Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

---

Form 10-Q

 

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

For the quarterly period ended September 30, 2007

OR

 

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

For the transition period from                      to                     

Commission File No. 1-10308

 

---

Avis Budget Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		06-0918165
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
6 Sylvan Way Parsippany, NJ		07054
(Address of principal executive offices)		(Zip Code)

(973) 496-4700

(Registrant’s telephone number, including area code)

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

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

 

Large accelerated filer  x		Accelerated filer  ¨		Non-accelerated filer  ¨

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

The number of shares outstanding of the issuer’s common stock was 103,829,295 shares as of October 31, 2007.

 

---

---

Table of Contents

Table of Contents

 

				Page
PART I		Financial Information (Unaudited)
Item 1.		Financial Statements
		Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006		3
		Consolidated Condensed Balance Sheets as of September 30, 2007 and December 31, 2006		4
		Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006		5
		Notes to Consolidated Condensed Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		40
Item 4.		Controls and Procedures		40
PART II		Other Information
Item 1.		Legal Proceedings		40
Item 1A.		Risk Factors		40
Item 6.		Exhibits		41
		Signatures		42

---

Table of Contents

FORWARD-LOOKING STATEMENTS

The forward-looking statements contained herein are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on various facts and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, “may increase”, “may fluctuate” and similar expressions or future or conditional verbs such as “will”, “should”, “would”, “may” and “could” are generally forward-looking in nature and 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:

 

•

the high level of competition in the vehicle rental industry and the impact such competition may have on pricing and rental volume;

 

•

an increase in the cost of new vehicles;

 

•

a decrease in our ability to acquire or dispose of cars generally through repurchase or guaranteed depreciation programs and/or dispose of vehicles through sales of vehicles in the used car market;

 

•

a decline in the results of operations or financial condition of the manufacturers of our cars;

 

•

a downturn in airline passenger traffic in the United States or in the international locations in which we operate;

 

•

an occurrence or threat of terrorism, pandemic disease, natural disasters or military conflict in the markets in which we operate;

 

•

our dependence on third-party distribution channels;

 

•

a disruption or decline in rental activity, particularly during our peak season or in key market segments;

 

•

a disruption in our ability to obtain financing for our operations, including the funding of our vehicle fleet via the asset-backed securities and lending market;

 

•

a significant increase in interest rates or in borrowing costs;

 

•

our failure to increase or decrease appropriately the size of our fleet due to the seasonal nature of our business;

 

•

our ability to accurately estimate our future results;

 

•

our ability to implement our strategy for growth;

 

•

a major disruption in our communication or centralized information networks;

 

•

our failure or inability to comply with regulations or any changes in regulations;

 

•

other business, economic, competitive, governmental, regulatory, political or technological factors affecting our operations, pricing or services;

 

•

risks inherent in the restructuring of the operations of Budget Truck Rental;

 

•

risks related to our indebtedness, including our substantial amount of debt, our ability to incur substantially more debt, the restrictive covenants in agreements and instruments governing our debt and the amount of cash required to service all of our indebtedness; and

 

1

---

Table of Contents

•

the terms of agreements among us and the former real estate, hospitality and travel distribution businesses following the separation of those businesses from us during third quarter 2006, when we were known as Cendant Corporation, including the allocation of assets and liabilities, including contingent liabilities and guarantees, commercial arrangements, the performance of each of the separated companies’ obligations under these agreements, and the former real estate business’ right to control the process for resolving disputes related to contingent liabilities and assets.

Other factors and assumptions not identified above, including those described under “Risk Factors” set forth in Item 1A of our 2006 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control.

You should consider the areas of risk described above, as well as those described under “Risk Factors” set forth in Item 1A of our 2006 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q, in connection with any forward-looking statements that may be made 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 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 for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

2

---

Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements

Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006 (Restated)				2007				2006
Revenues
Vehicle rental		$	1,348			$	1,253			$	3,600			$	3,469
Other			371				313				1,000				889
Net revenues			1,719				1,566				4,600				4,358
Expenses
Operating			835				778				2,331				2,204
Vehicle depreciation and lease charges, net			441				383				1,205				1,077
Selling, general and administrative			176				224				504				670
Vehicle interest, net			96				87				237				253
Non-vehicle related depreciation and amortization			21				25				64				81
Interest expense related to corporate debt, net:
Interest expense			31				50				97				206
Early extinguishment of debt			—				313				—				313
Separation costs, net			3				167				—				223
Total expenses			1,603				2,027				4,438				5,027
Income (loss) before income taxes			116				(461	)			162				(669	)
Provision (benefit) from income taxes			53				(136	)			64				(214	)
Income (loss) from continuing operations			63				(325	)			98				(455	)
Income (loss) from discontinued operations, net of tax			(3	)			(54	)			(3	)			478
Gain (loss) on disposal of discontinued operations, net of tax			43				(634	)			45				(1,956	)
Income (loss) before cumulative effect of accounting changes			103				(1,013	)			140				(1,933	)
Cumulative effect of accounting changes, net of tax			—				—				—				(64	)
Net income (loss)		$	103			$	(1,013	)		$	140			$	(1,997	)
Earnings per share
Basic
Income (loss) from continuing operations		$	0.60			$	(3.23	)		$	0.95			$	(4.53	)
Net income (loss)			1.00				(10.07	)			1.36				(19.88	)
Diluted
Income (loss) from continuing operations		$	0.60			$	(3.23	)		$	0.94			$	(4.53	)
Net income (loss)			0.99				(10.07	)			1.34				(19.88	)

See Notes to Consolidated Condensed Financial Statements.

 

3

---

Table of Contents

Avis Budget Group, Inc.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

 

		September 30, 2007				December 31, 2006
Assets
Current assets:
Cash and cash equivalents		$	302			$	172
Receivables, net			464				363
Deferred income taxes			14				7
Other current assets			640				1,264
Total current assets			1,420				1,806
Property and equipment, net			502				486
Deferred income taxes			131				226
Goodwill			2,195				2,193
Other intangibles, net			758				739
Other non-current assets			739				121
Total assets exclusive of assets under vehicle programs			5,745				5,571
Assets under vehicle programs:
Program cash			20				14
Vehicles, net			8,484				7,049
Receivables from vehicle manufacturers and other			358				276
Investment in Avis Budget Rental Car Funding (AESOP), LLC – related party			304				361
			9,166				7,700
Total assets		$	14,911			$	13,271
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other current liabilities		$	1,260			$	1,855
Current portion of long-term debt			11				29
Total current liabilities			1,271				1,884
Long-term debt			1,789				1,813
Other non-current liabilities			1,012				452
Total liabilities exclusive of liabilities under vehicle programs			4,072				4,149
Liabilities under vehicle programs:
Debt			1,171				759
Debt due to Avis Budget Rental Car Funding (AESOP), LLC—related party			5,765				4,511
Deferred income taxes			1,247				1,206
Other			71				203
			8,254				6,679
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $.01 par value—authorized 1 million shares; none issued and outstanding			—				—
Common stock, $.01 par value—authorized 250 million shares; issued 136,677,887 and 135,498,121 shares			1				1
Additional paid-in capital			9,338				9,664
Retained earnings (accumulated deficit)			(464	)			(586	)
Accumulated other comprehensive income			84				68
Treasury stock, at cost— 32,734,324 and 34,306,694 shares			(6,374	)			(6,704	)
Total stockholders’ equity			2,585				2,443
Total liabilities and stockholders’ equity		$	14,911			$	13,271

See Notes to Consolidated Condensed Financial Statements.

 

4

---

Table of Contents

Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

		Nine Months Ended September 30,
		2007				2006
Operating Activities
Net income (loss)		$	140			$	(1,997	)
Adjustments to arrive at income (loss) from continuing operations			(42	)			1,542
Income (loss) from continuing operations			98				(455	)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities exclusive of vehicle programs:
Non-vehicle related depreciation and amortization			64				81
Net change in assets and liabilities, excluding the impact of acquisitions and dispositions:
Receivables			(41	)			(36	)
Income taxes and deferred income taxes			67				(455	)
Accounts payable and other current liabilities			(33	)			(60	)
Other, net			12				(83	)
Net cash provided by (used in) continuing operating activities exclusive of vehicle programs			167				(1,008	)
Vehicle programs:
Vehicle depreciation			1,205				1,027
Net cash provided by continuing operating activities			1,372				19
Investing Activities
Property and equipment additions			(70	)			(64	)
Net assets acquired, net of cash acquired, and acquisition-related payments			(6	)			(116	)
Proceeds received on asset sales			12				16
Proceeds from sale of investment			106				—
Payments made to Realogy and Wyndham, net			(94	)			—
Proceeds from dispositions of businesses, net of transaction-related payments			—				4,035
Other, net			(37	)			6
Net cash provided by (used in) investing activities exclusive of vehicle programs			(89	)			3,877
Vehicle programs:
Decrease (increase) in program cash			(6	)			8
Investment in vehicles			(8,522	)			(9,249	)
Payments received on investment in vehicles			5,782				8,224
Other, net			—				(12	)
			(2,746	)			(1,029	)
Net cash provided by (used in) investing activities			(2,835	)			2,848

 

5

---

Table of Contents

Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)

(In millions)

 

		Nine Months Ended September 30,
		2007				2006
Financing Activities
Proceeds from borrowings			—				1,875
Principal payments on borrowings			(42	)			(3,580	)
Issuances of common stock			49				43
Repurchases of common stock			—				(243	)
Payment of dividends			—				(113	)
Other, net			—				(39	)
Net cash provided by (used in) financing activities exclusive of vehicle programs			7				(2,057	)
Vehicle programs:
Proceeds from borrowings			8,218				8,521
Principal payments on borrowings			(6,793	)			(10,487	)
Net change in short-term borrowings			160				133
Other, net			(5	)			(13	)
			1,580				(1,846	)
Net cash provided by (used in) financing activities			1,587				(3,903	)
Effect of changes in exchange rates on cash and cash equivalents			6				(1	)
Cash provided by (used in) discontinued operations
Operating activities			—				463
Investing activities			—				(742	)
Financing activities			—				1,137
Effect of exchange rate changes			—				12
Cash provided by discontinued operations			—				870
Net increase (decrease) in cash and cash equivalents			130				(167	)
Cash and cash equivalents, beginning of period			172				546
Cash and cash equivalents, end of period		$	302			$	379

See Notes to Consolidated Condensed Financial Statements.

 

6

---

Table of Contents

Avis Budget Group, Inc.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unless otherwise noted, all amounts are in millions, except per share amounts)

 

1.	Basis of Presentation and Recently Issued Accounting Pronouncements

Basis of Presentation

Avis Budget Group, Inc. provides car and truck rentals and ancillary services to businesses and consumers in the United States and internationally. The accompanying unaudited Consolidated Condensed Financial Statements include the accounts and transactions of Avis Budget Group, Inc. and its subsidiaries (“Avis Budget”), as well as entities in which Avis Budget directly or indirectly has a controlling financial interest (collectively, the “Company”) and have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) for interim financial reporting.

The Company operates in the following business segments:

 

•

Domestic Car Rental— provides car rentals and ancillary products and services in the United States.

 

•

International Car Rental— provides car rentals and ancillary products and services primarily in Canada, Argentina, Australia, New Zealand, Puerto Rico and the U.S. Virgin Islands.

 

•

Truck Rental— provides truck rentals and related services to consumers and light commercial users in the United States.

In presenting the Consolidated Condensed Financial Statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP), management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgments and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Consolidated Condensed Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. 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. These financial statements should be read in conjunction with the Company’s 2006 Annual Report on Form 10-K filed on March 1, 2007.

Reclassifications. The Consolidated Condensed Statement of Operations for the three months ended September 30, 2006 has been labeled Restated to reflect a classification correction between the Operating and the Selling, general and administrative expense lines. Operating expense has been reduced from $823 million to $778 million and Selling, general and administrative expense has been increased from $179 million to $224 million for the three months ended September 30, 2006. This reclassification did not have any impact on the Consolidated Condensed Statement of Operations for the nine months ended September 30, 2006. This reclassification also had no effect on total expenses, loss before income taxes, benefit from income taxes, loss from continuing operations, net loss or earnings per share.

During the three months ended September 30, 2007, the Company recorded a reclassification between Treasury stock and Additional paid-in capital within the Stockholders’ equity section as presented in the Consolidated Condensed Balance Sheet at September 30, 2007 to reflect the issuance of newly issued shares, rather than treasury shares, upon option exercises and vesting of restricted stock units during the three months ended June 30, 2007. Treasury stock was increased by $32 million with a related decrease to additional paid-in capital and had no impact to total stockholders’ equity.

Vehicle Programs. The Company presents separately the financial data of its vehicle programs. These programs are distinct from the Company’s other activities since the assets under vehicle programs are generally funded through the issuance of debt, asset-backed funding or other similar arrangements which are collateralized by such assets. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the generation or acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of the Company’s vehicle programs. The Company believes it is appropriate to segregate the financial data of its vehicle programs because, ultimately, the source of repayment of such debt is the realization of such assets.

Discontinued Operations. In connection with the separation of Cendant into four independent companies (the “Cendant Separation”), the Company completed the spin-offs of Realogy Corporation (“Realogy”) and Wyndham Worldwide Corporation (“Wyndham”) on July 31, 2006 and completed the sale of Travelport, Inc. (“Travelport”) on August 23, 2006. Pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), the account balances and activities of Realogy, Wyndham and Travelport have been segregated and reported as discontinued operations for the three and nine months ended September 30, 2006. Summarized financial data for the aforementioned businesses are provided in Note 2—Discontinued Operations.

 

7

---

Table of Contents

Separation. During the three months ended September 30, 2007, the Company incurred costs of $3 million in connection with the Cendant Separation. Such costs consisted primarily of professional and consulting fees. Separation expenses were insignificant in the nine months ended September 30, 2007 as they include a $14 million credit for tax-related receivables from Realogy and Wyndham recognized in connection with the adoption of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), discussed below. For the three and nine months ended September 30, 2006, the Company incurred costs of $480 million and $536 million, respectively, in connection with the separation. Such costs are as follows:

 

		Three Months Ended September 30, 2006			Nine Months Ended September 30, 2006
Early extinguishment of corporate debt		$	313		$	313
Stock-based compensation			71			79
Severance and retention			51			65
Insurance			14			14
Asset write-offs			11			19
Legal, accounting and other professional fees			11			34
Other			9			12
		$	480		$	536

Changes in Accounting Policies during 2007

Accounting for Uncertainty in Income Taxes. In June 2006, the FASB issued FIN 48, which is an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company adopted the provisions of FIN 48 effective January 1, 2007, as required, and recorded an after tax charge to stockholders’ equity of $18 million, which represents the recognition of $10 million of accrued interest and an increase of $8 million in the liability for unrecognized tax benefits. The Company is entitled to indemnification from Realogy and Wyndham for additional tax related liabilities of $14 million recognized as a result of the adoption of FIN 48. Accordingly, the Company recorded a $14 million credit, within the separation costs, net line item on the accompanying Consolidated Condensed Statement of Operations for first quarter 2007, reflecting the recognition of receivables from Realogy and Wyndham for such tax-related matters. At September 30, 2007, certain income tax payable balances have been classified as long term liabilities and certain receivables from Realogy and Wyndham have been classified as non-current assets (see Note 9—Other Current Assets and Note 10—Accounts Payable and Other Current Liabilities).

Including the impact of the adoption of FIN 48 discussed above, the Company’s unrecognized tax benefits totaled $559 million and were reclassified to long-term income taxes payable as of January 1, 2007. If recognized, substantially all would affect the annual effective income tax rate. The Company’s unrecognized tax benefits were offset by net operating loss carryforwards and tax credits in the amount of $32 million and $104 million, respectively.

During the nine months ended September 30, 2007, the Company’s unrecognized tax benefits increased by $19 million. As of September 30, 2007, the unrecognized tax benefits in the long-term income taxes payable were $442 million. The Company does not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statute of limitations within twelve months.

Including the impact of the adoption of FIN 48 discussed above, the Company’s accrual for the payment of potential interest associated with uncertain tax positions was $26 million as of January 1, 2007. During the nine months ended September 30, 2007, the Company recorded additional liabilities of $15 million for the payment of interest, which had minimal impact on the Company’s results of operations as the Company is substantially entitled to indemnification for such liabilities and recognized corresponding receivables from Realogy and Wyndham. The Company recognizes potential interest and the corresponding indemnifications from Realogy and Wyndham, related to unrecognized tax benefits within interest expense related to corporate debt, net on the accompanying Consolidated Condensed Statements of Operations. Penalties incurred during the nine months ended September 30, 2007, were not significant and recognized as a component of income taxes.

 

8

---

Table of Contents

Recently Issued Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,” (“SFAS No. 159”). SFAS No. 159 permits a company to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities on a contract-by-contract basis, with changes in fair value recognized in earnings. The Company will adopt SFAS No. 159 on January 1, 2008, as required, and is currently evaluating the impact of such adoption on its financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) which defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company will adopt SFAS No. 157 on January 1, 2008, as required, and is currently evaluating the impact of such adoption on its financial statements.

 

2.	Discontinued Operations

The $3 million loss from discontinued operations, net of tax for the three and nine months ended September 30, 2007 represents a tax charge due to an increase in non-deductible expenses on discontinued operations. The $43 million and $45 million gain on disposal of discontinued operations, net of tax for the three and nine months ended September 30, 2007, respectively, primarily represents a tax benefit realized as a result of certain elections made in connection with the Travelport disposition on the income tax returns filed during the third quarter 2007.

Summarized statement of operations data for discontinued operations for the three and nine months ended September 30, 2006 is as follows:

Three Months Ended September 30, 2006

 

		Marketing Services Division(a)				Realogy(b)				Wyndham(b)(c)				Travelport(b)(d)
Net revenues		$	—			$	527			$	336			$	520
Income before income taxes		$	—			$	77			$	88			$	35
Provision for income taxes			—				31				182				41
Income (loss) from discontinued operations, net of tax		$	—			$	46			$	(94	)		$	(6	)
Gain (loss) on disposal of discontinued operations		$	(5	)		$	(60	)		$	(68	)		$	(137	)
Provision (benefit) from income taxes			31				(19	)			(21	)			373
Gain (loss) on disposal of discontinued operations, net of tax		$	(36	)		$	(41	)		$	(47	)		$	(510	)
														Total
Net revenues														$	1,383
Income before income taxes														$	200
Provision for income taxes															254
Income (loss) from discontinued operations, net of tax														$	(54	)
Gain (loss) on disposal of discontinued operations														$	(270	)
Provision (benefit) from income taxes															364
Gain (loss) on disposal of discontinued operations, net of tax														$	(634	)

(a)

Represents payments in connection with a guarantee obligation made to the Company’s former Marketing Services division and a tax charge primarily related to state taxes prior to disposition.

(b)

Results are through dates of disposition.

(c)

The provision for income taxes reflects a $158 million charge associated with separating the vacation ownership business from the Company in connection with the spin-off of Wyndham.

(d)

The loss incurred on the disposal of Travelport includes a tax charge related to asset basis differences resulting from the 2001 acquisition of a Travelport subsidiary.

 

9

---

Table of Contents

Nine Months Ended September 30, 2006

 

		Wright Express(a)			Marketing Services Division(b)				Realogy(c)(f)				Wyndham(c)(d)(f)
Net revenues		$	—		$	—			$	3,856			$	2,052
Income before income taxes		$	—		$	—			$	445			$	377
Provision for income taxes			—			—				172				288
Income from discontinued operations, net of tax		$	—		$	—			$	273			$	89
Gain (loss) on disposal of discontinued operations		$	9		$	(15	)		$	(74	)		$	(83	)
Provision (benefit) from income taxes			3			27				(22	)			(25	)
Gain (loss) on disposal of discontinued operations, net of tax		$	6		$	(42	)		$	(52	)		$	(58	)
									Travelport(e)(f)				Total
Net revenues									$	1,859			$	7,767
Income before income taxes									$	170			$	992
Provision for income taxes										54				514
Income from discontinued operations, net of tax									$	116			$	478
Gain (loss) on disposal of discontinued operations									$	(1,463	)		$	(1,626	)
Provision (benefit) from income taxes										347				330
Gain (loss) on disposal of discontinued operations, net of tax									$	(1,810	)		$	(1,956	)

(a)

Represents payments received from Wright Express in connection with a tax receivable agreement pursuant to which Wright Express is obligated to make payments to the Company over a 15 year term. Pursuant to the Separation Agreement among the Company, Realogy, Wyndham and Travelport entered into in connection with the Cendant Separation, the Company began to distribute all such payments received from Wright Express to Realogy and Wyndham following the Cendant Separation.

(b)

Represents payments in connection with a guarantee obligation made to the Company’s former Marketing Services division and a tax charge primarily related to state taxes prior to the date of disposition.

(c)

Loss on disposal of discontinued operations represents costs incurred by Realogy and Wyndham in connection with their separation from Cendant, which was completed on July 31, 2006.

(d)

The provision for income taxes reflects a $158 million charge associated with separating the vacation ownership business from the Company in connection with the spin-off of Wyndham.

(e)

Loss on disposal of discontinued operations includes a $1.3 billion impairment charge reflecting the difference between Travelport’s carrying value and its estimated fair value and a tax charge related to asset basis differences resulting from the 2001 acquisition of a Travelport subsidiary.

(f)

Results are through dates of disposition.

 

10

---

Table of Contents

3.	Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
Income (loss) from continuing operations		$	63			$	(325	)		$	98			$	(455	)
Income (loss) from discontinued operations, net of tax			(3	)			(54	)			(3	)			478
Gain (loss) on disposal of discontinued operations, net of tax			43				(634	)			45				(1,956	)
Cumulative effect of accounting changes, net of tax			—				—				—				(64	)
Net income (loss)		$	103			$	(1,013	)		$	140			$	(1,997	)
Basic weighted average shares outstanding (a)			103.9				100.6				102.9				100.5
Stock options, warrants and restricted stock units (b)			1.1				—				1.2				—
Diluted weighted average shares outstanding (a)			105.0				100.6				104.1				100.5
Earnings per share:
Basic
Income (loss) from continuing operations		$	0.60			$	(3.23	)		$	0.95			$	(4.53	)
Income (loss) from discontinued operations			(0.02	)			(0.54	)			(0.03	)			4.76
Gain (loss) on disposal of discontinued operations			0.42				(6.30	)			0.44				(19.48	)
Cumulative effect of accounting changes			—				—				—				(0.63	)
Net income (loss)		$	1.00			$	(10.07	)		$	1.36			$	(19.88	)
Diluted
Income (loss) from continuing operations		$	0.60			$	(3.23	)		$	0.94			$	(4.53	)
Income (loss) from discontinued operations			(0.02	)			(0.54	)			(0.03	)			4.76
Gain (loss) on disposal of discontinued operations			0.41				(6.30	)			0.43				(19.48	)
Cumulative effect of accounting changes			—				—				—				(0.63	)
Net income (loss)		$	0.99			$	(10.07	)		$	1.34			$	(19.88	)

(a)

Because the Company incurred a loss from continuing operations in 2006, all outstanding stock options, restricted stock units and warrants are anti-dilutive. Accordingly, basic and diluted weighted average shares outstanding are equal for such period.

(b)

Excludes restricted stock units for which performance-based vesting criteria have not been achieved.

The following table summarizes the Company’s outstanding common stock equivalents that were anti-dilutive and therefore excluded from the computation of diluted EPS:

		Three Months Ended September 30,				Nine Months Ended September 30,
		2007		2006		2007		2006
Options (a)		6.0		8.6		4.8		8.4
Warrants		0.2		0.2		0.2		0.2

(a)

The weighted average exercise price for anti-dilutive options for the three and nine months ended September 30, 2007 was $32.97 and $34.76, respectively. At September 30, 2006, all outstanding stock options were anti-dilutive, as the Company incurred a loss from continuing operations.

 

4.	Acquisitions

Assets acquired and liabilities assumed in business combinations were recorded on the Company’s Consolidated Condensed Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of the businesses acquired by the Company have been included in the Company’s Consolidated Condensed Statements of Operations since their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill. In certain instances, the allocations of the excess of purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations may be subject to revision when the Company receives final information that is known to be available, including appraisals and other analyses. Any revisions to the fair values will be recorded by the Company as further adjustments to the purchase price allocations.

 

11

---

Table of Contents

During the nine month period ended September 30, 2007 the Company acquired five licensees for $7 million in cash and deferred liabilities, resulting in trademark intangible assets of $7 million. During the nine month period ended September 30, 2006 the Company acquired fifteen licensees for $18 million in cash, resulting in trademark intangible assets of $15 million. These acquisitions were not significant individually or in the aggregate to the Company’s results of operations, financial position or cash flows.

 

5.	Intangible Assets

As of September 30, 2007 and December 31, 2006, intangible assets consisted of:

 

Amortization expense relating to all intangible assets was less than $1 million during both third quarter 2007 and 2006 and $2 million and $3 million for the nine month periods ended September 30, 2007 and 2006, respectively.

Based on the Company’s amortizable intangible assets at September 30, 2007, the Company expects amortization expense of approximately $1 million for the remainder of 2007 and approximately $3 million for each of the five fiscal years thereafter.

 

6.	Restructuring Charges

During fourth quarter 2006, the Company recorded $10 million of restructuring charges, of which $8 million was incurred in connection with current restructuring initiatives within the Company’s Truck Rental and Domestic Car Rental operations and $2 million represented a revision to an estimated charge recorded in connection with restructuring actions undertaken in first quarter 2005. The remaining liability relating to the 2005 actions was $2 million at September 30, 2007 and primarily relates to obligations under terminated leases.

2006 Restructuring

During fourth quarter 2006, the Company committed to various strategic initiatives targeted principally at reducing costs, enhancing organizational efficiency and consolidating and rationalizing existing processes and facilities within its Budget Truck Rental and Domestic Car Rental operations. The more significant areas of cost reduction include the closure of the Budget Truck Rental headquarters and other facilities and reductions in staff.

The initial recognition of the restructuring charge and the corresponding utilization for the 2006 Truck Rental and Domestic Car Rental operations restructuring initiative are summarized by category from inception as follows:

 

(a)

The initial charge primarily represents severance benefits resulting from reductions in staff. Prior to December 31, 2006, the Company formally communicated the termination of employment to approximately 180 employees, representing a wide range of employee groups. As of September 30, 2007, the Company had terminated substantially all of these employees.

(b)

The initial charge principally represents costs incurred in connection with facility closures and lease obligations resulting from the closure of the Truck Rental headquarters, consolidation of Truck Rental operations and the closure of other facilities within the Company’s Domestic Car Rental operations.

 

12

---

Table of Contents

7.	Vehicle Rental Activities

The components of the Company’s vehicles, net within assets under vehicle programs are as follows:

 

The components of vehicle depreciation and lease charges, net are summarized below:

 

(a)

(Gain) loss on sales of vehicles, net includes vehicle manufacturers’ retention incentives.

During the three months ended September 30, 2007 and 2006, vehicle interest, net on the accompanying Consolidated Condensed Statements of Operations excludes $35 million for both periods, and for the nine months ended September 30, 2007 and 2006, excludes $106 million and $65 million, respectively, of interest expense related to the fixed and floating rate borrowings of the Company’s Avis Budget Car Rental, LLC (“Avis Budget Car Rental”) subsidiary. Such interest is recorded within interest expense related to corporate debt, net on the accompanying Consolidated Condensed Statements of Operations.

 

8.	Income Taxes

The Company’s effective tax rate from continuing operations for the three months ended September 30, 2007 is a provision of 45.7%. Such rate differs from the Federal Statutory rate of 35.0% primarily due to non-deductible expenses and state taxes.

The Company’s effective tax rate from continuing operations for the nine months ended September 30, 2007 is a provision of 39.5%. Such rate differs from the Federal Statutory rate of 35.0% primarily due to state taxes.

The Company’s effective tax rate from continuing operations for the nine months ended September 30, 2006 is 32.0%. Such rate differs from the Federal Statutory rate of 35.0% primarily due to the non-deductibility of certain separation related costs. In addition, the Company established a valuation allowance related to state deferred tax assets resulting from the restructuring of the consolidated income tax group.

 

9.	Other Current Assets

Other current assets consisted of:

 

(a)

Represents amounts due for certain contingent and other corporate liabilities assumed by Realogy and Wyndham in connection with the separation and transition services performed under a Transition Services Agreement which was entered into at the time of the Cendant Separation. These amounts are due from Realogy and Wyndham on demand upon the Company’s settlement of the related liability. At September 30, 2007 and December 31, 2006, there are corresponding liabilities recorded within accounts payable and other current liabilities. In connection with the Company’s adoption of FIN 48, receivables from Realogy and Wyndham related to income taxes were classified as non-current assets. At September 30, 2007, receivables related to tax items included in non-current assets were $635 million.

 

13

---

Table of Contents

10.	Accounts Payable and Other Current Liabilities

Accounts payable and other current liabilities consisted of:

 

(a)

Income taxes payable have been classified as long-term liabilities as of January 1, 2007, in connection with the adoption of FIN 48. At September 30, 2007, the non-current liability related to long-term income taxes payable was $442 million.

(b)

The non-current liability related to public liability and property damage insurance was $274 million and $260 million at September 30, 2007 and December 31, 2006, respectively.

 

11.	Long-term Debt and Borrowing Arrangements

Long-term debt consisted of:

 

(a)

Primarily represents borrowings under the Company’s floating rate term loan as of September 30, 2007 and December 31, 2006.

Committed Credit Facilities and Available Funding Arrangements

At September 30, 2007, the committed credit facilities available to the Company and/or its subsidiaries at the corporate or Avis Budget Car Rental level were as follows:

 

(a)

This secured revolving credit facility was entered into by Avis Budget Car Rental in April 2006, has a five year term and currently bears interest at one month LIBOR plus 125 basis points.

(b)

Final maturity date is July 2010.

On February 9, 2007, the Company agreed to guarantee (the “Guarantee”) the payment of principal, premium, if any, and interest on the $1.0 billion aggregate principal amount of senior notes issued by Avis Budget Car Rental in April 2006 (the “Notes”). The Notes consist of Avis Budget Car Rental’s 7.625% Senior Notes due 2014, 7.75% Senior Notes due 2016 and Floating Rate Senior Notes due 2014. The Company executed a Supplemental Indenture, dated February 9, 2007, to provide the

 

14

---

Table of Contents

Guarantee in accordance with the terms and limitations of the Notes and the indenture governing the Notes. In consideration for providing the Guarantee, the Company received $14 million, before fees and expenses, from certain institutional investors. The $14 million consideration has been deferred and is being amortized over the life of the debt.

The Company’s debt agreements contain restrictive covenants, including restrictions on dividends paid to the Company by certain of its subsidiaries, the incurrence of indebtedness by the Company and certain of its subsidiaries, mergers, liquidations, and sale and leaseback transactions. The credit facility also requires the maintenance of certain financial ratios. As of September 30, 2007, the Company is not aware of any instances of non-compliance with such financial or restrictive covenants.

 

12.	Debt Under Vehicle Programs and Borrowing Arrangements

Debt under vehicle programs (including related party debt due to Avis Budget Rental Car Funding (AESOP), LLC (“Avis Budget Rental Car Funding”)) consisted of:

 

(a)

The change in the balance at September 30, 2007 principally reflects (i) increased borrowings under the Company’s conduit facility during the nine months ended September 30, 2007 and (ii) the issuance of vehicle-backed floating rate notes at various interest rates during the first six months of 2007 to support the acquisition of rental vehicles within the Company’s domestic car rental operations.

(b)

The change in the balance at September 30, 2007 primarily reflects incremental borrowings during the nine months ended September 30, 2007 to support the acquisition of rental vehicles within the Budget Truck rental fleet.

(c)

The change in the balance at September 30, 2007 primarily reflects incremental borrowings under the Company’s bank loan and commercial paper conduit facilities to support the acquisition of vehicles in its international operations.

Avis Budget Rental Car Funding (AESOP), LLC. Avis Budget Rental Car Funding, an unconsolidated bankruptcy remote qualifying special purpose limited liability company, issues private placement notes that are typically “AAA” rated generally with principal and interest payments guaranteed by independent insurance companies. Avis Budget Rental Car Funding then uses the proceeds from such issuances to make loans to a wholly-owned subsidiary of the Company, AESOP Leasing LP (“AESOP Leasing”) on a continuing basis. By issuing debt through the AESOP program, Avis Budget pays a lower rate of interest than if the Company had issued debt directly to third parties. AESOP Leasing is then required to use these proceeds to acquire or finance the acquisition of vehicles used in the Company’s rental car operations. As a result, AESOP Leasing’s obligation to Avis Budget Rental Car Funding is reflected as related party debt on the Company’s Consolidated Condensed Balance Sheets as of September 30, 2007 and December 31, 2006. The Company also recorded an asset within assets under vehicle programs on its Consolidated Condensed Balance Sheets at September 30, 2007 and December 31, 2006, which represented the equity issued to the Company by Avis Budget Rental Car Funding. The vehicles purchased by AESOP Leasing remain on the Company’s Consolidated Condensed Balance Sheet as AESOP Leasing is consolidated by the Company. Such vehicles and related assets, which approximate $7.7 billion and the majority of which are subject to manufacturer repurchase and guaranteed depreciation agreements, collateralize the debt issued by Avis Budget Rental Car Funding and are not available to pay the obligations of the Company.

The business activities of Avis Budget Rental Car Funding are limited primarily to issuing indebtedness and using the proceeds thereof to make loans to AESOP Leasing for the purpose of acquiring or financing the acquisition of vehicles to be leased to the Company’s rental car subsidiaries and pledging its assets to secure the indebtedness. Because Avis Budget Rental Car Funding is not consolidated by the Company, its results of operations and cash flows are not reflected within the Company’s Consolidated Condensed Financial Statements. Borrowings under the Avis Budget Rental Car Funding program primarily represent floating rate term notes.

Truck financing. Budget Truck financing consists of debt outstanding under the Budget Truck Funding program and capital leases. The Budget Truck Funding program constitutes debt facilities established by the Company to finance the acquisition of the Budget truck rental fleet. The borrowings under the Budget Truck Funding program floating rate term loans are collateralized by $296 million of corresponding assets. The Company has also obtained a portion of its truck rental fleet under

 

15

---

Table of Contents

capital lease arrangements for which there are corresponding gross assets of $359 million and $381 million with accumulated amortization of $145 million and $129 million classified within vehicles, net on the Company’s Consolidated Condensed Balance Sheets as of September 30, 2007 and December 31, 2006, respectively.

Other. Borrowings under the Company’s other vehicle rental programs represent amounts issued under financing facilities that provide for the issuance of notes to support the acquisition of vehicles used in the Company’s international vehicle rental operations. The debt issued is collateralized by $1.1 billion of vehicles and related assets and primarily represents floating rate bank loans and commercial paper.

The following table provides the contractual maturities of the Company’s debt under vehicle programs (including related party debt due to Avis Budget Rental Car Funding) at September 30, 2007:

 

(a)

Capacity is subject to maintaining sufficient assets to collateralize debt.

Debt agreements under the Company’s vehicle-backed funding programs contain restrictive covenants, including restrictions on dividends paid to the Company by certain of its subsidiaries and indebtedness of material subsidiaries, mergers, liens, liquidations, and sale and leaseback transactions, and also require the maintenance of certain financial ratios. As of September 30, 2007, the Company is not aware of any instances of non-compliance with such financial or restrictive covenants.

 

13.	Commitments and Contingencies

Contingencies

The Company and the Internal Revenue Service (“IRS”) have settled the IRS examination for the federal consolidated income tax group’s taxable years 1998 through 2002. The Company was adequately reserved for this audit cycle and has reflected the results of that examination in the accompanying Consolidated Condensed Financial Statements. The IRS is examining the Company’s taxable years 2003 through 2006. Although the Company believes there is appropriate support for the positions taken on its tax returns, the Company has recorded liabilities for uncertain tax positions for all years which the statute of limitations has not expired. The Company believes that the accruals for tax liabilities are adequate for all open years, based on assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Although the Company believes the recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore, the Company’s assessments can involve both a series of complex judgments about future events and rely heavily on estimates and assumptions. While the Company believes that the estimates and assumptions supporting the assessments are reasonable, the final determination of tax audits and any other related litigation could be materially different than that which is reflected in historical income tax provisions and recorded assets and liabilities.

 

16

---

Table of Contents

The results of an audit or litigation related to these matters include a range of potential outcomes, which may involve material amounts. However, the Company is entitled to indemnification for pre-separation matters by Realogy and Wyndham and, therefore, does not expect such resolution to have a significant impact on its earnings, financial position or cash flows.

The Company is involved in litigation asserting claims associated with accounting irregularities discovered in 1998 at former CUC business units outside of the principal common stockholder class action litigation. Regarding one of these litigation matters, the Court granted summary judgment to the Plaintiffs on their breach of contract claims and the Company settled another in principle, increasing the related liabilities by $99 million. While the Company has an additional accrued liability of approximately $1 million recorded on its Consolidated Condensed Balance Sheet as of September 30, 2007 for remaining claims based upon its best estimates, it does not believe that it is feasible to predict or determine the final outcome or resolution of any unresolved proceedings. Pursuant to the Separation Agreement, Realogy and Wyndham have assumed all liabilities related to this litigation, as described below and therefore a corresponding receivable has been established for such amounts. These transactions are shown net within the separation costs, net line on the Consolidated Condensed Statements of Operations.

In connection with the spin-offs of Realogy and Wyndham, the Company entered into the Separation Agreement, pursuant to which Realogy assumed 62.5% and Wyndham assumed 37.5% of certain contingent and other corporate liabilities of the Company or its subsidiaries, which are not primarily related to any of the respective businesses of Realogy, Wyndham, Travelport and/or the Company’s vehicle rental operations, in each case incurred or allegedly incurred on or prior to the separation of Travelport from the Company (“Assumed Liabilities”). Realogy is entitled to receive 62.5% and Wyndham is entitled to receive 37.5% of the proceeds (or, in certain cases, a portion thereof) from certain contingent corporate assets of the Company, which are not primarily related to any of the respective businesses of Realogy, Wyndham, Travelport and/or the Company’s vehicle rental operations, arising or accrued on or prior to the separation of Travelport from the Company (“Assumed Assets”). Additionally, if Realogy or Wyndham were to default on its payment of costs or expenses to the Company related to any Assumed Liability, the Company would be responsible for 50% of the defaulting party’s obligation. In such event, the Company would be allowed to use the defaulting party’s share of the proceeds of any Assumed Assets as a right of offset. Realogy and Wyndham have also agreed to guarantee each other’s as well as the Company’s obligation under each entity’s deferred compensation plans for amounts deferred in respect of 2005 and earlier years.

The Company does not believe that the impact of any unresolved proceedings constituting an Assumed Liability related to the CUC accounting irregularities should result in a material liability to the Company in relation to its consolidated financial position or liquidity, as Realogy and Wyndham each have agreed to assume responsibility for these liabilities as well as other liabilities related to the Company’s litigation that are not related to its vehicle rental operations. Such litigation assumed by Realogy and Wyndham includes litigation which was retained by the Company in connection with the sale of its former Marketing Services division.

On April 10, 2007, Realogy was acquired by an affiliate of Apollo Management VI, L.P. and no longer is listed as an independent public company. The acquisition does not affect Realogy’s obligation to satisfy 62.5% of the contingent and other corporate liabilities of the Company or its subsidiaries pursuant to the terms of the Separation Agreement. As a result of the acquisition, Realogy has greater debt obligations and its ability to satisfy its portion of the contingent and other corporate liabilities may be adversely impacted. In accordance with the terms of the Separation Agreement, Realogy posted a letter of credit in April 2007 for the benefit of the Company to cover its estimated share of the Assumed Liabilities discussed above, subject to adjustment, although there can be no assurance that such letter of credit will be sufficient to cover Realogy’s actual obligations if and when they arise.

In addition to the matters discussed above, the Company is also involved in claims and legal proceedings related to its vehicle rental operations, including contract disputes, business practices, intellectual property, environmental issues and other commercial, employment and tax matters, including patent claims, wage and hour claims and breach of contract claims by licensees. The Company believes that it has adequately accrued for such matters as appropriate or, for matters not requiring accrual, believes that they will not have a material adverse effect on its results of operations, financial position or cash flows based on information currently available. However, litigation is inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has valid defenses in these matters, unfavorable resolutions could occur, which could have a material adverse effect on the Company’s results of operations or cash flows in a particular reporting period.

Commitments to Purchase Vehicles

The Company maintains agreements with vehicle manufacturers which require the Company to purchase approximately $6 billion of vehicles from these manufacturers over the next year. These commitments are subject to the vehicle manufacturers’ satisfying their obligations, if applicable, to repurchase vehicles from the Company under the relevant repurchase and

 

17

---

Table of Contents

guaranteed depreciation agreements. The Company’s featured suppliers for the Avis and Budget brands are General Motors Corporation and Ford Motor Company, respectively, although the Company purchases vehicles produced by numerous other manufacturers. The purchase of such vehicles is financed primarily through the issuance of vehicle-backed debt in addition to cash received upon the sale of vehicles under repurchase and guaranteed depreciation programs.

Concentrations

Concentrations of credit risk at September 30, 2007 include (i) risks related to the Company’s repurchase and guaranteed depreciation agreements with General Motors Corporation and Ford Motor Company with respect to receivables for program cars that have been returned to the car manufacturers and (ii) receivables from Realogy and Wyndham of $583 million and $372 million, respectively, related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with the separation.

Activity with Realogy and Wyndham

During the nine months ended September 30, 2007, the following transactions occurred between the Company and Realogy and Wyndham: (i) the Company realized a portion of a preferred stock investment in cash and transferred $106 million to Realogy and Wyndham representing the proceeds received; (ii) the Company transferred its remaining preferred stock investment of $26 million to Realogy and Wyndham through the assignment of such investment; (iii) the Company resolved litigation matters for $58 million, which have either been or will be paid by Realogy and Wyndham; and (iv) the Company settled other reimbursable transactions between the Company and Realogy and Wyndham resulting in net cash inflows of $37 million.

 

14.	Stockholders’ Equity

Dividends

For the nine months ended September 30, 2007, the Company has not paid cash dividends. During the nine months ended September 30, 2006, the Company paid cash dividends of $113 million ($1.10 per share).

Share Repurchases

During the nine months ended September 30, 2007, the Company has not repurchased its common stock. During the nine months ended September 30, 2006, the Company used $221 million of available cash and $22 million of proceeds primarily received in connection with option exercises to repurchase $243 million of its common stock.

Accumulated Other Comprehensive Income

The after-tax components of accumulated other comprehensive income are as follows:

 

All components of accumulated other comprehensive income are net of tax except currency translation adjustments, which exclude income taxes related to indefinite investments in foreign subsidiaries.

Total Comprehensive Income

Comprehensive income consists of net income and other gains and losses affecting stockholder’s equity that, under accounting principles generally accepted in the United States, are excluded from net income.

 

18

---

Table of Contents

Changes in the components of other comprehensive income were as follows:

 

		Three Months Ended September 30,								Nine Months Ended   September 30,
		2007				2006				2007				2006
Net income		$	103			$	(1,013	)		$	140			$	(1,997	)
Other comprehensive income (loss), net of taxes
Currency translation adjustments			20				89				54				202
Gains (losses) on cash flow hedges			(52	)			(49	)			(38	)			(12	)
Minimum pension liability adjustment			—				5				—				5
			(32	)			45				16				195
Total comprehensive income (loss)		$	71			$	(968	)		$	156			$	(1,802	)

 

15.	Stock-Based Compensation

The Company recorded pretax stock-based compensation expense of $5 million and $76 million ($3 million and $47 million, after tax) during third quarter 2007 and 2006, respectively, and $13 million and $89 million ($8 million after tax and $55 million, after tax) during the nine months ended September 30, 2007 and 2006, respectively, related to employee stock awards that were granted or modified by the Company. The expense recorded in the three and nine months ended September 30, 2006 includes a pretax charge of $71 million and $79 million, respectively, primarily related to the accelerated vesting of previously outstanding restricted stock units (RSUs) and equitable adjustments related to the previously outstanding stock options as a result of the separation of the Company.

The Company also recorded pretax stock-based compensation expense of $107 million and $134 million ($66 million and $83 million, after tax) during the three and nine months ended September 30, 2006, respectively, within discontinued operations.

The Company applies the direct method and tax law ordering approach to calculate the tax effects of stock-based compensation. In jurisdictions with net operating loss carryforwards, tax deductions for 2007 exercises of stock-based awards did not generate a cash benefit. Approximately $31 million of tax benefits will be recorded in additional paid-in capital when realized in these jurisdictions.

The activity related to the Company’s restricted stock units and stock option plans consisted of (in thousands of shares):

 

		Nine Months Ended September 30, 2007
		RSUs						Options
		Number of RSUs			Weighted Average Grant Price			Number of Options (c)			Weighted Average Exercise Price
Balance at January 1, 2007		1,774			$	24.33		11,037			$	27.22
Granted at fair market value		1,162				25.86		—				—
Vested/exercised (a)		(406	)			24.46		(2,466	)			19.99
Cancelled		(165	)			24.81		(831	)			30.71
Balance at September 30, 2007 (b)		2,365				25.05		7,740				29.15

(a)

Stock options exercised during the nine months ended September 30, 2007 had an intrinsic value of $20 million.

(b)

As of September 30, 2007, the Company’s outstanding “in-the-money” stock options and RSUs had aggregate intrinsic value of $12 million and $54 million, respectively. Aggregate unrecognized compensation expense related to outstanding stock options and RSUs amounted to $52 million as of September 30, 2007.

(c)

All options outstanding as of September 30, 2007 are exercisable and have a weighted average remaining contractual life of 3 years.

 

19

---

Table of Contents

The table below summarizes information regarding the Company’s outstanding and exercisable stock options as of September 30, 2007 (in thousands of shares):

 

Range of Exercise Prices																		Number of Options (*)
Less than $20.00																		1,521
$20.01 to $25.00																		232
$25.01 to $30.00																		3,164
$30.01 to $35.00																		1,237
$35.01 and above																		1,586
																		7,740

(*)

All outstanding stock options vested in connection with the completion of the separation.

As of September 30, 2007, the Company also had approximately 0.5 million outstanding stock appreciation rights with a weighted average exercise price of $24.40, a weighted average remaining contractual life of 6 years and unrecognized compensation expense of $3 million.

 

16.	Segment Information

The reportable segments presented below represent the Company’s operating segments for which separate financial information is available and is utilized on a regular basis by its chief operating decision maker to assess performance and to allocate resources. In identifying its reportable segments, the Company also considers the nature of services provided by its operating segments. Management evaluates the operating results of each of its reportable segments based upon revenue and “EBITDA,” which is defined as income from continuing operations before non-vehicle related depreciation and amortization, non-vehicle related interest and income taxes. The Company’s presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.

 

		Three Months Ended September 30,
		2007							2006
		Revenues			EBITDA(a)				Revenues			EBITDA(a)
Domestic Car Rental		$	1,331		$	105			$	1,190		$	57
International Car Rental			256			51				222			44
Truck Rental			129			15				141			20
Corporate and Other (c)			3			(3	)			13			(194	)
Total Company		$	1,719			168			$	1,566			(73	)
Less: Non-vehicle related depreciation and amortization						21							25
Interest expense related to corporate debt, net						31							363
Income (loss) before income taxes					$	116						$	(461	)
		Nine Months Ended September 30,
		2007							2006
		Revenues			EBITDA(b)				Revenues			EBITDA(b)
Domestic Car Rental		$	3,609		$	215			$	3,366		$	160
International Car Rental			649			96				574			86
Truck Rental			326			14				371			40
Corporate and Other (c)			16			(2	)			47			(355	)
Total Company		$	4,600			323			$	4,358			(69	)
Less: Non-vehicle related depreciation and amortization						64							81
Interest expense related to corporate debt, net						97							519
Income (loss) before income taxes					$	162						$	(669	)

(a)

In the three months ended September, 30 2007, EBITDA reflects separation-related costs of $1 million in Domestic Car Rental and $2 million in Corporate and Other. In the three months ended September 30, 2006, EBITDA reflects separation-related costs of $16 million in Domestic Car Rental, $1 million in International Car Rental, $3 million in Truck Rental and $147 million in Corporate and Other.

(b)

In the nine months ended September 30, 2007, EBITDA reflects separation-related costs of $4 million in Domestic Car Rental and a $4 million credit in Corporate and Other. In the nine months ended September 30, 2006, EBITDA reflects separation-related costs of $18 million in Domestic Car Rental, $1 million in International Car Rental, $3 million in Truck Rental and $201 million in Corporate and Other.

 

20

---

Table of Contents

(c)

Includes unallocated corporate overhead, the elimination of transactions between segments and the results of operations of certain non-strategic businesses.

Since December 31, 2006, there have been no significant changes in segment assets with the exception of the Company’s Domestic Car Rental segment, for which assets under vehicle programs amounted to approximately $7.5 billion and approximately $6.4 billion at September 30, 2007 and December 31, 2006, respectively.

 

17.	Guarantor and Non-Guarantor Consolidating Financial Statements

The following consolidating financial information presents Consolidating Condensed Statements of Operations for the three months and nine months ended September 30, 2007 and 2006, Consolidating Condensed Balance Sheets as of September 30, 2007 and December 31, 2006 and Consolidating Condensed Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 for: (i) Avis Budget Group, Inc. (the “Parent”); (ii) Avis Budget Car Rental and Avis Budget Finance, Inc. (the “Subsidiary Issuers”); (iii) the guarantor subsidiaries; (iv) the non-guarantor subsidiaries; (v) elimination entries necessary to consolidate the Parent with the Subsidiary Issuers, the guarantor and non-guarantor subsidiaries; and (vi) the Company on a consolidated basis. The Subsidiary Issuers and the guarantor and non-guarantor subsidiaries are 100% owned by the Parent, either directly or indirectly. All guarantees are full and unconditional and joint and several. This financial information is being presented in relation to the Company’s Guarantee of the Notes issued by Avis Budget Car Rental. See Note 11—Long-term Debt and Borrowing Arrangements for additional description of these notes. The Notes have separate investors than the equity investors of the Company and the Notes are secured by certain subsidiaries.

Investments in subsidiaries are accounted for using the equity method of accounting for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. For purposes of the accompanying Consolidating Condensed Statements of Operations, certain expenses incurred by the Subsidiary Issuers are allocated to the guarantor and non-guarantor subsidiaries. The results of operations of discontinued operations are included in the non-guarantor subsidiaries column. Income from discontinued operations, net of tax within the parent column includes the equity in earnings from discontinued operations and gain (loss) on disposal of discontinued operations.

 

21

---

Table of Contents

Consolidating Condensed Statements of Operations

Three Months Ended September 30, 2007

 

		Parent				Subsidiary Issuers				Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations				Total
Revenues
Vehicle rental		$	—			$	—			$	1,165		$	183		$	—			$	1,348
Other			1				—				271			615			(516	)			371
Net revenues			1				—				1,436			798			(516	)			1,719
Expenses
Operating			(3	)			—				705			133			—				835
Vehicle depreciation and lease charges, net			—				—				385			431			(375	)			441
Selling, general and administrative			5				—				149			22			—				176
Vehicle interest, net			—				—				88			95			(87	)			96
Non-vehicle related depreciation and amortization			—				—				19			2			—				21
Interest expense related to corporate debt, net:
Interest expense			(1	)			32				—			—			—				31
Intercompany interest expense (income)			—				(32	)			32			—			—				—
Separation costs, net			2				1				—			—			—				3
Total expenses			3				1				1,378			683			(462	)			1,603
Income (loss) before income taxes and equity in earnings of subsidiaries			(2	)			(1	)			58			115			(54	)			116
Provision (benefit) for income taxes			—				1				31			21			—				53
Equity in earnings of subsidiaries			65				67				40			—			(172	)			—
Income from continuing operations			63				65				67			94			(226	)			63
Income (loss) from discontinued operations, net of tax			40				—				—			—			—				40
Net income		$	103			$	65			$	67		$	94		$	(226	)		$	103

 

22

---

Table of Contents

Nine Months Ended September 30, 2007

 

		Parent				Subsidiary Issuers				Guarantor Subsidiaries			Non-Guarantor Subsidiaries				Eliminations				Total
Revenues
Vehicle rental		$	—			$	—			$	3,134		$	466			$	—			$	3,600
Other			6				—				733			1,677				(1,416	)			1,000
Net revenues			6				—				3,867			2,143				(1,416	)			4,600
Expenses
Operating			—				—				1,968			363				—				2,331
Vehicle depreciation and lease charges, net			—				—				1,056			1,181				(1,032	)			1,205
Selling, general and administrative			12				—				426			66				—				504
Vehicle interest, net			—				—				222			248				(233	)			237
Non-vehicle related depreciation and amortization			1				—				58			5				—				64
Interest expense related to corporate debt, net:
Interest expense			(2	)			100				—			(1	)			—				97
Intercompany interest expense (income)			—				(100	)			100			—				—				—
Separation costs, net			(4	)			4				—			—				—				—
Total expenses			7				4				3,830			1,862				(1,265	)			4,438
Income (loss) before income taxes and equity in earnings of subsidiaries			(1	)			(4	)			37			281				(151	)			162
Provision (benefit) for income taxes			(5	)			(1	)			27			43				—				64
Equity in earnings of subsidiaries			94				97				87			—				(278	)			—
Income from continuing operations			98				94				97			238				(429	)			98
Income (loss) from discontinued operations, net of tax			42				—				—			—				—				42
Net income		$	140			$	94			$	97		$	238			$	(429	)		$	140

 

23

---

Table of Contents

Three Months Ended September 30, 2006

 

		Parent				Subsidiary Issuers				Guarantor Subsidiaries				Non-Guarantor Subsidiaries			Eliminations				Total
Revenues
Vehicle rental		$	—			$	—			$	1,092			$	161		$	—			$	1,253
Other			7				—				212				559			(465	)			313
Net revenues			7				—				1,304				720			(465	)			1,566
Expenses
Operating			(1	)			—				659				120			—				778
Vehicle depreciation and lease charges, net			—				—				339				405			(361	)			383
Selling, general and administrative			59				—				146				23			(4	)			224
Vehicle interest, net			—				—				81				84			(78	)			87
Non-vehicle related depreciation and amortization			1				—				21				3			—				25
Interest expense related to corporate debt, net:
Interest expense			19				35				(2	)			—			(2	)			50
Intercompany interest expense (income)			—				(35	)			35				—			—				—
Early extinguishment of debt			313				—				—				—			—				313
Separation costs, net			147				16				4				—			—				167
Total expenses			538				16				1,283				635			(445	)			2,027
Income (loss) before income taxes and equity in earnings of subsidiaries			(531	)			(16	)			21				85			(20	)			(461	)
Provision (benefit) for income taxes			(191	)			(7	)			39				21			2				(136	)
Equity in earnings of subsidiaries			15				47				65				—			(127	)			—
Income (loss) from continuing operations			(325	)			38				47				64			(149	)			(325	)
Income (loss) from discontinued operations, net of tax			(688	)			—				—				54			(54	)			(688	)
Net income (loss)		$	(1,013	)		$	38			$	47			$	118		$	(203	)		$	(1,013	)

 

24

---

Table of Contents

Nine Months Ended September 30, 2006

 

		Parent				Subsidiary Issuers				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Total
Revenues
Vehicle rental		$	—			$	—			$	3,054			$	415			$	—			$	3,469
Other			31				—				611				1,579				(1,332	)			889
Net revenues			31				—				3,665				1,994				(1,332	)			4,358
Expenses
Operating			1				—				1,884				319				—				2,204
Vehicle depreciation and lease charges, net			—				—				947				1,174				(1,044	)			1,077
Selling, general and administrative			184				—				436				65				(15	)			670
Vehicle interest, net			—				—				241				244				(232	)			253
Non-vehicle related depreciation and amortization			8				—				60				13				—				81
Interest expense related to corporate debt, net:
Interest expense			179				65				(24	)			(1	)			(13	)			206
Intercompany interest expense (income)			—				(65	)			65				—				—				—
Early extinguishment of debt			313				—				—				—				—				313
Separation costs, net			201				18				4				—				—				223
Total expenses			886				18				3,613				1,814				(1,304	)			5,027
Income (loss) before income taxes and equity in earnings of subsidiaries			(855	)			(18	)			52				180				(28	)			(669	)
Provision (benefit) for income taxes			(313	)			(7	)			52				44				10				(214	)
Equity in earnings of subsidiaries			87				139				139				—				(365	)			—
Income (loss) from continuing operations			(455	)			128				139				136				(403	)			(455	)
Income (loss) from discontinued operations, net of tax			(1,478	)			—				—				478				(478	)			(1,478	)
Income (loss) before cumulative effect of accounting changes			(1,933	)			128				139				614				(881	)			(1,933	)
Cumulative effect of accounting changes, net of tax			(64	)			—				—				(65	)			65				(64	)
Net income (loss)		$	(1,997	)		$	128			$	139			$	549			$	(816	)		$	(1,997	)

 

25

---

Table of Contents

Consolidating Condensed Balance Sheets

As of September 30, 2007

 

		Parent			Subsidiary Issuers			Guarantor Subsidiaries				Non-Guarantor Subsidiaries			Eliminations				Total
Assets
Current assets:
Cash and cash equivalents		$	79		$	110		$	13			$	100		$	—			$	302
Receivables, net			2			117			247				98			—				464
Deferred income taxes			6			—			17				4			(13	)			14
Other current assets			413			116			73				57			(19	)			640
Total current assets			500			343			350				259			(32	)			1,420
Property and equipment, net			5			168			278				51			—				502
Deferred income taxes			24			93			—				54			(40	)			131
Goodwill			—			7			2,165				23			—				2,195
Other intangibles, net			—			17			645				96			—				758
Other non-current assets			637			82			16				4			—				739
Intercompany receivables (payables)			373			610			(1,005	)			22			—				—
Investment in subsidiaries			1,998			3,237			2,678				—			(7,913	)			—
Total assets exclusive of assets under vehicle programs			3,537			4,557			5,127				509			(7,985	)			5,745
Assets under vehicle programs:
Program cash			—			—			—				20			—				20
Vehicles, net			—			—			213				8,271			—				8,484
Receivables from vehicle manufacturers and others			—			—			—				358			—				358
Investment in Avis Budget Rental Car Funding (AESOP) LLC-related party			—			—			—				304			—				304
			—			—			213				8,953			—				9,166
Total assets		$	3,537		$	4,557		$	5,340			$	9,462		$	(7,985	)		$	14,911
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other current liabilities		$	417		$	211		$	537			$	127		$	(32	)		$	1,260
Current portion of long-term debt			2			9			—				—			—				11
Total current liabilities			419			220			537				127			(32	)			1,271
Long-term debt			—			1,789			—				—			—				1,789
Other non-current liabilities			533			93			227				199			(40	)			1,012
Total liabilities exclusive of liabilities under vehicle programs			952			2,102			764				326			(72	)			4,072
Liabilities under vehicle programs:
Debt			—			—			229				942			—				1,171
Due to Avis Budget Rental Car Funding (AESOP) LLC-related party			—			—			—				5,765			—				5,765
Deferred income taxes			—			—			1,109				138			—				1,247
Other			—			2			1				68			—				71
			—			2			1,339				6,913			—				8,254
Total stockholders’ equity			2,585			2,453			3,237				2,223			(7,913	)			2,585
Total liabilities and stockholders’ equity		$	3,537		$	4,557		$	5,340			$	9,462		$	(7,985	)		$	14,911

 

26

---

Table of Contents

As of December 31, 2006

 

		Parent			Subsidiary Issuers			Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Total
Assets
Current assets:
Cash and cash equivalents		$	35		$	75		$	29			$	33			$	—			$	172
Receivables, net			2			54			217				90				—				363
Deferred income taxes			5			—			10				7				(15	)			7
Other current assets			1,070			49			84				62				(1	)			1,264
Total current assets			1,112			178			340				192				(16	)			1,806
Property and equipment, net			—			115			326				45				—				486
Deferred income taxes			41			153			—				68				(36	)			226
Goodwill			—			7			2,165				21				—				2,193
Other intangibles, net			1			17			639				82				—				739
Other non-current assets			59			48			10				4				—				121
Intercompany receivables (payables)			627			627			(1,209	)			(45	)			—				—
Investment in subsidiaries			1,854			3,109			2,603				—				(7,566	)			—
Total assets exclusive of assets under vehicle programs			3,694			4,254			4,874				367				(7,618	)			5,571
Assets under vehicle programs:
Program cash			—			—			—				14				—				14
Vehicles, net			—			—			299				6,750				—				7,049
Receivables from vehicle manufacturers and others			—			—			13				263				—				276
Investment in Avis Budget Rental Car Funding (AESOP) LLC-related party			—			—			—				361				—				361
			—			—			312				7,388				—				7,700
Total assets		$	3,694		$	4,254		$	5,186			$	7,755			$	(7,618	)		$	13,271
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other current liabilities		$	1,185		$	81		$	490			$	115			$	(16	)		$	1,855
Current portion of long-term debt			4			25			—				—				—				29
Total current liabilities			1,189			106			490				115				(16	)			1,884
Long-term debt			—			1,813			—				—				—				1,813
Other non-current liabilities			62			24			226				176				(36	)			452
Total liabilities exclusive of liabilities under vehicle programs			1,251			1,943			716				291				(52	)			4,149
Liabilities under vehicle programs:
Debt			—			—			271				488				—				759
Due to Avis Budget Rental Car Funding (AESOP) LLC-related party			—			—			—				4,511				—				4,511
Deferred income taxes			—			—			1,077				129				—				1,206
Other			—			—			13				190				—				203
			—			—			1,361				5,318				—				6,679
Total stockholders’ equity			2,443			2,311			3,109				2,146				(7,566	)			2,443
Total liabilities and stockholders’ equity		$	3,694		$	4,254		$	5,186			$	7,755			$	(7,618	)		$	13,271

 

27

---

Table of Contents

Consolidating Condensed Statements of Cash Flows

Nine Months Ended September 30, 2007

 

		Parent				Subsidiary Issuers				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Total
Net cash provided by operating activities		$	24			$	2			$	103			$	1,394			$	(151	)		$	1,372
Investing activities
Property and equipment additions			1				(33	)			(29	)			(9	)			—				(70	)
Net assets acquired, net of cash acquired, and acquisition-related payments			—				—				(6	)			—				—				(6	)
Proceeds received on asset sales			—				9				1				2				—				12
Proceeds from sale of investment			106				—				—				—				—				106
Payments made to Realogy and Wyndham, net			(94	)			—				—				—				—				(94	)
Proceeds from dispositions of businesses, net of transaction-related payments			—				—				—				—				—				—
Other, net			(22	)			(9	)			(7	)			1				—				(37	)
Net cash provided by (used in) investing activities exclusive of vehicle programs			(9	)			(33	)			(41	)			(6	)			—				(89	)
Vehicle programs:
Increase in program cash			—				—				—				(6	)			—				(6	)
Investment in vehicles			—				(107	)			(93	)			(8,322	)			—				(8,522	)
Payments received on investment in vehicles			1				185				48				5,548				—				5,782
			1				78				(45	)			(2,780	)			—				(2,746	)
Net cash provided by (used in) investing activities			(8	)			45				(86	)			(2,786	)			—				(2,835	)
Financing activities
Principal payments on borrowings			(2	)			(40	)			—				—				—				(42	)
Issuances of common stock			49				—				—				—				—				49
Net intercompany transactions			(18	)			31				7				(171	)			151				—
Other, net			(2	)			2				—				—				—				—
Net cash provided by (used in) financing activities exclusive of vehicle programs			27				(7	)			7				(171	)			151				7
Vehicle programs:
Proceeds from borrowings			—				—				—				8,218				—				8,218
Principal payments on borrowings			—				—				(39	)			(6,754	)			—				(6,793	)
Net change in short-term borrowings			—				—				—				160				—				160
Other, net			1				(5	)			(1	)			—				—				(5	)
			1				(5	)			(40	)			1,624				—				1,580
Net cash provided by (used in) financing activities			28				(12	)			(33	)			1,453				151				1,587
Effect of changes in exchange rates on cash and cash equivalents			—				—				—				6				—				6
Net increase (decrease) in cash and cash equivalents			44				35				(16	)			67				—				130
Cash and cash equivalents, beginning of period			35				75				29				33				—				172
Cash and cash equivalents, end of period		$	79			$	110			$	13			$	100			$	—			$	302

 

28

---

Table of Contents

Nine Months Ended September 30, 2006

 

		Parent				Subsidiary Issuers				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Total
Net cash provided by (used in) operating activities		$	(1,313	)		$	90			$	(40	)		$	1,158			$	124			$	19
Investing activities
Property and equipment additions			(9	)			(11	)			(29	)			(15	)			—				(64	)
Net assets acquired, net of cash acquired, and acquisition-related payments			—				(95	)			(12	)			(9	)			—				(116	)
Proceeds received on asset sales			—				13				—				3				—				16
Proceeds from dispositions of businesses, net of transaction-related payments			4,035				—				—				—				—				4,035
Other, net			7				(1	)			1				(1	)			—				6
Net cash provided by (used in) investing activities exclusive of vehicle programs			4,033				(94	)			(40	)			(22	)			—				3,877
Vehicle programs:
Decrease (increase) in program cash			—				14				—				(6	)			—				8
Investment in vehicles			—				(148	)			(164	)			(8,937	)			—				(9,249	)
Payments received on investment in vehicles			—				277				6				7,941				—				8,224
Other, net			—				—				—				(12	)			—				(12	)
			—				143				(158	)			(1,014	)			—				(1,029	)
Net cash provided by (used in) investing activities			4,033				49				(198	)			(1,036	)			—				2,848
Financing activities
Proceeds from borrowings			—				1,875				—				—				—				1,875
Principal payments on borrowings			(3,559	)			(19	)			(1	)			(1	)							(3,580	)
Issuances of common stock			43				—				—				—				—				43
Repurchases of common stock			(243	)			—				—				—				—				(243	)
Payment of dividends			(113	)			—				—				—				—				(113	)
Net intercompany transactions			(162	)			(1,843	)			345				1,632				28				—
Other, net			(4	)			(35	)			—				—				—				(39	)
Net cash provided by (used in) financing activities exclusive of vehicle programs			(4,038	)			(22	)			344				1,631				28				(2,057	)
Vehicle programs:
Proceeds from borrowings			—				—				—				8,521				—				8,521
Principal payments on borrowings			—				—				(100	)			(10,387	)			—				(10,487	)
Net change in short-term borrowings			—				—				—				133				—				133
Other, net			—				(8	)			(5	)			—				—				(13	)
			—				(8	)			(105	)			(1,733	)			—				(1,846	)
Net cash provided by (used in) financing activities			(4,038	)			(30	)			239				(102	)			28				(3,903	)
Effect of changes in exchange rates on cash and cash equivalents			—				—				—				(1	)			—				(1	)
Cash provided by discontinued operations(a)			870				—				—				—				—				870
Net increase (decrease) in cash and cash equivalents			(448	)			109				1				19				152				(167	)
Cash and cash equivalents, beginning of period			638				1				13				46				(152	)			546
Cash and cash equivalents, end of period		$	190			$	110			$	14			$	65