Avis Budget Group: SEC Filing

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Item-8.01

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_________________

FORM 8-K

_________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): May 12, 2014 (May 12, 2014)

_________________

Avis Budget Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

_________________



Delaware	001-10308	06-0918165
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)



6 Sylvan Way Parsippany, NJ	07054
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (973) 496-4700

N/A

(Former name or former address if changed since last report)

_________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01 Other Events

Avis Budget Group, Inc. (the “Company”) is filing this Current Report on Form 8-K to recast certain prior period amounts to conform with the segment reporting changes made in connection with the change in our management structure, as well as to disclose a revision to our definition of Adjusted EBITDA, with respect to the financial information contained in our Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 Form 10-K”).

During the first quarter of 2014, we changed our management structure and revised our definition of Adjusted EBITDA to exclude restructuring expense. As a result, the financial results of the Company’s Zipcar operations outside of North America are now reported in the Company’s International segment, rather than in the Company’s North America segment. In addition, Adjusted EBITDA now represents income from continuing operations before non-vehicle related depreciation and amortization, any impairment charge, restructuring expense, early extinguishment of debt costs, transaction-related costs, non-vehicle related interest and income taxes. We began to report comparative results under the new organization structure with the filing of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

The rules of the Securities and Exchange Commission require that when a registrant prepares, on or after the date a registrant reports an accounting change such as the changes noted above, a new registration, proxy or information statement (or amends a previously filed registration, proxy, or information statement) that includes or incorporates by reference financial statements, the registrant must recast the prior period financial statements included or incorporated by reference in the registration, proxy or information statement to reflect these types of changes. Accordingly, the Company is filing this Form 8-K to recast our consolidated financial statements as of December 31, 2013 and 2012 and for each of the three years in the period ended December 31, 2013, to reflect the changes in segment reporting and our definition of Adjusted EBITDA, as described above. The recast of Items contained in the Company’s 2013 Form 10-K is presented in Exhibits 99.1, 99.2, 99.3 and 99.4 to this Form 8-K.

The information included in this Form 8-K is presented for informational purposes only in connection with the reporting changes described above and does not amend or restate any of our previously issued financial statements, which were included in our 2013 Form 10-K. In particular, there have been no changes to the Company’s consolidated results of operations, balance sheets or statements of cash flows. This Form 8-K does not reflect events occurring after we filed our 2013 Form 10-K and does not modify or update the disclosures therein in any way, other than to illustrate the realignment of our management structure and the revision our definition of Adjusted EBITDA. For significant developments which have occurred subsequent to the filing of the 2013 Form 10-K, refer to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.







By	/s/ David Calabria
	David Calabria Vice President and Chief Accounting Officer May 12, 2014

Exhibit Index



Exhibit No.	Description
23.1	CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
99.1	UPDATES, WHERE APPLICABLE, TO PART I, ITEM 1. REVISED SELECTED BUSINESS DISCUSSION
99.2	REVISED SELECTED FINANCIAL DATA
99.3	REVISED MANAGEMENT’S DISCUSSION AND ANALYSIS
99.4	REVISED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING FOOTNOTES
99.5	UPDATED REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	XBRL Taxonomy Extension Definition Linkbase.
101.LAB	XBRL Taxonomy Extension Label Linkbase.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase.

Ex-23.1 Consent of Independent Registered Public Accountign Firm

EX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 33-91656, 333-78475, 333-38638, 333-58670, 333-98933, 333-114744, 333-124925, 333-144143 and 333-161418 on Form S-8 of our report dated February 20, 2014 (May 12, 2014 as to the effects of the segment changes described in Note 1 and 20), relating to the consolidated financial statements of Avis Budget Group, Inc. and subsidiaries, appearing in this Current Report on Form 8-K dated May 12, 2014 of Avis Budget Group, Inc. and subsidiaries for the year ended December 31, 2013.

/s/ Deloitte & Touche LLP

New York, NY

May 12, 2014

Ex-99.1 Revised Selected Business Discussion

EX-99.1 REVISED SELECTED BUSINESS DISCUSSION

PART I

ITEM 1. BUSINESS

Note: The information contained in this Item has been updated for the change to reportable segments discussed in the Notes to the Consolidated Financial Statements. This Item has not been updated for any other changes since the filing of the 2013 Annual Report on Form 10-K. For significant developments since the filing of the 2013 Form 10-K, refer to Avis Budget Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

SEGMENT INFORMATION

We categorize our operations into three reporting segments:


•	North America, provides car rentals in the United States and vehicle rentals in Canada, as well as ancillary products and services, and operates the Company’s Zipcar car sharing business in North America;


•	International, provides and licenses the Company’s brands to third parties for vehicle rentals and ancillary products and services primarily in Europe, the Middle East, Africa, Asia, South America, Central America, the Caribbean, Australia and New Zealand; and operates the Company’s car sharing business in certain of these markets.


•	Truck Rental, provides truck rentals and ancillary products and services to consumers and commercial users in the United States.

The following table presents key operating metrics for each of our three reporting segments:



	Total 2013 Rental Days	Average 2013 Time and Mileage (“T&M”) Revenue per Day	Average 2013 Rental Fleet Size
North America ^(a)	89 million	$40.55	342,000
International ^(a)	37 million	$42.48	145,000
Truck Rental	4 million	$76.85	25,000
	130 million		512,000

________

^(a) Excluding Zipcar.

The following graphs present the composition of our rental days and our average rental fleet in 2013, by segment:



	Composition of				Composition of
	2013 Rental Days				2013 Rental Fleet

Our North America segment includes the financial results of Zipcar and Payless since our acquisition of each

business in March 2013 and July 2013, respectively. Our International segment includes the financial results of Zipcar since our acquisition in March 2013. Financial data for our segments and geographic areas are reported in Note 20-Segment Information to our Consolidated Financial Statements included in Item 15(A)(1) of this Report on Form 8-K.

Ex-99.2 Revised Selected Financial Data

EX-99.2 REVISED SELECTED FINANCIAL DATA

ITEM 6. SELECTED FINANCIAL DATA

Note: The information contained in this Item has been updated for the change to the definition of Adjusted EBITDA, as discussed in the Notes to the Consolidated Financial Statements. This Item has not been updated for any other changes since the filing of the 2013 Annual Report on Form 10-K. For significant developments since the filing of the 2013 Form 10-K, refer to Avis Budget Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.



		As of or For the Year Ended December 31,
		2013		2012		2011			2010		2009
				(In millions, except per share data)
Results of Operations
Net revenues		$	7,937	$	7,357	$	5,900		$	5,185	$	5,131

Net income (loss)		$	16	$	290	$	(29	)	$	54	$	(47	)

Adjusted EBITDA ^(a)		$	769	$	840	$	610		$	409	$	225

Earnings (loss) Per Share
	Basic	$	0.15	$	2.72	$	(0.28	)	$	0.53	$	(0.46	)
	Diluted	0.15		2.42		(0.28		)	0.49		(0.46		)

Financial Position
Total assets		$	16,284	$	15,218	$	12,938		$	10,327	$	10,093
Assets under vehicle programs		10,452		10,099		9,090			6,865		6,522
Corporate debt		3,394		2,905		3,205			2,502		2,131
Debt under vehicle programs ^(b)		7,337		6,806		5,564			4,515		4,374
Stockholders’ equity		771		757		412			410		222

__________

^(a)

The following table reconciles Adjusted EBITDA to Net income (loss) within our Selected Financial Data, which we define as income from continuing operations before non-vehicle related depreciation and amortization, any impairment charge, restructuring expense, early extinguishment of debt costs, non-vehicle related interest, transaction-related costs and income taxes. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.



	For the Year Ended December 31,
	2013		2012		2011			2010		2009
Adjusted EBITDA	$	769	$	840	$	610		$	409	$	225
Less: Non-vehicle related depreciation and amortization	152		125		95			90		96
Interest expense related to corporate debt, net	228		268		219			170		153
Early extinguishment of debt	147		75		—			52		—
Restructuring expense	61		38		5			11		20
Transaction-related costs	51		34		255			14		—
Impairment	33		—		—			—		33
Income (loss) before income taxes	97		300		36			72		(77		)
Provision for (benefit from) income taxes	81		10		65			18		(30		)
Net income (loss)	$	16	$	290	$	(29	)	$	54	$	(47	)

__________


^(b)	Includes related-party debt due to Avis Budget Rental Car Funding (AESOP) LLC (“Avis Budget Rental Car Funding”). See Note 14 to our Consolidated Financial Statements.

In presenting the financial data above in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported. See “Critical Accounting Policies” under Item 7 of this Report on Form 8-K for a detailed discussion of the accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

TRANSACTION RELATED-COSTS, RESTRUCTURING AND OTHER ITEMS

During 2013, 2012, 2011 and 2010, we recorded $51 million, $34 million, $255 million and $14 million, respectively, of transaction-related costs, primarily related to our acquisition of Avis Europe and Zipcar, the integration of acquired businesses with our operations and expenses related to our previous efforts to acquire Dollar Thrifty Automotive Group, Inc. (“Dollar Thrifty”). In 2013, these costs were primarily related to the acquisition of Zipcar and the integration of acquired businesses. During 2012, these costs were primarily related to the integration of Avis Europe’s operations with the Company’s. In 2011, these costs included (i) a $117 million non-cash charge related to the unfavorable license rights reacquired by the Company through the acquisition of Avis Europe, which provided Avis Europe with royalty-free license rights within certain territories, (ii) $89 million of expenses related to due-diligence, advisory and other costs, and (iii) $49 million for losses on foreign-currency transactions related to the Avis Europe purchase price. In 2010, these costs related to due-diligence and other cost for our previous efforts to acquire Dollar Thrifty. See Notes 2 and 5 to our Consolidated Financial Statements.

In 2012, we implemented a restructuring initiative related to our Truck Rental segment, and in 2011, we implemented a restructuring initiative subsequent to the acquisition of Avis Europe. In 2010 and 2009, we implemented cost-reduction and efficiency improvement plans to reduce costs, enhance organizational efficiency and consolidate and rationalize existing processes and facilities. We recorded expenses related to these and other restructuring initiatives of $61 million in 2013, $38 million in 2012, $5 million in 2011, $11 million in 2010, and $20 million in 2009. See Note 4 to our Consolidated Financial Statements.

In 2013, 2012 and 2010, we recorded $147 million, $75 million, and $52 million, respectively, of expense related to the early extinguishment of corporate debt.

In 2013, we recorded a charge of $33 million ($33 million, net of tax) for the impairment of our equity-method investment in our Brazilian licensee. In 2009, we recorded a $33 million ($20 million, net of tax) non-cash charge for the impairment of investments, to reflect the other-than-temporary decline of the investments’ fair value below their carrying value.

Ex-99.3 Revised Management's Discussion and Analysis of Financial Condition and Results of Operations

EX-99.3 REVISED MANAGEMENT’S DISCUSSION AND ANALYSIS



ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
	OPERATIONS

Note: The information contained in this Item includes changes related to reportable segments, as well as a revision to the definition of Adjusted EBITDA, as discussed in the Notes to the Consolidated Financial Statements. This Item has not been updated for any other changes since the filing of the 2013 Annual Report on Form 10-K. For significant developments since the filing of the 2013 Form 10-K, refer to Avis Budget Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

The following discussion should be read in conjunction with our Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein. Unless otherwise noted, all dollar amounts in tables are in millions and those relating to our results of operations are presented before taxes.

OVERVIEW

OUR COMPANY

We operate three of the most recognized brands in the global vehicle rental and car sharing industry, Avis, Budget and Zipcar. We are a leading vehicle rental operator in North America, Europe, Australia, New Zealand and certain other regions we serve, with a fleet of more than 500,000 vehicles. We also license the use of the Avis and Budget trademarks to licensees in the areas in which we do not operate directly. We and our licensees operate the Avis, Budget and/or Zipcar brands in approximately 175 countries throughout the world.

OUR SEGMENTS

We categorize our operations into three reportable business segments: North America, International, and Truck Rental, as discussed in Item 1 to this Report on Form 8-K.

BUSINESS AND TRENDS

Our revenues are derived principally from car and truck rentals in our Company-owned operations and include:


•	time and mileage (“T&M”) fees charged to our customers for vehicle rentals;


•	payments from our customers with respect to certain operating expenses we incur, including gasoline and vehicle licensing fees, as well as concession fees, which we pay in exchange for the right to operate at airports and other locations;


•	sales of loss damage waivers and insurance and rentals of navigation units and other items in conjunction with vehicle rentals; and


•	royalty revenue from our licensees in conjunction with their vehicle rental transactions.

Our operating results are subject to variability due to seasonality, macroeconomic conditions and other factors. Car rental volumes tend to be associated with the travel industry, particularly airline passenger volumes, or enplanements, which in turn tend to reflect general economic conditions. Our vehicle rental operations are also seasonal, with the third quarter of the year historically having been our strongest due to the increased level of leisure travel during such quarter. We have a partially variable cost structure and routinely adjust the size, and therefore the cost, of our rental fleet in response to fluctuations in demand.

We believe that the following factors, among others, may affect and/or impact our financial condition and results of operations:


•	worldwide enplanements;


•	fleet, pricing, marketing and strategic decisions made by us and by our competitors;


•	changes in fleet costs and in conditions in the used vehicle marketplace;


•	changes in borrowing costs and in market willingness to purchase corporate and vehicle-related debt;


•	our acquisitions, our integration of acquired operations and our realization of synergies, particularly with respect to Zipcar and Avis Europe;


•	demand for car sharing services;


•	changes in the price of gasoline;


•	changes in currency exchange rates; and


•	demand for truck rentals.

We continue to operate in an uncertain economic environment, which impacted our business in 2013 and will continue to do so. Nonetheless, we anticipate that worldwide demand for vehicle rental and car sharing services will increase in 2014, most likely against a backdrop of modest economic growth in most of the geographic markets in which we operate directly. We also expect that our access to new fleet vehicles will be adequate to meet our needs for both replacement of existing vehicles in the normal course and for growth to meet incremental demand. We experienced declines in realized pricing from 2009 to 2012, and we took actions in 2013 that helped achieve a modest increase in realized pricing. We will look to pursue opportunities for further pricing increases in 2014 in order to maintain our returns on invested capital and to enhance our profitability.

Our objective in 2014 is to focus on growing our business profitably, strengthening our position as a leading

global provider of vehicle rental services, continuing to enhance the quality of vehicle rental services that we

provide to customers, and maintaining and enhancing efficiencies achieved through process improvement and

other actions. We operate in a highly competitive industry and we expect to continue to face challenges and risks. We seek to mitigate our exposure to risks in numerous ways, including delivering upon the core strategic initiatives described above and through continued optimization of fleet levels to match changes in demand for vehicle rentals, maintenance of liquidity to fund our fleet and our operations, and adjustments in the size, nature and terms of our relationships with vehicle manufacturers.

2013 HIGHLIGHTS

In 2013, we achieved record transaction volumes and revenues and had the second-highest Adjusted EBITDA in our history:


•	Our net revenues increased 8% year-over-year to $7.9 billion in 2013, primarily due to a 3% increase in Avis and Budget rental days, as well as the acquisitions of Zipcar and Payless Car Rental (“Payless”).


•	Pricing (our average T&M revenue per rental day) increased 1% in North America, excluding Zipcar and Payless, driven by a 3% increase in leisure pricing.


•	Adjusted EBITDA totaled $769 million in 2013, which represents an 8% decline from $840 million in 2012 primarily due to higher fleet costs in North America.


•	We completed the acquisition of Zipcar, the world’s leading car sharing network, in March 2013.


•	We repurchased $62 million principal amount of our outstanding 3½% Convertible Senior Notes due 2014 and $50 million of our common stock, reducing our diluted shares outstanding by approximately 5.4 million shares.


•	We completed the acquisition of Payless, the sixth largest car rental company in North America, in July 2013.


•	We acquired a 50% ownership stake in our Brazilian licensee for Avis and Budget in August 2013.


•	Our share price increased 104% to $40.42.

RESULTS OF OPERATIONS

We measure performance using the following key operating statistics: (i) rental days, which represents the total number of days (or portion thereof) a vehicle was rented, and (ii) T&M revenue per rental day, which represents the average daily revenue we earned from rental and mileage fees charged to our customers. We also measure our ancillary revenues (rental-transaction revenue other than T&M revenue), such as from the sale of collision and loss damage waivers, insurance products, fuel service options and portable GPS navigation unit rentals. Our vehicle rental operating statistics (rental days and T&M revenue per rental day) are all calculated based on the actual rental of the vehicle during a 24-hour period. We believe that this methodology, while conservative, provides our management with the most relevant statistics in order to manage the business. Our calculation may not be comparable to other companies’ calculation of similarly-titled statistics.

We assess performance and allocate resources based upon the separate financial information of our operating segments. In identifying our reportable segments, we also consider the nature of services provided by our operating segments, the geographical areas in which our segments operate and other relevant factors. Management evaluates the operating results of each of our reportable segments based upon revenue and “Adjusted EBITDA”, which we define as income from continuing operations before non-vehicle related depreciation and amortization, any impairment charge, restructuring expense, early extinguishment of debt costs, non-vehicle related interest, transaction-related costs and income taxes. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

Year Ended December 31, 2013 vs. Year Ended December 31, 2012

Our consolidated results of operations comprised the following:



			Year Ended December 31,
			2013		2012		Change			% Change
Revenues
	Vehicle rental		$	5,707	$	5,297	$	410		8	%
	Other		2,230		2,060		170			8	%
Net revenues			7,937		7,357		580			8	%

Expenses
	Operating		4,074		3,824		250			7	%
	Vehicle depreciation and lease charges, net		1,811		1,471		340			23	%
	Selling, general and administrative		1,019		925		94			10	%
	Vehicle interest, net		264		297		(33		)	(11	%)
	Non-vehicle related depreciation and amortization		152		125		27			22	%
	Interest expense related to corporate debt, net:
		Interest expense	228		268		(40		)	(15	%)
		Early extinguishment of debt	147		75		72			96	%
	Restructuring expense		61		38		23			61	%
	Transaction-related costs		51		34		17			50	%
	Impairment		33		—		33			*
Total expenses			7,840		7,057		783			11	%

Income before income taxes			97		300		(203		)	(68	%)
Provision for income taxes			81		10		71			*

Net income			$	16	$	290	$	(274	)	(94	%)

__________


*	Not meaningful.

During 2013, our net revenues increased principally as a result of a 3% increase in total rental days (excluding acquisitions), $246 million of revenue from Zipcar and $44 million of revenue from Payless. Movements in currency exchange rates had virtually no effect on revenues in 2013 compared to 2012.

Total expenses increased as a result of higher vehicle depreciation and lease charges resulting from a 2% increase

in our car rental fleet and a 17% increase in our per-unit fleet costs (excluding acquisitions); an increase in operating expenses as a result of the acquisition of Zipcar, increased volumes and inflationary pressures on costs; an increase in selling, general and administrative costs, driven by the acquisition of Zipcar and increased marketing commissions; and an increase in debt extinguishment costs in connection with the retirement of a portion of our outstanding corporate debt. Our expenses were not materially impacted by currency exchange rates. As a result of these items, and a $71 million increase in our provision for income taxes, our net income decreased $274 million. Our effective tax rates were a provision of 84% and 3% in 2013 and 2012, respectively, principally due to the non-deductibility of a portion of our debt extinguishment costs and the treatment of impairment costs in 2013 and the effective settlement of a $128 million unrecognized tax benefit in 2012.

In the year ended December 31, 2013:


•	Operating expenses decreased to 51.3% of revenue from 52.0% in the prior year, driven by cost-reduction efforts.


•	Vehicle depreciation and lease charges increased to 22.8% of revenue from 20.0% in 2012, principally due to higher per-unit fleet costs amid an anticipated normalization of used-car residual values.


•	Selling, general and administrative costs increased to 12.8% of revenue from 12.6% in 2012.


•	Vehicle interest costs declined to 3.3% of revenue compared to 4.0% in the prior year, principally due to lower borrowing rates.

Following is a more detailed discussion of the results of each of our reportable segments:



				Revenues						Adjusted EBITDA
				2013		2012		% Change		2013			2012			% Change
North America				$	5,042	$	4,640	9	%	$	508		$	557		(9	%)
International				2,522		2,342		8	%	272			270			1	%
Truck Rental				373		374		0	%	36			34			6	%
Corporate and Other ^(a)				—		1		*		(47		)	(21		)	*
	Total Company			$	7,937	$	7,357	8	%	769			840			(8	%)

Less:		Non-vehicle related depreciation and amortization								152			125
		Interest expense related to corporate debt, net:
			Interest expense							228			268
			Early extinguishment of debt							147			75
		Restructuring expense								61			38
		Transaction-related costs ^(b)								51			34
		Impairment ^(c)								33			—
Income before income taxes										$	97		$	300

__________


*	Not meaningful.


^(a)	Includes unallocated corporate overhead and the elimination of transactions between reportable segments.


^(b)	For 2013, primarily represents costs related to the integration of acquired businesses and our acquisition of Zipcar and, for 2012, primarily represents costs related to the integration of the operations of Avis Europe.


^(c)	We recorded a charge of $33 million for the impairment of our equity-method investment in our Brazilian licensee.

North America



	2013		2012		% Change
Revenue	$	5,042	$	4,640	9	%
Adjusted EBITDA	508		557		(9	%)

Revenues increased 9% in 2013 compared with 2012, primarily due to the acquisitions of Zipcar and Payless and 3% growth in rental volumes and a 1% increase in pricing (excluding acquisitions).

Adjusted EBITDA decreased 9% in 2013 compared with 2012 due to higher fleet costs, partially offset by lower vehicle interest expense, as our borrowing rates declined year-over-year.

Zipcar and Payless contributed $205 million and $44 million to revenues and $26 million and an insignificant amount to Adjusted EBITDA, respectively, in 2013.

In the year ended December 31, 2013:


•	Operating expenses were 49.4% of revenue, a decrease from 50.4% in the prior year, primarily due to higher pricing and our continued cost-reduction efforts.


•	Vehicle depreciation and lease charges increased to 24.9% of revenue from 20.3% in 2012, due to 25% higher per-unit fleet costs, excluding acquisitions.


•	Selling, general and administrative costs decreased to 11.6% of revenue from 12.0% in the prior year.


•	Vehicle interest costs declined to 4.0% of revenue compared to 5.3% in the prior year, principally due to lower borrowing rates.

International



	2013		2012		% Change
Revenue	$	2,522	$	2,342	8	%
Adjusted EBITDA	272		270		1	%

Revenues increased 8% during 2013 compared with 2012, primarily due to a 4% increase in rental days and an 10% increase in ancillary revenues (excluding acquisitions), the March 2013 acquisition of Zipcar, October 2012 acquisition of Apex Car Rentals (“Apex”), and a $14 million increase related to currency exchange rates, partially offset by a 2% decrease in pricing (excluding acquisitions).

Adjusted EBITDA increased 1% in 2013 compared with 2012. Apex contributed $42 million to revenue and $9 million to Adjusted EBITDA in 2013, compared to $8 million of revenue and $2 million of Adjusted EBITDA in fourth quarter 2012. Zipcar contributed $41 million to revenue and an insignificant amount to Adjusted EBITDA in 2013.

In the year ended December 31, 2013:


•	Operating expenses, at 52.9% of revenue, remained level compared to the prior year.


•	Vehicle depreciation and lease costs decreased to 20.2% of revenue from 20.6% in the prior year, principally due to an increase in fleet utilization.


•	Selling, general and administrative costs increased to 14.2% of revenue from 13.3% in the prior-year, primarily due to increased marketing commissions and the acquisition of Zipcar.


•	Vehicle interest costs increased to 1.9% of revenue compared to 1.6% in the prior year, due to lower cash balances in 2013.

Truck Rental



	2013		2012		% Change
Revenue	$	373	$	374	0	%
Adjusted EBITDA	36		34		6	%

Revenues decreased $1 million as the effects on volume of having an 8% smaller fleet were largely offset by a 7% increase in pricing.

Adjusted EBITDA increased $2 million in 2013 compared with 2012.

Corporate and Other



	2013			2012			% Change
Revenue	$	—		$	1		*
Adjusted EBITDA	(47		)	(21		)	*

__________


*	Not meaningful

Revenue and Adjusted EBITDA decreased $1 million and $26 million, respectively, in 2013 compared with 2012. Adjusted EBITDA decreased in 2013 primarily due to greater selling, general and administrative expenses which are not attributable to a particular segment.

Year Ended December 31, 2012 vs. Year Ended December 31, 2011

Our consolidated results of operations comprised the following:



			Year Ended December 31,
			2012		2011			Change			% Change
Revenues
	Vehicle rental		$	5,297	$	4,338		$	959		22	%
	Other		2,060		1,562			498			32	%
Net revenues			7,357		5,900			1,457			25	%

Expenses
	Operating		3,824		3,025			799			26	%
	Vehicle depreciation and lease charges, net		1,471		1,223			248			20	%
	Selling, general and administrative		925		756			169			22	%
	Vehicle interest, net		297		286			11			4	%
	Non-vehicle related depreciation and amortization		125		95			30			32	%
	Interest expense related to corporate debt, net:
		Interest expense	268		219			49			22	%
		Early extinguishment of debt	75		—			75			*
	Restructuring expense		38		5			33			*
	Transaction-related costs		34		255			(221		)	(87	%)
Total expenses			7,057		5,864			1,193			20	%

Income before income taxes			300		36			264			*
Provision for income taxes			10		65			(55		)	(85	%)

Net income (loss)			$	290	$	(29	)	$	319		*

__________


*	Not meaningful.

During 2012, our net revenues increased principally due to the acquisition of Avis Europe in fourth quarter 2011 and 6% increases in total rental days and ancillary revenues (excluding Avis Europe). Movements in currency exchange rates had virtually no effect on revenues.

Total expenses increased as a result of including the results of Avis Europe for the full year; an increase in debt extinguishment costs in connection with the retirement of a portion of our outstanding corporate debt; and an increase in restructuring expenses. These increases were partially offset by a decrease in transaction-related costs, which for 2012 related primarily to the integration of the operations of Avis Europe and which for 2011 related to costs associated with the acquisition of Avis Europe and our previous efforts to acquire Dollar Thrifty. Our expenses were not materially impacted by currency exchange rates. As a result of these items, and a $55 million decrease in our provision for income taxes, our net income increased $319 million. Our effective tax rates were a provision of 3% and 181% for 2012 and 2011, respectively, which reflected the settlement of a $128 million unrecognized tax benefit in 2012 and the non-deductibility of many of the transaction-related costs related to the acquisition of Avis Europe in 2011.

In the year ended December 31, 2012:


•	Operating expenses were 52.0% of revenue, versus 51.3% in the prior year, primarily due to the acquisition of Avis Europe.


•	Vehicle depreciation and lease costs declined to 20.0% of revenue in 2012, from 20.7% in 2011, primarily due to lower per-unit fleet costs in North America amid robust used-car residual values in the first half of the year, partially offset by the acquisition of Avis Europe.


•	Selling, general and administrative costs decreased to 12.6% of revenue, versus 12.8% in 2011, as a result of our cost-reduction initiatives.


•	Vehicle interest costs declined to 4.0% of revenue, compared to 4.8% in the prior-year period, principally due to lower borrowing rates.

Following is a more detailed discussion of the results of each of our reportable segments:



				Revenues						Adjusted EBITDA
				2012		2011		% Change		2012			2011			% Change
North America				$	4,640	$	4,495	3	%	$	557		$	444		25	%
International				2,342		1,028		128	%	270			130			108	%
Truck Rental				374		376		(1	%)	34			49			(31	%)
Corporate and Other ^(a)				1		1		*		(21		)	(13		)	*
	Total Company			$	7,357	$	5,900	25	%	840			610			38	%

Less:		Non-vehicle related depreciation and amortization								125			95
		Interest expense related to corporate debt, net:
			Interest expense							268			219
			Early extinguishment of debt							75			—
		Restructuring expense								38			5
		Transaction-related costs ^(b)								34			255
Income before income taxes										$	300		$	36

__________


*	Not meaningful


^(a)	Includes unallocated corporate overhead and the elimination of transactions between segments.


^(b)	For 2012, primarily represents costs related to the integration of the operations of Avis Europe and, for 2011, primarily represents costs related to our acquisition of Avis Europe and our previous efforts to acquire Dollar Thrifty.

North America



	2012		2011		% Change
Revenue	$	4,640	$	4,495	3	%
Adjusted EBITDA	557		444		25	%

Revenues increased 3% during 2012 compared with 2011, primarily due to a 5% increase in rental days, partially offset by a 2% decrease in pricing.

Adjusted EBITDA increased 25% during 2012 compared with 2011, primarily due to the increase in revenue and an 8% decline in per-unit fleet costs.

In the year ended December 31, 2012:


•	Operating expenses decreased to 50.4% of revenue versus 50.6% in the prior year, highlighting our cost-reduction efforts in an environment where our T&M revenue per day declined.


•	Vehicle depreciation and lease costs declined to 20.3% of revenue in 2012 from 21.5% in the prior year,

primarily due to lower per-unit fleet costs amid strong used-car residual values during the first half of 2012.


•	Selling, general and administrative costs decreased to 12.0% of revenue, compared to 12.1% of revenue for 2011.


•	Vehicle interest expense decreased to 5.3% of revenue versus 5.9% in the prior year, principally due to lower borrowing rates.

International



	2012		2011		% Change
Revenue	$	2,342	$	1,028	128	%
Adjusted EBITDA	270		130		108	%

Revenues increased in 2012 compared with 2011, primarily due to the acquisition of Avis Europe during fourth quarter 2011 and a 7% increase in rental days (excluding Avis Europe).

Adjusted EBITDA increased 108% in 2012 compared with 2011, principally due to the acquisition of Avis Europe.

Avis Europe contributed approximately $1.6 billion to revenue and $133 million to Adjusted EBITDA during 2012, compared with $359 million of revenue and $3 million of Adjusted EBITDA in fourth quarter 2011.

In the year ended December 31, 2012:


•	Operating expenses were 52.9% of revenue, an increase from 50.1% in the prior-year, primarily due to the acquisition of Avis Europe, partially offset by an increase in ancillary revenues (excluding Avis Europe).


•	Vehicle depreciation and lease costs increased to 20.6% of revenue from 20.4% in 2012, primarily due to the acquisition of Avis Europe.


•	Selling, general and administrative costs decreased to 13.3% of revenue from 15.7% in the prior year, primarily due to the acquisition of Avis Europe.


•	Vehicle interest costs increased to 1.6% of revenue compared to 1.1% in 2012, primarily due to the acquisition of Avis Europe.

Truck Rental



	2012		2011		% Change
Revenue	$	374	$	376	(1	%)
Adjusted EBITDA	34		49		(31	%)

Revenues decreased 1% during 2012 compared with 2011, primarily due to a 2% decrease in rental days, partially offset by a 1% increase in pricing.

Adjusted EBITDA decreased in 2012 compared with 2011, primarily due to decreased revenues, an $8 million increase in vehicle maintenance costs and inflationary price increases.

Corporate and Other



	2012			2011			% Change
Revenue	$	1		$	1		*
Adjusted EBITDA	(21		)	(13		)	*

__________


*	Not meaningful

Revenue was unchanged and Adjusted EBITDA decreased $8 million in 2012 compared with 2011. Adjusted EBITDA decreased primarily due to increases in selling, general and administrative expenses primarily related to

the significant growth and increased complexity of our business.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We present separately the financial data of our vehicle programs. These programs are distinct from our other activities as the assets under vehicle programs are generally funded through the issuance of debt that is collateralized by such assets. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the generation or acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of our vehicle programs. We believe it is appropriate to segregate the financial data of our vehicle programs because, ultimately, the source of repayment of such debt is the realization of such assets.

FINANCIAL CONDITION



	As of December 31,
	2013		2012		Change
Total assets exclusive of assets under vehicle programs	$	5,832	$	5,119	$	713
Total liabilities exclusive of liabilities under vehicle programs	5,720		5,197		523
Assets under vehicle programs	10,452		10,099		353
Liabilities under vehicle programs	9,793		9,264		529
Stockholders’ equity	771		757		14

Total assets exclusive of assets under vehicle programs increased primarily due to the acquisitions of Zipcar and Payless and an increase in cash and cash equivalents (see Note 5 to our Consolidated Financial Statements and “Liquidity and Capital Resources—Cash Flows”).

Total liabilities exclusive of liabilities under vehicle programs increased primarily due to an increase in corporate debt to finance the acquisition of Zipcar (see “Liquidity and Capital Resources—Debt and Financing Arrangements”).

Assets under vehicle programs increased primarily due to an increase in the size of our vehicle rental fleet to accommodate increased rental demand, inflationary increases in the average book value of our rental cars and the acquisitions of Zipcar and Payless.

Liabilities under vehicle programs increased principally as a result of additional borrowings to support the increase in our vehicle rental fleet and the acquisitions of Zipcar and Payless. See “Liquidity and Capital Resources—Debt and Financing Arrangements” for a detailed account of the change in our debt related to vehicle programs.

The increase in stockholders’ equity is primarily due to our net income for the year ended December 31, 2013.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our principal sources of liquidity are cash on hand and our ability to generate cash through operations and financing activities, as well as available funding arrangements and committed credit facilities, each of which is discussed below.

During 2013, we completed several corporate financing transactions, primarily to repay existing debt. In particular, we:


•	issued $500 million of 5½% Senior Notes due 2023;


•	amended and borrowed an incremental $300 million under the Floating Rate Term Loan due 2019;


•	issued €250 million (approximately $325 million, at issuance) of 6% Euro-denominated Senior Notes due 2021;


•	issued $250 million of Floating Rate Senior Notes due 2017; and


•	amended our senior revolving credit facility to extend its maturity to 2018, expand its borrowing capacity to $1.65 billion, and reduce its borrowing spread by 75 basis points;

and used proceeds from these borrowings, as well as cash generated from our operations, to:


•	fund our acquisitions of Zipcar and Payless;


•	retire the entire $450 million principal amount outstanding of our 9⅝% Senior Notes due 2018;


•	repay the entire $250 million principal amount outstanding of our Floating Rate Senior Notes due 2014;


•	repurchase $62 million of our 3½% Convertible Notes due 2014;


•	repay all $49 million of our Floating Rate Term Loan due 2016;


•	repay $39 million of our 8¼% Senior Notes due 2019;


•	repay approximately $27 million principal amount outstanding of our 9¾% Senior Notes due 2020; and


•	repurchase approximately 1.6 million shares of our outstanding common stock.

During 2013, we also increased our borrowings under vehicle programs to fund the seasonal increase in our rental fleet and completed a three-year, €500 million (approximately $687 million) European securitization program, which matures in 2016 and will be used to finance fleet purchases for a portion of our European operations.

Cash Flows

Year Ended December 31, 2013 vs. Year Ended December 31, 2012

The following table summarizes our cash flows:



	Year Ended December 31,
	2013			2012			Change
Cash provided by (used in):
Operating activities	$	2,253		$	1,889		$	364
Investing activities	(2,234		)	(2,073		)	(161		)
Financing activities	76			250			(174		)
Effects of exchange rate changes	(8		)	6			(14		)
Net change in cash and cash equivalents	87			72			15
Cash and cash equivalents, beginning of period	606			534			72
Cash and cash equivalents, end of period	$	693		$	606		$	87

The increase in cash provided by operating activities during 2013 compared to 2012 is principally due to increased revenues and our continued cost reduction efforts.

The increase in cash used in investing activities during 2013 compared with 2012 is primarily due to the acquisitions of Zipcar and Payless, partially offset by an increase in proceeds from the sale of vehicles and a decrease in our investment in vehicles.

The decrease in cash provided by financing activities in 2013 compared with 2012, primarily reflects an increase in net payments on vehicle borrowings in 2013, partially offset by an increase in net proceeds from corporate borrowings to fund the acquisition of Zipcar.

We anticipate that our non-vehicle capital expenditures will be approximately $190 million in 2014. As of December 31, 2013, we had approximately $150 million of authorized share repurchase capacity, and we currently anticipate that we will utilize substantially all such capacity to repurchase common stock in 2014.

Year Ended December 31, 2012 vs. Year Ended December 31, 2011

The following table summarizes our cash flows:



	Year Ended December 31,
	2012			2011			Change
Cash provided by (used in):
Operating activities	$	1,889		$	1,578		$	311
Investing activities	(2,073		)	(2,373		)	300
Financing activities	250			424			(174		)
Effects of exchange rate changes	6			(6		)	12
Net change in cash and cash equivalents	72			(377		)	449
Cash and cash equivalents, beginning of period	534			911			(377		)
Cash and cash equivalents, end of period	$	606		$	534		$	72

During 2012, we generated more cash from operating activities compared with 2011, primarily due to improved operating results.

The decrease in cash used in investing activities in 2012 compared with 2011 primarily reflects a decrease in acquisitions, as Avis Europe was purchased in 2011, partially offset by an increase in net purchases of vehicles as a result of the inclusion of Avis Europe in our results for the full year in 2012 compared with only three months in 2011.

The decrease in cash provided by financing activities in 2012 compared with 2011 principally reflects an $180 million increase in the net payments on corporate borrowings and related activity.

Debt and Financing Arrangements

At December 31, 2013, we had approximately $10.7 billion of indebtedness (including corporate indebtedness of approximately $3.4 billion and debt under vehicle programs of approximately $7.3 billion). We use various hedging strategies, including derivative instruments, to manage a portion of the risks associated with our floating rate debt.

Corporate indebtedness consisted of:



		As of December 31,
	Maturity Date	2013		2012		Change
Floating Rate Senior Notes	May 2014	$	—	$	250	$	(250	)
3½% Convertible Notes ^(a)	October 2014	66		128		(62		)
Floating Rate Term Loan^(b)	May 2016	—		49		(49		)
4⅞% Senior Notes	November 2017	300		300		—
Floating Rate Senior Notes ^(c)	December 2017	247		—		247
9⅝% Senior Notes	March 2018	—		446		(446		)
8¼% Senior Notes	January 2019	691		730		(39		)
Floating Rate Term Loan ^{(b) (d)}	March 2019	989		689		300
9¾% Senior Notes	March 2020	223		250		(27		)
6% Euro-denominated Senior Notes	March 2021	344		—		344
5½% Senior Notes	April 2023	500		—		500
		3,360		2,842		518
Other		34		63		(29		)
Total		$	3,394	$	2,905	$	489

__________


^(a)	The 3½% Convertible Notes due 2014 are convertible by the holders into approximately 4 million shares of our common stock as of December 31, 2013.


^(b)	The Floating Rate Term Loans are part of our senior credit facility, which is secured by pledges of capital stock of certain subsidiaries of the Company, and liens on substantially all of the Company’s intellectual property and certain other real and personal property.


^(c)	As of December 31, 2013, the Floating Rate Senior Notes due 2017 bear interest at the three-month LIBOR, plus 275 basis points, for an aggregate rate of 3.00%. We have entered into a swap to hedge our interest rate exposure related to these notes at an aggregate rate of 3.58%.


^(d)	As of December 31, 2013, the Floating Rate Term Loan due 2019 bears interest at the greater of three-month LIBOR or 0.75%, plus 225 basis points, for an aggregate rate of 3.00%. We have entered into a swap to hedge $600 million of our interest rate exposure related to the floating rate term loan at an aggregate rate of 3.96%.

The following table summarizes the components of our debt under vehicle programs, including related party debt due to Avis Budget Rental Car Funding:



	As of December 31,
	2013		2012		Change
North America – Debt due to Avis Budget Rental Car Funding ^(a)	$	5,656	$	5,203	$	453
North America – Canadian borrowings	400		353		47
International – Debt borrowings	731		679		52
International – Capital leases	289		315		(26		)
Truck Rental – Debt borrowings ^(b)	226		253		(27		)
Other ^(c)	35		3		32
Total	$	7,337	$	6,806	$	531

__________


^(a)	The increase reflects additional borrowings principally to fund an increase in our fleet driven by increased rental volume and the acquisitions of Zipcar and Payless.


^(b)	The decrease reflects reduced borrowings due to a decrease in the size of our truck fleet.


^(c)	The increase is principally related to Zipcar capital leases.

The following table provides the contractual maturities for our corporate debt and our debt under vehicle programs, including related party debt due to Avis Budget Rental Car Funding, at December 31, 2013:



	Corporate Debt		Debt Under Vehicle Programs
Due in 2014	$	89	$	1,264
Due in 2015	17		1,534
Due in 2016	16		1,618
Due in 2017	561		998
Due in 2018	11		1,532
Thereafter	2,700		391
	$	3,394	$	7,337

At December 31, 2013, we had approximately $4.6 billion of available funding under our various financing arrangements (comprised of $1.1 billion of availability under our committed credit facilities and approximately $3.5 billion available for use in our vehicle programs). As of December 31, 2013, the committed non-vehicle-backed credit facilities available to us and/or our subsidiaries included:



	Total Capacity		Outstanding Borrowings		Letters of Credit Issued		Available Capacity
Senior revolving credit facility maturing 2018 ^(a)	$	1,650	$	—	$	598	$	1,052
Other credit facilities ^(b)	13		1		—		12

__________


^(a)	The senior revolving credit facility bears interest of one-month LIBOR, plus 225 basis points. The senior revolving credit facility is part of our senior credit facility, which is secured by pledges of capital stock of certain subsidiaries of the Company, and liens on substantially all of our intellectual property and certain other real and personal property.


^(b)	These credit facilities encompass bank overdraft lines of credit, bearing interest of 4.50% to 5.69% as of December 31, 2013.

At December 31, 2013, the Company had various other uncommitted credit facilities available, which bear interest at rates of 0.52% to 2.50%, under which it had drawn approximately $4 million.

The following table presents available funding under our debt arrangements related to our vehicle programs, including related party debt due to Avis Budget Rental Car Funding, at December 31, 2013:



	Total Capacity^(a)		Outstanding Borrowings		Available Capacity
North America – Debt due to Avis Budget Rental Car Funding^(b)	$	8,031	$	5,656	$	2,375
North America – Canadian borrowings ^(c)	753		400		353
International – Debt borrowings ^(d)	1,408		731		677
International – Capital Leases ^(e)	404		289		115
Truck Rental – Debt borrowings ^(f)	233		226		7
Other ^(g)	35		35		—
Total	$	10,864	$	7,337	$	3,527

__________


^(a)	Capacity is subject to maintaining sufficient assets to collateralize debt.


^(b)	The outstanding debt is collateralized by approximately $7.3 billion of underlying vehicles and related assets.


^(c)	The outstanding debt is collateralized by $549 million of underlying vehicles and related assets.


^(d)	The outstanding debt is collateralized by $1.3 billion of underlying vehicles and related assets.


^(e)	The outstanding debt is collateralized by $306 million of underlying vehicles and related assets.


^(f)	The outstanding debt is collateralized by $338 million of underlying vehicles and related assets.


^(g)	The outstanding debt is collateralized by $28 million of underlying vehicles and related assets.

The significant terms for our outstanding debt instruments, credit facilities and available funding arrangements as of December 31, 2013, can be found in Notes 13 and 14 to our Consolidated Financial Statements.

LIQUIDITY RISK

Our primary liquidity needs include the payment of operating expenses, servicing of corporate and vehicle-related debt and procurement of rental vehicles to be used in our operations. The present intention of management is to reinvest the undistributed earnings of the Company’s foreign subsidiaries indefinitely into its foreign operations. We do not anticipate the need to repatriate foreign earnings to the United States to service corporate debt or for other U.S. needs. Our primary sources of funding are operating revenue, cash received upon the sale of vehicles, borrowings under our vehicle-backed borrowing arrangements and our senior revolving credit facility, and other financing activities.

As discussed above, as of December 31, 2013, we have cash and cash equivalents of $693 million, available borrowing capacity under our committed credit facilities of $1.1 billion, and available capacity under our vehicle programs of approximately $3.5 billion.

Our liquidity position could be negatively affected by financial market disruptions or a downturn in the U.S. and worldwide economies, which may result in unfavorable conditions in the vehicle rental industry, in the asset-backed financing market, and in the credit markets, generally. We believe these factors have in the past affected and could in the future affect the debt ratings assigned to us by credit rating agencies and the cost of our borrowings. Additionally, a downturn in the worldwide economy or a disruption in the credit markets could impact our liquidity due to (i) decreased demand and pricing for vehicles in the used vehicle market, (ii) increased costs associated with, and/or reduced capacity or increased collateral needs under, our financings, (iii) the adverse impact of vehicle manufacturers, including Ford, General Motors, Chrysler, Peugeot, Volkswagen, Fiat, Mercedes, Kia, BMW, Toyota, and Renault, being unable or unwilling to honor their obligations to repurchase or guarantee the depreciation on the related program vehicles, (iv) disruption in our ability to obtain financing due to negative credit events specific to us or affecting the overall debt market and (v) the effect of Realogy or Wyndham being unable or unwilling to honor its obligations under the agreements governing their disposition (see Item 1A. Risk Factors for further discussion).

Our liquidity position could also be negatively impacted if we are unable to remain in compliance with the financial and other covenants associated with our senior credit facility and other borrowings including a maximum leverage ratio. As of December 31, 2013, we were in compliance with the financial covenants in our senior credit facility.

CONTRACTUAL OBLIGATIONS

The following table summarizes our principal future contractual obligations as of December 31, 2013:



	2014		2015		2016		2017		2018		Thereafter		Total
Corporate debt	$	89	$	17	$	16	$	561	$	11	$	2,700	$	3,394
Debt under vehicle programs	1,264		1,534		1,618		998		1,532		391		7,337
Debt interest	403		347		288		236		184		196		1,654
Operating leases ^(a)	561		368		288		215		162		719		2,313
Commitments to purchase vehicles ^(b)	6,420		—		—		—		—		—		6,420
Defined benefit pension plan contributions ^(c)	20		—		—		—		—		—		20
Other purchase commitments ^(d)	90		30		18		12		10		—		160
Contingent consideration ^(e)	—		12		—		—		—		—		12
Total ^(f)	$	8,847	$	2,308	$	2,228	$	2,022	$	1,899	$	4,006	$	21,310

__________


^(a)	Operating lease obligations are presented net of sublease rentals to be received (see Note 15 to our Consolidated Financial Statements) and include commitments to enter into operating leases.

^(b)

Represents commitments to purchase vehicles, the majority of which are from Ford Motor Company, General Motors Company and Chrysler Group LLC. These commitments are generally subject to the vehicle manufacturers satisfying their obligations under the repurchase and guaranteed depreciation agreements. The purchase of such vehicles is generally financed through financings under vehicle programs in addition to cash received upon the sale of vehicles, many of which were purchased under repurchase and guaranteed depreciation programs (see Note 15 to our Consolidated Financial Statements).


^(c)	Represents the expected contributions to our defined benefit pension plans in 2014. The amount of future contributions to our defined benefit pension plans will depend on the rates of return generated from plan assets and other factors (see Note 18 to our Consolidated Financial Statements) and are not included above.


^(d)	Primarily represents commitments under service contracts for information technology and telecommunications and marketing agreements with travel service companies.


^(e)	Represents contingent consideration related to the acquisition of Apex in October 2012.


^(f)	Excludes income tax uncertainties of $44 million, $15 million of which is subject to indemnification by Realogy and Wyndham. We are unable to estimate the period in which these income tax uncertainties are expected to be settled.

For more information regarding guarantees and indemnifications, see Note 15 to our Consolidated Financial Statements.

ACCOUNTING POLICIES

Critical Accounting Policies

In presenting our financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events and/or events that are outside of our control. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, our businesses operate in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.

Goodwill and Other Indefinite-lived Intangible Assets. We have reviewed the carrying value of our goodwill and other indefinite-lived intangible assets for impairment. In performing this review, we are required to make an assessment of fair value for our goodwill and other indefinite-lived intangible assets. When determining fair value, we utilize various consistent assumptions, including the fair market trading price of our common stock and management’s projections of future cash flows. A change in these underlying assumptions will cause a change in the results of the tests and, as such, could cause the fair value to be less than the respective carrying amount. In such event, we would then be required to record a charge, which would impact earnings. We review the carrying value of goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate that an impairment may have occurred.

Our goodwill and other indefinite-lived intangible assets are allocated among our reporting units. During 2013, 2012 and 2011, there was no impairment of goodwill or other intangible assets. In the future, failure to achieve our business plans, a significant deterioration of the macroeconomic conditions of the countries in which we operate, or significant changes in the assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets (such as the discount rate) could result in significantly different estimates of fair value that could trigger an impairment of the goodwill or intangible assets of our reporting units.

Business Combinations. The Company uses the acquisition method of accounting for business combinations, which requires that the purchase price of acquired companies be allocated to the tangible and intangible assets acquired and the liabilities assumed, as applicable, at their respective estimated fair values at the date of acquisition.

Our assessment of the purchase price allocation and the related fair values requires management to make significant estimates and assumptions with respect to intangible assets. Examples of critical valuation assumptions used by management include projected future cash flows, the estimated weighted average cost of capital and market royalty rates. We believe that our estimates are based on reasonable assumptions and, in part, on historical experience and information obtained from the management of the acquired companies and are unpredictable and inherently uncertain, and actual results could differ from those assumptions.

Vehicles. We present vehicles at cost, net of accumulated depreciation, on the Consolidated Balance Sheets. We record the initial cost of the vehicle, net of incentives and allowances from manufactures. We acquire our rental vehicles either through repurchase and guaranteed depreciation programs with certain automobile manufacturers or outside of such programs. For rental vehicles purchased under such programs, we depreciate the vehicles such that the net book value on the date of sale or return to the manufacturers is intended to equal the contractual guaranteed residual values. For risk vehicles, acquired outside of manufacturer repurchase and guaranteed depreciation programs, we depreciate based on the vehicles’ estimated residual market values and their expected dates of disposition. The estimation of residual values requires the Company to make assumptions regarding the age and mileage of the vehicle at the time of disposal, as well as expected used vehicle auction market conditions. The Company periodically evaluates estimated residual values and adjusts depreciation rates as appropriate.

Differences between actual residual values and those estimated result in a gain or loss on disposal and are recorded as part of vehicle depreciation and lease charges, net, at the time of sale. See Note 2 to our Consolidated Financial Statements.

Income Taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been reflected in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event we were to determine that we would be able to realize deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes. Currently we do not record valuation allowances on the majority of our tax loss carryforwards as there are adequate deferred tax liabilities that could be realized within the carryforward period.

See Notes 2 and 8 to our Consolidated Financial Statements for more information regarding income taxes.

Public Liability, Property Damage and Other Insurance Liabilities. Insurance liabilities on our Consolidated Balance Sheets include supplemental liability insurance, personal effects protection insurance, public liability, property damage and personal accident insurance claims for which we are self-insured. We estimate the required liability of such claims on an undiscounted basis utilizing an actuarial method that is based upon various assumptions which include, but are not limited to, our historical loss experience and projected loss development factors. The required liability is also subject to adjustment in the future based upon changes in claims experience, including changes in the number of incidents and changes in the ultimate cost per incident.

Adoption of New Accounting Pronouncements

During 2013, we adopted the following standards as a result of the issuance of new accounting pronouncements:


•	ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment”


•	ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”

On January 1, 2014, we adopted the following standard as a result of the issuance of new accounting pronouncements:


•	ASU No. 2013-11, “Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”

For detailed information regarding these pronouncements and the impact thereof on our business, see Note 2 to our Consolidated Financial Statements.

Ex-99.4 Revised Consolidated Financial Statements

EX-99.4 REVISED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING FOOTNOTES

ITEM 15(A)(1). FINANCIAL STATEMENTS

Note: The information contained in this Item has been updated to reflect Avis Budget Group’s change in reportable segments, as well as the revision to its definition of Adjusted EBITDA that were effective for us in the first quarter of 2014. The resulting changes are discussed further in the Notes to the Consolidated Financial Statements.

Avis Budget Group, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)



			Year Ended December 31,
			2013		2012		2011
Revenues
	Vehicle rental		$	5,707	$	5,297	$	4,338
	Other		2,230		2,060		1,562
Net revenues			7,937		7,357		5,900

Expenses
	Operating		4,074		3,824		3,025
	Vehicle depreciation and lease charges, net		1,811		1,471		1,223
	Selling, general and administrative		1,019		925		756
	Vehicle interest, net		264		297		286
	Non-vehicle related depreciation and amortization		152		125		95
	Interest expense related to corporate debt, net:
		Interest expense	228		268		219
		Early extinguishment of debt	147		75		—
	Restructuring expense		61		38		5
	Transaction-related costs		51		34		255
	Impairment		33		—		—
Total expenses			7,840		7,057		5,864

Income before income taxes			97		300		36
Provision for income taxes			81		10		65

Net income (loss)			$	16	$	290	$	(29	)

Earnings (loss) per share
	Basic		$	0.15	$	2.72	$	(0.28	)
	Diluted		$	0.15	$	2.42	$	(0.28	)

See Notes to Consolidated Financial Statements.

F-1

Avis Budget Group, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)



			Year Ended December 31,
			2013			2012			2011

Net income (loss)			$	16		$	290		$	(29	)

Other comprehensive income (loss), net of tax
	Currency translation adjustments, net of tax of $7, $0 and $0, respectively		$	(27	)	$	34		$	(23	)
	Available-for-sale securities:
		Net unrealized gains on available-for-sale securities, net of tax of $0, $0 and $0, respectively	—			2			2
		Less: realized gains on available-for-sale securities reclassified to earnings, net of tax of $0, $1 and $0, respectively	—			(2		)	—
	Cash flow hedges:
		Net unrealized holding losses arising during period, net of tax of $1, $1 and $2, respectively	1			(1		)	(4		)
		Less: cash flow hedges reclassified to earnings, net of tax of $0, $(9) and $(23), respectively	—			14			37
	Minimum pension liability adjustment:
		Pension and post-retirement benefits, net of tax of $(19), $1 and $19, respectively	24			(23		)	(31		)
		Less: Pension and post-retirement benefits reclassified to earnings, net of tax of $(6), $(6) and $(3), respectively	9			8			5
			7			32			(14		)
Total comprehensive income (loss)			$	23		$	322		$	(43	)

See Notes to Consolidated Financial Statements.

F-2

Avis Budget Group, Inc.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)



		December 31,
		2013			2012
Assets
Current assets:
	Cash and cash equivalents	$	693		$	606
	Receivables (net of allowance for doubtful accounts of $50 and $40)	619			553
	Deferred income taxes	177			146
	Other current assets	455			405
Total current assets		1,944			1,710

Property and equipment, net		614			529
Deferred income taxes		1,299			1,454
Goodwill		691			375
Other intangibles, net		923			731
Other non-current assets		361			320
Total assets exclusive of assets under vehicle programs		5,832			5,119

Assets under vehicle programs:
	Program cash	116			24
	Vehicles, net	9,582			9,274
	Receivables from vehicle manufacturers and other	391			439
	Investment in Avis Budget Rental Car Funding (AESOP) LLC—related party	363			362
		10,452			10,099
Total assets		$	16,284		$	15,218

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable and other current liabilities	$	1,479		$	1,421
	Short-term debt and current portion of long-term debt	89			57
Total current liabilities		1,568			1,478

Long-term debt		3,305			2,848
Other non-current liabilities		847			871
Total liabilities exclusive of liabilities under vehicle programs		5,720			5,197

Liabilities under vehicle programs:
	Debt	1,681			1,603
	Debt due to Avis Budget Rental Car Funding (AESOP) LLC—related party	5,656			5,203
	Deferred income taxes	2,177			2,163
	Other	279			295
		9,793			9,264

Commitments and contingencies (Note 15)

Stockholders’ equity:
	Preferred stock, $.01 par value—authorized 10 million shares; none issued and outstanding	—			—
	Common stock, $.01 par value—authorized 250 million shares; issued 137,081,056 and 137,081,056 shares	1			1
	Additional paid-in capital	7,893			8,211
	Accumulated deficit	(2,360		)	(2,376		)
	Accumulated other comprehensive income	117			110
	Treasury stock, at cost—30,515,721 and 30,027,146 shares	(4,880		)	(5,189		)
Total stockholders’ equity		771			757
Total liabilities and stockholders’ equity		$	16,284		$	15,218

See Notes to Consolidated Financial Statements.

F-3

Avis Budget Group, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)



			Year Ended December 31,
			2013			2012			2011
Operating activities
Net income (loss)			$	16		$	290		$	(29	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Vehicle depreciation		1,678			1,438			1,395
	Gain on sale of vehicles, net		(6		)	(97		)	(234		)
	Non-vehicle related depreciation and amortization		152			125			95
	Deferred income taxes		37			128			32
	Amortization of debt financing fees		41			57			78
	Impairment		33			—			—
	Non-cash charge on unfavorable license rights reacquired with the acquisition of Avis Europe plc		—			—			117
	Net change in assets and liabilities, excluding the impact of acquisitions and dispositions:
		Receivables	(66		)	(65		)	29
		Income taxes	(14		)	(183		)	(18		)
		Accounts payable and other current liabilities	(28		)	(28		)	20
	Other, net		410			224			93
Net cash provided by operating activities			2,253			1,889			1,578

Investing activities
Property and equipment additions			(152		)	(132		)	(65		)
Proceeds received on asset sales			22			21			14
Net assets acquired (net of cash acquired)			(537		)	(69		)	(841		)
Other, net			2			(9		)	(7		)
Net cash used in investing activities exclusive of vehicle programs			(665		)	(189		)	(899		)

Vehicle programs:
	Increase in program cash		(79		)	(13		)	(11		)
	Investment in vehicles		(10,899		)	(11,067		)	(8,659		)
	Proceeds received on disposition of vehicles		9,409			9,196			7,196
	Investment in debt securities of Avis Budget Rental Car Funding (AESOP)—related party		—			—			(400		)
	Proceeds from debt securities of Avis Budget Rental Car Funding (AESOP)—related party		—			—			400
			(1,569		)	(1,884		)	(1,474		)
Net cash used in investing activities			(2,234		)	(2,073		)	(2,373		)

Financing activities
Proceeds from long-term borrowings			2,972			1,152			682
Payments on long-term borrowings			(2,608		)	(1,501		)	(668		)
Net change in short-term borrowings			(36		)	10			(97		)
Debt financing fees			(37		)	(16		)	(78		)
Purchases of warrants			(78		)	(29		)	—
Proceeds from sale of call options			104			43			—
Repurchases of common stock			(48		)	—			—
Other, net			3			1			1
Net cash provided by (used in) financing activities exclusive of vehicle programs			272			(340		)	(160		)

F-4

Avis Budget Group, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In millions)



		Year Ended December 31,
		2013			2012			2011
Vehicle programs:
	Proceeds from borrowings	12,953			12,108			10,534
	Payments on borrowings	(13,115		)	(11,490		)	(9,917		)
	Debt financing fees	(34		)	(28		)	(33		)
		(196		)	590			584
Net cash provided by financing activities		76			250			424

Effect of changes in exchange rates on cash and cash equivalents		(8		)	6			(6		)

Net increase (decrease) in cash and cash equivalents		87			72			(377		)

Cash and cash equivalents, beginning of period		606			534			911
Cash and cash equivalents, end of period		$	693		$	606		$	534

Supplemental disclosure
Interest payments		$	457		$	552		$	465
Income tax payments, net		$	58		$	65		$	51

See Notes to Consolidated Financial Statements.

F-5

Avis Budget Group, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)



	Common Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Treasury Stock					Total Stockholders’ Equity
	Shares	Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Shares		Amount			Total Stockholders’ Equity
Balance at January 1, 2011	137.0	$	1	$	8,828		$	(2,637	)	$	92		(33.2	)	$	(5,874	)	$	410

Comprehensive loss:
Net loss	—	—		—			(29		)	—			—		—
Other comprehensive loss	—	—		—			—			(14		)	—		—

Total comprehensive loss																		(43		)

Net activity related to restricted stock units	—	—		(111		)	—			—			0.4		124			13
Exercise of stock options	—	—		(215		)	—			—			1.2		217			2
Realization of tax benefits for stock-based awards	—	—		30			—			—			—		—			30

Balance at December 31, 2011	137.0	$	1	$	8,532		$	(2,666	)	$	78		(31.6	)	$	(5,533	)	$	412

Comprehensive income:
Net income	—	—		—			290			—			—		—
Other comprehensive income	—	—		—			—			32			—		—

Total comprehensive income																		322

Net activity related to restricted stock units	0.1	—		(202		)	—			—			0.8		212			10
Exercise of stock options	—	—		(130		)	—			—			0.8		130			—
Activity related to employee stock purchase plan	—	—		(2		)	—			—			—		2			—
Repurchase of warrants	—	—		(29		)	—			—			—		—			(29		)
Sale of call options, net of tax of $(1)	—	—		42			—			—			—		—			42

Balance at December 31, 2012	137.1	$	1	$	8,211		$	(2,376	)	$	110		(30.0	)	$	(5,189	)	$	757

Comprehensive income:
Net income	—	—		—			16			—			—		—
Other comprehensive income	—	—		—			—			7			—		—

Total comprehensive income																		23

Net activity related to restricted stock units	—	—		(197		)	—			—			0.4		207			10
Exercise of stock options	—	—		(155		)	—			—			0.9		157			2
Realization of tax benefits for stock-based awards	—	—		3			—			—			—		—			3
Activity related to employee stock purchase plan	—	—		(1		)	—			—			—		2			1
Repurchase of warrants	—	—		(78		)	—			—			—		—			(78		)
Sale of call options, net of tax of $(1)	—	—		110			—			—			(0.2	)	(7		)	103
Repurchase of common stock	—	—		—			—			—			(1.6	)	(50		)	(50		)

Balance at December 31, 2013	137.1	$	1	$	7,893		$	(2,360	)	$	117		(30.5	)	$	(4,880	)	$	771

See Notes to Consolidated Financial Statements.

F-6

Avis Budget Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, all dollar amounts are in millions, except per share amounts)


1.	Basis of Presentation

Avis Budget Group, Inc. provides car and truck rentals, car sharing services and ancillary services to businesses and consumers worldwide. The accompanying Consolidated Financial Statements include the accounts and transactions of Avis Budget Group, Inc. and its subsidiaries, as well as entities in which Avis Budget Group, Inc. directly or indirectly has a controlling financial interest (collectively, the “Company”).

The Company operates the following reportable business segments:


•	North America—provides car rentals in the United States and vehicle rentals in Canada, as well as ancillary products and services, and operates the Company’s Zipcar car sharing business in North America.


•	International—provides and licenses the Company’s brands to third parties for vehicle rentals and ancillary products and services in Europe, the Middle East, Africa, Asia, South America, Central America, the Caribbean, Australia and New Zealand, and operates the Company’s car sharing business in certain of these markets.


•	Truck Rental—provides truck rentals and ancillary products and services to consumers and commercial users in the United States.

In 2013, 2012 and 2011, the Company completed the business acquisitions discussed in Note 5 to these consolidated financial statements. The operating results of the acquired businesses are included in the accompanying consolidated financial statements from the dates of acquisition.

In conjunction with a change in the Company’s management structure in first quarter of 2014, the financial results of the Company’s Zipcar operations outside of North America are reported in the Company’s International segment rather than in the Company’s North America segment. The Company’s business segment financial information presented in these Notes to Consolidated Financial Statements has been recast for all periods presented. The Company’s consolidated results were not affected by this change.

The Company presents separately the financial data of its vehicle programs. These programs are distinct from the Company’s other activities since the assets under vehicle programs are generally funded through the issuance of debt that is collateralized by such assets. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of the Company’s vehicle programs. The Company believes it is appropriate to segregate the financial data of its vehicle programs because, ultimately, the source of repayment of such debt is the realization of such assets.


2.	Summary of Significant Accounting Policies

Accounting Principles

The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and all entities in which it has a direct or indirect controlling financial interest and variable interest entities (“VIEs”) for which the Company has determined it is the primary beneficiary. Intercompany transactions have been eliminated in consolidation.

F-7

Use of Estimates and Assumptions

The use of estimates and assumptions as determined by management is required in the preparation of the Consolidated Financial Statements in conformity with GAAP. These estimates are based on management’s evaluation of historical trends and other information available when the Consolidated Financial Statements are prepared and may affect the amounts reported and related disclosures. Actual results could differ from those estimates.

Revenue Recognition

The Company derives revenue primarily through the operation and licensing of the Avis and Budget rental systems and by providing vehicle rentals and other services to business and leisure travelers and others. Other revenue includes sales of loss damage waivers and insurance products, fuel and fuel service charges, rentals of GPS navigation units and other items. Revenue is recognized when persuasive evidence of an arrangement exists, the services have been rendered to customers, the pricing is fixed or determinable and collection is reasonably assured.

Vehicle rental and rental-related revenue is recognized over the period the vehicle is rented. Licensing revenue principally consists of royalties paid by the Company’s licensees and is recorded within other revenues as the licensees’ revenue is earned (over the rental period of a vehicle). The Company renews license agreements in the normal course of business and occasionally terminates, purchases or sells license agreements. In connection with ongoing fees that the Company receives from its licensees pursuant to license agreements, the Company is required to provide certain services, such as training, marketing and the operation of reservation systems. Revenue and expenses associated with gasoline, vehicle licensing and airport concessions are recorded on a gross basis within revenue and operating expenses.

Currency Translation

Assets and liabilities of foreign operations are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the prevailing monthly average rate of exchange. The related translation adjustments are reflected in “Accumulated other comprehensive income” in the stockholders’ equity section of the Consolidated Balance Sheets and in the Consolidated Statements of Comprehensive Income. The accumulated currency translation adjustment as of December 31, 2013 and 2012 was $166 million and $193 million, respectively. Currency gains and losses resulting from transactions are included in earnings.

Cash and Cash Equivalents

The Company considers highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Property and Equipment

Property and equipment (including leasehold improvements) are stated at cost, net of accumulated depreciation and amortization. Depreciation (non-vehicle related) is computed utilizing the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is computed utilizing the straight-line method over the estimated benefit period of the related assets, which may not exceed 20 years, or the lease term, if shorter. Useful lives are as follows:



Buildings	30 years
Furniture, fixtures & equipment	3 to 10 years
Capitalized software	3 to 7 years
Buses and support vehicles	4 to 15 years

The Company capitalizes the costs of software developed for internal use when the preliminary project stage is completed and management (i) commits to funding the project and (ii) believes it is probable that the project will be completed and the software will be used to perform the function intended. The software developed or obtained for internal use is amortized on a straight-line basis commencing when such software is ready for its intended use. The net carrying value of software developed or obtained for internal use was $108 million and $71 million as of December 31, 2013 and 2012, respectively.

F-8

Goodwill and Other Intangible Assets

Goodwill represents the excess, if any, of the fair value of the consideration transferred by the acquirer and the fair value of any non-controlling interest remaining in the acquiree, if any, over the fair values of the identifiable net assets acquired. The Company does not amortize goodwill, but assesses it for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of this asset may exceed its fair value. The Company performs its annual impairment assessment in the fourth quarter of each year at the reporting unit level. The Company assesses goodwill for such impairment by comparing the carrying value of each reporting unit to its fair value using the present value of expected future cash flows. When appropriate, comparative market multiples and other factors are used to corroborate the discounted cash flow results.

Other intangible assets, primarily trademarks, with indefinite lives are not amortized but are evaluated annually for impairment and whenever events or changes in circumstances indicate that the carrying amount of this asset may exceed its fair value. If the carrying value of an other intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Other intangible assets with finite lives are amortized over their estimated useful lives and are evaluated each reporting period to determine if circumstances warrant a revision to these lives.

Impairment of Long-Lived Assets

The Company is required to assess long-lived assets for impairment whenever circumstances indicate impairment may have occurred. This analysis is performed by comparing the respective carrying values of the assets to the undiscounted expected future cash flows to be generated from such assets. Property and equipment is evaluated separately within each segment. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.

Program Cash

Program cash primarily represents amounts specifically designated to purchase assets under vehicle programs and/or to repay the related debt.

Vehicles

Vehicles are stated at cost, net of accumulated depreciation. The initial cost of the vehicles is recorded net of incentives and allowances from manufacturers. The Company acquires many of its rental vehicles pursuant to repurchase and guaranteed depreciation programs established by automobile manufacturers. Under these programs, the manufacturers agree to repurchase vehicles at a specified price and date, or guarantee the depreciation rate for a specified period of time, subject to certain eligibility criteria (such as car condition and mileage requirements). The Company depreciates vehicles such that the net book value on the date of return to the manufacturers is intended to equal the contractual guaranteed residual values, thereby minimizing any gain or loss.

Rental vehicles acquired outside of manufacturer repurchase and guaranteed depreciation programs are depreciated based upon their estimated residual values at their expected dates of disposition, after giving effect to anticipated conditions in the used car market, which are reviewed on a continuous basis. Any adjustments to depreciation are made prospectively.

The estimation of residual values requires the Company to make assumptions regarding the age and mileage of the car at the time of disposal, as well as expected used vehicle auction market conditions. The Company periodically evaluates estimated residual values and adjusts depreciation rates as appropriate. Differences between actual residual values and those estimated result in a gain or loss on disposal and are recorded as part of vehicle depreciation at the time of sale. For 2013, 2012 and 2011, rental vehicles were depreciated at rates ranging from 1% to 43% per annum. Vehicle-related interest expense amounts are net of vehicle-related interest income of $9 million, $8 million and $8 million for 2013, 2012 and 2011, respectively.

F-9

Advertising Expenses

Advertising costs are generally expensed in the period incurred. Advertising expenses, recorded within selling, general and administrative expense on our Consolidated Statements of Operations, include radio, television, travel partner rewards programs, internet advertising and other advertising and promotions and were approximately $116 million, $127 million and $107 million in 2013, 2012 and 2011, respectively.

Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent it believes that it is more likely than not that these assets will be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event the Company were to determine that it would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, the Company would adjust the valuation allowance, which would reduce the provision for income taxes.

The Company reports revenues net of any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer.

Fair Value Measurements

The Company measures fair value of assets and liabilities and discloses the source for such fair value measurements. Financial assets and liabilities are classified as follows: Level 1, which refers to assets and liabilities valued using quoted prices from active markets for identical assets or liabilities; Level 2, which refers to assets and liabilities for which significant other observable market inputs are readily available; and Level 3, which are valued based on significant unobservable inputs.

The fair value of the Company’s financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market (Level 1 inputs). In some cases where quoted market prices are not available, prices are derived by considering the yield of the benchmark security that was issued to initially price the instruments and adjusting this rate by the credit spread that market participants would demand for the instruments as of the measurement date (Level 2 inputs). In situations where long-term borrowings are part of a conduit facility backed by short-term floating rate debt, the Company has determined that its carrying value approximates the fair value of this debt (Level 2 inputs). The carrying amounts of cash and cash equivalents, available-for-sale securities, accounts receivable, program cash and accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.

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

F-10

Derivative Instruments

Derivative instruments are used as part of the Company’s overall strategy to manage exposure to market risks associated with fluctuations in currency exchange rates, interest rates and gasoline costs. As a matter of policy, derivatives are not used for trading or speculative purposes.

All derivatives are recorded at fair value either as assets or liabilities. Changes in fair value of derivatives not designated as hedging instruments are recognized currently in earnings within the same line item as the hedged item. The effective portion of changes in fair value of a derivative that is designated as either a cash flow or net investment hedge, is recorded as a component of accumulated other comprehensive income. The ineffective portion is recognized in earnings within the same line item as the hedged item, including vehicle interest, net or interest related to corporate debt, net. Amounts included in accumulated other comprehensive income are reclassified into earnings in the same period during which the hedged item affects earnings. Amounts related to our derivative instruments are recognized in the Consolidated Statements of Cash Flows consistent with the nature of the hedged item (principally operating activities).

Investments

The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determination at each balance sheet date. Common stock investments in affiliates over which the Company has the ability to exercise significant influence but not a controlling interest are carried on the equity method of accounting. Available-for-sale securities are carried at current fair value with unrealized gains or losses reported net of taxes as a separate component of stockholders’ equity. Trading securities are recorded at fair value with realized and unrealized gains and losses reported currently in earnings. As of December 31, 2013, the Company has investments in available-for-sale securities with a fair value of $6 million.

Joint venture investments are typically accounted for under the equity method of accounting. Under this method, the Company records its proportional share of the joint venture’s net income or loss within operating expenses in the Consolidated Statements of Operations. As of December 31, 2013, the Company had investments in several joint ventures with a carrying value of $53 million, recorded within non-current assets on the Consolidated Balance Sheets.

Aggregate realized gains and losses on investments and dividend income are recorded within operating expenses on the Consolidated Statements of Operations. During 2013, the amount realized from the sale of certain equity investments was not material. During 2012 and 2011, the Company realized a gain of $2 million and $1 million, respectively, from the sale of equity investments.

Self-Insurance Reserves

The Consolidated Balance Sheets include $416 million and $407 million of liabilities associated with retained risks of liability to third parties as of December 31, 2013 and 2012, respectively. Such liabilities relate primarily to public liability and third-party property damage claims, as well as claims arising from the sale of ancillary insurance products including but not limited to supplemental liability, personal effects protection and personal accident insurance. These obligations represent an estimate for both reported claims not yet paid and claims incurred but not yet reported. The estimated reserve requirements for such claims are recorded on an undiscounted basis utilizing actuarial methodologies and various assumptions which include, but are not limited to, the Company’s historical loss experience and projected loss development factors. The required liability is also subject to adjustment in the future based upon the changes in claims experience, including changes in the number of incidents and changes in the ultimate cost per incident. These amounts are included within accounts payable and other current liabilities and other non-current liabilities.

The Consolidated Balance Sheets also include liabilities of approximately $59 million and $61 million as of December 31, 2013 and 2012, respectively, related to workers’ compensation, health and welfare and other employee benefit programs. The liabilities represent an estimate for both reported claims not yet paid and claims incurred but not yet reported, utilizing actuarial methodologies similar to those mentioned above. These amounts are included within accounts payable and other current liabilities and other non-current liabilities.

F-11

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the vesting period. The Company’s policy is to record compensation expense for stock options, and restricted stock units that are time- and performance-based, for the portion of the award that is expected to vest. Compensation expense related to market-based restricted stock units is recognized provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. We estimate the fair value of restricted stock units using the market price of the Company’s common stock on the date of grant. We estimate the fair value of stock-based and cash unit awards containing a market condition using a Monte Carlo simulation model. Key inputs and assumptions used in the Monte Carlo simulation model include the stock price of the award on the grant date, the expected term, the risk-free interest rate over the expected term, the expected annual dividend yield and the expected stock price volatility. The expected volatility is based on a combination of the historical and implied volatility of the Company’s publicly traded, near-the-money stock options, and the valuation period is based on the vesting period of the awards. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant and, since the Company does not currently pay or plan to pay a dividend on its common stock, the expected dividend yield was zero.

Business Combinations

The Company uses the acquisition method of accounting for business combinations, which requires that the assets acquired and liabilities assumed be recorded at their respective fair values at the date of acquisition. Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized if fair value can be reasonably estimated at the acquisition date. The excess, if any, of (i) the fair value of the consideration transferred by the acquirer and the fair value of any non-controlling interest remaining in the acquiree, over (ii) the fair values of the identifiable net assets acquired is recorded as goodwill. Gains and losses on the re-acquisition of unfavorable license agreements are recorded in the Consolidated Statements of Operations upon completion of the respective acquisition. Transaction-related costs incurred to effect a business combination are expensed as incurred, except for the cost to issue debt related to the acquisition.

Transaction-related Costs

Transaction-related costs are classified separately in the Consolidated Statements of Operations. These costs comprise expenses related to the integration of the acquiree’s operations with those of the Company, including duplicate headcount costs for functions or positions that are integrated, costs associated with the implementation of incremental compliance-related programs, expenses for the implementation of best practices and process improvements, and expenses related to acquisition-related activities such as due-diligence and other advisory costs. Transaction-related costs in 2011 also include a non-cash charge related to the reacquired unfavorable license rights and losses on currency transactions related to the Avis Europe acquisition.

Currency Transactions

The Company records the net gain or loss of currency transactions on certain intercompany loans and the unrealized gain or loss on intercompany loan hedges within interest expense related to corporate debt, net. During the years ended December 31, 2013 and 2012, the Company recorded losses of $11 million and $17 million, respectively, on such items. There was no such item in the year ended December 31, 2011.

Adoption of New Accounting Standards During 2013

In January 2013, as a result of the issuance of a new accounting pronouncement, the Company adopted Accounting Standards Update (“ASU”) No. 2012-2, “Testing Indefinite-Lived Intangible Assets for Impairment,” which provides companies the option to first assess qualitative factors to determine whether there are events or circumstances which would lead to a determination that it is more likely than not that the indefinite-lived intangible asset is impaired, and it did not have an impact on the Company’s financial statements.

In January 2013, as a result of issuance of a new accounting pronouncement, the Company adopted, as required, ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive

F-12

Income,” which requires companies to disclose additional information about amounts reclassified out of accumulated other comprehensive income by component. The adoption of this pronouncement resulted in incremental disclosure about activity and amounts reclassified out of accumulated other comprehensive income.

Recently Issued Accounting Pronouncements

On January 1, 2014, as a result of the issuance of a new accounting pronouncement, the Company adopted ASU No. 2013-11, “Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which requires tax benefits to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward. The adoption of this accounting pronouncement will not have an impact on the Company’s financial statements.


3.	Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) (shares in millions):



		Year Ended December 31,
		2013		2012		2011^(a)
Net income (loss) for basic EPS		$	16	$	290	$	(29	)
Convertible debt interest, net of tax		—		4		—
Net income (loss) for diluted EPS		$	16	$	294	$	(29	)

Basic weighted average shares outstanding		107.6		106.6		105.2
Options, warrants and non-vested stock		3.8		2.5		—
Convertible debt		—		12.5		—
Diluted weighted average shares outstanding		111.4		121.6		105.2

Earnings (loss) per share:
	Basic	$	0.15	$	2.72	$	(0.28	)
	Diluted	$	0.15	$	2.42	$	(0.28	)

__________


^(a)	As the Company incurred a net loss in 2011, all outstanding stock options, restricted stock units, stock warrants and issuable shares underlying the convertible debt have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding. Accordingly, basic and diluted weighted average shares outstanding are equal for such period.

The following table summarizes the Company’s outstanding common stock equivalents that were anti-dilutive and therefore excluded from the computation of diluted EPS (shares in millions):



	As of December 31,
	2013	2012	2011
Options ^(a)	—	0.2	3.4
Warrants ^(b)	—	7.9	21.2
Shares underlying convertible debt	4.0	—	21.2

__________


^(a)	The weighted average exercise price for anti-dilutive options for 2012 and 2011 was $17.12 and $7.90, respectively.


^(b)	Represents all outstanding warrants for 2012 and 2011. The exercise price for the warrants was $22.50.


4.	Restructuring

During fourth quarter 2012, the Company initiated a strategic restructuring initiative to better position the business of its Truck Rental segment, in which it closed certain rental locations and decreased the size of the rental fleet, with the intent to increase fleet utilization and reduce costs. During the year ended December 31, 2013, the Company recorded restructuring expense of $21 million related to this initiative and expects no further restructuring expenses to be incurred in 2014.

F-13

In 2011, subsequent to the acquisition of Avis Europe, the Company initiated restructuring initiatives, identifying synergies across the Company, enhancing organizational efficiencies and consolidating and rationalizing processes. During the years ended December 31, 2013, 2012 and 2011, as part of this process, the Company formally communicated the termination of employment to approximately 580, 550 and 50 employees, respectively. During 2013, 2012 and 2011, the Company recorded restructuring expenses in connection with these initiatives of $40 million, $37 million and $3 million, respectively, the majority of which have been or are expected to be settled in cash. These expenses primarily represent costs associated with severance, outplacement services and other costs associated with employee terminations. As of December 31, 2013, the Company has terminated approximately 440 of the employees affected in 2013 and anticipates that it will incur an additional $20 million of restructuring expenses related to these initiatives in 2014.

The following tables summarize the change to our restructuring-related liabilities and identify the amounts recorded within the Company’s reporting segments for restructuring charges and corresponding payments and utilizations:



		Personnel Related			Facility Related			Other ^(a)			Total
Balance as of January 1, 2011		$	—		$	6		$	—		$	6
	Restructuring expense	5			—			—			5
	Acquired restructuring obligation	—			1			—			1
	Cash payment/utilization	(4		)	(6		)	—			(10		)
Balance as of December 31, 2011		1			1			—			2
	Restructuring expense	37			—			1			38
	Cash payment/utilization	(26		)	—			(1		)	(27		)
Balance as of December 31, 2012		12			1			—			13
	Restructuring expense	34			6			21			61
	Cash payment/utilization	(29		)	(2		)	(21		)	(52		)
Balance as of December 31, 2013		$	17		$	5		$	—		$	22

__________


^(a)	Includes expenses related to the disposition of vehicles.



		North America			International			Truck Rental			Total
Balance as of January 1, 2011		$	6		$	—		$	—		$	6
	Restructuring expense	2			3			—			5
	Acquired restructuring obligation	—			1			—			1
	Cash payment/utilization	(7		)	(3		)	—			(10		)
Balance as of December 31, 2011		1			1			—			2
	Restructuring expense	1			36			1			38
	Cash payment/utilization	(1		)	(25		)	(1		)	(27		)
Balance as of December 31, 2012		1			12			—			13
	Restructuring expense	7			33			21			61
	Cash payment/utilization	(7		)	(24		)	(21		)	(52		)
Balance as of December 31, 2013		$	1		$	21		$	—		$	22


5.	Acquisitions

Zipcar

In March 2013, the Company completed the acquisition of the entire issued share capital of Zipcar, a leading car sharing company, for $473 million, net of acquired cash. The acquisition increased the Company’s growth potential and its ability to better serve a greater variety of customer transportation needs.

The excess of the purchase price over fair value of net assets acquired was allocated to goodwill, which was assigned to the Company’s North America segment. The goodwill is not expected to be deductible for tax purposes. The fair values of certain tangible assets and liabilities acquired, identifiable intangible assets,

F-14

income and non-income based taxes, and residual goodwill are not yet finalized and subject to change. In connection with this acquisition, $188 million was recorded in identifiable intangible assets (consisting of $112 million related to trademarks and $76 million related to customer relationships) and $269 million was recorded in goodwill. The trademark assets are indefinite-lived and the customer relationship intangibles will be amortized over an estimated life of 8 years.

Brazilian licensee

In August 2013, the Company acquired a 50% ownership stake in its Brazilian licensee for $53 million. Approximately $47 million of the total consideration was paid in 2013 and the remainder is expected to be paid by the end of first quarter 2014. The Company’s investment significantly increases its presence in the Brazilian car rental market.

The Company’s investment in its Brazilian licensee was recorded as an equity investment within Other non-current assets, and the Company’s share of the Brazilian licensee’s operating results is reported within Operating expenses. In conjunction with the acquisition, the Company agreed to the payment of contingent consideration of up to $13 million based on the Brazilian licensee’s future financial performance. The fair value of the contingent consideration was estimated by utilizing a Monte Carlo simulation technique, based on a range of possible future results, and no value was attributed to the contingent consideration at the acquisition date or at December 31, 2013. The Company’s investment, which is recorded in its International segment, totaled approximately $17 million at December 31, 2013, net of an impairment charge of $33 million ($33 million, net of tax). The impairment charge was recorded at the time of the investment based on a combination of observable and unobservable fair value inputs (Level 3), specifically a combination of the Income approach‐discounted cash flow method and the Market approach-public company market multiple method.

Payless Car Rental

In July 2013, the Company completed the acquisition of Payless for $46 million, net of acquired cash. The acquisition provides the Company with a position in the deep-value segment of the car rental industry. The excess of the purchase price over preliminary fair value of net assets acquired was allocated to goodwill, which was assigned to the Company’s North America segment. The goodwill is not expected to be deductible for tax purposes. The fair value of the assets acquired and liabilities assumed has not yet been finalized and is therefore subject to change. In connection with this acquisition, $23 million was recorded in identifiable intangible assets (consisting of $16 million related to trademarks and $7 million related to license agreements) and $27 million was recorded in goodwill. The trademark assets are indefinite-lived and the license agreements will be amortized over an estimated life of 15 years.

Apex Car Rentals

In October 2012, the Company completed the acquisition of the assets of Apex, a leading deep-value car rental company in New Zealand and Australia, operating a fleet of approximately 4,000 rental vehicles. In conjunction with the acquisition, the Company paid $63 million in cash (including the acquisition of fleet) and agreed to the payment of contingent consideration with an estimated acquisition date fair value of $9 million. The contingent consideration consists of a maximum of $26 million in additional payments that are contingent on the future financial performance of Apex. The fair value of the contingent consideration at the acquisition date, and at December 31, 2013, was estimated by utilizing a Monte Carlo simulation technique, based on a range of possible future results. Any changes in contingent consideration are recorded in Transaction-related costs. The amount recognized for contingent consideration was $12 million at December 31, 2013. In connection with this acquisition, $21 million was recorded in trademarks and $16 million was recorded in goodwill, which were allocated to the Company’s International segment. The goodwill is not expected to be deductible for tax purposes.

Avis Europe

In October 2011, the Company completed the acquisition of the entire issued share capital of Avis Europe for $976 million and subsequently repaid $649 million of assumed Avis Europe indebtedness. Avis Europe provides vehicle rental and ancillary products and services in Europe, the Middle East, Africa and Asia. The acquisition reunited the global operation of the Avis and Budget brands under one corporate umbrella.

F-15

The Company recorded a $117 million net, non-cash charge, within transaction-related costs, related to the reacquired unfavorable license rights that provided Avis Europe with royalty-free license rights within certain territories. This net charge reflects the difference, as of the acquisition date, between the fair value of the license rights and their contractual value. The Company used a relief from royalty rate analysis to determine the fair value. This valuation considered, but was not limited to, (i) the contracted royalty rates, (ii) the market royalty rate and (iii) the term of the license contracts.

The excess of the purchase price over fair value of net assets acquired was allocated to goodwill, which was assigned to the Company’s International segment. The goodwill is not expected to be deductible for tax purposes. The fair value of the assets acquired and liabilities assumed, as set forth in the table below, reflects various fair value estimates and analyses, including work performed by third-party valuation specialists. The following summarizes the allocation of the purchase price of Avis Europe:



Cash		$	136
Receivables		245
Other current assets		213
Property and equipment		91
Deferred income taxes		27
Other intangibles		254
Other non-current assets		31
Vehicles		1,706
Receivables from vehicle manufacturers and other		282
	Total identifiable assets acquired	2,985

Accounts payable and other current liabilities		(552		)
Debt		(763		)
Other non-current liabilities		(322		)
Liabilities under vehicles program - debt		(779		)
	Total liabilities assumed	(2,416		)

Net assets acquired		569
Goodwill		290
Non-cash charge related to the reacquired unfavorable license rights		117
	Total	$	976

Other intangibles consisted primarily of $188 million related to license agreements and $66 million related to customer relationships. These license agreements are amortized over a weighted-average life of approximately 20 years. Customer relationships are amortized over a weighted-average life of approximately 12 years.

Avis Europe contributed net revenues of $359 million and a net loss of $223 million, including $213 million of transaction-related costs, net of tax to the Company’s results from October 2011 through December 2011. The net loss was primarily due to a non-cash charge, recorded at the time of the acquisition, related to the unfavorable license rights reacquired by the Company. The following unaudited pro forma summary presents the Company’s consolidated information as if Avis Europe had been acquired on January 1, 2011. These amounts were calculated after conversion of Avis Europe’s results into U.S. dollars, applying adjustments to align the financial information with GAAP and the Company’s accounting policies. In addition, adjustments were made to reflect the impact to amortization expense and related income tax expense for fair value adjustments and revised useful lives assigned to intangible assets as if Avis Europe had been acquired on January 1, 2011.



	(unaudited) Pro Forma Summary for the Year Ended December 31,
	2011
Net revenues	$	7,259
Net income	22
Earnings per share – Diluted	0.17

F-16


6.	Intangible Assets

Intangible assets consisted of:



	As of December 31, 2013						As of December 31, 2012
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized Intangible Assets
License agreements ^{(a) (d)}	$	272	$	52	$	220	$	257	$	39	$	218
Customer relationships ^(b) (e)	166		35		131		86		19		67
Other ^(c)	2		1		1		2		1		1
	$	440	$	88	$	352	$	345	$	59	$	286

Unamortized Intangible Assets
Goodwill ^{(d) (e)}	$	691					$	375
Trademarks ^{(d) (e)}	$	571					$	445

_________


^(a)	Primarily amortized over a period ranging from 20 to 40 years.


^(b)	Primarily amortized over a period ranging from 8 to 20 years.


^(c)	Primarily amortized over 27 years.


^(d)	The increase primarily relates to the acquisition of Payless.


^(e)	The increase primarily relates to the acquisition of Zipcar.

Amortization expense relating to all intangible assets was as follows:



	Year Ended December 31,
	2013		2012		2011
License agreements	$	12	$	13	$	4
Customer relationships	15		8		3
Total	$	27	$	21	$	7

Based on the Company’s amortizable intangible assets at December 31, 2013, the Company expects related amortization expense of approximately $29 million for each of the five succeeding fiscal years excluding effects of currency exchange rates.

The carrying amounts of goodwill and related changes are as follows:



		North America			International			Truck Rental			Total Company
Gross goodwill as of January 1, 2012		$	1,359		$	869		$	243		$	2,471
	Accumulated impairment losses as of January 1, 2012	(1,355		)	(535		)	(228		)	(2,118		)
Goodwill as of January 1, 2012		4			334			15			353
	Acquisitions	1			16			—			17
	Adjustments to the allocation of purchase price	—			5			—			5
Goodwill as of December 31, 2012		$	5		$	355		$	15		$	375
	Acquisitions	296			4			—			300
	Foreign currency translation adjustments	—			16			—			16
Goodwill as of December 31, 2013		$	301		$	375		$	15		$	691

F-17


7.	Vehicle Rental Activities

The components of vehicles, net within assets under vehicle programs are as follows:



	As of December 31,
	2013			2012
Rental vehicles	$	10,234		$	10,000
Less: Accumulated depreciation	(1,411		)	(1,345		)
	8,823			8,655
Vehicles held for sale	759			619
Vehicles, net	$	9,582		$	9,274

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



	Year Ended December 31,
	2013			2012			2011
Depreciation expense	$	1,678		$	1,438		$	1,395
Lease charges	139			130			62
Gain on sale of vehicles, net	(6		)	(97		)	(234		)
Vehicle depreciation and lease charges, net	$	1,811		$	1,471		$	1,223

For the years ended December 31, 2013, 2012 and 2011, the Company had purchases of vehicles included

in payables of $260 million, $284 million and $356 million, respectively, and sales of vehicles included in

receivables of $378 million, $439 million and $339 million, respectively.


8.	Income Taxes

The provision for (benefit from) income taxes consists of the following:



		Year Ended December 31,
		2013			2012			2011
Current
	Federal	$	(4	)	$	(109	)	$	—
	State	12			(16		)	(3		)
	Foreign	36			7			36
	Current income tax provision (benefit)	44			(118		)	33

Deferred
	Federal	28			93			36
	State	8			20			10
	Foreign	1			15			(14		)
	Deferred income tax provision	37			128			32
Provision for income taxes		$	81		$	10		$	65

Pretax income (loss) for domestic and foreign operations consists of the following:



	Year Ended December 31,
	2013		2012		2011
United States ^(a)	$	4	$	233	$	74
Foreign ^(b)	93		67		(38		)
Pretax income	$	97	$	300	$	36

__________


^(a)	For the years ended December 31, 2013 and 2012, includes debt extinguishment costs of $147 million and $75 million, respectively.


^(b)	For the year ended December 31, 2011, includes $128 million of transaction-related costs.

F-18

Current and non-current deferred income tax assets and liabilities are comprised of the following:



		As of December 31,
		2013			2012
Current deferred income tax assets:
	Accrued liabilities and deferred revenue	$	209		$	179
	Provision for doubtful accounts	12			10
	Acquisition and integration-related liabilities	10			8
	Convertible note hedge	1			3
	Valuation allowance ^(a)	(28		)	(22		)
Current deferred income tax assets		204			178

Current deferred income tax liabilities:
	Accrued liabilities and deferred revenue	5			6
	Prepaid expenses	22			26
Current deferred income tax liabilities		27			32
Current deferred income tax assets, net		$	177		$	146

Non-current deferred income tax assets:
	Net tax loss carryforwards	$	1,431		$	1,454
	Accrued liabilities and deferred revenue	137			151
	Depreciation and amortization	15			54
	Tax credits	75			62
	Convertible note hedge	—			2
	Acquisition and integration-related liabilities	16			16
	Other	46			36
	Valuation allowance ^(a)	(319		)	(276		)
Non-current deferred income tax assets		1,401			1,499

Non-current deferred income tax liabilities:
	Depreciation and amortization	101			42
	Other	1			3
Non-current deferred income tax liabilities		102			45
Non-current deferred income tax assets, net		$	1,299		$	1,454

__________

^(a)

The valuation allowance of $347 million at December 31, 2013 relates to tax loss carryforwards, foreign tax credits and certain state deferred tax assets of $279 million, $46 million and $22 million, respectively. The valuation allowance will be reduced when and if the Company determines it is more likely than not that the related deferred income tax assets will be realized. The valuation allowance of $298 million at December 31, 2012 relates to tax loss carryforwards, foreign tax credits and certain state deferred tax assets of $227 million, $53 million and $18 million, respectively.

Deferred income tax assets and liabilities related to vehicle programs are comprised of the following:



	As of December 31,
	2013		2012
Deferred income tax assets:
Depreciation and amortization	$	51	$	49
	51		49
Deferred income tax liabilities:
Depreciation and amortization	2,228		2,212
	2,228		2,212
Deferred income tax liabilities under vehicle programs, net	$	2,177	$	2,163

At December 31, 2013, the Company had U.S. federal net operating loss carryforwards of approximately $3.3 billion, most of which expire in 2031. Such net operating loss carryforwards are primarily related to accelerated depreciation of the Company’s U.S. vehicles. Currently, the Company does not record valuation allowances on the majority of its U.S. federal tax loss carryforwards as there are adequate deferred tax liabilities that could be realized within the carryforward period. At December 31, 2013, the Company had foreign net operating loss carryforwards of approximately $445 million with an indefinite utilization period. No

F-19

provision has been made for U.S. federal deferred income taxes on approximately $720 million of accumulated and undistributed earnings of foreign subsidiaries at December 31, 2013, since it is the present intention of management to reinvest the undistributed earnings indefinitely in those foreign operations. The determination of the amount of unrecognized U.S. federal deferred income tax liability for unremitted earnings is not practicable.

The reconciliation between the U.S. federal income tax statutory rate and the Company’s effective income tax rate is as follows:



		Year Ended December 31,
		2013		2012		2011
U.S. federal statutory rate		35.0	%	35.0	%	35.0	%
Adjustments to reconcile to the effective rate:
	State and local income taxes, net of federal tax benefits	4.1		4.9		4.2
	Changes in valuation allowances ^(a)	15.5		0.9		(1.3	)
	Taxes on foreign operations at rates different than statutory U.S. federal rates	5.9		—		(13.2	)
	Resolution of prior years’ examination issues	—		(42.5	)	—
	Non-deductible debt extinguishment costs	18.8		4.7		—
	Non-deductible transaction-related costs	3.2		0.3		146.5
	Other non-deductible expenses	2.3		0.6		10.1
	Other	(1.3	)	(0.6	)	(0.7	)
		83.5	%	3.3	%	180.6	%

__________


^(a)	For the year ended December 31, 2013, includes 13.1% related to our impairment expense.

The following is a tabular reconciliation of the gross amount of unrecognized tax benefits for the year:



		2013			2012			2011
Balance at January 1		$	54		$	186		$	40
	Additions for tax positions related to current year	4			4			—
	Additions for tax positions for prior years	9			5			143
	Additions associated with the acquisition of Avis Europe	—			—			34
	Reductions for tax positions for prior years	—			(140		)	(3		)
	Settlements	—			(1		)	—
	Statute of limitations	(4		)	—			(28		)
Balance at December 31		$	63		$	54		$	186

In 2012, the Company recorded a reduction in its unrecognized tax benefits primarily due to an effective settlement of $128 million for pre-2007 taxes. The Company does not anticipate that total unrecognized tax benefits will change significantly in 2014.

Substantially all of the gross amount of the unrecognized tax benefits at December 31, 2013, 2012 and 2011, if recognized, would affect the Company’s provision for, or benefit from, income taxes. As of December 31, 2013, the Company’s unrecognized tax benefits were offset by tax loss carryforwards in the amount of $18 million.

The following table presents unrecognized tax benefits:



	As of December 31,
	2013		2012
Unrecognized tax benefit in non-current income taxes payable ^(a)	$	44	$	39
Accrued interest payable on potential tax liabilities ^(b)	28		22

__________


^(a)	Pursuant to the agreements governing the disposition of certain subsidiaries in 2006, the Company is entitled to indemnification for certain pre-disposition tax contingencies. As of December 31, 2013, $15 million of unrecognized tax benefits are related to tax contingencies for which the Company believes it is entitled to indemnification.


^(b)	The Company recognizes potential interest related to unrecognized tax benefits within interest expense related to corporate debt, net on the accompanying Consolidated Statements of Operations. Penalties incurred during the

F-20

twelve months ended December 31, 2013, 2012 and 2011, were not significant and were recognized as a component of income taxes.


9.	Other Current Assets

Other current assets consisted of:



	As of December 31,
	2013		2012
Prepaid expenses	$	187	$	174
Sales and use taxes	132		108
Other	136		123
Other current assets	$	455	$	405


10.	Property and Equipment, net

Property and equipment, net consisted of:



	As of December 31,
	2013			2012
Land	$	56		$	58
Buildings and leasehold improvements	549			521
Capitalized software	494			419
Furniture, fixtures and equipment	374			319
Buses and support vehicles	74			64
Projects in process	64			37
	1,611			1,418
Less: Accumulated depreciation and amortization	(997		)	(889		)
Property and equipment, net	$	614		$	529

Depreciation and amortization expense relating to property and equipment during 2013, 2012 and 2011 was $124 million, $104 million and $88 million, respectively (including $36 million, $30 million and $26 million, respectively, of amortization expense relating to capitalized software).


11.	Other Non-Current Assets

Other non-current assets consisted of:



	As of December 31,
	2013		2012
Debt financing fees	$	134	$	127
Receivables from Realogy ^(a)	60		62
Investments ^(b)	59		41
Receivables from Wyndham ^(a)	36		37
Other	72		53
Other non-current assets	$	361	$	320

__________

^(a)

Represents amounts due for certain contingent, tax and other corporate liabilities assumed by former subsidiaries. These amounts are due on demand upon the Company’s settlement of the related liability. At December 31, 2013 and 2012, there are corresponding liabilities recorded within other non-current liabilities. Realogy has posted a letter of credit for the benefit of the Company with respect to these obligations, as more fully described under Note 15—Commitments and Contingencies.


^(b)	In 2013, amount includes the Company’s (i) 50% ownership of Anji Car Rental and Leasing Company Limited (“Anji”), our joint venture for the Avis brand in China, and (ii) 50% ownership in its Brazilian licensee. In 2012, amounts included (i) 50% ownership of Anji and (ii) 33% ownership of Mercury Car Rentals Limited, our joint venture for the Avis brand in India.

F-21


12.	Accounts Payable and Other Current Liabilities

Accounts payable and other current liabilities consisted of:



	As of December 31,
	2013		2012
Accounts payable	$	344	$	309
Accrued payroll and related	210		198
Accrued sales and use taxes	193		148
Public liability and property damage insurance liabilities – current	136		132
Deferred revenue – current	87		60
Accrued commissions	77		67
Advertising and marketing	75		82
Accrued interest	63		66
Income taxes payable – current	13		58
Other	281		301
Accounts payable and other current liabilities	$	1,479	$	1,421


13.	Long-term Debt and Borrowing Arrangements

Long-term debt and other borrowing arrangements consisted of:



	Maturity Date	As of December 31,
	Maturity Date	2013		2012
Floating Rate Senior Notes	May 2014	$	—	$	250
3½% Convertible Notes	October 2014	66		128
Floating Rate Term Loan ^(a)	May 2016	—		49
4⅞% Senior Notes	November 2017	300		300
Floating Rate Senior Notes	December 2017	247		—
9⅝% Senior Notes	March 2018	—		446
8¼% Senior Notes	January 2019	691		730
Floating Rate Term Loan ^(a)	March 2019	989		689
9¾% Senior Notes	March 2020	223		250
6% Euro-denominated Senior Notes	March 2021	344		—
5½% Senior Notes	April 2023	500		—
		3,360		2,842
Other		34		63
Total		3,394		2,905
Less: Short-term debt and current portion of long-term debt		89		57
Long-term debt		$	3,305	$	2,848

__________


^(a)	The Floating Rate Term Loans are part of the Company’s senior credit facility, which is secured by pledges of capital stock of certain subsidiaries of the Company, and liens on substantially all of the Company’s intellectual property and certain other real and personal property.

Convertible Notes

3½% Convertible Senior Notes. The Company’s 3½% Convertible Senior Notes due October 2014 (the “Convertible Notes”) were issued in October 2009 at par value, for aggregate proceeds of $345 million. The Convertible Notes are senior unsecured obligations of the Company. The Convertible Notes are not redeemable by the Company prior to maturity; however, they are convertible by the holders at any time prior to the second trading day before the maturity date of the Convertible Notes. The initial conversion rate for the Convertible Notes is 61.5385 shares of common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $16.25 per share, and which is subject to adjustment under certain circumstances.

Concurrently with the issuance of the Convertible Notes, the Company purchased a convertible note hedge and entered into a warrant transaction, which effectively increased the conversion price of the Convertible

F-22

Notes, from the Company’s perspective, to $22.50 per share. The convertible note hedge was intended to reduce the net number of shares required to be issued upon conversion of the Convertible Notes.

During 2013 and 2012, the Company repurchased $62 million and $217 million, respectively, of its Convertible Notes at a cost of $115 million and $257 million, respectively. In conjunction with the repurchase of the Convertible Notes, the Company repurchased warrants and sold convertible note hedges corresponding to the repurchased Convertible Notes. In December 2013, the Company unwound the remaining outstanding convertible note hedge and warrants. See Note 16-Stockholders’ Equity for further details.

Term Loans

Floating Rate Term Loan due 2016. In October 2012, the Company issued an incremental $30 million under its Floating Rate Term Loan due 2016. In December 2013, the Company repaid the entire outstanding principal amount plus any accrued and unpaid interest.

Floating Rate Term Loan due 2019. The Company issued $500 million and $200 million of Floating Rate Term Loan in March and October 2012, respectively, under the Company’s senior credit facility. The Company used the proceeds of the loan to repay approximately $420 million of term loan borrowings due 2014 and 2018 and $75 million of its senior notes due 2014.

During 2013, the Company amended its senior credit facility to issue, in aggregate, an additional $300 million of term loan due 2019. A portion of the proceeds was used to partially fund the acquisition of Zipcar. The term loan has a committed aggregate principal amount of $1 billion and bears interest at the greater of three-month LIBOR or 0.75% plus 225 basis points, for an aggregate rate of 3.00% at December 31, 2013; however, the Company has entered into an interest rate swap to hedge $600 million of its interest rate exposure related to the floating rate term loan at an aggregate rate of 3.96%.

Senior Notes

Floating Rate Senior Notes due 2014. In June 2013, the Company repaid $100 million of outstanding principal, and in December 2013, the Company repaid the remaining outstanding principal of $150 million.

4⅞% Senior Notes due 2017. In November 2012, the Company issued its 4⅞% Senior Notes at par, for aggregate proceeds of $300 million with interest payable semi-annually. The Company has the right to redeem these notes in whole or in part at any time on or after May 15, 2015, at specified prices, plus any accrued and unpaid interest through the redemption date.

Floating Rate Senior Notes due 2017. In November 2013, the Company issued its Floating Rate Senior Notes at 98.75% of their face value for aggregate proceeds of $247 million. The interest rate on these notes is equal to three-month LIBOR plus 275 basis points, for an aggregate rate of 3.00% at December 31, 2013; however, the Company has entered into an interest rate swap to hedge its interest rate exposure related to the these notes at an aggregate rate of 3.58%.

In connection with the sale of the Floating Rate Notes due December 2017, the Company entered into a registration rights agreement, under which it has agreed to use its reasonable best efforts to file with the Securities and Exchange Commission and cause to become effective a registration statement with respect to a registered offer to exchange the notes for new notes, with substantially identical terms in all material respects. In accordance with the registration rights agreement, the Company could be required to pay additional interest of up to 0.25% per annum on the principal amount of the notes from February 18, 2015 until the exchange offer is completed, a shelf registration statement, if required, is declared effective or the restricted notes become freely tradable under the Securities Act. The Company believes the likelihood of occurrence of such event is remote and, as such, the Company has not recorded a related liability as of December 31, 2013.

9⅝% Senior Notes due 2018. During 2013, the Company repaid the entire outstanding $446 million principal plus accrued and unpaid interest.

8¼% Senior Notes due 2019. In March 2012, the Company issued a third tranche of 8¼% Senior Notes in the amount of $125 million at 103.5% of their face value, for aggregate proceeds of $129 million with interest payable semi-annually. The Company has the right to redeem these notes in whole or in part at any

F-23

time on or after October 15, 2014, at specified redemption prices, plus any accrued and unpaid interest through the redemption date. In December 2013, the Company purchased approximately $39 million of the aggregate principal amount.

9¾% Senior Notes due 2020. In April 2013, the Company purchased approximately $27 million of the aggregate principal amount.

6% Euro-denominated Senior Notes. In March 2013, the Company issued €250 million of 6% Euro-denominated Senior Notes due March 2021, at par, with interest payable semi-annually. The notes are unsecured obligations of the Company’s Avis Budget Finance plc subsidiary, are guaranteed on a senior basis by the Company and certain of its domestic subsidiaries and rank equally with all of the Company’s existing senior unsecured debt. The Company has the right to redeem these notes in whole or in part on or after April 1, 2016 at specified redemption prices, plus any accrued and unpaid interest. The Company used the proceeds from the issuance to partially fund the acquisition of Zipcar.

5½% Senior Notes due 2023. In April 2013, the Company completed an offering of $500 million of 5½% Senior Notes due April 2023. The notes were issued at par, with interest payable semi-annually. The Company has the right to redeem these notes in whole or in part on or after April 1, 2018 at specified redemption prices, plus any accrued and unpaid interest.

In connection with the issuance of the 5½% Senior Notes due 2023, the Company completed a cash tender offer pursuant to which approximately $326 million in aggregate principal amount of its 9⅝% Senior Notes due 2018 and approximately $27 million of the aggregate principal amount of its 9¾% Senior Notes due 2020 were purchased by the Company for $398 million plus accrued interest. In June 2013, the Company redeemed the remaining $124 million principal amount of the 9⅝% Senior Notes due 2018 for $139 million plus accrued interest.

The Floating Rate Senior Notes, the 4⅞% Senior Notes, 8¼% Senior Notes, the 9¾% Senior Notes, and the 5½% Senior Notes, in each case as described above, are senior unsecured obligations of the Company’s Avis Budget Car Rental, LLC (“ABCR”) subsidiary, are guaranteed by the Company and certain of its domestic subsidiaries and rank equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness.

In connection with the debt amendments and repayments for the years ended December 31, 2013 and 2012, the Company recorded $147 million and $75 million in early extinguishment of debt costs, respectively.

DEBT MATURITIES

The following table provides contractual maturities of the Company’s corporate debt at December 31, 2013:



Year	Amount
2014	$	89
2015	17
2016	16
2017	561
2018	11
Thereafter	2,700
	$	3,394

F-24

COMMITTED CREDIT FACILITIES AND AVAILABLE FUNDING ARRANGEMENTS

At December 31, 2013, the committed corporate credit facilities available to the Company and/or its subsidiaries were as follows:



	Total Capacity		Outstanding Borrowings		Letters of Credit Issued		Available Capacity
Senior revolving credit facility maturing 2018 ^(a)	$	1,650	$	—	$	598	$	1,052
Other facilities ^(b)	13		1		—		12

__________


^(a)	The senior revolving credit facility bears interest at one-month LIBOR, plus 225 basis points. The senior revolving credit facility is part of the Company’s senior credit facility, which is secured by pledges of capital stock of certain subsidiaries of the Company, and liens on substantially all of the Company’s intellectual property and certain other real and personal property.


^(b)	These facilities encompass bank overdraft lines of credit, bearing interest of 4.50% to 5.69% as of December 31, 2013.

During 2013, the Company extended the maturity of the senior revolving credit facility from 2016 to 2018, expanded its borrowing capacity under the facility, and reduced its borrowing spread under the facility by 75 basis points.

At December 31, 2013, the Company had various uncommitted credit facilities available, which bear interest at rates of 0.52% to 2.50%, under which it had drawn approximately $4 million.

DEBT COVENANTS

The agreements governing the Company’s indebtedness contain restrictive covenants, including restrictions on dividends paid to the Company by certain of its subsidiaries, the incurrence of additional indebtedness by the Company and certain of its subsidiaries, acquisitions, mergers, liquidations, and sale and leaseback transactions. The Company’s senior credit facility contain financial and other covenants, including a maximum leverage ratio. As of December 31, 2013, the Company was in compliance with the financial covenants of its senior credit facility.


14.	Debt under Vehicle Programs and Borrowing Arrangements

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



	As of December 31,
	2013		2012
North America – Debt due to Avis Budget Rental Car Funding ^(a)	$	5,656	$	5,203
North America – Canadian borrowings	400		353
International – Debt borrowings	731		679
International – Capital leases	289		315
Truck Rental – Debt borrowings ^(b)	226		253
Other ^(c)	35		3
Total	$	7,337	$	6,806

__________


^(a)	The increase reflects additional borrowings principally to fund an increase in the Company’s fleet driven by increased rental volume and the acquisitions of Zipcar and Payless.


^(b)	The decrease reflects reduced borrowings due to a decrease in the size of the Company’s truck fleet.


^(c)	The increase is principally related to Zipcar capital leases.

North America

Debt due to Avis Budget Rental Car Funding. Avis Budget Rental Car Funding, an unconsolidated bankruptcy remote qualifying special purpose limited liability company, issues privately placed notes to investors as well as to banks and bank-sponsored conduit entities. Avis Budget Rental Car Funding uses the proceeds from its note issuances to make loans to a wholly-owned subsidiary of the Company, AESOP Leasing LP (“AESOP Leasing”), on a continuing basis. AESOP Leasing is required to use the proceeds of such loans to acquire or finance the acquisition of vehicles used in the Company’s rental car operations. By issuing debt through the Avis Budget Rental Car Funding program, the Company pays a lower rate of interest than if it had issued debt directly to third parties. Avis Budget Rental Car Funding is not consolidated,

F-25

as the Company is not the “primary beneficiary” of Avis Budget Rental Car Funding. The Company determined that it is not the primary beneficiary because the Company does not have the obligation to absorb the potential losses or receive the benefits of Avis Budget Rental Car Funding’s activities since the Company’s only significant source of variability in the earnings, losses or cash flows of Avis Budget Rental Car Funding is exposure to its own creditworthiness, due to its loan from Avis Budget Rental Car Funding. Because Avis Budget Rental Car Funding is not consolidated, AESOP Leasing’s loan obligations to Avis Budget Rental Car Funding are reflected as related party debt on the Company’s Consolidated Balance Sheets. The Company also has an asset within Assets under vehicle programs on its Consolidated Balance Sheets which represents securities issued to the Company by Avis Budget Rental Car Funding. AESOP Leasing is consolidated, as the Company is the “primary beneficiary” of AESOP Leasing; as a result, the vehicles purchased by AESOP Leasing remain on the Company’s Consolidated Balance Sheets. The Company determined it is the primary beneficiary of AESOP Leasing, as it has the ability to direct its activities, an obligation to absorb a majority of its expected losses and the right to receive the benefits of AESOP Leasing’s activities. AESOP Leasing’s vehicles and related assets, which as of December 31, 2013, approximate $7.3 billion and many of which are subject to manufacturer repurchase and guaranteed depreciation agreements, collateralize the debt issued by Avis Budget Rental Car Funding. The assets and liabilities of AESOP Leasing are presented on the Company’s Consolidated Balance Sheets within Assets under vehicle programs and Liabilities under vehicle programs, respectively. The assets of AESOP Leasing, included within Assets under vehicle programs (excluding the Investments in Avis Budget Rental Car Funding (AESOP) LLC—related party) are restricted. Such assets may be used only to repay the respective AESOP Leasing liabilities, included within Liabilities under vehicle programs, and to purchase new vehicles, although if certain collateral coverage requirements are met, AESOP Leasing may pay dividends from excess cash. The creditors of AESOP Leasing and Avis Budget Rental Car Funding have no recourse to the general credit of the Company. The Company periodically provides Avis Budget Rental Car Funding with non-contractually required support, in the form of equity and loans, to serve as additional collateral for the debt issued by Avis Budget Rental Car Funding.

The business activities of Avis Budget Rental Car Funding are limited primarily to issuing indebtedness and using the proceeds thereof to make loans to AESOP Leasing for the purpose of acquiring or financing the acquisition of vehicles to be leased to the Company’s rental car subsidiaries and pledging its assets to secure the indebtedness. Because Avis Budget Rental Car Funding is not consolidated by the Company, its results of operations and cash flows are not reflected within the Company’s financial statements. Borrowings under the Avis Budget Rental Car Funding program primarily represent fixed rate notes and had a weighted average interest rate of 3% as of December 31, 2013 and 2012.

Canadian borrowings. The Company finances the acquisition of vehicles used in its Canadian rental operations through a consolidated, bankruptcy remote special-purpose entity, which issues privately placed notes to investors and bank-sponsored conduits. The Canadian borrowings represent a mix of fixed and floating rate debt and had a weighted average interest rate of 3% and 4% as of December 31, 2013 and 2012, respectively.

International

Debt borrowings. In March 2013, the Company entered into a three-year, €500 million (approximately $687 million) European rental fleet securitization program, which matures in 2016 and is used to finance fleet purchases for certain of the Company’s European operations. The Company finances the acquisition of vehicles used in its International rental car operations through this European and other consolidated, bankruptcy remote special-purpose entities, which issue privately placed notes to banks and bank-sponsored conduits. The International borrowings primarily represent floating rate notes and had a weighted average interest rate of 4% as of December 31, 2013 and 2012.

Capital leases. The Company obtained a portion of its International vehicles under capital lease arrangements for which there are corresponding assets of $306 million and $317 million, classified within vehicles, net on the Company’s Consolidated Balance Sheets as of December 31, 2013 and 2012, respectively. For the years ended December 31, 2013 and 2012, the interest rates on these leases ranged from 2% to 7% and 2% to 4%, respectively. All capital leases are on a fixed repayment basis and interest rates are fixed at the contract date.

F-26

Truck Rental

Debt borrowings. The Budget Truck funding program consists of debt facilities, including capital leases, established by the Company to finance the acquisition of the Budget Truck Rental fleet. The borrowings under the Budget Truck funding program are primarily fixed rate notes with a weighted average interest rate of 3% and 4% as of December 31, 2013 and 2012, respectively.

Other

Borrowings under the Company’s other vehicle rental programs primarily represent Zipcar capital lease arrangements for which there are corresponding assets of $28 million, classified within vehicles, net on the Company’s Consolidated Balance Sheets as of December 31, 2013. For the year ended December 31, 2013, the interest rate on these leases ranged from 3% to 4%.

DEBT MATURITIES

The following table provides the contractual maturities of the Company’s debt under vehicle programs, including related party debt due to Avis Budget Rental Car Funding, at December 31, 2013:



	Debt Under Vehicle Programs
2014 ^(a)	$	1,264
2015	1,534
2016	1,618
2017	998
2018	1,532
Thereafter	391
	$	7,337

__________


^(a)	Vehicle-backed debt maturing within one year includes term asset-backed securities of approximately $674 million and bank and bank-sponsored borrowings of $590 million.

COMMITTED CREDIT FACILITIES AND AVAILABLE FUNDING ARRANGEMENTS

The following table presents available funding under the Company’s debt arrangements related to its vehicle programs, including related party debt due to Avis Budget Rental Car Funding, at December 31, 2013:



	Total Capacity ^(a)		Outstanding Borrowings		Available Capacity
North America – Debt due to Avis Budget Rental Car Funding^(b)	$	8,031	$	5,656	$	2,375
North America – Canadian borrowings^(c)	753		400		353
International – Debt borrowings^(d)	1,408		731		677
International – Capital leases ^(e)	404		289		115
Truck Rental – Debt borrowings^(f)	233		226		7
Other^(g)	35		35		—
Total	$	10,864	$	7,337	$	3,527

__________


^(a)	Capacity is subject to maintaining sufficient assets to collateralize debt.


^(b)	The outstanding debt is collateralized by $7.3 billion of underlying vehicles and related assets.


^(c)	The outstanding debt is collateralized by $549 million of underlying vehicles and related assets.


^(d)	The outstanding debt is collateralized by $1.3 billion of underlying vehicles and related assets.


^(e)	The outstanding debt is collateralized by $306 million of underlying vehicles and related assets.


^(f)	The outstanding debt is collateralized by $338 million of underlying vehicles and related assets.


^(g)	The outstanding debt is collateralized by $28 million of underlying vehicles and related assets.

DEBT COVENANTS

Debt agreements under the Company’s vehicle-backed funding programs contain restrictive covenants, including restrictions on dividends paid to the Company by certain of its subsidiaries and restrictions on indebtedness, mergers, liens, liquidations and sale and leaseback transactions, and in some cases also require compliance with certain financial requirements. As of December 31, 2013, the Company is not aware

F-27

of any instances of non-compliance with any of the financial or restrictive covenants contained in the debt agreements under its vehicle-backed funding programs.


15.	Commitments and Contingencies

Lease Commitments

The Company is committed to making rental payments under noncancelable operating leases covering various facilities and equipment. Many of the Company’s operating leases for facilities contain renewal options. These renewal options vary, but the majority include clauses for various term lengths and prevailing market rate rents.

Future minimum lease payments required under noncancelable operating leases, including minimum concession fees charged by airport authorities, which in many locations are recoverable from vehicle rental customers, as of December 31, 2013, are as follows:



	Amount
2014	$	507
2015	364
2016	288
2017	216
2018	162
Thereafter	719
	$	2,256

The future minimum lease payments in the above table have been reduced by minimum future sublease rental inflows in the aggregate of $6 million for all periods shown in the table.

The Company maintains concession agreements with various airport authorities that allow the Company to conduct its car rental operations on site. In general, concession fees for airport locations are based on a percentage of total commissionable revenue (as defined by each airport authority), subject to minimum annual guaranteed amounts. These concession fees, which are included in the Company’s total rent expense, were as follows for the years ended December 31:



	2013			2012			2011
Rent expense (including minimum concession fees)	$	622		$	600		$	535
Contingent concession expense	173			155			104
	795			755			639
Less: sublease rental income	(5		)	(5		)	(5		)
Total	$	790		$	750		$	634

Commitments under capital leases, other than those within the Company’s vehicle rental programs, for which the future minimum lease payments have been reflected in Note 14—Debt Under Vehicle Programs and Borrowing Arrangements, are not significant.

The Company leases a portion of its vehicles under operating leases, which extend through 2017. As of December 31, 2013, the Company has guaranteed up to $82 million of residual values for these vehicles at the end of their respective lease terms. The Company believes that, based on current market conditions, the net proceeds from the sale of these vehicles at the end of their lease terms will equal or exceed their net book values and therefore has not recorded a liability related to guaranteed residual values.

Contingencies

In 2006, the Company completed the spin-offs of its Realogy and Wyndham subsidiaries. In connection with the spin-offs, Realogy assumed 62.5% and Wyndham assumed 37.5% of certain contingent and other corporate liabilities of the Company that are not primarily related to any of the respective businesses of Realogy, Wyndham, our former Travelport subsidiary and/or the Company’s vehicle rental operations, and in each case incurred or allegedly incurred on or prior to each subsidiary’s disposition (“Assumed Liabilities”). If Realogy or Wyndham were to default on its payment of costs or expenses to the Company related to any Assumed Liabilities, the Company would be responsible for 50% of the defaulting party’s obligation. The Company does not believe that the impact of any resolution of contingent liabilities

F-28

constituting Assumed Liabilities should result in a material liability to the Company in relation to its consolidated financial position or liquidity, as Realogy and Wyndham each have agreed to assume responsibility for these liabilities. In accordance with the terms of relevant documents, Realogy posted a letter of credit in April 2007 for the benefit of the Company to cover its estimated share of the Assumed Liabilities discussed above, subject to adjustment, although there can be no assurance that such letter of credit will be sufficient or effective to cover Realogy’s actual obligations if and when they arise.

The Company is also named in various litigation that is primarily related to the businesses of its former subsidiaries, including Realogy, and Wyndham and their current or former subsidiaries. The Company is entitled to indemnification from such entities for any liability resulting from such litigation.

Additionally, the Company is also involved in claims, legal proceedings and governmental inquiries related, among other things, to its vehicle rental operations, including, among others, contract and licensee disputes, wage-and-hour claims, competition matters, employment matters, insurance claims, intellectual property claims and other regulatory, environmental, commercial and tax matters. Litigation is inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has valid defenses in these matters, unfavorable resolutions could occur, which could materially impact the Company’s financial position, results of operations or cash flows.

Commitments to Purchase Vehicles

The Company maintains agreements with vehicle manufacturers under which the Company has agreed to purchase approximately $6.4 billion of vehicles from manufacturers over the next 12 months. The majority of these commitments are subject to the vehicle manufacturers’ satisfying their obligations under their respective repurchase and guaranteed depreciation agreements. The purchase of such vehicles is financed primarily through the issuance of vehicle-backed debt and cash received upon the disposition of vehicles.

Other Purchase Commitments

In the normal course of business, the Company makes various commitments to purchase other goods or services from specific suppliers, including those related to marketing, advertising and capital expenditures. As of December 31, 2013, the Company had approximately $160 million of purchase obligations, which extend through 2018.

Concentrations

Concentrations of credit risk at December 31, 2013, include (i) risks related to the Company’s repurchase and guaranteed depreciation agreements with domestic and foreign car manufacturers, including Ford, General Motors, Chrysler, Peugeot, Volkswagen, Fiat, Mercedes, Kia, Toyota, BMW, and Renault, and primarily with respect to receivables for program cars that have been disposed but for which the Company has not yet received payment from the manufacturers and (ii) risks related to Realogy and Wyndham, including receivables of $62 million and $38 million, respectively, related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with their disposition.

Asset Retirement Obligations

The Company maintains a liability for asset retirement obligations. An asset retirement obligation is a legal obligation to perform certain activities in connection with the retirement, disposal or abandonment of assets. The Company’s asset retirement obligations, which are measured at discounted fair values, are primarily related to the removal of underground gas storage tanks at its rental facilities. Liabilities accrued for asset retirement obligations were $25 million and $26 million at December 31, 2013 and 2012, respectively.

F-29

Standard Guarantees/Indemnifications

In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees and indemnities whereby the Company agrees to indemnify another party, among other things, for performance under contracts and any breaches of representations and warranties thereunder. In addition, many of these parties are also indemnified against any third-party claim resulting from the transaction that is contemplated in the underlying agreement. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases, sales or outsourcing of assets or businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities and use of derivatives and (v) issuances of debt or equity securities. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts, (iii) licensees under licensing agreements, (iv) financial institutions in credit facility arrangements and derivative contracts and (v) underwriters and placement agents in debt or equity security issuances. While some of these guarantees extend only for the duration of the underlying agreement, many may survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under these guarantees, nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering events are not subject to predictability. With respect to certain of the aforementioned guarantees, such as indemnifications provided to landlords against third-party claims for the use of real estate property leased by the Company, the Company maintains insurance coverage that mitigates its potential exposure.

Other Guarantees

The Company has provided certain guarantees to, or for the benefit of, subsidiaries of Realogy, Wyndham and Travelport, which, as previously discussed, were sold or spun-off in 2006. These guarantees relate primarily to various real estate operating leases. The maximum potential amount of future payments that the Company may be required to make under the guarantees relating to these leases is estimated to be approximately $52 million, the majority of which expire by the end of 2015. At December 31, 2013, the liability recorded by the Company in connection with these guarantees was approximately $1 million. To the extent that the Company would be required to perform under any of these guarantees, the Company is entitled to indemnification by Realogy and Wyndham, as applicable. The Company monitors the credit ratings and other relevant information for Realogy and Wyndham, in order to assess the status of the payment/performance risk of these guarantees.


16.	Stockholders’ Equity

Cash Dividend Payments

During 2013, 2012 and 2011, the Company did not declare or pay any cash dividends. The Company’s ability to pay dividends to holders of its common stock is limited by the Company’s senior credit facility, the indentures governing its senior notes and vehicle financing programs.

Share Repurchases

In August 2013, the Company obtained Board approval to repurchase up to $200 million of its common stock. During 2013, the Company repurchased approximately 1,582,000 shares of common stock at a cost of approximately $50 million under the repurchase program. The Company did not repurchase any of its common stock during 2012 and 2011.

Convertible Note Hedge and Warrants

In 2009, the Company purchased a convertible note hedge for approximately $95 million, to potentially reduce the net number of shares required to be issued upon conversion of the Company’s 3½% Convertible Notes. Concurrently, the Company issued warrants for approximately $62 million to offset the cost of the convertible note hedge.

The convertible note hedge and warrants, which were to be net-share settled, initially covered the purchase and issuance, respectively, of approximately 21.2 million shares of common stock, subject to customary anti-dilution provisions. The initial strike price per share of the convertible note hedge and warrants was

F-30

$16.25 and $22.50, respectively. The convertible note hedge was exercisable before expiration only to the extent that corresponding amounts of the 3½% Convertible Notes were exercised. The convertible note hedge and warrant transactions were accounted for as capital transactions and included as a component of stockholders’ equity. The significant terms of the Convertible Notes can be found in Note 13—Long-term Debt and Borrowing Arrangements.

During 2013 and 2012, respectively, concurrently with the Company’s repurchase of a portion of its 3½% Convertible Notes, the Company repurchased warrants for the purchase of the Company’s common stock for $37 million and $29 million and sold an equal portion of its convertible note hedge for $50 million and $43 million, reducing the number of shares related to each of the hedge and warrant by approximately 13 million. In addition, during December 2013, the Company unwound the remaining outstanding convertible note hedge and warrants; and repurchased warrants for the purchase of the Company’s common stock for $41 million, and settled its convertible note hedge for proceeds of $54 million and 179,000 shares of the Company’s common stock valued at $7 million.

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income are as follows:



	Currency Translation Adjustments			Net Unrealized Gains (Losses) on Cash Flow Hedges			Net Unrealized Gains on Available-For-Sale Securities		Minimum Pension Liability Adjustment ^(a)			Accumulated Other Comprehensive Income
Balance, January 1, 2011	$	182		$	(46	)	$	—	$	(44	)	$	92
Period change	(23		)	33			2		(26		)	(14		)
Balance, December 31, 2011	159			(13		)	2		(70		)	78
Period change	34			13			—		(15		)	32
Balance, December 31, 2012	193			—			2		(85		)	110
Period change	(27		)	1			—		33			7
Balance, December 31, 2013	$	166		$	1		$	2	$	(52	)	$	117

__________

All components of accumulated other comprehensive income are net of tax, except currency translation adjustments, which exclude income taxes related to indefinite investments in foreign subsidiaries and include an $11 million loss, net of tax, related to the Company’s hedge of its net investment in Euro-denominated foreign operations (See Note 19 - Financial Instruments).


^(a)	For the year ended December 31, 2013, $15 million ($9 million, net of tax) was reclassified from accumulated other comprehensive income into selling, general and administrative expenses.


17.	Stock-Based Compensation

The Company’s Amended and Restated 2007 Equity and Incentive Plan (the “2007 Plan”) provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and other stock- or cash-based awards to employees, directors and other individuals who perform services for the Company and its subsidiaries. The maximum number of shares reserved for grant of awards under the plan is 16 million, with approximately 3.5 million shares available as of December 31, 2013. The Company typically settles stock-based awards with treasury shares.

With limited exception, time-based awards generally vest ratably over a three-year period following the date of grant, and performance- or market-based awards generally vest three years following the date of grant based on the attainment of certain performance- or market-based goals, all of which are subject to a service condition.

Cash Unit Awards

The fair value of time-based restricted cash units is based on the Company’s stock price on the grant date. Market-vesting restricted cash units generally vest depending on the level of relative total shareholder return achieved by the Company during the period prior to scheduled vesting. Settlement of restricted cash units is based on the Company’s average closing stock price over a specified number of trading days and the value of these awards varies based on changes in the Company’s stock price.

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Stock Unit Awards

Stock unit awards entitle the holder to receive shares of common stock upon vesting on a one-to-one basis. Performance-based RSUs principally vest based upon the level of performance attained, however, upon meeting a threshold performance level vesting can increase by up to 20% if certain relative total shareholder return goals are achieved. Market-based RSUs generally vest based on the level of total shareholder return or absolute stock price attainment.

The grant date fair value of the performance-based RSUs incorporates the total shareholder return metric, which is estimated using a Monte Carlo simulation model to estimate the Company’s ranking relative to an applicable stock index. The weighted average assumptions used in the Monte Carlo simulation model to calculate the fair value of the Company’s stock unit awards are outlined in the table below.



	2013	2012	2011
Expected volatility of stock price	43%	50%	48%
Risk-free interest rate	0.39%	0.30% - 0.42%	0.47% - 1.21%
Valuation period	3 years	2½ - 3 years	3 - 4 years
Dividend yield	0%	0%	0%

Annual activity related to stock units and cash units, consisted of (in thousands of shares):



		Time-Based RSUs				Performance-Based and Market Based RSUs				Cash Unit Awards
		Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value		Number of Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2013		1,439		$	13.97	2,058		$	11.30	156	$	12.65
	Granted ^(a)	638		21.77		483		20.04		111	18.04
	Vested ^(b)	(678	)	13.47		(439	)	9.15		—	—
	Forfeited/expired	(91	)	15.62		(59	)	12.62		—	—
Outstanding at December 31, 2013 ^(c)		1,308		$	17.92	2,043		$	13.79	267	$	14.90

__________

^(a)

Reflects the maximum number of stock units assuming achievement of all performance-, market- and time-vesting criteria and does not include those for non-employee directors, which are discussed separately below. The weighted-average fair value of time-based RSUs, performance-based and market-based RSUs, and cash units granted in 2012 was $14.39, $12.66 and $12.65, respectively, and the weighted-average fair value of the restricted stock units and market-based restricted stock units granted in 2011 was $14.45 and $11.67, respectively. No performance-based restricted stock units or cash units awards were granted in 2011.


^(b)	The total fair value of RSUs vested during 2013, 2012 and 2011 was $13 million, $16 million and $11 million, respectively.

^(c)

The Company’s outstanding time-based RSUs, performance-based and market-based RSUs, and cash units had aggregate intrinsic value of $53 million, $83 million and $11 million, respectively. Aggregate unrecognized compensation expense related to time-based RSUs and performance-based and market-based RSUs amounted to $27 million and will be recognized over a weighted average vesting period of 1.0 years. The Company assumes that substantially all outstanding awards will vest over time.

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Stock Options

The annual stock option activity consisted of (in thousands of shares):



		Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions)		Weighted Average Remaining Contractual Term (years)
Outstanding at January 1, 2013		1,901		$	2.89	$	32	5.8
	Granted ^(a)	—		—		—
	Exercised ^(b)	(919	)	2.89		23
	Forfeited/expired	(3	)	27.40		—
Outstanding at December 31, 2013 ^(c)		979		2.82		37		5.2
Exercisable at December 31, 2013		915		$	2.21	$	35	5.1

__________


^(a)	No stock options were granted during 2012 or 2011.


^(b)	Stock options exercised during 2012 and 2011 had intrinsic values of $11 million and $18 million, respectively, and the cash received from the exercise of options was $3 million in 2013 and was insignificant in 2012 and 2011.


^(c)	The Company assumes that substantially all outstanding stock options will vest over time.

Non-employee Directors Deferred Compensation Plan

The Company grants stock awards on a quarterly basis to non-employee directors representing 50% of a director’s annual compensation and such awards can be deferred under the Non-employee Directors Deferred Compensation Plan. During 2013, 2012 and 2011, the Company granted 33,000, 53,000 and 54,000 awards, respectively, to non-employee directors.

Employee Stock Purchase Plan

The Company is authorized to sell shares of its common stock to eligible employees at 95% of fair market value. This plan has been deemed to be non-compensatory and therefore, no compensation expense has been recognized.

Stock-Compensation Expense

During 2013, 2012 and 2011, the Company recorded stock-based compensation expense related to employee stock awards that were granted by the Company of $24 million ($14 million, net of tax), $16 million ($10 million, net of tax) and $17 million ($11 million, net of tax), respectively. In jurisdictions with net operating loss carryforwards, tax deductions for exercises and/or vestings of stock-based awards have generated a $57 million tax benefit at December 31, 2013, with a corresponding increase to additional paid-in capital. Approximately $22 million of incremental tax benefits will be recorded in additional paid-in capital when realized in these jurisdictions.

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18.	Employee Benefit Plans

Defined Contribution Savings Plans

The Company sponsors several defined contribution savings plans in the United States and certain foreign subsidiaries that provide certain eligible employees of the Company an opportunity to accumulate funds for retirement. The Company matches portions of the contributions of participating employees on the basis specified by the plans. The Company’s contributions to these plans were $39 million, $34 million and $15 million during 2013, 2012 and 2011, respectively.

Defined Benefit Pension Plans

The Company sponsors non-contributory defined benefit pension plans in the United States covering certain eligible employees and sponsors contributory and non-contributory defined benefit pension plans in certain foreign subsidiaries with some plans offering participation in the plans at the employees’ option. The most material of the non-U.S. defined benefit pension plans is operated in the United Kingdom. Under these plans, benefits are based on an employee’s years of credited service and a percentage of final average compensation. However, the majority of such plans are closed to new employees and are no longer accruing benefits. There is an unfunded defined benefit pension plan for employees in Germany, which is closed to new employees, and a statutorily determined unfunded defined benefit termination plan for employees in Italy.

The funded status of the defined benefit pension plans is recognized on the Consolidated Balance Sheets and the gains or losses and prior service costs or credits that arise during the period, but are not recognized as components of net periodic benefit cost, are recognized as a component of accumulated other comprehensive income (loss), net of tax.

The components of net periodic benefit cost and the assumptions related to the cost consisted of the following:



	Year Ended December 31,
	2013			2012			2011
Service cost	$	5		$	5		$	3
Interest cost	26			27			17
Expected return on plan assets	(28		)	(25		)	(17		)
Amortization of unrecognized amounts	15			14			8
Net periodic benefit cost	$	18		$	21		$	11

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The Company uses a measurement date of December 31 for its pension plans. The funded status of the pension plans were as follows:



	As of December 31,
Change in Benefit Obligation	2013			2012
Benefit obligation at end of prior year	$	670		$	600
Service cost	5			5
Interest cost	26			27
Plan amendments	1			1
Actuarial (gain) loss	(11		)	58
Net benefits paid	(21		)	(21		)
Benefit obligation at end of current year	$	670		$	670

Change in Plan Assets
Fair value of assets at end of prior year	$	465		$	412
Actual return on plan assets	56			56
Employer contributions	17			18
Net benefits paid	(21		)	(21		)
Fair value of assets at end of current year	$	517		$	465
Total unfunded status at end of year (recognized in other non-current liabilities in the Consolidated Balance Sheets)	$	(153	)	$	(205	)

The estimated amount that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2014 is $3 million, which consists of $2 million for net actuarial loss and $1 million for prior service cost.

The following assumptions were used to determine pension obligations and pension costs for the principal plans in which the Company’s employees participated:



		For the Year Ended December 31,
		2013		2012		2011
U.S. Pension Benefit Plans
Discount rate:
	Net periodic benefit cost	3.75	%	4.00	%	5.25	%
	Benefit obligation	4.75	%	4.00	%	4.00	%
Long-term rate of return on plan assets		7.50	%	7.50	%	8.00	%

Non-U.S. Pension Benefit Plans
Discount rate:
	Net periodic benefit cost	4.50	%	4.75	%	5.00	%
	Benefit obligation	4.50	%	4.50	%	4.75	%
Long-term rate of return on plan assets		5.25	%	5.35	%	5.25	%

To select a discount rate for its defined benefit pension plans, the Company uses a modeling process that involves matching the expected cash outflows of such plan, to a yield curve constructed from a portfolio of AA-rated fixed-income debt instruments. The Company uses the average yield of this hypothetical portfolio as a discount rate benchmark.

The Company’s expected rate of return on plan assets of 7.50% and 5.25% for U.S. plans and non-U.S. plans, respectively, used to determine pension obligations and pension costs, is a long-term rate based on historic plan asset returns in individual jurisdictions, over varying long-term periods combined with current market conditions and broad asset mix considerations.

As of December 31, 2013, substantially all of the Company’s defined benefit pension plans had a projected benefit obligation in excess of the fair value of plan assets. The Company expects to contribute approximately $9 million to the U.S. plans and $11 million to the non-U.S. plans in 2014.

The Company’s defined benefit pension plans’ assets are invested primarily in mutual funds and may change in value due to various risks, such as interest rate and credit risk and overall market volatility. Due

F-35

to the level of risk associated with investment securities, it is reasonably possible that changes in the values of the pension plans’ investment securities will occur in the near term and that such changes would materially affect the amounts reported in the Company’s financial statements.

The U.S. defined benefit pension plans’ investment goals and objectives are managed by the Company with consultation from independent investment advisors. The Company seeks to produce returns on pension plan investments, which are based on levels of liquidity and investment risk that the Company believes are prudent and reasonable, given prevailing capital market conditions. The pension plans’ assets are managed in the long-term interests of the participants and the beneficiaries of the plans. The Company’s overall investment strategy has been to achieve a mix of approximately 65% of investments for long-term growth and 35% for near-term benefit payments with a wide diversification of asset types and fund strategies. The Company believes that diversification of the pension plans’ assets is an important investment strategy to provide reasonable assurance that no single security or class of securities will have a disproportionate impact on the pension plans. As such, the Company allocates assets among traditional equity, fixed income (U.S. and non-U.S. government issued securities, corporate bonds and short-term cash investments) and other investment strategies.

The equity component’s purpose is to provide a total return that will help preserve the purchasing power of the assets. The pension plans hold various mutual funds that invest in equity securities and are diversified among funds that invest in large cap, small cap, growth, value and international stocks as well as funds that are intended to “track” an index, such as the S&P 500. The equity investments in the portfolios will represent a greater assumption of market volatility and risk as well as provide higher anticipated total return over the long term. The equity component is expected to approximate 45%-65% of the U.S. pension plans’ assets.

The purpose of the fixed income component is to provide a deflation hedge, to reduce the overall volatility of the pension plans assets in relation to the liability and to produce current income. The pension plans hold mutual funds that invest in securities issued by governments, government agencies and corporations. The fixed income component is expected to approximate 30%-40% of the U.S. pension plans’ assets.

The management of the Company’s non-U.S. defined benefit pension plans’ investment goals and objectives vary slightly by country, but are managed with consultation and advice from independent investment advisors. The investment policy is set with the primary objective to provide appropriate security for all beneficiaries; to achieve long-term growth in the assets sufficient to provide for benefits from the plan; and to achieve an appropriate balance between risk and return with regards to the cost of the plan and the security of the benefits. A suitable strategic asset allocation benchmark is determined for the plans to maintain diversified portfolios, taking into account government requirements, if any, regarding unnecessary investment risk and protection of pension plans’ assets. The defined benefit pension plans’ assets are primarily invested in equities, bonds, absolute return funds and cash.

The Company used significant observable inputs (Level 2 inputs) to determine the fair value of the defined benefit pension plans’ assets. See Note 2—Summary of Significant Accounting Policies for the Company’s methodology used to measure fair value. The following table presents the defined benefit pension plans’ assets measured at fair value, as of December 31:



Asset Class		2013		2012
Cash equivalents		$	10	$	3
Short term investments		5		7
U.S. stock		104		91
Non-U.S. stock		166		149
Real estate investment trusts		9		6
Non-U.S. government securities		80		70
U.S. government securities		3		20
Corporate bonds		137		105
Other assets		3		14
	Total assets	$	517	$	465

The Company estimates that future benefit payments from plan assets will be $23 million, $24 million, $25 million, $26 million, $27 million and $159 million for 2014, 2015, 2016, 2017, 2018 and 2019 to 2023, respectively.

F-36

Multiemployer Plans

The Company contributes to a number of multiemployer plans under the terms of collective-bargaining agreements that cover a portion of its employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects: (i) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; (iii) if the Company elects to stop participating in a multiemployer plan it may be required to contribute to such plan an amount based on the under-funded status of the plan; and (iv) the Company has no involvement in the management of the multiemployer plans’ investments. For the years ended December 31, 2013, 2012 and 2011, the Company contributed a total of $8 million, $9 million and $6 million, respectively, to multiemployer plans.


19.	Financial Instruments

Risk Management

Currency Risk. The Company uses currency exchange contracts to manage its exposure to changes in currency exchange rates associated with its non-U.S.-dollar denominated receivables and forecasted royalties, forecasted earnings of non-U.S. subsidiaries and forecasted non-U.S.-dollar denominated acquisitions. The Company primarily hedges a portion of its current-year currency exposure to the Australian, Canadian and New Zealand dollars, the Euro and the British pound sterling. The majority of forward contracts do not qualify for hedge accounting treatment. The fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk they economically hedge. Forward contracts used to hedge forecasted third-party receipts and disbursements up to 12 months are designated and do qualify as cash flow hedges.

The Company has designated its 6% Euro-denominated Notes issued March 2013 as a hedge of its net investment in Euro-denominated foreign operations. The Company records the effective portion of the gain or loss on this net investment hedge, net of taxes, in accumulated other comprehensive income as part of currency translation adjustments. For the year ended December 31, 2013, the Company has recorded an $11 million loss, net of tax, in accumulated other comprehensive income.

The amount of gains or losses reclassified from other comprehensive income to earnings resulting from ineffectiveness or from excluding a component of the hedges’ gain or loss from the effectiveness calculation for cash flow and net investment hedges during 2013, 2012 and 2011 was not material, nor is the amount of gains or losses the Company expects to reclassify from other comprehensive income to earnings over the next 12 months.

Interest Rate Risk. The Company uses various hedging strategies including interest rate swaps and interest rate caps to create an appropriate mix of fixed and floating rate assets and liabilities. During 2013, 2012 and 2011, the Company recorded net unrealized gains on cash flow hedges of $1 million, $13 million and $33 million, net of tax, respectively, to other comprehensive income. The after-tax amount of gains or losses reclassified from accumulated other comprehensive income (loss) to earnings resulting from ineffectiveness for 2013, 2012 and 2011 was not material to the Company’s results of operations.

The amount deferred in accumulated other comprehensive income that the Company expects to be recognized in earnings in 2014 is not material.

The Company uses interest rate swaps, including freestanding derivatives and derivatives designated as cash flow hedges, to manage the risk related to its floating rate corporate debt. In connection with such cash flow hedges, the Company recorded net unrealized gains of $1 million, net of tax, to other comprehensive income during each of the years 2013, 2012 and 2011.

The Company uses derivatives to manage the risk associated with its floating rate vehicle-backed debt. These derivatives include freestanding derivatives and derivatives designated as cash flow hedges, which have maturities ranging from August 2014 to November 2018. In connection with such cash flow hedges, the Company did not record any net unrealized gains or losses to other comprehensive income during 2013, and during 2012 and 2011, recorded net unrealized gains of $12 million and $32 million, net of tax,

F-37

respectively. The Company recorded losses of $1 million, $3 million and $2 million related to freestanding derivatives during 2013, 2012 and 2011, respectively.

Commodity Risk. The Company periodically enters into derivative commodity contracts to manage its exposure to changes in the price of gasoline. These instruments were designated as freestanding derivatives and the changes in fair value are recorded in the Company’s consolidated results of operations. These derivatives resulted in a gain of $1 million in 2013, a gain of $3 million in 2012 and a loss of less than $1 million in 2011.

Credit Risk and Exposure. The Company is exposed to counterparty credit risks in the event of nonperformance by counterparties to various agreements and sales transactions. The Company manages such risk by evaluating the financial position and creditworthiness of such counterparties and by requiring collateral in certain instances in which financing is provided. The Company mitigates counterparty credit risk associated with its derivative contracts by monitoring the amount for which it is at risk with each counterparty, periodically evaluating counterparty creditworthiness and financial position, and where possible, dispersing its risk among multiple counterparties.

There were no significant concentrations of credit risk with any individual counterparties or groups of counterparties at December 31, 2013 or 2012, other than (i) risks related to the Company’s repurchase and guaranteed depreciation agreements with domestic and foreign car manufacturers, including Ford, General Motors, Chrysler, Peugeot, Volkswagen, Fiat, Mercedes, Kia, BMW, Toyota, and Renault, and primarily with respect to receivables for program cars that were disposed but for which the Company has not yet received payment from the manufacturers (see Note 2—Summary of Significant Accounting Policies), (ii) receivables from Realogy and Wyndham related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with their disposition and (iii) risks related to leases which have been assumed by Realogy, Wyndham or Travelport but of which the Company is a guarantor. Concentrations of credit risk associated with trade receivables are considered minimal due to the Company’s diverse customer base. The Company does not normally require collateral or other security to support credit sales.

Fair Value

Derivative instruments and hedging activities

As described above, derivative assets and liabilities consist principally of currency exchange contracts, interest rate swaps, interest rate contracts and commodity contracts.

Certain of the Company’s derivative instruments contain collateral support provisions that require the Company to post cash collateral to the extent that these derivatives are in a liability position. The aggregate fair value of such derivatives that are in a liability position and the aggregate fair value of assets needed to settle these derivatives as of December 31, 2013 was approximately $2 million, for which the Company has posted cash collateral in the normal course of business.

F-38

The Company held derivative instruments with absolute notional values as follows:



	As of December 31,
	2013		2012
Interest rate caps ^(a)	$	8,924	$	5,748
Interest rate swaps	850		625
Foreign exchange swaps	746		984
Foreign exchange forward contracts	268		14

Commodity contracts (millions of gallons of unleaded gasoline)	8		—

__________

^(a)

Represents $7.1 billion of interest rate caps sold, partially offset by approximately $1.8 billion of interest rate caps purchased at December 31, 2013 and $4.1 billion of interest rate caps sold, partially offset by approximately $1.7 billion of interest rate caps purchased at December 31, 2012. These amounts exclude $5.2 billion and $2.4 billion of interest rate caps purchased by the Company’s Avis Budget Rental Car Funding subsidiary at December 31, 2013 and 2012, respectively.

Fair values (Level 2) of derivative instruments are as follows:



		As of December 31, 2013				As of December 31, 2012
		Fair Value, Asset Derivatives		Fair Value, Liability Derivatives		Fair Value, Asset Derivatives		Fair Value, Liability Derivatives
Derivatives designated as hedging instruments
	Interest rate swaps ^(a)	$	2	$	1	$	—	$	1

Derivatives not designated as hedging instruments
	Interest rate caps ^(b)	2		13		—		4
	Interest rate swaps ^(a)	—		—		—		12
	Foreign exchange forward contracts and swaps ^(c)	3		5		3		8
	Commodity contracts ^(c)	—		—		—		—
	Total	$	7	$	19	$	3	$	25

__________

Amounts in this table exclude derivatives issued by Avis Budget Rental Car Funding, as it is not consolidated by the Company; however, certain amounts related to the derivatives held by Avis Budget Rental Car Funding are included within accumulated other comprehensive income, as discussed in Note 16—Stockholders’ Equity.


^(a)	Included in other non-current assets or other non-current liabilities.


^(b)	Included in assets under vehicle programs or liabilities under vehicle programs.


^(c)	Included in other current assets or other current liabilities.

F-39

The effects of derivatives recognized in the Company’s Consolidated Financial Statements are as follows:



		Year Ended December 31,
		2013		2012			2011
Derivatives designated as hedging instruments
	Interest rate swaps ^(a)	$	1	$	13		$	33
Derivatives not designated as hedging instruments ^(b)
	Foreign exchange forward contracts and swaps ^(c)	27		(31		)	(19		)
	Interest rate caps ^(d)	4		(15		)	(3		)
	Commodity contracts ^(e)	1		3			—
Total		$	33	$	(30	)	$	11

__________


^(a)	Recognized, net of tax, as a component of other comprehensive income within stockholders’ equity.


^(b)	Gains (losses) related to derivative instruments are expected to be largely offset by (losses) gains on the underlying exposures being hedged.

^(c)

For the year ended December 31, 2013, included a $20 million gain included in interest expense and a $7 million gain included in operating expenses. For the year ended December 31, 2012, included a $32 million loss in interest expense and a $1 million gain in operating expenses. For the year ended December 31, 2011, included a $46 million loss in transaction-related costs and a $27 million gain in operating expenses.


^(d)	For the year ended December 31, 2013, $1 million of expense is included in vehicle interest, net and a $5 million gain is included in interest expense. For the year ended December 31, 2012, amounts are included in vehicle interest, net. For the year ended December 31, 2011, $2 million of expense is included in vehicle interest, net and $1 million of expense is included in interest expense.


^(e)	Included in operating expenses.

Debt Instruments

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



		As of December 31, 2013				As of December 31, 2012
		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Corporate debt
	Short-term debt and current portion of long-term debt, excluding convertible debt	$	23	$	23	$	57	$	58
	Long-term debt, excluding convertible debt ^(a)	3,305		3,416		2,720		2,903
	Convertible debt ^(a)	66		159		128		171

Debt under vehicle programs
	Vehicle-backed debt due to Avis Budget Rental Car Funding ^(a)	$	5,656	$	5,732	$	5,203	$	5,391
	Vehicle-backed debt ^(a)	1,668		1,675		1,599		1,613
	Interest rate swaps and interest rate caps ^(b)	13		13		4		4

___________


^(a)	The fair value measurements are based on significant observable inputs (Level 2).


^(b)	Derivatives in liability position.


20.	Segment Information

The Company’s chief operating decision maker assesses performance and allocates resources based upon the separate financial information from the Company’s operating segments. In identifying its reportable segments, the Company considered the nature of services provided, the geographical areas in which the segments operated and other relevant factors. The Company aggregates certain of its operating segments into its reportable segments.

Management evaluates the operating results of each of its reportable segments based upon revenue and “Adjusted EBITDA,” which the Company defines as income from continuing operations before non-vehicle related depreciation and amortization, any impairment charge, restructuring expense, early extinguishment of debt costs, non-vehicle related interest, transaction-related costs and income taxes. In first quarter of 2014, the Company revised its definition of Adjusted EBITDA to exclude restructuring expense and has recast its 2013, 2012 and 2011 Adjusted EBITDA to conform with the revised definition, consistent with the manner in which management assesses performance and allocates resources. The Company’s

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presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

Year Ended December 31, 2013



	North America		International		Truck Rental		Corporate and Other ^(a)			Total
Net revenues	$	5,042	$	2,522	$	373	$	—		$	7,937
Vehicle depreciation and lease charges, net	1,254		509		48		—			1,811
Vehicle interest, net	203		49		12		—			264
Adjusted EBITDA	508		272		36		(47		)	769
Non-vehicle depreciation and amortization	101		50		1		—			152
Segment assets exclusive of assets under vehicle programs	3,718		1,809		80		225			5,832
Assets under vehicle programs	7,939		2,164		349		—			10,452
Capital expenditures (excluding vehicles)	98		54		—		—			152

__________


^(a)	Primarily represents unallocated corporate overhead, receivables from our former subsidiaries and debt financing fees related to our corporate debt.

Year Ended December 31, 2012



	North America		International		Truck Rental		Corporate and Other ^(a)			Total
Net revenues	$	4,640	$	2,342	$	374	$	1		$	7,357
Vehicle depreciation and lease charges, net	943		483		45		—			1,471
Vehicle interest, net	246		38		13		—			297
Adjusted EBITDA	557		270		34		(21		)	840
Non-vehicle depreciation and amortization	78		46		1		—			125
Segment assets exclusive of assets under vehicle programs	3,065		1,740		90		224			5,119
Assets under vehicle programs	7,394		2,300		405		—			10,099
Capital expenditures (excluding vehicles)	72		60		—		—			132

__________


^(a)	Primarily represents unallocated corporate overhead, receivables from our former subsidiaries and debt financing fees related to our corporate debt.

F-41

Year Ended December 31, 2011



	North America		International		Truck Rental		Corporate and Other ^(a)			Total
Net revenues	$	4,495	$	1,028	$	376	$	1		$	5,900
Vehicle depreciation and lease charges, net	969		209		45		—			1,223
Vehicle interest, net	263		11		12		—			286
Adjusted EBITDA	444		130		49		(13		)	610
Non-vehicle depreciation and amortization	80		14		1		—			95
Segment assets exclusive of assets under vehicle programs	2,112		1,464		88		184			3,848
Assets under vehicle programs	6,674		2,109		307		—			9,090
Capital expenditures (excluding vehicles)	54		10		1		—			65

__________


^(a)	Primarily represents unallocated corporate overhead, receivables from our former subsidiaries and debt financing fees related to our corporate debt.

Provided below is a reconciliation of Adjusted EBITDA to income before income taxes.



		For the Year Ended December 31,
		2013		2012		2011
Adjusted EBITDA		$	769	$	840	$	610
Less: Non-vehicle related depreciation and amortization		152		125		95
	Interest expense related to corporate debt, net	228		268		219
	Early extinguishment of debt	147		75		—
	Restructuring expense	61		38		5
	Transaction-related costs	51		34		255
	Impairment	33		—		—
Income before income taxes		$	97	$	300	$	36

The geographic segment information provided below is classified based on the geographic location of the Company’s subsidiaries.



	United States		All Other Countries		Total
2013
Net revenues	$	5,030	$	2,907	$	7,937
Assets exclusive of assets under vehicle programs	3,729		2,103		5,832
Assets under vehicle programs	7,791		2,661		10,452
Property and equipment, net	424		190		614

2012
Net revenues	$	4,637	$	2,720	$	7,357
Assets exclusive of assets under vehicle programs	3,094		2,025		5,119
Assets under vehicle programs	7,329		2,770		10,099
Property and equipment, net	366		163		529

2011
Net revenues	$	4,489	$	1,411	$	5,900
Assets exclusive of assets under vehicle programs	2,177		1,671		3,848
Assets under vehicle programs	6,553		2,537		9,090
Property and equipment, net	365		128		493

F-42


21.	Guarantor and Non-Guarantor Consolidating Financial Statements

The following consolidating financial information presents Consolidating Condensed Statements of Operations for the years ended December 31, 2013, 2012 and 2011, Consolidating Condensed Balance Sheets as of December 31, 2013 and December 31, 2012 and Consolidating Condensed Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 for: (i) Avis Budget Group, Inc. (the “Parent”); (ii) ABCR and Avis Budget Finance, Inc. (the “Subsidiary Issuers”); (iii) the guarantor subsidiaries; (iv) the non-guarantor subsidiaries; (v) elimination entries necessary to consolidate the Parent with the Subsidiary Issuers, the guarantor and non-guarantor subsidiaries; and (vi) the Company on a consolidated basis. The Subsidiary Issuers and the guarantor and non-guarantor subsidiaries are 100% owned by the Parent, either directly or indirectly. All guarantees are full and unconditional and joint and several. This financial information is being presented in relation to the Company’s guarantee of the payment of principal, premium (if any) and interest on the notes issued by ABCR. See Note 13—Long-term Debt and Borrowing Arrangements for additional description of these guaranteed notes. The Senior Notes have separate investors than the equity investors of the Company and are guaranteed by the Parent and certain subsidiaries.

Investments in subsidiaries are accounted for using the equity method of accounting for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. For purposes of the accompanying Consolidating Condensed Statements of Operations, certain expenses incurred by the Subsidiary Issuers are allocated to the guarantor and non-guarantor subsidiaries. Certain reclassifications have been made to the 2012 and 2011 consolidating condensed financial statements to correct the classification of intercompany transactions to report them on a gross basis and to conform to the current year presentation. The reclassified amounts had no impact on reported net income, stockholders’ equity, or the net change in cash for the periods presented for the Parent, Subsidiary Issuer, Guarantor Subsidiaries, Non-Guarantor Subsidiaries, Eliminations or the Company on a consolidated basis.

F-43

Consolidating Condensed Statements of Operations

For the Year Ended December 31, 2013



			Parent			Subsidiary Issuers			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Total
Revenues
	Vehicle rental		$	—		$	—		$	3,786		$	1,921	$	—		$	5,707
	Other		—			—			1,098			3,086		(1,954		)	2,230
Net revenues			—			—			4,884			5,007		(1,954		)	7,937

Expenses
	Operating		7			15			2,425			1,627		—			4,074
	Vehicle depreciation and lease charges, net		—			—			1,776			1,806		(1,771		)	1,811
	Selling, general and administrative		35			6			591			387		—			1,019
	Vehicle interest, net		—			—			182			265		(183		)	264
	Non-vehicle related depreciation and amortization		—			2			97			53		—			152
	Interest expense related to corporate debt, net:
		Interest expense	3			196			—			29		—			228
		Intercompany interest expense (income)	(12		)	(30		)	6			36		—			—
		Early extinguishment of debt	53			94			—			—		—			147
	Restructuring expense		—			—			25			36		—			61
	Transaction-related costs		1			24			3			23		—			51
	Impairment		—			33			—			—		—			33
Total expenses			87			340			5,105			4,262		(1,954		)	7,840

Income (loss) before income taxes and equity in earnings of subsidiaries			(87		)	(340		)	(221		)	745		—			97
Provision for (benefit from) income taxes			(14		)	(124		)	156			63		—			81
Equity in earnings of subsidiaries			89			305			682			—		(1,076		)	—
Net income			$	16		$	89		$	305		$	682	$	(1,076	)	$	16

Comprehensive income			$	23		$	96		$	310		$	657	$	(1,063	)	$	23

F-44

For the Year Ended December 31, 2012



			Parent			Subsidiary Issuers			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
Revenues
	Vehicle rental		$	—		$	—		$	3,491	$	1,806	$	—		$	5,297
	Other		1			—			1,052		2,130		(1,123		)	2,060
Net revenues			1			—			4,543		3,936		(1,123		)	7,357

Expenses
	Operating		—			5			2,305		1,514		—			3,824
	Vehicle depreciation and lease charges, net		—			—			902		996		(427		)	1,471
	Selling, general and administrative		21			—			573		331		—			925
	Vehicle interest, net		—			—			234		300		(237		)	297
	Non-vehicle related depreciation and amortization		—			2			75		48		—			125
	Interest expense related to corporate debt, net:
		Interest expense	9			246			—		13		—			268
		Intercompany interest expense (income)	(18		)	(314		)	277		55		—			—
		Early extinguishment of debt	44			31			—		—		—			75
	Restructuring expense		—			—			3		35		—			38
	Transaction-related costs		4			1			1		28		—			34
Total expenses			60			(29		)	4,370		3,320		(664		)	7,057

Income (loss) before income taxes and equity in earnings of subsidiaries			(59		)	29			173		616		(459		)	300
Provision for (benefit from) income taxes			(8		)	(106		)	72		52		—			10
Equity in earnings of subsidiaries			341			206			105		—		(652		)	—
Net income			$	290		$	341		$	206	$	564	$	(1,111	)	$	290

Comprehensive income			$	322		$	373		$	237	$	594	$	(1,204	)	$	322

F-45

For the Year Ended December 31, 2011



			Parent			Subsidiary Issuers			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Total
Revenues
	Vehicle rental		$	—		$	—		$	3,393		$	945	$	—		$	4,338
	Other		2			—			1,006			1,702		(1,148		)	1,562
Net revenues			2			—			4,399			2,647		(1,148		)	5,900

Expenses
	Operating		3			8			2,241			773		—			3,025
	Vehicle depreciation and lease charges, net		—			—			921			868		(566		)	1,223
	Selling, general and administrative		11			—			564			181		—			756
	Vehicle interest, net		—			(1		)	243			296		(252		)	286
	Non-vehicle related depreciation and amortization		—			—			78			17		—			95
	Interest expense related to corporate debt, net:
		Interest expense	10			208			—			1		—			219
		Intercompany interest expense (income)	(14		)	(205		)	215			4		—			—
	Transaction-related costs		71			56			—			128		—			255
	Restructuring expense		—			—			2			3		—			5
Total expenses			81			66			4,264			2,271		(818		)	5,864

Income (loss) before income taxes and equity in earnings of subsidiaries			(79		)	(66		)	135			376		(330		)	36
Provision for (benefit from) income taxes			(27		)	(22		)	66			48		—			65
Equity in earnings (loss) of subsidiaries			23			67			(2		)	—		(88		)	—
Net income (loss)			$	(29	)	$	23		$	67		$	328	$	(418	)	$	(29	)

Comprehensive income (loss)			$	(43	)	$	7		$	50		$	358	$	(415	)	$	(43	)

F-46

Consolidating Condensed Balance Sheets

As of December 31, 2013



		Parent		Subsidiary Issuers		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
Assets
Current assets:
	Cash and cash equivalents	$	14	$	242	$	12	$	425	$	—		$	693
	Receivables, net	—		—		150		469		—			619
	Deferred income taxes	1		—		156		21		(1		)	177
	Other current assets	4		80		82		289		—			455
Total current assets		19		322		400		1,204		(1		)	1,944

Property and equipment, net		—		109		312		193		—			614
Deferred income taxes		20		1,142		141		—		(4		)	1,299
Goodwill		—		—		342		349		—			691
Other intangibles, net		—		41		519		363		—			923
Other non-current assets		104		96		18		143		—			361
Intercompany receivables		145		210		853		331		(1,539		)	—
Investment in subsidiaries		671		2,900		3,347		—		(6,918		)	—
Total assets exclusive of assets under vehicle programs		959		4,820		5,932		2,583		(8,462		)	5,832

Assets under vehicle programs:
	Program cash	—		—		—		116		—			116
	Vehicles, net	—		10		9		9,563		—			9,582
	Receivables from vehicle manufacturers and other	—		—		—		391		—			391
	Investment in Avis Budget Rental Car Funding (AESOP) LLC-related party	—		—		—		363		—			363
		—		10		9		10,433		—			10,452
Total assets		$	959	$	4,830	$	5,941	$	13,016	$	(8,462	)	$	16,284

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable and other current liabilities	$	25	$	238	$	487	$	730	$	(1	)	$	1,479
	Short-term debt and current portion of long-term debt	65		14		3		7		—			89
Total current liabilities		90		252		490		737		(1		)	1,568

Long-term debt		—		2,955		6		344		—			3,305
Other non-current liabilities		98		96		221		436		(4		)	847
Intercompany payables		—		844		340		355		(1,539		)	—
Total liabilities exclusive of liabilities under vehicle programs		188		4,147		1,057		1,872		(1,544		)	5,720
Liabilities under vehicle programs:
	Debt	—		11		—		1,670		—			1,681
	Due to Avis Budget Rental Car Funding (AESOP) LLC-related party	—		—		—		5,656		—			5,656
	Deferred income taxes	—		—		1,984		193		—			2,177
	Other	—		1		—		278		—			279
		—		12		1,984		7,797		—			9,793
Total stockholders’ equity		771		671		2,900		3,347		(6,918		)	771
Total liabilities and stockholders’ equity		$	959	$	4,830	$	5,941	$	13,016	$	(8,462	)	$	16,284

F-47

As of December 31, 2012



		Parent		Subsidiary Issuers		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
Assets
Current assets:
	Cash and cash equivalents	$	5	$	102	$	—	$	499	$	—		$	606
	Receivables, net	—		—		156		397		—			553
	Deferred income taxes	3		1		138		4		—			146
	Other current assets	5		73		81		246		—			405
Total current assets		13		176		375		1,146		—			1,710

Property and equipment, net		—		90		276		163		—			529
Deferred income taxes		23		1,216		223		—		(8		)	1,454
Goodwill		—		—		74		301		—			375
Other intangibles, net		—		43		341		347		—			731
Other non-current assets		109		80		14		117		—			320
Intercompany receivables		142		972		546		96		(1,756		)	—
Investment in subsidiaries		723		2,030		3,293		—		(6,046		)	—
Total assets exclusive of assets under vehicle programs		1,010		4,607		5,142		2,170		(7,810		)	5,119

Assets under vehicle programs:
	Program cash	—		—		—		24		—			24
	Vehicles, net	—		7		13		9,254		—			9,274
	Receivables from vehicle manufacturers and other	—		—		—		439		—			439
	Investment in Avis Budget Rental Car Funding (AESOP) LLC-related party	—		—		—		362		—			362
		—		7		13		10,079		—			10,099
Total assets		$	1,010	$	4,614	$	5,155	$	12,249	$	(7,810	)	$	15,218

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable and other current liabilities	$	22	$	250	$	490	$	659	$	—		$	1,421
	Short-term debt and current portion of long-term debt	—		13		3		41		—			57
Total current liabilities		22		263		493		700		—			1,478

Long-term debt		128		2,712		8		—		—			2,848
Other non-current liabilities		103		79		277		420		(8		)	871
Intercompany payables		—		831		372		553		(1,756		)	—
Total liabilities exclusive of liabilities under vehicle programs		253		3,885		1,150		1,673		(1,764		)	5,197
Liabilities under vehicle programs:
	Debt	—		4		—		1,599		—			1,603
	Due to Avis Budget Rental Car Funding (AESOP) LLC-related party	—		—		—		5,203		—			5,203
	Deferred income taxes	—		—		1,975		188		—			2,163
	Other	—		2		—		293		—			295
		—		6		1,975		7,283		—			9,264
Total stockholders’ equity		757		723		2,030		3,293		(6,046		)	757
Total liabilities and stockholders’ equity		$	1,010	$	4,614	$	5,155	$	12,249	$	(7,810	)	$	15,218

F-48

Consolidating Condensed Statements of Cash Flows

For the Year Ended December 31, 2013



	Parent			Subsidiary Issuers			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net cash provided by (used in) operating activities	$	(3	)	$	562		$	26		$	1,736		$	(68	)	$	2,253

Investing activities
Property and equipment additions	—			(26		)	(69		)	(57		)	—			(152		)
Proceeds received on asset sales	—			7			4			11			—			22
Net assets acquired (net of cash acquired)	—			(564		)	8			19			—			(537		)
Intercompany loan receipts	—			233			60			—			(293		)	—
Other, net	146			(50		)	48			4			(146		)	2
Net cash provided by (used in) investing activities exclusive of vehicle programs	146			(400		)	51			(23		)	(439		)	(665		)

Vehicle programs:
Decrease in program cash	—			—			—			(79		)	—			(79		)
Investment in vehicles	—			(44		)	(2		)	(10,853		)	—			(10,899		)
Proceeds received on disposition of vehicles	—			40			—			9,369			—			9,409
	—			(4		)	(2		)	(1,563		)	—			(1,569		)
Net cash provided by (used in) investing activities	146			(404		)	49			(1,586		)	(439		)	(2,234		)

Financing activities
Proceeds from long-term borrowings	—			2,647			—			325			—			2,972
Payments on long-term borrowings	(115		)	(2,489		)	(3		)	(1		)	—			(2,608		)
Net change in short term borrowings	—			—			—			(36		)	—			(36		)
Debt financing fees	—			(30		)	—			(7		)	—			(37		)
Purchases of warrants	(78		)	—			—			—			—			(78		)
Proceeds from sale of call options	104			—			—			—			—			104
Repurchases of common stock	(48		)	—			—			—			—			(48		)
Intercompany loan payments	—			—			(60		)	(233		)	293			—
Other, net	3			(146		)	—			(68		)	214			3
Net cash provided by (used in) financing activities exclusive of vehicle programs	(134		)	(18		)	(63		)	(20		)	507			272

Vehicle programs:
Proceeds from borrowings	—			—			—			12,953			—			12,953
Payments on borrowings	—			—			—			(13,115		)	—			(13,115		)
Debt financing fees	—			—			—			(34		)	—			(34		)
	—			—			—			(196		)	—			(196		)
Net cash provided by (used in) financing activities	(134		)	(18		)	(63		)	(216		)	507			76
Effect of changes in exchange rates on cash and cash equivalents	—			—			—			(8		)	—			(8		)
Net increase (decrease) in cash and cash equivalents	9			140			12			(74		)	—			87
Cash and cash equivalents, beginning of period	5			102			—			499			—			606
Cash and cash equivalents, end of period	$	14		$	242		$	12		$	425		$	—		$	693

F-49

For the Year Ended December 31, 2012



	Parent			Subsidiary Issuers			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net cash provided by (used in) operating activities	$	(43	)	$	272		$	70		$	1,650		$	(60	)	$	1,889

Investing activities
Property and equipment additions	—			(26		)	(43		)	(63		)	—			(132		)
Proceeds received on asset sales	—			8			3			10			—			21
Net assets acquired, (net of cash acquired)	—			—			(1		)	(68		)	—			(69		)
Intercompany loan receipts	224			—			—			—			(224		)	—
Other, net	29			(4		)	(1		)	(8		)	(25		)	(9		)
Net cash provided by (used in) investing activities exclusive of vehicle programs	253			(22		)	(42		)	(129		)	(249		)	(189		)

Vehicle programs:
Increase in program cash	—			—			—			(13		)	—			(13		)
Investment in vehicles	—			(4		)	(20		)	(11,043		)	—			(11,067		)
Proceeds received on disposition of vehicles	—			3			2			9,191			—			9,196
	—			(1		)	(18		)	(1,865		)	—			(1,884		)
Net cash provided by (used in) investing activities	253			(23		)	(60		)	(1,994		)	(249		)	(2,073		)

Financing activities
Proceeds from long-term borrowings	—			1,152			—			—			—			1,152
Payments on long-term borrowings	(222		)	(1,268		)	(11		)	—			—			(1,501		)
Net change in short term borrowings	—			—			—			10			—			10
Debt financing fees	—			(16		)	—			—			—			(16		)
Purchases of warrants	(29		)	—			—			—			—			(29		)
Proceeds from sale of call options	43			—			—			—			—			43
Intercompany loan payments	—			(224		)	—			—			224			—
Other, net	1			(25		)	—			(60		)	85			1
Net cash provided by (used in) financing activities exclusive of vehicle programs	(207		)	(381		)	(11		)	(50		)	309			(340		)

Vehicle programs:
Proceeds from borrowings	—			—			—			12,108			—			12,108
Payments on borrowings	—			—			—			(11,490		)	—			(11,490		)
Debt financing fees	—			—			—			(28		)	—			(28		)
	—			—			—			590			—			590
Net cash provided by (used in) financing activities	(207		)	(381		)	(11		)	540			309			250
Effect of changes in exchange rates on cash and cash equivalents	—			—			—			6			—			6
Net increase (decrease) in cash and cash equivalents	3			(132		)	(1		)	202			—			72
Cash and cash equivalents, beginning of period	2			234			1			297			—			534
Cash and cash equivalents, end of period	$	5		$	102		$	—		$	499		$	—		$	606

F-50

For the Year Ended December 31, 2011



	Parent			Subsidiary Issuers			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net cash provided by (used in) operating activities	$	(32	)	$	(1,241	)	$	(236	)	$	2,661		$	426		$	1,578

Investing activities
Property and equipment additions	—			(17		)	(34		)	(14		)	—			(65		)
Proceeds received on asset sales	—			10			2			2			—			14
Net assets acquired (net of cash acquired)	—			—			(1		)	(840		)	—			(841		)
Intercompany loan advances	(486		)	—			—			—			486			—
Intercompany loan receipts	242			—			—			—			(242		)	—
Other, net	(34		)	(1		)	—			(4		)	32			(7		)
Net cash (used in) provided by investing activities exclusive of vehicle programs	(278		)	(8		)	(33		)	(856		)	276			(899		)

Vehicle programs:
Increase in program cash	—			—			—			(11		)	—			(11		)
Investment in vehicles	—			(73		)	(3		)	(8,583		)	—			(8,659		)
Proceeds received on disposition of vehicles	—			11			7			7,178			—			7,196
Investment in debt securities of AESOP – related party	(400		)	—			—			—			—			(400		)
Investment in debt securities of AESOP – related party	400			—			—			—			—			400
	—			(62		)	4			(1,416		)	—			(1,474		)
Net cash provided by (used in) investing activities	(278		)	(70		)	(29		)	(2,272		)	276			(2,373		)

Financing activities
Proceeds from long-term borrowings	—			682			—			—			—			682
Payments on long-term borrowings	—			(4		)	(4		)	(660		)	—			(668		)
Net change in short-term borrowings	—			—			—			(97		)	—			(97		)
Debt financing fees	(38		)	(40		)	—			—			—			(78		)
Intercompany loan borrowings	—			486			—			—			(486		)	—
Intercompany loan payments	—			(242		)	—			—			242			—
Other, net	93			152			268			(54		)	(458		)	1
Net cash provided by (used in) financing activities exclusive of vehicle programs	55			1,034			264			(811		)	(702		)	(160		)

Vehicle programs:
Proceeds from borrowings	—			—			—			10,534			—			10,534
Payments on borrowings	—			—			—			(9,917		)	—			(9,917		)
Debt financing fees	—			(2		)	(1		)	(30		)	—			(33		)
	—			(2		)	(1		)	587			—			584
Net cash provided by (used in) financing activities	55			1,032			263			(224		)	(702		)	424
Effect of changes in exchange rates on cash and cash equivalents	—			—			—			(6		)	—			(6		)
Net increase (decrease) in cash and cash equivalents	(255		)	(279		)	(2		)	159			—			(377		)
Cash and cash equivalents, beginning of period	257			513			3			138			—			911
Cash and cash equivalents, end of period	$	2		$	234		$	1		$	297		$	—		$	534

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22.	Selected Quarterly Financial Data—(unaudited)

Provided below are selected unaudited quarterly financial data for 2013 and 2012.

The earnings per share information is calculated independently for each quarter based on the weighted average number of common stock and common stock equivalents outstanding, which may fluctuate, based on quarterly income levels and market prices. Therefore, the sum of the quarters’ per share information may not equal the annual amount presented on the Consolidated Statements of Operations.



			2013
			First^(a) (b)			Second^(a) (c)			Third ^(d)		Fourth ^(a) (e)
Net revenues			$	1,691		$	2,002		$	2,395	$	1,849
Net income (loss)			(46		)	(28		)	118		(28		)

Per share information:
	Basic
		Net income (loss)	$	(0.43	)	$	(0.26	)	$	1.09	$	(0.26	)
		Weighted average shares	107.7			108.4			108.3		107.1

	Diluted
		Net income (loss)	$	(0.43	)	$	(0.26	)	$	1.02	$	(0.26	)
		Weighted average shares	107.7			108.4			116.2		107.1



			2012
			First^(a) (f)			Second^(g)		Third ^(h)		Fourth ^(a) (i)
Net revenues			$	1,623		$	1,866	$	2,170	$	1,698
Net income (loss)			(23		)	79		280		(46		)

Per share information:
	Basic
		Net income (loss)	$	(0.22	)	$	0.74	$	2.62	$	(0.43	)
		Weighted average shares	105.9			106.7		106.8		106.9

	Diluted
		Net income (loss)	$	(0.22	)	$	0.66	$	2.38	$	(0.43	)
		Weighted average shares	105.9			121.9		118.0		106.9

___________


^(a)	As the Company incurred a loss from continuing operations for this period, all outstanding stock options, restricted stock units, stock warrants and issuable shares underlying convertible notes are anti-dilutive for such period. Accordingly, basic and diluted weighted average shares outstanding are equal for such period.

^(b)

Net income (loss) for first quarter 2013 includes $40 million ($39 million, net of tax) for costs related to the early extinguishment of corporate debt, $10 million ($7 million, net of tax) in restructuring expenses, $8 million ($6 million, net of tax) for transaction-related costs primarily related to the integration of Avis Europe and the acquisition of Zipcar, and $4 million ($3 million, net of tax) for amortization expense related to intangible assets recognized in the acquisitions of Avis Europe and Zipcar.

^(c)

Net income (loss) for second quarter 2013 includes $91 million ($56 million, net of tax) for costs related to the early extinguishment of corporate debt, $19 million ($16 million, net of tax) for transaction-related costs primarily related to the integration of Avis Europe and the acquisition and integration of Zipcar, $15 million ($10 million, net of tax) in restructuring expenses and $6 million ($4 million, net of tax) for amortization expense related to intangible assets recognized in the acquisitions of Avis Europe and Zipcar.


^(d)	Net income (loss) for third quarter 2013 includes a $10 million ($7 million, net of tax) for transaction-related costs primarily related to the integration of Avis Europe and the acquisition of Payless, $14 million ($9 million, net of tax) in restructuring expenses, $6 million ($4 million, net of tax) for amortization expense related to intangible

F-52

assets recognized in the acquisitions of Avis Europe and Zipcar and $33 million ($33 million, net of tax) for the impairment of our equity-method investment in our Brazilian licensee.

^(e)

Net income (loss) for fourth quarter 2013 includes $16 million ($14 million, net of tax) for the early extinguishment of corporate debt, $22 million ($15 million, net of tax) in restructuring expenses, $14 million ($12 million, net of tax) for transaction-related costs primarily related to the integration of Avis Europe and Zipcar and $7 million ($4 million, net of tax) for amortization expense related to intangible assets recognized in the acquisitions of Avis Europe and Zipcar.

^(f)

Net income (loss) for first quarter 2012 includes $27 million ($23 million, net of tax) for costs related to the early extinguishment of corporate debt, $7 million ($5 million, net of tax) in restructuring expenses, $6 million ($5 million, net of tax) for transaction-related costs primarily related to the integration of the operations of Avis Europe and $5 million ($4 million, net of tax) for amortization expense related to intangible assets recognized in the acquisition of Avis Europe.

^(g)

Net income (loss) for second quarter 2012 includes $23 million ($21 million, net of tax) for the early extinguishment of corporate debt, $12 million ($8 million, net of tax) in restructuring expenses, $4 million ($2 million, net of tax) of transaction-related costs primarily related to the integration of the operations of Avis Europe and $3 million ($2 million, net of tax) for amortization expense related to intangible assets recognized in the acquisition of Avis Europe.

^(h)

Net income (loss) for third quarter 2012 includes a $128 million non-cash income tax benefit for pre-2007 taxes, $11 million ($10 million, net of tax) of transaction-related costs primarily related to the integration of the operations of Avis Europe, $7 million ($5 million, net of tax) in restructuring expenses, $4 million ($3 million, net of tax) for amortization expense related to intangible assets recognized in the acquisition of Avis Europe, and $2 million ($1 million, net of tax) for the early extinguishment of corporate debt.

⁽ⁱ⁾

Net income (loss) for fourth quarter 2012 includes $23 million ($16 million, net of tax) for the early extinguishment of corporate debt, $13 million ($13 million, net of tax) of transaction-related costs primarily related to the integration of Avis Europe, $12 million ($9 million, net of tax) in restructuring expenses and $4 million ($2 million, net of tax) for amortization expense related to intangible assets recognized in the Avis Europe acquisition.


23.	Subsequent Events

In February 2014, the Company’s Avis Budget Rental Car Funding subsidiary issued approximately $675 million in five-year asset-backed notes with a weighted average interest rate of 2.60%. The proceeds from the borrowings will provide funds for the repayment of maturing vehicle-backed debt and the acquisition of rental cars in the United States.

F-53

Ex-99.5 Updated Report of Independent Registered Public Accountant

EX-99.5 UPDATED REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTANT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Avis Budget Group, Inc.

Parsippany, New Jersey

We have audited the accompanying consolidated balance sheets of Avis Budget Group, Inc. and subsidiaries (the "Company") as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2014, not presented herein, expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

New York, NY

February 20, 2014 (May 12, 2014 as to the effects of the segment changes described in Note 1 and 20)