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

FORM 10-Q ~~FOR THE QUARTERLY PERIOD ENDED JUNE 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.) 900 OLD COUNTRY ROAD GARDEN CITY, NEW YORK 11530 (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: (516) 222-3000 Not Applicable (Former name, former address and former fiscal year, If changed since last report.) 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. INDEX 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 June 30, 2002 and 2001 ~~and~~	2
	Consolidated Condensed Statements of Operations for the six months ended June 30, ~~2000.................................................... 1 Operations for~~2002, the period March 1, 2001 (Date of Acquisition) to June 30, 2001 and the two months ended February 28, 2001	3
	Consolidated Condensed Balance Sheets as of June 30, 2002 and December 31, 2001	4
	Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2000....................................... 2 Financial Position as of June 30, 2001 and December 31, 2000................................................ 3 Cash Flows for2002, the period March 1, 2001 (Date of Acquisition) to June 30, 2001 and the two months ended February 28, 2001 ~~and the six months ended June 30, 2000............................... 4~~	5
	Notes to the Consolidated Condensed ~~Consolidated~~ Financial Statements ~~................................................ 5-22 ITEM~~	7
Item 2. ~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................. 23-30 ITEM~~	Management's Narrative Analysis of the Results of Operations	19
Item 3. ~~QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS..................................................... 31~~	Quantitative and Qualitative Disclosure about Market Risks	22
PART ~~II. OTHER ITEM 6(b). REPORTS ON FORM~~II	Other Information
Item 6.	Exhibits and Report on Form 8-K ~~................................................ 33~~	23
	Signatures	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 STATEMENTS OF OPERATIONS ~~(IN THOUSANDS) (UNAUDITED)~~
PREDECESSOR COMPANIES --------------------- THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, 2001 JUNE 30, 2000 ---------------- --------------------- Revenue ........................................................... $ 628,893 $ 666,597 ------------ ------------ Cost and expenses: Direct operating, net ............................................. 231,693 229,314 Vehicle depreciation and lease charges, net ....................... 173,664 172,096 Selling, general and administrative ............................... 116,540 119,536 Interest, net ..................................................... 70,476 101,966 Non-vehicle depreciation and amortization ......................... 5,228 4,830 Amortization of cost in excess of net assets acquired and other intangibles .................................................. 7,640 3,122 ------------ ------------ 605,241 630,864 ------------ ------------ Income from continuing operations before provision for income taxes .............................................. 23,652 35,733 Provision for income taxes ........................................ 13,753 16,510 ------------ ------------ Income from continuing operations ................................. 9,899 19,223 Income from discontinued operations, net of income taxes of $14,116 18,209 ------------ ------------ Net income ........................................................ 9,899 37,432 Preferred stock dividends ......................................... 4,667 ------------ ------------ Earnings applicable to common stockholders ........................ $ 9,899 $ 32,765 ============ ============

(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 STATEMENTS OF OPERATIONS ~~(IN THOUSANDS) (UNAUDITED)~~
PREDECESSOR COMPANIES ------------------------------------- MARCH 1, 2001 TWO MONTHS SIX MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, JUNE 30, JUNE 30, 2001 2001 2000 --------------------- -------------- ------------- Revenue ................................................. $ 846,889 $ 385,821 $ 1,255,473 ------------ -------------- ------------- Costs and expenses: Direct operating, net ................................... 310,365 173,830 456,008 Vehicle depreciation and lease charges, net ............. 228,759 111,966 319,328 Selling, general and administrative ..................... 154,115 83,229 234,139 Interest , net .......................................... 96,109 52,792 191,236 Non-vehicle depreciation and amortization ............... 6,785 4,154 9,613 Amortization of cost in excess of net assets acquired and other intangibles ................................. 10,510 2,087 6,281 ------------ -------------- ------------- 806,643 428,058 1,216,605 ------------ -------------- ------------- Income (loss) from continuing operations before provision (benefit) for income taxes ............................ 40,246 (42,237) 38,868 Provision (benefit) for income taxes .................... 21,652 (15,783) 17,403 ------------ -------------- ------------- Income (loss) from continuing operations ................ 18,594 (26,454) 21,465 Income from discontinued operation, net of income taxes of $5,045 for the two months ended February 28, 2001 and $29,248 for the six months ended June 30, 2000 ................................... 4,947 35,553 Cumulative effect from prior years (through December 31, 2000) of change in accounting principle for derivative instruments, net of income tax benefit of $3,331 ...... (7,612) ------------ -------------- ------------- Net income (loss) ....................................... 18,594 (29,119) 57,018 Preferred stock dividends ............................... 3,270 9,335 ------------ -------------- ------------- Earnings (loss) applicable to common stockholders ....... $ 18,594 $ (32,389) $ 47,683 ============ ============== =============

(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 ~~STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS)~~
PREDECESSOR COMPANIES ----------------- JUNE 30, 2001 DECEMBER 31, 2000 ------------- ----------------- (UNAUDITED) ASSETS Cash and cash equivalents ........................... $ 22,408 $ 80,368 Accounts receivable, net ............................ 375,660 508,328 Prepaid expenses .................................... 58,021 47,924 Property and equipment, net ......................... 200,580 181,504 Other assets ........................................ 30,330 78,972 Net assets of discontinued operation ................ 880,300 Deferred income tax assets, net ..................... 443,730 349,268 Customer lists ...................................... 19,498 Cost in excess of net assets acquired, net .......... 1,220,893 453,450 Assets under management programs: Restricted cash .................................. 154,153 167,482 Vehicles ......................................... 4,095,323 3,761,454 ----------- ----------- 4,249,476 3,928,936 ----------- ----------- Total assets .................................... $ 6,620,596 $ 6,509,050 =========== =========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Accounts payable .................................... $ 311,486 $ 283,556 Accrued liabilities ................................. 330,370 263,277 Due to Cendant Corporation and affiliates, net ...... 377,036 36,117 Public liability, property damage and other insurance liabilities, net ................................. 224,985 247,567 Non vehicle debt .................................... 600,788 730,333 Liabilities under management programs: Vehicle debt ..................................... 3,984,905 3,816,682 Deferred income taxes ............................ 371,949 376,404 ----------- ----------- 4,356,854 4,193,086 ----------- ----------- Total liabilities ............................... 6,201,519 5,753,936 ----------- ----------- Commitments and contingencies: Common stock Class A Common stock ................................ 359 Additional paid-in-capital .......................... 156,065 593,829 Retained earnings ................................... 266,953 277,460 Treasury stock ...................................... (96,538) Accumulated comprehensive loss ...................... (3,941) (19,996) ----------- ----------- Total common stockholders' equity ............... 419,077 755,114 ----------- ----------- Total liabilities and common stockholders' equity $ 6,620,596 $ 6,509,050 =========== ===========
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~~Notes to ~~the condensed consolidated financial statements. 3~~ ~~AVIS GROUP HOLDINGS, INC.~~ Consolidated Condensed Financial Statements.

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ~~(IN THOUSANDS) (UNAUDITED)~~
PREDECESSOR COMPANIES --------------------------- MARCH 1, 2001 TWO MONTHS SIX MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, JUNE 30, JUNE 30, 2001 2001 2000 --------------------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) .................................................. $ 18,594 $ (29,119) $ 57,018 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Changes operating assets and liabilities: .......................... 7 21 Non-vehicle depreciation and amortization ....................... 17,349 7,152 21,218 Accounts receivable ............................................. (11,623) 26,476 (47,511) Accounts payable ................................................ (18,937) (33,889) 5,983 Due to Cendant-trading accounts ................................. (38,046) (45,096) 40,859 Accrued liabilities ............................................. (3,789) 1,486 (17,492) Other, net ...................................................... (8,681) (8,091) (24,854) Management programs: Vehicle depreciation ............................................ 214,575 105,928 304,800 Restricted cash ................................................. 2,351 10,978 (45,081) Current and deferred income taxes ............................... 13,808 (17,744) 7,403 ----------- --------- ----------- 230,734 99,162 267,122 ----------- --------- ----------- Net cash provided by operating activities ....................... 185,601 18,081 302,343 ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Payments for vehicle additions ............................... (1,908,093) (943,102) (2,750,798) Vehicle deletions ............................................ 1,549,727 813,460 1,841,090 Payments for additions to property and equipment ................... (17,617) (3,278) (19,432) Retirements of property and equipment .............................. 2,795 (380) 5,522 Payment for purchase of rental car franchise licensees ............. (19,047) Increase in net assets and preferred stock of discontinued operation (291) (35,443) Net cash used in investing activities .............................. (392,235) (133,591) (959,061) ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Changes in vehicle debt: Proceeds ..................................................... 916,633 132,294 677,656 Repayments ................................................... (786,470) (31,087) ----------- --------- ----------- Net increase in vehicle debt ................................. 130,163 101,207 677,656 Changes in non-vehicle debt: Proceeds ........................................................... 140,000 86,000 Repayments ......................................................... (457,806) (77) (96,715) ----------- --------- ----------- Net decrease in non-vehicle debt ................................... (317,806) (77) (10,715) Due to Cendant-intercompany financing, net ......................... 354,928 Payments for debt issuance costs ................................... (4,231) (12) (5,127) Other .............................................................. 140 ----------- --------- ----------- Net cash provided by financing activities .......................... 163,054 101,258 661,814 ----------- --------- ----------- Effect of exchange rate changes on cash ............................ (117) (11) (175) ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents ............... (43,697) (14,263) 4,921 Cash and cash equivalents at beginning of period ................... 66,105 80,368 31,901 ----------- --------- ----------- Cash and cash equivalents at end of period ......................... $ 22,408 $ 66,105 $ 36,822 =========== ========= =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid ................................................. $ 108,764 $ 44,315 $ 199,869 =========== ========= =========== Cash income taxes paid ............................................. $ 8,889 $ 1,962 $ 9,154 =========== ========= =========== Businesses acquired: Fair value of assets acquired, net of cash acquired of $182 ........ $ 21,542 Liabilities assumed ................................................ 2,495 ----------- Net cash paid for acquisitions ..................................... $ 19,047 ===========

(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 ~~(UNAUDITED) NOTE 1-BASIS OF PRESENTATION GENERAL Prior to March 1, 2001,~~
(Unless otherwise noted, all amounts are in thousands)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Consolidated Condensed Financial Statements include the ~~accompanying condensed consolidated financial statements include~~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 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 June 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 4).~~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~~Acquisition) to June 30, 2001 and ~~the three months ended June 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 six months ended June 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 2)~~(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 June 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, which may be significant, 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 948,705 ----------- Excess purchase price over net assets acquired .................................... $ 1,214,662 ===========
5 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Certain prior period amounts have been reclassified for comparability.

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 ("SFAS") No. ~~133, "Accounting for Derivative Instruments~~142 "Goodwill and Hedging Activities," ("SFAS No. 133") as amended. SFAS No. 133, establishes accounting and reporting standards for derivative instruments, including freestanding and embedded derivatives, and for hedging activities. The Company has recorded all such derivatives at fair value at January 1, 2001. The adoption of SFAS No. 133 resultedOther Intangible Assets" 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 attributable to derivatives designated as cash flow like hedges priorits entirety. Prior to the adoption of SFAS No. ~~133. The Company uses derivative financial instruments as part of its overall strategy~~142, all intangible assets were amortized on a straight-line basis over their estimated periods to ~~manage its exposure~~be benefited. Subsequent to ~~market risks associated with interest rate risks. As a matter of policy,~~the adoption, the Company ~~does~~did not ~~use derivatives for trading~~amortize any goodwill or ~~speculative purposes. All derivatives are recorded at fair value either as~~indefinite-lived intangible assets ~~or liabilities. Gains or losses on derivatives designated as cash flow hedges, to~~during 2002.

In connection with the extent effective, are recorded in other comprehensive income (loss). Any ineffectiveness in these cash flow hedges is reported 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 pronouncementsimplementation of ~~the Financial Accounting Standards Board which are not required to be adopted at this date is Statement of Financial Accounting Standards ("SFAS") SFAS No. 141 "Business Combinations" and~~ SFAS No. 142, ~~"Goodwill and Other Intangible Assets". SFAS No. 141 requires~~ the use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby prohibiting the use of the pooling-of-interests method, and additional disclosures regarding the primary reasons for a business combination, the allocation of the purchase price paid to the assets acquired and liabilities assumed by major balance sheet caption and other information about goodwill and intangible assets when the amount of these assets are material. Additionally, this statement provides new criteria, which applies to business combinations completed after June 30, 2001, to determine which acquired intangible assets should be recognized separately from goodwill. Those intangible assets, recognized separately from goodwill, will be amortized over their estimated useful lives. SFAS No. 142 requires that goodwill and certain intangible assets, acquired in transactions completed after June 30, 2001, no longer be subject to amortization over their estimated useful lives. The Company ~~will be~~is required to assess ~~these~~goodwill and indefinite-lived intangible assets for ~~potential~~ impairment ~~periodically, and~~annually, or more frequently if circumstances indicate ~~a possible impairment.~~impairment may have occurred. The ~~statement also requires~~Company reviewed the ~~Company to continue to amortize goodwill and certain intangible assets existing at June 30, 2001 through December 31, 2001. The provisions~~carrying value of ~~the statement are required to be applied in fiscal years beginning after December 15, 2001 to~~ all its goodwill and other intangible assets ~~recognized~~by comparing such amounts to their fair value and determined that the carrying amounts of such assets did not exceed their respective fair values. Accordingly, the 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 ~~sheet~~ 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 ~~date, regardless~~restricted cash was depleted through the normal purchase of ~~when those~~vehicles.

4. Intangible Assets

Intangible assets ~~were initially recognized. 6~~ ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 1-BASIS OF PRESENTATION (CONTINUED) During~~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 the ~~four~~Company's Consolidated Condensed Balance Sheet. Amortization expense relating to customer lists during the three and six months ended June 30, ~~2001, the Company recorded amortization~~2002 was approximately $240 thousand and $480 thousand, respectively. Amortization expense ~~related~~relating to ~~these~~all intangible assets ~~of $10.5 million. During~~during the two months ended February 28, 2001 and the years ended December 31, 2000 and December 31, 1999 amortization expense related to the intangible assets of the predecessor company excluding the discontinued operation was $2.1 million, $12.5 million, and $12.6 million, respectively. NOTE 2-DISCONTINUED OPERATION In connection with the acquisition of the Company by Cendant onperiod March 1, 2001 (Date of Acquisition) to June 30, 2001, was approximately $2.1 million and $10.5 million, respectively, including the amortization of goodwill of $2.1 million and $10.2 million, respectively. The Company expects amortization expense on intangible assets for the remainder of 2002 to approximate $480 thousand and $1 million for each of the succeeding five years.

The changes in the carrying amount 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 ~~sold its investment in Vehicle Leasing~~applied the non-amortization provisions of SFAS No. 142 for ~~$800 million to PHH Corp. (see Note 1). No gain or loss was recognized on~~ the ~~sale. Summarized financial data of the discontinued operation of the Predecessor is as follows (in thousands):~~
VEHICLE LEASING ---------------------------------------------------- TWO MONTHS SIX MONTHS THREE MONTHS ENDED ENDED ENDED FEBRUARY 28, 2001 JUNE 30, 2000 JUNE 30, 2000 ----------------- ------------- ------------- Revenue .............................................................. $ 255,548 $ 854,028 $ 429,871 ============ ============ ============ Income before provision for income taxes and cumulative effect of change in accounting principle, net of income tax benefit $ 9,992 $ 64,801 $ 32,325 Provision for income taxes ........................................... 5,045 29,248 14,116 ------------ ------------ ------------ Net income ........................................................... $ 4,947 $ 35,553 $ 18,209 ============ ============ ============
~~Income before provision for income taxes and cumulative effect of change in accounting principle, net of income tax benefit for the two months ended February 28, 2001, the six and~~ three months ended June 30, 2000, include certain intercompany charges from the Predecessor Companies. These charges seek to reimburse the Predecessor Companies for the costs it had incurred on behalf of Vehicle Leasing as follows (in thousands):
TWO MONTHS SIX MONTHS THREE MONTHS ENDED ENDED ENDED FEBRUARY 28, 2001 JUNE 30, 2000 JUNE 30, 2000 ----------------- ------------- ------------- Interest on intercompany loans ........................................ $ 342 $ 6,387 $ 3,053 Employee benefits costs ............................................... 963 2,825 1,397 ------------ ------------ ------------ $ 1,305 $ 9,212 $ 4,450 ============ ============ ============
~~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 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 ==========
7 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 3-COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) is comprised of the following (in thousands):
PREDECESSOR COMPANIES MARCH 1, 2001 ---------------------------------- (DATE OF ACQUISITION) TWO MONTHS SIX MONTHS TO ENDED ENDED JUNE 30, 2001 FEBRUARY 28, 2001 JUNE 30, 2000 --------------------- ----------------- ------------- Net income (loss) ..................................................... $ 18,594 $(29,119) $ 57,018 Foreign currency translation adjustment, net of income taxes .......... (1,175) (1,775) (27,820) Cumulative effect from change in accounting principle for derivative instruments, net of income taxes ........................ 1,229 (Losses) gains on derivative instruments, net of income taxes ......... (2,766) 813 -------- -------- -------- Comprehensive income (loss) ........................................... $ 14,653 $(28,852) $ 29,198 ======== ======== ========
~~NOTE 4-FINANCING AND DEBT Debt outstanding consists of the following (in thousands):~~
PREDECESSOR COMPANIES ------------- JUNE 30, DECEMBER 31, 2001 2000 ---------- ------------ VEHICLE DEBT Commercial Paper Notes .................................................... $ 129,985 $ 919,800 Short-term notes-foreign .................................................. 214,920 196,882 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 ..... 190,000 ---------- ---------- TOTAL VEHICLE DEBT ................................................ 3,984,905 3,816,682 ---------- ---------- NON-VEHICLE DEBT Senior Subordinated Notes due May 2009 at 11.00% .......................... 595,690 500,000 Revolving credit facility due June 2005 ................................... 225,000 Other ..................................................................... 5,098 5,333 ---------- ---------- TOTAL NON-VEHICLE DEBT ............................................ 600,788 730,333 ---------- ---------- TOTAL DEBT ........................................................ $4,585,693 $4,547,015 ========== ==========
8 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 4-FINANCING AND DEBT (CONTINUED) On March 2, 2001, one of the Company's 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 the Company's vehicles. Anticipated principal repayment on the Series 2001-1 Notes commence in 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 by MBIA 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 the medium term notes. 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"). The Series 2001-2 Notes 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 auction rate notes, the Company issued $65 million of additional notes which brought the total outstanding series 2001-2 notes to $190 million at June 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 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 $8.2 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 June 30, 2001 was $595.7 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. NOTE 5-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 Condensed Consolidating Statements of Financial Position as of June 30, 2001 and ~~December 31, 2000 and the results of operations~~ for the period March 1, 2001 (Date of Acquisition) to June 30, 2001 ~~six months ended June 30, 2001,~~and the 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 June 30, 2002, the Company's asset-backed funding arrangements under the AESOP Funding program provided for the issuance of up to $4.14 billion of debt. Amounts outstanding under the AESOP Funding program approximated $3.85 billion. As of June 30, 2002, the Company had an additional $291 million of availability under the AESOP Funding program. In addition, the Company 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 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 a fixed rate of 3.85% and approximately $250 million of such notes bear interest at a floating rate of 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, ~~2001~~2002 and June 30, ~~2000. 9~~ AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) The2001 and the Consolidating Condensed ~~Consolidated~~ Statements of Operations and Statements of Cash Flows for the six months ended June 30, 2002, the 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 ~~three~~Company on a consolidated basis.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and ~~six month periods~~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, ~~2000 present~~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 ~~results of operations of Vehicle Leasing as income from discontinued operations, net of~~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 ~~related income tax provision.~~
~~AVIS GROUP HOLDINGS, INC CONDENSED~~ 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 STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS) ------------------------------------------------------------------------------ NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------ ------------ ------------ -------------- Revenue ....................................... $570,551 $ 58,342 $ 628,893 -------- --------- -------- Costs and expenses: Direct operating, net ......................... 206,190 25,503 231,693 Vehicle depreciation and lease charges, net ... 161,095 12,569 173,664 Selling, general and administrative ........... 108,548 7,992 116,540 Interest, net ................................. $ 11,809 58,242 425 70,476 Non-vehicle depreciation and amortization ..... 4,547 681 5,228 Amortization of cost in excess of net assets acquired and other intangibles ...... 4,746 2,850 44 7,640 -------- -------- --------- -------- 16,555 541,472 47,214 605,241 -------- -------- --------- -------- (16,555) 29,079 11,128 23,652 Equity in earnings of subsidiaries ............ 28,021 9,528 $(37,549) -------- -------- --------- -------- -------- Income before provision for income taxes ...... 11,466 38,607 11,128 (37,549) 23,652 Provision for income taxes .................... 1,567 10,586 1,600 13,753 -------- -------- --------- -------- -------- Net income .................................... $ 9,899 $ 28,021 $ 9,528 $(37,549) $ 9,899 ======== ======== ========= ======== ========
AVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) THREE MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS) --------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ --------------- Revenue ............................................. $ 608,411 $58,186 $666,597 --------- ------- ------- Costs and expenses: Direct operating, net ............................... 204,842 24,472 229,314 Vehicle depreciation and lease charges, net ......... 158,175 13,921 172,096 Selling, general and administrative ................. 111,700 7,836 119,536 Interest, net ....................................... $ 40,207 60,941 818 101,966 Non-vehicle depreciation and amortization ........... 4,161 669 4,830 Amortization of cost in excess of net assets acquired and other intangibles ............ 3,078 44 3,122 --------- --------- ------- -------- 40,207 542,897 47,760 630,864 --------- --------- ------- ------ (40,207) 65,514 10,426 35,733 Equity in earnings of subsidiaries .................. 63,406 32,472 $ (95,878) --------- --------- ------- ----------- -------- Income from continuing operations before (benefit) provision for income taxes ....................... 23,199 97,986 10,426 (95,878) 35,733 (Benefit) provision for income taxes ................ (14,233) 28,698 2,045 16,510 --------- --------- ------- ----------- -------- Income from continuing operations ................... 37,432 69,288 8,381 (95,878) 19,223 Income (loss) from discontinued operation, net of income taxes ...................................... (5,882) 24,091 18,209 --------- --------- ------- ----------- -------- Net income ........................................ $ 37,432 $ 63,406 $32,472 $ (95,878) $ 37,432 ========= ========= ======= =========== ========
10 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE~~ CONDENSED ~~CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-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 JUNE 30, 2001 (IN THOUSANDS) -------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- Revenue $ 767,986 $ 78,903 $ 846,889 ----------- ------------ ------------ Costs and expenses: Direct operating, net............................... 275,749 34,616 310,365 Vehicle depreciation and lease charges, net......... 210,001 18,758 228,759 Selling, general and administrative................. 143,494 10,621 154,115 Interest, net....................................... $ 16,246 79,002 861 96,109 Non-vehicle depreciation and amortization........... 5,887 898 6,785 Amortization of cost in excess of net assets acquired and other intangibles............ 6,574 3,878 58 10,510 ----------- ----------- ------------ ------------ 22,820 718,011 65,812 806,643 ----------- ----------- ------------ ------------ Equity in earnings of subsidiaries.................. 39,223 10,739 $ (49,962) ----------- ----------- ------------ ------------ ------------ Income before (benefit) provision for income taxes . 16,403 60,714 13,091 (49,962) 40,246 (Benefit) provision for income taxes................ (2,191) 21,491 2,352 21,652 ----------- ----------- ------------ ------------ ------------ Net income.......................................... $ 18,594 $ 39,223 $ 10,739 $ (49,962) $ 18,594 =========== =========== ============ ============ ============
AVIS GROUP HOLDINGS, INC CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) 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) from continuing operations before (benefit) provision for income taxes ...................... (33,380) (25,594) 5,728 11,009 (42,237) (Benefit) provision 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) (Loss) income from discontinued operations, net of income taxes .............................................. (6,358) 11,305 4,947 Cumulative effect from prior years (through December 31, 2000) of change in accounting principle for derivative instruments, net of income tax benefit .................... (2,671) (4,941) (7,612) --------- -------- --------- -------- --------- Net (loss) income ............................................ $ (29,119) $(21,907) $ 10,898 $ 11,009 $ (29,119) ========= ======== ========= ======== =========
11 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR COMPANIES) SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS) ---------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ----------- ------------ ------------ -------------- Revenue ........................................... $ 1,134,360 $ 121,113 $ 1,255,473 ----------- ------------ ------------ Costs and expenses: Direct operating, net.............................. 401,713 54,295 456,008 Vehicle depreciation and lease charges, net........ 289,510 29,818 319,328 Selling, general and administrative................ 217,692 16,447 234,139 Interest, net...................................... $ 80,249 109,720 1,267 191,236 Non-vehicle depreciation and amortization.......... 8,252 1,361 9,613 Amortization of cost in excess of net assets acquired................................. 6,192 89 6,281 ----------- ----------- ------------ ------------ 80,249 1,033,079 103,277 1,216,605 ----------- ----------- ------------ ------------ (80,249) 101,281 17,836 38,868 Equity in earnings of subsidiaries................. 107,458 62,027 $ (169,485) ----------- ----------- ------------ ----------- ------------ Income from continuing operations before (benefit) provision for income taxes ..................... 27,209 163,308 17,836 (169,485) 38,868 (Benefit) provision for income taxes............... (29,809) 43,218 3,994 17,403 ----------- ----------- ------------ ----------- ------------ Income from continuing operations.................. 57,018 120,090 13,842 (169,485) 21,465 Income (loss) from discontinued operation, net of income taxes.................................... (12,632) 48,185 35,553 ----------- ----------- ------------ ----------- ------------ Net income......................................... $ 57,018 $ 107,458 $ 62,027 $ (169,485) $ 57,018 =========== =========== ============ =========== ============
12 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION JUNE 30, 2001 (IN THOUSANDS) ------------------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ -------------- ASSETS Cash and cash equivalents .................... $ 305 $ 4,627 $ 17,476 $ 22,408 Accounts receivable, net ..................... (12) 169,620 206,052 375,660 Prepaid expenses ............................. 49,491 8,530 58,021 Property and equipment, net .................. 184,683 15,897 200,580 Investment in consolidated subsidiaries ...... 762,718 611,537 $(1,374,255) Other assets ................................. (2,580) 32,910 30,330 Deferred income tax assets, net .............. 182,559 261,795 (624) 443,730 Intangible assets - customer lists ........... 19,498 19,498 Cost in excess of net assets acquired, net ... 756,951 461,231 2,711 1,220,893 Management programs: Restricted cash ........................... 1 154,152 154,153 Vehicles, net ............................. (72,004) 4,167,327 4,095,323 ----------- ----------- ---------- (72,003) 4,321,479 4,249,476 ----------- ----------- ----------- ----------- ---------- Total assets ................................. $ 1,722,019 $ 1,668,401 $ 4,604,431 $(1,374,255) $6,620,596 =========== =========== =========== =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Accounts payable and accrued liabilities ..... $ 10,151 $ 428,508 $ 203,197 $ 641,856 Due to Cendant Corporation and affiliates, net 697,101 (33,108) (286,957) 377,036 Public liability, property damage and other insurance liabilities, net ................ 171,810 53,175 224,985 Non-vehicle debt ............................. 595,690 5,098 600,788 Management programs: Vehicle debt .............................. 3,984,905 3,984,905 Deferred income taxes ..................... 333,375 38,574 371,949 ----------- ----------- ---------- 333,375 4,023,479 4,356,854 ----------- ----------- ----------- ----------- ---------- Common stockholder's equity .................. 419,077 762,718 611,537 (1,374,255) 419,077 ----------- ----------- ----------- ----------- ---------- Total liabilities and stockholder's equity ... $ 1,722,019 $ 1,668,401 $ 4,604,431 $(1,374,255) $6,620,596 =========== =========== =========== =========== ==========
13 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-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 Accounts receivable, net......................... 156 172,255 335,917 508,328 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 Management programs: Restricted cash............................... 167,482 167,482 Vehicles, net................................. (50,804) 3,812,258 3,761,454 ----------- ------------ ------------- (50,804) 3,979,740 3,928,936 ------------ ----------- ------------ ------------ ------------- Total assets..................................... $ 1,491,108 $ 3,234,856 $ 4,058,859 $ (2,275,773) $ 6,509,050 ============ =========== ============ ============ ============= LIABILITIES AND COMMON STOCKHOLDER'S 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 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 ------------ ----------- ------------ ------------ ----------- Common stockholder's equity...................... 755,114 2,276,599 (826) $ (2,275,773) 755,114 ------------ ----------- ------------ ------------ ----------- Total liabilities and common stockholder's equity $ 1,491,108 $ 3,234,856 $ 4,058,859 $ (2,275,773) $ 6,509,050 ============ =========== ============ ============ ===========
14 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-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 JUNE 30, 2001 (IN THOUSANDS) -------------------------------------------------------------------- AVIS GROUP NON- HOLDINGS, INC. PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED --------- ----------- ----------- ------------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ...................................... $ 18,594 $ 39,223 $ 10,739 $ (49,962) $ 18,594 Adjustments to reconcile net income to net cash provided by (used in) operating activities: ........ 338,443 85,375 (256,811) 167,007 --------- ----------- ----------- --------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 357,037 124,598 (246,072) (49,962) 185,601 --------- ----------- ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Payments for vehicle additions ..................... (49,032) (1,859,061) (1,908,093) Vehicle deletions .................................. (180,748) 1,730,475 1,549,727 Payments for additions to property and equipment ....... (17,146) (471) (17,617) Retirements of property and equipment .................. 2,750 45 2,795 Payment for purchase of rental car franchise licensees . (18,748) (299) (19,047) Investment in subsidiaries ............................. (39,223) (10,739) 49,962 --------- ----------- ----------- --------- ----------- NET CASH (USED IN) INVESTING ACTIVITIES ........... (39,223) (273,663) (129,311) 49,962 (392,235) --------- ----------- ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Net (decrease) increase in vehicle debt ............ (8,744) 138,907 130,163 Net decrease in non-vehicle debt ....................... (317,650) (156) (317,806) Due to Cendant intercompany financing, net ............. 130,078 224,850 354,928 Payments for debt issuance costs ....................... (4,231) (4,231) --------- ----------- ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (317,650) 116,947 363,757 163,054 --------- ----------- ----------- ----------- Effect of exchange rate changes on cash ................ (117) (117) --------- ----------- ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents ... 164 (32,118) (11,743) (43,697) Cash and cash equivalents at beginning of period ....... 141 36,745 29,219 66,105 --------- ----------- ----------- --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 305 $ 4,627 $ 17,476 $ $ 22,408 ========= =========== =========== ========= =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid ................................. $ 108,764 =========== Cash income taxes paid ............................. $ 8,889 ===========
15 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-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 to net cash (used in) provided by operating activities: ........ (84,860) 86,236 45,824 47,200 --------- --------- --------- --------- --------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (113,979) 64,329 56,722 11,009 18,081 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Payments for vehicle additions ..................... (1,843) (941,259) (943,102) Vehicle deletions .................................. (82,138) 895,598 813,460 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 operations ............................. 5,132 (5,423) (291) Investment in subsidiaries ............................. 21,907 (10,898) (11,009) --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 21,907 (93,095) (51,394) (11,009) (133,591) 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 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) 14,562 (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 ========= ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid ................................. $ 44,315 ========= Cash income taxes paid ............................. $ 1,962 =========
16 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5-GUARANTOR AND NON-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
AVIS GROUP HOLDINGS, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (PREDECESSOR COMPANIES) SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS) ----------------------------------------------------------------------- NON- AVIS GROUP GUARANTOR GUARANTOR HOLDINGS, INC. PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................. $ 57,018 $ 107,459 $ 62,027 $(169,486) $ 57,018 Adjustments to reconcile net income to net cash provided by (used in) operating activities: ....... 60,915 847,033 (662,624) 1 245,325 --------- ----------- ----------- --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 117,933 954,492 (600,597) (169,485) 302,343 --------- ----------- ----------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Management programs: Payments for vehicle additions ..................... (7,841) (2,742,957) (2,750,798) Vehicle deletions .................................. (271,269) 2,112,359 1,841,090 Payments for additions for property and equipment ...... (18,352) (1,080) (19,432) Retirements of property and equipment .................. 5,145 377 5,522 (Decrease) increase in net assets and preferred stock of discontinued operations ............................ (602,073) 566,630 (35,443) Investment in subsidiaries ............................. (107,458) (62,027) 169,485 --------- ----------- ----------- --------- --------- NET CASH (USED IN) INVESTING ACTIVITIES ........... (107,458) (956,417) (64,671) 169,485 (959,061) --------- ----------- ----------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Management programs: Net increase in (repayment of) vehicle debt ........ 677,656 677,656 Net decrease in non-vehicle debt ....................... (10,500) (215) (10,715) Payments for debt issuance costs ....................... (5,127) (5,127) --------- ----------- ----------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (10,500) (5,342) 677,656 661,814 --------- ----------- ----------- --------- Effect of exchange rate changes on cash ................ (175) (175) --------- ----------- ----------- --------- Net (decrease) increase in cash and cash equivalents ... (25) (7,267) 12,213 4,921 Cash and cash equivalents at beginning of period ....... 54 24,797 7,050 31,901 --------- ----------- ----------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 29 $ 17,530 $ 19,263 $ $ 36,822 ========= =========== =========== ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash interest paid ................................. $ 199,869 ========= Cash income taxes paid ............................. $ 9,154 =========
17 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 6-SEGMENT INFORMATION The Company previously operated in two segments, vehicle leasing and vehicle rental. Subsequent toSTATEMENT OF OPERATIONS
For the ~~sale of Vehicle Leasing on~~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 ~~Company operates~~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 ~~one industry segment,~~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 ~~vehicle~~second largest general use car rental business. The Company's vehicle rental business rents vehicles to business and leisure travelers, and is divided into four main geographic areas: the United States, Australia/New Zealand, Canada, and other Foreign Operations. Revenue generated from vehicle rental operations is recordedbrand in the ~~country in which~~world. On March 1, 2001, all of our outstanding common stock not then-owned by Cendant Corporation ("Cendant") was acquired by a ~~vehicle is rented. EBITDA represents net income, plus, non-vehicle related interest expense, non-vehicle depreciation~~subsidiary of PHH Corporation ("PHH"), a wholly-owned subsidiary of Cendant, for approximately $994 million and ~~amortization~~we emerged as the surviving legal entity. At such time, our fleet management and ~~income taxes from vehicle rental operations (in thousands).~~
GEOGRAPHIC AREAS THREE MONTHS ENDED JUNE 30, 2001 ------------------------------------------------------------------------ AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ---------- --------- -------- ------------- Revenue ...................................... $ 570,552 $ 24,093 $ 26,101 $ 8,147 $ 628,893 =========== ======== ========= ======== =========== Interest, net ................................ $ 68,873 $ 90 $ 1,282 $ 231 $ 70,476 =========== ======== ========= ======== =========== EBITDA ....................................... $ 42,901 $ 3,499 $ 4,122 $ 1,295 $ 51,817 Non-fleet interest ........................... (9,570) (9,570) Intercompany interest ........................ (5,007) (5,007) Non-vehicle depreciation and amortization .... (12,126) (267) (313) (162) (12,868) Corporate allocations ........................ (720) (720) ----------- -------- --------- -------- ----------- Income before provision for income taxes ..... 15,478 3,232 3,809 1,133 23,652 Provision for income taxes ................... 12,151 203 1,119 280 13,753 ----------- -------- --------- -------- ----------- Net income ................................... $ 3,327 $ 3,029 $ 2,690 $ 853 $ 9,899 =========== ======== ========= ======== =========== Vehicles, net ................................ $ 3,739,826 $ 47,495 $ 274,287 $ 33,715 $ 4,095,323 =========== ======== ========= ======== =========== Debt ......................................... $ 4,370,773 $ 15,867 $ 190,911 $ 8,142 $ 4,585,693 =========== ======== ========= ======== =========== Total assets ................................. $ 6,154,458 $ 78,458 $ 321,763 $ 65,917 $ 6,620,596 =========== ======== ========= ======== =========== Capital expenditures for vehicles and property and equipment ............................ $ 1,291,851 $ 6,941 $ 128,442 $ 3,014 $ 1,430,248 =========== ======== ========= ======== ===========
18 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 6-SEGMENT INFORMATION (CONTINUED)~~
GEOGRAPHIC AREAS THREE MONTHS ENDED JUNE 30, 2000 (PREDECESSOR COMPANIES) ------------------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ---------- -------- ---------- ------------ Revenue ........................................... $ 608,410 $ 25,486 $ 24,670 $ 8,031 $ 666,597 =========== ======== ======== ======== =========== Interest and minority interest expense, net ....... $ 99,969 $ 86 $ 1,794 $ 117 $ 101,966 =========== ======== ======== ======== =========== EBITDA ............................................ $ 76,868 $ 4,483 $ 3,776 $ 1,469 $ 86,596 Non-fleet interest ................................ (35,998) (35,998) Non-vehicle depreciation and amortization ......... (14,132) (299) (297) (137) (14,865) Income before provision for income taxes and income from discontinued operations, net of ----------- -------- -------- -------- ----------- provision for income taxes ..................... 26,738 4,184 3,479 1,332 35,733 ----------- -------- -------- -------- ----------- Provision for income taxes ........................ 14,465 830 864 351 16,510 ----------- -------- -------- -------- ----------- Income from continuing operations ................. 12,273 3,354 2,615 981 19,223 ----------- -------- -------- -------- ----------- Income from discontinued operations, net of provision for income taxes of $14,116 .......... 7,975 962 9,272 18,209 ----------- -------- -------- -------- ----------- Net income ........................................ $ 20,248 $ 3,354 $ 3,577 $ 10,253 $ 37,432 =========== ======== ======== ======== =========== Capital expenditures for vehicles and property and equipment ................................. $ 1,082,868 $ 3,736 $ 99,003 $ 2,234 $ 1,187,841 =========== ======== ======== ======== ===========
FOR THE PERIOD MARCH 1, 2001 GEOGRAPHIC AREAS (DATE OF ACQUISITION) TO JUNE 30, 2001 ---------------------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ---------- --------- ---------- ------------- Revenue .......................................... $ 767,987 $ 34,271 $ 33,284 $ 11,347 $ 846,889 =========== ======== ========= ======== =========== Interest, net .................................... $ 93,826 $ 163 $ 1,792 $ 328 $ 96,109 =========== ======== ========= ======== =========== EBITDA ........................................... $ 64,795 $ 6,289 $ 4,783 $ 2,057 $ 77,924 Non-fleet interest ............................... (14,656) (14,656) Intercompany interest ............................ (5,007) (5,007) Non-vehicle depreciation and amortization ........ (16,319) (354) (411) (211) (17,295) Corporate allocations ............................ (720) (720) ----------- -------- --------- -------- ----------- Income before provision for income taxes ......... 28,093 5,935 4,372 1,846 40,246 ----------- -------- --------- -------- ----------- Provision for income taxes ....................... 19,300 744 1,178 430 21,652 ----------- -------- --------- -------- ----------- Net income ....................................... $ 8,793 $ 5,191 $ 3,194 $ 1,416 $ 18,594 =========== ======== ========= ======== =========== Vehicles, net .................................... $ 3,739,826 $ 47,495 $ 274,287 $ 33,715 $ 4,095,323 =========== ======== ========= ======== =========== Debt ............................................. $ 4,370,773 $ 15,867 $ 190,911 $ 8,142 $ 4,585,693 =========== ======== ========= ======== =========== Total assets ..................................... $ 6,154,458 $ 78,458 $ 321,763 $ 65,917 $ 6,620,596 =========== ======== ========= ======== =========== Capital expenditures for vehicles and property and equipment ................................ $ 1,761,127 $ 10,017 $ 150,340 $ 4,226 $ 1,925,710 =========== ======== ========= ======== ===========
19 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 6-SEGMENT INFORMATION (CONTINUED)~~
GEOGRAPHIC AREAS TWO MONTHS ENDED FEBRUARY 28, 2001 (PREDECESSOR COMPANIES) ---------------------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ---------- --------- ---------- ------------- Revenue ........................................... $ 344,496 $ 21,547 $ 13,241 $ 6,537 $ 385,821 =========== ======== ========= ======= =========== Interest and minority interest expense, net ....... $ 51,062 $ 297 $ 1,188 $ 245 $ 52,792 =========== ======== ========= ======= =========== EBITDA ............................................ $ (30,517) $ 4,885 $ 576 $ 1,341 $ (23,715) Non-fleet interest ................................ (8,667) (8,667) Non-vehicle depreciation and amortization ......... (9,370) (187) (203) (95) (9,855) (Loss) income from continuing operations before ----------- -------- --------- ------- ----------- provision for income taxes ..................... (48,554) 4,698 373 1,246 (42,237) ----------- -------- --------- ------- ----------- (Benefit) provision for income taxes .............. (16,977) 1,127 (206) 273 (15,783) ----------- -------- --------- ------- ----------- (Loss) income from continuing operations .......... (31,577) 3,571 579 973 (26,454) ----------- -------- --------- ------- ----------- Income from discontinued operations, net of provision for income taxes of $5,045 ........... 4,947 4,947 Cumulative effect of change in accounting principle, net of (benefit) for income taxes of $3,331 ...................................... (7,552) (60) (7,612) ----------- -------- --------- ------- ----------- Net (loss) income ................................. $ (34,182) $ 3,571 $ 519 $ 973 $ (29,119) =========== ======== ========= ======= =========== Capital expenditures for vehicles and property and equipment .................................. $ 1,272,297 $ 9,254 $ 147,545 $ 8,211 $ 1,437,307 =========== ======== ========= ======= ===========
GEOGRAPHIC AREAS SIX MONTHS ENDED JUNE 30, 2000 (PREDECESSOR COMPANIES) ---------------------------------------------------------------------------- AUSTRALIA/ OTHER UNITED NEW FOREIGN STATES ZEALAND CANADA OPERATIONS CONSOLIDATED ----------- ---------- --------- ---------- ------------- Revenue .......................................... $ 1,134,360 $ 60,559 $ 44,023 $ 16,531 $ 1,255,473 =========== ======== ========= ======== =========== Interest and minority interest expense, net ...... $ 187,706 $ 354 $ 2,858 $ 318 $ 191,236 =========== ======== ========= ======== =========== EBITDA ........................................... $ 120,294 $ 12,401 $ 5,113 $ 2,589 $ 140,397 Non-fleet interest ............................... (71,831) (71,831) Non-vehicle depreciation and amortization ........ (28,204) (620) (598) (276) (29,698) Income from continuing operations before ----------- -------- --------- -------- ----------- provision for income taxes .................... 20,259 11,781 4,515 2,313 38,868 ----------- -------- --------- -------- ----------- Provision for income taxes ....................... 13,409 2,628 813 553 17,403 ----------- -------- --------- -------- ----------- Income from continuing operations ................ 6,850 9,153 3,702 1,760 21,465 ----------- -------- --------- -------- ----------- Income from discontinued operations, net of provision for income taxes of $29,248 ......... 14,480 1,808 19,265 35,553 ----------- -------- --------- -------- ----------- Net income ....................................... $ 21,330 $ 9,153 $ 5,510 $ 21,025 $ 57,018 =========== ======== ========= ======== =========== Capital expenditures for vehicles and property and equipment ................................ $ 2,515,897 $ 23,378 $ 218,589 $ 12,366 $ 2,770,230 =========== ======== ========= ======== ===========
20 ~~AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 7-DERIVATIVES The Company's operations~~fuel card businesses were sold to PHH and, therefore, are ~~primarily funded through~~presented as a ~~combination of asset-backed floating rate notes and commercial paper programs~~discontinued operation in the ~~United States~~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 ~~Canada. Consistent with its historical risk management policies,~~stockholder's equity. The periods prior to the ~~Company uses interest rate swaps and caps to hedge interest rate risks on its debt and to create a mix of fixed and floating rate debt. Certain interest rate swaps~~acquisition have been designated ~~as cash flow hedges~~"Predecessor Companies" and the period subsequent to the acquisition has been designated "Successor Company". The results of ~~interest rate risk on~~ the ~~Company's floating rate medium-term notes. Certain cash flow hedge contracts extend into 2004. For~~Predecessor Companies and the Successor Company have been combined for the six months ended June 30, 2001 since we believe that separate discussions for the two months ended February 28, 2001 and the four months ended June 30, 2001 ~~no ineffectiveness was recognized on these hedges. Amounts accumulated~~are not meaningful in ~~other comprehensive income (loss) are reclassified into earnings as interest is accrued on~~terms of our operating results or comparisons to the hedged transactions. Over the next 12 months, net losses of approximately $4.5 million are expected to be reclassified from other comprehensive income (loss) into earnings. The amounts accumulated in other comprehensive income (loss) will fluctuate based on changes in the fair value of the Company's derivatives at each reportingprior period. ~~For the two months ended February 28, 2001 and the four months ended~~

Three Months Ended June 30, 2001, there were no amounts reclassified into earnings because of the discontinuation of any hedging relationships. 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 four months ended2002 vs. Three Months Ended June 30, 2001

Our comparative results of operations, excluding our former fleet management and fuel card businesses, comprised the net loss recognized on these derivatives was $869,000 and $3,496,000, respectively. These amounts have been included in interest, net. NOTE 8-RELATED PARTY TRANSACTIONS Related party charges include allocations from Cendant for services provided to the Company, which consist of (in thousands):
MARCH 1, 2001 TWO MONTHS SIX MONTHS (DATE OF ACQUISITION) ENDED ENDED TO FEBRUARY 28, JUNE 30, JUNE 30, 2001 2001 2000 ---------------------- ------------ ----------- Royalties ..................... $35,810 $16,205 $ 50,219 Reservations .................. 19,186 8,496 28,483 Data processing ............... 20,141 11,395 21,012 Rent and other ................ 11,629 1,456 4,036 Interest ...................... 7,011 ------- ------- -------- Total ......................... $93,777 $37,552 $103,750 ======= ======= ========
PREDECESSOR COMPANIES ------------ THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, JUNE 30, 2001 2000 ------------ ------------ Royalties .............................. $26,610 $26,664 Reservations ........................... 14,655 14,939 Data processing ........................ 15,657 12,124 Rent and other ......................... 10,833 2,199 Interest ............................... 7,011 ------- ------- Total .................................. $74,766 $55,926 ======= =======
21 AVIS GROUP HOLDINGS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 8-RELATED PARTY TRANSACTIONS (CONTINUED) The amountsfollowing:

	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 ~~(from) Cendant Corporation~~a 4.1% increase in vehicle rental 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 an advertising campaign during the second quarter of 2002 and ~~affiliates, net at June 30, 2001 and December 31, 2000 consist of the following balances (in thousands):~~
PREDECESSOR COMPANIES JUNE 30, DECEMBER 31, 2001 2000 -------- ------------ Due from Cendant, short term funding and trading, net . $(127,912) $36,117 Due to Cendant-working capital ........................ 143,633 Due to Cendant-long term .............................. 380,000 Due from other Cendant affiliates, net ................ (18,685) --------- ------- Total due to Cendant Corporation and affiliates, net .. $ 377,036 $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., a wholly-owned subsidiary of Cendant. Concurrent with the Acquisition, Acquisition Corp. was merged into Avis Group Holdings, Inc. with the Company becoming the surviving entity Immediately after the Acquisition, Avis Group Holdings, Inc. sold all of the stock of Fleet 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 Corporation 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, 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 the Revolving Credit Facility (see Note 5). Subsequent to the repayment, the Company relies on Cendant to fund its working capital needs. The intercompany borrowings bear interest at a market rate based on LIBOR. On June 29, 2001, Cendant made a capital contribution to the Company by forgiving $125 million of intercompany debt. As of June 30, 2001, $143.6 million of borrowings are related to working capital and $380 million is long-term in nature and areseverance costs related to the ~~acquisition~~relocation of ~~the Company by Cendant. These borrowings are not expected~~our information technology operations from Garden City, New York 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 inParsippany, New Jersey.

Non-vehicle interest, net decreased 25.8% primarily due from Cendant, short-term funding and trading, net. NOTE 9-INCOME TAXES Subsequent to the Date of Acquisition, the Company's income taxes are included in the consolidated federal income tax return of Cendant. 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. 22 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) ITEM 2: GENERAL OVERVIEW The following discussion and analysis of continuing results of operations includes the vehicle rental operations of the Company (see Notes 1 and 2 to the condensed consolidated financial statements contained herein). The Company conducts vehicle rental operations through wholly-owned subsidiaries 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,~~decrease in interest rates and the ~~sale~~repayment of ~~loss damage waivers, liability insurance~~all amounts outstanding under a revolving credit facility during 2001.

Our overall effective tax rate was 42.0% and ~~other products and services. Management believes that a more meaningful comparison is made when the vehicle rental pro-forma results of operations~~58.1% for the ~~six and~~ three months ended June 30, 2002 and 2001, are compared to the pro-forma results of operations for the six and three months ended June 30, 2000. These pro-forma statements give effect to the Acquisition of the Company by Cendant (see Note 1 of the Notes to the Condensed Consolidated Financial Statements contained herein), and the retirement of Term Loans A, B, and C 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. Management evaluates the Company's performance based upon a modified earnings before non-vehicle interest, income taxes, non-vehicle depreciation and amortization calculations. For this purpose, Adjusted EBITDA is defined 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.respectively. The following discussion and analysis provides information that management believes to be relevant to understanding the Company's financial position and results of operations: 23 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) RESULTS OF OPERATIONS PRO-FORMA RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO PRO-FORMA RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000. The following table sets forth for the periods indicated, certain items in the Company's condensed consolidated statement of operations (in thousands):
PRO-FORMA PRO-FORMA SIX MONTHS ENDED JUNE 30, 2001 SIX MONTHS ENDED JUNE 30, 2000 ------------------------------------------- --------------------------------------- VEHICLE VEHICLE RENTAL CORPORATE TOTAL RENTAL CORPORATE TOTAL ----------- ----------- ----------- ---------- ----------- ----------- Revenue ............................ $ 1,232,710 $ 1,232,710 $ 1,255,473 $ 1,255,473 ----------- ----------- ---------- ----------- Costs and expenses: Direct operating ................. 484,195 484,195 456,008 456,008 Vehicle depreciation and lease charges, net .......... 340,725 340,725 319,328 319,328 Selling, general and administrative .............. 237,345 237,345 234,343 234,343 Vehicle interest, net ........... 115,935 115,935 107,170 107,170 ----------- ----------- ---------- ----------- 1,178,200 1,178,200 1,116,849 1,116,849 ----------- ----------- ---------- ----------- Adjusted EBITDA .................... 54,510 54,510 138,624 138,624 Interest on non-vehicle debt ....... 7,713 $ 17,046 24,759 5,411 $ 20,942 26,353 Interest on intercompany debt ...... 3,541 1,466 5,007 Amortization of cost in excess of net assets acquired .......... 6,023 9,691 15,714 6,281 9,433 15,714 Non-vehicle depreciation and amortization ................. 10,939 10,939 9,613 9,613 ----------- ----------- ----------- ---------- ----------- ----------- Income (loss) before provision (benefit) for income taxes ... $ 26,294 $ (28,203) (1,909) $ 117,319 $ (30,375) 86,944 =========== =========== ========== =========== (Benefit) provision for income taxes (1,027) 39,560 ----------- ----------- Net (loss) income .................. $ (882) $ 47,384 =========== ===========
VEHICLE RENTAL REVENUE Revenue decreased 1.8%, from $1,255.5 million to $1,232.7 million, compared to the same period in 2000. The revenue decrease reflects a 2.7% decrease in the number of rental transactions partially offset by a 0.9% 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 6.0%, from $1,138.2 million to $1,206.4 million, compared to the same period in 2000. Direct operating expenses increased 6.2%, from $456.0 million to $484.2 million, compared to the same period in 2000. As a percentage of revenue, direct operating expenses were to 39.3%, as compared to 36.3% for the corresponding period in 2000. The increase was due primarily to higher maintenance and damage costs (1.0% of revenue), higher computer services costs (1.0% of revenue), and higher facilities costs (0.4% of revenue). 24 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) Vehicle depreciation and lease charges increased 6.7%, from $319.3 million to $340.7 million, compared to the same period in 2000. As a percentage of revenue, vehicle depreciation and lease charges were 27.6%, as compared to 25.4% for the corresponding period in 2000. The change reflected a 0.9% increase in the average rental fleet combined with a higher average cost per vehicle. Selling, general and administrative expenses increased 1.3%, from $234.3 million to $237.3 million, compared to the same period in 2000 due to a higher general corporate overhead allocation ($8.3 million) and higher general and administrative expenses ($3.5 million), partially offset by lower marketing and advertising spending. Vehicle related interest expense increased 8.1%, from $107.2 million to $115.9 million, compared to the same period in 2000 due to higher borrowings required to finance the growth of the rental fleet and higher average interest rates. With the completion of the Avis acquisition on March 1, 2001, selected debt previously funded by third party providers is now being funded by Cendant Corporate. This change gives rise to the interest variance related to intercompany debt. Non-vehicle depreciation and amortization increased 13.5%, from $9.6 million to $10.9 million, compared to the same period in 2000. The increase reflects higher amortization of airport related leasehold improvements and equipment. PROVISION FOR INCOME TAXES The Company's consolidated provision for income taxes decreased from $39.6 million to a benefit of $1.0 million, compared to the same period in 2000. The effective income tax rate for the six months ended June 30, 2001 was 53.8%, up from a provision of 45.5% for the corresponding period in 2000. The increase 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 rates and the U.S. federal statutory income tax rate, taxes on the repatriation of foreign earnings, and foreign withholding taxes on dividends paid to the Company. NET INCOME Net income decreased from a profit of $47.4 million in 2000 to a loss of $0.9 million in 2001 as a result of a decrease in revenue combined with an increase in direct operating expenses, vehicle depreciation and take lease charges, and vehicle interest. 25 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) HISTORICAL RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO PRO-FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000. The following table sets forth for the periods indicated, certain items in the Company's condensed consolidated statement of operations (in thousands):
HISTORICAL PRO-FORMA THREE MONTHS ENDED JUNE 30, 2001 THREE MONTHS ENDED JUNE 30, 2000 -------------------------------------- ------------------------------------- VEHICLE VEHICLE RENTAL CORPORATE TOTAL RENTAL CORPORATE TOTAL -------- --------- -------- -------- --------- -------- Revenue: .................................... $628,893 $ 628,893 $666,597 $666,597 -------- -------- -------- -------- Costs and expenses: Direct operating .......................... 231,693 231,693 229,315 229,315 Vehicle depreciation and lease charges, net ...................... 173,664 173,664 172,096 172,096 Selling, general and administrative .......................... 116,540 116,540 119,535 119,535 Vehicle interest, net ..................... 55,899 55,899 59,666 59,666 -------- -------- -------- -------- 577,796 577,796 580,612 580,612 -------- -------- -------- -------- Adjusted EBITDA ............................. 51,097 51,097 85,985 85,985 Interest on non-vehicle debt ................ 2,686 $ 6,884 9,570 2,803 $ 9,875 12,678 Interest on intercompany debt ............... 3,541 1,466 5,007 Amortization of cost in excess of net assets acquired ..................... 2,894 4,746 7,640 3,122 4,518 7,640 Non-vehicle depreciation and amortization ............................ 5,228 5,228 4,830 4,830 -------- --------- -------- -------- --------- -------- Income (loss) before provision for income taxes ........................ $ 36,748 $ (13,096) 23,652 $ 75,230 $ (14,393) 60,837 ======== ========= ======== ========= Provision for income taxes .................. 13,753 27,681 -------- -------- Net income .................................. $ 9,899 $ 33,156 ======== ========
VEHICLE RENTAL REVENUE Revenue decreased 5.7%, from $666.6 million to $628.9 million, compared to the same period in 2000. The revenue decrease reflects a 5.7% 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 0.1%, from $591.4 million to $592.1 million, compared to the same period in 2000. Direct operating expenses increased 1.1%, from $229.3 million to $231.7 million, compared to the same period in 2000. As a percentage of revenue, direct operating expenses were 36.8%, as compared to 34.4% for the corresponding period in 2000. The increase was due primarily to higher computer services costs (0.9% of revenue) and higher salary and wage expense (0.6% of revenue). Vehicle depreciation and lease charges increased 0.9%, from $172.1 million to $173.7 million, compared to the same period in 2000. As a percentage of revenue, vehicle depreciation and lease charges were 27.6% of revenue, as compared to 25.8% of revenue for the corresponding period in 2000. The change reflected a 3.9% decrease in the average rental fleet offset by a higher cost per vehicle. Selling, general and administrative expenses decreased 2.5%, from $119.5 million to $116.5 million, compared to the same period in 2000 due primarily to lower marketing and advertising spending ($10.2 million), partially offset by a higher general corporate overhead allocation ($8.2 million). 26 AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) Vehicle related interest expense decreased 6.4%, from $59.7 million to $55.9 million, compared to the same period in 2000, due to lower borrowings resulting from a decline in the rental fleet and lower average interest rates. With the completion of the Avis acquisition on March 1, 2001, selected debt previously funded by third party providers is now being funded by Cendant Corporate. This change gives rise to the interest variance related to intercompany debt. Non-vehicle depreciation and amortization increased 8.3%, from $4.8 million to $5.2 million, compared to the same period in 2000. The increase reflects higher amortization of airport related leasehold improvements and equipment. PROVISION FOR INCOME TAXES The Company's consolidated provision for income taxes decreased from $27.7 million to $13.8 million, compared to the same period in 2000. The effective income tax rate for the three months ended June 30, ~~2001~~2002 was ~~58.2%, up~~primarily due to the elimination of goodwill amortization expense.

As a result of the above-mentioned items, income from ~~45.5% for the corresponding period in 2000. The increase~~continuing operations increased $12.9 million, or 130%, in the ~~effective income tax rate was~~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 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 ~~income before provision for income taxes in relation~~operating expenses derived from our ability to non-deductible goodwill. The effective tax rate reflects differences between foreign income tax rates and the U.S. federal statutory income tax rate, taxes on the repatriation of foreign earnings, and foreign withholding taxes on dividends paid to the Company. NET INCOME Net income decreased from a profit of $33.2 million for the three months ended June 30, 2000 to a profit of $9.9 million for the three months ended June 30, 2001,reduce our operating expenses as a result of ~~a decrease in revenue combined with increases in direct operating expenses, vehicle~~reduced car rental transaction volume during the first quarter of 2002. Vehicle depreciation and lease charges and ~~non-vehicle depreciation~~vehicle interest expense also decreased due to a corresponding reduction in average fleet size and ~~amortization charges. LIQUIDITY AND CAPITAL RESOURCES The Company's operations are expected~~the related decrease in average vehicle debt supporting such fleet.

Non-vehicle interest, net decreased 25.0% primarily due to ~~be funded by cash provided by operating activities and by financing arrangements maintained by the Company~~a decrease in ~~the markets in which it operates. The Company's primary use of funds will be for the acquisition of new vehicles~~interest rates and the repayment of ~~indebtedness. For~~all amounts outstanding under a revolving credit facility during 2001.

The provision for income taxes for the ~~four~~six months ended June 30, ~~2001,~~2002 reflects our overall effective tax rate of 42.0% for 2002. The increase in the Company's expenditures for new vehicles were approximately $1.9 billion and proceeds from the disposition of used vehicles were approximately $1.5 billion. For 2001, management expects the Company's expenditures for new vehicles (net of proceeds from the disposition of used vehicles)provision was primarily due to ~~be higher than in 2000. Since the late 1980's,~~ the Company ~~has acquired vehicles related~~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 ~~its vehicle rental operations primarily pursuant to manufacturer repurchase programs. Repurchase prices under~~June 30, 2001 at an effective tax rate of 53.8% and the ~~repurchase programs are based on either (1)~~elimination of goodwill amortization expense.

As 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 management to better estimate depreciation expense in advance. Historically, the Company's 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 endresult of the fourth quarter and the beginning of the first quarter, coinciding with lower levels of vehicle and rental demand. Management expects that this pattern will continue. Management expects that cash flowsabove-mentioned items, income from continuing operations and funds from available credit facilities will be sufficient to meet the Company's anticipated cash requirements for operating purposes for the next twelve months. Trade receivables, from vehicle rental operations, also provide liquidity with approximately 11.2 days of daily sales outstanding. The Company's vehicle rental operations made capital investments for property improvements totaling $20.7 million and $19.4increased $28 million for the six months ended June 30, ~~2001~~2002.

Forward-Looking Statements

Forward-looking statements in our public filings or other public statements are subject to known and ~~2000, respectively. The Company has an interest rate management policy, including a target mix for average fixed rate~~unknown risks, uncertainties and ~~floating rate indebtedness~~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 ~~a consolidated basis. However, an increase in interest rates may have a material adverse impact on the Company's profitability. 27~~ AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) VEHICLE RENTAL ABS FACILITY To support vehicle rental operations, the Company has a domestic integrated financing programvarious factors and were derived utilizing numerous important assumptions and other important factors that ~~as of June 30, 2001 provides for up~~could cause actual results 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 interestdiffer materially from those in the ~~Company's rental fleet. The Variable Funding Notes support~~forward-looking statements. Forward-looking statements include the ~~issuance~~information concerning our future financial performance, business strategy, projected plans and objectives.

Statements preceded by, ~~a special purpose company of commercial paper notes~~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 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. At June 30, 2001, the Company had approximately $3.77 billion of debt outstanding under the ABS Facility and had approximately $680 million of additional credit available for rental vehicle purchases. Based on current market conditions and the Company's current banking relationships, management expects 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, management cannot be sure that this will occur. On March 2, 2001, one of the Company's 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 the Company's 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 MBIA and are rated AAA by Standard an Poors and Aaa by Moody's. The Series 2001-1 Notes rank pari pasu with the Company's variable funding notes and the medium term notes. 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"). The Series 2001-2 Notes 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 auction rate notes, the Company issued $65 million of additonal notes which brought the total outstanding series 2001-2 notes to $190 million at June 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 2001-2 Notes are guaranteed under a Suerty 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 the Company's Variable Funding Notes and Medium Term Notes. REVOLVING CREDIT FACILITY The Company is party to a Revolving Credit Facility which provides borrowings up to $450 million which may be used for credit enhancement for the Company's ABS commercial paper program and for general corporate purposes. At June 30, 2001, due to letters of credit outstanding, $368.7 million was available under this facility. This facility expires in June 30, 2005. During the quarter, the Company repaid its outstanding borrowings under the Revolving Credit Facility. The Company presently relies on Cendant to fund its working capital needs. The intercompany borrowings bear interest at a market rate based on LIBOR. On June 29, 2001, Cendant made a capital contribution to the Company by forgiving $125 million of intercompany debt. As of June 30, 2001, $143.6 million of borrowings are related to working capital and $380 million are long-termgenerally forwardlooking in nature and ~~are related~~not historical facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

•: terrorist attacks, such as the ~~acquisition~~September 11, 2001 terrorist attacks on New York City and Washington, D.C., other attacks, acts of war; or measures taken by governments in response thereto may negatively affect the ~~Company by Cendant. 28~~ AVIS GROUP HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) OTHER FACILITIES Borrowings for travel industry, our financial results and could also result in a disruption in our business;
•: the ~~Company's other~~effect of economic conditions and interest rate changes on the economy on a national, regional or international ~~operations consist mainly~~basis and the impact thereof on our business;
•: the effects of ~~loans obtained from local and international banks. All borrowings for international operations are~~a decline in travel, due to political instability, adverse economic conditions or otherwise, on our business;
•: the effects of changes in current interest rates;

•: competition in the ~~local currencies of the countries in which those operations are conducted. The Company guarantees only the borrowings of its~~ car rental ~~subsidiaries~~industry and the financial resources of, and products available to, competitors;
•: our failure to provide fully integrated disaster recovery technology solutions in ~~Argentina~~the event of a disaster;
•: our ability to obtain financing on acceptable terms to finance our growth strategy and ~~Puerto Rico which had combined outstanding debt~~to operate within the limitations imposed by financing arrangements and to maintain our credit ratings;
•: our ability to obtain external financing in the event we are unable to obtain financing from Cendant;
•: competitive and pricing pressures in 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 ~~$8.1 million at June 30, 2001. At June 30, 2001,~~these forward looking statements, and the ~~total debt for the Company's~~failure of such other international operations was approximately $214.9 million. The impact on the Company's liquidity and financial condition due to the exchange rate fluctuations of the Company's foreign operations is not expectedassumptions to be ~~material. PARENT COMPANY TRANSACTION On June 29, 2001, one of the Company's vehicle financing subsidiaries amended its loan agreements~~realized as well as other factors may also cause actual results 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 is Statement of Financial Accounting Standards ("SFAS") SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby prohibiting the use of the pooling-of-interests method, and additional disclosures regarding the primary reasons for a business combination, the allocation of the purchase price paid to the assets acquired and liabilities assumed by major balance sheet caption and other information about goodwill and intangible assets when the amountdiffer materially from those projected. Most of these ~~assets~~factors are ~~material. Additionally, this statement provides new criteria, which applies~~difficult to ~~business combinations completed after June 30, 2001, to determine which acquired intangible assets~~predict accurately and are generally beyond our control.

You should be recognized separately from goodwill. Those intangible assets, recognized separately from goodwill, will be amortized over their estimated useful lives. SFAS No. 142 requires that goodwill and certain intangible assets, acquiredconsider the areas of risk described above in transactions completed after June 30, 2001, no longer be subject to amortization over their estimated useful lives. The Company will be required to assess these assets for potential impairment periodically, and more frequently if circumstances indicate a possible impairment. The statement also requires the Company to continue to amortize goodwill and certain intangible assets existing at June 30, 2001 through December 31, 2001. The provisions of the statement are required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in the Company's balance sheet at the date, regardless of when those assets were initially recognized. During the four months ended June 30, 2001, the Company recorded amortization expense related to these assets of $10.5 million. During the two months ended February 28, 2001, and the years ended December 31, 2000 and December 31, 1999 amortization expense related to the intangible assets of the predecessor company excluding the discontinued operation was $2.1 million, $12.5 million, and $12.6 million, respectively. The estimated impact on net income for 2002connection with respect to goodwill and certain other intangible assets that will no longer be subject to amortization is expected to be $32.5 million ($31.8 million, after tax) based upon existing goodwill and other intangible assets as of June 30, 2001. SEASONALITY The Company's vehicle rental business is seasonal, with decreased travel in winter months and heightened activity in spring and summer. To accommodate increased demand, the Company increases its available fleet during the second and third quarters. Certain of the Company's 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 the Company's operations. Many of the Company's 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 the Company than for its competitors. FORWARD LOOKING INFORMATION Certain matters discussed in this report that are not historical facts areany 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 ~~the Company's publicly-filed documents, including its~~our 2001 Annual Report on Form 10-K, ~~for~~we assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the period ended December 31, 2000. Actual results may differ materially from those projected. These forward-looking statements represent the Company's judgement as of the date of this report. 29 ~~ITEM 3: QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISKS QUANTITATIVE AND QUALITATIVE FINANCIAL DISCLOSURES ABOUT MARKET RISK The Company has derivative financial instruments at~~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, ~~2001 that are sensitive~~2002 market rates to ~~changes on its debt obligations and on its~~perform a sensitivity analysis separately for each of our market risk exposures. The estimates assume instantaneous, parallel shifts in interest rate ~~swap agreements. The following derivative instruments' 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 fluctuations 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 sold10% 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 $2.3 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.
		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 in the 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. -------------------------- (Registrant) Dated: August 14, 2001 By: /s/ Kevin M. Sheehan ---------------------------------------- Executive Vice President (Principal Financial Officer) Dated: August 14, 2001 By: /s/ Kurt Freudenberg ---------------------------------------- Senior Vice President and ~~Controller (principal accounting officer) 31~~ ~~ITEM: 6(b) REPORTS ON FORM 8-K On April 2, 2001,~~ Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In thousands)
Avis Group Holdings, Inc. ~~entered into a supplemental indenture which released~~ and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In thousands)
Avis ~~Fleet Leasing~~Group Holdings, Inc. and ~~Management Corp.~~Subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except share data)
Avis Group Holdings, Inc. and ~~its subsidiaries as guarantors under~~Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF 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 ~~Company's indenture dated~~Three Months ended June 30, ~~1999 which was entered into in connection with~~2002
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS For the ~~issuance~~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 ~~its 11% Senior Subordinated Notes due 2009 (original principal value~~Acquisition) to June 30, 2001
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (Predecessor Companies) For the Two 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, 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 ~~$500 million). 32~~

Acquisition) to June 30, 2001
Avis Group Holdings, Inc. and Subsidiaries CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (Predecessor Companies) For the Two Months Ended February 28, 2001
PART II—OTHER INFORMATION
SIGNATURES
EXHIBIT INDEX