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, Avis and Budget. 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 and Budget brands in approximately 175 countries throughout the world.

We categorize our operations into three business segments: North America, consisting of our Avis and Budget car rental operations in the United States and our Avis and Budget vehicle rental operations in Canada; International, consisting of our Avis and Budget vehicle operations in Europe, the Middle East, Asia, Africa, South America, central America, the Caribbean, Australia and New Zealand; and Truck Rental, consisting of our Budget truck rental operations in the United States. Our International segment includes operational and financial results of Avis Europe plc ("Avis Europe") since our October 2011 acquisition of such business.

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, (iii) sales of loss damage waivers and insurance and rentals of navigation units and other items in conjunction with vehicle rentals and (iv) 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 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. 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.

Thus far in 2012, we have faced an uneven macroeconomic environment. Our rental volumes in North America have increased amid a modest economic recovery, while rental revenues in Europe have been constrained by an economic recession and socio-political issues there. In addition, we have elected to incur certain restructuring and other expenses as we work to integrate the operations of Avis Europe and to gain operational efficiencies.

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 and our integration of its operations and realization of synergies;

• Changes in the price or availability of unleaded gasoline;

• Changes in currency exchange rates; and

• Demand for truck rentals.

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. Our revenues and expenses have increased significantly in the first six months of 2012 compared to the first six months of 2011 primarily due to our acquisition of Avis Europe, which was a separate, publicly traded company domiciled in the United Kingdom, in October 2011.

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.

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. Our calculation may not be comparable to other companies' calculation of similarly-titled statistics.

Three Months Ended June 30, 2012 vs. Three Months Ended June 30, 2011

Our consolidated results of operations comprised the following:



                                           Three Months Ended
                                                June 30,
                                            2012          2011        Change
            Net revenues                 $    1,866      $ 1,412     $    454
            Total expenses                    1,737        1,323          414

            Income before income taxes          129           89           40
            Provision for income taxes           50           37           13

            Net income                   $       79      $    52     $     27

During second quarter 2012, our net revenues increased $454 million (32%), with most 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 29% driven by 6% growth in North America rental days and 377% growth in International rental days. The growth in revenues also includes a 41% 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 a $7 million unfavorable effect related to the translation of our international results into U.S. dollars. Excluding the acquisition of Avis Europe, net revenues increased 3% during second quarter 2012, primarily driven by a 5% increase in rental days and partially offset by a 3% decrease in pricing.

Total expenses increased $414 million (31%) with substantially all of the increase due to the inclusion of the operating results of Avis Europe. The increase was attributable to (i) a $228 million (31%) increase in our direct operating expenses largely resulting from costs associated with the 35% increase in total rental days; (ii) a $75 million (29%) increase in vehicle depreciation and lease charges resulting from a 35% increase in our rental fleet, partially offset by a 5% decline in our per-unit fleet costs; (iii) a $64 million (38%) 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; (iv) $23 million of expense in second quarter 2012 for the early extinguishment of a portion of our corporate debt; (v) a $22 million increase in interest expense on corporate debt due to increased indebtedness, primarily related to the acquisition of Avis Europe;
(vi) a $12 million (18%) increase in vehicle interest expense related to the growth in our rental fleet; and (vii) $12 million in restructuring charges. These increases were partially offset by a $30 million decrease in transaction-related costs, which for 2012 related to the integration of the operations of Avis Europe, and which for 2011 related to due-diligence and other costs associated with the acquisition of Avis Europe and our previous efforts to acquire Dollar Thrifty Automotive Group, Inc. ("Dollar Thrifty"). Our expenses also include an $8 million favorable impact from foreign-currency exchange rates. As a result of these items, and a $13 million increase in our provision for income taxes, we generated a $27 million increase in our net income. Our effective tax rates were provisions of 39% and 42% for second quarter 2012 and 2011, respectively.

In the three months ended June 30, 2012, operating expenses declined to 51.1% of revenue, compared to 51.3% in the prior-year period. Operating expenses remained consistent as percentage of revenue in North America, but decreased as a percentage of

revenue in our International segment due to the inclusion in 2012 of the results of Avis Europe, which has a lower level of operating expenses as a percentage of revenue in the second quarter. Our efforts to reduce costs helped keep operating costs constant as a percentage of revenue in North America in an environment where our time and mileage revenue per rental day declined 3% (2% on a constant-currency basis).

Vehicle depreciation and lease costs declined to 17.9% of revenue from 18.3% in second quarter 2011 primarily due to lower per-unit fleet costs in North America amid robust used-car residual values. Selling, general and administrative costs increased to 12.5% of revenue, versus 12.0% in the three months ended June 30, 2011. This increase was due in part to the inclusion in 2012 of the results of Avis Europe, which generally has a higher level of selling, general and administrative costs than our North America operations, and due in part to increased sales and marketing expenses in North America. Vehicle interest costs declined to 4.3% 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                               $ 1,184     $ 1,150            3 %    $ 184      $ 156            18 %
International                                   579         159          264 %       59         20           195 %
Truck Rental                                    103         103            0 %       17         18            (6 %)
Corporate and Other (a)                          -           -             *         (6 )       (3 )           *

Total Company                               $ 1,866     $ 1,412           32 %      254        191            33 %


Less: Non-vehicle related depreciation
and amortization                                                                     29         21
Interest expense related to corporate
debt, net:
Interest expense                                                                     69         47
Early extinguishment of debt                                                         23         -
Transaction-related costs (b)                                                         4         34

Income before income taxes                                                        $ 129      $  89

* Not meaningful.

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

(b) For 2012, includes $4 million in costs primarily related to the integration of the operations of Avis Europe and for 2011, includes $34 million in costs related to our acquisition of Avis Europe and our previous efforts to acquire Dollar Thrifty.

North America

Revenues and Adjusted EBITDA increased $34 million (3%) and $28 million (18%), respectively, during second quarter 2012 compared with second 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 $34 million was comprised of a $26 million (3%) increase in T&M revenue and an $8 million (3%) increase in ancillary revenues. The increase in T&M revenue was principally the result of a 6% increase in rental days, partially offset by a 3% decrease in T&M revenue per day (2% on a constant-currency basis). The increase in ancillary revenues primarily reflects increases in sales of loss damage waivers, insurance products and other items.

Adjusted EBITDA reflected a $24 million (3%) increase in operating expenses, primarily related to (i) a $7 million (15%) increase in gasoline expense, including costs related to our gasoline hedges, (ii) a $6 million (3%) increase in employee costs, rents, and other costs related primarily to increased staffing levels due to volume and inflationary increases, (iii) a $4 million (3%) increase in selling, general and administrative expenses principally due to increased rental volumes, (iv) a $5 million (2%) increase in certain other expenses related to increased volumes, including agency operator commissions, shuttling, credit card fees and other related costs and (v) a $3 million (4%) increase in vehicle interest expense primarily due to our increased car rental fleet. These increases were offset by an $18 million (8%) reduction in fleet depreciation and lease charges, reflecting a 13% improvement in per-unit fleet costs, partially offset by a 5% increase in the average size of our car rental fleet.

In the three months ended June 30, 2012, direct operating expenses were 50.2% of revenue, consistent with the prior-year period due primarily to our cost reduction efforts in an environment where our time and mileage revenue per day declined. Vehicle depreciation and lease costs declined to 16.6% of revenue from 18.6% in second quarter 2011 primarily due to lower per-unit fleet costs amid continued strong used-car residual values. Selling, general and administrative costs remained consistent with the prior year period at 11.9% of revenue, reflecting increased sales and marketing spending offset by cost-reduction measures.

International

Revenues increased $420 million (264%) and Adjusted EBITDA increased $39 million (195%) in second quarter 2012 compared to second quarter 2011 primarily due to the acquisition of Avis Europe during fourth quarter 2011. The Avis Europe acquisition contributed $417 million to revenue and $34 million to Adjusted EBITDA in second quarter 2012, including $12 million in restructuring costs. Excluding the acquisition, revenues increased 4% and Adjusted EBITDA increased 30% in second quarter 2012 compared with second quarter 2011.

The revenue increase of $420 million was comprised of a $276 million (273%) increase in T&M revenue and a $144 million (248%) increase in ancillary revenues. The total increase in revenue includes a $7 million decrease related to currency exchange rates, impacting T&M revenue by $4 million and ancillary revenues by $3 million. The effect of currency exchange rates on revenue was completely offset in Adjusted EBITDA by the favorable impact of exchange rates on expenses of $8 million, including a $2 million gain on our currency hedges. The increase in T&M revenue was principally driven by a 377% increase in rental days, mainly due to the inclusion of the operations of Avis Europe, partially offset by a 22% decrease in T&M revenue per rental day, which was entirely due to the acquisition of Avis Europe and currency exchange-rate effects. The increase in ancillary revenues, which was also primarily due to the acquisition of Avis Europe, reflects (i) a $96 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 largely offset in Adjusted EBITDA by $24 million of higher airport concession and vehicle licensing fees remitted to airport and other regulatory authorities, and
(iii) a $20 million increase in gasoline sales, which was partially offset in Adjusted EBITDA by $14 million higher gasoline expense.

Adjusted EBITDA reflected a $248 million (318%) increase in operating expenses and a $95 million (300%) increase in fleet depreciation and lease charges. These increases were principally due to the acquisition of Avis Europe, which added to our operating locations, headcount, fleet and other operating expenses, including $12 million in restructuring charges, as well as increased advertising, marketing and sales commissions, and inflationary increases in rent, partially offset by 9% lower per-unit fleet costs.

Truck Rental

Revenues remained level and Adjusted EBITDA decreased $1 million in second quarter 2012 compared with second quarter 2011. Adjusted EBITDA decreased primarily due to increased vehicle maintenance costs.

Six Months Ended June 30, 2012 vs. Six Months Ended June 30, 2011

Our consolidated results of operations comprised the following:



                                            Six Months Ended
                                                June 30,
                                            2012         2011        Change
             Net revenues                 $   3,489     $ 2,646     $    843
             Total expenses                   3,387       2,546          841

             Income before income taxes         102         100            2
             Provision for income taxes          46          41            5

             Net income                   $      56     $    59     $     (3 )

During the six months ended June 30, 2012, our net revenues increased $843 million (32%), with approximately 85% of our revenue growth due to the acquisition of Avis Europe in fourth quarter 2011 and the inclusion of its operations in our results. T&M revenue increased by 28% driven by 6% growth in North America rental days and 317% growth in International rental days. The growth in revenues also includes a 42% 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 as well as a $2 million favorable impact from currency exchange rates. Excluding the acquisition, net revenues increased 4% during the six months ended June 30, 2012, primarily due to a 6% increase in rental days.

Total expenses increased $841 million (33%), with approximately 90% of the increase due to including the results of Avis Europe. The total expense increase was attributable to (i) a $464 million (34%) increase in our direct operating expenses largely resulting from the 34% increase in total rental days; (ii) a $130 million (40%) 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 $117 million (22%) increase in vehicle depreciation and lease charges resulting from a 35% increase in our rental fleet, partially offset by a 10% decline in our per-unit fleet costs; (iv) a $48 million increase in interest expense on corporate debt due to increased indebtedness, primarily related to the acquisition of Avis Europe; (v) $50 million of expense for the early

extinguishment of a portion of our corporate debt; (vi) a $21 million increase in vehicle interest expense related to increased fleet levels; and (vii) $19 million in restructuring charges. These expense increases were partially offset by a $26 million decrease in transaction-related costs, which for 2012 related to the integration of the operations of Avis Europe and which for 2011 related to due-diligence and other costs associated with our fourth quarter 2011 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 $5 million increase in our provision for income taxes, our net income decreased $3 million. Our effective tax rates were provisions of 45% and 41% for the six months ended June 30, 2012 and 2011, respectively.

In the six months ended June 30, 2012, operating expenses increased to 52.9% of revenue versus 52.3% in the prior-year period. Operating expenses decreased slightly as a percentage of revenue in North America, but increased as a percentage of revenue in our International segment due to the inclusion of the results of Avis Europe, which has a higher level of operating expenses as a percentage of revenue in the first half of the year. Our efforts to control costs contributed to lower operating costs as a percentage of revenue in North America in an environment where our time and mileage revenue per rental day declined 3%.

Vehicle depreciation and lease costs declined to 18.7% of revenue in first half of 2012 primarily due to lower per-unit fleet costs in North America amid robust used-car residual values. Selling, general and administrative costs increased to 13.0% of revenue, versus 12.2% in the six months ended June 30, 2011. Such increase was due in part to the inclusion in 2012 of the results of Avis Europe, which generally has a higher level of selling, general and administrative costs than our North America operations, and due in part to increased sales and marketing expenses in North America. Vehicle interest costs declined to 4.4% of revenue, compared to 5.0% 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                                $ 2,222     $ 2,148            3 %     $ 277      $ 210           32 %
International                                  1,089         320          240 %        81         53           53 %
Truck Rental                                     177         178           (1 %)       18         18            0 %
Corporate and Other (a)                            1          -             *         (10 )       (7 )          *

Total Company                                $ 3,489     $ 2,646           32 %       366        274           34 %


Less: Non-vehicle related depreciation and
amortization                                                                           62         44
Interest expense related to corporate
debt, net:
Interest expense                                                                      142         94
Early extinguishment of debt                                                           50         -
Transaction-related costs (b)                                                          10         36

Income before income taxes                                                          $ 102      $ 100

* Not meaningful.

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

(b) For 2012, includes $10 million in costs primarily related to the integration of the operations of Avis Europe and for 2011, includes $36 million in costs related to our acquisition of Avis Europe and our previous efforts to acquire Dollar Thrifty.

North America

Revenues and Adjusted EBITDA increased $74 million (3%) and $67 million (32%), respectively, during the six months ended June 30, 2012 compared with the same period in 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 $74 million was comprised of a $48 million (3%) increase in T&M revenue and a $26 million (5%) increase in ancillary revenues. The increase in T&M revenue was principally the result of a 6% increase in rental days, partially offset by a 3% decrease in T&M revenue per day. The $26 million increase in ancillary revenues primarily reflects a $18 million increase in ancillary revenues from sales of loss damage waivers and insurance products, emergency road service and other items, reflecting a 1% increase on a per-rental-day basis, and an $8 million increase in airport concession and vehicle licensing revenue, which was completely offset in Adjusted EBITDA by $8 million higher airport concession and vehicle licensing fees remitted to airport and other regulatory agencies.

Adjusted EBITDA reflected a $48 million (4%) increase in operating expenses, primarily related to (i) a $14 million (5%) increase in selling, general and administrative expenses principally due to increased rental volumes, (ii) an $11 million (3%) increase in employee costs, rents and other expenses related primarily to increased staffing levels due to volume and inflationary increases,
(iii) a $10 million (2%) increase in certain other expenses related to increased volumes, including agency operator

commissions, shuttling, credit card fees and related costs, (iv) a $7 million (6%) increase in vehicle interest expense primarily due to our increased car rental fleet and (v) a $6 million (8%) increase in gasoline expense, including costs related to our gasoline hedges. These expense increases were offset by a $49 million (11%) reduction in fleet depreciation and lease charges, reflecting a 17% improvement in per-unit fleet costs, partially offset by a 7% increase in the average size of our car rental fleet.

In the six months ended June 30, 2012, direct operating expenses decreased to 51.4% of revenue versus 51.6% in the prior-year period, highlighting our cost-reduction efforts in an environment where our time and mileage costs declined. Vehicle depreciation and lease charges declined to 17.9% of revenue in . . .