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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed in 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 checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of the Registrant's common stock was 5,537 shares as of April 30, 2003.

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

Avis Group Holdings, Inc. and Subsidiaries

Index

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:

•

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 thereto may negatively affect the travel industry and our financial results and could also result in a disruption in our business;



•

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;



•

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



•

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



•

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



•

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



•

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



•

competitive and pricing pressures in the vehicle rental industry;



•

changes, if any, in vehicle manufacturer repurchase arrangements;



•

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.

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.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

INDEPENDENT ACCOUNTANTS' REPORT

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

We have reviewed the accompanying consolidated condensed balance sheet of Avis Group Holdings, Inc. and subsidiaries (the "Company") as of March 31, 2003, and the related consolidated condensed statements of operations and cash flows for the three-month periods ended March 31, 2003 and 2002. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to such consolidated condensed financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of December 31, 2002, and the related consolidated statements of operations, common stockholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated January 29, 2003, we expressed an unqualified opinion (and included an explanatory paragraph relating to the non-amortization provisions for goodwill and other indefinite lived intangible assets and a change in accounting for derivative instruments and hedging activities) on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

New York, New York
May 8, 2003

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

See Notes to Consolidated Condensed Financial Statements.

3

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

See Notes to Consolidated Condensed Financial Statements.

4

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)

See Notes to Consolidated Condensed Financial Statements.

5

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

1. Summary of Significant Accounting Policies

Basis of Presentation
The accompanying unaudited Consolidated Condensed Financial Statements include the accounts and transactions of Avis Group Holdings, Inc. and its subsidiaries, including Avis Rent A Car System, Inc. (collectively, "the Company"). The Company is a wholly-owned subsidiary of Cendant Corporation.

In management's opinion, the Consolidated Condensed Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operation for the entire year or any subsequent interim period. In addition, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgements and available information. Accordingly, actual results could differ from those estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentations.

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 asset-backed 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.

The Consolidated Condensed Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K filed on March 6, 2003.

Changes in Accounting Policies
Stock-Based Compensation.    Under Cendant's existing stock plans, CD common stock awards (including stock options, stock appreciation rights, restricted shares and restricted stock units) are granted to the Company's employees, including directors and officers of the Company. On January 1, 2003, Cendant adopted the fair value method of accounting for stock-based compensation provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which is considered by the Financial Accounting Standards Board ("FASB") to be the preferable accounting method for stock-based employee compensation. Cendant also adopted SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," in its entirety on January 1, 2003.

Under the fair value method of accounting provisions of SFAS No. 123, Cendant is required to expense all employee stock options over their vesting period based upon the fair value of the award on the date of the grant. Under SFAS No. 148, which amended SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting provisions, Cendant elected to use the prospective transition method when adopting SFAS No. 123. Accordingly, Cendant is only required to expense employee stock options that were granted subsequent to December 31, 2002. Cendant will allocate compensation expense to the Company for all employee stock awards granted to the Company's employees subsequent to December 31, 2002. The expense will be based on the fair value of the award on the date of grant and allocated over the vesting period. During first quarter 2003, Cendant did not allocate any compensation expense to the Company for employee stock awards as there were no such awards granted during the quarter.

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Prior to the adoption of SFAS No. 123 and SFAS No. 148, the Company measured its stock-based compensation using the intrinsic value approach under Accounting Principles Board ("APB") Opinion No. 25, as permitted by SFAS No. 123. Accordingly, the Company did not recognize compensation expense upon the issuance of its stock options because the option terms were fixed and the exercise price equaled the market price of the underlying common stock on the grant date. The Company complied with the provisions of SFAS No. 123 by providing pro forma disclosures of net loss giving consideration to the fair value method provisions of SFAS No. 123. The following table illustrates the effect on net loss as if the fair value based method had been applied to all employee stock awards granted to the Company's employees prior to January 1, 2003

Pro forma compensation expense reflected for prior period grants is not indicated of future compensation expense that would be recorded by the Company. Future expense may vary based upon factors such as the number of awards granted and the then-current fair market value of such awards.

Early Extinguishment of Debt.    On January 1, 2003, the Company adopted 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. Accordingly, on January 1, 2003, the Company reclassified approximately $1,300 thousand of 2002 pre-tax gains on the early extinguishments of debt to continuing operations as a component of non-vehicle interest ($472 thousand and $822 thousand of which were recorded during the third and fourth quarters of 2002, respectively).

Costs Associated with Exit or Disposal Activities.    On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Such standard requires costs associated with exit or disposal activities (including restructurings) initiated after December 31, 2002 to be recognized when the costs are incurred, rather than at a date of commitment to an exit or disposal plan. This standard 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.

Guarantees.    On January 1, 2003, the Company adopted FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," in its entirety. 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 any guarantee issued or modified after December 31, 2002, a liability for the fair value of the obligation undertaken in issuing the guarantee. The impact of adopting this Interpretation was not material to the Company's results of operations or financial position.

7

Recently Issued Accounting Pronouncements
Derivative Instruments and Hedging Activities.    On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." Such standard amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The provisions of this statement are generally effective for contracts entered into or modified after June 30, 2003. The Company is in the process of assessing the impact of adopting this standard on its consolidated results of operations or financial position.

2. Intangible Assets

Intangible assets consisted of:

Customer lists are included in other assets on the Company's Consolidated Condensed Balance Sheets. Amortization expense relating to customer lists was approximately $240 thousand for the three months ended March 31, 2003 and 2002, respectively. The Company expects amortization expense on intangible assets to approximate $1 million for the entire 2003 fiscal year and for each of the succeeding five years.

The changes in the carrying amount of goodwill are as follows:

(*)

Relates to the acquisition of a foreign licensee.

3. Vehicles, Net

Vehicles, net consisted of:

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

Depreciation expense is net of the amortization of certain incentives and allowances from various vehicle manufacturers of approximately $37.3 million and $24.3 million for the three months ended March 31, 2003 and 2002, respectively. Vehicle interest expense amounts are net of interest income of $1,275 thousand and $677 thousand for the three months ended March 31, 2003 and 2002, respectively.

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The Company acquires its fleet through, and leases it from, AESOP Leasing L.P. ("AESOP"), a wholly-owned and consolidated subsidiary. The Company subleases a portion of its fleet to Budget Rent A Car System, Inc. ("Budget"), a wholly-owned subsidiary of Cendant not within the Company's ownership structure. As of March 31, 2003, the Company had $1.5 billion of vehicles recorded on its Consolidated Condensed Balance Sheet that were subleased to Budget. These vehicles were purchased with proceeds received from the issuance of rental car asset-backed notes under the AESOP Funding Program (see Note 6—Vehicle Debt).

The Company charges Budget a monthly fee equal to the leased vehicles' monthly depreciation expense, vehicle debt interest expense and certain related administrative expenses. For the three months ended March 31, 2003 the Company recorded vehicle depreciation expense of $34.3 million and vehicle interest expense of $14.3 million on its Consolidated Condensed Statement of Operations for vehicles subleased to Budget. For the three months ended March 31, 2003, the Company recorded revenue from the Budget vehicle sublease of approximately $48.6 million on its Consolidated Condensed Statement of Operations.

4. Due to Cendant Corporation and Affiliates, Net

Due to (from) Cendant Corporation and affiliates, net, consisted of:

(a)

Represents funding for the Company's working capital and trading needs, which is provided by Cendant. Such intercompany funding accrues interest at a rate equal to LIBOR plus 87.5 basis points for amounts borrowed up to $155 million and LIBOR plus 140 basis points for borrowings exceeding such amount.



(b)

Represents borrowings by Cendant of the Company's restricted cash under management programs in return for a demand note.



(c)

Represents (i) the remaining debt of $137 million that the Company assumed in connection with the acquisition of the Company by Cendant, (ii) $487 million of funding the Company received from Cendant to repay outstanding borrowings of $368 million under its existing revolving credit facility during 2001 and to repurchase $28 million and $91 million of the Company's 11% Senior Subordinated Notes during 2002 and the first quarter of 2003, respectively (see Note 5—Non-Vehicle Debt). Approximately $125 million of the $368 million funded by Cendant in 2001 was forgiven by Cendant as of December 31, 2001. All such funding bears interest at LIBOR plus 140 basis points.

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(d)

Primarily represents amounts due to a subsidiary of Cendant Corporation for reservation charges incurred during 2002, that are offset in part by other trading and funding activities between the Company and other Cendant affiliates.



(e)

Represents amount due from Budget for sublease of vehicles (see Note 3—Vehicles) and corporate overhead expense allocations.

Included within total expenses on the Company's Consolidated Condensed Statements of Operations are the following items charged by Cendant and affiliates, which include allocations from Cendant for services provided to the Company:

(a)

Included within selling, general and administration expenses on the Company's Consolidated Condensed Statements of Operations. Royalties represent charges to the Company for royalty fees paid to Cendant Corporation for use of the Avis trade name.



(b)

Included within operating expenses on the Company's Consolidated Condensed Statements of Operations.



(c)

Included within non-vehicle interest, net on the Company's Consolidated Condensed Statements of Operations.

These charges, including corporate overhead allocations, are determined in accordance with various intercompany agreements, which are based upon factors such as square footage, employee salaries and computer usage time.

Additionally, Cendant charges the Company a royalty fee of 4.4% for the use of its Avis trade name. Such fee consists of a base royalty of 3.0% of the gross revenue and a supplemental royalty of 1.4% of the gross revenue payable quarterly in arrears. The supplemental royalty will increase to a maximum of 1.5% in the third quarter of 2003. The contract will continue through 2047.

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5. Non-Vehicle Debt

Non-vehicle debt consisted of:

(*)

The change in balance reflects redemptions of $81.2 million in face value of these notes (carrying value of $90.5 million) for $90.8 million in cash and approximately $4.4 million related to the amortization of a premium. In connection with such redemptions, the Company recorded a loss of $0.3 million ($0.2 million after taxes) as a component of non-vehicle interest on the Company's Consolidated Condensed Statement of Operations.

These notes contain restrictive covenants, including restrictions on indebtedness of material subsidiaries, mergers, limitations on liens and liquidations, and also require the maintenance of certain financial ratios. At March 31, 2003, the Company was in compliance with all restrictive and financial covenants.

6. Vehicle Debt

Vehicle debt consisted of:

As of March 31, 2003, the Company's asset-backed funding arrangements under the AESOP Funding Program provided for the issuance of up to $5.7 billion of debt and as of at March 31, 2003, approximately $631 million was available. In addition, the Company had availability of approximately $233 million under other funding arrangements as of March 31, 2003.

11

Debt Maturities and Covenants

The contractual final maturities of vehicle debt at March 31, 2003 are as follows:

Debt under the Company's AESOP Funding Program contain restrictive covenants, including restrictions on dividends paid to the Company by certain of its subsidiaries and indebtedness of material subsidiaries, mergers, limitations on liens, liquidations, and sale and leaseback transactions, and also require the maintenance of certain financial ratios. At March 31, 2003, the Company was in compliance with all such restrictive and financial covenants.

7. Commitments and Contingencies

The Company is involved in pending litigation in the usual course of business. In the opinion of management, such litigation will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

8. Stockholder's Equity

The components of comprehensive income are summarized as follows:

The after-tax components of accumulated other comprehensive income (loss) are as follows:

9. Subsequent Event

On May 6, 2003, the Company issued $750 million of term notes under its AESOP Funding Program with maturities ranging from three to five years and a blended interest rate of 3.1%.

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10. Guarantor and Non-Guarantor Consolidating Condensed Financial Statements

        The following consolidating condensed financial information presents the Consolidating Condensed Balance Sheets as of March 31, 2003 and December 31, 2002 and the Consolidating Condensed Statements of Operations and Statements of Cash Flows for the three months ended March 31, 2003 and 2002 of: (a) Avis Group Holdings, Inc. ("the Parent"); (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; (d) elimination entries necessary to consolidate the Parent with the guarantor and non-guarantor subsidiaries; and (e) the Company on a consolidated basis.

        Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been provided as management believes the following information is sufficient.

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months ended March 31, 2003

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months ended March 31, 2002

13

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
March 31, 2003

14

Avis Group Holdings, Inc. and Subsidiaries
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2002