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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

COMMISSION FILE NUMBER: 1-13315

AVIS GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		11-3347585 (I.R.S. Employer Identification No.)
6 SYLVAN WAY PARSIPPANY, NJ (Address of Principal Executive Offices)		07054 (Zip Code)
(973) 496-3500 (Registrant's telephone number, including area code)

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

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Avis Group Holdings, Inc. meets the conditions set forth in General Instructions H(1)(a) and (b) to Form 10-Q and is, therefore, filing this Form with the reduced disclosure format.

Avis Group Holdings, Inc. and Subsidiaries

Table of Contents

		Page
PART I	Financial Information
Item 1.	Financial Statements
	Independent Accountants' Report	3
	Consolidated Condensed Statements of Income for the Three and Nine Months Ended September 30, 2003 and 2002	4
	Consolidated Condensed Balance Sheets as of September 30, 2003 and December 31, 2002	5
	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002	6
	Notes to Consolidated Condensed Financial Statements	7
Item 2.	Management's Narrative Analysis of the Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosure about Market Risks	20
Item 4.	Controls and Procedures	21
PART II	Other Information
Item 6.	Exhibits and Reports on Form 8-K	21
	Signatures	22

FORWARD-LOOKING STATEMENTS

Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "project", "estimates", "plans", "may increase", "may fluctuate" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

•: terrorist attacks, such as the September 11, 2001 terrorist attacks on New York City and Washington, D.C., other attacks, acts of war or measures taken by governments in response thereto may negatively affect the travel industry and our financial results and could also result in a disruption in our business;
•: the effect of economic or political conditions or any outbreak or escalation of hostilities on the economy on a national, regional or international basis and the impact thereof on our business;
•: the effects of a decline in travel, due to political instability, war, pandemic illness, adverse economic conditions or otherwise, on our business;
•: the effect of changes in current interest rates on our financing costs;
•: our ability to develop and implement operational, technological and financial systems to manage growing operations and to achieve enhanced earnings or effect cost savings;
•: our ability to reduce quickly our substantial technology costs and other overhead costs in response to a reduction in revenue;
•: competition in the vehicle rental industry and the financial resources of, and products available to, competitors;
•: our ability to provide fully integrated disaster recovery technology solutions in the event of a disaster;
•: our ability to obtain financing on acceptable terms to finance our growth strategy and to operate within the limitations imposed by financing arrangements;
•: our ability to obtain external financing in the event we are unable to obtain financing from Cendant Corporation;
•: competitive and pricing pressures in the vehicle rental industry;
•: changes, if any, in vehicle manufacturer repurchase arrangements;
•: in relation to our management programs, (i) the deterioration in the performance of the underlying assets of such programs and (ii) the impairment of our ability to access our principal financing program if General Motors Corporation should not be able to honor its obligations to repurchase a substantial number of our vehicles; and
•: changes in laws and regulations or the applications thereof, including changes in accounting standards, state, international and federal tax laws, privacy policy regulations or other laws that impact our business.

Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control.

You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

INDEPENDENT ACCOUNTANTS' REPORT

To the Board of Directors and Stockholder of
Avis Group Holdings, Inc
Parsippany, New Jersey

We have reviewed the accompanying consolidated condensed balance sheet of Avis Group Holdings, Inc. and subsidiaries (the "Company") as of September 30, 2003, the related consolidated condensed statements of income for the three and nine month periods ended September 30, 2003 and 2002, and the related consolidated condensed statements of cash flows for the nine month periods ended September 30, 2003 and 2002. These financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated condensed financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of December 31, 2002, and the related consolidated statements of income, stockholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated January 29, 2003, we expressed an unqualified opinion (and included an explanatory paragraph with respect to the adoption of the non-amortization provisions for goodwill and other indefinite lived intangible assets and modification of the accounting for derivative instruments and hedging activities, as discussed in Note 1 to the consolidated financial statements) on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

New York, New York
November 5, 2003

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands)

		Three Months Ended September 30,				Nine Months Ended September 30,
		2003		2002		2003		2002
Revenues		$	830,785	$	710,556	$	2,165,040	$	1,925,790

Expenses
	Operating, net		288,581		279,231		799,750		759,632
	Vehicle depreciation and lease charges, net		276,970		178,099		690,583		499,350
	Selling, general and administrative		115,616		116,666		338,566		353,526
	Vehicle interest, net		68,331		54,241		186,141		156,227
	Non-vehicle interest, net		9,926		10,316		30,830		31,934
	Non-vehicle depreciation and amortization		10,518		9,789		31,561		27,732

Total expenses			769,942		648,342		2,077,431		1,828,401

Income before income taxes			60,843		62,214		87,609		97,389
Provision for income taxes			22,274		26,129		32,152		40,903

Net income		$	38,569	$	36,085	$	55,457	$	56,486

See Notes to Consolidated Condensed Financial Statements.

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)

		September 30, 2003			December 31, 2002
Assets
	Cash and cash equivalents	$	35,624		$	25,252
	Restricted cash		78,740			59,012
	Receivables, net		189,841			158,730
	Deferred income taxes		523,685			481,335
	Property and equipment, net		277,657			278,830
	Goodwill		1,255,156			1,254,401
	Other assets		122,708			105,315

Total assets exclusive of assets under management programs			2,483,411			2,362,875

Assets under management programs:
	Program cash		74,478			2,462
	Vehicles, net		5,913,597			4,173,847
	Due from vehicle manufacturers		551,096			258,459

			6,539,171			4,434,768

Total assets		$	9,022,582		$	6,797,643

Liabilities and stockholder's equity
Liabilities:
	Accounts payable	$	314,524		$	205,727
	Accrued liabilities		395,441			415,009
	Due to Cendant Corporation and affiliates, net		781,013			551,809
	Non-vehicle debt		341,580			534,231
	Public liability, property damage and other insurance liabilities		235,477			211,786

Total liabilities exclusive of liabilities under management programs			2,068,035			1,918,562

Liabilities under management programs:
	Vehicle debt		6,212,906			4,245,703
	Deferred income taxes		294,576			288,005

			6,507,482			4,533,708

Commitments and contingencies (Note 6)
Stockholder's equity:
	Common stock, $.01 par value—authorized 10,000 shares; issued 5,537 shares		—			—
	Additional paid-in-capital		168,832			168,832
	Retained earnings		297,209			241,752
	Accumulated other comprehensive loss		(18,976	)		(65,211	)

Total stockholder's equity			447,065			345,373

Total liabilities and stockholder's equity		$	9,022,582		$	6,797,643

See Notes to Consolidated Condensed Financial Statements.

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)

			Nine Months Ended September 30, 2003			Nine Months Ended September 30, 2002
Operating Activities
Net income			$	55,457		$	56,486
Adjustments to reconcile net income to net cash provided by operating activities exclusive of management programs:
	Non-vehicle depreciation and amortization			31,561			27,732
	Net change in operating assets and liabilities, excluding the impact of acquisitions and dispositions:
		Receivables		3,103			2,480
		Income taxes and deferred income taxes		21,096			31,244
		Accounts payable		(21,974	)		3,657
		Accrued liabilities		(33,044	)		(14,821	)
		Other, net		8,820			(13,607	)

Net cash provided by operating activities exclusive of management programs				65,019			93,171

Management programs:
	Vehicle depreciation, net			645,692			478,918

Net cash provided by operating activities				710,711			572,089

Investing Activities
Property and equipment additions				(38,518	)		(38,243	)
Proceeds from sales of property and equipment				12,400			3,777
Payment for purchase of rental car franchise licensees				(208	)		(3,099	)

Net cash used in investing activities exclusive of management programs				(26,326	)		(37,565	)

Management programs:
	Decrease (increase) in program cash			(72,016	)		325,935
	Increase in due from vehicle manufacturers			(289,244	)		(150,084	)
	Investment in vehicles			(7,400,408	)		(4,388,332	)
	Payments received on investment in vehicles			5,056,570			3,209,581

				(2,705,098	)		(1,002,900	)

Net cash used in investing activities				(2,731,424	)		(1,040,465	)

Financing Activities
Principal payments on borrowings				(182,277	)		(11,270	)
Increase in due to Cendant Corporation and affiliates, net				236,056			20,942

Net cash provided by financing activities exclusive of management programs				53,779			9,672

Management programs:
	Proceeds from borrowings			3,772,907			1,629,009
	Principal payments on borrowings			(1,783,881	)		(1,159,281	)
	Payments for debt issuance costs			(12,206	)		(5,369	)

				1,976,820			464,359

Net cash provided by financing activities				2,030,599			474,031

Effect of changes in exchange rates on cash and cash equivalents				486			199

Net increase in cash and cash equivalents				10,372			5,854
Cash and cash equivalents, beginning of period				25,252			13,311

Cash and cash equivalents, end of period			$	35,624		$	19,165

See Notes to Consolidated Condensed Financial Statements.

Avis Group Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unless otherwise noted, all dollar amounts are in thousands)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Consolidated Condensed Financial Statements include the accounts and transactions of Avis Group Holdings, Inc. and its subsidiaries, including Avis Rent A Car System, Inc. (collectively, "the Company"). For more detailed information regarding the Company's consolidation policy, refer to "Changes in Accounting Policies—Consolidation Policy" below. The Company is a wholly-owned subsidiary of Cendant Corporation ("Cendant"). Pursuant to certain covenant requirements in an indenture under which the Company issued debt, the Company continues to operate and maintain its status as a separate public reporting entity.

The Company's Consolidated Condensed Financial Statements separately present the financial data of the Company's management programs. These programs are distinct from the Company's other activities as the assets are funded through the issuance of debt that is collateralized by such assets. Funding for the Company's assets under management programs is also provided by asset-backed financing arrangements, which are classified as debt under management programs. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the generation and acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of the Company's management programs. The Company believes it is appropriate to segregate the financial data of its management programs because, ultimately, the source of repayment of such debt is the realization of such assets.

In presenting the Consolidated Condensed Financial Statements, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgments and available information. Accordingly, actual results could differ from those estimates. In management's opinion, the Consolidated Condensed Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These financial statements should be read in conjunction with the Company's 2002 Annual Report on Form 10-K filed on March 6, 2003

Changes in Accounting Policies

Stock-Based Compensation. Under Cendant's existing stock plans, Cendant common stock awards (including stock options, stock appreciation rights, restricted shares and restricted stock units) are granted to the Company's employees, including directors and officers of the Company. Prior to January 1, 2003, Cendant measured its stock-based compensation using the intrinsic value approach under Accounting Principles Board ("APB") Opinion No. 25, as permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Accordingly, Cendant did not recognize compensation expense upon the issuance of its stock options to employees because the option terms were fixed and the exercise price equaled the market price of the underlying common stock on the date of grant. Therefore, the Company was not allocated compensation expense upon Cendant's issuance of common stock options to the Company's employees. The Company complied with the provisions of SFAS No. 123 by providing pro forma disclosures of net income giving consideration to the fair value method provisions of SFAS No. 123.

On January 1, 2003, Cendant adopted the fair value method of accounting for stock-based compensation provisions of SFAS No. 123, which is considered by the Financial Accounting Standards Board ("FASB") to be the preferable accounting method for stock-based employee compensation. Cendant also adopted SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," in its entirety on January 1, 2003, which amended SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting provisions. As a result, Cendant now expenses all employee stock awards over their vesting periods based upon the fair value of the award on the date of grant. As Cendant elected to use the prospective transition method, Cendant allocated expense to the Company for only employee stock awards that were granted subsequent to December 31, 2002.

The following table illustrates the effect on net income as if the fair value based method had been applied to all employee stock awards granted by Cendant to the Company's employees for all periods presented:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Reported net income	$	38,569		$	36,085		$	55,457		$	56,486
Add back: Stock-based employee compensation expense included in reported net income, net of tax^(a)		250			—			437			—
Less: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of tax^(b)		(915	)		(12,432	)		(2,433	)		(17,073	)

Pro forma net income	$	37,904		$	23,653		$	53,461		$	39,413

^(a): The 2003 amounts reflect the second quarter 2003 issuance by Cendant of 465 thousand restricted stock units to certain of the Company's employees (including officers) as a form of compensation. These restricted stock units entitle the employee to receive one share of Cendant's common stock upon vesting, which occurs ratably over a four year period. Accordingly, Cendant allocated compensation expense of approximately $400 thousand and $700 thousand to the Company during the three and nine months ended September 30, 2003, respectively, which on an after-tax basis is $250 thousand and $437 thousand, respectively.
^(b): Pro forma compensation expense reflected for grants awarded prior to January 1, 2003 is not indicative of future compensation expense that will be recorded by the Company as future expense will vary based upon factors such as the type of award granted by Cendant and the then-current fair market value of such award.

Early Extinguishment of Debt. On January 1, 2003, the Company adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Such standard requires any gain or loss on the early extinguishment of debt to be presented as a component of continuing operations (unless specific criteria are met) whereas SFAS No. 4 required that such gain or loss be classified as an extraordinary item in determining net income. Accordingly, on January 1, 2003, the Company reclassified $1.3 million of 2002 pretax gains on the early extinguishments of debt to continuing operations as a component of net non-vehicle interest ($472 thousand and $822 thousand were recorded during the third and fourth quarters of 2002, respectively).

Costs Associated with Exit or Disposal Activities. On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Such standard nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146, a liability related to an exit or disposal activity (including restructurings) initiated after December 31, 2002 is not recognized until such liability has actually been incurred whereas under EITF Issue No. 94-3 a liability was recognized at the date of commitment to an exit or disposal plan. The impact of adopting this standard was not material to the Company's results of operations or financial position.

Guarantees. On January 1, 2003, the Company adopted FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," in its entirety. Such Interpretation elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of any guarantee issued or modified after December 31, 2002, a liability for the fair value of the obligation undertaken in issuing the guarantee. The impact of adopting this Interpretation was not material to the Company's results of operations or financial position.

Derivative Instruments and Hedging Activities. On July 1, 2003, the Company adopted SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." Such standard amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The impact of adopting this standard was not material to the Company's results of operations or financial position.

Consolidation Policy. On January 17, 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). Such Interpretation addresses the consolidation of variable interest entities ("VIEs"), including special purpose entities ("SPEs"), that are not controlled through voting interests or in which the equity investors do not bear the residual economic risks and rewards. Transfers to a qualifying SPE ("QSPE") and certain other interests in QSPEs are generally not subject to this Interpretation. The provisions of FIN 46 are effective immediately for transactions entered into by the Company subsequent to January 31, 2003, and became effective for all other transactions as of July 1, 2003. However, in October 2003, the FASB permitted companies to defer the July 1, 2003 effective date to December 31, 2003, in whole or in part, and indicated that it would provide further clarification of this Interpretation before December 31, 2003. The Company is currently assessing the application of this Interpretation to certain entities.

In connection with FIN 46, when evaluating an entity for consolidation, the Company first determines whether an entity is deemed to be a VIE and, if so, whether the Company would be considered its primary beneficiary. Generally, the Company will consolidate an entity not deemed either a VIE or QSPE upon a determination that its ownership, direct or indirect, exceeds fifty percent of the outstanding voting shares of an entity and/or that it has the ability to control the financial or operating policies through its voting rights, board representation or other similar rights. For entities where the Company does not have a controlling interest (financial or operating), the investments in such entities are classified as available-for-sale debt securities or accounted for using the equity or cost method, as appropriate. The Company applies the equity method of accounting when it has the ability to exercise significant influence over operating and financial policies of an investee in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock."

Prior to the adoption of FIN 46 (before the change in policy), the Company did not consolidate SPE and SPE-type entities unless the Company retained both control of the assets transferred and the risks and rewards of those assets. Additionally, non-SPE-type entities were only consolidated if the Company's ownership exceeded fifty percent of the outstanding voting shares of an entity and/or if the Company had the ability to control the financial or operating policies of an entity through its voting rights, board representation or other similar rights.

2. Vehicles, Net

Vehicles, net consisted of:

	As of September 30, 2003			As of December 31, 2002
Rental vehicles	$	6,334,976		$	4,415,761
Vehicles held for sale		17,720			144,283

		6,352,696			4,560,044
Less: accumulated depreciation		(439,099	)		(386,197	)

	$	5,913,597		$	4,173,847

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Depreciation expense	$	260,374	$	166,697	$	645,692	$	478,918
Lease charges		6,019		6,585		18,337		18,470
Loss on sales of vehicles, net		10,577		4,817		26,554		1,962

	$	276,970	$	178,099	$	690,583	$	499,350

Depreciation expense is net of the amortization of certain incentives and allowances from various vehicle manufacturers of approximately $47.8 million and $48.1 million for the three months ended September 30, 2003 and 2002, respectively, and $135.8 million and $112.5 million for the nine months ended September 30, 2003 and 2002, respectively.

Vehicle interest expense amounts are net of interest income of $441 thousand and $369 thousand for the three months ended September 30, 2003 and 2002, respectively, and $2.2 million and $1.9 million for the nine months ended September 30, 2003 and 2002, respectively.

The Company subleases a portion of its fleet to Budget Rent A Car System, Inc. ("Budget"), a wholly-owned subsidiary of Cendant not within the Company's ownership structure. As of September 30, 2003 and December 31, 2002, the Company had $1,722.0 million and $182.1 million, respectively, of vehicles recorded on its Consolidated Condensed Balance Sheets

that were subleased to Budget. These vehicles were purchased with proceeds received from the issuance of rental car asset-backed notes under the AESOP Funding Program (see Note 5—Vehicle Debt).

The Company charges Budget a monthly fee equal to the leased vehicles' monthly depreciation, interest and administrative expenses. For vehicles subleased to Budget during the three and nine months ended September 30, 2003, the Company recorded vehicle depreciation and lease charges of $103.1 million and $222.9 million, respectively, and vehicle interest expense of $25.6 million and $59.3 million, respectively, on its Consolidated Condensed Statements of Income. For the three and nine months ended September 30, 2003, the Company recorded revenue from the Budget vehicle sublease of approximately $129.5 million and $288.3 million, respectively, on its Consolidated Condensed Statements of Income, which included vehicle depreciation and interest expense, as well as administrative fees of $0.8 million and $6.1 million, respectively.

3. Due to Cendant Corporation and Affiliates, Net

Due to (from) Cendant Corporation and affiliates, net, consisted of:

	As of September 30, 2003			As of December 31, 2002
Due to Cendant-working capital and trading, net^(a)	$	281,015		$	253,032
Due from Cendant-demand-long-term^(b)		(110,573	)		(155,246	)
Due to Cendant-long-term^(c)		588,277			408,108
Due to other Cendant affiliates, net^(d)		107,995			55,467
Due from Budget^(e)		(85,701	)		(9,552	)

Total due to Cendant Corporation and affiliates, net	$	781,013		$	551,809

^(a): Represents funding for the Company's working capital and trading needs, which is provided by Cendant. Such intercompany funding accrues interest at LIBOR plus 87.5 basis points for amounts borrowed up to $110.5 million and LIBOR plus 140 basis points for borrowings exceeding such amount.
^(b): Represents borrowings by Cendant of the Company's program cash under management programs in return for a demand note.
^(c): Represents (i) $380.0 million of funding the Company received from Cendant during 2001 to repay outstanding borrowings under a revolving credit facility and debt assumed by the Company in connection with the 2001 acquisition of the Company by Cendant and (ii) $28.1 million and $180.2 million of funding the Company received from Cendant to repay the Company's 11% Senior Subordinated Notes during 2002 and 2003, respectively (see Note 4—Non-Vehicle Debt). All such funding bears interest at LIBOR plus 140 basis points.
^(d): Primarily represents amounts due to a subsidiary of Cendant for reservation charges incurred during 2003, that are partially offset by other trading and funding activities between the Company and other Cendant affiliates.
^(e): Represents amount due from Budget for sublease of vehicles (see Note 2—Vehicles, Net) and certain other administrative expenses.

Included within total expenses on the Company's Consolidated Condensed Statements of Income are the following items charged by Cendant and affiliates, which include allocations from Cendant for services provided to the Company:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Royalties^(a)	$	31,635	$	31,017	$	83,357	$	83,270
Reservations^(a)		12,368		14,050		36,621		43,371
Data processing^(b)		8,841		8,819		25,280		26,559
Rent, corporate overhead allocations and other^(b)		16,689		14,783		48,189		43,862
Interest on amounts due to Cendant Corporation and affiliates, net^(c)		4,134		3,321		11,974		9,679

Total	$	73,667	$	71,990	$	205,421	$	206,741

^(a): Included within selling, general and administration expenses on the Company's Consolidated Condensed Statements of Income. Royalties represent charges to the Company from Cendant for use of the Avis trade name.
^(b): Included within operating expenses on the Company's Consolidated Condensed Statements of Income.
^(c): Included within non-vehicle interest, net on the Company's Consolidated Condensed Statements of Income.

These charges, including corporate overhead allocations by Cendant, are determined in accordance with various intercompany agreements, which are based upon factors such as square footage, employee salaries and computer usage time.

Additionally, Cendant charges the Company a royalty fee of 4.5% of gross revenue, payable quarterly in arrears for the use of its Avis trade name. The contract expires in 2047.

4. Non-Vehicle Debt

Non-vehicle debt consisted of:

	As of September 30, 2003		As of December 31, 2002
11% senior subordinated notes(*)	$	336,853	$	530,146
Other		4,727		4,085

	$	341,580	$	534,231

(*): The change in the balance reflects redemptions of $163 million in face value of these notes (carrying value of $180 million) for $182 million in cash and approximately $13 million related to the amortization of a premium. In connection with such redemptions, the Company recorded a pretax charge of $2 million as a component of non-vehicle interest on the Company's Consolidated Condensed Statement of Income.

These notes contain restrictive covenants, including restrictions on indebtedness of material subsidiaries and mergers and limitations on liens and liquidations, and also require the maintenance of certain financial ratios. At September 30, 2003, the Company was in compliance with all restrictive and financial covenants.

5. Vehicle Debt

Vehicle debt consisted of:

		As of September 30, 2003		As of December 31, 2002
AESOP Funding Program:
	Variable funding rental car asset-backed notes	$	598,600	$	494,000
	Auction rate rental car asset-backed notes		500,000		185,000
	Medium term rental car asset-backed notes		4,833,019		3,349,795
Other			281,287		216,908

		$	6,212,906	$	4,245,703

As of September 30, 2003, the Company's asset-backed funding arrangements under the AESOP Funding Program provided for the issuance of up to $6.7 billion of debt, of which approximately $800 million was available. In addition, the Company had availability of approximately $246 million under other funding arrangements as of September 30, 2003.

Debt Maturities and Covenants

The contractual final maturities of vehicle debt at September 30, 2003 are as follows:

Year	Amount
Within 1 year	$	1,495,959
Between 1 and 2 year		1,445,611
Between 2 and 3 years		1,506,842
Between 3 and 4 years		1,008,333
Between 4 and 5 years		620,545
Thereafter		135,616

	$	6,212,906

Debt under the Company's AESOP Funding Program contains restrictive covenants, including restrictions on dividends paid to the Company by certain of its subsidiaries and indebtedness of material subsidiaries, mergers, limitations on liens, liquidations, and sale and leaseback transactions, and also requires the maintenance of certain financial ratios. At September 30, 2003, the Company was in compliance with all such restrictive and financial covenants.

6. Commitments and Contingencies

The Company is involved in pending litigation in the usual course of business. In the opinion of management, such litigation will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

7. Stockholder's Equity

The components of comprehensive income are summarized as follows:

		Three Months Ended September 30,					Nine Months Ended September 30,
		2003		2002			2003			2002
Net income		$	38,569	$	36,085		$	55,457		$	56,486
Other comprehensive income (loss):
	Currency translation adjustments, net of tax		773		(2,618	)		14,970			1,833
	Unrealized gains (losses) on cash flow hedges, net of tax		17,665		(9,875	)		31,292			(15,755	)
	Minimum pension liability adjustment, net of tax		—		66			(27	)		(1,270	)

Total comprehensive income		$	57,007	$	23,658		$	101,692		$	41,294

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

	Currency Translation Adjustments		Unrealized Gains (Losses) on Cash Flows Hedges			Minimum Pension Liability Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2003	$	1,537	$	(48,963	)	$	(17,785	)	$	(65,211	)
Current period change		14,970		31,292			(27	)		46,235

Balance September 30, 2003	$	16,507	$	(17,671	)	$	(17,812	)	$	(18,976	)

8. Subsequent Event

On October 9, 2003, the Company issued $500 million of rental car asset backed notes under its AESOP Funding Program. Approximately $200 million of such notes mature in December 2006 and bear interest at a fixed rate of 2.78% and approximately $300 million of such notes mature in December 2008 and bear interest at a floating rate of LIBOR plus 38 basis points.

9. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements

The following consolidating condensed financial information presents the Consolidating Condensed Balance Sheets as of September 30, 2003 and December 31, 2002, the Consolidating Condensed Statements of Income for the three and nine months ended September 30, 2003 and September 30, 2002 and the Consolidating Condensed Statements of Income and Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 of: (a) Avis Group Holdings, Inc. ("the Parent"); (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; (d) elimination entries necessary to consolidate the Parent with the guarantor and non-guarantor subsidiaries; and (e) the Company on a consolidated basis.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been provided, as management believes the following information is sufficient.

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF INCOME
For the Three Months Ended September 30, 2003

		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Avis Group Holdings, Inc. Consolidated
Revenues		$	—		$	736,468	$	94,317	$	—		$	830,785

Expenses
	Operating, net		—			245,291		43,290		—			288,581
	Vehicle depreciation and lease charges, net		—			257,756		19,214		—			276,970
	Selling, general and administrative		—			104,588		11,028		—			115,616
	Vehicle interest, net		3,459			62,996		1,876		—			68,331
	Non-vehicle interest, net		6,387			3,539		—		—			9,926
	Non-vehicle depreciation and amortization		240			9,485		793		—			10,518

Total expenses			10,086			683,655		76,201		—			769,942

Income (loss) before equity in earnings of subsidiaries			(10,086	)		52,813		18,116		—			60,843
Equity in earnings of subsidiaries			40,794			11,499		—		(52,293	)		—

Income before income taxes			30,708			64,312		18,116		(52,293	)		60,843
Provision (benefit) for income taxes			(7,861	)		23,518		6,617		—			22,274

Net income		$	38,569		$	40,794	$	11,499	$	(52,293	)	$	38,569

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF INCOME
For the Three Months Ended September 30, 2002

		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Avis Group Holdings, Inc. Consolidated
Revenues		$	—		$	631,805	$	78,751	$	—		$	710,556

Expenses
	Operating, net		—			247,030		32,201		—			279,231
	Vehicle depreciation and lease charges, net		—			160,453		17,646		—			178,099
	Selling, general and administrative		—			107,475		9,191		—			116,666
	Vehicle interest, net		9,459			43,766		1,016		—			54,241
	Non-vehicle interest, net		7,110			3,206		—		—			10,316
	Non-vehicle depreciation and amortization		241			8,846		702		—			9,789

Total expenses			16,810			570,776		60,756		—			648,342

Income (loss) before equity in earnings of subsidiaries			(16,810	)		61,029		17,995		—			62,214
Equity in earnings of subsidiaries			41,450			10,437		—		(51,887	)		—

Income before income taxes			24,640			71,466		17,995		(51,887	)		62,214
Provision (benefit) for income taxes			(11,445	)		30,016		7,558		—			26,129

Net income		$	36,085		$	41,450	$	10,437	$	(51,887	)	$	36,085

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF INCOME
For the Nine Months Ended September 30, 2003

		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Avis Group Holdings, Inc. Consolidated
Revenues		$	—		$	1,928,620	$	236,420	$	—		$	2,165,040

Expenses
	Operating, net		—			686,438		113,312		—			799,750
	Vehicle depreciation and lease charges, net		—			638,473		52,110		—			690,583
	Selling, general and administrative		—			307,430		31,136		—			338,566
	Vehicle interest, net		10,377			172,666		3,098		—			186,141
	Non-vehicle interest, net		20,731			10,099		—		—			30,830
	Non-vehicle depreciation and amortization		720			28,540		2,301		—			31,561

Total expenses			31,828			1,843,646		201,957		—			2,077,431

Income (loss) before equity in earnings of subsidiaries			(31,828	)		84,974		34,463		—			87,609
Equity in earnings of subsidiaries			67,597			21,815		—		(89,412	)		—

Income before income taxes			35,769			106,789		34,463		(89,412	)		87,609
Provision (benefit) for income taxes			(19,688	)		39,192		12,648		—			32,152

Net income		$	55,457		$	67,597	$	21,815	$	(89,412	)	$	55,457

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF INCOME
For the Nine Months Ended September 30, 2002

		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Avis Group Holdings, Inc. Consolidated
Revenues		$	—		$	1,730,792	$	194,998	$			$	$1,925,790

Expenses
	Operating, net		—			669,925		89,707		—			759,632
	Vehicle depreciation and lease charges, net		—			450,263		49,087		—			499,350
	Selling, general and administrative		—			328,804		24,722		—			353,526
	Vehicle interest, net		10,377			144,290		1,560		—			156,227
	Non-vehicle interest, net		22,425			9,509		—		—			31,934
	Non-vehicle depreciation and amortization		720			24,765		2,247		—			27,732

Total expenses			33,522			1,627,556		167,323		—			1,828,401

Income (loss) before equity in earnings of subsidiaries			(33,522	)		103,236		27,675		—			97,389
Equity in earnings of subsidiaries			69,187			16,051		—		(85,238	)		—

Income before income taxes			35,665			119,287		27,675		(85,238	)		97,389
Provision (benefit) for income taxes			(20,821	)		50,100		11,624		—			40,903

Net income		$	56,486		$	69,187	$	16,051	$	(85,238	)	$	56,486

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
September 30, 2003

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Avis Group Holdings, Inc. Consolidated
Assets
	Cash and cash equivalents	$	135		$	14,111		$	21,378		$	—		$	35,624
	Restricted cash		—			(278	)		79,018			—			78,740
	Receivables, net		—			150,201			39,640			—			189,841
	Deferred income taxes		157,713			357,413			8,559			—			523,685
	Property and equipment, net		—			261,294			16,363			—			277,657
	Investment in consolidated subsidiaries		869,386			690,717			—			(1,560,103	)		—
	Goodwill		801,243			449,760			4,153			—			1,255,156
	Other assets		14,340			79,256			29,112			—			122,708

Total assets exclusive of assets under management programs			1,842,817			2,002,474			198,223			(1,560,103	)		2,483,411

Assets under management programs:
	Program cash		—			126			74,352			—			74,478
	Vehicles, net		—			(104,050	)		6,017,647			—			5,913,597
	Due from vehicle manufacturers		—			3,232			547,864			—			551,096

			—			(100,692	)		6,639,863			—			6,539,171

Total assets		$	1,842,817		$	1,901,782		$	6,838,086		$	(1,560,103	)	$	9,022,582

Liabilities and stockholder's equity
Liabilities:
	Accounts payable	$	(89,449	)	$	527,100		$	(123,127	)	$	—		$	314,524
	Accrued liabilities		14,242			344,158			37,041			—			395,441
	Due to (from) Cendant Corporation and affiliates, net		1,127,418			(38,143	)		(308,262	)		—			781,013
	Non-vehicle debt		336,853			4,727			—			—			341,580
	Public liability, property damage and other insurance liabilities		—			140,868			94,609			—			235,477

Total liabilities exclusive of liabilities under management programs			1,389,064			978,710			(299,739	)		—			2,068,035

Liabilities under management programs:
	Vehicle debt		—			52,267			6,160,639			—			6,212,906
	Deferred income taxes		6,688			1,419			286,469			—			294,576

			6,688			53,686			6,447,108			—			6,507,482

Stockholder's equity			447,065			869,386			690,717			(1,560,103	)		447,065

Total liabilities and stockholder's equity		$	1,842,817		$	1,901,782		$	6,838,086		$	(1,560,103	)	$	9,022,582

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2002

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Avis Group Holdings, Inc. Consolidated
Assets
	Cash and cash equivalents	$	69		$	10,886		$	14,297		$	—		$	25,252
	Restricted cash		—			—			59,012			—			59,012
	Receivables, net		—			122,436			36,294			—			158,730
	Deferred income taxes		157,713			315,856			7,766			—			481,335
	Property and equipment, net		—			264,091			14,739			—			278,830
	Investment in consolidated subsidiaries		746,729			664,644			—			(1,411,373	)		—
	Goodwill		801,243			449,760			3,398			—			1,254,401
	Other assets		15,059			56,016			34,240			—			105,315

Total assets exclusive of assets under management programs			1,720,813			1,883,689			169,746			(1,411,373	)		2,362,875

Assets under management programs:
	Program cash		—			83			2,379			—			2,462
	Vehicles, net		—			(102,326	)		4,276,173			—			4,173,847
	Due from vehicle manufacturers		—			20,758			237,701			—			258,459

			—			(81,485	)		4,516,253			—			4,434,768

Total assets		$	1,720,813		$	1,802,204		$	4,685,999		$	(1,411,373	)	$	6,797,643

Liabilities and stockholder's equity
Liabilities:
	Accounts payable	$	(78,584	)	$	418,917		$	(134,606	)	$	—		$	205,727
	Accrued liabilities		8,683			379,090			27,236			—			415,009
	Due to (from) Cendant Corporation and affiliates, net		908,508			11,997			(368,696	)		—			551,809
	Non-vehicle debt		530,146			4,085			—			—			534,231
	Public liability, property damage and other insurance liabilities		—			142,423			69,363			—			211,786

Total liabilities exclusive of liabilities under management programs			1,368,753			956,512			(406,703	)		—			1,918,562

Liabilities under management programs:
	Vehicle debt		—			97,544			4,148,159			—			4,245,703
	Deferred income taxes		6,687			1,419			279,899			—			288,005

			6,687			98,963			4,428,058			—			4,533,708

Stockholder's equity			345,373			746,729			664,644			(1,411,373	)		345,373

Total liabilities and stockholder's equity		$	1,720,813		$	1,802,204		$	4,685,999		$	(1,411,373	)	$	6,797,643

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2003

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Avis Group Holdings, Inc. Consolidated
Operating Activities
Net income		$	55,457		$	67,597		$	21,815		$	(89,412	)	$	55,457
	Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs		(24,793	)		62,029			(27,674	)		—			9,562
Investment in subsidiaries			(67,597	)		(21,815	)		—			89,412			—

Net cash provided by (used in) operating activities exclusive of management programs			(36,933	)		107,811			(5,859	)		—			65,019

Management programs:
	Vehicle depreciation		—			601,034			44,658			—			645,692

Net cash provided by (used in) operating activities			(36,933	)		708,845			38,799			—			710,711

Investing Activities
Property and equipment additions			—			(35,521	)		(2,997	)		—			(38,518	)
Proceeds from sales of property and equipment			—			10,818			1,582			—			12,400
Payment for purchase of rental car franchise licensees			—			—			(208	)		—			(208	)

Net cash used in investing activities exclusive of management programs			—			(24,703	)		(1,623	)		—			(26,326	)

Management programs:
	Increase in program cash		—			(43	)		(71,973	)		—			(72,016	)
	Decrease (increase) in due from vehicle manufacturers		—			17,526			(306,770	)		—			(289,244	)
	Investment in vehicles		—			(48,716	)		(7,351,692	)		—			(7,400,408	)
	Payments received (made) on investment in vehicles		—			(586,973	)		5,643,543			—			5,056,570

			—			(618,206	)		(2,086,892	)		—			(2,705,098	)

Net cash used in investing activities			—			(642,909	)		(2,088,515	)		—			(2,731,424	)

Financing Activities
Principal payments on borrowings			(181,912	)		(365	)		—			—			(182,277	)
Increase (decrease) in due to Cendant Corporation and affiliates, net			218,911			(50,140	)		67,285			—			236,056

Net cash provided by (used in) financing activities exclusive of management programs			36,999			(50,505	)		67,285			—			53,779

Management programs:
	Net increase in borrowings		—			—			1,989,026			—			1,989,026
	Payments for debt issuance costs		—			(12,206	)		—			—			(12,206	)

			—			(12,206	)		1,989,026			—			1,976,820

Net cash provided by (used in) financing activities			36,999			(62,711	)		2,056,311			—			2,030,599

Effect of changes in exchange rates on cash and cash equivalents			—			—			486			—			486

Net increase in cash and cash equivalents			66			3,225			7,081			—			10,372
Cash and cash equivalents, beginning of period			69			10,886			14,297			—			25,252

Cash and cash equivalents, end of period		$	135		$	14,111		$	21,378		$	—		$	35,624

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2002

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Avis Group Holdings, Inc. Consolidated
Operating Activities
Net income		$	56,486		$	69,187		$	16,051		$	(85,238	)	$	56,486
	Adjustments to reconcile net income to net cash provided by (used in) operating activities exclusive of management programs		(32,822	)		(71,742	)		141,249			—			36,685
Investment in subsidiaries			(69,187	)		(16,051	)		—			85,238			—

Net cash provided by (used in) operating activities exclusive of management programs			(45,523	)		(18,606	)		157,300			—			93,171

Management programs:
	Vehicle depreciation		—			444,725			34,193			—			478,918

Net cash provided by (used in) operating activities			(45,523	)		426,119			191,493			—			572,089

Investing Activities
Property and equipment additions			—			(36,380	)		(1,863	)		—			(38,243	)
Proceeds from sales of property and equipment			—			2,974			803			—			3,777
Payment for purchase of rental car franchise licensees			—			(2,835	)		(264	)		—			(3,099	)

Net cash used in investing activities exclusive of management programs			—			(36,241	)		(1,324	)		—			(37,565	)

Management programs:
	Decrease in program cash		—			9,239			316,696			—			325,935
	Increase in due from vehicle manufacturers		—			(1,602	)		(148,482	)		—			(150,084	)
	Investment in vehicles		—			(131,724	)		(4,256,608	)		—			(4,388,332	)
	Payments received (made) on investment in vehicles		—			(350,194	)		3,559,775			—			3,209,581

			—			(474,281	)		(528,619	)		—			(1,002,900	)

Net cash used in investing activities			—			(510,522	)		(529,943	)		—			(1,040,465	)

Financing Activities
Net decrease in non-vehicle debt			(10,900	)		(370	)		—			—			(11,270	)
Increase (decrease) in due to Cendant Corporation and affiliates, net			56,566			91,414			(127,038	)		—			20,942

Net cash provided by (used in) financing activities exclusive of management programs			45,666			91,044			(127,038	)		—			9,672

Management programs:
	Net increase in borrowings		—			—			469,728			—			469,728
	Payments for debt issuance costs		—			(5,369	)		—			—			(5,369	)

			—			(5,369	)		469,728			—			464,359

Net cash provided by financing activities			45,666			85,675			342,690			—			474,031

Effect of changes in exchange rates on cash and cash equivalents			—			—			199			—			199

Net increase in cash and cash equivalents			143			1,272			4,439			—			5,854
Cash and cash equivalents, beginning of period			18			5,210			8,083			—			13,311

Cash and cash equivalents, end of period		$	161		$	6,482		$	12,522		$	—		$	19,165

Item 2. Management's Narrative Analysis of the Results of Operations

The following discussion should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes thereto included elsewhere herein and with our 2002 Annual Report on Form 10-K filed with the Commission on March 6, 2003. Unless otherwise noted, all dollar amounts are in thousands.

We are one of the largest car rental companies in the world and a wholly-owned subsidiary of Cendant Corporation.

Our comparative results of operations for the three months ended September 30, 2003 and 2002 comprised the following:

	2003		2002		Change
Revenues	$	830,785	$	710,556	$	120,229
Total expenses		769,942		648,342		121,600

Income before income taxes		60,843		62,214		(1,371	)
Provision for income taxes		22,274		26,129		(3,855	)

Net income	$	38,569	$	36,085	$	2,484

Total revenues and expenses increased 16.9% and 18.8%, respectively, primarily due to our subleasing arrangement with Budget Rent A Car System, Inc., a wholly-owned subsidiary of Cendant not within our ownership structure. We sublease a portion of our fleet to Budget for a monthly fee comprised of depreciation, interest and an administrative fee. As a result of this relationship, we generated incremental revenues and expenses of $129.6 million and $128.7 million (consisting of vehicle depreciation expense of $103.1 million and vehicle interest expense of $25.6 million), respectively. Excluding such amounts, domestic car rental revenues declined $25.8 million (4.1%) in the third quarter 2003 compared with the third quarter 2002. The net reduction in domestic car rental revenues was primarily due to a 5.0% quarter-over-quarter reduction in domestic car rental days, which was partially offset by a 2.2% increase in time and mileage revenue per domestic rental day, reflecting an increase in pricing which has minimal associated incremental costs. In addition, quarter-over-quarter expenses include favorable interest costs of $9.1 million on the financing of vehicles due to lower interest rates, which were offset by increased vehicle-related net expenses primarily due to incremental maintenance costs and damages. Despite reduced revenue domestically, revenues from our international operations increased $16.4 million due to increased car rental transaction volume and pricing and the favorable impact to revenues of foreign exchange rates, principally in Australia, New Zealand and Canada (principally offset by the unfavorable impact on expenses).

Our overall effective tax rate was 36.6% and 42.0% for the three months ended September 30, 2003 and 2002, respectively. The effective tax rate for the third quarter of 2003 was lower primarily due to foreign and state taxes.

Our comparative results of operations for the nine months ended September 30, 2003 and 2002 comprised the following:

	2003		2002		Change
Revenues	$	2,165,040	$	1,925,790	$	239,250
Total expenses		2,077,431		1,828,401		249,030

Income before income taxes		87,609		97,389		(9,780	)
Provision for income taxes		32,152		40,903		(8,751	)

Net income	$	55,457	$	56,486	$	(1,029	)

Total revenues and expenses increased 12.4% and 13.6%, respectively, primarily due to our subleasing arrangement with Budget, as discussed above. As a result of this relationship, we generated incremental revenues and expenses of $288.3 million and $282.2 million (consisting of vehicle depreciation expense of $222.9 million and vehicle interest expense of $59.3 million), respectively. Excluding such amounts, domestic car rental revenues declined $87.2 million (5.0%) in the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002. The net reduction in domestic car rental revenues was primarily due to a 6.0% period-over-period reduction in domestic car rental days, which was partially offset by a 1.9% increase in time and mileage revenue per domestic rental day reflecting an increase in pricing which has minimal associated incremental costs. In addition, period-over-period expenses includes favorable interest costs of $27.1 million on the financing of vehicles due to lower interest rates, which were offset by incremental vehicle-related net expenses. The increase in vehicle-related net expenses includes incremental maintenance costs, damages on vehicles and a decline in gas reimbursements from our car rental customers and higher vehicle license and registration costs. Despite reduced revenue domestically, revenues from our international operations increased $38 million, due to increased transaction volume and the favorable impact to revenues (principally offset by an unfavorable impact on expenses) of foreign exchange rates, principally in Australia, New Zealand and Canada.

Our overall effective tax rate was 36.7% and 42.0% for the nine months ended September 30, 2003 and 2002, respectively. The effective tax rate for the nine months ended September 30, 2003 was lower primarily due to foreign and state taxes.

ACCOUNTING POLICIES

We operate in an environment where we are paid a fee for a service performed. Therefore, the results of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex. However, in presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions that we are required to make pertain to matters that are inherently uncertain as they relate to future events. Presented within the section entitled "Critical Accounting Policies" of our 2002 Annual Report on Form 10-K are the accounting policies that we believe require subjective and/or complex judgments that could potentially affect reported results (financial instruments and goodwill and other intangible assets). There have not been any significant changes to those accounting policies or to our assessment of which accounting policies that we would consider to be critical accounting policies with the exception of our current application of FIN 46 to specific entities as discussed in Note 1 to our Consolidated Condensed Financial Statements. From time to time, we evaluate the estimates used in recording goodwill in connection with the acquisition of a business. In certain circumstances, those estimates may be based upon preliminary or outdated information. Accordingly, the allocation to goodwill is subject to revision when we receive new information. Revisions to the estimates are recorded as further adjustments to goodwill or within the Consolidated Condensed Statements of Income, as appropriate.

On January 1, 2003, Cendant adopted the fair value method of accounting for stock-based compensation provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" and all the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." As a result, our financial statements beginning on January 1, 2003 reflect compensation expense for all stock-based compensation, including common stock options granted by Cendant as such expense is now allocated to us by Cendant.

In addition, on January 1, 2003, we adopted the following standards as a result of the issuance of new accounting pronouncements by the Financial Accounting Standards Board ("FASB") in 2002:

•: SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
•: SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
•: FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others"

On January 17, 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." As of September 30, 2003, we have applied the provisions of this Interpretation for all transactions initiated subsequent to January 31, 2003. We are currently assessing the application of this Interpretation to certain entities and are awaiting the additional clarification that the FASB is expected to provide prior to December 31, 2003.

During 2003, the FASB also issued the following literature, which we have adopted as of July 1, 2003:

•: SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities"

For more detailed information regarding any of these pronouncements and the impact thereof on our business, see Note 1 to our Consolidated Condensed Financial Statements.

Item 3. Quantitative And Qualitative Disclosure About Market Risks

As previously discussed in our 2002 Annual Report on Form 10-K, we assess our market risk based on changes in interest and foreign currency exchange rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values, and cash flows based on a hypothetical 10% change (increase and decrease) in our market risk sensitive positions. We used September 30, 2003 market rates to perform a sensitivity analysis separately for each of our market risk exposures. The estimates assume instantaneous, parallel shifts in interest rate yield curves and exchange rates. We have determined, through such analyses, that the impact of a 10% change in interest and foreign currency exchange rates and prices on our earnings, fair values and cash flows would not be material.

Item 4. Controls and Procedures

(a): Disclosure Controls and Procedures. Our management, with the participation of our President and Senior Vice President and Controller, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this quarterly report. Based on such evaluation, our President and Senior Vice President and Controller have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.
(b): Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

See Exhibit Index

(b) Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		AVIS GROUP HOLDINGS, INC.
		/s/ KEVIN M. SHEEHAN Kevin M. Sheehan President
		/s/ KURT FREUDENBERG Kurt Freudenberg Senior Vice President and Controller
Date: November 13, 2003

EXHIBIT INDEX

Exhibit No.		Description
3.1		Certificate of Incorporation of Avis Rent A Car, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 333-46737, dated February 23, 1998).
3.2		By-Laws of Avis Group Holdings, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 333-46737, dated February 23, 1998).
10.1		Series 2003-1 Supplement, dated as of August 5, 2003, to the Amended and Restated Trust Indenture, dated as of June 30, 1997, between BNY Trust Company of Canada in its capacity as Trustee of Stars Trust and Computershare Trust Company of Canada.
12		Statement Re: Computation of Ratio of Earnings to Fixed Charges.
31.1		Certification of President Pursuant to Rules 13a-14(a) and 15d-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended.
31.2		Certification of Senior Vice President and Controller Pursuant to Rules 13a-14(a) and 15d-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended.
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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AVIS GROUP HOLDINGS INC 10-Q