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.

Our Company

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 approximately 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.

Our Segments

We categorize our operations into three reportable 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 the operational and financial results of Avis Europe plc ("Avis Europe") and Apex Car Rentals ("Apex") since our acquisitions of such businesses in October 2011 and October 2012, respectively.

Business and Trends

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 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 per-unit car 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 and our integration of their operations and realization of synergies, particularly the integration of Avis Europe;

• changes in the price of unleaded gasoline;

• changes in currency exchange rates; and

• demand for truck rentals.

In 2012, we faced an uneven macroeconomic environment. Our rental volumes in North America increased amid a modest economic recovery, while rental demand in Europe was constrained by an economic recession and socio-political issues there. As discussed further below, vehicle depreciation costs in 2011 and 2012 declined significantly compared to 2010 amid a particularly strong used car market in the United States in 2011 and the first half of 2012.

In total, we achieved significant growth, record revenues and record earnings in 2012:

• Net revenues were $7.4 billion, compared with $5.9 billion in 2011, representing a 25% increase.

• Net income was $290 million in 2012, compared with a net loss of $29 million in 2011.

• Adjusted EBITDA totaled $802 million, compared with $605 million in 2011, representing a 33% increase.

• Diluted earnings per share were $2.42, compared with a loss per share of $0.28 in 2011.

• We decreased our outstanding corporate debt by $300 million.

• Our share price increased 85%, to $19.82.

As part of our strategic initiatives and restructuring activities, we are driving process improvements to reduce costs, enhance service to our customers and improve our operations. We have also elected to incur certain restructuring and other expenses as we work to integrate the operations of Avis Europe and to gain operational efficiencies.

Outlook

We continue to operate in an uncertain economic environment, which impacted our business in 2012 and will continue to do so in 2013. The worldwide economy, and Europe in particular, continues to struggle with modest, if any, economic growth. We expect that weak economic conditions and historically high unemployment rates in Europe could impact rental demand, fleet costs and capital markets there. We continue to believe that our Budget

brand is poised to strengthen its market position in this environment and to experience significant growth from eventual economic improvement in Europe. We believe economic and political issues in the United States, particularly regarding government spending and deficits, may create volatility in 2013 in the equity and debt markets in which our securities trade. In North America, we expect used-car residual values to remain strong, on average, relative to longer-term historical norms, but that our fleet costs will increase compared to the levels we experienced in 2010 and 2011. We also expect moderate economic growth in North America, most likely leading to growth in our rental volumes there. We have experienced declines in realized pricing over the last several years as fleet costs have decreased, and we will look to pursue opportunities for pricing increases in 2013 in order to maintain our returns on invested capital and to enhance our profitability.

In January 2013, we announced that we have agreed to acquire Zipcar, Inc. ("Zipcar"), the world's leading car sharing network, for approximately $500 million. The transaction is subject to approval by Zipcar shareholders and other customary closing conditions. We expect that this acquisition, if completed, will position the Company to better serve a greater variety of consumer and commercial transportation needs, and will produce significant operating synergies between the two companies' operations.

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 car 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 (see Note 21 to our Consolidated Financial Statements for further information). 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.

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



                                      Year Ended December 31,
                                     2012                2011              Change
    Net revenues                 $      7,357        $      5,900      $       1,457
    Total expenses                      7,057               5,864              1,193

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

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

During 2012, our net revenues increased approximately $1.5 billion (25%), with approximately 90% 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 22% driven by 28% growth in total rental days, which reflected 5%

growth in North America rental days and 161% growth in International rental days. The growth in revenues also includes a 32% 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. Changes in currency exchange rates negatively impacted revenue growth by $13 million. Excluding the acquisition of Avis Europe, revenues increased 3% during 2012, primarily due to a 6% increase in rental days.

Total expenses increased approximately $1.2 billion (20%), with approximately 90% of the increase due to including the results of Avis Europe for the full year. The total expense increase was attributable to (i) a $799 million (26%) increase in our direct operating expenses largely resulting from the 28% increase in total rental days; (ii) a $248 million (20%) increase in vehicle depreciation and lease charges resulting from a 26% increase in our total rental fleet, partially offset by a 5% decline in our per-unit fleet costs; (iii) a $169 million (22%) increase in selling, general and administrative expenses primarily because of the acquisition of Avis Europe, as well as increased agency operator commissions and other costs related to higher rental volumes; (iv) $75 million of expense for the early extinguishment of a portion of our corporate debt; (v) a $49 million increase in interest expense on corporate debt due to increased indebtedness during the year, primarily related to the acquisition of Avis Europe; (vi) a $33 million increase in restructuring expenses; (vii) a $30 million increase in non-vehicle related depreciation and amortization, primarily due to the acquisition of Avis Europe; and (viii) an $11 million (4%) increase in vehicle interest expense related to increased fleet levels but lower interest rates. These expense increases were partially offset by a $221 million (87%) 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. Changes in currency exchange rates had no material impact on our expenses. As a result of these items, and a $55 million decrease in our provision for income taxes, due primarily to the settlement of a $128 million unrecognized tax benefit in 2012, our net income increased $319 million. We had an income tax provision of $10 million in 2012 and our income tax provision in 2011 was $65 million due to the non-deductibility of many of the transaction-related costs related to the acquisition of Avis Europe.

In 2012, operating expenses were 52.0% of revenue, versus 51.3% in the prior year. 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, for a full year in 2012, of the results of Avis Europe, which had a higher level of operating expenses as a percentage of revenue. Our efforts to reduce costs contributed to lower operating costs as a percentage of revenue in North America in an environment where our T&M revenue per rental day declined 2%.

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. 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%     $     556      $      442          26%
International                                       2,342            1,028         128%           234             127          84%
Truck Rental                                          374              376         (1%)            33              49        (33%)
Corporate and Other (a)                                 1                1            *           (21)            (13)           *

Total Company                                    $  7,357      $     5,900          25%           802             605          33%


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               -
     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, includes $34 million in costs primarily related to the integration of the operations of Avis Europe and for 2011, includes $255 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 $145 million (3%) and $114 million (26%), respectively, during 2012 compared with 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 $145 million was comprised of a $96 million (3%) increase in T&M revenue and a $49 million (4%) increase in ancillary revenues. The revenue growth includes a $6 million decrease related to Canadian currency exchange rates, impacting T&M revenue by $4 million and ancillary revenues by $2 million, and was partially offset in Adjusted EBITDA by the impact of currency exchange rates on expenses of $1 million. The increase in T&M revenue was principally the result of a 5% increase in rental days, partially offset by a 2% decrease in T&M revenue per day. The $49 million increase in ancillary revenues primarily reflects (i) a $36 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 (ii) a $13 million increase in airport concession and vehicle licensing revenue, which was partially offset in Adjusted EBITDA by $9 million of higher airport concession and vehicle licensing fees remitted to airport and other regulatory agencies (such fees continue to be a net cost to us).

Adjusted EBITDA benefited from the increase in revenue and a $25 million (3%) reduction in fleet depreciation and lease charges, reflecting an 8% decline in per-unit fleet costs and a 6% increase in the average size of our car rental fleet. Adjusted EBITDA also reflected a $46 million (2%) increase in operating expenses, primarily related to (i) a $51 million (7%) increase in expenses related to increased volumes, including shuttling, maintenance and damage costs, agency operator commissions, credit card fees and related costs, (ii) a $23 million (3%) increase in employee costs, rents and other expenses reflecting inflationary increases and increased staffing levels to accommodate greater rental volumes, and (iii) a $10 million (2%) increase in selling, general and administrative

expenses principally due to increased rental volumes; these operating expense increases were partially offset by a $19 million decrease in insurance costs due to favorable claims experience and a $17 million decrease in interest expense due to lower borrowing costs on our vehicle-related debt.

In 2012, direct 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 charges 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 expenses decreased to 12.0% of revenue, compared to 12.1% of revenue for 2011, and vehicle interest expense decreased to 5.3% of revenue versus 5.9% in the prior year, principally due to lower borrowing rates.

International

Revenues and Adjusted EBITDA increased approximately $1.3 billion (128%) and $107 million (84%), respectively, in 2012 compared with 2011 primarily due to the acquisition of Avis Europe during fourth quarter 2011. Avis Europe contributed approximately $1.6 billion to revenue and $103 million to Adjusted EBITDA during the full year 2012, including $36 million in restructuring costs, while it contributed $359 million to revenue and $2 million to Adjusted EBITDA in fourth quarter 2011. Excluding the acquisition, revenues increased 6% and Adjusted EBITDA increased 5% during 2012, primarily due to a 7% increase in rental days.

The revenue increase of approximately $1.3 billion was comprised of an $867 million (129%) increase in T&M revenue and a $447 million (125%) 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 increase in T&M revenue was principally driven by a 161% increase in rental days, partially offset by a 12% decrease in T&M revenue per rental day, which was primarily due to the inclusion of the operations of Avis Europe. The increase in ancillary revenues reflected (i) a $293 million increase from GPS navigation unit rentals, sales of loss damage waivers, insurance products and other items, (ii) a $90 million increase in airport concession and vehicle licensing revenues, which was largely offset in Adjusted EBITDA by $67 million of higher airport concession and vehicle licensing fees remitted to airport and other regulatory authorities, and (iii) a $64 million increase in gasoline sales, which was largely offset in Adjusted EBITDA by $44 million higher gasoline expense.

Adjusted EBITDA reflected a $613 million (105%) increase in direct operating expenses, a $273 million (130%) increase in fleet depreciation and lease charges, a $150 million (93%) increase in selling, general and administrative expenses, a $33 million increase in restructuring charges, and a $27 million increase in vehicle interest expense. These increases were principally due to the acquisition of Avis Europe, which added to our operating locations, headcount, fleet and other operating expenses, and were mitigated by 7% lower per-unit fleet costs.

Truck Rental

Revenues and Adjusted EBITDA decreased by $2 million (1%) and $16 million (33%), respectively, in 2012 compared with 2011. A 1% increase in T&M revenue per day was offset by a 2% decrease in rental days. Adjusted EBITDA decreased primarily due to decreased revenues and an $8 million increase in vehicle maintenance costs.

Corporate and Other

Revenues remained consistent 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.

Year Ended December 31, 2011 vs. Year Ended December 31, 2010

Our consolidated results of operations comprised the following:



                                      Year Ended December 31,
                                     2011                 2010             Change
    Net revenues                 $     5,900         $       5,185      $        715
    Total expenses                     5,864                 5,113               751

    Income before income taxes            36                    72              (36)
    Provision for income taxes            65                    18                47

    Net income (loss)            $      (29)         $          54      $       (83)

In 2011, our net revenues increased $715 million (14%), with approximately half of our revenue growth due to the acquisition of Avis Europe in fourth quarter 2011 and the inclusion of its revenue, in our results. For the year, we achieved a 12% increase in T&M revenue driven by an increase of 13% in North American and International car rental days and a 7% increase in Truck rental days. The growth in revenues also includes a 20% 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 $78 million favorable effect related to the translation of our international results into U.S. dollars.

Total expenses increased $751 million (15%), with approximately half of the increase due to the results of Avis Europe. The total expense increase was due to (i) our $409 million (16%) increase in direct operating expenses largely resulting from costs associated with the 13% increase in car rental days; (ii) a $241 million increase in transaction-related costs primarily for due-diligence and other costs related to the acquisition of Avis Europe, including a $117 million non-cash charge related to the unfavorable license rights we reacquired and $49 million of losses on foreign-currency transactions related to the acquisition of Avis Europe; (iii) a $187 million (33%) increase in selling, general and administrative expenses primarily because of the Avis Europe acquisition and our strategic decision to invest in incremental advertising and marketing, as well as increased agency commissions and other costs related to higher rental volumes; and (iv) a $49 million increase in interest expense on corporate debt due to increased indebtedness, primarily related to the Avis Europe acquisition. These year-over-year increases were partially offset by
(i) a $64 million (5%) decrease in vehicle depreciation and lease charges resulting from a decline in our per-unit depreciation, which include gains on sale of vehicles, (ii) the absence of the prior-year $52 million expense related to the extinguishment of a portion of our corporate debt and associated interest rate swaps, and (iii) an $18 million decrease in vehicle interest expense. Our expenses also include a $67 million adverse impact from foreign currency exchange rates. As a result of these items, and a $47 million increase in our provision for income taxes, we incurred a net loss of $29 million.

For 2011, our income tax provision was $65 million due to the non-deductibility of many of the transaction-related costs related to the acquisition of Avis Europe. For 2010, our effective tax rate was 25%.

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

                                              Revenues                                   Adjusted EBITDA
                                                                 %                                              %
                                 2011           2010          Change           2011            2010          Change
North America                  $  4,495       $  4,260              6%      $     442       $     266             66%
International                     1,028            555             85%            127             114             11%
Truck Rental                        376            367              2%             49              34             44%
Corporate and Other (a)               1              3               *           (13)            (16)               *

Total Company                  $  5,900       $  5,185             14%            605             398             52%


Less: Non-vehicle related
depreciation  and
amortization                                                                       95              90
 Interest expense related
to corporate debt, net:
  Interest expense                                                                219             170
  Early extinguishment of
debt                                                                                -              52
 Transaction-related costs
(b)                                                                               255              14

Income before income taxes                                                  $      36       $      72

* Not meaningful.

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

. . .