##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




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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 March 31,
    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)

As of December 31, 2002, 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                                                     
|RISK FACTORS                   
|CERTIFICATION OF CEO           
|CERTIFICATION OF CFO           



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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 March
    31, 2002 (Unaudited) and December 31, 2001                               |  |      | 1  | 
|                                  |  | Unaudited Condensed Consolidated Statements of
    Operations for the Three Months Ended March 31, 2002 and 2001               |  |      | 2  | 
|                                  |  | Unaudited Condensed Consolidated Statement of
    Shareholders Equity (Deficit) for the Three Months Ended
    March 31, 2002 |  |      | 3  | 
|                                  |  | Unaudited Condensed Consolidated Statements of
    Cash Flows for the Three Months Ended March 31, 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 Risks                                                                |  |      | 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)


|                                                   |                                                                                                                                                                        |                                                          |         |              |         |   |         |        |         | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                                   |                                                                                                                                                                        | March 31,                                                |         | December 31,
|                                                   |                                                                                                                                                                        | 2002                                                     |         | 2001        
|                                                   |                                                                                                                                                                        |                                                          |         |             
|                                                   |                                                                                                                                                                        | (Unaudited)                                              |         |             
|ASSETS                                            
|Cash and cash equivalents                          |                                                                                                                                                                        | $                                                        | 215.5   |              |         | $ | 320.2   |       
|Restricted cash and cash equivalents               |                                                                                                                                                                        |                                                          | 1,097.5 |              |         |   | 1,310.0 |       
|Receivables, net                                   |                                                                                                                                                                        |                                                          | 311.2   |              |         |   | 371.4   |       
|Prepaid expenses                                   |                                                                                                                                                                        |                                                          | 49.2    |              |         |   | 48.3    |       
|Vehicles, net                                      |                                                                                                                                                                        |                                                          | 2,518.8 |              |         |   | 3,105.6 |       
|Property and equipment, net                        |                                                                                                                                                                        |                                                          | 385.6   |              |         |   | 445.4   |       
|Goodwill, net                                      |                                                                                                                                                                        |                                                          | 20.9    |              |         |   | 127.1   |       
|Other assets                                       |                                                                                                                                                                        |                                                          | 98.6    |              |         |   | 90.3    |       
|                                                   |                                                                                                                                                                        |                                                          |         |              |         |   |         |       
|                                                   |                                                                                                                                                                        | Total assets                                             |         | $            | 4,697.3 |   |         | $      | 5,818.3 | 
|                                                   |                                                                                                                                                                        |                                                          |         |              |         |   |         |       
|LIABILITIES AND SHAREHOLDERS EQUITY
    (DEFICIT)
|Accounts payable                                   |                                                                                                                                                                        | $                                                        | 146.9   |              |         | $ | 91.7    |       
|Accrued liabilities                                |                                                                                                                                                                        |                                                          | 245.1   |              |         |   | 229.4   |       
|Insurance reserves                                 |                                                                                                                                                                        |                                                          | 79.8    |              |         |   | 62.3    |       
|Vehicle debt                                       |                                                                                                                                                                        |                                                          | 3,004.1 |              |         |   | 3,977.8 |       
|Other debt                                         |                                                                                                                                                                        |                                                          | 247.5   |              |         |   | 247.3   |       
|Deferred income taxes                              |                                                                                                                                                                        |                                                          | 253.7   |              |         |   | 253.7   |       
|Other liabilities                                  |                                                                                                                                                                        |                                                          | 200.3   |              |         |   | 199.0   |       
|Liabilities subject to compromise                  |                                                                                                                                                                        |                                                          | 540.7   |              |         |   | 535.9   |       
|                                                   |                                                                                                                                                                        |                                                          |         |              |         |   |         |       
|                                                   |                                                                                                                                                                        | Total liabilities                                        |         |              | 4,718.1 |   |         |        | 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 March 31, 2002 and December 31, 2001, respectively |                                                          |         | 0.5          |         |   |         | 0.5    |        
|                                                   | Additional paid-in capital                                                                                                                                             |                                                          |         | 907.6        |         |   |         | 907.6  |        
|                                                   | Accumulated deficit                                                                                                                                                    |                                                          |         | (845.3       | )       |   |         | (599.7 | )      
|                                                   | Accumulated other comprehensive loss                                                                                                                                   |                                                          |         | (83.6        | )       |   |         | (87.2  | )      
|                                                   |                                                                                                                                                                        |                                                          |         |              |         |   |         |       
|                                                   |                                                                                                                                                                        |                                                          | (20.8   | )            |         |   | 221.2   |       
|                                                   |                                                                                                                                                                        |                                                          |         |              |         |   |         |       
|                                                   |                                                                                                                                                                        | Total liabilities and shareholders equity
    (deficit) |         | $            | 4,697.3 |   |         | $      | 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
|                                                                                                                               |                   | March 31,         
|                                                                                                                               |                   |                   
|                                                                                                                               |                   | 2002               |        | 2001
|                                                                                                                               |                   |                    |        |     
|Revenue                                                                                                                        |                   | $                  | 599.6  |      |  | $ | 769.1 |     
|Direct operating costs                                                                                                         |                   |                    | 293.4  |      |  |   | 336.3 |     
|Vehicle depreciation, net                                                                                                      |                   |                    | 195.5  |      |  |   | 241.6 |     
|Selling, general, and administrative                                                                                           |                   |                    | 140.1  |      |  |   | 159.8 |     
|Transition and reorganization expenses                                                                                         |                   |                    | 51.6   |      |  |   |      |     
|Amortization of intangible assets                                                                                              |                   |                    |       |      |  |   | 2.5   |     
|Interest income                                                                                                                |                   |                    | (1.4   | )    |  |   | (1.3  | )   
|Interest expense                                                                                                               |                   |                    | 47.6   |      |  |   | 89.5  |     
|Other expense, net                                                                                                             |                   |                    | 12.2   |      |  |   | 6.4   |     
|                                                                                                                               |                   |                    |        |      |  |   |       |     
|Loss before income taxes                                                                                                       |                   |                    | (139.4 | )    |  |   | (65.7 | )   
|Benefit for income taxes                                                                                                       |                   |                    |       |      |  |   | (25.6 | )   
|                                                                                                                               |                   |                    |        |      |  |   |       |     
|Net loss before cumulative effect of change in
    accounting principle                                                        |                   |                    | (139.4 | )    |  |   | (40.1 | )   
|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                                                                                                                       |                   | $                  | (245.6 | )    |  | $ | (33.0 | )   
|                                                                                                                               |                   |                    |        |      |  |   |       |     
|Basic and diluted loss per share before
    cumulative effect of change in accounting principles                               |                   | $                  | (3.08  | )    |  | $ | (0.89 | )   
|Basic and diluted loss per share                                                                                               |                   | $                  | (5.42  | )    |  | $ | (0.73 | )   
|Shares used in computing per share amounts:                                                                                    |                   |                    |        |      |  |   |       |     
|                                                                                                                               | Basic and diluted |                    |        | 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                              |                                                                                    |              |     |            |  |             |    |               |  |               |      |           |  |   | (245.6 | ) |  |   |      |      |   |   | (245.6 | )   
|Other comprehensive income (loss):    |                                                                                    |              |      |            |  |             |     |               |  |               |       |           |  |   |        |   |  |   |       |      |   |   |        |     
|                                      | Foreign currency translation adjustments                                           |              |      |           |  |             |     |              |  |               |       |          |  |   |        |  |  |   |       | (1.4 | ) |   |        | (1.4 | )
|                                      | Changes in fair value of interest rate hedges and
    reclassification adjustments |              |      |           |  |             |     |              |  |               |       |          |  |   |        |  |  |   |       | 5.0  |   |   |        | 5.0  |  
|                                      |                                                                                    |              |      |            |  |             |     |               |  |               |       |           |  |   |        |   |  |   |       |      |   |   |        |     
|BALANCE AT MARCH 31, 2002 (unaudited) |                                                                                    |              | 45.3 |            |  | $           | 0.5 |               |  | $             | 907.6 |           |  | $ | (845.3 | ) |  | $ | (83.6 | )    |   | $ | (20.8  | )   
|                                      |                                                                                    |              |      |            |  |             |     |               |  |               |       |           |  |   |        |   |  |   |       |      |   |   |        |     

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)


|                                                                |                                                                                                                      |                                                                                    |        |        |         |   |       |          |          |  
|--------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------ | ------ | ------- | - | ----- | -------- | -------- | -
|                                                                |                                                                                                                      |                                                                                   
|                                                                |                                                                                                                      | Three Months Ended                                                                
|                                                                |                                                                                                                      | March 31,                                                                         
|                                                                |                                                                                                                      |                                                                                   
|                                                                |                                                                                                                      | 2002                                                                               |        | 2001  
|                                                                |                                                                                                                      |                                                                                    |        |       
|CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING
    ACTIVITIES: |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|                                                                | Net loss                                                                                                             |                                                                                    | $      | (245.6 | )       |   | $     | (33.0    | )       
|                                                                | Adjustments to reconcile net income to net cash
    and cash equivalents provided by (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 |        |        | 10.9    |   |       |          | 3.3      |  
|                                                                |                                                                                                                      | Loss on sale of assets and asset impairments                                       |        |        | 6.8     |   |       |          | 3.7      |  
|                                                                |                                                                                                                      | Depreciation and amortization of property and
    equipment                        |        |        | 51.9    |   |       |          | 20.0     |  
|                                                                |                                                                                                                      | Amortization of intangible assets and debt issue
    costs                         |        |        | 4.9     |   |       |          | 11.2     |  
|                                                                |                                                                                                                      | Income tax benefit                                                                 |        |        |        |   |       |          | (25.6    | )
|                                                                |                                                                                                                      | Depreciation of vehicles                                                           |        |        | 195.5   |   |       |          | 241.6    |  
|                                                                |                                                                                                                      | Purchases of vehicles                                                              |        |        | (797.4  | ) |       |          | (2,009.3 | )
|                                                                |                                                                                                                      | Sales of vehicles                                                                  |        |        | 1,152.0 |   |       |          | 1,495.2  |  
|                                                                | Changes in assets and liabilities, net:                                                                              |                                                                                    |        |        |         |   |       |          |         
|                                                                |                                                                                                                      | Receivables                                                                        |        |        | 60.3    |   |       |          | 319.7    |  
|                                                                |                                                                                                                      | Prepaid expenses and other assets                                                  |        |        | (14.7   | ) |       |          | 3.7      |  
|                                                                |                                                                                                                      | Accounts payable and accrued liabilities                                           |        |        | 98.8    |   |       |          | 83.8     |  
|                                                                |                                                                                                                      | Other liabilities                                                                  |        |        | (3.2    | ) |       |          | (12.5    | )
|                                                                |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|                                                                |                                                                                                                      |                                                                                    | 626.4  |        |         |   | 94.7  |         
|                                                                |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|CASH AND CASH EQUIVALENTS PROVIDED BY INVESTING
    ACTIVITIES: |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|                                                                | Purchases of property and equipment                                                                                  |                                                                                    |        | (4.2   | )       |   |       | (12.8    | )       
|                                                                | Proceeds from sale of property and equipment                                                                         |                                                                                    |        | 4.8    |         |   |       | 80.4     |         
|                                                                |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|                                                                |                                                                                                                      |                                                                                    | 0.6    |        |         |   | 67.6  |         
|                                                                |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|CASH AND CASH EQUIVALENTS USED IN FINANCING
    ACTIVITIES:     |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|                                                                | Proceeds from vehicle financing                                                                                      |                                                                                    |        | 51.9   |         |   |       | 6,146.3  |         
|                                                                | Payments on vehicle financing                                                                                        |                                                                                    |        | (995.8 | )       |   |       | (6,087.7 | )       
|                                                                | Decrease (increase) in restricted cash                                                                               |                                                                                    |        | 212.5  |         |   |       | (89.8    | )       
|                                                                | Proceeds from issuance of other debt                                                                                 |                                                                                    |        | 13.0   |         |   |       | 206.2    |         
|                                                                | Payments on other debt                                                                                               |                                                                                    |        | (12.6  | )       |   |       | (208.2   | )       
|                                                                | Distributions to subsidiary limited partner                                                                          |                                                                                    |        | (0.3   | )       |   |       | (40.4    | )       
|                                                                | Debt issue costs                                                                                                     |                                                                                    |        | (4.7   | )       |   |       | (6.1     | )       
|                                                                | Other                                                                                                                |                                                                                    |        | 4.3    |         |   |       | 5.1      |         
|                                                                |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|                                                                |                                                                                                                      |                                                                                    | (731.7 | )      |         |   | (74.6 | )       
|                                                                |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|Increase (decrease) in cash and cash
    equivalents            |                                                                                                                      |                                                                                    | (104.7 | )      |         |   | 87.7  |         
|Cash and cash equivalents at beginning of period                |                                                                                                                      |                                                                                    | 320.2  |        |         |   | 6.3   |         
|                                                                |                                                                                                                      |                                                                                    |        |        |         |   |       |         
|Cash and cash equivalents at end of period                      |                                                                                                                      | $                                                                                  | 215.5  |        |         | $ | 94.0  |         
|                                                                |                                                                                                                      |                                                                                    |        |        |         |   |       |         

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 March 31, 2002 and
December 31, 2001, are 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 months ended March 31,
2002 such interest approximated $0.4 million.

It should be noted that 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

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)

shareholders on a tax-free basis at which point
the Company became an independent, publicly owned 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 March 31, 2002 the
Company had 6.3 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 month period ended
March 31, 2002. In the three months ended March 31,
2001 there were no dilutive effects from common stock purchase
warrants, as there were none outstanding.

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

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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)

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. 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 has notified
all known claimants and historical creditors that the Bankruptcy
Court has 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 in 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
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 ended
March 31, 2002 are as follows (unaudited):

|                                         |  |      |      |          |  |       |      |  |  |   |      | 
|---------------------------------------- |  | ---- | ---- | -------- |  | ----- | ---- |  |  | - | ---- | 
|                                         |  | Cash |      | Non-Cash |  | Total
|                                         |  |      |      |          |  |      
|Airport location consolidation           |  | $    | 0.2  |          |  | $     | 6.6  |  |  | $ | 6.8  | 
|Combining information technology systems |  |      | 3.5  |          |  |       | 29.9 |  |  |   | 33.4 | 
|Closure of Alamo Local Market locations  |  |      | 0.7  |          |  |       | 4.2  |  |  |   | 4.9  | 
|Professional fees and other              |  |      | 6.5  |          |  |       |     |  |  |   | 6.5  | 
|                                         |  |      |      |          |  |       |      |  |  |   |      | 
|                                         |  | $    | 10.9 |          |  | $     | 40.7 |  |  | $ | 51.6 | 
|                                         |  |      |      |          |  |       |      |  |  |   |      | 

As of March 31, 2002 the Company has paid
approximately $6.1 million of the total $10.9 million of cash
related expenses incurred for the three months ended
March 31, 2002.

Airport
Location Consolidation

At seventy airports including most of the major
airports in the United States, Alamo and National operated under
140 separate stand-alone concession agreements as of the date of
the bankruptcy filing. The Company plans to consolidate as many
of these separately branded locations as possible into dual
branded

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)

locations. The Company believes that by
consolidating operations into one dual branded facility it will
be able 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. Due to material uncertainties, negotiations
with third parties, and the legal challenges of certain
competitors, 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
November 30, 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 by the end of the first
quarter of 2003.

The Company incurred $6.8 million in expenses
relative to its airport location consolidation project for the
three months ended March 31, 2002, of which approximately
$0.2 million was cash and $6.6 million was non-cash. The
non-cash component was primarily comprised of impairment charges
of approximately $3.0 million and excess depreciation of
approximately $3.1 million.

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 other third party vendors to
accept system changes. The Company has accelerated the
amortization on $109.4 million of assets, which will be
abandoned, upon the migration to one system. In the fourth
quarter of 2002, the Company 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.

The Company incurred $33.4 million in expenses
relative to the combining of information technology systems for
the three months ended March 31, 2002, of which
approximately $3.5 million was cash and approximately $29.9
million was non-cash. The cash component primarily related to
external consulting while the non-cash component related to
excess depreciation.

Closure
of Alamo Local Market Locations

During the first quarter of 2002, the Company
closed approximately 182 unprofitable local market locations.
Costs incurred relative to these closures approximated $5.6
million, of which $4.9 million has been classified as a
transition and reorganization expense. 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 expects to have substantially
completed its plan of abandonment in the fourth quarter of 2002.
The plan includes provisions for head count reductions, closure
of locations and reductions of fleet. Pursuant to the provisions
of Statement of Financial Accounting Standards No. 144,

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)

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 Ended
|                         |  | March 31,         
|                         |  |                   
|                         |  | 2002               |       | 2001
|                         |  |                    |       |     
|Revenue                  |  | $                  | 47.4  |      |  | $ | 63.4 |  
|Loss before income taxes |  |                    | (16.9 | )    |  |   | (4.8 | )

Professional
Fees and Other

During the first quarter of 2002, the Company
incurred professional fees directly related to its
reorganization and bankruptcy proceedings of approximately $6.8
million for services rendered on behalf of the Company and its
creditors. Separately, the Company has reclassified
approximately $0.3 million of excess interest income to
transition and reorganization expenses.

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:

|                                |  |             |       |              |  |   |       | 
|------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | 
|                                |  | March 31,   |       | December 31,
|                                |  | 2002        |       | 2001        
|                                |  |             |       |             
|                                |  | (unaudited) |       |             
|Accounts payable                |  | $           | 98.1  |              |  | $ | 89.6  | 
|Unsecured debt                  |  |             | 35.0  |              |  |   | 35.0  | 
|Terminated interest rate hedges |  |             | 82.3  |              |  |   | 82.3  | 
|Insurance reserves              |  |             | 246.4 |              |  |   | 251.7 | 
|Accrued liabilities             |  |             | 49.6  |              |  |   | 46.9  | 
|Other liabilities               |  |             | 29.3  |              |  |   | 30.4  | 
|                                |  |             |       |              |  |   |       | 
|                                |  | $           | 540.7 |              |  | $ | 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 March 31, 2002
and for the three 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                               |                                                          | $       | 197.2   |             |  | $            | 18.3    |         |  | $ |       |        |   | $ | 215.5   |        
|Restricted cash and cash equivalents                    |                                                          |         |        |             |  |              | 1,097.5 |         |  |   |       |        |   |   | 1,097.5 |        
|Receivables, net                                        |                                                          |         | 158.3   |             |  |              | 156.3   |         |  |   | (3.4   | )      |   |   | 311.2   |        
|Vehicles, net                                           |                                                          |         | 25.5    |             |  |              | 2,493.3 |         |  |   |       |        |   |   | 2,518.8 |        
|All other assets                                        |                                                          |         | 1,193.8 |             |  |              | 172.2   |         |  |   | (811.7 | )      |   |   | 554.3   |        
|                                                        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|                                                        | Total assets                                             |         | $       | 1,574.8     |  |              | $       | 3,937.6 |  |   | $      | (815.1 | ) |   | $       | 4,697.3 | 
|                                                        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|                                                       
|Liabilities & Shareholders Equity
    (Deficit)        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|Accounts payable                                        |                                                          | $       | 51.4    |             |  | $            | 95.4    |         |  | $ | 0.1    |        |   | $ | 146.9   |        
|Accrued liabilities                                     |                                                          |         | 194.2   |             |  |              | 57.3    |         |  |   | (6.3   | )      |   |   | 245.2   |        
|Vehicle debt                                            |                                                          |         |        |             |  |              | 3,004.1 |         |  |   |       |        |   |   | 3,004.1 |        
|Other debt                                              |                                                          |         | 230.1   |             |  |              | 17.4    |         |  |   |       |        |   |   | 247.5   |        
|Due to/(from) affiliates                                |                                                          |         | 231.5   |             |  |              | (231.5  | )       |  |   |       |        |   |   |        |        
|Liabilities subject to compromise                       |                                                          |         | 540.7   |             |  |              |        |         |  |   |       |        |   |   | 540.7   |        
|All other liabilities                                   |                                                          |         | 345.4   |             |  |              | 193.2   |         |  |   | (4.9   | )      |   |   | 533.7   |        
|                                                        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|                                                        | Total liabilities                                        |         |         | 1,593.3     |  |              |         | 3,135.9 |  |   |        | (11.1  | ) |   |         | 4,718.1 | 
|Shareholders equity (deficit)                          |                                                          |         | (18.5   | )           |  |              | 801.7   |         |  |   | (804.0 | )      |   |   | (20.8   | )      
|                                                        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|                                                        | Total liabilities and shareholders equity
    (deficit) |         | $       | 1,574.8     |  |              | $       | 3,937.6 |  |   | $      | (815.1 | ) |   | $       | 4,697.3 | 
|                                                        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|                                                       
|Revenue                                                 |                                                          | $       | 506.8   |             |  | $            | 320.1   |         |  | $ | (227.3 | )      |   | $ | 599.6   |        
|Operating costs                                         |                                                          |         | 570.9   |             |  |              | 283.9   |         |  |   | (225.8 | )      |   |   | 629.0   |        
|Transition and reorganization expenses                  |                                                          |         | 51.6    |             |  |              |        |         |  |   |       |        |   |   | 51.6    |        
|Equity (earnings) in investee                           |                                                          |         | 80.5    |             |  |              |        |         |  |   | (80.5  | )      |   |   |        |        
|Interest and other expense                              |                                                          |         | 50.2    |             |  |              | 10.5    |         |  |   | (2.3   | )      |   |   | 58.4    |        
|                                                        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|Income (loss) before income taxes                       |                                                          |         | (246.4  | )           |  |              | 25.7    |         |  |   | 81.3   |        |   |   | (139.4  | )      
|                                                        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|Provision for income taxes                              |                                                          |         |        |             |  |              |        |         |  |   |       |        |   |   |        |        
|Cumulative effect of change in accounting
    principle |                                                          |         |        |             |  |              | (106.2  | )       |  |   |       |        |   |   | (106.2  | )      
|                                                        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        
|Net income (loss)                                       |                                                          | $       | (246.4  | )           |  | $            | (80.5   | )       |  | $ | 81.3   |        |   | $ | (245.6  | )      
|                                                        |                                                          |         |         |             |  |              |         |         |  |   |        |        |   |   |         |        

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.

|                                                               |  |             |         |              |  |   |         | 
|-------------------------------------------------------------- |  | ----------- | ------- | ------------ |  | - | ------- | 
|                                                               |  | March 31,   |         | December 31,
|                                                               |  | 2002        |         | 2001        
|                                                               |  |             |         |             
|                                                               |  | (Unaudited) |         |             
|Restricted cash as collateral for vehicle debt                 |  | $           | 1,047.1 |              |  | $ | 1,262.2 | 
|Restricted cash as collateral for certain
    insurance claims |  |             | 50.4    |              |  |   | 47.8    | 
|                                                               |  |             |         |              |  |   |         | 
|                                                               |  | $           | 1,097.5 |              |  | $ | 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)

7.     RECEIVABLES

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

|                                      |  |             |       |              |  |   |       |  
|------------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                      |  | March 31,   |       | December 31,
|                                      |  | 2002        |       | 2001        
|                                      |  |             |       |             
|                                      |  | (Unaudited) |       |             
|Trade receivables                     |  | $           | 181.8 |              |  | $ | 185.2 |  
|Vehicle manufacturer receivables      |  |             | 74.7  |              |  |   | 115.5 |  
|Other                                 |  |             | 79.2  |              |  |   | 95.8  |  
|                                      |  |             |       |              |  |   |       |  
|                                      |  |             | 335.7 |              |  |   | 396.5 |  
|Less, allowance for doubtful accounts |  |             | (24.5 | )            |  |   | (25.1 | )
|                                      |  |             |       |              |  |   |       |  
|                                      |  | $           | 311.2 |              |  | $ | 371.4 |  
|                                      |  |             |       |              |  |   |       |  

8.     VEHICLES

A summary of vehicles is as follows:

|                               |  |             |         |              |  |   |         |  
|------------------------------ |  | ----------- | ------- | ------------ |  | - | ------- | -
|                               |  | March 31,   |         | December 31,
|                               |  | 2002        |         | 2001        
|                               |  |             |         |             
|                               |  | (Unaudited) |         |             
|Vehicles                       |  | $           | 3,056.2 |              |  | $ | 3,684.2 |  
|Less, accumulated depreciation |  |             | (537.4  | )            |  |   | (578.6  | )
|                               |  |             |         |              |  |   |         |  
|                               |  | $           | 2,518.8 |              |  | $ | 3,105.6 |  
|                               |  |             |         |              |  |   |         |  

9.     PROPERTY AND
EQUIPMENT

A summary of property and equipment is as follows:

|                                                |  |             |        |              |  |   |        |  
|----------------------------------------------- |  | ----------- | ------ | ------------ |  | - | ------ | -
|                                                |  | March 31,   |        | December 31,
|                                                |  | 2002        |        | 2001        
|                                                |  |             |        |             
|                                                |  | (Unaudited) |        |             
|Land                                            |  | $           | 46.9   |              |  | $ | 50.8   |  
|Furniture, fixtures and equipment               |  |             | 420.8  |              |  |   | 422.8  |  
|Buildings and improvements                      |  |             | 291.6  |              |  |   | 300.8  |  
|                                                |  |             |        |              |  |   |        |  
|                                                |  |             | 759.3  |              |  |   | 774.4  |  
|Less, accumulated depreciation and amortization |  |             | (373.7 | )            |  |   | (329.0 | )
|                                                |  |             |        |              |  |   |        |  
|                                                |  | $           | 385.6  |              |  | $ | 445.4  |  
|                                                |  |             |        |              |  |   |        |  

10.     OTHER
ASSETS

The components of other assets are as follows:

|                                    |  |             |      |              |  |   |      | 
|----------------------------------- |  | ----------- | ---- | ------------ |  | - | ---- | 
|                                    |  | March 31,   |      | December 31,
|                                    |  | 2002        |      | 2001        
|                                    |  |             |      |             
|                                    |  | (Unaudited) |      |             
|Deposits                            |  | $           | 55.2 |              |  | $ | 40.9 | 
|Debt issue cost, net                |  |             | 22.6 |              |  |   | 22.3 | 
|Interest rate hedges, at fair value |  |             | 16.7 |              |  |   | 22.3 | 
|Other                               |  |             | 4.1  |              |  |   | 4.8  | 
|                                    |  |             |      |              |  |   |      | 
|                                    |  | $           | 98.6 |              |  | $ | 90.3 | 
|                                    |  |             |      |              |  |   |      | 

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)

11.     ACCOUNTS
PAYABLE

The components of accounts payable are as follows:

|                                              |  |             |       |              |  |   |       |  
|--------------------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                              |  | March 31,   |       | December 31,
|                                              |  | 2002        |       | 2001        
|                                              |  |             |       |             
|                                              |  | (Unaudited) |       |             
|Trade payables                                |  | $           | 169.1 |              |  | $ | 155.2 |  
|Vehicle payables                              |  |             | 75.9  |              |  |   | 26.1  |  
|Less, amounts currently subject to compromise |  |             | (98.1 | )            |  |   | (89.6 | )
|                                              |  |             |       |              |  |   |       |  
|                                              |  | $           | 146.9 |              |  | $ | 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

Component of insurance reserves are as follows:

|                                              |  |             |        |              |  |   |        |  
|--------------------------------------------- |  | ----------- | ------ | ------------ |  | - | ------ | -
|                                              |  | March 31,   |        | December 31,
|                                              |  | 2002        |        | 2001        
|                                              |  |             |        |             
|                                              |  | (Unaudited) |        |             
|Auto and general liability                    |  | $           | 299.4  |              |  | $ | 284.3  |  
|Other                                         |  |             | 26.8   |              |  |   | 29.7   |  
|Less, amounts currently subject to compromise |  |             | (246.4 | )            |  |   | (251.7 | )
|                                              |  |             |        |              |  |   |        |  
|                                              |  | $           | 79.8   |              |  | $ | 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.

13.     OTHER
LIABILITIES

Components of other liabilities are as follows:

|                                                         |  |             |        |              |  |   |        |  
|-------------------------------------------------------- |  | ----------- | ------ | ------------ |  | - | ------ | -
|                                                         |  | March 31,   |        | December 31,
|                                                         |  | 2002        |        | 2001        
|                                                         |  |             |        |             
|                                                         |  | (Unaudited) |        |             
|Minority interest                                        |  | $           | 141.0  |              |  | $ | 141.3  |  
|Interest rate hedges, fair value at termination
    date |  |             | 82.3   |              |  |   | 82.3   |  
|Deferred gains on property sales                         |  |             | 32.4   |              |  |   | 32.8   |  
|Other                                                    |  |             | 56.1   |              |  |   | 55.4   |  
|Less, amounts considered to be subject to
    compromise |  |             | (111.5 | )            |  |   | (112.8 | )
|                                                         |  |             |        |              |  |   |        |  
|                                                         |  | $           | 200.3  |              |  | $ | 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 vehicle
interest expense and was $1.1 million and $1.7 million for the
three months ended March 31, 2002 and 2001, respectively.

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)

14.     VEHICLE
DEBT

Vehicle debt is as follows:

|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                     |             |         |              |  |   |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------- | ------------ |  | - | ------- | ------- | 
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                     | March 31,   |         | 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 rates of 4.75% at March 31,
    2002 and December 31, 2001                                                                                     |                                                                                                                                                                                                     | $           | 63.8    |              |  | $ | 63.8    |        
|Auction-rate note program; weighted average
    interest rate of 2.77% at March 31, 2002; maturities through
    2006, net of a $0.3 million discount as of March 31, 2002
    and December 31, 2001,
    respectively                                                                                |                                                                                                                                                                                                     |             | 144.7   |              |  |   | 222.7   |        
|Amounts under various asset-backed medium-term
    note programs secured by eligible vehicle and cash collateral:                                                                                                                                                                                     |                                                                                                                                                                                                     |             |         |              |  |   |         |        
|                                                                                                                                                                                                                                                                                                      | Fixed rate component; weighted average interest
    rate of 5.97% at March 31, 2002 and 5.94% at
    December 31, 2001; maturities through 2004.                                                    |             |         | 750.0        |  |   |         | 1,250.0 | 
|                                                                                                                                                                                                                                                                                                      | Floating rate component based on a spread over
    LIBOR; weighted average interest rate of 2.14% and 2.17% at
    March 31, 2002 and December 31, 2001, respectively;
    maturities through 2005. |             |         | 1,983.3      |  |   |         | 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 4.63% and 4.09% at March 31, 2002 and
    December 31, 2001, respectively; maturities through 2003 |                                                                                                                                                                                                     |             | 62.3    |              |  |   | 91.3    |        
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                     |             |         |              |  |   |         |        
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                     | $           | 3,004.1 |              |  | $ | 3,977.8 |        
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                     |             |         |              |  |   |         |        

At March 31, 2002, aggregate expected
maturities of vehicle debt were as follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2002 |  | $ | 558.0   | 
|2003 |  |   | 584.4   | 
|2004 |  |   | 1,417.0 | 
|2005 |  |   | 300.0   | 
|2006 |  |   | 144.7   | 
|     |  |   |         | 
|     |  | $ | 3,004.1 | 
|     |  |   |         | 

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 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.

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)

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 February 2003.

Additionally, the Company issued a $275.0 million
variable funding asset-backed note which, in June 2002, the
Company amended this facility 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 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, 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.

15.     OTHER
DEBT

Other debt is as follows:

|                                                                                                                                                                                                                                                                                   |  |             |       |              |  |   |       |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                                                                                                                                                                                                                                                                   |  | March 31,   |       | December 31,
|                                                                                                                                                                                                                                                                                   |  | 2002        |       | 2001        
|                                                                                                                                                                                                                                                                                   |  |             |       |             
|                                                                                                                                                                                                                                                                                   |  | (Unaudited) |       |             
|Supplemental secured term loan at 12.75% at
    March 31, 2002 and December 31, 2001, matures
    May 31, 2003                                                                                                                                                                     |  | $           | 40.0  |              |  | $ | 40.0  |  
|Interim financing fixed rate note at 15.5%
    through March 31, 2002 increasing 0.5% each 90 day
    period thereafter capped at 18.0%, matures June 30, 2007,
    net of a $9.9 million and $10.4 million discount at
    March 31, 2002 and December 31, 2001, respectively     |  |             | 190.1 |              |  |   | 189.6 |  
|Notes payable to vehicle manufacturer; weighted
    average interest rates of 4.26% at March 31, 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 March 31, 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                                                                                                      |  |             | 17.3  |              |  |   | 15.3  |  
|                                                                                                                                                                                                                                                                                   |  |             |       |              |  |   |       |  
|                                                                                                                                                                                                                                                                                   |  |             | 282.5 |              |  |   | 282.3 |  
|Less, amounts currently subject to compromise                                                                                                                                                                                                                                      |  |             | (35.0 | )            |  |   | (35.0 | )
|                                                                                                                                                                                                                                                                                   |  |             |       |              |  |   |       |  
|                                                                                                                                                                                                                                                                                   |  | $           | 247.5 |              |  | $ | 247.3 |  
|                                                                                                                                                                                                                                                                                   |  |             |       |              |  |   |       |  

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)

As of March 31, 2002 aggregate expected
maturities of other debt exclusive of note discounts
approximating $9.9 million are as follows: $122.4 million
in 2002, $40.0 million in 2003 and $130.0 million in 2007.

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 September 30, 2002,
$42.0 million of letters of credit were secured by the
facility and approximately $22.4 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 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 has 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 a $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 are 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.

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)

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.

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 principle payments currently due relative to its
debt classified as Other Debt.

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.

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 our 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 would not exceed $24.5 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, 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 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.

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)

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 would 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 quarterly
report on Form 10-Q for the interim period ended
September 30, 2002 regarding these transactions:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | In 1997 and 1999, the Company (AutoNation)
    engaged in certain transactions that are of a type that the IRS
    has indicated it intends to challenge. Approximately $680
    million of the Companys (AutoNations) net deferred
    tax liabilities relates to these transactions, including a
    significant portion that relates to a transaction that generally
    had the effect of accelerating projected tax deductions relating
    to employee health and welfare benefits to which the Company
    (AutoNation) would have been entitled upon providing such
    benefits in the future, and which deductions it is currently
    foregoing. These transactions are currently under review by the
    IRS, and the Company (AutoNation) has been engaged in ongoing
    discussions regarding the tax treatment of these transactions. | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | In October 2002, the IRS announced a settlement
    initiative aimed at resolving these types of transactions during
    2003. The settlement initiative includes settlement guidelines
    for companies that elect to enter into the settlement program
    offered by the IRS. The IRSs review of the Companys
    (AutoNations) transactions is almost complete, and the
    Company (AutoNation) anticipates entering into settlement
    negotiations with respect to the tax treatment of these
    transactions in the fourth quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 
|
| | Based on the settlement guidelines issued by the
    IRS and an assessment of the Companys (AutoNations)
    tax position with respect to the transactions, the Company
    (AutoNation) estimates that, in connection with a possible
    settlement, it could owe the IRS net aggregate payments in the
    range of approximately $500 million to $550 million, a
    substantial portion of which might be deferred over up to a
    15-year period. The Company (AutoNation) estimates that the
    initial net payment in connection with such a settlement could
    be in the range of approximately $200 million to $400 million,
    with the remaining amount deferred. The Company (AutoNation)
    presently expects that, if a settlement were reached with the
    IRS, any such initial payment would be made in late 2003. There
    can be no assurance that the Company (AutoNation) will settle
    the tax treatment of the transactions with the IRS. If the
    Company (AutoNation) does reach a settlement, there can be no
    assurance that it will be on the terms outlined above, including
    with respect to the amount or timing of payments. | 
|
| | The Company (AutoNation) believes that its tax
    returns appropriately reflect such transactions, and that it has
    established adequate reserves with respect to any tax
    liabilities relating to these transactions. However, adverse
    resolution of these matters could have a material adverse effect
    on the Companys (AutoNations) financial condition,
    results of operations and cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 

The Company is currently unable to predict when
AutoNation may reach a settlement with the Internal Revenue
Service, however any delays in or the inability of AutoNation to
reach a settlement with the Internal Revenue Service will
adversely affect our ability to emerge from bankruptcy.

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

17



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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)

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 conditions. For the quarter
ended March 31, 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 months ended March 31, 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 months ended March 31, 2001, the Company
reclassified net payments of approximately $0.1 million under
its caps and floors 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 comprehensive income to current earnings over
the life of the remaining debt outstanding. Amortization of
deferred losses recognized currently in earnings approximated
$9.2 million and $0.3 million for the three months ended
March 31, 2002 and 2001, respectively. The Company expects
amortization of remaining intrinsic and time value of these
deferred losses will approximate $35.4 million for the year
ended December 31, 2002.

18.     COMPREHENSIVE
INCOME (LOSS)

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

|                                                                                                             |                                         |                    |        |      |   |   |       |      |  
|------------------------------------------------------------------------------------------------------------ | --------------------------------------- | ------------------ | ------ | ---- | - | - | ----- | ---- | -
|                                                                                                             |                                         |                   
|                                                                                                             |                                         | Three Months Ended
|                                                                                                             |                                         | March 31,         
|                                                                                                             |                                         |                   
|                                                                                                             |                                         | 2002               |        | 2001
|                                                                                                             |                                         |                    |        |     
|Net loss                                                                                                     |                                         | $                  | (245.6 | )    |   | $ | (33.0 | )   
|Other comprehensive income (loss), net of tax:                                                               |                                         |                    |        |      |   |   |       |     
|                                                                                                             | Foreign currency translation adjustment |                    |        | (1.4 | ) |   |       | (4.8 | )
|Changes in fair value of interest rate hedges and
    reclassification adjustments on interest rate hedges   |                                         |                    | 5.0    |      |   |   | (14.0 | )   
|                                                                                                             |                                         |                    |        |      |   |   |       |     
|Other comprehensive income (loss), net of tax
    before cumulative effect of change in accounting principle |                                         |                    | (242.0 | )    |   |   | (51.8 | )   
|Cumulative effect of change in accounting
    principle, net of tax                                          |                                         |                    |       |      |   |   | (14.6 | )   
|                                                                                                             |                                         |                    |        |      |   |   |       |     
|Comprehensive loss                                                                                           |                                         | $                  | (242.0 | )    |   | $ | (66.4 | )   
|                                                                                                             |                                         |                    |        |      |   |   |       |     

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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:

|                                         |  |             |       |              |  |   |       |  
|---------------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                         |  | March 31,   |       | December 31,
|                                         |  | 2002        |       | 2001        
|                                         |  |             |       |             
|                                         |  | (Unaudited) |       |             
|Foreign currency translation adjustments |  | $           | (15.5 | )            |  | $ | (14.1 | )
|Deferred losses on interest rate hedges  |  |             | (68.1 | )            |  |   | (73.1 | )
|                                         |  |             |       |              |  |   |       |  
|                                         |  | $           | (83.6 | )            |  | $ | (87.2 | )
|                                         |  |             |       |              |  |   |       |  

19.     NEW
ACCOUNTING PRONOUNCEMENTS

On June 30, 2001 the Financial Account
Standards board (FASB) finalized and issued Statements of
Financial Accounting Standards No. 141, Business
Combinations (SFAS 141) and No. 142,
Goodwill and Other Intangible Assets (SFAS
142).

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 decrease in amortization for the
three months ended March 31, 2002 compared to the same
period in 2001. Net loss for the three months ended
March 31, 2001, adjusted for the impact of amortization,
would have been $30.5 million or $0.67 per share. As of
January 1, 2002, the Company had approximately
$127.1 million of goodwill related to its operations in the
United Kingdom. As such the Company began performing an
impairment analysis of goodwill. SFAS 142 requires the Company,
upon adoption and at least annually, to reassess the
recoverability of goodwill and intangible assets with indefinite
lives. Furthermore, 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 is less than
the carrying value of the net assets, the Company performed step
two of the SFAS 142 impairment test, which requires the Company
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. 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 relative to
its operations in the United Kingdom.

Effective January 1, 2002, the Company
adopted the provisions of SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. SFAS
144 supercedes SFAS No. 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

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ANC RENTAL CORPORATION


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


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 March 31, 2002. However, in the fourth quarter
of 2002, SFAS No. 144 will impact the Companys
financial statements for the discontinued operations of the
Alamo Local Market Division. The Alamo Local Market Division had
losses before income taxes of $16.9 million and $4.8 million for
the three months ended March 31, 2002 and 2001,
respectively.

20.     RECENT
DEVELOPMENTS

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 has recorded a $15.8 million
impairment charge to expense the carrying value of 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 be required to restate its financial statements to reflect
its Alamo Local Market Division as a discontinued operation.

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|         |                                                                                          
|-------- | -----------------------------------------------------------------------------------------
|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 the Alamo and
National brands. 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 2001,
approximately 85% of our rental revenue is derived from vehicle
rental charges with the remaining 15% 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 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, or our insurance captive and special purpose
financing entities.

The confirmation of a plan or plans 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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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 has
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 in 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
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
uncertainty about our ability to continue as a going concern.

Management Changes

In the fourth quarter of 2002, William 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
our Executive Vice President responsible for worldwide sales,
marketing, operations, business system development, brand
integrity, information technology, reservations and revenue

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management. Additionally, Douglas Laux has
assumed the role 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 March 31,
|                                       |                           |                             
|                                       |                           | 2002                         |        | %       |  | 2001 |       | % 
|                                       |                           |                              |        |         |  |      |       |   
|Revenue                                |                           | $                            | 599.6  |         |  |      | 100.0 | %  |  | $ | 769.1 |         |  |  | 100.0 | % 
|Direct operating costs                 |                           |                              | 293.4  |         |  |      | 48.9  |    |  |   | 336.3 |         |  |  | 43.7  |   
|Vehicle depreciation, net              |                           |                              | 195.5  |         |  |      | 32.6  |    |  |   | 241.6 |         |  |  | 31.4  |   
|Selling, general and administration    |                           |                              | 140.1  |         |  |      | 23.4  |    |  |   | 159.8 |         |  |  | 20.8  |   
|Transition and reorganization expenses |                           |                              | 51.6   |         |  |      | 8.6   |    |  |   |      |         |  |  |      |   
|Amortization of intangible assets      |                           |                              |       |         |  |      |      |    |  |   | 2.5   |         |  |  | 0.3   |   
|Interest income                        |                           |                              | (1.4   | )       |  |      | (0.2  | )  |  |   | (1.3  | )       |  |  | (0.2  | ) 
|Interest expense                       |                           |                              | 47.6   |         |  |      | 7.9   |    |  |   | 89.5  |         |  |  | 11.7  |   
|Other expense, net                     |                           |                              | 12.2   |         |  |      | 2.0   |    |  |   | 6.4   |         |  |  | 0.8   |   
|                                       |                           |                              |        |         |  |      |       |    |  |   |       |         |  |  |       |   
|Loss before income taxes               |                           | $                            | (139.4 | )       |  |      | (23.2 | )% |  | $ | (65.7 | )       |  |  | (8.5  | )%
|                                       |                           |                              |        |         |  |      |       |    |  |   |       |         |  |  |       |   
|Key Statistics                         |                           |                              |        |         |  |      |       |    |  |   |       |         |  |  |       |   
|                                       | Revenue per day           |                              | $      | 37.23   |  |      |       |    |  |   | $     | 35.72   |  |  |       |    | 
|                                       | Charge days (in millions) |                              |        | 15.8    |  |      |       |    |  |   |       | 21.2    |  |  |       |    | 
|                                       | Average fleet             |                              |        | 229,153 |  |      |       |    |  |   |       | 304,460 |  |  |       |    | 
|                                       | Fleet utilization         |                              |        | 76.8%   |  |      |       |    |  |   |       | 77.5%   |  |  |       |    | 

Revenue

Revenue was $599.6 million for the three months
ended March 31, 2002, and $769.1 million for the three
months ended March 31, 2001. The decrease in revenue of
$169.5 million or 22.0% is primarily due to lower charge day
volume of 25.1% or $193.0 million, offset by higher revenue per
day of 2.4% or $18.7 million. The favorable effects of foreign
exchange movements were 0.7% or $5.1 million, and licensee and
other revenue decreased by $0.3 million.

The decline in charge day volume for the three
months ended March 31, 2002 as compared to the same period
in the prior year approximated 5.4 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 1.6
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
pricing and fleet allocation decisions made to benefit more
profitable lines of business. The remaining decrease in charge
days was realized in our International and Alamo Local Market
operations.

The increase in revenue per day for the three
months ended March 31, 2002 as compared to the same period
in the prior year reflects a favorable domestic airport pricing
environment, as well as the result of a shift in mix towards the
higher priced National brand.

Following the events of September 11, 2001
there has been a significant and sustained decline in air travel
and related car rentals at airports worldwide, particularly in
the U.S. We cannot accurately predict the extent or duration of
the decline in air travel. Approximately ninety percent of the
Companys revenue is derived from airport locations and
therefore a continued decline in air travel may have a material
adverse effect on our financial position and results of
operations.

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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 $293.4 million for the three months
ended March 31, 2002 and $336.3 million for the three
months ended March 31, 2001. As a percent of revenue,
direct operating costs were 48.9% for the three months ended
March 31, 2002 and 43.7% for the three months ended
March 31, 2001.

Direct operating costs decreased $42.9 million
due to lower fleet operating cost and lower volume-related
variable costs, offset partially by higher fixed expenses. The
year to year decline is due to: (i) lower charge day volume
and (ii) lower fleet turnbacks. The decline in charge day
volume reduced our variable personnel and variable transaction
costs in the current quarter versus the prior year.
Additionally, for much of the current year first quarter, we
were unable to purchase new fleet under our existing vehicle
debt agreements. In order to maintain a reasonably sized
operating fleet, we extended the service life of our vehicles
beyond their normal operating cycle. As such, our vehicle
turnback costs were lower in the current quarter as compared to
the prior year.

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
$195.5 million for the three months ended March 31,
2002 and $241.6 million for the three months ended
March 31, 2001. As a percent of revenue, vehicle
depreciation was 32.6% for the three months ended March 31,
2002 and 31.4% for the three months ended March 31, 2001.

The decrease in vehicle depreciation of $46.1
million or 19.1% for the three months ended March 31, 2002
as compared to the three months ended March 31, 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 $59.7 million. Due to the drop in demand we have
adjusted our fleet size downward by 24.7% from the previous year
reducing overall fleet operating cost and vehicle depreciation.
Offsetting these decreases was an increase in depreciation rates
of approximately $12.3 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 $1.3 million.

Selling,
General and Administrative

Selling, general and administrative expenses were
$140.1 million for the three months ended March 31, 2002
and $159.8 million for the three months ended March 31,
2001. Selling, general and administrative expenses as a
percentage of revenue were 23.4% for the three months ended
March 31, 2002 and 20.8% for the three months ended
March 31, 2001. The decrease in selling, general and
administrative expenses of $19.7 million is the result of
decreased advertising and selling expenses approximating $13.7
million due to managements discretionary spending
reductions. Additionally, we incurred lower variable selling
costs of approximately $11.7 million due to lower overall charge
day volumes. Offsetting these decreases were approximately $4.5
million of increases in provisions for bad debts, overhead, and
consulting fees, and the adverse effects of foreign exchange of
$1.2 million.

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.

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Transition and reorganization expenses for the
three months ended March 31, 2002 are as follows (in millions):

|                                         |  |      |      |          |  |       |      |  |  |   |      | 
|---------------------------------------- |  | ---- | ---- | -------- |  | ----- | ---- |  |  | - | ---- | 
|                                         |  | Cash |      | Non-Cash |  | Total
|                                         |  |      |      |          |  |      
|Airport location consolidation           |  | $    | 0.2  |          |  | $     | 6.6  |  |  | $ | 6.8  | 
|Combining information technology systems |  |      | 3.5  |          |  |       | 29.9 |  |  |   | 33.4 | 
|Closure of Alamo local market locations  |  |      | 0.7  |          |  |       | 4.2  |  |  |   | 4.9  | 
|Professional fees and other              |  |      | 6.5  |          |  |       |     |  |  |   | 6.5  | 
|                                         |  |      |      |          |  |       |      |  |  |   |      | 
|                                         |  | $    | 10.9 |          |  | $     | 40.7 |  |  | $ | 51.6 | 
|                                         |  |      |      |          |  |       |      |  |  |   |      | 

Airport
Location Consolidation

At seventy airports including most of the major
airports in the United States, Alamo and National operated under
140 separate stand-alone concession agreements as of the date of
the bankruptcy filing. 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 six
months 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. Due to material uncertainties,
negotiations with third parties, and the legal challenges of
certain competitors, 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 November 30, 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 by the end of the
first quarter of 2003.

We have incurred $6.8 million in expenses
relative to our airport location consolidation project for the
three months ended March 31, 2002, of which approximately
$0.2 million was cash and $6.6 million was non-cash. The
non-cash component was primarily comprised of an impairment
charge of approximately $3.0 million and excess
depreciation of approximately $3.1 million.

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
other third party vendors to accept system changes. We have
accelerated the amortization on $109.4 million of assets, which
will be abandoned, upon the migration to one system. In the
fourth quarter of 2002, 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 $33.4 million in expenses
relative to the combining of information technology systems for
the three months ended March 31, 2002, of which
approximately $3.5 million was cash and approximately $29.9
million was non-cash. The cash component primarily related to
external consulting while the non-cash component related to
excess depreciation.

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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 brand 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 quarter of 2002, we closed
approximately 182 unprofitable local market locations. Costs
incurred relative to these closures approximated $5.6 million,
of which $4.9 million has been classified as a transition and
reorganization expense. 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. The Company expects to have substantially
completed its plan of abandonment in the fourth quarter of 2002.
The plan includes 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 a discontinued operations
in the fourth quarter of 2002. A summary of operating results
relative to Alamo Local Market Division for the periods
indicated are as follows:

|                         |  |                 |       |      |  |   |      |  
|------------------------ |  | --------------- | ----- | ---- |  | - | ---- | -
|                         |  |                
|                         |  | Three Months   
|                         |  | Ended March 31,
|                         |  |                
|                         |  | 2002            |       | 2001
|                         |  |                 |       |     
|Revenue                  |  | $               | 47.4  |      |  | $ | 63.4 |  
|Loss before income taxes |  |                 | (16.9 | )    |  |   | (4.8 | )

Professional
Fees and Other

In the first quarter of 2002, we have incurred
professional fees directly related to our re-organization and
bankruptcy proceedings of approximately $6.8 million for
services rendered on behalf of our creditors and us. Separately,
we have reclassified approximately $0.3 million of excess
interest income to transition and reorganization expense.

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,
respectively, our German operating and financing subsidiaries
filed for receivership under local law. As such, in the third
quarter, we have recorded a reorganization provision of
approximately $15.8 million relative to our net investment
in our 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

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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
with indefinite lives. Furthermore, we, as required, 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 requires 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. 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.

Interest
Expense

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

|                             |  |                    |      |      |  |   |      | 
|---------------------------- |  | ------------------ | ---- | ---- |  | - | ---- | 
|                             |  |                   
|                             |  | Three Months Ended
|                             |  | March 31,         
|                             |  |                   
|                             |  | 2002               |      | 2001
|                             |  |                    |      |     
|Vehicle interest expense     |  | $                  | 34.8 |      |  | $ | 72.4 | 
|Non-vehicle interest expense |  |                    | 12.8 |      |  |   | 17.1 | 
|                             |  |                    |      |      |  |   |      | 
|                             |  | $                  | 47.6 |      |  | $ | 89.5 | 
|                             |  |                    |      |      |  |   |      | 

The decrease in vehicle interest expense 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 March 31, 2002 and
approximately $5.7 million for the three months ended
March 31, 2001.

Other
(Income) Expense, Net

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

|                                                                                     |  |                    |      |      |  |   |      |  
|------------------------------------------------------------------------------------ |  | ------------------ | ---- | ---- |  | - | ---- | -
|                                                                                     |  |                   
|                                                                                     |  | Three Months Ended
|                                                                                     |  | March 31,         
|                                                                                     |  |                   
|                                                                                     |  | 2002               |      | 2001
|                                                                                     |  |                    |      |     
|Fair value adjustment on interest rate hedges and
    recognition of deferred losses |  | $                  | 10.9 |      |  | $ | 3.3  |  
|Loss on sale and leaseback transactions                                              |  |                    |     |      |  |   | 3.7  |  
|Other expense (income)                                                               |  |                    | 1.3  |      |  |   | (0.6 | )
|                                                                                     |  |                    |      |      |  |   |      |  
|                                                                                     |  | $                  | 12.2 |      |  | $ | 6.4  |  
|                                                                                     |  |                    |      |      |  |   |      |  

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 March 31, 2001 was a mark-to-market loss of
$3.3 million. The amounts recognized related to the changes in
fair market value of 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 $10.9 million for the three months ended
March 31, 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.

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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 $32.4 million remained as of March 31, 2002.

Other expense (income), net was $1.3 million for
the three months ended March 31, 2002 and $(0.6) million
for the three months ended March 31, 2001. The increase is
primarily due to a loss recognized on the sale of land and
building.

Benefit
for Income Taxes

As a result of significant adverse changes in the
business environment, current 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 accruing 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 $25.6
million for the three months ended March 31, 2001.

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 and the third quarter 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, 2001 levels.

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First
Quarter 2002 versus Fourth Quarter 2001

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
|                                       |                           |                   
|                                       |                           | March 31,          |        |         |  | December 31, |       |   
|                                       |                           | 2002               |        | %       |  | 2001         |       | % 
|                                       |                           |                    |        |         |  |              |       |   
|Revenue                                |                           | $                  | 599.6  |         |  |              | 100.0 | %  |  | $ | 634.9  |         |  |  | 100.0 | % 
|Direct operating costs                 |                           |                    | 293.4  |         |  |              | 48.9  |    |  |   | 333.1  |         |  |  | 52.5  |   
|Vehicle depreciation, net              |                           |                    | 195.5  |         |  |              | 32.6  |    |  |   | 224.2  |         |  |  | 35.3  |   
|Selling, general and administrative    |                           |                    | 140.1  |         |  |              | 23.4  |    |  |   | 166.2  |         |  |  | 26.2  |   
|Transition and reorganization expenses |                           |                    | 51.6   |         |  |              | 8.6   |    |  |   | 2.1    |         |  |  | 0.3   |   
|Amortization of intangible assets      |                           |                    |       |         |  |              |      |    |  |   | 0.9    |         |  |  | 0.1   |   
|Interest income                        |                           |                    | (1.4   | )       |  |              | (0.2  | )  |  |   | (1.5   | )       |  |  | (0.2  | ) 
|Interest expense                       |                           |                    | 47.6   |         |  |              | 7.9   |    |  |   | 69.2   |         |  |  | 10.9  |   
|Other expense, net                     |                           |                    | 12.2   |         |  |              | 2.0   |    |  |   | 9.3    |         |  |  | 1.5   |   
|                                       |                           |                    |        |         |  |              |       |    |  |   |        |         |  |  |       |   
|Loss before income taxes               |                           | $                  | (139.4 | )       |  |              | (23.2 | )% |  | $ | (168.6 | )       |  |  | (26.6 | )%
|                                       |                           |                    |        |         |  |              |       |    |  |   |        |         |  |  |       |   
|Key Statistics                         |                           |                    |        |         |  |              |       |    |  |   |        |         |  |  |       |   
|                                       | Revenue per day           |                    | $      | 37.23   |  |              |       |    |  |   | $      | 34.16   |  |  |       |    | 
|                                       | Charge days (in millions) |                    |        | 15.8    |  |              |       |    |  |   |        | 18.3    |  |  |       |    | 
|                                       | Average fleet             |                    |        | 229,153 |  |              |       |    |  |   |        | 259,350 |  |  |       |    | 
|                                       | Fleet utilization         |                    |        | 76.8%   |  |              |       |    |  |   |        | 76.7%   |  |  |       |    | 

Our first quarter is historically weaker than our
fourth quarter of the prior year. As such, revenue decreased
$35.3 million or 5.6% in the first quarter of 2002 as compared
to the fourth quarter of 2001. The decrease in revenue is
primarily driven by a decrease in rental volume of 13.3% offset
by an increase in pricing of 7.8% due to management pricing
decisions. Our first and fourth quarters were adversely impacted
by the events of September 11 and our bankruptcy filing. We
believe these events will continue to adversely impact our
volume for the foreseeable future.

Direct operating costs decreased $39.7 million
due to decreases in variable transaction costs, field personnel
costs, and facility costs primarily the result of decreased
rental volume coupled with 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 decreased $28.7 million
primarily due to a lower average fleet partially offset by
higher depreciation rates.

Selling, general and administrative costs
decreased $26.1 million primarily due to lower bad debt
provisions, lower professional and consulting fees as well as
reserve adjustments recorded in connection with our
chapter 11 bankruptcy filing.

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

|                             |  |           |      |              |  |   |      | 
|---------------------------- |  | --------- | ---- | ------------ |  | - | ---- | 
|                             |  | March 31, |      | December 31,
|                             |  | 2002      |      | 2001        
|                             |  |           |      |             
|Vehicle interest expense     |  | $         | 34.8 |              |  | $ | 54.5 | 
|Non-vehicle interest expense |  |           | 12.8 |              |  |   | 14.7 | 
|                             |  |           |      |              |  |   |      | 
|                             |  | $         | 47.6 |              |  | $ | 69.2 | 
|                             |  |           |      |              |  |   |      | 

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

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Cash Flows

The following discussion relates to the major
components of changes in cash flows for the three month periods
ended March 31, 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 provided by operating activities was $626.4
million for the three months ended March 31, 2002, and cash
provided by operating activities was $94.7 million for the three
months ended March 31, 2001. The increase in cash provided
by 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 provided by investing activities was
$0.6 million for the three months ended March 31, 2002, and
cash flows provided by investing activities were $67.6 million
for the three months ended March 31, 2001. Cash provided by
investing activity in the first quarter of 2001 was primarily
derived from our sale and leaseback transactions which was not
recurring in the first quarter of 2002.

Cash
Flows from Financing Activities

Cash flows used in financing activities for the
three months ended March 31, 2002 was $731.7 million, and
cash flows used in financing activities were $74.6 million for
the three months ended March 31, 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 to 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 used to
finance our fleet and consists of: (1) asset-backed
medium-term, variable funding notes and 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. 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.

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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 currently scheduled to expire in February 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 effected 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.

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
September 30, 2002, $42.0 million of letters of credit were
secured by the facility and approximately $22.4 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

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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 immediately
exercisable 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 were recorded as a note discount
and are 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.

Regarding our international operations, in April
2002, our United Kingdom subsidiary entered into a working
capital facility with a third party lender which allows the
operation for limited periods of time to use certain vehicle
proceeds to support working capital needs up to
£20.0 million.

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 December 11, 2002, we had
outstanding surety bonds of approximately $134.0 million,
which expire during 2002 and 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
surety provider to post additional cash collateral in exchange
for the commitment of the surety provider to

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issue designated surety bonds for the remainder
of 2002. As of September 30, 2002 we have deposited $6.0
million with our surety provider. In the event our surety
provider is required to make payments under its bonds, we may be
required under the provisions of our agreements to deposit up to
an additional $16.0 million. Additionally, our former Parent
provides financial guarantees of approximately
$29.5 million in favor of our surety provider. We are in
discussions with our principal surety provider concerning our
2003 surety bonding needs. There is no assurance that our surety
will agree to meet our surety bonding needs or, if so, upon what
terms.


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.
We expect that our 2002 liquidity needs can be financed through
operating cash flow.

As of March 31, 2002 cash and cash
equivalents approximated $215.5 million of which $197.2 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 December 3, 2002, the
Bankruptcy Court extended our approved use of this cash
collateral to February 16, 2003. During this period, we
plan to use this cash collateral to finance our ongoing
operations. We also expect to file, with the Bankruptcy Court, a
motion to allow our use of cash collateral beyond
February 16, 2003. In conjunction with obtaining an
extension of our use of cash collateral on February 16,
2003, we expect to need debtor-in-possession financing. We have
commenced discussions with several potential lenders to obtain
the necessary debtor-in-possession financing. There can be no
assurance such financing will be obtained, or if obtained upon
what terms. 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 our 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 would not exceed $24.5 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, 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 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.

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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 would 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. We have
included below an excerpt from AutoNations quarterly
report on Form 10-Q for the interim period ended
September 30, 2002 regarding these transactions:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | In 1997 and 1999, the Company (AutoNation)
    engaged in certain transactions that are of a type that the IRS
    has indicated it intends to challenge. Approximately $680
    million of the Companys (AutoNations) net deferred
    tax liabilities relates to these transactions, including a
    significant portion that relates to a transaction that generally
    had the effect of accelerating projected tax deductions relating
    to employee health and welfare benefits to which the Company
    (AutoNation) would have been entitled upon providing such
    benefits in the future, and which deductions it is currently
    foregoing. These transactions are currently under review by the
    IRS, and the Company (AutoNation) has been engaged in ongoing
    discussions regarding the tax treatment of these transactions. | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | In October 2002, the IRS announced a settlement
    initiative aimed at resolving these types of transactions during
    2003. The settlement initiative includes settlement guidelines
    for companies that elect to enter into the settlement program
    offered by the IRS. The IRSs review of the Companys
    (AutoNations) transactions is almost complete, and the
    Company (AutoNation) anticipates entering into settlement
    negotiations with respect to the tax treatment of these
    transactions in the fourth quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 
|
| | Based on the settlement guidelines issued by the
    IRS and an assessment of the Companys (AutoNations)
    tax position with respect to the transactions, the Company
    (AutoNation) estimates that, in connection with a possible
    settlement, it could owe the IRS net aggregate payments in the
    range of approximately $500 million to $550 million, a
    substantial portion of which might be deferred over up to a
    15-year period. The Company (AutoNation) estimates that the
    initial net payment in connection with such a settlement could
    be in the range of approximately $200 million to $400 million,
    with the remaining amount deferred. The Company (AutoNation)
    presently expects that, if a settlement were reached with the
    IRS, any such initial payment would be made in late 2003. There
    can be no assurance that the Company (AutoNation) will settle
    the tax treatment of the transactions with the IRS. If the
    Company (AutoNation) does reach a settlement, there can be no
    assurance that it will be on the terms outlined above, including
    with respect to the amount or timing of payments. | 
|
| | The Company (AutoNation) believes that its tax
    returns appropriately reflect such transactions, and that it has
    established adequate reserves with respect to any tax
    liabilities relating to these transactions. However, adverse
    resolution of these matters could have a material adverse effect
    on the Companys (AutoNations) financial condition,
    results of operations and cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 

The Company is currently unable to predict when
AutoNation may reach a settlement with the Internal Revenue
Service, however any delays in or the inability of AutoNation to
reach a settlement with the Internal Revenue Service will
adversely affect our ability to emerge from bankruptcy.

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, emerge from bankruptcy protection, 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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##### Table of Contents



Recent Results from
Operations

Our results and financial position as of and for
the three months ended September 30, 2002 as well as our
results for the nine months ended September 30, 2002 are
unaudited and have not been reviewed by our external auditor and
may be subject to change. Revenue was $713.3 million for
the three months ended September 30, 2002 and
$908.3 million for the three months ended
September 30, 2001. Revenue was $1,969.4 million for
the nine months ended September 30, 2002 and
$2,527.9 million for the nine months ended
September 30, 2001. Pre-tax loss was $72.9 million for
the three months ended September 30, 2002 and
$250.0 million for the three months ended
September 30, 2001. Pre-tax loss, before the consideration
of adopting new accounting standards, was $329.6 million
for the nine months ended September 30, 2002 and
$346.2 million for the nine months ended September 30,
2001. Transition and reorganization expenses were
$60.0 million for the three months ended September 30,
2002 and $175.3 million for the nine months ended
September 30, 2002. As of September 30, 2002 cash and
cash equivalents approximated $183.7 million.

Revenue attributable to our Alamo Local Market
Operations approximated $31.3 million for the three months ended
September 30, 2002 and $72.3 million for the three months
ended September 30, 2001. Revenue was $115.2 million for
the nine months ended September 30, 2002 and $201.4 million
for the nine months ended September 30, 2001. Loss before
income taxes from our Alamo Local Market Operations approximated
$23.5 million for the three months ended September 30, 2002
and $3.6 million for the three months ended September 30,
2001. Loss before income taxes was $57.7 million for the nine
months ended September 30, 2002 and $12.1 million for the
nine months ended September 30, 2001.

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 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

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##### Table of Contents



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;                                                                                                                                                       
|
| |  | 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

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##### Table of Contents



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 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
|                   |                        |                        |       |       |  | March 31, 
|March 31, 2002:    |                        | 2002                   |       | 2003  |  | 2004       |       | 2005  |  | 2006 |         | Thereafter |  | Total |       | 2002 
|                   |                        |                        |       |       |  |            |       |       |  |      |         |            |  |       |       |      
|                   |                        |                       
|                   |                        | (In millions)         
|Asset/Liability    |                        |                        |       |       |  |            |       |       |  |      |         |            |  |       |       |       |  |   |       |       |  |   |   |   |  |   |         |   |  |   |         |  
|Variable rate debt |                        | $                      | 360.3 |       |  | $          | 541.5 |       |  | $    | 1,000.0 |            |  | $     | 300.0 |       |  | $ | 144.7 |       |  | $ |  |   |  | $ | 2,346.5 |   |  | $ | 2,346.5 |  
|                   | Average interest rates |                        |       | 3.45% |  |            |       | 2.76% |  |      |         | 2.15%      |  |       |       | 2.14% |  |   |       | 2.77% |  |   |   |  |  |   |         |  |  |   |         |  | 
|Interest rate caps |                        |                        | 936.6 |       |  |            | 500.0 |       |  |      | 1,000.0 |            |  |       | 300.0 |       |  |   | 144.7 |       |  |   |  |   |  |   | 2,881.3 |   |  |   | (16.7   | )
|                   | Average rate           |                        |       | 7.15% |  |            |       | 7.30% |  |      |         | 6.71%      |  |       |       | 7.74% |  |   |       | 8.09% |  |   |   |  |  |   |         |  |  |   |         |  | 

|                   |                        |                        |       |       |  |              |       |       |  |      |         |            |  |       |       |       |  |   |       |       |  |   |   |   |  |   |         |   |  |   |         |   | 
|------------------ | ---------------------- | ---------------------- | ----- | ----- |  | ------------ | ----- | ----- |  | ---- | ------- | ---------- |  | ----- | ----- | ----- |  | - | ----- | ----- |  | - | - | - |  | - | ------- | - |  | - | ------- | - | 
|                   |                        |                        |       |       |  |             
|                   |                        | 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.

37



---



##### 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 and 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 and 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 as disclosed in ANC Rental
    Corporations annual report on Form 10-K for the year ended
    December 31, 2001.                                                       
|        | 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 Principal 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 January 22, 2002 (filed
January 24, 2002), Item 5, reporting ANC Rental
Corporations filing its Debtor monthly operation report
with the Bankruptcy Court for the period ended December 31,
2002.

Form 8-K, dated February 11, 2002
(filed February 11, 2002), Item 9, reporting ANC
Rental Corporations agreement with MBIA Insurance
Corporation for $1.0 billion of vehicle financing.

Form 8-K, dated March 1, 2002 (filed
March 1, 2002), Item 9, reporting ANC Rental
Corporations filing its Debtor monthly operation report
with the Bankruptcy Court for the period ended January 31,
2002.

Form 8-K, dated March 26, 2002 (filed
March 27, 2002), Item 9, reporting ANC Rental
Corporations filing its Debtor monthly operation report
with the Bankruptcy Court for the period ended February 28,
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: January 13, 2003 |  | ANC RENTAL CORPORATION                                                                                              
|                       
|                        |  | By: /s/ MICHAEL J. KIPPVice President, Controller
    (Principal Accounting Officer
    and Duly Authorized Officer)

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: January 13, 2003

/s/ WILLIAM 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: January 13, 2003

/s/ DOUGLAS C. LAUX




Senior Vice President and Chief Financial Officer


39