##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




---

FORM 10-Q

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|[X]        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|           |  | For the quarterly period ended June 30,
    2002                                            
|           |  | OR                                                                                          
|[  ]       |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



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Commission file number 0-30776



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ANC RENTAL CORPORATION

(Debtors-In-Possession as of November 13,
2001)


(Exact name of registrant as specified in its
charter)

|                                                                           |  |                                               
|-------------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or other Jurisdiction of
    Incorporation or Organization) |  | 65-0957875(I.R.S. Employer Identification No.)

|                                                                                                   |  |                
|-------------------------------------------------------------------------------------------------- |  | ---------------
|200 South Andrews Avenue,
    Fort Lauderdale, Florida(Address of principal executive
    offices) |  | 33301(Zip Code)

(954) 320-4000

(Registrants telephone number, including
area code)


None

(Former name former address and former fiscal
year, if changed from last report)


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

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

APPLICABLE ONLY TO CORPORATE
ISSUERS:

As of February 28, 2003, the registrant had
outstanding 45,296,139 shares of Common Stock, par value $0.01
per share.



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TABLE OF CONTENTS



|                                                                         |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION                                         
|Item 1. Financial Statements                                            
|                                                                         | CONDENSED CONSOLIDATED BALANCE SHEETS                                                        
|                                                                         | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                    
|                                                                         | UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)                 
|                                                                         | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                    
|                                                                         | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                         
|                                                                         | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                         | Item 3. Quantitative and Qualitative Disclosures About Market Risks                          
|                                                                         | Item 4. Controls and Procedures                                                              
|PART II -- OTHER INFORMATION                                            
|                                                                         | Item 1. Legal Proceedings                                                                    
|                                                                         | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                                         | Item 3. Defaults Upon Senior Securities                                                      
|                                                                         | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                                         | Item 5. Other Information                                                                    
|                                                                         | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                              
|CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|EX-99.1 Risk Factors                                                    
|EX-99.2 Certification of Chief Executive Officer                        
|EX-99.3 Certification of Chief Financial Officer                        



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##### Table of Contents



ANC RENTAL CORPORATION

(Debtors-In-Possession as of November 13,
2001)


INDEX

|                                  |  |                                                                                                                                    |  |      |    | 
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                  |  |                                                                                                                                    |  | Page
|                                  |  |                                                                                                                                    |  |     
|PART I.
    FINANCIAL INFORMATION
|Item 1.                           |  | Financial Statements:                                                                                                              |  |      |    | 
|                                  |  | Condensed Consolidated Balance Sheets as of
    June 30, 2002 (Unaudited) and December 31, 2001                                    |  |      | 1  | 
|                                  |  | Unaudited Condensed Consolidated Statements of
    Operations for the Three Months and Six Months Ended
    June 30, 2002 and 2001 |  |      | 2  | 
|                                  |  | Unaudited Condensed Consolidated Statement of
    Shareholders Equity (Deficit) for the Six Months Ended
    June 30, 2002        |  |      | 3  | 
|                                  |  | Unaudited Condensed Consolidated Statements of
    Cash Flows for the Six Months Ended June 30, 2002 and 2001                      |  |      | 4  | 
|                                  |  | Notes to Condensed Consolidated Financial
    Statements                                                                           |  |      | 5  | 
|Item 2.                           |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                          |  |      | 21 | 
|Item 3.                           |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                                     |  |      | 36 | 
|Item 4.                           |  | Controls and Procedures                                                                                                            |  |      | 37 | 
|PART II.
    OTHER INFORMATION   
|Item 1.                           |  | Legal Proceedings                                                                                                                  |  |      | 38 | 
|Item 2.                           |  | Changes in Securities and Use of Proceeds                                                                                          |  |      | 38 | 
|Item 3.                           |  | Defaults Upon Senior Securities                                                                                                    |  |      | 38 | 
|Item 4.                           |  | Submission of Matters to a Vote of Security
    Holders                                                                            |  |      | 38 | 
|Item 5.                           |  | Other Information                                                                                                                  |  |      | 38 | 
|Item 6.                           |  | Exhibits and Reports on Form 8-K                                                                                                   |  |      | 38 | 

i



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##### Table of Contents






PART I  FINANCIAL
INFORMATION




Item 1.     Financial
Statements

ANC RENTAL CORPORATION

(Debtors-In-Possession as of November 13,
2001)







CONDENSED CONSOLIDATED BALANCE
SHEETS


(In millions except share and per share
amounts)


|                                                   |                                                                                                                                                                       |                                                          |         |              |         |   |         |        |         | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                                   |                                                                                                                                                                       | June 30,                                                 |         | December 31,
|                                                   |                                                                                                                                                                       | 2002                                                     |         | 2001        
|                                                   |                                                                                                                                                                       |                                                          |         |             
|                                                   |                                                                                                                                                                       | (Unaudited)                                              |         |             
|ASSETS                                            
|Cash and cash equivalents                          |                                                                                                                                                                       | $                                                        | 153.5   |              |         | $ | 320.2   |       
|Restricted cash and cash equivalents               |                                                                                                                                                                       |                                                          | 378.0   |              |         |   | 1,310.0 |       
|Receivables, net                                   |                                                                                                                                                                       |                                                          | 321.7   |              |         |   | 371.4   |       
|Prepaid expenses                                   |                                                                                                                                                                       |                                                          | 56.7    |              |         |   | 48.3    |       
|Vehicles, net                                      |                                                                                                                                                                       |                                                          | 3,183.1 |              |         |   | 3,105.6 |       
|Property and equipment, net                        |                                                                                                                                                                       |                                                          | 327.2   |              |         |   | 445.4   |       
|Goodwill, net                                      |                                                                                                                                                                       |                                                          | 20.9    |              |         |   | 127.1   |       
|Other assets                                       |                                                                                                                                                                       |                                                          | 95.3    |              |         |   | 90.3    |       
|                                                   |                                                                                                                                                                       |                                                          |         |              |         |   |         |       
|                                                   |                                                                                                                                                                       | Total assets                                             |         | $            | 4,536.4 |   |         | $      | 5,818.3 | 
|                                                   |                                                                                                                                                                       |                                                          |         |              |         |   |         |       
|LIABILITIES AND SHAREHOLDERS EQUITY
    (DEFICIT)
|Accounts payable                                   |                                                                                                                                                                       | $                                                        | 204.7   |              |         | $ | 91.7    |       
|Accrued liabilities                                |                                                                                                                                                                       |                                                          | 244.6   |              |         |   | 229.4   |       
|Insurance reserves                                 |                                                                                                                                                                       |                                                          | 105.2   |              |         |   | 62.3    |       
|Vehicle debt                                       |                                                                                                                                                                       |                                                          | 2,746.3 |              |         |   | 3,977.8 |       
|Other debt                                         |                                                                                                                                                                       |                                                          | 274.3   |              |         |   | 247.3   |       
|Deferred income taxes                              |                                                                                                                                                                       |                                                          | 253.7   |              |         |   | 253.7   |       
|Other liabilities                                  |                                                                                                                                                                       |                                                          | 313.3   |              |         |   | 199.0   |       
|Liabilities subject to compromise                  |                                                                                                                                                                       |                                                          | 519.2   |              |         |   | 535.9   |       
|                                                   |                                                                                                                                                                       |                                                          |         |              |         |   |         |       
|                                                   |                                                                                                                                                                       | Total liabilities                                        |         |              | 4,661.3 |   |         |        | 5,597.1 | 
|Commitments and contingencies                      |                                                                                                                                                                       |                                                          |         |              |         |   |         |       
|Shareholders equity (deficit):                    |                                                                                                                                                                       |                                                          |         |              |         |   |         |       
|                                                   | Preferred stock, par value $0.001 per share;
    10,000,000 shares authorized; none issued                                                                            |                                                          |         |             |         |   |         |       |        
|                                                   | Common stock, par value $.01 per share;
    250,000,000 shares authorized; 45,296,139 issued and outstanding
    at June 30, 2002 and December 31, 2001, respectively |                                                          |         | 0.5          |         |   |         | 0.5    |        
|                                                   | Additional paid-in capital                                                                                                                                            |                                                          |         | 907.6        |         |   |         | 907.6  |        
|                                                   | Accumulated deficit                                                                                                                                                   |                                                          |         | (962.6       | )       |   |         | (599.7 | )      
|                                                   | Accumulated other comprehensive loss                                                                                                                                  |                                                          |         | (70.4        | )       |   |         | (87.2  | )      
|                                                   |                                                                                                                                                                       |                                                          |         |              |         |   |         |       
|                                                   |                                                                                                                                                                       | Total shareholders equity (deficit)                     |         |              | (124.9  | ) |         |        | 221.2   | 
|                                                   |                                                                                                                                                                       |                                                          |         |              |         |   |         |       
|                                                   |                                                                                                                                                                       | Total liabilities and shareholders equity
    (deficit) |         | $            | 4,536.4 |   |         | $      | 5,818.3 | 
|                                                   |                                                                                                                                                                       |                                                          |         |              |         |   |         |       

The accompanying notes are an integral part of
these statements.

1



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##### Table of Contents



ANC RENTAL CORPORATION

(Debtors-In-Possession as of November 13,
2001)







UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(In millions except per share
amounts)


|                                                                                                                               |                                        |              |        |                  |   |      |       |       |   |   |         |       |   |   |         |       |  
|------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------- | ------------ | ------ | ---------------- | - | ---- | ----- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                                                               |                                        |              |        |                  |   |     
|                                                                                                                               |                                        | Three Months |        |                 
|                                                                                                                               |                                        | Ended        |        | Six Months Ended
|                                                                                                                               |                                        | June 30,     |        | June 30,        
|                                                                                                                               |                                        |              |        |                 
|                                                                                                                               |                                        | 2002         |        | 2001             |   | 2002 |       | 2001 
|                                                                                                                               |                                        |              |        |                  |   |      |       |      
|Revenue                                                                                                                        |                                        | $            | 656.5  |                  |   | $    | 850.6 |       |   | $ | 1,256.1 |       |   | $ | 1,619.6 |      
|Expenses:                                                                                                                      |                                        |              |        |                  |   |      |       |       |   |   |         |       |   |   |         |      
|                                                                                                                               | Direct operating costs                 |              |        | 294.0            |   |      |       | 354.9 |   |   |         | 587.4 |   |   |         | 691.0 |  
|                                                                                                                               | Vehicle depreciation, net              |              |        | 218.1            |   |      |       | 271.1 |   |   |         | 413.5 |   |   |         | 512.7 |  
|                                                                                                                               | Selling, general, and administrative   |              |        | 137.2            |   |      |       | 162.7 |   |   |         | 277.4 |   |   |         | 322.5 |  
|                                                                                                                               | Transition and reorganization expenses |              |        | 63.7             |   |      |       |      |   |   |         | 115.3 |   |   |         |      |  
|                                                                                                                               | Amortization of intangible assets      |              |        |                 |   |      |       | 2.5   |   |   |         |      |   |   |         | 5.0   |  
|                                                                                                                               | Interest income                        |              |        | (1.2             | ) |      |       | (1.9  | ) |   |         | (2.6  | ) |   |         | (3.2  | )
|                                                                                                                               | Interest expense                       |              |        | 48.5             |   |      |       | 92.3  |   |   |         | 96.1  |   |   |         | 181.9 |  
|                                                                                                                               | Other expense, net                     |              |        | 13.5             |   |      |       | (0.5  | ) |   |         | 25.7  |   |   |         | 5.9   |  
|                                                                                                                               |                                        |              |        |                  |   |      |       |       |   |   |         |       |   |   |         |      
|Loss before income taxes                                                                                                       |                                        |              | (117.3 | )                |   |      | (30.5 | )     |   |   | (256.7  | )     |   |   | (96.2   | )    
|Benefit for income taxes                                                                                                       |                                        |              |       |                  |   |      | (6.9  | )     |   |   |        |       |   |   | (32.5   | )    
|                                                                                                                               |                                        |              |        |                  |   |      |       |       |   |   |         |       |   |   |         |      
|Net loss before cumulative effect of change in
    accounting principles                                                       |                                        |              | (117.3 | )                |   |      | (23.6 | )     |   |   | (256.7  | )     |   |   | (63.7   | )    
|Cumulative effect of change in accounting
    principles, net of provision for income taxes of $0 in 2002 and
    $4.5 in 2001 |                                        |              |       |                  |   |      |      |       |   |   | (106.2  | )     |   |   | 7.1     |      
|                                                                                                                               |                                        |              |        |                  |   |      |       |       |   |   |         |       |   |   |         |      
|Net loss                                                                                                                       |                                        | $            | (117.3 | )                |   | $    | (23.6 | )     |   | $ | (362.9  | )     |   | $ | (56.6   | )    
|                                                                                                                               |                                        |              |        |                  |   |      |       |       |   |   |         |       |   |   |         |      
|Basic and diluted loss per share before
    cumulative effect of change in accounting principles                               |                                        | $            | (2.59  | )                |   | $    | (0.52 | )     |   | $ | (5.67   | )     |   | $ | (1.41   | )    
|Basic and diluted loss per share                                                                                               |                                        | $            | (2.59  | )                |   | $    | (0.52 | )     |   | $ | (8.01   | )     |   | $ | (1.25   | )    
|Shares used in computing per share amounts:                                                                                    |                                        |              |        |                  |   |      |       |       |   |   |         |       |   |   |         |      
|                                                                                                                               | Basic and diluted                      |              |        | 45.3             |   |      |       | 45.2  |   |   |         | 45.3  |   |   |         | 45.2  |  

The accompanying notes are an integral part of
these statements.

2



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##### Table of Contents



ANC RENTAL CORPORATION

(Debtors-In-Possession as of November 13,
2001)







UNAUDITED CONDENSED CONSOLIDATED
STATEMENT

OF SHAREHOLDERS EQUITY
(DEFICIT)


(In millions)


|                                     |                                                                                    |              |      |            |  |             |     |               |  |               |       |           |  |   |        |   |  |   |       |     |  |   |        |     | 
|------------------------------------ | ---------------------------------------------------------------------------------- | ------------ | ---- | ---------- |  | ----------- | --- | ------------- |  | ------------- | ----- | --------- |  | - | ------ | - |  | - | ----- | --- |  | - | ------ | --- | 
|                                     |                                                                                    |              |      |            |  |             |     |               |  | Accumulated   |       |          
|                                     |                                                                                    |              |      |            |  |             |     | Other         |  |              
|                                     |                                                                                    | Common Stock |      | Additional |  |             |     | Comprehensive |  | Shareholders
|                                     |                                                                                    |              |      | Paid-In    |  | Accumulated |     | Income        |  | Equity       
|                                     |                                                                                    | Shares       |      | Amount     |  | Capital     |     | Deficit       |  | (Loss)        |       | (Deficit)
|                                     |                                                                                    |              |      |            |  |             |     |               |  |               |       |          
|BALANCE AT DECEMBER 31, 2001.        |                                                                                    |              | 45.3 |            |  | $           | 0.5 |               |  | $             | 907.6 |           |  | $ | (599.7 | ) |  | $ | (87.2 | )   |  | $ | 221.2  |    
|Net loss                             |                                                                                    |              |     |            |  |             |    |               |  |               |      |           |  |   | (362.9 | ) |  |   |      |     |  |   | (362.9 | )  
|Other comprehensive income:          |                                                                                    |              |      |            |  |             |     |               |  |               |       |           |  |   |        |   |  |   |       |     |  |   |        |    
|                                     | Foreign currency translation adjustments                                           |              |      |           |  |             |     |              |  |               |       |          |  |   |        |  |  |   |       | 8.9 |  |   |        | 8.9 | 
|                                     | Changes in fair value of interest rate hedges and
    reclassification adjustments |              |      |           |  |             |     |              |  |               |       |          |  |   |        |  |  |   |       | 7.9 |  |   |        | 7.9 | 
|                                     |                                                                                    |              |      |            |  |             |     |               |  |               |       |           |  |   |        |   |  |   |       |     |  |   |        |    
|BALANCE AT JUNE 30, 2002 (unaudited) |                                                                                    |              | 45.3 |            |  | $           | 0.5 |               |  | $             | 907.6 |           |  | $ | (962.6 | ) |  | $ | (70.4 | )   |  | $ | (124.9 | )  
|                                     |                                                                                    |              |      |            |  |             |     |               |  |               |       |           |  |   |        |   |  |   |       |     |  |   |        |    

The accompanying notes are an integral part of
this statement.

3



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##### Table of Contents



ANC RENTAL CORPORATION

(Debtors-In-Possession as of November 13,
2001)





UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS

(In millions)


|                                                                          |                                                                                                  |                                                                                    |                                          |          |          |       |        |           |          |       |  
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------- | ---------------------------------------- | -------- | -------- | ----- | ------ | --------- | -------- | ----- | -
|                                                                          |                                                                                                  |                                                                                   
|                                                                          |                                                                                                  | Six Months Ended                                                                  
|                                                                          |                                                                                                  | June 30,                                                                          
|                                                                          |                                                                                                  |                                                                                   
|                                                                          |                                                                                                  | 2002                                                                               |                                          | 2001    
|                                                                          |                                                                                                  |                                                                                    |                                          |         
|CASH AND CASH EQUIVALENTS USED IN OPERATING
    ACTIVITIES:               |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|                                                                          | Net loss                                                                                         |                                                                                    | $                                        | (362.9   | )        |       | $      | (56.6     | )       
|                                                                          | Adjustments to reconcile net loss to cash and
    cash equivalents used in operating activities: |                                                                                    |                                          |          |          |       |        |           |         
|                                                                          |                                                                                                  | Cumulative effect of change in accounting
    principles, net of tax               |                                          |          | 106.2    |       |        |           | (7.1     | )    
|                                                                          |                                                                                                  | Fair value adjustment on interest rate hedges and
    reclassification adjustments |                                          |          | 21.7     |       |        |           | 2.3      |      
|                                                                          |                                                                                                  | Loss on sale of assets and asset impairments                                       |                                          |          | 11.4     |       |        |           | 4.2      |      
|                                                                          |                                                                                                  | Depreciation and amortization of property and
    equipment                        |                                          |          | 110.1    |       |        |           | 39.6     |      
|                                                                          |                                                                                                  | Amortization of intangible assets and debt issue
    costs                         |                                          |          | 16.3     |       |        |           | 23.2     |      
|                                                                          |                                                                                                  | Income tax benefit                                                                 |                                          |          |         |       |        |           | (32.5    | )    
|                                                                          |                                                                                                  | Depreciation of vehicles                                                           |                                          |          | 413.5    |       |        |           | 512.7    |      
|                                                                          |                                                                                                  | Purchases of vehicles                                                              |                                          |          | (3,606.3 | )     |        |           | (4,152.8 | )    
|                                                                          |                                                                                                  | Sales of vehicles                                                                  |                                          |          | 3,096.1  |       |        |           | 2,792.8  |      
|                                                                          |                                                                                                  | Changes in assets and liabilities, net:                                            |                                          |          |          |       |        |           |          |      
|                                                                          |                                                                                                  |                                                                                    | Receivables                              |          |          | 49.3  |        |           |          | 283.4 |  
|                                                                          |                                                                                                  |                                                                                    | Prepaid expenses and other assets        |          |          | (30.2 | )      |           |          | (4.0  | )
|                                                                          |                                                                                                  |                                                                                    | Accounts payable and accrued liabilities |          |          | 168.6 |        |           |          | (2.6  | )
|                                                                          |                                                                                                  |                                                                                    | Other liabilities                        |          |          | (4.7  | )      |           |          | (3.9  | )
|                                                                          |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|                                                                          |                                                                                                  |                                                                                    | (10.9                                    | )        |          |       | (601.3 | )        
|                                                                          |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|CASH AND CASH EQUIVALENTS PROVIDED BY (USED IN)
    INVESTING ACTIVITIES: |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|                                                                          | Purchases of property and equipment                                                              |                                                                                    |                                          | (9.5     | )        |       |        | (22.4     | )       
|                                                                          | Proceeds from sale of property and equipment                                                     |                                                                                    |                                          | 6.6      |          |       |        | 113.5     |         
|                                                                          |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|                                                                          |                                                                                                  |                                                                                    | (2.9                                     | )        |          |       | 91.1   |          
|                                                                          |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|CASH AND CASH EQUIVALENTS PROVIDED BY (USED IN)
    FINANCING ACTIVITIES: |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|                                                                          | Proceeds from vehicle financing                                                                  |                                                                                    |                                          | 610.8    |          |       |        | 23,127.7  |         
|                                                                          | Payments on vehicle financing                                                                    |                                                                                    |                                          | (1,820.7 | )        |       |        | (22,593.1 | )       
|                                                                          | Decrease (increase) in restricted cash                                                           |                                                                                    |                                          | 932.0    |          |       |        | (12.6     | )       
|                                                                          | Proceeds from issuance of other debt                                                             |                                                                                    |                                          | 40.3     |          |       |        | 275.8     |         
|                                                                          | Payments on other debt                                                                           |                                                                                    |                                          | (15.5    | )        |       |        | (250.8    | )       
|                                                                          | Subsidiary limited partner contributions                                                         |                                                                                    |                                          | 104.9    |          |       |        | 60.1      |         
|                                                                          | Debt issue costs                                                                                 |                                                                                    |                                          | (12.2    | )        |       |        | (21.1     | )       
|                                                                          | Other                                                                                            |                                                                                    |                                          | 7.5      |          |       |        | (0.6      | )       
|                                                                          |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|                                                                          |                                                                                                  |                                                                                    | (152.9                                   | )        |          |       | 585.4  |          
|                                                                          |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|Increase (decrease) in cash and cash
    equivalents                      |                                                                                                  |                                                                                    | (166.7                                   | )        |          |       | 75.2   |          
|Cash and cash equivalents at beginning of period                          |                                                                                                  |                                                                                    | 320.2                                    |          |          |       | 21.4   |          
|                                                                          |                                                                                                  |                                                                                    |                                          |          |          |       |        |          
|Cash and cash equivalents at end of period                                |                                                                                                  | $                                                                                  | 153.5                                    |          |          | $     | 96.6   |          
|                                                                          |                                                                                                  |                                                                                    |                                          |          |          |       |        |          

The accompanying notes are an integral part of
these statements.

4



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##### Table of Contents



ANC RENTAL CORPORATION

(Debtors-In-Possession as of November 13,
2001)







NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(In millions except share data)


1.     INTERIM
FINANCIAL STATEMENTS

On November 13, 2001, ANC Rental Corporation
and certain of its direct and indirect U.S. subsidiaries (each,
a Debtor, and collectively, Debtors)
filed voluntary petitions under chapter 11 of Title 11, United
States Code, in the United States Bankruptcy Court of Delaware
(Case No. 01-11200 et al., Jointly Administered).

The accompanying Condensed Consolidated Financial
Statements include the accounts of ANC Rental Corporation and
its subsidiaries (the Company) and have been
prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). All
significant intercompany accounts and transactions have been
eliminated. Certain information related to the Companys
organization, significant accounting policies and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted. In the opinion of management, the
Condensed Consolidated Financial Statements contain all material
adjustments, consisting of only normal recurring adjustments,
necessary to fairly state the financial position, the results of
operations and cash flows for the periods presented and the
disclosures herein are adequate to make the information
presented not misleading. Income taxes during these interim
periods have been provided based upon the Companys
anticipated annual effective income tax rate. These financial
statements have also been prepared in accordance with the
AICPAs Statement of Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy
Code (SOP 90-7). SOP 90-7 requires segregating
pre-petition liabilities that are subject to compromise and
identifying all transactions and events that are directly
associated with the reorganization of the Company. A certain
portion of the liabilities recorded at June 30, 2002 is
expected to be subject to compromise. Also in accordance with
SOP 90-7, after the filing date, interest is no longer accrued
on any unsecured and undersecured debt. For the three and six
months ended June 30, 2002 such amounts approximated $0.2
million and $0.6 million, respectively.

These Condensed Consolidated Financial Statements
have been prepared on a going concern basis, which contemplates
continuity of operations, realization of assets, and payment of
liabilities in the ordinary course of business and do not
reflect adjustments that might result if the Debtors are unable
to continue as a going concern. The Companys significant
losses and its chapter 11 filing raise concerns about the
Companys ability to continue as a going concern. As a
result of the chapter 11 filing, there is no assurance that the
carrying amounts of assets will be realized or that liabilities
will be settled for amounts recorded. The Company intends to
file a plan or plans of reorganization with the Bankruptcy
Court. Continuing as a going concern is dependent upon, among
other things, the Companys formulation of a plan or plans
of reorganization, the success of future business operations,
and the generation of sufficient cash from operations and
financing sources to meet the Companys obligations. The
Condensed Consolidated Financial Statements do not reflect:
(i) the realizable value of assets on a liquidation basis
or their availability to satisfy liabilities;
(ii) aggregate pre-petition liability amounts that may be
allowed for unrecorded claims or contingencies, or their status
or priority; (iii) the effect of any changes to the
Debtors capital structure or in the Debtors business
operations as the result of an approved plan or plans of
reorganization; or (iv) adjustments to the carrying value
of asset or liability amounts that may be necessary as a result
of actions by the Bankruptcy Court.

Operating results for interim periods are not
necessarily indicative of the results that can be expected for a
full year. These interim financial statements should be read in
conjunction with the Companys audited Consolidated
Financial Statements and notes thereto appearing in the
Companys annual report on Form 10-K for the year
ended December 31, 2001.

Prior to June 30, 2000 the Company was a
wholly owned subsidiary of AutoNation, Inc. (former
Parent or AutoNation). On June 30, 2000
AutoNation distributed its interest in the Company to its
shareholders on a tax-free basis at which point the Company
became an independent, publicly owned

5



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

company. The Company entered into agreements with
AutoNation, which provided for the separation of the
Companys business from AutoNation and govern various
interim and ongoing relationships between the companies.

All historical share and per share data included
in the Unaudited Condensed Consolidated Statements of
Operations, has been retroactively adjusted for the
recapitalization of the former Parents 100 shares of
common stock into 45,142,728 shares of Common Stock on
June 30, 2000.

Basic loss per share is calculated based on the
weighted average shares of common stock outstanding during the
period. Diluted earnings per share is calculated based on the
weighted average shares of common stock outstanding, plus the
dilutive effect of stock options, calculated using the treasury
stock method, and common stock purchase warrants, calculated
using the if-converted method. As of June 30, 2002 the
Company had 5.7 million options outstanding and 5.1 million
common stock purchase warrants outstanding, which due to their
anti-dilutive nature were not included in the calculation of
diluted earnings per share for the three and six month periods
ended June 30, 2002 and 2001.

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States 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 revenue and expenses during the reporting period. The primary
assumption used by management is that the Company will continue
as a going concern. However, should the Company not obtain
financing or cease to continue as a going concern the reported
amounts of assets and liabilities will change materially.

Certain amounts in the prior year financial
statements have been reclassified to conform to the current year
presentation.

2.     OPERATIONS
UNDER BANKRUPTCY

The Debtors remain in possession of their assets
and properties, and continue to operate their businesses and
manage their properties as debtors-in-possession pursuant to the
Bankruptcy Code. The divisions and operations that are not part
of the chapter 11 filing relate to international operations, an
insurance captive and special purpose vehicle financing
entities. As a debtor-in-possession, management is authorized to
operate the business, but may not engage in transactions outside
the ordinary course of business without Court approval. There is
no assurance that the Bankruptcy Court will grant any requests
for such approval. Subsequent to the filing of the chapter 11
petitions, the Company obtained several Court orders that
authorized it to pay certain pre-petition liabilities and take
certain actions to preserve the going concern value of the
business, thereby enhancing the prospects of reorganization.

The confirmation of a plan or plans of
reorganization is the Companys primary objective. After
negotiations with various parties in interest, the Company
expects to present a plan or plans of reorganization to the
Court to reorganize the Companys businesses and to
restructure its obligations. This plan or plans of
reorganization could change the amounts reported in the
financial statements and cause a material change in the carrying
amount of assets and liabilities. The Company expects that a
certain portion of the pre-petition liabilities recorded will be
subject to compromise.

The plan or plans of reorganization, when filed
will set forth the means for treating claims, including
liabilities subject to compromise and interests in the company.
Such means may take a number of different forms. A plan of
reorganization may result in, among other things, significant
dilution or elimination of certain classes of existing interests
as a result of the issuance of equity securities to creditors or
new investors. Other interests such as certain of the
pre-petition insurance reserves may need to be addressed and
resolved in the ordinary course of business as a result of
needing to maintain mandatory insurance coverage or for other

6



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

compelling business or legal reasons. The Company
is in the early stages of formulating a plan of reorganization.
The confirmation of any plan or plans of reorganization will
require creditor acceptance as required under the Bankruptcy
Code and approval of the Bankruptcy Court. Under bankruptcy law,
actions by creditors to collect pre-petition indebtedness owed
by the Debtors at the filing date are stayed and other
pre-petition contractual obligations may not be enforced against
the Debtors. The Company notified all known claimants and
historical creditors that the Bankruptcy Court established a bar
date of January 14, 2003. A bar date is the date by which a
claimant, whose claim against the Debtors has been listed
different from the amount or status, or omitted from the
schedules of liabilities filed by the Debtors with the
Bankruptcy Court, must file a claim against the Debtors if the
claimant wishes to participate in the chapter 11 case as
provided for in any Plan of Reorganization. In addition, the
Debtors have the continuing right, subject to Court approval and
other conditions, to assume or reject any pre-petition executory
contracts and unexpired leases. Parties affected by these
subsequent rejections may file claims with the Bankruptcy Court
regardless of the bar date. Any damages resulting from rejection
of executory contracts and unexpired leases are treated as
unsecured pre-petition claims. It should be noted that the
amounts of claims filed by creditors could be significantly
different from their recorded amounts. Due to material
uncertainties, it is not possible to predict the length of time
the Company will operate under chapter 11 protection, the
outcome of the proceedings in general, whether the Company will
continue to operate under its current organizational structure,
the effect of the proceedings on the Companys businesses
or the recovery by creditors and equity holders of the Company.

Under the Bankruptcy Code, post-petition and
pre-petition liabilities subject to compromise must be satisfied
before shareholders can receive any distribution. The ultimate
recovery to shareholders, if any, will not be determined until
the end of the case when the fair value of the Companys
assets is compared to the liabilities and claims against the
Company. There can be no assurance that any value will be
ascribed to the Companys common stock in the bankruptcy
proceeding.

3.     TRANSITION AND
REORGANIZATION EXPENSES

In an effort to return the Company to
profitability, management is implementing a series of transition
plans designed to improve the quality of customer service while
lowering costs to deliver such service. Transition and
reorganization expenses for the three months and six months
ended June 30, 2002 are as follows (unaudited):

|                                         |  |                    |      |                  |  |       |      |      |  |      |      |       |  |   |      |  |  |   |      |  |  |   |       | 
|---------------------------------------- |  | ------------------ | ---- | ---------------- |  | ----- | ---- | ---- |  | ---- | ---- | ----- |  | - | ---- |  |  | - | ---- |  |  | - | ----- | 
|                                         |  |                    |      |                 
|                                         |  | Three Months Ended |      | Six Months Ended
|                                         |  | June 30, 2002      |      | June 30, 2002   
|                                         |  |                    |      |                 
|                                         |  |                    |      | Non-             |  |       |      |      |  | Non- |      |      
|                                         |  | Cash               |      | Cash             |  | Total |      | Cash |  | Cash |      | Total
|                                         |  |                    |      |                  |  |       |      |      |  |      |      |      
|Airport location consolidation           |  | $                  | 1.1  |                  |  | $     | 14.2 |      |  | $    | 15.3 |       |  | $ | 1.3  |  |  | $ | 20.8 |  |  | $ | 22.1  | 
|Combining information technology systems |  |                    | 6.7  |                  |  |       | 29.8 |      |  |      | 36.5 |       |  |   | 10.2 |  |  |   | 59.7 |  |  |   | 69.9  | 
|Closure of Alamo Local Market locations  |  |                    |     |                  |  |       | 0.5  |      |  |      | 0.5  |       |  |   | 0.7  |  |  |   | 4.7  |  |  |   | 5.4   | 
|Professional fees and other              |  |                    | 11.4 |                  |  |       |     |      |  |      | 11.4 |       |  |   | 17.9 |  |  |   |     |  |  |   | 17.9  | 
|                                         |  |                    |      |                  |  |       |      |      |  |      |      |       |  |   |      |  |  |   |      |  |  |   |       | 
|                                         |  | $                  | 19.2 |                  |  | $     | 44.5 |      |  | $    | 63.7 |       |  | $ | 30.1 |  |  | $ | 85.2 |  |  | $ | 115.3 | 
|                                         |  |                    |      |                  |  |       |      |      |  |      |      |       |  |   |      |  |  |   |      |  |  |   |       | 

Relative to its transition and reorganization
expense, for the three and six months ended June 30, 2002,
the Company has remitted payments of $16.8 million and $22.9
million, respectively.

Airport Location
Consolidation

As of the date of the bankruptcy filing Alamo and
National operated under 140 separate stand-alone concession
agreements at seventy airports including most of the major
airports in the United States. The Company plans to consolidate
as many of these separately branded locations as possible into
dual branded locations. The Company believes that by
consolidating operations into one dual branded facility it will
be able

7



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to lower operating costs and improve vehicle
utilization, lower personnel expense, and reduce rent expense.
The Company expects to substantially complete its facility
consolidation program during the first six months of 2003.
Accordingly, the Company has accelerated the amortization on
$32.8 million of assets, which will be abandoned, upon
consolidation. The excess depreciation charge due to the
accelerated amortization approximated $3.1 million per month
through August 2002 at which time the amounts were fully
amortized. Due to material uncertainties, and negotiations with
third parties, it is not possible to predict the length of time
it will take to complete each location consolidation or whether
all of the contemplated location consolidations will be
completed successfully. As such, the Company may need to change
its estimate of assets remaining useful lives and revise
depreciation policies on a prospective basis. As of
December 31, 2002, the Company had dual branded its
operations at forty-one of these airports and had received court
orders allowing it to dual brand an additional seven airport
locations, which it expects to complete in the first half of
2003.

The Company incurred $15.3 million and $22.1
million in expenses relative to its airport location
consolidation project for the three and six months ended
June 30, 2002, respectively. For the three and six month
periods ended June 30, 2002, the non-cash component was
primarily comprised of impairment charges of approximately $4.9
million and $8.3 million, respectively, and excess depreciation
of approximately $9.3 million and $12.5 million, respectively.

Combining
Information Technology Systems

Currently the Company operates two separate and
distinct information technology systems, one for each of its
Alamo and National brands. During the latter part of 2003, the
Company plans to migrate to one information system and abandon
the other. The Company believes that, by combining information
technology onto the existing Alamo legacy operating system, cost
savings can be achieved. Additional benefits of migrating to the
Alamo legacy system are expected to include a reduction of
support staff, elimination of duplicative system
infrastructures, improved operational efficiency, lower cost of
training, and standardization across the organization. The
migration to one information technology system is not without
significant risks including, but not limited to, the ability to
successfully migrate onto one system, additional delays in
implementation, temporary loss of business functionality,
questions regarding the scalability of existing infrastructure
and the need for coordination with third party vendors to accept
system changes. The Company has accelerated the amortization on
$72.9 million of assets at June 30, 2002, which will be
abandoned, upon the migration to one system. In the fourth
quarter of 2002, the Company revised the information technology
systems estimated useful life and as such, the excess
depreciation charge will approximate $2.1 million per month
beginning October 2002.

The Company incurred $36.5 million and $69.9
million in expenses relative to the combining of information
technology systems for the three and six months ended
June 30, 2002, respectively. The cash component primarily
related to external consulting while the non-cash component
primarily related to excess depreciation.

Closure of Alamo
Local Market Locations

During the first half of 2002, the Company closed
unprofitable local market locations. Costs incurred relative to
these closures approximated $0.5 million and $6.1 million for
the three and six months ended June 30, 2002, respectively.
Of these amounts $0.5 million and $5.4 million are classified as
a transition and reorganization expense in the three and six
months ended June 30, 2002, respectively. The charges primarily
related to disposition of fleet, impaired assets and accruals
for rent and severance.

During the fourth quarter of 2002, the Company
approved and announced a plan to close and abandon its Alamo
Local Market Division. The Company has substantially completed
its plan of abandonment in the fourth quarter of 2002. The plan
included provisions for head count reductions, closure of
locations and

8



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

reductions in fleet. Pursuant to the provisions
of Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), the net assets and
operating results of the Companys Alamo Local Market
Division will be classified as a discontinued operation in the
fourth quarter of 2002. A summary of operating results relative
to Alamo Local Market Division for the periods indicated are as
follows (unaudited):

|                         |  |                |       |                |  |      |      |      |  |   |       |   |  |   |       |  
|------------------------ |  | -------------- | ----- | -------------- |  | ---- | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                         |  |                |       |               
|                         |  | Three Months   |       | Six Months    
|                         |  | Ended June 30, |       | Ended June 30,
|                         |  |                |       |               
|                         |  | 2002           |       | 2001           |  | 2002 |      | 2001
|                         |  |                |       |                |  |      |      |     
|Revenue                  |  | $              | 36.5  |                |  | $    | 65.7 |      |  | $ | 83.9  |   |  | $ | 129.1 |  
|Loss before income taxes |  |                | (17.3 | )              |  |      | (3.7 | )    |  |   | (34.2 | ) |  |   | (8.5  | )

Professional
Fees and Other

The Company incurred professional fees of
approximately $11.4 million and $17.9 million for services
rendered on behalf of the Company and its creditors for the
three and six months ended June 30, 2002, respectively.
Separately, the Company has reclassified approximately $0.2
million and $0.5 million of excess interest income to transition
and reorganization expense for the three and six months ended
June 30, 2002, respectively.



|   |                                  
|-- | ---------------------------------
|4. | LIABILITIES SUBJECT TO COMPROMISE

The classification of liabilities subject to
compromise is based on currently available information and
analysis. As additional information and analysis is completed,
or as the Court rules on relevant matters, the classification of
amounts in this category may change. Due to the nature of the
bankruptcy proceedings the amount of any changes could be
significant. Additionally, it is not possible to predict the
amount, if any, at which each type of liability will be
satisfied.

The Company has pre-petition liabilities subject
to compromise as follows:

|                                |  |             |       |              |  |   |       | 
|------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | 
|                                |  | June 30,    |       | December 31,
|                                |  | 2002        |       | 2001        
|                                |  |             |       |             
|                                |  | (Unaudited) |       |             
|Accounts payable                |  | $           | 95.9  |              |  | $ | 89.6  | 
|Unsecured debt                  |  |             | 35.0  |              |  |   | 35.0  | 
|Terminated interest rate hedges |  |             | 82.3  |              |  |   | 82.3  | 
|Insurance reserves              |  |             | 233.5 |              |  |   | 251.7 | 
|Accrued liabilities             |  |             | 44.3  |              |  |   | 46.9  | 
|Other liabilities               |  |             | 28.2  |              |  |   | 30.4  | 
|                                |  |             |       |              |  |   |       | 
|                                |  | $           | 519.2 |              |  | $ | 535.9 | 
|                                |  |             |       |              |  |   |       | 

Certain of the pre-petition insurance reserves
may need to be addressed and resolved in the ordinary course of
business as a result of needing to maintain mandatory insurance
coverage or for other compelling business or legal reasons.



|   |                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------
|5. | DEBTOR AND NON-DEBTOR CONDENSED CONSOLIDATING
    BALANCE SHEETS AND CONSOLIDATING STATEMENTS OF
    OPERATIONS

The following (unaudited) condensed
consolidating statements of Debtors and non-debtors as of
June 30, 2002 and for the six months then ended have been
prepared assuming continuity of operations, realization of
assets and payment of liabilities. The divisions and
subsidiaries excluded from the bankruptcy proceedings

9



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Non-debtors) relate to international
subsidiaries, an insurance captive and special purpose financing
entities.

|                                     |              |         |         |             |  |              |         |         |  |   |        |        |   |   |         |         | 
|------------------------------------ | ------------ | ------- | ------- | ----------- |  | ------------ | ------- | ------- |  | - | ------ | ------ | - | - | ------- | ------- | 
|                                     |              | Debtors |         | Non-debtors |  | Eliminations |         | Total  
|                                     |              |         |         |             |  |              |         |        
|Assets                               |              |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|Cash and cash equivalents            |              | $       | 146.3   |             |  | $            | 7.2     |         |  | $ |       |        |   | $ | 153.5   |        
|Restricted cash and cash equivalents |              |         |        |             |  |              | 378.0   |         |  |   |       |        |   |   | 378.0   |        
|Receivables, net                     |              |         | 148.9   |             |  |              | 176.4   |         |  |   | (3.6   | )      |   |   | 321.7   |        
|Vehicles, net                        |              |         | 12.7    |             |  |              | 3,170.4 |         |  |   |       |        |   |   | 3,183.1 |        
|All other assets                     |              |         | 1,227.4 |             |  |              | 155.7   |         |  |   | (883.0 | )      |   |   | 500.1   |        
|                                     |              |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|                                     | Total assets |         | $       | 1,535.3     |  |              | $       | 3,887.7 |  |   | $      | (886.6 | ) |   | $       | 4,536.4 | 
|                                     |              |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        

|                                                 |                                                          |   |        |         |  |   |         |         |  |   |        |        |   |   |         |         | 
|------------------------------------------------ | -------------------------------------------------------- | - | ------ | ------- |  | - | ------- | ------- |  | - | ------ | ------ | - | - | ------- | ------- | 
|Liabilities & Shareholders Equity
    (Deficit) |                                                          |   |        |         |  |   |         |         |  |   |        |        |   |   |         |        
|Accounts payable                                 |                                                          | $ | 100.2  |         |  | $ | 104.4   |         |  | $ | 0.1    |        |   | $ | 204.7   |        
|Accrued liabilities                              |                                                          |   | 202.4  |         |  |   | 45.8    |         |  |   | (3.6   | )      |   |   | 244.6   |        
|Vehicle debt                                     |                                                          |   |       |         |  |   | 2,746.3 |         |  |   |       |        |   |   | 2,746.3 |        
|Other debt                                       |                                                          |   | 250.7  |         |  |   | 23.6    |         |  |   |       |        |   |   | 274.3   |        
|Due to/(from) affiliates                         |                                                          |   | 224.9  |         |  |   | (224.9  | )       |  |   |       |        |   |   |        |        
|Liabilities subject to compromise                |                                                          |   | 519.2  |         |  |   |        |         |  |   |       |        |   |   | 519.2   |        
|All other liabilities                            |                                                          |   | 373.6  |         |  |   | 307.9   |         |  |   | (9.3   | )      |   |   | 672.2   |        
|                                                 |                                                          |   |        |         |  |   |         |         |  |   |        |        |   |   |         |        
|                                                 | Total liabilities                                        |   |        | 1,671.0 |  |   |         | 3,003.1 |  |   |        | (12.8  | ) |   |         | 4,661.3 | 
|Shareholders equity (deficit)                   |                                                          |   | (135.7 | )       |  |   | 884.6   |         |  |   | (873.8 | )      |   |   | (124.9  | )      
|                                                 |                                                          |   |        |         |  |   |         |         |  |   |        |        |   |   |         |        
|                                                 | Total liabilities and shareholders equity
    (deficit) |   | $      | 1,535.3 |  |   | $       | 3,887.7 |  |   | $      | (886.6 | ) |   | $       | 4,536.4 | 
|                                                 |                                                          |   |        |         |  |   |         |         |  |   |        |        |   |   |         |        

|                                                        |  |         |         |             |  |              |        |       |  |   |        |   |  |   |         |  
|------------------------------------------------------- |  | ------- | ------- | ----------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                                                        |  | Debtors |         | Non-debtors |  | Eliminations |        | Total
|                                                        |  |         |         |             |  |              |        |      
|Revenue                                                 |  | $       | 1,057.1 |             |  | $            | 688.4  |       |  | $ | (489.4 | ) |  | $ | 1,256.1 |  
|Operating costs                                         |  |         | 1,157.7 |             |  |              | 607.3  |       |  |   | (486.7 | ) |  |   | 1,278.3 |  
|Transition and reorganization expenses                  |  |         | 115.1   |             |  |              | 0.2    |       |  |   |       |   |  |   | 115.3   |  
|Interest and other expense                              |  |         | 83.4    |             |  |              | 40.0   |       |  |   | (4.2   | ) |  |   | 119.2   |  
|Equity loss (earnings) in investee                      |  |         | 71.2    |             |  |              |       |       |  |   | (71.2  | ) |  |   |        |  
|                                                        |  |         |         |             |  |              |        |       |  |   |        |   |  |   |         |  
|Income (loss) before income taxes                       |  |         | (370.3  | )           |  |              | 40.9   |       |  |   | 72.7   |   |  |   | (256.7  | )
|                                                        |  |         |         |             |  |              |        |       |  |   |        |   |  |   |         |  
|Provision for income taxes                              |  |         |        |             |  |              | 5.9    |       |  |   | (5.9   | ) |  |   |        |  
|                                                        |  |         |         |             |  |              |        |       |  |   |        |   |  |   |         |  
|Cumulative effect of change in accounting
    principle |  |         |        |             |  |              | (106.2 | )     |  |   |       |   |  |   | (106.2  | )
|                                                        |  |         |         |             |  |              |        |       |  |   |        |   |  |   |         |  
|Net income (loss)                                       |  | $       | (370.3  | )           |  | $            | (71.2  | )     |  | $ | 78.6   |   |  | $ | (362.9  | )
|                                                        |  |         |         |             |  |              |        |       |  |   |        |   |  |   |         |  



|   |                                     
|-- | ------------------------------------
|6. | RESTRICTED CASH AND CASH EQUIVALENTS

Restricted cash and cash equivalents consists of
amounts held in trust for payment and security under the
Companys vehicle debt programs as well as amounts on
deposit for certain insurance claims.

|                                                               |  |             |       |              |  |   |         | 
|-------------------------------------------------------------- |  | ----------- | ----- | ------------ |  | - | ------- | 
|                                                               |  | June 30,    |       | December 31,
|                                                               |  | 2002        |       | 2001        
|                                                               |  |             |       |             
|                                                               |  | (Unaudited) |       |             
|Restricted cash as collateral for vehicle debt                 |  | $           | 323.9 |              |  | $ | 1,262.2 | 
|Restricted cash as collateral for certain
    insurance claims |  |             | 54.1  |              |  |   | 47.8    | 
|                                                               |  |             |       |              |  |   |         | 
|                                                               |  | $           | 378.0 |              |  | $ | 1,310.0 | 
|                                                               |  |             |       |              |  |   |         | 

10



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Regarding the Companys international
operations, in April 2002, the Companys United Kingdom
subsidiary entered into a fleet finance and working capital
facility with third party lenders which allows the operation,
for limited periods of time, to use certain vehicle proceeds,
usually classified as restricted cash, to support general
working capital needs thereby reducing the daily draw of its
£20.0 million or approximately $33.0 million working
capital facility.



|   |            
|-- | -----------
|7. | RECEIVABLES

The components of receivables, net of allowance
for doubtful accounts, are as follows:

|                                      |  |             |       |              |  |   |       |  
|------------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                      |  | June 30,    |       | December 31,
|                                      |  | 2002        |       | 2001        
|                                      |  |             |       |             
|                                      |  | (Unaudited) |       |             
|Trade receivables                     |  | $           | 185.8 |              |  | $ | 185.2 |  
|Vehicle manufacturer receivables      |  |             | 74.1  |              |  |   | 115.5 |  
|Other                                 |  |             | 88.3  |              |  |   | 95.8  |  
|                                      |  |             |       |              |  |   |       |  
|                                      |  |             | 348.2 |              |  |   | 396.5 |  
|Less: allowance for doubtful accounts |  |             | (26.5 | )            |  |   | (25.1 | )
|                                      |  |             |       |              |  |   |       |  
|                                      |  | $           | 321.7 |              |  | $ | 371.4 |  
|                                      |  |             |       |              |  |   |       |  



|   |         
|-- | --------
|8. | VEHICLES

A summary of vehicles is as follows:

|                               |  |             |         |              |  |   |         |  
|------------------------------ |  | ----------- | ------- | ------------ |  | - | ------- | -
|                               |  | June 30,    |         | December 31,
|                               |  | 2002        |         | 2001        
|                               |  |             |         |             
|                               |  | (Unaudited) |         |             
|Vehicles                       |  | $           | 3,620.2 |              |  | $ | 3,684.2 |  
|Less: accumulated depreciation |  |             | (437.1  | )            |  |   | (578.6  | )
|                               |  |             |         |              |  |   |         |  
|                               |  | $           | 3,183.1 |              |  | $ | 3,105.6 |  
|                               |  |             |         |              |  |   |         |  



|   |                       
|-- | ----------------------
|9. | PROPERTY AND EQUIPMENT

A summary of property and equipment is as follows:

|                                                |  |             |        |              |  |   |        |  
|----------------------------------------------- |  | ----------- | ------ | ------------ |  | - | ------ | -
|                                                |  | June 30,    |        | December 31,
|                                                |  | 2002        |        | 2001        
|                                                |  |             |        |             
|                                                |  | (Unaudited) |        |             
|Land                                            |  | $           | 47.1   |              |  | $ | 50.8   |  
|Furniture, fixtures and equipment               |  |             | 420.2  |              |  |   | 422.8  |  
|Buildings and improvements                      |  |             | 284.5  |              |  |   | 300.8  |  
|                                                |  |             |        |              |  |   |        |  
|                                                |  |             | 751.8  |              |  |   | 774.4  |  
|Less: accumulated depreciation and amortization |  |             | (424.6 | )            |  |   | (329.0 | )
|                                                |  |             |        |              |  |   |        |  
|                                                |  | $           | 327.2  |              |  | $ | 445.4  |  
|                                                |  |             |        |              |  |   |        |  

11



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |             
|--- | ------------
|10. | OTHER ASSETS

The components of other assets are as follows:

|                                    |  |             |      |              |  |   |      | 
|----------------------------------- |  | ----------- | ---- | ------------ |  | - | ---- | 
|                                    |  | June 30,    |      | December 31,
|                                    |  | 2002        |      | 2001        
|                                    |  |             |      |             
|                                    |  | (Unaudited) |      |             
|Deposits                            |  | $           | 62.6 |              |  | $ | 40.9 | 
|Debt issue cost, net                |  |             | 19.1 |              |  |   | 22.3 | 
|Interest rate hedges, at fair value |  |             | 8.7  |              |  |   | 22.3 | 
|Other                               |  |             | 4.9  |              |  |   | 4.8  | 
|                                    |  |             |      |              |  |   |      | 
|                                    |  | $           | 95.3 |              |  | $ | 90.3 | 
|                                    |  |             |      |              |  |   |      | 



|    |                 
|--- | ----------------
|11. | ACCOUNTS PAYABLE

The components of accounts payable are as follows:

|                                              |  |             |       |              |  |   |       |  
|--------------------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                              |  | June 30,    |       | December 31,
|                                              |  | 2002        |       | 2001        
|                                              |  |             |       |             
|                                              |  | (Unaudited) |       |             
|Trade payables                                |  | $           | 183.2 |              |  | $ | 155.2 |  
|Vehicle payables                              |  |             | 117.4 |              |  |   | 26.1  |  
|Less, amounts currently subject to compromise |  |             | (95.9 | )            |  |   | (89.6 | )
|                                              |  |             |       |              |  |   |       |  
|                                              |  | $           | 204.7 |              |  | $ | 91.7  |  
|                                              |  |             |       |              |  |   |       |  

Vehicle payables represent amounts to be financed
after period end for vehicles acquired under the Companys
vehicle financing programs.



|    |                   
|--- | ------------------
|12. | INSURANCE RESERVES

The components of insurance reserves are as
follows:

|                                              |  |             |        |              |  |   |        |  
|--------------------------------------------- |  | ----------- | ------ | ------------ |  | - | ------ | -
|                                              |  | June 30,    |        | December 31,
|                                              |  | 2002        |        | 2001        
|                                              |  |             |        |             
|                                              |  | (Unaudited) |        |             
|Auto and general liability                    |  | $           | 312.3  |              |  | $ | 284.3  |  
|Other                                         |  |             | 26.4   |              |  |   | 29.7   |  
|Less, amounts currently subject to compromise |  |             | (233.5 | )            |  |   | (251.7 | )
|                                              |  |             |        |              |  |   |        |  
|                                              |  | $           | 105.2  |              |  | $ | 62.3   |  
|                                              |  |             |        |              |  |   |        |  

Certain of the pre-petition insurance reserves
may need to be addressed and resolved in the ordinary course of
business as a result of needing to maintain mandatory insurance
coverage or for other compelling business or legal reasons.

12



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                  
|--- | -----------------
|13. | OTHER LIABILITIES

Components of other liabilities are as follows:

|                                                            |  |             |        |              |  |   |        |  
|----------------------------------------------------------- |  | ----------- | ------ | ------------ |  | - | ------ | -
|                                                            |  | June 30,    |        | December 31,
|                                                            |  | 2002        |        | 2001        
|                                                            |  |             |        |             
|                                                            |  | (Unaudited) |        |             
|Minority interest                                           |  | $           | 246.2  |              |  | $ | 141.3  |  
|Interest rate hedges, at fair value at
    termination date |  |             | 82.3   |              |  |   | 82.3   |  
|Deferred gains on property sales                            |  |             | 32.0   |              |  |   | 32.8   |  
|Other                                                       |  |             | 63.2   |              |  |   | 55.4   |  
|Less, amounts currently subject to compromise               |  |             | (110.4 | )            |  |   | (112.8 | )
|                                                            |  |             |        |              |  |   |        |  
|                                                            |  | $           | 313.3  |              |  | $ | 199.0  |  
|                                                            |  |             |        |              |  |   |        |  

Minority interest represents the limited
partnership interest in a subsidiary of the Company. Minority
interest in the subsidiarys income is included in interest
expense and was $1.8 million and $2.0 million for the three
months ended June 30, 2002 and 2001, respectively, and $2.9
million and $3.7 million for the six months ended June 30,
2002 and 2001, respectively.



|    |             
|--- | ------------
|14. | VEHICLE DEBT

Vehicle debt is as follows:

|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                   |             |         |              |  |   |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------- | ------------ |  | - | ------- | ------- | 
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                   | June 30,    |         | December 31,
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                   | 2002        |         | 2001        
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                   |             |         |             
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                   | (Unaudited) |         |             
|Bank sponsored liquidity back-up facility secured
    by eligible vehicle collateral; interest based on U.S. Prime
    rate; weighted average interest rate of 4.75% at
    December 31, 2001                                                                                                        |                                                                                                                                                                                                   | $           |        |              |  | $ | 63.8    |        
|Auction-rate note program; weighted average
    interest rate of 3.11% at June 30, 2002; maturities through
    2006, net of a $0.2 million and a $0.3 million discount as
    June 30, 2002 and December 31, 2001, respectively                                                                     |                                                                                                                                                                                                   |             | 84.0    |              |  |   | 222.7   |        
|Amounts under various asset-backed medium-term
    note programs secured by eligible vehicle collateral:                                                                                                                                                                                             |                                                                                                                                                                                                   |             |         |              |  |   |         |        
|                                                                                                                                                                                                                                                                                                     | Fixed rate component; weighted average interest
    rate of 6.02% at June 30, 2002 and 5.94% at
    December 31, 2001; maturities through 2004                                                    |             |         | 500.0        |  |   |         | 1,250.0 | 
|                                                                                                                                                                                                                                                                                                     | Floating rate component based on a spread over
    LIBOR; weighted average interest rate of 2.18% and 2.17% at
    June 30, 2002 and December 31, 2001, respectively;
    maturities through 2005 |             |         | 2,075.0      |  |   |         | 2,350.0 | 
|Other committed and uncommitted secured vehicle
    financings primarily with financing institutions in the United
    Kingdom; LIBOR based interest rates; weighted average interest
    rates of 4.78% and 4.09% at June 30, 2002 and
    December 31, 2001, respectively; maturities through 2003 |                                                                                                                                                                                                   |             | 87.3    |              |  |   | 91.3    |        
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                   |             |         |              |  |   |         |        
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                   | $           | 2,746.3 |              |  | $ | 3,977.8 |        
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                   |             |         |              |  |   |         |        

13



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At June 30, 2002, aggregate expected
maturities of vehicle debt were as follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2002 |  | $ | 360.9   | 
|2003 |  |   | 584.4   | 
|2004 |  |   | 1,417.0 | 
|2005 |  |   | 300.0   | 
|2006 |  |   | 84.0    | 
|     |  |   |         | 
|     |  | $ | 2,746.3 | 
|     |  |   |         | 

The Company finances its domestic vehicle
purchases through wholly-owned, fully consolidated, special
purpose financing subsidiaries. These financing subsidiaries
obtain funds by issuing asset-backed medium-term notes or
commercial paper into the capital markets. The financing
subsidiaries in turn lease vehicles to the domestic operating
subsidiaries. The Companys international operations in
Europe and Canada provide their own financing for vehicle
purchases through various asset-backed financings, leases and
secured loans on a country by country basis.

The Debtors filing for bankruptcy
represented an Event of Default under each of the domestic
financing facilities and certain of the Companys
international facilities for which the parent company is
guarantor. However, in the United States the special purpose
financing subsidiaries are not Debtors and have continued making
scheduled interest and principal payments to the third party
note holders.

On May 1, 2002, all amounts outstanding on
the Companys bank sponsored liquidity back-up facilities
were repaid.

In February 2002, the Bankruptcy Court approved,
on a final basis, a fleet financing agreement insured by MBIA
where MBIA allowed for the release of certain restricted funds
supporting the MBIA insured outstanding series of medium-term
notes for the purchase of new vehicles. The agreement made
available up to $1.0 billion of previously frozen funds for the
acquisition of new fleet. On May 10, 2002, the Bankruptcy
Court approved, on a final basis, an agreement with MBIA to
allow the Company to continue to use $2.3 billion of its fleet
financing facilities on a revolving basis. As such, the Company
will be allowed to use proceeds received from the disposition of
vehicles financed by these facilities to purchase new vehicles.
Through a series of court orders the agreement is currently
scheduled to expire in March 2003. The Company has filed a
motion with the U.S. Bankruptcy court to extend the agreement
through June 2003.

Additionally, the Company issued a $275.0 million
variable funding asset-backed note which, in June 2002, the
Company amended to allow for borrowings of up to $575.0 million.
The note bears interest at a variable rate based upon a spread
over LIBOR and was set to expire in September 2002. In August
2002, the Company refinanced the variable funding note with the
issuance of $600.0 million of vehicle asset-backed medium-term
notes with a term of approximately two years at a floating rate
based on a spread over LIBOR. Upon the emergence from chapter
11, the Company may need to refinance these asset-backed
medium-term notes. The Company hedged its floating interest rate
risk through the purchase of an interest rate cap with a strike
price of 6.5%. The Company expects the interest rate cap to be
effective in hedging interest rate risk.

In the fourth quarter of 2002, the Company repaid
amounts outstanding under its auction-rate note program.

14



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |           
|--- | ----------
|15. | OTHER DEBT

Other debt is as follows:

|                                                                                                                                                                                                                                                                                  |  |             |       |              |  |   |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                                                                                                                                                                                                                                                                  |  | June 30,    |       | December 31,
|                                                                                                                                                                                                                                                                                  |  | 2002        |       | 2001        
|                                                                                                                                                                                                                                                                                  |  |             |       |             
|                                                                                                                                                                                                                                                                                  |  | (Unaudited) |       |             
|Secured revolving credit facility weighted
    average interest rate of 6.25% at June 30, 2002                                                                                                                                                                                    |  | $           | 20.2  |              |  | $ |      |  
|Supplemental secured term loan at 12.75% at June
    30, 2002 and December 31, 2001, matures May 31, 2003                                                                                                                                                                         |  |             | 40.0  |              |  |   | 40.0  |  
|Interim financing fixed rate note at 15.5%
    through June 30, 2002 increasing 0.5% each 90 day
    period thereafter capped at 18.0%, matures June 30, 2007,
    net of a $9.5 million and $10.4 million discount at
    June 30, 2002 and December 31, 2001                    |  |             | 190.5 |              |  |   | 189.6 |  
|Notes payable to vehicle manufacturer; weighted
    average interest rates of 2.63% and 4.26% at June 30, 2002 and
    December 31, 2001, matures June 2002                                                                                                                       |  |             | 35.0  |              |  |   | 35.0  |  
|Notes payable to former owners of acquired
    business; interest payable using LIBOR based rates; weighted
    average interest of 5.71% and 6.45% at June 30, 2002 and
    December 31, 2001, respectively; redeemable at the option
    of the holder through maturity in 2003 |  |             | 0.1   |              |  |   | 2.4   |  
|Other uncommitted credit facilities and other
    notes relating to the Companys international subsidiaries;
    interest ranging from 4.75% to 8.75%; maturing through 2002                                                                                                     |  |             | 23.5  |              |  |   | 15.3  |  
|                                                                                                                                                                                                                                                                                  |  |             |       |              |  |   |       |  
|                                                                                                                                                                                                                                                                                  |  |             | 309.3 |              |  |   | 282.3 |  
|                                                                                                                                                                                                                                                                                  |  |             |       |              |  |   |       |  
|Less, amounts considered to be subject to
    compromise                                                                                                                                                                                                                          |  |             | (35.0 | )            |  |   | (35.0 | )
|                                                                                                                                                                                                                                                                                  |  |             |       |              |  |   |       |  
|                                                                                                                                                                                                                                                                                  |  | $           | 274.3 |              |  | $ | 247.3 |  
|                                                                                                                                                                                                                                                                                  |  |             |       |              |  |   |       |  

As of June 30, 2002 aggregate expected
maturities of other debt exclusive of note discounts
approximating $9.5 million are as follows: $119.1 million in
2002, $60.2 million in 2003 and $130.0 million in 2007. The
Debtors filing for chapter 11 represented an Event of
Default under each of these financing facilities. Under
bankruptcy law, the Debtors are not permitted to make scheduled
principal and interest payments with respect to their
pre-petition debt unless specifically ordered by the Court. As a
result of the Companys filing for chapter 11 it has not
made principal payments currently due relative to its debt
classified as Other Debt.

In June 2000, the Company entered into a
three-year secured revolving credit facility with a borrowing
base capacity of up to $175.0 million at a floating rate,
currently based upon a spread of 2.75% above LIBOR. In the third
quarter of 2001, the Company reduced its capacity under this
facility to $70.0 million of which $63.9 million supported
outstanding letters of credit. As of December 31, 2002,
$32.7 million of letters of credit were secured by the facility
and approximately $29.1 million of letters of credit and fees
were drawn on the facility. As a result of the chapter 11
filing, the Company itself is precluded from drawing on this
facility. The Company expects that during 2003 substantially all
holders of outstanding letters of credit will draw against the
facility.

The Company also entered into a supplemental
secured revolving credit facility with availability of the
lesser of (1) $40.0 million and (2) an amount equal to
$175.0 million less the borrowing base of the resized $175.0
million secured revolving credit facility. On its one-year
maturity date, the $40.0 million supplemental secured revolving
credit facility was converted into a term loan maturing on
May 31, 2003. Interest on the

15



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

supplemental secured term loan is payable at a
floating rate, initially based upon a spread of 4.5% above LIBOR
and increasing by 50 basis points on the first day of each
January, April, July and October.

On June 30, 2000 the Company entered into an
agreement with a lender for interim financing of $225.0 million
in connection with its separation from its former Parent. The
initial term of the interim financing was 12 months. The
Company extended $200.0 million of the interim financing into a
six-year term loan. In accordance with the terms of the
agreement, upon conversion to the term loan the Company issued
immediately exercisable warrants representing approximately 3.7
million shares and paid a fee of $6.0 million to the lender. The
term loan bears interest at an increasing rate starting at 14.5%
as of October 1, 2001 and increases by 50 basis points each
90-day period up to a maximum of 18.0%. The term loan may, at
the option of the lender, be exchanged into a fixed-rate note
with a similar maturity. The warrants have a term of 10 years
and an exercise price of $0.01 per share. The fair value of the
warrants on June 30, 2001, the date of issue, was $11.0
million. The warrants are treated as a note discount, and are
being amortized as a component of interest expense, over the
term of the refinancing. Upon request of the holder of the notes
and warrants, the Company is required to file registration
statements with the Securities and Exchange Commission which
register the fixed-rate notes referred to above and the shares
of common stock issuable upon the exercise of the warrants. To
the extent the Company does not file these registration
statements or they are not declared effective within certain
time constraints the Company will be required to pay penalties.

In the first and second quarters of 2001, the
Company consummated a series of sale and leaseback transactions.
As a result, the Company was obligated to use the proceeds to
pay-down the interim financing. However, as part of an amendment
to the interim note facility the lender agreed that such
proceeds could be used for general corporate purposes until
September 30, 2001 at which time the Company would be
required to pay-down the interim financing by approximately
$70.0 million.

As of September 30, 2001, the Company
further amended its financing facilities, deferring the $70.0
million principal payment until November 30, 2001, and
suspending certain financial covenants through November 15,
2001. Concurrent with the amendments the Company issued
additional immediately exercisable warrants representing
approximately 1.4 million shares of common stock. These warrants
have a term of ten years from their issue date and an exercise
price of $0.01 per share. The fair value of the additional
warrants on September 30, 2001, the date of issue, was $0.7
million. The fair value of the warrants was recorded as a note
discount and is being amortized as a component of interest
expense over the term of the note using the effective interest
method.

The Companys governing documents for its
credit facilities and interim financing, entered into during
2000 and subsequently amended, require the Company to maintain
certain financial ratios including, but not limited to,
financial performance measures and limits on additional
indebtedness. In addition these documents restrict the
Companys ability to: sell assets; grant or incur liens on
our assets; repay certain indebtedness; pay dividends, make
certain investments or acquisitions; issue certain guarantees;
enter certain sale and leaseback transactions; repurchase or
redeem capital stock; engage in mergers or consolidation; and
engage in certain transactions with our affiliates.



|    |                              
|--- | -----------------------------
|16. | COMMITMENTS AND CONTINGENCIES

The Company is a party to various legal
proceedings which have arisen in the ordinary course of
business. While the results of these matters cannot be predicted
with certainty, the Company believes that losses, if any,
resulting from the ultimate resolution of these matters will not
have a material adverse effect on the Companys
consolidated results of operations, cash flows or financial
position. However, unfavorable resolution could affect the
consolidated results of operations or cash flows for the
quarterly periods in which they are resolved.

16



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company continues to investigate and pursue
strategic alternatives to maximize stakeholder value and
strengthen the Companys financial condition. These
strategic alternatives may include the sale or closure of all or
part of its business. In connection with these initiatives
certain parties engaged in the reorganization or financing of
the Company may earn contingent incentives, success or emergence
fees. The success fees are to be paid based upon a sliding scale
affected by the passage of time and the value realized upon
reorganization or sale of the Company. The Company expects these
success or emergence fees not to exceed $20.0 million, of which
an emergence fee of $12.5 million is payable to the
Companys primary vehicle debt surety provider.

In March 2002, the Bankruptcy Court approved, on
a final basis, a key employee retention plan. The purpose of the
plan is to retain certain key employees critical to the
near-term success of our restructuring by providing financial
incentives and security against unanticipated termination of
employment and to incentivize them to maximize stakeholder
value. There are three levels of participation in the plan (Tier
I, Tier II, and Tier III).

The Basic Retention (Tier I) is available to all
participants in the plan and is payable upon the earlier of
June 30, 2003, involuntary termination of employment
other than for cause or death or permanent
disability, sale of the company or the consummation by the
Bankruptcy Court of a plan of reorganization. The Base Retention
approximates fifty percent of the participants base salary
and is payable in a cumulative lump sum, approximating $7.0
million.

The Holdback Retention is for Tier II and Tier
III participants payable upon a Triggering Event. A
Triggering Event occurs when a plan of
reorganization of the Company under chapter 11 is approved by
the United States Bankruptcy Court so long as the plan of
reorganization is subsequently confirmed by the Bankruptcy Court
without material modifications, or the date upon which a motion
seeking approval of the sale of all or substantially all of the
operating assets of the Company is approved so long as the sale
is subsequently consummated without material modifications. The
Holdback Retention is paid based upon a sliding scale affected
by the passage of time and value realized in the
Triggering Event.

In 1997 and 1999 our former Parent engaged in
certain transactions that are of a type that the Internal
Revenue Service has indicated it intends to challenge. Until and
unless resolved by AutoNation, the Company may still have
several liability with AutoNation to the Internal Revenue
Service for all transactions that occurred while it was part of
AutoNations Consolidated Federal tax returns. The Company
has included below an excerpt from AutoNations current
report on Form 8-K as of March 3, 2003 regarding these
transactions:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | On March 3, 2003, AutoNation, Inc.
    (the Company) issued a press release announcing that
    it has reached a settlement with the Internal Revenue Service
    (IRS) with respect to the tax treatment of certain
    transactions entered into by the Company in 1997 and 1999. The
    Company (AutoNation) will owe the IRS net aggregate payments of
    approximately $470 million, including interest. An initial net
    payment of approximately $350 million will be due in March 2004,
    and three subsequent payments of approximately $40 million each
    will be due in March 2005, 2006 and 2007, respectively. | 



|    |            
|--- | -----------
|17. | DERIVATIVES

In June 1998 the Financial Accounting Standards
Board (FASB) issued SFAS No. 133
Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). SFAS 133, as amended,
became effective for the Company on January 1, 2001. The
Companys derivative instruments qualify for hedge
accounting treatment under SFAS 133.

The major market risk hedged by the Company is
the changes in LIBOR-based interest rates. The Company uses
interest rate derivatives to adjust interest rate exposures,
when appropriate, based upon market

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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

conditions. For the year to date period ended
June 30, 2002 the Company used stand-alone interest rate
caps to manage its floating rate risk.

The Company measures effectiveness of its
stand-alone caps by comparing the changes in fair value of its
stand-alone caps to a hypothetical derivative that would be
perfectly effective in offsetting changes in fair value of the
hedged cash flows. The Company expects little to no
ineffectiveness relative to its stand-alone caps and as such
changes in the fair value of the stand-alone caps are recorded
as a component of other comprehensive income.

For the three and six months ended June 30,
2002, the Company neither received proceeds from its stand-alone
caps nor made payments under its floors, as these floors were
terminated by the counterparty in the fourth quarter of 2001.
For the three and six months ended June 30, 2001, the
Company reclassified approximately $1.1 million under its caps,
and $4.0 million and $5.2 million under its floors,
respectively, from accumulated other comprehensive loss to
vehicle interest expense, a component of interest expense.

As a result of the Debtors filing for
chapter 11 in the fourth quarter of 2001, the counterparty to
the interest rate floors terminated their agreement with the
Company. As such, the interest rate floors ceased being an
effective hedge and the Company will amortize these deferred
losses from other accumulated comprehensive income to current
earnings over the life of the remaining debt outstanding.
Amortization of deferred losses recognized currently in earnings
approximated $9.3 million and $0.3 million for the three months
ended June 30, 2002 and 2001, respectively and $18.6
million and $0.6 million for the six months ended June 30,
2002 and 2001, respectively. The Company expects amortization of
these deferred losses will approximate $35.4 million for the
year ended December 31, 2002.

Certain of the Companys vehicle financing
facilities are amortizing and as such the Company reclassified
$1.6 million and $3.1 million of deferred losses on interest
rate caps related to these facilities from accumulated other
comprehensive loss to current earnings for the three and six
months ended June 30, 2002, respectively.



|    |                            
|--- | ---------------------------
|18. | COMPREHENSIVE INCOME (LOSS)

Comprehensive income includes effects of foreign
currency translation and changes in fair value of certain
derivative financial instruments, which qualify for hedge
accounting. Comprehensive income for the periods indicated are
as follows (unaudited):

|                                                                                                             |                                         |                |        |                |  |      |       |      |  |   |        |     |  |   |       |      |  
|------------------------------------------------------------------------------------------------------------ | --------------------------------------- | -------------- | ------ | -------------- |  | ---- | ----- | ---- |  | - | ------ | --- |  | - | ----- | ---- | -
|                                                                                                             |                                         |                |        |               
|                                                                                                             |                                         | Three Months   |        | Six Months    
|                                                                                                             |                                         | Ended June 30, |        | Ended June 30,
|                                                                                                             |                                         |                |        |               
|                                                                                                             |                                         | 2002           |        | 2001           |  | 2002 |       | 2001
|                                                                                                             |                                         |                |        |                |  |      |       |     
|Net loss                                                                                                     |                                         | $              | (117.3 | )              |  | $    | (23.6 | )    |  | $ | (362.9 | )   |  | $ | (56.6 | )   
|Other comprehensive income (loss), net of tax:                                                               |                                         |                |        |                |  |      |       |      |  |   |        |     |  |   |       |     
|                                                                                                             | Foreign currency translation adjustment |                |        | 10.3           |  |      |       | 1.1  |  |   |        | 8.9 |  |   |       | (3.7 | )
|Unrealized gains/(losses) and reclassification
    adjustments on interest rate hedges                       |                                         |                | 2.8    |                |  |      | 5.2   |      |  |   | 7.9    |     |  |   | (8.8  | )   
|                                                                                                             |                                         |                |        |                |  |      |       |      |  |   |        |     |  |   |       |     
|Other comprehensive income (loss), net of tax
    before cumulative effect of change in accounting principle |                                         |                | (104.2 | )              |  |      | (17.3 | )    |  |   | (346.1 | )   |  |   | (69.1 | )   
|Cumulative effect of change in accounting
    principle, net of tax                                          |                                         |                |       |                |  |      |      |      |  |   |       |     |  |   | (14.6 | )   
|                                                                                                             |                                         |                |        |                |  |      |       |      |  |   |        |     |  |   |       |     
|Comprehensive loss                                                                                           |                                         | $              | (104.2 | )              |  | $    | (17.3 | )    |  | $ | (346.1 | )   |  | $ | (83.7 | )   
|                                                                                                             |                                         |                |        |                |  |      |       |      |  |   |        |     |  |   |       |     

18



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##### Table of Contents



ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of accumulated other comprehensive
loss are as follows:

|                                         |  |             |       |              |  |   |       |  
|---------------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                         |  | June 30,    |       | December 31,
|                                         |  | 2002        |       | 2001        
|                                         |  |             |       |             
|                                         |  | (Unaudited) |       |             
|Foreign currency translation adjustments |  | $           | (5.2  | )            |  | $ | (14.1 | )
|Deferred losses on interest rate hedges  |  |             | (65.2 | )            |  |   | (73.1 | )
|                                         |  |             |       |              |  |   |       |  
|                                         |  | $           | (70.4 | )            |  | $ | (87.2 | )
|                                         |  |             |       |              |  |   |       |  



|    |                              
|--- | -----------------------------
|19. | NEW ACCOUNTING PRONOUNCEMENTS

On June 30, 2001 the FASB finalized and
issued SFAS 141, Business Combinations and SFAS 142,
Goodwill and Other Intangible Assets. The Company
has adopted the provisions of SFAS 141, which requires all
business combinations initiated after June 30, 2001 to be
accounted for using the purchase method, eliminating the pooling
of interests method. Additionally, acquired intangible assets
should be separately recognized if the benefit of the intangible
asset is obtained through contractual or other legal rights, or
if the intangible asset can be sold, transferred, licensed,
rented, or exchanged, regardless of the acquirers intent
to do so.

The provisions of SFAS 142 applied immediately to
all acquisitions completed after June 30, 2001. Goodwill
and intangible assets with indefinite lives existing at
June 30, 2001 were amortized until December 31, 2001.
Effective January 1, 2002 such amortization ceased, as
companies were required to adopt the new rules on that date,
resulting in a $2.5 million and $5.0 million decrease in
amortization for the three and six months ended June 30,
2002 compared to the same period in 2001. Net loss for the three
and six months ended June 30, 2001, adjusted for the impact
of amortization, would have been $21.1 million or $0.47 per
share, and $51.6 million or $1.14 per share, respectively. As of
January 1, 2002, the Company had approximately $127.1
million of goodwill related to its operations in the United
Kingdom. SFAS 142 requires the Company, upon adoption and at
least annually, to reassess recoverability of goodwill and
intangible assets. The Company, as required, completed the first
step of the goodwill transition impairment test as of June 30,
2002, which requires determining the fair value of the reporting
unit, as defined by SFAS 142, and comparing it to the carrying
value of the net assets allocated to the reporting unit. Since
the fair value of the reporting unit was less than the carrying
value of the net assets, the Company performed step two of the
SFAS 142 impairment test, which required the Company to allocate
the fair value of the reporting unit to all underlying assets
and liabilities, including both recognized and unrecognized
tangible and intangible assets based on their fair values. Any
impairment noted must be recorded at the date of adoption
restating first quarter results. Impairment charges that
resulted from the application of the above test are recorded as
a cumulative effect of change in accounting principle in the
first quarter of the year ending December 31, 2002. As
such, the Company has recognized an impairment charge of
approximately $106.2 million related to its operations in the
United Kingdom.

Effective January 1, 2002, the Company
adopted the provisions of SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144
supercedes SFAS 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of.
and Accounting Principles Board Opinion No. 30,
Reporting the Results of Operations  Reporting the
Effect of the Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (APB 30). SFAS 144 established a
single accounting model for assets to be disposed of by sale
whether previously held and used or newly acquired. SFAS 144
retains the provisions of APB 30 for the presentation of
discontinued operations in the income statement but broadens the
presentation to include a component of an entity. The adoption
of SFAS 144 did not have a material impact on the Companys
consolidated financial position, results of operations or cash
flows for the quarterly period ended June 30, 2002.
However, SFAS 144

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ANC RENTAL CORPORATION


(Debtors-In-Possession as of November 13,
2001)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

will impact the Companys financial
statements for the discontinued operations of the Alamo Local
Market Division. The Alamo Local Market Division has losses
before income taxes of $17.3 million and $3.7 million for the
three months ended June 30, 2002 and 2001, respectively and
$34.2 million and $8.5 million for the six months ended June 30,
2002 and 2001, respectively.



|    |                                
|--- | -------------------------------
|20. | RECENT DEVELOPMENTS (UNAUDITED)

In August 2002, the Company sold certain assets
and transferred specific liabilities related to its operations
in Holland and Belgium to an unrelated third party and entered
into a ten-year franchise agreement. The Company realized
approximately $10.1 million in net proceeds from this
transaction. The Company recorded, in the third quarter, a
reorganization charge of approximately $1.4 million, relative to
losses on the sale of its Holland and Belgium operations.

In the third and fourth quarters of 2002,
respectively, the Companys German operating and financing
subsidiaries filed for receivership under local law. As such, in
the third quarter the Company recorded a $15.8 million
impairment charge to reserve its net investment in the German
operations.

As previously discussed, in the fourth quarter of
2002, the Company approved and announced a plan to close and
abandon its Alamo Local Market Division. As such the Company
will restate its financial statements to reflect its Alamo Local
Market Division as a discontinued operation beginning in the
fourth quarter of 2002.

The Company has entered into a loan agreement
with a vehicle supplier in an amount not to exceed $62.5
million. In exchange for the lending commitment, the Company
committed to purchase a stated number of model year 2004
vehicles from the lender. A portion of the loan is expected to
be repaid by forgoing vehicle incentive payments earned during
the last half of 2003 and into 2004, should the debt remain
outstanding. The Company currently expects to repay any amounts
outstanding under the loan before December 30, 2003.
However, any amounts outstanding under the agreement on
December 30, 2003 will begin to accrue interest at a
floating rate based on a spread over LIBOR. Notwithstanding the
foregoing, amounts outstanding under the agreement are to be
repaid at the earliest of: (i) June 30, 2004;
(ii) closing of sale of all or part of the Debtors
estate; (iii) appointment of a Trustee; (iv) the
effective date of a confirmed plan or plans or reorganization;
(v) conversion of the Bankruptcy Case to a chapter 7
case; (vi) dismissal of the Bankruptcy Case;
(vii) appointment of an examiner to manage the affairs of
the Debtor; or (viii) an Event of Default.

In the first quarter of 2003, the Company has
filed a motion regarding the settlement of claims concerning the
holder of the Companys interim financing fixed-rate note.
The proposed motion would provide for an allowed secured claim
of $180.0 million and an allowed unsecured claim of $25.0
million. The secured claim will accrue interest at 10%, half of
which will be paid currently with the remaining half paid upon
emergence. As of June 30, 2002 the Company had accrued interest
of approximately $27.8 million relative to this facility.

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##### Table of Contents








|         |                                                                                          
|-------- | -----------------------------------------------------------------------------------------
|Item  2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following should be read in conjunction with
the Condensed Consolidated Financial Statements and notes
thereto under Item 1. In addition, reference should be made
to the Companys audited Consolidated Financial Statements
and notes thereto and related Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in the Companys annual report on Form 10-K
for the year ended December 31, 2001 as filed with the
Securities and Exchange Commission.

Overview

We rent vehicles on a daily, weekly or monthly
basis to leisure and business travelers principally from
on-airport or near-airport locations through Alamo and National.
We operate mainly in the United States, Europe and Canada. We
generate revenue primarily from vehicle rental charges and the
sale of ancillary rental products. During 2002, approximately
86% of our rental revenue is derived from vehicle rental charges
with the remaining 14% derived from the sale of liability and
other accident protection products, fuel usage fees, and
customer convenience products including vehicle upgrades,
additional or underage driver privileges, infant seat rentals,
cellular phone rentals and ski rack rentals

Prior to June 30, 2000, we were a wholly
owned subsidiary of AutoNation, Inc. (AutoNation or
former Parent). AutoNation announced its intention
to separate its automotive rental business from its automotive
retail business in August 1999, and in September 1999, announced
its intention to distribute its entire interest in us to
AutoNations stockholders on a tax-free basis (the
Distribution). On May 31, 2000
AutoNations board of directors approved the spin-off and
set a record date of June 16, 2000 and a distribution date
of June 30, 2000. The distribution occurred on June 30,
2000 at which point we became an independent, publicly owned
company. In connection with the Distribution we entered into
agreements with AutoNation, which provide for the separation of
our business from AutoNations and govern various interim
and ongoing relationships between the companies.

Chapter 11 Proceedings

On November 13, 2001, ANC Rental Corporation
and certain of our direct and indirect U.S. subsidiaries (each,
a Debtor, and collectively Debtors)
filed voluntary petitions under chapter 11 of Title 11, United
States Code, in the United States Bankruptcy Court for the
district of Delaware (Case No. 01-11200 et al., Jointly
Administered). The Debtors remain in possession of their assets
and properties, and continue to operate their businesses and
manage their properties as debtors-in-possession pursuant to the
Bankruptcy Code. As a debtor-in-possession, management is
authorized to operate the business, but may not engage in
transactions outside the ordinary course of business without
Court approval. For example, certain types of capital
expenditures, certain sales of assets and certain requests for
additional financings will require approval by the Bankruptcy
Court. There is no assurance that the Bankruptcy Court will
grant any requests for such approvals. Subsequent to the filing
of the chapter 11 petitions, we obtained several court orders
that authorized us to pay certain pre-petition liabilities and
take certain actions to preserve the going concern value of the
business, thereby enhancing the prospects of reorganization. Our
financial statements have been prepared on a going concern
basis, which contemplates continuity of operations, realization
of assets, and payment of liabilities in the ordinary course of
business. However, as a result of the chapter 11 filing, there
is no assurance that the carrying amounts of assets will be
realized or that liabilities will be settled for amounts
recorded. The Debtors do not include our international
operations, our insurance captive and special purpose financing
entities.

The confirmation of a plan of reorganization is
our primary objective. After negotiations with various parties
in interest, we expect to present a plan or plans of
reorganization to the Court to reorganize our business and to
restructure our obligations. This plan or plans of
reorganization could change the amounts reported in the
financial statements and cause a material change in the carrying
amount of assets and liabilities. We expect that a certain
portion of the pre-petition liabilities recorded will be subject
to compromise.

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##### Table of Contents



The plan or plans of reorganization, when filed
will set forth the means for treating claims, including
liabilities subject to compromise and interests in our company.
Such means may take a number of different forms. A plan of
reorganization may result in, among other things, significant
dilution or elimination of certain classes of existing interests
as a result of the issuance of equity securities to creditors or
new investors. Other interests such as certain of the
pre-petition insurance reserves may need to be addressed and
resolved in the ordinary course of business as a result of
needing to maintain mandatory insurance coverage or for other
compelling business or legal reasons. We are in the early stages
of formulating a plan of reorganization. The confirmation of any
plan or plans of reorganization will require creditor acceptance
as required under the Bankruptcy Code and approval of the
Bankruptcy Court.

Under bankruptcy law, actions by creditors to
collect pre-petition indebtedness owed by the Debtors at the
filing date, as well as most litigation pending against us, are
stayed and other pre-petition contractual obligations may not be
enforced against the Debtors. We have notified all known
claimants and historical creditors that the Bankruptcy Court
established a bar date of January 14, 2003. A bar date is
the date by which a claimant, whose claim against the Debtors
has been listed different from the amount or status, or omitted
from the schedules of liabilities filed by the Debtors with the
Bankruptcy Court, must file a claim against the Debtors if the
claimant wishes to participate in the chapter 11 case as
provided for in any Plan of Reorganization. In addition, the
Debtors have the continuing right, subject to Court approval and
other conditions, to assume or reject any pre-petition executory
contracts and unexpired leases. Parties affected by these
subsequent rejections may file claims with the Bankruptcy Court
regardless of the bar date. Any damages resulting from rejection
of executory contracts and unexpired leases are treated as
unsecured pre-petition claims. The amounts of claims filed by
creditors could be significantly different from their recorded
amounts. Due to material uncertainties, it is not possible to
predict the length of time we will operate under chapter 11
protection, the outcome of the proceedings in general, whether
we will continue to operate under our current organizational
structure, which contracts and leases will be assumed or
rejected, the effect of the proceedings on our businesses or the
recovery by creditors and equity holders of the Company.

Under the Bankruptcy Code, post-petition
liabilities and pre-petition liabilities subject to compromise
must be satisfied before shareholders can receive any
distribution. The ultimate recovery to shareholders, if any,
will not be determined until the end of the case when the fair
value of our assets is compared to the liabilities and claims
against us. There can be no assurance that any value will be
ascribed to our common stock in the bankruptcy proceeding.

As a result of the bankruptcy filings and related
events, there is no assurance that the carrying amounts of
assets will be realized or that liabilities will be liquidated
or settled for the amounts recorded. In addition, confirmation
of a plan of reorganization, or disapproval thereof, could
change the amounts reported in our financial statements. Our
financial statements do not include any adjustments that may
result from the resolution of these uncertainties. In
particular, our financial statements do not reflect adjustments
to the carrying value of assets or the amount and classification
of liabilities that ultimately may be necessary as a result of a
plan of reorganization. Adjustments necessitated by a plan of
reorganization could materially change the amounts reported in
the consolidated financial statements included elsewhere herein.

The ability of the Company to continue as a going
concern is dependent upon, among other things, (1) our
ability to generate adequate sources of liquidity, (2) our
ability to generate sufficient cash from operations,
(3) the ability of our subsidiaries that are not included
in the chapter 11 cases to obtain necessary financing,
(4) confirmation of a plan or plans of reorganization under
the Bankruptcy Code, and (5) our ability to achieve
profitability following such confirmation. Because we can give
no assurance that we can achieve any of the foregoing, there is
substantial uncertainty about our ability to continue as a going
concern.

Management Changes

In the fourth quarter of 2002, William N.
Plamondon, III, formerly our Chief Restructuring Officer,
succeeded Lawrence Ramaekers as our Chief Executive Officer, who
announced his retirement at year-end. In addition, Travis Tanner
was named as Executive Vice President responsible for worldwide
sales, marketing, operations, business system development, brand
integrity, information technology, reservations and revenue

22



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##### Table of Contents



management. Additionally, Douglas Laux assumed
the roll of Senior Vice President and Chief Financial Officer
from the departing Wayne Moor.


Consolidated Results of Operations

A summary of our operating results is as follows
for the periods indicated (in millions except for the
statistical amounts as noted):

|                                       |  |                             |         |                           |  |      |        |   |  |      |         |   |  |      |       |   |  |   |         |   |  |  |        |   |  |   |         |   |  |  |       |  
|-------------------------------------- |  | --------------------------- | ------- | ------------------------- |  | ---- | ------ | - |  | ---- | ------- | - |  | ---- | ----- | - |  | - | ------- | - |  |  | ------ | - |  | - | ------- | - |  |  | ----- | -
|                                       |  |                             |         |                          
|                                       |  | Three Months Ended June 30, |         | Six Months Ended June 30,
|                                       |  |                             |         |                          
|                                       |  | 2002                        |         | %                         |  | 2001 |        | % |  | 2002 |         | % |  | 2001 |       | %
|                                       |  |                             |         |                           |  |      |        |   |  |      |         |   |  |      |       |  
|Revenue                                |  | $                           | 656.5   |                           |  |      | 100.0  | % |  | $    | 850.6   |   |  |      | 100.0 | % |  | $ | 1,256.1 |   |  |  | 100.0  | % |  | $ | 1,619.6 |   |  |  | 100.0 | %
|Direct operating costs                 |  |                             | 294.0   |                           |  |      | 44.7   |   |  |      | 354.9   |   |  |      | 41.6  |   |  |   | 587.4   |   |  |  | 46.7   |   |  |   | 691.0   |   |  |  | 42.6  |  
|Vehicle depreciation, net              |  |                             | 218.1   |                           |  |      | 33.2   |   |  |      | 271.1   |   |  |      | 31.9  |   |  |   | 413.5   |   |  |  | 32.9   |   |  |   | 512.7   |   |  |  | 31.7  |  
|Selling, general and administration    |  |                             | 137.2   |                           |  |      | 20.9   |   |  |      | 162.7   |   |  |      | 19.1  |   |  |   | 277.4   |   |  |  | 22.1   |   |  |   | 322.5   |   |  |  | 19.8  |  
|Transition and reorganization expenses |  |                             | 63.7    |                           |  |      | 9.7    |   |  |      |        |   |  |      |      |   |  |   | 115.3   |   |  |  | 9.2    |   |  |   |        |   |  |  | 0.1   |  
|Amortization of intangible assets      |  |                             |        |                           |  |      |       |   |  |      | 2.5     |   |  |      | 0.3   |   |  |   |        |   |  |  |       |   |  |   | 5.0     |   |  |  | 0.3   |  
|Interest income                        |  |                             | (1.2    | )                         |  |      | (0.2)  |   |  |      | (1.9    | ) |  |      | (0.2) |   |  |   | (2.6    | ) |  |  | (0.2)  |   |  |   | (3.2    | ) |  |  | (0.2) |  
|Interest expense                       |  |                             | 48.5    |                           |  |      | 7.4    |   |  |      | 92.3    |   |  |      | 10.9  |   |  |   | 96.1    |   |  |  | 7.7    |   |  |   | 181.9   |   |  |  | 11.2  |  
|Other expense, net                     |  |                             | 13.5    |                           |  |      | 2.0    |   |  |      | (0.5    | ) |  |      |      |   |  |   | 25.7    |   |  |  | 2.0    |   |  |   | 5.9     |   |  |  | 0.4   |  
|                                       |  |                             |         |                           |  |      |        |   |  |      |         |   |  |      |       |   |  |   |         |   |  |  |        |   |  |   |         |   |  |  |       |  
|Income (loss) before income taxes      |  | $                           | (117.3  | )                         |  |      | (17.7) | % |  | $    | (30.5   | ) |  |      | (3.6) | % |  | $ | (256.7  | ) |  |  | (20.4) | % |  | $ | (96.2   | ) |  |  | (5.9) | %
|                                       |  |                             |         |                           |  |      |        |   |  |      |         |   |  |      |       |   |  |   |         |   |  |  |        |   |  |   |         |   |  |  |       |  
|Key Statistics                         |  |                             |         |                           |  |      |        |   |  |      |         |   |  |      |       |   |  |   |         |   |  |  |        |   |  |   |         |   |  |  |       |  
|Revenue per day                        |  | $                           | 38.06   |                           |  |      |        |   |  | $    | 35.54   |   |  |      |       |   |  | $ | 37.66   |   |  |  |        |   |  | $ | 35.62   |   |  |  |       |  
|Charge days (in millions)              |  |                             | 16.9    |                           |  |      |        |   |  |      | 23.6    |   |  |      |       |   |  |   | 32.8    |   |  |  |        |   |  |   | 44.8    |   |  |  |       |  
|Average fleet                          |  |                             | 243,128 |                           |  |      |        |   |  |      | 337,388 |   |  |      |       |   |  |   | 236,141 |   |  |  |        |   |  |   | 320,924 |   |  |  |       |  
|Fleet utilization                      |  |                             | 76.7%   |                           |  |      |        |   |  |      | 76.9%   |   |  |      |       |   |  |   | 76.7%   |   |  |  |        |   |  |   | 77.2%   |   |  |  |       |  

Revenue

Revenue was $656.5 million for the three months
ended June 30, 2002, and $850.6 million for the three
months ended June 30, 2001. The decrease in revenue of
$194.1 million or 22.8% is primarily due to lower charge day
volume of 27.7% or $236.0 million, offset by higher revenue per
day of 3.8% or $32.4 million. The favorable effects of foreign
exchange movements were 1.2% or $10.4 million. Licensee and
other revenue decreased by $0.9 million.

The decline in charge day volume for the three
months ended June 30, 2002 as compared to the same period
in the prior year approximated 6.6 million days. The majority of
the decline was realized in North America with the Alamo brand
declining 3.0 million days and the National brand declining 2.1
million days. The decline is the result of a weak U.S. economy,
a loss of market share, the ongoing impact of the terrorist
events of September 11, 2001, and our bankruptcy filing.
Alamo Local Market brand charge day volumes declined 1.1 million
days due to a weak economy, location closures in the first
quarter of 2002, and a loss of market share. The remaining
decrease in charge days was realized in our International
operations.

The increase in revenue per day for the three
months ended June 30, 2002 as compared to the same period
in the prior year reflects a favorable domestic airport pricing
environment, as well as a shift in mix towards the higher priced
National brand.

Revenue was $1,256.1 million for the six months
ended June 30, 2002, and $1,619.6 million for the six
months ended June 30, 2001. The decrease in revenue of
$363.5 million or 22.4% is primarily due to lower charge day
volume of 26.5% or $429.1 million, offset by higher revenue per
day of 3.2% or $51.3 million. The favorable effects of foreign
exchange movements were 1.0% or $15.5 million. Licensee and
other revenue decreased by $1.2 million.

The decline in charge day volume for the six
months ended June 30, 2002 as compared to the same period
in the prior year approximated 12.0 million days. The majority
of the decline was realized in North America with the Alamo
brand declining 6.0 million days and the National brand
declining 3.8 million days. The decline is the result of a weak
U.S. economy, a loss of market share, the ongoing impact of the
terrorist events of September 11, 2001, our Bankruptcy
filing and management pricing and fleet allocation decisions
made to benefit more profitable lines of business.

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The increase in revenue per day for the six
months ended June 30, 2002 as compared to the same period
in the prior year reflects a favorable domestic airport pricing
environment, as well as a shift in mix towards the higher priced
National brand.

Direct Operating
Costs

Direct operating costs include costs specifically
related to the operation and maintenance of the fleet, field
personnel, facility costs and variable transaction costs
including, but not limited to, insurance, agency fees, and fuel.
Direct operating costs were $294.0 million for the three months
ended June 30, 2002 and $354.9 million for the three months
ended June 30, 2001. As a percent of revenue, direct
operating costs were 44.7% for the three months ended
June 30, 2002 and 41.6% for the three months ended
June 30, 2001.

The decrease in direct operating costs of $60.9
million or 17.2% is primarily due to lower volume related
variable transaction costs, the result of lower charge day
volumes, and lower fleet operating costs, the result of
operating a smaller average fleet. Variable transaction costs
decreased $32.2 million or 9.1%, damage repair costs to our
fleet and other fleet operating expenses decreased $14.7 million
or 4.1% and variable personnel costs decreased $15.3 million or
4.3%. Other direct operating costs decreased $4.5 million or
1.2% while the unfavorable effects of foreign exchange movements
was $5.8 million or 1.6%.

Direct operating costs were $587.4 million for
the six months ended June 30, 2002 and $691.0 million for the
six months ended June 30, 2001. As a percent of revenue,
direct operating costs were 46.7% for the six months ended
June 30, 2002 and 42.6% for the six months ended
June 30, 2001. The decrease in direct operating costs for
the comparative year-to-date period is $103.6 million or 15.0%
is primarily due to similar reasons as previously discussed.
Variable transaction costs decreased $46.9 million or 6.8%,
damage repair costs to our fleet and other fleet operating
expenses decreased $35.1 million or 5.1% and variable personnel
costs decreased $27.8 million or 4.0%. Other direct operating
costs decreased $2.8 million or 0.4% while the unfavorable
effects of foreign exchange movements was $9.0 million or 1.3%.

Vehicle
Depreciation

Vehicle depreciation includes vehicle
depreciation, gains and losses on vehicle sales in the ordinary
course of business and lease expense relating to the leased
portion of our fleet. Vehicle depreciation was $218.1 million
for the three months ended June 30, 2002 and $271.1 million
for the three months ended June 30, 2001. As a percent of
revenue, vehicle depreciation was 33.2% for the three months
ended June 30, 2002 and 31.9% for the three months ended
June 30, 2001.

The decrease in vehicle depreciation of $53.0
million or 19.6% for the three months ended June 30, 2002
as compared to the three months ended June 30, 2001 is
primarily due to lower average fleet size on a year over year
basis partially offset by increased depreciation rates. The
benefits of a decreasing fleet size lowered our costs by
approximately $76.3 million. Due to the drop in demand we have
adjusted our fleet size downward by 27.9% from the previous year
reducing overall fleet operating cost and vehicle depreciation.
Offsetting these decreases was an increase in depreciation rates
of approximately $21.0 million, primarily due to higher vehicle
acquisition costs, a change in depreciation rates as market
driven residual values changed on certain vehicles and changes
in the mix of our fleet. The adverse effect of foreign exchange
rate movements raised our vehicle depreciation costs by
approximately $2.3 million.

Vehicle depreciation was $413.5 million for the
six months ended June 30, 2002 and $512.7 million for the
six months ended June 30, 2001. As a percent of revenue,
vehicle depreciation was 32.9% for the six months ended
June 30, 2002 and 31.7% for the six months ended
June 30, 2001. The decrease in vehicle depreciation of
$99.2 million or 19.3% is due to similar reasons as previously
discussed. The benefits of a decreasing fleet size lowered our
costs by approximately $137.7 million. Due to the drop in demand
we have adjusted our fleet size downward by 26.4% from the
previous year. Offsetting these decreases was an increase in
depreciation rates of approximately $34.9 million, primarily due
to higher vehicle acquisition costs, a change in depreciation
rates as market driven residual values changed on certain
vehicles and changes in the mix of our fleet. The adverse effect
of foreign exchange rate movements raised our vehicle
depreciation costs by approximately $3.6 million.

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Selling, General
and Administrative

Selling, general and administrative expenses were
$137.2 million for the three months ended June 30, 2002 and
$162.7 million for the three months ended June 30, 2001.
Selling, general and administrative expenses as a percentage of
revenue were 20.9% for the three months ended June 30, 2002
and 19.1% for the three months ended June 30, 2001. The
decrease in selling, general and administrative expenses of
$25.5 million is the result of decreased advertising and selling
expenses approximating $9.5 million due to managements
discretionary spending reductions. Additionally, we incurred
lower variable selling costs of approximately $13.7 million due
to lower overall charge day volumes; we also incurred lower
overhead spending of approximately $4.6 million. Offsetting
these decreases were approximately $2.3 million of increases due
to the adverse effects of foreign exchange.

Selling, general and administrative expenses were
$277.4 million for the six months ended June 30, 2002 and
$322.5 million for the six months ended June 30, 2001. Selling,
general and administrative expenses as a percentage of revenue
were 22.1% for the six months ended June 30, 2002 and 19.8%
for the six months ended June 30, 2001. The decrease in
selling, general and administrative expenses of $45.1 million is
the result of decreased advertising and selling expenses
approximating $23.1 million due to managements
discretionary spending reductions. Additionally, we incurred
lower variable selling costs of approximately $23.4 million due
to lower overall charge day volumes, $2.0 million of severance
not recurring in 2002 and lower overhead spending of
approximately $0.1 million. Offsetting these decreases were
approximately $3.5 million of increases due to the adverse
effects of foreign exchange.

Transition and
Reorganization Efforts

In an effort to return us to profitability, we
are implementing a series of transition plans designed to
improve the quality of customer service while lowering costs to
deliver such service.

Transition and reorganization expenses for the
three and six months ended June 30, 2002 are as follows (in
millions):

|                                         |  |                    |      |                  |  |       |      |      |  |          |      |       |  |   |      |  |  |   |      |  |  |   |       | 
|---------------------------------------- |  | ------------------ | ---- | ---------------- |  | ----- | ---- | ---- |  | -------- | ---- | ----- |  | - | ---- |  |  | - | ---- |  |  | - | ----- | 
|                                         |  |                    |      |                 
|                                         |  | Three Months Ended |      | Six Months Ended
|                                         |  | June 30, 2002      |      | June 30, 2002   
|                                         |  |                    |      |                 
|                                         |  | Cash               |      | Non-Cash         |  | Total |      | Cash |  | Non-Cash |      | Total
|                                         |  |                    |      |                  |  |       |      |      |  |          |      |      
|Airport location consolidation           |  | $                  | 1.1  |                  |  | $     | 14.2 |      |  | $        | 15.3 |       |  | $ | 1.3  |  |  | $ | 20.8 |  |  | $ | 22.1  | 
|Combining information technology systems |  |                    | 6.7  |                  |  |       | 29.8 |      |  |          | 36.5 |       |  |   | 10.2 |  |  |   | 59.7 |  |  |   | 69.9  | 
|Closure of Alamo local market locations  |  |                    |     |                  |  |       | 0.5  |      |  |          | 0.5  |       |  |   | 0.7  |  |  |   | 4.7  |  |  |   | 5.4   | 
|Professional fees and other              |  |                    | 11.4 |                  |  |       |     |      |  |          | 11.4 |       |  |   | 17.9 |  |  |   |     |  |  |   | 17.9  | 
|                                         |  |                    |      |                  |  |       |      |      |  |          |      |       |  |   |      |  |  |   |      |  |  |   |       | 
|                                         |  | $                  | 19.2 |                  |  | $     | 44.5 |      |  | $        | 63.7 |       |  | $ | 30.1 |  |  | $ | 85.2 |  |  | $ | 115.3 | 
|                                         |  |                    |      |                  |  |       |      |      |  |          |      |       |  |   |      |  |  |   |      |  |  |   |       | 

Airport Location
Consolidation

As of the date of the bankruptcy filing, Alamo
and National operated under 140 separate stand-alone concession
agreements at seventy airports including most of the major
airports in the United States. During 2002, we plan to
consolidate as many of these separately branded locations as
possible into dual branded locations. We believe that by
consolidating operations into one dual branded facility we will
be able to lower operating costs and improve vehicle
utilization, lower personnel expense, and reduce rent expense.
We plan to substantially complete the facility consolidation
program during the first half of 2003. Accordingly, we have
accelerated the amortization on $32.8 million of assets, which
will be abandoned, upon consolidation. The excess depreciation
charge due to the accelerated amortization approximated
$3.1 million per month through August 2002 at which
time the amounts were fully amortized. Due to material
uncertainties, and negotiations with third parties, it is not
possible to predict the length of time it will take to complete
each location consolidation or whether all of the anticipated
consolidations will occur as planned. As such, we may need to
change our estimate of asset useful lives and revise
depreciation policies on a prospective basis. As of
December 31, 2002 we have dual branded our operations at
forty-one of these airports and have received court orders
allowing us to dual brand an additional seven airport locations,
which we expect to complete in the first half of 2003.

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We have incurred $15.3 million and $22.1 million
in expenses relative to our airport location consolidation
project for the three and six months ended June 30, 2002.
For the three and six month periods ended June 30, 2002 the
non-cash component was primarily comprised of impairment charges
of approximately $4.9 million and $8.3 million, respectively,
and excess depreciation of approximately $9.3 million and $12.5
million, respectively.

Combining
Information Technology Systems

We currently operate two separate and distinct
information technology systems, one for each of our Alamo and
National brands. During the latter part of 2003, we plan to
migrate to one information system and abandon the other. We
believe that, by combining information technology onto the
existing Alamo legacy operating system, cost savings can be
achieved. Additional benefits of migrating to the Alamo legacy
system are expected to include a reduction of support staff,
elimination of duplicative system infrastructures, improved
operational efficiency, lower cost of training, and
standardization across the organization. The migration to one
information technology system is not without significant risks,
such as the ability to successfully migrate onto one system,
additional delays in implementation, the temporary loss of
business functionality, questions regarding the scalability of
existing infrastructure, and the need for coordination with
third party vendors to accept system changes. We have
accelerated the amortization on $72.9 million of assets at
June 30, 2002, which will be abandoned, upon the migration
to one system. In the fourth quarter, we revised the information
technology systems estimated useful life and as such, the
excess depreciation charge will approximate $2.1 million, per
month beginning October 2002.

We have incurred $36.5 million and $69.9 million
in expenses relative to the combining of information technology
systems for the three and six months ended June 30, 2002.
The cash component primarily related to external consulting
while the non-cash component primarily related to excess
depreciation.

Changes in
Licensee Operations

The Company is currently modifying its current
licensee structure and is in the process of entering into new
dual branded licensing agreements that will include
but not be limited to (1) selling or transferring ownership
of certain Alamo locations in existing National licensee markets
to the current National licensee, (2) increasing the fees
charged to our licensees, and (3) licensing our Alamo locations
to current National licensees in those markets where an Alamo
location currently does not exist. As of the fourth quarter of
2002, we have reached an agreement with the Policy Advisory
Committee of our licensees and have entered into new agreements
with a number of our domestic licensees.

Closure of Alamo
Local Market Locations

In the first half of 2002, we closed unprofitable
local market locations. Costs incurred relative to these
closures approximated $0.5 million and $6.1 million for the
three and six months ended June 30, 2002, respectively. Of
these amounts $0.5 million and $5.4 million has been classified
as a transition and reorganization expense in the three and six
months ended June 30, 2002, respectively. The charges
primarily related to disposition of fleet, impaired assets and
accruals for rent and severance.

During the fourth quarter of 2002, management
approved and announced a plan to close and abandon our Alamo
Local Market Division. We substantially completed our plan of
abandonment in the fourth quarter of 2002. The plan included
provisions for head count reductions, closure of locations, and
reductions of fleet. Pursuant to the provisions of Statement of
Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(SFAS 144), the net assets and operating results of
the Companys Alamo Local Market Division will be
classified as discontinued operations in the fourth quarter of

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2002. A summary of operating results relative to
Alamo Local Market Division for the periods indicated are as
follows:


|                         |  |                |       |                |  |      |      |      |  |   |       |   |  |   |       |  
|------------------------ |  | -------------- | ----- | -------------- |  | ---- | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                         |  |                |       |               
|                         |  | Three Months   |       | Six Months    
|                         |  | Ended June 30, |       | Ended June 30,
|                         |  |                |       |               
|                         |  | 2002           |       | 2001           |  | 2002 |      | 2001
|                         |  |                |       |                |  |      |      |     
|Revenue                  |  | $              | 36.5  |                |  | $    | 65.7 |      |  | $ | 83.9  |   |  | $ | 129.1 |  
|Loss before income taxes |  |                | (17.3 | )              |  |      | (3.7 | )    |  |   | (34.2 | ) |  |   | (8.5  | )

Professional
Fees and Other

We have incurred professional fees of
approximately $11.4 million and $17.9 million for the three and
six months ended June 30, 2002 for services rendered on
behalf of our creditors and us. Separately, we have reclassified
approximately $0.2 million and $0.5 million of excess interest
income to transition and reorganization expense for the three
and six months ended June 30, 2002 respectively.

International

In August 2002, we sold certain assets and
transferred specific liabilities related to our Holland and
Belgium operations to an unrelated third party and entered into
a ten-year franchise agreement. We realized approximately $10.1
million in net proceeds from this transaction. In the third
quarter, we recorded a reorganization charge of approximately
$1.4 million related to losses on the sale of these assets.

In the third and fourth quarters of 2002, our
German operating and financing subsidiaries filed for
receivership under local law. As such in the third quarter, we
recorded a $15.8 million impairment charge to reserve our net
investment in the German operations.

Amortization of
Intangible Assets

In June 2001, FASB released Statement of
Financial Accounting Standards No. 142, Goodwill and
Intangible Assets (SFAS 142) which supercedes
APB Opinion No. 17, Intangible Assets. SFAS 142 eliminates
the current requirement to amortize goodwill and
indefinite-lived intangible assets, addresses the amortization
of intangible assets with defined lives and addresses the
impairment testing and recognition for goodwill and intangible
assets. SFAS 142 applies to goodwill and intangible assets
arising from transactions completed before and after the
Statements effective date. SFAS 142 was effective for the
Company beginning January 1, 2002 and as a result we ceased
amortizing intangible assets at that time.

As of January 1, 2002 we had approximately
$127.1 million of goodwill related to our operations in the
United Kingdom. In the first quarter of calendar year 2002, we
began performing an impairment analysis of intangible assets.
SFAS 142 requires us, upon adoption and at least annually, to
reassess the recoverability of goodwill and intangible assets.
As required, we completed the first step of the goodwill
transition impairment test, which requires determining the fair
value of the net assets allocated to the reporting unit. Since
the fair value of the reporting unit, as of January 1,
2002, was less than the carrying value of the net assets, we
performed step two of the SFAS 142 impairment test, which
required us to allocate the implied fair value of the reporting
unit to all underlying assets and liabilities, including both
recognized and unrecognized tangible and intangible assets based
on their fair value. SFAS 142 requires any impairment noted be
recorded at the date of adoption restating first quarter 2002
results. Any impairment noted must be recorded at the date of
adoption restating first quarter 2002 results. Impairment
charges that resulted from the application of the above test are
recorded as a cumulative effect of a change in accounting
principle in the first quarter of the year ending
December 31, 2002. As such we have recognized an impairment
charge of approximately $106.2 million relative to our operation
in the United Kingdom.

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Interest
Expense

Interest expense for the periods indicated
comprised (in millions):

|                             |  |              |      |            |  |      |      |      |  |   |      |  |  |   |       | 
|---------------------------- |  | ------------ | ---- | ---------- |  | ---- | ---- | ---- |  | - | ---- |  |  | - | ----- | 
|                             |  |              |      |           
|                             |  | Three Months |      | Six Months
|                             |  | Ended        |      | Ended     
|                             |  | June 30,     |      | June 30,  
|                             |  |              |      |           
|                             |  | 2002         |      | 2001       |  | 2002 |      | 2001
|                             |  |              |      |            |  |      |      |     
|Vehicle interest expense     |  | $            | 34.6 |            |  | $    | 75.7 |      |  | $ | 69.4 |  |  | $ | 148.1 | 
|Non-vehicle interest expense |  |              | 13.9 |            |  |      | 16.6 |      |  |   | 26.7 |  |  |   | 33.8  | 
|                             |  |              |      |            |  |      |      |      |  |   |      |  |  |   |       | 
|                             |  | $            | 48.5 |            |  | $    | 92.3 |      |  | $ | 96.1 |  |  | $ | 181.9 | 
|                             |  |              |      |            |  |      |      |      |  |   |      |  |  |   |       | 

The decrease in vehicle interest expense for the
quarter-to-date and year-to-date periods ended June 30,
2002 as compared to June 30, 2001 is due to lower average
vehicle debt outstanding for the comparative period coupled with
lower weighted average interest rates. The decrease in
non-vehicle interest expense is due primarily to lower
amortization of debt issue costs related to our interim
financing and our revolving credit facilities. Amortization of
debt issue costs relative to these facilities approximated $1.5
million for the three months ended June 30, 2002 and
approximately $3.0 million for the six months ended
June 30, 2002. Amortization of debt issue costs relative to
these facilities approximated $6.3 million for the three months
ended June 30, 2001 and approximately $12.0 million for the
six months ended June 30, 2001.

Other (Income)
Expense, Net

The components of other (income) expense,
net are as follows:

|                                                                                     |  |              |      |            |  |      |      |      |  |   |      |  |  |   |     | 
|------------------------------------------------------------------------------------ |  | ------------ | ---- | ---------- |  | ---- | ---- | ---- |  | - | ---- |  |  | - | --- | 
|                                                                                     |  |              |      |           
|                                                                                     |  | Three Months |      | Six Months
|                                                                                     |  | Ended        |      | Ended     
|                                                                                     |  | June 30,     |      | June 30,  
|                                                                                     |  |              |      |           
|                                                                                     |  | 2002         |      | 2001       |  | 2002 |      | 2001
|                                                                                     |  |              |      |            |  |      |      |     
|Fair value adjustment on interest rate hedges and
    recognition of deferred losses |  | $            | 10.8 |            |  | $    | (1.0 | )    |  | $ | 21.7 |  |  | $ | 2.3 | 
|Loss on sale and leaseback transactions                                              |  |              |     |            |  |      | 0.5  |      |  |   |     |  |  |   | 4.2 | 
|Other expense (income)                                                               |  |              | 2.7  |            |  |      |     |      |  |   | 4.0  |  |  |   | 0.6 | 
|                                                                                     |  |              |      |            |  |      |      |      |  |   |      |  |  |   |     | 
|                                                                                     |  | $            | 13.5 |            |  | $    | (0.5 | )    |  | $ | 25.7 |  |  | $ | 5.9 | 
|                                                                                     |  |              |      |            |  |      |      |      |  |   |      |  |  |   |     | 

We adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133),
as amended. The effect of applying these standards for the three
months ended June 30, 2001 was a mark-to-market gain of $1.0
million and for the six months ended June 30, 2001 there
was a mark-to-market loss of $2.3 million related to the changes
in the time value component of our stand-alone caps. Due to
reductions in our fleet debt and the termination of certain
interest rate hedges we recognized deferred losses of
approximately $10.8 million for the three months ended
June 30, 2002 and $21.7 million for the six months ended
June 30, 2002. We expect amortization of remaining
intrinsic and time value of these deferred losses will
approximate $35.4 million for the year ended December 31,
2002.

During 2001, we entered into a series of sale and
leaseback transactions, which yielded net proceeds of
approximately $110.3 million. The leases, with terms of not less
than 20 years, are treated as operating leases. Gains
realized on the sale of the properties have been deferred and
are being recognized over the life of the respective leases.
Losses recognized currently in earnings approximated $3.7
million in the first quarter of 2001 and $0.5 million in the
second quarter of 2001. Deferred transaction gains that will
amortize over the life of the leases approximated $34.1 million
of which $32.0 million remained as of June 30, 2002.

Other expense (income), net was $2.7 million and
$4.0 million for the three months and six months ended
June 30, 2002 respectively, and $0 million and $0.6 million
for the three and six months ended June 30, 2001,
respectively. The increase is primarily due to the removal of
debt issue cost related to certain of our fleet facilities,
which were repaid, as well as a loss recognized on the sale of
land and buildings.

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Benefit for
Income Taxes

As a result of significant adverse changes in the
business environment, current operating cash flow losses and
projected operating cash flow losses for the foreseeable future,
management believes that it was more likely than not that the
tax assets are no longer realizable and as disclosed in our
Form 10-Q for the period ended September 30, 2001, we
ceased recording a benefit for current period losses and
recorded a $103.5 million valuation allowance for certain tax
assets and net operating loss carry-forwards. The benefit for
income taxes was $6.9 million and $32.5 million for the three
and six months ended June 30, 2001, respectively.

Seasonality

Our business, and particularly the leisure travel
market, is highly seasonal. Our third quarter, which includes
the peak summer travel months, has historically been the
strongest quarter of the year. During the peak season, we
traditionally increase our rental fleet and workforce to
accommodate increased rental activity. As a result, any
occurrence that disrupts travel patterns during the summer
period could result in a significant decrease in customer
volume. The events of September 11, 2001, which occurred in
our third quarter, had a significant impact on our business. The
first and fourth quarters for our operations are generally the
weakest because there is limited leisure travel and a greater
potential for weather conditions, either adverse or
unseasonable, to impact our business. Many of our operating
expenses such as rent, general insurance and administrative
personnel remain fixed throughout the year and cannot be reduced
during periods of decreased rental demand. Given the seasonality
of our operations, our revenue and variable operating and
selling expenses are generally higher in aggregate dollars
during the second and third quarters as compared to the first
and fourth quarters. In addition, in part due to seasonality,
our cost of operations as a percentage of revenue is generally
higher during the first and fourth quarters as compared to the
second and third quarters. Prior performance may not be an
indication of future seasonal results because charge day volumes
have not fully recovered pre-September 11 levels.

Second Quarter
2002 versus First Quarter 2002

A summary of our quarterly operating results is
as follows for the periods indicated (in millions except for
statistical amounts as noted):

|                                       |                           |                    |        |         |  |           |        |    |  |   |        |         |  |  |        |    | 
|-------------------------------------- | ------------------------- | ------------------ | ------ | ------- |  | --------- | ------ | -- |  | - | ------ | ------- |  |  | ------ | -- | 
|                                       |                           |                   
|                                       |                           | Three months ended
|                                       |                           |                   
|                                       |                           | June 30,           |        |         |  | March 31, |        |   
|                                       |                           | 2002               |        | %       |  | 2002      |        | % 
|                                       |                           |                    |        |         |  |           |        |   
|Revenue                                |                           | $                  | 656.5  |         |  |           | 100.0% |    |  | $ | 599.6  |         |  |  | 100.0% |   
|Direct operating costs                 |                           |                    | 294.0  |         |  |           | 44.7   |    |  |   | 293.4  |         |  |  | 48.9   |   
|Vehicle depreciation, net              |                           |                    | 218.1  |         |  |           | 33.2   |    |  |   | 195.5  |         |  |  | 32.6   |   
|Selling, general and administrative    |                           |                    | 137.2  |         |  |           | 20.9   |    |  |   | 140.1  |         |  |  | 23.4   |   
|Transition and reorganization expenses |                           |                    | 63.7   |         |  |           | 9.7    |    |  |   | 51.6   |         |  |  | 8.6    |   
|Interest income                        |                           |                    | (1.2   | )       |  |           | (0.2   | )  |  |   | (1.4   | )       |  |  | (0.2   | ) 
|Interest expense                       |                           |                    | 48.5   |         |  |           | 7.4    |    |  |   | 47.6   |         |  |  | 7.9    |   
|Other (income) expense, net            |                           |                    | 13.5   |         |  |           | 2.0    |    |  |   | 12.2   |         |  |  | 2.0    |   
|                                       |                           |                    |        |         |  |           |        |    |  |   |        |         |  |  |        |   
|Loss before income taxes               |                           | $                  | (117.3 | )       |  |           | (17.7  | )% |  | $ | (139.4 | )       |  |  | (23.2  | )%
|                                       |                           |                    |        |         |  |           |        |    |  |   |        |         |  |  |        |   
|Key Statistics                         |                           |                    |        |         |  |           |        |    |  |   |        |         |  |  |        |   
|                                       | Revenue per day           |                    | $      | 38.06   |  |           |        |    |  |   | $      | 37.23   |  |  |        |    | 
|                                       | Charge days (in millions) |                    |        | 16.9    |  |           |        |    |  |   |        | 15.8    |  |  |        |    | 
|                                       | Average fleet             |                    |        | 243,128 |  |           |        |    |  |   |        | 229,153 |  |  |        |    | 
|                                       | Fleet utilization         |                    |        | 76.7%   |  |           |        |    |  |   |        | 76.8%   |  |  |        |    | 

Our second quarter is historically a stronger
revenue period than our first quarter. As such, revenue
increased $56.9 million or 9.5% in the second quarter as
compared to the first quarter of 2002. The increase in revenue
is primarily driven by an increase in rental volume of 7.0%
combined with an increase in pricing of 2.5%.

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Direct operating costs increased slightly by $0.6
million due to increases in variable transaction costs, field
personnel costs, and facility costs primarily the result of
decreased rental volume offset by decreased fleet damages and
turn-back costs, related to the efforts of decreasing fleet size
and a decline in the number of turnback units.

Vehicle depreciation increased $22.6 million due
to a higher average fleet and higher depreciation rates.

Selling, general and administrative costs
decreased $2.9 million primarily due to lower bad debt
provisions and consulting fees.

Interest expense components are as follows for
the three-month periods indicated (in millions):

|                             |  |          |      |           |  |   |      | 
|---------------------------- |  | -------- | ---- | --------- |  | - | ---- | 
|                             |  | June 30, |      | March 31,
|                             |  | 2002     |      | 2002     
|                             |  |          |      |          
|Vehicle interest expense     |  | $        | 34.6 |           |  | $ | 34.8 | 
|Non-vehicle interest expense |  |          | 13.9 |           |  |   | 12.8 | 
|                             |  |          |      |           |  |   |      | 
|                             |  | $        | 48.5 |           |  | $ | 47.6 | 
|                             |  |          |      |           |  |   |      | 

The decrease in vehicle interest expense is due
to lower average vehicle debt outstanding and lower interest
rates in the current period.

Cash Flows

The following discussion relates to the major
components of changes in cash flows for the six-month periods
ended June 30, 2002 and 2001. The following should be read
in conjunction with the Condensed Consolidated Financial
Statements and notes thereto under Item 1.

Cash Flows from
Operating Activities

Cash used in operating activities was $10.9
million for the six months ended June 30, 2002, and cash
used in operating activities was $601.3 million for the six
months ended June 30, 2001. The decrease in cash used in
operating activities in 2002 as compared to 2001 is primarily
due to restrictions on new vehicle purchases imposed by our
lenders as well as certain primary suppliers restricting vehicle
sales to us. The decrease in proceeds from receivables is due to
a large number of manufacturer receivables for vehicle
dispositions in the latter half of the fourth quarter of 2000
being collected in the first quarter of 2001.

Cash Flows from
Investing Activities

Cash flows used in investing activities was $2.9
million for the six months ended June 30, 2002, and cash
flows provided by investing activities were $91.1 million for
the six months ended June 30, 2001. Cash provided by
investing activities in the first half of 2001 were primarily
derived from our sale and leaseback transactions, which were not
recurring in the first half of 2002.

Cash Flows from
Financing Activities

Cash flows used in financing activities for the
six months ended June 30, 2002 was $152.9 million, and cash
flows provided by financing activities were $585.4 million for
the six months ended June 30, 2001. The increase in cash
flows used in financing activities is primarily due to our
lenders restricting borrowings on our vehicle financing
facilities coupled with our repayment of certain of these
facilities. Proceeds from decreases in restricted cash were used
to fund payments of outstanding vehicle debt and in some limited
instances purchase new vehicles. You should read the
Financial Condition section of
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained herein.

Financial Condition

Our capital structure consists of vehicle debt,
non-vehicle debt (also referred to on our balance sheet as
other debt), and equity contributed to us by our
former Parent. Vehicle debt represents the debt programs

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used to finance our fleet and consists of:
(1) asset-backed medium-term, variable funding and/or
auction-rate note programs; and (2) various other committed
and uncommitted fleet facilities used to fund our European
operations. Our non-vehicle financing consists of: (1) a
three-year secured revolving credit facility; (2) a
supplemental term note; (3) a six-year term loan;
(4) notes payable to a vehicle manufacturer used for
working capital; (5) a seller-financed acquisition note
payable; and (6) various international working capital
arrangements related to our European and Canadian operations.


Vehicle
Debt

We finance our domestic vehicle purchases through
wholly-owned, fully consolidated, special purpose financing
subsidiaries. These financing subsidiaries obtain funds by
issuing asset-backed medium-term notes or commercial paper into
the capital markets. The financing subsidiaries in turn lease
vehicles to the domestic operating subsidiaries of Alamo,
National and Alamo Local Market. Our international operations in
Europe and Canada provide their own financing for vehicle
purchases through various asset-backed financings, leases and
secured loans on a country-by-country basis.

The Debtors filing for bankruptcy
represented an Event of Default under each of the domestic
financing facilities and certain of our international facilities
for which the parent company is guarantor. However, in the
United States the special purpose financing subsidiaries are not
Debtors and have continued making scheduled interest payments to
the third party note holders.

As of November 14, 2001 our commercial paper
program was repaid with the proceeds from our bank sponsored
liquidity back-up facilities. On May 1, 2002, all amounts
outstanding on the Companys bank sponsored liquidity
back-up facilities were repaid.

As a result of the Event of Default $175.0
million of medium-term notes were repaid and retired on
November 20, 2001. Additionally, the Event of Default
triggered provisions in the medium-term note agreements
requiring an accelerated repayment of the amounts outstanding.
In the fourth quarter of 2001, MBIA, our primary debt surety
provider, agreed to delay the accelerated repayment provisions.
In February 2002, the Bankruptcy Court approved, on a final
basis, a fleet financing agreement with MBIA where MBIA allowed
for the release of certain restricted funds supporting the MBIA
insured outstanding series of medium-term notes for the purchase
of new vehicles. The agreement made available up to $1.0 billion
of previously frozen funds for the acquisition of new fleet. On
May 10, 2002, the Bankruptcy Court approved on a final
basis, an agreement with MBIA to allow us to continue to use
$2.3 billion of our fleet financing facilities on a revolving
basis. As such, we will be allowed to use proceeds received from
the disposition of vehicles financed by these facilities to
purchase new vehicles. Through a series of court orders the
agreement is set to expire in March 2003. We have filed a motion
with the U.S. Bankruptcy court to extend the agreement through
June 2003.

Additionally in May 2002, we issued a $275.0
million variable funding asset-backed note. In June 2002, we
amended this facility to allow for borrowings of up to $575.0
million. In August 2002, we refinanced the maturing variable
funding note with the issuance of $600.0 million of asset-backed
medium-term notes with a term of approximately two years at a
floating rate based upon LIBOR. Upon the emergence from
Chapter 11, we may need to refinance these asset-backed
medium-term notes. We hedged our floating interest rate risk
through the purchase of an interest rate cap with a strike price
of 6.5%. We expect the interest rate cap to be effective in
hedging interest rate risk.

In the fourth quarter of 2002, we repaid amounts
outstanding under our auction-rate note program.

We are currently in discussions with lenders to
provide funding for seasonal capacity, maintain existing
capacity and replace maturing capacity. However, as a result of
the chapter 11 filing and the Event of Default we cannot provide
any assurance that we will be able to maintain existing capacity
or obtain the needed funding, or at what interest rate and
collateral requirements. Additionally, the Event of Default and
chapter 11 filing has adversely affected the financing
facilities of our international operations. As such, each lender
continues to review their loans with us. There is no assurance
that existing loans will not be cancelled or adversely modified.

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Non-vehicle
Debt

In June 2000, we entered into a three-year
secured revolving credit facility with a borrowing base capacity
of up to $175.0 million at a floating rate, currently based upon
a spread of 2.75% above LIBOR. In the third quarter of 2001, we
reduced our capacity under this facility to $70.0 million of
which $63.9 million supported letters of credit. As of
December 31, 2002, $32.7 million of letters of credit were
secured by the facility and approximately $29.1 million of
letters of credit and fees were drawn on the facility. As a
result of the chapter 11 filing we are precluded from drawing on
the facility. We expect that during 2003 substantially all of
the holders of outstanding letters of credit will draw against
the facility.

In June 2000 we also entered into a supplemental
secured revolving credit facility with availability of the
lesser of (1) $40.0 million and (2) an amount equal to
$175.0 million less the borrowing base of the resized $175.0
million secured revolving credit facility. On its one-year
maturity date, our $40.0 million supplemental secured revolving
credit facility was converted into a term loan maturing on
May 31, 2003. Interest on the supplemental secured term
loan is payable at a floating rate, initially based upon a
spread of 4.5% above LIBOR and increasing by 50 basis points on
the first day of each January, April, July and October.

On June 30, 2000 we entered into an
agreement with a lender for interim financing of $225.0 million
in connection with our separation from our former Parent. The
initial term of the interim financing was 12 months. We
have extended $200.0 million of the interim financing into a
six-year term loan due in June 2007. In accordance with the
terms of the agreement, upon conversion to the term loan we
issued immediately exercisable warrants representing
approximately 3.7 million shares and paid a fee of $6.0 million
to the lender. The term loan bears interest at an increasing
rate starting at 14.5% as of October 1, 2001 and increases
by 50 basis points each 90-day period up to a maximum rate of
18.0%. The term loan may, at the option of the lender, be
exchanged into a fixed-rate note with a similar maturity. The
warrants have a term of 10 years and an exercise price of
$0.01 per share. The fair value of the warrants on June 30,
2001, the date of issue, was $11.0 million. The warrants are
treated as a note discount, and are being amortized as a
component of interest expense, over the term of the refinancing.
Upon request of the holder of the notes and warrants, we are
required to file registration statements with the Securities and
Exchange Commission, which will register the fixed-rate notes
referred to above and the shares of common stock issuable upon
the exercise of the warrants. To the extent we do not file these
registration statements or they are not declared effective
within certain time constraints we will be required to pay
penalties. In connection with the consummation of our sale and
leaseback transactions, we were obligated to use the proceeds to
pay-down the interim financing. However, as part of an amendment
to the interim rate facility, the lender agreed that such
proceeds could be used for general corporate purposes until
September 30, 2001, at which time we would be required to
pay-down the interim financing by approximately $70.0 million.

As of September 30, 2001, we further amended
our financing facilities, thus deferring the $70.0 million
principal payment until November 30, 2001, and suspended
certain financial covenants through November 15, 2001.
Concurrent with the amendments we issued additional warrants
representing approximately 1.4 million shares of common stock.
These warrants also have a term of ten years from their issue
date and an exercise price of $0.01 per share. The fair value of
the additional warrants on September 30, 2001, the date of
issue, was $0.7 million. The fair value of the warrants was
recorded as a note discount and is being amortized as a
component of interest expense over the term of the note using
the effective interest method.

The governing documents for our credit facilities
and interim financing, entered into during 2000 and subsequently
amended, require us to maintain certain financial ratios
including, but not limited to financial performance measures and
limits on additional indebtedness. In addition these documents
restrict our ability to: sell assets; grant or incur liens on
our assets; repay certain indebtedness; pay dividends; make
certain investments or acquisitions; issue certain guarantees;
enter certain sale and leaseback transactions; repurchase or
redeem capital stock; engage in mergers or consolidations; and
engage in certain transactions with our affiliates.

The Debtors filing for chapter 11
represented an Event of Default under each of these financing
facilities. Under bankruptcy law, the Debtors are not
permitted to make scheduled principal and interest payments
unless specifically ordered by the Bankruptcy Court.

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Regarding our international operations, in April
2002 our United Kingdom subsidiary entered into a fleet
financing and working capital facility with third party lenders
which allows the operation, for limited periods of time, to use
certain vehicle proceeds, usually classified as restricted cash,
to support general working capital needs thereby reducing the
daily draw of its £20.0 million or approximately $33.0
million working capital facility.

In the first quarter of 2003, we filed a motion
regarding the settlement of claims concerning the holder of our
interim financing fixed-rate note. The proposed motion would
provide for an allowed secured claim of $180.0 million and an
allowed unsecured claim of $25.0 million. The secured claim will
accrue interest at 10%, half of which will be paid currently
with the remaining half paid upon emergence.

Surety
Bonding

In the normal course of business, we are required
to post performance and surety bonds, letters of credit, and/or
cash deposits as financial guarantees of our performance. To
date, we have satisfied financial responsibility requirements
for airports, regulatory agencies and insurance companies by
making cash deposits, obtaining surety bonds or by obtaining
bank letters of credit. At March 6, 2003, we had
outstanding surety bonds of approximately $127.2 million, which
expire during 2003. Because of our financial performance and a
difficult surety market we have provided our principal surety
provider a security interest in certain of our assets. Continued
losses will adversely affect our financial condition and our
ability to maintain or renew these surety bonds. In addition, we
can not assure you that our primary surety provider will
continue to consent to maintaining these surety bonds or provide
new bonds or renew existing bonds as needed, which could have a
material adverse effect on our business, consolidated results of
operations and/or our financial condition. In the first quarter
of 2002, we entered into an agreement, approved by the
Bankruptcy Court, with our primary surety provider to post
additional cash collateral in exchange for the commitment of the
surety provider to issue designated surety bonds for the
remainder of 2002. As of March 6, 2003 we have deposited
$12.5 million with our primary surety provider. On
March 17, 2003, the Bankruptcy Court, approved a new
agreement with our primary surety provider, which provides, for
us to deposit up to an additional $35.5 million with our
primary surety provider in exchange for their commitment to
issue the designated surety bonds for the remainder of 2003.
Additionally, our former Parent provides financial guarantees of
approximately $29.5 million in favor of our surety provider.

Financing
Requirement

As previously discussed we are operating certain
of our domestic operating subsidiaries under Bankruptcy Court
protection. The protection enabled us to accumulate cash by not
paying our obligations timely and deferring, pursuant to the
Bankruptcy Code, two of our depreciation payments on our fleet.

As of June 30, 2002, cash and cash
equivalents approximated $153.5 million of which $146.3 million
is held by the Debtors. On April 10, 2002, the Bankruptcy
Court approved our use of this cash collateral, subject to
achieving certain cash flow projections as debtors-in-possession
through September 22, 2002. On February 6, 2003, the
Bankruptcy Court extended our approved use of this cash
collateral to March 19, 2003. During this period, we plan
to use this cash collateral to finance our ongoing operations.
We have filed, with the Bankruptcy Court, a motion to allow our
use of cash collateral beyond March 19, 2003.

We have entered into a loan agreement with a
vehicle supplier in an amount not to exceed $62.5 million. In
exchange for the lending commitment, we committed to purchase a
stated number of model year 2004 vehicles from the lender. A
portion of the loan is expected to be repaid by forgoing vehicle
incentive payments earned during the last half of 2003 and into
2004, should the debt remain outstanding. We currently expect to
repay any amounts outstanding under the loan before
December 30, 2003. However, any amounts outstanding under
the agreement on December 30, 2003 will begin to accrue
interest at a floating rate based on a spread over LIBOR.
Notwithstanding the foregoing, amounts outstanding under the
agreement are to be repaid at the earliest of:
(i) June 30, 2004; (ii) closing of sale of all or
part of the Debtors estate; (iii) appointment of a
Trustee; (iv) the effective date of a confirmed plan or
plans or reorganization; (v) conversion of the Bankruptcy
Case to a chapter 7 case; (vi) dismissal of the core
Bankruptcy Case; (vii) appointment of an

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examiner to manage the affairs of the Debtor; or
(viii) an Event of Default. Separately, we have been
engaged in investigating, and are continuing to pursue,
strategic alternatives to maximize stakeholder value and
strengthen our financial condition. These strategic alternatives
may include the sale of all or part of our business.


In connection with these strategic initiatives,
certain parties engaged in our reorganization or financing may
earn contingent incentives, success or emergence fees. The
success fees are to be paid based upon a sliding scale affected
by the passage of time and the value realized upon
reorganization or sale of the Company. We expect these success
or emergence fees not to exceed $20.0 million of which, $12.5
million is payable to the Companys primary vehicle debt
surety provider.

Contingencies

In March 2002, the Bankruptcy Court approved, on
a final basis, a key employee retention plan. The purpose of the
plan is to retain certain key employees critical to the
near-term success of our restructuring by providing financial
incentives and security against unanticipated termination of
employment and to incentivize them to maximize stockholder
value. There are three levels of participation in the plan
(Tier I, Tier II, and Tier III.)

The Base Retention (Tier I) is available to
all participants in the plan and is payable upon the earlier of
June 30, 2003, involuntary termination of employment
other than for cause or death or permanent
disability, sale of the company or the consummation by the
Bankruptcy Court of a plan of reorganization. The Base Retention
approximates fifty percent of the participants base salary
and is payable in a cumulative lump sum, approximating $7.0
million.

The Holdback Retention is for Tier II and
Tier III participants payable upon a Triggering
Event. A Triggering Event occurs when a plan
of reorganization of the Company under chapter 11 is approved by
the United States Bankruptcy Court so long as the plan of
reorganization is subsequently confirmed by the Bankruptcy Court
without material modifications, or the date upon which a motion
seeking approval of the sale of all or substantially all of the
operating assets of the Company is approved, so long as the sale
is subsequently consummated without material modifications. The
Holdback Retention is paid based upon a sliding scale affected
by the passage of time and value realized in the
Triggering Event.

In 1997 and 1999, our former Parent engaged in
certain transactions that are of a type that the Internal
Revenue Service has indicated it intends to challenge. Until and
unless resolved by AutoNation, our Company may still have
several liability with AutoNation to the Internal Revenue
Service for all transactions, that occurred while we were part
of AutoNations Consolidated Federal tax returns. We have
included below an excerpt from AutoNations current report
on Form 8-K as of March 3, 2003 regarding these
transactions.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | On March 3, 2003, AutoNation, Inc.
    (the Company) issued a press release announcing that
    it has reached a settlement with the Internal Revenue Service
    (IRS) with respect to the tax treatment of certain
    transactions entered into by the Company in 1997 and 1999. The
    Company (AutoNation) will owe the IRS net aggregate payments of
    approximately $470 million, including interest. An initial net
    payment of approximately $350 million will be due in March 2004,
    and three subsequent payments of approximately $40 million each
    will be due in March 2005, 2006 and 2007, respectively. | 

Continued
Losses

Continued losses will adversely affect our
financial condition and may affect our ability to obtain
incremental financing, satisfy our liquidity needs, comply with
covenants contained within our loan agreements and fully utilize
certain deferred tax and intangible assets. There is no
assurance that we will be able to generate sufficient operating
cash flows, secure additional financing facilities to meet our
on-going financing needs, refinance existing indebtedness,
comply with covenants in future periods or fully utilize certain
deferred tax and intangible assets. Our continued losses and
chapter 11 filing raise substantial doubt about our ability to
continue as a going concern.

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Recent Results
From Operations

Our results and financial position as of and for
the year ended December 31, 2002 and December 31, 2001
are unaudited and have not been reviewed by our external
auditors and maybe subject to change. Reflecting our Alamo Local
Market Division as a discontinued operation, revenue for the
year ended December 31, 2002 was $2,393.8 million and
$2,896.7 million for the year ended December 31, 2001.
Pre-tax loss from continuing operations, before the
consideration of adopting new accounting standards, for the year
ended December 31, 2002 was $363.8 million and $482.5 million
for the year ended December 31, 2001. As of
December 31, 2002 cash and cash equivalents approximated
$166.2 million.

Forward-Looking Statements

Certain statements and information included in
this Form 10-Q constitute forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements contain or
express our intentions, beliefs, expectations, strategies or
predictions for the future. In addition, from time to time we or
our representatives may make forward-looking statements orally
or in writing. Furthermore, such forward-looking statements may
be included in our filings with the Securities and Exchange
Commission or press releases or oral statements made by or with
the approval of one of our executive officers. Forward-looking
statements in this Form 10-Q include, among others,
statements regarding:



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to execute our restructuring and
    transition plans and achieve the desired financial results and
    cost savings;                                                                                                   
|
| |  | our expectations regarding our ability to finance
    our liquidity needs;                                                                                                                                                          
|
| |  | our ability to obtain credit facilities, surety
    bonds, letters of credit and other services and the costs and
    other financial terms of these facilities and services and our
    ability to refinance existing indebtedness;
|
| |  | the continued demand for our rental vehicles and
    our ability to adjust the size of our fleet to meet demand;                                                                                                                    
|
| |  | our ability to successfully emerge from chapter
    11;                                                                                                                                                                             
|
| |  | our ability to achieve operating leverage and
    economics of scale in our business;                                                                                                                                               
|
| |  | our ability to consolidate our brands at our
    airport locations;                                                                                                                                                                 
|
| |  | our ability to consolidate our information
    technology systems;                                                                                                                                                                  
|
| |  | our ability to restructure our existing licensee
    arrangements;                                                                                                                                                                  
|
| |  | our ability to achieve cost savings through the
    consolidation of our business in certain areas; and                                                                                                                             
|
| |  | our ability to generate adequate cash flow from
    operations.                                                                                                                                                                     

These forward-looking statements involve known
and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. These factors include, among other things:



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | uncertainties related to our chapter 11
    proceedings;                                        
|
| |  | our ability to obtain adequate financing and our
    ability to refinance existing indebtedness;
|
| |  | our substantial debt;                                                                           
|
| |  | risks that our operating losses may continue;                                                   
|
| |  | risks relating to our reliance on our primary
    surety provider;                              
|
| |  | the impact of competition in the automotive
    rental industry;                                
|
| |  | the seasonal nature of our business;                                                            

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| |   |                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the effects of decreases in air travel;                                                                                                                                                    
|
| |  | the effects of terrorism on our business;                                                                                                                                                  
|
| |  | increases in fuel costs or reduced fuel supplies
    and their effects on air travel;                                                                                                      
|
| |  | the continued availability of repurchase
    programs, the ability of manufacturers to fulfill their
    obligations under these programs and the increasing cost of our
    vehicle fleet;
|
| |  | a percentage of our rental fleet is subject to
    residual value risk upon disposition;                                                                                                   
|
| |  | risks relating to our dependence on General
    Motors as our principal vehicle supplier;                                                                                                  
|
| |  | risks relating to our reliance on asset-backed
    financing and the risk to our business of an increase in
    interest rates;                                                            
|
| |  | the adoption of federal, state or local
    regulations including those that restrict our ability to sell
    optional products;                                                           
|
| |  | risks relating to the Internal Revenue
    Services review of certain transactions entered into by
    our former Parent for which we may be severally liable;                            
|
| |  | potential legal challenges by our competitors
    and/or franchisees to parts of our restructuring plan;                                                                                   
|
| |  | problems that may arise as a result of the
    consolidation of our brands at airport locations; and                                                                                       
|
| |  | problems that may arise from our efforts to
    operate one information technology platform.                                                                                               

We undertake no obligation to update or revise
publicly any forward-looking statement, whether as a result of
new information, future events or otherwise, other than as
required by law. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary
statements contained in this filing.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item  3. | Quantitative and Qualitative Disclosures
    About Market Risks

The tables below provide information about our
market sensitive financial instruments and constitute
forward-looking statements. All items described are
non-trading.

Our major market risk exposure is changing
interest rates, primarily in the United States. Due to our
limited foreign operations, we do not have material market risk
exposures relative to changes in foreign exchange rates. Our
policy is to manage interest rates through the use of a
combination of fixed and floating rate debt. We use interest
rate derivatives to adjust interest rate exposures when
appropriate, based upon market conditions. These derivatives
consist of interest rate caps and floors, which we enter into
with a group of financial institutions with investment grade
credit ratings, thereby minimizing the risk of credit loss. We
use variable to fixed interest rate caps and floors to manage
the impact of interest rate changes on our variable rate debt.
Expected maturity dates for variable rate debt and interest rate
swaps, caps and floors are based upon the Companys
expected maturity dates. Average pay rates under interest rate
swaps are based upon contractual fixed rates. Average variable
receive rates under interest rate swaps are based on implied
forward rates in the yield curve at the reporting date. Average
rates under interest rate caps and floors are based upon
contractual rates.

Fair value estimates are made at a specific point
in time, based on relevant market information about the
financial instrument. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment.
The fair value of variable rate debt approximates the carrying
value since interest rates are variable and, thus, approximate
current market rates. The fair value of interest rate caps and
floors is determined from valuation models which are then
compared to dealer quotations and represents the discounted
future cash flows through maturity or expiration using current
rates, and is effectively the amount we would pay or receive to
terminate the agreements. The fair value of interest rate swaps
is determined from

36



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##### Table of Contents



dealer quotations and represents the discounted
future cash flows through maturity or expiration using current
rates, and is effectively the amount we would pay or receive to
terminate the agreements.


|                   |                        |                        |       |       |  |            |       |       |  |      |         |            |  |       |       |       |  |   |      |       |  |   |   |   |  |   |         |   |  |   |         |   | 
|------------------ | ---------------------- | ---------------------- | ----- | ----- |  | ---------- | ----- | ----- |  | ---- | ------- | ---------- |  | ----- | ----- | ----- |  | - | ---- | ----- |  | - | - | - |  | - | ------- | - |  | - | ------- | - | 
|                   |                        |                        |       |       |  |           
|                   |                        | Expected Maturity Date |       |       |  | Fair Value
|                   |                        |                        |       |       |  | June 30,  
|June 30, 2002:     |                        | 2002                   |       | 2003  |  | 2004       |       | 2005  |  | 2006 |         | Thereafter |  | Total |       | 2002 
|                   |                        |                        |       |       |  |            |       |       |  |      |         |            |  |       |       |      
|                   |                        |                       
|                   |                        | (In millions)         
|(Asset)/Liability  |                        |                        |       |       |  |            |       |       |  |      |         |            |  |       |       |       |  |   |      |       |  |   |   |   |  |   |         |   |  |   |         |  
|Variable rate debt |                        | $                      | 419.5 |       |  | $          | 561.6 |       |  | $    | 1,000.0 |            |  | $     | 300.0 |       |  | $ | 84.0 |       |  | $ |  |   |  | $ | 2,365.1 |   |  | $ | 2,365.1 |  
|                   | Average interest rates |                        |       | 3.48% |  |            |       | 2.97% |  |      |         | 2.09%      |  |       |       | 2.08% |  |   |      | 3.11% |  |   |   |  |  |   |         |  |  |   |         |  | 
|Interest rate caps |                        |                        | 997.3 |       |  |            | 500.0 |       |  |      | 1,000.0 |            |  |       | 300.0 |       |  |   | 84.0 |       |  |   |  |   |  |   | 2,881.3 |   |  |   | (8.7    | )
|                   | Average rate           |                        |       | 7.50% |  |            |       | 7.30% |  |      |         | 6.71%      |  |       |       | 7.74% |  |   |      | 8.51% |  |   |   |  |  |   |         |  |  |   |         |  | 

|                   |                        |                        |       |       |  |              |       |       |  |      |         |            |  |       |       |       |  |   |       |       |  |   |   |   |  |   |         |   |  |   |         |   | 
|------------------ | ---------------------- | ---------------------- | ----- | ----- |  | ------------ | ----- | ----- |  | ---- | ------- | ---------- |  | ----- | ----- | ----- |  | - | ----- | ----- |  | - | - | - |  | - | ------- | - |  | - | ------- | - | 
|                   |                        |                        |       |       |  |             
|                   |                        | Expected Maturity Date |       |       |  | Fair Value  
|                   |                        |                        |       |       |  | December 31,
|December 31, 2001: |                        | 2002                   |       | 2003  |  | 2004         |       | 2005  |  | 2006 |         | Thereafter |  | Total |       | 2001 
|                   |                        |                        |       |       |  |              |       |       |  |      |         |            |  |       |       |      
|                   |                        |                       
|                   |                        | (In millions)         
|(Asset)/Liability  |                        |                        |       |       |  |              |       |       |  |      |         |            |  |       |       |       |  |   |       |       |  |   |   |   |  |   |         |   |  |   |         |  
|Variable rate debt |                        | $                      | 753.4 |       |  | $            | 544.4 |       |  | $    | 1,000.0 |            |  | $     | 300.0 |       |  | $ | 222.7 |       |  | $ |  |   |  | $ | 2,820.5 |   |  | $ | 2,820.5 |  
|                   | Average interest rates |                        |       | 2.83% |  |              |       | 2.95% |  |      |         | 2.18%      |  |       |       | 2.17% |  |   |       | 2.77% |  |   |   |  |  |   |         |  |  |   |         |  | 
|Interest rate caps |                        |                        | 858.5 |       |  |              | 500.0 |       |  |      | 1,000.0 |            |  |       | 300.0 |       |  |   | 222.8 |       |  |   |  |   |  |   | 2,881.3 |   |  |   | (22.3   | )
|                   | Average rate           |                        |       | 6.37% |  |              |       | 7.30% |  |      |         | 6.71%      |  |       |       | 7.74% |  |   |       | 7.88% |  |   |   |  |  |   |         |  |  |   |         |  | 






|         |                        
|-------- | -----------------------
|Item  4. | Controls and Procedures

There were no significant changes in the
Companys internal controls or in other factors that could
significantly affect such internal controls.

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##### Table of Contents






PART II  OTHER
INFORMATION




Item 1.     Legal
Proceedings

On November 13, 2001, ANC Rental Corporation
and certain of its direct and indirect U.S. subsidiaries (each,
a Debtor, and collectively, Debtors)
filed voluntary petitions under chapter 11 of Title 11, United
States Code, in the United States Bankruptcy Court for the
District of Delaware (Case No. 01-11200 et al., Jointly
Administered). The Debtors remain in possession of their assets
and properties, continue to operate their businesses and manage
their properties as debtors-in-possession pursuant to the
Bankruptcy Code.






|         |                                              
|-------- | ---------------------------------------------
|Item  2. | Changes in Securities and Use of
    Proceeds

Not applicable.






|         |                                    
|-------- | -----------------------------------
|Item  3. | Defaults Upon Senior
    Securities

On November 13, 2001, ANC Rental Corporation
and certain of its direct and indirect U.S. subsidiaries (each,
a Debtor, and collectively, Debtors)
filed voluntary petitions under chapter 11 of Title 11, United
States Code, in the United States Bankruptcy Court for the
District of Delaware (Case No. 01-11200 et al., Jointly
Administered). The Debtors remain in possession of their assets
and properties, continue to operate their businesses and manage
their properties as debtors-in-possession pursuant to the
Bankruptcy Code. The Debtors filing for chapter 11
represented an Event of Default under each of the Debtors
financing facilities. Under bankruptcy law, the Debtors are not
permitted to make scheduled principal and interest payments
unless specifically ordered by the Court.






|         |                                                        
|-------- | -------------------------------------------------------
|Item  4. | Submission of Matters to a Vote of Security
    Holders

Not applicable.






|         |                  
|-------- | -----------------
|Item  5. | Other Information

Not applicable.






|         |                                     
|-------- | ------------------------------------
|Item  6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits

|        |      |             |  |                                                                                                                                                                              
|------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 99.1 |             |  | Risk factors.                                                                                                                                                                
|        | 99.2 |             |  | Certification of the Chief Executive Officer of
    the Company pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 99.3 |             |  | Certification of the Chief Financial Officer of
    the Company pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K.

Form 8-K, dated April 4, 2002 (filed
April 4, 2002), Item 9, reporting ANC Rental
Corporations naming of Lawrence J. Ramaekers as Chief
Executive Officer.

Form 8-K, dated April 26, 2002 (filed
April 26, 2002), Item 9, reporting ANC Rental
Corporations filing its Debtor monthly operation report
with the Bankruptcy Court for the period ended March 31,
2002.

Form 8-K, dated May 23, 2002 (filed
May 23, 2002), Item 9, reporting ANC Rental
Corporations filing its Debtor monthly operation report
with the Bankruptcy Court for the period ended April 30,
2002.

Form 8-K, dated June 24, 2002 (filed
June 24, 2002), Item 9, reporting ANC Rental
Corporations filing its Debtor monthly operation report
with the Bankruptcy Court for the period ended May 31, 2002.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.

|                      |  |                        |     |  |  |                                                                                                                                                                                            
|--------------------- |  | ---------------------- | --- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Dated: March 18, 2003 |  | ANC RENTAL CORPORATION
|                      |  |                        | By: |  |  | /s/ MICHAEL J. KIPP
    -------------------------------------------------
    Michael J. Kipp
    Vice President, Controller
    (Principal Accounting Officer and Duly Authorized Officer)

39



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##### Table of Contents






CERTIFICATIONS PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

Certification by Chief Executive
Officer

I, William N. Plamondon, III, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of ANC Rental Corporation;                                                                                                                                                                                                                                                                 
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report.                   

Date: March 18, 2003

|                                                                                   |  | 
|---------------------------------------------------------------------------------- |  | 
|/s/ WILLIAM N. PLAMONDON, IIIWilliam N. Plamondon, III
    Chief Executive Officer |  | 

Certification by Chief Financial
Officer

I, Douglas C. Laux, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of ANC Rental Corporation;                                                                                                                                                                                                                                                                 
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report.                   

Date: March 18, 2003

|                                                               |  | 
|-------------------------------------------------------------- |  | 
|/s/ DOUGLAS C. LAUXDouglas C. Laux
    Chief Financial Officer |  | 

40