	—	$	151,379		$	212,512		$	—		$	363,891
	Accrued liabilities		109,143		300,337			25,185			—			434,665
	Due to Cendant Corporation and affiliates, net		726,645		63,214			(275,426	)		—			514,433
	Non-vehicle debt		583,540		4,719			—			—			588,259
	Public liability, property damage and other insurance liabilities		—		166,432			62,071			—			228,503

Total liabilities exclusive of liabilities under management programs			1,419,328		686,081			24,342			—			2,129,751

Liabilities under management programs:
	Vehicle debt		—		86,004			3,685,337			—			3,771,341
	Deferred income taxes		—		283,891			32,014			—			315,905

			—		369,895			3,717,351			—			4,087,246

Stockholder's equity			321,086		677,401			628,280			(1,305,681	)		321,086

Total liabilities and stockholder's equity		$	1,740,414	$	1,733,377		$	4,369,973		$	(1,305,681	)	$	6,538,083

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2002

		Parent			Guarantor			Non- Guarantor			Eliminations			Avis Group Holdings, Inc. Consolidated
Operating Activities
Net income		$	20,401		$	27,737		$	5,614		$	(33,351	)	$	20,401
Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs			(27,692	)		(6,266	)		19,384			—			(14,574	)

Net cash provided by (used in) operating activities exclusive of management programs			(7,291	)		21,471			24,998			(33,351	)		5,827

Management programs:
	Vehicle depreciation		—			291,352			20,869			—			312,221

Net cash provided by (used in) operating activities			(7,291	)		312,823			45,867			(33,351	)		318,048

Investing Activities
Property and equipment additions			—			(23,278	)		(1,529	)		—			(24,807	)
Retirements of property and equipment			—			89			689			—			778
Payment for purchase of rental car franchise licensees			—			(2,835	)		(252	)		—			(3,087	)
Investment in subsidiaries			(27,737	)		(5,614	)		—			33,351			—

Net cash used in investing activities exclusive of management programs			(27,737	)		(31,638	)		(1,092	)		33,351			(27,116	)

Management programs:
	Decrease in restricted cash		—			9,283			562,598			—			571,881
	Decrease in due from vehicle manufacturers		—			2,456			26,892			—			29,348
	Investment in vehicles		—			(57,042	)		(2,627,781	)		—			(2,684,823	)
	Payments received on investment in vehicles		—			(248,886	)		1,720,919			—			1,472,033

			—			(294,189	)		(317,372	)		—			(611,561	)

Net cash used in investing activities			(27,737	)		(325,827	)		(318,464	)		33,351			(638,677	)

Financing Activities
Net decrease in non-vehicle debt			—			(253	)		—			—			(253	)
Increase (decrease) in due to Cendant Corporation and affiliates, net			35,108			16,065			(53,840	)		—			(2,667	)
Payments for debt issuance costs			—			(131	)		—			—			(131	)

Net cash provided by (used in) financing activities exclusive of management programs			35,108			15,681			(53,840	)		—			(3,051	)

Management programs:
	Net increase in vehicle debt		—			—			350,613			—			350,613

Net cash provided by financing activities			35,108			15,681			296,773			—			347,562

Effect of changes in exchange rates on cash and cash equivalents			—			—			425			—			425

Net increase in cash and cash equivalents			80			2,677			24,601			—			27,358
Cash and cash equivalents, beginning of period			18			5,210			8,083			—			13,311

Cash and cash equivalents, end of period		$	98		$	7,887		$	32,684		$	—		$	40,669

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Period March 1, 2001 (Date of Acquisition) to June 30, 2001

		Parent			Guarantor			Non- Guarantor			Eliminations			Avis Group Holdings, Inc. Consolidated
Operating Activities
Net income		$	18,594		$	25,759		$	6,022		$	(31,781	)	$	18,594
Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs			(118,194	)		130,934			(24,982	)		—			(12,242	)

Net cash provided by (used in) operating activities exclusive of management programs			(99,600	)		156,693			(18,960	)		(31,781	)		6,352

Management programs:
	Vehicle depreciation		—			195,458			16,144			—			211,602

Net cash provided by (used in) operating activities			(99,600	)		352,151			(2,816	)		(31,781	)		217,954

Investing Activities
Property and equipment additions			—			(24,781	)		(877	)		—			(25,658	)
Retirements of property and equipment			—			8,169			206			—			8,375
Payment for purchase of rental car franchise licensees			—			(18,748	)		(299	)		—			(19,047	)
Investment in subsidiaries			(25,759	)		(6,022	)		—			31,781			—

Net cash used in investing activities exclusive of management programs			(25,759	)		(41,382	)		(970	)		31,781			(36,330	)

Management programs:
	Decrease in restricted cash		—			—			5,208			—			5,208
	(Increase) decrease in due from vehicle manufacturers		—			(3,443	)		135,256			—			131,813
	Investment in vehicles		—			(41,397	)		(1,858,655	)		—			(1,900,052	)
	Payments received on investment in vehicles		—			(182,724	)		1,595,543			—			1,412,819

			—			(227,564	)		(122,648	)		—			(350,212	)

Net cash used in investing activities			(25,759	)		(268,946	)		(123,618	)		31,781			(386,542	)

Financing Activities
Net decrease in non-vehicle debt			(317,650	)		(156	)		—			—			(317,806	)
Increase (decrease) in due to Cendant Corporation and affiliates, net			443,173			(102,192	)		(24,099	)		—			316,882
Payments for debt issuance costs			—			(4,231	)		—			—			(4,231	)

Net cash provided by (used in) financing activities exclusive of management programs			125,523			(106,579	)		(24,099	)		—			(5,155	)

Management programs:
	Net (decrease) increase in vehicle debt		—			(8,744	)		138,907			—			130,163
Net cash provided by (used in) financing activities			125,523			(115,323	)		114,808			—			125,008

Effect of changes in exchange rates on cash a cash equivalents			—			—			(117	)		—			(117	)

Net increase (decrease) in cash and cash equivalents			164			(32,118	)		(11,743	)		—			(43,697	)
Cash and cash equivalents, beginning of period			141			36,745			29,219			—			66,105

Cash and cash equivalents, end of period		$	305		$	4,627		$	17,476		$	—		$	22,408

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Predecessor Companies)
For the Two Months Ended February 28, 2001

		Parent			Guarantor			Non- Guarantor			Eliminations			Avis Group Holdings, Inc. Consolidated
Operating Activities
Net income (loss)		$	(29,119	)	$	(25,645	)	$	9,950		$	15,695		$	(29,119	)
Adjustments to arrive at income (loss) from continuing operations			—			9,029			(6,364	)		—			2,665

Income (loss) from continuing operations			(29,119	)		(16,616	)		3,586			15,695			(26,454	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities exclusive of management programs			425			77,124			(119,563	)		—			(42,014	)

Net cash provided by (used in) operating activities exclusive of management programs			(28,694	)		60,508			(115,977	)		15,695			(68,468	)

Management programs:
	Vehicle depreciation		—			96,394			7,942			—			104,336

Net cash provided by (used in) operating activities			(28,694	)		156,902			(108,035	)		15,695			35,868

Investing Activities
Property and equipment additions			—			(5,169	)		(652	)		—			(5,821	)
Retirements of property and equipment			—			165			268			—			433
Investment in subsidiaries			25,645			(9,950	)		—			(15,695	)		—

Net cash provided by (used in) investing activities exclusive of management programs			25,645			(14,954	)		(384	)		(15,695	)		(5,388	)

Management programs:
	Decrease in restricted cash		—			—			10,978			—			10,978
	Decrease in due from vehicle manufacturers		—			—			16,368			—			16,368
	Investment in vehicles		—			378			(940,937	)		—			(940,559	)
	Payments received on investment in vehicles		—			(82,703	)		895,350			—			812,647

			—			(82,325	)		(18,241	)		—			(100,566	)

Net cash provided by (used in) investing activities			25,645			(97,279	)		(18,625	)		(15,695	)		(105,954	)

Financing Activities
Net decrease in non-vehicle debt			—			(77	)		—			—			(77	)
Increase (decrease) in due to Cendant Corporation and affiliates, net			(89,023	)		43,123			82			—			(45,818	)
Payments for debt issuance costs			—			(12	)		—			—			(12	)
Issuances of common stock			140			—			—			—			140

Net cash provided by (used in) financing activities exclusive of management programs			(88,883	)		43,034			82			—			(45,767	)

Management programs:
Net increase (decrease) in vehicle debt			92,000			(2	)		9,209			—			101,207

Net cash provided by financing activities			3,117			43,032			9,291			—			55,440

Effect of changes in net assets of discontinued operations			—			(131,512	)		131,906			—			394
Effect of changes in exchange rates on cash and cash equivalents			—			—			(11	)		—			(11	)

Net increase (decrease) in cash and cash equivalents			68			(28,857	)		14,526			—			(14,263	)
Cash and cash equivalents, beginning of period			73			65,602			14,693			—			80,368

Cash and cash equivalents, end of period		$	141		$	36,745		$	29,219		$	—		$	66,105

Item 2. Management's Narrative Analysis of the Results of Operations

The following discussion should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes thereto included elsewhere herein. Unless otherwise noted, all dollar amounts are in thousands and presented before taxes (as appropriate).

We are the second largest general use car rental brand in the world. On March 1, 2001, all of our outstanding common stock not then-owned by Cendant Corporation ("Cendant") was acquired by a subsidiary of PHH Corporation ("PHH"), a wholly-owned subsidiary of Cendant, for approximately $994 million and we emerged as the surviving legal entity. At such time, our fleet management and fuel card businesses were sold to PHH ~~Corp. (see Note 1). No gain or loss was recognized on the sale. Summarized financial data of the~~and, therefore, are presented as a discontinued operation in the accompanying Consolidated Condensed Financial Statements. Accordingly, we are now a wholly-owned subsidiary of Cendant.

RESULTS OF OPERATIONS

The acquisition of us by Cendant resulted in significant changes to the valuation of certain of our assets, liabilities and stockholder's equity. The periods prior to the acquisition have been designated "Predecessor Companies" and the period subsequent to the acquisition has been designated "Successor Company". The results of the Predecessor ~~is as follows (in thousands):~~
VEHICLE LEASING ---------------------------------------------- TWO MONTHS NINE MONTHS THREE MONTHS ENDED ENDED ENDED FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2000 ------------ ------------- ------------- Revenue ..................................... $255,548 $1,250,609 $396,581 ======== ========== ======== Income before provision for income taxes .... $ 9,992 $ 90,807 $ 26,006 Provision for income taxes .................. 5,045 35,186 5,938 -------- ---------- -------- Net income .................................. $ 4,947 $ 55,621 $ 20,068 ======== ========== ========
~~Income before provision~~Companies and the Successor Company have been combined for ~~income taxes~~the six months ended June 30, 2001 since we believe that separate discussions for the two months ended February 28, 2001 and the ~~nine and three~~four months ended ~~September~~June 30, ~~2000 include certain intercompany charges from~~2001 are not meaningful in terms of our operating results or comparisons to the ~~Predecessor Companies. These charges seek~~prior period.

Three Months Ended June 30, 2002 vs. Three Months Ended June 30, 2001

Our comparative results of operations, excluding our former fleet management and fuel card businesses, comprised the following:

	2002		2001		Change
Revenues	$	650,631	$	628,893	$	21,738

Expenses, excluding non-vehicle interest		600,480		590,664		9,816
Non-vehicle interest, net		10,823		14,577		(3,754	)

Total expenses		611,303		605,241		6,062

Income before income taxes		39,328		23,652		15,676
Provision for income taxes		16,518		13,753		2,765

Income from continuing operations	$	22,810	$	9,899	$	12,911

Total revenue increased 3.5% primarily due to ~~reimburse the Predecessor Companies for the costs it had incurred on behalf of Vehicle Leasing as follows (in thousands):~~
TWO MONTHS NINE MONTHS THREE MONTHS ENDED ENDED ENDED FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2000 ------------ ------------- ------------- Interest on intercompany loans .... $ 342 $ 6,371 $ (16) Employee benefits costs ........... 963 4,420 1,595 ------- ------- ------- $ 1,305 $10,791 $ 1,579 ======= ======= =======
~~Net assets of the discontinued operation consist of the following (in thousands):~~
~~DECEMBER 31, 2000 -----------------~~ ~~Cash ........................................ $ 122,509 Accounts receivable, net .................... 643,502 Vehicles, net ............................... 3,205,380 Cost~~a 4.1% increase in excess of net assets acquired ....... 873,286 Other assets ................................ 289,675 ---------- Total assets ........................... 5,134,352 ---------- Accounts payable and accrued liabilities .... 456,784 Deferred income taxes ....................... 432,357 Debt ........................................ 2,975,225 ---------- Total liabilities ...................... 3,864,366 ---------- Preferred stock classes A, B, and C ......... 389,686 ---------- Net assets of discontinued operation ... $ 880,300 ==========
8 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4-COMPREHENSIVE INCOME (LOSS) Comprehensive (loss) income is comprised of the following (in thousands):
PREDECESSOR COMPANIES ------------------------------- MARCH 1, 2001 TWO MONTHS NINE MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30, 2001 2001 2000 --------------------- ------------ ------------- Net (loss) income ....................................................... $ (6,153) $(29,119) $105,415 Foreign currency translation adjustment, net of income taxes ............ (3,371) (1,775) (10,275) Cumulative effect of accounting change, net of income taxes ............. 1,229 (Losses) gains on derivative instruments, net of income taxes (Note 8) .. (40,848) 813 -------- -------- -------- Comprehensive (loss) income ............................................. $(50,372) $(28,852) $ 95,140 ======== ======== ========
~~NOTE 5-FINANCING AND DEBT Debt outstanding consists of the following (in thousands):~~
PREDECESSOR COMPANIES SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ VEHICLE DEBT Commercial Paper Notes .................................................... $ 149,682 $ 919,800 Short-term notes-foreign ................................................ 180,287 196,882 Series 1997-A-2 asset-backed Medium Term Notes due May through October 2002 at 6.40% .................................................. 850,000 850,000 Series 1998-1 asset-backed Medium Term Notes due December 2004 through May 2005 at 6.14% ...................................................... 600,000 600,000 Series 2000-1 floating rate Rental Car Asset-Backed Notes due February 2003 through July 2003 ........................................ 250,000 250,000 Series 2000-2 floating rate Rental Car Asset-Backed Notes due March 2007 through August 2007 ......................................... 300,000 300,000 Series 2000-3 floating rate Rental Car Asset-Backed Notes due May 2003 through October 2003 .......................................... 200,000 200,000 Series 2000-4 floating rate Rental Car Asset-Backed Notes due June 2005 through November 2005 ........................................ 500,000 500,000 Series 2001-1 floating rate Rental Car Asset-Backed Notes due November 2003 through April 2004 ....................................... 750,000 Series 2001-2 auction rate Rental Car Asset-Backed Notes due May 2007 ..... 155,000 ---------- ---------- TOTAL VEHICLE DEBT .................................................. 3,934,969 3,816,682 ---------- ---------- NON-VEHICLE DEBT Senior Subordinated Notes due May 2009 at 11.00% .......................... 589,615 500,000 Revolving Credit Facility due June 2005 ................................... 225,000 Other ..................................................................... 4,979 5,333 ---------- ---------- TOTAL NON-VEHICLE DEBT .............................................. 594,594 730,333 ---------- ---------- TOTAL DEBT .......................................................... $4,529,563 $4,547,015 ========== ==========
~~On March 2, 2001, one of the Company's~~ vehicle rental ~~financing subsidiaries issued $750 million~~revenue per day, which was due principally to strong pricing in our leisure business.

Total expenses increased 1.0% primarily due to higher commission-related expenses associated with higher revenues, the launch of ~~Series 2001-1 Floating Rate Rental Car Asset Backed Notes ("Series 2001-1 Notes"), which are secured by~~an advertising campaign during the ~~Company's vehicles. Anticipated principal~~second quarter of 2002 and severance costs related to the relocation of our information technology operations from Garden City, New York to Parsippany, New Jersey.

Non-vehicle interest, net decreased 25.8% primarily due to a decrease in interest rates and the repayment ~~on the Series 2001-1 Notes commence in November 2003 and continue through April 2004. The Series 2001-1 Notes bear interest at a rate~~ of ~~LIBOR plus 20 basis points per annum. The Series 2001-1 Notes are guaranteed~~all amounts outstanding under a ~~Surety Bond issued by MBIA~~revolving credit facility during 2001.

Our overall effective tax rate was 42.0% and are rated AAA by Standard and Poor's rating services and Aaa by Moody's Investor Service, Inc. The Series 2001-1 Notes rank pari pasu with the Company's Variable Funding Notes and Medium Term Notes. 9 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5-FINANCING AND DEBT (CONTINUED) On May 17, 2001, one of the Company's vehicle rental financing subsidiaries issued $125 million of Series 2001-2 Auction Rate Notes (the "Series 2001-2 Notes"), which are secured by the Company's vehicles. The Series 2001-2 Notes were issued in four classes, Class A-1, A-2, A-3 and A-4 with initial issuances of $95 million, $10 million, $10 million and $10 million, respectively. Subsequent to the initial issuance of $125 million of auction rate notes, the Company issued $145 million of additional notes and repaid principal of $115 million, which brought the total outstanding Series 2001-2 Notes to $155 million at September 30, 2001. The Company may issue up to $125 million of Auction Rate Notes per class or $500 million in total. The interest rate on each class will be a market derived rate determined by auction with auctions expected to occur every 35 days. Anticipated principal repayment on the Series 2001-2 Notes is May 2007. The Series 2001-2 Notes are guaranteed under a Surety Bond issued by Ambac and are rated AAA by Standard & Poor's Ratings Services and Aaa by Moody's Investors Service, Inc. The Series 2001-2 Notes rank pari passu with the Company's variable funding notes and medium term notes. In connection with the acquisition by Cendant on March 1, 2001, a fair value of $604.5 million was assigned to the Company's 11% Senior Subordinated Notes due May 2009 ("Senior Subordinated Notes") of which $14.2 million has been accreted to the Condensed Consolidated Statement of Operations since the date of acquisition along with principal repayments of $650,000. The fair value of the notes as of September 30, 2001 was $589.6 million and includes a call premium of $27.5 million if the notes are redeemed during the twelve month period beginning on May 1, 2004. On September 5, 2001, the Company elected to terminate the Revolving Credit Facility. NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS In connection with the Vehicle Leasing acquisition on June 30, 1999 and as part of the financing thereof, the Predecessor issued and sold the Senior Subordinated Notes (see Note 5) in a transaction exempt from registration under the Securities Act. The Senior Subordinated Notes are unsecured obligations of Avis Group Holdings, Inc. The notes are subordinated in right of payment to all existing and future senior indebtedness of the Company, and are guaranteed by certain Avis Group Holdings, Inc. domestic subsidiaries. Vehicle Leasing and its subsidiaries were released as guarantors under this financing agreement upon Vehicle Leasing's sale to PHH Corp. on March 1, 2001 (see Notes 1 and 2). Accordingly, the following condensed consolidating financial information presents the results of operations58.1% for the three months ended ~~September~~June 30, 2002 and 2001, ~~and September~~respectively. The lower tax rate for the three months ended June 30, ~~2000,~~2002 was primarily due to the elimination of goodwill amortization expense.

As a result of the above-mentioned items, income from continuing operations increased $12.9 million, or 130%, in the second quarter 2002.

Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001

Our comparative results of operations, excluding our former fleet management and ~~cash flows~~fuel card businesses comprised the following:

	2002		2001			Change
Revenues	$	1,215,234	$	1,232,710		$	(17,476	)

Expenses, excluding non-vehicle interest		1,158,441		1,205,871			(47,430	)
Non-vehicle interest, net		21,618		28,830			(7,212	)

Total expenses		1,180,059		1,234,701			(54,642	)

Income (loss) before income taxes		35,175		(1,991	)		37,166
Provision for income taxes		14,774		5,869			8,905

Income (loss) from continuing operations	$	20,401	$	(7,860	)	$	28,261

Total revenue decreased 1.4% primarily due to a reduction in car rental transaction volume, which resulted primarily from the residual effect of reduced commercial air travel due to the September 11^th terrorist attacks.

Total expenses decreased 4.4% primarily due to a decrease in operating expenses derived from our ability to reduce our operating expenses as a result of reduced car rental transaction volume during the first quarter of 2002. Vehicle depreciation and lease charges and vehicle interest expense also decreased due to a corresponding reduction in average fleet size and the related decrease in average vehicle debt supporting such fleet.

Non-vehicle interest, net decreased 25.0% primarily due to a decrease in interest rates and the repayment of all amounts outstanding under a revolving credit facility during 2001.

The provision for income taxes for the six months ended June 30, 2002 reflects our overall effective tax rate of 42.0% for 2002. The increase in the provision was primarily due to the Company reporting pretax income in 2002 versus a pretax loss of $42.2 million for the two months ended February 28, 2001 at an effective tax rate of 37.4% offset by a pre-tax income of $40.2 million for the period March 1, 2001 (Date of Acquisition) to ~~September~~June 30, 2001 ~~the two months ended February 28, 2001~~at an effective tax rate of 53.8% and the ~~nine months ended September 30, 2000 and~~elimination of goodwill amortization expense.

As a result of the ~~financial position as of September 30, 2001 and December 31, 2000. 10~~ AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) The Unaudited Condensed Consolidating Statements of Operationsabove-mentioned items, income from continuing operations increased $28 million for the ~~two~~six months ended February 28, 2001 and the three and nine month periods ended September 30, 2000 present the results of operations of Vehicle Leasing as income from discontinued operations, net of the related income tax provision.
AVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 (IN THOUSANDS) ------------------------------------------------------------------------ NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ----------- ------------ ------------ -------------- Revenue .............................................. $ 575,914 $74,454 $ 650,368 --------- ------- --------- Costs and expenses: Direct operating, net ................................ 207,726 30,931 238,657 Vehicle depreciation and lease charges, net .......... 176,676 17,674 194,350 Selling, general and administrative .................. 113,750 8,344 122,094 Interest, net ........................................ $ 11,116 57,627 1,697 70,440 Non-vehicle depreciation and amortization ............ 4,763 686 5,449 Amortization of cost in excess of net assets acquired and other intangibles ............. 5,037 3,014 44 8,095 Unusual charges ...................................... 60,062 60,062 --------- --------- ------- --------- 16,153 623,618 59,376 699,147 --------- --------- ------- --------- (16,153) (47,704) 15,078 (48,779) Equity (loss) in earnings of subsidiaries ............ (17,308) 9,493 $ 7,815 --------- --------- ------- -------- --------- Income (loss) before provision (benefit) for income taxes ............................................. (33,461) (38,211) 15,078 7,815 (48,779) Provision (benefit) for income taxes ................. (8,715) (20,903) 5,585 (24,033) --------- --------- ------- -------- --------- Net income (loss) .................................... $ (24,746) $ (17,308) $ 9,493 $ 7,815 $ (24,746) ========= ========= ======= ======== ========= AVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 (IN THOUSANDS) ------------------------------------------------------------------------ NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ----------- ------------ ------------ -------------- Revenue .............................................. $ 658,053 $75,641 $ 733,694 --------- ------- --------- Costs and expenses: Direct operating, net ................................ 229,975 29,598 259,573 Vehicle depreciation and lease charges, net .......... 173,196 18,150 191,346 Selling, general and administrative .................. 112,293 8,808 121,101 Interest, net ........................................ $ 25,250 60,067 1,675 86,992 Non-vehicle depreciation and amortization ............ 11,985 662 12,647 Amortization of cost in excess of net Assets acquired and other intangibles ............. 3,090 43 3,133 --------- --------- ------- --------- 25,250 590,606 58,936 674,792 --------- --------- ------- --------- (25,250) 67,447 16,705 58,902 Equity in earnings of subsidiaries ................... 64,268 19,983 $(84,251) --------- --------- ------- -------- --------- Income before provision (benefit) for income taxes ... 39,018 87,430 16,705 (84,251) 58,902 Provision (benefit) for income taxes ................. (9,379) 34,909 5,043 30,573 --------- --------- ------- -------- --------- Income from continuing operations .................... 48,397 52,521 11,662 (84,251) 28,329 Income (loss) from discontinued operation, net of income taxes ...................................... 11,747 8,321 20,068 --------- --------- ------- -------- --------- Net income ........................................ $ 48,397 $ 64,268 $19,983 $(84,251) $ 48,397 ========= ========= ======= ======== =========
11 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)~~
AVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE PERIOD MARCH 1, 2001 (DATE OF ACQUISITION) TO SEPTEMBER 30, 2001 (IN THOUSANDS) ------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- Revenue .............................................. $ 1,343,901 $ 153,357 $ 1,497,258 ----------- --------- ----------- Costs and expenses: Direct operating, net ................................ 483,474 65,547 549,021 Vehicle depreciation and lease charges, net .......... 386,678 36,432 423,110 Selling, general and administrative .................. 257,307 18,906 276,213 Interest, net ........................................ $ 27,362 136,568 2,617 166,547 Non-vehicle depreciation and amortization ............ 10,651 1,584 12,235 Amortization of cost in excess of net assets acquired and other intangibles ............. 11,611 6,891 102 18,604 Unusual charges ...................................... 60,062 60,062 ----------- ----------- --------- ----------- 38,973 1,341,631 125,188 1,505,792 ----------- ----------- --------- ----------- (38,973) 2,270 28,169 (8,534) Equity in earnings of subsidiaries ................... 21,914 20,232 $(42,146) ----------- ----------- --------- -------- ----------- Income (loss) before provision (benefit) for income taxes ............................................. (17,059) 22,502 28,169 (42,146) (8,534) Provision (benefit) for income taxes ................. (10,906) 588 7,937 (2,381) ----------- ----------- --------- -------- ----------- Net income (loss) .................................... $ (6,153) $ 21,914 $ 20,232 $(42,146) $ (6,153) =========== =========== ========= ======== =========== AVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001 (IN THOUSANDS) ------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- Revenue .............................................. $ 344,496 $ 41,325 $ 385,821 ----------- --------- ----------- Costs and expenses: Direct operating, net ................................ 154,490 19,340 173,830 Vehicle depreciation and lease charges, net .......... 102,490 9,476 111,966 Selling, general and administrative .................. 77,866 5,363 83,229 Interest, net ........................................ $ 11,473 40,375 944 52,792 Non-vehicle depreciation and amortization ............ 3,707 447 4,154 Amortization of cost in excess of net Assets acquired ................................... 2,060 27 2,087 ----------- ----------- --------- ----------- 11,473 380,988 35,597 428,058 ----------- ----------- --------- ----------- (11,473) (36,492) 5,728 (42,237) Equity (loss) in earnings of subsidiaries ............ (21,907) 10,898 $ 11,009 ----------- ----------- --------- -------- ----------- Income (loss) before provision (benefit) for income taxes ............................................. (33,380) (25,594) 5,728 11,009 (42,237) ----------- ----------- --------- -------- ----------- Provision (benefit) for income taxes ................ (4,261) (12,716) 1,194 (15,783) ----------- ----------- --------- -------- ----------- Income (loss) from continuing operations ............. (29,119) (12,878) 4,534 11,009 (26,454) Income (loss) from discontinued operations, net of income taxes ...................................... (6,358) 11,305 4,947 ----------- ----------- --------- -------- ----------- Income (loss) before cumulative effect of accounting change ............................................ (29,119) (19,236) 15,839 11,009 (21,507) Cumulative effect of accounting change, net of income tax benefit ....................................... (2,671) (4,941) (7,612) ----------- ----------- --------- -------- ----------- Net income (loss) .................................... $ (29,119) $ (21,907) $ 10,898 $ 11,009 $ (29,119) =========== =========== ========= ======== ===========
12 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)~~
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS) -------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- Revenue .......................................... $ 1,792,413 $196,754 $1,989,167 ----------- -------- ---------- Costs and expenses: Direct operating, net ............................ 631,688 83,893 715,581 Vehicle depreciation and lease charges, net ...... 462,706 47,968 510,674 Selling, general and administrative .............. 329,985 25,255 355,240 Interest, net .................................... $ 105,500 169,787 2,941 278,228 Non-vehicle depreciation and amortization ........ 20,237 2,023 22,260 Amortization of cost in excess of net assets acquired ............................... 9,282 132 9,414 ---------- ----------- -------- ---------- 105,500 1,623,685 162,212 1,891,397 ---------- ----------- -------- ---------- (105,500) 168,728 34,542 97,770 Equity in earnings of subsidiaries ............... 171,727 82,010 $(253,737) ---------- ----------- -------- --------- ---------- Income before provision (benefit) for income taxes 66,227 250,738 34,542 (253,737) 97,770 ---------- ----------- -------- --------- ---------- Provision (benefit) for income taxes ............. (39,188) 78,127 9,037 47,976 ---------- ----------- -------- --------- ---------- Income from continuing operations ................ 105,415 172,611 25,505 (253,737) 49,794 Income (loss) from discontinued operation, net of income taxes .................................. (885) 56,506 55,621 ---------- ----------- -------- --------- ---------- Net income ....................................... $ 105,415 $ 171,726 $ 82,011 $(253,737) $ 105,415 ========== =========== ======== ========= ==========
13 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)~~
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION SEPTEMBER 30, 2001 (IN THOUSANDS) -------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- ASSETS Cash and cash equivalents ......................... $ 200 $ 29,653 $ 13,168 $ 43,021 Restricted cash ................................... 621 43,332 43,953 Accounts receivable, net .......................... (12) 180,268 25,920 206,176 Prepaid expenses .................................. 50,416 7,480 57,896 Property and equipment, net ....................... 185,670 12,755 198,425 Investment in consolidated subsidiaries ........... 705,132 (448,517) 448,517 $(705,132) Other assets ...................................... 14,134 20,956 35,090 Deferred income tax assets, net ................... 190,278 295,200 4,433 489,911 Customer lists .................................... 18,392 18,392 Cost in excess of net assets acquired, net ........ 756,511 461,411 2,608 1,220,530 ----------- ----------- ----------- --------- ---------- Total assets exclusive of assets under management programs ....................................... 1,671,122 768,235 579,169 (705,132) 2,313,394 ----------- ----------- ----------- --------- ---------- Assets under management programs: Restricted cash ................................ 151,046 151,046 Vehicles ....................................... (82,431) 3,636,873 3,554,442 Due from vehicle manufacturers ................. (693) 591,244 590,551 ----------- ----------- ---------- (83,124) 4,379,163 4,296,039 ----------- ----------- ----------- --------- ---------- Total assets ...................................... $ 1,671,122 $ 685,111 $ 4,958,332 $(705,132) $6,609,433 =========== =========== =========== ========= ========== LIABILITIES AND STOCKHOLDER'S EQUITY Accounts payable and accrued liabilities .......... $ 22,877 $ 476,186 $ 149,917 $ 648,980 Due to Cendant Corporation and affiliates, net .... 704,576 (318) (293,787) 410,471 Public liability, property damage and other insurance liabilities, net ..................... 171,118 56,550 227,668 Non-vehicle debt .................................. 589,616 4,978 594,594 ----------- ----------- ----------- ---------- Total liabilities exclusive of liabilities under management programs ............................ 1,317,069 651,964 (87,320) 1,881,713 ----------- ----------- ----------- ---------- Liabilities under management programs: Vehicle debt ................................... 3,934,969 3,934,969 Deferred income taxes .......................... 333,461 37,304 370,765 Other .......................................... 67,933 67,933 ----------- ----------- ---------- 401,394 3,972,273 4,373,667 ----------- ----------- ----------- --------- ---------- Total liabilities ................................. 1,317,069 1,053,358 3,884,953 6,255,380 ----------- ----------- ----------- --------- ---------- Common stockholder's equity ....................... 354,053 (368,247) 1,073,379 (705,132) 354,053 ----------- ----------- ----------- --------- ---------- Total liabilities and common stockholder's equity . $ 1,671,122 $ 685,111 $ 4,958,332 $(705,132) $6,609,433 =========== =========== =========== ========= ==========
14 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)~~
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION (PREDECESSOR COMPANIES) DECEMBER 31, 2000 (IN THOUSANDS) -------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- ASSETS Cash and cash equivalents .......................... $ 73 $ 65,602 $ 14,693 $ 80,368 Restricted cash .................................... 41,280 41,280 Accounts receivable, net ........................... 156 162,589 26,917 189,662 Prepaid expenses ................................... 39,014 8,910 47,924 Property and equipment, net ........................ 167,256 14,248 181,504 Investment in consolidated subsidiaries ............ 2,276,599 (826) $(2,275,773) Other assets ....................................... 1,064 55,304 22,604 78,972 Net assets of discontinued operation ............... (883,464) 2,086,932 (323,168) 880,300 Deferred income taxes .............................. 96,680 249,201 3,387 349,268 Cost in excess of net assets acquired, net ......... 450,922 2,528 453,450 ----------- ----------- ----------- ----------- ---------- Total assets exclusive of assets under management programs ........................................ 1,491,108 3,275,994 (188,601) (2,275,773) 2,302,728 ----------- ----------- ----------- ----------- ---------- Assets under management programs: Restricted cash ................................. 126,202 126,202 Vehicles ........................................ (50,804) 3,812,258 3,761,454 Due from vehicle manufacturers .................. 9,666 309,000 318,666 ----------- ----------- ----------- ---------- (41,138) 4,247,460 4,206,322 ----------- ----------- ----------- ----------- ---------- Total assets ....................................... $ 1,491,108 $ 3,234,856 $ 4,058,859 $(2,275,773) $6,509,050 =========== =========== =========== =========== ========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Accounts payable and accrued liabilities ........... $ 10,994 $ 383,754 $ 152,085 $ 546,833 Due to Cendant Corporation and affiliates, net ..... 36,117 36,117 Public liability, property damage and other insurance liabilities, net ...................... 194,373 53,194 247,567 Non-vehicle debt ................................... 725,000 5,333 730,333 ----------- ----------- ----------- ---------- Total assets exclusive of assets under management programs ........................................ 735,994 619,577 205,279 1,560,850 ----------- ----------- ----------- ---------- Liabilities under management programs: Vehicle debt .................................... 3,816,682 3,816,682 Deferred income taxes ........................... 338,680 37,724 376,404 ----------- ----------- ---------- 338,680 3,854,406 4,193,086 ----------- ----------- ----------- ---------- Total liabilities .................................. 735,994 958,257 4,059,685 5,753,936 ----------- ----------- ----------- ---------- Common stockholders' equity ........................ 755,114 2,276,599 (826) $(2,275,773) 755,114 ----------- ----------- ----------- ----------- ---------- Total liabilities and common stockholders' equity .. $ 1,491,108 $ 3,234,856 $ 4,058,859 $(2,275,773) $6,509,050 =========== =========== =========== =========== ==========
15 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)~~
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE PERIOD MARCH 1, 2001 (DATE OF ACQUISITION) TO SEPTEMBER 30, 2001 (IN THOUSANDS) ------------------------------------------------------------------------ AVIS GROUP NON- HOLDINGS, INC. PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED --------- --------- ----------- ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ......................................... $ (6,153) $ 21,914 $ 20,232 $(42,146) $ (6,153) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities exclusive of management programs ....................... (75,546) 13,884 98,107 36,445 --------- --------- ----------- -------- ----------- Net cash provided by (used in) operating activities exclusive of management programs ....................... (81,699) 35,798 118,339 (42,146) 30,292 --------- --------- ----------- -------- ----------- Management programs: Vehicle depreciation ................................. 366,231 29,754 395,985 Deferred income taxes ................................ (98,628) 86,855 (715) (12,488) --------- --------- ----------- ----------- (98,628) 453,086 29,039 383,497 --------- --------- ----------- -------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . (180,327) 488,884 147,378 (42,146) 413,789 --------- --------- ----------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Decrease in restricted cash .......................... (36,855) (36,855) Increase (decrease) in due (from) to vehicle manufacturers ...................................... 6,485 (290,918) (284,433) Payments for vehicle additions ....................... (87,510) (3,319,908) (3,407,418) Vehicle deletions .................................... (331,887) 3,388,888 3,057,001 --------- ----------- ----------- (412,912) (258,793) (671,705) --------- ----------- ----------- Payments for additions to property and equipment .......... (22,084) (873) (22,957) Retirements of property and equipment ..................... 703 2,516 3,219 Payment for purchase of rental car franchise licensees .... (27,837) (424) (28,261) Investment in subsidiaries ................................ (21,914) (20,232) 42,146 --------- --------- ----------- -------- ----------- Net cash provided by (used in) investing activities exclusive of management programs ....................... (21,914) (69,450) 1,219 42,146 (47,999) --------- --------- ----------- -------- ----------- NET CASH USED IN INVESTING ACTIVITIES ............... (21,914) (482,362) (257,574) 42,146 (719,704) --------- --------- ----------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Net (decrease) increase in vehicle debt ................ (8,743) 95,045 86,302 --------- --------- ----------- ----------- Net decrease in non-vehicle debt .......................... (317,650) (278) (317,928) Increase in due to Cendant - intercompany financing, net .................................................... 394,950 394,950 Payments for debt issuance costs .......................... (4,593) (4,593) Capital contribution from Cendant ......................... 125,000 125,000 --------- --------- ----------- ----------- Net cash provided by (used in) financing activities exclusive of management programs ....................... 202,300 (4,871) 197,429 --------- --------- ----------- ----------- NET CASH PROVIDED (USED IN) BY FINANCING ACTIVITIES ......................................... 202,300 (13,614) 95,045 283,731 --------- --------- ----------- ----------- Effect of exchange rate changes on cash ................... (900) (900) --------- --------- ----------- -------- ----------- Net increase (decrease) in cash and cash equivalents ...... 59 (7,092) (16,051) (23,084) Cash and cash equivalents at beginning of period .......... 141 36,745 29,219 66,105 --------- --------- ----------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 200 $ 29,653 $ 13,168 $ $ 43,021 ========= ========= =========== ======== ===========
16 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)~~
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (PREDECESSOR COMPANIES) FOR THE TWO MONTHS ENDED FEBRUARY 28, 2001 (IN THOUSANDS) ---------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ......................................... $ (29,119) $ (21,907) $ 10,898 $11,009 $ (29,119) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities exclusive of management programs ...................... (84,192) (22,321) 38,183 (68,330) --------- --------- --------- ------- --------- Net cash provided by (used in) operating activities exclusive of management programs ...................... (113,311) (44,228) 49,081 11,009 (97,449) --------- --------- --------- ------- --------- Management programs: Vehicle depreciation .................................. 97,909 8,019 105,928 Deferred income taxes ................................. (668) 10,648 (27,724) (17,744) --------- --------- --------- ------- --------- (668) 108,557 (19,705) 88,184 --------- --------- --------- ------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ... (113,979) 64,329 29,376 11,009 (9,265) --------- --------- --------- ------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Increase in restricted cash ........................... 10,978 10,978 Increase in due from vehicle manufacturers ............ 16,368 16,368 Payments for vehicle additions ........................ (1,843) (941,259) (943,102) Vehicle deletions ..................................... (82,138) 895,598 813,460 --------- --------- --------- (83,981) (18,315) (102,296) --------- --------- --------- --------- Payments for additions to property and equipment .......... (2,948) (330) (3,278) Retirements of property and equipment ..................... (400) 20 (380) Increase (decrease) in net assets and preferred stock of discontinued operation ................................. 5,132 (5,423) (291) Investment in subsidiaries ................................ 21,907 (10,898) (11,009) --------- --------- --------- ------- --------- Net cash provided by (used in) investing activities exclusive of management programs ...................... 21,907 (9,114) (5,733) (11,009) (3,949) --------- --------- --------- ------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ... 21,907 (93,095) (24,048) (11,009) (106,245) --------- --------- --------- ------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Net increase (decrease) in vehicle debt ............... 92,000 (2) 9,209 101,207 --------- --------- --------- --------- Net decrease in non-vehicle debt .......................... (77) (77) Payments for debt issuance costs .......................... (12) (12) Other ..................................................... 140 140 Net cash provided by (used in) financing activities --------- --------- --------- --------- exclusive of management programs ...................... 140 (89) 51 --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .......................................... 92,140 (91) 9,209 101,258 --------- --------- --------- --------- Effect of exchange rate changes on cash ................... (11) (11) --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents ...... 68 (28,857) 14,526 (14,263) Cash and cash equivalents at beginning of period .......... 73 65,602 14,693 80,368 --------- --------- --------- ------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 141 $ 36,745 $ 29,219 $ -- $ 66,105 ========= ========= ========= ======= =========
17 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)~~
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (PREDECESSOR COMPANIES) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS) ----------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ----------- ------------ ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................... $ 105,415 $ 171,726 $ 82,011 $(253,737) $ 105,415 Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs ..................... 1,067,357 981,983 (921,161) 1 1,128,180 ----------- ----------- ----------- --------- ----------- Net cash provided by (used in) operating activities exclusive of management programs ..................... 1,172,772 1,153,709 (839,150) (253,736) 1,233,595 ----------- ----------- ----------- --------- ----------- Management programs: Vehicle depreciation ................................. 454,721 33,817 488,538 Deferred income taxes ................................ (44,300) 33,934 (3,690) (14,056) ----------- ----------- ----------- ----------- (44,300) 488,655 30,127 474,482 ----------- ----------- ----------- --------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .. 1,128,472 1,642,364 (809,023) (253,736) 1,708,077 ----------- ----------- ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Decrease in restricted cash .......................... (36,963) (36,963) Decrease in due from vehicle manufacturers ........... (8,608) (46,274) (54,882) Payments for vehicle additions ....................... (51,696) (3,855,743) (3,907,439) Vehicle deletions .................................... (437,550) 3,231,916 2,794,366 ----------- ----------- ----------- (497,854) (707,064) (1,204,918) ----------- ----------- ----------- Payments for additions for property and equipment ........ (28,465) (1,335) (29,800) Retirements of property and equipment .................... 5,420 198 5,618 Increase (decrease) in net assets and preferred stock of discontinued operations .............................. (1,036,387) 994,821 (41,566) Investment in subsidiaries ............................... (171,726) (82,010) 253,736 ----------- ----------- ----------- --------- ----------- Net cash provided by (used in) investing activities exclusive of management programs ..................... (171,726) (1,141,442) 993,684 253,736 (65,748) ----------- ----------- ----------- --------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . (171,726) (1,639,296) 286,620 253,736 (1,270,666) ----------- ----------- ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Net increase in vehicle debt ......................... 527,052 527,052 ----------- ----------- Net decrease in non-vehicle debt ......................... (957,000) (328) (957,328) Payments for debt issuance costs ......................... (9,525) (9,525) Purchase of treasury stock ............................... 271 271 ----------- ----------- ----------- ----------- Net cash used in financing activities exclusive of management programs ..................... (956,729) (9,853) (966,582) ----------- ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .. (956,729) (9,853) 527,052 (439,530) ----------- ----------- ----------- ----------- Effect of exchange rate changes on cash .................. (390) (390) ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ..... 17 (6,785) 4,259 (2,509) Cash and cash equivalents at beginning of period ......... 54 24,797 7,050 31,901 ----------- ----------- ----------- --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 71 $ 18,012 $ 11,309 $ $ 29,392 =========== =========== =========== ========= ===========
18 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7-SEGMENT INFORMATION Prior to the Acquisition, the Company operated in two segments, vehicle leasing and vehicle rental. Subsequent to the sale of Vehicle Leasing on March 1, 2001, the Company operates in one industry segment, the vehicle rental business. EBITDA represents net income, plus non-vehicle related interest expense, non-vehicle depreciation and amortization, unusual charges, corporate allocations and income taxes from vehicle rental operations (in thousands). Provided below is a reconciliation of EBIDTA to income (loss) before income taxes.
PREDECESSOR COMPANIES ------------- THREE MONTHS THREE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 ------------------ ------------- EBITDA ........................................... $ 38,381 $ 84,169 Non-fleet interest ............................... (7,758) (23,291) Intercompany interest ............................ (4,735) Non-vehicle depreciation and amortization ........ (13,544) (1,976) Unusual charges .................................. (60,062) Corporate allocations ............................ (1,061) --------- -------- Income (loss) before provision for income taxes .. $ (48,779) $ 58,902 ========= ======== PREDECESSOR COMPANIES ------------------------------- MARCH 1, 2001 TWO MONTHS NINE MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30, 2001 2001 2000 --------------------- ------------ ------------- EBITDA ........................................... $ 116,304 $(23,715) $224,566 Interest, net .................................... (22,413) (12,281) (95,122) Intercompany interest ............................ (9,742) Non-vehicle depreciation and amortization ........ (30,839) (6,241) (31,674) Unusual charges .................................. (60,062) Corporate allocations ............................ (1,782) --------- -------- -------- Income (loss) before provision for income taxes .. $ (8,534) $(42,237) $ 97,770 ========= ======== ========
NOTE 8-DERIVATIVES The Company's operations are primarily funded through a combination of asset-backed floating rate notes and commercial paper programs in the United States and Canada. Consistent with its historical risk management policies, the Company uses interest rate swaps and caps to hedge interest rate risks on its debt and to create a mixed portfolio of fixed and floating rate debt. Certain interest rate swaps have been designated as cash flow hedges of interest rate risk on the Company's floating rate medium-term notes. Certain cash flow hedge contracts extend into 2004. For the two months ended February 28, 2001 and the seven months ended September 30, 2001, no material ineffectiveness was recognized on these hedges. Amounts accumulated in other comprehensive income (loss) are reclassified into earnings as interest is accrued on the hedged transactions. For the two months ended February 28, 2001 and the seven months ended September 30, 2001, approximately $0.4 million and $(7.7) million, respectively, of net income (loss) has been reclassified from other comprehensive loss into earnings. Over the next 12 months, net losses of approximately $48.3 million are expected to be reclassified from other comprehensive income (loss) into earnings. The impact of these charges will have the desired effect of fixing the interest rate paid on certain debt instruments. The amounts accumulated in other comprehensive income (loss) will fluctuate based on changes in the fair value of the Company's derivatives at each reporting period. For the two months ended February 28, 2001 and the seven months ended September 30, 2001, there were no amounts reclassified into earnings resulting from the discontinuation of any hedging relationships. 19 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8-DERIVATIVES (CONTINUED) The majority of the Company's interest rate swaps and caps have not been designated as hedges for accounting purposes. However, these derivatives are being used to economically hedge interest rate risk exposures on the Company's floating rate notes and commercial paper programs. For the two months ended February 28, 2001 and the seven months ended September 30, 2001, the net loss recognized on these derivatives was $869,000 and $2.8 million, respectively. These amounts have been recorded as a component of interest, net on the Company's Condensed Consolidated Statements of Operations. NOTE 9-RELATED PARTY TRANSACTIONS Related party charges include allocations from Cendant for services provided to the Company, which consist of (in thousands):
PREDECESSOR COMPANIES ------------- THREE MONTHS THREE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 ------------- ------------- Royalties .......... $ 27,495 $29,347 Reservations ....... 14,487 14,743 Data processing .... 15,433 12,009 Rent and other ..... 11,906 3,280 Interest ........... 4,129 -------- ------- Total .............. $ 73,450 $59,379 ======== ======= PREDECESSOR COMPANIES ------------------------------- MARCH 1, 2001 TWO MONTHS NINE MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30, 2001 2001 2000 -------------------- ------------ ------------- Royalties .......... $ 63,305 $16,205 $ 79,566 Reservations ....... 33,673 8,496 43,226 Data processing .... 35,574 11,395 33,021 Rent and other ..... 23,535 1,456 7,316 Interest ........... 11,139 -------- ------- -------- Total .............. $167,226 $37,552 $163,129 ======== ======= ========
20 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9-RELATED PARTY TRANSACTIONS (CONTINUED) The amounts due to Cendant Corporation and affiliates, net at September 30, 2001 and December 31, 2000 consisted of the following balances (in thousands):
PREDECESSOR COMPANIES SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ Due (from) to Cendant, short term funding and trading, net .. $(132,387) $36,117 Due to Cendant-working capital .............................. 181,904 Due to Cendant-long term .................................... 380,000 Due from other Cendant affiliates, net ...................... (19,046) --------- ------- Total due to Cendant Corporation and affiliates, net ........ $ 410,471 $36,117 ========= =======
In connection with the Acquisition, Avis Acquisition Corp. ("Acquisition Corp."), a wholly-owned subsidiary of PHH Corp., borrowed $937 million from PHH Corp. Concurrent with the Acquisition, Acquisition Corp. was merged into Avis Group Holdings, Inc. with Avis Group Holdings, Inc. becoming the surviving entity. Immediately after the Acquisition, Avis Group Holdings, Inc. sold all of the stock of Vehicle Leasing to PHH Corp. for $800 million. The proceeds of the sale were used by Avis Group Holdings, Inc. to reduce its note payable to PHH Corp. from $937 million to $137 million. Following such sale, the stock of Avis Group Holdings, Inc. acquired in the Acquisition was dividended by PHH Corp. to Cendant Finance Holding Corporation ("CFHC") and, through a series of internal transfers, to Cendant Car Holdings, LLC. The note payable to PHH Corp. remaining due from Avis Group Holdings, Inc. in the amount of $137 million was transferred by PHH Corp. to CFHC, where it remains. During the quarter ended June 30, ~~2001, the Company repaid its outstanding borrowings under its then existing Revolving Credit Facility (see Note 5). Subsequent~~2002.

Forward-Looking Statements

Forward-looking statements in our public filings or other public statements are subject to ~~the repayment, Cendant provides the Company funding for certain of its working capital needs. The intercompany borrowings bear interest at a market rate~~known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on ~~LIBOR. On June 29, 2001, Cendant made a capital contribution~~various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the ~~Company~~forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives.

Statements preceded by, ~~forgiving $125 million of intercompany debt. As of September 30, 2001, $182 million of borrowings~~followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "project", "estimates", "plans", "may increase", "may fluctuate" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are ~~related to working capital and $380 million are long-term~~generally forwardlooking in nature and ~~are related to the Acquisition. These borrowings are~~ not expected to be repaid before December 31, 2001. On June 29, 2001, one of the Company's vehicle financing subsidiaries amended its loan agreements to allow Cendant to borrow $155 million of its restricted cash. In turn, Cendant provided a demand note to this subsidiary and secured the demand note with letters of credit. The loan to Cendant is included in due (from) to Cendant, short-term funding and trading, net. NOTE 10-INCOME TAXES Subsequent to the Date of Acquisition, the Company continues to file its own consolidated federal income tax return. In addition, the Company files consolidated and combined state income tax returns with Cendant in jurisdictions where required. The provision for income taxes is computed as if the Company filed its federal and state income tax returns on a stand-alone basis. 21 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2: GENERAL OVERVIEW On November 11, 2000, we entered into a merger agreement with Cendant Corporation. The merger was approved on February 28, 2001 by a majority of our shareholders who were unaffiliated with Cendant and closed on March 1, 2001. In addition, we sold our investment in our Avis Fleet Leasing and Management Corp., subsidiaries to PHH Corporation, a wholly-owned subsidiary of Cendant, for $800 million. The proceeds from the sale were used to retire acquisition indebtedness. As such,historical facts. You should understand that the following ~~discussion~~important factors and ~~analysis of continuing~~assumptions could affect our future results ~~of operations includes our Rent A Car System, Inc.~~ and ~~Reserve Claims Management Co. subsidiaries. We conduct vehicle rental operations through wholly-owned subsidiaries~~could cause actual results to differ materially from those expressed in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina, Australia and New Zealand. Vehicle rental revenue is derived principally from time and mileage charges for vehicle rentals and, to a lesser extent, the sale of loss damage waivers, liability insurance and other products and services. We evaluate our performance based upon a modified earnings before non-vehicle interest, income taxes, non-vehicle depreciation and amortization calculations. For this purpose, Adjusted EBITDA is definedsuch forward-looking statements:

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terrorist attacks, such as earnings before non-vehicle interest, income taxes and non-vehicle depreciation and amortization, adjusted to exclude certain items, which are of a non-recurring or unusual nature and are not measured in assessing segment performance or are not segment specific. REVENUE Revenue is recognized over the period the vehicle is rented. COSTS AND EXPENSES Vehicle rental expenses include: o Direct operating expenses (primarily field operations' wages and related benefits, concessions and commissions paid to airport authorities, vehicle insurance premiums and other costs relating to the operation of rental locations and the rental fleet). o Vehicle depreciation and lease charges relating to the rental fleet. o Selling, general and administrative (including wages and related benefits, information processing and information services). o Vehicle interest. NET INCOME Vehicle rental profitability is primarily a function of the number of rental transactions, pricing of rental transactions and utilization of the rental fleet. CORPORATE Expenses included are interest on non-vehicle debt and amortization of cost in excess of net assets acquired and other intangible assets. The following discussion and analysis provides information that management believes to be relevant to understanding the our financial position and results of operations: 22 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS PRO-FORMA RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO PRO-FORMA RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000. We believe that a more meaningful comparison is made when the vehicle rental pro-forma results of operations for the nine months ended September 30, 2001 and historical results for the three months ended September 30, 2001 are compared to the pro-forma results of operations for the nine and three months ended September 30, 2000. These pro-forma statements give effect to the acquisition of us by Cendant, and the retirement of term loans in the amount of $991.5 million from the proceeds of the sale of the vehicle leasing operations in Europe and the repayment of intercompany indebtedness, including the related interest expense, as if they had occurred on January 1, 2000.

VEHICLE RENTAL REVENUE Revenue decreased 5.3%, from $1,989.2 million to $1,883.1 million, compared to the same period in 2000. The revenue decrease reflects a 5.5% decrease in the number of rental transactions partially offset by a 0.2% increase in revenue per rental transaction. COSTS AND EXPENSES Total costs and expenses (including interest on non-vehicle debt, interest on intercompany debt, amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization) increased 5.2%, from $1,838.1 million to $1,933.8 million, compared to the same period in 2000. 23 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Direct operating expenses increased 1.0%, from $715.6 million to $722.9 million, compared to the same period in 2000. As a percentage of revenue, direct operating expenses were 38.4%, as compared to 36.0% for the corresponding period in 2000. The increase was due primarily to higher salary & wages (0.6% of revenue), higher maintenance and damage costs (0.5% of revenue) and higher facilities costs (0.4% of revenue). Vehicle depreciation and lease charges increased 4.8%, from $510.7 million to $535.1 million, compared to the same period in 2000. As a percentage of revenue, vehicle depreciation and lease charges were 28.4%, as compared to 25.7% for the corresponding period in 2000. The change reflected a 6.3% increase in the average cost per vehicle partially offset by a 1.1% decline in the average rental fleet. Selling, general and administrative expenses increased 1.5%, from $354.2 million to $359.4 million, compared to the same period in 2000 due to a higher general corporate overhead allocation ($16.5 million) and higher general and administrative expenses ($9.6 million), partially offset by lower marketing and advertising spending. Vehicle related interest expense decreased 0.9%, from $175.5 million to $173.9 million, compared to the same period in 2000 due to lower borrowings required for a smaller rental fleet coupled with lower average interest rates. Unusual charges of $60.1 million ($39 million after tax) in September 2001 reflects the estimated impact toour results of operations associated with reduced travel due to the aftermath of the September 11, 2001 terrorist attacks aton New York City and Washington, D.C., other attacks, acts of war; or measures taken by governments in response thereto may negatively affect the ~~World Trade Center (the "Terrorist Attacks"). With~~ travel industry, our financial results and could also result in a disruption in our business;

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the ~~completion~~effect of ~~Cendant's acquisition of us on March 1, 2001, selected debt previously funded by third party providers is now being funded by Cendant. Accordingly, we now incur~~economic conditions and interest charges on intercompany debt. Non-vehicle depreciation and amortization increased 103.6%, from $8.0 million to $16.4 million, compared to the same period in 2000. The increase reflects higher amortization of airport related leasehold improvements and equipment. UNUSUAL CHARGES The unusual charges of $60.1 million that were recorded during third quarter 2001 included 1) an asset impairment loss arising from the return of Regular Program vehicles, $43.8 million, 2) a reserve for anticipated decline in market valuerate changes on the ~~sale of Non-Program vehicles, $5.8 million, 3)~~economy on a reserve for the cancellation of marketing programs, $0.9 million, 4) a reserve for severance costs, $0.5 million and 5) other costs, $9.1 million, principally related to the redundancies caused by the Terrorist Attacks. The asset impairment loss of $43.8 million relates to the disposal of Program Vehicles under repurchase programs. Prices under these repurchase programs are based on either 1) a specified percentage of original vehicle costs, depending on the month the vehicle is returned to the manufacturersnational, regional or 2) the original capitalized cost less a set depreciation amount. Unlike Program Vehicles, the resale of Non-Program Vehicles is determined by current market conditions. Due to the excessive number of vehicles being returned by Avis and other car rental companies subsequent to the Terrorist Attacks, we have experienced a sharp decline in the resale value of these Non-Program vehicles. A reserve in the amount of $5.8 million was established anticipating losses on the disposal of Non-Program vehicles. As of September 30, 2001, a reserve of $35 million remains for those Program Vehicles which we have yet to dispose of. The remaining vehicles will be disposed of as soon as possible. Also included in the unusual charge were costs of commissions payable to agencies for advertising placement. Prior to the Terrorist Attacks, we had committed to a level of advertising placement commissions based on anticipated advertising spending. As a result of the Terrorist Attacks, we have significantly curtailed our advertising spending, however, we remain obligated to pay commissions based on budgeted advertising spending. As of September 30, 2001, the entire amount of advertising placement commission had been paid. In addition, we have initiated a formal plan to terminate certain employees at field locations and at corporate headquarters. As of September 30, 2001, we had accrued $0.5 million for severance and related costs for employees so notified. We expect all affected employees will be terminated prior to December 31, 2001. Other costs of $9.1 million associated with the Terrorist Attacks have been classified within the Statement of Operations to the Unusual Charge. Amounts classified comprise $7.2 million of estimated payroll costs for underutilized employees (the majority or which have been terminated) and $1.9 million of minimum airport commission guarantees. 24 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) PROVISION FOR INCOME TAXES Our consolidated provision for income taxes decreased from $68.8 million to a benefit of $14.1 million, compared to the same period in 2000. The effective income tax rate for the nine months ended September 30, 2001 was a benefit of 27.9%, down from a 45.5% provision for the corresponding period in 2000. The 27.9% tax benefit reflects a pre-tax loss of $50.7 million for the period and is less than the statutory rate of 35% primarily due to the non-deductibility of goodwill. The 45.5% tax provision reflects a pre-tax profit of $151.1 million for the period in 2000 and is greater than the statutory rate of 35% due to the non-deductibility of goodwill. The effective tax rate reflects differences between foreign income tax ratesinternational basis and the ~~U.S. federal statutory income tax rate, taxes~~impact thereof on our business;

•

the ~~repatriation~~effects of ~~foreign earnings, and foreign withholding taxes on dividends that have been paid to us. NET INCOME Net income decreased from~~ a profit of $82.4 million for the nine months ended September 30, 2000 to a loss of $36.6 million for the nine months ended September 30, 2001 as a result of the above-mentioned items. HISTORICAL RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO PRO-FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000.

25 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) VEHICLE RENTAL REVENUE Revenue decreased 11.4%, from $733.7 million to $650.4 million, compared to the same period in 2000. The revenue decrease reflects a 10.8% decrease in the number of rental transactions. COSTS AND EXPENSES Total costs and expenses (including interest on non-vehicle debt, interest on intercompany debt, amortization of cost in excess of net assets acquired and non-vehicle depreciation and amortization) increased 4.4%, from $669.5 million to $699.1 million, compared to the same period in 2000. Direct operating expenses decreased 8.1%, from $259.6 million to $238.7 million, compared to the same period in 2000. As a percentage of revenue, direct operating expenses were 36.7%, as compared to 35.4% for the corresponding period in 2000. The increase was due primarily to higher salary and wage expense (1.3% of revenue) and higher maintenance and damage expenses (0.6% of revenue). Vehicle depreciation and lease charges increased 1.6%, from $191.3 million to $194.4 million, compared to the same period in 2000. As a percentage of revenue, vehicle depreciation and lease charges were 29.9% of revenue, as compared to 26.1% of revenue for the corresponding period in 2000. The change reflects a 7.5% increase in the average cost per vehicle, partially offset by a 5.7% decline in rental fleet. Selling, general and administrative expenses increased 1.9%, from $119.8 million to $122.1 million, compared to the same period in 2000 due primarily to a higher general corporate overhead allocation ($8.3 million), partially offset by lower marketing and advertising spending. Vehicle related interest expense decreased 15.2%, from $68.4 million to $57.9 million, compared to the same period in 2000, due to lower borrowings resulting from a 5.4% decline in the rental fleet and lower average interest rates. Unusual charges of $60.1 million ($39 million after tax) in September 2001 reflects the estimated impact to our results of operations associated with reduced travel, due to political instability, adverse economic conditions or otherwise, on our business;

•

the ~~aftermath~~effects of ~~the Terrorist Attacks. With the completion of the Acquisition on March 1, 2001, selected debt previously funded by third party providers is now being funded by Cendant. Accordingly, we now incur~~changes in current interest charges on intercompany debt. Non-vehicle depreciation and amortization increased from $217,000 to $5.4 million, compared to the same period in 2000. The increase reflects higher amortization of airport related leasehold improvements and equipment. PROVISION FOR INCOME TAXES Our consolidated provision for income taxes decreased from $29.2 million to a benefit of $24.0 million, compared to the same period in 2000. The effective income tax rate for the three months ended September 30, 2001 was 49.3%, up from 45.5% for the corresponding period in 2000. The increaserates;

•: competition in the effective income tax rate was due primarily to a decrease in income before provision for income taxes in relation to non-deductible goodwill. The effective tax rate reflects differences between foreign income tax ratescar rental industry and the ~~U.S. federal statutory income tax rate, taxes~~financial resources of, and products available to, competitors;
•: our failure to provide fully integrated disaster recovery technology solutions in the event of a disaster;
•: our ability to obtain financing on acceptable terms to finance our growth strategy and to operate within the repatriation of foreign earnings, and foreign withholding taxes on dividends that have been paid to us. NET INCOME Net income decreased from a profit of $35.0 million for the three months ended September 30, 2000 to a loss of $24.7 million for the three months ended September 30, 2001 as a result of the above-mentioned items. 26 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES Our operations are expected to be funded by cash provided by operating activities andlimitations imposed by financing arrangements ~~maintained by us~~and to maintain our credit ratings;
•: our ability to obtain external financing in the ~~markets~~event we are unable to obtain financing from Cendant;
•: competitive and pricing pressures in ~~which we operate. Our primary use~~the car rental industry;
•: changes in vehicle manufacturer repurchase arrangements in the event that used vehicle values decrease;
•: and changes in laws and regulations, including changes in accounting standards and privacy policy regulation.

Other factors and assumptions not identified above were also involved in the derivation of ~~funds will be for the acquisition of new vehicles~~these forward looking statements, and the ~~repayment~~failure of indebtedness. For the nine months ended September 30, 2001, our expenditures for new vehicles were approximately $4.4 billion and proceeds from the disposition of used vehicles were approximately $3.9 billion. For 2001, we expect our expenditures for new vehicles (net of proceeds from the disposition of used vehicles)such other assumptions to be ~~higher than in 2000. Since the late 1980's, we have acquired vehicles related~~realized as well as other factors may also cause actual results to ~~our vehicle rental operations primarily pursuant~~differ materially from those projected. Most of these factors are difficult to manufacturer repurchase programs. Repurchase prices under the repurchase programs are based on either (1) a specified percentage of original vehicle cost determined by the month the vehicle is returned to the manufacturer or (2) the original capitalization cost less a set daily depreciation amount (the "Repurchase Programs"). Repurchase Programs limit residual risk with respect to vehicles purchased under the programs. This enables us to better estimate depreciation expense in advance. Historically, our financing requirements for rental vehicles have typically reached an annual peak during the second and third calendar quarters, as fleet levels build in response to increased rental demand during that period. The typical low point for cash requirements occurs during the end of the fourth quarter and the beginning of the first quarter, coinciding with lower levels of vehicle and rental demand. We expect that this pattern will continue. We expect that cash flows from operations and funds from available credit facilities will be sufficient to meet our anticipated cash requirements for operating purposes for the next twelve months. Trade receivables, from vehicle rental operations, also provide liquidity with approximately 12.2 days of daily sales outstanding. Our vehicle rental operations made capital investments for property improvements totaling $26.2 million and $29.8 million for the nine months ended September 30, 2001 and 2000, respectively. We have an interest rate management policy, including a target mix for average fixed rate and floating rate indebtedness on a consolidated basis. An increase in interest rates would be unlikely to have a material adverse impact on our profitability. VEHICLE RENTAL ABS FACILITY To support vehicle rental operations, we have a domestic integrated financing program that as of September 30, 2001 provides for up to $4.45 billion in financing for vehicles covered by Repurchase Programs, with up to 25% of the asset-backed securities facility ("ABS Facility") available for vehicles not covered by Repurchase Programs. The ABS Facility provides for the issuance of up to $0.5 billion of asset-backed variable funding notes (the "Variable Funding Notes") and $3.95 billion of asset-backed medium term notes under the ABS Facility (the "Medium Term Notes"). The Variable Funding Notes and the Medium Term Notes are indirectly secured by, among other things, a first priority security interest in our rental fleet. The Variable Funding Notes support the issuance by a special purpose company of commercial paper notes that are rated A-1 by Standard & Poor's Ratings Services ("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's"). The Medium Term Notes are guaranteed under a surety bond issued by either MBIA or AMBAC Assurance and as a result are rated AAA by S&P and Aaa by Moody's. On March 2, 2001, one of the vehicle rental financing subsidiaries issued $750 million of Series 2001-1 Floating Rate Rental Car Asset Backed Notes ("Series 2001-1 Notes"). The Series 2001-1 Notes are secured by our vehicles. Anticipated principal repayment on the Series 2001-1 Notes commence on November 2003 through April 2004. The interest rate with respect to the Series 2001-1 Notes is equal to LIBOR plus 20 basis points per annum. The Series 2001-1 Notes are guaranteed under a Surety Bond issued to MBIApredict accurately and are ~~rated AAA by Standard an Poors and Aaa by Moody's. The Series 2001-1 Notes rank pari pasu~~generally beyond our control.

You should consider the areas of risk described above in connection with ~~our Variable Funding Notes and the Medium Term Notes. 27~~ AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) On May 17, 2001, one of the vehicle rental financing subsidiaries issued $125 million of Series 2001-2 Auction Rate Notes (the "Series 2001-2 Notes"). The Series 2001-2 Notes are secured by our vehicles. The Series 2001-2 Notes were issued in four classes, Class A-1, A-2, A-3, and A-4 with initial issuances of $95 million, $10 million, $10 million and $10 million, respectively. Subsequent to the initial issuance of $125 million auction rate notes, the Company issued $145 million of additonal notes and repaid principal of $115 million, which brought the total outstanding series 2001-2 notes to $155 million at September 30, 2001. We may issue up to $125 million of Auction Rate Notes per class or $500 million in total. The interest rate on each class will be a market derived rate determined by auction with auctions expected to occur every 35 days. Anticipated principal repayment on the Series 2001-2 Notes is May 2007. The 2001-2 Notes are guaranteed under a Surety Bond issued by Ambac and are rated AAA by Standard & Poor's Rating Services and Aaa by Moody' Investors Service, Inc. The Series 2001-2 Notes rank pari passu with our Variable Funding Notes and Medium Term Notes. At September 30, 2001, we had approximately $3.75 billion of debt outstanding under the ABS Facility and had approximately $700 million of additional credit available for rental vehicle purchases. Based on current market conditions and our current banking relationships, we expect to fund maturities of the Medium Term Notes either by the issuance of new medium term notes or an increase in the outstanding principal amount of the Variable Funding Notes depending on market conditions at the time the Medium Term Notes mature. However, we cannot be sure that this will occur. REVOLVING CREDIT FACILITY/CENDANT INTERCOMPANY We were party to a Revolving Credit Facility which provided borrowings up to $450 million which were used for credit enhancement for our ABS commercial paper program and for general corporate purposes. Although this facility did not expire until June 30, 2005, we elected to terminate it on September 5, 2001. We repaid our outstanding borrowings under the Revolving Credit Facility as of June 30, 2001. We currently draw on a working capital line provided by Cendant to fund its working capital needs. The borrowings bear interest at a market rate based on LIBOR. On June 29, 2001, Cendant made a capital contribution to us by forgiving $125 million of intercompany debt. As of September 30, 2001, $182 million of borrowings are related to working capital needs. Additionally, we have long-term debt with Cendant of $380 million that is related to Cendant's acquisition of us. OTHER FACILITIES Borrowings for our international operations consist mainly of loans obtained from local and international banks. All borrowings for international operations are in the local currencies of the countries in which those operations are conducted. We guarantee only the borrowings of our car rental subsidiaries in Argentina and Puerto Rico which had combined outstanding debt of $4.6 million at September 30, 2001. At September 30, 2001, the total debt for our international operations was approximately $175.7 million. The impact on our liquidity and financial condition due to the exchange rate fluctuations of our foreign operations is not expected to be material. PARENT COMPANY TRANSACTION On June 29, 2001, one of our vehicle financing subsidiaries amended its loan agreements to allow Cendant to borrow $155 million of its restricted cash. In turn, Cendant provided a demand note to the subsidiary and secured the demand note with letters of credit. RECENT ACCOUNTING STANDARDS Recent pronouncements of the Financial Accounting Standards Board which are not required to be adopted at this date include Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" ("SFAS No. 141"), SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"), and SFAS No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets" ("SFAS No. 144"). SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001 and requires additional disclosures for material business combinations completed after such date. This standard also addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination at acquisition. On July 1, 2001, we adopted the provisions relating to acquisitions made subsequent to June 30, 2001, as required. The provisions regarding the classification of previously acquired intangible asset will be adopted simultaneously with the provisions of SFAS No. 142 on January 1, 2002, as required. 28 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SFAS No. 142 addresses financial accounting and reporting for intangible assets acquired outside of a business combination. The standard also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. We will be required to assess goodwill and other intangible assets for impairment annually, or more frequently if circumstances indicate a potential impairment. On July 1, 2001, we adopted the provisions requiring that goodwill and certain other intangible assets acquired after June 30, 2001 not be amortized. We will adopt the remaining provisions of this standard on January 1, 2002, as required. Transition-related impairment losses, if any resulting form the initial assessment of goodwill and certain other intangible assets will be recognized by us as a cumulative effect of accounting change as of January 1, 2002. We are currently evaluating the impact of adopting the remaining provisions on its financial position and results of operations. Based upon a preliminary assessment of previously acquired goodwill and certain other intangible assets that will no longer be amortized upon the adoption of SFAS No. 142, we expect that the related reduction to amortization expense during the seven months ended September 30, 2001, the two months ended February 28, 2001 and the nine months ended September 30, 2000 would approximate $18.6 million, $2 million, and $92 million, respectively. SFAS No. 144 addresses financial accounting and reporting for the impairment of disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,", and replaces the accounting and reporting provisions of APB Opinion No. 30, "Reporting Results of Operations - Reporting the Effect of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" as it relates to the disposal of a segment of a business. SFAS No. 144 requires the use of a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations, by requiring those long-lived assets to be measured at the lower of carrying amount or fair value less cost to sell. The impairment recognition and measurement provisions of SFAS No 121 were retained for all long-lived assets to be held and used with the exception of goodwill. We will adopt this standard on January 1, 2002. SEASONALITY Our vehicle rental business is seasonal, with decreased travel in winter months and heightened activity in spring and summer. To accommodate increased demand, we increased our available fleet during the second and third quarters. Certain of our operating expenses are fixed and cannot be reduced during periods of decreased rental demand. In certain geographic markets, the impact of seasonality has been reduced by emphasizing leisure or business travel in the off-peak season. INFLATION The increased acquisition cost of vehicles is the primary inflationary factor affecting our operations. Many of our other operating expenses are inflation sensitive, with increases in inflation generally resulting in increased costs of operations. The effect of inflation-driven cost increases on the Company's overall operating costs is not expected to be greater for us than for our competitors. FORWARD LOOKING INFORMATION Certain matters discussed in this report that are not historical facts are forward-looking statements that ~~are~~may be made ~~pursuant~~by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor ~~provisions of~~for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. ~~Forward-looking statements involve risks and uncertainties including the impact of competitive products and pricing, changing market conditions; and other risks which were detailed from time to time~~

Item 3. Quantitative And Qualitative Disclosure About Market Risks

As previously discussed in our ~~publicly-filed documents, including its~~2001 Annual Report on Form 10-K, we assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values, and cash flows based on a hypothetical 10% change (increase and decrease) in interest rates. We used June 30, 2002 market rates to perform a sensitivity analysis separately for ~~the period ended December 31, 2000. Actual results may differ materially from those projected. These forward-looking statements represent~~each of our ~~judgment as of the date of this report. 29~~ AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKSmarket risk exposures. The ~~Company has derivative financial instruments at September 30, 2001 that are sensitive to~~estimates assume instantaneous, parallel shifts in interest rate ~~changes on its debt obligations and on its interest rate swap agreements. The following derivative instrument agreements~~yield curves. We have ~~been entered into by~~determined, through such analyses, that the ~~Company: (a) In order to reduce its risk from interest rate increases under its asset backed debt, one~~impact of ~~the Company's vehicle rental financing subsidiaries has entered into six domestic interest rate cap agreements with durations of up to 6 years. The agreements have~~ a notional value of $2.5 billion, and establishes the domestic interest rate ceiling on asset-backed vehicle financing of either 7% or 7.5%. Offsetting interest rate cap agreements with a notional value of $2.5 billion have been sold by us10% change in order to reduce the cost of acquiring the cap agreements. (b) The Company has also entered into eight U.S. and foreign interest rate swap agreements. Swap agreements which effectively convert floating rates of interest to fixed rates of interest on ~~the Company's debt have an aggregate notional value of $2.25 billion~~our earnings, fair values and ~~terminate through November 2004. 30~~ ~~Signatures~~cash flows would not be material.

PART II—OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a): Exhibits

See Exhibit Index

(b): Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the ~~Company~~Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Avis Group Holdings, Inc. ------------------------- (Registrant) Dated: November 14, 2001 By: /s/ Kevin M. Sheehan ------------------------------------ Executive Vice President (Principal Financial Officer) Dated: November 14, 2001 By: /s/ Kurt Freudenberg ------------------------------------ Senior Vice

		AVIS GROUP HOLDINGS, INC.
		By:		/s/ F. ROBERT SALERNO F. Robert Salerno President and Chief Operating Officer Date: August 14, 2002

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and ~~Controller (Principal Accounting Officer) 31~~ ITEM: 6 EXHIBITS AND REPORTS ON FORM 8-K ITEM NO. 6 (A) EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- -------------------------------------------------------------------- 2.0 PLAN OF ACQUISITION 2.02 Agreement and Plan of Merger dated November 11, 2000 by and among Cendant Corporation, PHH Corporation, Avis Acquisition Corp., and Avis Group Holdings, Inc. (9) 2.03 Establishment of Arval/PHH Holdings, a joint venture company in the ~~United Kingdom,~~capacities and on the dates indicated.

Signature	Title	Date

/s/ JOHN W. CHIDSEY (John W. Chidsey)	Chief Executive Officer	August 14, 2002
/s/ F. ROBERT SALERNO (F. Robert Salerno)	President, Chief Operating Officer and Director (Principal Executive Officer)	August 14, 2002
/s/ KURT FREUDENBERG (Kurt Freudenberg)	Senior Vice President and Controller (Principal Financial Officer)	August 14, 2002

EXHIBIT INDEX

Exhibit No.		Description
3.1		Certificate of Incorporation of Avis Rent A Car, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 333-46737, dated February 23, 1998).
3.2		By-Laws of Avis Group Holdings, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 333-46737, dated February 23, 1998).
12		Statement Re: Computation of Ratio of Earnings to Fixed Charges.

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Index
Avis Group Holdings, Inc. and ~~BNP Paribas (10) 3. CERTIFICATE~~Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF ~~INCORPORATION AND BY-LAWS. 3.01 Certificate of Incorporation of Avis Rent A Car, Inc. (3) 3.01(a) Certificate of Ownership and Merger merging~~ OPERATIONS (In thousands)
Avis Group Holdings, Inc. ~~into Avis Rent A Car, Inc. (8) 3.01(b) Certificate of Merger of Avis Acquisition. Into~~ and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In thousands)
Avis Group Holdings, Inc. (12) 3.02(a) Certificate of Incorporation of Avis Rent A Car System, Inc. (7) 3.02(b) Restated Certificate of Incorporation of Avis Rent A Car System, Inc. (7) 3.02(c) Corrected Restated Certificate of Incorporation of Avis Rent A Car System, Inc. (7) 3.02(d) Certificate of Ownership and Merger merging The First Gray Line Corporation into Avis Rent A Car System, Inc. (7) 3.03(a) Certificate of Incorporation of Avis International, Ltd. (7) 3.03(b) Certificate of Change of Location of Registered Office and Registered Agent of Avis International, Ltd. (7) 3.03(c) Certificate of Change of Registered Agent and Registered Office of Avis International, Ltd. (7) 3.04(a) Certificate of Incorporation of Avis Management Services, Ltd. (7) 3.04(b) Certificate of Change of Location of Registered Office and Registered Agent of Avis Management Services, Ltd. (7) 3.04(c) Certificate of Change of Registered Agent and Registered Office of Avis Management Services, Ltd. (7) 3.05 Certificate of Incorporation of Avis Caribbean, Limited. (7) 3.06 Certificate of Incorporation of Avis Asia and Pacific, Limited. (7) 3.07(a) Certificate of Incorporation of Avis Enterprises, Inc. (7) 3.07(b) Certificate of Amendment of Certificate of Incorporation of Avis Enterprises, Inc. (7) 3.07(c) Certificate of Amendment of Certificate of Incorporation of Avis Enterprises, Inc. (7) 3.08 Certificate of Incorporation of Avis Service, Inc. (7) 3.09 Certificate of Incorporation of Avis Lube, Inc.(7) 3.10 Certificate of Incorporation of Avis Leasing Corporation. (7) 3.11(a) Certificate of Incorporation of Rent-A-Car Company, Incorporated. (7) 3.11(b) Articles of Reduction of Rent-A-Car Company, Incorporated. (7) 3.11(c) Articles of Amendment to Articles of Incorporation of Rent-A-Car Company, Incorporated. (7) 3.11(d) Articles of Amendment to Articles of Incorporation of Rent-A-Car Company, Incorporated. (7) 3.11(e) Articles of Amendment to the Articles of Incorporation of Rent-A-Car Company, Incorporated. (7) 3.11(f) Articles of Amendment of Rent-A-Car Company, Incorporated. (7) 3.12(a) Certificate of Incorporation of Reserve Claims Management Co. (7) 3.12(b) Certificate of Change of Registered Agent and Registered Office of Reserve Claims Management Co. f/k/a Avis Leasing International, Ltd. (7) 3.12(c) Restated Certificate of Incorporation of Reserve Claims Management Co. (7) 3.50 By-Laws of Subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except share data)
Avis Group Holdings, Inc. (3) 3.51 By-Laws of Avis Rent A Car System, Inc. (7) 3.52 By-Laws of Avis International, Ltd. (7) 3.53 By-Laws of Avis Management Services, Ltd. (7) 3.54 By-Laws of Avis Caribbean, Limited. (7) 3.55 By-Laws of Avis Asia and Pacific, Limited. (7) 3.56 By-Laws of Avis Enterprises, Inc. (7) 3.57 By-Laws of Avis Service, Inc. (7) 3.58 By-Laws of Avis Lube, Inc. (7) 32 ITEM NO. 6 (A) EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- -------------------------------------------------------------------- 3.59 By-Laws of Avis Leasing Corporation. (7) 3.60 By-Laws of Rent-A-Car Company, Incorporated. (7) 3.61 By-Laws of Reserve Claims Management Co. (7) 4.0 INSTRUMENT DEFINING THE RIGHTSSubsidiaries CONSOLIDATED CONDENSED STATEMENTS OF SECURITY HOLDERS, INCLUDING INDENTURES. 4.03 Series 1997-1 Supplement, dated as of July 30, 1997 between AESOP Funding II L.L.C. and the Avis ABS Trustee, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II and the Avis ABS Trustee. (2) 4.04 Series 1997-1 Supplement, dated as of July 30, 1997 between AESOP Funding II L.L.C. and the Avis ABS Trustee, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II and the Avis ABS Trustee. (2) 4.05 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing L.P., as borrower, and AESOP Funding II L.L.C. as lender. (2) 4.06 Loan Agreement, dated as of July 30, 1997, among AESOP Leasing L.P., as borrower, PV Holding Corp., as a permitted nominee of the borrower, Quartz Fleet Management, Inc., as a permitted nominee of the borrower, and AESOP Funding I L.L.C., as lender. (2) 4.07 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing Corp II, as borrower, AESOP Leasing Corp., as permitted nominee of the borrower, and AESOP Funding II L.L.C., as lender. (2) 4.08 Master Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997, by and among AESOP Leasing L.P., as lessor, Avis Rent A Car System, Inc., as lessee, individually and as the administrator and Avis Rent A Car, Inc., as guarantor. (2) 4.09 Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, by and among AESOP Leasing L.P., as lessor, Avis Rent A Car System, Inc., individually and as the administrator, certain Eligible Rental Car Companies, as lessees, and Avis Rent A Car, Inc., as guarantor. (2) 4.10 Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, by and among AESOP Leasing Corp. II, as lessor, Avis Rent A Car System, Inc., individually and as the administrator, certain Eligible Rental Car Companies, as lessees, and Avis Rent A Car, Inc., as guarantor. (2) 4.15 Supplemental Indenture No. 1, dated as of July 31, 1998, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding I L.L.C. as issuer and the Avis ABS Trustee. (4) 4.16 Amendment No. 1, dated as of July 31, 1998, to Loan Agreement, dated as of July 30, 1997, between AESOP Leasing L.P., as borrower, and AESOP Funding I L.L.C., as lender. (4) 4.17 Amendment No. 1, dated as of July 31, 1998, to Loan Agreement, dated as of July 30, 1997, among AESOP Leasing L.P., as borrower, PV Holding Corp., as a permitted nominee of the borrower, Quartz Fleet Management, Inc., as a permitted nominee of the borrower, and AESOP Funding II L.L.C., as lender. (4) 4.18 Amendment No. 1, dated as of July 31, 1998, to Master Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997, among AESOP Leasing L.P., as lessor, Avis Rent A Car Systems, Inc., as Lessee individually and as Administrator, and Avis Rent A Car, Inc., as guarantor. (4) 4.19 Amended and Restated Loan Agreement, dated as of September 15, 1998, among AESOP Leasing L.P., as borrower, PV Holding Corp., as a permitted nominee of the borrower, Quartz Fleet Management, Inc., as a permitted nominee of the borrower, and AESOP Funding II L.L.C. (4) 4.20 Amended and Restated Master Motor Vehicle Operating Lease Agreement, dated as of September 15, 1998, among AESOP Leasing L.P., as lessor, Avis Rent Car System, Inc., individually and as Administrator, certain Eligible Rental Car Companies, as lessees, and Avis Rent A Car, Inc., as guarantor. (4) 4.21 Supplemental Indenture No. 2, dated as of September 15, 1998, to Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding I L.L.C., as issuer and the Avis ABS Trustee. (4) 4.22 Series 1998-1 Supplement, dated as of February 26, 1998 between AESOP Funding II L.L.C., as issuer, and the Avis ABS Trustee, as trustee and Series 1998-1 agent, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and the Avis ABS Trustee. (4) 4.30 Indenture, dated as of June 30, 1999, among the Company, the Subsidiary Guarantors and the Bank of New York (the "Notes Trustee"). (7) 4.31 Exchange and Registration Rights Agreement, dated as of June 30, 1999, among the Company, the Subsidiary Guarantors, the Initial Purchasers and the Notes Trustee. (7) 33 ITEM NO. 6 (A) EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- -------------------------------------------------------------------- 4.19 Supplemental Indenture by and among CASH FLOWS (In thousands)
Avis Group Holdings, Inc., and Subsidiaries NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unless otherwise noted, all amounts are in thousands)
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS For the ~~Subsidiary Guarantors~~Three Months ended June 30, 2002
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS For the ~~Notes Trustee. (13) - ----------- (1) Filed herewith. (2) Incorporated by reference~~Three Months Ended June 30, 2001
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS For the Six Months ended June 30, 2002
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS For the Period March 1, 2001 (Date of Acquisition) to June 30, 2001
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (Predecessor Companies) For the Registrant's Registration Statement on Form S-1, 333-28609. (3) Incorporated by reference to the Registrant's Registration Statement on Form S-1, 333-46737. (4) Incorporated by reference to the Registrant's Form 10-K for the fiscal year endedTwo Months Ended February 28, 2001
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED BALANCE SHEET June 30, 2002
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED BALANCE SHEET December 31, ~~1998. (5) Incorporated by reference~~2001
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 2002
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS For the Period March 1, 2001 (Date of Acquisition) to June 30, 2001
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (Predecessor Companies) For the Registrant's Current Report on Form 8-K dated July 15, 1999. (6) Incorporated by reference to Amendment No. 1 to the Registrant's Current Report on Form 8-K/A dated July 15, 1999. (7) Incorporated by reference to the Registrant's Registration Statement on Form S-4, 333-86269. (8) Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended December 31, 1999. (9) Incorporated by reference to the Registrants Report on Form 8-K dated November 14, 2000. (10) Incorporated by reference to the Registrants Reports on Form 8-K dated August 24, 2000. (11) Incorporated by reference to the Registrants Report on Form 8-K dated July 18, 2000. (12) Incorporated by reference to Cendant Corporations Quarterly Report on From 10-Q for the fiscal quarter ended September 30, 2000, dated as of November 14, 2000. (13) Incorporated by reference to the Registrants Report on Form 8-K dated April 2, 2001. 34 ~~ITEM: 6(B) REPORTS ON FORM 8-K None. 35~~

Two Months Ended February 28, 2001
PART II—OTHER INFORMATION
SIGNATURES
EXHIBIT INDEX