The following discussion should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes thereto included elsewhere herein and with our 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "2011 Form 10-K"). Unless otherwise noted, all dollar amounts in tables are in millions and those relating to our results of operations are presented before taxes.

We operate two of the most recognized brands in the global vehicle rental industry through Avis Rent A Car System, LLC and Budget Rent A Car System, Inc. We provide car and truck rentals and ancillary services to businesses and consumers worldwide.

We operate the following business segments:

• North America-provides car rentals in the United States and vehicle rentals in Canada, as well as related products and services.

• International-provides, and licenses our brands to third parties for, vehicle rentals and ancillary products and services primarily in Europe, the Middle East, Asia, Africa, South America, central America, the Caribbean, Australia and New Zealand.

• Truck Rental-provides truck rentals and related services to consumers and commercial users in the United States.

Our revenues are derived principally from car and truck rentals in our Company-owned operations and include (i) time and mileage ("T&M") fees charged to our customers for vehicle rentals, (ii) reimbursement from our customers for certain operating expenses we incur, including gasoline and vehicle licensing fees, as well as airport concession fees, which we pay in exchange for the right to operate at airports and other locations, and (iii) sales of loss damage waivers and insurance and rentals of navigation units and other items in conjunction with vehicle rentals. We also earn royalty revenue from our licensees in conjunction with their vehicle rental transactions.

Car rental volumes are closely associated with the travel industry, particularly airline passenger volumes, or enplanements. Because we generate a significant portion of our revenue from our on-airport operations, we expect that our ability to generate revenue growth will be somewhat dependent on increases in worldwide enplanements. Our ability to achieve profit margins consistent with prior periods remains dependent on our ability to successfully manage our costs and our revenues per vehicle. Our vehicle rental operations are seasonal. Historically, the third quarter of the year has been our strongest quarter due to the increased level of leisure travel and household moving activity. Any occurrence that disrupts rental activity during the third quarter could have a disproportionate adverse effect on our results of operations. 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. However, certain expenses, such as rent, are fixed and cannot be reduced in response to seasonal fluctuations in our operations.

We believe that the following factors, among others, have impacted our financial condition and results of operations:

• Worldwide enplanements;

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

• Changes in per-unit fleet costs and in conditions in the used vehicle marketplace and/or the value of used vehicles;

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

• Our 2011 acquisition of Avis Europe plc and our ability to successfully integrate its business and realize synergies;

• Changes in the price or availability of unleaded gasoline;

• Changes in foreign exchange rates; and

• Demand for truck rentals.

Historically, our results of operations have declined during periods of general economic weakness. If economic conditions in the countries in which we operate were to weaken, our results of operations could be materially and adversely impacted in 2012 and beyond. In our cost-reduction initiatives and restructuring activities, we are driving process improvements to reduce costs, enhance service to our customers and improve our operations.

We may pursue acquisitions or investments and could incur additional indebtedness to help fund such transactions, which could have a material impact on our operations, financial condition and liquidity. Due to uncertainties related to our business, there can be no assurance that we will be able to satisfy the covenants contained in our senior credit facility and our asset-backed car rental conduit facilities. Failure to comply with such covenants could significantly impact our liquidity if we were unable to obtain an amendment or waiver or were unable to refinance or replace such facilities. See "Risk Factors" set forth in Item 1A of our 2011 Form 10-K.

Discussed below are our consolidated results of operations and the results of operations for each of our reportable segments.

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. 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.

Our chief operating decision maker assesses performance and allocates resources based upon the separate financial information from the Company's operating segments. In identifying our reportable segments, we also consider the nature of services provided by our operating segments. 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, transaction-related costs, non-vehicle related interest and income taxes. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

Three Months Ended March 31, 2012 vs. Three Months Ended March 31, 2011

Our consolidated results of operations comprised the following:



                                                  Three Months Ended
                                                       March 31,
                                                  2012           2011        Change
    Net revenues                                $   1,623       $ 1,235     $    388
    Total expenses                                  1,649         1,224          425

    Income (loss) before income taxes                 (26 )          11          (37 )
    Provision for (benefit from) income taxes          (3 )           4           (7 )

    Net income (loss)                           $     (23 )     $     7     $    (30 )

During first quarter 2012, our net revenues increased $388 million (31%), with more than 80% of our revenue growth due to the acquisition of Avis Europe in fourth quarter 2011 and the inclusion of its revenue in our results. T&M revenue increased by 27% driven by 7% growth in North American rental days and a 263% growth in International rental days. The growth in revenues also includes a 44% increase in our ancillary revenues, such as sales of loss damage waivers and insurance products, GPS navigation unit rentals, gasoline sales and fees charged to customers, and an $8 million favorable effect related to the translation of our international results into U.S. dollars.

Total expenses increased $425 million (35%), with greater than 80% of the increase due to including the operating results of Avis Europe. The total expense increase was attributable to (i) a $234 million (36%) increase in our direct operating expenses largely resulting from costs associated with the 33% increase in total rental days; (ii) a $65 million (42%) increase in selling, general and administrative expenses primarily because of the Avis Europe acquisition, as well as increased agency commissions and other costs related to higher rental volumes; (iii) a $42 million (15%) increase in vehicle depreciation and lease charges resulting from a 35% increase in our rental fleet, partially offset by a 15% decline in our per-unit fleet costs; (iv) a $26 million increase in interest expense on corporate debt due to increased indebtedness, primarily related to the acquisition of Avis Europe; (v) $27 million of expense in first quarter 2012 for the early extinguishment of a portion of our corporate debt; (vi) an $11 million increase in vehicle interest expense; (vii) a $7 million restructuring charge; and (viii) a $4 million increase in transaction-related costs related to the integration of the operations of Avis Europe. Our expenses also include an $8 million adverse impact from foreign currency exchange rates. As a result of these items, and a $7 million decrease in our provision for income taxes, we incurred a net loss of $23 million.

We expect the results of Avis Europe will be seasonal, with substantially all of Avis Europe's contribution to Adjusted EBITDA occurring in the second and third quarters of the year.

Our effective tax rate was a benefit of 12% for first quarter 2012 and a provision of 36% for first quarter 2011. The unusually low tax rate for the first quarter of 2012 was primarily due to the treatment of a portion of the expense for the early extinguishment of corporate debt.

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                               $ 1,038     $   998            4 %    $  93      $  54            72 %
International                                   510         162          215 %       22         33           (33 %)
Truck Rental                                     75          75            0 %        1         -              *
Corporate and Other (a)                          -           -             *         (4 )       (4 )           *

Total Company                               $ 1,623     $ 1,235           31 %      112         83            35 %

Less: Non-vehicle related depreciation
and amortization                                                                     32         23
Interest expense related to corporate
debt, net:
Interest expense                                                                     73         47
Early extinguishment of debt                                                         27         -
Transaction-related costs (b)                                                         6          2

Income before income taxes                                                        $ (26 )    $  11

* Not meaningful.

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

(b) For 2012, includes $6 million in costs related to the integration of the operations of Avis Europe and for 2011, includes $2 million in costs related to our previous efforts to acquire Dollar Thrifty Automotive Group, Inc.

North America

Revenues and Adjusted EBITDA increased $40 million (4%) and $39 million (72%), respectively, during first quarter 2012 compared with first quarter 2011. Revenues increased primarily due to higher rental volumes, partially offset by decreased pricing. The increase in Adjusted EBITDA was primarily due to higher revenue and lower fleet costs.

The revenue increase of $40 million was comprised of a $22 million (3%) increase in T&M revenue and an $18 million (7%) increase in ancillary revenues. The increase in T&M revenue was principally the result of a 7% increase in rental days, partially offset by a 3% decrease in T&M revenue per day. The $18 million increase in ancillary revenues primarily reflects (i) an $11 million increase in ancillary revenues from GPS rentals, sales of loss damage waivers and insurance products, emergency road service and other items, reflecting a 3% increase on a per-rental-day basis, and (ii) a $6 million increase in airport concession and vehicle licensing revenue, which was completely offset in Adjusted EBITDA by $6 million higher airport concession and vehicle licensing fees remitted to airport and other regulatory agencies.

Adjusted EBITDA reflected a $27 million (5%) increase in operating expenses, primarily related to (i) a $10 million (8%) increase in selling, general and administrative expenses principally due to higher variable costs related to increased rental volumes, (ii) a $7 million (4%) increase in certain other expenses related to increased volumes, including agency operator commissions, maintenance and damage, shuttling, credit card fees, and other related costs,
(iii) a $5 million (3%) increase in employee costs, rents and other expenses related primarily to increased staffing levels due to volume and inflationary increases, and (iv) a $5 million (8%) increase in vehicle interest expense primarily due to our increased car rental fleet. These expense increases were offset by a $32 million (14%) reduction in fleet depreciation and lease charges, reflecting a 21% improvement in per-unit fleet costs mainly from strong residual values, partially offset by a 9% increase in the average size of our car rental fleet.

International

Revenues increased $348 million (215%) and Adjusted EBITDA decreased $11 million (33%) in first quarter 2012 compared to first quarter 2011 primarily due to the acquisition of Avis Europe during fourth quarter 2011. The Avis Europe acquisition contributed $327 million to revenue and a $13 million loss to Adjusted EBITDA in first quarter 2012, including $7 million in restructuring costs.

The revenue increase of $348 million was comprised of a $227 million (212%) increase in T&M revenue and a $121 million (220%) increase in ancillary revenues. The total increase in revenue includes an $8 million increase related to foreign currency exchange rates, impacting T&M revenue by $5 million and ancillary revenues by $3 million, and was completely offset in Adjusted EBITDA by the opposite impact on expenses of $8 million. The increase in T&M revenue was principally driven by a 263% increase in rental days, mainly due to the inclusion of the operations of Avis Europe, partially offset by a 14% decrease in

T&M revenue per rental day, which was entirely due to the acquisition of Avis Europe and foreign currency exchange-rate effects. The increase in ancillary revenues reflects (i) a $75 million increase from GPS rentals, sales of loss damage waivers, insurance products and other items, (ii) a $28 million increase in airport concession and vehicle licensing revenues, which was primarily offset in Adjusted EBITDA by $22 million of higher airport concession and vehicle licensing fees remitted to airport and other regulatory authorities, and
(iii) an $18 million increase in gasoline sales, which was principally offset in Adjusted EBITDA by $12 million higher gasoline expense.

Adjusted EBITDA reflected a $250 million (352%) increase in operating expenses and a $75 million (241%) increase in fleet depreciation and lease charges. These increases were principally due to our October 2011 acquisition of Avis Europe, which added to our operating locations, headcount, fleet and other operating expenses, including $7 million in restructuring charges, as well as increased advertising, marketing and sales commissions, and inflationary increases in rent, partially offset by 3% lower per-unit fleet costs.

Truck Rental

Revenues remained level and Adjusted EBITDA increased $1 million in first quarter 2012 compared with first quarter 2011.

A 4% increase in T&M revenue per day was offset by a 4% decrease in rental days. The increase in Adjusted EBITDA primarily reflected a 3% decline in per-unit fleet costs and a 3% decline in our average truck rental fleet.

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



                                                   March 31,        December 31,
                                                     2012               2011            Change
Total assets exclusive of assets under
vehicle programs                                  $     4,101       $       3,848       $   253
Total liabilities exclusive of liabilities
under vehicle programs                                  5,704               5,598           106
Assets under vehicle programs                          10,086               9,090           996
Liabilities under vehicle programs                      8,048               6,928         1,120
Stockholders' equity                                      435                 412            23

Total assets exclusive of assets under vehicle programs increased $253 million primarily due to a $72 million increase in cash and cash equivalents from December 31, 2011 to March 31, 2012 (see "Liquidity and Capital Resources-Cash Flows"), as well as a $66 million increase in long-term deferred income taxes, a $63 million increase in other current assets, largely related to an increase in sales and use taxes, and a $48 million increase in accounts receivable, due to increased volumes and increased incentive receivables from manufacturers.

Total liabilities exclusive of liabilities under vehicle programs increased $106 million primarily due to an increase in corporate debt. See "Liquidity and Capital Resources-Debt and Financing Arrangements" regarding the changes in our corporate financings.

Assets under vehicle programs increased approximately $1.0 billion primarily due to an increase in our vehicle assets, principally related to the seasonal increase in the size of our vehicle rental fleet from December 31, 2011.

Liabilities under vehicle programs increased approximately $1.1 billion, reflecting additional borrowing to support the increase in our vehicle rental fleet. See "Liquidity and Capital Resources-Debt and Financing Arrangements" regarding the change in our debt related to vehicle programs.

Total stockholders' equity increased $23 million primarily due to a $44 million increase in other comprehensive income related to currency translation adjustments and net unrealized gains on cash flow hedges, partially offset by a net loss of $23 million for the three months ended March 31, 2012.

LIQUIDITY AND CAPITAL RESOURCES

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 the three months ended March 31, 2012, we completed several financing transactions related to our corporate indebtedness. We borrowed $500 million under a floating rate term loan due 2019 and issued an additional $125 million of our 8 1/4% senior notes due January 2019 at 103.5% of par. We repaid our $267 million floating rate term loan due 2014 and $150 million of our floating rate term loan due 2018, and repurchased $101 million of our convertible notes due 2014 and in May 2012 will repay $200 million of our 7 5/8% notes due May 2014.

During first quarter 2012, we also increased our borrowings under vehicle programs to fund an increase in our rental fleet in order to accommodate increased rental demand.

CASH FLOWS

As of March 31, 2012, we had $606 million of cash on hand, an increase of $72
million from $534 million at December 31, 2011. The following table summarizes
such activity:



                                                   Three Months Ended March 31,
                                                2012             2011         Change
    Cash provided by (used in):
    Operating activities                      $     253        $     277      $   (24 )
    Investing activities                           (967 )           (860 )       (107 )
    Financing activities                            783              586          197
    Effect of exchange rate changes                   3               (1 )          4

    Net change in cash and cash equivalents   $      72        $       2      $    70

During first quarter 2012, we generated $24 million less cash from operating activities compared with the same period in 2011 which reflects our $30 million decline in net income.

We used $107 million more cash in investing activities during the first quarter 2012 compared with the same period in 2011. This change primarily reflects the activities of our vehicle programs, which (i) used $527 million more cash to purchase vehicles in the current year and (ii) received $469 million more cash on the disposition of vehicles.

We generated $197 million more cash from financing activities during first quarter 2012 compared with the same period in 2011. This change primarily reflects a $105 million net increase in cash provided under our vehicle programs' financing activities primarily due to increased borrowings and a $92 million increase in net proceeds from corporate borrowings.

DEBT AND FINANCING ARRANGEMENTS

At March 31, 2012, we had approximately $9.8 billion of indebtedness (including corporate indebtedness of approximately $3.3 billion and debt under vehicle programs of approximately $6.5 billion).

Corporate indebtedness consisted of:

                                                                 As of             As of
                                            Maturity           March 31,       December 31,
                                              Date               2012              2011           Change
Floating rate term loan (a)                   April 2014      $        -       $         267      $  (267 )
Floating rate notes (b)                         May 2014              250                250           -
7 5/8% notes                                    May 2014              200                200           -
3 1/2% convertible notes (c)                October 2014              244                345         (101 )
Floating rate term loan (a) (d)                 May 2016               20                 20           -
7 3/4% notes                                    May 2016              375                375           -
9 5/8% notes                                  March 2018              445                445           -
Floating rate term loan (a) (d)           September 2018              264                412         (148 )
8 1/4% notes                                January 2019              731                602          129
Floating rate term loan (a) (e)               March 2019              495                 -           495
9 3/4% notes                                  March 2020              250                250           -

                                                                    3,274              3,166          108
Other                                                                  27                 39          (12 )

                                                              $     3,301      $       3,205      $    96

(a) The floating rate term loans are part of our senior credit facility, which also includes our revolving credit facility maturing 2016, and is secured by pledges of all of the capital stock of our domestic subsidiaries and up to 66% of the capital stock of each direct foreign subsidiary, subject to certain exceptions, and liens on substantially all of our intellectual property and certain other real and personal property.

(b) As of March 31, 2012, the floating rate notes due 2014 bear interest at three-month LIBOR plus 250 basis points, for an aggregate rate of 3.00%.

(c) The 3 1/2% convertible notes due 2014 are convertible by the holders into approximately 15 million shares of our common stock.

(d) As of March 31, 2012, the floating rate term loan due 2016 bears interest at three-month LIBOR plus 300 basis points, for an aggregate rate of 3.56% and the floating rate term loan due 2018 bears interest at the greater of three-month LIBOR or 1.25%, plus 500 basis points, for an aggregate rate of 6.25%.

(e) As of March 31, 2012 the floating term rate loan due 2019 bears interest at the greater of three-month LIBOR or 1.0%, plus 325 basis points, for an aggregate rate of 4.25%.

The following table summarizes the components of our debt under vehicle programs (including related party debt due to Avis Budget Rental Car Funding (AESOP) LLC ("Avis Budget Rental Car Funding")):

                                                      As of              As of
                                                    March 31,        December 31,
                                                      2012               2011             Change
Debt due to Avis Budget Rental Car Funding (a)     $     5,306       $       4,574       $    732
Budget Truck Funding program                               216                 188             28
Capital Leases                                             427                 348             79
Other (b)                                                  502                 454             48

                                                   $     6,451       $       5,564       $    887

(a) The increase reflects increased borrowings to fund an increase in the size of our U.S. car rental fleet.

(b) The increase principally reflects increased borrowings to fund an increase in the size of our international vehicle rental fleet.

As of March 31, 2012, the committed credit facilities available to us and/or our . . .