Business

Business Overview We operate two of the most recognized brands in the global vehicle rental industry through Avis
and Budget. Avis is a leading rental car supplier to the premium commercial and leisure
segments of the travel industry and Budget is a leading rental car supplier to the price-conscious
segments of the industry. We believe we are the largest general-use vehicle rental operator in
each of North America, Australia, New Zealand and certain other regions we serve, based on
total revenue. We maintain the leading share of airport car rental revenue and we operate the econd largest consumer truck rental business in the United States. s We generate significant benefits from operating two distinctive brands that target different
industry segments but share the same fleet, maintenance facilities, systems, technology and
administrative infrastructure. For the year ended December 31, 2005, we generated revenue of
$5,316 million, Gross EBITDA of $1,986 million, EBITDA of $439 million and pro forma EBITDA
of $505 million. The Avis, Budget and Budget Truck brands accounted for approximately 60%, 0% and 10% of our revenue, respectively, in 2005. 3 Our operations have an extended global reach that includes approximately 6,600 car and truck
rental locations in the United States, Canada, Australia, New Zealand, Latin America and the
Caribbean. On average, our rental fleet totaled more than 400,000 vehicles, and we completed
more than 25 million vehicle rental transactions worldwide in 2005. We derive approximately 79%
of our nearly $4.8 billion in car rental revenue from on-airport locations. We derive approximately
21% of our car rental revenue from off-airport locations, which we refer to as the local rental
segment, in which we have been significantly expanding our presence. We rent our fleet of
approximately 30,000 Budget trucks through a network of approximately 2,400 dealer operated,
220 company operated and 100 franchisee operated locations throughout the continental United
States. We also license the use of the Avis and Budget trademarks in areas in which we do not
operate. The Avis and Budget vehicle rental systems in Europe, Africa, the Middle East and parts
of Asia are operated at approximately 3,800 locations by subsidiaries of an independent third arty primarily under royalty-free trademark license agreements. p We categorize our operations into three operating segments: domestic car rental; international
car rental; and truck rental. The table below sets forth key financial and other facts for our perating segments for the year ended December 31, 2005, unless otherwise indicated. o Domestic Car Rental International Car Rental Truck Rental Revenue ................................ $4,109 million $661 million $546 million Gross EBITDA ....................... $1,519 million $267 million $200 million EBITDA.................................. $225 million $111 million $103 million Rental Days ........................... 89 million 12 million 5 million Average Fleet ........................ 325,000 47,000 30,000 Locations*: Company Operated ........... 1,350 520 220 Franchised......................... 580 1,390 100 Dealer Operated................ 2,400 Key Facts* ............... #1 company in the on-airport segment
of the U.S. car rental
industry with a share
of 32% Balanced rental revenue base of
49% commercial and
51% leisure Avis ranked as #1 rental car brand for
customer loyalty for
seven consecutive
years Budget ranked as #2 rental car brand for
customer loyalty for
three consecutive
years The leading car rental company in Argentina,
Australia, Canada, New
Zealand, Puerto Rico and
the U.S. Virgin Islands Balanced rental revenue base of 51% commercial
and 49% leisure Corporate or franchise operations in more than
65 countries #2 company in the U.S. truck rental
industry with a share
of 18% Balanced rental revenue base of 33%
light commercial,
21% consumer and
46% one-way Young truck fleet with a median age of
less than two years * Locations and Key Facts data exclude Europe, Africa, the Middle East and parts of Asia where the Avis and Budget Systems
are operated by an independent third party. O ur corporate history Founded in 1946, Avis is believed to be the first company to rent cars from airport locations. Avis
expanded its geographic reach throughout the United States in the 1950s and 1960s. In 1963,
Avis introduced its award winning We try harder advertising campaign, which is considered one
of the top ten advertising campaigns of all time by Advertising Age magazine. Budget was
founded in 1958. The company name was chosen to appeal to the budget-minded or value-
conscious vehicle rental customer. Avis possesses a long history of using proprietary information
technology systems in its business, and its established, but continually updated Wizard System
remains the backbone of our operations. Cendant acquired the Avis brand in 1996, Avis capital
stock in 2001, and the Budget brand and substantially all of the domestic and certain international ssets of Budgets predecessor in 2002. a Our strengths Well-known and differentiated brands We believe that Avis, a leading rental car supplier to the premium commercial and leisure
segments of the travel industry, and Budget, a leading rental car supplier to the price-conscious
segments of the industry, are two of the most recognized brands in the industry. Our brands
reputations for service and value allow us to attract and retain commercial and leisure travelers
as customers. In fact, Avis has been ranked as the top rental car brand for customer loyalty for
seven consecutive years and Budget has been the second-ranked rental car brand for customer
loyalty for three consecutive years by a third party research firm. In 2005, Avis was found to have
the second-highest brand loyalty of all companies measured without regard to industry. In
addition, Avis ongoing We try harder campaign is considered one of the top ten advertising
campaigns of all time by Advertising Age magazine. The differentiated Avis and Budget brands
enable us to successfully target various segments of demand with focused service offerings and
price points that would be difficult to attract with a single brand. L eading position in the on-airport segment We have the leading share of the on-airport segment of the car rental industry in the United
States, which has historically comprised the largest segment of the U.S. industry. For 2005, we
represented approximately 32% of U.S. on-airport car rental revenue, which is approximately
three percentage points, or 10%, higher than that of our second-largest competitor. We have
rental locations at virtually all of the major and secondary airports in the United States. Avis
maintains an approximate 21% share of the on-airport segment of the U.S. car rental industry,
while Budget maintains an approximate 11% share, both based on total revenue for the year nded December 31, 2005. e E stablished and diversified customer base Avis maintains business relationships with over 75% of Fortune 500 companies. Most of these
relationships date back more than 10 years, and Avis has experienced annual retention rates in
excess of 95% among its commercial and government accounts. We believe Avis commitment to
a high level of customer service enables us to maintain these long-lasting relationships.
Moreover, Avis reputation for premium customer service and established customer loyalty allows
us a premium pricing position. This brand positioning is a central part of Avis business strategy,
supported by our investments in service-oriented programs such as Avis Cares, Avis Preferred,
Avis Access, Roving Rapid Return, Avis Assist and Avis Interactive. Our Avis Preferred expedited
rental service currently has more than 2.5 million members who account for approximately 45% of
Avis rental revenue. Our award-winning Avis Access program offers special products and ervices for drivers and passengers with disabilities. s As the name suggests, Budget offers a strong value proposition to price-conscious customers.
We attract and retain customers not only with our value-oriented pricing, but also through our
marketing relationships with Southwest Airlines Co., Wal-Mart Stores, Inc. and others. Budget
also maintains commercial relationships with over 2,500 large and mid-sized companies and with
many small business customers. The revenue associated with these commercial customers
comprises 27% of Budgets revenue base. Customer loyalty is enhanced by providing express
counter service and other amenities through its Fastbreak program, which currently has more
than 1.4 million members who account for approximately 16% of Budgets car rental revenue. C ost savings through combined fleet and infrastructure While we have adopted a dual brand strategy for virtually all customer-facing aspects of our
business, we operate as a single company for non-customer-facing functions, including fleet
management, information technology, maintenance and damage repair, claims processing,
finance, risk management, human resources, administration and other consolidated functions. e achieve significant cost savings and efficiencies as a result of this approach. W We operate a shared fleet for our Avis and Budget brands, which allows us to manage our fleet
(our largest single expense) more efficiently and increase utilization. The different demand
patterns of the target consumers of Avis and Budget permit this efficiency. Commercial demand,
which is greater at Avis, is strongest during mid-week periods, while price-conscious customer
demand, which favors Budget, typically peaks during weekends. We take advantage of these
demand patterns by shifting our fleet between the brands as needed. By doing so, we are able to crease fleet utilization and reduce the size of the overall fleet, resulting in increased profitability. in F lexible business model and limited asset risk We have a flexible business model and maintain a highly variable cost structure. Unlike many
other travel related companies, we have the ability to manage our inventory to meet demand. For
model year 2005, 99% of the rental cars in our domestic fleet were subject to repurchase
agreements with the car manufacturers. The portion of our fleet that is not subject to repurchase
agreements is disposed through well organized, liquid markets. We estimate that fixed costs represent approximately one-fourth of our total costs. A number of our other major operating
costs, including commissions and vehicle accident liability expenses, are directly related to
revenue or transaction volumes. We also maintain a flexible work arrangements with our field
personnel, which is comprised of a significant number of part-time and/or seasonal workers,
which generally permits us to rapidly increase or decrease the size of our work force if conditions
warrant. Our flexible cost structure permits us to rapidly adjust to market opportunities, while
allowing us the ability to maintain profitability during adverse economic conditions and unforeseen xternal events. e P roprietary information management systems We utilize a proprietary online information management system to manage virtually all facets of
our car rental operations. This proprietary computer system, known as Wizard, is used by Avis
and Budget for global reservations processing, rental agreement generation and administration
and fleet accounting and control. The Wizard System is linked to all major travel distribution
networks worldwide and provides real-time processing for travel agents, corporate travel epartments and individual consumers through our web sites. d The Wizard System is a global system, operating across multiple countries and processing
transactions in multiple currencies. The system can accommodate growth as demonstrated by
the rapid integration of Budgets processing needs with Wizard following the acquisition of Budget
in 2002. The Wizard System also transfers valuable information to our data warehouse, which we ine to target our customers with unique marketing and loyalty offers. m D iverse and robust distribution systems We attract customers and derive revenue from a variety of sources. Overall, we have a balanced
mix of distribution channels with approximately 56% of our domestic reservations generated
through proprietary channels such as our web sites and call centers and approximately 44% of
our domestic reservations derived from third party and other Cendant-owned channels. These
channels include all major global distribution systems, or GDS (Amadeus, Galileo, Sabre and
Worldspan), and all major online travel agencies (including CheapTickets, Expedia, Hotwire,
Orbitz, Priceline and Travelocity). No single online travel agency accounted for more than 2% of
our domestic reservations in 2005. A steadily increasing number of Avis and Budget vehicle rental customers obtain rate, location
and fleet information and then reserve their rentals directly on our proprietary web sites, avis.com
and budget.com. Direct bookings on our web sites cost less per transaction than bookings made
through our voice reservation agents or through third party distribution systems, generating cost
savings for us. In 2005, 21% of Avis domestic reservations were made through avis.com and
27% of Budgets domestic reservations were made through budget.com. In 2005, avis.com servations grew by 30% and budget.com reservations grew by 19% over the prior year. re S trong and experienced management team Following the proposed Separation Transactions, the existing operating management team of
Cendants vehicle rental business will continue to run our business. The management team will
be led by Cendants current President and Chief Financial Officer, Ronald L. Nelson, as
Chairman and Chief Executive Officer along with our President and Chief Operating Officer,
F. Robert Salerno, who has 35 years of rental car industry experience. Additionally, our 13 next
most senior members of the management team have, on average, over 18 years of industry
experience and our Area Vice Presidents have, on average, over 30 years of industry experience.
Our management team has a strong track record of maintaining profitability through economic
cycles by successful and disciplined execution of our business strategy. Our strategy Our objective is to enhance our growth, profitability and position as a leader in the car and truck
rental industries. We expect to achieve our goals by focusing our efforts on the following core trategic initiatives: s Enhance Avis industry leading position The Avis brand has a strong reputation as a leading rental car supplier to the premium
commercial and leisure segments of the travel industry. We intend to maintain this reputation and
have designed initiatives to drive volume growth and enhance the profitability of the brand. In
2005, Avis revenue increased by 11% compared to 2004 as a result of continued success in
retaining existing commercial relationships, winning new accounts, running targeted advertising
and promotions, and instituting differential pricing strategies and loyalty initiatives such as our
Avis Preferred, Roving Rapid Return, Avis Assist and Avis Access programs. Our ability to pursue
these initiatives benefited from our continued emphasis on cost containment, productivity
improvement and yield management. As a result of these efforts in 2005, Avis added a significant
number of new accounts, with contracted business up 5.4% for large corporate accounts and
5.9% for small business accounts. E xpand presence in price-conscious segments of the industry We believe Budget provides us with significant opportunities for growth within the price-conscious
segments of the industry. We plan to expand Budgets rental day volume and enhance its
profitability through improved brand positioning, cost controls and increased focus on small
business accounts and unaffiliated travel customers. For example, in the spring of 2005, we
launched a new, simplified Budget Small Business Program, which has been named Best Car
Rental Value by Entrepreneur Magazine in their 2006 Business Travel Awards, and relaunched
budget.com. Since that time, budget.com has become a growing source of reservations and
accounted for 27% of Budgets domestic reservations in 2005. Further, we intend to continue to
grow our customer loyalty programs, such as Fastbreak, expand our travel agent rewards
programs, such as Unlimited Budget, and further develop our yield management system, which is
designed to increase profits by providing greater control of vehicle availability and rate availability
changes. As a result of these efforts in 2005, we increased Budget revenue and rental day
volume by 19% each over 2004. C ontinue to expand local rental segment locations We seek to accelerate local rental revenue growth for Avis and Budget by continuing to expand
the number of non-airport locations we operate. We opened approximately 100 new locations in
the local rental segment in 2005, and we intend to expand our local rental segment business
through the opening of new locations and a combination of advertising, promotions, local sales
calls and targeted marketing to members of various associations and corporations. Establishing
these locations requires minimal expenditures, which generally are limited to leasing the location,
paying any applicable permits or other governmental licensing fees and incurring minimal signage
and counter installation costs. The local rental segment, including insurance replacement
demand, continues to be robust and represents a growing segment for both Avis and Budget. Our
insurance replacement business has grown due to new business relationships, the utilization of e location network of Avis and Budget, and enhanced technology. th C ontinue to upgrade our Budget truck rental operations Over the past several years, we have established Budget as a significant competitor in the truck
rental industry. We have achieved incremental benefits by consolidating our fleet under a unified
brand image and implementing performance improvements in rental operations and vehicle
maintenance. Our median truck age is less than two years old, which we believe helps us to provide high-quality truck rental services to our customers. We intend to strengthen our industry
position by continuously upgrading our fleet, distribution network, vehicle maintenance programs
and personnel. We expect to continue to enhance profitability through improved pricing and fleet tilization as well as through rigorous cost control. u R igorously control costs We have launched an intensified program to achieve substantial and sustainable cost reductions.
The cost reduction program, which involves an ongoing study at rental car locations, aims to
identify best practices and set cost-reduction targets, track consumer response to cost takeout easures, and redesign service and operational processes to achieve long-term cost reductions. m C ontinue to diversify fleet suppliers In order to control the increases in our fleet costs due to manufacturers increased prices, we
continue seeking to broaden our relationships with vehicle manufacturers. Today, while Avis
featured supplier is General Motors and Budgets featured supplier is Ford, we operate a
consolidated fleet for the two brands. The consolidated fleet offers opportunities to utilize the fleet
as needed to achieve the best economic return. We plan to increase our purchases from
additional manufacturers to continue to broaden our vehicle purchasing base. This diversification rocess has been under way for several model years. p Car rental business C ar rental industry We estimate the size of the global car rental industry to be approximately $30 billion in annual
revenue. Within this industry, we operate primarily in North America, Australia, New Zealand,
Latin America and the Caribbean. The car rental industry includes the rental of all passenger car
types, including certain passenger vans and sport utility vehicles, for corporate or individual use,
for recreational or commercial purposes and for contractual periods of 30 days or less. This
industry is comprised of both on-airport and local rental business. The on-airport segment serves
commercial and leisure customers and is generally defined as those operations where a car
rental operator pays concession fees to the applicable airport authority of an airport with
scheduled commercial air service in exchange for either access to the airport terminal, for both
retail counter space and/or shuttle bus services, or access to nearby locations on property owned
by the applicable airport authority. The local rental segment serves commercial, leisure and
insurance replacement customers located in urban and suburban locations. Ancillary optional
products offered to car rental customers include, among other things, refueling services, loss amage waivers and insurance coverage. d Within the global car rental industry, the on-airport segment generates total annual revenue of
approximately $18 billion, representing approximately 60% of the global car rental industrys
overall size. The local rental segment generates total revenue of approximately $12 billion,
representing approximately 40% of the global car rental industrys total revenue. Demand for
commercial rentals is typically strongest mid-week while leisure customer demand is strongest on
weekends. The United States is the worlds largest car rental marketplace, producing approximately $18
billion in annual revenue and representing approximately 60% of the global car rental industry.
The on-airport segment generates total revenue of approximately $11 billion, equivalent to 60% of
the U.S. car rental industrys overall size. This portion of the industry is significantly influenced by
developments in the travel industry, especially airline passenger traffic, or enplanements. We
anticipate favorable industry growth, as the U.S. Department of Transportation projects that
domestic enplanements will grow at an annual rate of 3.8% during the period from 2005 through
2010. The local rental segment accounts for the remainder of the industry, generating total
revenue of approximately $7 billion, equivalent to approximately 40% of the U.S. car rental industrys overall size. Local rental segment car rental revenue is becoming an increasing
percentage of total car rental revenue and we believe it will continue to grow faster than revenue
from on-airport car rentals. Growth in the local rental segment of the car rental industry is driven y commercial and leisure travel and insurance replacement demand. b O perationsAvis We operate and franchise approximately 2,000 of the approximately 5,000 rental locations that
comprise the Avis car rental system (the Avis System), which represents one of the largest car
rental systems in the world, based on total revenue and number of locations, and encompasses
locations at all of the largest airports and cities in the United States and internationally. The Avis
System in Europe, Africa, the Middle East and parts of Asia is primarily operated under royalty-
free license agreements with Avis Europe Holdings, Limited (Avis Europe), an independent third
party, and is comprised of approximately 3,000 company operated and sub-licensee locations. As sed in this offering memorandum, Avis excludes the operations of Avis Europe. u We own and operate approximately 1,200 Avis car rental locations in both the on-airport and local
rental segments in North America, Australia, New Zealand, Latin America and the Caribbean. For
2005, Avis generated total revenue of approximately $3.2 billion, of which approximately 85% (or
$2.7 billion) was derived from U.S. operations. In addition, we franchise the Avis System to
independent business owners in approximately 850 locations throughout the United States,
Canada, Latin America, Australia and New Zealand. In 2005, approximately 95% of the Avis
System domestic rental revenue was generated by locations we owned or locations operated on
our behalf under agency agreements with independent contractors, and the remainder was
generated by locations operated by franchisees. Franchisees generally pay fees based either on
total time and mileage charges or total revenue. With respect to our agency agreements with
independent contractors, we typically control the fleet and the location and the rentals are made
in our corporate name. The Avis brand provides high-quality car rental services at price points generally above non-
branded and value-branded national car rental companies. The featured vehicle supplier for our
Avis brand is General Motors Corporation. We offer Avis customers a variety of premium
services, including (i) Avis Cares, a program which provides customers with area-specific driver
safety information, the latest child safety seats (available for rent) and local information and
driving maps; (ii) Avis Preferred, a counter bypass program, which is available at major airport
locations; (iii) Avis Access, a full range of special products and services for drivers and
passengers with disabilities; (iv) Roving Rapid Return program, which permits customers who are
returning vehicles to obtain a printed charge record at the vehicle as it is being returned; (v) Avis
Assist, a portable cell phone equipped with GPS navigation that provides talking directions, traffic
and weather advisories and Amber Alert information to renters, as well as access to 911,
roadside assistance and access to Avis reservation centers; and (vi) Avis Interactive, a
proprietary management tool that allows select corporate clients to easily view and analyze their
rental activity via the Internet through account analysis and activity reports, allowing these clients
to better manage their travel budgets and monitor employee compliance with applicable travel
procedures. O perationsBudget The Budget vehicle rental system (the Budget System) is one of the largest car rental systems
in the world, based on total revenue and number of locations. We operate or franchise 1,800 of
the approximately 2,600 car rental locations in the Budget System, including locations at most of
the largest airports and cities in the United States and certain other regions. The Budget System
in Europe, Africa and the Middle East is operated under a royalty-free trademark license
agreement with an independent third party, which is an affiliate of Avis Europe and is comprised
of approximately 840 company operated and sub-licensee locations. As used in this offering
memorandum, Budget excludes the operations of this affiliate of Avis Europe. We own and operate approximately 680 Budget car rental locations in the United States, Canada,
Puerto Rico, Australia and New Zealand. The featured vehicle supplier for our Budget brand is
Ford Motor Company. For the year ending December 31, 2005, our Budget car rental operations
generated total revenue of approximately $1.6 billion, of which 90% (or $1.4 billion) was derived
from U.S. operations. We also franchise the Budget System to independent business owners who
operate approximately 1,100 locations throughout the United States, Canada, Latin America, the
Caribbean and the Asia Pacific region. In 2005, approximately 87% of the Budget System
domestic rental revenue was generated by locations owned by us or operated for us under
agency agreements with independent contractors, with the remainder generated by locations
operated by independent franchisees. Independent franchisees generally pay fees based on
gross rental revenue. With respect to our agency agreements with independent contractors, we
typically control the fleet and the location, and the rentals are made in our corporate name. Budget is a leading rental car supplier to the price-conscious segments of the industry. Budget
offers Fastbreak, an expedited rental service for frequent travelers. In 2005, we also launched the
Budget Small Business Program, a program targeting the needs of small businesses. The Budget
Small Business Program has been named Best Car Rental Value by Entrepreneur Magazine in eir 2006 Business Travel Awards. th R eservations Customers can make Avis and Budget reservations through our Avis and Budget web sites at
avis.com and budget.com, through our reservation centers toll-free at 1-888-777-AVIS and 1-800-
BUDGET7, respectively, through online travel portals, through selected partners including many
major airlines utilizing direct connect technology, through their travel agent or by calling a location
directly. Travel agents can access the Wizard System through all major global distribution
systems and can obtain information with respect to rental locations, vehicle availability and pplicable rate structures through these systems. a M arketing Avis and Budget support their premium and value brand positions through a range of marketing
channels and campaigns, including traditional media, such as television, radio and print
advertising, as well as Internet and direct marketing. Avis focuses its marketing around its
industry-leading customer loyalty and its award-winning We try harder campaign. Budget builds
its marketing around retail advertising, key partnerships, and new media, including extensive
online advertising and its 2005 Internet-only blog campaign recognized by Beyond Madison venue as the Campaign of the Year. A We maintain strong links to the travel industry. Avis and Budget offer customers the ability to earn
frequent traveler points with most major airlines frequent traveler programs. Avis and Budget are
also affiliated with TripRewards, Cendants growing frequency marketing program, and with the
frequency programs of major hotel companies, including Hilton Hotels Corporation, Hyatt
Corporation and Starwood Hotels and Resorts Worldwide, Inc. and Wyndham Worldwide. These
arrangements provide incentives to program participants and cooperative marketing opportunities
including call transfer programs and online links with various partners web sites. Avis has an
agreement with Cendants lodging brands whereby lodging customers making reservations by
telephone may be transferred to Avis if they desire to rent a vehicle. After the proposed
Separation Transactions, we intend to preserve certain of these cross-selling opportunities with
the Separated Businesses through contracts which are expected to be negotiated prior to the ompletion of the Separation Transactions. c In 2005, approximately 75% of vehicle rental transactions from our owned and operated Avis
locations in the United States were generated by travelers who rented from Avis under contracts
between Avis and the travelers employers or through membership in an organization with whom
Avis has a contractual affiliation (such as AARP). Avis also has marketing relationships with
American Express Company and Sears, Roebuck and Co., through which we are able to provide customers of these companies with incentives to rent from Avis. Avis licensees also have the
option to participate in these affiliations. For unaffiliated commercial and leisure travelers, Avis
solicits business through media, direct mail and email and Internet advertising. Avis conducts
various loyalty programs through direct marketing campaigns, including Avis Preferred, which
allows customers to bypass the counter, and Preferred Select, which offers upgrades and other
incentives to our best customers. As a result of these programs, Avis has been ranked as the top
rental car brand for customer loyalty for seven consecutive years by a third party research firm. ravel agents are also able to participate in the Avis travel agent reward program, Club Red. T Similarly, Budget offers Unlimited Budget, a loyalty incentive program for travel agents which
had approximately 24,000 travel agents actively enrolled as of December 31, 2005. Budget also
has contractual arrangements with American Express Company and other organizations which
offer members of these groups incentives to rent from Budget. In connection with its focus on
price-conscious customers, Budget primarily relies on retail advertising, including Internet
advertising, and on value pricing to drive customers to our Budget website, Budget call centers,
and other distribution channels. Budget also offers proprietary marketing programs such as
Fastbreak, an expedited rental service for frequent renters. Our international Avis and Budget operations maintain close relationships with the travel industry
through participation in several non-U.S. based airline frequent traveler programs, such as those
operated by Air Canada and Qantas Airways Limited, as well as participation in Avis Europes rograms with British Airways Plc, Deutsche Lufthansa AG and other carriers. p Franchising Of the approximately 2,000 Avis and approximately 1,800 Budget car rental locations at
December 31, 2005, approximately 42% and 62%, respectively, were owned and operated by
franchisees. Franchised locations range from large operations at major airport locations with fleet
sizes in excess of 3,000 vehicles to franchise territories encompassing an entire country to
relatively small operations in suburban locations with fleets of fewer than 50 vehicles. Franchises
provide us with a source of high margin revenue as there are relatively limited additional fixed
costs associated with fees paid by franchisees to us. We enjoy good relationships with our franchisees and meet regularly with them at regional,
national and international meetings. Our relationships with Avis and/or Budget franchisees are
governed by franchise agreements that grant the franchisees the right to operate Avis and/or
Budget vehicle rental businesses in certain exclusive territories. These franchise agreements
impose obligations on the franchisee regarding the operations of each franchise and restrict the
franchisees ability to transfer its franchise agreement and the franchisees capital stock. Each
franchisee is required to adhere to our system standards for each brand as updated and
supplemented by our policy bulletins, brand manuals and service programs. We maintain the right
to monitor the operations of franchisees and, when applicable, can declare a franchise to be in
default under its franchise agreements, which may or may not be curable. We can terminate
these franchise agreements for certain defaults, including failure to pay franchise fees and failure adhere to our operational standards. to In general, the franchise agreements grant the franchisees the exclusive right to operate an Avis
or Budget car and truck rental business in a particular geographic area. Certain franchisees in the
United States are also separately franchised exclusively to sell used cars under the Avis or
Budget brand. Franchise agreements usually provide for renewal terms for no additional fee so
long as the franchisee is not in default. Upon renewal, the terms and conditions of the franchise
agreement (other than with respect to royalty fees, territory and certain other material terms) may
be amended from those contained in the expiring franchise agreements. The royalty fee payable
to us under franchise agreements is generally 5% to 7.5% of gross rental revenue in the United
States and 5% of gross rental revenue in non-U.S. territories, but certain franchisees of each
brand, both internationally and domestically, have franchise agreements with different royalty fee
structures. Pursuant to their franchise agreements, some franchisees must meet certain requirements
relating to the number of rental offices in their franchised territory, the number of vehicles
available for rental and the amount of their advertising and promotional expenditures. In general,
each franchise agreement provides that the franchisee must not engage in any other vehicle
rental business within the franchised territory during the term of such agreement and, in the
Budget franchise agreement, for 12 months thereafter. Upon termination of a franchise, the
franchisee is also prohibited from using the Avis or Budget name and related marks in any
business. O ther revenue In addition to revenue from vehicle rentals and franchisee royalties, we generate revenue from
Avis and Budget customers through the sale of optional products and services such as
supplemental equipment (child seats and ski racks), loss damage waivers,
additional/supplemental liability insurance, personal accident/effects insurance and several types f fuel service options and fuel service charges. o A traditional revenue source for the vehicle rental industry has been the sale of loss damage
waivers, by which rental companies agree to relieve a customer from financial responsibility
arising from vehicle damage incurred during the rental period, if the customer has not breached
the rental agreement. Approximately 4.4% of our vehicle operations revenue during 2005 was
generated by the sale of loss damage waivers. To date, 24 states have enacted legislation that
requires disclosure to each customer at the time of rental that damage to the rented vehicle may
be covered by the customers personal automobile insurance and that loss damage waivers may
not be necessary. In addition, New York permits the sale of loss damage waivers at a capped
rate per day based on the vehicle manufacturers suggested retail price. Illinois, Nevada and
California have similar statutes, which establish the daily rate which can be charged for loss amage waivers. d W eb sites Avis and Budget have strong brand presence on the Internet through their web sites, avis.com
and budget.com, as well as third party web sites. A steadily increasing number of Avis and
Budget vehicle rental customers obtain rate, location and fleet information and then reserve their
rentals directly on these web sites. Direct bookings via our web sites incur less cost per
transaction than bookings made through our voice reservation agents or through third party
distribution systems. Therefore, the trend toward Internet bookings is generating cost savings for
us. In addition, both Avis and Budget have agreements to promote their car rental services with ajor Internet portals and have a strong advertising presence on various search engines. m Over 46% of Budgets 2005 domestic reservations were derived from bookings over the Internet,
with 27% of reservations derived from bookings on budget.com. Over 25% of Avis domestic
reservations were derived from bookings over the Internet, with 21% derived from bookings on
avis.com. In 2005, avis.com reservations grew by 30% over the prior year and budget.com servations grew by 19%. re T he Wizard System We own the Wizard System, our worldwide reservations, rentals, data processing and information
management system. The Wizard System enables us to process over a million incoming
customer inquiries each day, providing our customers with accurate and timely information about
our locations, rental rates and vehicle availability, as well as the ability to place or modify
reservations. Additionally, the Wizard System is linked to all major travel distribution networks
worldwide and provides real-time processing for travel agents, travel industry partners (such as
airlines), corporate travel departments and individual consumers through our web sites or calls to
our reservation agents. The Wizard System also provides information as to vehicle availability and rates as well as personal profile information in an accurate and timely manner. Among the rincipal features of the Wizard System are: p Roving Rapid Return, which permits customers who are returning vehicles to obtain completed charge records from wireless-connected Roving Rapid Return agents who
complete and deliver the charge record at the vehicle as it is being returned; Preferred Service, Avis expedited rental service that provides enrolled customers with a printed Preferred Service rental record in their pre-assigned vehicle and a fast
convenient check-out; Fastbreak, Budgets expedited rental service which allows for a faster processing of rentals and service for enrolled customers; Wizard on Wheels, which enables us to assign vehicles and complete rental agreements while customers are being transported to the rental vehicle; Flight Arrival Notification, a system that alerts rental locations when flights have arrived so that vehicles can be assigned and paperwork prepared automatically; Avis Link, which automatically identifies when a customer with a profile on record is entitled to special rental rates and conditions, and therefore sharply reduces the number
of instances in which we inadvertently fail to give Avis renters the benefits of negotiated
rate arrangements to which they are entitled; Credit Card Link, which allows both brands to verify all major credit cards in a real time connection during the rental processing; interactive interfaces through third party computerized reservation systems such as Galileo and Sabre; Avis Interactive, which allows select corporate clients to easily view and analyze their rental activity via the Internet through account analysis and activity reports, allowing
these clients to better manage their travel budgets and monitor employee compliance
with applicable travel procedures; Direct Connect, a service offered to business to business partners that allows them to easily connect their electronic systems to the Wizard System, for either brand, and to
obtain rate, location and fleet information as well as book reservations for their
customers; and sophisticated automated ready-line programs that, among other things, enable rental agents to ensure that a customer who requests a particular type of vehicle will receive
the available vehicle of that type which has the lowest mileage. We also use data supplied from the Wizard System and airline reservation systems in certain
proprietary information management systems to maintain centralized control of major business
processes such as fleet acquisition and logistics, sales to corporate accounts and determination f rental rates. The principal components of the systems we employ include: o Fleet planning model. We have created a comprehensive decision tool to develop fleet plans and schedules for the acquisition and disposition of our fleet, along with fleet age,
mix, mileage and cost reports based upon these plans and schedules. This tool allows
management to monitor and change fleet volume and composition on a daily basis and to
develop the lowest cost fleet alternative based on business levels and available
repurchase programs. Yield management. We have created a yield management system which is designed to enhance profits by providing greater control of vehicle availability and rate availability changes at our rental locations. The system monitors and forecasts supply and demand
to support our efforts to optimize volume and rate at each location. Integrated into this
yield management system is a fleet distribution module that takes into consideration the
costs as well as the potential benefits associated with distributing vehicles to various
rental locations within a geographic area to accommodate rental demand at these
locations. The fleet distribution module makes specific recommendations for movement
of vehicles between locations. Pricing decision support system. Pricing in the vehicle rental industry is highly competitive and complex. To improve our ability to respond to rental rate changes in the
marketplace, we have developed sophisticated systems to gather and report competitive
industry rental rate changes every day. The system, using data from third party
reservation systems as its source of information, automatically scans rate movements
and reports significant changes to a staff of pricing analysts for evaluation. The system
greatly enhances our ability to gather and respond to rate changes in the marketplace. Business mix model. We have developed a strategic planning model to evaluate the discrete segments of our business relative to each other. The model considers revenue
and costs to determine the potential margin contribution of each discrete segment. The
model develops business mix and fleet optimization recommendations by using data from
our financial systems, the Wizard System and the fleet and revenue management
systems along with managements objectives and targets. Customer profitability model. We have developed a sophisticated model which analyzes a corporate customers rental pattern to estimate the fleet costs, operations
costs and division overhead expenses associated with that customers vehicle rentals.
We use this profitability model to determine the financial merit of individual corporate
contracts. Enterprise data warehouse. We have developed a sophisticated and comprehensive electronic data storage and retrieval system which retains information related to various
aspects of our business. This data warehouse allows us to take advantage of
comprehensive management reports, query capability and easy access to data for
strategic decision making for both brands. Sales and marketing systems. We have developed a sophisticated system of online data screens which enables our sales force to analyze key account information of our
corporate customers including historical and current rental activity, revenue and booking
sources, top renting locations, rate usage categories and customer satisfaction data. We
use this information, which is updated weekly and captured on a country-by-country
basis, to determine opportunities for revenue growth, profitability and improvement. Interactive adjustments. We have developed a multi-linked customer data system which allows us to easily retrieve pertinent customer information and make needed
adjustments online for superior customer service. This data system links with other
accounting systems to handle any charge card transactions automatically. F leet General. We maintain a single fleet of vehicles for Avis and Budget. We rent a wide variety of
vehicles, including luxury and specialty vehicles. Our fleet consists primarily of vehicles from the
current and immediately preceding model year. Rentals are generally made on a daily, weekly or
monthly basis. Rental charges are computed on the basis of the length of the rental or, in some
cases, on the length of the rental plus a mileage charge. Rates vary at different locations
depending on the type of vehicle rented, the local marketplace and competitive and cost factors.
Most rentals are made utilizing rate plans under which the customer is responsible for gasoline
used during the rental. We also generally offer our customers the convenience of leaving a rented
vehicle at a location in a city other than the one in which it was rented, although, consistent with industry practices, a drop-off charge or special intercity rate may be imposed. We facilitate one-
way car rentals between corporate-owned and franchised locations in the United States that
enable us to operate as an integrated network of locations. Vehicle purchasing. We participate in a variety of vehicle purchase programs with major
domestic and foreign vehicle manufacturers. During 2005, approximately 82% of the cars
acquired for our U.S. car rental fleet were manufactured by either General Motors or Ford. The
substantial majority of vehicles used in our rental car business are purchased through our
principal U.S. vehicle financing, the AESOP ABS Facility. Vehicles purchased through the
AESOP ABS Facility are subject to the terms and conditions governing the AESOP ABS Facility.
See Description of other indebtednessRental car ABS Facility. Vehicle disposition. We generally hold a vehicle in our domestic fleet for a term of four to twelve
months. For model years 2005 and 2004, approximately 99% of the rental cars purchased for our
domestic car fleet were the subject of agreements requiring automobile manufacturers to
repurchase them. The programs in which we participate currently require that the program
vehicles be maintained in our fleet for a minimum number of months (typically four to nine
months) and impose numerous return conditions, including those related to mileage and
condition. At the time of return to the manufacturer, we receive the price guaranteed at the time of
purchase and are thus protected from fluctuations in the prices of previously-owned vehicles in
the wholesale market at the time of disposition. The future percentages of program vehicles in our
fleet will be dependent on the availability and attractiveness of manufacturers repurchase
programs, over which we have no control. In addition to manufacturers repurchase programs, we
dispose of our rental fleet largely through automobile auctions. All vehicles purchased through
and held in the AESOP ABS Facility, which constitute the substantial majority of our vehicles, are
subject to additional terms and conditions relating to vehicle dispositions. See Description of ther indebtednessRental car ABS Facility. o Of the approximately 400,000 cars from our rental car fleet that we sold in 2005, we sold
approximately 95%, or 380,000, back to the manufacturers pursuant to repurchase programs and e rest through third party channels such as wholesale auctions. th Utilization and seasonality. Our car rental business is subject to seasonal variations in customer
demand, with the summer vacation period representing the peak season. The general seasonal
variation in demand, along with more localized changes in demand at each of our locations,
causes us to vary our fleet size over the course of the year. For 2005, our average monthly fleet
size in the U.S. ranged from a low of approximately 268,000 vehicles in January to a high of
approximately 368,000 vehicles in July. Fleet utilization for 2005, which is based on the number
of rental days (or portion thereof) that vehicles are rented compared to the total number of car
days that vehicles are available for rent, ranged from 67% in December to 80% in August and
averaged 76% for 2005. We believe that our method of calculating utilization, while conservative,
provides our management with the most relevant statistics in order to manage this business. Our alculation may not be comparable to other companies calculation of similarly titled statistics. c Maintenance. We place a strong emphasis on vehicle maintenance since quick and proper
repairs are critical to fleet utilization. To accomplish this task we employ two full-time National
Institute for Automotive Service Excellence (ASE) fully certified technician instructors at our
headquarters. These instructors have developed a specialized training program for our 410
technicians who operate in 100 maintenance and damage repair centers for both Avis and
Budget. The technicians/instructors also maintain strong relationships with General Motors and
Ford. We use advanced diagnostic equipment, including General Motors Techline and Tech 2
diagnostic computers and Fords PDS diagnostic system. Our technician training department also
prepares its own technical service bulletins that can be retrieved electronically at all of our repair
locations. Approximately 89% of our technicians are ASE certified. Increased fleet costs. We expect increases in rental car fleet costs of $125 million to $145
million in 2006 versus 2005, excluding any impact from changes in our fleet size. We expect increases in truck fleet costs of $25 million to $30 million in 2006 versus 2005, excluding any
impact from changes in our fleet size. The preceding forward-looking statements are based on
management estimates, currently available information and assumptions which management
believes to be reasonable. Forward-looking statements are inherently subject to significant
economic, competitive and other uncertainties and contingencies, many of which are beyond the
control of management. We caution that these statements may not be indicative of future fleet
costs and we can provide no assurance that such expectations will be achieved. Actual fleet
costs may differ materially from those expressed or implied in the forward-looking statements.
See Forward-looking statements and Risk factors. C ustomer service Our commitment to delivering a consistently high level of customer service is a critical element of
our success and strategy. Each week our quality auditors conduct unannounced reviews of at
least three major airport locations to measure service levels by location. We identify specific
areas of achievement and opportunity from these assessments. We address areas of
improvement on a system-wide level and develop standard methods and measures. The major
focus areas of these assessments include: (i) vehicle condition and availability; (ii) customer
interaction, including helpfulness and courtesy; and (iii) location image. In addition, we utilize a
toll-free 800 number and a dedicated customer service email address to allow customers of
both Avis and Budget to report problems directly to our customer relations department. Location
associates and managers also receive training and are empowered to resolve all customer issues
at the location level. We prepare weekly and monthly reports on the types and number of
complaints received for use in conjunction with the customer satisfaction reports by location
management as feedback of customer service delivery. Finally, we conduct daily location-specific
customer satisfaction tracking by sending web-based surveys to recent customers of our top olume locations. v A irport concession fees In general, concession fees for on-airport locations are based on a percentage of total
commissionable revenue (as determined by each airport authority), subject to minimum annual
guaranteed amounts. Concessions are typically awarded by airport authorities every three to five
years based upon competitive bids. Our concession agreements with the various airport
authorities generally impose certain minimum operating requirements, provide for relocation in
the event of future construction and provide for abatement of the minimum annual guarantee in e event of extended low passenger volume. th C ompetition The car rental industry is characterized by intense price and service competition. The following
chart compares our estimated share of the on-airport car rental segment to the estimated shares
of our major competitors for 2004 and 2005 based on revenue reported to the operators of the 10 largest airports at which we operate in the United States. 2 Share of On-Airport Car Rental Revenues 2004 2005 Avis ...................................................................................................................... 21.4% 21.3%
Budget.................................................................................................................. 10.7% 11.1% Avis Budget Car Rental brands ....................................................................... 32.1% 32.4% Hertz..................................................................................................................... 29.8% 29.4% National................................................................................................................ 14.3% 13.7% Alamo................................................................................................................... 5.4% 5.5% Vanguard brands ............................................................................................. 19.7% 19.2% Dollar.................................................................................................................... 7.9% 7.3% Thrifty ................................................................................................................... 3.5% 3.4% Dollar Thrifty brands ........................................................................................ 11.4% 10.7% Enterprise............................................................................................................. 5.6% 6.6% Other .................................................................................................................... 1.4% 1.7% Total..................................................................................................................... 100.0% 100.0% Competition in the U.S. vehicle rental operations business is based primarily upon price,
reliability, vehicle availability, national distribution, usability of booking systems, ease of rental and
return and other elements of customer service. In addition, competition is influenced strongly by dvertising, marketing and brand reputation. a Truck rental business In dustry overview Our truck rental business serves both the consumer and light commercial sectors within the
United States for contractual periods of 30 days or less. The consumer sector consists primarily
of individuals who rent trucks to move household goods on either a one-way or local basis. The
light commercial sector consists of a wide range of businesses that rent light- to medium-duty
trucks for a variety of commercial applications. Industry sources estimate that the U.S. truck
rental industry, which includes rentals for contractual periods of 30 days or less generated total venue of approximately $3 billion in 2005. re The U.S. Bureau of Census estimates that each year about 15 million households move within
the United States. As an alternative to professional moving companies, van lines and other ptions, the truck rental industry serves about one-third of these moves. o O perations Budgets truck rental business is one of the largest local and one-way truck rental businesses in
the United States. The Budget truck rental business has a combined fleet of approximately
30,000 trucks, with a median truck age of less than two years old, which are rented through a
network of approximately 2,400 dealers, 220 company operated and 100 licensee operated
locations throughout the continental United States. The Budget truck rental business serves both
the consumer and light commercial sectors. The consumer sector consists primarily of individuals
who rent trucks to move household goods on either a one-way or local basis. The light
commercial sector consists of a wide range of businesses that rent light- to medium-duty trucks,
which we define as trucks having a gross vehicle weight of less than 26,000 pounds, for a variety
of commercial applications. In 2005, the Budget truck rental business generated total revenue of
approximately $546 million. We primarily advertise in yellow pages telephone directories to promote our truck rental
business to potential customers. Budget truck rental customers can make reservations through
the Budget truck rental reservation center toll-free at 1-800-GO-BUDGET, through our Budget
truck rental web site at budgettruck.com or by calling a location directly. In addition, we have
established online affiliations with web sites like moving.com to reach our targeted audience.
Budget truck rental reservations may also be made through the budget.com web site. D istribution Budgets truck rental business is offered through a national network, which included
approximately 2,400 dealers as of December 31, 2005. These independent dealers are primarily
self-storage facilities, rental centers, hardware stores, service stations and other similar service
retailers. In addition to the dealers principal businesses, the dealers rent our light- and medium-
duty trucks to consumers and to our commercial accounts and are responsible for collecting
payments on our behalf. The dealers receive a commission on all truck rentals and ancillary
equipment. Generally, dealership agreements may be terminated by either party upon 30 to 90 ays prior written notice. d C ompetition The truck rental industry is characterized by intense price and service competition. We compete
with a large number of truck rental companies throughout the country, including U-Haul
International, Inc., Penske Truck Leasing Corporation, Ryder System, Inc., Enterprise Rent-A-Car ompany and many others. C S easonality Our truck rental operations are subject to seasonal demand patterns, with generally higher levels
of demand occurring during the late spring and summer months when most self moves occur,
with the third quarter typically being our busiest quarter. December is also a strong month due to
increased retail sales activity and package deliveries. A ncillary products and insurance coverage We supplement our daily truck rental revenue by offering customers a range of ancillary optional
products. We rent automobile towing equipment and other moving accessories such as hand
trucks, furniture pads and moving supplies. We also make available to customers a range of
optional liability-limiting products and coverages such as physical damage waivers, automobile
towing protection, personal accident and cargo insurance and supplemental liability insurance.
These ancillary products enhance our appeal to consumers by offering customers one-stop oving services. m Employees As of December 31, 2005, we employed approximately 32,100 employees, of which
approximately 10,700 people were employed on a part-time basis. Approximately 27% of our
employees are covered by collective bargaining agreements. We believe our employee relations
are satisfactory. We have never experienced a large-scale work stoppage. Properties Our principal executive offices are located at 6 Sylvan Way, Parsippany, New Jersey 07054. We
also own a facility in Virginia Beach, Virginia, which serves as a satellite administrative facility for
our car rental operations. Office space is also leased in Orlando, Florida; Denver, Colorado;
Wichita Falls, Texas; Tulsa, Oklahoma; and Fredericton, Canada pursuant to leases expiring in
2007, 2007, 2010, 2010, and 2009, respectively. Budget offices at Carrollton, Texas and
Redding, California were closed in 2003 and 2005, respectively, and are vacant. These locations
are subject to leases expiring in 2006 and 2011, respectively. In addition, there are approximately 0 other leased office locations in the United States for regional sales and operations activities. 4 We lease or have vehicle rental concessions for both the Avis and Budget brands at locations
throughout the world. Avis operates approximately 860 locations in the United States and
approximately 320 locations outside the United States. Of those locations, approximately 230 in
the United States and approximately 80 outside the United States are at airports. Budget operates at approximately 490 locations in the United States of which approximately 140 are at
airports. Budget also operates at approximately 190 locations outside the United States of which
approximately 40 are at airports. Typically, an airport receives a percentage of vehicle rental
revenue, with a guaranteed minimum. Because there is a limit to the number of vehicle rental
locations in an airport, vehicle rental companies frequently bid for the available locations, usually n the basis of the size of the guaranteed minimums. o Insurance coverage We generally assume the risk of our liability to third parties arising from vehicle rental services in
the United States, Canada, Puerto Rico and the U.S. Virgin Islands, for up to $1 million per
occurrence, through a combination of self-insurance, insurance coverage provided by one of our
domestic subsidiaries and insurance coverage secured from one or more unaffiliated domestic
insurance carriers. We retain the exposure for up to $9 million per occurrence, in excess of the
previously described $1 million level, through an unaffiliated fronting carrier who is reinsured by
our offshore captive insurance company, Constellation Reinsurance Co., Ltd. We also purchase dditional excess insurance coverage from a combination of unaffiliated excess carriers. a We insure the risk of liability to third parties in Argentina, Australia and New Zealand through a
combination of unaffiliated carriers and our affiliates. These carriers provide coverage upplemental to minimum local requirements. s Litigation During February 2006, we settled a litigation matter with respect to claims made by a purchaser
of a business sold by Avis Group Holdings, Inc. prior to Cendants acquisition of Avis Group
Holdings, Inc. in 2001. The award of $98 million had been fully reserved for in connection with the
acquisition. The settlement will be funded by Cendant and will, therefore, have no impact on our
future cash flows. We, along with our subsidiaries, are involved, from time to time, in legal proceedings in the
ordinary course of business, which, in the opinion of management, should not have a material
adverse effect on our consolidated financial position, results of operations or cash flow. Trademarks and intellectual property The service marks Avis and Budget, related marks incorporating the words Avis or Budget,
and related logos and marks such as We try harder are material to our vehicle rental business.
Our subsidiaries and franchisees actively use these marks. All of the material marks used by the
Avis and Budget Systems are registered (or have applications pending for registration) with the
United States Patent and Trademark Office as well as all countries worldwide where Avis and
Budget have operations. Our subsidiaries own the marks, patents and other intellectual property,
including the Wizard System, used in our business. Regulation We are subject to federal, state and local laws and regulations, including those relating to taxing
and licensing of vehicles, franchising, consumer credit, environmental protection, insurance, rivacy and labor matters. p E nvironmental The principal environmental regulatory requirements applicable to our vehicle and rental
operations relate to the ownership or use of tanks for the storage of petroleum products, such as
gasoline, diesel fuel and waste oils; the treatment or discharge of waste waters; and the
generation, storage, transportation and off-site treatment or disposal of solid or liquid wastes. We operate 440 Avis and Budget locations at which petroleum products are stored in underground or
above ground tanks. We have instituted an environmental compliance program designed to
ensure that these tanks are in compliance with applicable technical and operational requirements,
including the replacement and upgrade of underground tanks to comply with the December 1998
EPA upgrade mandate and periodic testing and leak monitoring of underground storage tanks.
We believe that the locations where we currently operate are in compliance, in all material
respects, with such regulatory requirements. We may also be subject to requirements related to the remediation of, or the liability for
remediation of, substances that have been released into the environment at properties owned or
operated by us or at properties to which we send substances for treatment or disposal. Such
remediation requirements may be imposed without regard to fault and liability for environmental
remediation can be substantial. We may be eligible for reimbursement or payment of remediation costs associated with future
releases from regulated underground storage tanks and have established funds to assist in the
payment of remediation costs for releases from certain registered underground tanks. Subject to
certain deductibles, the availability of funds, compliance status of the tanks and the nature of the
release, these tank funds may be available to us for use in remediating future releases from our
t nk systems. a Loss damage waivers A traditional revenue source for the vehicle rental industry has been the sale of loss damage
waivers, by which rental companies agree to relieve a customer from financial responsibility
arising from vehicle damage incurred during the rental period if there has been no breach of the
rental agreement. Approximately 4.4% of our revenue during 2005 was generated by the sale of
loss damage waivers. To date, 24 states have enacted legislation which requires disclosure to
each customer at the time of rental that damage to the rented vehicle may be covered by the
customers personal automobile insurance and that loss damage waivers may not be necessary.
In addition, New York permits the sale of loss damage waivers at a capped rate per day based on
the vehicle manufacturers suggested retail price. Illinois, Nevada and California have similar tatutes, which establish the daily rate that can be charged for loss damage waivers. s In surance As a result of our reinsurance of the optional insurance coverages that we offer through
unaffiliated third party insurance companies as well as other insurance obligations, we are subject
to regulation under the insurance statutes, including insurance holding company statutes, of the
jurisdictions in which our insurance company subsidiaries are domiciled. These regulations vary
from state to state, but generally require insurance holding companies and insurers that are
subsidiaries of insurance holding companies to register and file certain reports, including
information concerning their capital structure, ownership, financial condition and general business
operations with the state regulatory authority, and require prior regulatory agency approval of
changes in control of an insurer and intracorporate transfers of assets within the holding company
structure. Such insurance statutes may also require that we obtain limited licenses to sell optional surance coverage to our customers at the time of rental. in F ranchise regulation The sale of franchises is regulated by various state laws, as well as by the Federal Trade
Commission (the FTC). The FTC requires that franchisors make extensive disclosure to
prospective franchisees but does not require registration. A number of states require registration
or disclosure in connection with franchise offers and sales. In addition, several states have
franchise relationship laws or business opportunity laws that limit the ability of the franchisor to
terminate franchise agreements or to withhold consent to the renewal or transfer of these
agreements. Although our franchising operations have not been materially adversely affected by such existing regulations, we cannot predict the effect of any future federal, state or local gislation or regulation. le P rivacy Laws in some countries and jurisdictions limit the types of information we may collect about
individuals with whom we deal or propose to deal, as well as how we collect, retain and use the
information that we are permitted to collect. The centralized nature of our information systems
requires the routine flow of information about customers and potential customers across national
borders, particularly into the United States. If this flow of information were to become illegal, or
subject to onerous restrictions, our ability to serve our customers could be seriously impaired for n extended period of time. a Certain relationships and related transactions In connection with the proposed Separation Transactions, we currently expect to enter into a
series of agreements to formalize our business arrangements with the Separated Businesses and
enable us to conduct our operations on a stand-alone basis. Completion of the distributions is
currently expected to be subject to satisfaction or waiver by Cendant of the conditions to the eparation and distributions described below under Separation and distribution agreement. s Special note regarding agreements related to the Separation Transactions Consummation of the Separation Transactions, including each of the distributions, is subject to a
number of uncertainties and the satisfaction or waiver of certain conditions precedent, including
final approval by Cendants Board of Directors, receipt of certain tax opinions of counsel, receipt
of solvency opinions, and the filing and effectiveness of registration statements with the SEC.
Also, the Separation Transactions are subject to the completion of certain debt financings of the
Separated Businesses on terms acceptable to Cendant to be used in part to repay debt of
Cendant. In addition, Cendants Board of Directors has reserved the right, in its sole discretion, to
amend, modify or abandon each distribution at any time before the distribution. Therefore, we
cannot provide any assurances that the Separation Transactions will be completed in whole or in
part, nor can we give assurances as to the terms on which such transactions will be
consummated. Accordingly, the descriptions of the agreements to be entered into in connection
with the Separation Transactions, including the Separation Agreement, transition services
agreement and tax sharing agreement, are preliminary and remain subject to change based upon
the final terms of the Separation Transactions. Accordingly, there can be no assurance that the
final terms of these agreements will not be materially different from the descriptions of those
agreements presented below. Separation and distribution agreement The Separation Agreement is currently expected to set forth agreements among Cendant and the
Separated Businesses regarding the principal transactions necessary to separate those
businesses from Cendant. It is also currently expected to set forth other agreements governing
certain aspects of the ongoing relationships among Cendant and the Separated Businesses after
the separation. The parties currently intend to enter concurrently into the Separation Agreement
before the first distribution of the equity ownership of a Separated Business to Cendants
stockholders. The Separation Agreement is currently expected to be effective as between each of
Cendant and the Separated Businesses that have not yet been separated, on the one hand, and
a Separated Business, on the other hand, upon such Separated Business separation from endant. C T ransfer of assets and assumption of liabilities The Separation Agreement is currently expected to identify assets to be transferred, liabilities to
be assumed and contracts to be assigned to each of the Separated Businesses and Cendant in
the separation, and is currently expected to describe when and how these transfers, assumptions
and assignments will occur, although many of the transfers, assumptions and assignments may
have already occurred prior to the parties entering into the Separation Agreement. In particular,
the Separation Agreement is currently expected to provide that, subject to the terms and
conditions contained in the Separation Agreement: All of the assets and liabilities (including whether accrued, contingent or otherwise) primarily related to the business and operations of Cendants Real Estate Services
segment will be retained by or transferred to the parent company that is expected to own
these businesses and operations, which is expected to be named Realogy Corporation
(Realogy), or one of its subsidiaries; All of the assets and liabilities (including whether accrued, contingent or otherwise) primarily related to the business and operations of Cendants Hospitality Services
(including Timeshare Resorts) segments will be retained by or transferred to the parent
company that is expected to own these businesses and operations, which is expected to
be named Wyndham Worldwide Corporation (Wyndham), or one of its subsidiaries; All of the assets and liabilities (including whether accrued, contingent or otherwise) primarily related to the business and operations of Cendants Travel Distribution Services
segment will be retained by or transferred to the parent company that is expected to own
these businesses and operations (TDS), or one of its subsidiaries; All of the assets and liabilities (including whether accrued, contingent or otherwise) primarily related to the business and operations of ABCR and its subsidiaries will be
retained by or transferred to Cendant or one of its subsidiaries engaged in its vehicle
rental business; Liabilities (including whether accrued, contingent or otherwise) related to, arising out of or resulting from businesses of Cendant that were previously terminated or divested will be
allocated amongst the parties to the extent formerly owned or managed by or associated
with such parties or their respective businesses; Each party will assume or retain any liabilities relating to its employees in respect of the period prior to, on or following its separation; Each party or one of its subsidiaries will assume or retain any liabilities (including under applicable federal and state securities laws) relating to, arising out of or resulting from
any registration statement or similar disclosure document which offers for sale any
security of such party to the extent such documents exclusively relate to such party or its
subsidiaries or affiliates; Each party or one of its subsidiaries will assume or retain any liabilities relating to, arising out of or resulting from any of its or its subsidiaries or affiliates indebtedness (including
debt securities and asset-backed debt), regardless of the issuer of such indebtedness,
exclusively relating to its business or secured exclusively by its assets; Realogy is expected to assume 50%, Wyndham is expected to assume 30% and TDS is expected to assume 20% of certain contingent corporate liabilities of Cendant or its
subsidiaries, which we refer to as assumed Cendant contingent liabilities, which are not
primarily related to any of the respective businesses of a Separated Business and/or
Cendants vehicle rental business, in each case to be incurred on or prior to the earlier of
(x) December 31, 2006 or (y) the date of the later to occur of the Wyndham separation or
the TDS separation, including liabilities related to, arising out of or resulting from
(i) certain terminated or divested businesses including, among others, Cendants former
PHH and Marketing Services (Affinion) businesses, (ii) certain actions or litigation
matters, the liability for which is expected to be assumed by the Separated Businesses
pursuant to the Separation Agreement and (iii) any actions with respect to the Separation
Transactions, (other than actions arising out of disclosure documents relating to the
securities or indebtedness of one of the four businesses) made or brought by any third
party. Cendant will not assume liability for any of the assumed Cendant contingent
liabilities (although, if a party defaults in payments in respect of any such liability each
non-defaulting party, including Cendant, will pay an equal share of such defaulted
amount); Realogy will be entitled to receive 50%, Wyndham will be entitled to receive 30% and TDS will be entitled to receive 20% of the proceeds (or, in certain cases, a portion
thereof) from certain contingent corporate assets of Cendant arising or accrued on or
prior to the earlier of (x) December 31, 2006 or (y) the date of the later to occur of the Wyndham separation or the TDS separation, which we refer to as Cendant contingent
assets, which are not primarily related to any of the respective business of the Separated
Businesses and/or Cendants vehicle rental business; and Except as otherwise provided in the Separation Agreement or any ancillary agreement, other than the costs and expenses relating to the issuance of debt or debt related
securities by any party or its subsidiaries (the costs and expenses of which are expected
to be the responsibility of such party), the corporate costs and expenses relating to the
Separation Transactions are expected to be shared among Realogy, Wyndham and TDS
in a manner to be provided in the Separation Agreement. Except as may expressly be set forth in the Separation Agreement or any ancillary agreement, all
such assets are currently expected to be transferred on an as is/where is basis and the
respective transferees are currently expected to bear the economic and legal risks that (i) any
conveyance will prove to be insufficient to vest in the transferee good title, free and clear of any
security interest and (ii) any necessary consents or governmental approvals are not obtained or at any requirements of laws or judgments are not complied with. th Certain of the liabilities and obligations to be assumed by one party or for which one party is
currently expected to have an indemnification obligation under the Separation Agreement and the
other agreements relating to the separation are, and following the separation may continue to be,
the legal or contractual liabilities or obligations of another party. Each such party that continues to
be subject to such legal or contractual liability or obligation is currently expected to rely on the
applicable party that assumed the liability or obligation or the applicable party that undertook an
indemnification obligation with respect to the liability or obligation, as applicable, under the
Separation Agreement, to satisfy the performance and payment obligations with respect to such gal or contractual liability or obligation. le F urther assurances To the extent that any transfers contemplated by the Separation Agreement have not been
consummated on or prior to the applicable separation date, the parties are currently expected to
agree to cooperate to effect such transfers as promptly following such time as shall be practicable
following the date of the applicable separation. In addition, each of the parties is currently
expected to agree to cooperate with each other and use commercially reasonable efforts to take
or to cause to be taken all actions, and to do, or to cause to be done, all things reasonably
necessary under applicable law or contractual obligations to consummate and make effective the
transactions contemplated by the Separation Agreement and the ancillary agreements. T he distributions and financings The Separation Agreement is also currently expected to govern the rights and obligations of the
parties regarding the proposed distributions. Each of the Separated Businesses is currently
expected to agree to distribute to Cendant as a stock dividend the number of shares of such
partys common stock distributable in the applicable distribution to effectuate the applicable
separation. In addition, Cendant is currently expected to agree to cause its agent to distribute to
stockholders that held shares of Cendant common stock as of the applicable record date all the hares of the common stock of the company being separated from Cendant. s The Separation Agreement is currently expected to provide that Realogy, Wyndham and TDS will
incur indebtedness, establish and draw upon credit facilities, and transfer funds to Cendant in
amounts sufficient, in aggregate, to permit Cendant to repay its existing corporate indebtedness
and to pay other costs of Cendant associated with the Separation Transactions. Additionally, the Separation Agreement is expected to provide that the distributions are subject to everal conditions that must be satisfied or waived by Cendant in its sole discretion. s Releases and indemnification Except as otherwise may be provided in the Separation Agreement or any ancillary agreement,
each party is currently expected to release and forever discharge each other party and its
respective subsidiaries and affiliates from all liabilities existing or arising from any acts or events
occurring or failing to occur or alleged to have occurred or to have failed to occur or any
conditions existing or alleged to have existed on or before the separation from Cendant of any
such parties. The releases are not currently expected to extend to obligations or liabilities under
any agreements between the parties that remain in effect following the separation pursuant to the
Separation Agreement or any ancillary agreement. In addition, the Separation Agreement is currently expected to provide for cross-indemnities
principally designed to place financial responsibility for the obligations and liabilities of Cendants
vehicle rental business, Realogys business, Wyndhams business and TDSs business with
Cendant, Realogy, Wyndham and TDS, respectively. Specifically, each party is currently
expected to, and is currently expected to cause its subsidiaries and affiliates to, indemnify, defend
and hold harmless the other parties, their respective affiliates and subsidiaries and each of their
respective officers, directors, employees and agents for any losses arising out of or otherwise in
connection with: the liabilities each such party assumed or retained pursuant to the Separation Agreement; any misstatement of or omission to state a material fact contained in any partys public filings, only to the extent the misstatement or omission is based upon information that
was furnished by the applicable indemnifying party (or incorporated by reference from a
filing of such indemnifying party) and then only to the extent the statement or omission
was made or occurred after the separation of the party seeking indemnification; and any breach by such party of the Separation Agreement. L egal matters The Separation Agreement is currently expected to provide: Each party to the Separation Agreement is currently expected to assume the liability for, and control of, all pending and threatened legal matters related to its own business or
assumed or retained liabilities and is currently expected to indemnify the other parties for
any liability arising out of or resulting from such assumed legal matters. Each party to a claim is currently expected to agree to cooperate in defending any claims against two or more parties for events that took place prior to, on or after the date of the
separation of such party from Cendant. Except with respect to actions brought against Cendant by a governmental entity (in which case Cendant will manage and assume control of such legal matters), Realogy is
currently expected to act as managing party and manage and assume control of all legal
matters related to any assumed Cendant contingent liability and Cendant contingent
asset. Each of the parties is currently expected to cooperate fully with the applicable
managing party in connection with the management of such assets and liabilities. The
party responsible for managing an assumed Cendant contingent liability or Cendant
contingent asset is currently expected to be reimbursed for all out-of-pocket costs and
expenses related thereto by Wyndham, TDS and, if Cendant is acting as managing party,
Realogy, in proportion to the applicable percentage that each party is responsible for in
respect of such liability or right to such asset. If one or more parties defaults in payment
of its portion of any assumed Cendant contingent liability or the cost of managing any
Cendant contingent asset, each non-defaulting party (including Cendant) is currently
expected to be responsible for an equal portion of the amount in default (although any
such payments will not release the obligation of the defaulting party). Additionally, the Separation Agreement is currently expected to provide that if, as a result of a change of
control or other extraordinary corporate transaction, any of Realogy, Wyndham and/or
TDS were to suffer certain downgrades to its senior credit rating, then upon the demand
of Realogy, Wyndham, TDS or Cendant, as applicable, any such party suffering such
credit downgrade would be required to post a letter of credit or similar security obligation
generally in respect of its portion of the remaining Cendant contingent liabilities based on
an appraisal prepared by a third party expert. The Separation Agreement is currently expected to provide for the formation of a contingent claim committee, which will have the responsibility for the adoption of any plan
to settle, resolve or achieve the disposition of any assumed Cendant contingent liability
or Cendant contingent asset, with one representative from each of Realogy, Wyndham,
TDS and Cendant. Resolution of a matter submitted to the contingent claim committee is
currently expected to require the approval of a majority of the representatives entitled to
vote on such matters, except that in certain cases where a party may be adversely
affected, the approval by the affected party is also required. Except with respect to
certain limited matters where Cendant would be adversely effected by the disposition of a
claim, Cendants representative to the contingent claim committee is not currently
expected to be entitled to vote on matters submitted to the contingent claim committee
for resolution. E mployee matters The Separation Agreement is currently expected to allocate liabilities and responsibilities relating
to employee compensation and benefit plans and programs and other related matters in
connection with the Separation Transactions, including the treatment of certain outstanding and
long-term incentive awards, existing deferred compensation obligations and certain retirement
and welfare benefit obligations. The Separation Agreement is currently expected to also provide
that outstanding Cendant stock options and restricted stock unit awards will be equitably adjusted
in connection with each distribution. In surance The Separation Agreement is currently expected to provide for the allocation among the parties of
benefits between each party under existing insurance policies for occurrences prior to each
separation and sets forth procedures for the administration of insured claims. In addition, it is
currently expected to allocate among the parties the righ

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