NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(Unless otherwise noted, all dollar amounts in tables are in millions, except per share amounts)
1. Basis of Presentation
Avis Budget Group, Inc. provides mobility solutions to businesses and consumers worldwide. The accompanying unaudited Consolidated Condensed Financial Statements include the accounts and transactions of Avis Budget Group, Inc. and its subsidiaries, as well as entities in which Avis Budget Group, Inc. directly or indirectly has a controlling financial interest (collectively, “we”, “our”, “us”, or the “Company”), and have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial reporting.
We operate the following reportable business segments:
•Americas—consisting primarily of (i) vehicle rental operations in North America, South America, Central America and the Caribbean, (ii) car sharing operations in certain of these markets, and (iii) licensees in certain areas in which we do not operate directly.
•International—consisting primarily of (i) vehicle rental operations in Europe, the Middle East, Africa, Asia and Australasia, (ii) car sharing operations in certain of these markets, and (iii) licensees in certain areas in which we do not operate directly.
The operating results of acquired businesses are included in the accompanying Consolidated Condensed Financial Statements from the dates of acquisition. Differences between the preliminary allocation of purchase price and the final allocation for our 2021 acquisitions of various licensees were not material. We consolidate joint venture activities when we have a controlling interest and record non-controlling interests within stockholders’ equity and the statement of comprehensive income equal to the percentage of ownership interest retained in such entities by the respective non-controlling party.
In presenting the Consolidated Condensed Financial Statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Consolidated Condensed Financial Statements contain all adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These financial statements should be read in conjunction with our 2021 Annual Report on Form 10-K (the “2021 Form 10-K”).
Summary of Significant Accounting Policies
Our significant accounting policies are fully described in Note 2 – Summary of Significant Accounting Policies in our 2021 Form 10-K.
Cash and cash equivalents, Program cash and Restricted cash. The following table provides a detail of cash and cash equivalents, program and restricted cash reported within the Consolidated Condensed Balance Sheets to the amounts shown in the Consolidated Condensed Statements of Cash Flows.
| | | | | | | | | | | |
| As of September 30, |
| 2022 | | 2021 |
Cash and cash equivalents | $ | 581 | | | $ | 886 | |
Program cash | 139 | | | 55 | |
Restricted cash (a) | 1 | | | 4 | |
Total cash and cash equivalents, program and restricted cash | $ | 721 | | | $ | 945 | |
________
(a)Included within other current assets.
Vehicle Programs. We present separately the financial data of our vehicle programs. These programs are distinct from our other activities since the assets under vehicle programs are generally funded through the issuance of debt that is collateralized by such assets. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of our vehicle programs. We believe it is appropriate to segregate the financial data of our vehicle programs because, ultimately, the source of repayment of such debt is the realization of such assets.
Transaction-related costs, net. Transaction-related costs, net are classified separately in the Consolidated Condensed Statements of Comprehensive Income. These costs are comprised of expenses primarily related to acquisition-related activities such as due diligence and other advisory costs, expenses related to the integration of the acquiree’s operations with those of our operations, including the implementation of best practices and process improvements, non-cash gains and losses related to re-acquired rights, expenses related to pre-acquisition contingencies and contingent consideration related to acquisitions.
Currency Transactions. We record the gain or loss on foreign currency transactions on certain intercompany loans and the gain or loss on intercompany loan hedges within interest expense related to corporate debt, net.
Divestitures. In February 2022, we completed the sale of our operations in the United States Virgin Islands for $13 million, for the right to operate the Avis brand. During the nine months ended September 30, 2022, we recorded a gain of $2 million within restructuring and other related charges.
In March 2022, we completed the sale of our operations in the Netherlands for $15 million, subject to working capital adjustments, for the right to operate the Avis and Budget brands. During the nine months ended September 30, 2022, we recorded a loss of $7 million, net of impact of foreign currency adjustments, within restructuring and other related charges.
Variable Interest Entity (“VIE”). We review our investments to determine if they are VIEs. A VIE is an entity in which either (i) the equity investors as a group lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. Entities that are determined to be VIEs are consolidated if we are the primary beneficiary of the entity. The primary beneficiary possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it. We will reconsider our original assessment of a VIE upon the occurrence of certain events such as contributions and redemptions, either by us, or third parties, or amendments to an entity’s governing documents. On an ongoing basis, we reconsider whether we are deemed to be a VIE’s primary beneficiary. See Note 14 – Related Party Transactions for our VIE investment in our former subsidiary.
Investments. As of September 30, 2022 and December 31, 2021, we had equity method investments with a carrying value of $69 million and $72 million, respectively, which are recorded within other non-current assets. Earnings from our equity method investments are reported within operating expenses. For the three months ended September 30, 2022 and 2021, we recorded $7 million and $6 million related to our equity method investments, respectively. For the nine months ended September 30, 2022 and 2021, we recorded $10 million and $8 million related to our equity method investments, respectively. See Note 14 – Related Party Transactions for our equity method investment in our former subsidiary.
Revenues. Revenues are recognized under “Leases (Topic 842),” with the exception of royalty fee revenue derived from our licensees and revenue related to our customer loyalty program, which were approximately $51 million and $34 million during the three months ended September 30, 2022 and 2021, respectively, and $127 million and $93 million during the nine months ended September 30, 2022 and 2021, respectively.
The following table presents our revenues disaggregated by geography:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Americas | $ | 2,703 | | | $ | 2,403 | | | $ | 7,270 | | | $ | 5,457 | |
Europe, Middle East and Africa | 678 | | | 527 | | | 1,527 | | | 1,011 | |
Asia and Australasia | 166 | | | 71 | | | 426 | | | 276 | |
Total revenues | $ | 3,547 | | | $ | 3,001 | | | $ | 9,223 | | | $ | 6,744 | |
The following table presents our revenues disaggregated by brand:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Avis | $ | 1,958 | | | $ | 1,588 | | | $ | 4,992 | | | $ | 3,509 | |
Budget | 1,371 | | | 1,198 | | | 3,637 | | | 2,707 | |
Other | 218 | | | 215 | | | 594 | | | 528 | |
Total revenues | $ | 3,547 | | | $ | 3,001 | | | $ | 9,223 | | | $ | 6,744 | |
________
Other includes Zipcar and other operating brands.
Recently Issued Accounting Pronouncements
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which amends Topic 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. ASU 2021-08 becomes effective for us on January 1, 2023. Early adoption is permitted on a retrospective or prospective basis. The adoption of this accounting pronouncement is not expected to have a material impact on our Consolidated Condensed Financial Statements.
Reference Rate Reform
In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which amends ASU 2020-04 and clarifies the scope and guidance of Topic 848 to allow derivatives impacted by the reference rate reform to qualify for certain optional expedients and exceptions for contract modifications and hedge accounting. The guidance is optional and is effective for a limited period of time through December 31, 2022. As of September 30, 2022, this guidance had no impact on our Consolidated Condensed Financial Statements and we will continue to evaluate this guidance.
2. Leases
Lessor
The following table presents our lease revenues disaggregated by geography:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Americas | $ | 2,682 | | | $ | 2,391 | | | $ | 7,216 | | | $ | 5,417 | |
Europe, Middle East and Africa | 654 | | | 508 | | | 1,468 | | | 968 | |
Asia and Australasia | 160 | | | 68 | | | 412 | | | 266 | |
Total lease revenues | $ | 3,496 | | | $ | 2,967 | | | $ | 9,096 | | | $ | 6,651 | |
The following table presents our lease revenues disaggregated by brand:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Avis | $ | 1,926 | | | $ | 1,573 | | | $ | 4,915 | | | $ | 3,464 | |
Budget | 1,356 | | | 1,185 | | | 3,598 | | | 2,676 | |
Other | 214 | | | 209 | | | 583 | | | 511 | |
Total lease revenues | $ | 3,496 | | | $ | 2,967 | | | $ | 9,096 | | | $ | 6,651 | |
_______
Other includes Zipcar and other operating brands.
Lessee
We have operating and finance leases for rental locations, corporate offices, vehicle rental fleet and equipment. Many of our operating leases for rental locations contain concession agreements with various airport authorities that allow us to conduct our vehicle rental operations on site. In general, concession fees for airport locations are based on a percentage of total commissionable revenue as defined by each airport authority, some of which are subject to minimum annual guaranteed amounts. Concession fees other than minimum annual guaranteed amounts are not included in the measurement of operating lease Right of Use (“ROU”) assets and operating lease liabilities, and are recorded as variable lease expense as incurred. Our operating leases for rental locations often also require us to pay or reimburse operating expenses.
The components of lease expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Property leases (a) | | | | | | | |
Operating lease expense | $ | 184 | | | $ | 146 | | | $ | 513 | | | $ | 419 | |
Variable lease expense | 169 | | | 152 | | | 423 | | | 318 | |
Total property lease expense | $ | 353 | | | $ | 298 | | | $ | 936 | | | $ | 737 | |
__________
(a) Primarily within operating expense and includes $(4) million for the three months ended September 30, 2021, and $(9) million and $12 million for the nine months ended September 30, 2022 and 2021, respectively, of minimum annual guaranteed rent in excess of concession fees, net, as defined in our rental concession agreements.
Supplemental balance sheet information related to leases is as follows:
| | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
Property leases | | | |
Operating lease ROU assets | $ | 2,275 | | $ | 2,368 |
| | | |
Short-term operating lease liabilities (a) | $ | 488 | | $ | 496 |
Long-term operating lease liabilities | 1,822 | | 1,910 |
Operating lease liabilities | $ | 2,310 | | $ | 2,406 |
| | | |
Weighted average remaining lease term | 8.5 years | | 8.8 years |
Weighted average discount rate | 4.04 | % | | 3.84 | % |
_________
(a) Included in Accounts payable and other current liabilities.
Supplemental cash flow information related to leases is as follows:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Cash payments for lease liabilities within operating activities: | | | |
Property operating leases | $ | 537 | | | $ | 445 | |
Non-cash activities - increase (decrease) in ROU assets in exchange for lease liabilities: | | | |
Property operating leases | $ | 508 | | | $ | 226 | |
3. Restructuring and Other Related Charges
Restructuring
During second quarter 2022, we initiated a restructuring plan to focus on consolidating our global operations by designing new processes and implementing new systems (“Cost Optimization”). During the nine months ended September 30, 2022, we formally communicated the termination of employment to approximately 130 employees, as part of this process, and terminated approximately 120 of these employees. We expect further restructuring expenses of approximately $5 million related to this initiative.
During first quarter 2021, we initiated a global restructuring plan to focus on cost discipline by reviewing headcounts, facilities and contractor agreements. We are transforming our business as we prepare to exit the COVID-19 crisis by controlling fixed costs and matching variable costs to demand (“T21”). As of September 30, 2022, we terminated the employment of approximately 65 employees. We expect no further restructuring expenses to be incurred related to this initiative.
During first quarter 2020, we initiated a global restructuring plan to reduce operating costs, such as headcount and facilities, due to declining reservations and revenue resulting from COVID-19 outbreak (“2020 Optimization”). We expect no further restructuring expenses related to this initiative.
During third quarter 2019, we initiated a restructuring plan to exit our operations in Brazil by closing rental facilities, disposing of assets and terminating personnel (“Brazil”). We expect no further restructuring expenses related to this initiative.
The following tables summarize the changes to our restructuring-related liabilities and identifies the amounts recorded within our reporting segments for restructuring charges and corresponding payments and utilizations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Americas | | International | | Total |
Balance as of January 1, 2022 | | | $ | 2 | | | $ | 8 | | | $ | 10 | |
| Restructuring expense: | | | | | | | |
| Cost Optimization | | | 2 | | | 4 | | | 6 | |
| T21 | | | 1 | | | 2 | | | 3 | |
| | | | | | | | |
| Brazil | | | 1 | | | — | | | 1 | |
| | | | | | | | |
| Restructuring payment/utilization: | | | | | | | |
| Cost Optimization | | | (2) | | | (3) | | | (5) | |
| T21 | | | (1) | | | (8) | | | (9) | |
| 2020 Optimization | | | — | | | (1) | | | (1) | |
| Brazil | | | (1) | | | — | | | (1) | |
| | | | | | | | |
Balance as of September 30, 2022 | | | $ | 2 | | | $ | 2 | | | $ | 4 | |
| | | | | | | | |
| | Personnel | | Facility Related | | Other | | Total |
Balance as of January 1, 2022 | $ | 7 | | | $ | 2 | | | $ | 1 | | | $ | 10 | |
| Restructuring expense: | | | | | | | |
| Cost Optimization | 6 | | | — | | | — | | | 6 | |
| T21 | 3 | | | — | | | — | | | 3 | |
| | | | | | | | |
| Brazil | — | | | — | | | 1 | | | 1 | |
| | | | | | | | |
| Restructuring payment/utilization: | | | | | | | |
| Cost Optimization | (5) | | | — | | | — | | | (5) | |
| T21 | (9) | | | — | | | — | | | (9) | |
| 2020 Optimization | (1) | | | — | | | — | | | (1) | |
| Brazil | — | | | — | | | (1) | | | (1) | |
| | | | | | | | |
Balance as of September 30, 2022 | $ | 1 | | | $ | 2 | | | $ | 1 | | | $ | 4 | |
Other Related Charges
Officer Separation Costs
In April 2022, we announced the departure of Veresh Sita as Executive Vice President and Chief Digital and Innovation Officer effective May 13, 2022. In connection with Mr. Sita’s separation, we recorded other related charges of approximately $1 million, inclusive of accelerated stock-based compensation expense, for the nine months ended September 30, 2022.
4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (“EPS”) (shares in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net income attributable to Avis Budget Group, Inc. for basic and diluted EPS | $ | 1,034 | | | $ | 675 | | | $ | 2,341 | | | $ | 903 | |
| | | | | | | | |
Basic weighted average shares outstanding | 46.8 | | | 63.7 | | | 49.5 | | | 67.8 | |
Non-vested stock (a) | 0.9 | | | 0.9 | | | 1.1 | | | 0.8 | |
Diluted weighted average shares outstanding | 47.7 | | | 64.6 | | | 50.6 | | | 68.6 | |
| | | | | | | | |
Earnings per share: | | | | | | | |
| Basic | $ | 22.08 | | | $ | 10.58 | | | $ | 47.34 | | | $ | 13.31 | |
| Diluted | $ | 21.67 | | | $ | 10.45 | | | $ | 46.32 | | | $ | 13.16 | |
________
(a) For the three and nine months ended September 30, 2022, 0.1 million non-vested stock awards, in each period, have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding. For the nine months ended September 30, 2021, 0.4 million non-vested stock awards have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding.
5. Other Current Assets
Other current assets consisted of:
| | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
Prepaid expenses | $ | 252 | | | $ | 205 | |
Sales and use taxes | 147 | | | 238 | |
Other | 127 | | | 95 | |
Other current assets | $ | 526 | | | $ | 538 | |
6. Intangible Assets
Intangible assets consisted of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortized Intangible Assets | | | | | | | | | | | |
License agreements | $ | 276 | | | $ | 204 | | | $ | 72 | | | $ | 298 | | | $ | 193 | | | $ | 105 | |
Customer relationships | 235 | | | 196 | | | 39 | | | 257 | | | 204 | | | 53 | |
Other | 44 | | | 34 | | | 10 | | | 51 | | | 36 | | | 15 | |
Total | $ | 555 | | | $ | 434 | | | $ | 121 | | | $ | 606 | | | $ | 433 | | | $ | 173 | |
Unamortized Intangible Assets | | | | | | | | | | | |
Goodwill | $ | 1,031 | | | | | | | $ | 1,108 | | | | | |
Trademarks | $ | 541 | | | | | | | $ | 551 | | | | | |
For the three months ended September 30, 2022 and 2021, amortization expense related to amortizable intangible assets was approximately $9 million and $13 million, respectively. For the nine months ended September 30, 2022 and 2021, amortization expense related to amortizable intangible assets was approximately $35 million and $45 million, respectively. Based on our amortizable intangible assets at September 30, 2022, we expect amortization expense of approximately $9 million for the remainder of
2022, $24 million for 2023, $20 million for 2024, $14 million for 2025, $13 million for 2026 and $10 million for 2027, excluding effects of currency exchange rates.
7. Vehicle Rental Activities
The components of vehicles, net within assets under vehicle programs were as follows:
| | | | | | | | | | | |
| As of | | As of |
| September 30, | | December 31, |
| 2022 | | 2021 |
Rental vehicles | $ | 17,077 | | | $ | 14,612 | |
Less: Accumulated depreciation | (2,087) | | | (1,911) | |
| 14,990 | | | 12,701 | |
Vehicles held for sale | 365 | | | 165 | |
Vehicles, net investment in lease (a) | 36 | | | — | |
Vehicles, net | $ | 15,391 | | | $ | 12,866 | |
________
(a) See Note 14 – Related Party Transactions.
The components of vehicle depreciation and lease charges, net are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Depreciation expense | $ | 455 | | | $ | 386 | | | $ | 1,232 | | | $ | 981 | |
Lease charges | 38 | | | 43 | | | 103 | | | 129 | |
(Gain) loss on sale of vehicles, net | (359) | | | (152) | | | (856) | | | (241) | |
Vehicle depreciation and lease charges, net | $ | 134 | | | $ | 277 | | | $ | 479 | | | $ | 869 | |
At September 30, 2022 and 2021, we had payables related to vehicle purchases included in liabilities under vehicle programs - other of $154 million and $167 million, respectively, and receivables related to vehicle sales included in assets under vehicle programs - receivables from vehicle manufacturers and other of $225 million and $145 million, respectively.
8. Income Taxes
Our effective tax rate for the nine months ended September 30, 2022 and 2021 were provisions of 25.3% and 22.6%, respectively. Such rates differed from the Federal Statutory rate of 21.0% primarily due to foreign taxes on our International operations and state taxes.
9. Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities consisted of:
| | | | | | | | | | | |
| As of | | As of |
| September 30, | | December 31, |
| 2022 | | 2021 |
Accounts payable | $ | 501 | | | $ | 407 | |
Short-term operating lease liabilities | 488 | | | 496 | |
Accrued advertising and marketing | 300 | | | 218 | |
Accrued sales and use taxes | 286 | | | 313 | |
Deferred lease revenues - current | 248 | | | 185 | |
Accrued payroll and related | 206 | | | 193 | |
Public liability and property damage insurance liabilities – current | 163 | | | 159 | |
Other | 527 | | | 418 | |
Accounts payable and other current liabilities | $ | 2,719 | | | $ | 2,389 | |
10. Long-term Corporate Debt and Borrowing Arrangements
Long-term corporate debt and borrowing arrangements consisted of:
| | | | | | | | | | | | | | | | | |
| | | As of | | As of |
| Maturity Date | | September 30, | | December 31, |
| | 2022 | | 2021 |
4.125% euro-denominated Senior Notes | November 2024 | | $ | 294 | | | $ | 341 | |
4.500% euro-denominated Senior Notes | May 2025 | | 245 | | | 284 | |
4.750% euro-denominated Senior Notes | January 2026 | | 343 | | | 398 | |
5.750% Senior Notes | July 2027 | | 731 | | | 728 | |
4.750% Senior Notes | April 2028 | | 500 | | | 500 | |
5.375% Senior Notes | March 2029 | | 600 | | | 600 | |
Floating Rate Term Loan (a) | August 2027 | | 1,179 | | | 1,187 | |
Floating Rate Term Loan | March 2029 | | 726 | | | — | |
Other (b) | | | 19 | | | 19 | |
Deferred financing fees | | | (47) | | | (48) | |
Total | | | 4,590 | | | 4,009 | |
Less: Short-term debt and current portion of long-term debt | | | 27 | | | 19 | |
Long-term debt | | | $ | 4,563 | | | $ | 3,990 | |
__________
(a)The floating rate term loan is part of our senior revolving credit facility, which is secured by pledges of capital stock of certain of our subsidiaries, and liens on substantially all of our intellectual property and certain other real and personal property. As of September 30, 2022, the floating rate term loan due 2027 bears interest at one-month LIBOR plus 175 basis points, for an aggregate rate of 4.87%. We have entered into a swap to hedge $700 million of its interest rate exposure related to the floating rate term loan at an aggregate rate of 4.75%.
(b)Primarily includes finance leases which are secured by liens on the related assets.
In March 2022, we entered into a $750 million Floating Rate Term Loan due March 2029, at a price of 97% of the aggregate principal amount, with interest paid monthly, which is part of our senior credit facilities. The Floating Rate Term Loan due March 2029 bears interest at one-month Secured Overnight Financing Rate (“SOFR”) plus 350 basis points for an aggregate rate of 6.63%.
Committed Credit Facilities and Available Funding Arrangements
As of September 30, 2022, the committed corporate credit facilities available to us and/or our subsidiaries were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Capacity | | Outstanding Borrowings | | Letters of Credit Issued | | Available Capacity |
Senior revolving credit facility maturing 2026 (a) | $ | 2,000 | | | $ | — | | | $ | 888 | | | $ | 1,112 | |
__________
(a)The senior revolving credit facility bears interest at one-month LIBOR plus 175 basis points and is part of our senior credit facilities, which include the floating rate term loan and the senior revolving credit facility, and which are secured by pledges of capital stock of certain of our subsidiaries, liens on substantially all of our intellectual property and certain other real and personal property.
Debt Covenants
The agreements governing our indebtedness contain restrictive covenants, including restrictions on dividends paid to us by certain of our subsidiaries, the incurrence of additional indebtedness by us and certain of our subsidiaries, acquisitions, mergers, liquidations, and sale and leaseback transactions. Our senior credit facility also contains a maximum leverage ratio requirement. As of September 30, 2022, we were in compliance with the financial covenants governing our indebtedness.
11. Debt Under Vehicle Programs and Borrowing Arrangements
Debt under vehicle programs, including related party debt due to Avis Budget Rental Car Funding (AESOP) LLC (“Avis Budget Rental Car Funding”), consisted of:
| | | | | | | | | | | |
| As of | | As of |
| September 30, | | December 31, |
| 2022 | | 2021 |
Americas - Debt due to Avis Budget Rental Car Funding | $ | 10,470 | | | $ | 8,889 | |
Americas - Debt borrowings | 557 | | | 612 | |
International - Debt borrowings | 1,865 | | | 1,757 | |
International - Finance leases | 154 | | | 177 | |
Other | 111 | | | 3 | |
Deferred financing fees (a) | (53) | | | (48) | |
Total | $ | 13,104 | | | $ | 11,390 | |
__________
(a)Deferred financing fees related to Debt due to Avis Budget Rental Car Funding as of September 30, 2022 and December 31, 2021 were $48 million and $41 million, respectively.
In April 2022, our Avis Budget Rental Car Funding (AESOP) LLC subsidiary issued $660 million of asset-backed notes to investors with an expected final payment date of August 2027, with a weighted average interest rate of 3.96%.
In May 2022, our Avis Budget Rental Car Funding (AESOP) LLC subsidiary issued $87 million, $68 million and $55 million of asset-backed notes with expected final payment dates of March 2025, March 2023 and September 2023, respectively, with a weighted average interest rate of 5.10%.
In June 2022, our Avis Budget Rental Car Funding (AESOP) LLC subsidiary entered into $800 million of variable funding asset-backed notes with an expected final payment date of September 2022.
In July 2022, our Avis Budget Rental Car Funding (AESOP) LLC subsidiary issued $763 million of asset-backed notes to investors with a weighted average interest rate of 4.90%. Following this issuance, amounts available under our $800 million variable funding asset-backed notes supplement entered into during June 2022 were reduced to zero.
Debt Maturities
The following table provides the contractual maturities of our debt under vehicle programs, including related party debt due to Avis Budget Rental Car Funding, at September 30, 2022:
| | | | | |
| Debt under Vehicle Programs (a) |
Within 1 year (b) | $ | 2,192 | |
Between 1 and 2 years (c) | 5,302 | |
Between 2 and 3 years | 1,908 | |
Between 3 and 4 years | 1,994 | |
Between 4 and 5 years | 1,383 | |
Thereafter | 378 | |
Total | $ | 13,157 | |
__________
(a) Vehicle-backed debt primarily represents asset-backed securities.
(b) Includes $1.0 billion of bank and bank-sponsored facilities.
(c) Includes $3.7 billion of bank and bank-sponsored facilities.
Committed Credit Facilities and Available Funding Arrangements
As of September 30, 2022, available funding under our vehicle programs, including related party debt due to Avis Budget Rental Car Funding, consisted of:
| | | | | | | | | | | | | | | | | |
| Total Capacity (a) | | Outstanding Borrowings (b) | | Available Capacity |
Americas - Debt due to Avis Budget Rental Car Funding | $ | 12,049 | | | $ | 10,470 | | | $ | 1,579 | |
Americas - Debt borrowings | 950 | | | 557 | | | 393 | |
International - Debt borrowings | 2,439 | | | 1,865 | | | 574 | |
International - Finance leases | 190 | | | 154 | | | 36 | |
Other | 111 | | | 111 | | | — | |
Total | $ | 15,739 | | | $ | 13,157 | | | $ | 2,582 | |
__________
(a) Capacity is subject to maintaining sufficient assets to collateralize debt. The total capacity for Americas - Debt due to Avis Budget Rental Car Funding includes increases from an amendment and renewal of our variable funding asset-backed notes during April 2022.
(b) The outstanding debt is collateralized by vehicles and related assets of $12.7 billion for Americas - Debt due to Avis Budget Rental Car Funding; $0.9 billion for Americas - Debt borrowings; $2.6 billion for International - Debt borrowings; and $0.2 billion for International - Finance leases.
Debt Covenants
The agreements under our vehicle-backed funding programs contain restrictive covenants, including restrictions on dividends paid to us by certain of our subsidiaries and restrictions on indebtedness, mergers, liens, liquidations, and sale and leaseback transactions and in some cases also require compliance with certain financial requirements. As of September 30, 2022, we are not aware of any instances of non-compliance with any of the financial covenants contained in the debt agreements under our vehicle-backed funding programs.
12. Commitments and Contingencies
Contingencies
In 2006, we completed the spin-offs of our Realogy and Wyndham subsidiaries. We do not believe that the impact of any resolution of pre-existing contingent liabilities in connection with the spin-offs should result in a material liability to us in relation to our consolidated financial position or liquidity, as Realogy and Wyndham each have agreed to assume responsibility for these liabilities. We are also named in litigation that is primarily related to the businesses of our former subsidiaries, including Realogy and Wyndham. We are entitled to indemnification from such entities for any liability resulting from such litigation.
In November 2011, Jose Mendez v. Avis Budget Group Inc., et al. was filed in U.S. District Court for the District of New Jersey. The plaintiff seeks to represent a purported nationwide class and two sub-classes of certain renters of vehicles from our Avis and Budget subsidiaries from April 2007 through December 2015. The plaintiff seeks damages in connection with claims relating to our electronic toll service, including that administrative fees and toll charges were not properly disclosed to customers and/or were excessive. Plaintiff’s motion for class certification was approved by the Court in November 2017. The parties have entered into a settlement agreement and the Court has entered an order preliminarily approving the settlement. We have been named as a defendant in other purported consumer class action lawsuits, including a class action filed against us in Florida seeking damages in connection with a breach of contract claim and two purported class action suits filed against us in New Jersey, one related to fines and fees charged to car renters by us for violations incurred during the course of their rental and another related to ancillary charges at our Payless subsidiary. In the Florida lawsuit, the Court has entered an order preliminarily approving a proposed settlement.
We are currently involved, and in the future may be involved, in claims and/or legal proceedings, including class actions, and governmental inquiries that are incidental to our vehicle rental and car sharing operations, including, among others, contract and licensee disputes, competition matters, employment and wage-and-hour claims, insurance and liability claims, intellectual property claims, business practice disputes and other regulatory, environmental, commercial and tax matters. Litigation is inherently unpredictable and, although we believe that our accruals are adequate and/or that we have valid defenses in these matters, unfavorable resolutions could occur. We estimate that the potential exposure resulting from adverse outcomes of current legal proceedings in which it is reasonably possible that a loss may be incurred could, in the aggregate, be up to approximately $35 million in excess of amounts accrued as of September 30, 2022. We do not believe that the impact should result in a material liability to us in relation to our consolidated financial condition or results of operations.
Commitments to Purchase Vehicles
We maintain agreements with vehicle manufacturers under which we have agreed to purchase approximately $4.2 billion of vehicles from manufacturers over the next 12 months, a $1.7 billion decrease compared to December 31, 2021, financed primarily through the issuance of vehicle-backed debt and cash received upon the disposition of vehicles. Certain of these commitments are subject to the vehicle manufacturers satisfying their obligations under their respective repurchase and guaranteed depreciation agreements.
Concentrations
Concentrations of credit risk as of September 30, 2022 include (i) risks related to our repurchase and guaranteed depreciation agreements with domestic and foreign car manufacturers, primarily with respect to receivables for program cars that have been disposed but for which we have not yet received payment from the manufacturers and (ii) risks related to Realogy and Wyndham, including receivables of $26 million and $16 million, respectively, related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with their disposition.
13. Stockholders' Equity
Share Repurchases
Our Board of Directors has authorized the repurchase of up to $7.1 billion of our common stock under a plan originally approved in 2013 and subsequently expanded most recently in May 2022 (the “Stock Repurchase Program”). During the nine months ended September 30, 2022, we repurchased approximately 13.2 million shares of common stock at a cost of approximately $2.6 billion under the program. As of September 30, 2022, approximately $1.4 billion of authorization remains available to repurchase common stock under the program.
Total Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income.
The components of other comprehensive income (loss) were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 1,031 | | | $ | 674 | | | $ | 2,332 | | | $ | 902 | |
| Less: net loss attributable to non-controlling interests | (3) | | | (1) | | | (9) | | | (1) | |
Net income attributable to Avis Budget Group, Inc. | 1,034 | | | 675 | | | 2,341 | | | 903 | |
Other comprehensive income (loss): | | | | | | | |
| Currency translation adjustments (net of tax of $(16), $(6), $(33) and $(15), respectively) | (78) | | | (23) | | | (121) | | | (22) | |
| Net unrealized gain (loss) on cash flow hedges (net of tax of $(8), $(2), $(23) and $(9), respectively) | 22 | | | 6 | | | 65 | | | 27 | |
| Minimum pension liability adjustment (net of tax of $0, $(1), $0 and $(1), respectively) | 1 | | | 2 | | | 4 | | | 6 | |
| | (55) | | | (15) | | | (52) | | | 11 | |
Comprehensive income attributable to Avis Budget Group, Inc. | $ | 979 | | | $ | 660 | | | $ | 2,289 | | | $ | 914 | |
__________
Currency translation adjustments exclude income taxes related to indefinite investments in foreign subsidiaries.
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Currency Translation Adjustments(a) | | Net Unrealized Gains (Losses) on Cash Flow Hedges(b) | | Minimum Pension Liability Adjustment(c) | | Accumulated Other Comprehensive Income (Loss) |
Balance, January 1, 2022 | $ | 16 | | | $ | (19) | | | $ | (130) | | | $ | (133) | |
| Other comprehensive income (loss) before reclassifications | (121) | | | 57 | | | 1 | | | (63) | |
| Amounts reclassified from accumulated other comprehensive income | — | | | 8 | | | 3 | | | 11 | |
Net current-period other comprehensive income (loss) | (121) | | | 65 | | | 4 | | | (52) | |
Balance, September 30, 2022 | $ | (105) | | | $ | 46 | | | $ | (126) | | | $ | (185) | |
| | | | | | | | |
Balance, January 1, 2021 | $ | 40 | | | $ | (51) | | | $ | (176) | | | $ | (187) | |
| Other comprehensive income (loss) before reclassifications | (33) | | | 17 | | | 1 | | | (15) | |
| Amounts reclassified from accumulated other comprehensive income | 11 | | | 10 | | | 5 | | | 26 | |
Net current-period other comprehensive income (loss) | (22) | | | 27 | | | 6 | | | 11 | |
Balance, September 30, 2021 | $ | 18 | | | $ | (24) | | | $ | (170) | | | $ | (176) | |
__________
All components of accumulated other comprehensive income (loss) are net of tax, except currency translation adjustments, which exclude income taxes related to indefinite investments in foreign subsidiaries and include $174 million gain, net of tax, as of September 30, 2022 related to our hedge of our investment in euro-denominated foreign operations (see Note 16 – Financial Instruments).
(a)For the nine months ended September 30, 2021, the amount was reclassified from accumulated other comprehensive income (loss) into restructuring and other related charges.
(b)For the three months ended September 30, 2022 and 2021, the amounts reclassified from accumulated other comprehensive income (loss) into corporate interest expense were $1 million ($1 million, net of tax) and $4 million ($3 million, net of tax), respectively. For the three months ended September 30, 2021, the amounts reclassified from accumulated other comprehensive income (loss) into vehicle interest expense was $1 million ($1 million, net of tax). For the nine months ended September 30, 2022 and 2021, the amounts reclassified from accumulated other comprehensive income (loss) into corporate interest expense was $10 million ($8 million, net of tax) and $12 million ($9 million, net of tax), respectively. For the nine months ended September 30, 2021, the amounts reclassified from accumulated other comprehensive income (loss) into vehicle interest expense was $2 million ($1 million, net of tax).
(c)For the three months ended September 30, 2022 and 2021, amounts reclassified from accumulated other comprehensive income (loss) into selling, general and administrative expenses were $1 million ($1 million, net of tax) and $2 million ($2 million, net of tax), respectively. For the nine months ended September 30, 2022 and 2021, amounts reclassified from accumulated other comprehensive income (loss) into selling, general and administrative expenses were $4 million ($3 million, net of tax) and $7 million ($5 million, net of tax), respectively.
14. Related Party Transactions
In 2021, SRS Mobility Ventures, LLC acquired a 33 1/3% Class A Membership Interest in one of our subsidiaries at fair value of $37.5 million. SRS Mobility Ventures, LLC is an affiliate of our largest shareholder, SRS Investment Management, LLC.
On September 1, 2022, through the issuance of Class B Preferred Voting Membership Interests, SRS Mobility Ventures, LLC increased their ownership in this subsidiary to 51% at a fair value of $62 million. As a result, we deconsolidated our former subsidiary, Avis Mobility Ventures LLC (“AMV”), from our financial statements and now record our proportional share of the former subsidiary’s income or loss within other (income) expense, net in our Consolidated Condensed Statements of Comprehensive Income as we do not have the ability to direct the significant activities of the former subsidiary and are therefore no longer primary beneficiary of the VIE.
In accordance with ASC Topic 810-10-40, we must deconsolidate a subsidiary as of the date we cease to have a controlling interest in that subsidiary and recognize the gain or loss in net income at that time. The fair value of our retained investment was determined utilizing a discounted cash flow methodology based on various assumptions, including projections of future cash flows, which include forecast of future revenue and EBITDA. Upon deconsolidation, our former subsidiary had a net asset carrying amount of $49 million
resulting in a gain of $10 million, which is reported within other (income) expense, net during the three and nine months ended September 30, 2022.
We provide vehicles and related fleet services to AMV, as well as certain administrative services to support their operations. During the three and nine months ended September 30, 2022, we recognized $2 million of income related to these services within other (income) expense, net. At September 30, 2022, we had receivables from AMV of $5 million and a net investment in vehicle finance leases of $36 million. The carrying amount of our equity investment was approximately $57 million at September 30, 2022 and is recorded within other non-current assets in our Consolidated Condensed Balance Sheet. For the three and nine months ended September 30, 2022, we recorded losses of $3 million within other (income) expense, net related to our equity investment.
15. Stock-Based Compensation
We recorded stock-based compensation expense of $7 million and $11 million ($5 million and $8 million, net of tax) during the three months ended September 30, 2022 and 2021, respectively, and $19 million and $25 million ($14 million and $19 million, net of tax) during the nine months ended September 30, 2022 and 2021, respectively.
In 2020, we granted market-based restricted stock units (“RSUs”) that vest based on absolute stock price attainment. The grant date fair value of this award is estimated using a Monte Carlo simulation model.
The weighted average assumptions used in the model are as follows:
| | | | | | | | | |
Expected volatility of stock price | | 91% | |
Risk-free interest rate | | 0.18% | |
Valuation period | | 3 years | |
Dividend yield | | —% | |
The activity related to RSUs consisted of (in thousands of shares):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of Shares | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value (in millions) |
Time-based RSUs | | | | | | | |
| Outstanding at January 1, 2022 | 671 | | | $ | 39.39 | | | | | |
| | Granted (a) | 104 | | | 178.13 | | | | | |
| | Vested (b) | (358) | | | 36.76 | | | | | |
| | Forfeited | (35) | | | 57.90 | | | | | |
| Outstanding and expected to vest at September 30, 2022 (c) | 382 | | | $ | 78.02 | | | 1.0 | | $ | 57 | |
Performance-based and market-based RSUs | | | | | | | |
| Outstanding at January 1, 2022 | 886 | | | $ | 35.40 | | | | | |
| | Granted (a) | 99 | | | 193.48 | | | | | |
| | Vested (b) | (254) | | | 34.24 | | | | | |
| | Forfeited | (37) | | | 42.82 | | | | | |
| Outstanding at September 30, 2022 | 694 | | | $ | 57.89 | | | 1.1 | | $ | 103 | |
| Outstanding and expected to vest at September 30, 2022 (c) | 686 | | | $ | 56.30 | | | 1.1 | | $ | 102 | |
__________
(a)Reflects the maximum number of stock units assuming achievement of all performance-, market- and time-vesting criteria and does not include those for non-employee directors. The weighted-average fair value of time-based RSUs and performance-based RSUs granted during the nine months ended September 30, 2021 was $63.12 and $62.27, respectively.
(b)The total fair value of RSUs vested during the nine months ended September 30, 2022 and 2021 was $22 million and $17 million, respectively.
(c)Aggregate unrecognized compensation expense related to time-based RSUs and performance-based and market-based RSUs amounted to $44 million and will be recognized over a weighted average vesting period of 1.1 years.
16. Financial Instruments
Derivative Instruments and Hedging Activities
Currency Risk. We use currency exchange contracts to manage our exposure to changes in currency exchange rates associated with certain of our non-U.S.-dollar denominated receivables and forecasted royalties, forecasted earnings of non-U.S. subsidiaries and forecasted non-U.S.-dollar denominated acquisitions. We primarily hedge a portion of our current-year currency exposure to the Australian, Canadian and New Zealand dollars, the euro and the British pound sterling. The majority of forward contracts do not qualify for hedge accounting treatment. The fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk they economically hedge. Forward contracts used to hedge forecasted third-party receipts and disbursements up to 12 months are designated and do qualify as cash flow hedges. We have designated our euro-denominated notes as a hedge of our investment in euro-denominated foreign operations.
The estimated net amount of existing gains or losses we expect to reclassify from accumulated other comprehensive income (loss) to earnings for cash flow and net investment hedges over the next 12 months is not material.
Interest Rate Risk. We use various hedging strategies including interest rate swaps and interest rate caps to create what we deem an appropriate mix of fixed and floating rate assets and liabilities. We use interest rate swaps and interest rate caps to manage the risk related to our floating rate corporate debt and our floating rate vehicle-backed debt. We record the changes in the fair value of our cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassify these amounts into earnings in the period during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item. We record the gains or losses related to freestanding derivatives, which are not designated as a hedge for accounting purposes, currently in earnings and are presented in the same line of the income statement expected for the hedged item. We estimate that approximately $9 million of gains currently recorded in accumulated other comprehensive income (loss) will be recognized in earnings over the next 12 months.
Commodity Risk. We periodically enter into derivative commodity contracts to manage our exposure to changes in the price of gasoline. These instruments were designated as freestanding derivatives and the changes in fair value are recorded in earnings and are presented in the same line of the income statement expected for the hedged item.
We held derivative instruments with absolute notional values as follows:
| | | | | |
| As of September 30, 2022 |
Foreign exchange contracts | $ | 1,470 | |
Interest rate caps (a) | 13,960 | |
Interest rate swaps | 1,450 | |
| |
| |
__________
(a)Represents $9.9 billion of interest rate caps sold, partially offset by approximately $4.1 billion of interest rate caps purchased. These amounts exclude $6.2 billion of interest rate caps purchased by our Avis Budget Rental Car Funding subsidiary as it is not consolidated by us.
Estimated fair values (Level 2) of derivative instruments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2022 | | As of December 31, 2021 |
| | Fair Value, Derivative Assets | | Fair Value, Derivative Liabilities | | Fair Value, Derivative Assets | | Fair Value, Derivative Liabilities |
Derivatives designated as hedging instruments | | | | | | | |
| Interest rate swaps (a) | $ | 62 | | | $ | — | | | $ | 2 | | | $ | 27 | |
| | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | |
| Foreign exchange contracts (b) | 38 | | | 12 | | | 7 | | | 10 | |
| Interest rate caps (c) | 54 | | | 164 | | | 11 | | | 15 | |
| | | | | | | | |
| Total | $ | 154 | | | $ | 176 | | | $ | 20 | | | $ | 52 | |
__________
Amounts in this table exclude derivatives issued by Avis Budget Rental Car Funding, as it is not consolidated by us; however, certain amounts related to the derivatives held by Avis Budget Rental Car Funding are included within accumulated other comprehensive income (loss), as discussed in Note 13 – Stockholders' Equity.
(a)Included in other non-current assets or other non-current liabilities.
(b)Included in other current assets or other current liabilities.
(c)Included in assets under vehicle programs or liabilities under vehicle programs.
The effects of derivatives recognized in our Consolidated Condensed Financial Statements were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Derivatives designated as hedging instruments (a) | | | | | | | |
| Interest rate swaps (b) | $ | 22 | | | $ | 6 | | | $ | 65 | | | $ | 27 | |
| Euro-denominated notes (c) | 46 | | | 19 | | | 104 | | | 42 | |
Derivatives not designated as hedging instruments (d) | | | | | | | |
| Foreign exchange contracts (e) | 27 | | | 6 | | | 70 | | | 1 | |
| Interest rate caps (f) | 2 | | | (1) | | | 1 | | | (3) | |
| | | | | | | | |
| Total | $ | 97 | | | $ | 30 | | | $ | 240 | | | $ | 67 | |
__________
(a)Recognized, net of tax, as a component of other comprehensive income (loss) within stockholders’ equity.
(b)Classified as a net unrealized gain (loss) on cash flow hedges in accumulated other comprehensive income (loss). Refer to Note 13 – Stockholders' Equity for amounts reclassified from accumulated other comprehensive income into earnings.
(c)Classified as a net investment hedge within currency translation adjustment in accumulated other comprehensive income (loss).
(d)Gains (losses) related to derivative instruments are expected to be largely offset by (losses) gains on the underlying exposures being hedged.
(e)For the three months ended September 30, 2022, included a $25 million gain in interest expense and a $2 million gain in operating expense and for the nine months ended September 30, 2022, included a $65 million gain in interest expense and a $5 million gain in operating expense. For the three months ended September 30, 2021, included a $7 million gain in interest expense and a $1 million loss in operating expense and for the nine months ended September 30, 2021, included a $2 million gain in interest expense and a $1 million loss in operating expense.
(f)Included primarily in vehicle interest, net.
Debt Instruments
The carrying amounts and estimated fair values (Level 2) of debt instruments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2022 | | As of December 31, 2021 |
| | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Corporate debt | | | | | | | |
| Short-term debt and current portion of long-term debt | $ | 27 | | | $ | 26 | | | $ | 19 | | | $ | 18 | |
| Long-term debt | 4,563 | | | 4,224 | | | 3,990 | | | 4,153 | |
| | | | | | | | |
Debt under vehicle programs | | | | | | | |
| Vehicle-backed debt due to Avis Budget Rental Car Funding | $ | 10,422 | | | $ | 9,948 | | | $ | 8,848 | | | $ | 9,009 | |
| Vehicle-backed debt | 2,518 | | | 2,517 | | | 2,528 | | | 2,559 | |
| Interest rate swaps and interest rate caps (a) | 164 | | | 164 | | | 14 | | | 14 | |
__________
(a) Derivatives in a liability position.
17. Segment Information
Our chief operating decision-maker assesses performance and allocates resources based upon the separate financial information from each of our operating segments. In identifying our reportable segments, we considered the nature of services provided, the geographical areas in which the segments operated and other relevant factors. We aggregate certain of our operating segments into our reportable segments.
Management evaluates the operating results of each of its reportable segments based upon revenues and “Adjusted EBITDA,” which we define as income (loss) from continuing operations before non-vehicle related depreciation and amortization, any impairment charges, restructuring and other related charges, early extinguishment of debt costs, non-vehicle related interest, transaction-related costs, net, charges for unprecedented personal-injury and other legal matters, net, which includes amounts recorded in excess of $5 million related to class action lawsuits, non-operational charges related to shareholder activist activity, which include third party advisory, legal and other professional service fees, COVID-19 charges, other (income) expense, net and income taxes. COVID-19 charges include unusual, direct and incremental costs due to the COVID-19 pandemic such as minimum annual guaranteed rent in excess of concession fees for the period, overflow parking for idle vehicles and related shuttling costs, incremental cleaning supplies to sanitize vehicles and facilities, and losses associated with vehicles damaged in overflow parking lots, net of insurance proceeds. We revised our definition of Adjusted EBITDA to exclude other (income) expense, net. We did not revise prior years’ Adjusted EBITDA because there were no other charges similar in nature. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, |
| | | | 2022 | | 2021 |
| | | | Revenues | | Adjusted EBITDA | | Revenues | | Adjusted EBITDA |
Americas | $ | 2,703 | | | $ | 1,185 | | | $ | 2,403 | | | $ | 952 | |
International | 844 | | | 291 | | | 598 | | | 128 | |
Corporate and Other (a) | — | | | (16) | | | — | | | (23) | |
| Total Company | $ | 3,547 | | | $ | 1,460 | | | $ | 3,001 | | | $ | 1,057 | |
| | | | | | | | | | |
Reconciliation of Adjusted EBITDA to income before income taxes: |
| | | 2022 | | | | 2021 |
Adjusted EBITDA | | | $ | 1,460 | | | | | $ | 1,057 | |
Less: | Non-vehicle related depreciation and amortization (b) | | 61 | | | | 69 |
| | Interest expense related to corporate debt, net: | | | | | | |
| | Interest expense | | 64 | | | | | 47 | |
| | Early extinguishment of debt | | — | | | | | 7 | |
| | Restructuring and other related charges | | 2 | | | | | 5 | |
| | Unprecedented personal-injury and other legal matters, net (c) | | — | | | | | 5 | |
| | Transaction-related costs, net | | — | | | | | 1 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | COVID-19 charges (d) | | — | | | | | (6) | |
| | Other (income) expense, net (e) | | (9) | | | | | — | |
Income before income taxes | | | $ | 1,342 | | | | | $ | 929 | |
__________
(a)Includes unallocated corporate overhead which is not attributable to a particular segment.
(b)For the three months ended September 30, 2022, includes operating expenses in our Consolidated Condensed Statements of Comprehensive Income related to cloud computing costs of $2 million.
(c)Reported within operating expenses.
(d)The following table presents the unusual, direct and incremental costs due to the COVID-19 pandemic:
| | | | | | | | | | | |
| 2022 | | 2021 |
Minimum annual guaranteed rent in excess of concession fees, net | $ | — | | | $ | (4) | |
Vehicles damaged in overflow parking lots, net of insurance proceeds | — | | | (3) | |
| | | |
Other charges | — | | | 1 | |
Operating expenses | $ | — | | | $ | (6) | |
| | | |
| | | |
COVID-19 charges, net | $ | — | | | $ | (6) | |
(e)Primarily relates to a gain upon deconsolidation of a former subsidiary.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended September 30, |
| | | | 2022 | | 2021 |
| | | | Revenues | | Adjusted EBITDA | | Revenues | | Adjusted EBITDA |
Americas | $ | 7,270 | | | $ | 3,036 | | | $ | 5,457 | | | $ | 1,694 | |
International | 1,953 | | | 497 | | | 1,287 | | | 86 | |
Corporate and Other (a) | — | | | (58) | | | — | | | (52) | |
| Total Company | $ | 9,223 | | | $ | 3,475 | | | $ | 6,744 | | | $ | 1,728 | |
| | | | | | | | | | |
Reconciliation of Adjusted EBITDA to income before income taxes: |
| | | 2022 | | | | 2021 |
Adjusted EBITDA | | | $ | 3,475 | | | | | $ | 1,728 | |
Less: | Non-vehicle related depreciation and amortization (b) | | 174 | | | | 204 |
| | Interest expense related to corporate debt, net: | | | | | | |
| | Interest expense | | 181 | | | | | 167 | |
| | Early extinguishment of debt | | — | | | | | 136 | |
| | Restructuring and other related charges | | 16 | | | | | 47 | |
| | Unprecedented personal-injury and other legal matters, net (c) | | 1 | | | | | (6) | |
| | Transaction-related costs, net | | 1 | | | | | 3 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | COVID-19 charges (d) | | (9) | | | | | 12 | |
| | Other (income) expense, net (e) | | (9) | | | | | — | |
Income before income taxes | | | $ | 3,120 | | | | | $ | 1,165 | |
__________
(a)Includes unallocated corporate overhead which is not attributable to a particular segment.
(b)For the nine months ended September 30, 2022 and 2021, includes operating expenses in our Consolidated Condensed Statements of Operations related to cloud computing costs of $6 million and $5 million, respectively.
(c)Reported within operating expenses.
(d)The following table presents the unusual, direct and incremental costs due to the COVID-19 pandemic:
| | | | | | | | | | | |
| 2022 | | 2021 |
Minimum annual guaranteed rent in excess of concession fees, net | $ | (9) | | | $ | 12 | |
Vehicles damaged in overflow parking lots, net of insurance proceeds | — | | | (7) | |
| | | |
Other charges | — | | | 7 | |
Operating expenses | (9) | | | 11 | |
| | | |
Selling, general and administrative expenses | — | | | 1 | |
COVID-19 charges, net | $ | (9) | | | $ | 12 | |
(e)Primarily relates to a gain upon deconsolidation of a former subsidiary.
Since December 31, 2021, there have been no significant changes in segment assets exclusive of assets under vehicle programs. As of September 30, 2022 and December 31, 2021, Americas’ segment assets under vehicle programs were approximately $13.8 billion and $11.4 billion, respectively. The change in assets under vehicle programs is primarily due to the increase in the size of our vehicle rental fleet to meet the increase in rental demand.
18. Subsequent Event
In October 2022, we repurchased approximately 1.5 million shares of our common stock at a cost of approximately $259 million under our Stock Repurchase Program.
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