CAR

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2006, for Avis Budget Group, Inc. (formerly Cendant Corporation). The reporting period is defined by a major corporate restructuring: the company completed the spin-offs of Realogy Corporation and Wyndham Worldwide Corporation on July 31, 2006, and the sale of Travelport on August 23, 2006. Consequently, continuing operations now consist primarily of vehicle rental activities (Domestic Car Rental, International Car Rental, and Truck Rental). The financial statements for prior periods have been restated to reflect discontinued operations and corrections to purchase price allocations and goodwill impairments.

Key Financial Metrics

Note: Net Income includes significant losses from discontinued operations and disposal charges. Income from continuing operations reflects a loss primarily due to separation costs and higher fleet expenses.

Material Changes vs. Prior Period

• Revenue: Net revenues increased 1% ($19 million) for the quarter and 7% ($283 million) for the nine months compared to the prior year. This was driven by higher time-and-mileage (T&M) revenue per day in car rental segments, partially offset by a decline in Truck Rental volume.
• Expenses: Total expenses increased significantly due to $480 million in separation-related charges for the quarter (including a $313 million charge for early extinguishment of debt) and increased fleet depreciation costs.
• Discontinued Operations: The company recorded a net loss of $634 million on the disposal of discontinued operations for the quarter, primarily due to transaction costs and tax charges related to the sale of Travelport and spin-offs of Realogy and Wyndham.
• Debt Structure: The company retired approximately $3.5 billion of legacy corporate debt and issued $1.875 billion in new financing for Avis Budget Car Rental, LLC to fund vehicle programs.

Guidance, Outlook, and Risks

• Outlook: Management expects to realize continuing year-over-year price increases for the remainder of 2006 to offset higher fleet costs and interest rates. Capital expenditures for 2006 are anticipated to be between $70 million and $90 million.
• Restructuring: In October 2006, the company announced a restructuring of Budget Truck Rental, expecting to record a pretax charge of $10 million to $12 million in the fourth quarter of 2006.
• Restatement Risk: The company intends to restate financial statements for 2005, 2004, and 2003. There is a risk that additional information from the former PHH subsidiary could require further adjustments to previously filed statements.
• Key Risks: High competition, increased vehicle costs, dependence on manufacturer repurchase programs (GM and Ford), fuel cost volatility, and potential disruption in financing markets for vehicle fleets.

Investor Verification Checklist

• Restatement Impact: Verify the final adjustments to 2003-2005 financial statements, particularly regarding goodwill impairment and purchase price allocations.
• Discontinued Operations: Confirm the final net proceeds and tax implications of the Travelport sale and the spin-offs of Realogy and Wyndham.
• Debt Covenants: Review compliance with financial covenants under the new $1.5 billion revolving credit facility and vehicle-backed debt programs.
• Vehicle Repurchase Agreements: Assess the financial health of General Motors and Ford, as the company's liquidity relies heavily on their ability to honor vehicle repurchase obligations.
• Legal Proceedings: Monitor the status of the "Securities Action" and "ABI Actions" litigation, noting that Realogy and Wyndham have assumed a significant portion of these liabilities.