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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2006, for Cendant Corporation. The filing represents a transitional period as the company executed a plan to separate into four independent entities: Realogy Corporation, Wyndham Worldwide Corporation, Travelport, Inc., and Avis Budget Group, Inc. Realogy and Wyndham were spun off on July 31, 2006, and Travelport was sold in August 2006. Consequently, Cendant's continuing operations following these transactions consist solely of the Avis Budget Group vehicle rental business.

Key Financial Metrics

Note: Net loss is primarily driven by a non-cash impairment charge of approximately $1.0 billion related to the disposal of Travelport (classified as discontinued operations).

Material Changes vs. Prior Period

• Revenue Growth: Net revenues increased 2% ($87 million) for the quarter and 3% ($254 million) for the six months compared to the prior year periods. This was driven by organic growth in the Avis Budget Group and Timeshare Resorts segments and acquisitions, partially offset by a decline in the Realogy segment due to reduced home sale volumes.
• Profitability Decline: Income from continuing operations decreased 45% ($142 million) for the quarter and 29% ($103 million) for the six months. Key drivers included higher vehicle and interest costs, separation plan expenses ($49 million for the quarter; $85 million for six months), and increased marketing investments.
• Discontinued Operations: The company recorded a net loss on the disposal of discontinued operations of approximately $981 million for both the quarter and six months ended June 30, 2006. This reflects a non-cash impairment charge to write down Travelport to its estimated fair value less costs to dispose.
• Accounting Changes: The adoption of SFAS No. 152 regarding real estate time-sharing transactions resulted in a cumulative effect charge of $64 million (net of tax) for the six months ended June 30, 2006.

Guidance, Outlook, and Risks

Outlook and Separation: Management anticipates the completion of the separation plan, with the sale of Travelport expected in August 2006. Post-separation, the company will operate solely as Avis Budget Group, Inc. The company expects to realize continuing year-over-year price increases in the vehicle rental sector to offset higher fleet and interest costs.

Material Risks and Contingencies:

• Debt and Liquidity: The company carries substantial indebtedness (approx. $15.7 billion). Liquidity is dependent on cash flow from operations and access to financing markets. The separation plan involved significant debt restructuring, including a $1.875 billion financing by Avis Budget Car Rental, LLC.
• Legal Proceedings: The company is involved in ongoing litigation, including the "Securities Action" regarding 1998 accounting irregularities (settled for $2.85 billion) and cross-claims against Ernst & Young. Realogy and Wyndham have agreed to assume a portion of certain contingent liabilities.
• Operational Risks: Key risks include high competition in the vehicle rental industry, dependence on airline passenger traffic, potential changes in manufacturer repurchase programs for vehicles, and exposure to interest rate fluctuations on variable-rate debt.
• PHH Corporation Matters: The company noted that PHH Corporation (spun off in 2005) identified errors in its prior financial statements. Cendant does not believe these errors will have a material impact on its own financial results but is monitoring the situation.

Investor Verification Checklist

• Travelport Sale Completion: Verify the final closing of the Travelport sale and the actual proceeds received versus the estimated $4.3 billion.
• Post-Separation Debt Structure: Confirm the final debt load and interest rate exposure of the standalone Avis Budget Group following the July/August 2006 spin-offs and debt repayments.
• Vehicle Fleet Costs: Monitor the impact of rising vehicle acquisition costs and the stability of manufacturer repurchase programs on future margins.
• Legal Liability Allocation: Review the final allocation of contingent liabilities (specifically regarding the 1998 accounting irregularities) between Cendant, Realogy, and Wyndham.
• Seasonality Impact: Assess Q3 2006 results, as the third quarter historically accounts for a significant portion of annual revenue and income for the vehicle rental business.