Jeff Kessler – Imperial Capital Brian Johnson – Barclays Capital Emily Shanks – Barclays Capital [Yoma Abebe]

Welcome to the Avis Budget Group second quarter earnings conference call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Mr. David Crowther, Vice President of Investor Relations.

On the call with me are Chairman and Chief Executive Officer Ron Nelson, our President and Chief Operating Officer Bob Salerno and our Executive Vice President and Chief Financial Officer David Wyshner. If you did not receive a copy of our press release it’s available on our website at www.AvisBudgetGroup.com. Before we discuss our results for the quarter I’d like to remind everyone that the company will be making statements about its future results and expectations which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are based on current expectations and the current economic environment and are inherently subject to significant economic, competitive and other uncertainties and contingencies beyond the control of management. You should be cautioned that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our 10K and in our earnings release issued last night. Also, certain non-GAAP financial measures will be discussed and these measures are reconciled to the GAAP numbers in our press release which is posted on our website. Now, I’d like to turn the call over to Avis Budget Group’s Chairman and Chief Executive Officer Ron Nelson.

This morning we’re all going to comment on various aspects of our second quarter results, our cost savings initiatives and our outlook. Before I do that though I want to share a broader view of where we stand by reminding you of the issues that were an overhang on our stock and frankly an anchor on our company earlier this year then provide you with a sense of the progress that we’ve made on these particular issues. So you don’t misunderstand, we’re not declaring victory by any margin, there’s still a lot of work to be done to restore profitability to acceptable levels but, we are confident we’re on the right track and even more confident we will ultimately get where we need to be. Let me get to the issues, at the start of 2009 there were widespread concerns about our ability to achieve the cost savings we were targeting, our ability to meet our financial covenants, about used car prices which had declined sharply in Q4, about the potential for severe impacts from OEM bankruptcies, our fortitude to keep fleet levels in line with weak demand, refining our access to liquidity in the ABS market. The headline on this is that these concerns are largely in our rearview mirror at this point. It would be silly for me to say that all these were unjustified, to be sure, several of these were simply not in our control but they did evolve the way we expected them to and for those that were in our control, well I believe we went after them about as aggressively as any management team could. First, on the cost savings front, we are well ahead of the projections we made when we developed the five point plan in the fourth quarter of 2008.…

I’m going to focus my comments this morning on fleet, both the steps we’ve taken to reduce fleet levels and what we’re seeing in the used car market and also give a brief update on our 2010 negotiations. As Ron mentioned, we continue to manage the fleet down aggressively based on demand. Our average domestic fleet for the quarter was down 22% year-over-year in line with the decline in rental days and at quarter end our fleet was also down about 22%. Shifts of this magnitude are not without costs, it’s important for you to remember that our fleet costs include depreciation, disposal costs and any gain or loss on disposals. These were up 17% on a per unit basis this quarter. Since we did not anticipate double digit volume drops when we signed the model year ’09 fleet deals last summer, the rapid decline in demand from the fourth quarter through the first quarter pushed up per unit fleet costs and this continued in to Q2 as we continued to right size our fleet. The issue is that the least expensive month in a car’s life is often the last month. As a result, demand weakness that causes us to sell or turn back vehicles sooner than we had planned imposes an incremental cost on us. However, at this point the significant fleet cost increases are behind us as our projected overall 7% to 9% per unit fleet cost increase for the year indicates. We are expecting modest increases in the third quarter and a decline in per unit costs in the fourth quarter. Compared to our competitors, our average fleet age is more than 15% younger though we expect our hold periods to lengthen going forward and we believe this dynamic will benefit fleet costs for the remainder…

I’d like to discuss our recent results, how our cost saving initiatives impact our earnings statement and our financing strategy. Starting with our results excluding restructuring cost of $8 million, in the second quarter revenue fell 17% to $1.3 billion. EBITDA was $67 million and our pre-tax income was $6 million. EBITDA declined modestly from the $77 million we reported in second quarter 2008 but excluding restructuring costs, our EBITDA margin was actually higher than it was a year ago. In our domestic segment, EBITDA declined for the quarter due to lower volume and higher fleet costs per vehicle, the effects of which were partially offset by our cost savings initiatives and pricing gains. Second quarter revenue dropped 17% reflecting a 22% decline in rental days and a 7% increase in time and mileage revenue per day primarily data price increases for leisure rentals. We believe the increase in time and mileage rates is a testament to the car rental business model which has inventory flexibility that makes it quite different from the hospitality and airline industries. As Ron mentioned, ancillary revenues excluding gas increased 22% on a per rental day basis. Direct operating expenses declined 300 basis points as a percentage of domestic revenue despite the steep decline in volume and SG&A declined 110 basis points as a percentage of revenue. These improvements demonstrate how we have attacked infrastructure costs in addition to reducing expenses to mirror declining volumes. In our international car rental operations, revenue decreased 20% year-over-year driven by a 10% decrease in rental days and a 12% decline in time and mileage revenue per day which was entirely due to foreign exchange. Excluding the effects of fx, T&M per day was up 4% and ancillary revenues increased 6% per rental day reflecting our initiatives in this…

(Operator Instructions) Your first question comes from Jeff Kessler – Imperial Capital. Jeff Kessler – Imperial Capital: First question is about fleet, the needs for your fleet management and your holding periods, are we going to be seeing an era of 30,000 mile cars out there for the industry as a whole? And, do you think that the customer is going to be able to handle the increased mileage that is probably going to be needed to increase not just for you but for everybody?

I think this industry will see higher mileage units out there. I think as the manufacturer and the manufacturer programs become more rational if you will than perhaps they have been through the 90s, even the late 90s and early 2000s, I think the need to increase the mileage on the cars will go up as we hold cars a little bit longer. As you well know, for someone who has been covering this industry for a long time, we use to hold cars a whole lot longer. The cars today are really much more able to withstand the mileage than they maybe were 15 to 20 years ago. Our belief is that if the car looks presentable, smells presentable and runs in a good fashion that the mileage actually up to a certain point is acceptable. So, a lot of our operational objectives right now revolve around the three things I said and so far we haven’t had much of a problem on this at all and prior to us reducing the fleet the way we have we were edging up there. As you will recall we had longer holds on the cars and I think that’s what we’re going to return to and I think it’s something that across the industry we’re going to necessarily have to do that to obtain the profits we need. Jeff Kessler – Imperial Capital: This is my fourth go around with this industry and back in the late 80s, 20,000 miles and above was not unheard of at all in fact, it was fairly common. Normally you guys have a very aggressive program to changing your mix of cars back and forth between program and at risk in the third and fourth quarters to basically hone out your fleet the way you want it to at the end of the year. What are you going through right now to change your fleet and get it ready for the leader part of the year.

That’s an interesting question Jeff, as Ron and David talked about, some of the volume decline you saw in the end of the second quarter and even occurring right now has been self inflicted for two reasons, one we talk about unprofitable pieces of business that we had taken out but the other thing is we have spent the money to bring the fleet down exactly where we wanted it to be and it has allowed us to increase our pricing. So, some of the volume decline is because of that. Having done that however, and as we continued in July and in August to sell cars in a really good wholesale market, we think as we get in to the late third and in to the fourth quarter that we don’t have a lot of pressure to dispose of risk cars, we will have pretty much done it at what I think might be the peak of the market. So, a long story short, I feel very, very good about the fleet as we turn the corner in to the winter months and in to next year and how we’re looking at the 2010 buy also looks very, very favorable. Jeff Kessler – Imperial Capital: One other question and that is despite the fact that you guys have learned that you have to makes lots of money during the rental period, a lot more money during the rental period now than you ever have to offset the decline in volumes, nevertheless some of these like kind exchange programs that have been out there on the end of the car life are going to potentially expire in a year or two and I’m wondering if you guys are preparing or if you guys are looking at what type of accelerated depreciation or other types of like kind exchange programs may be in the works to supplement or replace what’s in the drawer right now?

Jeff, the like kind exchange program really just impacts our tax treatment of the vehicles. So, from the perspective of how we manage the fleet I think what matters the most is the range of deals we’re able to enter in to with various manufacturers. As Bob indicated, I think those are going pretty well so far in model year 2010 and we continue to see manufactures being very willing to work with us to come up with things that work for us as a company, us as an industry and for them as an industry as well. Jeff Kessler – Imperial Capital: Can you give us some idea of where you see foreign cars as a percentage of your mix in 2010? It’s obviously growing, the question is can you get just a little more exact?

As you know we have been increasing the foreign manufacturer mix of our domestic fleet fairly consistently over the last five years and I think we will look for that to continue going forward.

Your next question comes from Brian Johnson – Barclays Capital. Brian Johnson – Barclays Capital: A couple of questions, in light of the pricing you’re able to get on your ABS deal, how are you thinking about financing costs over the next 12 to 16 months? And, assuming that similar financing terms for your competitors, do you think that will be reflected in pricing or are we going to have to use some of your cost cuts to offset the interest rate increases?

I think we are expecting interest costs to increase as debt that was issued several years ago matures and we replace it with new debt that reflects where risk is currently being priced in the market. I think the good news is that the impact of that, while we’re not going to project a number, the impact of that is likely to be significantly smaller than the benefit associated with having a several point decline in fleet costs. As a result, we can offset the impacts of higher interest costs either through pricing or through lower fleet costs and I think our hope and expectation is that we’ll have both avenues available to us. Brian Johnson – Barclays Capital: Then lower fleet costs, the manufacturers always claim that they’re getting better pricing in rental but at the same time you’re talking about lower fleet costs is that just because you’re aging the car longer or are the negotiations far enough along that you’re actually thinking that you’re getting a better deal on model year 2010 versus model year ’09?

I think there’s a bit of both going on. Certainly we are as Bob mentioned looking at holding cars a little bit longer which will help bring down the costs. Because volumes were light we didn’t hold cars as long as we had hoped or expected too which produces a year-over-year benefit that’s available to us next year. The real issue is that over the last two or three years we have seen very substantial increases in the costs we’re incurring for fleet. So, even if we get a few points back next year it’s still a case as the manufacturer have significantly, call it 40% to 50% in total increased the cost that we’re paying for vehicles compared to where they were three or four years ago. Brian Johnson – Barclays Capital: Final question, could you comment maybe a bit on pricing vis-à-vis your competitors? Overall, you’re up compared to the larger competitor in the market, what are you seeing on the on airport and is their performance maybe not as strong on the on airport and if so is the business leisure or is it just simply a mix and work the other competitors doing vis-à-vis insurance and other lower price longer term rentals?

I think the answer to that really lies in what your fleet strategy is. Clearly, if you have more fleet you’re going to be more aggressive at going after more volume. We’re the first ones to say that there is more volume out there to be had but it is certainly all on the leisure side and that’s spot volume and you can always get it back by adjusting your pricing. I think if you look at actions since really the fourth quarter last year I think everybody has been acting in the same way in terms of raising retail and leisure pricing. I think commercial pricing is still very competitive and you’re not likely to see any big gains in commercial pricing over the course of at least the next 12 months. But, I think that you have to look at volume and price in tandem. There are always multiple ways to skin the same cat. I mean, our competitors volume was much better than ours but the pricing wasn’t as good and their fleet wasn’t down as much. On the other hand, our fleet was down pretty substantially, our volume was down equally but our pricing was up. I think it’s just a matter of where you want to position yourself with fleet and how you want to attack the marketplace.

Your next question comes from Emily Shanks – Barclays Capital. Emily Shanks – Barclays Capital: I have just a couple of follow ups, specific to the OEM lease financing, the $325 million amount that was announced, is that a renewal or extension with somebody that was already in place or is that something new?

The lease financing transaction was new. Emily Shanks – Barclays Capital: Then can you update us on where you stand around outstanding shelf registrations? Specifically, I’m just wondering if you have the capacity right now to issue common or converts or if you have to file a shelf for that?

We don’t currently have a shelf that is available to us. Emily Shanks – Barclays Capital: Then my apologies but I missed the outstanding revolver availability currently, what was that?

There’s available LC capacity under the revolver of $315 million. Emily Shanks – Barclays Capital: But can you draw that?

$175 million of it is available for borrowings and $315 is available for LCs. Emily Shanks – Barclays Capital: The amount that was drawn on the revolver was that used to fund required collateral or enhancement requirements in the non TALF ABS deal?

I guess cash is spongeable. We really look at the fact that our pretax income in the first six months of the year was negative. Our business generally speaking is a cash business so I actually think of the borrowing as being used to fund the working capital needs associated with having a pretax loss over the first six months. Emily Shanks – Barclays Capital: Then maybe let me ask it this way, did you have to draw further on your revolver to fund required enhancement levels post quarter end?

No. Emily Shanks – Barclays Capital: So availability is still kind of in that $175 million range?

That’s correct. Emily Shanks – Barclays Capital: Can you give me what your cash balance today is by any chance?

Emily I don’t have that number on hand. We typically don’t, and I think we’re typically not going to talk about where we are from a cash standpoint during the quarter and it certainly varies a fair amount over the course of a month since as you know we pay rent essentially to [ASOP] on the 20th of the month so we have fairly substantial swings in our cash balances over the course of a month. But, our cash balance does continue to be fairly significant. Emily Shanks – Barclays Capital: The updated slides, will it go through you had given some numbers around what your financing plans are, will that be covered in your slide deck as well?

It will. We’ve had a slide in the past that walks through the 2009/2010 financing needs and that slide will be updated to reflect the comments I made during the additional remarks on this call. Emily Shanks – Barclays Capital: Around the conduits, have you already begun discussions with your lender group on that?

No formal discussions. We talk to our bank relationships on a very regular basis but no, given that the maturity of that facility is in December, we wanted to get through the second quarter, file our Q and have a really good sense of where the summer is shaping up before we do that. But, as I mentioned, we do expect to be having more formal discussions with the banks in the fall.

Your final question comes from [Yoma Abebe]. [Yoma Abebe]: One quick one for me, can you remind us of your seasonality for free cash flow quarter-to-quarter historically and how do you think that will play out this year?

As I mentioned, our cash flow generally follows our pretax income. There can be a lag of a few weeks or so but generally speaking it follows income and as a result you should see free cash flow seasonality that is generally in line with our earnings seasonality which means the third quarter tends to be our strongest from a number perspective.

For those of you who should have additional questions that we didn’t answer please feel free to call any of us, we’d be happy to answer them. We know you have to get on another call and really don’t want to jam you one up against the other. Thank you for listening in today and we look forward to reporting the results in the third quarter to you sometime in late October.

This concludes today’s conference. You may disconnect.