Edgar Filing: AVIS BUDGET GROUP, INC.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-Q

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, 2010

¨	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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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 102,860,655 shares as of October 29, 2010.

Table of Contents


		Page
PART I	Financial Information (Unaudited)

Item 1.	Financial Statements

	Consolidated Condensed Statements of Income for the Three and Nine Months Ended September 30, 2010 and 2009 (Unaudited)		3

	Consolidated Condensed Balance Sheets as of September 30, 2010 and December 31, 2009 (Unaudited)		4

	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited)		5

	Notes to Consolidated Condensed Financial Statements (Unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		40

Item 4.	Controls and Procedures		40

PART II	Other Information

Item 1A.	Risk Factors		41

Item 6.	Exhibits		42

	Signatures		43

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” 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 our fleet costs as a result of an increase in the cost of new vehicles and/or a decrease in the price at which we dispose of used vehicles either in the used vehicle market or under repurchase or guaranteed depreciation programs;

•

the results of operations or financial condition of the manufacturers of our cars, which could impact their ability to perform their payment obligations under repurchase and/or guaranteed depreciation arrangements they have with us, and/or their willingness or ability to make cars available to us or the rental car industry as a whole on commercially reasonable terms or at all;

•

travel demand, including airline passenger traffic in the United States and in the other international locations in which we operate;

•

the effects of economic conditions, including in the housing market, and the impact such conditions may have on us, particularly during our peak season or in key market segments;

•

our ability to obtain financing for our operations, including the funding of our vehicle fleet via the asset-backed securities and lending market consistent with current costs, and the financial condition of financial-guaranty firms that have insured a portion of our outstanding vehicle-backed debt;

•

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

•

our dependence on third-party distribution channels;

•

our ability to control costs through our cost-savings and efficiency improvement initiatives or otherwise and successfully implement our business strategy;

•

our ability to utilize derivative instruments and the impact of derivative instruments we currently utilize, which can be affected by fluctuations in interest rates, changes in government regulations and other factors;

•

our ability to accurately estimate our future results;

•

a major disruption in our communication or centralized information networks;

•

our exposure to uninsured claims in excess of historical levels;

•

our failure or inability to comply with regulations or contractual obligations or any changes in regulations or contractual obligations, including with respect to personally identifiable information;

•

any impact on us from the actions of our licensees, dealers and independent contractors;

•

substantial increases in the cost, or decreases in the supply, of fuel, vehicle parts, energy or other resources on which we depend to operate our business;

•

risks related to our indebtedness, including our substantial amount of debt and our ability to incur substantially more debt;

•

our ability to meet the financial and other covenants contained in the agreements governing our indebtedness;

•

the terms of agreements among us and our 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, particularly with respect to the allocation of assets and liabilities, including contingent liabilities and guarantees, commercial arrangements, the ability of each of the separated companies to perform its obligations, including its indemnification obligations, under these agreements, and the former real estate business’ right to control the process for resolving disputes related to contingent liabilities and assets;

•

risks associated with litigation involving the Company;

•

risks related to tax obligations and the effect of potential changes in accounting standards;

•

risks related to the proposed acquisition of Dollar Thrifty Automotive Group, Inc. (“Dollar Thrifty”), including the timing to consummate such acquisition, the ability and timing to obtain required regulatory approvals and financing (and any conditions thereto), and our ability to promptly and effectively integrate the businesses of Dollar Thrifty and Avis Budget Group;

•

our exposure to fluctuations in foreign exchange rates; and

•

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

Other factors and assumptions not identified above, including those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2009 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” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2009 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q and those that may be disclosed from time to time in filings with the Securities and Exchange Commission, in connection with any forward-looking statements that may be made by us and our businesses generally. Except to the extent of our obligations 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. 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.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Revenues
Vehicle rental	$	1,145	$	1,123	$	2,972	$	3,036
Other		367		342		987		935

Net revenues		1,512		1,465		3,959		3,971


Expenses
Operating		705		731		1,956		2,020
Vehicle depreciation and lease charges, net		352		357		988		1,104
Selling, general and administrative		161		155		438		421
Vehicle interest, net		80		75		230		215
Non-vehicle related depreciation and amortization		24		26		70		71
Interest expense related to corporate debt, net
Interest expense		40		37		122		114
Early extinguishment of debt		—		—		40		—
Restructuring charges		6		1		9		14
Impairment		—		—		—		1

Total expenses		1,368		1,382		3,853		3,960


Income before income taxes		144		83		106		11
Provision for income taxes		54		26		28		9


Net income	$	90	$	57	$	78	$	2


Earnings per share
Basic	$	0.88	$	0.55	$	0.76	$	0.02
Diluted	$	0.73	$	0.54	$	0.66	$	0.02

See Notes to Consolidated Condensed Financial Statements (Unaudited).

Avis Budget Group, Inc.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions, except share data)

(Unaudited)


	September 30, 2010			December 31, 2009
Assets
Current assets:
Cash and cash equivalents	$	623		$	482
Receivables, net		317			290
Deferred income taxes		107			107
Other current assets		300			851

Total current assets		1,347			1,730

Property and equipment, net		418			442
Deferred income taxes		544			597
Goodwill		76			76
Other intangibles, net		479			478
Other non-current assets		244			248

Total assets exclusive of assets under vehicle programs		3,108			3,571


Assets under vehicle programs:
Program cash		43			157
Vehicles, net		7,069			5,967
Receivables from vehicle manufacturers and other		211			170
Investment in Avis Budget Rental Car Funding (AESOP) LLC—related party		270			228

		7,593			6,522

Total assets	$	10,701		$	10,093


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other current liabilities	$	928		$	1,272
Current portion of long-term debt		9			12

Total current liabilities		937			1,284

Long-term debt		2,119			2,119
Other non-current liabilities		548			630

Total liabilities exclusive of liabilities under vehicle programs		3,604			4,033


Liabilities under vehicle programs:
Debt		706			714
Debt due to Avis Budget Rental Car Funding (AESOP) LLC—related party		4,571			3,660
Deferred income taxes		1,287			1,267
Other		160			197

		6,724			5,838

Commitments and contingencies (Note 13)

Stockholders’ equity
Preferred stock, $.01 par value—authorized 10 million shares; none issued and outstanding		—			—
Common stock, $.01 par value—authorized 250 million shares; issued 136,970,259 and 136,931,540 shares		1			1
Additional paid-in capital		8,906			9,098
Accumulated deficit		(2,613	)		(2,691	)
Accumulated other comprehensive income (loss)		42			(37	)
Treasury stock, at cost—33,744,683 and 34,612,016 shares		(5,963	)		(6,149	)

Total stockholders’ equity		373			222


Total liabilities and stockholders’ equity	$	10,701		$	10,093

See Notes to Consolidated Condensed Financial Statements (Unaudited).

Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Nine Months Ended September 30,
	2010			2009
Operating Activities
Net income	$	78		$	2

Adjustments to reconcile net income to net cash provided by operating activities exclusive of vehicle programs:
Non-vehicle related depreciation and amortization		70			71
Net change in assets and liabilities, excluding the impact of acquisitions and dispositions:
Receivables		(34	)		25
Income taxes and deferred income taxes		(93	)		(8	)
Accounts payable and other current liabilities		107			30
Reimbursement from Realogy and Wyndham for taxes paid		99			—
Reimbursement from Wyndham for tax attributes		86			—
Other, net		44			34

Net cash provided by operating activities exclusive of vehicle programs		357			154


Vehicle programs:
Vehicle depreciation		981			1,096

		981			1,096

Net cash provided by operating activities		1,338			1,250


Investing Activities
Property and equipment additions		(39	)		(19	)
Net assets acquired, net of cash acquired and acquisition related payments		(2	)		—
Proceeds received on asset sales		11			10
Other, net		(5	)		—

Net cash used in investing activities exclusive of vehicle programs		(35	)		(9	)


Vehicle programs:
Decrease in program cash		123			5
Investment in vehicles		(6,549	)		(5,019	)
Proceeds received on disposition of vehicles		4,445			5,424
Investment in debt securities of Avis Budget Rental Car Funding (AESOP)—related party		(380	)		—
Proceeds from debt securities of Avis Budget Rental Car Funding (AESOP)—related party		380			—
Distribution from Avis Budget Rental Car Funding (AESOP) LLC—related party		—			19

		(1,981	)		429

Net cash provided by (used in) investing activities		(2,016	)		420

Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)

(In millions)

(Unaudited)


	Nine Months Ended September 30,
	2010			2009
Financing Activities
Proceeds from borrowings		444			100
Principal payments on borrowings		(458	)		(8	)
Debt financing fees		(32	)		—
Other, net		4			(2	)

Net cash provided by (used in) financing activities exclusive of vehicle programs		(42	)		90


Vehicle programs:
Proceeds from borrowings		7,196			5,728
Principal payments on borrowings		(6,391	)		(7,335	)
Net change in short-term borrowings		67			36
Other, net		(17	)		(6	)

		855			(1,577	)

Net cash provided by (used in) financing activities		813			(1,487	)


Effect of changes in exchange rates on cash and cash equivalents		6			29


Net increase in cash and cash equivalents		141			212
Cash and cash equivalents, beginning of period		482			258

Cash and cash equivalents, end of period	$	623		$	470

See Notes to Consolidated Condensed Financial Statements (Unaudited).

Avis Budget Group, Inc.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

(Unless otherwise noted, all dollar amounts in tables 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 vehicle rentals and ancillary products and services primarily in Argentina, Australia, Canada, 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 of America (“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 2009 Annual Report on Form 10-K filed on February 24, 2010.

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 that is 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.

Separation. In connection with the separation of Cendant Corporation (as the Company was formerly known) into four independent companies (the “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.

Adoption of New Accounting Standards during 2010

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-16, “Accounting for Transfers of Financial Assets”. The Company adopted this guidance on January 1, 2010, as required, and it did not have a significant impact on its financial statements.

In December 2009, the FASB issued ASU No. 2009-17, “Accounting by Enterprises Involved with Variable Interest Entities”. The Company adopted this guidance on January 1, 2010, as required, and it did not have a significant impact on its financial statements.

In February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events – Amendments to Certain Recognition and Disclosure Requirements”. The Company adopted this guidance upon its issuance, as required, and it did not have a significant impact on its financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures”, which will expand fair value disclosures, requiring companies to provide (i) information about movements of assets between levels 1 and 2, (ii) a reconciliation of purchases, sales, issuance and settlements for all level 3 instruments and (iii) fair value measurement disclosures for each class of assets and liabilities. The Company adopted this guidance on January 1, 2010, as required, except for the disclosures about purchases, sales, issuances and settlements for level 3 instruments and fair value measurements, which will be adopted on January 1, 2011, as required, and it did not have, and is not expected to have, a significant impact on its financial statements.

2.	Restructuring Charges

Beginning in late 2008, the Company implemented initiatives within the Company’s Domestic Car Rental, International Car Rental and Truck Rental segments to reduce costs, enhance organizational efficiency and consolidate and rationalize existing processes and facilities. During the nine months ended September 30, 2010, as part of this process, the Company formally communicated the termination of employment to approximately 1,200 employees within its Domestic Car Rental segment and incurred $9 million in restructuring charges, the majority of which is expected to be cash. These charges primarily represent costs associated with the closure and consolidation of certain back-office administrative facilities and severance, outplacement services and other costs associated with the employee terminations. As of September 30, 2010, the Company had terminated approximately 1,100 of these employees.

At September 30, 2010, the remaining liability relating to restructuring actions amounted to $6 million, primarily for lease obligation costs related to vacated locations which are expected to be paid through 2018. As part of this process, the Company continues to implement steps to reduce costs and consolidate certain customer facing and non-customer facing activities and locations. The Company expects further restructuring costs related to this process of approximately $2 million to be incurred through December 31, 2010.

The restructuring charges and corresponding utilization are recorded within the Company’s segments as follows:


	Domestic Car Rental			International Car Rental			Truck Rental			Total
Balance as of January 1, 2010	$	3		$	1		$	1		$	5
Incremental charges		9			—			—			9
Cash payment/utilization		(6	)		(1	)		(1	)		(8	)

Balance as of September 30, 2010	$	6		$	—		$	—		$	6

The restructuring charges and the corresponding utilization are summarized by category as follows:


	Personnel Related			Facility Related			Total
Balance as of January 1, 2010	$	1		$	4		$	5
Incremental charges		4			5			9
Cash payment/utilization		(4	)		(4	)		(8	)

Balance as of September 30, 2010	$	1		$	5		$	6

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,
	2010		2009		2010		2009
Net income for basic EPS	$	90	$	57	$	78	$	2
Convertible debt interest, net of tax		2		—		6		—

Net income for diluted EPS	$	92	$	57	$	84	$	2

Basic weighted average shares outstanding		103.2		102.3		103.0		102.1
Options, warrants and non-vested stock		2.2		2.2		2.2		1.3
Convertible debt		21.2		—		21.2		—

Diluted weighted average shares outstanding		126.6		104.5		126.4		103.4


Earnings per share:
Basic	$	0.88	$	0.55	$	0.76	$	0.02
Diluted	$	0.73	$	0.54	$	0.66	$	0.02

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,
	2010		2009		2010		2009
Options ^(a)		2.0		3.4		2.0		3.4
Warrants ^(b)		21.2		—		21.2		—

^(a⁾

The weighted average exercise price for anti-dilutive options for the three and nine months ended September 30, 2010 was $20.92. For the three and nine months ended September 30, 2009, the weighted average exercise price for anti-dilutive options was $24.48.

^(b⁾

Represents all outstanding warrants for the three and nine months ended September 30, 2010. The exercise price for the warrants outstanding for the three and nine months ended September 30, 2010 was $22.50.

4.	Intangible Assets

Intangible assets consisted of:


	As of September 30, 2010						As of December 31, 2009
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizable Intangible Assets
Franchise agreements	$	73	$	24	$	49	$	73	$	22	$	51
Customer lists		19		9		10		19		9		10
Other		2		1		1		2		1		1

	$	94	$	34	$	60	$	94	$	32	$	62


Unamortizable Intangible Assets
Goodwill	$	76					$	76

Trademarks ^(a)	$	419					$	416

^(a)

The increase in trademarks is primarily due to a $2 million increase from fluctuations in foreign currency rates and $1 million in acquisitions during 2010.

Amortization expense relating to all intangible assets was approximately $1 million during third quarter 2010 and 2009. For the nine months ended September 30, 2010 and 2009, amortization expense was approximately $2 million.

Based on the Company’s amortizable intangible assets at September 30, 2010, the Company expects amortization expense of approximately $1 million for the remainder of 2010 and approximately $3 million for each of the five fiscal years thereafter.

5.	Financial Instruments

The fair value of the Company’s financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market. In some cases where quoted market prices are not available, prices are derived by considering the yield of the benchmark security that was initially used to price the instruments and adjusting this rate by the credit spread that market participants would demand for the instruments as of the measurement date. The carrying amounts of cash and cash equivalents, accounts receivable, program cash and accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.

Debt Instruments

The carrying amounts and estimated fair values of debt instruments are as follows:


	As of September 30, 2010				As of December 31, 2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Corporate debt
Current portion of long-term debt	$	9	$	9	$	12	$	12
Long-term debt, excluding convertible debt		1,774		1,786		1,774		1,675
Convertible debt		345		362		345		376

Debt under vehicle programs
Vehicle-backed debt due to Avis Budget Rental Car Funding (AESOP) LLC	$	4,571	$	4,649	$	3,660	$	3,634
Vehicle-backed debt		704		715		705		707

Derivative instruments and hedging activities

The Company uses foreign exchange forward contracts to manage its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated receivables and forecasted royalties, forecasted earnings of foreign subsidiaries and forecasted foreign currency denominated acquisitions. The Company primarily hedges its foreign currency exposure to the Canadian, Australian and New Zealand dollars. The majority of forward contracts do not qualify for hedge accounting treatment. The fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk they economically hedge. Forward contracts used to hedge forecasted third party receipts and disbursements up to twelve months are designated and do qualify as cash flow hedges. The amount of gains or losses reclassified from accumulated other comprehensive income to earnings resulting from ineffectiveness or from excluding a component of the forward contracts’ gain or loss from the effectiveness calculation for cash flow hedges during the three and nine months ended September 30, 2010 and 2009 was not material, nor is the amount of gains or losses the Company expects to reclassify from accumulated other comprehensive income to earnings over the next twelve months.

The Company uses various hedging strategies including interest rate swaps and interest rate caps to create an appropriate mix of fixed and floating rate assets and liabilities. The Company uses interest rate swaps, designated as cash flow hedges, to manage the risk related to its floating rate corporate debt. In connection with such cash flow hedges, the Company records changes in the intrinsic value of these cash flow hedges to other comprehensive income, net of tax, and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized. The changes in fair values of hedges that were determined to be ineffective are immediately reclassified from accumulated other comprehensive income into earnings. In first quarter 2010, the Company reclassified $36 million from accumulated other comprehensive income to earnings in connection with the early termination of certain interest rate swaps related to the repayment of a portion of the Company’s floating rate term loan. The Company estimates that approximately $71 million of losses deferred in accumulated other comprehensive income will be recognized over the next twelve months, which is expected to be offset in earnings by the impact of the underlying hedged items.

To manage the risk associated with its floating rate vehicle-backed debt, the Company uses derivatives. These derivatives include freestanding derivatives and derivatives designated as cash flow hedges. In connection with such cash flow hedges, the Company records the effective portion of the change in fair value in other comprehensive income, net of tax. The Company records the change in fair value gains or losses related to freestanding derivatives in its consolidated results of operations.

The Company periodically enters into derivative commodity contracts to manage its exposure to changes in the price of unleaded gasoline. These instruments were designated as freestanding derivatives and the changes in fair value are recorded in the Company’s consolidated results of operations.

Certain of the Company’s derivative instruments contain collateral support provisions that require the Company to post cash collateral to the extent that these derivatives are in a liability position. The aggregate fair value of such derivatives that are in a liability position and the aggregate fair value of assets needed to settle these derivatives as of September 30, 2010 was approximately $8 million, for which the Company has posted cash collateral in the same amount in the normal course of business.

As of September 30, 2010, the Company held derivative instruments with notional values as follows: interest rate caps of approximately $2.7 billion, interest rate swaps of $587 million, foreign exchange swaps of $75 million, foreign exchange forward contracts of $10 million and commodity contracts for the purchase of 3 million gallons of unleaded gasoline.

The Company used significant observable inputs (level 2 inputs) to determine the fair value of its derivative assets and liabilities. Derivatives entered into by the Company are typically executed over-the-counter and are valued using internal valuation techniques, as no quoted market prices exist for such instruments. The valuation technique and inputs depend on the type of derivative and the nature of the underlying exposure. The principal techniques used to value these instruments are discounted cash flows and Black-Scholes option valuation models. These models take into account a variety of factors including, where applicable, maturity, commodity prices, interest rate yield curves, credit curves of the Company and counterparties, counterparty creditworthiness and forward and spot currency exchange rates. These factors are applied on a consistent basis and are based upon observable inputs where available.

Fair values of derivative instruments are as follows:


	As of September 30, 2010				As of December 31, 2009
	Fair Value, Asset Derivatives		Fair Value, Liability Derivatives		Fair Value, Asset Derivatives		Fair Value, Liability Derivatives
Derivatives designated as hedging instruments ^(a)
Interest rate swaps ^(b)	$	—	$	9	$	—	$	39
Derivatives not designated as hedging instruments ^(a)
Interest rate swaps ^(c)		—		1		—		—
Interest rate contracts ^(c)		1		1		—		9

Total	$	1	$	11	$	—	$	48

^(a)

Amounts in this table exclude derivatives issued by Avis Budget Rental Car Funding (AESOP) LLC (“Avis Budget Rental Car Funding”), as it is not consolidated by the Company; however, certain amounts related to the derivatives held by Avis Budget Rental Car Funding are included within accumulated other comprehensive income, as discussed in Note 14—Stockholders’ Equity.

^(b)

Included in other non-current liabilities.

^(c)

Included in assets under vehicle programs and liabilities under vehicle programs.

The effect of derivative instruments not designated as hedging instruments in the Company’s consolidated results of operations for the three months ended September 30, 2010 was (i) a $15 million gain recognized as a component of operating expenses related to foreign exchange swaps and foreign exchange forward contracts, (ii) an immaterial gain recognized as a component of operating expenses related to our commodity contracts, and (iii) an immaterial loss recognized as a component of interest expense related to interest rate swaps and interest rate caps not designated as hedging instruments. The gain on foreign exchange swaps and foreign exchange forward contracts was largely offset by foreign currency exchange losses on the underlying hedged items, primarily intracompany loans.

The effect of derivative instruments not designated as hedging instruments in the Company’s consolidated results of operations for the nine months ended September 30, 2010 was (i) a $14 million gain recognized as a component of operating expenses related to foreign exchange swaps and foreign exchange forward contracts, (ii) an immaterial gain recognized as a component of operating expenses related to our commodity contracts and (iii) a loss of $2 million recognized as a component of interest expense related to interest rate swaps and interest rate caps not designated as hedging instruments. The gain on foreign exchange swaps and foreign exchange forward contracts was largely offset by foreign currency exchange losses on the underlying hedged items, primarily intracompany loans.

The Company also recognized unrealized gains of $8 million and $22 million, as a component of other comprehensive income, net of tax, during the three and nine months ended September 30, 2010, respectively, which relate to interest rate swaps designated as cash flow hedges.

The effect of derivative instruments in the Company’s consolidated results of operations for the three months ended September 30, 2009, was (i) a loss of $1 million recognized as a component of operating expenses related to foreign exchange forward contracts, (ii) an insignificant loss recognized as a component of operating expenses related to our commodity contracts and (iii) a $2 million loss recognized as a component of interest expense related to interest rate swaps not designated as hedging instruments.

The effect of derivative instruments in the Company’s consolidated results of operations for the nine months ended September 30, 2009, was (i) a loss of $5 million recognized as a component of operating expenses related to foreign exchange forward contracts, (ii) a gain of $3 million recognized as a component of operating expenses related to our commodity contracts and (iii) a loss of $4 million recognized as a component of interest expense related to interest rate swaps not designated as hedging instruments.

The Company also recognized unrealized gains of $2 million and $26 million, as a component of other comprehensive income, net of tax, for the three and nine months ended September 30, 2009, respectively, which relate to interest rate swaps designated as cash flow hedges.

6.	Vehicle Rental Activities

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


	As of September 30, 2010			As of December 31, 2009
Rental vehicles	$	7,809		$	6,090
Less: Accumulated depreciation		(1,131	)		(945	)

		6,678			5,145
Vehicles held for sale		391			822

Vehicles, net	$	7,069		$	5,967

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Depreciation expense	$	355		$	363		$	981		$	1,096
Lease charges		6			23			25			37
Gain on sales of vehicles, net and vehicle disposition costs		(9	)		(29	)		(18	)		(29	)

Vehicle depreciation and lease charges, net	$	352		$	357		$	988		$	1,104

For the three months ended September 30, 2010 and 2009, vehicle interest, net on the accompanying Consolidated Condensed Statements of Income excludes $43 million and $38 million, respectively, and for the nine months ended September 30, 2010 and 2009, excludes $127 million and $116 million respectively, of interest expense related to the Company’s convertible senior notes and 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.

7.	Income Taxes

During third quarter 2010, the Company reached a settlement with the Internal Revenue Service (“IRS”) with respect to its examination of the Company’s taxable years 2003 through 2006, the year of the Separation. The Company was entitled to indemnification for most pre-Separation tax matters from Realogy and Wyndham and therefore the conclusion of the audit did not have a material impact to the Company’s financial position. The Company made payments to the IRS of $116 million, including interest, in conjunction with the conclusion of the audit, all of which were funded by Realogy and Wyndham. The Company was also reimbursed $86 million by Wyndham for the use of certain of the Company’s tax attributes in connection with the conclusion of the IRS audit. As a result of the conclusion of the audit, the Company reduced income taxes payable and related receivables from Realogy and Wyndham by approximately $295 million, which items offset within income from discontinued operations. In addition, in connection with the conclusion of the IRS audit, a reallocation of certain deferred tax balances with our former subsidiaries resulted in a $16 million decrease to stockholders’ equity. The reductions in income taxes payable and receivables from Realogy and Wyndham are reflected in accounts payable and other current liabilities, and other current assets, respectively, as of September 30, 2010.

The following is a reconciliation of the total amounts of unrecognized tax benefits:


Balance at January 1, 2010	$	603
Additions based on tax positions related to the current year		—
Additions for tax positions for prior years		7
Reductions for tax positions for prior years		(434	)
Settlements		(100	)

Balance at September 30, 2010	$	76

The Company’s effective tax rate for the nine months ended September 30, 2010 is a provision of 26.4%. Such rate differs from the Federal statutory rate of 35.0% primarily due to an $11 million benefit relating to additional tax depreciation within the Company’s operations in Australia.

The Company’s effective tax rate from continuing operations for the nine months ended September 30, 2009 is a provision of 81.8%. Such rate differs from the Federal statutory rate of 35.0% primarily due to foreign withholding taxes and the differences in the amount of stock-based compensation recorded for book and tax purposes.

8.	Other Current Assets

Other current assets consisted of:


	As of September 30, 2010		As of December 31, 2009
Prepaid expenses	$	145	$	127
Receivables from Wyndham ^(a)		45		249
Receivables from Realogy ^(a)		34		410
Other		76		65

	$	300	$	851

^(a)

Represents amounts due for certain contingent and other corporate liabilities assumed by Realogy and Wyndham in connection with the Separation. These amounts are due from Realogy and Wyndham on demand upon the Company’s settlement of the related liability. At September 30, 2010 and December 31, 2009, there are corresponding liabilities recorded within accounts payable and other current liabilities. Realogy has posted a letter of credit for the benefit of the Company to cover Realogy’s performance in respect of these receivables, as more fully described under Note 13—Commitments and Contingencies. During third quarter 2010, in connection with the conclusion of the IRS audit, the Company reduced its income taxes payable and the related receivables from Realogy and Wyndham.

9.	Accounts Payable and Other Current Liabilities

Accounts payable and other current liabilities consisted of:


	As of September 30, 2010		As of December 31, 2009
Accounts payable	$	190	$	151
Accrued payroll and related		155		145
Public liability and property damage insurance liabilities – current		97		97
Income taxes payable – current ^(a)		29		399
Accrued interest related to tax contingencies ^(a)		8		89
Other		449		391

	$	928	$	1,272

^(a)

During third quarter 2010, the Company decreased income taxes payable and accrued interest related to tax contingencies by $358 million and $81 million, respectively, and decreased the related receivables from Realogy and Wyndham, due to the conclusion of the IRS audit.

10.

Other Non-Current Liabilities

Other non-current liabilities consisted of:


	As of September 30, 2010		As of December 31, 2009
Public liability and property damage insurance liabilities	$	210	$	211
Pension liability		60		58
Acquisition related liabilities		55		57
Income taxes payable		45		100
Accrued interest related to tax contingencies		43		41
Other		135		163

	$	548	$	630

11.

Long-term Debt and Borrowing Arrangements

Long-term debt consisted of:


	Maturity		As of September 30, 2010		As of December 31, 2009
Floating rate term loan ^(a)		April 2012	$	52	$	778
Floating rate term loan ^(a)		April 2014		271		—
Floating rate notes		May 2014		250		250
7⁵/8 % notes		May 2014		375		375
3¹/2% convertible notes		October 2014		345		345
7³/4% notes		May 2016		375		375
9⁵/8 % notes		March 2018		444		—

				2,112		2,123
Other				16		8

Total long-term debt				2,128		2,131
Less: Current portion				9		12

Long-term debt			$	2,119	$	2,119

^(a)

The floating rate term loans and our revolving credit facilities are secured by pledges of all of the capital stock of all of the Company’s direct or indirect domestic subsidiaries and up to 66% of the capital stock of each foreign subsidiary directly owned by the Company’s domestic subsidiaries, subject to certain exceptions, and liens on substantially all of the Company’s intellectual property and certain other real and personal property. In March 2010, the Company repaid $451 million of outstanding indebtedness under its floating rate term loan and the term loan outstanding subsequent to such repayment was amended with $52 million maturing in April 2012 and the balance maturing in April 2014. The floating rate term loan due 2012 bears interest at three month LIBOR plus 375 basis points, for a rate of 4.04% at September 30, 2010, and the floating rate term loan due 2014 bears interest at the greater of three month LIBOR or 1.50%, plus 425 basis points, for a rate of 5.75% at September 30, 2010.

During March 2010, the Company issued $450 million aggregate principal amount of 9⁵/8% Senior Notes due 2018. The notes pay interest semi-annually on March 15 and September 15 of each year, beginning September 2010. The notes are unsecured obligations of Avis Budget Car Rental and are guaranteed on a senior basis by the Company and certain of its domestic subsidiaries. These notes were issued at approximately 98.6% of par and the proceeds were used primarily to repay a portion of the Company’s floating rate term loan. The notes rank equally with all existing and future senior unsecured indebtedness and are senior to all existing and future subordinated indebtedness. The Company has the right to redeem these notes in whole or in part at any time at the applicable redemption price plus any accrued and unpaid interest through the redemption date. In connection with the sale of the notes, the Company entered into a Registration Rights Agreement, pursuant to which it exchanged the originally issued notes for new notes which have been registered under the Securities Act of 1933, as amended, in August 2010. The terms of the new notes are substantially identical to those of the originally issued notes except that the transfer restrictions and registration rights provisions relating to the originally issued notes do not apply to the new notes.

Committed Credit Facilities and Available Funding Arrangements

At September 30, 2010, the committed credit facilities available to the Company and/or its subsidiaries at the corporate or Avis Budget Car Rental level were as follows:


	Total Capacity		Outstanding Borrowings		Letters of Credit Issued		Available Capacity
Revolving credit facility maturing 2011 ^(a)^(c)	$	192	$	—	$	73	$	119
Revolving credit facility maturing 2013 ^(b)^(c)		983		—		374		609

^(a)

This revolving credit facility expires in April 2011 and bears interest of one month LIBOR plus 400 basis points.

^(b)

This revolving credit facility, which is the portion of the pre-existing revolving credit facility that was amended in March 2010 to extend its maturity by two years (to April 2013), bears interest of one month LIBOR plus 450 basis points.

^(c⁾

The senior credit facilities, which encompass the floating rate term loans and the revolving credit facilities, are secured by pledges of all of the capital stock of all of the Company’s direct or indirect domestic subsidiaries and up to 66% of the capital stock of each foreign subsidiary directly owned by the Company’s domestic subsidiaries, subject to certain exceptions, and liens on substantially all of the Company’s intellectual property and certain other real and personal property.

The Company’s debt agreements contain restrictive covenants, including restrictions on dividends paid to the Company by certain of its subsidiaries, the incurrence of additional indebtedness by the Company and certain of its subsidiaries, acquisitions, mergers, liquidations, and sale and leaseback transactions. The Company’s senior credit facilities contain maximum leverage and minimum coverage ratio requirements. The indentures governing the Company’s senior unsecured notes, among other things, limit its ability to incur additional debt, subject to certain exceptions. As of September 30, 2010, the Company was in compliance with the financial covenants of its senior credit facilities.

12.

Debt Under Vehicle Programs and Borrowing Arrangements

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


	As of September 30, 2010		As of December 31, 2009
Debt due to Avis Budget Rental Car Funding ^(a)	$	4,571	$	3,660
Budget Truck financing:
Budget Truck Funding program		223		220
Capital leases		12		31
Other		471		463

	$	5,277	$	4,374

^(a)

The increase reflects increased borrowing within Domestic Car Rental operations primarily due to a seasonal increase in the size of the Company’s domestic car rental fleet.

Avis Budget Rental Car Funding (AESOP) LLC. Avis Budget Rental Car Funding, an unconsolidated bankruptcy remote qualifying special purpose limited liability company, issues privately placed notes to investors as well as to banks and bank-sponsored conduit entities. Avis Budget Rental Car Funding uses the proceeds from its note issuances to make loans to a wholly-owned subsidiary of the Company, AESOP Leasing LP (“AESOP Leasing”), on a continuing basis. AESOP Leasing is required to use the proceeds of such loans to acquire or finance the acquisition of vehicles used in the Company’s rental car operations. By issuing debt through the Avis Budget Rental Car Funding program, Avis Budget pays a lower rate of interest than if it had issued debt directly to third parties. Avis Budget Rental Car Funding is not consolidated, as the Company is not the “primary beneficiary” of Avis Budget Rental Car Funding. The Company determined that it is not the primary beneficiary because the Company does not have the obligation to absorb the potential losses or receive the benefits of Avis Budget Rental Car Funding’s activities since the Company’s only significant source of variability in the earnings, losses or cash flows of Avis Budget Rental Car Funding is exposure to its own creditworthiness, due to its loan from Avis Budget Rental Car Funding. Because Avis Budget Rental Car Funding is not consolidated, AESOP Leasing’s loan obligations to Avis Budget Rental Car Funding are reflected as related party debt on the Company’s Consolidated Condensed Balance Sheets as of September 30, 2010 and December 31, 2009. The Company also has an asset within Assets under vehicle programs on its Consolidated Condensed Balance Sheets at September 30, 2010 and December 31, 2009 which represents securities issued to the Company by Avis Budget Rental Car Funding. AESOP Leasing is consolidated, as the Company is the “primary beneficiary” of AESOP Leasing; as a result, the vehicles purchased by AESOP Leasing remain on the Company’s Consolidated Condensed Balance Sheets. The Company determined it is the primary beneficiary of AESOP Leasing, as it has the ability to direct its activities, an obligation to absorb a majority of its expected losses and the right to receive the benefits of AESOP Leasing’s activities. AESOP Leasing’s vehicles and related assets, which approximate $6.2 billion and many of which

are subject to manufacturer repurchase and guaranteed depreciation agreements, collateralize the debt issued by Avis Budget Rental Car Funding. The assets and liabilities of AESOP Leasing are presented on the Company’s Consolidated Condensed Balance Sheets within Assets under vehicle programs and Liabilities under vehicle programs, respectively. The assets of AESOP Leasing, included within Assets under vehicle programs (excluding the Investments in Avis Budget Rental Car Funding (AESOP) LLC– related party) are restricted. Such assets may be used only to repay the respective AESOP Leasing liabilities, included within Liabilities under vehicle programs, and to purchase new vehicles, although if certain collateral coverage requirements are met, AESOP Leasing may pay dividends from excess cash. The creditors of AESOP Leasing and Avis Budget Rental Car Funding have no recourse to the general credit of the Company. The Company periodically provides Avis Budget Rental Car Funding with non-contractually required support, in the form of equity and loans, to serve as additional collateral for the debt issued by Avis Budget Rental Car Funding. The Company also finances vehicles through other variable interest entities and partnerships, which are consolidated and whose assets and liabilities are included within Assets under vehicle programs and Liabilities under vehicle programs, respectively. The requirements of these entities include maintaining sufficient collateral levels and other covenants.

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 financial statements. Borrowings under the Avis Budget Rental Car Funding program primarily represent floating rate notes and had a weighted average interest rate of 3% and 2% as of September 30, 2010 and December 31, 2009, respectively.

During the nine months ended September 30, 2010, the Company established a variable funding note program with a maximum capacity of $400 million of notes to be issued by Avis Budget Rental Car Funding to the Company to finance the purchase of vehicles. These variable funding notes pay interest of 5.5% at September 30, 2010 and mature in March 2011. As of September 30, 2010, there were no outstanding amounts due to the Company from Avis Budget Rental Car Funding under the program; however, in the three and nine months ended September 30, 2010, the Company earned interest income of $1 million and $3 million, respectively, and incurred equal amounts of interest expense on these notes, which was eliminated in consolidation in the Company’s financial statements. As of September 30, 2010, the Company’s related interest receivable from Avis Budget Rental Car Funding was insignificant.

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, 2010:


	Vehicle-Backed Debt		Capital Leases		Total
Within 1 year ^(a)	$	2,401	$	12	$	2,413
Between 1 and 2 years		1,637		—		1,637
Between 2 and 3 years		591		—		591
Between 3 and 4 years		17		—		17
Between 4 and 5 years		526		—		526
Thereafter		93		—		93

	$	5,265	$	12	$	5,277

^(a)

Vehicle-backed debt maturing within one year includes term asset-backed securities maturities of $641 million and bank and bank-sponsored borrowings of $1,760 million.

As of September 30, 2010, available funding under the Company’s vehicle programs (including related party debt due to Avis Budget Rental Car Funding) consisted of:


	Total Capacity ^(a)		Outstanding Borrowings		Available Capacity
Debt due to Avis Budget Rental Car Funding ^(b)	$	5,671	$	4,571	$	1,100
Budget Truck financing:
Budget Truck Funding program ^(c)		223		223		—
Capital leases ^(d)		12		12		—
Other ^(e)		729		471		258

	$	6,635	$	5,277	$	1,358

^(a)

Capacity is subject to maintaining sufficient assets to collateralize debt.

^(b)

The outstanding debt is collateralized by approximately $6.2 billion of underlying vehicles and related assets. Capacity excludes any intercompany arrangements.

^(c)

The outstanding debt is collateralized by approximately $361 million of underlying vehicles and related assets.

^(d)

These capital leases are collateralized by approximately $17 million of underlying vehicles.

^(e)

The outstanding debt is collateralized by approximately $1.0 billion of underlying vehicles and related assets.

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 restrictions on indebtedness, mergers, liens, liquidations, and sale and leaseback transactions. As of September 30, 2010, the Company was not aware of any instances of non-compliance with such covenants.

13.

Commitments and Contingencies

Contingencies

In connection with the spin-offs of Realogy and Wyndham, the Company entered into the Separation and Distribution Agreement (“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 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 Liabilities, 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.

The Company does not believe that the impact of any unresolved proceedings constituting Assumed Liabilities related to pre-Separation activities, including the Credentials Litigation described below as well as certain other legal matters, 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.

In April 2007, Realogy was acquired by an affiliate of Apollo Management VI, L.P. 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 or effective to cover Realogy’s actual obligations if and when they arise.

As a result of payments made by Realogy and Wyndham in July 2009, the judgment against us in respect of litigation alleging breach of contract and fraud arising out of the acquisition of a business in 1998 (“Credentials Litigation”) has been satisfied. Plaintiffs have petitioned the court for attorneys’ fees in the amount of $33 million, and the Company has accrued liabilities of approximately $12 million in respect of this petition based on its assessment of amounts that plaintiffs are likely to recover. In January 2010, the court issued a summary order referring the determination of the proper amount of attorneys’ fees to a magistrate. Regardless of the ultimate outcome of the petition for attorneys’ fees, pursuant to the Separation Agreement, Realogy and Wyndham have assumed all liabilities related to this litigation and therefore a corresponding receivable has been established for such amount. Changes in liabilities related to such legal

matters for which the Company is entitled to indemnification, and corresponding changes in the Company’s indemnification assets, are recorded net in the Company’s Consolidated Condensed Financial Statements. There was no net impact to the Company’s financial statements or cash balances as a result of the satisfaction of this judgment or the petition for attorneys’ fees.

In October 2009, a judgment was entered against the Company in the amount of $16 million following the completion of a jury trial for damages related to a breach of contract claim by one of the Company’s licensees in the United States District Court for the District of Alaska. The Company has filed a notice of appeal of the judgment with the United States Court of Appeals for the Ninth Circuit. The lawsuit, which was filed in 2003, involved claims related to the acquisition of the Budget vehicle rental business in 2002. In June 2010, the district court entered an order against the Company in the amount of $3 million, in response to the plaintiff’s motions for pre-judgment interest and attorneys’ fees.

In addition to the matters discussed above, the Company is also involved in claims, legal proceedings and governmental inquiries related to its vehicle rental operations, including with respect to contract disputes, business practices, wage and hour claims, insurance claims, intellectual property claims, environmental issues, other commercial, employment and tax matters, and 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 impact 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 adversely impact the Company’s results of operations or cash flows in a particular reporting period. The Company is also named in various litigation that is primarily related to the businesses of its former subsidiaries, including Realogy, Wyndham and Travelport and their current or former subsidiaries. The Company is entitled to indemnification under the Separation Agreement from such entities for any liability resulting from such litigation.

Commitments to Purchase Vehicles

The Company maintains agreements with vehicle manufacturers which require the Company to purchase approximately $4.7 billion of vehicles from manufacturers over the next twelve months. The majority of these commitments are subject to the vehicle manufacturers’ satisfying their obligations under repurchase and guaranteed depreciation agreements. 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 in the used car market and under repurchase or guaranteed depreciation programs.

Concentrations

Concentrations of credit risk at September 30, 2010 include (i) risks related to the Company’s repurchase and guaranteed depreciation agreements with domestic and foreign car manufacturers, including General Motors Company, Ford Motor Company, Hyundai Motor America, Chrysler Group LLC and Kia Motors America, Inc., and (ii) risks related to Realogy and Wyndham, including receivables of $120 million and $98 million, respectively, related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with the Separation. As discussed above, Realogy has posted a letter of credit for the benefit of the Company to cover its estimated share of Assumed Liabilities, which includes a substantial portion of the Realogy receivables referred to above.

Other Guarantees

The Company has provided certain guarantees to, or for the benefit of, subsidiaries of Realogy, Wyndham and Travelport. These guarantees relate to various real estate operating leases that were entered into prior to the Separation. The maximum potential amount of future payments that the Company may be required to make under the guarantees relating to the various real estate operating leases is estimated to be approximately $191 million, the majority of which expire by the end of 2013. At September 30, 2010, the liability recorded by the Company in connection with these guarantees was approximately $4 million. To the extent that the Company would be required to perform under any of these guarantees, the Company is entitled to indemnification by Realogy, Wyndham and Travelport. The Company monitors the credit ratings and other relevant information for Realogy, Wyndham and Travelport’s parent company in order to assess the status of the payment/performance risk of these guarantees.

14.

Stockholders’ Equity

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) were as follows:


	Currency Translation Adjustments		Net Unrealized Gains (Losses) on Cash Flow Hedges ^(a)			Minimum Pension Liability Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance as of January 1, 2010	$	111	$	(106	)	$	(42	)	$	(37	)
Current period change		35		44			—			79

Balance as of September 30, 2010	$	146	$	(62	)	$	(42	)	$	42

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

^(a)

Includes the reclassification of unrealized losses on cash flow hedges of $36 million ($22 million, net of tax) to early extinguishment of debt in connection with the repayment of a portion of the Company’s floating rate term loan and the settlement of such hedges in first quarter 2010.

Total Comprehensive Income

Comprehensive income consists of net income and other gains and losses affecting stockholders’ equity that, under U.S. GAAP, are excluded from net income.

The components of comprehensive income were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Net income	$	90	$	57	$	78	$	2
Other comprehensive income:
Currency translation adjustment		62		44		35		97
Reclassification of unrealized losses on cash flow hedges to net income, net of tax		—		—		22		—
Unrealized gains on cash flow hedges, net of tax		8		2		22		26

		70		46		79		123

Total comprehensive income	$	160	$	103	$	157	$	125

During the nine months ended September 30, 2010 and 2009, the Company recorded unrealized gains on cash flow hedges of $36 million and $42 million ($22 million and $26 million, net of tax), respectively, in other comprehensive income, which primarily related to the derivatives used to manage the interest-rate risk associated with the Company’s vehicle-backed debt and the Company’s floating rate corporate debt. Such amount in the nine months ended September 30, 2010 and 2009 included $42 million and $54 million of unrealized gains ($26 million and $33 million, net of tax), respectively, on cash flow hedges related to the Company’s vehicle-backed debt and is offset by a corresponding change in the Company’s Investment in Avis Budget Rental Car Funding on the Consolidated Condensed Balance Sheets.

15.

Stock-Based Compensation

The Company records compensation expense for all outstanding employee stock awards based on the estimated fair value of the award at the grant date, which is recognized over the requisite service period. The Company recorded stock-based compensation expense of $3 million and $4 million ($2 million and $2 million, net of tax) during third quarter 2010 and 2009, respectively, and $11 million and $10 million ($7 million and $6 million, net of tax) during the nine months ended September 30, 2010 and 2009, respectively, related to employee stock awards that were granted by the Company.

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 2010 and 2009 exercises of stock-based awards did not generate a cash benefit. Approximately $32 million of tax benefits will be recorded in additional paid-in capital when realized in these jurisdictions.

During the nine months ended September 30, 2010, the Company granted 160,000 stock options, 971,000 market-vesting

restricted stock units and 989,000 time-based restricted stock units under the Company’s amended 2007 Equity and Incentive Plan. The stock options (i) vest ratably over a five year term, (ii) expire ten years from the date of grant and (iii) have an exercise price that was set at the closing price of the Company’s common stock on the date of the grant. The number of market-vesting restricted stock units which will ultimately vest is based on the Company’s common stock achieving certain price targets for a specified number of trading days, with 600,000 of the market-vesting restricted stock units vesting ratably over years two through five following the date of grant and 371,000 of the market-vesting restricted stock units cliff vesting after three years. These market-vesting restricted stock unit awards have five- and three-year terms, respectively. Of the time-based restricted stock units, 789,000 vest ratably over a three-year period and 200,000 of the time-based restricted stock units vest on the first anniversary of the date of the grant.

The Company used the Black-Scholes option pricing model to calculate the fair value of the time-vesting stock options granted in first quarter 2010. The Company determined the fair value of its market-vesting restricted stock units granted in 2010 using a Monte Carlo simulation model with assumptions including, but not limited to, the risk-free rate at the date of grant and the price volatility of the underlying stock. Based on facts and circumstances at the time of the grants, the Company used the implied volatility of its publicly traded, near-the-money stock options with a remaining maturity of at least one year as the most appropriate indicator of the Company’s expected volatility. The Company considered several factors in estimating the life of the options granted, including the historical option exercise behavior of employees and the option vesting periods. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant and, since the Company does not currently pay or plan to pay a dividend on its common stock, the expected dividend yield was zero. Based on these assumptions, the fair value of each of the Company’s time-vesting stock options and market-vesting restricted stock units which contain five- and three-year vesting periods, issued in first quarter 2010, was estimated to be approximately $6.16, $9.57 and $8.88, respectively.

The weighted average fair value of stock options granted during the periods and the assumptions used to estimate those values using the Black-Scholes simulation option pricing and the Monte Carlo simulation stock unit awards in 2010 and the Black-Scholes and Monte Carlo simulation option pricing in 2009, as applicable, were as follows:


	Three Months Ended March 31,
	2010		2009
Expected volatility of stock price		54%		130%
Risk-free interest rate		1.47% - 2.82%		1.22% - 1.46%
Expected life of options		6 years		3-4 years
Dividend yield		0.0%		0.0%

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


	RSUs					Options
	Number of RSUs			Weighted Average Grant Price		Number of Options			Weighted Average Exercise Price
Balance as of January 1, 2010		1,855		$	19.32		7,196			$11.30
Granted at fair market value		1,960			11.55		160			11.53
Vested/exercised ^(a)		(577	)		21.92		(489	)		3.32
Cancelled		(170	)		23.10		(1,280	)		28.91

Balance as of September 30, 2010 ^(b)^(c)		3,068			13.66		5,587			7.97

^(a⁾

During the nine months ended September 30, 2010, zero performance RSUs vested. Stock options exercised during the nine months ended September 30, 2010 had intrinsic value of $4 million.

⁽^b⁾

As of September 30, 2010, the Company’s outstanding RSUs had aggregate intrinsic value of $36 million; aggregate unrecognized compensation expense related to RSUs amounted to $32 million; and the balance of RSUs at September 30, 2010 consists of 1,401,000 related to time-based awards and 1,667,000 related to market-vesting and performance-based awards.

⁽^c⁾

As of September 30, 2010, the Company’s outstanding stock options had aggregate intrinsic value of $39 million; aggregate unrecognized compensation expense related to unvested stock options amounted to $1 million; and there were 3.8 million “in-the-money” stock options.

The table below summarizes information regarding the Company’s outstanding stock options as of September 30, 2010 (in thousands of shares):


Range of Exercise Prices	Weighted Average Contractual Life (years)	Number of Options
Less than $10.00	8.3		3,594
$10.01 to $15.00	2.2		735
$15.01 to $20.00	1.7		218
$20.01 to $25.00	0.5		63
$25.01 to $30.00	1.2		967
$30.01 and above	4.0		10

	5.9		5,587

As of September 30, 2010, the Company also had approximately 0.5 million outstanding stock appreciation rights with a weighted average exercise price of $24.40 and a weighted average remaining contractual life of 2.8 years.

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 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 “Adjusted EBITDA,” which is defined as income from continuing operations before non-vehicle related depreciation and amortization, any impairment charge, non-vehicle related interest and income taxes. The Company’s presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.


	Three Months Ended September 30,
	2010					2009
	Revenues		Adjusted EBITDA			Revenues		Adjusted EBITDA
Domestic Car Rental	$	1,127	$	137		$	1,109	$	102
International Car Rental		274		62			250		56
Truck Rental		111		19			106		13
Corporate and Other ^(a)		—		(10	)		—		(25	)

Total Company	$	1,512		208		$	1,465		146

Less: Non-vehicle related depreciation and amortization				24					26
Interest expense related to corporate debt, net				40					37

Income before income taxes			$	144				$	83


	Nine Months Ended September 30,
	2010					2009
	Revenues		Adjusted EBITDA			Revenues		Adjusted EBITDA
Domestic Car Rental	$	2,989	$	205		$	3,100	$	128
International Car Rental		687		124			597		93
Truck Rental		282		30			273		12
Corporate and Other ^(a)		1		(21	)		1		(36	)

Total Company	$	3,959		338		$	3,971		197

Less: Non-vehicle related depreciation and amortization				70					71
Interest expense related to corporate debt, net
Interest expense				122					114
Early extinguishment of debt				40					—
Impairment				—					1

Income before income taxes			$	106				$	11

^(a)

Includes unallocated corporate overhead and the elimination of transactions between segments. During the three months and nine months ended September 30, 2010, the Company incurred $5 million and $8 million of expenses, respectively, related to the potential acquisition of Dollar Thrifty. During the three and nine months ended September 30, 2009, the Company recorded an $18 million charge for an adverse litigation judgment against the Company for a breach-of-contract claim filed in 2003.

Since December 31, 2009, there have been no significant changes in segment assets with the exception of the Company’s Domestic Car Rental segment assets under vehicle programs and Corporate and Other segment assets. As of September 30, 2010 and December 31, 2009, Domestic Car Rental segment assets under vehicle programs were approximately $6.2 billion and approximately $5.1 billion, respectively. Corporate and Other segment assets as of September 30, 2010 were approximately $600 million less than as of December 31, 2009, primarily as a result of the conclusion of the IRS audit (see Note 7—Income Taxes).

17.

Guarantor and Non-Guarantor Consolidating Condensed Financial Statements

The following consolidating financial information presents Consolidating Condensed Statements of Income for the three months and nine months ended September 30, 2010, and 2009, Consolidating Condensed Balance Sheets as of September 30, 2010 and December 31, 2009, and Consolidating Condensed Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 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 payment of principal, premium (if any) and interest on the senior notes issued by Avis Budget Car Rental. These senior notes consist of Avis Budget Car Rental’s 7⁵/8% Senior Notes due 2014, 7³/4% Senior Notes due 2016, Floating Rate Senior Notes due 2014 and 9⁵/8% Senior Notes due 2018 (collectively, the “Notes”). See Note 11—Long-term Debt and Borrowing Arrangements for an additional description of these Notes. The Notes are guaranteed by the Parent and 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 Income, certain expenses incurred by the Subsidiary Issuers are allocated to the guarantor and non-guarantor subsidiaries.

Consolidating Condensed Statements of Income

Three Months Ended September 30, 2010


	Parent			Subsidiary Issuers			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Total
Revenues
Vehicle rental	$	—		$	—		$	958	$	187		$	—		$	1,145
Other		—			—			257		465			(355	)		367

Net revenues		—			—			1,215		652			(355	)		1,512


Expenses
Operating		1			2			560		142			—			705
Vehicle depreciation and lease charges, net		—			—			293		313			(254	)		352
Selling, general and administrative		8			—			131		22			—			161
Vehicle interest, net		—			—			73		40			(33	)		80
Non-vehicle related depreciation and amortization		—			—			22		2			—			24
Interest expense related to corporate debt, net:
Interest expense (income)		2			39			—		(1	)		—			40
Intercompany interest expense (income)		(4	)		(39	)		43		—			—			—
Restructuring charges		—			—			6		—			—			6

Total expenses		7			2			1,128		518			(287	)		1,368

Income (loss) before income taxes and equity in earnings of subsidiaries		(7	)		(2	)		87		134			(68	)		144
Provision for (benefit from) income taxes		(3	)		—			37		20			—			54
Equity in earnings (loss) of subsidiaries		94			96			46		—			(236	)		—

Net income (loss)	$	90		$	94		$	96	$	114		$	(304	)	$	90

Nine Months Ended September 30, 2010


	Parent			Subsidiary Issuers			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Total
Revenues
Vehicle rental	$	—		$	—		$	2,508	$	464		$	—		$	2,972
Other		1			—			702		1,272			(988	)		987

Net revenues		1			—			3,210		1,736			(988	)		3,959


Expenses
Operating		5			6			1,563		382			—			1,956
Vehicle depreciation and lease charges, net		—			—			837		813			(662	)		988
Selling, general and administrative		17			—			359		62			—			438
Vehicle interest, net		—			—			214		106			(90	)		230
Non-vehicle related depreciation and amortization		—			—			65		5			—			70
Interest expense related to corporate debt, net:
Interest expense (income)		7			116			—		(1	)		—			122
Intercompany interest expense (income)		(10	)		(116	)		126		—			—			—
Early extinguishment of debt		—			40			—		—			—			40
Restructuring charges		—			—			9		—			—			9

Total expenses		19			46			3,173		1,367			(752	)		3,853

Income (loss) before income taxes and equity in earnings of subsidiaries		(18	)		(46	)		37		369			(236	)		106
Provision for (benefit from) income taxes		(7	)		1			5		29			—			28
Equity in earnings (loss) of subsidiaries		89			136			104		—			(329	)		—

Net income (loss)	$	78		$	89		$	136	$	340		$	(565	)	$	78

Three Months Ended September 30, 2009


	Parent			Subsidiary Issuers			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Total
Revenues
Vehicle rental	$	—		$	—		$	948	$	175		$	—		$	1,123
Other		—			—			246		494			(398	)		342

Net revenues		—			—			1,194		669			(398	)		1,465


Expenses
Operating		5			21			567		138			—			731
Vehicle depreciation and lease charges, net		—			—			306		349			(298	)		357
Selling, general and administrative		3			—			131		21			—			155
Vehicle interest, net		—			—			69		24			(18	)		75
Non-vehicle related depreciation and amortization		—			—			24		2			—			26
Interest expense related to corporate debt, net:
Interest expense		—			38			—		(1	)		—			37
Intercompany interest expense (income)		—			(38	)		38		—			—			—
Restructuring charges		—			—			1		—			—			1

Total expenses		8			21			1,136		533			(316	)		1,382

Income (loss) before income taxes and equity in earnings of subsidiaries		(8	)		(21	)		58		136			(82	)		83
Provision for (benefit from) for income taxes		1			(7	)		17		15			—			26
Equity in earnings (loss) of subsidiaries		66			80			39		—			(185	)		—

Net income (loss)	$	57		$	66		$	80	$	121		$	(267	)	$	57

Nine Months Ended September 30, 2009


	Parent			Subsidiary Issuers			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Revenues
Vehicle rental	$	—		$	—		$	2,625		$	411		$	—		$	3,036
Other		1			—			685			1,407			(1,158	)		935

Net revenues		1			—			3,310			1,818			(1,158	)		3,971


Expenses
Operating		12			25			1,644			339			—			2,020
Vehicle depreciation and lease charges, net		—			—			964			957			(817	)		1,104
Selling, general and administrative		8			—			359			54			—			421
Vehicle interest, net		—			—			199			58			(42	)		215
Non-vehicle related depreciation and amortization		—			—			66			5			—			71
Interest expense related to corporate debt, net:
Interest expense		—			116			—			(2	)		—			114
Intercompany interest expense (income)		—			(116	)		116			—			—			—
Restructuring charges		—			—			13			1			—			14
Impairment		—			1			—			—			—			1

Total expenses		20			26			3,361			1,412			(859	)		3,960

Income (loss) before income taxes and equity in earnings of subsidiaries		(19	)		(26	)		(51	)		406			(299	)		11
Provision (benefit) for income taxes		(5	)		(5	)		(15	)		34			—			9
Equity in earnings (loss) of subsidiaries		16			37			73			—			(126	)		—

Net income (loss)	$	2		$	16		$	37		$	372		$	(425	)	$	2

Consolidating Condensed Balance Sheets

As of September 30, 2010


	Parent		Subsidiary Issuers		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Total
Assets
Current assets:
Cash and cash equivalents	$	261	$	197	$	2		$	163	$	—		$	623
Receivables, net		—		73		159			85		—			317
Deferred income taxes		8		—		118			7		(26	)		107
Other current assets		94		78		80			80		(32	)		300

Total current assets		363		348		359			335		(58	)		1,347

Property and equipment, net		—		56		322			40		—			418
Deferred income taxes		48		240		247			9		—			544
Goodwill		—		—		74			2		—			76
Other intangibles, net		—		6		384			89		—			479
Other non-current assets		151		75		11			31		(24	)		244
Intercompany receivables (payables)		103		556		(833	)		174		—			—
Investment in subsidiaries		304		1,089		2,372			—		(3,765	)		—

Total assets exclusive of assets under vehicle programs		969		2,370		2,936			680		(3,847	)		3,108

Assets under vehicle programs:
Program cash		—		—		—			43		—			43
Vehicles, net		—		13		35			7,021		—			7,069
Receivables from vehicle manufacturers and other		—		—		—			211		—			211
Investment in Avis Budget Rental Car Funding (AESOP) LLC-related party		—		—		—			270		—			270

		—		13		35			7,545		—			7,593

Total assets	$	969	$	2,383	$	2,971		$	8,225	$	(3,847	)	$	10,701


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other current liabilities	$	106	$	265	$	501		$	110	$	(54	)	$	928
Current portion of long-term debt		—		4		5			—		—			9

Total current liabilities		106		269		506			110		(54	)		937

Long-term debt		345		1,763		11			—		—			2,119
Other non-current liabilities		145		63		241			120		(21	)		548

Total liabilities exclusive of liabilities under vehicle programs		596		2,095		758			230		(75	)		3,604


Liabilities under vehicle programs:
Debt		—		2		12			692		—			706
Due to Avis Budget Rental Car Funding (AESOP) LLC-related party		—		—		—			4,571		—			4,571
Deferred income taxes		—		—		1,112			175		—			1,287
Other		—		—		—			160		—			160

		—		2		1,124			5,598		—			6,724

Total stockholders’ equity		373		286		1,089			2,397		(3,772	)		373

Total liabilities and stockholders’ equity	$	969	$	2,383	$	2,971		$	8,225	$	(3,847	)	$	10,701

As of December 31, 2009


	Parent		Subsidiary Issuers		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Total
Assets
Current assets:
Cash and cash equivalents	$	242	$	70	$	7		$	163	$	—		$	482
Receivables, net		—		82		136			72		—			290
Deferred income taxes		8		—		111			4		(16	)		107
Other current assets		674		60		70			77		(30	)		851

Total current assets		924		212		324			316		(46	)		1,730

Property and equipment, net		—		57		344			41		—			442
Deferred income taxes		54		274		257			12		—			597
Goodwill		—		—		74			2		—			76
Other intangibles, net		—		7		385			86		—			478
Other non-current assets		166		69		10			48		(45	)		248
Intercompany receivables (payables)		22		637		(938	)		279		—			—
Investment in subsidiaries		137		932		2,203			—		(3,272	)		—

Total assets exclusive of assets under vehicle programs		1,303		2,188		2,659			784		(3,363	)		3,571


Assets under vehicle programs:
Program cash		—		—		—			157		—			157
Vehicles, net		—		10		141			5,816		—			5,967
Receivables from vehicle manufacturers and other		—		—		—			170		—			170
Investment in Avis Budget Rental Car Funding (AESOP) LLC-related party		—		—		—			228		—			228

		—		10		141			6,371		—			6,522

Total assets	$	1,303	$	2,198	$	2,800		$	7,155	$	(3,363	)	$	10,093


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other current liabilities	$	572	$	168	$	471		$	105	$	(44	)	$	1,272
Current portion of long-term debt		—		10		2			—		—			12

Total current liabilities		572		178		473			105		(44	)		1,284

Long-term debt		345		1,770		4			—		—			2,119
Other non-current liabilities		164		123		267			118		(42	)		630

Total liabilities exclusive of liabilities under vehicle programs		1,081		2,071		744			223		(86	)		4,033

Liabilities under vehicle programs:
Debt		—		10		31			673		—			714
Due to Avis Budget Rental Car Funding (AESOP) LLC-related party		—		—		—			3,660		—			3,660
Deferred income taxes		—		—		1,093			174		—			1,267
Other		—		—		—			197		—			197

		—		10		1,124			4,704		—			5,838

Total stockholders’ equity		222		117		932			2,228		(3,277	)		222

Total liabilities and stockholders’ equity	$	1,303	$	2,198	$	2,800		$	7,155	$	(3,363	)	$	10,093

Consolidating Condensed Statements of Cash Flows

Nine Months Ended September 30, 2010


	Parent			Subsidiary Issuers			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net cash provided by (used in) operating activities	$	83		$	19		$	(177	)	$	1,107		$	306		$	1,338

Investing activities
Property and equipment additions		—			(9	)		(26	)		(4	)		—			(39	)
Net assets acquired, net of cash acquired and acquisition related payments		—			—			—			(2	)		—			(2	)
Proceeds received on asset sales		—			10			—			1			—			11
Other, net		(3	)		(3	)		—			1			—			(5	)

Net cash used in investing activities exclusive of vehicle programs		(3	)		(2	)		(26	)		(4	)		—			(35	)

Vehicle programs:
Decrease in program cash		—			—			—			123			—			123
Investment in vehicles		—			(18	)		—			(6,531	)		—			(6,549	)
Proceeds received on disposition of vehicles		—			28			7			4,410			—			4,445
Investment in debt securities of AESOP - related party		(380	)		—			—			—			—			(380	)
Proceeds from debt securities of AESOP - related party		380			—			—			—			—			380

		—			10			7			(1,998	)		—			(1,981	)

Net cash provided by (used in) investing activities		(3	)		8			(19	)		(2,002	)		—			(2,016	)

Financing activities
Proceeds from borrowings		—			444			—			—			—			444
Principal payments on borrowings		—			(455	)		(3	)		—			—			(458	)
Net intercompany transactions		(63	)		150			218			1			(306	)		—
Debt financing fees		—			(32	)		—			—			—			(32	)
Other, net		2			2			—			—			—			4

Net cash provided by (used in) financing activities exclusive of vehicle programs		(61	)		109			215			1			(306	)		(42	)

Vehicle programs:
Proceeds from borrowings		—			—			—			7,196			—			7,196
Principal payments on borrowings					(1	)		(19	)		(6,371	)		—			(6,391	)
Net change in short-term borrowings		—			—			—			67			—			67
Other, net		—			(8	)		(5	)		(4	)		—			(17	)

		—			(9	)		(24	)		888			—			855

Net cash provided by (used in) financing activities		(61	)		100			191			889			(306	)		813

Effect of changes in exchange rates on cash and cash equivalents		—			—			—			6			—			6

Net increase (decrease) in cash and cash equivalents		19			127			(5	)		—			—			141
Cash and cash equivalents, beginning of period		242			70			7			163			—			482

Cash and cash equivalents, end of period	$	261		$	197		$	2		$	163		$	—		$	623

Nine Months Ended September 30, 2009


	Parent			Subsidiary Issuers		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations		Total
Net cash provided by (used in) operating activities	$	(4	)	$	105	$	(40	)	$	1,073	$	116	$	1,250