===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                     --------------------------------------

                                   FORM 20-F

(Mark One)
|_|             REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
                 OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
                                       OR
|X|              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended: December 31, 2001

<TABLE>
<S>                         <C>                        <C>                        <C>                        <C>
         333-8128                 333-8128-01                333-8128-02                333-8128-03                333-8128-04
     LOCALIZA RENT A               LOCALIZA               TOTAL FLEET S.A.          PRIME PRESTADORA DE              LOCALIZA
         CAR S.A.                SYSTEM LTDA.              (Exact name of           SERVICOS S/C LTDA.                MASTER
      (Exact name of            (Exact name of         Registrant as specified        (Exact name of                FRANCHISEE
 Registrant as specified    Registrant as specified        in its charter)        Registrant as specified         ARGENTINA S.A.
     in its charter)            in its charter)                                       in its charter)             (Exact name of
                                                                                                             Registrant as specified
                                                                                                                 in its charter)
   Localiza Rent a Car          Localiza System        Total Fleet Corporation    Prime Service Provider         Localiza Master
       Corporation                   Ltd.                  (Translation of                 Ltd.                     Franchisee
     (Translation of            (Translation of        Registrant's name into         (Translation of               Argentina
  Registrant's name into    Registrant's name into            English)            Registrant's name into           Corporation
         English)                  English)                                              English)                (Translation of
                                                                                                              Registrant's name into
                                                                                                                     English)
      The Federative            The Federative         The Federative Republic    The Federative Republic          Republic of
    Republic of Brazil        Republic of Brazil              of Brazil                  of Brazil                  Argentina
     (Jurisdiction of           (Jurisdiction of          (Jurisdiction of           (Jurisdiction of           (Jurisdiction of
     incorporation or          incorporation or           incorporation or           incorporation or           incorporation or
      organization)              organization)              organization)              organization)              organization)
</TABLE>

                           Av. Bernardo Monteiro 1563
                             Funcionarios 30150-902
                      Belo Horizonte, Minas Gerais, Brazil
                    (Address of principal executive offices)
             Securities registered or to be registered pursuant to
                        Section 12(b) of the Act: None
             Securities registered or to be registered pursuant to
                         Section 12(g) of the Act: None
        Securities for which there is a reporting obligation pursuant to
                           Section 15(d) of the Act:

                                     Title
                                     -----
                     10 1/4% Series B Senior Notes due 2005
              Guarantees of 10 1/4% Series B Senior Notes due 2005

     The number of outstanding shares/quotas of each of the issuers' classes of
stock as of December 31, 2001 was:

<TABLE>
<S>                         <C>                       <C>                         <C>                         <C>
       LOCALIZA             LOCALIZA SYSTEM LTDA.       TOTAL FLEET S.A.           PRIME PRESTADORA DE           LOCALIZA MASTER
    RENT A CAR S.A.                                                                SERVICOS S/C LTDA.              FRANCHISEE
                                                                                                                  ARGENTINA S.A.
At December 31, 2001,       At December 31, 2001,     At December 31, 2001,       At December 31, 2001,       At December 31, 2001,
there were outstanding      there were outstanding    there were outstanding      there were outstanding      there were outstanding
15,360,000 common           1,115,540 quotas, par     109,630,000 common          15,000 quotas, par value    197,000 common shares
shares, no par value per    value R$1.00 per quota    shares, no par value per    R$10.00 per quota           par value P$1.00 per
share                                                 share                                                   share
</TABLE>

     Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports) and (2) have been subject to
such filing requirements for the past 90 days.

                             Yes [X]      No [_]

     Indicate by check mark which financial statement item the registrants have
elected to follow.

                         Item 17 [_]      Item 18 [X]

===============================================================================

<PAGE>


                            -----------------------

                               TABLE OF CONTENTS

                            -----------------------


PRESENTATION OF INFORMATION....................................................1

FORWARD-LOOKING STATEMENTS.....................................................2

                                    PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS...............3

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE.............................3

ITEM 3.    KEY INFORMATION.....................................................3
           A.   Selected Consolidated Financial Data...........................3
           B.   Capitalization and Indebtedness...............................10
           C.   Reasons for the Offer and Use of Proceeds.....................10
           D.   Risk Factors..................................................10

ITEM 4.    INFORMATION ON THE COMPANY.........................................18
           A.   History and Development of the Company........................18
           B.   Business Overview.............................................18
           C.   Organizational Structure......................................27
           D.   Description of Property.......................................28
           A.   Operating Results.............................................28
           B.   Liquidity and Capital Resources...............................38
           C.   Research and Development, Patents and Licenses................39
           D.   Trend Information.............................................39

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................28
           A.   Operating Results.............................................28
           B.   Liquidity and Capital Resources...............................38
           C.   Research and Development, Patents and Licenses................39
           D.   Trend Information.............................................39

ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................40
           A.   Directors and Senior Management...............................40
           B.   Compensation..................................................44
           C.   Board Practices...............................................45
           D.   Employees.....................................................46
           E.   Share Ownership...............................................46

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................46
           A.   Major Shareholders............................................46
           B.   Related Party Transactions....................................47
           C.   Interests of Expert and Counsel...............................47

ITEM 8.    FINANCIAL INFORMATION..............................................48
           A.   Consolidated Statements and Other Financial Information.......48
           B.   Significant Changes...........................................48

ITEM 9.    THE OFFER AND LISTING..............................................48
           A.   Offer and Listing Details.....................................48
           B.   Plan of Distribution..........................................48
           C.   Markets.......................................................48
           D.   Selling Shareholders..........................................48
           E.   Dilution......................................................48
           F.   Expenses of the Issue.........................................49


<PAGE>


ITEM 10.   ADDITIONAL INFORMATION.............................................49
           A.   Share Capital.................................................49
           B.   Memorandum and Articles of Association........................49
           C.   Material Contracts............................................55
           D.   Exchange Controls.............................................56
           E.   Taxation......................................................56
           F.   Dividends and Paying Agents...................................56
           G.   Statement by Experts..........................................56
           H.   Documents on Display..........................................56
           I.   Subsidiary Information........................................57

ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........57

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.............58

                                    PART II


ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................58

ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
           AND USE OF PROCEEDS................................................58

ITEM 15.   [RESERVED].........................................................59

ITEM 16.   [RESERVED].........................................................59

                                   PART III

ITEM 17.   FINANCIAL STATEMENTS...............................................59

ITEM 18.   FINANCIAL STATEMENTS...............................................59

ITEM 19.   EXHIBITS...........................................................60


<PAGE>


                          PRESENTATION OF INFORMATION

General

     Credit Suisse First Boston Corporation, or CSFB, is an affiliate of the
Donaldson, Lufkin & Jenrette Merchant Banking Funds, or DLJMB Funds, which
beneficially owns approximately 33.33% of Localiza's outstanding common stock.
CSFB is also an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, which acted as initial purchaser in connection with the original
private offering of Localiza's 10 1/4% Series A Senior Notes in the aggregate
principal amount of US$100 million, referred to in this annual report as the
"Notes", and as a market maker for the Notes. CSFB, New York branch, now acts
as market maker for the Notes in lieu of Donaldson, Lufkin & Jenrette
Securities Corporation. All references to "Notes" refer to the US$100 million
aggregate principal amount of 10 1/4% Series A Senior Notes due 2005 issued in
October 1997 that we exchanged, on April 10, 1998, for US$100 million aggregate
principal amount of 10 1/4% Series B Senior Notes due 2005.

     In this annual report "we," "us" and "our" refer to Localiza Rent a Car
S.A., known as Localiza, a company incorporated and existing under the laws of
Brazil, and its consolidated subsidiaries. Localiza's consolidated subsidiaries
are: Total Fleet S.A., known as Total Fleet, a company incorporated and
existing under the laws of Brazil; Localiza System Ltda., known as System, a
company incorporated and existing under the laws of Brazil; Prime Prestadora de
Servicos S/C Ltda., known as Prime, a company incorporated and existing under
the laws of Brazil; and Localiza Master Franchisee Argentina, S.A., known as
MFA, a company incorporated and existing under the laws of Argentina.

     All references to the "real," "reais," or "R$" are to the Brazilian real,
the official currency of Brazil. All references to "U.S. dollars," "dollars" or
"US$" are to United States dollars. All references to "P$" and "pesos" are to
Argentine pesos, the official currency of Argentina.

     For your convenience, this annual report contains translations of certain
real amounts into U.S. dollars at the exchange rate quoted by Banco Central do
Brasil, known as Central Bank of Brazil, as of each relevant date or end of
period. You should not construe these translations as representations that the
real amounts actually represent these U.S. dollar amounts or that any person
could convert the real amounts into U.S. dollars at the rate indicated or at
any other rate. The commercial selling exchange rate was R$2.3204 per US$1.00
at December 31, 2001, as reported by the Central Bank of Brazil. See Item 3.
Key Information--Exchange Rates.

     With regard to the Argentine peso, until December 23, 2001, the exchange
rate had been fixed at P$1.00 per US$1.00 in accordance with Law No. 23,928 and
Decree No. 529/9, known as the Convertibility Law. From December 24, 2001 to
January 10, 2002, the exchange market was officially suspended. As of January
11, 2002, the exchange rate was P$1.40 per US$1.00 in the official market and
P$ 1.70 per US$1.00 in the free market. Since February 8, 2002 the only
exchange market available has been the free market. Certain financial
information relating to MFA presented in this annual report has been translated
into U.S. dollars at the exchange rate of P$1.70 per US$1.00 and then converted
into reais at the exchange rate of R$2.3204 per US$1.00, for purposes of
consolidation with System and Localiza. You should not construe these
translations as representations that the peso amounts actually represent these
U.S. dollar and reais amounts or that any person could convert the peso amounts
into U.S. dollars or reais at the rate indicated or at any other rate. See Item
3. Key Information--Exchange Rates.

Financial Statements

     The audited financial statements of Localiza, Total Fleet, System and
Prime as of December 31, 2000 and 2001 and for the years ended December 31,
1999, 2000 and 2001, and the notes thereto, contained herein have been prepared
in accordance with generally accepted accounting principles in the United
States, or U.S. GAAP. The financial statements of Localiza as of December 31,
2000 and for the two years then ended have been restated to reflect the change
in accounting described in note 30 to the Localiza financial statements.

     The audited financial statements of MFA as of November 30, 1998 and 1999
and December 31, 1999, 2000 and 2001, and for the years ended November 30, 1998
and 1999, December 31, 2000 and 2001, and for the one-month period ended
December 31, 1999, and the notes thereto, contained herein have been prepared
in accordance with U.S. GAAP.

<PAGE>


     Localiza, Total Fleet, System and Prime also prepare financial statements
in accordance with Law No. 6,404 dated December 15, 1976, as amended, known as
the Brazilian Corporation Law. These financial statements are not presented in
constant currency. Brazilian income taxes and dividends are determined on the
basis of results of operations as presented in the Brazilian Corporation Law
financial statements. In addition, MFA also prepares financial statements in
accordance with Argentine GAAP. See Item 8. Financial Information.

                           FORWARD-LOOKING STATEMENTS

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
annual report contains information that is forward-looking, including but not
limited to:

     o    our goals and future operations;

     o    the implementation of our principal operating strategies;

     o    the implementation of our financing strategy;

     o    trends affecting our financial condition or results of operations;

     o    the used car resale market; and

     o    supply and demand for our products and services.

     Forward-looking statements may also be identified by words such as
"believes," "expects," "anticipates," "projects," "intends," "should," "seeks,"
"estimates," "future" or similar expressions. Such forward-looking information
involves risks and uncertainties that could significantly affect expected
results. The risks and uncertainties include, but are not limited to:

     o    uncertainties relating to political and economic conditions in
          Brazil;

     o    inflation and exchange rate risks; and

     o    increased competition.


                                       2
<PAGE>


PART I

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3.   KEY INFORMATION

     The partners and employees of Arthur Andersen S/C in Brazil, the former
auditors of Localiza, Total Fleet, System and Prime, were transferred to
Deloitte Touche Tohmatsu Brazil pursuant to an agreement dated June 1, 2002.
The audit reports for the financial statements of each of Localiza, Total
Fleet, System and Prime as of December 31, 2001 and 2000 and for the three
years ended December 31, 2001 included in this annual report were issued by
Deloitte Touche Tohmatsu Brazil located at Rua Paraiba 1122, 20th Floor,
30130-918, Belo Horizonte, Minas Gerais, Brazil.

     The audited financial statements of MFA as of November 30, 1998 and 1999
and December 31, 1999, 2000 and 2001 and for the years ended November 30, 1998
and 1999, December 31, 2000 and 2001, and for the one-month period ended
December 31, 1999, included in this annual report were issued by Pistrelli,
Dyas y Associados in Argentina, a member firm of Andersen, located at Av. 25 de
Mayo 487, 1002, Buenos Aires, Argentina.

A.   Selected Consolidated Financial Data

     The following tables present selected historical financial data for
Localiza, Total Fleet, System, Prime and MFA and should be read in conjunction
with the financial statements included in this annual report. All financial
information for Localiza, Total Fleet, System and Prime is presented in nominal
reais. All financial information relating to MFA is presented in Argentine
pesos. All financial statements for Localiza, Total Fleet, System, Prime and
MFA are prepared in accordance with U.S. GAAP. Effective June 30, 1997,
Localiza and System ceased restating their financial statements to recognize
some of the effects of changes in the purchasing power of Brazilian currency
due to inflation, as Brazil ceased to be considered a highly inflationary
economy as of such date.

     Total Fleet was formed on December 1, 1997, and Prime was formed on
November 16, 1998. Neither of these two companies had operations, assets or
liabilities until 1999. System acquired MFA on August 17, 1999, and the
Localiza and System financial statements reflect the financial condition and
results of operations of MFA from the date of its acquisition. See note 1(b) to
the Localiza financial statements.

     For purposes of computing the ratio of earnings to fixed charges, earnings
consist of net income from continuing operations before provision for income
tax and minority interest plus fixed charges. Fixed charges consist of interest
expense. Fixed charges do not take into account any gains on monetary position
associated with indebtedness or any exchange gains or losses attributable to
indebtedness.


                                       3
<PAGE>


     The table below presents selected historical financial data for Localiza.

<TABLE>
                                                                                 Year Ended December 31,
                                                          -----------------------------------------------------------------------
                                                           1997(1)       1998(1)(2)      1999(1)(2)      2000(1)(2)        2001
                    Localiza                              ---------      ---------       ---------       ---------      ---------
                 (consolidated)                                                          U.S. GAAP
                                                          -----------------------------------------------------------------------
                                                                                      (in thousands)
<S>                                                        <C>            <C>             <C>             <C>            <C>
Income Statement Data
Net revenues.........................................     R$221,065      R$234,327       R$244,677       R$310,074      R$420,445
Operating income.....................................        11,673         28,278          51,922          81,662        106,370
Net income before extraordinary gain and
     cumulative effect of a change in
     accounting principle............................         1,463         13,689          18,537          44,655         43,888
Net income ..........................................         1,390         22,046          19,931          44,655         42,981
Balance Sheet Data
Current assets.......................................       216,156        186,815         187,439         279,701        346,582
Non-current assets...................................        24,988         55,811         112,761         112,042        132,071
Property, Plant and Equipment, net...................         9,483          7,867           7,318           7,922         12,534
Goodwill.............................................             -              -             436           4,874          4,704
     Total assets....................................       250,627        250,493         307,954         404,539        495,891
Current liabilities (less short-term debt)...........        14,183         21,343          17,821          32,851         41,249
Short-term debt......................................        25,049          5,462           6,315          36,375         31,540
Non-current liabilities (less long-term debt)........         9,958         16,755          22,318          26,660         60,446
Long-term debt.......................................       114,510         92,344         132,207         144,504        171,478
     Total liabilities...............................       163,700        135,904         178,661         240,390        304,713
Minority interest....................................            23             50             125              95             85
Capital stock........................................       100,179        101,382         106,303         117,523        122,923
Accumulated earnings (deficit) ......................       (13,275)        13,157          22,212          46,156         67,784
Other comprehensive income...........................             -              -             653             375            386
     Shareholders' equity............................        86,904        114,539         129,168         164,054        191,093
Other Selected Data
Cash dividends (in reais)............................         8,321              -           5,167           7,526         15,000
Cash dividends (in U.S. dollars).....................         7,957              -           3,023           4,318          6,853
Interest on capital (in reais).......................             -         10,422           5,256          13,100          6,353
Interest on capital (in U.S. dollars)................             -          8,672           2,938           6,691          2,756
Ratio of earnings to fixed charges...................          1.11           1.93            2.05            3.40           2.85
</TABLE>

---------
(1)  In order to conform with the presentation in the 2001 financial
     statements, certain amounts in Localiza's net revenues for the four years
     ended December 31, 2000 have been reclassified. See note 3(n) to Localiza
     financial statements.

(2)  The financial statements as of December 31, 2000 and for the two years
     then ended have been restated to reflect the change in accounting
     described in note 30 to the Localiza financial statements. The financial
     statements as of December 31, 1998 and for the two years then ended have
     also been adjusted to reflect the same change in accounting.


                                       4
<PAGE>


     The table below presents selected historical data for Total Fleet.

<TABLE>
                                                                       Year Ended December 31,
                                                              ------------------------------------------
                                                               1999(1)         2000(1)            2001
                                                              --------        ---------        ---------
                   Total Fleet                                               U.S. GAAP
                                                              ------------------------------------------
                                                                           (in thousands)
<S>                                                            <C>             <C>              <C>
Income Statement Data
Net revenues.............................................     R$88,999        R$131,088        R$173,957
Operating income.........................................       22,556           45,182           58,701
Net income...............................................        7,180           29,955           43,513
Balance Sheet Data
Current assets...........................................       37,260           76,194           89,384
Non-current assets.......................................       80,986           86,118          104,655
Property and Equipment, net..............................          190              257              387
    Total assets.........................................      118,436          162,569          194,426
Current liabilities (less short-term debt)...............        7,777           12,924           11,159
Short-term debt..........................................        2,965            4,240            4,745
Non-current liabilities..................................          540            1,136            2,660
    Total liabilities....................................       11,282           18,300           18,564
Capital stock............................................      102,974          110,134          121,014
Accumulated earnings.....................................        4,180           34,135           54,848
    Shareholder's equity.................................      107,154          144,269          175,862
Other Selected Data
Cash dividends (in reais)................................           --               --           10,000
Cash dividends (in U.S. dollars).........................           --               --            4,569
Interest on capital (in reais)...........................        3,000               --           12,800
Interest on capital (in U.S. dollars)....................        1,591               --            5,516
Ratio of earnings to fixed charges.......................        10.51            45.79            43.78
</TABLE>

---------
(1)  In order to conform with the presentation in the 2001 financial
     statements, certain amounts in Total Fleet's net revenues for the two
     years ended December 31, 2000 have been reclassified. See note 3(l) to
     Total Fleet financial statements.


                                       5
<PAGE>


     The table below presents selected historical financial data for System.

<TABLE>
                                                                       Year Ended December 31,
                                                  --------------------------------------------------------------------
                                                  1997(1)        1998(1)        1999(1)        2000(1)           2001
                 System                           -------        -------        -------        -------         -------
             (consolidated)                                                    U.S. GAAP
                                                  --------------------------------------------------------------------
                                                                            (in thousands)
<S>                                                <C>            <C>            <C>            <C>             <C>
Income Statement Data
Net revenues...............................       R$3,736        R$4,729        R$5,001        R$6,444         R$5,056
Operating  income .........................         1,352          2,088          1,921          1,490             463
Net income ................................           976          1,552          1,442            932               1
Balance Sheet Data
Current assets.............................         1,559          1,689          2,232          2,369           2,799
Non-current assets.........................            50             95            499            564             585
Office Equipment, net......................           231            237            255            228             140
Goodwill...................................            --             --            623            489              --
     Total assets..........................         1,840          2,021          3,609          3,650           3,524
Current liabilities........................         1,527            894          1,303          1,359           1,125
Noncurrent liabilities.....................             4            486            777          1,020           1,263
     Total liabilities.....................         1,531          1,380          2,080          2,379           2,388
Capital stock..............................           459            459          1,200          1,200           1,200
Accumulated earnings (deficit) ............          (150)           182            329             71             (64)
     Quotaholders' equity..................           309            641          1,529          1,271           1,136
Other Selected Data
Cash dividends (in reais)..................           932          1,186          1,233          1,135              30
Cash dividends (in U.S. dollars)...........           856          1,018            677            628              12
Interest on capital (in reais).............            42             34             62             55             106
Interest on capital (in U.S. dollars)......            39             29             34             31              46
Ratio of earnings to fixed charges.........         21.39          61.23          47.38          16.84            6.38
</TABLE>

---------
(1)  In order to conform with the presentation in the 2001 financial
     statements, certain amounts in System's net revenues for the four years
     ended December 31, 2000 have been reclassified. See note 3(m) to System
     financial statements.


                                       6
<PAGE>


     The table below presents selected historical financial data for Prime.

<TABLE>
                                                                  Year Ended December 31,
                                                           ---------------------------------------
                                                           1999(1)         2000(1)           2001
                                                           -------         -------         -------
                     Prime                                                U.S. GAAP
                                                           ---------------------------------------
                                                                       (in thousands)
<S>                                                         <C>             <C>             <C>
Income Statement Data
Net revenues..........................................     R$1,801         R$2,319         R$3,753
Operating income (loss)...............................         (91)             42            (121)
Net income (loss).....................................         (50)             42            (126)
Balance Sheet Data
Current assets........................................         341             519             796
Non-current assets....................................          63             131             195
     Total assets.....................................         404             650             991
Current liabilities...................................         354             433             600
Non-current liabilities...............................          50             175             375
     Total liabilities................................         404             608             975
Capital stock.........................................          50              50             150
Accumulated deficit...................................         (50)             (8)           (134)
     Quotaholders' equity.............................          --              42              16
Other Selected Data
Cash dividends (in reais).............................          --              --              --
Cash dividends (in U.S. dollars)......................          --              --              --
Interest on capital (in reais)........................          --              --              --
Interest on capital (in U.S. dollars).................          --              --              --
Ratio of earnings to fixed charges(2).................          --            4.00              --
</TABLE>

---------
(1)  In order to conform with the presentation in the 2001 financial
     statements, certain amounts in Prime's net revenues for the two years
     ended December 31, 2000 have been reclassified. See note 3(g) to Prime
     financial statements.

(2)  Under U.S. GAAP, Prime's earnings were insufficient to cover fixed charges
     in the amount of R$69 thousand for the year ended December 31, 1999 and
     R$83 thousand for the year ended December 31, 2001.


                                       7
<PAGE>


     The table below presents selected historical financial data for MFA.

<TABLE>
                                                                                Year Ended December 31,
                                                              ---------------------------------------------------------
                                                              November 30,   November 30,   December 31,   December 31,
                                                                 1998            1999           2000           2001
                   MFA                                        ------------   ------------   ------------   ------------
                                                                                      U.S. GAAP
                                                              ---------------------------------------------------------
                                                                                    (in thousands)
<S>                                                              <C>              <C>            <C>            <C>
Income Statement Data
Net revenues........................................            P$1,339          P$872          P$842          P$740
Operating loss......................................                (10)          (224)           (37)          (124)
Net loss............................................                (39)          (248)           (45)          (134)
Balance Sheet Data
Current assets......................................                382            274            224            186
Non-current assets..................................                 79             38             30             48
Office Equipment, net...............................                 25             45             36             27
     Total assets...................................                486            357            290            261
Current liabilities.................................                432            252            260            207
Non-current liabilities.............................                 88            114              5             22
     Total liabilities..............................                520            366            265            229
Capital stock.......................................                 13            286            332            473
Accumulated deficit.................................                (47)          (295)          (307)          (441)
     Shareholders' equity...........................                (34)            (9)            25             32
Other Selected Data
Cash dividends (in pesos)                                            --             --             --             --
Cash dividends (in U.S. dollars)....................                 --             --             --             --
Interest on capital (in pesos)......................                 --             --             --             --
Interest on capital (in U.S. dollars)...............                 --             --             --             --
Ratio of earnings to fixed charges(1)...............                 --             --             --             --
</TABLE>

---------
(1)  Under U.S. GAAP, MFA's earnings were insufficient to cover fixed charges
     in the amount of P$23 thousand for the year ended November 30, 1998, P$243
     thousand for the year ended November 30, 1999, P$45 thousand for the year
     ended December 31, 2000 and P$134 thousand for the year ended December 31,
     2001.


                                       8
<PAGE>


   Exchange Rates

     Brazil

     There are two principal foreign exchange markets in Brazil:

     o    the commercial rate exchange market, and

     o    the floating rate exchange market.

     The commercial rate exchange market may be used primarily for foreign
trade and financial transactions that generally require prior approval from or
registration with the Central Bank of Brazil. These transactions include the
purchase or sale of shares or the payment of dividends or interest with respect
to shares. The floating rate exchange market applies to transactions to which
the commercial rate exchange market does not apply. Foreign currencies may only
be purchased through a Brazilian bank authorized to operate in these markets.
In both markets, rates are freely negotiated, but may be strongly influenced by
Central Bank of Brazil intervention. In January 1999, the Brazilian Government
announced the unification of the exchange positions of the Brazilian banks in
the floating rate exchange market and commercial rate exchange market, which
led to a convergence in the pricing and liquidity of both markets. Since
February 1, 1999 the floating market rate and the commercial market rate have
not differed significantly. However, there is no guarantee that the rates will
continue to be the same in the future.

     The Central Bank of Brazil has in the past managed U.S. dollar exchange
rates within defined bands. In January 1999, the Central Bank of Brazil
suspended the band and the real was permitted to float at market rates. While
there is currently no set band within which the exchange rate must fluctuate,
there is no guarantee that such a band will not be implemented in the future.

     The following table sets forth the period-end, average, low and high
commercial selling exchange rate, expressed in reais per U.S. dollar for the
periods indicated.

                                            Average for
Period                         Period-end      Period         Low        High
------                         ----------   -----------   ----------   ---------
1997........................      1.116        1.088(1)      1.033       1.116
1998........................      1.209        1.168(1)      1.111       1.209
1999........................      1.789        1.851(1)      1.208       2.165
2000........................      1.955        1.835(1)      1.723       1.985
2001........................      2.320        2.353(1)      1.936       2.801
December, 2001..............      2.320        2.380(2)      2.293       2.467
January, 2002...............      2.418        2.366(2)      2.293       2.438
February, 2002..............      2.348        2.409(2)      2.348       2.469
March, 2002.................      2.324        2.345(2)      2.324       2.366
April, 2002.................      2.363        2.320(2)      2.271       2.369
May, 2002...................      2.522        2.454(2)      2.377       2.530

---------
(1)  Average of the rates on the last day of each month in the period.

(2)  Average of the high and low exchange rates for each month.

Source: Central Bank of Brazil.

     On June 26, 2002, the commercial selling exchange rate was R$2.858 per
US$1.00.

     Argentina

     Prior to December 1989, the Argentine foreign exchange market was subject
to exchange controls. From December 1989 to April 1991, Argentina had a freely
floating exchange rate for all foreign currency transactions. From April 1,
1991, when Law No. 23,928 and Decree No. 529/9, known as the Convertibility
Law, became effective, until January 2002, the peso was freely convertible into
U.S. dollars at the rate of P$1.00 per US$1.00.

     On January 6, 2002, the Argentine Congress approved Law No. 25,563, as
modified by Law No. 25,589, known as the Emergency Law, which introduced
dramatic changes to the country's economic model and amended the currency board
that had pegged, by law, the Argentine peso at parity with the U.S. dollar
since April, 1991.


                                       9
<PAGE>


     On devaluing the peso, the Argentine Government initially established a
dual exchange rate whereby export and certain import transactions would be
governed by a fixed, "official" exchange rate of P$1.40 per US$1.00, while all
other transactions would be governed by a floating rate to be set freely by the
exchange market, with occasional intervention by the Central Bank of Argentina.
Following an extended bank holiday, the exchange market reopened on January 11,
2002, with transactions settling at the selling exchange rate of P$1.70 per
US$1.00 by market close on that date. On February 8, 2002, the exchange rate
markets were unified under a single, free floating rate, eliminating the
"official" exchange rate of P$1.40 per US$1.00.

     The following table sets forth, the period-end, average for period, low
and high exchange rate, expressed in nominal pesos per U.S. dollar for the
periods indicated.

                                            Average for
Period                         Period-end      Period         Low        High
------                         ----------   -----------   ----------   ---------
1997.......................       1.000       1.000(1)       1.000       1.000
1998.......................       1.000       1.000(1)       1.000       1.000
1999.......................       1.000       1.000(1)       1.000       1.000
2000.......................       1.000       1.000(1)       1.000       1.000
2001.......................       1.000       1.000(1)       1.000       1.000
December, 2001.............       1.000       1.000(2)       1.000       1.000
January, 2002..............       2.050       1.725(2)       1.400       2.050
February, 2002.............       2.150       1.925(2)       1.700       2.150
March, 2002................       3.000       2.600(2)       2.050       3.150
April, 2002................       2.980       2.915(2)       2.680       3.150
May, 2002..................       3.600       3.350(2)       3.100       3.600

---------
(1)  Average of the rates on the last day of each month in the period.

(2)  Average of the high and low exchange rates for each month.

Source: Banco Central de la Republica Argentina

     On June 26, 2002, the free floating selling rate was P$3.898 per US$1.00.

B.   Capitalization and Indebtedness

     Not applicable.

C.   Reasons for the Offer and Use of Proceeds

     Not applicable.

D.   Risk Factors

   Risks Relating to Brazil

     The Brazilian Government has exercised, and continues to exercise,
significant influence over the Brazilian economy. Brazilian political and
economic conditions have a direct impact on our business.

     The Brazilian Government frequently intervenes in the Brazilian economy
and occasionally makes drastic changes in policy. The Brazilian Government's
actions to control inflation and effect other policies have often involved wage
and price controls, currency devaluations, capital controls and limits on
imports, among other things. Our business, financial condition and results of
operations may be adversely affected by changes in policy involving tariffs,
exchange controls and other matters, as well as other factors outside of our
control such as:

     o    currency fluctuations,

     o    inflation,


                                       10
<PAGE>


     o    monetary policy and interest rates,

     o    fiscal policy,

     o    energy shortages, and

     o    other political, social and economic developments in or affecting
          Brazil.

     Inflation and certain government measures to curb inflation may contribute
significantly to economic uncertainty in Brazil and could harm us.

     Brazil has historically experienced extremely high rates of inflation.
Since the introduction of the real in July 1994 under the Real Plan, Brazil's
inflation rate has been substantially lower than in previous periods.
Inflation, as measured by the Indice Geral de Precos - Mercado, the general
market price index in Brazil, or IGP-M, fell to 1.8% in 1998 before increasing
to 20.1% in 1999 as a result of the devaluation of the real beginning in
January 1999, and decreasing again to 10.0% in 2000, and 10.4% in 2001. There
can be no assurance that recent lower levels of inflation will continue. Future
governmental actions, including actions to adjust the value of the real, may
trigger increases in inflation.

     If we cannot increase our prices to match the rate of inflation, our
ability to generate cash may be impaired. In addition, there can be no
assurance that inflation will not increase as a result of future Brazilian
governmental actions or any other reasons.

     Fluctuations in the value of the real against the value of the U.S. dollar
may result in uncertainty in the Brazilian economy and could harm our ability
to make payments under the Notes.

     The Brazilian currency has historically suffered frequent devaluations. In
the past, the Brazilian Government has implemented various economic plans and
utilized a number of exchange rate policies, including sudden devaluations,
periodic mini-devaluations during which the frequency of adjustments has ranged
from daily to monthly, floating exchange rate systems, exchange controls and
dual exchange rate markets. Although over long periods devaluations of the
Brazilian currency generally have correlated with the rate of inflation in
Brazil, devaluations over shorter periods have resulted in significant
fluctuations in the exchange rate between the Brazilian currency and the U.S.
dollar and other currencies.

     In 1999, the real depreciated 48% against the U.S. dollar, and in 2000 it
depreciated 9%. During 2001, the real experienced a period of significant
devaluation, in part due to the economic uncertainties in Argentina, the global
economic slowdown and the energy crisis in Brazil. The real depreciated 19%
against the U.S. dollar during 2001. There are no guarantees that the exchange
rate between the real and the U.S. dollar will stabilize at current levels or
that the real will appreciate against the U.S. dollar.

     Substantially all of our revenues are denominated in Brazilian reais. As
of December 31, 2001, all of our long- term debt and short-term debt was
denominated in U.S. dollars. For a detailed description of our hedging policy,
see Item 11. Quantitative and Qualitative Disclosures about Market Risk and
note 19 to the Localiza financial statements. Any depreciation of the Brazilian
currency relative to the U.S. dollar would require us to generate more reais to
repay our debt, and could therefore harm our ability to make payments under the
Notes. In addition, any devaluation of the real would result in a foreign
exchange loss which could adversely affect the value and liquidity of the
Notes. Finally, a devaluation could also result in significant economic
instability in Brazil, which could in turn dampen the demand for our products
and services and therefore harm us.

     Controls and restrictions on U.S. dollar remittances could harm our
ability to make payments under the Notes.

     Brazilian law provides that whenever there is a serious imbalance in
Brazil's balance of payments or reasons to foresee a serious imbalance, the
Brazilian Government may impose temporary restrictions on the remittance to
foreign investors of the proceeds of their investments in Brazil.

     The Brazilian Government currently restricts the ability of Brazilian and
foreign persons to convert Brazilian currency into U.S. dollars or other
currencies other than in connection with certain authorized transactions. The
issuance of the Notes has been authorized by the Central Bank of Brazil. The
Central Bank of Brazil also issued a certificate of registration, which was
later replaced by the electronic registration, authorizing each of the
scheduled


                                       11
<PAGE>


payments of principal at maturity and interest on the Notes. However, consent
from the Central Bank of Brazil will be needed for:

     o    payments upon acceleration of the Notes following an event of default
          under the indenture we entered into in connection with the issuance
          of the Notes and

     o    payments upon certain redemptions or repurchases of the Notes.

     We may not be able to obtain the approval of the Central Bank of Brazil to
make these payments. In addition, the Brazilian Government may in the future
restrict companies such as Localiza from repaying debt denominated in foreign
currencies (such as the Notes), or require that any payments on debt be made in
Brazilian reais. The likelihood that the Brazilian Government would impose
restrictions may be affected by the extent of Brazil's foreign currency
reserves, the availability of foreign currency in the foreign exchange markets
on the date a payment is due, the size of Brazil's debt service burden relative
to the economy as a whole, Brazil's policy towards the IMF, and other factors.

     Developments in other emerging markets, including Argentina, may adversely
affect our financial condition and results of operations.

     Economic and market conditions of other emerging-market countries,
especially those in Latin America, influence the market for securities issued
by Brazilian companies and investors' perception of economic conditions in
Brazil. In 2001, after prolonged periods of recession, followed by political
instability, Argentina announced it would not service its public debt. In order
to address the worsening economic and social crisis, the Argentine government
abandoned its decade-old fixed dollar-peso exchange rate, allowing the currency
to float. The Argentine peso experienced a 260% depreciation against the U.S.
dollar from January 1 to May 31, 2002.

     The continuation of the Argentine recession and the recent devaluation of
the Argentine peso could adversely affect the Brazilian economy, as Argentina
is one of Brazil's principal trading partners, accounting for 8.6% of Brazil's
exports in 2001. The Argentine crisis may also affect the perception of risk in
Brazil by foreign investors. Although the expectation of many that a similar
problem would follow in Brazil has not materialized, the volatility in market
prices for Brazilian securities increased in early 2001. Nonetheless, if events
in Argentina continue to deteriorate, they may adversely affect our ability to
borrow funds at an acceptable interest rate, to raise equity capital when and
if there should be a need, or to finance capital expenditures. Accordingly,
adverse developments in Argentina or in other emerging market countries could
harm our results of operations.

     Our business could be affected by political instability in Brazil.

     The next presidential elections in Brazil are to occur in October 2002 and
Brazilian law does not allow President Fernando Henrique Cardoso, now serving a
second term, to serve a third term. Changes in the composition of the governing
coalition, in the identity of ruling local parties, in the cabinet or in the
presidency, may potentially undermine investor confidence or produce policy
changes that may adversely affect our results of operations.

     Risks related to Argentina

     The recent devaluation of the Argentine peso and the macroeconomic
conditions currently prevailing in Argentina have had, and may continue to
have, a material adverse effect on MFA's results of operations and financial
condition.

     By the end of 2001, Argentina suffered a deep social and economic
deterioration accompanied by high political and economic instability. The
restrictions on bank deposits withdrawals, the imposition of exchange controls,
the suspension of payment of Argentina's external debt and the abrogation of
the peso convertibility (and the consequent depreciation of the peso against
the dollar) have resulted in a deep negative shock to the Argentine economic
system, resulting in contraction of the economic activity, increasing inflation
and high volatility of the exchange rate.

     Argentina's current financial crisis resulted in a decline in both
business and leisure travel. The slowdown in economic activity in Argentina and
the consequent lower demand for car rental services resulted in a decrease of
MFA's total net revenues by approximately 12%, to P$740 thousand in 2001 from
P$842 thousand in 2000. In 2001, MFA's net revenues represented approximately
0.2% of Localiza's net revenues.


                                       12
<PAGE>


     The Central Bank of Argentina has imposed restrictions on the transfer of
funds outside of Argentina which could prevent MFA from making payments as a
guarantor of the Notes.

     Since December 3, 2001, the Argentine government has imposed a number of
monetary and currency exchange control measures that include restrictions on
the free disposition of funds deposited with banks and tight restrictions on
transferring funds abroad, with certain exceptions for transfers related to
foreign trade and other authorized transactions.

     From February 11, 2002 to August 12, 2002, the prior approval of the
Central Bank is required for transfers of funds outside Argentina by, among
others, private companies such as MFA, when such transfers relate to debt
principal repayments, cancellation of forward contract and other financial
derivatives or distributions of income or dividends, except for certain
payments, including payments of principal on loans from multilateral lending
entities and credit agencies. Additionally, as of March 25, 2002, prior Central
Bank approval is required for any payment of principal or interest on foreign
financial debt.

     There can be no assurance that the Central Bank will authorize principal
or interest payments by MFA as guarantor of the Notes pursuant to the indenture
while these restrictions remain in force or during any additional period during
which the restrictions may be extended.

   Risks Relating to the Car Industry

     Economic downturns could reduce demand for our services.

     The results of our operations are generally affected by the level of
economic activity in Brazil and the other markets in which we (through our
franchisees) operate. A decline in economic activity typically results in a
decline in both business and leisure travel and, accordingly, a decline in the
volume of car rental transactions. In the event of a decline in car rental
activity, we may reduce rental rates to meet competitive pressures, which could
adversely affect our results of operations. A decline in economic activity also
may have an adverse effect on our used car sales business.

     Competition is intense in the car rental industry.

     The car rental industry is characterized by price and service competition.
There are currently more than 2,400 car rental companies operating in Brazil.
In any given location, we may encounter competition from international car
companies and from Brazilian car companies. International competitors may have
greater financial resources than us. Hertz Corporation purchased its former
master franchisee in Brazil and is currently operating in Brazil. Avis is
operating in the Brazilian market through franchisees. The Brazilian company
Unidas was recently acquired by the Portuguese group Solucoes Automovel Globais
- SAG and is attempting to increase its car rental volumes by lowering its
prices.

     We are also subject to competition in the other Latin American countries
in which we conduct franchising operations, both from international and local
car rental companies. Competition from other companies in Brazil and, to a
lesser extent, in other markets could harm our business, financial condition
and the results of operations.

     Our business is highly seasonal.

     The tourism segment of car rental market peaks in the months of January,
February, March and July, in part, due to the popularity of these months as
vacation periods in South America. Any occurrence that disrupts travel patterns
during these months could have a material adverse effect on our annual
operating results.

     Our business practice is to increase the size of our vehicle fleet during
the first quarter and the month of July to accommodate increased activity
during these months. However, many of our operating expenses (such as rent and
personnel) are fixed and cannot be decreased during the months when there is
decreased rental demand. If we are unable to manage successfully the size of
our fleet during periods of decreased business activity, our annual operating
performance may be adversely affected.


                                       13
<PAGE>


     We could be harmed by decreases in the fuel supply.

     Our operations could be harmed by any limitations in fuel supplies, by
mandatory allocation or rationing regulations or by significant increases in
fuel prices. Brazil has not experienced a material disruption in fuel supplies
in the recent past, although prices have risen substantially. In the period
from January 1, 2001 to May 31, 2002, there was an increase of approximately
11% in fuel prices. The international market is still unstable, and a further
increase in gasoline prices may occur in the future, which may result in lower
demand for car rental services from our customers, who bear the risk of higher
fuel prices.

     We bear the risk of fluctuations in the value of our car fleet.

     We bear the risk of fluctuations in the residual market value on 100% of
our car rental fleet. The residual market value of our fleet can be affected by
a variety of different factors, including general economic conditions and the
pricing policies of car manufacturers (which, in turn, can be affected by the
Brazilian Government's fiscal policies). The proceeds we receive from vehicle
sales depend upon the prices we obtain in the used car market at the time of
disposition and, accordingly, are subject to market conditions at the time of
disposition. Adverse changes in the prices obtained in the used car market
could harm our business, financial condition and the results of operations.

     The resale price of our vehicles cannot be determined until disposition
and, consequently, the actual depreciation costs associated with our vehicles
cannot be determined in advance. An overestimation in our depreciation expenses
could lead us to increase our rental prices beyond what is necessary in order
to recover depreciation, which in turn could have the effect of making our
prices uncompetitive. By contrast, an underestimation in our depreciation
expenses could lead us to reduce our rental rates more than necessary in order
to recoup vehicle depreciation expense, which could cause our operating margin
to decline. In either event, if our estimates of our future depreciation costs
are inaccurate, our business, financial condition and the results of operations
could be adversely affected.

     We are dependent on the air travel industry.

     The car rental business conducted at airport locations accounts for a
substantial portion of our revenues and is essential to our ability to compete.
During 2001, approximately 45% of our car rental revenues were derived from our
airport rental locations (excluding franchising revenues attributable to
airport locations). A decrease in air travel or any event that disrupts the air
travel patterns at airport facilities for a continued period of time could harm
the business, financial condition and results of operations of our car rental
business. Disruptive events could include substantially higher air fares, labor
unrest, airline bankruptcies or consolidations, a downturn in the economy, the
outbreak of war, high-profile crimes against tourists, terrorist incidents and
natural occurrences.

     We are subject to the risk of non-renewal of airport concessions.

     As noted above, the car rental business conducted at airport locations
accounts for a substantial portion of our revenues and is essential to our
ability to compete. In Brazil, we conduct rental operations at 36 airports and
our franchisees conduct rental operations at 36 airports. We conduct the
operations at each airport pursuant to one or more concession agreements
granted by the federal airport authority (48 concessions), state airport
authorities (8 concessions), or by local authorities (16 concessions) in the
case of airports located in smaller cities. In general, these concession
agreements are subject to competitive bidding at the time of renewal. The terms
of the airport concession agreements with federal and state authorities vary
from one to fifteen years, while most of the agreements with local authorities
in smaller cities have an indeterminate term, and in some cases are not
documented. Of our 36 concessions, 34 were granted by the federal airport
authority and 2 were granted by local authorities. Of these concessions, 19 are
scheduled to expire in 2002. System has been granted 22 concessions, in
locations that are operated by franchisees under franchising agreements, 5 of
which are scheduled to expire in 2002.The franchisees who operate the remaining
14 airport locations are directly granted the respective concession, and
directly control and negotiate the renewal thereof with the appropriate
authority. Based on prior experience, we expect to be successful in renewing
all or substantially all of these concessions on acceptable terms. However, the
loss of a significant number of airport concessions could harm our business,
financial condition and results of operations.

     We do not maintain insurance against certain risks.

     Our business exposes us to claims for personal injury, death and property
damage resulting from the use of the cars we rent. In addition, our rental
vehicles may be damaged or stolen while they are being rented to customers. In
most instances, we do not carry insurance to cover the costs of these types of
claims or of repairing or replacing


                                       14
<PAGE>


damaged or stolen vehicles, but instead impose a surcharge in our rental prices
in order to self-insure against these risks. Although historically we have been
able to recover the cost of these risks, we could be exposed to uninsured
liability that exceeds historical levels. Our business also exposes us to
workers' compensation claims and other employment-related claims.

   Risks Relating to Localiza

     We have a high level of debt and are subject to restrictive covenants.

     As of December 31, 2001, we had total debt of R$203 million, of which
R$171 million was long-term debt. As of December 31, 2001, we had net debt
(total debt less cash, cash equivalents and marketable securities) of R$151
million, and our consolidated ratio of total debt (less cash, cash equivalents
and marketable securities) to equity was 0.79 to 1.00. We expect to incur
additional indebtedness in the future.

     Our degree of leverage will have important consequences to holders of the
Notes, including the following:

     o    our ability to obtain additional financing for working capital,
          capital expenditures, acquisitions, fleet expansion, locations
          expansion or other purposes, may be impaired;

     o    a substantial portion of our cash flow will be required to meet debt
          service obligations, which will reduce the funds available for other
          purposes. Approximately 11% of our budgeted cash requirements for
          2002 consist of amounts required to service debt; and

     o    we may be more vulnerable to a downturn in our business, and may be
          restricted in our ability to respond to price competition or changes
          in the economy generally.

     We expect to need to refinance the Notes at maturity.

     Our ability to meet our debt service obligations will depend on our future
operating performance and financial results, which will be subject, in part, to
economic, financial, competitive and other factors beyond our control. Based
upon our current level of operations and anticipated growth, we believe that
our cash flow from operations may be insufficient to meet the scheduled
principal payment of the Notes at maturity. As a result, we expect to be
required to refinance all or a portion of our debt under the Notes. There can
be no assurance that any refinancing would be possible or that any additional
financing could be obtained on satisfactory terms, in which case we may not be
able to meet our obligations under the Notes.

     We are dependent on our ability to finance our fleet.

     Our ability to finance our fleet will depend on our future operating
performance and financial results, which will be subject, in part, to economic,
financial, competitive and other factors beyond our control. Based upon our
current level of operations, we believe that funds provided from the issuance
of the Notes, cash flow from operations and access to debt financing when
needed in the future will enable us to continue to renew our fleet for the
foreseeable future. However, adverse economic conditions in Brazil, among other
factors, could impair our ability to generate cash flow from operations. For
example, continued economic uncertainty in Brazil could adversely affect the
used car market, which during 2001 accounted for 35.9% of our net revenues.
Because a portion of cash flow from operations is required for debt service, we
could be required to delay fleet renewal in the event that adverse economic
conditions in Brazil persist. Significant delays in fleet renewal could make
our car rental services less competitive, and could result in increased repair
and maintenance expense.

     We are dependent on our principal executive officers.

     Our existing operations and continued future development are dependent in
part on the active participation of our principal executive officers, each of
whom has substantial experience in the Brazilian car rental industry. The loss
of the services of one or more of these individuals could harm our business,
financial condition and results of operations.


                                       15
<PAGE>


   Risks Relating to the Notes

     We may not be able to obtain approval from the Central Bank of Brazil or
from the Central Bank of Argentina for payments by future guarantors or by MFA.

     The Notes are guaranteed by our four subsidiaries, which are:

     o    Total Fleet, a Brazilian corporation;

     o    System, a Brazilian limited liability company;

     o    Prime, a Brazilian limited liability company; and

     o    MFA, an Argentine corporation.

     The Central Bank of Brazil has authorized Total Fleet, System, and Prime
to remit funds overseas in connection with any payments these companies are
required to make as guarantors of the Notes. The Notes will be effectively
subordinated to the claims of creditors of any of Localiza's subsidiary that is
not also a guarantor. Therefore, under the indenture we entered into in
connection with the issuance of the Notes, any future subsidiary we form or
acquire is required to guarantee the Notes. If we form or acquire a Brazilian
subsidiary in the future, that subsidiary will generally be required to
guarantee the Notes and will have to obtain the approval of the Central Bank of
Brazil in order to remit funds overseas under the guarantee. If the subsidiary
guarantor does not obtain the necessary approval from the Central Bank of
Brazil, it may not be able to meet its obligations under the guarantee.

     Similarly, MFA will have to obtain prior approval from the Central Bank of
Argentina to remit funds overseas in connection with any payments MFA is
required to make as guarantor of the Notes. See --Risks related to Argentina
--The Central Bank of Argentina has imposed restrictions on the transfer of
funds outside of Argentina which could prevent MFA from making payments as a
guarantor of the Notes.

     It may be difficult to enforce judgments against us.

     We have been advised by our Brazilian counsel, Pinheiro Neto Advogados,
that a judgment for a monetary claim obtained in a U.S. court arising out of
our obligations under the Notes will be enforceable in Brazil only if the
judgment has been previously confirmed by the Brazilian Federal Supreme Court.
Any judgment obtained against us in any foreign courts in respect of any sum
payable by us under the Notes would be recognized and enforced by the court in
Brazil without re-examination of the merits, provided that it is confirmed by
the Federal Supreme Court in Brazil. The confirmation by the Brazilian Supreme
Court will only occur if the foreign judgment:

     o    fulfills all formalities required for its enforceability under the
          laws of the country where the foreign judgment is granted;

     o    is issued by a competent court after due service of process upon the
          parties against whom the judgment is entered in accordance with
          applicable provisions of Brazilian law;

     o    is not subject to appeal;

     o    is for the payment of a sum certain;

     o    is authenticated by a Brazilian consulate in the country where the
          foreign judgment is issued and is accompanied by a translation into
          Portuguese by a certified translator; and

     o    is not contrary to Brazilian national sovereignty, public policy or
          public morality.

     It may be difficult for you to obtain the Brazilian Federal Supreme
Court's confirmation of a judgment in a timely manner, or at all.

     Our subsidiary, MFA, an Argentine corporation, is a guarantor of the
Notes. We have been informed by our Argentine counsel, Estudio Beccar Varela,
that the enforceability in Argentina of a judgment for a monetary claim
obtained in a U.S. court arising out of our obligations under the Notes is
dependent on such judgment not violating


                                       16
<PAGE>


the principles of public policy in Argentina and meeting the requirements
described in the Argentine Civil and Commercial Procedure Code, which are as
follows:

     o    the judgment, which must be final in the jurisdiction where it was
          rendered, must be issued by a competent court according to the laws
          on conflicts of law and jurisdiction and must have resulted from
          either a personal action, or an in rem action with respect to
          personal property which was transferred to Argentine territory during
          or after the commencement of the foreign action;

     o    the defendant against whom enforcement of the judgment is sought must
          have been personally served with the summons and, in accordance with
          due process of law, must have been given an opportunity to defend
          against the foreign action;

     o    the judgment must be valid in the jurisdiction where rendered and its
          authenticity must be established in accordance with the requirements
          of Argentine law;

     o    the judgment does not violate the principles of public policy of
          Argentine law; and

     o    the judgment is not contrary to a prior or simultaneous judgment of
          an Argentine court.

     However, our counsel in Argentina, Estudio Beccar Varela, informed us that
the Emergency Law suspended the enforcement of preliminary measures (e.g.
attachments) which disposess the debtor of assets that are needed for
commercial activities for a period of 180 consecutive days, until August 14,
2002.

     The guarantees may be challenged as fraudulent conveyances.

     We have been advised by our Brazilian counsel, Pinheiro Neto Advogados,
that Brazilian law will not limit the enforceability of the guarantees of Total
Fleet, System or Prime, as long as they are enforceable under the laws of the
United States and New York.

     Similarly, we have been advised by our Argentine counsel, Estudio Beccar
Varela, that Argentine law will not limit the enforceability of the guarantee
of MFA, as long as it is enforceable under the laws of the United States and
New York. However, pursuant to the Emergency Law, foreclosure proceedings (e.g.
mortgages and pledges) over assets affected to the debtor's business are
suspended until August 14, 2002.

     However, U.S. federal and state fraudulent conveyance or similar laws
could limit the enforceability of the guarantees. If any subsidiary guarantor
received less than reasonably equivalent value or fair consideration for its
guarantee, and, at the time it gave the guarantee, the subsidiary guarantor:

     o    was insolvent or rendered insolvent by giving its guarantee;

     o    was engaged in a business or transaction for which its remaining
          assets constituted unreasonably small capital; or

     o    intended to incur debts beyond its ability to pay the debts as they
          mature,

then the obligations of the subsidiary guarantor under its guarantee could be
avoided or subordinated to its other debts.

     There is no liquid market for the Notes.

     Although CSFB has indicated to us that it currently intends to make a
market in the Notes, it is under no obligation to do so and it may not be
legally able to do so. CSFB may discontinue any market-making it conducts at
any time without notice, at its sole discretion. Accordingly, there can be no
assurance as to the liquidity of any market for the Notes. Even if a trading
market is maintained, it may have little liquidity. If the Notes do trade, the
trading prices will vary depending upon prevailing interest rates, the market
for similar securities, our performance and other factors.


                                       17
<PAGE>


ITEM 4.  INFORMATION ON THE COMPANY

A.   History and Development of the Company

     Localiza Rent a Car S.A. was incorporated on September 14, 1973 in Belo
Horizonte, Brazil. Localiza has 15,360,000 outstanding common shares, no par
value per share, and has a capital stock in the amount of R$116,200,000 and is
subject to Brazilian legislation.

     Our principal executive office is located at Avenida Bernardo Monteiro,
1563, Funcionarios 30150-902, Belo Horizonte, Minas Gerais, Brazil. Our
telephone number is 55-31-3247-7040. Our internet website address is
http://www.localiza.com.br.

     Our agent for service of process in the United States is Puglisi &
Associates, located at 850 Library Avenue, Suite 204, P.O. Box 285, Newark,
Delaware 19715. Their telephone number is 302-738-6680.

   Recent Developments

     On June 12, 2001, we acquired Londrina Locadora Ltda., known as Londrina,
a company located in Londrina, with operations in the cities of Londrina and
Maringa, in the state of Parana, which was engaged in the car rental business,
for approximately R$1.9 million. Londrina was spun off from Locadora Marajo
Ltda. and merged into Localiza on June 30, 2001. See Item 10. Additional
Information--Material Contracts.

   Capital Expenditures

     In 2001, we invested R$126.1 million (net of proceeds from car resales) to
renew and expand our fleet compared to R$119.8 million in 2000 and R$85.4
million in 1999. We also invested R$7.2 million in property and equipment
during 2001 compared to R$3.5 in 2000 and R$1.9 million in 1999.

     Our capital expenditures consist principally of:

     o    the renewal and expansion of our fleet;

     o    the opening of new rental locations;

     o    the improvement of our information systems; and

     o    the purchase and repair of our property and equipment.

     Except for the renewal and expansion of our fleet, which is part of our
ordinary course of business, we do not have any significant capital
expenditures scheduled or in progress. We expect any capital expenditures in
the future to be financed either by working capital or by short-term
borrowings. See Item 5. Operating and Financial Review and Prospects--Liquidity
and Capital Resources.

B.   Business Overview

     We comprise the largest rental car network in Latin America based on the
number of rental locations and we believe we are the largest rental car network
in Latin America based on revenues and fleet size. As of December 31, 2001, our
network included 346 car rental locations (69 owned and 277 franchised) in 8
countries and 246 cities. In Brazil, we are the market leader in each of the
car rental lines of business, including replacement, and fleet management
markets and also have the largest number of car rental locations at the
principal Brazilian airports. In addition to our car rental activities, we are
a leading Brazilian used car seller. We believe that the integration of our car
rental, fleet management and used car sales activities is a key competitive
advantage.

     We operate four complementary businesses:

     o    Car rental. We provide daily and monthly car rentals to business and
          leisure travelers through direct individual sales, corporate
          preferred supplier agreements and travel agency bookings. As part of
          our car rental business, we provide replacement vehicles for cars
          that are out of service, generally due to accidents, theft or
          mechanical failure, through contracts with insurance companies and
          automobile manufacturers.


                                       18
<PAGE>


     o    Fleet management. Through Total Fleet, we provide corporate customers
          with fleet and fleet management services.

     o    Used car sales. We sell used cars, typically after one year of
          service, from our car rental, replacement vehicle and fleet
          management businesses, through our own 14 resale locations in Brazil.

     o    Franchising. We franchise the Localiza brand name in 197 car rental
          locations serving smaller markets in Brazil and in 80 car rental
          locations in seven other Latin American countries.

     During 2001, used car sales accounted for 35.9% of our net revenues, car
rentals accounted for 34.3%, fleet management accounted for 28.6% and
franchising accounted for 1.2%.

     The table below sets forth the net revenues we earned in each of these
businesses for the periods indicated.

                                                Year Ended December 31,
                                         --------------------------------------
                                            1999          2000          2001
                                         ----------    ----------    ----------
                                                     (in thousands)
Car rental.............................. R$  94,014    R$ 112,254    R$ 144,253
Fleet management........................     60,923       102,131       120,229
Franchising.............................      5,038         6,402         5,056
Used car sales..........................     84,702        89,287       150,907
                                         ----------    ----------    ----------
     Total net revenues................. R$ 244,677    R$ 310,074    R$ 420,445
                                         ==========    ==========    ==========

     The table below sets forth the net revenues for our car rental business
divided by the five main geographic regions in Brazil.

                                                Year Ended December 31,
                                         --------------------------------------
                                            1999          2000          2001
                                         ----------    ----------    ----------
                                                     (in thousands)
South................................... R$  12,786    R$  12,399    R$  21,617
Southeast...............................     49,120        59,968        71,265
Central-West............................      5,751         7,400         8,696
North...................................      2,572         2,977         4,551
Northeast...............................     23,785        29,510        38,124
                                         ----------    ----------    ----------
     Total ............................. R$  94,014    R$ 112,254    R$ 144,253
                                         ==========    ==========    ==========

     The table below sets forth the net revenues for our fleet management
business divided by the five main geographic regions in Brazil.

                                                Year Ended December 31,
                                         --------------------------------------
                                            1999          2000          2001
                                         ----------    ----------    ----------
                                                     (in thousands)
South................................... R$   7,544    R$   9,665    R$  10,298
Southeast...............................     46,884        84,131       100,863
Central-West............................      1,051         1,363         1,740
North...................................          -             -             -
Northeast...............................      5,444         6,972         7,328
                                         ----------    ----------    ----------
     Total ............................. R$  60,923    R$ 102,131    R$ 120,229
                                         ==========    ==========    ==========



                                       19
<PAGE>


     The table below sets forth the net revenues for our used car sales
business divided by the five main geographic regions in Brazil.

                                                Year Ended December 31,
                                         --------------------------------------
                                            1999          2000          2001
                                         ----------    ----------    ----------
                                                     (in thousands)
South................................... R$  17,091    R$  24,739    R$  36,364
Southeast...............................     45,088        45,822        74,373
Central-West............................      8,013         7,092        19,696
North...................................      1,927         1,892         4,708
Northeast...............................     12,583         9,742        15,766
                                         ----------    ----------    ----------
     Total ............................. R$  84,702    R$  89,287    R$ 150,907
                                         ==========    ==========    ==========

   Seasonality

     The tourism segment of car rental market peaks in the months of January,
February, March and July. This is, in part, due to the popularity of these
months as vacation periods in South America. Other areas of our business do not
experience large fluctuations in their operations due to seasonality.

   Rental Customers

     Car Rental. With a Brazilian network of 266 locations, including 69 owned
by us and 197 owned by franchisees, we serve:

     o    the business market, primarily corporations and individuals, and

     o    the leisure market, primarily individuals and families on vacation.

     With approximately 317 thousand rental transactions completed in 2001, we
believe we are the market share leader in each of these car rental segments.

     Car rental customers in the business market include individuals on
business trips and corporations that rent cars for their traveling executives.
The car rental needs of business customers are influenced strongly by the
overall level of economic activity in Brazil. We have a diversified group of
business customers in the car rental market, and in 2001, our ten largest
corporate customers (not including employees of corporations renting cars under
their own names for business travel) accounted for 13.6% of our car rental
bookings. Business customers are served primarily from our airport locations.

     Car rental customers in the leisure market include individuals and their
families on vacation. A significant number of leisure customers are the same
customers who rent from us on business. The tourism industry exerts strong
influence on the car rental needs of customers in this market, particularly in
the state of Rio de Janeiro and in those states located in the northeast of
Brazil. Bookings through travel agencies constitute an important source of
leisure market customers. In 2001, approximately 17.8% of our car rental
revenues derived from bookings made through travel agencies. Like business
customers, leisure customers are served primarily from our airport locations.

     Customers in the replacement business, which is part of the car rental
market, primarily consist of insurance companies acting on behalf of customers,
and individuals who have temporarily lost the use of their cars through
accident, theft or mechanical failure. These customers are served primarily
from locations in urban and suburban areas. We work with all the largest
insurance companies in Brazil.

     Automobile manufacturers are also a valuable source of customers for the
replacement market as competition in Brazil is leading manufacturers to offer
replacement vehicles as part of a new car warranty. We aggressively pursue
replacement business and have contracted with car makers in Brazil to provide
replacement vehicles.

     Corporations with occasional or additional automobile fleet needs usually
rent our cars on a monthly basis.


                                       20
<PAGE>


     Fleet Management. Customers in the long-term fleet management market
include large and medium-sized corporations that have determined that it is
more cost effective to outsource their automobile fleet requirements. Total
Fleet's customers include many major Brazilian and multinational corporations.

     Total Fleet has approximately 172 corporate customers. In 2001, the 15
largest customers accounted for approximately 70% of Total Fleet's volume. In
2001, approximately 23% of Total Fleet's volume was attributable to customers
with fleets of less than 100 vehicles, 33% of volume was attributable to
eighteen customers with fleets of between 100 and 600 vehicles and 44% of
volume was attributable to three customers with fleets of more than 600
vehicles. Revenues from one customer of Total Fleet represents approximately
13% of revenues.

   Rental Operations and Services

     We have built brand recognition and customer loyalty in Brazil through:

     o    our nationwide car rental operations offering high-quality, low-age
          cars, and

     o    the overall quality and efficiency of our customer service.

     Rental Network. Currently, our network in Brazil consists of 266
locations, 69 of which we own and 197 of which are owned by franchisees.

     The number of locations in Brazil which we own increased by 5, to 69 in
2001 from 64 in 2000, due primarily to the acquisition of operations from our
franchisees in the cities Londrina and Maringa, in the State of Parana.

     The number of locations in Brazil which our franchisees own decreased by
56, to 197 in 2001 from 253 in 2000, primarily due to the termination of
franchise operations at regional airports with low passenger traffic and
irregular flights due to the lack of profitability of these operations and to
the acquisition by Localiza of other franchisees. Prior to 1999, the decrease
in the number of locations resulting from the expiration of franchising
agreements was offset by the active pursuit of new franchise locations in
Brazil. Since 1999, the expansion of new franchise locations in Brazil slowed
down because we achieved our goal of having well-established locations in the
major Brazilian cities and are currently focusing on strengthening our
relationships with our franchisees. See -Franchising Operations.

     Our presence throughout Brazil increases our brand recognition. Through
our network, we are the only car rental company present in almost every
Brazilian city with a population greater than 200 thousand. In addition, we
have well-established locations in cities which do not have sufficient volume
to support more than one car rental company. Our network has car rental
locations in all major and many regional Brazilian airports and in other
selected areas such as business centers, shopping malls and other heavily
trafficked locations.

     The 69 locations we own are in the capitals of 17 Brazilian states and
other large cities in Brazil. Of these locations, 36 are in airport areas, and
the remaining 33 are strategically located to serve important Brazilian car
rental markets, as well as to serve the needs of our fleet management business.
In 2001, our airport locations accounted for approximately 45% of the total
rental volume from locations owned by us.

     In addition, we believe that our national network of rental locations
gives us a considerable advantage over our competitors in the developing market
for replacement vehicles. We believe that insurance companies generally prefer
to deal with rental agencies that are able to provide service throughout Brazil
because this presence facilitates rapid and convenient service.

     In September 1998, Total Fleet entered into an agreement with Fleet
Synergy, an international network formed by companies in the outsourcing,
renting and fleet management businesses, with operations in Europe, Asia,
United States, Australia and Canada, comprising an aggregate fleet of
approximately 600 thousand vehicles. Fleet Synergy's partners take advantage of
an electronic communication network and a database of country-specific fleet
market information, thus receiving support and advice to help them increase
fleet effectiveness and control costs throughout the world.

     Fleet. Our network has the largest car rental fleet in Brazil. In line
with consumer demand, Localiza's fleet consists primarily of small,
domestically manufactured vehicles such as the FIAT Palio and the FIAT Siena.
We also offer a variety of full-size vehicles, such as the FIAT Marea. Total
Fleet has a greater variety of car models, depending on its customers'
requests.


                                       21
<PAGE>


     The table below sets forth the number of cars in our fleet and the number
of cars in the fleets of our domestic and international franchisees for the
periods indicated.

                                                      Year Ended December 31,
                                                   ----------------------------
                                                     1999      2000      2001
                                                   --------   -------   -------
Cars in our fleet................................    14,339    19,821    24,579
Cars in our domestic franchisees' fleets ........     5,622     6,005     5,713
Cars in our international franchisees' fleets ...     1,131     1,266       494
                                                   --------   -------   -------
     Total cars in our network fleet ............    21,092    27,092    30,786
                                                     ======    ======    ======

     As one of the largest purchasers of cars in Brazil, we believe that we
achieve the lowest fleet acquisition costs in the Brazilian market. We
primarily purchase FIAT cars, which we believe are particularly well suited for
the Brazilian market due to their small size, low operating cost and reputation
for durability. FIAT manufactures some of the most popular cars in Brazil, and
we believe that resale values achieved on these cars demonstrate their ability
to retain value over the utilization period.

     The profile, age and overall upkeep of the fleet is a key competitive
factor in the car rental business. In 2001, the average age of a car in our
fleet was approximately 6 months for car rentals and 15 months for fleet
management. Each car is thoroughly cleaned before we provide it to a customer,
and substantially damaged cars are removed from the fleet and either repaired
or sold.

     The car rental, fleet management and used car sales businesses cover each
other's occasional fleet needs resulting from business events or holidays,
unavailability of models required for a fleet management contract and shortage
of supply from car manufacturers.

     On-Line Information System. We made significant investments in the past in
the development of an on-line information system that currently links all of
our locations on a real-time basis. As a result of this investment and other
improvements to our network, we believe that our present infrastructure can
support a substantial increase in rental volume without significant additional
investment in information systems.

     In order to better serve the replacement vehicle customers, we have
provided on-line terminals to some insurance companies to facilitate order
processing and invoicing. Using our terminal, an insurance agent is able to log
onto our network and book a replacement vehicle in real time.

     Our investment in technology has generated an increase in the volume and
operational synergies throughout each of our core business areas and has helped
us manage our fleet more efficiently. For example, using real-time data
provided by the information system, we are able to provide 24-hour assistance
to our fleet management customers throughout Brazil and are increasingly able
to manage the balance between the portion of our fleet dedicated to our rental
business and the portion committed to our used car sales business. Data from
our information system provides insight into customer characteristics and
preferences. We use this data to focus our promotional and advertising efforts.

     All our rental locations are linked to our headquarters by a voice and
data fiber-optic network provided by Embratel.

     Customer Service. We believe that quality of service is of critical
importance to customer satisfaction and brand loyalty. We focus on customer
service at every level of our organization and believe that this emphasis has
been an important factor in building customer loyalty and repeat business.

     Each customer service representative is trained and motivated to respond
to the customer's needs in an efficient and courteous manner. Each customer
service representative receives thorough on-the-job training which emphasizes
the importance of attending to bookings, pick-ups and returns as quickly as
possible, and we regularly monitor our employees to ensure that performance
standards are maintained.

     Insurance. We offer our car rental customers the opportunity to purchase
collision damage and theft waivers, pursuant to which we waive certain
potential claims against the customer. If the waiver is purchased, in the event
that the rented vehicle is damaged or stolen, the customer's maximum liability
to us is capped. Revenues from these


                                       22
<PAGE>


damage waivers are included in our vehicle rental revenue. Currently, most of
our individual car rental customers purchase the damage waiver.

     Fleet Management Services. As a result of its reputation for service and
quality and its well-trained sales force, Total Fleet is the Brazilian market
leader in the fleet management business. Total Fleet currently serves
approximately 172 fleet management corporate customers with approximately
12,300 vehicles under management. Through a network of subcontractors, Total
Fleet offers maintenance assistance throughout Brazil to its fleet management
customers. Total Fleet satisfies the permanent and temporary fleet requirements
of small, medium and large-sized corporations. The fleet management business is
attractive because it provides relatively consistent demand and increases fleet
utilization with lower marketing and administrative costs.

     Total Fleet tailors its fleet management services to address each
customer's specific needs. These services generally include:

     o    nationwide customer service support, which provides 24-hour customer
          assistance throughout Brazil;

     o    assistance to customers in the event of accidents or vehicle theft;

     o    immediate flexibility to customers who need to increase or decrease
          fleet size;

     o    advice and assistance in the choice of fleet mix;

     o    negotiation and purchase of cars;

     o    vehicle registration;

     o    vehicle maintenance, towing and replacement; and

     o    assistance in the case of car impoundment and traffic fines.

     Nationwide assistance to fleet management customers is coordinated through
Total Fleet's call center, a telephone hotline service that links Total Fleet
with a network of independent service stations, towing services and automobile
parts vendors throughout Brazil. With the call center, which was established in
June 1996, a fleet management customer can contact the call center phone number
from anywhere in Brazil and a Total Fleet operator will direct the customer to
the nearest vehicle repair location for assistance. Total Fleet subcontracts
with these service providers for maintenance and repair tasks and certain
customer-assistance services. This program enables the fleet management
business to grow with minimal investment in infrastructure.

     Total Fleet leases cars to corporations under contracts which can be
canceled with 30 days advance notice and payment of a charge ranging from 30%
to 50% of the contract's remaining payments. The lease period for new cars
varies from 12 to 48 months. Maintenance and insurance costs are shared between
Total Fleet and the customer as agreed between them.

   Rental Pricing

     Car Rental. Our standard car rental rates offer both limited and unlimited
mileage. We occasionally run promotional campaigns featuring price discounts
and special occasion rates.

     We regularly survey local market conditions, and regional managers are
authorized to adjust pricing within predetermined limits to improve
competitiveness in their local markets. We price our products competitively,
and attempt to differentiate ourselves through our ability to offer nationwide
coverage and a higher overall level of service than our competitors.

     In general, our contracts with our replacement customers are for higher
car volumes and therefore prescribe a lower average rate per vehicle than the
contracts we enter into with individual car rental customers. However, we also
incur lower maintenance, marketing and administrative costs in connection with
replacement operations. As a result, we believe that the replacement market
has:

     o    lower operating costs per rental due to lower mileage of the cars by
          our customers in the replacement market compared to our regular
          customers in the car rental market;


                                       23
<PAGE>


     o    higher utilization ratios due to the longer average car rental period
          in the replacement market compared to common car rentals; and

     o    higher operating efficiencies due to the increase in overall rental
          volume of our network.

     Fleet Management. Total Fleet's pricing for fleet management is negotiated
with each fleet management customer, and generally takes into consideration the
size and vehicle profile of the fleet and the type of services provided.
Because of the high volume of automobiles it purchases, Total Fleet can
generally obtain better terms and conditions from automobile manufacturers than
even the largest of corporations for whom fleet management is a non-core
business. Economies of scale also enable Total Fleet to negotiate lower
maintenance and repair rates and lower administrative expenses per car.
Customers typically pay Total Fleet on a monthly basis for fleet management
services.

   Rental Sales, Advertising and Promotion

     Car Rental. Our sales, advertising and promotion strategy is designed to
build recognition of the Localiza brand throughout Brazil and the rest of Latin
America. Our network's presence in all major Brazilian and certain other Latin
American airports and our advertising in selected media have helped to develop
strong brand awareness. Our locations themselves, situated in highly visible
areas such as airports and downtown business centers, are an important part of
our overall marketing strategy. We have standardized our procedures, employee
uniforms, banners, brochures and location layouts in order to present customers
with a consistent image and a high level of service quality. Uniforms, banners
and brochures all incorporate our trademark shade of green, making our
locations instantly recognizable to frequent Brazilian travelers.

     We employ a team of approximately 80 salespeople to market our car rental
business to corporate clients, travel agencies and individuals. The growing
importance of travel agencies as a sales channel has led us to focus our
marketing and promotional activities on these firms at an increasing rate.

     Because businesspeople and relatively affluent vacationers are our
principal car rental customers, business newspapers and selected magazines are
the most used media for our advertising campaigns. In order to earn repeated
business from this important group of customers, we offer special services such
as expedited rental service for frequent renters.

     We target frequent renters by using direct marketing strategies based upon
affinity and loyalty programs. For example, we have implemented a fidelity
program that gives rewards in free rentals to frequent customers.

     We market our replacement services to insurance companies and automobile
manufacturers in Brazil. Because the insurance and automobile manufacturing
industries are concentrated in Brazil, we are able to promote our replacement
services using a limited staff and without significant capital investment. We
currently provide replacement vehicles to all the largest insurance companies
in Brazil and, as part of a new car warranty, to car makers.

     Fleet Management. In our fleet management business, Total Fleet approaches
prospective customers and develops fleet management accounts. These activities,
which are carried out by a team of 20 experienced salespeople, involve an
in-depth analysis of the prospective customer's fleet requirements and
historical expenditures, and multiple presentations to the prospective
customer's management in order to demonstrate the cost savings that can be
achieved through entering into a fleet management contract with Total Fleet.

   Used Car Sales Operations

     Our used car sales division handles vehicle procurement and sales of cars
previously used in our other businesses. The used car sales business is closely
coordinated with the car rental and fleet management businesses, and input from
these three businesses is used to determine the most appropriate fleet
composition and timing for vehicle acquisition and disposition.

     Procurement. FIAT is our principal supplier of vehicles. In 2001, we
purchased approximately 70.8% of our vehicles from FIAT. We have not entered
into a supply contract with FIAT, but maintain ongoing negotiations with FIAT
regarding the number of automobiles required for fleet renewal and the timing
of fleet acquisitions. We are one of the largest purchasers of FIAT cars
worldwide. We believe that the volume of transactions we complete with


                                       24
<PAGE>


FIAT allows us to purchase cars on the best terms available in Brazil. In
addition, we are among the largest purchasers of Volkswagen cars in Brazil, and
also purchase vehicles manufactured by Ford and General Motors.

     Vehicle manufacturers in Brazil do not provide repurchase or guaranteed
depreciation arrangements protecting car rental companies against unfavorable
market conditions upon disposition of vehicles. Consequently, we bear the risk
of profit or loss on resale of our fleet.

     Resale. We believe that our used car sales operations distinguish us from
our competitors in the Brazilian market. While most competitors dispose of
their fleets through wholesalers or auctions, we sell a significant proportion
of our used cars directly to the public through our network of 14 used car
sales locations in 14 Brazilian cities. In 2001, approximately 74% of our used
cars were sold directly to individual consumers through our used car sales
locations. The remainder of our used cars are sold on a wholesale basis to used
car dealers. We refer potential customers who desire longer payment terms to
local banks with whom we have established working relationships.

     We pioneered the Seminovo (almost-new) retailing concept for used cars in
the Brazilian market and believe that we have developed a reputation in the
market for reliability. Our used cars are sold with a limited three month/3,000
kilometer warranty and a manufacturer's warranty, if available. Our used car
sales force consists of 58 people who work on a commission basis, and our
policy is to avoid high pressure sales tactics. As a result, we believe that
first-time car buyers view us as an attractive and reliable place to purchase a
used car.

   Franchising Operations

     In the past, we developed a franchise system that enabled us to expand our
network coverage in Brazil and beyond national borders at a lower incremental
cost than expanding with our own operations. This expansion was a key factor in
enabling us to strengthen our brand name, protect our market leadership
position and bolster our relationship with our customers. Through our
franchising efforts, we are the leading car rental company in Latin America as
measured by the number of rental locations.

     The table below sets forth the locations, by country, of our network
franchise locations.

                                              Franchise Locations
Country                                 ------------------------------
-------                                  1999        2000        2001
                                        ------      ------      ------
Brazil..........................          269         253         197
Argentina.......................           71          73          48
Ecuador.........................           10           9          10
Mexico..........................            8           7          10
Colombia........................            4           5           -
Bolivia.........................            5           4           5
Paraguay........................            3           4           4
Peru............................            5           4           -
Uruguay.........................            2           2           3
Aruba...........................            1           2           -
Venezuela.......................            -           1           -
                                          ---         ---         ---
      Total.....................          378         364         277
                                          ===         ===         ===

     The number of our international franchisee locations decreased primarily
due to the termination of operations of our franchisees in Colombia, Peru and
Venezuela, resulting from economic and political instability in those
countries, and to a reduction in the number of franchise locations in
Argentina, as some of these operations became uneconomical after a large
increase in rental fees charged by airport authorities. The termination of
operations in Aruba was due to the fact that tourism activities have decreased
in that country. The number of our franchise locations in Brazil decreased
primarily due to the termination of franchise operations at regional airports
with low passenger traffic and irregular flights due to the lack of
profitability of these operations and to the acquisition by Localiza of other
franchisees

     Our involvement in franchising has benefitted our other core businesses.
The wide coverage of the franchise network has been a key factor in allowing us
to secure nationwide customer contracts in the car rental, replacement


                                       25
<PAGE>


     vehicle and fleet management businesses. We assist our franchisees with
car procurement, and accordingly the franchise system strengthens our
bargaining position in dealings with automobile manufacturers. We have no role
in the sale of used cars by franchisees.

     Brazilian Operations. Our Brazilian franchise network enables us to
provide nationwide coverage. The Brazilian locations are found in 196 cities.
We select franchise locations in order to serve smaller markets, while major
urban areas in Brazil are served by one of the 69 Localiza-owned locations. The
197 Brazilian franchise locations are operated by a total of 103 franchisees.

     Non-Brazilian Operations. Our network has 80 franchise locations outside
of Brazil. We believe that the presence of franchises in non-Brazilian markets
has important value not only because they generate additional revenues, but
also because these franchises provide a benefit to customers in the core
Brazilian market when traveling abroad, and therefore enhance the overall level
of service we can provide to our customers. Today, our brand is strong in
certain markets outside Brazil, particularly in Argentina, Ecuador and Mexico.

     The 80 international franchise locations are operated by 7 master
franchisees and 31 sub-franchisees, the largest of whom owns 10 locations.

     Franchise Structure. We grant exclusivity to our franchisees for defined
geographic areas pursuant to renewable contracts ranging from five to ten
years. Brazilian franchisees generally pay us an initial fee plus a royalty and
an advertising fee based on gross revenues. Non-Brazilian franchisees pay
royalties at varying rates, depending upon local market conditions. In 2001,
aggregate net royalties from Brazilian franchisees amounted to R$3.7 million,
84% of total franchise royalties, and aggregate net royalties from
non-Brazilian franchisees amounted to R$0.7 million, or 16% of total franchise
royalties.

     We oversee the quality of our franchise operations through:

     o    rigorous qualifying procedures for new franchisees,

     o    training, comprehensive education and procedural manuals, and

     o    periodic onsite inspections.

   Competition

     The Brazilian car rental industry includes four major competitors and more
than 2,400 smaller competitors that operate primarily in non-airport locations.

     The extent to which car rental companies can capture market share depends
upon a number of factors, including pricing, customer service, fleet quality,
convenience, distribution of rental locations, travel agent referrals and on
the number of commercial accounts.

     Although we do not focus on being the discount price leader in our
markets, we believe that based on the service we provide, our rentals are
competitively priced. We believe that our customer service, fleet quality,
convenience and location distribution are all benchmarks in the Brazilian car
rental industry. We aggressively market our services to travel agents and
corporations.

     Our used car sales business faces competition from a variety of small,
independent used car dealers and, to a certain degree, from new car dealers.

     Fleet Management. Total Fleet focuses on the long-term fleet management
market, in which the principal competitors are operating leasing companies. See
-Rental Sales, Advertising and Promotion. Total Fleet's principal competitors
are the same companies that compete with Localiza in car rental, mainly Hertz,
Avis, Unidas. In addition, Leasing Plan, an affiliate of ABN AMRO Bank and
Ticket Car, an affiliate of the ACCOR Group, are competitors that are dedicated
solely to fleet management.


                                       26
<PAGE>


   Regulation

     We are subject to a wide range of federal, state and municipal regulation
generally applicable to companies operating in Brazil, including laws relating
to labor, social security, consumer protection and antitrust. Except for
customary business licenses required by local government authorities, no
special licenses or permits are required for us to carry on our business in
Brazil.

     Any business operating in Brazil must comply with certain environmental
regulations, including standards relating to water pollution and contamination,
among others. There are no material legal or administrative proceedings pending
against us with respect to any environmental matters.

C.   Organizational Structure

     Localiza has the following four subsidiaries:

     o    Total Fleet. Total Fleet is a Brazilian corporation through which we
          conduct our fleet management business. Total Fleet started to operate
          on January 1, 1999. Under the Brazilian Corporation Law, Total Fleet
          has 109,630,000 shares, no par value per share, and a capital stock
          in the amount of R$123,060,000.

     o    System. System is a Brazilian limited liability company through which
          we conduct our domestic and international franchising operations. We
          acquired System on May 31, 1995, and the Localiza financial
          statements reflect the financial condition and results of operations
          of System from the date of its acquisition. Under the Brazilian
          Corporation Law, System has 1,115,540 quotas, par value R$1.00 per
          quota, and a capital stock in the amount of R$1,115,540.

     o    Prime. Prime is a Brazilian limited liability company that deals with
          the intermediation of used car sales and related services. It started
          to operate on January 1, 1999, providing services to Total Fleet.
          Under the Brazilian Corporation Law, Prime has 15,000 quotas, par
          value R$10.00 per quota, and a capital stock in the amount of
          R$150,000.

     o    MFA. MFA is an Argentine corporation that conducts our master
          franchise operations in Argentina. On August 17, 1999, System
          acquired a 60% interest in MFA from EDS Inversora S.A., for
          approximately R$337 thousand, thereby increasing its total ownership
          interest in MFA to 100%. Localiza's and System's consolidated
          financial statements reflect the financial condition and results of
          operations of MFA as of September 1, 1999. MFA has 197,000 common
          shares, par value P$1.00 per share, and a capital stock in the amount
          of R$645,613.

                                   -------------------

                           --------     LOCALIZA      ---------------
                           | 92.50%                         100%    |
                           |       -------------------              |
                           |                |                       |
--------------------       |                | 99.99%                |
                    7.50%  |                |                       |
Aristides Luciano   -----  |                |                       |
de Azevedo Newton       |  |                |                       |
                        |  |                |                       |
--------------------    |  |                |                       |
                        |  |                |                       |
                        |  |                |                       |
              ---------------        ---------------        ---------------

                   SYSTEM                 PRIME               TOTAL FLEET

              ---------------        ---------------        ---------------
                        |
                        | 100%
                        |
              ---------------

                    MFA

              ---------------


     Each of Total Fleet, System, Prime and MFA is a guarantor of the Notes.


                                       27
<PAGE>


D.   Description of Property

     Our headquarters fully occupy a seven-story leased office building in Belo
Horizonte, in the state of Minas Gerais, Brazil. The following table sets forth
information regarding our car rental and used car sales locations:

                                                      As of April 30,
                                                  ------------------------
                                                  2000      2001      2002
                                                  ----      ----      ----
Car rental locations:
     On owned property.........................      3         3         3
     On leased property(1).....................     48        61        66
                                                  ----      ----      ----
         Total.................................     51        64        69
                                                  ====      ====      ====

Used car sales locations:
     On owned property.........................      3         3         4
     On leased property........................      7        11        11
                                                  ----      ----      ----
         Total.................................     10        14        15
                                                  ====      ====      ====

---------
(1)  Includes all airport locations.

     We operate our airport locations under leases with terms varying from one
to fifteen years pursuant to concession agreements with the national airport
authority.


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.   Operating Results

   Discussion of Critical Accounting Policies

     Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including
those related to areas that require a significant level of judgement or are
otherwise subject to an inherent degree of uncertainty. These areas include
allowances for doubtful accounts, depreciation of revenue earning vehicles,
long-live assets, deferred income taxes, reserve for contingencies, financial
instruments and stock option plan accounting. We base our estimates on
historical experience, our observance of trends in particular areas,
information and/or valuations available from outside sources and various other
assumptions that we believe to be reasonable under the circumstances and which
form the basis for making judgements about the carrying value of assets and
liabilities that may not be readily apparent from other sources. Actual amounts
could differ significantly from amounts previously estimated. We believe that
of our significant accounting policies (see note 3 to the Localiza financial
statements), the following may involve a higher degree of judgement and
complexity.

     Allowance for doubtful accounts

     We maintain allowances for doubtful accounts for estimated losses from the
inability or failure of our customers to make payments for daily and fleet
rental activities, sales of vehicles and franchise fees. The allowances are
based on current trends and historical collection experience and a percentage
of our accounts receivables by aging category. In determining these
percentages, we look to historical write-offs, as well as current trends in the
credit quality of our customer base.


                                       28
<PAGE>


     Revenue-earning vehicles

     We must estimate what the residual values of these vehicles will be at the
expected time of disposal to determine monthly depreciation rates. In
determining these depreciation rates, we look at historical disposal experience
and holding periods, trends in the wholesale and retail market for vehicles and
model specific factors. Due to longer holding periods on fleet management
vehicles and the resulting increased possibility of changes in the economic
environment and market conditions, particularly as compared to car rental
vehicles, these estimates are subject to a greater degree of risk. We
continually evaluate estimated residual values. In order to reflect the higher
depreciation of the vehicles during their earlier useful lives, we adopt the
sum-of-the-years-digits method for the depreciation of vehicles, computed in a
quarterly basis. Differences between actual residual values and those estimated
result in a gain or less on disposal. We have experienced gains on disposal.
Vehicles held for disposal are evaluated as a group and recorded at the lower
of cost or market (less estimated selling costs). During 2001, we changed the
estimates of the residual values of our fleet to adjust estimated future sales
prices to the current car market trend, resulting in lower depreciation of R$12
million during the year ended December 31, 2001. Future changes in our
depreciation policy or estimates of useful lives and residual values will
impact our results of operations on a prospective basis.

     Long-lived assets

     The carrying value of long-lived assets is reviewed whenever events or
changes in circumstances indicate that the carrying values may not be
recoverable through projected undiscounted future cash flows. Fair value is
calculated as the present value of estimated future cash flows excluding
interest. Factors we consider important which could trigger an impairment
review include the following:

     o    significant under-performance relative to expected, historical or
          projected future operating results;

     o    significant changes in the manner of using the assets or the strategy
          of our overall business; and

     o    significant negative industry or economic trends.

     If the projected undiscounted future cash flows exceed the carrying value
of long-lived assets, an impairment loss is recognized to adjust the cost of
the long lived asset to its fair value. Depending on future circumstances
surrounding our long-lived assets, impairment losses recognized may impact our
future results of operations.

     Income taxes

     We account for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes", which requires the application of the
comprehensive liability method of accounting for income taxes. SFAS No. 109
requires recognition of deferred tax assets and liabilities for the estimated
future tax consequences of events attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and operating loss and tax credit carry-forwards.

     Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of changes in tax rates is recognized in income for the period that
includes the enactment date.

     We record a valuation allowance to reduce our deferred tax assets to the
amount which, we estimate, is more likely than not to be realized. While we
have considered future taxable income and ongoing tax planning strategies in
assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize deferred tax assets in the future in
excess of the net recorded amount, the resulting adjustment to deferred tax
assets would increase income in the period such determination was made.
Similarly, should we determine that we would not be able to realize all or part
of our net deferred tax assets in the future, an adjustment to deferred tax
assets would decrease income in the period such determination was made.

     Reserve for contingencies

     We are a claimant in several lawsuits and a defendant in several others,
arising in the normal course of business, regarding tax, labor, civil and other
issues. We account for contingencies in accordance with SFAS No. 5, "Accounting
for Contingencies" and the evaluations with respect to the potential outcome of
the claims are made with the assistance of our legal and tax counselors. Such
accrued liabilities are estimated based upon historical


                                       29
<PAGE>


experience and the nature of the group of claims, relating to labor claims, and
based on information provided by internal and external legal and tax
counselors.

     Financial instruments

     We use derivative instruments as part of our overall strategy to protect
our U.S. dollar-denominated debt against the depreciation of the real relative
to foreign currency, through swap transactions between exchange rate variation
and fixed interest rate. Effective as of January 1, 2001, we account for our
derivatives at fair value on the balance sheet in accordance with SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The application
of SFAS No. 133 is complex, as evidenced by amendments and significant
interpretations to the original standard, which continue to evolve. Our
derivatives and other financial instruments are not exchange traded. Values are
determined by the present value of future cash flows, which may involve
significant judgments and estimates in the absence of quoted market prices.
These estimates are based on valuation methodologies deemed appropriate in the
circumstances; however, the use of different assumptions may have a material
effect on the estimated fair value amounts recorded in the financial
statements.

     Stock option plan accounting

     As allowed by SFAS No. 123, "Accounting for Stock-Based Compensation", we
elected to continue to account for its stock option plan using the intrinsic
value based method for variable stock plans as prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees". Under the intrinsic value method, cost is the excess, if any, of
the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. Entities choosing to
continue applying APB Opinion No. 25 on employee stock options granted on or
after January 1996 must provide pro forma disclosures of net income, as if the
fair value method of accounting has been applied. Under this method cost is
measured at the grant date based on the fair value of the employee stock option
and is recognized ratably over the service period of the option, which is
usually the vesting period. To determine the fair value of the Localiza shares
and consequently compensation expense, if any, we are required to make
significant judgments and estimates in the absence of quoted market prices.
These estimates are based on valuation methodologies deemed appropriate under
the circumstances; however, the use of different assumptions may have a
material effect on the estimated fair value amounts and in the compensation
expense. For all periods presented, fair value of the Localiza shares did not
exceed the exercise prices of the options and consequently, no compensation
expense was recorded. Additionally, the pro forma disclosures required by SFAS
No. 123 have not been presented as the effect of measuring compensation expense
under SFAS No. 123 was immaterial for all periods presented.

   New Accounting Pronouncements

     Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended. Previously, under
U.S. GAAP, SFAS No. 80 - "Accounting for Futures Contracts" and now under SFAS
No.133, our contracts do not meet the criteria to qualify as the hedge of an
exposure to foreign currency or interest rate risk. Therefore, we have
accounted for the derivative transactions by calculating the unrealized gain or
loss at each balance sheet date and changes in the fair value of all
derivatives are now being recorded in current operations.

     In June 2001 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations." SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for
using the purchase method for which the date of acquisition is July 1, 2001, or
later. SFAS No. 141 requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method. We do not anticipate that
this new standard will have any impact on our financial position or results of
operations.

     In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. Early application of SFAS No. 142 is permitted for entities with
fiscal years beginning after March 15, 2001, provided that the first interim
financial statements have not previously been issued. With the adoption of SFAS
No. 142, goodwill is no longer subject to amortization over its estimated
useful life, but rather it will be subject to at least an annual assessment for
impairment by applying a fair- value-based test. Additionally, negative
goodwill is recognized as an extraordinary gain at the time of the business
combination. We anticipate that the adoption of this new standard will result
in the discontinuation of annual goodwill amortization of R$1.1 million in
2002. We do not anticipate that the adoption of this standard will have a
significant effect on our financial position or results of operations.


                                       30
<PAGE>


     In June 2001 the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The new standard will be effective for financial
statements issued for fiscal years beginning after June 15, 2002, with early
application encouraged. We plan to adopt this new standard in January 1, 2003.
SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset, except for
certain obligations of lessees. This Statement requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. We do not anticipate that this new standard
will have a significant impact on our financial position or results of
operations.

     In August 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The new standard will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001, with early application encouraged. We adopted this new
standard in January 1, 2002. SFAS No. 144 supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", although it retains the fundamental provisions of SFAS No. 121.
SFAS No. 144 also expands the scope of discontinued operations presentation to
a component of an entity and eliminates the exception to consolidation for a
temporarily controlled subsidiary. We do not anticipate that this new standard
will have a significant impact on our financial position or results of
operations.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS 145 updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds Statement 4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB Opinion 30 will now be used to classify those gains
and losses. Statement 64 amended Statement 4, and is no longer necessary
because Statement 4 has been rescinded. Statement 44 was issued to establish
accounting requirements for the effects of transition to the provisions of the
Motor Carrier Act of 1980. Because the transition has been completed, Statement
44 is no longer necessary. SFAS 145 amends Statement 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. This amendment is consistent with the FASB's goal of requiring
similar accounting treatment for transactions that have similar economic
effects. SFAS 145 also makes technical corrections to existing pronouncements.
We do not believe the adoption of SFAS 145 will have a material impact on our
financial position, results of operations or cash flows.

   Restatement of December 31, 1999 and 2000 amounts

     As described in note 30 to the Localiza financial statements, subsequent
to the filing of Localiza's December 31, 2000 financial statements, it was
determined that the repurchases of our Senior Notes made in 1998 and 1999,
pursuant to a "permitted investment" clause in the related indenture, should
have been considered a debt extinguishment for accounting purposes. This
determination was made based on guidance set forth in SFAS No. 125, "Accounting
for transfers and servicing of financial assets and extinguishment of
liabilities", replaced by SFAS No. 140. As a result, Localiza's financial
statements as of December 31, 2000 and for the two years then ended have been
restated from previously reported amounts to reflect this change in accounting.
All amounts presented in the operating and financial review and prospects have
also been adjusted to reflect this change in accounting.

   Overview

     We are engaged in the business of car rental, fleet management, used car
sales and franchising.

     Our revenues primarily consist of:

     o    Car rental: revenue generated from renting cars to customers
          including revenue from loss or collision damage waivers.

     o    Fleet management: revenue generated from renting vehicles to
          customers including revenue from fleet management services.

     o    Used car sales: revenue generated from the sale of used cars
          including commission on intermediation of service sales.


                                       31
<PAGE>


     o    Franchising: royalties and other fees generated from our franchisees.

     Our costs and expenses consist primarily of:

     o    Direct operating: includes wages and related benefits, rent and
          concessions paid to airport authorities, costs relating to the
          operation net of third parties reimbursements and cost of used car
          sales.

     o    Selling, general and administrative: includes reservation,
          advertising, marketing, commissions to sellers, travel agents and
          other third parties and other related expenses.

     o    Depreciation of vehicles: depreciation expenses relating to revenue
          earning vehicles.

     o    Financial expense, net: includes interest income and expense, taxes
          on financial revenues, net monetary variation and exchange loss and
          other gains/losses.

     o    Non-vehicle depreciation, goodwill amortization and non-operating
          result: includes depreciation of capitalized assets and amortization
          of goodwill, as well as non-operating results.

     o    Other expenses, net: taxes, extraordinary gain - net and cumulative
          effect of a change in accounting principle - net.

     Our profitability is primarily a function of the volume and pricing of
rental transactions and the utilization of cars and equipment. Significant
changes in the purchase price of cars and equipment or interest rates can also
have a significant effect on our profitability depending on our ability to
adjust pricing for these changes. Our business requires significant capital
expenditures for cars and equipment and consequently substantial liquidity to
finance such expenditures.

     In the discussion that follows, total net revenues less direct operating
costs, costs of used car sales and taxes on revenues is referred to as
"adjusted gross profit". Adjusted gross profit should not be considered as an
alternative to operating income or net income or as an indicator of our
performance, and may not be comparable to other similarly titled measures of
other companies. However, we believe that adjusted gross profit is an useful
indicator of our performance for purposes of management analysis. The table
below includes a reconciliation of adjusted gross profit to operating income
for the three years ended December 31, 2001. You should read this information
together with Localiza's audited financial statements that are included
elsewhere in this annual report.

<TABLE>
                                                           Year Ended December 31,
                                                 --------------------------------------------
                                                   1999(1)          2000(1)           2001
                                                 ----------       ----------       ----------
                                                                (in thousands)
<S>                                               <C>             <C>               <C>
Net revenues:
     Car rental..............................    R$  94,014      R$ 112,254        R$ 144,253
     Fleet management........................        60,923          102,131          120,229
     Franchising.............................         5,038            6,402            5,056
     Used car sales..........................        84,702           89,287          150,907
                                                 ----------       ----------       ----------
         Total net revenues..................       244,677          310,074          420,445
                                                 ----------       ----------       ----------

Direct operating costs:
     Direct operating........................        45,413           60,318           76,652
     Cost of used car sales..................        71,566           63,152          118,655
     Taxes on revenues.......................        10,563           13,990           17,795
                                                 ----------       ----------       ----------
         Total direct operating costs........       127,542          137,460          213,102
                                                 ----------       ----------       ----------

Adjusted gross profit........................       117,135          172,614          207,343
</TABLE>


                                       32
<PAGE>


                                                    Year Ended December 31,
                                               ---------------------------------
                                               1999(1)      2000(1)        2001
                                               -------      -------       ------
                                                        (in thousands)
Expenses:
     Selling, general, administrative
         and other expenses..................   31,674       38,087       52,845
     Depreciation of vehicles................   31,099       49,803       43,995
     Goodwill amortization...................       31          147        1,499
     Other depreciation and amortization.....    2,409        2,915        2,634
                                               -------      -------       ------
         Total expenses......................   65,213       90,952      100,973
                                               -------      -------       ------
Operating income.............................   51,922       81,662      106,370
                                               =======      =======      =======
Net income...................................   19,931       44,655       42,981
                                               =======      =======      =======

---------
(1)  The financial statements for the two years ended December 31, 2000 have
     been restated to reflect the change in accounting described in note 30 to
     the Localiza financial statements.

     The table below sets forth certain data as a percentage of net revenues
     for the periods indicated.

<TABLE>
                                                                                  Year Ended December 31,
                                                                             ---------------------------------
                                                                             1999(1)      2000(1)        2001
                                                                             -------      -------      -------
                                                                                         (percent)
<S>                                                                           <C>          <C>          <C>
Car rental................................................................     38.4%        36.2%        34.3%
Fleet management..........................................................     24.9         32.9         28.6
     Total vehicle rental.................................................     63.3         69.1         62.9
Franchising...............................................................      2.1          2.1          1.2
Used car sales............................................................     34.6         28.8         35.9
     Total net revenues...................................................    100.0        100.0        100.0
Direct operating costs....................................................    (52.1)       (44.3)       (50.7)
Adjusted gross margin.....................................................     47.9         55.7         49.3
Advertising, promotion and selling expenses...............................     (9.6)        (9.1)        (9.6)
General, administrative and other expenses................................     (3.3)        (3.2)        (3.0)
Depreciation of vehicles..................................................    (12.7)       (16.1)       (10.5)
Operating income..........................................................     22.3         27.3         26.2
Financial expense, net....................................................    (10.3)        (6.4)       (12.0)
Non-vehicle depreciation, goodwill amortization and non-
     operating result.....................................................     (1.1)        (1.0)         0.1
Income before taxes, minority interest, extraordinary gain and
     cumulative effect of a change in accounting principle................     10.9         19.9         14.3
Taxes, minority interest, extraordinary gain and cumulative
     effect of a change in accounting principle...........................     (2.7)        (5.5)        (4.1)
Net income................................................................      8.2         14.4         10.2
</TABLE>

---------
(1)  The financial statements for the two years ended December 31, 2000 have
     been restated to reflect the change in accounting described in note 30 to
     the Localiza financial statements.


                                       33
<PAGE>


  Year ended December 31, 2001 Compared to Year ended December 31, 2000

     Net Revenues

     Our net revenues increased by 35.6% to R$420.4 million in 2001 from
R$310.1 million in 2000. This increase was primarily attributable to an
increase in the volume of car rental transactions, partially offset by a
decrease in average prices, as well as an increase in fleet management
transactions and in the number of used cars sold.

     Car rental revenues, which include replacement, leisure, corporate
short-term rentals and monthly rentals, increased 28.5% to R$144.3 million in
2001 from R$112.3 million in 2000. This increase was attributable to a 45.1%
increase in volume partially offset by a 11.4% decrease in average prices.

     The increase in the volume of rentals was mainly due to: (i) a 41.5%
increase in individual rentals; and (ii) a 52.3% increase in monthly rentals
(short-term transactions with corporations, normally from one to twelve
months). A contract with a telecommunication company, which demanded
approximately 770 vehicles for 8 months, was responsible for 23.8% increase in
rentals.

     The 11.4% decrease in average prices resulted from the increase in the
number of transactions in the monthly rental segment. This segment is
characterized by (i) lower rates, as it has a higher utilization rate due to
the longer average car rental period; (ii) lower selling expenses compared to
other segments; and (iii) higher operating efficiencies due to the higher
overall rental volume.

     Fleet management revenues, which correspond to the corporate long-term
rental market, increased by 17.7% to R$120.2 million in 2001 from R$102.1
million in 2000. This increase was attributable to a 18.6% increase in volume
partially offset by a 1.4% decrease in average prices.

     The increase in the volume of fleet management transactions was due to new
contracts entered into in 2001, pursuant to Total Fleet's 1998 plan, which
seeks to approach prospective customers and to develop new fleet management
accounts.

     Used car sales revenues increased by 69.0% to R$150.9 million in 2001 from
R$89.3 million in 2000 primarily due to a 69.0% increase in the volume of used
cars sold (10,430 in 2001; 6,173 in 2000). This increase was principally due
to: (i) higher disposal of cars in the car rental business during its regular
and periodic renewal of fleet, since our fleet has been increasing continually
in the last 2 years; (ii) higher disposal of cars in the fleet management
business since several cars were acquired in 1999 and 2000 to serve new
customers, under contracts which provided for the return of our cars in 2001.

     Franchising revenues decreased by 21.0% to R$5.1 million in 2001 from
R$6.4 million in 2000. This decrease was mainly attributable to a decrease in
Brazilian and international royalties fees which in turn resulted from: (i) the
acquisitions by Localiza of Brazilian franchisees in the end of 2000 and
beginning of 2001 (See note 1 (c) to the Localiza financial statements); (ii)
the termination of the international operations of our franchisees in Colombia,
Venezuela, Peru and Aruba; and (iii) a reduction in the franchise fees in
Argentine due to the local economic crisis in 2001.

     Direct Operating Costs

     Direct operating costs increased 55.0% to R$213.1 million in 2001 from
R$137.5 million in 2000. This increase was mainly due to an increase in cost of
used car sales as a result of the increase in the number of used cars sold. As
a percentage of net revenues, direct operating costs increased to 50.7% in 2001
from 44.3% in 2000.

     Car rental direct operating costs include maintenance, casualty (accidents
and theft), car preparation expenses (title, licensing and others), car
transportation, operation personnel and location related costs. These costs
increased by 19.0% to R$45.2 million in 2001 from R$38.0 million in 2000. As a
percentage of car rental net revenues, these costs decreased to 31.3% in 2001
from 33.8% in 2000.

     Fleet management direct operating costs (which are comparable to car
rental costs but do not include costs associated with locations) increased by
55.3% to R$28.1 million in 2001 from R$18.1 million in 2000, due to increases
in variable and fixed costs. As a percentage of fleet management net revenues,
these costs increased to 23.4% in 2001 from 17.7% in 2000. Variable costs
increased to 21.8% from 16.2% over revenues mainly due to a R$5.4 million
increase on maintenance costs due to the increase in the average age of the
fleet to 15.4 months in


                                       34
<PAGE>


2001 from 11.0 months in 2000. Variable costs per car increased by 33.2%. This
increase was balanced by a decrease of 24.2% in depreciation per car, or 12.1%
excluding the reduction in depreciation expenses resulting from the decrease in
average rates occurred in 2001. See -- Depreciation of Vehicles. Our
depreciation method allows us to match increasing maintenance with decreasing
depreciation along car lives. Fixed costs increased by 23.5%. This increase was
attributable to an expansion of our customer service structure, which allows
the access by the customer to a network of maintenance service providers
through our call center. This expansion was needed due to the growth and aging
of the fleet.

     Franchising direct operating costs include operation personnel and
location-related costs. These costs decreased by 20.6% to R$3.4 million in 2001
from R$4.3 million in 2000. As a percentage of franchising revenues, these
costs remained stable at around 66.5%

     Costs of used car sales consist of the depreciated book value of cars sold
at the time of resale, net of the technical discount cost. The technical
discount cost is an amount recorded into either the car rental or fleet
management direct operating costs, as applicable, equivalent to the discount
given to the buyer when the car being sold is damaged or in need of repair. The
total residual value of cars sold by the used car sales division increased by
87.9% to R$118.7 million in 2001 from R$63.2 million in 2000. As a percentage
of used car sales revenues, the book value of cars sold was 78.6% in 2001 and
70.7% in 2000. This increase was a result of a 11.2% increase in the cost of
used car sales per car, resulting from a reduction in the average depreciation
rates in 2001.

     Adjusted Gross Profit

     Adjusted gross profit increased by 20.1% to R$207.3 million in 2001
(equivalent to 49.3% of net revenues) from R$172.6 million in 2000 (equivalent
to 55.7% of net revenues). As a percentage of net revenues, adjusted gross
profit decreased due to a decrease in fleet management and used car sales
margins.

     Advertising, Promotion and Selling Expenses

     Advertising, promotion and selling expenses, which include sales force
related expenses, reservation center costs, advertising and provision for
doubtful accounts, increased by 42.4% to R$40.3 million in 2001 from R$28.3
million in 2000 in line with the increase in net revenues. As a percentage of
net revenues, advertising, promotion and selling expenses remained stable at
around 9.5%.

     General, Administrative and Other Expenses

     General, administrative and other expenses increased by 28.2% to R$12.5
million in 2001 from R$9.8 million in 2000. This increase was mainly
attributable to an increase in legal, tax and finance consulting fees. As a
percentage of net revenues, general, administrative and other expenses remained
stable at around 3.0%.

     Depreciation of Vehicles

     Vehicle depreciation is calculated based on rates intended to measure the
reduction necessary to approximate a vehicle's market value (determined by
manufacturer, model and acquisition date) at the end of the estimated average
holding period of a vehicle and includes the expenses associated with selling
vehicles. In order to match the increase in maintenance costs with car
utilization and to reflect the initially higher depreciation of vehicles just
after their purchase, we depreciate our fleet using the sum-of-the-years'-
digits method calculated on a quarterly basis. Depreciation expense decreased
11.7% to R$44.0 million in 2001 from R$49.8 million in 2000. On a per car
basis, annual depreciation expense decreased 31.2% to R$2,307 in 2001 from
R$3,354 in 2000. This decrease is attributable to revisions made during 2001
that reduced the average depreciation rates. These reductions were made to
adjust estimated future sales prices to the current car market trend. As a
consequence, the cost of used car sales increased.

     Financial Expense, Net

     Net financial expense increased by 153.6% to R$50.5 million in 2001 from
R$19.9 million in 2000 principally due to: (i) an increase in financial expense
of R$5.3 million, or 27.0%, resulting from a higher volatility of the exchange
rate of the Brazilian real against the U.S. dollar, which was 28.3% higher than
the exchange rate in 2000 (the average exchange rate used to pay interest in
2001 was R$2.3828 per US$1.00 and R$1.8570 per US$1.00 in 2000); (ii) an
increase in net monetary variation and exchange loss of 186.5%, due to the
18.7% depreciation of the real against U.S. dollar in 2001 (resulting in an
exchange loss of R$29.3 million) compared to a 9.3% depreciation


                                      35
<PAGE>


in 2001 (resulting in an exchange loss of R$10.2 million); (iii) a loss of
R$26.2 million in swap transactions. See note 19 (b) to the Localiza financial
statements. These factors were partially offset by an increase in realized gain
on sale of marketable securities of 418.3% to R$15.7 million in 2001 from R$3.0
million in 2000, as well as an increase in realized gain on derivatives of
279.3% to R$6.7 million in 2001 from R$1.8 million in 2000, related to a call
option operation aiming at hedging our debt against foreign exchange variation,
which matured in 2001.

     Taxes, Minority Interest, Extraordinary Gain and Cumulative Effect of a
Change in Accounting Principle

     Our income tax decreased to R$16.5 million in 2001, representing an
effective tax rate of 27.3%, from R$16.9 million in 2000, which represented an
effective tax rate of 27.5%. See note 20 (b) to the Localiza financial
statements. In addition to the tax expenses, an expense of R$0.9 million
related to a cumulative effect of a change in accounting principle was
recorded. See note 19 (a) to the Localiza financial statements.

     Net Income

     As a result of the factors discussed above, net income decreased by 3.7%
to R$43.0 million in 2001 from R$44.7 million in 2000.

  Year ended December 31, 2000 Compared to Year ended December 31, 1999

     Net Revenues

     Our net revenues increased by 26.7% to R$310.1 million in 2000 from
R$244.7 million in 1999. This increase was primarily attributable to higher car
rental and fleet management volume as well as an increase in average prices.

     Car rental revenues, which include replacement, leisure and corporate
short-term rental and monthly rental markets, increased by 19.5% to R$112.3
million in 2000 from R$94.0 million in 1999. This increase was attributable to
a 9.5% increase in volume and a 9.1% increase in average prices.

     Fleet management revenues, which correspond to the corporate long-term
rental market, increased by 67.6% to R$102.1 million in 2000 from R$60.9
million in 1999. This increase was attributable to a 74.1% increase in volume
partially offset by a 4.1% decrease in average prices. The increase in fleet
management volume of cars was due to contracts entered into in 2000, as a
result of a plan that Total Fleet started implementing in 1998 in order to
approach prospective customers and develop new fleet management accounts.

     Used car sales revenues increased by 5.4% to R$89.3 million in 2000 from
R$84.7 million in 1999 primarily due to an increase of 22.0% in average resale
prices that was partially offset by a decrease in the volume of used cars sold
(6,173 in 2000; 7,233 in 1999). The decrease in our resale volume is
principally a result of longer contract terms negotiated by Total Fleet, which
reduced the number of cars available for sale. Other revenues from activities
related to used car sales (such as commissions from selling insurance and
financing) represented 3.6% of used car sales net revenues in 2000, compared to
2.5% in 1999.

     Franchising revenues increased by 27.1% to R$6.4 million in 2000 from
R$5.0 million in 1999. This increase was mainly attributable to an increase in
Brazilian royalties fees, which resulted from an increase of franchisees rental
revenues of approximately 17% in 2000.

     Direct Operating Costs

     Direct operating costs increased by 7.8% to R$137.5 million in 2000 from
R$127.5 million in 1999. As a percentage of net revenues, direct operating
costs decreased to 44.3% in 2000 from 52.1% in 1999. This decrease was mainly
due to a decrease in cost of used cars sales to 70.7% of the net used car sales
revenues in 2000 from 84.5% in 1999.

     Car rental direct operating costs include maintenance, casualty (accidents
and theft), car preparation expenses (title, licensing and others), car
transportation, operation personnel and location related costs. These costs
increased by 25.4% to R$38.0 million in 2000 from R$30.3 million in 1999. As a
percentage of car rental net revenues, increased to 33.8% in 2000 from 32.2% in
1999.

     Fleet management direct operating costs (which are comparable to car
rental costs but do not include costs associated with locations) increased by
45.4% to R$18.1 million in 2000 from R$12.4 million in 1999. As a percentage of
fleet management net revenues, these costs decreased to 17.7% in 2000 from
20.4% in 1999. This is principally due


                                       36
<PAGE>


to an increase in certain costs (in particular, expenses incurred in connection
with the management of our suppliers) which was proportionately lower than the
increase in the fleet management revenues.

     Franchising direct operating costs include operation personnel and
location-related costs. These costs increased by 58.1% to R$4.3 million in 2000
from R$2.7 million in 1999. As a percentage of franchising revenues, these
costs increased to 66.4% in 2000 from 53.4% in 1999 primarily due to: (i) an
increase in the costs of MFA in the amount of R$200 thousand attributable to
the fact that MFA had its results fully consolidated with System's results in
2000 compared to the partial consolidation in 1999, when MFA was consolidated
40% for the 8 months ended August 31, 1999 and 100% for the 4 months ended
December 31, 1999; (ii) the offset of R$500 thousand related to repurchasing
costs of franchisees licenses; (iii) a provision in the amount of R$200
thousand recorded in 2000 for some of our civil litigation.

     Costs of used car sales consist of the depreciated book value of cars sold
at the time of resale, net of the technical discount cost. The technical
discount cost is an amount recorded into either the car rental or fleet
management direct operating costs, as applicable, equivalent to the discount
given to the buyer when the car being sold is damaged or in need of repair. The
total residual value of cars sold by the used car sales division decreased by
11.8% to R$63.2 million in 2000 from R$71.6 million in 1999. As a percentage of
used car sales revenues, the book value of cars sold by the used car sales
division was 70.7% in 2000 and 84.5% in 1999. This decrease was a result of the
increase in the used car sales margin; although the cost of used car sales per
car remained stable, the average resale prices increased around 22%.

     Adjusted Gross Profit

     Adjusted gross profit increased by 47.4% to R$172.6 million in 2000
(equivalent to 55.7% of net revenues) from R$117.1 million in 1999 (equivalent
to 47.9% of net revenues), primarily due to an increase in car sale margin.

     Advertising, Promotion and Selling Expenses

     Advertising, promotion and selling expenses, which include sales force
related expenses, reservation center costs, advertising and provision for
doubtful accounts, increased by 20.0% to R$28.3 million in 2000 from R$23.6
million in 1999 in line with the increase in net revenues. As a percentage of
net revenues, advertising, promotion and selling expenses remained stable at
around 9.5%.

     General, Administrative and Other Expenses

     General, administrative and other expenses increased by 20.8% to R$9.8
million in 2000 from R$8.1 million in 1999. This increase was principally due
to: (i) an increase in employees' participation in profit and payroll charges;
and (ii) an increase in outside services expenses. As a percentage of net
revenues, general, administrative and other expenses remained stable at around
3.2%.

     Depreciation of Vehicles

     Vehicle depreciation is calculated based on rates intended to measure the
reduction necessary to approximate a vehicle's market value (determined by
manufacturer, model and acquisition date) at the end of the estimated average
holding period of a vehicle and includes the expenses associated with selling
vehicles. In order to match the increase in maintenance costs with car
utilization and to reflect the initially higher depreciation of vehicles just
after their purchase, we depreciate our fleet using the sum-of-the-years'-
digits method calculated on a quarterly basis. Depreciation expense increased
by 60.1% to R$49.8 million in 2000 from R$31.1 million in 1999. On a per car
basis, annual depreciation expense increased by 14.4% to R$3,354 in 2000 from
R$2,932 in 1999. This increase is attributable to a 38.2% increase in the car
fleet, which increased our depreciation costs as a consequence of our
depreciation method, which, as discussed above, entails higher depreciation for
newly acquired vehicles.

     Financial Expense, Net

     Net financial expense decreased by 20.7% to R$19.9 million in 2000 from
R$25.1 million in 1999 principally due to a decrease in net monetary variation
and exchange loss. This decrease was attributable to the 9.3% depreciation of
the real against the U.S. dollar in 2000 (resulting in an exchange loss of
R$10.2 million) compared to a 48.0% depreciation in 1999 (resulting in an
exchange loss of R$18.2 million). The exchange loss in 2000 was reduced by
R$1.8 million income from hedging instruments. In 1999, the hedging operations
resulted in an expense of R$1.3 million. This decrease in the net financial
expense was partially offset by:


                                       37
<PAGE>


     o    a reduction in financial income of 28.0% to R$15.1 million in 2000
          from R$21.0 million in 1999 due to the use of our cash and cash
          equivalents for fleet expansion;

     o    the partial write off of the credit related to compulsory loans to
          the National Development Fund, or FND, in the amount of R$3.5
          million.

     Taxes, Minority Interest, Extraordinary Gain and Cumulative Effect of a
Change in Accounting Principle

     Our income tax increased to R$16.9 million in 2000, representing an
effective tax rate of 27.5% from R$8.0 million in 1999, which represented an
effective tax rate of 30.0%. See note 20(b) to the Localiza financial
statements. In addition to these tax effects, an income of R$1.4 million
related to an extraordinary gain resulting from the repurchase of US$ 2.5
million Senior Notes was recorded in 1999.

     Net Income

     As a result of the factors discussed above, net income increased by 124.0%
to R$44.7 million in 2000 from R$19.9 million in 1999.

B.   Liquidity and Capital Resources

     Liquidity and Capital Resources

     We use funds primarily for (i) the acquisition of new vehicles for our
rental fleet, (ii) payment of debt service and (iii) working capital.

     Our primary sources of funds are cash generated from operations and from
the proceeds from the issuance of the Notes. We invested part of the proceeds
from the Notes in cash equivalents and marketable securities. For our
short-term cash flow needs, we use the Compror facility, which is described
below. The material terms of the Notes are also described below.

     Net cash from operating activities increased by 130.2% in 2001, to R$26.5
million from R$11.5 million in 2000, due to an increase in our operating
performance. This amount is adjusted by investments in revenue-earning vehicles
which increased by 5.3% in 2001, to R$126.1 million from R$119.8 million in
2000.

     Net cash from investing activities increased by to R$36.0 million from
R$2.6 million in 2000, as a result of withdrawals of investments in marketable
securities. This cash plus cash from operating activities were used to pay
dividends and debt service and the remaining balance was invested in cash
equivalents, which increased by 60.3% in 2001, to R$36.0 million from R$ 22.5
million in 2000.

     Debt Facility - "Compror"

     To avoid the CPMF tax, which is levied at the flat rate of 0.38% on any
type of bank account debit, we use a special type of short-term financing,
known as Compror. Under the Compror facility, the banks transfer the proceeds
from the financing directly to our suppliers. We repay the banks with funds
provided by our operating cash flows. The Compror is used as an instrument of
cash flow management.

     To avoid another type of tax, the IOF, levied at the rate of 0.0041% per
day at loans in reais, the Compror is borrowed in U.S. dollars and has an
average negative spread of 0.50% per year. To avoid foreign exchange risk, this
operation is automatically changed to a local interest basis, the interbank
rate, known as CDI, plus a spread of 2.06% per year, through a swap transaction
as described in note 19(b) of the Localiza financial statements.

     In 2001, amounts borrowed under the Compror facility decreased by 16.9%,
to R$27.2 million on December 31, 2001 from R$32.7 million on December 31,
2000.

     The Notes

     On October 1, 1997, Localiza obtained resources of US$100 million from the
10.25% Senior Notes program, which were sold at 100% of face value. The Notes
are unsecured obligations of Localiza and will mature on October 1, 2005.
Interest on the Notes is payable semi-annually on April 1 and October 1. The
Notes are redeemable at the option of Localiza, in whole or in part on or after
October 1, 2001.


                                       38
<PAGE>


     From November 1998 to December 1999, based on Circular No. 2,677 of the
Central Bank of Brazil, which governs the international transfers of Brazilian
reais, Localiza remitted funds abroad. Pursuant to the "Permitted Investment"
clause of the indenture of the Notes, these funds were used to acquire Notes
with aggregate face values of US$23.6 million and US$2.5 million during 1998
and 1999, respectively. Pursuant to SFAS No. 125 "Accounting for transfers and
servicing of financial assets and extinguishment of liabilities", replaced by
SFAS No. 140, this acquisition was considered a debt extinguishment for
accounting purposes. As a result, Localiza wrote-off debt issuance costs
amounting to R$1.1 million and R$0.1 million in 1998 and 1999, respectively.
See Note 30 to the Localiza financial statements.

     As of December 31, 2001, the remaining debt issuance costs to be amortized
amounted to R$1.9 million, compared to R$2.4 million in 2000, with R$0.7
million classified as current assets in 2000 and 2001.

     We are subject to certain restrictions contained in the indenture entered
into in connection with the issuance of the Notes. These restrictive covenants
limit, except in restricted circumstances, our ability to, among other things,
declare any dividend or other similar distribution, make certain stock
repurchases, make certain payments on subordinated indebtedness or make certain
investments if, after giving effect to such actions, (i) a default or event of
default under the indenture would have occurred and be continuing, (ii)
Localiza would be unable to incur additional indebtedness under the debt
incurrence ratio test set forth in the indenture or (iii) the amount of all
such payments exceeds an aggregate threshold amount. A default or event of
default includes our failure to observe or perform any covenant, whose
covenants include limitations on our ability to (i) incur certain additional
indebtedness, (ii) create certain liens, (iii) enter into certain transactions
with affiliates, (iv) engage in certain sale and leaseback transactions and (v)
enter into certain merger, acquisition or sale transactions.

     Our management believes we are in compliance with all the covenants
described above.

     The table below sets forth the principal cash flows of the Notes and other
obligations by expected maturity date:

<TABLE>
                                                                                               Repurchased
                                              Rate   Currency   2002    2003    2004    2005     portion     Total
                                             ------  --------  ------  ------  ------  ------  -----------  -------
                                                (amounts in million of reais, unless otherwise indicated)
<S>                                          <C>        <C>    <C>      <C>      <C>    <C>       <C>        <C>
Notes (principal)........................    10.25%     US$        -       -       -    232.0     60.5       171.5
Short term loans.........................     -0.5%     US$     27.2       -       -        -        -        27.2
Swap transactions........................        -      US$      0.1       -       -     26.1        -        26.2
Lease commitments........................        -       R$      5.2     3.1     2.0      1.0        -        11.3
                                                                ----     ---     ---    -----     ----       -----
Total....................................                       32.5     3.1     2.0    259.1     60.5       236.2
                                                                ====     ===     ===    =====     ====       =====
</TABLE>

C.   Research and Development, Patents and Licenses

     Not applicable.

D.   Trend Information

     We have four principal lines of business:

     o    car rental,

     o    fleet management,

     o    used car sales, and

     o    franchising.

     Fleet management is the line of business that is least affected by the
short-term fluctuations in the Brazilian economy due to the fact that contracts
in the fleet management business have terms of 2 to 3 years. There is, however,
a direct correlation between the fluctuations in the Brazilian market and the
economic activity of our car rental, used car sales and franchising lines of
business. Events such as an increase in interest rates, and currency
devaluation can greatly impact the results of operations of these lines of
business.


                                       39
<PAGE>


ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.   Directors and Senior Management

  Localiza

     Localiza is a sociedade anonima. The sociedade anonima is the corporate
form which most closely resembles a corporation and is subject to the Brazilian
Corporation Law. Localiza is managed by its board of directors, or conselho de
administracao, which currently consists of nine members, and its executive
committee, or diretoria executiva, which currently consists of five members.

     Board of Directors

     As of May 31, 2002, the board of directors was composed of the individuals
named below.

<TABLE>
                                                                                  Expiration of
                  Name                       Age      Position      Member Since  Current Term
-------------------------------------------  ---  ----------------  ------------  -------------
<S>                                           <C> <C>                   <C>           <C>
                                                  Chairman of the
Jose Salim Mattar Junior...................   53       Board            1995          2003
Antonio Claudio Brandao Resende............   55       Member           1995          2003
Eugenio Pacelli Mattar.....................   49       Member           1995          2003
Antonio Fernando de Campos.................   49       Member           2002          2003
Aristides Luciano de Azevedo Newton........   57       Member           1995          2003
Tarcisio Pinto Ferreira....................   67       Member           1996          2003
Messias da Silva Junior....................   62       Member           1996          2003
Stefano Bonfiglio..........................   37       Member           2000          2003
Carlos Jose Garcia.........................   44       Member           2000          2003
</TABLE>


     Jose Salim Mattar Junior. Mr. Jose Salim Mattar Junior is Chairman of
Localiza's board of directors, a member of Localiza's executive committee and
President of Localiza. Mr. Mattar has also served as president of System, Total
Fleet and Prime. He received a degree in Business Administration from Fundacao
Mineira de Educacao e Cultura in 1976. He acted as manager of a Brazilian
supermarket chain and a mining company, both located in Belo Horizonte, Brazil.
In 1973, at the age of 25, he was one of Localiza's founding partners. He is
also a partner of Radio Beep Telecomunicacoes Ltda., Datapage Telecomunicacao e
Informatica Ltda. and Semax Equipamentos de Protecao Ltda.

     Antonio Claudio Brandao Resende. Mr. Antonio Claudio Brandao Resende is
Vice-President of Localiza's board of directors, a member of Localiza's
executive committee, an Executive Vice-President of Localiza and Management
Officer. Mr. Resende is also a vice-president of System, Total Fleet and Prime.
He graduated from Uniao de Negocios e Administracao in 1977 with a degree in
Business Administration. At the age of 18, he formed Leva e Traz, a delivery
company in Belo Horizonte, Brazil. In 1973, at the age of 27, he, was one of
Localiza's founding partners. He is also a partner of Radio Beep
Telecomunicacoes Ltda., Datapage Telecomunicacao e Informatica Ltda. and Semax
Equipamentos de Protecao Ltda.

     Eugenio Pacelli Mattar. Mr. Eugenio Pacelli Mattar is a member of
Localiza's board of directors and executive committee, an Executive Vice
President of Localiza and the Fleet Management Officer. Mr. Mattar is also a
vice- president of a number of Localiza's subsidiaries. He received a degree in
Civil Engineering from Universidade Federal de Minas Gerais in 1975, where he
also completed extensive coursework in Economic Engineering. Mr. Mattar has
also studied General and Financial Administration at Fundacao Dom Cabral. He is
one of Localiza's founding partners. He is also a partner of Radio Beep
Telecomunicacoes Ltda., Datapage Telecomunicacao e Informatica Ltda. and Semax
Equipamentos de Protecao Ltda.

     Antonio Fernando de Campos. Mr. Campos is a member of Localiza's board of
directors. He joined Localiza in 1982 in order to implement the marketing and
sales department of Localiza. Mr. Campos left Localiza in 1996 to incorporate
the company Solution Comunicacao. Mr. Campos received post-graduate degree from
Fundacao Getulio Vargas, New York Pace University and INSEAD.

     Aristides Luciano de Azevedo Newton. Mr. Aristides Luciano de Azevedo
Newton is a member of our board of directors and is a Vice-President of System.
He received a degree in Business Administration from Uniao de Negocios


                                       40
<PAGE>


e Administracao in 1973. He acted as manager of materials and supplies for
large construction projects in Brazil for Construtora Mendes Junior. In 1983,
at the age of 39, he founded System in conjunction with Localiza.

     Tarcisio Pinto Ferreira. Mr. Tarcisio Pinto Ferreira joined Localiza as a
member of its board of directors in 1996. He received his degree in Law from
Universidade Federal de Minas Gerais in 1971. He has served as General Counsel
to Localiza since its creation, and is also affiliated with the law firm of
Ferreira and Chagas.

     Messias da Silva Junior. Mr. Messias da Silva Junior joined Localiza as a
member of its board of directors in 1996. Before his retirement, he held
various positions at Localiza and its subsidiaries. He received a degree in Law
from Centro Universitario de Barra Mansa/RJ. He began his professional career
in 1963 as Supervisor of Human Resources, Accounting and Supply Administration
for White Martins Gases Industriais S.A. In 1973, he began managing the areas
of human resources, finance, logistics, control and administration for Cia.
Brasileira de Projectos Industriais. He worked for Localiza from 1982 to 1996
in a variety of roles, including Administrative Officer, Officer of Operations
and Officer of Human Resources and Administration. From 1996 to 1998, he has
worked for Radio Beep Telecomunicacoes Ltda. as an Executive Officer.

     Stefano Bonfiglio. Mr. Stefano Bonfiglio joined Localiza as a member of
its board of directors in 2000. Mr. Bonfiglio received his baccalaureate degree
from Georgetown University and his MBA from the University of Pennsylvania. For
nine years, he worked for Bankers Trust Company as a Vice-President in their
Latin America division specializing in acquisitions and private equity
transactions. He then worked for DLJ Merchant Banking as a vice- president in
both their New York and London offices. Currently, he resides in London and is
a managing director and partner of Tetragono Partners, an investment consulting
company he founded.

     Carlos Jose Garcia. Mr. Carlos Jose Garcia joined Localiza as a member of
its board of directors in 2000. Mr. Garcia received a degree in Accounting from
the Catholic University of Argentina. For six years, Mr. Garcia worked for
Bankers Trust Company in their mergers and acquisitions division and then later
for their Latin America private equity practice. Currently, he lives in Buenos
Aires, Argentina where he is a vice-president in the Latin America division of
CSFB.

     Executive Committee

     As of May 31, 2002, the executive committee was composed of the
individuals named below.

<TABLE>
                                                                                       Expiration of
             Name                    Age             Position           Officer Since  Current Term
-----------------------------------  ---  ----------------------------  -------------  -------------
<S>                                   <C> <C>                               <C>             <C>
Jose Salim Mattar Junior...........   53  Executive President               1973            2003
Antonio Claudio Brandao Resende....   55  Executive Vice President          1973            2003
                                          and Management Officer
Eugenio Pacelli Mattar.............   49  Executive Vice President          1973            2003
                                          and Fleet Management
                                          Officer
Flavio Brandao Resende.............   48  Executive Vice President          1973            2003
                                          and Car Rental Officer
Roberto Antonio Mendes.............   50  Chief Financial Officer and       1998            2003
                                          Executive Officer of
                                          Investor Relations
</TABLE>

     Flavio Brandao Resende. Mr. Flavio Brandao Resende is a member of
Localiza's executive committee, an Executive Vice President of Localiza, Car
Rental Officer, and vice-president to System, Total Fleet and Prime. He
graduated from Escola de Engenharia Kennedy in 1980 with a degree in Civil
Engineering. He is one of Localiza's founding partners and is also a partner of
Radio Beep Telecomunicacoes Ltda., Datapage Telecomunicacoes e Informatica Ltda
and Semax Equipamentos de Protecao Ltda.

     Roberto Antonio Mendes. Mr. Roberto Antonio Mendes is a member of our
executive committee. He graduated from Universidade Federal de Minas Gerais
with a degree in Business Administration and Accounting. He began his
professional career in 1971 as an auditor for PricewaterhouseCoopers S/C, and
acted as Controller to both Grupo Vale do Rio Doce and Grupo Mendes Junior. He
has worked at Localiza for 17 years and is currently our Chief Financial and
Investors Relations Officer.


                                       41
<PAGE>


     For a biography of Jose Salim Mattar Junior, Antonio Claudio Brandao
Resende and Eugenio Pacelli Mattar. See --Board of Directors.

  Total Fleet

     Total Fleet is a sociedade anonima. Under Brazilian law, as a sociedade
anonima that is privately owned and does not have publicly issued shares, Total
Fleet is not required to have, and currently does not maintain, a board of
directors. The company is managed by its executive committee, which consists of
four members.

     The executive committee meets at such times as it may determine from time
to time, and is responsible for determining general guidelines and policies for
Total Fleet's business.

     Under Total Fleet's by-laws, the executive committee must have from four
to eight members, as determined by a vote of the equity holders. Members are
elected for one-year terms at the annual general meeting of equity holders and
can be successively re-elected. They are subject to removal by the equity
holders at any time.

     As of May 31, 2002, the executive committee of Total Fleet was composed of
the individuals named below.

<TABLE>
                                                                                  Expiration of
                  Name                       Age      Position      Member Since  Current Term
-------------------------------------------  ---  ----------------  ------------  -------------
<S>                                           <C> <C>                   <C>           <C>
Jose Salim Mattar Junior...................   53    President           1997          2003
Antonio Claudio Brandao Resende............   55  Vice-President        1997          2003
Eugenio Pacelli Mattar.....................   49  Vice-President        1997          2003
Flavio Brandao Resende.....................   48  Vice-President        1997          2003
</TABLE>

     For a biography of Jose Salim Mattar Junior, Antonio Claudio Brandao
Resende, Eugenio Pacelli Mattar and Flavio Brandao Resende.
See--Localiza--Board of Directors and--Executive Committee.

  System

     System is a sociedade por quotas de responsabilidade limitada, or
limitada. Limitadas are governed by Decree No. 3708 of January 10, 1919, and
are similar to limited liability companies, limited partnerships, and
closely-held companies under English and United States laws. After January 10,
2003, limitadas shall be governed by the new provisions of the Brazilian Civil
Code (Law No. 10,406 dated January 10, 2002). Under Brazilian law, as a
limitada, System is not required to have, and currently does not maintain, a
board of directors. Pursuant to its articles of association, System is managed
by five officers.

     The officers meet at such times as they may determine, and are responsible
for determining general guidelines and policies for the business and for the
day-to-day management of System. The officers' duties include overseeing
compliance with applicable law and the decisions adopted at meetings of equity
holders, directing System's business and activities, and preparing the annual
budget and monitoring its implementation.

     Under its articles of association, System must be run by five officers,
elected by a vote of the equity holders. Officers are elected for indefinite
terms and are subject to removal by the equity holders at any time.

     As of May 31, 2002, the following individuals were officers of System.

<TABLE>
                                                                                   Expiration of
                  Name                       Age      Position      Officer Since  Current Term
-------------------------------------------  ---  ----------------  -------------  -------------
<S>                                           <C>  <C>                 <C>           <C>
Jose Salim Mattar Junior...................   53     President         1983          indefinite
Antonio Claudio Brandao Resende............   55   Vice-President      1983          indefinite
Eugenio Pacelli Mattar.....................   49   Vice-President      1983          indefinite
Flavio Brandao Resende.....................   48   Vice-President      1983          indefinite
Aristides Luciano de Azevedo Newton........   57   Vice-President      1983          indefinite
</TABLE>

     For a biography of Jose Salim Mattar Junior, Antonio Claudio Brandao
Resende, Eugenio Pacelli Mattar, Flavio Brandao Resende and Aristides Luciano
de Azevedo Newton. See --Localiza --Board of Directors and --Executive
Committee.


                                       42
<PAGE>


  Prime

     Prime is a limitada and as such is not required to have, and currently
does not maintain, a board of directors. Pursuant to its articles of
association, Prime is managed by four officers.

     The officers meet at such times as they may determine, and are responsible
for determining general guidelines and policies for the business and for the
day-to-day management of Prime. The officers' duties include overseeing
compliance with applicable law and the decisions adopted at meetings of equity
holders, directing Prime's business and activities, and preparing the annual
budget and monitoring its implementation.

     Under its articles of association, the company must be run by four
officers, as determined by a vote of the equity holders. Officers are elected
for indefinite terms and are subject to removal by the equity holders at any
time.

     As of May 31, 2002, the following individuals were officers of Prime.

<TABLE>
                                                                                   Expiration of
                  Name                       Age      Position      Officer Since  Current Term
-------------------------------------------  ---  ----------------  -------------  -------------
<S>                                           <C>  <C>                 <C>           <C>
Jose Salim Mattar Junior...................   53     President         1998          indefinite
Antonio Claudio Brandao Resende............   55   Vice-President      1998          indefinite
Eugenio Pacelli Mattar.....................   49   Vice-President      1998          indefinite
Flavio Brandao Resende.....................   48   Vice-President      1998          indefinite
</TABLE>

     For a biography of Jose Salim Mattar Junior, Antonio Claudio Brandao
Resende, Eugenio Pacelli Mattar and Flavio Brandao Resende.
See--Localiza--Board of Directors and--Executive Committee.

  MFA

     MFA is managed by Localiza, System and an executive committee, or
Directorio. MFA does not maintain a board of directors, or consejo de
administracion. The executive committee is responsible for both the day-to-day
management of MFA and the implementation of the general guidelines and policies
established by Localiza and System. The executive committee consists of one to
three officers, or directores titulares, and one substitute officer, or
director suplente, that are elected by the shareholders and can be reelected at
the will of the shareholders. The mandated term for each officer is three
years, and may be extended up until the day of an officer's reelection or when
the term of a replacement officer begins.

     As of May 31, 2002, the executive committee was composed of the
individuals named below.

<TABLE>
                                                                                     Expiration of
                  Name                       Age        Position      Officer Since  Current Term
-------------------------------------------  ---  ------------------  -------------  -------------
<S>                                           <C>  <C>                   <C>             <C>

Leonardo Federici Guedes...................   40       President         2002            2005
Aristides Luciano de Azevedo Newton........   57  Substitute Officer     1999            2002
</TABLE>

     Leonardo Federici Guedes. Mr. Guedes joined the board of MFA in 2002. From
1992 to 2002, Mr. Guedes served System in various position, including general
manager for Argentina. Previously, he worked from Harnischfeger do Brasil Ltda.
as supervisor of international operations. Mr. Guedes received a degree in
Aeronautical Engineering from the Federal University of Minas Gerais.

     For a biography of Aristides Luciano de Azevedo Newton. See-- Localiza--
Board of Directors.

  Family Relationships

     Jose Salim Mattar Junior and Eugenio Pacelli Mattar are brothers. Antonio
Claudio Brandao Resende and Flavio Brandao Resende are brothers.


                                       43
<PAGE>


B.   Compensation

     General

     For the year ended December 31, 2001, the aggregate compensation we paid
to members of our boards of directors and executive committees, as well as the
officers named above, for services in all capacities, was approximately R$4.2
million (equivalent to approximately US$1.8 million using the exchange rate of
R$2.3204 per US$1.00, the commercial selling rate reported by the Central Bank
on December 31, 2001).

     We have not set aside or accrued any amounts for pension, retirement or
similar benefits for our boards of directors or executive officers.

     We have entered into management contracts with our senior managers. These
contracts contain specific objectives and goals which are agreed upon between
us and the relevant employee each year, and determine the employee's
eligibility for incentive compensation. Management incentives are based
primarily upon the financial results of the specific operation managed. As of
May 31, 2002, we had 172 management contracts with our employees distributed
among us as follows:

     o    128 with Localiza employees;

     o    30 with Total Fleet employees;

     o    3 with System employees; and

     o    11 with Prime employees.

     In 2001, bonuses paid to our employees totaled R$4 million (equivalent to
approximately US$1.7 million using the exchange rate of R$2.3204 per US$1.00,
the commercial selling rate reported by the Central Bank on December 31, 2001).

     All of our employees participate in a performance-based compensation plan
pursuant to which a portion of each employee's compensation is a function of
our overall profitability. In addition, we provide a range of benefits to our
employees, including health insurance and food vouchers.

     We pay bonuses based on profits to employees according to their position
and performance evaluations.

     According to Brazilian labor legislation, employees dismissed without
cause are entitled to an additional payment equivalent to 40% of the
outstanding balance in their severance indemnity fund, known as FGTS, at
dismissal date.

     Stock Option Plan

     We sponsor a stock option plan, or plano de opcao de compra de acoes,
which grants our employees the option to purchase our stock at prices which are
determined each year. The options were granted in four installments in the four
years ended December 2001, and each installment is exercisable within four
years from the grant date, 25% of the installment per year.

     In 2001, 36 employees participated in this plan, compared to 40 in 2000.


                                       44
<PAGE>


     The following table summarizes the status of our stock option plan:

<TABLE>
                                                   Year Ended December 31,
                               ----------------------------------------------------------------------
                                        1999                    2000                   2001
                               -----------------------  ----------------------  ---------------------
                                           Weighted                Weighted               Weighted
                               Shares   Average Price   Shares   Average Price  Shares  Average Price
                               -------  --------------  -------  -------------  ------- -------------
<S>                            <C>           <C>        <C>          <C>        <C>         <C>
Beginning of year............  133,000      R$10.00     272,250     R$13.78     407,705    R$15.31
Granted......................  156,000        17.00     156,000       18.00     154,500      21.50
Exercised....................        -            -           -           -           -          -
Forfeited....................  (16,750)       13.78     (20,500)      15.31     (34,250)     17.01
                               -------      -------     -------     -------     -------    -------
End of year..................  272,250      R$13.78     407,750     R$15.31     528,000    R$17.01
                               =======      =======     =======     =======     =======    =======
</TABLE>

     As of December 31, 2001, no options had been exercised.

     As allowed by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", we elected to continue to measure
cost for our stock option plan using the intrinsic value based method
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees". Under the intrinsic value method, cost is the
excess, if any, of the quoted market price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.
Entities which continue to apply APB Opinion No. 25 on employee stock options
granted on or after January 1996 must provide pro forma disclosures of net
income, as if the fair value method of accounting had been applied. Under this
method, cost is measured at the grant date based on the fair value of the
employee stock option and is recognized ratably over the service period of the
option, which is usually the vesting period. For all periods presented, fair
value of the stock did not exceed the exercise prices of the options and
consequently, no compensation expense was recorded. Additionally, the pro forma
disclosures required by SFAS No. 123 have not been presented as the effect of
measuring compensation expense under SFAS No. 123 was immaterial for all
periods presented.

C.   Board Practices

     Localiza is managed by its board of directors, or conselho de
administracao, and its executive committee, or diretoria executiva.

     Board of Directors

     Localiza's board of directors meets at such times as may be determined
from time to time by the board of directors (or the chairman of the board of
directors in absence of a determination by the board of directors), but at
least every three months, and is responsible for determining general guidelines
and policies for Localiza's business, appointing, supervising and monitoring
the activities of the executive officers, appointing independent auditors and
implementing and supervising internal audits.

     Under Localiza's by-laws, the board of directors must have nine members.
Board members are elected for one-year terms at the annual general meeting of
shareholders and can be successively re-elected. They are subject to removal by
the shareholders at any time. Members of the board of directors must own at
least one of Localiza's shares. Neither Localiza nor any of its subsidiaries
maintains any services contracts with any members of the board of directors
providing for benefits upon termination of their functions as board members.

     Executive Committee

     Localiza's executive committee is responsible for the company's day-to-day
management and implementation of the general guidelines and policies
established by the board of directors. The executive committee's duties include
overseeing compliance with applicable law and with the decisions adopted at
meetings of shareholders, directors and executive officers, managing Localiza's
business and activities, preparing the annual budget and monitoring its
implementation after approval by the board of directors.

     Under Localiza's by-laws, the board of directors appoints five executive
officers to form the executive committee. Members of the executive committee
must be residents of Brazil, are appointed to one-year terms and can be
successively reappointed. They are subject to removal at any time by the board
of directors.


                                       45
<PAGE>


     Audit Committee

     Under the Brazilian Corporation Law and its by-laws, Localiza is not
required to, and currently does not, maintain a permanent audit committee.

D.   Employees

     The table below shows the number of employees at December 31, 1999, 2000
and 2001, distributed among our divisions as follows:

                                         At December 31,
                                 -----------------------------
                                  1999      2000        2001
                                 ------    ------      ------
Car rental................         591       704         790
Fleet management..........          72        79          83
Used car sales............          62        59          92
Franchising...............          35        35          26
Administrative............          77        74          77
                                   ---       ---       -----
     Total................         837       951       1,068
                                   ===       ===       =====

     We hire independent contractors to perform certain non-core activities,
such as fleet maintenance, fueling, car washing, cleaning, security and
chauffeuring.

     All of our employees are represented by unions, including the Federacoes
do Comercio, the Sindicatos dos Agentes Autonomos no Comercio, and the
Confederacao dos Trabalhadores no Comercio. We have never experienced a labor
strike and we believe that our relationships with our employees and with the
unions are good.

E.   Share Ownership

     Each member of Localiza's board of directors owns one of its shares, as
required by the Brazilian Corporation Law. Some members of Localiza's board of
directors own more shares in Localiza through their participation in holding
companies. See Item 7. Major Shareholders and Related Party Transactions.

     Aristides Luciano de Azevedo Newton, who is a vice-president of System and
a substitute officer of MFA, holds a 7.5% interest in System, and, indirectly,
a 7.5% interest in MFA.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.   Major Shareholders

     Localiza

     The table below sets forth information regarding Localiza's ownership by
each person who we know to be the beneficial owner of more than 5% of
Localiza's common shares and by directors and officers as a group as of May 31,
2002.

<TABLE>
                                                         Number of     Percentage of
                                                       Common Shares   Common Shares
                                                       -------------   -------------
<S>                                                      <C>              <C>
Jose Salim Mattar Junior...........................      3,071,997        20.00%
Antonio Claudio Brandao Resende....................      3,071,997        20.00
Flavio Brandao Resende.............................      2,047,998        13.33
Eugenio Pacelli Mattar.............................      2,047,999        13.33
CSFB...............................................      5,120,000        33.34
Directors and executive officers as a group........              9         0.00
                                                        ----------       ------
         Total.....................................     15,360,000       100.00%
                                                        ==========       ======
</TABLE>


                                       46
<PAGE>


     Shareholders' Agreement

     Localiza's shareholders are parties to an agreement entered into on March
10, 1997 which includes, among other provisions:

     o    an agreement entitling affiliates of Localiza's founders (Jose Salim
          Mattar Junior, Eugenio Pacelli Mattar, Antonio Claudio Brandao
          Resende and Flavio Brandao Resende) to appoint seven members of the
          board of directors and affiliates of CSFB to appoint two members of
          the board of directors, subject to adjustment based on changes in the
          respective ownership percentages of these shareholders;

     o    an agreement granting CSFB the right to veto certain significant
          actions provided that CSFB continues to hold at least a minimum
          percentage of our equity;

     o    an agreement restricting the ability of Localiza's founders and CSFB
          to transfer their respective common shares;

     o    reciprocal rights to participate in certain transfers of common
          shares by Localiza's founders and CSFB;

     o    an agreement requiring Localiza, after the fourth anniversary of the
          agreement and subject to certain other conditions, at the option of
          CSFB, to take all action necessary to facilitate a public offering of
          the shares held by CSFB;

     o    an agreement requiring Localiza to establish an American Depositary
          Receipt program;

     o    an agreement requiring Localiza's founders to participate, subject to
          certain conditions, at the option of CSFB, in a sale of all of
          Localiza's outstanding common shares; and

     o    an agreement granting Localiza's founders and CSFB the right to
          convert their respective common shares into preferred shares.

     Subsidiary Guarantors

     The table below sets forth information regarding beneficial ownership of
each subsidiary guarantor.
                                            Percentage Owned By
                                      ----------------------------------
                                                            Directors of
                                      Localiza    System      Localiza
                                      --------    ------    ------------
Total Fleet.................           100.00%      --           --
System......................            92.50%      --          7.5%
Prime.......................            99.99%     0.01%         --
MFA.........................               --    100.00%         --

B.   Related Party Transactions

     Aristides Luciano de Azevedo Newton entered into a loan agreement with
System on September 28, 1999. The interest rate on the loan is on par with the
Brazilian market interest rate and is determined using the monthly market
interest rate of the Indice do Certificado de Deposito Interbancario, or CDI.
In December 2001, CDI's monthly money market interest rate was 1.39% and in May
2002, CDI's interest rate was 1.41%. Based on these interest rates, the total
amount of Mr. Newton's loan was R$93 thousand at December 31, 2001 and R$86
thousand at May 31, 2002.

C.   Interests of Expert and Counsel

     Not Applicable.


                                       47
<PAGE>


ITEM 8. FINANCIAL INFORMATION

A.   Consolidated Statements and Other Financial Information

     For our financial statements, and notes thereto, see Item 18. Financial
Statements.

     Dividends and Distributions

     In accordance with the Brazilian Corporation Law, Localiza's by-laws
require that its shareholders be paid a minimum annual dividend of 25% of
adjusted net profits. However, upon the vote of 100% of the shareholders
present at a general meeting, such shareholders can declare a lower dividend or
decide not to declare dividends. In addition, upon the recommendation of the
board of directors that the payment of a dividend in respect of any period
would be inadvisable due to our financial situation, the payment of the minimum
dividend in respect of such period is not mandatory. In such case, the adjusted
net profits which were not distributed for this reason are to be recorded as a
special reserve and, if not absorbed by losses in subsequent fiscal years, are
to be paid as soon as our financial situation permits it.

     Legal Proceedings

     We are party to certain legal proceedings arising in the normal course of
business, including civil, administrative, tax, social security and labor
proceedings. We believe that these actions, if decided adversely to us, would
not have a material adverse effect on our business, financial condition or
results of operations. Reserves have been established in connection with
certain of these matters. There are no material legal or administrative
proceedings pending against us with respect to any environmental matters.

     We are party to several labor claims related principally to the payment of
overtime and related social security charges. Our management, based on the
opinion of legal counsel, believes that the recorded accrual for these claims
is sufficient to cover possible losses. See note 18 to the Localiza financial
statements.

B.   Significant Changes

     None.

ITEM 9. THE OFFER AND LISTING

A.   Offer and Listing Details

     Not applicable.

B.   Plan of Distribution

     Not applicable.

C.   Markets

     The Notes currently are traded in the over-the-counter market. The Notes
are not listed on any securities exchange, nor are they quoted through any
automated quotation system. There can be no assurance that an active market for
the Notes will develop or as to the liquidity of any such market. There are
currently US$73.9 million of Notes held by non- affiliates of Localiza.

D.   Selling Shareholders

     Not applicable.

E.   Dilution

     Not applicable.


                                       48
<PAGE>


F.   Expenses of the Issue

     Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A.   Share Capital

     Not applicable.

B.   Memorandum and Articles of Association

     Localiza

     Localiza is registered with the Board of Trade of the State of Minas
Gerais under the number 3130001144-5. Pursuant to article 3 of Localiza's
by-laws, Localiza's corporate purpose is the rental of cars, fleets of cars and
their disposal at the end of their useful economic life and the exploitation
and licensing of trademarks and franchises in Brazil and overseas.

     There are no provisions in Localiza's by-laws with respect to:

     o    a director's power to vote on proposals in which the director is
          materially interested,

     o    a director's power, in the absence of an independent quorum, to vote
          compensation to themselves or any members of the board of directors,

     o    borrowing powers exercisable by the directors,

     o    age limits for retirement of directors,

     o    anti-takeover mechanisms or other procedures designed to delay, defer
          or prevent changes in our control, except for the preemptive rights
          mentioned below,

     o    redemption of shares,

     o    sinking funds, or

     o    liability to further capital calls by the company.

     Each of the nine members of the board of directors is required to own at
least one of Localiza's shares.

     All documents relating to Localiza's formation must be filed at the
commercial registry, and subsequently published in the Official Gazette and in
another widely circulated newspaper published where Localiza has its principal
place of business. Under Brazilian Corporation Law, Localiza is not required to
disclose information on share ownership, and Localiza's by-laws do not have a
provision on the disclosure of share ownership.

     Voting Rights

     Each common share entitles its holder to one vote at shareholders'
meetings.

     Shareholders' Meetings

     Under the Brazilian Corporation Law, at a general meeting of shareholders,
convened and held in accordance with such law and Localiza's by-laws, the
shareholders are entitled to decide all matters relating to Localiza's purposes
and to pass such resolutions as they deem necessary for Localiza's protection
and development. Localiza's meetings of its shareholders must be held by April
30 of each year. In addition, special shareholders' meetings may be held as
often as deemed necessary. General meetings are called by the chairman of
Localiza's board of directors, as prescribed by the Brazilian Corporation Law,
and are presided over by a shareholder elected by a majority of votes of those
present. The chairperson presiding over the meeting appoints the secretary of
the meeting. Localiza's shareholders may be


                                       49
<PAGE>


represented at the general meeting by an attorney-in-fact, who must be a
shareholder, one of Localiza's general officers or directors, or a lawyer.
Compensation to directors is determined by shareholders at a shareholder
meeting.

     Common Shares and Preferred Shares

     Localiza has 15,360,000 common registered shares, no par value per share.

     The issuance of preferred shares is subject to limits defined by the
Brazilian Corporation Law. Currently, Localiza does not have preferred shares.
Pursuant to Localiza's by-laws, any future preferred shares would not be
convertible into common shares and would not have voting rights. Pursuant to
Localiza's by-laws, holders of future preferred shares would be entitled to (a)
a minimum annual non-cumulative preferential dividend equal to R$0.01 per
share, (b) priority in the reimbursement of the corporate capital, in case of
liquidation, and (c) right to participate in capital increases derived from
capitalization of profits or reserves in the same conditions as holders of
common shares. Preferred shares would acquire voting rights, however, if
Localiza does not pay the minimum preferential dividend for three consecutive
years. In this case, voting rights for preferred shares would continue until
the payment of non-cumulative dividends is made.

     There are no restrictions under Brazilian law or Localiza's by-laws
limiting the rights of non-residents or non-Brazilian shareholders to hold or
exercise voting rights on Localiza's shares.

     Preemptive Rights

     Localiza's by-laws do not have provisions regarding shareholders'
preemptive rights. Under Brazilian Corporation Law, however, each of Localiza's
shareholders has a general preemptive right to subscribe for shares of the same
class in any capital increase, in an amount sufficient to keep the same
proportional participation of each shareholder in Localiza's total capital.
Localiza shall observe a minimum period of 30 days following the publication of
the capital increase notice, for the exercise of the preemptive right by its
shareholders.

     Total Fleet

     Total Fleet is a sociedade anonima registered with the Board of Trade of
the State of Minas Gerais under the number 3130001301-4. Pursuant to article 3
of Total Fleet's by-laws, Total Fleet's corporate purpose is the rental and/or
management of fleets of cars. Total Fleet is managed by an executive committee
composed of a minimum of four members and a maximum of eight members.

     There are no provisions in Total Fleet's by-laws with respect to:

     o    an executive officer's power to vote on a proposal, arrangement or
          contract in which the executive officer is materially interested,

     o    an executive officer's power, in the absence of an independent
          quorum, to vote compensation to themselves or any members of the
          executive committee,

     o    borrowing powers exercisable by the executive officers,

     o    the number of shares required for an executive officer's
          qualification,

     o    age limits for retirement of executive officers,

     o    anti-takeover mechanism or other procedures designed to delay, defer
          or prevent changes in Prime's control, except for the preemptive
          rights mentioned below,

     o    redemption of shares,

     o    sinking funds, or

     o    liability to further capital calls by the company.

     All documents relating to Total Fleet's formation must be filed at the
commercial registry, and subsequently published in the Official Gazette and in
another widely circulated newspaper published where Total Fleet has its
principal


                                       50
<PAGE>


place of business. Under Brazilian law, Total Fleet is not required to disclose
information on share ownership, and Total Fleet's by-laws do not have a
provision on the disclosure of share ownership.

     Voting Rights

     Each common share entitles its holder to one vote at a shareholders'
meeting.

     There are no restrictions under Brazilian law or Total Fleet's by-laws
limiting the rights of non-residents or non- Brazilian shareholders to hold or
exercise voting rights on Total Fleet's shares.

     Shareholders' Meetings

     Under the Brazilian Corporation Law, at a general meeting of shareholders,
convened and held in accordance with such law and Total Fleet's by-laws, the
shareholders are entitled to decide all matters relating to Total Fleet's
purposes and to pass such resolutions as they deem necessary for Total Fleet's
protection and development. Total Fleet's meetings of shareholders must be held
by April 30 of each year. In addition, special shareholders' meeting may be
held as often as deemed necessary. General meetings are called by Total Fleet's
executive committee, as prescribed by the Brazilian Corporation Law, and are
presided over by a shareholder elected by a majority of votes of those present.
The chairperson presiding over the meeting appoints the secretary of the
meeting. Total Fleet's shareholders may be represented at the general meeting
by an attorney-in-fact, who must be a shareholder, one of the general officers,
or a lawyer. Compensation to executive officers is determined by the
shareholders at a shareholders' meeting.

     Common Shares and Preferred Shares

     Total Fleet has 109,630,000 common shares, no par value per share, and is
a wholly-owned subsidiary of Localiza.

     Total Fleet does not have any preferred shares.

     Preemptive Rights

     Under Total Fleet's by-laws, current shareholders of Localiza have
preemptive rights, in proportion to their current corporate participation, to:

     o    acquire shares, if Localiza decides to sell all or some of Total
          Fleet's shares, and

     o    subscribe for capital increases in Total Fleet, if Localiza decides
          to issue additional shares of Total Fleet to new shareholders.

     Total Fleet's by-laws do not have provisions regarding shareholders'
preemptive rights. Under Brazilian Corporation Law, however, each of Total
Fleet's shareholders has a general preemptive right to subscribe for shares of
the same class in any capital increase, in an amount sufficient to keep the
same proportional participation of each shareholder in Total Fleet's total
capital. Total Fleet shall observe a minimum period of 30 days following the
publication of the capital increase notice, for the exercise of the preemptive
right by its shareholders.

     System

     System is a limitada registered with the Civil Registry of Legal Entities,
or Cartorio de Registro Civil das Pessoas Juridicas of the city of Belo
Horizonte, in the State of Minas Gerais, under the number 58.475. Pursuant to
article 3 of System's articles of association, System's corporate purpose is to
manage the franchising business of Localiza.

     There are no provisions in System's articles of association with respect
to:

     o    an executive officer's power to vote on a proposal, arrangement or
          contract in which the executive officer is materially interested,

     o    borrowing powers exercisable by the executive officers,

     o    the number of quotas required for an executive officer's
          qualification,


                                       51
<PAGE>


     o    age limits for retirement of executive officers,

     o    anti-takeover mechanism or other procedures designed to delay, defer
          or prevent changes in System's control, except for the preemptive
          rights of quotaholders mentioned below,

     o    redemption of quotas,

     o    sinking funds, or

     o    liability to further capital calls by the company.

     All documents relating to the formation of System must be filed with the
Civil Registry of Legal Entities. Under Brazilian law, System does not need to
publish its accounts, amendments to its articles of association, or other
corporate documents. Notwithstanding, System's articles of association are
public, since third parties may obtain copies from the Civil Registry of Legal
Entities.

     Voting Rights

     Each quota entitles the holder thereof to one vote at a meeting of
quotaholders. Holders of quotas in the company are considered partners.

     Compensation

     System's executive officers are the company's founding partners. As such,
the executive officers determine their monthly compensation in accordance with
the company's economic situation.

     Quotaholders' Meetings

     System is managed by an executive committee. The members of this committee
are responsible for the administrative duties of operating System, and are
required to be residents of Brazil. System's officers, in groups of two and by
written proxy, can transfer their administrative duties to representatives.

     Under System's articles of association, there are no required annual
meetings of System's partners.

     Quotas

     As a limitada, System's corporate capital is divided into quotas. System
has 1,115,540 quotas, par value R$1.00 per quota. The quotas may not be
assigned, sold, nor transferred to anyone outside of System, for any reason,
without a written notice of agreement among all remaining partners.

     If a partner wants to withdraw from System, the partner must provide
written notice of intent to the remaining partners 60 days prior to the
intended date of withdrawal.

     In the event of the death of a partner, the spouse or heir of the
deceased's estate will take over all of the quotas of the deceased partner.

     There are no restrictions under Brazilian law or System's articles of
association limiting the rights of non-residents or non-Brazilian partners to
hold or exercise voting rights on System's quotas.

     Preemptive Rights

     Before quotas are transferred outside of the company, System's articles of
association give existing partners a preference with respect to such quotas.
These quotas will be negotiated among the remaining partners of the company in
a way that allows for the existing current ratios of ownership to be
maintained.

     Profits

     Each year System's profits, if any, will be calculated in accordance with
the year-ended financial statements, and distributed to the partners and/or
capitalized in accordance to the same percentage ratio of each partner in the
capital


                                       52
<PAGE>


stock. The partners may determine whether there will be any interim financial
statements, and distribute profits in accordance with those interim statements.

     System's profits may be partially or totally distributed, and not
pro-rated by the participation in the capital stock, by unanimous deliberation
of the partners.

     Prime

     Prime is a limitada registered with the Civil Registry of Legal Entities,
or Cartorio de Registro Civil das Pessoas Juridicas of the city of Belo
Horizonte, in the State of Minas Gerais, under the number 99.783. Pursuant to
article 3 of Prime's articles of association, Prime's corporate purpose is to
deal with the intermediation of used car sales and related services.

     There are no provisions in Prime's articles of association with respect
to:

     o    an executive officer's power to vote on a proposal, arrangement or
          contract in which the executive officer is materially interested,

     o    borrowing powers exercisable by the executive officers,

     o    the number of quotas required for an executive officer's
          qualification,

     o    age limits for retirement of executive officers,

     o    anti-takeover mechanism or other procedures designed to delay, defer
          or prevent changes in Prime's control, except for the preemptive
          rights of the quotaholders mentioned below,

     o    redemption of quotas,

     o    sinking funds, or

     o    liability to further capital calls by the company.

     All documents relating to the formation of Prime must be filed with the
Civil Registry of Legal Entities. Under Brazilian law, Prime does not need to
publish its accounts, amendments to its articles of association, or other
corporate documents. Notwithstanding, Prime's articles of association are
public, since third parties may obtain copies from the Civil Registry of Legal
Entities.

     Voting Rights

     Each quota entitles the holder thereof to one vote at a quotaholders'
meeting. Holders of quotas in the company are considered partners. Partners of
at least 75% of capital stock will constitute the required minimum quorum
needed to make any alterations to Prime's capital stock.

     Compensation

     Prime's executive officers are the company's founding partners. As such,
the executive officers determine their monthly compensation in accordance with
the company's economic situation.

     Quotaholders' Meetings

     Prime is managed by an executive committee. The members of this committee
are responsible for the administrative duties of operating Prime, and are
required to be residents of Brazil. Executive officers, in groups of two and by
written proxy, can transfer their administrative duties to representatives.

     Under Prime's articles of association, there are no required annual
meetings of Prime's partners. However, in the event of any contingent cases not
covered in the articles of association, Prime's partners holding a majority of
the capital will deliberate such cases at meetings called specifically for such
purpose with no less than 24 hours' notice.


                                       53
<PAGE>


     Quotas

     As a limitada, Prime's corporate capital is divided into quotas. Prime has
15,000 quotas, par value R$10.00 per quota. Prime's quotas may not be assigned,
sold, nor transferred to anyone outside of Prime, for any reason, without the
express agreement of the majority of the quotaholders.

     If a partner wants to withdraw from Prime, the partner must provide
written notice of intent to the remaining partners 60 days prior to the
intended date of withdrawal.

     There are no restrictions under Brazilian law or Prime's articles of
association limiting the rights of non-residents or non-Brazilian partners to
hold or exercise voting rights on Prime's quotas.

     Preemptive Rights

     Before quotas are transferred outside of the company, Prime's articles of
association give existing partners a preference with respect to such quotas.
These quotas will be negotiated among the remaining partners of the company in
a way that allows for the existing current ratios of ownership to be
maintained.

     Under Prime's articles of association, System, which is one of Prime's
quotaholders, has waived its subscription rights to new quotas in Prime.

     Profits

     Each year Prime's profits, if any, will be calculated in accordance with
the year-ended financial statements, and distributed to the partners and/or
capitalized in accordance to the same percentage ratio of each partner in the
capital stock. The partners may determine whether there will be any interim
financial statements, and distribute profits in accordance with those interim
statements.

     MFA

     MFA is registered with the Argentine public register of commerce under the
number 943 Book III File A. Pursuant to article 3 of MFA's by-laws, its
corporate purpose is:

     o    to sublicense to third parties the right to use Localiza's brand
          name, or any other brand name that may replace or supplement it in
          the future, for the purpose of operating the business of leasing
          automobiles, along with related services,

     o    to manage Localiza's brand name through the collection of bonuses,
          commissions, fees, customs tariffs, funds or any other type of
          compensation, including the sale of printed materials,

     o    to transfer technology and know-how through training programs and to
          supply manuals and other materials in connection with its
          sub-licensing activities, and

     o    to carry out activities related to the above.

     There are no provisions in MFA's by-laws with respect to:

     o    an officer's power to vote on a proposal, arrangement or contract in
          which the officer is materially interested,

     o    an officer's power, in the absence of an independent quorum, to vote
          compensation to themselves or any members of their body,

     o    borrowing powers exercisable by the officers,

     o    the number of shares required for an officer's qualification,

     o    age limits for retirements of officers,

     o    anti-takeover mechanism or other procedures designed to delay, defer
          or prevent changes in MFA's control,


                                       54
<PAGE>


     o    redemption of shares,

     o    sinking funds, or

     o    liability to further capital calls by the company.

     Voting Rights

     Each common share entitles the holder thereof to one vote at the
shareholders' meetings.

     Shareholders' Meetings

     MFA is required to hold a general meeting of shareholder in each fiscal
year to consider the matters outlined in Article 234 of Argentina's Business
Companies Law, including:

     o    approval of MFA's financial statements and general performance of the
          officers for the preceding fiscal year,

     o    election, removal and remuneration of officers, and

     o    allocation of profits.

     Matters which may be considered at shareholders' ordinary meetings include
consideration of the responsibilities of the officers, as well as capital
increases and the issuance of negotiable debentures. In addition, extraordinary
shareholders' meetings may be called at any time to consider matters beyond the
scope of the general meeting, including amendments to the by-laws, issuances of
certain securities that permit profit sharing, anticipated dissolution, merger
and transformation from one type of company to another. Shareholders' meetings
may be convened by the executive committee.

     Shareholders' meeting are called by publication at least ten days before
the date of the meeting, in the Official Gazette of the Republic of Argentina
and in a widely circulated newspaper in Argentina at least ten days prior to
the meeting. In order to attend a meeting, shareholders must submit proper
evidence of their book-entry shares held at an authorized institution.

     Common Shares and Preferred Shares

     MFA has 197,000 common shares, par value P$1.00 per share. Currently, MFA
does not have any preferred shares.

     There are no restrictions under Argentine law or MFA's by-laws limiting
the rights of non-residents or non-Brazilian shareholders to hold or exercise
voting rights on MFA's shares.

     Preemptive Rights

     MFA's common shares may be transferred to third parties only if MFA
shareholders receive previous notification, including information regarding the
conditions of sale, the price per share, the number of shares offered for sale,
and the terms and methods of payment. Within 30 days from the receipt of notice
of a shareholder's intent to sell, other MFA shareholders may exercise their
preferential right to purchase the shares offered to third parties under the
same conditions and price indicated by the selling shareholder. If the
interested MFA shareholder deems the price set for the sale to be excessive,
the interested shareholder may contest it within five days from receipt of the
selling shareholder's notification.

C.   Material Contracts

     Acquisitions

     On June 12, 2001, we acquired Londrina Locadora Ltda., known as Londrina,
a company located in Londrina, with operations in the cities of Londrina and
Maringa, in the state of Parana, which was engaged in the car rental business,
for approximately R$1.9 million. Londrina was spun off from Locadora Marajo
Ltda. and merged into Localiza on June 30, 2001. See note 1(c) to the Localiza
financial statements.


                                       55
<PAGE>


D.   Exchange Controls

     There are no restrictions on ownership of the Notes by individuals or
legal entities domiciled outside Brazil.

     Brazilian law provides that whenever there is a serious imbalance in
Brazil's balance of payments or reasons to foresee a serious imbalance, the
Brazilian Government may impose temporary restrictions on the remittance to
foreign investors of the proceeds of their investments in Brazil. The last
occurrence of restrictions on the remittance of foreign capital was in 1989
when, for approximately six months until early 1990, the Brazilian Government
froze all dividend and capital repatriations that were owed to foreign equity
investors and held by the Central Bank of Brazil in order to conserve Brazil's
foreign currency reserves. These amounts were subsequently released in
accordance with Brazilian Government directives. There can be no assurance that
similar measures will not be taken by the Brazilian Government in the future.

     The Brazilian Government currently restricts the ability of Brazilian and
foreign persons or entities to convert Brazilian currency into U.S. dollars or
other currencies other than in connection with certain authorized transactions.
The issuance of the Notes has been authorized by, and is currently
electronically registered with, the Central Bank of Brazil. The Central Bank of
Brazil had issued a certificate of registration, which was later replaced by
the electronic registration currently in place, authorizing each of the
scheduled payments of principal at maturity and interest on the Notes. However,
consent from the Central Bank of Brazil will be needed for (i) the payment of
principal of, and premium, if any, and interest on the Notes upon acceleration
of the Notes following an event of default, and (ii) payments in respect of the
Notes upon certain optional redemption events or upon a repurchase of the Notes
by us or our affiliates under certain circumstances or in the event of certain
changes in Brazilian law relating to tax withholding. There can be no assurance
that we will obtain the necessary consents from the Central Bank of Brazil for
the remittance abroad of the foregoing payments.

     There can be no assurance that the Brazilian Government will not in the
future (i) restrict, by limiting access to foreign currency or otherwise, the
ability of Brazilian entities, such as Localiza, to repay foreign currency
denominated indebtedness, such as the Notes, or (ii) require that any payments
on indebtedness be made in Brazilian reais. The likelihood of the imposition of
restrictions by the Brazilian Government may be affected by, among other
factors, the extent of Brazil's foreign currency reserves, the availability of
foreign currency in the foreign exchange markets on the date a payment is due,
the size of Brazil's debt service burden relative to the economy as a whole,
Brazil's policy towards the International Monetary Fund and political
constraints to which Brazil may be subject. See Item 3. Key
Information--Exchange Rates.

E.   Taxation

     Not applicable.

F.   Dividends and Paying Agents

     Not applicable.

G.   Statement by Experts

     Not applicable.

H.   Documents on Display

     Statements contained in this annual report as to the contents of any
contract or other document referred to are not necessarily complete, and each
of these statements is qualified in all respects by reference to the full text
of such contract or other document filed as an exhibit hereto. A copy of the
complete annual report including the exhibits and schedules filed herewith may
be inspected without charge at the public reference facilities maintained by
the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 233 Broadway, New York,
New York 10279, and copies of all or any part of the annual report may be
obtained from such offices upon payment of the fees prescribed by the SEC.

     We are subject to the information and periodic reporting requirements of
the Securities Exchange Act of 1934, and in accordance therewith, will file
periodic reports and other information with the SEC. These periodic reports and
other information will be available for inspection and copying at the public
reference facilities of the SEC regional offices


                                       56
<PAGE>


referred to above. As a foreign private issuer, we are exempt from certain
provisions of the Exchange Act prescribing the furnishing and content of proxy
statements and periodic reports and from Section 16 of the Exchange Act
relating to the short-swing profits reporting and liability.

     We will provide without charge to each person to whom this report is
delivered, upon written or oral request, copies of all reports we are required
to file with the SEC under the Exchange Act, including our annual reports in
English, containing a brief description of our operations and our audited
annual consolidated financial statements which will be prepared in accordance
with U.S. GAAP, and a copy of any or all of the documents incorporated by
reference into this annual report (other than exhibits, unless such exhibits
are specifically incorporated by reference in such documents). Written request
for such copies should be directed to Localiza Rent a Car S.A., Av. Bernardo
Monteiro, 1563 Funcionarios 30150-902- Belo Horizonte, Minas Gerais, Brazil,
Attention: Investor Relations Department. Telephone requests may be directed to
55-31-247-7040.

I.   Subsidiary Information

     Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The principal market risk to which we are exposed is the foreign currency
exchange risk, which is a function of our long-term debt, which consists
principally of the Notes, and is incurred primarily in connection with capital
expenditures and repayment of short-term loans. Such foreign exchange risk
derives principally from the incidence of U.S. dollar denominated obligations
in our debt portfolio, compared to our revenues and operating expenses, which
are principally real-denominated.

     We seek to reduce our currency exposure according to our perception of the
economic situation. From time to time, when we have a net cash position, we may
enter into financial derivatives and invest cash in U.S. dollar-linked
instruments in order to reduce our exposure to currency fluctuations. As of
December 31, 2001, our U.S. dollar- denominated debt, in the amount of R$203.0
million (including interest payable of R$4.3 million), was protected against
currency devaluation by the following financial instruments:

     o    notes issued by the Federative Republic of Brazil; and

     o    swap transactions.

     Notes Issued by the Federative Republic of Brazil

     We have invested in U.S. dollar-denominated notes with a maturity of less
than two years issued by the Federative Republic of Brazil in the amount of
R$16.1 million (with interest at a per annum weighted average rate of 12.46%).

     Swap Transactions

     As of December 31, 2001, R$203.0 (including interest payable of R$4.3
million) million of our debt was denominated in U.S. dollars, while all our
revenues were denominated in reais. Localiza and Total Fleet contracted swap
transactions with major financial institutions in Brazil aiming at protecting
its U.S. dollar denominated liabilities outstanding during the year ended
December 31, 2001 against the devaluation of the real. The swaps' terms are as
follows:


                                       57
<PAGE>


<TABLE>
                                             Notional     Exchange                                   Unrealized
                                           Amount as of   rate at                                    loss as of
                   Date of     Maturity      December     contract      Bank's      Localiza's      December 31,
    Type          Contract       Date        31, 2001       date        Assets        Assets            2001
---------------- ----------   ----------   ------------  ---------   -----------  -------------    --------------
                                        (in thousands of (in reais                                (in thousands of
                                          U.S. dollars)   per U.S.                                      reais)
                                                          dollars)
<S>              <C>          <C>          <C>           <C>         <C>          <C>              <C>
                                                                                  Exchange rate
                                                                                   Variation +
                                                                      100% CDI        coupon
                 12/10/01 -   01/04/02 -                  2.2932 -        +        (- 15.00% -
Short term...... 12/21/01     05/15/02     US$11,715      2.5411      2.06% p.a.   26.00% p.a.)      R$     (89)

                                                                                  Exchange rate
                                                                                   Variation +
                                                                                      coupon
                 09/05/01 -                               2.5642 -                (9.30%- 9.80%
Long term....... 10/16/01     09/29/05        66,300      2.7400      100% CDI         p.a.)            (26,146)
                                           ---------                                                 ----------
Total...........                           US$78,015                                                 R$ (26,235)
                                           =========                                                 ==========
</TABLE>

     The unrealized loss of R$89 thousand resulting from the short-term swaps
was classified as other current liabilities in Localiza's financial statements.
The unrealized loss has been determined based on the fair value of these swap
transactions which was estimated based on discounting future contracted cash
flow considering market rates, terms and conditions at each balance sheet date.

     Permitted Investment in Notes

     In October 1997, we issued the Notes, which have a fixed interest rate of
10.25% and which will mature on October 1, 2005. In 1998 and 1999, we
repurchased part of the Notes corresponding to the principal amount of US$26.1
million corresponding to R$50.0 million in December 31, 2001.

     Tabular Presentation of Information Related to Market Risk Sensitive
Instruments

     The table below presents information related to market risk sensitive
instruments:

<TABLE>
                                                                                                      Fair Value At
                                                                              Repurchased             December 31,
                            Rate    Currency   2002    2003    2004    2005     Portion      Total        2001
                           -------  --------  ------  ------  ------  ------  -----------    -----    -------------
                                           (amounts in millions of reais, unless otherwise mentioned)
<S>                        <C>         <C>     <C>      <C>      <C>   <C>        <C>        <C>          <C>
Notes (principal)......    10.25%      US$       --     --       --    232.0      60.5       171.5        137.2
Short term loans.......     (0.5)%     US$     27.2     --       --       --        --        27.2         27.2
Swap transactions......       --       US$      0.1     --       --     26.1        --        26.2         26.2
                                               ----    ---     ----    -----      ----       -----        -----
                                               27.3     --       --    258.1      60.5       224.9        190.6
                                               ====    ===     ====    =====      ====       =====        =====
</TABLE>


ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

     None.


                                       58
<PAGE>


ITEM 15. [RESERVED]

ITEM 16. [RESERVED]

PART III

ITEM 17. FINANCIAL STATEMENTS

     The Registrants have responded to Item 18 in lieu of responding to this
Item.

ITEM 18. FINANCIAL STATEMENTS

     Reference is made to pages F-1 through F-101. The following financial
statements are filed as part of this Form 20-F:

     Consolidated Financial Statements of Localiza Rent a Car S.A.:
           Report of Independent Public Accountants.........................F-2
           Consolidated Balance Sheets at December 31, 2000 and 2001........F-3
           Consolidated Statements of Comprehensive Income for the
                    Years Ended December 31, 1999, 2000 and 2001............F-5
           Consolidated Statements of Changes in Shareholders' Equity
                    and Comprehensive Income for the Years Ended
                    December 31, 1999, 2000 and 2001........................F-6
           Consolidated Statements of Cash Flows for the Years Ended
                    December 31, 1999, 2000 and 2001........................F-7
           Notes to the Consolidated Financial Statements...................F-9

     Consolidated Financial Statements of Total Fleet S.A.:
           Report of Independent Public Accountants.........................F-37
           Consolidated Balance Sheets at December 31, 2000 and 2001........F-38
           Consolidated Statements of Income for the Years Ended
                    December 31, 1999, 2000 and 2001........................F-40
           Consolidated Statements of Changes in Shareholders'
                    Equity for the Years Ended December 31, 1999,
                    2000 and 2001...........................................F-41
           Consolidated Statements of Cash Flows for the Years Ended
                    December 31, 1999, 2000 and 2001........................F-42
           Notes to the Consolidated Financial Statements...................F-44

     Financial Statements of Localiza System Ltda.:
           Report of Independent Public Accountants.........................F-60
           Balance Sheets at December 31, 2000 and 2001.....................F-61
           Statements of Income for the Years Ended December 31,
                    1999, 2000 and 2001.....................................F-63
           Statements of Changes in Quotaholders' Equity for the Years
                    Ended December 31, 1999, 2000 and 2001..................F-64
           Statements of Cash Flows for the Years Ended December 31,
                    1999, 2000 and 2001.....................................F-65
           Notes to the Financial Statements................................F-67

     Financial Statements of Prime Prestadora de Servicos S/C Ltda.:
           Report of Independent Public Accountants.........................F-83
           Balance Sheets at December 31, 2000 and 2001.....................F-84
           Statements of Operations for the Years Ended December 31,
                    1999, 2000 and 2001.....................................F-86
           Statements of Changes in Quotaholders' Equity for the
                    Years Ended December 31, 1999, 2000 and 2001............F-87
           Statements of Cash Flows for the Years Ended December 31,
                    1999, 2000 and 2001.....................................F-88
           Notes to the  Financial Statements...............................F-89


                                       59
<PAGE>


     Financial Statements of Localiza Master Franchisee Argentina S.A.:

           Report of Independent Public Accountants........................ F-99
           Balance Sheets at December 31, 2000 and 2001....................F-101
           Statements of Income for the Years Ended December 31, 2000
                    and 2001 and for the one-month period ended
                    December 31, 1999......................................F-103
           Statements of Changes in Shareholders' Equity for the
                    Years Ended December 31, 2000 and 2001 and for
                    the one-month period ended December 31, 1999...........F-104
           Statements of Cash Flows for the Years Ended December 31,
                    2000 and 2001 and for the one-month period ended
                    December 31, 1999......................................F-105
           Notes to the Financial Statements...............................F-107
           Report of Independent Public Accountants........................F-117
           Balance Sheets at December 31, 1999 and 2000 and
                     November 30, 1998 and 1999............................F-118
           Statements of Income for the Years Ended December 31,
                    2000, November 30, 1998 and 1999 and for the
                    one-month period ended December 31, 1999...............F-119
           Statements of Changes in Shareholders' Equity for the
                    Years Ended November 30, 1998 and 1999 and
                    December 31, 2000 and for the one-month period
                    ended December 31, 1999................................F-120
           Statements of Cash Flows for the Years Ended November 30,
                    1998 and 1999 and December 31, 2000 and for the
                    one-month period ended December 31, 1999...............F-121
           Notes to the Financial Statements...............................F-122


ITEM 19. EXHIBITS

1(a)       Charter and bylaws of Localiza Rent A Car S.A., as amended
           (English translation)

1(b)       Charter and bylaws of Total Fleet S.A., as amended (English
           translation)

1(c)       Charter and bylaws of Localiza System Ltda. (English translation)*

1(d)       Charter and bylaws of Prime Prestadora de Servicos S/C Ltda.,
           as amended (English translation)

1(e)       Charter and bylaws of Localiza Master Franchisee Argentina S.A.,
           as amended (English translation)*

4          Quota Purchase Agreement for Londrina Locadora Ltda. (English
           translation)*

8          List of significant subsidiaries

10 (a)     Letter from MFA regarding certain representations given by
           Arthur Andersen

10 (b)     Consent of Deloitte Touche Tohmatsu for the three years ended
           December 31, 2001 (Localiza)

10 (c)     Consent of Deloitte Touche Tohmatsu for the three years ended
           December 31, 2001 (Total Fleet)

10 (d)     Consent of Deloitte Touche Tohmatsu for the three years ended
           December 31, 2001 (System)

10 (e)     Consent of Deloitte Touche Tohmatsu for the three years ended
           December 31, 2001 (Prime)

10 (f)     Consent of Arthur Andersen for the three years ended
           December 31, 2001 (MFA)

---------
*    Incorporated by reference to Annual Report in Form 20-F for fiscal year
     ended December 31, 2000 (File No. 333-8128) filed with the SEC on June 30,
     2001.


                                       60
<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrants certify that they meet all of the requirements for
filing on Form 20-F and have duly caused this annual report or amendment
thereto to be signed on their behalf by the undersigned, thereunto duly
authorized.

                                   LOZALIZA RENT A CAR S.A.


                                   By: /s/ Jose Salim Mattar Junior
                                       -----------------------------------------
                                       Name:  Jose Salim Mattar Junior
                                       Title: President

                                   By: /s/ Antonio Claudio Brandao Resende
                                       -----------------------------------------
                                       Name:  Antonio Claudio Brandao Resende
                                       Title: Vice President


                                   LOCALIZA SYSTEM LTDA.


                                   By: /s/ Jose Salim Mattar Junior
                                       -----------------------------------------
                                       Name:  Jose Salim Mattar Junior
                                       Title: President

                                   By: /s/ Antonio Claudio Brandao Resende
                                       -----------------------------------------
                                       Name:  Antonio Claudio Brandao Resende
                                       Title: Vice President


                                   TOTAL FLEET S.A.


                                   By: /s/ Jose Salim Mattar Junior
                                       -----------------------------------------
                                       Name:  Jose Salim Mattar Junior
                                       Title: President

                                   By: /s/ Antonio Claudio Brandao Resende
                                       -----------------------------------------
                                       Name:  Antonio Claudio Brandao Resende
                                       Title: Vice President


                                   PRIME PRESTADORA DE SERVICOS S/C LTDA.


                                   By: /s/ Jose Salim Mattar Junior
                                       -----------------------------------------
                                       Name:  Jose Salim Mattar Junior
                                       Title: President

                                   By: /s/ Antonio Claudio Brandao Resende
                                       -----------------------------------------
                                       Name:  Antonio Claudio Brandao Resende
                                       Title: Vice President


                                       61
<PAGE>




                                   LOCALIZA MASTER FRANCHISEE ARGENTINA
                                   S.A.


                                   By: /s/ Leonardo Federici Guedes
                                       ----------------------------------------
                                       Name: Leonardo Federici Guedes
                                       Title: President


                                   By: /s/ Aristides Luciano de Azevedo Newton
                                       ----------------------------------------
                                       Name: Aristides Luciano de Azevedo Newton
                                       Title: Substitute Officer


Dated: June 28, 2002

                                       62
<PAGE>


Localiza Rent a Car S.A.
and Subsidiaries


Consolidated Financial Statements Together with Report
of Independent Public Accountants

Expressed in Brazilian reais

As of December 31, 2000 and 2001 and for the three years in the period ended
December 31, 2001

<PAGE>



Report of Independent Public Accountants

To the Shareholders and Board of Directors of

Localiza Rent a Car S.A.:


(1) We have audited the accompanying consolidated balance sheets of LOCALIZA
RENT A CAR S.A. (a Brazilian corporation) and subsidiaries as of December 31,
2000 and 2001 and the related consolidated statements of income and other
comprehensive income, changes in shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2001, expressed in
Brazilian reais. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

(2) 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.

(3) As described in Note 30, the consolidated balance sheet as of December 31,
2000 and the related consolidated statements of income and other comprehensive
income, changes in shareholders' equity and cash flows for the two years ended
December 31, 2000 have been restated.

(4) In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Localiza Rent a Car S.A. and subsidiaries as of December 31, 2000 and 2001,
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

(5) Also, in our opinion, the amounts in the accompanying consolidated
financial statements as of and for the year ended December 31, 2001, translated
into U.S. dollars, have been computed on the basis set forth in Note 2(e).


/s/ DELOITTE TOUCHE TOHMATSU


Belo Horizonte, Brazil,
    June 3, 2002


<PAGE>


<TABLE>
                                            LOCALIZA RENT A CAR S.A.

                                                AND SUBSIDIARIES


                                          CONSOLIDATED BALANCE SHEETS

                                           DECEMBER 31, 2000 AND 2001

                           (Stated in thousands of Brazilian reais and U.S. dollars)


                                                  A S S E T S
                                                                                   December 31,
                                                                     -----------------------------------------
                                                                    (As restated)
                                                                     -----------
                                                                         2000           2001           2001
                                                                     -----------    -----------    -----------
                                                                          R$             R$             US$
                                                                     -----------    -----------    -----------
<S>                                                                      <C>            <C>            <C>
CURRENT ASSETS:
    Cash and cash equivalents                                             22,470         36,018         15,522
    Available for sale marketable securities, at fair value               43,496         16,082          6,931
    Accounts receivable, net                                              32,578         50,480         21,755
    Revenue-earning vehicles, net                                        167,805        229,848         99,055
    Deferred income and social contribution taxes                          3,380          3,093          1,333
    Other                                                                  9,972         11,061          4,767
                                                                     -----------    -----------    -----------
                                                                         279,701        346,582        149,363
                                                                     -----------    -----------    -----------
NONCURRENT ASSETS:
    Revenue-earning vehicles, net                                         85,320        102,935         44,361
    Escrow deposits                                                       15,626         17,620          7,593
    Deferred income and social contribution taxes                          7,053          9,263          3,992
    Compulsory loans                                                       2,063             83             36
    Other                                                                  1,980          2,170            935
                                                                     -----------    -----------    -----------
                                                                         112,042        132,071         56,917
                                                                     -----------    -----------    -----------

PROPERTY AND EQUIPMENT, NET                                                7,922         12,534          5,402
                                                                     -----------    -----------    -----------

GOODWILL                                                                   4,874          4,704          2,027
                                                                     -----------    -----------    -----------

                          Total assets                                   404,539        495,891        213,709
                                                                     ===========    ===========    ===========

     The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>


<PAGE>

<TABLE>

                                            LOCALIZA RENT A CAR S.A.

                                                AND SUBSIDIARIES

                                          CONSOLIDATED BALANCE SHEETS

                                           DECEMBER 31, 2000 AND 2001

                           (Stated in thousands of Brazilian reais and U.S. dollars)


                      L I A B I L I T I E S   A N D   S H A R E H O L D E R S'   E Q U I T Y

                                                                           December 31,
                                                              --------------------------------------
                                                             (As restated)
                                                              ----------
                                                                 2000          2001           2001
                                                              ----------    ----------    ----------
                                                                  R$            R$            US$
                                                              ----------    ----------    ----------
<S>                                                              <C>           <C>           <C>
CURRENT LIABILITIES:
    Loans and financing                                           32,713        27,195        11,720
    Interest payable on long-term debt                             3,662         4,345         1,873
    Accounts payable                                              18,484        24,318        10,480
    Payroll and related charges                                    7,447         8,685         3,743
    Income and social contribution taxes                           1,576           214            92
    Deferred income and social contribution taxes                    649         2,701         1,164
    Taxes, other than on income                                    3,462         1,396           602
    Advances from customers                                          472         3,089         1,331
    Other                                                            761           846           364
                                                              ----------    ----------    ----------
                                                                  69,226        72,789        31,369
                                                              ----------    ----------    ----------
NONCURRENT LIABILITIES:
    Long-term debt                                               144,504       171,478        73,900
    Reserve for contingencies                                     21,162        27,037        11,652
    Deferred income and social contribution taxes                  3,657         5,919         2,551
    Unrealized loss on derivatives                                     -        26,146        11,268
    Other                                                          1,841         1,344           579
                                                              ----------    ----------    ----------
                                                                 171,164       231,924        99,950
                                                              ----------    ----------    ----------

MINORITY INTEREST                                                     95            85            37
                                                              ----------    ----------    ----------

SHAREHOLDERS' EQUITY:
    Capital stock                                                117,523       122,923        52,975
    Accumulated earnings                                          46,156        67,784        29,212
    Cumulative other comprehensive income                            375           386           166
                                                              ----------    ----------    ----------
                                                                 164,054       191,093        82,353
                                                              ----------    ----------    ----------

          Total liabilities and shareholders' equity             404,539       495,891       213,709
                                                              ==========    ==========    ==========

               The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>


<PAGE>

<TABLE>

                                                     LOCALIZA RENT A CAR S.A.

                                                         AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

                                       FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                                    (Stated in thousands of Brazilian reais and U.S. dollars)


                                                                                       Year ended December 31,
                                                                     -----------------------------------------------------------
                                                                    (As restated)   (As restated)
                                                                     -----------     -----------
                                                                         1999            2000            2001            2001
                                                                     -----------     -----------     -----------     -----------
                                                                          R$              R$              R$              US$
                                                                     -----------     -----------     -----------     -----------
<S>                                                                      <C>             <C>             <C>             <C>
NET REVENUES:
    Car rental                                                            94,014         112,254         144,253          62,167
    Fleet management                                                      60,923         102,131         120,229          51,814
    Franchising                                                            5,038           6,402           5,056           2,179
    Used car sales                                                        84,702          89,287         150,907          65,035
                                                                     -----------     -----------     -----------     -----------
       Total net revenues                                                244,677         310,074         420,445         181,195
                                                                     -----------     -----------     -----------     -----------

EXPENSES AND COSTS:
    Direct operating                                                     (45,413)        (60,318)        (76,652)        (33,034)
    Cost of used car sales                                               (71,566)        (63,152)       (118,655)        (51,136)
    Taxes on revenues                                                    (10,563)        (13,990)        (17,795)         (7,669)
    Selling, general, administrative and other                           (31,674)        (38,087)        (52,845)        (22,774)
    Depreciation of vehicles                                             (31,099)        (49,803)        (43,995)        (18,960)
    Goodwill amortization                                                    (31)           (147)         (1,499)           (646)
    Other depreciation and amortization                                   (2,409)         (2,915)         (2,634)         (1,135)
                                                                     -----------     -----------     -----------     -----------
       Total operating expenses and costs                               (192,755)       (228,412)       (314,075)       (135,354)
                                                                     -----------     -----------     -----------     -----------
       Operating income                                                   51,922          81,662         106,370          45,841
                                                                     -----------     -----------     -----------     -----------

FINANCIAL EXPENSE, NET                                                   (25,091)        (19,900)        (50,464)        (21,748)
OTHER NONOPERATING INCOME (EXPENSE), NET                                    (192)           (118)          4,475           1,929
                                                                     -----------     -----------     -----------     -----------
       Income before taxes and minority interest                          26,639          61,644          60,381          26,022
                                                                     -----------     -----------     -----------     -----------

INCOME AND SOCIAL CONTRIBUTION TAXES:
    Current                                                               (2,096)        (16,439)        (14,107)         (6,080)
    Deferred                                                              (5,890)           (489)         (2,386)         (1,028)
                                                                     -----------     -----------     -----------     -----------
                                                                          (7,986)        (16,928)        (16,493)         (7,108)
                                                                     -----------     -----------     -----------     -----------
       Net income before minority interest                                18,653          44,716          43,888          18,914

MINORITY INTEREST                                                           (116)            (61)              -               -
                                                                     -----------     -----------     -----------     -----------
       Net income before extraordinary gain and cumulative
         effect of change in accounting principle                         18,537          44,655          43,888          18,914
Extraordinary gain, net                                                    1,394               -               -               -
Cumulative effect of a change in accounting principle, net                     -               -            (907)           (391)
                                                                     -----------     -----------     -----------     -----------
       Net income                                                         19,931          44,655          42,981          18,523
                                                                     ===========     ===========     ===========     ===========

OTHER COMPREHENSIVE INCOME:
    Total change in market value of marketable securities                    871           2,666          15,753           6,789
    Reclassification adjustment of realized gains                              -          (3,036)        (15,737)         (6,782)
                                                                     -----------     -----------     -----------     -----------
    Unrealized gains on marketable securities                                871            (370)             16               7
    Deferred income and social contribution taxes
       on unrealized gains                                                  (218)             92              (5)             (2)
                                                                     -----------     -----------     -----------     -----------
    Other comprehensive income                                               653            (278)             11               5
                                                                     -----------     -----------     -----------     -----------
       Comprehensive income                                               20,584          44,377          42,992          18,528
                                                                     ===========     ===========     ===========     ===========


                          The accompanying notes are an integral part of these consolidated statements.
</TABLE>


<PAGE>

<TABLE>

                                            LOCALIZA RENT A CAR S.A.

                                                AND SUBSIDIARIES

                           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                                    (Stated in thousands of Brazilian reais)

                                                                                  Cumulative
                                                                                     other
                                                    Capital       Accumulated    comprehensive
                                                     stock         earnings         income             Total
                                                 ------------    ------------     ------------     ------------
<S>                                                   <C>              <C>                 <C>          <C>
BALANCE DECEMBER 31, 1998 (As restated)               101,382          13,157                -          114,539
   Reclassification of retained earnings                  453            (453)               -                -
   Dividends paid (Note 21 b)                               -          (5,167)               -           (5,167)
   Interest on capital (Note 21 b)                          -          (5,256)               -           (5,256)
   Capital increase (Note 21 b)                         4,468               -                -            4,468
   Net income                                               -          19,931                -           19,931
   Other comprehensive income                               -               -              653              653
                                                 ------------    ------------     ------------     ------------
BALANCE DECEMBER 31, 1999 (As restated)               106,303          22,212              653          129,168
   Reclassification of retained earnings                   85             (85)               -                -
   Dividends paid (Note 21 b)                               -          (7,526)               -           (7,526)
   Interest on capital (Note 21 b)                          -         (13,100)               -          (13,100)
   Capital increase (Note 21 b)                        11,135               -                -           11,135
   Net income                                               -          44,655                -           44,655
   Other comprehensive income                               -               -             (278)            (278)
                                                 ------------    ------------     ------------     ------------
BALANCE DECEMBER 31, 2000 (As restated)               117,523          46,156              375          164,054
   Dividends paid (Note 21 b)                               -         (15,000)               -          (15,000)
   Interest on capital (Note 21 b)                          -          (6,353)               -           (6,353)
   Capital increase (Note 21 b)                         5,400               -                -            5,400
   Net income                                               -          42,981                -           42,981
   Other comprehensive income                               -               -               11               11
                                                 ------------    ------------     ------------     ------------
BALANCE DECEMBER 31, 2001                             122,923          67,784              386          191,093
                                                 ============    ============     ============     ============


                 The accompanying notes are an integral part of these consolidated statements.
</TABLE>


<PAGE>

<TABLE>

                                                                                                                            Page 1/2

                                                      LOCALIZA RENT A CAR S.A.

                                                          AND SUBSIDIARIES


                                                CONSOLIDATED STATEMENTS OF CASH FLOWS

                                        FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                                      (Stated in thousands of Brazilian reais and U.S. dollars)


                                                                                        Year ended December 31,
                                                                    ---------------------------------------------------------------
                                                                   (As restated)    (As restated)
                                                                    ------------     ------------
                                                                         1999             2000             2001             2001
                                                                    ------------     ------------     ------------     ------------
                                                                          R$               R$               R$              US$
                                                                    ------------     ------------     ------------     ------------
<S>                                                                      <C>              <C>              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                             19,931           44,655           42,981           18,523
   Non-cash adjustments-
       Depreciation and amortization (including goodwill)                 33,539           52,865           48,128           20,741
       Vehicles written off as a result of theft                             950            2,008            2,493            1,074
       Deferred taxes on income                                            6,572              397            2,391            1,030
       Reserve for contingencies                                           5,618            4,311            7,576            3,265
       Accrued interest expense                                           18,958           20,308           26,969           11,623
       Accrued interest income                                            (6,797)          (4,781)          (3,821)          (1,647)
       Foreign exchange loss, net                                         22,990            9,860           30,594           13,185
       Unrealized (gain) loss on derivatives (Note 19)                     1,309                -           26,235           11,306
       Realized gains on derivatives                                           -           (1,772)          (6,722)          (2,897)
       Realized gains on sale of marketable securities                         -           (3,036)         (15,737)          (6,782)
       Allowance for doubtful accounts                                      (354)             620            1,102              475
       Reversal of compulsory loans, net (Note 11)                           (54)           3,472              383              165
       Gain on sale of land                                                    -                -           (4,639)          (1,999)
       Other                                                                   -              730              282              122
                                                                    ------------     ------------     ------------     ------------
                                                                         102,662          129,637          158,215           68,184
                                                                    ------------     ------------     ------------     ------------
(Increase) decrease in assets:
       Accounts receivable                                                (1,418)         (14,434)         (19,741)          (8,507)
       Revenue-earning vehicles-
           New acquisitions                                             (160,268)        (186,129)        (247,527)        (106,674)
           Cost of used car sales                                         74,878           66,334          121,381           52,310
       Escrow deposits                                                    (4,898)          (1,633)          (1,858)            (801)
       Compulsory loans                                                        -                -            1,597              688
       Other                                                              (5,142)           2,751           10,817            4,662
                                                                    ------------     ------------     ------------     ------------
                                                                         (96,848)        (133,111)        (135,331)         (58,322)
                                                                    ------------     ------------     ------------     ------------
Increase (decrease) in liabilities:
       Accounts payable                                                   (5,543)          14,461            5,834            2,514
       Payroll and related charges                                         2,058            1,690            1,238              533
       Income and social contribution taxes                                  905              680           (1,362)            (587)
       Taxes, other than on income                                         1,027            1,218           (2,066)            (890)
       Advances from customers                                            (2,339)          (2,018)           2,617            1,128
       Reserve for contingencies                                          (4,826)          (1,390)          (2,224)            (958)
       Other                                                                 468              344             (425)            (183)
                                                                    ------------     ------------     ------------     ------------
                                                                          (8,250)          14,985            3,612            1,557
                                                                    ------------     ------------     ------------     ------------
Net cash provided by (used in) operating activities                       (2,436)          11,511           26,496           11,419
                                                                    ------------     ------------     ------------     ------------
</TABLE>


<PAGE>

<TABLE>

                                                                                                                            Page 2/2


                                                                                 Year ended December 31,
                                                             ---------------------------------------------------------------
                                                             (As restated)    (As restated)
                                                             ------------     ------------     ------------     ------------
                                                                  1999             2000            2001             2001
                                                             ------------     ------------     ------------     ------------
                                                                   R$               R$              R$               US$
                                                             ------------     ------------     ------------     ------------
<S>                                                                <C>              <C>              <C>              <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of marketable securities                            (93,617)         (40,246)         (16,738)          (7,213)
    Proceeds from sales of marketable securities                   73,771           50,920           61,365           26,446
    Additions to property and equipment                            (1,859)          (3,520)          (7,246)          (3,123)
    Acquisitions of former franchisees                                  -           (4,584)          (1,329)            (573)
                                                             ------------     ------------     ------------     ------------
Net cash provided by (used in) investing activities               (21,705)           2,570           36,052           15,537
                                                             ------------     ------------     ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Long-term debt-
       Repayments                                                 (23,246)         (18,455)         (24,967)         (10,760)
    Short-term loans-
       Proceeds                                                    16,425           81,583          113,837           49,059
       Repayments                                                 (13,630)         (52,254)        (121,917)         (52,541)
    Capital increase                                                4,468           11,135            5,400            2,327
    Dividends paid                                                 (5,167)          (7,526)         (15,000)          (6,464)
    Interest on capital                                            (5,256)         (13,100)          (6,353)          (2,738)
                                                             ------------     ------------     ------------     ------------
Net cash provided by (used in) financing activities               (26,406)           1,383          (49,000)         (21,117)
                                                             ------------     ------------     ------------     ------------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                              (50,547)          15,464           13,548            5,839

CASH AND CASH EQUIVALENTS AT BEGINNING
    OF YEAR                                                        57,553            7,006           22,470            9,683
                                                             ============     ============     ============     ============

CASH AND CASH EQUIVALENTS AT END OF
    YEAR                                                            7,006           22,470           36,018           15,522
                                                             ============     ============     ============     ============

Supplemental disclosures of cash flow information-

Cash paid during the year for:
    Interest                                                       19,054           18,871           27,542           11,870
    Income and social contribution taxes                            1,113           14,735           16,816            7,247
                                                             ------------     ------------     ------------     ------------
                                                                   20,167           33,606           44,358           19,117
                                                             ============     ============     ============     ============


                            The accompanying notes are an integral part of these consolidated statements.
</TABLE>


<PAGE>


                            LOCALIZA RENT A CAR S.A.

                                AND SUBSIDIARIES


                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 1999, 2000 AND 2001

             (Amounts expressed in thousands of Brazilian reais and

                   U.S. dollars, unless otherwise indicated)


(1) THE COMPANY AND ITS OPERATIONS

     Localiza Rent a Car S.A. ("the Company" or "Localiza") is a Brazilian
closely held corporation organized under the laws of Federative Republic of
Brazil and is based in Belo Horizonte, State of Minas Gerais. The Company is
controlled by four of its senior executives ("the Founders") and eleven
Donaldson, Lufkin & Jenrette ("DLJ") funds, which have been managed by Credit
Suisse First Boston ("CSFB") since August 2000.

     On March 26, 1997, DLJ entities acquired 33.33% of the common stock of the
Company. On June 30, 1998, Localiza merged its holdings PAR-LIZA Ltda. and
LIZA-PAR S.A. (the DLJ affiliates). See Note 1(a).

     As part of the Senior Notes program (Note 15), the Company was registered
with the Securities and Exchange Commission in the United States of America, on
March 10, 1998.

     The Company operates in four complementary businesses: car rental, fleet
management, used car sales and franchising.

     The Company's international network, including the franchisees, as of
December 31, 2001 comprised 346 (428 in 2000) locations in 246 (269 in 2000)
cities (196 cities in Brazil and 50 elsewhere in 7 countries in Latin America).
Out of the 266 (317 in 2000) Brazilian car rental locations, 69 (64 in 2000)
were operated by the Company. The remaining locations in Brazil and all
locations in other Latin America countries were operated by franchisees under
contract with Localiza System Ltda. ("Localiza System"), a subsidiary of the
Company. Localiza System charges royalty fees to franchisees in addition to
reimbursement of advertising expenses incurred to promote Localiza's brand name
and services.

     On December 31, 2001, the fleet was composed of 30,786 (27,092 in 2000)
vehicles, of which approximately 24,579 (19,821 in 2000) were owned by the
Company, including 12,300 (10,850 in 2000) vehicles from the fleet management
segment, 5,713 (6,005 in 2000) were owned by Brazilian franchisees and the
remaining owned by international franchisees. Localiza usually renews its car
rental fleet after 12 months. A significant portion of the company-owned fleet
is sold to final consumers through 14 (10 in 2000) used car sales locations in
14 (10 in 2000) major Brazilian cities.

     The fleet management business is operated by Total Fleet S.A. ("Total
Fleet"), a wholly owned subsidiary of the Company. Total Fleet leases cars to
corporations under contracts which can be canceled within 30 days advance
notice and payment of charges equivalent to 30% to 50% of the remaining
payments, depending on terms and renewal covenants. The lease period for new
cars varies from 12 to 48 months with an average of 36 months.

     Fleet management maintenance and insurance costs are shared between the
Company and the lessee in a proportion agreed by the parties (individually
contracted).

     Total Fleet provides maintenance and technical assistance to its clients
through a contracted service providers.


                                                                              1
<PAGE>

     (a) Merger of holding companies-

     In the Extraordinary General Shareholders' Meeting held on June 30, 1998,
approval was given for the merger of PAR-LIZA Ltda. and LIZA-PAR S.A., which
held 33.33% of the Company's capital stock.

     PAR-LIZA Ltda. and LIZA-PAR S.A. were holding companies with no operations
and their assets were represented mainly by the investment in Localiza. DLJ
funds received shares to substitute the ones that were previously held by the
merged holding companies.

     The goodwill originally paid by the merged companies to acquire the
investment in Localiza, in the amount of R$21,632 plus a R$40 premium generated
in the merger was classified in deferred assets, under Brazilian GAAP, to be
amortized during a 5-year period beginning in June, 1998 (the goodwill could
not be recorded under U.S. GAAP, as the acquisition corresponded to 33.33% of
the Capital). The Company can deduct the goodwill paid by DLJ for tax purposes
in Brazil. This resulted in a tax benefit of R$7,152 that was recorded as an
increase in shareholders' equity under U.S. GAAP. The Instruction CVM 349/00
has changed the amount accounted for statutory purposes, reducing the deferred
value to the equivalent tax benefit.


     (b) New subsidiaries' operations-

     On January 1, 1999, Prime - Prestadora de Servicos S/C Ltda. ("Prime"), a
subsidiary formed on November 16, 1998, initiated its operations rendering
services to Total Fleet in the purchasing and selling intermediation of
vehicles and accessories.

     On January 1, 1999, Total Fleet, a subsidiary formed on December 1, 1997,
initiated its fleet management operations.

     On August 17, 1999, Localiza System acquired the remaining 60% interest in
MFA - Localiza Master Franchisee Argentina S.A. ("MFA"). The amount paid for
the remaining share was R$337, generating goodwill of R$667. The goodwill was
being amortized over 5-year period, using the straight-line method from the
acquisition date to 2001, when its balance, net of accumulated amortization,
was totally written off due to the current economic situation in Argentina.


     (c) Acquisition and merger of franchisees-

     In the second semester of 2000, Localiza started to operate directly in
areas formerly operated by franchisees of Santa Catarina State and in the
cities of Uberlandia-Uberaba, Minas Gerais State. In June 2001, Localiza
started to operate in the area formerly operated by its franchisee in the
cities of Londrina-Maringa, Parana State.

     These processes involved the acquisition and subsequent merger of spun-off
companies of former franchisees Auto Locadora Coelho Ltda. (Auto Locadora Locar
- "Locar"), which operates in the cities of Florianopolis, Blumenau, Itajai,
Criciuma, Navegantes, Joinville and Forquilhinha within the State of Santa
Catarina; Monza Autolocadora Ltda. (Auto Locadora Locare - "Locare"), which
operates in the cities of Uberlandia and Uberaba within the State of Minas
Gerais and Locadora Marajo Ltda. (Londrina Locadora Ltda. - "Londrina"), which
operates in the cities of Londrina and Maringa within the State of Parana.

     The acquisition of Locar for R$4,000 resulted in the recognition of
goodwill in the amount of R$2,800. The remaining purchase price was allocated
to cash equivalents and other current assets.

     Goodwill generated in the acquisition of Locare for R$5,476 amounted to
R$1,585. In addition, the market value of vehicle fleet exceeded the book value
by R$1,813, which was allocated to the cost of the fleet purchased and has been
depreciated according to the remaining useful life of such fleet. The remaining
purchase price was allocated to cash equivalents and other current assets.

     The acquisition of Londrina for R$1,875 resulted in the recognition of
goodwill in the amount of R$1,329. The remaining purchase price was allocated
to accounts receivable.


                                                                              2
<PAGE>

     Goodwill recorded on all of the above acquisitions is being amortized
using the straight-line method over a period of five years.


(2) BASIS FOR PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

     (a) Accounting records-

     The Company's accounting records are maintained in Brazilian reais (R$),
based on the criteria prescribed by Brazilian Corporate Law. The financial
statements prepared based on such accounting records and the Corporate Law
criteria (Corporate Law Method financial statements) are the basis for
determining income taxes and shareholders' rights, such as the computation of
dividends. For the subsidiary located in Argentina the accounting records are
maintained in Argentine Pesos ($) and translated to Brazilian reais at the
exchange rate at the end of each balance sheet date, except for December 31,
2001, when the exchange rate used represents the first free-floating rate for
which transactions could be settled after December 31, 2001. Such exchange rate
was calculated by converting Pesos to U.S. dollars at a rate of $1.70 to
US$1.00 and then to reais at a rate of R$2.3204 to US$1.00.


     (b) Price-level adjusted financial statements-

     Because of the highly inflationary conditions, which prevailed in Brazil
until mid-1994, two methods of inflation accounting have been in use for many
years for the purpose of minimizing the impact of the distortions in financial
statements caused by inflation.

     The first method, known as the "Corporate Law Method", provided a
simplified mechanism of accounting for the effects of inflation. However, it
did not fully recognize the effects of inflation in certain balance sheet
accounts and in substantially all components of the statements of income,
changes in shareholders' equity and cash flows, and did not require monetary
restatement of prior year comparative amounts. Under the highly inflationary
conditions, which had prevailed in Brazil, particularly until mid-1994, the
Corporate Law Method financial statements were essentially not meaningful for
analyzing companies' performance by users of financial statements. The
Corporate Law Method is used by the Company for purposes of determining the
current income and social contribution tax liabilities and the payment of
dividends and interest on capital. On December 26, 1995, the Brazilian
Government eliminated, starting January 1, 1996, the accounting for the effects
of inflation for tax and financial reporting purposes.

     The second method, known as "Constant Currency Method", was required for
publicly traded companies, and consisted of presenting supplementary fully
price-level adjusted financial statements following the guidelines of the
Comissao de Valores Mobiliarios - CVM (Brazilian Securities Commission).

     Under this method, all Brazilian reais historical amounts in the financial
statements and notes are expressed in the constant purchasing power of that
currency at the price-level adjustment as of the date of the financial
statements. Effective July 1, 1997, the Company ceased restating its financial
statements to recognize certain effects of changes in the purchasing power of
Brazilian currency due to inflation, as Brazil ceased to be considered a highly
inflationary economy as of such date under U.S. GAAP. All financial information
for periods ended after June 30, 1997 are presented at amounts restated as of
June 30, 1997, with any subsequent transactions included in nominal reais.


     (c) Price-level indices-

     With the change in legislation, the CVM did not define a specific index to
be used for the preparation of optional price-level adjusted financial
statements. The Brazilian Institute of Independent Accountants ("IBRACON") has
recommended the IGP-M as the index to be used for this purpose, prospectively,
as from January 1, 1996.


                                                                              3
<PAGE>


     Management believes that the IGP-M computed by Fundacao Getulio Vargas is
the most appropriate and consistent measure of the general price inflation in
Brazil and elected the IGP-M (which differs from IGP-DI only with regard to the
cut-off date for price data collection) for purposes of restatement of its
financial statements under the constant currency method, prospectively, from
January 1, 1996.


     (d) Presentation of financial statements-

     The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which differ in
certain aspects from the accounting principles applied by the Company and its
subsidiaries in their financial statements prepared in accordance with
accounting principles generally accepted in Brazil or for other statutory
purposes in Brazil and Argentina. Therefore, shareholders' equity and net
income included in these financial statements differ from those included in the
statutory accounting records as a result of: (i) accounting for the effects of
inflation from January 1, 1996 to June 30, 1997; and (ii) adjustments made to
reflect the requirements of accounting principles generally accepted in the
United States of America.


     (e) Translation of balances from Brazilian reais to U.S. dollars-

     The accompanying consolidated financial statements in Brazilian reais were
translated into U.S. dollars at the rate of R$2.3204 to US$1.00, the selling
Commercial Market exchange rate reported by the Central Bank of Brazil, for
December 31, 2001. Such translation was made solely for the convenience of the
readers and should not be construed as a representation that the Brazilian
reais amounts could have been converted into U.S. dollars at this or any other
rate.


(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements were prepared in conformity with
accounting principles generally accepted in the United States of America, based
on the following accounting policies:

     (a)  Consolidation-- The consolidated financial statements include the
          accounts of Localiza and its subsidiaries Total Fleet, Prime,
          Localiza System and MFA. MFA has been consolidated since September 1,
          1999, when the remaining 60% of the shares were acquired. All
          significant intercompany balances and transactions have been
          eliminated.

     (b)  Cash and cash equivalents-- Stated at cost plus interest earned to
          the balance sheet dates.

     (c)  Allowance for doubtful accounts-- Provided in an amount considered
          sufficient to cover probable losses on accounts receivable,
          considering past experience, the current financial situation of the
          Company's customers and the status of past-due receivables.

     (d)  Revenue-earning vehicles-- Comprised of car rental and fleet
          management vehicles, stated at acquisition cost, less accumulated
          depreciation. Depreciation is computed based on annual rates that are
          intended to measure the reduction necessary to approximate a
          vehicle's market value (determined by manufacturer, model and
          acquisition date) at the end of the estimated average holding period
          of the vehicle and also includes the selling costs of the vehicle.
          The average annual rates of depreciation applied for 2000 and 2001
          were 18,5% and 12,3%, respectively. The Company and its subsidiary
          Total Fleet, in order to reflect the higher depreciation of the
          vehicles during their earlier useful lives, adopted the
          sum-of-the-years-digits method, computed on a quarterly basis for all
          periods presented.


                                                                              4
<PAGE>


          The Company periodically evaluates the carrying value of its
          long-lived assets for impairment. The carrying value of a long-lived
          asset is considered impaired by the Company when the anticipated
          undiscounted cash flow from such asset is separately identifiable and
          less than its carrying value. In that event, a loss would be
          recognized based on the amount by which the carrying value exceeds
          the fair market value of the long-lived asset. Fair market value is
          determined primarily using discounted anticipated cash flows. No
          impairment losses have been recorded for any of the periods
          presented.

     (e)  Property and equipment-- Stated at price level adjusted acquisition
          cost for periods prior to June 30, 1997. Depreciation is calculated
          using the straight-line method at the annual rate of 20% for
          computers, 4% for buildings and 10% for other items. Leasehold
          improvements are amortized over the lower of the estimated useful
          life of the related asset or the term of the rental contracts.

     (f)  Auto liability claims, property damage and theft-- The Company
          accrues for possible bodily injury and death claims based on legal
          counsel's opinion of the eventual outcome of claims existing at
          period end. The Company does not contract insurance for the risks
          involving vehicle collision damage and theft; losses are recorded as
          incurred. Historically, losses have not been significant to the
          operations. Management does not expect material losses in the future,
          based on industry experience in Brazil.

     (g)  Income and social contribution taxes-- The Company accounts for
          income taxes under the provisions of SFAS n(0).109, "Accounting for
          Income Taxes", which requires the application of the comprehensive
          liability method of accounting for income taxes. SFAS 109 requires
          recognition of deferred tax assets and liabilities for the estimated
          future tax consequences of events attributable to differences between
          the financial statement carrying amounts of existing assets and
          liabilities and their respective tax bases, and operating loss and
          tax credit carryforwards.

          Deferred tax assets and liabilities are measured using enacted tax
          rates in effect for the year in which those temporary differences are
          expected to be recovered or settled. Under SFAS n(0).109, the effect
          on deferred tax assets and liabilities of changes in tax rates is
          recognized in income for the period that includes the enactment date.

          Deferred tax assets are reduced through the recognition of a
          valuation allowance, as appropriate, if, based on the weight of
          available evidence, it is more likely than not that the deferred tax
          asset will not be realized.

     (h)  Assets and liabilities denominated in foreign currencies or subject
          to monetary restatement-- Assets and liabilities denominated in
          foreign currencies are adjusted based on the exchange rate reported
          by the Central Bank of Brazil at each balance sheet date. Those
          denominated in reais, and contractually or legally subject to
          indexation, are restated to the balance sheet date by using the
          related index. Exchange gains and losses and monetary variation gains
          and losses are recorded in the profit and loss account.

     (i)  Revenues and expenses recognition-- Revenues from vehicle rentals are
          recognized as earned on a daily basis under the related rental
          contracts with customers. Revenues from fleet rental principally
          result from operating leases with fixed monthly payments and are
          recognized as earned over the term of the lease. Revenues from used
          car sales are recorded upon delivery of the used car. Revenues from
          franchise fees and services include the provision of sales and
          marketing, reservations, information systems and other services to
          franchisees. Revenues from these services are generally based on a
          percentage of franchisee rental revenue and are recognized as earned
          on a monthly basis. Initial franchise fees are recognized upon
          substantial completion of all material services and conditions of the
          franchise sale, which coincides with the date of sale and
          commencement of operations by the franchisee. Expenses are recorded
          as incurred.

     (j)  Advertising costs-- Advertising costs are expensed when incurred
          (Note 23). No advertising costs have been deferred at the balance
          sheet dates herein.


                                                                              5
<PAGE>

     (k)  Use of estimates-- The preparation of financial statements in
          accordance with generally accepted accounting principles requires
          that the Company makes estimates and use assumptions, in its best
          judgement, that affect the reported amounts of assets, liabilities
          and disclosures of contingent assets and liabilities as of the dates
          of the financial statements and the reported amounts of revenues,
          costs and expenses during the reporting periods. Significant
          estimates are used when accounting for allowance for doubtful
          accounts, fair value of marketable securities, depreciation of
          revenue-earning vehicles, goodwill, income taxes, including
          recognition of valuation allowances, contingencies and stock option
          plan, among others. Actual results in the future may differ from the
          estimates included in these financial statements.

     (l)  Interest on capital-- Interest paid to shareholders', calculated in
          accordance with Law n(0) 9,249/95, was recorded in the Company's
          books in the income statement under financial expenses, as determined
          by tax legislation. For presentation in the consolidated financial
          statements, interest paid on capital was presented as a charge to
          retained earnings.

     (m)  Constant currency presentation--

          In addition to the accounting practices described above the following
          practices were adopted in the preparation of constant currency
          financial statements:

          i.   Index- Through December 31, 1995, the financial statements were
               price-level adjusted based on the variation of UFIR. From
               January 1, 1996, through June 30, 1997, the financial statements
               were price-level adjusted based on the variation of the IGP-M.

          ii.  Nonmonetary assets and liabilities- Property and equipment,
               shareholders' equity and other nonmonetary assets and
               liabilities accounts were restated from the date the original
               transactions occurred to June 30, 1997. Income and social
               contribution taxes effects were accrued in respect of the
               increase in shareholders' equity due to the recognition of the
               effects of inflation.

     (n)  Reclassifications in 1999 and 2000-- Certain amounts have been
          reclassified to conform with the 2001 presentation, mainly related to
          the taxes on revenues reclassified from net revenues, in accordance
          with interpretations of EITF (FASB Emerging Issue Task Force) 01-14
          and 99-19.


(4) CASH AND CASH EQUIVALENTS


                                                         December 31,
                                              --------------------------------
                                                2000        2001        2001
                                              --------    --------    --------
                                                  R$         R$          US$
                                              --------    --------    --------
       Cash                                      5,227       2,463       1,062
       Cash equivalents-
           Federal treasury bonds                5,398       1,323         570
           Bank certificates of deposit         10,959      28,625      12,336
           Other                                   886       3,607       1,554
                                              --------    --------    --------
                                                22,470      36,018      15,522
                                              ========    ========    ========


     All cash and cash equivalents are denominated in reais. Cash and cash
equivalents represent highly liquid investments that are readily convertible to
known amounts of cash without any penalty or loss of market rate interest.


                                                                              6
<PAGE>


(5) MARKETABLE SECURITIES

<TABLE>
                                                             December 31,
                                                  ---------------------------------
                                                (As restated)
                                                  ---------   ---------   ---------
                                                     2000        2001        2001
                                                  ---------   ---------   ---------
                                                      R$          R$          US$
                                                  ---------   ---------   ---------
<S>                                                  <C>         <C>          <C>
       NBC - E - Central Bank of Brazil - Notes      43,496      16,082       6,931
                                                  ---------   ---------   ---------
                                                     43,496      16,082       6,931
                                                  =========   =========   =========
</TABLE>

     Based on management's investment strategy, marketable securities are
classified as "available-for-sale" securities, as defined by Statement of
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities".

     As of December 31, 2001, the securities were marked to market, with
unrealized gains of R$578 (R$501 in 2000), classified as Other Comprehensive
Income.

     The NBC-E has contractual maturity of approximately 2 years. The Company
determines the cost of the NBC-E sold based on specific identification.

     In December 31, 2000 and 2001, marketable securities are U.S. dollar
denominated and accrue interest of 12.46% per year.


(6) ACCOUNTS RECEIVABLE, NET

                                                       December 31,
                                           -----------------------------------
                                              2000         2001         2001
                                           ---------    ---------    ---------
                                               R$           R$          US$
                                           ---------    ---------    ---------
       Car rental and fleet management         27,839       43,791       18,872
       Used car sales                           6,090       10,252        4,418
       Franchising                              1,702        1,329          573
                                            ---------    ---------    ---------
                                               35,631       55,372       23,863
       Allowance for doubtful accounts         (3,053)      (4,155)      (1,790)
                                            ---------    ---------    ---------
                                               32,578       51,217       22,073
       Non-current assets                           -          737          318
                                            ---------    ---------    ---------
       Current assets                          32,578       50,480       21,755
                                            =========    =========    =========


     The long-term receivable amount is recorded as other noncurrent assets.


                                                                              7
<PAGE>


(7) REVENUE-EARNING VEHICLES, NET

     Represented by vehicles used in car rental and fleet management operations
and vehicles to be sold as follows:

<TABLE>
                                                          December 31,
                                             --------------------------------------
                                                2000          2001          2001
                                             ----------    ----------    ----------
                                                 R$            R$             US$
                                             ----------    ----------    ----------
<S>                                              <C>          <C>            <C>
       Vehicles available for sale-
           Cost                                  17,081        21,932         9,452
           Accumulated depreciation              (4,395)       (5,267)       (2,270)
                                             ----------    ----------    ----------
                                                 12,686        16,665         7,182
       Revenue-earning vehicles-
           Cost                                 301,484       375,239       161,713
           Accumulated depreciation             (61,045)      (59,121)      (25,479)
                                             ----------    ----------    ----------
                                                240,439       316,118       136,234
                                             ----------    ----------    ----------
                                                253,125       332,783       143,416
       Current assets                           167,805       229,848        99,055
                                             ----------    ----------    ----------
       Noncurrent assets                         85,320       102,935        44,361
                                             ==========    ==========    ==========
</TABLE>

     Operating vehicles are classified as current assets when the respective
replacement and sale are expected to occur within 12 months, and as noncurrent
assets, when the vehicles are expected to be replaced and sold after this
12-month period.

     Management periodically reviews depreciable lives and rates for adequacy
based on a variety of factors including general economic conditions, projected
sales price and estimated holding period of the vehicles. During 2001, certain
projected sales price being used to compute the provision for depreciation of
revenue earning vehicles were reviewed resulting in changes in the estimated
residual values to be realized when the vehicle is sold. Consequently,
depreciation expense related to revenue earning vehicles for the year ended
December 31, 2001 decreased by approximately R$12,000 due to this change in
accounting estimate. The effects of the periodic review in 2000 and 1999 are
not significant. Maintenance and repair are charged to operations currently.


(8) OTHER

<TABLE>
                                                                               December 31,
                                                                  ---------------------------------------
                                                                 (As restated)
                                                                  -----------   -----------   -----------
                                                                      2000          2001          2001
                                                                  -----------   -----------   -----------
                                                                       R$            R$           US$
                                                                  -----------   -----------   -----------
<S>                                                                     <C>          <C>            <C>
       Prepaid expenses-
          Senior Notes                                                    662           661           285
          Commission paid                                               1,374             -             -
          Other                                                            47           471           203
       Recoverable taxes
          Income tax withheld on cash investments                       2,499         5,886         2,537
          Income and social contribution taxes anticipated              3,329         3,702         1,595
          Other                                                           156           229            99
       Properties available for sale                                    1,566             -             -
       Other                                                              339           112            48
                                                                  -----------   -----------   -----------
                                                                        9,972        11,061         4,767
                                                                  ===========   ===========   ===========
</TABLE>

     Commission paid refers to premium paid on a call option purchased from
BankBoston in 2000 in the amount of R$1,694 (Note 19a).


                                                                               8
<PAGE>

(9) ESCROW DEPOSITS

                                                         December 31,
                                              ---------------------------------
                                                 2000        2001        2001
                                              ---------   ---------   ---------
                                                  R$          R$          US$
                                              ---------   ---------   ---------
       PIS (tax on revenues)                      2,700       2,649       1,141
       PIS (tax on other revenues)                  402         760         327
       COFINS (tax on other revenues)             1,894       3,512       1,514
       Finsocial (tax on revenues)                  867       2,515       1,084
       Income and social contribution taxes       4,193       2,322       1,001
       SEST/SENAT and SESC/SENAC                  2,980       3,046       1,313
       SAT                                          542         888         383
       SEBRAE                                        63          73          31
       Labor litigation                           1,265       1,297         559
       Other                                        720         558         240
                                              ---------   ---------   ---------
                                                 15,626      17,620       7,593
                                              =========   =========   =========

     These deposits were primarily made in connection with pending litigation.
Related reserves for contingencies have been recognized (Note 18), where
applicable.

(10) TRANSACTIONS WITH RELATED PARTIES

     In 1999, Localiza sold its subsidiary, Alterosa Estacionamentos Ltda.
("Alterosa"), to Locapar Participacoes e Administracao Ltda. ("Locapar"), an
affiliate company of Localiza, and recorded an accounts receivable from
Locapar. Alterosa's assets were principally comprised of land in the city of
Sao Paulo. Given that Localiza and Locapar are under common control, no gain
was recorded on the sale.

     During 2000, this land was returned to Localiza as consideration for the
receivable originating from the sale of Alterosa. The land was recorded as
other current asset - properties available for sale until January 2001, when it
was sold to third parties for R$6,095, resulting in a gain of R$4,639.

(11) COMPULSORY LOANS

                                                     December 31,
                                          ---------------------------------
                                             2000        2001        2001
                                          ---------   ---------   ---------
                                              R$          R$          US$
                                          ---------   ---------   ---------
       Nominal amount receivable-
           Vehicles                           1,980           -           -
           Other                                 83          83          36
                                          ---------   ---------   ---------
                                              2,063          83          36
                                          =========   =========   =========


     These loans represent payments in the form of compulsory loans to the
National Development Fund (FND) as required under Decree-law 2,288 of July 23,
1986. The payments were based on a percentage of the acquisition price of
vehicles while the law was in effect. The Company took legal action to recover
these loans and received a final favorable decision from the Court on July 1,
1996, setting the nominal amount to be refunded to the Company at R$6,708,
which was received in September and October 1997. Considering the delay in
receiving the amount loaned and the economic plans that omitted the
inflationary index of the original amount, the Company took additional legal
action to recover monetary restatement of these loans and received a final
favorable decision from the Court on March 16, 1998, setting the monetary
restatement to be refunded to the Company at R$7,823.


                                                                              9
<PAGE>


     On March 8, 2000, the Federal Government succeeded in excluding the
amount related to monetary restatement from the total amount due, through a
bill of review filed against the previous unfavorable decision. In 2001, the
final calculations were proceeded and it was excluded the amount of R$6,226.
Thus, the Company was entitled to receive the portion corresponding to interest
incurred in the referred period only, in the amount of R$1,597.

     This credit was used to offset taxes payable in November 30, 2001 of
R$1,370, and December 15, 2001, of R$227.


(12) PROPERTY AND EQUIPMENT, NET

                                                        December 31,
                                              -------------------------------
                                                2000        2001        2001
                                              -------     -------      ------
                                                 R$          R$          US$
                                              -------     -------      ------

Buildings                                         897         957         412
Computer equipment and software                 6,062       7,642       3,294
Leasehold improvements                          4,438       5,179       2,232
Other                                           5,010       6,198       2,671
                                              -------     -------      ------
                                               16,407      19,976       8,609
Accumulated depreciation and amortization      (9,004)     (7,894)     (3,402)
                                              -------     -------      ------
                                                7,403      12,082       5,207
Land                                              519         452         195
                                              -------     -------      ------
                                                7,922      12,534       5,402
                                              =======     =======      ======


(13) GOODWILL

                                                        December 31,
                                              -------------------------------
                                                2000        2001        2001
                                              -------     -------      ------
                                                 R$          R$          US$
                                              -------     -------      ------

Goodwill on acquisition and merger of
 franchisees-
   Auto Locadora Locar S.A.                     2,800       2,800       1,206
   Auto Locadora Locare S.A.                    1,585       1,585         683
   Londrina Locadora Ltda.                          -       1,329         573
Goodwill on Localiza Master Franchisee
Argentina S.A.                                    667           -           -
                                              -------     -------      ------
                                                5,052       5,714       2,462
Accumulated amortization                         (178)     (1,010)       (435)
                                              -------     -------      ------
                                                4,874       4,704       2,027
                                              =======     =======      ======

     Due to the current economic situation in Argentina, the goodwill on the
acquisition of MFA was totally written off in 2001. Management of Localiza does
not expect other significant future effects in the financial statements as a
consequence of the Argentina's economic situation.


                                                                              10
<PAGE>


     The following summary presents the Company's unaudited pro-forma
consolidated results of operations as if the acquisitions had been completed at
the beginning of each period. The pro-forma information is presented for
comparative purposes only and does not purport to be indicative of what would
have occurred had the acquisition actually been made at such date, nor is it
necessarily indicative of future operating results:

                                                  Year ended December 31,
                                              -------------------------------
                                                        (unaudited)
                                              -------------------------------
                                                2000                    2001
                                              -------                  ------

Net revenue                                   325,029                 422,752
Income before extraordinary gain and
  cumulative effect of a change in
  accounting principle                         47,717                  43,919
Net income                                     47,717                  43,012

(14) LOANS AND FINANCING

     As of December 31, 2001, aiming at improving cash management, the Company
had "Compror" loans indexed to the U.S. dollar, plus average negative spread of
0.50% p.a., in the principal amounts of US$11,715, obtained from Brazilian
financial institutions, without collateral and due up to May 2002. The
facilities were obtained in foreign currency aiming at reducing the costs of
the financing. As of December 31, 2001, the aforementioned financing balance,
including interest incurred in the period, amounted to R$27,195.

     As of December 31, 2000, the total balance of R$32,713 consisted of
principal of short-term financing - COMPROR plus interests accrued in
accordance with the local market interest rate (CDI-Interbank Certificate of
Deposit) plus spread from 1.81%p.a. to 2.06% p.a.. Such unsecured financing was
obtained from Brazilian financial institutions and normally contracted at a
short-term period. The facilities were used to improve cash flow management.

(15) LONG-TERM DEBT

<TABLE>
                                                                       December 31,
                                             ------------------------------------------------------------
                                                                      (As restated)
                                               2000           2001          2000        2001        2001
                                             --------     -----------     -------     -------     -------
                                             Annual interest rate (%)         R$         R$          US$
                                             ------------------------     -------     -------     -------
<S>                                             <C>         <C>           <C>         <C>          <C>
Foreign currency - US$-
Senior Notes                                    10.25       10.25         148,166     175,823      75,773
(-) Interest payable on long-term debt                                      3,662       4,345       1,873
                                                                          -------     -------     -------
Long-term portion                                                         144,504     171,478      73,900
                                                                          =======     =======     =======
</TABLE>

     On October 1, 1997, Localiza obtained resources of US$100 million from the
10.25% Senior Notes program, which were sold at 100% of face value. The Notes
are unsecured obligations of the Company and will mature on October 1, 2005.
Interest on the Notes is payable semi-annually on April 1 and October 1. The
Notes will be redeemable at the option of the Company, in whole or in part on
or after October 1, 2001. Debt issuance costs incurred with the Senior Notes
program, including fees and commissions, amounting to R$5,004, are capitalized
as debt issuance costs and are being amortized over the term of the debt as an
adjustment to financial expense.


                                                                              11
<PAGE>


     From November 1998 to December 1999, based on Circular No. 2,677 of the
Central Bank of Brazil - International Transfers of Brazilian real, the Company
invested funds abroad. Pursuant to the "Permitted Investment" clause of the
indenture, these funds were used to acquire Localiza's Senior Notes with face
values of US$23,600 and US$2,500 during 1998 and 1999, respectively. Despite
the acquired Notes could be returned to the market, for accounting purposes,
this acquisition was considered to be a debt extinguishment. As a result of the
extinguishment, the Company wrote-off debt issuance costs amounting to R$1,093
and R$102 in 1998 and 1999, respectively.

     As of December 31, 2001, the remaining debt issuance costs to be amortized
amounted to R$1,860 (R$2,394 in 2000), with R$661 (R$662 in 2000) classified as
a current assets.

     The Company and its subsidiaries are subject to certain restrictions
contained in the Senior Notes program. These restrictive covenants will limit,
except in certain circumstances, the ability of the Company and its
subsidiaries to, among other things, declare any dividend or other similar
distribution, make certain stock repurchases, make certain payments on
subordinated indebtedness or make certain investments if, after giving effect
to such actions, (i) a default or event of default under the Senior Notes
indenture would have occurred and be continuing, (ii) the Company would be
unable to incur additional indebtedness under the debt incurrence ratio test
set forth in the indenture or (iii) the amount of all such payments exceeds an
aggregate threshold amount. A default or event of default includes the failure
of the Company or its subsidiaries to observe or perform any covenant, whose
covenants include limitations on the ability of the Company and its
subsidiaries to (i) incur certain additional indebtedness, (ii) create certain
liens, (iii) enter into certain transactions with affiliates, (iv) engage in
certain sale and leaseback transactions and (v) enter into certain merger,
acquisition or sale transactions.

     Management believes to be in compliance with all covenants stated above.

(16) ACCOUNTS PAYABLE

     As of December 31, 2001, the balance of R$24,318 (R$18,484 in 2000) was
comprised of R$15,243 (R$12,982 in 2000) related to amounts payable to car
suppliers, without interest. The remaining balance principally refers to other
suppliers for maintenance services, spare parts, and car rentals.

(17) PAYROLL AND RELATED CHARGES

                                                        December 31
                                              -------------------------------
                                                2000        2001        2001
                                              -------     -------      ------
                                                 R$          R$          US$
                                              -------     -------      ------

Management compensation                         1,955       2,133         920
Accrued vacation                                1,850       2,218         956
Provision for employees' participation in
  profit                                        2,872       3,483       1,501
INSS                                              459         518         223
FGTS                                              110         130          56
Other                                             201         203          87
                                              -------     -------      ------
                                                7,447       8,685       3,743
                                              =======     =======      ======

     The Company pays bonuses based on profits to employees on a six-months
basis, according to their positions and performance evaluations.


                                                                              12
<PAGE>


(18) RESERVE FOR CONTINGENCIES

     (a) Reserves-

                                                        December 31,
                                              -------------------------------
                                                2000        2001        2001
                                              -------     -------      ------
                                                 R$          R$          US$
                                              -------     -------      ------

PIS (tax on revenues)                           3,609       3,499       1,508
PIS (tax on other revenues)                       378         818         353
COFINS (tax on other revenues)                  1,745       3,819       1,646
Finsocial (tax on revenues)                     2,588       2,674       1,152
ISS                                                 -       2,760       1,190
Income and social contribution taxes            1,059       1,444         622
SEST/SENAT and SESC/SENAC                       3,697       4,122       1,776
SEBRAE                                            114          19           8
SAT                                               570         920         396
Labor litigation                                2,520       3,408       1,469
Bodily injury and death claims                  1,785       1,866         804
Civil litigation                                  150         150          65
Other                                           2,947       1,538         663
                                              -------     -------      --------
                                               21,162      27,037      11,652
                                              =======     =======      =======

     The Company is a claimant in several lawsuits and a defendant in several
others. It has recognized the above reserves based on the opinion of its legal
and tax counsel.

     o    PIS and COFINS- The Company and its subsidiaries have pending
          litigation contesting these taxes in the amount of R$8,136 (R$5,732
          in 2000), of which R$6,921 (R$4,996 in 2000) are deposited in an
          escrow account.

     o    Finsocial (tax on revenues)- In prior years, the Company and its
          subsidiary Localiza System paid this tax at a rate of 0.5% in
          accordance with the original law. Subsequently, the rate was
          gradually increased to 2%. The Company and its subsidiary Localiza
          System are contesting this rate increase. The reserve amounts to
          R$2,674 (R$2,588 in 2000) as of December 31, 2001, of which R$2,515
          (R$867 in 2000) are deposited in an escrow account.

     o    ISS on rentals- Since June 2001, the Company and its subsidiary Total
          Fleet have been contesting the charge of this tax on its rental
          revenues. As of December 31, 2001, the contingency reserve amounts to
          R$2,760, of which R$47 are deposited in an escrow account.

     o    Income and social contribution taxes- As a result of tax inspections
          in prior years, the Company and its subsidiary Localiza System were
          assessed by the tax authorities, mainly for the following:

          (i)  The authorities alleged that certain accounting records for the
               years inspected were inadequate and, as a result, such
               authorities made certain arbitrary assessments;

          (ii) The authorities alleged that certain expenses were
               inappropriately considered deductible and were not considered
               necessary to the Company's operation for tax purposes.

          The Company and its subsidiary Localiza System based their defenses
          on prior decisions by the Supreme Court and legislation in force. As
          of December 31, 2001, total claim amounts to R$5,300 (R$4,900
          in 2000), for which the Company and its subsidiary recognized
          reserves of R$1,444 (R$1,059 in 2000), of which R$2,322 (R$4,193 in
          2000) are deposited in an escrow account.


                                                                              13
<PAGE>


     o    SEST/SENAT, SESC/SENAC, SEBRAE and SAT- The Company and its
          subsidiaries have pending litigation contesting these payroll-related
          taxes. These contingencies reserves amount to R$5,061 (R$4,381 in
          2000) as of December 31, 2001, of which R$4,007 (R$3,585 in 2000) are
          deposited in an escrow account.

     o    Labor litigation- The Company is party to several labor claims
          related principally to the payment of overtime and related social
          security charges. Management, after considering the opinion of its
          legal counsel, believes that the recorded accrual for these claims is
          sufficient to cover probable losses. The maximum liability for these
          claims as of December 31, 2001 is R$7,800, of which R$3,408 (R$2,520
          in 2000) is recognized as a reserve and R$1,297 (R$1,265 in 2000) is
          deposited in an escrow account.

     o    Bodily injury and death claims- The Company is party to several
          claims related to bodily injury and death, caused by rented vehicles.
          Management, after considering the opinion of its legal counsel,
          believes that the recorded accrual for these claims - R$1,866 in 2001
          (R$1,785 in 2000) is sufficient to cover probable losses. Of this
          amount, R$50 are deposited in an escrow account.

     o    Civil litigation- A former franchisee proposed a lawsuit against the
          Localiza System claiming the right to be reimbursed for losses
          incurred in the ordinary course of business. Management, after
          considering the opinion of its legal counsel, believes that the
          recorded accrual for this claim - R$150 in 2001 and 2000 - is
          sufficient to cover probable losses.

         (b) Other-

     o    VAT (ICMS) on transfers of vehicles- The Company was assessed mainly
          by the State of Minas Gerais for value-added tax ("VAT") on the
          transfers of vehicles between the Company's headquarters in Belo
          Horizonte and its car rental locations. In 1998, Localiza received a
          favorable response from the Minas Gerais State Treasury, declaring it
          a nontaxpayer of ICMS upon transfers of vehicles between the
          Company's headquarters in Belo Horizonte, State of Minas Gerais, to
          its car rental locations in other States. As a result, the State of
          Minas Gerais canceled most of its previous ICMS assessments. As of
          December 31, 2001, the amount of the assessments in all Brazilian
          States is approximately R$2,284 (R$2,100 in 2000) and no reserve is
          considered necessary. The Company's legal counsel has advised the
          Company that, based on Brazilian legal precedent, the likelihood of
          loss on these cases is remote.

     o    VAT (ICMS) on sales of vehicles- The Company was also assessed by
          several Brazilian States for VAT on sales of vehicles used in its
          operations. As of December 31, 2001 these assessments amount to
          approximately R$26,540 (R$18,900 in 2000) and the Company has not
          recorded any reserve. The Company has contested such assessments on
          the grounds that the sale of vehicles, classified as fixed assets in
          the statutory accounts, should not be considered a sale of goods and,
          accordingly, the VAT would not be due. The Company's legal and tax
          counsel has advised the Company that the likelihood of loss on these
          cases is remote. In 1998, Localiza also received favorable response
          from the Minas Gerais State Treasury declaring it a non-taxpayer of
          ICMS upon sales of used cars.

     o    Salary premium for education- The Company and its subsidiaries have a
          pending litigation contesting the right to offset amounts payable
          related to salary premium for education with amounts collected
          previously. The Company is contesting the constitutionality of the
          collection in the period from March 1989 to December 1996
          (approximately R$3,000 - nominal amount). This amount is not recorded
          as a receivable in the financial statements.

     o    ISS- Assessments for this tax have been made at several rental
          locations in the amount of R$5,300 in 2001 (R$7,300 in 2000). The
          assessments are basically due to the authorities claim that the
          amount paid by the customers related to fuel reimbursement are
          taxable as revenue. The Company has not recognized a reserve for
          these assessments, since legal counsel believes that the likelihood
          of loss on these cases is remote, based on precedent decisions of the
          Brazilian courts.


                                      14
<PAGE>


     Accruals for the aforementioned contingencies are determined based on an
analysis of the pending claims, as well as on the potential risks involved.

     The Company's management, after considering the opinion of its legal and
tax counsel, does not expect that the resolution of these matters will have a
material adverse effect on the Company's financial position or results of
operations and believes that no additional accrual for the mentioned reserves
is required.

(19) FINANCIAL INSTRUMENTS

     (a) Call option-

     As of December 31, 2000, R$148,166 of the Company's debt was denominated
in U.S. dollars, while all of the Company's revenues were denominated in
Brazilian reais. As of December 31, 2000, in order to hedge such debt against
the risk of devaluation of the Brazilian real against the U.S. dollar, the
Company purchased a call option at BankBoston. The option's terms were as
follows:

     o    notional amount: US$22,000;

     o    strike price: R$2.02 / US$1.00;

     o    commission paid: R$1,694;

     o    spot price (as of December 31, 2000): R$1.9554 / US$1.00;

     o    expiration date: June 08, 2001.

     Until December 31, 2000, the Company accounted for hedge transactions by
calculating the unrealized gain at each balance sheet date according to the
foreign exchange rate prevailing at those dates and comparing to the
transaction's strike price.

     As of December 31, 2000, the spot price was below strike price and, thus,
no gain has been recorded. Additionally, commission paid in the amount of
R$1,694, which was recorded as prepaid expenses, has been amortized throughout
the transaction term. The amount of R$320 has been amortized at December 31,
2000.

     Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities", as amended. Previously,
under U.S. GAAP, SFAS No. 80 - "Accounting for Futures Contracts" and now under
SFAS No.133, the Company's contracts do not meet the criteria to qualify as the
hedge of an exposure to foreign currency or interest rate risk. Therefore, the
Company has accounted for the derivative transactions by calculating the
unrealized gain or loss at each balance sheet date and changes in the fair
value of all derivatives are now being recorded in current operations.

     The effect of adopting SFAS No. 133 as of January 1, 2001, was a loss of
R$907 (net of income tax effects of R$467), and is presented as "Cumulative
effect of a change in accounting principle" in the statement of income for the
year ended December 31, 2001.

     From January 1, 2001 through June 08, 2001, the Company recorded the
realized gain in this transaction, as a consequence of changes in fair value of
these derivatives, as a component of net interest expense in the amount of R$
8,096. The gain net of income tax effects was R$ 6,816.


                                                                              15
<PAGE>


     (b) Swap operations-

     As of December 31, 2001, R$ 203,018 of the Company's debt was denominated
in U.S. dollars, while all of the Company's revenues were denominated in
Brazilian reais. The Company and Total Fleet contracted "Swap" operations,
aiming to protect its dollar denominated liabilities which were outstanding
during year ended December 31, 2001, as follows:

<TABLE>


                                    Amount                                                                  Unrealized
                                 Contracted -                                                                loss as of
    Date of                       thousands       US$ rate at        Bank's           Company's             December 31,
   contract        Due date         of US$       contract date       assets             assets                  2001
-------------     ---------      ------------    -------------     ----------      -------------------      ------------
<S>               <C>            <C>             <C>               <C>             <C>                       <C>
Short term:

 From 12/10/01       From        11,715        From 2.2932      100% CDI +        Exchange rate                     (89)
      to         01/04/02 to                    to 2.5411       2.06% p.a.     Variation + coupon
   12/21/01        05/15/02                                                     (from -15.00% to
                                                                                   26.00% p.a.)
Long term:

 From 09/05/01     09/29/05      66,300        From 2.5642      100% CDI          Exchange rate                 (26,146)
  to 10/16/01                                   to 2.7400                      Variation + coupon
                                                                                (from 9.30% to 9.80%
                                                                                      p.a.)                     -------
                                                                                                                (26,235)
                                                                                                                =======
</TABLE>

     The unrealized loss of R$89 in swaps for short-term debt was classified as
Other current liabilities.

       The unrealized gain (loss) has been determined based on the fair value
of these swap contracts which was estimated based on discounting future
contracted cash flow considering market rates, terms and conditions at each
balance sheet date. The Company's objectives were to protect its loans and
financing in foreign currency against foreign currency devaluation during the
year through "Swap" between foreign currency and fixed interest rate. These
agreements were contracted with major financial institutions in Brazil.

     (c) Other financial instruments-

     The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107
"Disclosure about Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by the Company using available market
information and valuation methodologies described below. However, considerable
judgement is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein may not be indicative
of the amounts that the Company could settle in a current market exchange. The
use of different market assumptions or valuation methodologies may have a
material effect on the estimated fair value amounts.

     The carrying values of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying amounts, face value and estimated fair values of the
Company's other financial instruments are as follows:


                                                                              16
<PAGE>


<TABLE>
                                                         R$                                         R$
                                           ------------------------------------        ----------------------------------
                                              December 31, 2000 (As restated)                   December 31, 2001
                                           ------------------------------------        ----------------------------------
                                           Book            Face           Fair          Book          Face         Fair
                                           value           value         value          value         value        value
                                           -------        -------       -------        -------       -------      -------
<S>                                        <C>             <C>           <C>            <C>           <C>          <C>
Marketable securities-
   Cost plus foreign exchange
      variation                            43,496          38,452        43,496         16,082        14,868       16,082
Debt-
   Senior Notes- principal                144,504         144,504       102,598        171,478       171,478      137,182

 Derivative contracts                       1,374               -             -         26,235             -       26,235
</TABLE>

     The methods and assumptions used to estimate the fair values of the
marketable securities and debt were based on market quotations from financial
institutions and securities dealers as of the balance sheet dates.

     (d) Net foreign currency position-

     The Company's net foreign currency position in U.S. dollars was as
follows:


                                                          Thousands of US$
                                                       ----------------------
                                                       (As restated)
                                                       ------------
                                                             2000        2001
                                                          -------      ------
Short-term assets                                          22,244       6,931
Notional amounts of derivatives                            22,000      78,015
Short-term liabilities                                     (1,873)    (13,593)
Long-term liabilities                                     (73,900)    (73,900)
Net foreign currency liabilities                          -------      ------
                                                          (31,529)     (2,547)
                                                          =======      =======

     The exchange rates as of December 31, 2001 and 2000 were R$2.3204 and
R$1.9554 per U.S. dollar, respectively.

(20) INCOME AND SOCIAL CONTRIBUTION TAXES

     (a) Deferred income and social contribution taxes-

     Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:


                                                                              17
<PAGE>




                                                       December 31,
                                              -------------------------------
                                           (As restated)
                                              -------
                                                2000        2001        2001
                                              -------     -------      ------
                                                 R$          R$          US$
                                              -------     -------      ------
Deferred tax assets:
    Depreciation                                1,459           -           -
    Allowance for doubtful accounts               280         395         170
    Reserve for contingencies                   5,613       6,794       2,928
    Gain on sale of investment                  1,185           -           -
    Income and social contribution taxes on
       goodwill recorded under
       Brazilian GAAP (Note 1a)                 3,562       2,070         892

    Tax loss carryforwards                        777       2,380       1,026
    Other                                         755         785         338
                                              -------     -------      ------
                                               13,631      12,424       5,354
    Valuation allowance                        (3,198)        (68)        (29)
                                              -------     -------      ------
                                               10,433      12,356       5,325
    Current portion                             3,380       3,093       1,333
                                              -------     -------      ----
    Long-term portion                           7,053       9,263       3,992
                                              =======     =======      ======

Deferred tax liabilities:
    Unrealized gains on "available for sale"
     securities                                   125         191          82
    Extraordinary gain                          4,181       5,416       2,334
    Depreciation                                    -       2,965       1,278
    Other                                           -          48          21
                                              -------     -------      ------
                                                4,306       8,620       3,715
    Current Portion                               649       2,701       1,164
                                              -------     -------      ------
    Long-term portion                           3,657       5,919       2,551
                                              =======     =======      ======

     The Company's management believes, based on projections of future taxable
income and the fact that tax loss carryforwards in Brazil may be used
indefinitely, it is more likely than not that the deferred income and social
contribution taxes assets will be realized.

     During 1999, the Brazilian Government changed the tax law to allow
companies to offset COFINS (tax on revenues) paid against the social
contribution. Based on management's expectations of the likelihood of realizing
the negative basis and temporary differences on social contribution, a
valuation allowance of R$3,198 was established.

     In 2001, management's expectations of future taxable income indicated that
it was more likely than not that deferred income and social contribution taxes
assets would be realized, except for the subsidiary Prime, for which a
valuation allowance of R$68 was established.


                                                                              18


<PAGE>


     (b) Income and social contribution taxes-

     Income and social contribution taxes at nominal rates are reconciled to
the amount reported as income tax expense in these financial statements, as
follows:

<TABLE>
                                                         Year ended December 31,
                                           -------------------------------------------------
                                           (As restated) (As restated)
                                           ------------- -------------
                                               1999           2000        2001         2001
                                              -------       -------      ------      -------
                                                R$             R$           R$          US$
                                              -------       -------      ------      -------
<S>                                            <C>           <C>         <C>          <C>
Income before taxes                            26,639        61,644      60,381       26,022
Nominal rate                                       37%           34%         34%          34%
                                              -------       -------      ------      -------
Income taxes at nominal rate                   (9,856)      (20,959)    (20,530)      (8,848)
Deferred income taxes adjustments between
  BRGAAP and USGAAP                               696             -           -            -
Dividends (Interest on capital)                 1,876          4,454      2,160          931
Social contribution offset against COFINS         619              -          -            -
Reversal (increase) of valuation allowance     (1,897)          (537)     2,392        1,031
Effect of deferred social contribution
   liability                                        -              -       (995)        (429)
Other                                             576            114        480          207
                                              -------       --------     -------      ------
                                               (7,986)       (16,928)   (16,493)      (7,108)
                                              =======       ========     =======      ======
</TABLE>

     The tax rates for the periods are:

  Income tax                                                             15%
  Additional income tax (for the taxable income exceeding R$240)         10%

  Social contribution tax-
     - from January 1 through April 30, 1999                              8%
     - from May 1 through January 31, 2000                               12%
     - from February 1 through December 31, 2002                          9%
     - after January 1, 2003                                              8%

     Under the Brazilian income tax law, the Company and its subsidiaries are
treated as separate taxable entities and are not entitled to file consolidated
tax returns.

(21) SHAREHOLDERS' EQUITY

     (a) Capital stock-

     As of December 31, 2001, capital stock as per the statutory records was
represented by R$116,200 (R$110,800 in 2000) corresponding to 15,360,000 issued
and outstanding nominative common shares, without par value. Capital can be
increased by 810,000 nominative preferred shares through deliberation of the
Board of Directors. The composition of outstanding capital stock and
shareholders are as follows:


                                                                             19
<PAGE>

                                                        Common
Shareholders                                            Shares              %
----------------------------------------------        ---------           -----

S.M. Participacoes e Administracao Ltda.              3,071,997           20.00
A.C.B.R. Participacoes e Administracao Ltda.          3,071,997           20.00
F.B.R. Participacoes e Administracao Ltda.            2,047,998           13.33
E.M. Participacoes e Administracao Ltda.              2,047,999           13.33
DLJMB Overseas Partners II, C.V.                      3,225,217           21.00
DLJ First ESC L.P.                                      614,400            4.00
DLJMB Funding II, Inc.                                  572,622            3.73
DLJ Diversified Partners, L.P.                          188,561            1.23
DLJ Offshore Partners II, L.P.                          158,599            1.03
DLJMB Overseas Partners II-A, C.V.                      128,443            0.84
UK Investment Plan 1997 Partners                         85,333            0.56
DLJ Diversified Partners-A, L.P.                         70,025            0.46
DLJ Millenium Partners, L.P.                             52,148            0.33
DLJ EAB Partners, L.P.                                   14,481            0.09
DLJ Millenium Partners-A, L.P.                           10,171            0.07
Group of directors                                            9            0.00
                                                     ----------          ------
                                                     15,360,000          100.00
                                                     ==========          ======

     (b) Dividends-

     In accordance with Brazilian Corporate Law, the Company's bylaw requires
that the Company's shareholders be paid a minimum annual dividend of 25% of
adjusted net profit. However, upon the vote of 100% of the shareholders present
at the general shareholders' meeting, such shareholders may declare a lower
dividend or decide not to declare dividends. In addition, upon the
recommendation of the Board of Directors that the payment of a dividend in
respect of any period would be incompatible with the financial circumstances of
the Company, the payment of the minimum dividend in respect of such period is
not mandatory. In such case, the adjusted net profit, which was not distributed
for such reason, is recorded as a special reserve and, if not absorbed by
losses in subsequent fiscal years, is paid as soon as the financial situation
of the Company permits.

     Brazilian legislation permits dividend payments limited to the accumulated
earnings in the statutory financial statements prepared in accordance with
Brazilian Corporate Law.

     For the years ended in 1999, 2000 and 2001, the Company's net income in
accordance with Brazilian Law was R$11,651, R$47,218 and R$30,697 respectively
and the accumulated earnings available for payment of dividends were R$7,526,
R$31,759 and R$39,568. The appropriation of the Company's net income was
determined in the annual shareholders' meetings, resulting in a decision to pay
dividends of R$5,167 in 1999, R$7,526 in 2000 and R$15,000 in 2001. The
appropriation of the Company's net income for 2001 will be determined at the
annual shareholders' meeting in 2002.

     The interest on capital was paid pursuant to Article n(0) 9 of Law n(0)
9,249, of December 26, 1995, and amendments introduced by Article n(0) 78 of
Law n(0) 9,430, of December 27, 1996. Interest was calculated based on
shareholders' equity, is limited to the variation in the Long-Term Interest
Rate, and is deductible for income tax purposes.

     Interest on capital paid in 1999, 2000 and 2001, amounting to R$5,256,
R$13,100 and R$6,353, respectively, were approved by the Extraordinary General
Shareholders' meetings held on December 31, 1999, December 26, 2000 and June
30, 2001. As also approved by the meetings mentioned above, the shareholders
decided to contribute to capital the amount related to interest on capital, net
of the corresponding income tax withheld.

     According to Brazilian law, the foreign capital must be registered at the
Brazilian Central Bank to allow the dividends remittance and repatriation of
capital for foreign shareholders.


                                                                              20
<PAGE>


(22) STOCK OPTION PLAN

     The Company sponsors a stock option plan, which grants employees and
directors (40 in 2000 and 36 in 2001) the option to purchase stocks at prices
annually determined. Options were granted in four installments in the last four
years, and each installment is exercisable within four years from the grant
date, 25% of the installment per year based on the terms of the grant.

The following table summarizes the status of the Company's stock option plan:

<TABLE>
                                     1999                        2000                          2001
                            ----------------------       ---------------------        ---------------------
                                         Weighted                     Weighted                     Weighted
                                         average                      average                     average
                             Shares     price (R$)       Shares      price (R$)        Shares     price (R$)
                             ------     ----------       ------      ----------        ------     ----------

<S>                          <C>             <C>          <C>            <C>          <C>             <C>
Beginning of year            133,000         10.00        272,250        13.78        407,750        15.31
Granted                      156,000         17.00        156,000        18.00        154,500        21.50
Exercised                          -             -              -            -              -
Forfeited                    (16,750)        13.78        (20,500)       15.31        (34,250)       17.01
                             -------         -----        -------        -----        -------        -----
End of year                  272,250         13.78        407,750        15.31        528,000        17.01
                             =======         =====        =======        =====        =======        =====

</TABLE>

     As of December 31, 2001, no options had been exercised.

     As allowed by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", the Company elected to continue to
measure cost for its stock option plan using the intrinsic value based method
for variable stock plan as prescribed by Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees". Under the intrinsic
value method, cost is the excess, if any, of the quoted market price of the
stock at grant date or other measurement date over the amount an employee must
pay to acquire the stock. Entities choosing to continue applying APB Opinion
No. 25 on employee stock options granted on or after January 1996 must provide
pro forma disclosures of net income, as if the fair value method of accounting
had been applied. Under this method cost is measured at the grant date based on
the fair value of the employee stock option and is recognized ratably over the
service period of the option, which is usually the vesting period. For all
periods presented, fair value of the Company's shares did not exceed the
exercise prices of the options and consequently, no compensation expense was
recorded. Additionally, the pro forma disclosures required by SFAS No. 123 have
not been presented as the effect of measuring compensation expense under SFAS
No. 123 was immaterial for all periods presented.













                                                                              21
<PAGE>


(23) SELLING, GENERAL, ADMINISTRATIVE AND OTHER EXPENSES

<TABLE>
                                                       Year ended December 31,
                                              --------------------------------------------
                                                1999        2000         2001        2001
                                              -------     -------      -------     -------
                                                 R$          R$           R$         US$
                                              -------     -------      -------     -------
<S>                                           <C>         <C>          <C>          <C>
Payroll and related charges                   (14,359)    (16,818)     (20,695)     (8,919)
Employees' profit sharing                      (1,825)     (2,633)      (3,107)     (1,339)
Outside services                               (3,126)     (2,715)      (4,422)     (1,906)
Rentals                                        (2,640)     (1,716)      (2,182)       (940)
Travel                                           (723)       (811)      (1,246)       (537)
Advertising                                    (3,543)     (4,588)      (7,737)     (3,334)
Sales commission                               (1,023)     (1,051)      (1,244)       (536)
Maintenance and office supplies                (3,255)     (3,458)      (5,530)     (2,383)
Provision for doubtful accounts                  (208)     (1,483)      (2,594)     (1,118)
Taxes                                            (151)       (150)        (772)       (333)
Other                                            (821)     (2,664)      (3,316)     (1,429)
                                              -------     -------      -------     -------
                                              (31,674)    (38,087)     (52,845)    (22,774)
                                              =======     =======      =======     =======
</TABLE>

(24) FINANCIAL EXPENSE, NET

<TABLE>
                                                         Year ended December 31,
                                           --------------------------------------------------
                                           (As restated) (As restated)
                                           ------------   ------------
                                                1999           2000         2001         2001
                                              --------    ---------      -------     --------
                                                 R$             R$           R$          US$
                                              --------    ---------      -------     --------
<S>                                             <C>          <C>          <C>           <C>
Interest income                                 21,001       15,113       17,637        7,600
Interest expense                               (26,226)     (25,668)     (32,604)     (14,051)
Taxes on financial revenue                      (1,141)        (445)      (2,010)        (866)
Monetary restatement of compulsory loans, net      802            -            -            -
Reversal of compulsory loan, net                     -       (3,472)        (383)        (165)
Net monetary variation and exchange loss       (18,218)     (10,236)     (29,328)     (12,639)
Realized gain on sale of marketable securities       -        3,036       15,737        6,782
Unrealized gain (loss) on derivatives           (1,309)           -      (26,235)     (11,306)
Realized gain (loss) on derivatives                  -        1,772        6,722        2,897
                                              --------    ---------      -------     --------
                                               (25,091)     (19,900)     (50,464)     (21,748)
                                              ========    =========      =======     ========
</TABLE>

          The unrealized gain (loss) on derivative for the years ended December
31, 1999 and 2000 were determined based on the settlement value of the
corresponding underlying, on an accrual basis.

 (25) OTHER NONOPERATING INCOME (EXPENSE), NET

                                            Year ended December 31,
                                    ------------------------------------------
                                      1999       2000         2001       2001
                                    -------     -------      ------     ------
                                       R$         R$           R$         US$
                                    -------     -------      ------     ------

Gain on property sale                     -           -       4,639       2,000
Other                                  (192)       (118)       (164)        (71)
                                    -------     -------      ------     -------
                                       (192)       (118)      4,475       1,929
                                    =======     =======      ======     =======


                                                                              22


<PAGE>


(26) LEASE-COMMITMENTS

     As of December 31, 2001, of the 69 car rental locations, 3 are located on
real estate owned by the Company, 36 refer to airport concessions (under one to
fifteen year renewable operating leases), 30 are located on real estate rented
(under one to ten year renewable), including the Company's head office
building. The amounts due under the remaining lease terms are distributed as
follows:


                            Airport
       Years              Concessions         Real state
       -----              -----------         ----------
       2002                    2,422             2,728
       2003                      711             2,408
       2004                      405             1,575
       2005                      247               748
    After 2005                    15               458
                               -----             -----
                               3,800             7,917
                               =====             =====

     The airport concessions and the leased rental locations expensed during
the years ended December 31, 1999, 2000 and 2001 amounted to R$5,036, R$5,589
and R$ 7,526, respectively.

     The guaranteed minimum lease payments to be received by the subsidiary
Total Fleet from the operating leases of cars by the fleet management business
are distributed as follow:


                         Years             Revenues
                         -----             --------
                         2002               96,631
                         2003               52,597
                         2004               13,525
                         2005                    7
                                            -------
                                            162,760
                                            =======

(27) SUMMARY FINANCIAL DATA BY BUSINESS SEGMENT

     The Company follows SFAS n(0) 131, "Disclosures about Segments of an
Enterprise and Related Information". The statement requires companies to
disclose segment data based on how management makes decisions about allocating
resources to segments and measuring their performance.

     The Company has identified four reportable operating segments: car rental,
fleet management, franchising and used car sales. The accounting policies of
the operating segments are the same as those described in the summary of
significant accounting policies. Segment amounts disclosed are after
intercompany elimination entries made in consolidation. The contribution of
these segments, as well as "corporate and other" for each of the three years
ended December 31, 2001 are summarized below:



                                                                              23
<PAGE>


<TABLE>
                                                                          Year ended December 31,
                                                         ------------------------------------------------------
                                                         (As restated)   (As restated)
                                                         -------------   ------------
                                                             1999            2000            2001        2001
                                                         ----------       ---------       --------      -------
                                                              R$              R$              R$          US$
                                                         ----------       ---------       --------      -------
<S>                                                        <C>            <C>             <C>           <C>
Net revenues-
   Car rental                                                94,014         112,254        144,253       62,167
   Fleet management                                          60,923         102,131        120,229       51,814
   Franchising                                                5,038           6,402          5,056        2,179
   Used car sales                                            84,702          89,287        150,907       65,035
                                                         ----------       ---------       --------      -------
                                                            244,677         310,074        420,445      181,195
                                                         ============     =========       ========      =======

Depreciation and amortization-
   Car rental                                                13,513          19,966         17,114        7,375
   Fleet management                                          17,586          29,837         26,881       11,585
   Other                                                      2,409           2,915          2,634        1,135
                                                         ----------       ---------       --------      -------
                                                             33,508          52,718         46,629       20,095
                                                         ==========       =========       ========      =======

Operating income-
   Car rental                                                30,109          30,180         49,113       21,166
   Fleet management                                          24,231          43,611         54,040       23,289
   Franchising                                                2,154           1,754          1,323          570
   Used car sales                                             5,963          18,959         18,565        8,000
   Corporate expenses                                        (8,126)         (9,927)       (14,037)      (6,049)
   Other depreciation                                        (2,409)         (2,915)        (2,634)      (1,135)
                                                         ----------       ---------       --------      -------
                                                             51,922          81,662        106,370       45,841
                                                         ==========       =========       ========      =======

Capital expenditures-
   Car rental                                                69,009         109,451        157,386       67,827
   Fleet management                                          92,792          79,219         96,599       41,630
   Corporate                                                    326             979            788          339
                                                         ----------       ---------       --------      -------
                                                            162,127         189,649        254,773      109,796
                                                         ==========       =========       ========      =======

Identifiable assets-
   Car rental                                               126,369         168,743        235,692      101,574
   Fleet management                                         116,621         153,074        185,875       80,105
   Used car sales                                             3,087           6,343         10,667        4,597
   Franchising                                                3,761           3,579          3,110        1,340
   Corporate                                                 58,116          72,800         60,547       26,093
                                                         ----------       ---------       --------      -------
                                                            307,954         404,539        495,891      213,709
                                                         ==========       =========       ========      =======

Identifiable revenue-earning vehicles-
   Car rental                                                76,425         117,718        169,368       72,991
   Fleet management                                         108,716         135,407        163,415       70,425
                                                         ----------       ---------       --------      -------
                                                            185,141         253,125        332,783      143,416
                                                         ==========       =========       ========      =======
</TABLE>

     Enterprise wide geographic disclosures have not been presented as all
significant operations and customers of Localiza an its subsidiaries are
located in Brazil.

(28) FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING
        STANDARDS NOT YET IN EFFECT

     In June 2001 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations". SFAS N(0) 141 is effective for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for
using the purchase method for which the date of acquisition is July 1, 2001, or
later. SFAS N(0) 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method. The Company does not
anticipate that this new standard will have any impact on its financial
position or results of operations.


                                                                             24
<PAGE>


     In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS N(0) 142 is effective for fiscal years beginning after December
15, 2001. Early application of SFAS No. 142 is permitted for entities with
fiscal years beginning after March 15, 2001, provided that the first interim
financial statements have not previously been issued. With the adoption of SFAS
N(0) 142, goodwill is no longer subject to amortization over its estimated
useful life, but rather it will be subject to at least an annual assessment for
impairment by applying a fair-value-based test. Additionally, negative goodwill
is recognized as an extraordinary gain at the time of the business combination.
The Company anticipates that the adoption of this new standard will result in
the discontinuation of annual goodwill amortization of R$1,143 in 2002. The
Company does not anticipate that the adoption of this standard will have a
significant effect on its financial position or results of operations.

     In June 2001 the FASB issued SFAS N(0) 143, "Accounting for Asset
Retirement Obligations". The new standard will be effective for financial
statements issued for fiscal years beginning after June 15, 2002, with early
application encouraged. The Company plans to adopt this new standard in January
1, 2003. SFAS N(0) 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This Statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized
as part of the carrying amount of the long-lived asset. The Company does not
anticipate that this new standard will have a significant impact on its
financial position or results of operations.

     In August 2001 the FASB issued SFAS N(0) 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The new standard will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001, with early application encouraged. The Company plans to
adopt this new standard in January 1, 2002. SFAS N(0) 144 supersedes SFAS N(0)
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", although it retains the fundamental provisions of
SFAS N(0) 121. SFAS N(0) 144 also expands the scope of discontinued operations
presentation to a component of an entity and eliminates the exception to
consolidation for a temporarily controlled subsidiary. The Company does not
anticipate that this new standard will have a significant impact on its
financial position or results of operations.

     In April 2002, the FASB issued SFAS N(0) 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS 145 updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds Statement 4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB Opinion 30 will now be used to classify those gains
and losses. Statement 64 amended Statement 4, and is no longer necessary
because Statement 4 has been rescinded. Statement 44 was issued to establish
accounting requirements for the effects of transition to the provisions of the
Motor Carrier Act of 1980. Because the transition has been completed, Statement
44 is no longer necessary. SFAS 145 amends Statement 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. This amendment is consistent with the FASB's goal of requiring
similar accounting treatment for transactions that have similar economic
effects. SFAS 145 also makes technical corrections to existing pronouncements.
The Company does not believe the adoption of SFAS 145 will have a material
impact on the Company's financial position, results of operations or cash
flows.


                                                                              25
<PAGE>


(29) VALUATION AND QUALIFYING ACCOUNTS

Following are disclosures regarding the Company's valuation and qualifying
accounts:

<TABLE>
                                                   Year ended           Year ended          Year ended
                                                  December 31,         December 31,        December 31,
               Description                            1999                 2000                2001
----------------------------------------          ------------         ------------        ------------
Reserve for contingencies-
-------------------------
<S>                                                 <C>                  <C>                 <C>
Balances as of beginning of the year                  14,030               17,044              21,162
     Charges to costs and expenses                     8,981                5,589               8,099
     Deductions                                       (5,967)              (1,471)             (2,224)
                                                  ----------           ----------          ----------
Balances as of end of the year                        17,044               21,162              27,037
                                                  ==========           ==========          ==========
</TABLE>

<TABLE>

                                                   Year ended           Year ended           Year ended
                                                  December 31,         December 31,         December 31,
               Description                            1999                 2000                 2001
----------------------------------------          ------------         ------------        ------------
Allowance for doubtful accounts-
-------------------------------
<S>                                                  <C>                  <C>                  <C>
Balances as of beginning of the year                   2,787                2,433                3,053
     Charges to costs and expenses                     1,131                1,475                3,236
     Deductions                                       (1,485)                (855)              (2,134)
                                                  ----------           ----------           ----------
Balances as of end of the year                         2,433                3,053                4,155
                                                  ==========           ==========           ==========
</TABLE>


(30) RESTATEMENT OF DECEMBER 31, 2000 AND 1999 AMOUNTS

     Subsequent to the filing of its December 31, 2000 financial statements, it
was determined that the acquisition of their Senior Notes made in 1998 and
1999, pursuant to a "permitted investment" clause in the related indenture,
should have been considered a debt extinguishment for accounting purposes. This
determination was made based on guidance set forth in SFAS No. 125, "Accounting
for transfers and servicing of financial assets and extinguishment of
liabilities", replaced by SFAS No. 140. As a result, the Company's financial
statements as of December 31, 2000 and for the two years then ended have been
restated from previously reported amounts to reflect this change in accounting.
A summary of the significant effects of this restatement is as follows:



                                                                              26
<PAGE>


Consolidated balance sheet-
---------------------------

<TABLE>
                                                                           2000
                                                              ----------------------------
                                                                   As
                                                               previously            As
                                                                reported          restated
                                                              --------------    ----------
<S>                                                              <C>               <C>
Available for sale market securities, at fair value              81,010            43,496
Other current assets                                             10,188             9,972
Other noncurrent assets                                           2,530             1,980
Total assets                                                    442,887           404,539

Interest payable on long-term debt                                4,956             3,662
Deferred income and social contribution taxes - current               -               649
Long-term debt                                                  195,540           144,504
Deferred income and social contribution taxes - noncurrent          810             3,657
Accumulated earnings                                             33,615            46,156
Cumulative other comprehensive income                             2,430               375
Shareholders' equity                                            153,568           164,054
Total liabilities and shareholders' equity                      442,887           404,539


Consolidated statements of income and other comprehensive income-
-----------------------------------------------------------------
<CAPTION>

                                                                                  December 31,
                                                            ------------------------------------------------------
                                                                      1999                         2000
                                                            --------------------------   -----------------------
                                                                As                            As
                                                            previously    As restated     previously      As
                                                             reported                      reported    restated
                                                            ----------    -----------     ----------   --------
<S>                                                          <C>           <C>             <C>         <C>
Financial expense, net                                       (29,360)      (25,091)        (19,841)      (19,900)
Deferred income and social contribution taxes                 (4,822)       (5,890)           (504)         (489)
Extraordinary gain, net                                            -         1,394               -             -
Net income                                                    15,336        19,931          44,699        44,655
Total change in market value of marketable securities          2,341           871           3,935         2,666
Unrealized gains on marketable securities                      2,341           871             899         (370)
Deferred income and social contribution taxes on
    unrealized gains                                            (585)         (218)           (225)          92
Other comprehensive income                                     1,756           653             674         (278
Comprehensive income                                          17,092        20,584          45,373       44,377


Consolidated statements of cash flows-
--------------------------------------

                                                                             December 31,
                                                            ----------------------------------------------------
                                                                      1999                         2000
                                                            -------------------------     ----------------------
                                                                As                            As
                                                            previously    As restated     previously       As
                                                             reported                      reported     restated
                                                            ----------    -----------     ----------   ---------

Cash flows from operating activities                          (6,993)       (2,436)          6,727        11,511
Cash flows from investing activities                         (19,483)      (21,705)          7,279         2,570
Cash flows from financing activities                         (24,071)      (26,406)          1,458        1,383



                                                * * * * * * * * * * *

                                                                                                              27
</TABLE>


<PAGE>


Total Fleet S.A.

Financial Statements Together with Report
of Independent Public Accountants

Expressed in Brazilian reais


As of December 31, 2000 and 2001 and for the three years in the period ended
December 31, 2001.





<PAGE>





Report of Independent Public Accountants

To the Shareholders of

Total Fleet S.A.:


      (1) We have audited the accompanying balance sheets of TOTAL FLEET S.A.
(a Brazilian corporation and a wholly owned subsidiary of Localiza Rent a Car
S.A.) as of December 31, 2000 and 2001 and the related statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2001, expressed in Brazilian reais. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     (2) 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.

     (3) In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Total Fleet S.A. as
of December 31, 2000 and 2001, the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States
of America.

     (4) Also, in our opinion, the amounts in the accompanying financial
statements as of and for the year ended December 31, 2001, translated into U.S.
dollars, have been computed on the basis set forth in Note 2 (c).


/s/ DELOITTE TOUCHE TOHMATSU

Belo Horizonte, Brazil,
    June 3, 2002


<PAGE>


                                TOTAL FLEET S.A.

                  BALANCE SHEETS - DECEMBER 31, 2000 AND 2001

           (Stated in thousands of Brazilian reais and U.S. dollars)


                                 A S S E T S

                                                          December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$          US$
                                             -------      -------      -------
CURRENT ASSETS:
    Cash and cash equivalents                 12,094        8,143        3,509
    Accounts receivable, net                  13,547       16,759        7,222
    Revenue-earning vehicles, net             50,087       60,480       26,065
    Deferred income and social
     contribution taxes                          287          140           60
    Recoverable taxes                              -        3,670        1,581
    Other                                        179          192           83
                                             -------      -------      -------
                                              76,194       89,384       38,520
                                             -------      -------      -------
NONCURRENT ASSETS:
    Accounts receivable, net                       -          737          318
    Revenue-earning vehicles, net             85,320      102,935       44,360
    Escrow deposits                              395          629          271
    Deferred income and social
     contribution taxes                          403          354          153
                                             -------      -------      -------
                                              86,118      104,655       45,102
                                             -------      -------      -------

OFFICE EQUIPMENT, NET                            257          387          167
                                             -------      -------      -------
                             Total assets    162,569      194,426       83,789
                                             =======      =======      =======

     The accompanying notes are an integral part of these balance sheets.


<PAGE>


                                TOTAL FLEET S.A.

                  BALANCE SHEETS - DECEMBER 31, 2000 AND 2001

           (Stated in thousands of Brazilian reais and U.S. dollars)

                      LIABILITIES AND SHAREHOLDERS' EQUITY

                                                          December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$          US$
                                             -------      -------      -------

CURRENT LIABILITIES:
    Loans and financing                        4,240        4,745        2,045
    Accounts payable                           8,518        5,882        2,535
    Payroll and related charges                1,176        1,302          561
    Income and social contribution taxes       1,385            -            -
    Deferred income and social contribution
     taxes                                         -          742          320
    Taxes, other than on income                  412          381          164
    Advances from customers                      470          139           60
    Accounts payable to related parties and
     others                                      963        2,713        1,169
                                             -------      -------      -------
                                              17,164       15,904        6,854
                                             -------      -------      -------

NONCURRENT LIABILITIES:
    Reserve for contingencies                    492        1,262          544
    Deferred income and social contribution
     taxes                                         -        1,264          545
    Advances from customers                      409            -            -
    Other                                        235          134           57
                                             -------      -------      -------
                                               1,136        2,660        1,146
                                             -------      -------      -------

SHAREHOLDERS' EQUITY:
    Capital stock                            110,134      121,014       52,152
    Accumulated earnings                      34,135       54,848       23,637
                                             -------      -------      -------
                                             144,269      175,862       75,789
                                             -------      -------      -------
       Total liabilities and shareholders'
          equity                             162,569      194,426       83,789
                                             =======      =======      =======

     The accompanying notes are an integral part of these balance sheets.


<PAGE>


                                      TOTAL FLEET S.A.

                                    STATEMENTS OF INCOME

                    FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                  (Stated in thousands of Brazilian reais and U.S. dollars)


<TABLE>
                                                               December 31,
                                             ----------------------------------------------
                                              1999          2000         2001        2001
                                             -------      -------      -------      -------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                           <C>         <C>          <C>           <C>
NET REVENUES:
    Fleet management                          60,894      102,174      120,463       51,915
    Used car sales                            28,105       28,914       53,494       23,054
                                             -------      -------      -------      -------
       Total net revenues                     88,999      131,088      173,957       74,969
                                             -------      -------      -------      -------

EXPENSES AND COSTS:
    Direct operating                         (12,538)     (18,156)     (28,331)     (12,209)
    Cost of used car sales                   (22,838)     (20,722)     (39,165)     (16,879)
    Taxes on revenues                         (2,581)      (4,444)      (5,387)      (2,322)
    Selling, general and administrative      (10,822)     (12,649)     (15,364)      (6,621)
    Depreciation of vehicles                 (17,586)     (29,837)     (26,881)     (11,585)
    Other depreciation and amortization          (78)         (98)        (128)         (55)
                                             -------      -------      -------      -------
       Total operating expenses and costs    (66,443)     (85,906)    (115,256)     (49,671)
                                             -------      -------      -------      -------
       Operating income                       22,556       45,182       58,701       25,298
                                             -------      -------      -------      -------

FINANCIAL INCOME (EXPENSE), NET              (14,760)          (5)         160           69
OTHER NONOPERATING INCOME (EXPENSE), NET           -          (69)           1            -
                                             -------      -------      -------      -------
       Income before taxes                     7,796       45,108       58,862       25,367
                                             -------      -------      -------      -------

INCOME AND SOCIAL CONTRIBUTION TAXES:
    Current                                   (1,167)     (15,292)     (13,147)      (5,666)
    Deferred                                     551          139       (2,202)        (949)
                                             -------      -------      -------      -------
                                                (616)     (15,153)     (15,349)      (6,615)
                                             -------      -------      -------      -------
       Net income                              7,180       29,955       43,513       18,752
                                             =======      =======      =======      =======

                The accompanying notes are an integral part of these statements.
</TABLE>


<PAGE>


                                TOTAL FLEET S.A.

                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                    (Stated in thousands of Brazilian reais)


                                             Capital    Accumulated
                                              stock       earnings      Total
                                             -------    -----------    -------

BALANCE DECEMBER 31, 1998                         10            -           10
Capital increase (Note 1)                    102,964            -      102,964
Interest on capital (Note 14b)                     -       (3,000)      (3,000)
Net income                                         -        7,180        7,180
                                             -------      -------      -------
BALANCE DECEMBER 31, 1999                    102,974        4,180      107,154
Capital increase (Note 1)                      7,160            -        7,160
Net income                                         -       29,955       29,955
                                             -------      -------      -------
BALANCE DECEMBER 31, 2000                    110,134       34,135      144,269
Capital increase (Note 1)                     10,880            -       10,880
Dividends paid (Note 14b)                          -      (10,000)     (10,000)
Interest on capital (Note 14b)                     -      (12,800)     (12,800)
Net income                                         -       43,513       43,513
                                             -------      -------      -------
BALANCE DECEMBER 31, 2001                    121,014       54,848      175,862
                                             =======      =======      =======


       The accompanying notes are an integral part of these statements.


<PAGE>


<TABLE>
                                                                                   Page 1/2

                                      TOTAL FLEET S.A.

                                  STATEMENTS OF CASH FLOWS

                    FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                  (Stated in thousands of Brazilian reais and U.S. dollars)

                                                        Year ended December 31,
                                             ----------------------------------------------
                                              1999          2000         2001         2001
                                             -------      -------      -------      -------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                            <C>         <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                 7,180       29,955       43,513       18,752
    Non-cash adjustments-
       Depreciation and amortization          17,664       29,935       27,009       11,640
       Vehicles written off as a result
         of theft                                387          970        1,364          588
       Deferred taxes on income                 (551)        (139)       2,202          949
       Provision for contingencies               338          293          782          337
       Unrealized loss on derivative               -            -           67           29
       Accrued interest expense                  169           47          677          292
       Accrued interest income                     -          (38)          (4)          (2)
       Allowance for doubtful accounts           143          530          385          166
       Other                                       -           18         (101)         (44)
                                             -------      -------      -------      -------
                                              25,330       61,571       75,894       32,707
                                             -------      -------      -------      -------
(Increase) decrease in assets:
    Accounts receivable                       (4,655)      (9,565)      (4,334)      (1,868)
    Revenue-earning vehicles-
       New acquisitions                      (92,560)     (79,053)     (96,341)     (41,519)
       Cost of used cars sales                23,499       21,555       40,088       17,276
   Escrow deposits                              (187)        (170)        (234)        (101)
   Recoverable taxes                               -            -       (3,670)      (1,581)
   Other                                        (212)         228           (9)          (4)
                                             -------      -------      -------      -------
                                             (74,115)     (67,005)     (64,500)     (27,797)
                                             -------      -------      -------      -------

Increase (decrease) in liabilities:
    Accounts payable                           2,598        6,277       (2,636)      (1,136)
    Payroll and related charges                1,396         (740)         126           54
    Income and social contribution taxes           -        1,190       (1,385)        (597)
    Taxes, other than on income                  438           16          (31)         (13)
    Advances from customers                   (2,189)      (1,985)        (740)        (319)
    Reserve for contingencies                      -         (186)         (12)          (5)
    Other                                          -          813         (237)        (102)
                                             -------      -------      -------      ------
                                               2,243        5,385       (4,915)      (2,118)
                                             -------      -------      -------      -------
Net cash provided by (used in) operating
     activities                              (46,542)         (49)       6,479        2,792
                                             =======      =======      =======      =======

</TABLE>

<PAGE>

<TABLE>
                                                                                   Page 2/2

                                      TOTAL FLEET S.A.

                                  STATEMENTS OF CASH FLOWS

                    FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                  (Stated in thousands of Brazilian reais and U.S. dollars)


                                                        Year ended December 31,
                                             ----------------------------------------------
                                              1999          2000         2001         2001
                                             -------      -------      -------      -------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                            <C>         <C>          <C>          <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to office equipment                (271)        (165)          (258)      (111)
                                             -------      -------      ---------    ---------
Net cash used in investing activities           (271)        (165)          (258)      (111)
                                             -------      -------      ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Short-term loans-
       New proceeds                           16,595       38,708         41,403     17,843
       Repayments                            (13,630)     (37,433)       (41,575)   (17,917)
   Transactions with related parties-
       Proceeds                                    -            -          1,920        827
       Capital increase                       50,711        7,160         10,880      4,689
       Dividends paid                              -            -        (10,000)    (4,310)
       Interest on capital                    (3,000)           -        (12,800)    (5,516)
                                             -------      -------      ---------    -------
Net cash provided by (used in) financing
     activities                               50,676        8,435        (10,172)    (4,384)
                                             -------      -------      ---------    -------

NET INCREASE IN CASH AND CASH EQUIVALENTS      3,863        8,221         (3,951)    (1,703)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                                                  10        3,873         12,094      5,212
                                             -------      -------      ---------    -------
CASH AND CASH EQUIVALENTS AT END OF YEAR       3,873       12,094          8,143      3,509
                                             =======      =======      =========    =======

Supplemental disclosures of cash flow information-

Cash paid during the year for:
   Interest                                      145          416          715          308
   Income and social contribution taxes          954       14,053       16,410        7,072
                                             -------      -------      -------      -------
                                               1,099       14,469       17,125        7,380
                                             =======      =======      =======      =======

Supplemental information of non-cash
    financing activities-

Capitalization of indebtedness                (5,382)           -            -            -
Capitalization of vehicles                    55,866            -            -            -
Capitalization of assets other than vehicles   1,769            -            -            -
                                             -------      -------      -------      -------
                                              52,253            -            -            -
                                             =======      =======      =======      =======

</TABLE>

               The accompanying notes are an integral part of these statements.


<PAGE>


                                TOTAL FLEET S.A.

                       NOTES TO THE FINANCIAL STATEMENTS

                        DECEMBER 31, 1999, 2000 AND 2001

             (Amounts expressed in thousands of Brazilian reais and

                   U.S. dollars, unless otherwise indicated)



(1) THE COMPANY AND ITS OPERATIONS

     Total Fleet S.A. ("the Company" or "Total Fleet") is a Brazilian closely
held corporation and a wholly owned subsidiary of Localiza Rent a Car S.A.
("Localiza"), formed on December 1, 1997, and formerly named Smart Fleet
Management S.A.. The Company initiated its operations on January 1, 1999.
Before that date, fleet management operations were carried on by Localiza.

     The Company leases cars to corporations under contracts which can be
canceled within 30 days advance notice and payment of charges equivalent to 30%
to 50% of the contracts' remaining payments, depending on terms and renewal
covenants. The lease period for new cars varies from 12 to 48 months with an
average of 36 months. On December 31, 2001, the fleet was composed of 12,300
vehicles (10,850 in 2000).

     Fleet management maintenance and insurance costs are shared between the
Company and the lessee in a proportion agreed by the parties (individually
contracted).

     Total Fleet provides maintenance and technical assistance to the customers
through contracted service providers.


     The Company uses the administrative and advertisement structure of
Localiza, as well as the intermediation services of purchase and sale of
vehicles and accessories is rendered by Prime - Prestadora de Servicos S/C
Ltda. ("Prime"), a subsidiary of Localiza.

     (a) Capital increases-

     On January 1, 1999, Localiza increased the Company's capital with assets
(R$34,976, including R$33,206 in vehicles) and R$5,382 in liabilities
(including R$4,648 in advances from customers). The amounts corresponded to
book value in Localiza as of December 31, 1998.

     During the first quarter of 1999, Localiza increased the Company's capital
with cash in the amount R$5,093.

     On January 1, 1999, Localiza sold part of its fleet to the Company at net
book value, in the amount of R$22,660. To fund such acquisition, the Company
assumed indebtedness of Localiza, subject to exchange rate variation.


                                                                               1
<PAGE>


     As of January 31, 1999, Localiza capitalized the indebtedness arising from
the aforementioned car sale, in the amount of R$37,657, in addition to R$600 in
cash. During 1999, Localiza made several advances for future capital increases,
all of them capitalized on December 31, 1999, amounting to R$27,470, in
addition to R$2,550 of capitalized interest on capital, net of the income tax
withheld.

     On September 30, 2000, advances for future capital increase, in the amount
of R$7,160, were fully capitalized by Localiza.

     On December 31, 2001, the shareholders increased the capital, in the
amount of R$10,880, correspondent to interest on capital, net of the income tax
withheld.


(2) BASIS FOR PRESENTATION OF THE FINANCIAL STATEMENTS

     (a) Accounting records-

     The Company's accounting records are maintained in Brazilian reais (R$),
based on the criteria prescribed by the Brazilian Corporate Law. The financial
statements prepared based on such accounting records and the Corporate Law
criteria (Corporate Law Method financial statements) are the basis for
determining income taxes and shareholders' rights, such as the computation of
dividends.

     (b) Presentation of the financial statements-

     The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which differ in
certain aspects from the accounting principles applied by the Company in its
financial statements prepared in accordance with accounting principles
generally accepted in Brazil or for other statutory purposes in Brazil.
Therefore, shareholders' equity and net income included in these financial
statements differ from those included in the statutory accounting records as a
result of adjustments made to reflect the requirements of accounting principles
generally accepted in the United States of America.

     (c) Translation of balances from Brazilian reais to U.S. dollars-

     The accompanying financial statements in Brazilian reais were translated
into U.S. dollars at the rate of R$2.3204 to US$1.00, the selling Commercial
Market exchange rate reported by the Central Bank of Brazil, for December 31,
2001. Such translation was made solely for the convenience of the readers and
should not be construed as a representation that the Brazilian reais amounts
could have been converted into U.S. dollars at this or any other rate.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The financial statements were prepared in conformity with accounting
principles generally accepted in the United States of America, based on the
following accounting policies:


                                                                               2

<PAGE>


(a)  Cash and cash equivalents-- Stated at cost plus interest earned to the
     balance sheet dates.

(b)  Allowance for doubtful accounts-- Provided in an amount considered
     sufficient to cover probable losses on accounts receivable, considering
     past experience, the current financial situation of the Company's
     customers and the status of past-due receivables.

(c)  Revenue-earning vehicles-- Comprised of fleet management vehicles, stated
     at acquisition cost, less accumulated depreciation. Depreciation is
     computed based on annual rates that are intended to measure the reduction
     necessary to approximate a vehicle's market value (determined by
     manufacturer, model and acquisition date) at the end of the estimated
     average holding period of the vehicle and also includes the selling costs
     of the vehicle. The average annual rates of depreciation applied for 2000
     and 2001 were 19.3% and 13.8%, respectively. The Company, in order to
     reflect the higher depreciation of the vehicles during their earlier
     useful lives, adopted the sum-of-the-years-digits method, computed on a
     quarterly basis for all periods presented.

     The Company periodically evaluates the carrying value of its long-lived
     assets for impairment. The carrying value of a long-lived asset is
     considered impaired by the Company when the anticipated undiscounted cash
     flow from such asset is separately identifiable and less than its carrying
     value. In that event, a loss would be recognized based on the amount by
     which the carrying value exceeds the fair market value of the long-lived
     asset. Fair market value is determined primarily using discounted
     anticipated cash flows. No impairment losses have been recorded for any of
     the periods presented.

(d)  Office equipment-- Stated at acquisition cost. Depreciation is calculated
     using the straight-line method at the annual rate of 20% for computers and
     10% for other items. Leasehold improvements are amortized over the lower
     of the estimated useful life of the related asset or the term of the
     rental contracts.

(e)  Auto liability claims, property damage and theft-- The Company accrues for
     possible bodily injury and death claims based on legal counsel's opinion
     of the eventual outcome of claims existing at period end. The Company does
     not contract insurance for the risks involving vehicle collision damage
     and theft; losses are recorded as incurred. Historically, losses have not
     been significant to the operations. Management does not expect material
     losses in the future, based on industry experience in Brazil.

(f)  Income and social contribution taxes-- The Company accounts for income
     taxes under the provisions of SFAS n(0).109, "Accounting for Income
     Taxes", which requires the application of the comprehensive liability
     method of accounting for income taxes. SFAS 109 requires recognition of
     deferred tax assets and liabilities for the estimated future tax
     consequences of events attributable to differences between the financial
     statement carrying amounts of existing assets and liabilities and their
     respective tax bases, and operating loss and tax credit carryforwards.

     Deferred tax assets and liabilities are measured using enacted tax rates
     in effect for the year in which those temporary differences are expected
     to be recovered or settled. Under SFAS n(0).109, the effect on deferred
     tax assets and liabilities of changes in tax rates is recognized in income
     for the period that includes the enactment date.


                                                                               3

<PAGE>


     Deferred tax assets are reduced through the recognition of a valuation
     allowance, as appropriate, if, based on the weight of available evidence,
     it is more likely than not that the deferred tax asset will not be
     realized.

(g)  Assets and liabilities denominated in foreign currencies or subject to
     monetary restatement-- Assets and liabilities denominated in foreign
     currencies are adjusted based on the exchange rate reported by the Central
     Bank of Brazil at each balance sheet date. Those denominated in reais, and
     contractually or legally subject to indexation, are restated at the
     balance sheet date by using the related index. Exchange gains and losses
     and monetary variation gains and losses are recorded in the profit and
     loss account.

(h)  Revenues and expenses recognition-- Revenues from renting vehicles to
     customers principally result from operating leases with fixed monthly
     payments and are recognized as earned over the term of the lease. Revenues
     from used car sales are recorded upon delivery of the car. Expenses are
     recorded as incurred.

(i)  Advertising costs-- Advertising costs are expensed when incurred (Note
     15). No advertising costs have been deferred at the balance sheet dates
     herein.

(j)  Use of estimates-- The preparation of financial statements in accordance
     with generally accepted accounting principles requires that the Company
     makes estimates and use assumptions, in its best judgement, that affect
     the reported amounts of assets, liabilities and disclosures of contingent
     assets and liabilities as of the dates of the financial statements and the
     reported amounts of revenues, costs and expenses during the reporting
     periods. Significant estimates are used when accounting for allowance for
     doubtful accounts, depreciation of revenue-earning vehicles, income taxes,
     including recognition of valuation allowances, and contingencies, among
     others. Actual results in the future may differ from the estimates
     included in these financial statements.

(k)  Interest on capital-- Interest paid to shareholders', calculated in
     accordance with Law n(0) 9,249/95, was recorded in the Company's books in
     the income statement under financial expenses, as determined by tax
     legislation. For presentation in the financial statements, interest paid
     on capital was presented as a charge to retained earnings.

(l)  Reclassifications in 1999 and 2000-- Certain amounts have been
     reclassified to conform with the 2001 presentation, mainly related to the
     taxes on revenues reclassified from net revenues, in accordance with
     interpretations of EITF (FASB Emerging Task Force) 01-14 and 99-19.

(4) CASH AND CASH EQUIVALENTS

                                                       December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$           US$
                                             -------      -------      -------

Cash                                             125          577          249
Cash equivalents-
    Federal treasury bonds                     4,717        1,324          570
    Bank certificates of deposit               6,786        5,054        2,178
    Other                                        466        1,188          512
                                             -------      -------      -------
                                              12,094        8,143        3,509
                                             =======      =======      =======


                                                                               4

<PAGE>

     All cash and cash equivalents are denominated in reais. Cash and cash
equivalents represent highly liquid investments that are readily convertible to
known amounts of cash without any penalty or loss of market rate interest.

(5) ACCOUNTS RECEIVABLE, NET

                                                       December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$           US$
                                             -------      -------      -------
Fleet management                              12,131       14,573        6,280
Used car sales                                 2,089        3,981        1,716
                                             -------      -------      -------
                                              14,220       18,554        7,996
Allowance for doubtful accounts                 (673)      (1,058)        (456)
                                             -------      -------      -------
                                              13,547       17,496        7,540
Non-current assets                                 -          737          318
                                             -------      -------      -------
Current assets                                13,547       16,759        7,222
                                             =======      =======      =======

     Revenues from one customer of the Company represents approximately 13% of
the company's revenue.

(6) REVENUE-EARNING VEHICLE, NET

     Represented by vehicles used in fleet management operations and vehicles
to be sold as follows:

                                                         December 31,
                                             ---------------------------------
                                              2000          2001         2001
                                             -------      -------      -------
                                               R$            R$           US$
                                             -------      -------      -------
Vehicles available for sale-
    Cost                                       5,432       13,934        6,005
    Accumulated depreciation                  (1,755)      (4,079)      (1,758)
                                             -------      -------      -------
                                               3,677        9,855        4,247
Revenue-earning vehicles-
    Cost                                     172,828      196,478       84,674
    Accumulated depreciation                 (41,098)     (42,918)     (18,496)
                                             -------      -------      -------
                                             131,730      153,560       66,178
                                             -------      -------      -------
                                             135,407      163,415       70,425
    Current assets                            50,087       60,480       26,065
                                             -------      -------      -------
    Noncurrent assets                         85,320      102,935       44,360
                                             =======      =======      =======

     Operating vehicles are classified as current assets when the respective
replacement and sale are expected to occur within 12 months, and as noncurrent
assets, when the vehicles are expected to be replaced and sold after this
12-month period.


                                                                               5

<PAGE>

     Management periodically reviews depreciable lives and rates for adequacy
based on a variety of factors including general economic conditions, projected
sales price and estimated holding period of the vehicles. During 2001, certain
projected sales price being used to compute the provision for depreciation of
revenue earning vehicles were reviewed resulting in changes in the estimated
residual values to be realized when the vehicle is sold. Consequently,
depreciation of revenue earning vehicles for the year ended December 31, 2001
decreased approximately R$4,300. The effects of the periodic review in 2000 and
1999 are not significant. Maintenance and repair are charged to operations
currently.

(7) ESCROW DEPOSITS

                                                       December 31,
                                             ---------------------------------
                                              2000          2001         2001
                                             -------      -------      -------
                                               R$             R$         US$
                                             -------      -------      -------
PIS (tax on revenues)                             39           39           17
PIS (tax on other revenues)                       22           54           23
COFINS (tax on other revenues)                   102          248          107
SEST/SENAT                                       118          118           51
SAT                                              102          158           68
Other                                             12           12            5
                                             -------      -------      -------
                                                 395          629          271
                                             =======      =======      =======

     These deposits were primarily made in connection with pending litigation.
Related reserves for contingencies have been recognized (Note 12), where
applicable.

(8) OFFICE EQUIPMENT, NET

                                                            December 31,
                                             ---------------------------------
                                              2000          2001         2001
                                             -------      -------      -------
                                               R$            R$          US$
                                             -------      -------      -------
Computer equipment and software                  315          455          196
Furniture and fixtures                            67          130           56
Other                                             54          110           48
                                             -------      -------      -------
                                                 436          695          300
Accumulated depreciation and amortization       (179)        (308)        (133)
                                             -------      -------      -------
                                                 257          387          167
                                             =======      =======      =======

(9) LOANS AND FINANCING

     As of December 31, 2001, aiming at improving cash management, the Company
had "Compror" loans indexed to the U.S. dollar, plus average spread of 8.65%
p.a., in the principal amounts of US$2,033, obtained from Brazilian financial
institutions, without collateral and due up to April 2002. The facilities were
obtained in foreign currency aiming at reducing the costs of the financing.

     As of December 31, 2001, the aforementioned financing balance, including
interest incurred in the period, amounted to R$4,745.


                                                                               6


<PAGE>

     As of December 31, 2000, the total balance of R$4,240 consisted of
principal of short-term financing - COMPROR plus interests accrued in
accordance with the local market interest rate (CDI-Interbank Certificate of
Deposit) plus spread of 2.06% p.a. in average. Such unsecured financing was
obtained from Brazilian financial institutions and normally contracted at a
maximum 15-day period. The facilities were used to improve cash flow
management.

     The Company is a subsidiary guarantor of Localiza's Senior Notes program,
which are unsecured obligations of Localiza, at the amount of US$100 million,
maturing on October 1, 2005. As a consequence, the Company is subject to
certain restrictions contained in the Senior Notes program. These restrictive
covenants will limit, except in certain circumstances, the ability of Localiza
and subsidiaries to, among other things, declare any dividend or other similar
distribution, make certain stock repurchases, make certain payments on
subordinated indebtedness or make certain investments if, after giving effect
to such actions, (i) a default or event of default under the Senior Notes
indenture would have occurred and be continuing, (ii) Localiza and subsidiaries
would be unable to incur additional indebtedness under the debt incurrence
ratio test set forth in the indenture or (iii) the amount of all such payments
exceeds an aggregate threshold amount. A default or event of default includes
the failure of Localiza or its subsidiaries to observe or perform any covenant,
whose covenants include limitations on the ability of the Localiza and
subsidiaries to (i) incur certain additional indebtedness, (ii) create certain
liens, (iii) enter into certain transactions with affiliates, (iv) engage in
certain sale and leaseback transactions and (v) enter into certain merger,
acquisition or sale transactions.

     Management believes to be in compliance with all covenants stated above.

(10) ACCOUNTS PAYABLE

     As of December 31, 2001, the balance of R$5,882 (R$8,518 in 2000) was
comprised of R$2,015 (R$6,062 in 2000) related to amounts payable to car
suppliers, without interest. The remaining balance principally relates to other
suppliers for maintenance services, spare parts and rentals.

(11) PAYROLL AND RELATED CHARGES

                                                       December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$          US$
                                             -------      -------      -------
Accrued vacation                                 252          295          127
Provision for employees' participation
     in profit                                   748          875          377
INSS (Social security contribution)               90           65           28
FGTS (Severance indemnity fund)                   20           20            9
Other                                             66           47           20
                                             -------      -------      -------
                                               1,176        1,302          561
                                             =======      =======      =======

     The Company pays bonuses based on profits to employees on a six-months
basis, according to their position and performance evaluations.


                                                                               7
<PAGE>


(12) RESERVE FOR CONTINGENCIES

                                                           December 31,
                                             ---------------------------------
                                               2000         2001        2001
                                             -------      -------      -------
                                                R$           R$          US$
                                             -------      -------      -------
PIS (tax on revenues)                             39           39           17
PIS (tax on other revenues)                       26           57           24
COFINS (tax on other revenues)                   121          264          114
ISS                                                -          440          190
SEST/SENAT                                       146          216           93
SAT                                              107          163           70
Other                                             53           83           36
                                             -------      -------      -------
                                                 492        1,262          544
                                             =======      =======      =======

     The Company is a claimant in some lawsuits and has recognized the above
reserves based on the opinion of its legal and tax counsel.

o    PIS and COFINS- The Company has pending litigation contesting these taxes
     in the amount of R$360 (R$186 in 2000), of which R$341 (R$163 in 2000) are
     deposited in an escrow account.

o    ISS on rentals- Since July 2001, the Company has been contesting the
     charge of this tax on its rental revenues. As of December 31, 2001, the
     contingency reserve amounts to R$440.

o    SEST/SENAT and SAT- The Company has pending litigation contesting these
     payroll-related taxes. These contingencies reserves amount to R$379 (R$253
     in 2000) as of December 31, 2001, of which R$276 (R$220 in 2000) are
     deposited in an escrow account.

     Accruals for the aforementioned tax contingencies are determined based on
an analysis of the pending claims, as well as on the potential risks involved.

     The Company's management, based on the opinion of legal and tax counsel,
does not expect that the resolution of these matters will have a material
adverse effect on the Company's financial position or results of operations and
believes that no additional accrual for the mentioned reserves is required.










                                                                               8
<PAGE>


(13) INCOME AND SOCIAL CONTRIBUTION TAXES

(a)      Deferred income and social contribution taxes-

     Temporary differences which give rise to deferred tax assets and
liabilities are as follows:

                                                       December 31,
                                             ---------------------------------
                                               2000         2001        2001
                                             -------      -------      -------
                                                R$            R$          US$
                                             -------      -------      -------
Deferred tax assets:
    Depreciation                                 335            -            -
    Allowance for doubtful accounts              163          140           60
    Reserve for contingencies                    112          299          129
    Other temporary difference                    80           55           24
                                             -------      -------      -------
                                                 690          494          213
    Current portion                              287          140           60
                                             -------      -------      -------
    Long-Term portion                            403          354          153
                                             =======      =======      =======

                                                       December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$          US$
                                             -------      -------      -------
Deferred tax liabilities:
    Depreciation                                   -        2,006          865
                                             -------      -------      -------
                                                   -        2,006          865
    Current portion                                -          742          320
                                             -------      --------     -------
    Long-Term portion                              -        1,264          545
                                             =======      ========     =======

     The Company's management believes, based on projections of future taxable
income, that it is more likely than not that the deferred income and social
contribution taxes assets will be realized.

     (b) Income and social contribution taxes-

     Income and social contribution taxes at nominal rates are reconciled to
the amount reported as income tax expense in the financial statements, as
follows:
<TABLE>

                                                        Year ended December, 31
                                             ----------------------------------------------
                                              1999         2000         2001         2001
                                             ----------------------------------------------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                          <C>          <C>          <C>          <C>
Income before taxes                            7,796       45,108       58,862       25,367
Nominal rate                                      37%          34%          34%          34%
                                             -------      -------      -------      -------
Income taxes at nominal rate                  (2,885)     (15,337)     (20,013)      (8,625)
Deferred income taxes on adjustment
     between BRGAAP and USGAAP                   696            -            -            -
Social contribution offset against COFINS        316            -            -            -
Interest on capital                            1,110            -        4,352        1,876
Fiscal incentives                                  -          218          225           97
Other                                            147          (34)          87           37
                                             -------      -------      -------      -------
                                                (616)     (15,153)     (15,349)      (6,615)
                                             =======      =======      =======      =======


                                                                                          9
</TABLE>

<PAGE>

     The tax rates for the periods are:

  Income tax                                                         15%
  Additional income tax (for the taxable income exceeding R$240)
                                                                     10%

  Social contribution tax-
     - from January 1 through April 30, 1999                          8%
     - from May 1 through January 31, 2000                           12%
     - from February 1 through December 31, 2002                      9%
     - after January 1, 2003                                          8%

(14) SHAREHOLDERS' EQUITY

     (a) Capital stock-

     As of December 31, 2001, capital stock as per the statutory records was
represented by R$123,060 (R$112,180 in 2000) corresponding to 109,630,000
issued outstanding nominative common shares, without par value, owned by
Localiza Rent a Car S.A..

     (b) Dividends-

     In accordance with Brazilian Corporate Law, the Company's bylaws requires
the Company's shareholders be paid a minimum annual dividend of 25% of adjusted
net profit. However, upon the vote of 100% of the shareholders present at the
general shareholders meeting, such shareholders may declare a lower dividend or
decide not to declare dividends.

     Brazilian legislation permits dividend payments limited to the accumulated
earnings in the statutory financial statements prepared in accordance with
Brazilian Corporate Law. For the years ended in 1999, 2000 and 2001, the
Company's net income in accordance with Brazilian Corporate Law was R$5,810,
R$29,928 and R$38,791, respectively, and the accumulated earnings available for
payment of dividends were R$5,519, R$30,951 and R$45,002, respectively. In
April 16, 2001, the shareholders' meeting approved the payment of dividends in
the amount of R$10,000. The appropriation of the Company's net income for 2001
will be determined in the annual shareholders' meeting in 2002.

     The interest on capital paid in 1999 and 2001, amounting to R$3,000 and
R$12,800, respectively, were approved by the Extraordinary General
Shareholders' meetings held on November 30, 1999, December 31, 1999 and
December 28, 2001. As also approved by the meetings mentioned above, the
shareholders decided to contribute to capital the amount related to interest on
capital, net of the corresponding income tax withheld. The Company has not paid
interest on capital in 2000.

     The interest on capital was paid pursuant to Article n(0) 9 of Law n(0)
9,249, of December 26, 1995, and amendments introduced by Article n(0) 78 of
Law n(0) 9,430, of December 27, 1996. Interest was calculated based on
shareholders' equity, is limited to the variation of the Long-term Interest
Rate (TJLP), and is deductible for income tax purposes.


                                                                              10

<PAGE>


(15) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
                                                            Year ended December, 31
                                             ----------------------------------------------
                                              1999          2000         2001        2001
                                             -------      -------      -------      -------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                           <C>          <C>          <C>          <C>
 Payroll and related charges                  (5,151)      (6,053)      (3,280)      (1,414)
 Employees' profit sharing                      (611)        (925)        (918)        (396)
 Outside services                             (2,148)      (2,946)      (4,383)      (1,889)
 Rentals                                        (106)        (257)        (319)        (137)
 Travel                                         (120)        (178)        (146)         (63)
 Advertising                                    (353)        (442)        (109)         (47)
 Maintenance and office supplies                (634)      (1,000)      (1,196)        (515)
 Provision for doubtful accounts                (165)        (581)        (430)        (185)
 Fiscal incentives                               (29)        (262)        (388)        (167)
 Intercompany allocation of administrative,
    selling and other expenses                (1,167)         363       (3,990)      (1,720)
 Other                                          (338)        (368)        (205)         (88)
                                             -------      -------      ---------    -------
                                             (10,822)     (12,649)     (15,364)      (6,621)
                                             =======      =======      =========    =======
</TABLE>

     As of December 31, 1999 and 2000 the expenses related to management
compensation and administrative employees payroll were directly paid by Total
Fleet and recorded in its results.

     In December 31, 2000, the Company transferred administrative employees and
executive committee members to the Localiza payroll. As from that date, payroll
and management compensation expenses began to be reimbursed to Localiza by the
Company, according to a previously-defined allocation criteria.

(16) FINANCIAL INCOME (EXPENSE), NET

<TABLE>
                                                        Year ended December, 31
                                             -----------------------------------------------
                                               1999        2000         2001         2001
                                             -------      -------      -------      -------
                                                R$           R$           R$          US$
                                             -------      -------      -------      -------
<S>                                          <C>          <C>          <C>          <C>
Interest income                                  832        1,036        1,726          744
Interest expense                                (820)      (1,007)      (1,376)        (593)
Tax on financial revenues                        (29)         (38)         (64)         (28)
Net monetary variation and exchange
     gain (loss)                             (14,743)           4          (59)         (25)
Unrealized loss on derivative                      -            -          (67)         (29)
                                             -------      -------      -------      -------
                                             (14,760)          (5)         160           69
                                             =======      =======      =======      =======


                                                                                         11
</TABLE>

<PAGE>




(17) TRANSACTIONS WITH RELATED PARTIES

         The main balances and transactions with related parties are as
follows:

<TABLE>
                                                        Year ended December, 31
                                             -----------------------------------------------
                                               1999        2000         2001         2001
                                             -------      -------      -------      -------
                                                R$           R$           R$          US$
                                             -------      -------      -------      -------
<S>                                          <C>          <C>          <C>          <C>
  Accounts receivable-
     Localiza Rent a Car S.A.                                  54          188           81
     Localiza System Ltda.                                      4            3            1
     Prime - Prestadora de Servicos S/C Ltda.                   -            2            1
                                                          -------      -------      -------
                                                               58          193           83
                                                          =======      =======      =======
  Accounts payable-
     Localiza Rent a Car S.A.                               1,631        2,725        1,174
     Prime - Prestadora de Servicos S/C Ltda.                 229          269          116
                                                          -------      -------      -------
                                                            1,860        2,994        1,290
                                                          =======      =======      =======
  Fleet management revenues-
     Localiza Rent a Car S.A.                      -            -          169           73
     Localiza System Ltda.                         -           43           49           21
     Prime - Prestadora de Servicos S/C Ltda.      -            -           16            7
                                             -------      -------      -------      -------
                                                   -           43          234          101
                                             =======      =======      =======      =======
  Direct operating costs-
     Localiza Rent a Car S.A.                  1,360        1,565        1,606          692
                                             =======      =======      =======      =======
  Advertising, promotion and selling
    expenses-
     Localiza Rent a Car S.A.                  1,076         (404)         652          281
     Localiza System Ltda.                         -            4            -            -
     Prime - Prestadora de Servicos S/C Ltda.  1,802        2,319        3,755        1,618
                                             -------      -------      -------      -------
                                               2,878        1,919        4,407        1,899
                                             =======      =======      =======      =======
  Administrative expenses-
     Localiza Rent a Car S.A.                     91          147        3,462        1,492
                                             =========    ========     ========     =======

     Management believes that such transactions were carried under market conditions.
</TABLE>


(18) FINANCIAL INSTRUMENTS

     The Company's financial instruments are recorded in balance sheet
accounts, as of December 31, 2000 and 2001, at amounts that approximate with
the fair value on those dates. The management of these instruments is made
through operational strategies, seeking liquidity, returns and safety. The
control policy consists of continually checking contracted rates versus the
market. The Company did not have derivatives as of December 31, 2000 or for any
period prior to December 31, 2000. Accordingly, the implementation of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", as
amended, had no effect on the Company's financial statements upon adoption.


                                                                              12
<PAGE>


     Aiming at protecting against possible losses on the dollar denominated
loans, arising from fluctuations of the local currency in relation to the U.S.
dollar, the Company performed swap operations by replacing the exchange
variation plus average spread of 8.65% (corresponding to the COMPROR financial
charges - Note 9) by the CDI - Interbank Certificate of Deposits rate
variation, plus annual interest rate of approximately 2.06%.

     As of December 31, 2001, unrealized net result from these swap operations,
corresponding to its fair value, accumulated a loss amounting to R$67,
classified as Other current liabilities.

     The unrealized loss has been determined based on the fair value of these
swap contracts which was estimated based on discounting future contracted cash
flow considering market rates, terms and conditions at each balance sheet date.
These agreements were contracted with major financial institutions in Brazil.

(19) LEASE-COMMITMENTS

     The guaranteed minimum lease payments to be received by the Company from
the operating leases of cars by the fleet management business are distributed
as follows:

                    Years               Revenues
                    -----              ----------
                    2002                 97,290
                    2003                 52,239
                    2004                 12,897
                                       ---------
                                        162,426
                                       =========

(20) FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING
        STANDARDS NOT YET IN EFFECT

     In June 2001 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations". SFAS N(0) 141 is effective for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for
using the purchase method for which the date of acquisition is July 1, 2001, or
later. SFAS N(0) 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method. The Company does not
anticipate that this new standard will have any impact on its financial
position or results of operations.

     In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS N(0) 142 is effective for fiscal years beginning after December
15, 2001. Early application of SFAS No. 142 is permitted for entities with
fiscal years beginning after March 15, 2001, provided that the first interim
financial statements have not previously been issued. With the adoption of SFAS
N(0) 142, goodwill is no longer subject to amortization over its estimated
useful life, but rather it will be subject to at least an annual assessment for
impairment by applying a fair-value-based test. Additionally, negative goodwill
is recognized as an extraordinary gain at the time of the business combination.
Given that the Company has not recorded any goodwill, the adoption of this
standard will have no effect on its financial position or results of
operations.


                                                                              13

<PAGE>


     In June 2001 the FASB issued SFAS N(0) 143, "Accounting for Asset
Retirement Obligations". The new standard will be effective for financial
statements issued for fiscal years beginning after June 15, 2002, with early
application encouraged. The Company plans to adopt this new standard in January
1, 2003. SFAS N(0) 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This Statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized
as part of the carrying amount of the long-lived asset. The Company does not
anticipate that this new standard will have a significant impact on its
financial position or results of operations.

     In August 2001 the FASB issued SFAS N(0) 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The new standard will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001, with early application encouraged. The Company plans to
adopt this new standard in January 1, 2002. SFAS N(0) 144 supersedes SFAS N(0)
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", although it retains the fundamental provisions of
SFAS N(0) 121. SFAS N(0) 144 also expands the scope of discontinued operations
presentation to a component of an entity and eliminates the exception to
consolidation for a temporarily controlled subsidiary. The Company does not
anticipate that this new standard will have a significant impact on its
financial position or results of operations.

     In April 2002, the FASB issued SFAS N(0) 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS 145 updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds Statement 4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB Opinion 30 will now be used to classify those gains
and losses. Statement 64 amended Statement 4, and is no longer necessary
because Statement 4 has been rescinded. Statement 44 was issued to establish
accounting requirements for the effects of transition to the provisions of the
Motor Carrier Act of 1980. Because the transition has been completed, Statement
44 is no longer necessary. SFAS 145 amends Statement 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. This amendment is consistent with the FASB's goal of requiring
similar accounting treatment for transactions that have similar economic
effects. SFAS 145 also makes technical corrections to existing pronouncements.
The Company does not believe the adoption of SFAS 145 will have a material
impact on the Company's financial position, results of operations or cash
flows.


                                                                              14

<PAGE>


(21) VALUATION AND QUALIFYING ACCOUNTS

     Following are disclosures regarding the Company's valuation and qualifying
accounts:

<TABLE>
                                              Year ended      Year ended      Year ended
                                             December 31,    December 31,    December 31,
          Description                            1999            2000            2001
          -----------                        ------------    ------------    ------------

Reserve for contingencies-
-------------------------

<S>                                          <C>              <C>             <C>
Balances as of beginning of the year                 -             338             492
     Charges to costs and expenses                 338             340             782
     Deductions                                      -            (186)            (12)
Balances as of end of the year                     338             492           1,262


                                              Year ended      Year ended      Year ended
                                             December 31,    December 31,    December 31,
          Description                            1999            2000            2001
          -----------                        ------------    ------------    ------------

Allowance for doubtful accounts-
-------------------------------

Balances as of beginning of the year                 -             143             673
     Charges to costs and expenses                 143             618           1,109
     Deductions                                      -             (88)           (724)
Balances as of end of the year                     143             673           1,058



                                                * * * * * * * * * *










                                                                                         15


</TABLE>
<PAGE>


Localiza System Ltda. and Subsidiary

Consolidated Financial Statements Together with Report
of Independent Public Accountants


Expressed in Brazilian reais


As of December 31, 2000 and 2001 and for the three years in the period ended
December 31, 2001.





<PAGE>



Report of Independent Public Accountants

To the Quotaholders of

Localiza System Ltda.:


(1) We have audited the accompanying consolidated balances sheets of LOCALIZA
SYSTEM LTDA. (a Brazilian limited liability Company and a subsidiary of
Localiza Rent a Car S.A.) and subsidiary as of December 31, 2000 and 2001 and
the related consolidated statements of income, changes in quotaholders' equity
and cash flows for each of the three years in the period ended December 31,
2001, expressed in Brazilian reais. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

(2) 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.

(3) In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Localiza System Ltda. and subsidiary as of December 31, 2000 and 2001, the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

(4) Also, in our opinion, the amounts in the accompanying consolidated
financial statements as of and for the year ended December 31, 2001, translated
into U.S. dollars, have been computed on the basis set forth in Note 2 (e).

/s/ DELOITTE TOUCHE TOHMATSU

Belo Horizonte, Brazil,
    June 3, 2002


<PAGE>





                             LOCALIZA SYSTEM LTDA.

                                 AND SUBSIDIARY


             CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 2001

           (Stated in thousands of Brazilian reais and U.S. dollars)


                                   A S S E T S

                                                          December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$          US$
                                             -------      -------      -------
CURRENT ASSETS:
    Cash and cash equivalents                    623        1,342          578
    Accounts receivable, net                   1,662        1,252          540
    Receivable from related party                  -          167           72
    Other                                         84           38           16
                                             -------      -------      -------
                                               2,369        2,799        1,206
                                             -------      -------      -------

NONCURRENT ASSETS:
    Escrow deposits                              105          134           58
    Receivable from related party                 68           93           40
    Deferred income and social contribution
     taxes                                       333          300          129
    Other                                         58           58           25
                                             -------      -------      -------

                                                 564          585          252
                                             -------      -------      -------

OFFICE EQUIPMENT, NET                            228          140           61
                                             -------      -------      -------

GOODWILL                                         489            -            -
                                             -------      -------      -------

                           Total assets        3,650        3,524        1,519
                                             =======      =======      =======


The accompanying notes are an integral part of these consolidated balance sheets


<PAGE>


                             LOCALIZA SYSTEM LTDA.

                                 AND SUBSIDIARY

             CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 2001

           (Stated in thousands of Brazilian reais and U.S. dollars)

                      LIABILITIES AND QUOTAEHOLDERS' EQUITY


                                                          December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$          US$
                                             -------      -------      -------
CURRENT LIABILITIES:
    Accounts payable                             164          266          115
    Payroll and related charges                  423          371          160
    Income and social contribution taxes         186           11            5
    Taxes, other than on income                  103           39           17
    CEPIN                                        271          112           48
    Payable to related parties                    67          255          110
    Other                                        145           71           30
                                               -------    -------      -------
                                               1,359        1,125          485
                                               -------    -------      -------

NONCURRENT LIABILITIES:
    Reserve for contingencies                    938        1,251          539
    Other                                         82           12            5
                                               -------    -------      -------
                                               1,020        1,263          544
                                               -------    -------      -------

QUOTAHOLDERS' EQUITY:
    Capital stock                              1,200        1,200          517
    Accumulated earnings (deficit)                71          (64)         (27)
                                               -------    -------      -------
                                               1,271        1,136          490
                                             ---------    -------      -------
 Total liabilities and quotaholders' equity    3,650        3,524        1,519
                                             =======      =======      =======


              The accompanying notes are an integral part of these
                          consolidated balance sheets.


<PAGE>



                                    LOCALIZA SYSTEM LTDA.

                                       AND SUBSIDIARY

                              CONSOLIDATED STATEMENTS OF INCOME

                    FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                  (Stated in thousands of Brazilian reais and U.S. dollars)

<TABLE>
                                                               December 31,
                                            -----------------------------------------------
                                              1999          2000         2001        2001
                                             -------      -------      -------      -------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                           <C>         <C>          <C>           <C>
NET REVENUES:
    Royalties and advertising fees             4,426        5,363        4,430        1,909
    Initial franchise fees                       575          872          522          225
    Other services                                 -          209          104           45
                                             -------      -------      -------      -------
       Total revenues                          5,001        6,444        5,056        2,179
                                             -------      -------      -------      -------
EXPENSES AND COSTS:
    Direct operating                          (2,655)      (4,013)      (3,424)      (1,476)
    Taxes on revenues                           (194)        (229)        (172)         (74)
    Selling, general and administrative         (107)        (499)        (418)        (180)
    Depreciation and amortization                (80)         (79)         (90)         (39)
    Goodwill amortization                        (44)        (134)        (489)        (211)
                                             -------      -------      -------      -------
       Total operating expenses and costs     (3,080)      (4,954)      (4,593)      (1,980)
                                             -------      -------      -------      -------
       Operating income                        1,921        1,490          463          199
                                             -------      -------      -------      -------
FINANCIAL INCOME (EXPENSE), NET                  213           (8)         (72)         (31)
EQUITY IN SUBSIDIARY                            (187)           -            -            -
OTHER NONOPERATING INCOME (EXPENSE), NET           1           (9)         (20)          (9)
                                             -------      -------      -------      -------
       Income before taxes                     1,948        1,473          371          159
                                             -------      -------      -------      -------
INCOME AND SOCIAL CONTRIBUTION TAXES:
    Current                                     (732)        (623)        (337)        (145)
    Deferred                                     226           82          (33)         (14)
                                             -------      -------      -------      -------
                                                (506)        (541)        (370)        (159)
                                             -------      -------      -------      -------
    Net income                                 1,442          932            1            -
                                             =======      =======      =======      =======


     The accompanying notes are an integral  part of these consolidated statements.
</TABLE>


<PAGE>



                             LOCALIZA SYSTEM LTDA.

                                 AND SUBSIDIARY


           CONSOLIDATED STATEMENTS OF CHANGES IN QUOTAHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                    (Stated in thousands of Brazilian reais)

                                                        Accumulated
                                             Capital      earnings
                                              stock       (deficit)     Total
                                             -------    -----------    -------
BALANCE DECEMBER 31, 1998                        459          182          641
     Capital increase (Note 1)                   741            -          741
     Dividends paid (Note 13)                      -       (1,233)      (1,233)
     Interest on capital (Note 13)                 -          (62)         (62)
     Net income                                    -        1,442        1,442
                                             -------      -------      -------
BALANCE DECEMBER 31, 1999                      1,200          329        1,529
     Dividends paid (Note 13)                      -       (1,135)      (1,135)
     Interest on capital (Note 13)                 -          (55)         (55)
     Net income                                    -          932          932
                                             -------      -------      -------
BALANCE DECEMBER 31, 2000                      1,200           71        1,271
     Dividends paid (Note 13)                      -          (30)         (30)
     Interest on capital (Note 13)                 -         (106)        (106)
     Net income                                    -            1            1
                                             -------      --------     -------
BALANCE DECEMBER 31, 2001                      1,200          (64)       1,136
                                             =======      =======      =======


 The accompanying notes are an integral part of these consolidated statements.


<PAGE>

<TABLE>
                                                                                   Page 1/2

                                    LOCALIZA SYSTEM LTDA.

                                       AND SUBSIDIARY


                            CONSOLIDATED STATEMENTS OF CASH FLOWS

                    FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                  (Stated in thousands of Brazilian reais and U.S. dollars)

                                                         Year Ended December 31,
                                            -----------------------------------------------
                                              1999          2000         2001        2001
                                             -------      -------      -------      -------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                           <C>         <C>          <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                 1,442          932            1            -
    Non-cash adjustments-
       Depreciation and amortization
          (including goodwill)                   124          213          579          250
       Deferred taxes on income                 (226)        (82)           33           14
       Provision for contingencies               238          222          706          304
       Equity in subsidiary                      187            -            -            -
       Allowance for doubtful accounts             -            -           37           16
       Other                                      46          105          (68)         (29)
                                             -------      -------      -------      -------
                                               1,811        1,390        1,288          555
                                             -------      -------     --------      -------
 (Increase) decrease in assets:
    Accounts receivable                         (500)         334          373          161
    Escrow deposits                               (8)         (10)         (29)         (13)
    Other                                        (13)           1           46           20
                                             -------      -------      -------      -------
                                                (521)         325          390          168
                                             -------      -------      -------      -------
Increase (decrease) in liabilities:
    Accounts payable                            (252)         (92)         102           44
    Payroll and related charges                   32           77          (52)         (22)
    Income and social contribution taxes          96          (60)        (175)         (75)
    Taxes, other than on income                  (85)         (42)         (64)         (28)
    CEPIN                                        (27)         130         (159)         (69)
    Reserve for contingencies                      -          (34)        (393)        (169)
    Other                                         12          117          (76)         (33)
                                             -------      -------      -------      -------
                                                (224)          96         (817)        (352)
                                             -------      -------      -------      -------
Net cash provided by operating activities      1,066        1,811          861          371
                                             =======      =======      =======      =======
</TABLE>


<PAGE>

<TABLE>

                                                                                   Page 2/2

                                    LOCALIZA SYSTEM LTDA.

                                       AND SUBSIDIARY

                            CONSOLIDATED STATEMENTS OF CASH FLOWS

                    FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                  (Stated in thousands of Brazilian reais and U.S. dollars)


                                                               December 31,
                                            -----------------------------------------------
                                              1999          2000         2001        2001
                                             -------      -------      -------      -------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                           <C>         <C>          <C>           <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
    Initial consolidation of Localiza Master
      Franchisee Argentina S.A. ("MFA")        (237)            -            -            -
    Acquisition of MFA                         (337)            -            -            -
    Additions to office equipment               (46)          (85)          (2)          (1)
                                             -------      -------      -------      -------
 Net cash used in investing activities         (620)          (85)          (2)          (1)
                                             -------      -------      -------      -------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Transactions with related parties-
       Proceeds                                    -           29           98           43
       Repayments                                  -          (58)        (192)         (83)
   Capital increase                              741            -            -            -
   Dividends and interest on capital paid     (1,295)      (1,190)         (46)         (20)
                                             -------      -------      -------      -------
 Net cash used in by financing activities       (554)      (1,219)        (140)         (60)
                                             -------      -------      -------      -------

NET INCREASE (DECREASE) IN CASH AND CASH
       EQUIVALENTS                              (108)         507          719          310

CASH AND CASH EQUIVALENTS AT BEGINNING OF
  YEAR                                           224          116          623          268
                                             -------      -------      -------      -------

CASH AND CASH EQUIVALENTS AT END OF YEAR         116          623        1,342          578
                                             =======      =======      =======      =======


Supplemental disclosures of cash flow information-

Cash paid during the year for:
    Income and social contribution taxes         709          682          406          175
                                             =======      =======      =======      =======

Supplemental information of non-cash
    financing activities-

    Interest on capital payable                    -            -           90           39
                                             =======      =======      =======      =======


        The accompanying notes are an integral part of these consolidated statements.

</TABLE>

<PAGE>


                             LOCALIZA SYSTEM LTDA.

                                 AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 1999, 2000 AND 2001

             (Amounts expressed in thousands of Brazilian reais and

                   U.S. dollars, unless otherwise indicated)



(1) THE COMPANY AND ITS OPERATIONS

     Localiza System Ltda. (the "Company" or "System") is a Brazilian limited
liability Company and a subsidiary of Localiza Rent a Car S.A. ("Localiza"),
formed in 1983 and acquired in May 1995 by Localiza from its founders. Its main
activity is to manage the Localiza franchising business, related to car rental
and correlated services.

     The Company is a subsidiary guarantor of Localiza's Senior Notes program,
which are unsecured obligations of Localiza, at the amount of US$100 million,
maturing on October 1, 2005. As a consequence, the Company is subject to
certain restrictions contained in the Senior Notes program. These restrictive
covenants will limit, except in certain circumstances, the ability of Localiza
and subsidiaries to, among other things, declare any dividend or other similar
distribution, make certain stock repurchases, make certain payments on
subordinated indebtedness or make certain investments if, after giving effect
to such actions, (i) a default or event of default under the Senior Notes
indenture would have occurred and be continuing, (ii) Localiza and subsidiaries
would be unable to incur additional indebtedness under the debt incurrence
ratio test set forth in the indenture or (iii) the amount of all such payments
exceeds an aggregate threshold amount. A default or event of default includes
the failure of Localiza or its subsidiaries to observe or perform any covenant,
whose covenants include limitations on the ability of the Localiza and
subsidiaries to (i) incur certain additional indebtedness, (ii) create certain
liens, (iii) enter into certain transactions with affiliates, (iv) engage in
certain sale and leaseback transactions and (v) enter into certain merger,
acquisition or sale transactions.

     Management believes to be in compliance with all covenants stated above.

     As of December 31, 2001, franchisees comprised 277 locations. The Company
selects franchisees in order to serve smaller markets, while major urban areas
in Brazil are served by the 69 Localiza owned locations. The Brazilian
franchise locations are operated by a total of 103 franchisees.

     The Localiza network has 80 franchise locations outside Brazil, in 7
countries as follows: Argentina (where the Company's franchisees have 48
locations), Bolivia, Ecuador, Mexico, Paraguay, Venezuela and Uruguay.

     The international franchise locations are operated by 7 master franchisees
and 31 sub-franchisees, the largest of which owns 10 locations.


                                                                               1
<PAGE>


     The Company grants exclusive rights to its franchisees for defined
geographic areas pursuant to renewable contracts, which terms range from five
to ten years. These contracts may be cancelled by either party upon 90 days
written notice. Brazilian franchisees generally pay the Company an initial fee
plus royalties and an advertising fee based on gross revenues. Non-Brazilian
franchisees pay royalties at varying rates, depending upon local market
conditions. For the year ended December 31, 2001, aggregate net royalties from
Brazilian franchisees amounted to R$3,737 (R$ 4,173 in 2000) or 84% (78% in
2000) of total franchise royalties. Aggregate net royalties from non-Brazilian
franchisees amounted to R$693 (R$1,190 in 2000) or 16% (22% in 2000) of total
franchise royalties.

     The Company oversees the quality of its franchise operations (i) through
rigorous qualifying procedures for accepting new franchisees, (ii) by providing
training, comprehensive education and procedural manuals and (iii) through
periodic onsite inspections.

     The franchisee is responsible for the purchase, maintenance and sale of
its fleet.

     On September 23, 1999, the Company had its capital increased from R$459 to
R$1,200 through a cash contribution of R$741, equivalent to 740,540 quotas,
proportional to quotaholders' participation.

     On August 17, 1999, the Company acquired the remaining 60% of MFA -
Localiza Master Franchisee Argentina S.A. ("MFA"), located in Argentina. Since
September 1999 this subsidiary has been consolidated.


(2) BASIS FOR PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS


     (a) Accounting records-

     The Company's accounting records are maintained in Brazilian reais (R$),
based on the criteria prescribed by the Brazilian Corporate Law. The financial
statements prepared based on such accounting records and the Corporate Law
criteria (Corporate Law Method financial statements) are the basis for
determining income taxes and quotaholders' rights, such as the distribution of
profits.

     For the subsidiary located in Argentina the accounting records are
maintained in Argentine Pesos ($) and translated to Brazilian reais at the
exchange rate at the end of each balance sheet date, except for December 31,
2001, when the exchange rate used represents the first free-floating rate for
which transactions could be settled after December 31, 2001. Such exchange rate
was calculated by converting Pesos to U.S. dollars at a rate of $1.70 to
US$1.00 and then to reais at a rate of R$2.3204 to US$1.00.

     (b) Price-level adjusted financial statements-

     Because of the highly inflationary conditions, which prevailed in Brazil
until mid-1994, two methods of inflation accounting have been in use for many
years for the purpose of minimizing the impact of the distortions in financial
statements caused by inflation.


                                                                               2


<PAGE>


     The first method, known as the "Corporate Law Method", provided a
simplified mechanism of accounting for the effects of inflation. However, it
did not fully recognize the effects of inflation in certain balance sheet
accounts and in substantially all components of the statements of income,
changes in quotaholders' equity and cash flows, and did not require monetary
restatement of prior year comparative amounts. Under the highly inflationary
conditions that had prevailed in Brazil, particularly until mid-1994, the
Corporate Law Method financial statements were essentially not meaningful for
analyzing companies' performance by users of financial statements. The
Corporate Law Method is used by the Company for purposes of determining the
current income and social contribution tax liabilities and the payment of
dividends and interest on capital. On December 26, 1995, the Brazilian
Government eliminated, starting January 1, 1996, the acquisition for the
effects of inflation for tax and financial reporting purposes.

     The second method, known as the "Constant Currency Method", was required
for publicly traded companies, and consisted of presenting supplementary fully
price-level adjusted financial statements following the guidelines of the
Comissao de Valores Mobiliarios - CVM (Brazilian Securities Commission).

     Under this method, all Brazilian reais historical amounts in the financial
statements and notes are expressed in the constant purchasing power of that
currency at the price-level adjustment as of the date of the financial
statements. Effective July 1, 1997, the Company ceased restating its financial
statements to recognize certain effects of changes in the purchasing power of
Brazilian currency due to inflation, as Brazil ceased to be considered a highly
inflationary economy as of such date under US GAAP. All financial information
for periods ended after June 30, 1997 are presented at amounts restated as of
June 30, 1997, with any subsequent transactions included in nominal reais.

     (c) Price-level indices-

     With the change in legislation, the CVM did not define a specific index to
be used for the preparation of optional price-level adjusted financial
statements. The Brazilian Institute of Independent Accountants ("IBRACON") has
recommended the General Market Price Index ("IGP-M") as the index to be used
for this purpose, from January 1, 1996.

     Management believes that the General Market Price Index computed by
Fundacao Getulio Vargas is the most appropriate and consistent measure of the
general price inflation in Brazil and elected the IGP-M (which differs from
IGP-DI only with regard to the cut-off date for price data collection) for
purposes of remeasurement of its financial statements under the constant
currency method, from January 1, 1996.

     (d) Presentation of the financial statements-

     The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which differ in
certain aspects from the accounting principles applied by the Company and its
subsidiary in their financial statements prepared in accordance with accounting
principles generally accepted in Brazil or for other statutory purposes in
Brazil and Argentina. Therefore, quotaholders' equity and net income included
in these financial statements differ from those included in the statutory
accounting records as a result of: (i) accounting for the effects of inflation
from January 1, 1996 to June 30, 1997; and (ii) adjustments made to reflect the
requirements of accounting principles generally accepted in the United States
of America.


                                                                               3
<PAGE>

(e) Translation of balances from Brazilian reais to U.S. dollars-

     The accompanying consolidated financial statements in Brazilian reais were
translated into U.S. dollars at the rate of R$2.3204 to US$1.00, the selling
Commercial Market exchange rate reported by the Central Bank of Brazil, for
December 31, 2001. Such translation was made solely for the convenience of the
readers and should not be construed as a representation that the Brazilian
reais amounts could have been converted into U.S. dollars at this or any other
rate.


(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements were prepared in conformity with
accounting principles generally accepted in the United States of America, based
on the following accounting policies:

(a)  Consolidation-- The consolidated financial statements include the accounts
     of System and its subsidiary MFA, since September 1, 1999, when the
     remaining 60% of the shares were acquired. All significant intercompany
     balances and transactions have been eliminated.

(b)  Cash and cash equivalents-- Stated at cost plus interest earned to the
     balance sheet dates.

(c)  Allowance for doubtful accounts-- Provided in an amount considered
     sufficient to cover eventual losses on accounts receivable, considering
     past experience, the current financial situation of the Company's
     customers and the status of past-due receivables.

(d)  Office equipment-- Stated at price-level adjusted acquisition cost for
     periods prior to June 30, 1997. Depreciation is calculated using the
     straight-line method at the annual rate of 20% for computers, 10% for
     other items. Leasehold improvements are amortized over the lower of the
     estimated useful life of the related asset or the term of the rental
     contracts.

(e)  Goodwill-- Correspond to the excess of the purchase price over the book
     value of the remaining equity share in MFA on the acquisition date. It was
     amortized over a 5-year period, until 2001, when its balance, net of
     accumulated amortization, was totally written off due to current economic
     situation in Argentina.

(f)  Income and social contribution taxes-- The Company accounts for income
     taxes under the provisions of SFAS n(0).109, "Accounting for Income
     Taxes", which requires the application of the comprehensive liability
     method of accounting for income taxes. SFAS 109 requires recognition of
     deferred tax assets and liabilities for the estimated future tax
     consequences of events attributable to differences between the financial
     statement carrying amounts of existing assets and liabilities and their
     respective tax bases, and operating loss and tax credit carryforwards.

     Deferred tax assets and liabilities are measured using enacted tax rates
     in effect for the year in which those temporary differences are expected
     to be recovered or settled. Under SFAS n(0).109, the effect on deferred
     tax assets and liabilities of changes in tax rates is recognized in income
     for the period that includes the enactment date.


                                       4
<PAGE>


     Deferred tax assets are reduced through the recognition of a valuation
     allowance, as appropriate, if, based on the weight of available evidence,
     it is more likely than not that the deferred tax asset will not be
     realized.

(g)  Assets and liabilities denominated in foreign currencies or subject to
     monetary restatement-- Assets and liabilities denominated in foreign
     currencies are adjusted based on the exchange rate reported by the Central
     Bank of Brazil at each balance sheet date. Those denominated in reais, and
     contractually or legally subject to indexation, are restated at the
     balance sheet date by using the related index. Exchange gains and losses
     and monetary variation gains and losses are recorded in the profit and
     loss account.

(h)  Revenues and expenses recognition-- Revenues from fees and services
     include the provision of sales and marketing, reservations, information
     systems and other services to franchisees. Revenues from these services
     are generally based on a percentage of franchisee rental revenue and are
     recognized as earned on a monthly basis. Initial franchise fees are
     recognized upon substantial completion of all material services and
     conditions of the franchise sale, which coincides with the date of sale
     and commencement of operations by the franchisee. Expenses are recorded as
     incurred.

(i)  Advertising costs-- Advertising costs are expensed when incurred. No
     advertising costs have been deferred at the balance sheet dates herein.

(j)  Use of estimates-- The preparation of financial statements in accordance
     with generally accepted accounting principles requires that the Company
     makes estimates and use assumptions, in its best judgement, that affect
     the reported amounts of assets, liabilities and disclosures of contingent
     assets and liabilities as of the dates of the financial statements and the
     reported amounts of revenues, costs and expenses during the reporting
     periods. Significant estimates are used when accounting for allowance for
     doubtful accounts, goodwill, income taxes, including recognition of
     valuation allowances, and contingencies, among others. Actual results in
     the future may differ from the estimates included in these financial
     statements.

(k)  Interest on capital-- Interest paid to quotaholders, calculated in
     accordance with Law n(0) 9,249/95, was recorded in the Company's books in
     the income statement under financial expenses, as determined by tax
     legislation. For presentation in the consolidated financial statements,
     interest paid on capital was presented as a charge to retained earnings.

(l)  Constant currency presentation--

     In addition to the accounting practices described above, the following
     practices were adopted in the preparation of constant currency financial
     statements:

     i.   Index-- Through December 31, 1995, the financial statements were
          price-level adjusted based on the variation of UFIR. From January 1,
          1996, through June 30, 1997, the financial statements were
          price-level adjusted based on the variation of the IGP-M.


                                                                              5
<PAGE>



     ii.  Non-monetary assets and liabilities-- Office equipment, quotaholders'
          equity and other non-monetary assets and liabilities accounts were
          restated from the date the original transactions occurred to June 30,
          1997. Income and social contribution taxes effects were accrued in
          respect of the increase in quotaholders' equity due to the
          recognition of the effects of inflation.

(m)  Reclassifications in 1999 and 2000-- Certain amounts have been
     reclassified to conform with the 2001 presentation, mainly related to the
     taxes on revenues reclassified from net revenues, in accordance with
     interpretations of EITF (FASB Emerging Issue Task Force) 01-14 and 99-19.

(4) CASH AND CASH EQUIVALENTS

                                                       December 31,
                                             ---------------------------------
                                                2000         2001         2001
                                             -------      -------      -------
                                                  R$           R$          US$
                                             -------      -------      -------
Cash                                             623          219           94
Cash equivalents                                   -        1,123          484
                                             -------      -------      -------
                                                 623        1,342          578
                                             =======      =======      =======

     All cash and cash equivalents are denominated in reais. Cash and cash
equivalents represent highly liquid investments that are readily convertible to
known amounts of cash without any penalty or loss of market rate interest.

(5) ACCOUNTS RECEIVABLE

                                                       December 31,
                                             ---------------------------------
                                                2000         2001         2001
                                             -------      -------      -------
                                                  R$           R$          US$
                                             -------      -------      -------
Royalties and advertising fees                 1,175          945          407
Initial franchise fees                           527          384          166
                                             ---------    ---------    --------
                                               1,702        1,329          573
Allowance for doubtful accounts                  (40)         (77)         (33)
                                             --------     -------      -------

                                               1,662        1,252          540
                                             =======      =======      =======


(6) ESCROW DEPOSITS

                                                       December 31,
                                             ---------------------------------
                                                2000         2001         2001
                                             -------      -------      -------
                                                  R$           R$          US$
                                             -------      -------      -------
PIS (tax on revenues)                             51           51           22
PIS/COFINS (tax on other revenues)                16           28           12
INSS                                              15           15            7
SAT                                               23           33           14
Other                                              -            7            3
                                             -------      -------      -------
                                                 105          134           58
                                             =======      =======      =======


                                                                               6

<PAGE>

     These deposits were primarily made in connection with pending litigation.
Related reserves for contingencies have been recognized (Note 11), where
applicable.

(7) OFFICE EQUIPMENT, NET

                                                       December 31,
                                             ---------------------------------
                                                2000         2001         2001
                                             -------      -------      -------
                                                  R$           R$          US$
                                             -------      -------      -------
Computer equipment and software                  306          302          130
Furniture and fixtures                            97           87           38
Other                                             41           19            8
                                             -------      -------      -------
                                                 444          408          176
Accumulated depreciation and amortization       (216)        (268)        (115)
                                             -------      -------      -------
                                                 228          140           61
                                             =======      =======      =======

(8) GOODWILL

     The Company has an investment in MFA, which is responsible for the
commercialization of the "Localiza" brand in Argentina through the sales of
franchises and the collection of royalties.

     The Company's participation in MFA was 40% through August 16, 1999, and
was accounted for under the equity method.

     On August 17, 1999, the Company acquired the remaining 60% participation
in that subsidiary, at an acquisition cost of R$337. The subsidiary had
negative net worth of R$330 at the purchase date. Its fair value approximated
its book value on the acquisitions date. Goodwill arising from that
acquisition, amounting to R$667, was being amortized over a 5-year period, from
the acquisition date to 2001, when it was totally written off due to the
current economic situation in Argentina.

     As described in MFA's auditors' report, in the last few months, a
significant change has been implemented in the economic model of Argentina as
well as in the Convertibility Law that was in place since March 1991 (whereby
the Argentine peso was pegged at parity with the US dollar). The main
consequences of the set of measures adopted by the Argentine Federal Government
have been (a) the devaluation of the Argentine peso with respect to the US
dollar and de-dollarization of certain assets and liabilities in foreign
currency held in the country; (b) the implementation of restrictions on the
withdrawal of funds deposited with financial institutions; (c) the restriction
on transfers abroad on account of financial loan service and dividend
distributions without prior authorization from the Central Bank; and (d) the
increase in domestic prices. The future development of the economic crisis may
require further measures from the Argentine Federal Government. Management of
Localiza System does not expect significant future effects in the financial
statements as a consequence of such measures, considering that the goodwill on
the acquisition of MFA was written off in 2001.


                                                                               7
<PAGE>


(9) PAYROLL AND RELATED CHARGES

                                                       December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$           US$
                                             -------      -------      -------
Management compensation                          177          250          108
Accrued vacation                                  60           30           13
Provision for employees' participation in
     profit                                       71           30           13
INSS (social security contributions)              20           16            7
FGTS (severance indemnity fund)                    4            2            1
Other                                             91           43           18
                                             -------      -------      -------
                                                 423          371          160
                                             =======      =======      =======

     The Company pays bonuses based on profits to employees on a six-months
basis, according to their position and performance evaluations.

(10) CEPIN

     CEPIN is represented by a fund collected from the franchisees at a rate of
up to 2.5% on monthly gross revenues, in conformity with the terms of the
business franchise contract. This amount is to be shared in publicity,
advertising, and promotions that benefit the whole Localiza car rental system.
As of December 31, 2000 and 2001 the CEPIN balance amounted to R$271 and R$112,
respectively. The CEPIN transactions do not effect the Company's statement of
operations.

(11) RESERVE FOR CONTINGENCIES

                                                       December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$           US$
                                             -------      -------      -------

PIS (tax on revenues)                             51           51           22
PIS/COFINS (tax on other revenues)                17           28           12
Income and social contribution taxes             496          872          376
Bodily injury and death claims                   200            -            -
Civil litigation                                 150          150           64
SAT                                               24           34           15
Other                                              -          116           50
                                             -------      -------      -------
                                                 938        1,251          539
                                             =======      =======      =======

     The Company is a claimant in some lawsuits and a defendant in others. It
has recognized the above reserves considering the opinion of its legal and tax
counsel.

     o    PIS and COFINS- The Company has pending litigation contesting these
          taxes in the amount of R$79 (R$68 in 2000), of which R$79 (R$67 in
          2000) are deposited in an escrow account.


                                                                               8
<PAGE>


     o    Income and social contribution taxes- As a result of tax inspections
          in prior years, the Company was assessed by the tax authorities,
          mainly for the following:

          (i)  The authorities alleged that certain accounting records for the
               years inspected were inadequate and, as a result, such
               authorities made certain arbitrary assessments; and

          (ii) The authorities alleged that certain expenses were
               inappropriately considered deductible and were not considered
               necessary to Company's operation for tax purposes.

          The Company based its defense on prior decisions of the Supreme Court
          and legislation in force. As of December 31, 2001, total contingency
          amounted to R$3,186 (R$3,180 in 2000), for which the Company
          recognized a reserve of R$872 (R$496 in 2000).

     o    Bodily injury and death claim- The Company was party to a claim
          related to bodily injury and death, caused by franchisees' vehicle.
          In 2001, the Company has settled an agreement with the claimants, at
          the amount of R$400, fully paid. As part of the agreement, the
          Company expects to be reimbursed by the franchisee, at the total
          amount. No contingent asset was recorded on the financial statements.

     o    Civil litigation- A former franchisee proposed a lawsuit against the
          Company claiming the right to be reimbursed for losses incurred in
          the ordinary course of business. Management, based on the opinion of
          its legal counsel, believes that the recorded accrual for this claim
          - R$150 in 2001 and 2000 - is sufficient to cover probable losses.

     o    SAT- The Company has pending litigation contesting this
          payroll-related tax. This contingency reserve amounts to R$34 (R$24
          in 2000) as of December 31, 2001, of which R$33 (R$23 in 2000) are
          deposited in an escrow account.

     Accruals for the aforementioned tax contingencies are determined based on
an analysis of the pending claims, as well as on the potential risks involved.

     The Company's management, based on the opinion of its legal and tax
counsel, does not expect that the resolution of these matters will have a
material adverse effect on the Company's financial position or results of
operations and believes that no additional accrual for the mentioned reserves
is required.


                                                                               9
<PAGE>


(12) INCOME AND SOCIAL CONTRIBUTION TAXES

         (a) Deferred income and social contribution taxes-

         Temporary differences which give rise to deferred tax assets are as
follows:

                                                       December 31,
                                             ---------------------------------
                                               2000         2001         2001
                                             -------      -------      -------
                                                R$           R$           US$
                                             -------      -------      -------
   Deferred tax assets:
      Reserve for contingencies                  308          298          128
      Other                                       25            2            1
                                             -------      -------      -------
                                                 333          300          129
                                             =======      =======      =======

     The Company's management believes, based on projections of future taxable
income, that it is more likely than not that the deferred income and social
contribution taxes assets will be realized.

     (b) Income and social contribution taxes-

     Income and social contribution taxes at nominal rates are reconciled to
the amount reported as income tax expense in the financial statements, as
follows:

<TABLE>
                                                        Year ended December, 31
                                             ----------------------------------------------
                                                1999         2000         2001         2001
                                             ----------------------------------------------
                                                  R$           R$           R$          US$
                                             -------      -------      -------      -------
<S>                                          <C>          <C>          <C>          <C>
         Income before taxes                   1,948        1,473          371          159
         Nominal rate                             37%          34%          34%          34%
                                             -------      -------      -------      -------
         Income taxes at nominal rate           (721)        (501)        (126)         (54)
            Equity in subsidiary                  13          (94)         (67)         (29)
            Goodwill amortization                (12)         (32)        (136)         (59)
            Interest on capital                   24           19           36           16
            International royalties               54            -            -            -
            Non deductible reserve for
                contingencies                      -            -          (97)         (42)
                                                 173
            Other                                (37)          67           20            9
                                             -------      -------      -------      -------
                                                (506)        (541)        (370)        (159)
                                             =======      =======      =======      =======


                                                                                         10
</TABLE>

<PAGE>


 The tax rates for the periods are:

    Income tax                                                          15%
    Additional income tax (for the taxable income
      exceeding R$240)                                                  10%

    Social contribution tax-
      - from January 1 through April 30, 1999                            8%
      - from May 1 through January 31, 2000                             12%
      - from February 1 through December 31, 2002                        9%
      - after January 1, 2003                                            8%

(13) QUOTAHOLDERS' EQUITY

     (a) Capital stock-

     As of December 31, 2000 and 2001, capital stock as per the statutory
records was represented by R$1,116 corresponding to 1,115,540 issued
outstanding quotas, with par value of R$1.00 each. The quotas cannot be sold,
pledged or transferred to third parties without the approval of all
quotaholders. Capital is held as follows:

                                                       Quotas in December 31,
                                                    ----------------------------
                                                      2000               2001
                                                    ---------          ---------
Localiza Rent a Car S.A.                            1,031,875          1,031,875
Aristides Luciano Azevedo Newton                       83,665             83,665
                                                    ---------          ---------
                                                    1,115,540          1,115,540
                                                    =========          =========

     (b) Distribution of profits-

     In accordance with the Company's bylaw, the net profit may be distributed
to the quotaholders' or capitalized. However, upon the vote of majority of the
quotaholders, they may declare a lower distribution or decide not to declare
distribution. Additionally, upon a 100% approval of such quotaholders, profits
can be partially or totally distributed without keeping the proportion to each
quotaholders' share in the capital stock.

     Brazilian legislation permits payments of distribution of profits limited
to the accumulated earnings balances in the statutory financial statements
prepared in accordance with Brazilian Corporate Law.

     For the years ended December 31, 1999, 2000 and 2001, the Company net
income in accordance with Brazilian Corporate Law was R$1,551, R$657 and R$148,
respectively, and the accumulated earnings available for payment of
distribution of profits were R$1,630, R$944 and R$50, respectively. The
appropriation of the Company's net income was determined in quotaholders'
meetings, resulting in a decision to pay distribution of profits of R$1,233 in
1999, R$1,135 in 2000 and R$30 in 2001. Such distributions were declared during
the corresponding years.


                                                                             11

<PAGE>


     The interest on capital was paid pursuant to Article n(0) 9 of Law n(0)
9,249, of December 26, 1995, and amendments introduced by Article n(0) 78 of
Law n(0) 9,430, of December 27, 1996. Interest was calculated based on
quotaholders' equity, is limited to the variation of the Long-Term Interest
Rate (TJLP), and is deductible for income tax purposes.

     The interest on capital paid in 1999, 2000 and 2001, amounting to R$62,
R$55 and R$106, respectively, were approved by the quotaholders' meetings. The
interest on capital of 2001, net of withheld income tax, amounting to R$90, is
recorded as payable to related parties.

(14) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>

                                                        Year ended December, 31
                                             ----------------------------------------------
                                              1999         2000         2001         2001
                                             ----------------------------------------------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                          <C>          <C>          <C>          <C>
Payroll and related charges                        -          (26)         (16)          (7)
Outside services                                 (94)        (243)        (120)         (52)
Unrecoverable receivables                          -         (136)        (129)         (55)
Tax contingencies                                  -            -          (92)         (40)
Bank fees                                          -          (18)         (21)          (9)
Credit card fees                                   -          (59)         (32)         (14)
Other                                            (13)         (17)          (8)          (3)
                                             -------      -------      -------      -------
                                                (107)        (499)        (418)        (180)
                                             =======      =======      =======      =======
</TABLE>


(15) FINANCIAL INCOME (EXPENSE), NET

<TABLE>
                                                        Year ended December, 31
                                             ----------------------------------------------
                                              1999         2000         2001         2001
                                             ----------------------------------------------
                                               R$            R$           R$          US$
                                             -------      -------      -------      -------
<S>                                          <C>          <C>          <C>          <C>
     Interest income                              87           78          185           80
     Interest expense                            (42)         (93)         (69)         (30)
     Tax on financial revenues                    (3)          (3)         (11)          (5)
     Net monetary variation and exchange
        gain (loss)                              171           10         (177)         (76)


                                             -------      -------      -------      -------
                                                 213           (8)         (72)         (31)
                                             =======      =======      =======      =======


                                                                                         12
</TABLE>

<PAGE>


(16) TRANSACTIONS WITH RELATED PARTIES:

The main balances and transactions with related parties are as follows:

<TABLE>
                                                        Year ended December, 31
                                             -----------------------------------------------
                                               1999        2000         2001         2001
                                             -------      -------      -------      -------
                                                R$           R$           R$          US$
                                             -------      -------      -------      -------
<S>                                          <C>          <C>          <C>          <C>
  Accounts receivable - Current assets-
     Localiza Rent a Car S.A.                                   -          167           72
                                                          =======      =======      =======
 Accounts receivable - Noncurrent assets-
     Minority quotaholder                                      68           93           40
                                                          =======      =======      =======
  Accounts payable-
     Minority quotaholder                                       -            6            3
     Localiza Rent a Car S.A.                                  67          246          106
     Total Fleet S.A.                                           -            3            1
                                                          -------      -------      -------
                                                               67          255          110
                                                          =======      =======      =======
  Dividends paid and interest on capital -
     Localiza Rent a Car S.A.                  1,198        1,102          126           54
     Minority quotaholder                         97           88           10            5
                                             -------      -------      -------      -------
                                               1,295        1,190          136           59
                                             =======      =======      =======      =======
  Other revenues-
     Total Fleet S.A.                              -           43           49           21
                                             =======      =======      =======      =======
  Advertising, promotion and selling expenses
     Localiza Rent a Car S.A.                      -          425         (494)        (213)
     Total Fleet S.A.                              -           (4)           -            -
                                             -------      -------      -------      -------
                                                   -          421         (494)        (213)
                                             =======      =======      =======      =======
  Financial interest expense-
     Localiza Rent a Car S.A.                      -           20            3            1
                                             =======      =======      =======      =======

     Total Fleet S.A. is a wholly owned subsidiary of Localiza and is engaged in the fleet
management business.

     Management believes that such transactions were carried under market conditions.


                                                                                         13
</TABLE>


<PAGE>


(17) FINANCIAL INSTRUMENTS

     The Company's financial instruments are recorded in balance sheet
accounts, as of December 31, 2000 and 2001, at amounts that approximate with
the fair value on those dates. The management of these instruments is made
through operational strategies, seeking liquidity, returns and safety. The
control policy consists of continually checking contracted rates versus the
market. The Company did not have derivatives during all periods presented.
Accordingly, the implementation of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, had no effect on the Company's
financial statements upon adoption.


(18) FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET IN EFFECT

     In June 2001 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations". SFAS N(0) 141 is effective for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for
using the purchase method for which the date of acquisition is July 1, 2001, or
later. SFAS N(0) 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method. The Company does not
anticipate that this new standard will have any impact on its financial
position or results of operations.

     In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS N(0) 142 is effective for fiscal years beginning after December
15, 2001. Early application of SFAS No. 142 is permitted for entities with
fiscal years beginning after March 15, 2001, provided that the first interim
financial statements have not previously been issued. With the adoption of SFAS
N(0) 142, goodwill is no longer subject to amortization over its estimated
useful life, but rather it will be subject to at least an annual assessment for
impairment by applying a fair-value-based test. Additionally, negative goodwill
is recognized as an extraordinary gain at the time of the business combination.
As of December 31, 2001, the Company did not have any recorded godwill and
consequently, the adoption of this standard will have no effect on the
Company's financial position or results of operations.

     In June 2001 the FASB issued SFAS N(0) 143, "Accounting for Asset
Retirement Obligations". The new standard will be effective for financial
statements issued for fiscal years beginning after June 15, 2002, with early
application encouraged. The Company plans to adopt this new standard in January
1, 2003. SFAS N(0) 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This Statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized
as part of the carrying amount of the long-lived asset. The Company does not
anticipate that this new standard will have a significant impact on its
financial position or results of operations.

     In August 2001 the FASB issued SFAS N(0) 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The new standard will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001, with early application encouraged. The Company plans to
adopt this new standard in January 1, 2002. SFAS N(0) 144 supersedes SFAS N(0)
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", although it retains the fundamental provisions of
SFAS N(0) 121. SFAS N(0) 144 also expands the scope of discontinued operations
presentation to a component of an entity and eliminates the exception to
consolidation for a temporarily controlled subsidiary. The Company does not
anticipate that this new standard will have a significant impact on its
financial position or results of operations.


                                                                              14
<PAGE>

     In April 2002, the FASB issued SFAS N(0) 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS 145 updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds Statement 4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB Opinion 30 will now be used to classify those gains
and losses. Statement 64 amended Statement 4, and is no longer necessary
because Statement 4 has been rescinded. Statement 44 was issued to establish
accounting requirements for the effects of transition to the provisions of the
Motor Carrier Act of 1980. Because the transition has been completed, Statement
44 is no longer necessary. SFAS 145 amends Statement 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. This amendment is consistent with the FASB's goal of requiring
similar accounting treatment for transactions that have similar economic
effects. SFAS 145 also makes technical corrections to existing pronouncements.
The Company does not believe the adoption of SFAS 145 will have a material
impact on the Company's financial position, results of operations or cash
flows.

(19)  VALUATION AND QUALIFYING ACCOUNTS

Following are disclosures regarding the Company's valuation and qualifiying
accounts:

<TABLE>
                                              Year ended      Year ended      Year ended
                                             December 31,    December 31,    December 31,
          Description                            1999            2000            2001
          -----------                        ------------    ------------    ------------

Reserve for contingencies-
-------------------------

<S>                                          <C>              <C>              <C>
Balances as of beginning of the year              483             721              938
     Charges to costs and expenses                238             235              706
     Deductions                                     -             (18)            (393)
                                             --------        --------        ---------
Balances as of end of the year                    721             938            1,251
                                             ========        ========        =========


                                              Year ended      Year ended      Year ended
                                             December 31,    December 31,    December 31,
          Description                            1999            2000            2001
          -----------                        ------------    ------------    ------------
Allowance for doubtful accounts-
-------------------------------
Balances as of beginning of the year                -             140               40
     Charges to costs and expenses                140               -               37
     Deductions                                     -            (100)               -
                                             --------        --------        ---------
Balances as of end of the year                    140              40               77
                                             ========        ========        =========


                                                * * * * * * * * * *


                                                                                         15

</TABLE>
<PAGE>



Prime - Prestadora de Servicos S/C Ltda.

Financial Statements Together with Report
of Independent Public Accountants

Expressed in Brazilian reais


As of December 31, 2000 and 2001 and for the three years in the period ended
December 31, 2001.


<PAGE>


Report of Independent Public Accountants

To the Quotaholders of

Prime - Prestadora de Servicos S/C Ltda.:


(1) We have audited the accompanying balance sheets of PRIME - PRESTADORA DE
SERVICOS S/C LTDA. (a Brazilian limited liability Company and a subsidiary of
Localiza Rent a Car S.A.) as of December 31, 2000 and 2001 and the related
statements of operations, changes in quotaholders' equity and cash flows for
each of the three years in the period ended December 31, 2001, expressed in
Brazilian reais. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

(2) 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.

(3) In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prime - Prestadora de
Servicos S/C Ltda. as of December 31, 2000 and 2001, the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.

(4) Also, in our opinion, the amounts in the accompanying financial statements
as of and for the year ended December 31, 2001, translated into U.S. dollars,
have been computed on the basis set forth in Note 2 (c).

/s/ DELOITTE TOUCHE TOHMATSU

Belo Horizonte, Brazil,
    June 3, 2002


<PAGE>


                    PRIME - PRESTADORA DE SERVICOS S/C LTDA.

                  BALANCE SHEETS - DECEMBER 31, 2000 AND 2001

           (Stated in thousands of Brazilian reais and U.S. dollars)


                                  A S S E T S


<TABLE>
                                                                    December 31,
                                                          --------------------------------
                                                            2000        2001        2001
                                                          --------    --------    --------
                                                             R$          R$         US$
                                                          --------    --------    --------
<S>                                                            <C>         <C>         <C>
CURRENT ASSETS:
    Cash and cash equivalents                                  240         478         206
    Accounts receivable                                        229         270         116
    Other                                                       50          48          21
                                                          --------    --------    --------
                                                               519         796         343
                                                          --------    --------    --------
NONCURRENT ASSETS:
    Escrow deposits                                            107         195          84
    Deferred income and social contribution taxes               24           -           -
                                                          --------    --------    --------
                                                               131         195          84
                                                          --------    --------    --------
                     Total assets                              650         991         427
                                                          ========    ========    ========
</TABLE>

                     The accompanying notes are an integral
                         part of these balance sheets.

<PAGE>


                    PRIME - PRESTADORA DE SERVICOS S/C LTDA.

                  BALANCE SHEETS - DECEMBER 31, 2000 AND 2001

           (Stated in thousands of Brazilian reais and U.S. dollars)


     L I A B I L I T I E S  A N D  Q U O T A H O L D E R S'  E Q U I T Y

<TABLE>
                                                                        December 31,
                                                             ----------------------------------
                                                               2000         2001         2001
                                                             --------     --------     --------
                                                                R$           R$           US$
                                                             --------     --------     --------
<S>                                                               <C>          <C>          <C>
CURRENT LIABILITIES:
    Accounts payable                                                4           22            9
    Payroll and related charges                                   396          538          232
    Taxes payable                                                  33           40           17
                                                             --------     --------     --------
                                                                  433          600          258
                                                             --------     --------     --------

NONCURRENT LIABILITIES:
    Reserve for contingencies                                     116          303          131
    Other                                                          59           72           31
                                                             --------     --------     --------
                                                                  175          375          162
                                                             --------     --------     --------
QUOTAHOLDERS' EQUITY:
    Capital stock                                                  50          150           65
    Accumulated deficit                                            (8)        (134)         (58)
                                                             --------     --------     --------
                                                                   42           16            7
                                                             --------     --------     --------
          Total liabilities and quotaholders' equity              650          991          427
                                                             ========     ========     ========
</TABLE>


                     The accompanying notes are an integral
                         part of these balance sheets.


<PAGE>


                    PRIME - PRESTADORA DE SERVICOS S/C LTDA.

                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

           (Stated in thousands of Brazilian reais and U.S. dollars)

<TABLE>
                                                              Year ended December 31,
                                                ---------------------------------------------------
                                                   1999          2000          2001          2001
                                                ---------     ---------     ---------     ---------
                                                    R$            R$            R$            US$
                                                ---------     ---------     ---------     ---------
<S>                                                 <C>           <C>           <C>           <C>
NET REVENUES                                        1,801         2,319         3,753         1,617

EXPENSES:
    Selling                                        (1,785)       (2,091)       (3,497)       (1,507)
    Taxes on revenues                                (107)         (185)         (356)         (153)
    Other                                               -            (1)          (21)           (9)
                                                ---------     ---------     ---------     ---------
       Operating income (loss)                        (91)           42          (121)          (52)

FINANCIAL INCOME, NET                                  22            15            38            16
                                                ---------     ---------     ---------     ---------
       Income (loss) before taxes                     (69)           57           (83)          (36)

INCOME AND SOCIAL CONTRIBUTION TAXES:
     Current                                            -           (20)          (19)           (8)
     Deferred                                          19             5           (24)          (10)
                                                ---------     ---------     ---------     ---------
                                                       19           (15)          (43)          (18)
                                                ---------     ---------     ---------     ---------
       Net income (loss)                              (50)           42          (126)          (54)
                                                =========     =========     =========     =========
</TABLE>


                     The accompanying notes are an integral
                           part of these statements.


<PAGE>


                    PRIME - PRESTADORA DE SERVICOS S/C LTDA.

                 STATEMENTS OF CHANGES IN QUOTAHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                    (Stated in thousands of Brazilian reais)


                                          Capital     Accumulated
                                           stock        deficit        Total
                                         ---------     ---------     ---------

BALANCE DECEMBER 31, 1998                       10             -            10
    Capital increase (Note 1)                  190             -           190
    Capital reduction (Note 1)                (150)            -          (150)
    Net loss                                     -           (50)          (50)
                                         ---------     ---------     ---------
BALANCE DECEMBER 31, 1999                       50           (50)            -
    Net income                                   -            42            42
                                         ---------     ---------     ---------
BALANCE DECEMBER 31, 2000                       50            (8)           42
    Capital increase (Note 1)                  100             -           100
    Net loss                                     -          (126)         (126)
                                         ---------     ---------     ---------
BALANCE DECEMBER 31, 2001                      150          (134)           16
                                         =========     =========     =========


                     The accompanying notes are an integral
                           part of these statements.


<PAGE>


                    PRIME - PRESTADORA DE SERVICOS S/C LTDA.

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

           (Stated in thousands of Brazilian reais and U.S. dollars)

<TABLE>
                                                                       Year ended December 31,
                                                          ---------------------------------------------------
                                                             1999          2000          2001          2001
                                                          ---------     ---------     ---------     ---------
                                                              R$            R$            R$           US$
                                                          ---------     ---------     ---------     ---------
<S>                                                            <C>           <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                           (50)           42          (126)          (54)
    Non-cash adjustments-
       Deferred taxes on income                                 (19)           (5)           24            10
       Provision for contingencies                               50            73           200            86
       Other                                                      -             8            13             6
                                                          ---------     ---------     ---------     ---------
                                                                (19)          118           111            48
                                                          ---------     ---------     ---------     ---------
(Increase) decrease in assets:
    Accounts receivable                                        (198)          (31)          (41)          (18)
    Escrow deposits                                             (44)          (54)          (88)          (38)
    Other                                                       (32)          (15)            2             1
                                                          ---------     ---------     ---------     ---------
                                                               (274)         (100)         (127)          (55)
                                                          ---------     ---------     ---------     ---------
Increase (decrease) in liabilities:
    Accounts payable                                             25           (21)           18             8
    Payroll and related charges                                 313           132           142            62
    Taxes payable                                                16            17             7             3
    Reserve for contingencies                                     -           (17)          (13)           (6)
                                                          ---------     ---------     ---------     ---------
                                                                354           111           154            67
                                                          ---------     ---------     ---------     ---------
Net cash provided by operating activities                        61           129           138            60
                                                          ---------     ---------     ---------     ---------
 CASH FLOWS FROM FINANCING ACTIVITIES:
       Capital increase                                         190             -           100            43
       Capital decrease                                        (150)            -             -             -
                                                          ---------     ---------     ---------     ---------
Net cash provided by financing activities                        40             -           100            43
                                                          ---------     ---------     ---------     ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS                       101           129           238           103

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                                                                 10           111           240           103
                                                          ---------     ---------     ---------     ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR                        111           240           478           206
                                                          =========     =========     =========     =========
</TABLE>


                     The accompanying notes are an integral
                           part of these statements.

<PAGE>


                    PRIME - PRESTADORA DE SERVICOS S/C LTDA.

                       NOTES TO THE FINANCIAL STATEMENTS

                        DECEMBER 31, 1999, 2000 AND 2001

             (Amounts expressed in thousands of Brazilian reais and
                   U.S. dollars, unless otherwise indicated)



(1) THE COMPANY AND ITS OPERATIONS

     Prime - Prestadora de Servicos S/C Ltda. ("the Company" or "Prime") is a
Brazilian limited liability Company and a subsidiary of Localiza Rent a Car
S.A. ("Localiza"), formed on November 16, 1998, and formerly named Autovenda
S/C Ltda.. The Company initiated its operations on January 1, 1999 rendering
services to Total Fleet S.A. (a Localiza subsidiary) - in the intermediation of
purchase and sale of vehicles and accessories.

     The Company is a subsidiary guarantor of Localiza's Senior Notes program,
which are unsecured obligations of Localiza, at the amount of US$100 million,
maturing on October 1, 2005. As a consequence, the Company is subject to
certain restrictions contained in the Senior Notes program. These restrictive
covenants will limit, except in certain circumstances, the ability of Localiza
and subsidiaries to, among other things, declare any dividend or other similar
distribution, make certain stock repurchases, make certain payments on
subordinated indebtedness or make certain investments if, after giving effect
to such actions, (i) a default or event of default under the Senior Notes
indenture would have occurred and be continuing, (ii) Localiza and subsidiaries
would be unable to incur additional indebtedness under the debt incurrence
ratio test set forth in the indenture or (iii) the amount of all such payments
exceeds an aggregate threshold amount. A default or event of default includes
the failure of Localiza or its subsidiaries to observe or perform any covenant,
whose covenants include limitations on the ability of the Localiza and
subsidiaries to (i) incur certain additional indebtedness, (ii) create certain
liens, (iii) enter into certain transactions with affiliates, (iv) engage in
certain sale and leaseback transactions and (v) enter into certain merger,
acquisition or sale transactions. Management believes to be in compliance with
all covenants stated above.

     On January 11, 1999, Localiza increased capital in Prime in the amount of
R$190 and on July 15, 1999, Localiza reduced capital in the amount of R$150.

     On July 6, 2001, Localiza increased capital in Prime in the amount of
R$100.


(2)  BASIS FOR PRESENTATION OF THE FINANCIAL STATEMENTS

     (a) Accounting records-

     The Company's accounting records are maintained in Brazilian reais (R$),
based on the criteria prescribed by the Brazilian Corporate Law. The financial
statements prepared based on such accounting records and the Corporate Law
criteria (Corporate Law Method financial statements) are the basis for
determining income taxes and quotaholders' rights, such as the distribution of
profits.


                                                                              1
<PAGE>


     (b) Presentation of the financial statements-

     The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which do not
differ from the accounting principles applied by the Company in its financial
statements prepared in accordance with accounting principles generally accepted
in Brazil or for other statutory purposes in Brazil. Therefore, quotaholders'
equity and net income included in these financial statements do not differ from
the statutory accounting records.


     (c) Translation of balances from Brazilian reais to U.S. dollars-

     The accompanying financial statements in Brazilian reais were translated
into U.S. dollars at the rate of R$2.3204 to US$1.00, the selling Commercial
Market exchange rate reported by the Central Bank of Brazil, for December 31,
2001. Such translation was made solely for the convenience of the readers and
should not be construed as a representation that the Brazilian reais amounts
could have been converted into U.S. dollars at this or any other rate.


(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The financial statements were prepared in conformity with accounting
principles generally accepted in the United States of America, based on the
following accounting policies:

     (a)  Cash and cash equivalents-- Stated at cost plus interest earned to
          the balance sheet dates.

     (b)  Income and social contribution taxes--The Company accounts for income
          taxes under the provisions of SFAS n(0).109, "Accounting for Income
          Taxes", which requires the application of the comprehensive liability
          method of accounting for income taxes. Under this method, a company
          is required to recognize a deferred tax asset or liability for all
          temporary differences.

          Deferred tax assets and liabilities are measured using enacted tax
          rates in effect for the year in which those temporary differences are
          expected to be recovered or settled. Under SFAS n(0).109, the effect
          on deferred tax assets and liabilities of changes in tax rates is
          recognized in income for the period that includes the enactment date.

          Deferred tax assets are reduced through the recognition of a
          valuation allowance, as appropriate, if, based on the weight of
          available evidence, it is more likely than not that the deferred tax
          asset will not be realized.

     (c)  Assets and liabilities subject to monetary restatement-- Assets and
          liabilities denominated in Brazilian reais, and contractually or
          legally subject to indexation, are restated at the balance sheet
          dates by using the related index. Monetary variation gains or losses
          are recorded in the profit and loss account.

     (d)  Revenue and expenses-- The revenues and expenses are recorded on the
          accrual basis. Revenues are recorded based on a commission per car
          sold.

     (e)  Advertising costs-- Advertising costs are expensed when incurred
          (Note 11). No advertising costs have been deferred at the balance
          sheet dates herein.


                                                                              2
<PAGE>


     (f)  Use of estimates-- The preparation of financial statements in
          accordance with generally accepted accounting principles requires
          that the Company makes estimates and use assumptions, in its best
          judgement, that affect the reported amounts of assets, liabilities
          and disclosures of contingent assets and liabilities as of the dates
          of the financial statements and the reported amounts of revenues,
          costs and expenses during the reporting periods. Significant
          estimates are used when accounting for income taxes, including
          recognition of valuation allowances, and contingencies, among others.
          Actual results in the future may differ from the estimates included
          in these financial statements.

     (g)  Reclassifications in 1999 and 2000-- Certain amounts have been
          reclassified to conform with the 2001 presentation, mainly related to
          the taxes on revenues reclassified from net revenues, in accordance
          with interpretations of EITF (FASB Emerging Issue Task Force) 01-14
          and 99-19.


(4)  CASH AND CASH EQUIVALENTS

                                                          December 31,
                                                --------------------------------
                                                  2000        2001        2001
                                                --------    --------    --------
                                                   R$          R$          US$
                                                --------    --------    --------
          Cash                                         2           9           4
          Cash equivalents                           238         469         202
                                                --------    --------    --------
                                                     240         478         206
                                                ========    ========    ========


     All cash and cash equivalents are denominated in reais. Cash and cash
equivalents represent highly liquid investments that are readily convertible to
known amounts of cash without any penalty or loss of market rate interest.


(5)  ESCROW DEPOSITS:

                                                          December 31,
                                                --------------------------------
                                                  2000        2001        2001
                                                --------    --------    --------
                                                    R$          R$          US$
                                                --------    --------    --------

          PIS/COFINS (taxes on other revenues)         3           5           2
          SESC/SENAC                                  56          98          42
          SAT                                         40          74          32
          SEBRAE                                       8          18           8
                                                --------    --------    --------
                                                     107         195          84
                                                ========    ========    ========

     These deposits were primarily made in connection with pending litigation.
Related reserves for contingencies have been recognized (Note 7), where
applicable.


                                                                              3
<PAGE>


(6)  PAYROLL AND RELATED CHARGES

<TABLE>
                                                                            December 31,
                                                                   --------------------------------
                                                                     2000        2001        2001
                                                                   --------    --------    --------
                                                                      R$          R$          US$
                                                                   --------    --------    --------
<S>                                                                     <C>         <C>         <C>
          Accrued vacation                                              169         219          94
          Provision for employees' participation in profit              149         229          99
          INSS (Social security contributions)                           40          51          22
          FGTS (Severance indemnity fund)                                13          15           7
          Other                                                          25          24          10
                                                                   --------    --------    --------
                                                                        396         538         232
                                                                   ========    ========    ========
</TABLE>

     The Company pays bonuses based on profits to employees on a six-months
basis, according to their position and performance evaluations, which are not
necessarily based on results from operations.


(7)  RESERVE FOR CONTINGENCIES

<TABLE>
                                                                            December 31,
                                                                   --------------------------------
                                                                     2000        2001        2001
                                                                   --------    --------    --------
                                                                      R$          R$          US$
                                                                   --------    --------    --------
<S>                                                                     <C>         <C>         <C>
          SESC/SENAC                                                     59         101          44
          SEBRAE                                                          9          20           9
          SAT                                                            45          78          34
          Tax contingencies                                               3          80          34
          Other                                                           -          24          10
                                                                   --------    --------    --------
                                                                        116         303         131
                                                                   ========    ========    ========
</TABLE>

     The Company is a claimant in some lawsuits and has recognized the above
reserves based on the opinion of its legal and tax counsel.

     The Company's contingencies consist of pending litigation contesting the
SESC/SENAC, SEBRAE and SAT payroll-related taxes. These contingencies reserves
amount to R$199 as of December 31, 2001 (R$113 in 2000), of which R$190 (R$104
in 2000) are deposited in an escrow account.

     The tax contigencies consist of pending litigation contesting taxes on
other revenues, especifically PIS and COFINS, and taxes on revenues - ISS.
These contingencies reserves amount to R$80 as of December 31, 2001 (R$3 in
2000), of which R$5 (R$3 in 2000) are deposited in an escrow account.

     Accruals for the aforementioned contingencies are determined based on an
analysis of the pending claims, as well as on the risks involved.

     The Company's management, based on the opinion of its legal and tax
counsel, does not expect that the resolution of these matters will have a
material adverse effect on the Company's financial position or results of
operations and believes that no additional accrual for the mentioned reserves
is required.


                                                                              4
<PAGE>


(8)  OTHER NONCURRENT LIABILITIES

     According to Brazilian labor legislation, employees dismissed are entitled
to a 40% additional payment over the outstanding FGTS balance at dismissal
date. As of December 31, 2000 and 2001, the Company has accrued for the
potential expenses to be incurred related to the 40% extra payment mentioned
above. The accrual was made based on actual dismissal records from prior years.


(9)  INCOME AND SOCIAL CONTRIBUTION TAXES

     (a) Deferred income and social contribution taxes-

     Temporary differences which give rise to deferred tax assets are as
follows:

                                                        December 31,
                                             ----------------------------------
                                               2000         2001         2001
                                             --------     --------     --------
                                                R$           R$          US$
                                             --------     --------     --------
     Deferred tax assets:
     Reserve for contingencies                     15           47           20
     Provision for mandatory fund for
        unemployment benefits                      14           21            9
                                             --------     --------     --------
                                                   29           68           29
     Valuation allowance                           (5)         (68)         (29)
                                             --------     --------     --------
                                                   24            -            -
                                             ========     ========     ========

     During 1999, the Brazilian Government changed the tax law to allow
companies to offset COFINS (tax on revenues) paid against the social
contribution. Based on management's expectations, the likelihood of realizing
the temporary differences on social contribution was not more likely than not
for R$5 of the deferred tax assets. Therefore, a valuation reserve was
established in 2000.

     In 2001, management's expectations of future taxable income indicated that
it was not more likely than not that deferred income and social contribution
taxes assets would be realized. Therefore, a valuation allowance for the
complete balance was recognized.


     (b) Income and social contribution taxes-

     Income and social contribution taxes at nominal rates are reconciled to
the amount reported as income tax expense, in the financial statements, as
follows:

<TABLE>
                                                           Year ended December, 31
                                              --------------------------------------------------
                                                1999          2000          2001          2001
                                              --------      --------      --------      --------
                                                 R$            R$            R$            US$
                                              --------      --------      --------      --------
<S>                                                 <C>          <C>           <C>           <C>
     Income (loss) before taxes                    (69)           57           (83)          (36)
     Nominal rate                                   27%           24%           24%           24%
                                              --------      --------      --------      --------
     Income taxes at nominal rate                   19           (14)           20             9
     Increase in the valuation reserve               -            (1)          (63)          (27)
                                              --------      --------      --------      --------
                                                    19           (15)          (43)          (18)
                                              ========      ========      ========      ========
</TABLE>


                                                                              5
<PAGE>


     The tax rates for the periods are:

           Income tax                                                   15%
           Additional income tax (for the taxable income
              exceeding R$240)                                          10%

           Social contribution tax-
              - from January 1 through April 30, 1999                    8%
              - from May 1 through January 31, 2000                     12%
              - from February 1 through December 31, 2002                9%
              - after January 1, 2003                                    8%

     Considering that the Company's taxable income was below the abovementioned
threshold, the Company was not subject to the payment of the additional income
tax.


(10) QUOTAHOLDERS' EQUITY

     (a) Capital Stock-

     As of December 31, 2001, capital stock was represented by R$150 (R$50 in
2000) corresponding to 14,999 outstanding quotas (4,999 in 2000), owned by
Localiza Rent a Car S.A. and 1 outstanding quota owned by Localiza System
Ltda., with par value of R$10 each. The quotas cannot be sold, pledged or
transferred to third parties without the approval of all quotaholders.


     (b) Distribution of profits-

     In accordance with the Company's bylaw, the net profit may be distributed
to the quotaholders or capitalized. However, upon the vote of majority of the
quotaholders, they may declare a lower distribution or decide not to declare
distribution. Additionally, upon a 100% approval of such quotaholders, profits
can be partially or totally distributed without keeping the proportion to each
quotaholders' share in the capital stock.

     Brazilian legislation permits payments of distribution of profits limited
to the accumulated earnings balances in the statutory financial statements
prepared in accordance with Brazilian Corporate Law.

     For the years ended 1999, 2000 and 2001, the Company's acumulated deficits
in accordance with Brazilian Corporate Law were R$50, R$8 and R$134. Therefore,
no distributions were declared.


                                                                              6
<PAGE>


(11) SELLING EXPENSES

                                             Year ended December 31,
                                   --------------------------------------------
                                     1999        2000        2001        2001
                                   --------    --------    --------    --------
                                      R$          R$          R$          US$
                                   --------    --------    --------    --------
     Payroll and related charges     (1,517)     (1,748)     (2,906)     (1,252)
     Employees' profit sharing         (161)       (200)       (300)       (129)
     Travel                             (91)       (105)       (222)        (96)
     Other                              (16)        (38)        (69)        (30)
                                   --------    --------    --------    --------
                                     (1,785)     (2,091)     (3,497)     (1,507)
                                   ========    ========    ========    ========

(12) FINANCIAL INCOME, NET

                                             Year ended December 31,
                                   --------------------------------------------
                                     1999        2000        2001        2001
                                   --------    --------    --------    --------
                                      R$          R$          R$          US$
                                   --------    --------    --------    --------
     Interest income                     34          35          56          24
     Interest expense                   (11)        (19)        (17)         (7)
     Tax on financial revenues           (1)         (1)         (1)         (1)
                                   --------    --------    --------    --------
                                         22          15          38          16
                                   ========    ========    ========    ========


(13) TRANSACTIONS WITH RELATED PARTIES

     The main balances and transactions with related parties are as follows:

                                             Year ended December 31,
                                   --------------------------------------------
                                     1999        2000        2001        2001
                                   --------    --------    --------    --------
                                      R$          R$          R$          US$
                                   --------    --------    --------    --------
     Accounts receivable-
         Total Fleet S.A                            229         270         116
                                               ========    ========    ========

     Accounts payable-
         Total Fleet S.A                              -           2           1
                                               ========    ========    ========

     Net revenues-
         Total Fleet S.A              1,694       2,134       3,397       1,464
                                   ========    ========    ========    ========

     Other expenses-
         Total Fleet S.A                  -           -          16           7
                                   ========    ========    ========    ========

     Management believes that such transactions were carried under market
conditions.


                                                                              7
<PAGE>


(14) FINANCIAL INSTRUMENTS

     The Company's financial instruments are recorded in balance sheet
accounts, as of December 31, 2000 and 2001, at amounts that approximate the
fair value on those dates. The management of these instruments is made through
operational strategies, seeking liquidity, returns and safety. The control
policy consists of continually checking contracted rates versus the market. The
Company did not have derivatives during the years ended nor at each balance
sheet dates. Accordingly, the implementation of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, had no effect on
the Company's financial statements upon adoption.


(15) FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING
     STANDARDS NOT YET IN EFFECT

     In June 2001 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations". SFAS N(0) 141 is effective for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for
using the purchase method for which the date of acquisition is July 1, 2001, or
later. SFAS N(0) 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method. The Company does not
anticipate that the adoption of this standard will have a effect on its
financial position or results of operations.

     In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS N(0) 142 is effective for fiscal years beginning after December
15, 2001. Early application of SFAS No. 142 is permitted for entities with
fiscal years beginning after March 15, 2001, provided that the first interim
financial statements have not previously been issued. With the adoption of SFAS
N(0) 142, goodwill is no longer subject to amortization over its estimated
useful life, but rather it will be subject to at least an annual assessment for
impairment by applying a fair-value-based test. Additionally, negative goodwill
is recognized as an extraordinary gain at the time of the business combination.
As of December 31, 2001, the Company has no goodwill recorded in its financial
statements and consequently, the adoption of this standard will have no effect
on the Company's financial position or results of operations.

     In June 2001 the FASB issued SFAS N(0) 143, "Accounting for Asset
Retirement Obligations". The new standard will be effective for financial
statements issued for fiscal years beginning after June 15, 2002, with early
application encouraged. The Company plans to adopt this new standard in January
1, 2003. SFAS N(0) 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This Statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized
as part of the carrying amount of the long-lived asset. The Company does not
anticipate that this new standard will have a significant impact on its
financial position or results of operations.


                                                                              8
<PAGE>


     In August 2001 the FASB issued SFAS N(0) 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The new standard will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001, with early application encouraged. The Company plans to
adopt this new standard in January 1, 2002. SFAS N(0) 144 supersedes SFAS N(0)
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", although it retains the fundamental provisions of
SFAS N(0) 121. SFAS N(0) 144 also expands the scope of discontinued operations
presentation to a component of an entity and eliminates the exception to
consolidation for a temporarily controlled subsidiary. The Company does not
anticipate that this new standard will have a significant impact on its
financial position or results of operations.

     In April 2002, the FASB issued SFAS N(0) 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS 145 updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds Statement 4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB Opinion 30 will now be used to classify those gains
and losses. Statement 64 amended Statement 4, and is no longer necessary
because Statement 4 has been rescinded. Statement 44 was issued to establish
accounting requirements for the effects of transition to the provisions of the
Motor Carrier Act of 1980. Because the transition has been completed, Statement
44 is no longer necessary. SFAS 145 amends Statement 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. This amendment is consistent with the FASB's goal of requiring
similar accounting treatment for transactions that have similar economic
effects. SFAS 145 also makes technical corrections to existing pronouncements.
The Company does not believe the adoption of SFAS 145 will have a material
impact on the Company's financial position, results of operations or cash
flows.


(16) VALUATION AND QUALIFYING ACCOUNTS

     Following are disclosures regarding the Company's valuation and qualifying
accounts:

<TABLE>
                                           Year ended     Year ended     Year ended
                                          December 31,   December 31,   December 31,
            Description                       1999          2000            2001
     ----------------------------------   ------------   ------------   ------------
<S>                                                 <C>           <C>            <C>
     Reserve for contingencies-
     -------------------------

     Balances as of beginning of the year            -             50            116
        Charges to costs and expenses               50             83            200
        Deductions                                   -            (17)           (13)
                                          ------------   ------------   ------------
     Balances as of end of the year                 50            116            303
                                          ============   ============   ============
</TABLE>

                           * * * * * * * * * * * * *


                                                                              9
<PAGE>




LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.
Financial Statements Together with Report
of Independent Public Accountants


Stated in thousands of Argentine pesos
December 31, 2000 and 2001



<PAGE>


REPORT OF INDEPENDENT                                           [Andersen Logo]
PUBLIC ACCOUNTANTS


To the Shareholders of
LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.:


     We have audited the balance sheets of LOCALIZA MASTER FRANCHISEE ARGENTINA
S.A. (an Argentine Corporation and a subsidiary of Localiza System Ltda.) as of
December 31, 2001, and 2000, and the related statements of income, changes in
shareholders' equity and cash flows for the years ended in December 31, 2001
and 2000 and for the one-month period ended December 31, 1999, stated in
thousands of Argentine pesos. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
such financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards 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.

     As described in note 12 to the accompanying financial statements, in the
last few months, a deep change has been implemented in the economic model of
the country as well as in the Convertibility Law that was in place since March
1991 (whereby the Argentine peso was pegged at parity with the US dollar). The
main consequences of the set of measures adopted by the Argentine Federal
Government, which are detailed in the above mentioned note, have been (a) the
devaluation of the Argentine peso with respect to the US dollar and
de-dollarization of certain assets and liabilities in foreign currency held in
the country; (b) the implementation of restrictions on the withdrawal of funds
deposited with financial institutions; (c) the restriction on transfers abroad
on account of financial loan service and dividend distributions without prior
authorization from the Central Bank; and (d) the increase in domestic prices.
The future development of the economic crisis may require further measures from
the Argentine Federal Government. The accompanying financial statements should
be read taking into account the issues mentioned above.

<PAGE>
                                      -2-
                                                                [Andersen Logo]

     In our opinion the financial statements referred to in paragraph 1.
present fairly, in all material respects, the financial position of LOCALIZA
MASTER FRANCHISEE ARGENTINA S.A. as of December 31, 2001, and 2000, and the
results of its operations and its cash flows for the years ended December 31,
2001 and 2000 and for the one-month period ended December 31, 1999, in
conformity with generally accepted accounting principles in the United States
of America.

     Additionally, in our opinion, the figures of the balance sheet as of
December 31, 2001 and the statements of income and cash flows for the year then
ended, converted to US dollars and included in the column "2001 US$", have been
computed in accordance with the methodology described in Note 2. (d).


Buenos Aires, Argentina,                          PISTRELLI, DIAZ Y ASOCIADOS

  March 11, 2002
                                                    /s/ Karen Grigorian
                                                        KAREN GRIGORIAN
                                                            Partner

<PAGE>
                                      -1-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                                 BALANCE SHEETS

                           DECEMBER 31, 2000 AND 2001

           (Stated in thousands of Argentine pesos and U.S. dollars)


                                                           December 31,
                                                   ----------------------------
                                                    2000       2001       2001
                                                   ------     ------     ------
                                                     ARP        ARP        US$
                                                   ------     ------     ------
Current Assets:

Cash and banks                                         15          1          1
Accounts receivable                                   179        180        106
Other                                                  30          5          3
                                                   ------     ------     ------
                                                      224        186        110
                                                   ======     ======     ======

Noncurrent Assets:

Other                                                  30         48         28
Office equipment, net                                  36         27         16
                                                   ------     ------     ------
                                                       66         75         44
                                                   ------     ------     ------
Total assets                                          290        261        154
                                                   ======     ======     ======

      The accompanying notes are an integral part of these balance sheets.



                                                             ENRIQUE MONPELAT
                                                                 Chairman


<PAGE>
                                      -2-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


                                 BALANCE SHEETS

                           DECEMBER 31, 2000 AND 2001

           (Stated in thousands of Argentine pesos and U.S. dollars)

                      Liabilities and shareholders' equity


                                                           December 31,
                                                   ----------------------------
                                                    2000       2001        2001
                                                   ------     ------     ------
                                                     ARP        ARP        US$
                                                   ------     ------     ------
Current Liabilities:

Accounts payable                                       75        105         62
Payroll and related charges                            33         26         15
Income and social contribution taxes                   26         12          7
Taxes, other than on income                            30          8          5
Payable to related party                               70         32         19
Other                                                  26         24         14
                                                   ------     ------     ------
                                                      260        207        122
                                                   ------     ------     ------
Noncurrent Liabilities:

Reserve for contingencies                               -         17         10
Other                                                   5          5          3
                                                   ------     ------     ------
                                                        5         22         13
                                                   ------     ------     ------
Shareholders' Equity:

Capital stock                                         197        197        116
Capital contributions                                 135        276        163
Accumulated deficit                                  (307)      (441)      (260)
                                                   ------     ------     ------
                                                       25         32         19
                                                   ------     ------     ------
Total liabilities and shareholders' equity            290        261        154
                                                   ======     ======     ======


      The accompanying notes are an integral part of these balance sheets.


                                                           ENRIQUE MONPELAT
                                                               Chairman

<PAGE>
                                      -3-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


                              STATEMENTS OF INCOME

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

           (Stated in thousands of Argentine pesos and U.S. dollars,
                           except per share amounts)


<TABLE>
                                                                       Year ended December, 31
                                                         -------------------------------------------------
                                                            1999         2000         2001         2001
                                                         (one month)  (12 months) (12 months)  (12 months)
                                                         -----------  ----------- -----------  -----------
                                                             ARP          ARP         ARP          US$
                                                         -----------  ----------- -----------  -----------
<S>                                                          <C>         <C>          <C>          <C>
NET REVENUES:

Royalties and advertising fees                                 66          768          668          393
Initial franchise fees                                         30           74           72           42
                                                           ------       ------       ------       ------
Total revenues                                                 96          842          740          435
                                                           ------       ------       ------       ------
EXPENSES AND COSTS:
Direct operating                                              (54)        (767)        (706)        (415)
Selling, general and administrative                            (7)         (99)        (143)         (86)
Depreciation                                                   (1)         (13)         (15)          (8)
                                                           ------       ------       ------       ------
Total operating expenses                                      (62)        (879)        (864)        (509)
                                                           ------       ------       ------       ------
Operating income (loss)                                        34          (37)        (124)         (74)
                                                           ------       ------       ------       ------

FINANCIAL EXPENSES, NET                                        (1)          (8)         (10)          (5)
                                                           ------       ------       ------       ------
Net income (loss) for the year                                 33          (45)        (134)         (79)
                                                           ======       ======       ======       ======
Average shares outstanding during the years
(in thousands)                                                197          197          197          197
                                                           ======       ======       ======       ======
Net income (loss) per average share outstanding              0.17        (0.23)       (0.68)       (0.40)
                                                           ======       ======       ======       ======
</TABLE>

        The accompanying notes are an integral part of these statements.


                                                            ENRIQUE MONPELAT
                                                                Chairman

<PAGE>
                                      -4-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.



                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

                    (Stated in thousands of Argentine pesos)

<TABLE>
                                                Capital      Capital     Accumulated
                                                 stock    contributions    deficit        Total
                                                -------   -------------  -----------      -----
<S>                                                 <C>         <C>          <C>            <C>
BALANCE NOVEMBER 30, 1999                           197           89         (295)           (9)

Net income for the year (one month)                   -            -           33            33
                                                 ------       ------       ------        ------
BALANCE DECEMBER 31, 1999                           197           89         (262)           24

Irrevocable capital contribution                      -           46            -            46

Net loss for the year                                 -            -          (45)          (45)
                                                 ------       ------       ------        ------
BALANCE DECEMBER 31, 2000                           197          135         (307)           25

Irrevocable capital contribution                      -          141            -           141

Net loss for the year                                 -            -         (134)         (134)
                                                 ------       ------       ------        ------
BALANCE DECEMBER 31, 2001                           197          276         (441)           32
                                                 ======       ======       ======        ======
</TABLE>

        The accompanying notes are an integral part of these statements.


                                                          ENRIQUE MONPELAT
                                                              Chairman

<PAGE>
                                      -5-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

           (Stated in thousands of Argentine pesos and U.S. dollars)

<TABLE>
                                                               Year ended December, 31
                                                -----------------------------------------------------
                                                   1999          2000          2001           2001
                                                (one month)  (12 months)    (12 months)   (12 months)
                                                -----------  -----------    -----------   -----------
                                                    ARP           ARP           ARP           US$
                                                -----------  -----------    -----------   -----------
<S>                                                   <C>          <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) for the year                        33           (45)         (134)          (79)

Non-cash adjustments:

Depreciation                                           1            13            15             8
Reserves for contingencies                             -            (9)           17            10
                                                  ------        ------        ------        ------
                                                       1             4            32            18
                                                  ------        ------        ------        ------

(Increase) decrease in assets:

Accounts receivable                                   (2)           74            (1)            -
Recoverable taxes and other                          (19)          (10)            7             4
                                                  ------        ------        ------        ------
                                                     (21)           64             6             4
                                                  ------        ------        ------        ------
Increase (decrease) in liabilities:
Accounts payable                                     (24)          (53)           30            19
Payroll and related charges                            7           (11)           (7)           (4)
Taxes                                                  4           (39)          (36)          (21)
Other                                                  -            (9)           (2)           (2)
                                                  ------        ------        ------        ------
                                                     (13)         (112)            -            (8)
                                                  ------        ------        ------        ------
Net cash used in operating activities                  -           (89)         (111)          (65)
                                                  ------        ------        ------        ------
</TABLE>


                                                           ENRIQUE MONPELAT
                                                               Chairman


<PAGE>
                                      -6-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

           (Stated in thousands of Argentine pesos and U.S. dollars)


<TABLE>
                                                                           Year ended December, 31
                                                            -----------------------------------------------------
                                                                1999         2000          2001          2001
                                                            (one month)   (12 months)   (12 months)   (12 months)
                                                            -----------   -----------   -----------   -----------
                                                                 ARP          ARP           ARP           US$
                                                            -----------   -----------   -----------   -----------
<S>                                                                <C>         <C>           <C>            <C>
CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to office equipment                                       -           (6)           (6)           (3)
                                                               ------       ------        ------        ------
Net cash used in investing activities                               -           (6)           (6)           (3)
                                                               ------       ------        ------        ------

CASH FLOWS FROM FINANCING ACTIVITIES:

Transactions with related parties-
Proceeds                                                            -            -           103            60
Capital increase                                                    -           46             -             -
Bank overdraft                                                      8           20             -             -
                                                               ------       ------        ------        ------
Net cash provided by financing activities                           8           66           103            60
                                                               ------       ------        ------        ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                8          (29)          (14)           (8)
                                                               ------       ------        ------        ------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                     36           44            15             9
                                                               ------       ------        ------        ------
CASH AND CASH EQUIVALENTS AT END OF YEAR                           44           15             1             1
                                                               ======       ======        ======        ======
Supplemental disclosures of cash flow information-

Cash paid during the year for Income taxes                          -           23             1             1
</TABLE>


        The accompanying notes are an integral part of these statements.


                                                         ENRIQUE MONPELAT
                                                             Chairman


<PAGE>
                                      -7-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                       NOTES TO THE FINANCIAL STATEMENTS

                        DECEMBER 31, 1999, 2000 AND 2001

      (Amounts expressed in thousands of Argentine pesos and U.S. dollars,
                          unless otherwise indicated)


1.   THE COMPANY AND ITS OPERATIONS:

     LOCALIZA MASTER FRANCHISEE ARGENTINA S.A. ("the Company") is a corporation
     ("sociedad anonima") organized under the laws of the Republic of Argentina
     and domiciled in the city of Buenos Aires; its principal shareholder is
     Localiza System Ltd., a company domiciled in Belo Horizonte, Brazil. The
     Company, engaged in the commercial use of licenses and trademarks, started
     its operations during the year 1992.

     The Company grants exclusive rights to its franchisees for defined
     geographic areas pursuant to renewable contracts. Franchisees generally
     pay the Company an initial fixed fee when the contract is signed, plus a
     monthly flat fee consisting of royalties and an advertising fee, based on
     gross revenues generated by the franchisees.

     On August 30, 1999 Localiza System Ltd., acquired a 60% interest in the
     Company from EDS Inversora S.A. As a consequence of this transaction
     Localiza System Ltd. increased its ownership in the Company to 99.99%.

     By virtue of the Master Franchise Agreement signed between the Company (as
     "franchisee") and Localiza System Brazil (as "franchisor"), the Company
     must pay Localiza System Brazil 1.5% of the car rental earned by the
     Company's franchisees. However, this payment was waived effective
     September 1999 due to the current Company's financial situation. This
     Master Franchisee Agreement has a 10-year term, starting March 1994.

     The Company has incurred significant losses during the last years. This
     has weakened its financial position. Local management expects that this
     situation will be turned around in the next years and the Parent has
     expressed its commitment to continue operations in Argentina and
     financially support the Company.


2.   BASIS FOR PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS:

     a)   Accounting records

          The Company's accounting records are maintained in Argentine pesos
          ($1=US$ 2.3 as of these financial statements date) based on the
          criteria prescribed by the Argentine Corporate Law. These records
          serve as a basis for the distribution of results/dividends.

<PAGE>
                                      -8-



     b)   Price-level adjusted financial statements-

          The financial statements fully reflect the effect of changes in the
          purchasing power of currency through August 31, 1995. As from
          September 1, 1995, as required by General Resolution No. 8/95 of the
          Inspeccion General de Justicia, the Company has discontinued the
          application of the above mentioned method while maintaining the
          restatements recorded through that date, as inflation rates since
          then and until December 31, 2001 have been immaterial.

     c)   Presentation of the financial statements-

          These financial statements have been prepared to be filed with the
          Securities and Exchange Commission of the United States of America
          (the "SEC"). They have been prepared in accordance with generally
          accepted accounting principles in the United States of America, which
          differ in certain respects from the accounting principles applied by
          the Company in its financial statements prepared in accordance with
          generally accepted accounting principles in Argentina or for other
          statutory purposes in Argentina.

          Shareholders' investment and net income included in these financial
          statements differ from those included in the statutory accounting
          records as a result of adjustments made to reflect the requirements
          of generally accepted accounting principles in the United States of
          America.

     d)   Translation of balances from Argentine pesos to U.S. dollars-

          The financial statements, unless otherwise indicated, were translated
          into U.S. dollars at the rate of ARP 1.70 to US$1.00, the selling
          exchange rate as of the close of business of the first day after the
          exchange market, which had been suspended since December 23, 2001,
          reopened (January 11, 2002). Such translation was made solely for the
          convenience of the readers and should not be construed as a
          representation that the Argentine pesos amounts could have been
          converted into U.S. dollars at this or any other rate.


3.   SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES:

     The consolidated financial statements were prepared in conformity with
     generally accepted accounting principles in the United States of America,
     based on the following accounting policies:

     a)   Allowance for doubtful accounts-- Provided in an amount considered
          sufficient to cover eventual losses on accounts receivable,
          considering past experience, the current financial situation of the
          Company's customers and the status of past-due receivables.

     b)   Office equipment-- Restated as explained in Note 2, are net of
          related accumulated depreciation, using the straight-line method over
          the estimated useful lives of the related assets.

          Estimated useful lives are as follows:

           Furniture and fixtures                     5 years
           Software and equipment                     3 to 5 years
           Facilities                                 5 years

          The carrying amount of fixed assets does not exceed the recoverable
          value through future operations.

<PAGE>
                                      -9-



     c)   Income and social contribution taxes-- The Company calculates income
          taxes at the current rate of 35% based on the taxable income for the
          year. Deferred taxes arising from temporary differences are
          recognized using the criteria set forth in Statement of Financial
          Accounting Standard No. 109, "Accounting for income taxes".

          The tax on minimum presumed income (TOMPI) is complementary to income
          tax because while the latter is levied on the year's taxable income,
          the tax on minimum presumed income is a minimum levy on the potential
          income from certain productive assets at a 1% tax rate, so that the
          tax obligation of each Company will be equal to the higher of the two
          taxes. However, if the tax on minimum presumed income exceeds income
          tax in one tax year, such excess may be computed as a tax credit
          against any excess of income tax over the tax on minimum presumed
          income that might arise in any of the ten subsequent years.

          In the year ended December 31, 2000, and as a result of the enactment
          of Law No. 25,360 that extended the term over which the Company may
          compute minimum presumed income tax as payment on account of income
          tax to ten years, the Company has reversed the valuation reserve
          against the deferred minimum presumed tax asset which had been
          charged to income during the prior year. In addition, the Company has
          recorded minimum presumed income tax, which has been included in the
          Other noncurrent receivables account as minimum presumed income tax.
          A full valuation allowance was recorded for the tax deferred asset
          (including the tax loss carryforward) as the Company believes it is
          not more likely than not that this asset will be recovered.

          As of December 31, 1999, the Company has calculated income tax in the
          amount of 5, which has been charged to the income statement under
          "Income taxes".

          The calculated tax loss carryforward will be available to offset
          future taxable income until 2005. In each fiscal year in which the
          tax loss carryforward, the income tax benefit (effect of the tax rate
          over the tax loss carryforward utilized) will be realized provided
          income tax (after offsetting) equals or exceeds TOMPI, but will be
          reduced for any amount in which TOMPI may exceed income tax.

     d)   Assets and liabilities denominated in foreign currencies -- valued at
          the exchange rates effective as of January 11, 2002, when the
          exchange market reopened, as stated in paragraph 26 of the Statement
          of Financial Accounting Standards No. 52 and Topic D-12 of the
          Emerging Issues Task Force, both from the Financial Accounting
          Standards Board.

          Exchange differences have been credited/charged to current income in
          each year.

     e)   Use of estimates -- In preparing its financial statements, management
          is required to make certain assumptions and estimates with respect to
          the recording of assets, liabilities and transactions. Actual results
          in the future may differ from the estimates included in these
          financial statements.

     f)   Franchise revenues -- Initial franchise fees are recognized
          immediately, as the Company does not have any continuing obligation
          related to these amounts after the initial set up of the franchisee
          is complete. Royalties and advertising fees based on percentages of
          franchisees rental revenues are recognized as earned.

     g)   Earnings per share-- Calculated based on the weighted average number
          of shares outstanding during the periods.


<PAGE>
                                     -10-



                                                            December 31,
                                                 ------------------------------
                                                  2000        2001        2001
                                                 ------      ------      ------
                                                   ARP         ARP         US$
                                                 ------      ------      ------

4.   CASH AND BANKS:

     Cash                                             1           1           -
     Bank deposits                                   14           -           -
                                                 ------      ------      ------
                                                     15           1           1
                                                 ======      ======      ======


5.   ACCOUNTS RECEIVABLE:

     Royalties and advertising fees                 167         213         124
     Other                                           32          23          15
                                                 ------      ------      ------
                                                    199         236         139
     Less-Allowance for doubtful accounts           (20)        (56)        (33)
                                                 ------      ------      ------
                                                    179         180         106
                                                 ======      ======      ======


6.   OFFICE EQUIPMENT, NET:

     Furniture and fixtures                          25          29          17
     Software and equipment                          35          35          21
     Facilities                                       3           3           2
     Accumulated depreciation                       (27)        (40)        (24)
                                                 ------      ------      ------
                                                     36          27          16
                                                 ======      ======      ======

<PAGE>
                                     -11-



7.   DEFERRED INCOME TAXES:

     Temporary differences, which give rise to deferred tax assets are as
     follows:

<TABLE>
                                                                         December 31,
                                                                ------------------------------
                                                                 2000        2001        2001
                                                                ------      ------      ------
                                                                  ARP        ARP          US$
                                                                ------      ------      ------
<S>                                                                <C>        <C>          <C>
     Allowance for doubtful accounts                                 9          20          11
     Reserve for contingencies                                       -           6           4
     Difference between tax and book value of fixed assets          (2)         (2)         (1)
     Fees                                                           16           -           -
     Tax loss carryforward                                          63          94          55
                                                                ------      ------      ------
     Subtotal                                                       86         118          69

     Valuation allowance                                           (86)       (118)        (69)
                                                                ------      ------      ------
     Net deferred tax asset                                          -           -           -
                                                                ======      ======      ======
</TABLE>

     The Company's management believes that it is not more likely than not that
     the deferred income tax assets will be realized based on projections of
     future taxable income, and has recorded full valuation allowances
     accordingly.


8.   SHAREHOLDERS' EQUITY:

     As of December 31, 2000 and 2001, capital stock as per the statutory
     records was represented by 197 corresponding to 197,000 shares, at a par
     value of ARP 1.00. Capital is held as follows:

                                                     Shares on December 31,
                                              ----------------------------------
                                                1999         2000         2001
                                              --------     --------     --------

      Localiza System                          196,999      196,999      196,999
      Aristides Luciano Azevedo Newton               1            1            1
                                              --------     --------     --------
                                               197,000      197,000      197,000
                                              ========     ========     ========


9.   SELLING, GENERAL AND ADMINISTRATIVE (EXPENSES):


                                            Year ended December 31,
                                        -------------------------------
                                        1999     2000     2001     2001
                                        ----     ----     ----     ----
                                         ARP      ARP      ARP      US$
                                        ----     ----     ----     ----

     Collection commissions                -       30       21       12
     Unrecoverable receivables             -       20       36       21
     Outside services                      4       38       34       20
     Other                                 3       11       52       33
                                        ----     ----     ----     ----
                                           7       99      143       86
                                        ====     ====     ====     ====

<PAGE>
                                     -12-



10.  FINANCIAL EXPENSE, NET:


                                                Year ended December 31,
                                           ----------------------------------
                                           1999      2000      2001      2001
                                           ----      ----      ----      ----
                                            ARP       ARP       ARP       US$
                                           ----      ----      ----      ----

     Interest income                          -         -         1         -
     Interest expense                        (1)       (8)      (13)       (7)
     Tax on financial revenues                -         -        (3)       (1)
     Exchange gain                            -         -         5         3
                                           ----      ----      ----      ----
                                             (1)       (8)      (10)       (5)
                                           ====      ====      ====      ====


11.  FINANCIAL INSTRUMENTS:


     The Company did not have transactions with derivatives at the balance
     sheet dates.


12.  EFFECTS OF THE DEVALUATION OF THE ARGENTINE PESO AND OTHER MODIFICATIONS
     OF THE ECONOMIC NORMATIVE:

     Since early December 2001, Argentine authorities implemented a number of
     monetary and exchange control measures that mainly included restrictions
     on the free disposition of funds deposited with banks and the practical
     impossibility of making transfers abroad, with the exception of transfers
     related to foreign trade. Later, the Federal Government declared the
     official default on foreign debt payments and, on January 6, 2002, the
     Argentine Congress approved Law No. 25561 on Public Emergency and Exchange
     System Reform that introduced dramatic changes to the economic model
     implemented until that date and that amended the Convertibility Law (the
     currency board that pegged the Argentine peso at parity with the US
     dollar) approved in March 1991. The new law empowers the Federal Executive
     to implement, among other things, additional monetary, financial and
     exchange measures to overcome the economic crisis in the medium term.

     Decree 71/2002 of the Federal Executive and Communique "A" 3425, as
     amended, of the Central Bank of Argentina (the BCRA) devalued the
     Argentine peso with respect to the US dollar and established a dual
     exchange system: the "official" exchange system, mainly for exports,
     certain imports, and bank debts, and the "freely floating" exchange market
     for the rest of the transactions. Such Communique established a ARS 1.4 to
     USD 1 exchange rate for transactions conducted through the "official"
     market and the exchange rate of the "free" market that, as of the close of
     business of the first day after the exchange market, which had been
     suspended since December 23, 2001, reopened (January 11, 2002), was about
     ARS 1.60/ARS 1.70 to USD 1 (bid price).

     Other regulations were issued subsequently, including Decree No. 214/2002
     (Financial Reorganization Decree) of February 3, 2002, further amending
     the new rules and regulations in effect. The main aspects as of today are
     summarized below:

<PAGE>
                                     -13-



     a)   consolidation of the exchange markets into a "free" market for
          settling foreign trade transactions and financial transactions with
          prior authorization of the BCRA;

     b)   restrictions on the free disposition of funds deposited with banks;

     c)   de-dollarization of deposits in US dollars with Argentine banks at
          the ARS 1.40 = USD 1 rate and of all US dollar-denominated
          obligations assumed as of January 6, 2001, in Argentina at a ARS 1 =
          USD 1 rate. Deposits and debts switched into pesos will be
          subsequently adjusted by a "benchmark stabilization coefficient" to
          be published by the BCRA and which will be applied as from the
          publication date of Decree No. 214/2002, plus a minimum and maximum
          interest rate for deposits with and loans from the banking system,
          respectively, fixed by the BCRA;

     d)   de-dollarization of all private agreements at a ARS 1 = USD 1 rate
          and subsequent adjustment by the benchmark stabilization coefficient;

     e)   de-dollarization of utility rates which were originally agreed upon
          in US dollars and subsequent renegotiation on a case-by-case basis;

     f)   180-day suspension of unjustified dismissals; should any such
          dismissals occur, they will carry the penalty of having to pay double
          the termination pay provided by current labor legislation;

     g)   two-year suspension of the bank-deposits unseizability law; and

     h)   180-day suspension as from February 3, 2002, of all lawsuits,
          precautionary measures, and foreclosure proceedings on loans, debts,
          deposits, and financial rescheduling affected by the new economic
          measures.

     To date, the Federal Government is analyzing supplementary policies that
     will define, among other things, the way in which secured loans in US
     dollars related to the domestic public debt swap will be switched into
     pesos and the way in which private external debt payments will be made.

     On the other hand, and as a consequence of the changes implemented, in
     January and February, there was an increase in the Argentine consumer
     price index of 2.3% and 3.3% and in the Argentine wholesale price index of
     6.6% and 11%, respectively, according to the information provided by the
     INDEC (Argentine Institute of Statistics and Census).

     As indicated in Note (3) (d), assets and liabilities in foreign currency
     as of December 31, 2001, were valued at the exchange rates effective as of
     January 11, 2002, when the exchange market reopened, as stated in
     paragraph 26 of the Statement of Financial Accounting Standards No. 52 and
     Topic D-12 of the Emerging Issues Task Force, both from the Financial
     Accounting Standards Board.

     The effect of the devaluation mentioned above has been a gain of 5, which
     has been recognized as of December 31, 2001, in the "Financing expenses -
     net" account in the statement of income.

     The additional estimated impact of the modifications of the exchange rate,
     subsequent to January 11, 2002 and as of the approval date of these
     financial statements, has not changed materially.

     As provided in the Public Emergency and Exchange System Reform Law
     mentioned above, any loss resulting from applying the new exchange rate to
     the net position of assets and liabilities in foreign currency as of
     January 6, 2002, will be deductible from income tax at the rate of 20% per
     annum over the five fiscal years ending after the Law's effective date.
     Any gain resulting for such effect, will be taxed in the fiscal year
     ending December 31, 2002.

<PAGE>
                                     -14-



     These financial statements take into account the effects derived from the
     new economic and exchange policies known as of the issue date. All
     estimations made by the Company's management have been done taking into
     account such policies. The effect of additional measures to be implemented
     by the Government and the instrumentation of those adopted before, will be
     accounted at the time the Company's management becomes aware of them.


13.  BALANCES AND TRANSACTIONS WITH RELATED PARTIES

     Balances and revenues (expenses) on transactions made during the years
     ended as of December 31, 2001, 2000 and December 31, 1999 with Localiza
     System Ltd. are as follows:

                                                December 31,    December 31,
                                                    2001            2000
                                              --------------- ---------------
                                              Localiza System Localiza System
                                                    Ltd.            Ltd.
                                              --------------- ---------------

     Receivables                                        -              -

     Payables                                          32             70

     Income (expense)

     Other charges                                    (10)             -
     Interest paid                                      1              -
     Expense reimbursement                             27              -

     During the year, the Company's shareholder has transferred to Localiza
     MFA, effective January 1st 2001, the rights and obligations derived from
     franchise agreements signed with franchisees from Paraguay, Uruguay,
     Bolivia, Mexico, Peru and Aruba. Accordingly, Royalties and advertising
     fees include around 100 for franchise fees related to the above-mentioned
     operation.


14.  COMMITMENTS AND CONTINGENCIES

     Contracts

     On June 15, 2000, the Company subscribed an agreement with the
     concessionaire of the main airports in Argentina, "Aeropuertos 2000",
     effective March 31, 2000, under which the Company was granted a
     provisional permit to exploit and use for commercial purposes the brand
     Localiza Rent a Car in the airports where it has a subfranchise. As from
     the execution of such agreement, the Company was obliged to pay the
     concessionaire a monthly fee based on the billing of each subfranchisee.

     The above agreement was effective for one year, except for the agreements
     related to the airports in Tucuman, which were effective for 7 months, and
     in Posadas and Puerto Iguazu which were effective for 8 months. This
     agreement was not renewed, and the relationship with certain franchisees
     that operated in these locations was discontinued.

<PAGE>
                                     -15-



     Adoption of SFAS 133

     This Statement establishes accounting and reporting standards for
     derivative instruments, including certain derivative instruments embedded
     in other contracts, (collectively referred to as derivatives) and for
     hedging activities. It requires that an entity recognize all derivatives
     as either assets or liabilities in the statement of financial position and
     measure those instruments at fair value. If certain conditions are met, a
     derivative may be specifically designated as (a) a hedge of the exposure
     to changes in the fair value of a recognized asset or liability or an
     unrecognized firm commitment, (b) a hedge of the exposure to variable cash
     flows of a forescated transaction, or (c) a hedge of the foreing currency
     exposure of a net investment in a foreing operation, an unrecognized firm
     commitment, an available-for-sale security, or a foreign-currency-
     denominated forecasted transaction.

     The company has no derivatives and did not perform any hedging activities.


15.  FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET IN EFFECT

     In June 2001 the Financial Accounting Standards Board (FASB) issued SFAS
     No 141, "Business Combinations". SFAS No 141 is effective for all business
     combinations initiated after June 30, 2001 and to all business combination
     accounted for using the purchase method for which the date of acquisition
     is July 1, 2001 or later. SFAS No. 141 requires all business combinations
     initiated after June 30, 2001 to be accounted for using the purchase
     method.

     In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
     Assets". SFAS No. 142 is effective for fiscal years beginning after
     December 15, 2001. Early application of SFAS No. 142 is permitted for
     entities with fiscal years beginning after March 15, 2001, provided that
     the first interim financial statements have not previously been issued.
     With the adoption of SFAS No. 142, goodwill is no longer subject to
     amortization over estimated useful life, but rather it will be subject to
     at least an annual assessment for impairment by applying a
     fair-value-based test. Additionally, negative goodwill is recognized as an
     extraordinary gain at the time of the business combination.

     In August 2001 the FASB issued SFAS No. 144, "Accounting for the
     impairment or Disposal of Long-Lived Assets". The new standard will be
     effective for financial statements issued for fiscal years beginning after
     December 15, 2001 with early application encouraged. The Company plans to
     adopt this new standard in fiscal year 2002. SFAS No. 144 addresses
     financial accounting and reporting for the impairment of long-lived assets
     and for long-lived assets to be disposed of an supersedes SFAS No. 121,
     "Accounting for the impairment of Long-Lived Assets and for Long-Lived
     Assets to Be Disposed Of". However, this Statement retains the fundamental
     provision of SFAS No. 121 for (a) recognition and measurement of the
     impairment of long-lived assets to be held and used and (b) measurement of
     long-lived assets to be disposed of by sale. SFAS No. 144 also supersedes
     the accounting and reporting provisions of Accounting Principles Board
     (APB) Opinion No. 30, "Reporting the Results of Operations - Reporting the
     Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
     and Infrequent Occurring Events and Transactions" for segments of a
     business to be disposed of to expand discontinued operations presentation
     to a component of an entity. Finally, SFAS No. 144 amends Accounting
     Research Bulletin (ARB) No. 51, "Consolidated Financial Statements", to
     eliminate the exception to consolidation for a temporarily controlled
     subsidiary.

     The Company does not anticipate that these new standards will have any
     impact on its financial position or results of operations.

                                                         ENRIQUE MONPELAT
                                                             Chairman


<PAGE>



LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

Financial Statements as of December 31, 2000 and 1999 and
November 30, 1999 and 1998, together with the Report of Independent Public
Accountants



<PAGE>


(This is a copy of a previously issued report. This report has not been
reissued)


REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS


To the Shareholders of
LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.:


     We have audited the balance sheets of LOCALIZA MASTER FRANCHISEE ARGENTINA
S.A. (an Argentine Corporation and a subsidiary of Localiza System Ltda.) as of
December 31, 2000, and 1999, and November 30, 1999 and 1998, and the related
statements of income, changes in shareholders' equity and cash flows for the
years ended in December 31, 2000 and November 30, 1999 and 1998 and for the
one-month period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on such financial statements, based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards 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 the financial statements referred to in paragraph 1.
present fairly, in all material respects, the financial position of LOCALIZA
MASTER FRANCHISEE ARGENTINA S.A. as of December 31, 2000, and 1999, and
November 30, 1999 and 1998, and the results of its operations and its cash
flows for the years ended December 31, 2000 and November 30, 1999 and 1998 and
for the one-month period ended December 31, 1999, in conformity with generally
accepted accounting principles in the United States of America.


Buenos Aires, Argentina,                          PISTRELLI, DIAZ Y ASOCIADOS
     February 12, 2001

                                                 /s/ BENJAMIN G. HARRIAGUE
                                                            Partner


<PAGE>
                                      -1-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


           BALANCE SHEETS AS OF DECEMBER 31, 2000, DECEMBER 31, 1999,

                           NOVEMBER 30, 1999 AND 1998

                          (stated in Argentine pesos)

<TABLE>
                                                             December 31, December 31, November 30,  November 30,
                                                                2000         1999         1999          1998
                                                             ------------ ------------ ------------  ------------
<S>                                                             <C>          <C>          <C>           <C>
CURRENT ASSETS
    Cash and cash equivalents (Note 3.a)                         14,939       43,986       35,954        38,546
    Accounts receivable (Note 3.b)                              178,913      237,037      223,791       325,441
    Receivables from related parties (Note 5)                       -          4,647        4,647           -
    Other receivables (Note 3.c)                                 29,737       28,411        9,504        18,162
                                                             ----------   ----------   ----------    ----------
    Total current assets                                        223,589      314,081      273,896       382,149
                                                             ----------   ----------   ----------    ----------
NONCURRENT ASSETS
    Accounts receivable (Note 3.b)                               12,550       22,199       34,858        69,242
    Other receivables (Note 3.c)                                 17,158        3,700        3,700         9,200
    Fixed assets (Exhibit A)                                     36,279       43,668       44,542        25,422
                                                             ----------   ----------   ----------    ----------
    Total noncurrent assets                                      65,987       69,567       83,100       103,864
                                                             ----------   ----------   ----------    ----------
    Total assets                                                289,576      383,648      356,996       486,013
                                                             ==========   ==========   ==========    ==========
CURRENT LIABILITIES
    Suppliers (Note 3.e)                                         75,445       97,822      122,250       124,274
    Bank loans                                                   27,065        7,685          -             -
    Payables to related parties (Note 5)                         69,856          -            -         193,642
    Payroll and social security taxes                            41,738       46,975       40,085        40,583
    Taxes payable (Note 3.d)                                     45,570       97,857       89,718        73,005
                                                             ----------   ----------   ----------    ----------
    Total current liabilities                                   259,674      250,339      252,053       431,504
                                                             ----------   ----------   ----------    ----------
NONCURRENT LIABILITIES
    Taxes payable (Note 3.d)                                      4,874       21,977       26,370        79,112
    Payables to related parties (Note 5)                            -         78,379       78,379           -
    Reserve for contingencies (Exhibit B)                           -          9,200        9,200         9,200
                                                             ----------   ----------   ----------    ----------
    Total noncurrent liabilities                                  4,874      109,556      113,949        88,312
                                                             ----------   ----------   ----------    ----------
    Total liabilities                                           264,548      359,895      366,002       519,816

SHAREHOLDERS' EQUITY / DEFICIT (per related statement)           25,028       23,753       (9,006)      (33,803)
                                                             ----------   ----------   ----------    ----------
    Total liabilities and shareholders' equity/deficit          289,576      383,648      356,996       486,013
                                                             ==========   ==========   ==========    ==========
</TABLE>

          The accompanying notes 1 through 11 and Exhibits A, B and C
                   are an integral part of these statements.



                                                      ENRIQUE MONPELAT
                                                          President

<PAGE>
                                      -2-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


                    STATEMENTS OF INCOME FOR THE YEARS ENDED

               DECEMBER 31, 2000, AND NOVEMBER 30, 1999 AND 1998

              AND FOR THE ONE-MONTH PERIOD ENDED DECEMBER 31, 1999

                          (stated in Argentine pesos)

<TABLE>
                                                       December 31,    December 31,    November 30,    November 30,
                                                           2000            1999            1999            1998
                                                         (twelve           (one          (twelve         (twelve
                                                          months)          month)         months)         months)
                                                       ------------    ------------    ------------    ------------
<S>                                                         <C>             <C>              <C>             <C>
NET SALES - FRANCHISING REVENUES (Note 3.f)                 841,560          96,339         872,345       1,338,881

COST OF SALES (Exhibit C)                                  (766,740)        (48,654)     (1,013,552)     (1,255,444)
                                                       ------------    ------------    ------------    ------------
    Gross profit                                             74,820          47,685        (141,207)         83,437

ADMINISTRATIVE AND SELLING EXPENSES (Exhibit C)             (98,031)         (7,586)        (69,443)        (96,053)

FIXED ASSETS DEPRECIATION                                   (13,316)           (874)         (9,172)         (2,746)

OTHER OPERATING (EXPENSES) INCOME                               -               -            (4,077)          5,534
                                                       ------------    ------------    ------------    ------------
    Operating (loss) income                                 (36,527)         39,225        (223,899)         (9,828)

FINANCIAL EXPENSE - net (Note 3.g)                           (8,328)           (989)        (18,607)        (13,178)
                                                       ------------    ------------    ------------    ------------
    (Loss) income before taxes                              (44,855)         38,236        (242,506)        (23,006)

INCOME TAXES (Note 2.3.f)                                       -            (5,477)            -           (15,731)

TAX ON MINIMUM PRESUMED INCOME (Note 2.3.f)                     -               -            (5,616)            -
                                                       ------------    ------------    ------------    ------------
    Net (loss) income for the year                          (44,855)         32,759        (248,122)        (38,737)
                                                       ============    ============    ============    ============
    Basic and diluted (loss) income per share                 (0.23)           0.17           (5.28)          (3.23)
                                                       ============    ============    ============    ============
    Weighted average shares outstanding                     197,000         197,000          46,973          12,000
                                                       ============    ============    ============    ============
</TABLE>

          The accompanying notes 1 through 11 and Exhibits A, B and C
                   are an integral part of these statements.


                                                        ENRIQUE MONPELAT
                                                            President

<PAGE>
                                      -3-



                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


            STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

                   FOR THE YEARS ENDED DECEMBER 31, 2000, AND

                           NOVEMBER 30, 1999 AND 1998

              AND FOR THE ONE-MONTH PERIOD ENDED DECEMBER 31, 1999

                          (stated in Argentine pesos)

<TABLE>
                                                           December 31, 2000
                                                             (twelve months)
                                         -------------------------------------------------------
                                               Shareholders' contributions
                                         ----------------------------------------
                                            Subscribed capital
                                         -------------------------
                                                                      Irrevocable
                                             Par        Adjustment       capital
                                            value       to capital    contribution     Subtotal
                                         ----------     ----------     ----------     ----------
<S>                                         <C>              <C>          <C>            <C>
Balance at beginning of year                197,000          1,020         87,919        285,939

Irrevocable capital contribution (1)            -              -           46,130         46,130
                                         ----------     ----------     ----------     ----------
Balance at end of year                      197,000          1,020        134,049        332,069
                                         ==========     ==========     ==========     ==========
</TABLE>

<TABLE>
                                                                                                          November 30,  November 30,
                                                                                            December 31,     1999          1998
                                                            December 31, 2000                  1999        (twelve       (twelve
                                                             (twelve months)                (one month)     months)       months)
                                                  ---------------------------------------  -------------  ------------  ------------
                                                       Retained earnings
                                                  --------------------------
                                                              Unappropriated
                                                                 earnings
                                                     Legal     (accumulated
                                                    reserve        loss)          Total        Total         Total         Total
                                                  ----------  --------------   ----------   ----------    ----------    ----------
<S>                                                      <C>      <C>              <C>          <C>           <C>          <C>
Balance at beginning of year                             703      (262,889)        23,753       (9,006)      (33,803)        4,934

Increase in capital stock approved by the Special
  Shareholders' Meeting of September 22, 1999 (1)        -             -              -            -         185,000           -

Irrevocable capital contribution (1)                     -             -           46,130          -          87,919           -

Net (loss) income for the year                           -         (44,855)       (44,855)      32,759      (248,122)      (38,737)
                                                  ----------    ----------     ----------   ----------    ----------    ----------
Balance at end of year                                   703      (307,744)        25,028       23,753        (9,006)      (33,803)
                                                  ==========    ==========     ==========   ==========    ==========    ==========
</TABLE>

     (1)  See Note 4.

          The accompanying notes 1 through 11 and Exhibits A, B and C
                   are an integral part of these statements.


                                                     ENRIQUE MONPELAT
                                                         President

<PAGE>
                                      -4-


                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


                            STATEMENTS OF CASH FLOWS

     FOR THE YEARS ENDED DECEMBER 31, 2000, AND NOVEMBER 30, 1999 AND 1998

              AND FOR THE ONE-MONTH PERIOD ENDED DECEMBER 31, 1999

                          (stated in Argentine pesos)

<TABLE>
                                                                           December 31,   December 31,  November 30,   November 30,
                                                                              2000           1999           1999           1998
                                                                            (twelve          (one         (twelve        (twelve
                                                                             months)         month)        months)        months)
                                                                           ----------     ----------     ----------     ----------
<S>                                                                           <C>            <C>             <C>           <C>
Cash and cash equivalents at end of year                                       14,939         43,986         35,954         38,546
Cash and cash equivalents at beginning of year                                (43,986)       (35,954)       (38,546)      (125,121)
                                                                           ----------     ----------     ----------     ----------
(Decrease) increase in cash and cash equivalents                              (29,047)         8,032         (2,592)       (86,575)
                                                                           ==========     ==========     ==========     ==========
CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS

Operating activities:

Net (loss) income for the year                                                (44,855)        32,759       (248,122)       (38,737)

Adjustments to reconcile the net loss for the year to the net
cash applied to operations:

      Depreciation of fixed assets                                             13,316            874          9,172          2,746
      Net book value of fixed assets retired                                      -              -            5,242            -
      Decrease (Increase)in accounts receivable (net of allowance)             73,449           (587)       136,034         14,712
      Decrease (Increase) in receivables from related parties                   4,647            -           (4,647)         3,084
      (Increase) decrease in other receivables                                (14,784)       (18,907)        14,158           (289)
      Decrease in suppliers                                                   (53,040)       (24,428)        (2,024)       (37,907)
      Decrease in payables to related parties                                  (8,523)           -         (115,263)      (141,723)
      (Decrease) increase in payroll and social security taxes                (10,913)         6,890           (498)           (83)
      (Decrease) increase in taxes payable (1)                                (38,727)         3,746        (36,029)       126,090
      (Decrease) increase in reserve for contingencies                         (9,200)           -              -            9,200
                                                                           ----------     ----------     ----------     ----------
              Cash flows (applied to) provided by operating activities        (88,630)           347       (241,977)       (62,907)
                                                                           ----------     ----------     ----------     ----------
Financing activities:

      Increase in bank loans                                                   19,380          7,685            -              -
      Increase in capital stock                                                   -              -          185,000            -
      Irrevocable capital contribution                                         46,130            -           87,919            -
                                                                           ----------     ----------     ----------     ----------
              Cash flows provided by financing activities                      65,510          7,685        272,919            -
                                                                           ----------     ----------     ----------     ----------
Investing activities

      Acquisition of fixed assets                                              (5,927)           -          (33,534)       (23,668)
                                                                           ----------     ----------     ----------     ----------
              Cash flows applied to investing activities                       (5,927)           -          (33,534)       (23,668)
                                                                           ----------     ----------     ----------     ----------
(Decrease) increase in cash and cash equivalents                              (29,047)         8,032         (2,592)       (86,575)
                                                                           ==========     ==========     ==========     ==========
</TABLE>

     (1)  Income taxes paid were 22,518, 19,923 and 16,605 for the years ended
          December 31, 2000, November 30, 1999, November 30, 1998,
          respectively. No income tax was paid for the one month ended December
          31, 1999. Interest paid in cash was 8,423, 989, 21,540 and 37,634 in
          the years ended December 31, 2000, December 31, 1999, November 30,
          1999 and November 30, 1998, respectively.

          The accompanying notes 1 through 11 and Exhibits A, B and C
                   are an integral part of these statements.


                                                         ENRIQUE MONPELAT
                                                             President

<PAGE>
                                      -5-


                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


                       NOTES TO THE FINANCIAL STATEMENTS

                  FOR THE YEARS ENDED DECEMBER 31, 2000, AND,

                           NOVEMBER 30, 1999 AND 1998

                          (stated in Argentine pesos)



1.   CONTROLLING INTEREST, ACTIVITIES OF THE COMPANY AND MAIN EVENTS

     LOCALIZA MASTER FRANCHISEE ARGENTINA S.A. ("the Company") is a corporation
     ("sociedad anonima") organized under the laws of the Republic of Argentina
     and domiciled in the city of Buenos Aires; its principal shareholder is
     Localiza System Ltd., a company domiciled in Belo Horizonte, Brazil. The
     Company, engaged in the commercial use of licenses and trademarks, started
     its operations during the year 1992. The Company's franchisees have 71 car
     rental locations.

     The Company grants exclusive rights to its franchisees for defined
     geographic areas pursuant to five-year renewable contracts. Franchisees
     generally pay the Company an initial fixed fee when the contract is
     signed, plus a monthly flat fee consisting of royalties and an advertising
     fee, based on gross revenues generated by the franchisees.

     On August 30, 1999 Localiza System Ltd., acquired a 60% interest in the
     Company from EDS Inversora S.A. As a consequence of this transaction
     Localiza System Ltd. increased its ownership in the Company to 99.99%.

     By virtue of the Master Franchise Agreement signed between the Company (as
     "franchisee") and Localiza System Brazil (as "franchisor"), the Company
     must pay Localiza System Brazil 1.5% of the car rental earned by the
     Company's franchisees. However, this payment was waived effective
     September 1999 due to the current Company's financial situation. This
     Master Franchisee Agreement has a 10-year term, starting March 1994.

     The Company has incurred significant losses during the last years. This
     has weakened its financial position. Local management expects that this
     situation will be turned around in the next years and the Parent has
     expressed its commitment to continue operations in Argentina and
     financially support the Company.


2.   BASIS OF PRESENTATION

     1.   Purpose of the financial statements

          These financial statements have been prepared to be filed with the
          Securities and Exchange Commission of the United States of America
          (the "SEC"). They have been prepared in accordance with generally
          accepted accounting principles in the United States of America, which
          differ in certain respects from the accounting principles applied by
          the Company in its financial statements prepared in accordance with
          generally accepted accounting principles in Argentina or for other
          statutory purposes in Argentina.

<PAGE>
                                      -6-


          Shareholders' investment and net income included in these financial
          statements differ from those included in the statutory accounting
          records as a result of adjustments made to reflect the requirements
          of generally accepted accounting principles in the United States of
          America.

     2.   Restatement to constant pesos

          The financial statements fully reflect the effect of changes in the
          purchasing power of currency through August 31, 1995. As from
          September 1, 1995, as required by General Resolution No. 8/95 of the
          Inspeccion General de Justicia, the Company has discontinued the
          application of the above mentioned method while maintaining the
          restatements recorded through that date, as inflation rates since
          then have been immaterial.

     3.   Valuation methods

          The main valuation methods used in the preparation of these financial
          statements are as follows:

          a)   Cash, receivables and payables:

               -    At nominal value.

               -    In foreign currency: converted at the exchange rates in
                    effect at each year-end applicable to the settlement of
                    these transactions.

               Exchange differences have been credited/charged to current
               income in each year.

               Receivables and payables include accrued interest as of each
               year-end.

          b)   Fixed assets:

               All fixed assets were restated as explained in Note 2 and are
               net of related accumulated depreciation, using the straight-line
               method over the estimated useful lives of the related assets.

               Estimated useful lives are as follows:

               Furniture and fixtures                       5 years
               Software and equipment                       3 to 5 years
               Facilities                                   5 years

               The carrying amount of fixed assets does not exceed the
               recoverable value through future operations.

          c)   Allowance and reserve:

               -    For doubtful accounts: the allowance was recorded based on
                    the individual analysis of the recoverability of all
                    receivables.

               -    For contingencies: certain contingent situations that could
                    give rise to liabilities for the Company have been accrued.
                    The opinion of the Company's counsel has been taken into
                    consideration to calculate the amount to accrue.

          d)   Shareholders' equity accounts:

               These accounts have been restated in constant Argentine pesos as
               explained in Note 2. "Restatement to constant pesos", except for
               the "Subscribed capital - Par value" account which has been left
               at its original value. The adjustment required to restate in
               constant Argentine pesos has been disclosed in the "Adjustment
               to capital" account.


<PAGE>
                                      -7-


          e)   Income statement accounts:

               -    Franchising revenues - Under franchise contracts, a
                    non-refundable initial fixed-fee credited to income upon
                    signing of the contract. All contracts have a duration
                    ranging from 5 to 10 years and may be cancelled by either
                    party upon 90 days written notice. The franchise contracts
                    require a monthly payment to the Company of up to 6% of the
                    total revenues each month, with 3.5% and 2.5% representing
                    payment for royalties and advertising and communication
                    charges, respectively.

                    Initial fixed-fee revenue from franchisees, which will
                    decline in the future because sales predictably reach a
                    saturation point, is recognized as income immediately, as
                    the Company does not have any continuing obligation related
                    to these amounts after the initial set up of the franchisee
                    is complete. Fees based on percentages of rental revenues
                    earned by franchisees are recognized as income as earned.
                    Each franchisee is responsible for purchasing, maintaining,
                    and selling its car fleet.

               -    Expenses are charged to income as they accrue.

               -    Accounts accumulating monetary transactions and net
                    financial (expense) income have not been restated.

               -    Charges for consumption of nonmonetary assets acquired
                    before August 31, 1995 have been computed based on the
                    restated amounts as of that date of such assets.

          f)   Income taxes and tax on minimum presumed income:

               The Company calculates income taxes at the current rate of 35%
               (33% for the year ended November 30, 1998) based on the taxable
               income for the year. Deferred taxes arising from temporary
               differences are recognized using the criteria set forth in
               Statement of Financial Accounting Standard No. 109, "Accounting
               for income taxes".

               The tax on minimum presumed income (TOMPI) is complementary to
               income tax because while the latter is levied on the year's
               taxable income, the tax on minimum presumed income is a minimum
               levy on the potential income from certain productive assets at a
               1% tax rate, so that the tax obligation of each Company will be
               equal to the higher of the two taxes. However, if the tax on
               minimum presumed income exceeds income tax in one tax year, such
               excess may be computed as a tax credit against any excess of
               income tax over the tax on minimum presumed income that might
               arise in any of the ten subsequent years.

               In the year ended December 31, 2000, and as a result of the
               enactment of Law No. 25,360 that extended the term over which
               the Company may compute minimum presumed income tax as payment
               on account of income tax to ten years, the Company has reversed
               the valuation reserve against the deferred minimum presumed tax
               asset which had been charged to income during the prior year. In
               addition, the Company has recorded the effect of tax loss
               carryforwards of 181,140 and minimum presumed income tax of
               3,605, which has been included in the Other noncurrent
               receivables account as minimum presumed income tax. A full
               valuation allowance was recorded for the tax deferred asset
               (including the tax carryforward above) as the Company believes
               it is not more likely than not that this asset will be
               recovered.

               As of December 31, 1999, the Company has calculated income tax
               in the amount of 5,477, which has been charged to the income
               statement under "Income taxes".

               The calculated tax loss carryforward will be available to offset
               future taxable income until 2005. In each fiscal year in which
               the tax loss carryforward, the income tax benefit (effect of the
               tax rate over the tax loss carryforward utilized) will be
               realized provided income tax (after offsetting) equals or
               exceeds TOMPI, but will be reduced for any amount in which TOMPI
               may exceed income tax.

<PAGE>
                                      -8-



     4.   Use of estimates

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at
          the date of the financial statements and the reported amounts of
          revenues and expenses during the reporting year. Subsequent
          resolution of some matters could differ from those estimates.

     5.   Accounting records

          The Company's accounting records are maintained in Argentine pesos
          ($1=US$1 since 1991) based on the criteria prescribed by the
          Argentine Corporate Law. These records serve as a basis for the
          distribution of results/dividends.


3.   DETAIL OF MAJOR ACCOUNTS

     The following is a detail of the most significant balance sheet and income
     statement accounts:

<TABLE>
                                         Dec. 31, 2000     Dec. 31, 1999    Nov. 30, 1999    Nov. 30, 1998
                                         -------------     -------------    -------------    -------------
<S>                                           <C>              <C>              <C>              <C>
     a)   Cash and cash equivalents:

          Cash                                 1,000            1,000            1,000            1,000
          Cash in banks                       13,939           41,536           34,954           37,546
          Checks to be deposited                 -              1,450              -                -
                                             -------          -------          -------          -------
                                              14,939           43,986           35,954           38,546
                                             =======          =======          =======          =======
</TABLE>

<TABLE>
                                                                        Current
                                           ----------------------------------------------------------------
                                           Dec. 31, 2000     Dec. 31, 1999   Nov. 30, 1999    Nov. 30, 1998
                                           -------------     -------------   -------------    -------------
<S>                                            <C>              <C>              <C>              <C>
     b)   Accounts receivable:

          Fees receivable                      166,694          179,075          166,521          273,420
          Receivables in arrears                31,609           35,657           20,566           25,785
          Trade receivables in
          litigation                             1,012           55,046           55,046           12,510
          Deferred checks                          -             45,348           59,747           92,764
                                              --------         --------         --------         --------
                                               199,315          315,126          301,880          404,479

          Allowance for doubtful
          accounts (Exhibit B)                 (20,402)         (78,089)         (78,089)         (79,038)
                                              --------         --------         --------         --------
                                               178,913          237,037          223,791          325,441
                                              ========         ========         ========         ========

     c)   Other receivables:

          Prepaid expenses                       2,338           16,584            1,243            9,450
          Prepaid taxes                         17,180           11,607            7,573            6,123
          Safety deposits                        3,700              -                -                -
          Minimum presumed
          income tax                               -                -                -                -
          Personnel loans (1)                    4,759              -                -                -
          Other                                  1,760              220              688            2,589
                                              --------         --------         --------         --------
                                                29,737           28,411            9,504           18,162
                                              ========         ========         ========         ========

<CAPTION>
                                                                    Noncurrent
                                           -------------------------------------------------------------
                                           Dec. 31, 2000   Dec. 31, 1999   Nov. 30, 1999   Nov. 30, 1998
                                           -------------   -------------   -------------   -------------
<S>                                             <C>             <C>             <C>             <C>
     b)   Accounts receivable:

          Fees receivable                          -               -               -               -
          Receivables in arrears                12,550          22,199          34,858          69,242
          Trade receivables in
          litigation                               -               -               -               -
          Deferred checks                          -               -               -               -
                                              --------        --------        --------        --------
                                                12,550          22,199          34,858          69,242

          Allowance for doubtful
          accounts (Exhibit B)                     -               -               -               -
                                              --------        --------        --------        --------
                                                12,550          22,199          34,858          69,242
                                              ========        ========        ========        ========

     c)   Other receivables:

          Prepaid expenses                         -               -               -               -
          Prepaid taxes                         13,553             -               -               -
          Safety deposits                          -             3,700           3,700           9,200
          Minimum presumed
          income tax                             3,605             -               -               -
          Personnel loans (1)                      -               -               -               -
          Other                                    -               -               -               -
                                              --------        --------        --------        --------
                                                17,158           3,700           3,700           9,200
                                              ========        ========        ========        ========
</TABLE>

          (1)  Corresponds to a loan granted to the chief executive officer of
               Localiza Master Franchisee S.A. which does not accrue interest
               and is to be settled in 11 monthly installments.


<PAGE>
                                      -9-


<TABLE>
                                                                       Current
                                           ---------------------------------------------------------------
                                           Dec. 31, 2000    Dec. 31, 1999   Nov. 30, 1999    Nov. 30, 1998
                                           -------------    -------------   -------------    -------------
<S>                                             <C>             <C>             <C>             <C>
     d)   Taxes payable:

          VAT in arrears                        21,811          52,576          47,064          50,099
          VAT                                    3,523           7,048           5,512           1,321
          Stamp tax amnesty                      1,828             -               -               -
          Income tax (1)                        12,848          31,235          30,663          19,603
          Sales tax                              1,955           1,382           6,479           1,982
          Minumum presumed
          income tax                             3,605           5,616             -               -
                                              --------        --------        --------        --------
                                                45,570          97,857          89,718          73,005
                                              ========        ========        ========        ========

<CAPTION>
                                                                    Noncurrent
                                           -------------------------------------------------------------
                                           Dec. 31, 2000   Dec. 31, 1999   Nov. 30, 1999   Nov. 30, 1998
                                           -------------   -------------   -------------   -------------
<S>                                              <C>            <C>             <C>             <C>
     d)   Taxes payable:

          VAT in arrears                           -            21,977          26,370          79,112
          VAT                                      -               -               -               -
          Stamp tax amnesty                      4,874             -               -
          Income tax (1)                           -               -               -               -
          Sales tax                                -               -               -               -
          Minumum presumed
          income tax                               -               -               -
                                              --------        --------        --------        --------
                                                 4,874          21,977          26,370          79,112
                                              ========        ========        ========        ========
</TABLE>

          (1)  Includes accrual for withholdings.

<TABLE>
                                                        Dec. 31, 2000      Dec. 31, 1999        Nov. 30, 1999        Nov. 30, 1998
                                                       (twelve months)      (one month)        (twelve months)      (twelve months)
                                                       ---------------      -----------        ---------------      ---------------

          e)   Suppliers:
<S>                                                          <C>                 <C>                 <C>                  <C>
          Common suppliers                                   42,180              58,226               64,359               60,991
          Provisiones                                        29,563              39,596               57,891               63,283
          Others                                              3,702                 -                    -                    -
                                                         ----------          ----------           ----------           ----------
                                                             75,445              97,822              122,250              124,274
                                                         ==========          ==========           ==========           ==========

<CAPTION>
                                                                                      Income (Loss)
                                                       ----------------------------------------------------------------------------

     f)   Net sales:
<S>                                                         <C>                  <C>                 <C>                <C>
          Percentage fees on car rental revenues            789,326              68,899              771,355            1,135,339
          Flat fee                                           74,145              30,000              122,500              235,900
          Sales tax                                         (21,911)             (2,560)             (21,510)             (32,358)
                                                         ----------          ----------           ----------           ----------
                                                            841,560              96,339              872,345            1,338,881
                                                         ==========          ==========           ==========           ==========

<CAPTION>
     g)   Financial expense - net:
<S>                                                          <C>                 <C>                 <C>                  <C>
          Generated by assets:
          - Interest                                            247                 -                  2,933               24,456

          Generated by liabilities:
          - Interest                                         (8,575)               (989)             (21,540)             (37,634)
                                                         ----------          ----------           ----------           ----------
                                                             (8,328)               (989)             (18,607)             (13,178)
                                                         ==========          ==========           ==========           ==========
</TABLE>


4.   CAPITAL

     The Company's capital which is subscribed, paid-in and registered with the
     Public Registry of Commerce totals 197,000, comprised of 197,000 common
     shares with par value of $1 each.

     The Special Shareholders' Meeting held on September 22, 1999, approved the
     185,000 capital increase in cash, proposed by the major shareholder,
     Localiza System Ltd.


<PAGE>
                                     -10-



     The capital increase referred to above was registered with the Public
     Registry of Commerce on March 14, 2000.

     Additionally, during fiscal year 1999 and 2000 the Parent has made
     additional irrevocable capital contributions to continue supporting the
     local operations.


5.   BALANCES AND TRANSACTIONS WITH RELATED PARTIES

     Balances and revenues (expenses) on transactions made during the years
     ended as of December 31, 2000, December 31, 1999, November 30, 1999 and
     1998 with related parties are as follows:

<TABLE>
                                        December 31, 2000    December 31, 1999  November 30, 1999    November 30, 1998
                                         (twelve months)        (one month)      (twelve months)      (twelve months)
                                       --------------------  -----------------  -----------------   -------------------
                                       Localiza System Ltd.        Total               Total               Total
                                       --------------------  -----------------  -----------------   -------------------
<S>                                           <C>                 <C>               <C>                   <C>
     Receivables (1)                             -                 4,647               4,647                  -

     Payables (1)                             69,856              78,379              78,379              193,642

     Income (expense)

     - Fees                                      -                   -              (170,104) (2)        (454,097)
     - Expense reimbursement                     -                   -                   294                  -
</TABLE>

(1)  Balances in foreign currency (US). Exchange rate as of each year end was
     1US=1.

(2)  Fees charged up to August 31, 1999. Effective September 1999, these fees
     have been waived (See Note 1).


6.   RESTRICTIONS ON UNAPPROPRIATED EARNINGS

     Under law No. 25,063, the dividends to be distributed, in cash or in kind,
     in excess of taxable income accumulated through the end of the year
     immediately preceding the payment or distribution date, will be subject to
     a 35% income tax withholding as one-time and final payment. As of December
     31, 2000, there are accumulated losses and therefore, there are no
     distributable earnings.


7.   COMMITMENTS AND CONTINGENCIES

     Lawsuit against Annie Millet

     In October 1998, the company Annie Millet cancelled unilaterally the
     sub-franchising agreement with the Company, which had been in force since
     1996, based on alleged operating changes to contractual conditions imposed
     by the Company which, in the opinion of Annie Millet, represented an
     economic damage to such company. Simultaneously, Annie Millet sued the
     Company for the payment of damages thereon for approximately 5,000,000.

<PAGE>
                                     -11-



     Because of lack of agreement, Annie Millet raised an additional legal
     lawsuit against the Company, for an unquantified amount.

     During fiscal year 2000, this lawsuit was decided in the Courts with a
     judgment in favor of the Company.


     Contracts

     On June 15, 2000, the Company subscribed an agreement with the
     concessionaire of the main airports in Argentina, "Aeropuertos 2000",
     effective March 31, 2000, under which the Company is granted a provisional
     permit to exploit and use for commercial purposes the brand Localiza Rent
     a Car in the airports where it has a subfranchise.

     As from the execution of such agreement, the Company is obliged to pay the
     concessionaire a monthly fee based on the billing of each subfranchisee.
     The Company is also obliged to deliver a bond in security for the space it
     uses in the airport, which varies according to the space involved. Such
     bond is delivered by each subfranchisee as they hold the subfranchise to
     sell the brand in each airport.

     Since the obligation to pay the fee under the agreement is borne by the
     Company, the Company does so on behalf of the subfranchisees since the
     subfranchisees are the ones who actually use the space at each location.

     The above agreement will be effective for one year, except for the
     agreements related to the airports in Tucuman, which will be effective for
     7 months, and in Posadas and Puerto Iguazu which will be effective for 8
     months.


     Financial instruments with off-balance sheet risk

     The Company has not used financial instruments to manage its exposure to
     fluctuations in foreign currencies or interest rates, and accordingly has
     not entered into transactions that would create off-balance sheet risk
     associated with such instruments.


8.   DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

     Under U.S. GAAP, in accordance with SFAS No. 107 "Disclosures about fair
     value of financial instruments", the Company is required to disclose the
     estimated fair value of the Company's financial instruments.

     The carrying amount of financial assets and liabilities approximates fair
     value because of the short maturity of those instruments.


9.   DEFERRED INCOME TAXES

     The net deferred tax asset as of December 31, 2000 and 1999, and November
     30, 1999 and 1998 consists of the following:


<PAGE>
                                     -12-


<TABLE>
                                                                                    Assets (Liabilities)
                                                    --------------------------------------------------------------------------------
                                                    December 31, 2000    December 31, 1999    November 30, 1999    November 30, 1998
                                                     (twelve months)        (one month)        (twelve months)      (twelve months)
                                                    -----------------    -----------------    -----------------    -----------------
<S>                                                       <C>                 <C>                  <C>                   <C>
     Allowance for doubtful accounts                        9,127               27,331               27,331               26,083
     Reserve for contingencies                                -                  3,220                3,220                3,036
     Difference between tax and book value
     of fixed assets                                       (1,757)              (1,656)              (1,655)              (1,125)
     Expenses paid in advance                                 -                 51,849               52,770               10,328
     Fees                                                  15,740               15,740               21,192                  -
     Expense accrual                                          -                    -                  1,044                  -
     Vacation pay provision                                   -                  3,986                3,986                3,750
     Tax loss carryforward                                 63,399                  -                    488                  -
                                                        ---------            ---------            ---------            ---------
             Subtotal                                      86,509              100,470              108,376               42,072

     Valuation allowance                                  (86,509)            (100,470)            (108,376)             (42,072)
                                                        ---------            ---------            ---------            ---------
     Net deferred tax asset                                   -                    -                    -                    -
                                                        =========            =========            =========            =========
</TABLE>

     Due to the Company's current financial position, local management believes
     that is not more likely than not that the deferred tax asset will be
     realizable. Therefore, a valuation revenue of 100% of the asset was
     established.

     Following is a reconciliation between income tax at statutory rate and the
     movement in deferred tax assets:

<TABLE>
                                                                                     (Gain) Loss
                                                    --------------------------------------------------------------------------------
                                                    December 31, 2000    December 31, 1999    November 30, 1999    November 30, 1998
                                                     (twelve months)        (one month)        (twelve months)      (twelve months)
                                                    -----------------    -----------------    -----------------    -----------------
<S>                                                       <C>                 <C>                  <C>                   <C>
     Income tax at statutory tax rate on pre-tax
     income in accordance with U.S. GAAP                  (16,551)              13,383              (84,877)              (7,592)
     Effect of the change in the tax rate on net
     deferred tax assets
     Permanent differences:
          Income tax accrual increase for 1997                -                    -                 (2,552)                (873)
          Non taxable donations                               -                    -                    -                 (2,196)
          Doubtful accounts charged-off non
          deductible                                       26,171                  -                 21,125                  -
          Others                                            4,341                  -                    -                    -
          Increase (decrease) in valuation
          allowance                                       (13,961)              (7,906)              66,304               10,661
                                                        ---------            ---------            ---------            ---------
                                                              -                  5,477                  -                    -
                                                        =========            =========            =========            =========
</TABLE>

10.  MANDATORY CAPITAL REDUCTION

     As disclosed in the statement of changes in shareholders' equity,
     accumulated losses exceed the reserves and 50% of the capital stock.
     According to section 206 of the Business Associations Law, a Shareholders'
     meeting will have to resolve on the absorption of freely disposable
     reserves and shareholders' contributions to reestablish the equilibrium
     required by the Law.

<PAGE>
                                     -13-



11.  CHANGE OF FISCAL YEAR-END (UNAUDITED)

     On September 22, 1999, the Special Shareholders' Meeting unanimously
     approved the amendment of the Company's by - laws as regards the closing
     date of the fiscal year from November 30 to December 31. This amendment
     was to become effective as from December 31, 1999, and was registered with
     the Argentine Public Registry of Commerce on March 14, 2000.

     The condensed balance sheet as of December 31, 1999 and December 31, 1998
     and income statements for the twelve months ended as of such dates are
     disclosed below.

<TABLE>
                                                                    December 31, 1999    December 31, 1998
                                                                    -----------------    -----------------
<S>                                                                       <C>                   <C>
     Total current assets                                                 314,081               426,280

     Total noncurrent assets                                               69,567                42,770
                                                                       ----------            ----------
     Total assets                                                         383,648               469,050
                                                                       ==========            ==========
     Total current liabilities                                            250,339               433,908

     Total noncurrent liabilities                                         109,556                79,112
                                                                       ----------            ----------
     Total liabilities                                                    359,895               513,020

     Shareholders' equity/deficit                                          23,753               (43,970)
                                                                       ----------            ----------
     Total liabilities and shareholders' deficit/equity                   383,648               469,050
                                                                       ==========            ==========

     Net sales - Franchising revenues                                     910,792             1,263,830

     Cost of sales - License royalties and other fees                    (956,708)           (1,235,976)
                                                                       ----------            ----------
             Gross profit                                                 (45,916)               27,854

     Administrative and selling expenses                                  (77,029)             (131,546)

     Fixed assets depreciation                                            (10,045)               (2,746)

     Other operating income                                                   -                   1,456
                                                                       ----------            ----------
             Operating loss                                              (132,990)             (104,982)

     Financial expense                                                    (13,747)              (21,139)
                                                                       ----------            ----------
             Loss before taxes                                           (146,737)             (126,121)

     Income taxes                                                          (5,477)              (15,731)

     Tax on minimum presumed income                                        (5,616)                  -
                                                                       ----------            ----------
             Net loss for the year                                       (157,830)             (141,852)
                                                                       ==========            ==========
</TABLE>


                                                             ENRIQUE MONPELAT
                                                                 President

<PAGE>
                                     -14-

                                                                      EXHIBIT A


                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


                             DETAIL OF FIXED ASSETS

                   FOR THE YEARS ENDED DECEMBER 31, 2000, AND

            NOVEMBER 30, 1999 AND 1998 AND FOR THE ONE-MONTH PERIOD

                            ENDED DECEMBER 31, 1999

                          (stated in Argentine pesos)

<TABLE>
                                                                               Original values
                                                ---------------------------------------------------------------------------------
                                                At beginning                                                            At end
               Main account                        of year        Increases        Decreases        Transfers           of year
     -----------------------------------        ------------     ------------     ------------    -------------      ------------
<S>                                               <C>              <C>              <C>              <C>               <C>
     Furniture and fixtures                         24,782              -                -                -              24,782
     Software and equipment                         24,371            5,927              -              4,600            34,898
     Facilities                                      3,000              -                -                -               3,000
     Prepayment to vendors                           4,600              -                -             (4,600)              -
                                                  --------         --------         --------         --------          --------
      Total December 31, 2000                       56,753            5,927              -                -              62,680
                                                  ========         ========         ========         ========          ========
      Total December 31, 1999 (one month)           56,753              -                -                -              56,753
                                                  ========         ========         ========         ========          ========
      Total November 30, 1999                       29,129           33,534           (5,910)             -              56,753
                                                  ========         ========         ========         ========          ========
      Total November 30, 1998                        5,462           23,668              -                -              29,130
                                                  ========         ========         ========         ========          ========
</TABLE>

<TABLE>
                                                                           Accumulated depreciation
                                                ---------------------------------------------------------------------------------
                                                At beginning                                        At end                Net
               Main account                        of year        Increases        Decreases        of year             amount
     ------------------------------------       ------------     ------------     ------------    -------------      ------------
<S>                                               <C>              <C>              <C>              <C>               <C>
     Furniture and fixtures                          8,915            5,010              -             13,925            10,857
     Software and equipment                          3,070            7,706              -             10,776            24,122
     Facilities                                      1,100              600              -              1,700             1,300
     Prepayment to vendors                             -                -                -                -                 -
                                                  --------         --------         --------         --------          --------
      Total December 31, 2000                       13,085           13,316              -             26,401            36,279
                                                  ========         ========         ========         ========          ========
      Total December 31, 1999 (one month)           12,211              874              -             13,085            43,668
                                                  ========         ========         ========         ========          ========
      Total November 30, 1999                        3,707            9,172              668           12,211            44,542
                                                  ========         ========         ========         ========          ========
      Total November 30, 1998                          961            2,746              -              3,707            25,422
                                                  ========         ========         ========         ========          ========
</TABLE>


                                                           ENRIQUE MONPELAT
                                                               President

<PAGE>
                                     -15-



                                                                      EXHIBIT B

                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


        ALLOWANCE AND RESERVE FOR THE YEARS ENDED DECEMBER 31, 2000, AND

                NOVEMBER 30, 1999 AND 1998 AND FOR THE ONE-MONTH

                         PERIOD ENDED DECEMBER 31, 1999

                          (stated in Argentine pesos)


<TABLE>
                                              Balance at the
                                                 beginning                                                      Balance at the
                                                  of year            Additions (1)          Charge offs           end of year
                                              --------------        --------------        --------------        --------------
<S>                                                <C>                   <C>                  <C>                     <C>
Deducted from current assets:

     Allowance for doubtful accounts

     Total December 31, 2000                       78,089                22,907               (80,594)                20,402
                                                  =======               =======               =======                =======
     Total December 31, 1999                       78,089                   -                     -                   78,089
                                                  =======               =======               =======                =======
     Total November 30, 1999                       79,038                59,407               (60,356)                78,089
                                                  =======               =======               =======                =======
     Total November 30, 1998                       37,347                41,691                   -                   79,038
                                                  =======               =======               =======                =======

(1)  Included in selling expenses (Exhibit C)

Included in non-current liabilities:

     Reserve for contingencies

     Total December 31, 2000                        9,200                   -                   9,200                    -
                                                  =======               =======               =======                =======
     Total December 31, 1999                        9,200                   -                     -                    9,200
                                                  =======               =======               =======                =======
     Total November 30, 1999                        9,200                   -                     -                    9,200
                                                  =======               =======               =======                =======
     Total November 30, 1998                          -                   9,200                   -                    9,200
                                                  =======               =======               =======                =======
</TABLE>


                                                       ENRIQUE MONPELAT
                                                           President


<PAGE>
                                     -16-


                                                                      EXHIBIT C

                    LOCALIZA MASTER FRANCHISE ARGENTINA S.A.


                      DETAIL OF EXPENSES AND DEPRECIATION

                   FOR THE YEARS ENDED DECEMBER 31, 2000, AND

                NOVEMBER 30, 1999 AND 1998 AND FOR THE ONE-MONTH

                         PERIOD ENDED DECEMBER 31, 1999

                          (stated in Argentine pesos)

<TABLE>
                                                                                        December 31,    November 30,    November 30,
                                                                                         1999 (one      1999 (twelve    1998 (twelve
                                                December 31, 2000 (twelve months)          month)          months)         months)
                                        ---------------------------------------------   ------------    ------------    ------------
                                                        Administrative
                                                          and selling
              Account                   Cost of sales      expenses           Total         Total           Total           Total
------------------------------------    -------------   --------------      ---------     ---------       ---------       ---------
<S>                                         <C>            <C>                <C>            <C>            <C>             <C>
Payroll                                     280,757              -            280,757        19,189         212,586         210,405
Fees paid to related parties
  (Note 5)                                      -                -                -             -           170,104         454,097
Social security taxes and employees
  benefits                                   65,382              -             65,382         2,815          58,879          44,757
Third-party fees and services                   -             38,261           38,261         3,483          74,842          42,982
Advertising                                 181,662              -            181,662        13,883         298,308         332,444
Maintenance and telephone                    78,862              -             78,862         3,567          41,311          93,492
Structure expenses                           46,838              -             46,838         1,850          34,735           6,213
Doubtful accounts                               -             20,258           20,258           -            59,407          41,691
Travel expenses                              52,092              -             52,092         3,944          50,177          36,718
Collection commissions                          -             30,168           30,168           -            13,010          34,882
Bank commissions                                -              9,344            9,344           847           9,622          11,380
Other                                        61,147              -             61,147         6,662          60,014          42,436
                                          ---------        ---------        ---------     ---------       ---------       ---------
Total December 31, 2000                     766,740           98,031          864,771
                                          =========        =========        =========
Total December 31, 1999                       7,586           48,654                         56,240
                                          =========        =========                      =========
Total November 30, 1999                      69,443        1,013,552                                      1,082,995
                                          =========        =========                                      =========
Total November 30, 1998                      96,053        1,255,444                                                      1,351,497
                                          =========        =========                                                      =========
</TABLE>


                                                             ENRIQUE MONPELAT
                                                                 President