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

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
COMMISSION FILE NUMBER: 1-13315

AVIS GROUP HOLDINGS, INC.
(Exact Name Of Registrant As Specified In Its Charter)

(973) 496-3500
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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

The aggregate market value of the common stock issued and outstanding and held by nonaffiliates of the Registrant on December 31, 2002: All of our Common Stock is owned by Cendant Corporation, accordingly there is no public trading market for our Common Stock.

The number of shares outstanding of the Registrant's classes of common stock was 5,537 as of December 31, 2002.

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

TABLE OF CONTENTS

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FORWARD-LOOKING STATEMENTS

Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives.

Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "project", "estimates", "plans", "may increase", "may fluctuate" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

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terrorist attacks, such as the September 11, 2001 terrorist attacks on New York City and Washington, D.C., other attacks, acts of war or measures taken by governments in response there to may negatively affect the travel industry, or financial results and could also result in a disruption in our business;



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the effect of economic or political conditions or any outbreak or escalation of hostilities or interest rate changes on the economy on a national, regional or international basis and the impact thereof on our business;



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the effects of a decline in travel, due to political instability, adverse economic changes or otherwise, on our business;



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competition in the car rental industry and the financial resources of, and products available to, competitors;



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our failure to provide fully integrated disaster recovery technology solutions in the event of a disaster;



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our ability to integrate and operate successfully as an acquired and merged business, including the compatibility of the operating systems, and the degree to which our existing administrative and back-office functions and costs are complementary or redundant;



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our ability to obtain financing on acceptable terms to finance our growth strategy and to operate within the limitations imposed by financing arrangements;



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our ability to obtain external financing in the event we are unable to obtain financing from Cendant;



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competitive and pricing pressures in the car rental industry;



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changes in vehicle manufacturer repurchase arrangements in the event that used vehicle values decrease;



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and changes in laws and regulations, including changes in accounting standards, state and federal tax laws and privacy policy regulation.

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

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

PART I

ITEM 1. BUSINESS

Except as expressly indicated or unless the context otherwise requires, the "Company", "we", "our" or "us" means Avis Group Holdings, Inc., a Delaware corporation, and its subsidiaries.

This 10-K Report includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global economic, business, competitive, market and regulatory factors. Please refer to "Forward-Looking Statements" for additional factors and assumptions that could cause actual results to differ from the forward-looking statements contained in this 10-K Report.

On March 1, 2001, all of our common stock not then owned by Cendant Corporation ("Cendant") was acquired by PHH Corporation, a wholly-owned subsidiary of Cendant for approximately $994 million. Simultaneous with the acquisition, our stock was distributed to a Cendant subsidiary not within the PHH ownership structure and the Company's former fleet and fuel card businesses were retained by PHH. Accordingly, we are now a wholly-owned subsidiary of Cendant.

We operate portions of the Avis car rental system (the "Avis System"), which represents the second largest general use car rental brand in the world, based on total revenue and number of locations. We are the largest franchisee of the portion of the Avis System owned by Cendant. The Avis System is comprised of approximately 4,800 rental locations (of which 1,778 are operated and/or franchised by Cendant), including locations at some of the largest airports and cities in the United States and foreign countries. We own and operate 964 Avis car rental locations in both airport and non-airport (downtown and suburban) locations in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina, Australia and New Zealand. For the year ended December 31, 2002, we operated an average fleet of approximately 219,000 vehicles and generated total vehicle rental revenue of approximately $2.51 billion, of which approximately 90% was derived from U.S. operations.

The Avis System provides our car rental locations access to the benefits of a variety of services, including: (i) the "Avis Cares®" driver and travel safety program, (ii) a standardized system identity for rental location presentation and uniforms; (iii) a training program, business policies, quality of service standards and data designed to monitor service commitment levels; (iv) marketing/advertising/public relations support for national consumer promotions including the avis.com Internet site; and (v) brand awareness of the Avis System through the familiar "We Try Harder®" advertising.

We also have access to Cendant's Wizard® System, an on-line computer system, which provides (i) global reservations processing, (ii) rental agreement generation and administration and (iii) fleet accounting and control. We pay Cendant a fee for each use of the Wizard System. We also offer our corporate customers Avis InterActive®, which provides these customers real-time access to aggregated information on car rental expenses to better manage their car rental expenditures.

Growth.    The existing rental patterns of our business cause us to have excess capacity from Friday through Sunday. We intend to increase business during this period through a combination of advertising, targeted marketing programs to associations and customers of other Cendant brands and increased presence in the

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online arena. Our own Internet site, avis.com, as well as other Internet travel sites, including the cheaptickets.com Web site, present good opportunities to grow our business and improve our profitability through enhanced utilization of our fleet. We also intend to continue to grow our share of the corporate market through normal contract negotiations and by seeking clients that may be affected by fleet constraints of certain of our competitors.

Fleet Management.    We participate in a variety of vehicle purchase programs with major domestic and foreign manufacturers, principally General Motors Corporation ("GM"). Under the terms of our agreement with GM, which expires in 2006, we are required to purchase a certain number of vehicles. Our current operating strategy is to maintain an average fleet age of approximately 6.5 months. For model year 2002, over 99% of our domestic fleet vehicles were subject to repurchase programs. Under these programs, subject to certain conditions, such as mileage and vehicle condition, a manufacturer is required to repurchase those vehicles at a pre-negotiated price thereby eliminating our risk on the resale of the vehicles. In 2002, approximately 3% of repurchase program vehicles did not meet the conditions for repurchase.

We acquire our fleet through, and lease it from, our wholly-owned and consolidated subsidiary, AESOP Leasing L.P. ("AESOP"). Beginning in November 2002, we began to sublease a portion of our fleet to Budget Rent A Car System, Inc., ("Budget"), a wholly-owned subsidiary of Cendant not within our ownership structure, under a sublease agreement. Under the terms of the sublease agreement, we charge Budget a monthly fee equal to the leased vehicles' monthly depreciation expense, vehicle debt interest expense and certain related administrative expenses in exchange for use of the rental vehicle for an agreed upon length of time. Upon expiration of the sublease term the vehicles are turned back to the vehicle manufacturers under existing vehicle repurchase programs. The cash generated from such turnbacks, along with the cash generated from the monthly sublease charge, is used to pay down the vehicle debt and interest related to such vehicles.

Marketing.    In 2002, approximately 75% of vehicle rental transactions were generated from our owned and operated car rental locations in the United States by travelers who used the Avis System under contracts between us and their employers or organizations of which they were members. Unaffiliated business and leisure travelers, a segment which contributed to market share growth in 2002, were solicited by direct mail, telesales and advertising campaigns.

Travel agents can make Avis System reservations by telephone, via our Internet site, or through all major global distribution systems and online travel portals, and can obtain access through these systems to our rental locations, vehicle availability and applicable rate structures. An automated link between these systems and the Wizard System gives them the ability to reserve and confirm rentals directly through these systems. We also maintain strong links to the travel industry. We have arrangements with frequent traveler programs of airlines, such as Delta, American, Continental and United, and of hotels, including the Hilton Corporation, Hyatt Corporation, Best Western, and Starwood Hotels and Resorts. These arrangements provide various incentives to all program participants and cooperative marketing opportunities for us and our partners. We also have an arrangement with Cendant's lodging brands whereby lodging customers who are making reservations by telephone may be transferred to us if they desire to rent a vehicle.

Internationally, we utilize a multi-faceted approach to sales and marketing throughout our global network by employing teams of trained and qualified account executives to negotiate contracts with major corporate accounts and leisure and travel industry partners. In addition, we utilize centralized telemarketing and direct mail initiatives to continuously broaden our customer base. Sales efforts are designed to secure customer commitment and support customer requirements for both domestic and international car rental needs. Our international operations maintain close relationships with the travel industry including participation in several airline frequent flyer programs, such as those operated by Air Canada and Qantas, as well as participation in Avis Europe's programs with British Airways, Lufthansa and other carriers.

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Avis.com.    We have a strong brand presence on the Internet through our Avis Internet site, www.avis.com. A steadily increasing number of Avis vehicle rental customers obtain rate, location and fleet information and then reserve their Avis rentals directly through the avis.com Internet site. In addition, customers electing to use other Internet services, such as Expedia, Travelocity, and America Online, for their travel plans, also have access to Avis reservations. During 2002, reservations through Internet sources increased to 13.8% of total reservations from 9.5% in the prior year.

Competition.    The vehicle rental industry is characterized by intense price and service competition. In any given location, we may encounter competition from national, regional and local companies, many of which, particularly those owned by the major automobile manufacturers, have greater resources than the Avis System. Nationally, our principal competitor is The Hertz Corporation; however, we also compete with National Car Rental System, Inc., Alamo Rent-A-Car, LLC, Dollar Rent A Car Systems, Inc. and Thrifty Rent-A-Car System, Inc. and Enterprise Rent-A-Car Company. In addition, we compete with a large number of regional and local smaller vehicle rental companies throughout the country.

Competition in the U.S. vehicle rental operations business is based primarily upon price, reliability, ease of rental and return and other elements of customer service. In addition, competition is influenced strongly by advertising and marketing. In part, because of the Wizard System and Avis Interactive, we have been particularly successful in competing for commercial accounts.

Trademarks and Intellectual Property.    The service mark "Avis," related marks incorporating the word "Avis", and related logos are material to us. We actively use this mark, which is registered (or has applications pending for registration) with the United States Patent and Trademark Office as well as major countries worldwide where we operate. Cendant owns the mark we use. We pay Cendant a royalty fee of 4.4% of revenue for the use of the Avis trade name. The royalty of 4.4% consists of a base royalty of 3.0% of gross revenue and a supplemental royalty of 1.4% of the gross revenue payable quarterly in arrears, which will increase periodically to a maximum of 1.5% in 2003 and will continue at this percentage through 2047.

Seasonality.    The third quarter of the year, which covers the summer vacation period, represents the peak season for vehicle rentals. Any occurrence that disrupts travel patterns during the summer period could have a material adverse effect on our annual performance. The fourth quarter is generally our weakest financial quarter. In 2002, our average monthly rental fleet, excluding sub-franchisees, ranged from a low of approximately 194,000 vehicles in January to a high of approximately 248,000 vehicles in July. Rental utilization, which is based on the number of hours vehicles are rented compared to the total number of hours vehicles are available for rental, ranged from a low of 66.1% in December to a high 82.1% in August and averaged 73.9% for all of 2002.

Insurance.    We generally assume the risk of liability to third parties arising from vehicle rental services in the United States, Canada, Puerto Rico and the U.S. Virgin Islands, for up to $1.0 million per occurrence, through a combination of certificates of self-insurance, insurance coverage provided by our domestic subsidiary and insurance coverage secured from an unaffiliated domestic insurance carrier. We maintain additional insurance in excess of such level up to $9 million per occurrence through an unaffiliated fronting carrier, and up to an additional $300 million per occurrence through a combination of unaffiliated excess carriers.

Prior to July 27, 2001, we assumed the risk of liability to third parties for up to $1.0 million per occurrence and maintained excess coverage public liability insurance with unaffiliated carriers up to $203 million per occurrence.

We insure the risk of liability to third parties in Argentina, Australia and New Zealand through a combination of unaffiliated carriers and our wholly-owned subsidiary. These carriers provide coverage supplemental to minimum local requirements.

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A traditional revenue source for the vehicle rental industry has been the sale of loss damage waivers, by which rental companies agree to relieve a customer from financial responsibility arising from vehicle damage incurred during the rental period. Approximately 3.2% of our vehicle operations revenue during 2002 and 2001 was generated by the sale of loss damage waivers. Approximately 40 states have considered legislation affecting the sale of loss damage waivers. To date, 24 states have enacted legislation which requires disclosure to each customer at the time of rental that damage to the rented vehicle may be covered by the customer's personal automobile insurance and that loss damage waivers may not be necessary. Currently, New York does not permit us to offer loss damage waivers for sale and limits potential customer liability to $100. Pursuant to new legislation effective February 24, 2003, New York will permit the sale of loss damage waivers at a capped rate of $9 per day for vehicles with Manufacturers Suggested Retail Price ("MSRP") of less than $30,000 and $12 per day for vehicles with a MSRP a of over $30,000. Moreover, Nevada has capped rates for loss damage waivers at $15. California has capped these rates at either $9 per day for cars with an MSRP of $19,000 or less, or $15 per day for cars with an MSRP of $19,000 to $34,999, but there is no cap for cars with an MSRP of $35,000 or more.

Regulation.    We are subject to federal, state and local laws and regulations including those relating to taxing and licensing of vehicles, franchising, consumer credit, environmental protection and labor matters. The principal environmental regulatory requirements applicable to our vehicle rental operations relate to the ownership or use of tanks for the storage of petroleum products, such as gasoline, diesel fuel and motor oil; the treatment or discharge of waste waters; and the generation, storage, transportation and off-site treatment or disposal of solid or liquid wastes. We operate 274 locations at which petroleum products are stored in underground or aboveground tanks. We have instituted an environmental compliance program designed to ensure that these tanks are in compliance with applicable technical and operational requirements, including the replacement and upgrade of underground tanks to comply with the December 1998 EPA upgrade mandate, release detection and release detection record keeping. We believe that the locations where we currently operate are in compliance, in all material respects, with such regulatory requirements.

We may also be subject to requirements related to reporting, investigation and remediation of, or the liability for reporting, investigation and remediation of, substances that have been released to the environment at properties owned or operated by us or at properties to which we send substances for treatment or disposal. Such requirements may be imposed without regard to fault and liability for environmental remediation and may be substantial.

We may be eligible for reimbursement or payment of investigation and remediation costs associated with future releases from our regulated underground storage tanks and have established funds to assist in the payment of investigation and remediation costs for releases from certain registered underground tanks. Subject to certain deductibles, the availability of funds, compliance status of the tanks and the nature of the release, these tank funds may be available to us for use in remediating future releases from our tank systems.

We are also subject to regulation under the insurance statutes, including insurance holding company statutes, of the jurisdictions in which our insurance company subsidiaries are domiciled. These regulations vary from state to state, but generally require insurance holding companies and insurers that are subsidiaries of insurance holding companies to register and file certain reports including information concerning their capital structure, ownership, financial condition and general business operations with the state regulatory authority, and require prior regulatory agency approval of changes in control of an insurer and intercorporate transfers of assets within the holding company structure. Such insurance statutes also require that we obtain limited licenses to sell optional insurance coverage to our customers at the time of rental.

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The payment of dividends to us by our insurance company subsidiaries is restricted by government regulations in Colorado, Bermuda and Barbados affecting insurance companies domiciled in those jurisdictions.

Employees.    As of December 31, 2002, we employed approximately 19,500 people. Management considers our employee relations to be satisfactory.

ITEM 2. PROPERTIES

Our principal executive offices are located in a facility owned by Cendant at 6 Sylvan Way, Parsippany, New Jersey 07054.

We lease a portion of a 158,000 square foot facility in Virginia Beach, Virginia, owned by Cendant which serves as a satellite administrative office for our rental car operations. We also sublease space from Cendant in Tulsa, Oklahoma for certain marketing activities. In addition, there are approximately 19 leased office locations in the United States.

We lease or have vehicle rental concessions relating to space at 729 locations in the United States and 235 locations outside the United States utilized in connection with our vehicle rental operation. Of those locations, 231 in the United States and 73 outside the United States are airports. Typically, an airport receives a percentage of vehicle rental revenues, with a guaranteed minimum. Because there is a limit to the number of vehicle rental locations in an airport, vehicle rental companies frequently bid for the available locations, usually on the basis of the size of the guaranteed minimums. We and other vehicle rental companies firms also lease parking space at or near airports and at other vehicle rental locations.

ITEM 3. LEGAL PROCEEDINGS

After the April 15, 1998 announcement of the discovery of accounting irregularities in the former CUC business units, and prior to the date of this Annual Report on Form 10-K, approximately 70 lawsuits claiming to be class actions and other proceedings were commenced against Cendant and other defendants. Cendant has settled the principal securities class action pending against it and such settlement was fully funded by Cendant on May 24, 2002.

Cendant is involved in litigation asserting claims associated with the accounting irregularities discovered in former CUC business units outside of the principal common stockholder class action litigation. Cendant cannot give any assurance as to the final outcome or resolution of these proceedings. However, Cendant does not believe that the impact of such proceedings should result in a material liability to us in relation to our consolidated financial position or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to General Instruction I (2) of Form 10-K.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Not Applicable

ITEM 6. SELECTED FINANCIAL DATA

Omitted pursuant to General Instruction I (2) of Form 10-K.

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

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 are in thousands and presented before taxes (as appropriate).

We are the second largest general use car rental brand in the world and a wholly-owned subsidiary of Cendant Corporation.

CRITICAL ACCOUNTING POLICIES

In presenting our financial statements in conformity with accounting principles generally accepted in the United States of America, 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. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it will likely result in a material adverse impact to our consolidated results of operations, financial position and in 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.

Financial Instruments.    We estimate fair values of each of our financial instruments, including derivative instruments. These financial instruments are not publicly traded on an organized exchange. In the absence of quoted market prices, we must develop an estimate of fair value using present value cash flow models, which may involve significant judgments and assumptions, including estimates of future interest rate levels based on interest rate yield curves and estimation of the timing of future cash flows. The use of different assumptions may have a material effect on the estimated fair value amounts recorded in the financial statements, which are disclosed in Note 13—Financial Instruments to our Consolidated Financial Statements. In addition, hedge accounting requires that at the beginning of each hedge period, we justify an expectation that the relationship between the changes in fair value of derivatives designated as hedges compared to changes in the fair value of the underlying hedged items be highly effective. This effectiveness assessment involves an estimation of changes in fair value resulting from changes in interest rates, as well as the probability of the occurrence of transactions for cash flow hedges. The use of different assumptions and changing market conditions may impact the results of the effectiveness assessment and ultimately the timing of when changes in derivative fair values and the underlying hedged items are recorded in earnings. See Item 7a. "Quantitative and Qualitative Disclosures above Market Risk" for a discussion of the effect of hypothetical changes to these assumptions.

Goodwill and Other Intangible Assets.    We have reviewed the carrying values of our goodwill and other intangible assets as required by SFAS No. 142, "Goodwill and Other Intangible Assets," by comparing the carrying values of our reporting units to their fair values and determined that the carrying amounts of our reporting units did not exceed their respective fair values. When determining fair value, we utilized various assumptions, including projections of future cash flows. A change in these underlying assumptions will

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cause a change in the results of the tests and, as such, could cause fair value to be less than the respective carrying amounts. In such event, we would then be required to record a charge, which would impact earnings. We will continue to review the carrying values of goodwill and other intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred.

The aggregate carrying value of our goodwill and other intangible assets was approximately $1,271.6 million at December 31, 2002, of which $1,254.4 million represented goodwill and $17.2 million represented intangible assets with finite lives (refer to Note 8—Intangible Assets to our Consolidated Financial Statements for more information on goodwill and other intangible assets).

RESULTS OF OPERATIONS—2002 vs. 2001

The periods prior to March 1, 2001 (the date we were acquired by Cendant) have been designated "Predecessor Companies" and the periods subsequent to March 1, 2001 have been designated "Successor Company". The results of the Predecessor Companies and the Successor Company have been combined for the year ended December 31, 2001 since we believe that separate discussions for the two months ended February 28, 2001 and the ten months ended December 31, 2001 are not meaningful in terms of describing trends in our operating results or comparisons to the prior year.

Our comparative results of continuing operations, for the years ended December 31, 2002 and 2001 comprised the following:

Our 2002 revenue increased 5.2% over 2001 primarily due to a 4.0% increase in vehicle rental revenue per day, which primarily resulted from an increase in pricing.

Total expenses decreased 2.8% during 2002 primarily due to the elimination of unusual charges and also due to a decrease of 18.5% in net non-vehicle interest expense principally due to the termination of our revolving credit facility in 2001, which was replaced by intercompany funding from Cendant at lower variable interest rates. See Note 3—Unusual Charges to our Consolidated Financial Statements for a discussion of the 2001 unusual charges.

Our effective tax rate for 2002 was 37.5%, compared with 26.6% for 2001. The increase in the effective tax rate is primarily due to the impact of the goodwill amortization that reduced our effective tax rate in 2001.

As a result of the above-mentioned items, income from continuing operations increased $133.9 million during 2002.

CHANGE IN ACCOUNTING POLICIES

Goodwill and Other Intangible Assets.    On January 1, 2002, we adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," in its entirety. In connection with the adoption of this standard, we have not amortized any goodwill or indefinite-lived intangible assets during 2002. Prior to the adoption, all intangible assets were amortized on a straight-line basis over their

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estimated periods to be benefited. Therefore, the results of operations for 2001 and 2000 reflect the amortization of goodwill and indefinite-lived intangible assets, while the results of operations for 2002 do not reflect such amortization (see Note 8—Intangible Assets to our Consolidated Financial Statements for a pro forma disclosure depicting our results of operations during 2001 and 2000 after applying the non-amortization provisions of SFAS No. 142).

In connection with the implementation of SFAS No. 142, we were required to assess goodwill and indefinite-lived intangible assets for impairment. We reviewed the carrying value of our reporting units by comparing such amounts to their fair value and determined that the carrying value of our reporting units did not exceed their respective fair values. Accordingly, the initial implementation of this standard and the annual testing did not result in a charge and, as such, did not impact our results of operations during 2002.

Impairment or Disposal of Long-Lived Assets.    On January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This standard supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and replaces the accounting and reporting provisions of APB Opinion No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," as it relates to the disposal of a segment of a business. SFAS No. 144 requires the use of a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations, by requiring those long-lived assets to be measured at the lower of carrying amount or fair value less cost to sell. The impairment recognition and measurement provisions of SFAS No. 121 were retained for all long-lived assets to be held and used with the exception of goodwill.

Accounting for Derivative Instruments and Hedging Activities.    On January 1, 2001, we adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard, as amended and interpreted, establishes accounting and reporting standards for derivative instruments and hedging activities. As required by SFAS No. 133, we have recorded all such derivatives at fair value in the Consolidated Balance Sheets. The adoption of this standard resulted in the recognition of a non-cash charge of $10.9 million ($7.6 million, after tax) in the Consolidated Statement of Operations on January 1, 2001 to account for the cumulative effect of the accounting change relating to derivatives designated in fair value type hedges prior to adopting this standard, to derivatives not designated as hedges. We also recognized a cumulative-effect-type adjustment in the amount of $2.4 million ($1.5 million after tax) in accumulated other comprehensive loss in the Consolidated Balance Sheets attributable to derivatives designated as cash-flow-like hedges prior to the adoption of SFAS No. 133.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Early Extinguishment of Debt.    In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Such standard requires any gain or loss on extinguishments of debt to be presented as a component of continuing operations (unless specific criteria are met) whereas SFAS No. 4 required that such gains and losses be classified as an extraordinary item in determining net income. Upon adoption of this standard, we expect to reclassify any extraordinary gains and losses on the extinguishments of debt recorded in prior periods to continuing operations. We will adopt these provisions on January 1, 2003, as required. The other provisions of SFAS No. 145 were not relevant to us.

Costs Associated with Exit or Disposal Activities.    In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Such standard requires costs associated with exit or disposal activities (including restructurings) to be recognized when the costs are incurred, rather than at a date of commitment to an exit or disposal plan. SFAS No. 146 nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146, a liability related to an exit or disposal activity is not recognized until such liability has actually been incurred whereas under

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EITF Issue No. 94-3 a liability was recognized at the time of a commitment to an exit or disposal plan. The provisions of this standard are effective for exit or disposal activities initiated after December 31, 2002. We will adopt this standard on January 1, 2003, as required.

Guarantees.    In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Such Interpretation elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this Interpretation apply to guarantees issued or modified after December 31, 2002. We will adopt these provisions on January 1, 2003. The disclosure provisions of this Interpretation are effective for financial statements with annual periods ending after December 15, 2002. We have applied the disclosure provisions of this Interpretation as of December 31, 2002, as required by this Interpretation (see Note 17—Commitments and Contingencies to our Consolidated Financial Statements).

Stock-Based Compensation.    On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." This standard amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This standard also requires prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We have applied the disclosure provisions of SFAS No. 148 as of December 31, 2002.

As permitted by SFAS No. 123, during 2002, the Company measured its stock-based compensation using the intrinsic value approach under Accounting Principles Board Opinion No. 25. Accordingly, we did not recognize compensation expense upon the issuance of Cendant stock options issued to our employees because the option terms were fixed and the exercise price equaled the market price of the underlying Cendant common stock on the grant date. We complied with the provisions of SFAS No. 123 by providing pro forma disclosures of net income giving consideration to the fair value method provisions of SFAS No. 123. See Note 1—Summary of Significant Accounting Policies to our Consolidated Financial Statements for a table illustrates the effect on net income if the fair value based method had been applied during each period presented.

On January 1, 2003, we adopted the fair value method of accounting for stock-based compensation provisions of SFAS No. 123, which is considered by the FASB to be the preferable accounting method for stock-based employee compensation, and have elected to use the prospective transition method permitted by SFAS No. 148. Therefore, the transition provisions of SFAS No. 148 will be adopted concurrently with the fair value based recognition provisions of SFAS No. 123 on January 1, 2003. Subsequently, we will expense all future employee stock awards by Cendant to our employees over the vesting period based on the fair value of the award on the date of grant in accordance with the prospective transition method.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We use various financial instruments, particularly interest rate swaps and also interest rate caps to manage and reduce the interest rate risk related specifically to our asset-backed securities.

We are exclusively an end user of these instruments, which are commonly referred to as derivatives. We do not engage in trading, market-making, or other speculative activities in the derivatives markets. Our principal market exposures are to interest rate movements both in one country, as well as relative interest rate movements between countries. Our primary interest rate exposures are to interest rate fluctuations in the United States, specifically LIBOR and commercial paper interest rates due to their impact on variable rate borrowings. We anticipate that such interest rates will remain a primary market exposure for the foreseeable future.

10

We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact in earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in interest rates.

We use a duration-based model in determining the impact of interest rate shifts on our debt portfolio and interest rate derivatives portfolios. The primary assumption used in this model is that a 10% increase or decrease in the benchmark interest rate produces a parallel shift in the yield curve across all maturities.

Our total market risk is influenced by a wide variety of factors including the volatility present within the markets and the liquidity of the markets. There are certain limitations inherent in the sensitivity analyses presented. While probably the most meaningful analysis, these "shock tests" are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled.

We used December 31, 2002, 2001 and 2000 market rates on our instruments to perform the sensitivity analyses separately for our market risk exposures. The estimates are based on the market risk sensitive portfolios and assume instantaneous, parallel shifts in interest rate yield curves.

We have determined that the impact of a 10% change in interest rates and prices on our earnings, fair values and cash flows would not be material.

While these results may be used as benchmarks, they should not be viewed as forecasts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Financial Statements and Financial Statement Index commencing on page F-1 hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Omitted pursuant to General Instruction I (2) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Omitted pursuant to General Instruction I (2) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Omitted pursuant to General Instruction I (2) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted pursuant to General Instruction I (2) of Form 10-K.

ITEM 14. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our President and Chief Operating Officer and Senior Vice President and Controller have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation

11

Date, our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to our company (including our consolidated subsidiaries) required to be included in our reports filed or submitted under the Exchange Act.

(b)    Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such controls.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

ITEM 15(A)(1) FINANCIAL STATEMENTS

See Financial Statements and Financial Statement Index commencing on page F-1 herein.

ITEM 15(A)(3) EXHIBITS

See Exhibit Index commencing on page G-1 hereof.

ITEM 15(B) REPORTS ON FORM 8-K

None

12

SIGNATURES

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

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

13

CERTIFICATIONS

I, F. Robert Salerno, certify that:

1.

I have reviewed this annual report on Form 10-K of Avis Group Holdings, Inc.;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 6, 2003

14

I, Kurt Freudenberg, certify that:

1.

I have reviewed this annual report on Form 10-K of Avis Group Holdings;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 6, 2003

15

INDEX TO FINANCIAL STATEMENTS

F-1

INDEPENDENT AUDITORS' REPORT

Independent Auditors Report
To the Board of Directors and Stockholder of
Avis Group Holdings, Inc.
Parsippany, New Jersey

We have audited the accompanying consolidated balance sheets of Avis Group Holdings, Inc. and subsidiaries (successor to Avis Rent A Car System, Inc. and subsidiaries, Avis Fleet Leasing and Management Corp., and subsidiaries and Reserve Claims Management Co., collectively the "Predecessor Companies") (collectively referred to as the "Company") as of December 31, 2002 and 2001, and the related consolidated statements of operations, common stockholders' equity, and cash flows for the year ended December 31, 2002 and for the period March 1, 2001 (Date of Acquisition) to December 31, 2001 and as to the Predecessor Companies, the consolidated statements of operations, common stockholders' equity and cash flows for the period January 1, 2001 to February 28, 2001 and for the year ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and the results of its operations and its cash flows for the year ended December 31, 2002 and for the period March 1, 2001 (Date of Acquisition) to December 31, 2001, and with respect to the Predecessor Companies, the results of its operations and its cash flows for the period January 1, 2001 to February 28, 2001 and for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2002, the Company adopted the non-amortization provisions for goodwill and other indefinite lived intangible assets. Also, as discussed in Note 1, on January 1, 2001, the Company modified the accounting for derivative instruments and hedging activities.

/s/ Deloitte & Touche LLP
New York, New York
January 29, 2003

F-2

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

See Notes to Consolidated Financial Statements.

F-3

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

See Notes to Consolidated Financial Statements.

F-4

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

See Notes to Consolidated Financial Statements.

F-5

See Notes to Consolidated Financial Statements.

F-6

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

See Notes to Consolidated Financial Statements.

F-7

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

1.    Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts and transactions of Avis Group Holdings, Inc. and its subsidiaries, including Avis Rent A Car System, (collectively, "the Company").

On March 1, 2001, all the Company's common stock not then owned by Cendant Corporation ("Cendant") was acquired by PHH Corporation, a wholly-owned subsidiary of Cendant for approximately $994 million. Simultaneous with the acquisition, the Company was distributed to a Cendant subsidiary not within the PHH ownership structure and the Company's former fleet and fuel card businesses were retained by PHH. Accordingly, the Consolidated Financial Statements for the two months ended February 28, 2001 and for the year ended December 31, 2000 include the accounts and transactions of the Company and its former fleet management and fuel card businesses, which are presented as a discontinued operation (the "Predecessor Companies").

In presenting the Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Assets classified under management programs are generated in the Company's core business operations. The Company seeks to offset the interest rate exposures inherent in these assets by matching them with financial liabilities that have similar term and interest rate characteristics. Fees generated from these assets are used, in part, to repay the interest and principal associated with the financial liabilities. Funding for the Company's assets under management programs is also provided by secured financing arrangements, which are classified as debt under management programs. Cash inflows and outflows relating to the generation and acquisition of assets and the principal debt repayment or financing of such assets are classified as activities of the Company's management programs.

Pursuant to certain covenant requirements in an indenture under which the Company issued debt, the Company continues to operate and maintain its status as a separate public reporting entity.

Revenue Recognition

Revenue is recognized over the period the vehicle is rented.

Advertising Expense

Advertising costs are expensed in the period incurred and approximated $58.0 million, $41.0 million, $15.1 million and $76.7 million for the year ended December 31, 2002, the ten months ended December 31, 2001, the two months ended February 28, 2001 and the year ended December 31, 2000, respectively.

Derivative Instruments

The Company uses derivative instruments as part of its overall strategy to manage its exposure to market risks associated with fluctuations in interest rates. As a matter of policy, the Company does not

F-8

use derivatives for trading or speculative purposes. All derivatives are recorded at fair value either as assets or liabilities. The effective portion of changes in fair value of derivatives designated as cash flow hedging instruments is recorded as a component of accumulated other comprehensive loss. Changes in fair value of derivative not designated as hedging instruments are recognized currently in earnings and included as a components of net non-vehicle interest expense. Amounts included in accumulated other comprehensive loss are reclassified into earnings in the same period during which the hedged item affects earnings.

Environmental Costs

The Consolidated Balance Sheets include approximately $5.6 million and $4.3 million of liabilities with respect to environmental costs at December 31, 2002 and 2001, respectively. The Company's operations include the storage and dispensing of gasoline. The Company accrues losses associated with the remediation of accidental fuel discharges when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations are generally recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. The liability may include costs such as site investigations, consultant fees, feasibility studies, outside contractor and monitoring expenses. Costs of future expenditures for environmental remediation obligations are not discounted to their present value.

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash includes cash and investments that are not readily available for normal Company disbursements and which have been set aside as required under the Company's debt covenants to satisfy the Company's insurance related and other commitments. The restricted cash balance classified as assets held under management programs at December 31, 2001 was held as collateral for outstanding vehicle debt that was not callable and, therefore, could not be immediately repaid. During 2002, the restricted cash was depleted through the normal purchase of vehicles. These vehicles have replaced the restricted cash as collateral for outstanding vehicle debt.

Property and Equipment

Property and equipment are recorded at cost. Depreciation, recorded as a component of non-vehicle depreciation and amortization on the Consolidated Statements of Operations, is computed utilizing the straight-line method over the estimated useful lives of the related assets. Useful lives range from 5 to 30 years for buildings and improvements and 5 to 10 years for furniture, fixtures and equipment. Amortization of leasehold improvements, also recorded as a component of non-vehicle depreciation and amortization, is computed utilizing the straight-line method over the estimated benefit period of the related assets or the lease term, if shorter, generally ranging from 2 to 10 years.

Goodwill and Identifiable Intangible Assets

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," in its entirety. In connection with the adoption of this standard, the Company has not amortized any goodwill or indefinite-lived intangible assets during 2002. Prior to the adoption, all intangible assets were amortized over their estimated periods to be benefited, generally on a straight-line basis. Therefore, the results of operations for 2001 and 2000

F-9

reflect the amortization of goodwill and indefinite-lived intangible assets, while the results of operations for 2002 do not reflect such amortization (see Note 8—Intangible Assets for a pro forma disclosure depicting the Company's results of operations during 2001 and 2000 after applying the non-amortization provisions of SFAS No. 142). In connection with the implementation of SFAS No. 142, the Company was required to assess goodwill and indefinite-lived intangible assets for impairment. The Company reviewed the carrying value of its reporting units by comparing such amounts to their fair value and determined that the carrying amounts of the reporting units did not exceed their respective fair values. Accordingly, the initial implementation of this standard did not result in a charge and, as such, did not impact the Company's results of operations during 2002. Additionally, pursuant to SFAS No. 142, as of January 1, 2002, the Company assesses goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. During 2002, the Company determined that such assets were not impaired.

Vehicles Depreciation and Lease Charges, net

Rental vehicles are stated at cost, net of accumulated depreciation. The initial cost of the vehicles is net of incentives and allowances from vehicle manufacturers. Vehicles are depreciated on a straight-line basis at rates ranging from 10% to 29% per annum based on their estimated useful lives. Such depreciation rates consider the contracted residual values which are guaranteed to be paid for the vehicles when returned to the manufacturers and are a function of the number of months between the original purchase date of the vehicle and the sale date of the vehicle back to the manufacturers. Gains or losses on the sale of vehicles are reflected as an adjustment to depreciation expense.

Asset Impairments

The Company evaluates the recoverability of its long-lived assets, including goodwill and indefinite-lived intangible assets for the periods before January 1, 2002, by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets.

Public Liability, Property Damage and Other Insurance Liabilities, Net

Insurance liabilities on the Company's Consolidated Balance Sheets include additional liability insurance, personal effects protection insurance, public liability, property damage and personal accident insurance claims for which the Company is self-insured. The Company estimates 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, 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 (frequency) and change in the ultimate cost per incident (severity).

Changes in Accounting Policies

Impairment or Disposal of Long-Lived Assets.    On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This standard supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and replaces the accounting and reporting provisions of APB Opinion No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," as it relates to the disposal of a segment of a business. SFAS No. 144 requires the use of a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations, by requiring those long-lived assets to be measured at the lower of carrying amount or fair value less cost to sell.

F-10

The impairment recognition and measurement provisions of SFAS No. 121 were retained for all long-lived assets to be held and used with the exception of goodwill.

Accounting for Derivative Instruments and Hedging Activities.    On January 1, 2001, the Company adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard, as amended and interpreted, establishes accounting and reporting standards for derivative instruments and hedging activities. As required by SFAS No. 133, the Company has recorded all such derivatives at fair value in the Consolidated Balance Sheets. The adoption of this standard resulted in the recognition of a non-cash charge of $10.9 million ($7.6 million, after tax) in the Consolidated Statement of Operations on January 1, 2001 to account for the cumulative effect of the accounting change relating to derivatives designated in fair value type hedges prior to adopting this standard and to derivatives not designated as hedges. The Company has also recognized a cumulative-effect-type adjustment in the amount of $2.4 million ($1.5 million after tax) in accumulated other comprehensive loss in the Consolidated Balance Sheet attributable to derivatives designated as cash-flow-like hedges prior to the adoption of SFAS No. 133.

Recently Issued Accounting Pronouncements

Early Extinguishment of Debt.    In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Such standard requires any gain or loss on extinguishments of debt to be presented as a component of continuing operations (unless specific criteria are met) whereas SFAS No. 4 required that such gains and losses be classified as an extraordinary item in determining net income. Upon adoption of SFAS No. 145, the Company will reclassify any extraordinary gains and losses on the extinguishments of debt recorded in prior periods to continuing operations. The Company will adopt these provisions on January 1, 2003, as required. The other provisions of SFAS No. 145 were not relevant to the Company.

Costs Associated with Exit or Disposal Activities.    In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Such standard requires costs associated with exit or disposal activities (including restructurings) to be recognized when the costs are incurred, rather than at a date of commitment to an exit or disposal plan. SFAS No. 146 nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146, a liability related to an exit or disposal activity is not recognized until such liability has actually been incurred whereas under EITF Issue No. 94-3 a liability was recognized at the time of a commitment to an exit or disposal plan. The provisions of this standard are effective for exit or disposal activities initiated after December 31, 2002. The Company will adopt this standard on January 1, 2003, as required.

Guarantees.    In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Such Interpretation elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this Interpretation apply to guarantees issued or modified after December 31, 2002. The Company will adopt these provisions on January 1, 2003. The disclosure provisions of this Interpretation are effective for financial statements with annual periods ending after December 15, 2002. The Company has applied the disclosure provisions of this Interpretation as of December 31, 2002, as required.

Stock-Based Compensation.    On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." This standard amends SFAS No. 123,

F-11

"Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This standard also requires prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has applied the disclosure provisions of SFAS No. 148 as of December 31, 2002, as required and presented below.

The following table illustrates the effect on net income (loss) if the fair value based method had been applied during each period presented.

Pro forma compensation expense reflected for prior periods is not necessarily indicative of future compensation expense that would be recorded by the Company upon its adoption of the fair value based recognition provisions of SFAS No. 123 on January 1, 2003. Future expense may vary based upon factors such as the number of awards granted and the then-current fair market value of such awards.

Detailed information regarding compensation expense for stock awards can be found in Note 15—Stock Option Plans.

2.    Discontinued Operations

Summarized financial data of discontinued operations, as discussed in Note 1—Summary of Significant Accounting Policies, is as follows:

No gain or loss was recognized on the sale of the Company's former fleet management and fuel card businesses.

F-12

The income from discontinued operations includes certain intercompany charges from the Predecessor Companies for costs it had incurred on behalf of the fleet management and fuel card businesses, which are detailed, as follows:

3.    Unusual Charges

During the period March 1, 2001 (Date of Acquisition) to December 31, 2001, the Company incurred unusual charges of $48.6 million primarily in connection with the September 11, 2001 terrorist attacks. Such unusual charges primarily consisted of $41.2 million in connection with the rationalization of the Company's rental fleet (reflecting charges related to the reduction in the fleet, representing the difference between the carrying amount of the vehicles and the fair value of the vehicles less costs to sell, as well as corresponding personnel reductions) in response to anticipated reduction in the volume following the September 11, 2001 terrorist attack, $1.9 million for marketing program cancellations and $5.5 million in other costs.

4.    Acquisitions and Disposition

Assets acquired and liabilities assumed in business combinations were recorded on the Company's Consolidated Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company have been included in the Company's Consolidated Statements of Operations since their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill.

2002 Acquisitions

During the year ended December 31, 2002, the Company purchased two domestic and one international franchisees for approximately $16.6 million in cash, resulting in goodwill of approximately $7.2 million. These acquisitions were not significant individually or in the aggregate to the Company's results of operations, financial position or cash flow.

2001 Acquisitions

The Company purchased franchisees during the ten months ended December 31, 2001 for $28.6 million, resulting in goodwill of approximately $23.7 million. These acquisitions were not significant individually or in the aggregate to the Company's results of operations, financial position or cash flows.

Disposition

In August 2000, the Company formed a joint venture with BNP Paribas ("BNP"), whereby BNP acquired 80% interest in the joint venture and the Company retained 20% interest, and the joint venture acquired all the stock of PHH Europe, formerly a wholly-owned subsidiary of the Company. In return, the Company received approximately $954 million in cash including the repayment of intercompany indebtedness from PHH Europe. No gain or loss was recognized on the disposition.

F-13

5.    Income Taxes

The Company files its own U.S. consolidated federal income tax return and files separate income tax returns in states where a consolidated return is not permitted. Subsequent to February 28, 2001, the Company files consolidated and combined state income tax returns with Cendant in jurisdictions where permitted. Subsequent to December 31, 2002, the Company will be included in Cendant's consolidated federal income tax return.

The income tax provision (benefit) consists of:

Pre-tax income (loss) for domestic and foreign operations consisted of the following: