TABLE OF CONTENTS
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| PART II | ||||||||
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| PART III | ||||||||
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| PART IV | ||||||||
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| Item | Description | Page |
| PART I | ||
| 1 | ||
| 1A | ||
| 1B | ||
| 2 | ||
| 3 | ||
| 4 | ||
| PART II | ||
| 5 | ||
| 6 | ||
| 7 | ||
| 7A | ||
| 8 | ||
| 9 | ||
| 9A | ||
| 9B | ||
| PART III | ||
| 10 | ||
| 11 | ||
| 12 | ||
| 13 | ||
| 14 | ||
| PART IV | ||
| 15 | ||
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K may be considered “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by any such forward-looking statements. Forward-looking statements include information concerning our future financial performance, business strategy, projected plans and objectives. These statements may be identified by the fact that they do not relate to historical or current facts and may use words such as “believes,” “expects,” “anticipates,” “will,” “should,” “could,” “may,” “would,” “intends,” “projects,” “estimates,” “plans,” “forecasts,” “guidance,” and similar words, expressions or phrases. The following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:statements. These factors include, but are not limited to:
•the high level of competition in the vehicle rentalmobility industry, including from new companies or technology, and the impact such competition may have on pricing and rental volume;
•a change in our fleet costs, including as a result of a change in the cost of new vehicles, resulting from inflation or otherwise, manufacturer recalls, disruption in the supply of new vehicles, including due to labor actions by the United Auto Workers or otherwise, shortages in semiconductors used in new vehicle production, and/or a change in the price at which we dispose of used vehicles either in the used vehicle market or under repurchase or guaranteed depreciation programs;
•the results of operations or financial condition of the manufacturers of our cars,vehicles, which could impact their ability to perform their payment obligations under our agreements with them, including repurchase and/or guaranteed depreciation arrangements, and/or their willingness or ability to make carsvehicles available to us or the rental carmobility industry as a whole on commercially reasonable terms or at all;
•a deterioration in economic conditions, generally,resulting in a recession or otherwise, particularly during our peak season or in key market segments;
•an occurrence or threat of terrorism, the current and any future pandemic diseases, natural disasters, military conflicts, including the ongoing military conflicts in the Middle East and Eastern Europe, or civil unrest in the locations in which we operate, and the potential effects of sanctions on the world economy and markets and/or international trade;
•any substantial changes in the cost or supply of fuel, vehicle parts, energy, labor or other resources on which we depend to operate our business, including as a result of a global pandemic such as COVID-19, inflation, the ongoing military conflicts in the Middle East and Eastern Europe, and any embargoes on oil sales imposed on or by the Russian government;
•our ability to continue to successfully implement or achieve our business plans and strategies, achieve and maintain cost savings and adapt our business to changes in mobility;
operate, and our ability to conform to multiple and conflicting laws or regulations in those countries;
•the countriesperformance of the used vehicle market from time to time, including our ability to dispose of vehicles in which we operate;the used vehicle market on attractive terms;
•our dependence on third-party distribution channels, third-party suppliers of other services and co-marketing arrangements with third parties;
•risks related to completed or future acquisitions or investments that we may pursue, including the incurrence of incremental indebtedness to help fund such transactions and our dependenceability to promptly and
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effectively integrate any acquired businesses or capitalize on the performancejoint ventures, partnerships and retention of our senior management and key employees;other investments;
•our ability to utilize derivative instruments, and the impact of derivative instruments we utilize, which can be affected by fluctuations in interest rates, gasolinefuel prices and exchange rates, changes in government regulations and other factors;
•our exposure to uninsured or unpaid claims in excess of historical levels;levels and our ability to obtain insurance at desired levels and the cost of that insurance;
•risks associated with litigation or governmental or regulatory inquiries, or any failure or inability to comply with laws, regulations or contractual obligations or any changes in laws, regulations or contractual obligations, including with respect to personalpersonally identifiable information and consumer privacy, labor and employment, and tax;
•risks related to protecting the integrity of, and preventing unauthorized access to, our information technology systems or those of our third partythird-party vendors, licensees, dealers, independent operators and independent contractors, and protecting the confidential information of our employees and customers against security breaches, including physical or cyber-securitycybersecurity breaches, attacks, or other disruptions;disruptions, compliance with privacy and data protection regulation, and the effects of any potential increase in cyberattacks on the world economy and markets and/or international trade;
•any impact on us from the actions of our third-party vendors, licensees, dealers, independent operators and independent contractors and/or disputes that may arise out of our agreements with such parties;
•any major disruptions in our communication networks or information systems;
•risks related to tax obligations and the effect of future changes in tax laws and accounting standards;
•risks related to our indebtedness, including our substantial outstanding debt obligations, recent and future interest rate increases, which increase our financing costs, downgrades by rating agencies and our ability to incur substantially more debt;
•our ability to obtain financing for our global operations, including the funding of our vehicle fleet through the issuance of asset-backed securities and use of the global lending markets;
•our ability to meet the financial and other covenants contained in the agreements governing our indebtedness, or to obtain a waiver or amendment of such covenants should we be unable to meet such covenants;
•significant changes in the assumptions and estimates that are used in our impairment testing for goodwill or intangible assets, which could result in a significant impairment of our goodwill or intangible assets; and
•other business, economic, competitive, governmental, regulatory, political or technological factors affecting our operations, pricing or services.
We operate in a continuously changing business environment and new risk factors emerge from time to time. New risk factors, factors beyond our control, or changes in the impact of identified risk factors may cause actual results to differ materially from those set forth in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. Moreover, we do not assume responsibility for the accuracy and completeness ofif future results are materially different from those statements.forecasted or anticipated. Other factors and assumptions not identified above, including those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in Part II, Item 7, in “Risk Factors” set forth in Part I, Item 1A and in other portions of this Annual Report on Form 10-K, may contain forward-looking statements and involve uncertainties that could cause actual results to differ materially from those projected in suchany forward-looking statements.
Although we believe that our assumptions are reasonable, any or all of our forward-looking statements may prove to be inaccurate and we can make no guarantees about our future performance. Should unknown risks or
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uncertainties materialize or underlying assumptions prove inaccurate, actual results could differ materially from past results and/or those anticipated, estimated or projected. Except to the extent of our obligations under the federal securities laws, weWe undertake no obligation to release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
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PART I
| ITEM 1. BUSINESS | ||
Except as expressly indicated or unless the context otherwise requires, the “Company,” “Avis Budget,” “we,” “our” or “us” means Avis Budget Group, Inc. and its subsidiaries. “Avis,” “Budget,” “Budget Truck,” “Zipcar,” “Payless,” “Apex,” “Maggiore”Unless the context requires otherwise, these references and “FranceCars” referreferences to our Avis Rent A Car System, LLC, Budget Rent A Car System, Inc., Budget Truck Rental, LLC, Zipcar, Inc., Payless Car Rental, Inc., Apex Car Rentals, Maggiore Rent S.p.A. and AAA France Cars SAS operations, respectively, and, unless the context otherwise requires,brands do not include the operations of our licensees, as further discussed below.
| OVERVIEW | ||
We are a leading global provider of vehicle rental and other mobility solutions through our three most recognized brands, Avis, Budget and Zipcar, together withas well as several other brands, well recognized in their respective markets, including Paylessmarkets. Our brands offer a range of options, from car and truck rental to car sharing. We license the use of the Avis, Budget, Zipcar and other brands’ trademarks to licensees in the U.S. and certain other regions, Maggioreareas in Italy, FranceCars in France and Apex in both Australia and New Zealand.which we do not operate directly. We and our licensees operate the Avis and Budgetour brands in approximately 180 countries throughout the world. We generally maintain a leading share of airport car rental revenuerevenues in North America, Europe and Australasia, and we operate a leading car sharing network and one of the leading commercial truck rental businesses in the U.S.
On average, our global rental fleet totaled approximately 691,500 vehicles in 2023. We operate Budget Truck, one of the leading truckcompleted nearly 39 million vehicle rental businesses in the U.S., through a networktransactions worldwide and generated total revenues of approximately 925 dealer-operated$12 billion during 2023. Our brands and 450 Company-operatedmobility solutions have an extended global reach with approximately 10,250 rental locations throughout the continental U.S. We also own Payless, a car rental brand that operates in the deep-value segment of the industry in the U.S. and other regions; Apex, which is a leading deep-value car rental brand in New Zealand and Australia; Maggiore, a leading vehicle rental brand in Italy; and FranceCars, which operates one of the largest light commercial vehicle fleets in France. We also have investments in certain ofworld, including approximately 3,700 locations operated by our Avis and Budget licensees outside of the U.S., including joint ventures in India and China.licensees.
We categorize our operations into two reportable business segments:
•Americas, which provides and licenses the Company’s brands to third parties for - consisting primarily of (i) vehicle rentals and ancillary products and servicesrental operations in North America, South America, Central America and the Caribbean, and operates the Company’s(ii) car sharing businessoperations in certain of these markets;markets, and
(iii) licensees in certain areas in which we do not operate directly.•International, which provides and licenses the Company’s brands to third parties for - consisting primarily of (i) vehicle rentals and ancillary products and servicesrental operations in Europe, the Middle East, Africa, Asia and Australasia, and operates the Company’s(ii) car sharing businessoperations in certain of these markets.
| Average Rental Fleet | Average T&M Revenue per Day | Total Rental Days | |||||
| Americas | 391,966 | $40.03 | 102 | million | |||
| International | 198,511 | $31.52 | 52 | million | |||
| Total | 590,477 | $37.18 | 154 | million | |||
Additional discussion of our reportable segments is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 21 – Segment Information to operate directly,the Consolidated Financial Statements included in this Annual Report on Form 10-K.
| OUR STRATEGY | ||
For 2024, we expect our strategy to continue to primarily focus on customer experience and costs to strengthen the presence of our brandsCompany, maximize profitability, and to re-acquire previously granted license rights in certain cases.
| OUR BRANDS AND OPERATIONS | ||
OUR BRANDS
Our Avis, Budget and Zipcar brands are three of the most recognized brands in our industry. We believe that each of our brands is positioned to be embraced by different target customers, and we enjoy significantsee benefits and savings from operating our Avis and Budget brands to target different customers but sharing some of the same maintenance facilities, fleet management systems, technology and administrative infrastructure. In addition, we are able to recognize significant benefits and savings by combining our car rental and car sharing maintenance activities and fleets at times to reduce the numberas a result of unutilized cars and to meet demand peaks. We believe that Avis, Budget and Zipcar all enjoy complementary demand patterns with mid-week commercial demand balanced by weekendrentals occurring primarily
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on business days and leisure demand.rentals occurring primarily on holidays and weekends. We also operate the Payless and Apex and Payless brands which operate in the deep-valuevalue segment of the car rental industry, and augmentaugmenting our Avis, Budget and Zipcar brands. We also operate theIn addition, our Maggiore brandand Morini Rent brands in Italy, and the FranceCars brand in France whichand Turiscar brand in Portugal further extendsextend our offerings.
The following graphs present the rangeapproximate composition of vehicle use occasions we are able to serve.our revenues in 2023.
** Includes Zipcar and other operating brands.
The Avis brand provides high-quality vehicle rental and other mobility solutions at price points generally above non-branded and value-branded vehicle rental companies to serveand serves the premium commercial and leisure segments of the travel industry. We operate or license the Avis vehicle rental system (the “Avis System”), one of the largest global vehicle rental systems, comprised of approximately 5,450 locations worldwide, including inat virtually all of the largest commercial airports and cities in the world.
| Avis System Locations | ||||||||||||||||||||||||||||||||||||||||||
| Americas | International | Total | ||||||||||||||||||||||||||||||||||||||||
Avis Locations* | Avis Locations* | |||||||||||||||||||||||||||||||||||||||||
| Americas | Americas | International | Total | |||||||||||||||||||||||||||||||||||||||
| Company-operated locations | 1,525 | 1,150 | 2,675 | |||||||||||||||||||||||||||||||||||||||
| Licensee locations | 725 | 2,050 | 2,775 | |||||||||||||||||||||||||||||||||||||||
| Total Avis System Locations | 2,250 | 3,200 | 5,450 | |||||||||||||||||||||||||||||||||||||||
| Total Avis Locations | ||||||||||||||||||||||||||||||||||||||||||
* Certain locations support multiple brands.
In 2017,2023, our company-operatedCompany-operated Avis locations generated total world-wide revenuerevenues of approximately $5.2 billion, 62% of which was derived in the Americas. In 2017, approximately $1.8 billion (or 49%) of our Avis T&M revenue was derived from commercial customers and approximately $2.5 billion (or 70%) was derived from customers renting at airports.$6.8 billion. The following graphs present the approximate composition of our Avis revenue by segment and our Avis T&M revenue by customer and marketrevenues in 2017.2023.
We also license the Avis Systembrand to independent commercial owners who operate approximately half of our locations worldwide and generally pay royalty fees to us based on a percentage of applicable revenue.revenues. In 2017,2023, these royalty fees totaled approximately 30%1% of the globalour Avis System revenue was generated by our licensees. The graphs below present the approximate compositionrevenues.
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We offer Avis customers a variety of premium services, including:
•the Avis mobile application, which allows customers a unique and innovative way to reserve, confirm, choose or upgradecontrol many elements of their vehicle, add ancillary products, open, close or extend rentals, and, inrental experience via their mobile devices without the case of certain connected vehicles, lock and unlock the vehicle, using their smartphone or tablet device while by-passingneed to visit the rental counter. The Avis mobile application also allows customers to track courtesyAvis shuttle buses to rental locations, find their vehicle, and help “find my car”;locate nearby gas stations and parking facilities;
•Avis Preferred, aour frequent renter rewards program that offers counter bypass at major airport locationslocations;
•invited or earned customer status levels allowing for upgrades and reward points for every dollar spentcounter bypass;
•Avis QuickPass, a feature on vehicle rentals and related products;
the Avis Select Series,mobile application that allows customers to bypass the counter. In many United States locations, QuickPass also allows customers to choose, exchange or upgrade their car upon arrival and utilize a unique code to exit via our automated Express Exit for a completely contactless rental experience;
•availability of a selection of luxury vehicles including BMWs, Corvettes, Mercedes, Jaguarsthrough our Avis Signature Series, as well aspremium, sport, performance and others;electrified vehicles;
roadside assistance;
assistance, fuel service options;
options, e-receipts, electronic toll collection services that allow customers to pay highway tolls without waiting in toll booth lines;
lines, and amenities such as Avis Access,Cares, a full range of special products and services for drivers and passengers with disabilities;
•for our corporate customers, Avis Interactive,Budget Group Business Intelligence, a proprietary managementreporting solution that provides a centralized reporting tool that allowsand customer reporting portal for corporate clients in North America and Europe, enabling them to easily view and analyze their rental activity, via the Internet, permitting these clientsallowing them to better manage their travel budgets and monitor employee compliance with applicable travel policies; andpolicies.
The Budget brand is a leading supplier of vehicle rental and other mobility solutions focused primarily on more value-conscious segments of the industry.customers. We operate or license the Budget vehicle rental system (the “Budget System”), which is comprised of vehiclecar rental locations at most of the largest airports and in cities in the world.worldwide.
The table below presents the approximate number of locations that comprise the Budget Systemlocations as of December 31, 2017.2023.
| Budget System Locations | ||||||||||||||||||||||||||||||||||||||||||
| Americas | International | Total | ||||||||||||||||||||||||||||||||||||||||
Budget Locations* | Budget Locations* | |||||||||||||||||||||||||||||||||||||||||
| Americas | Americas | International | Total | |||||||||||||||||||||||||||||||||||||||
| Company-operated locations | 1,375 | 750 | 2,125 | |||||||||||||||||||||||||||||||||||||||
| Licensee locations | 650 | 1,150 | 1,800 | |||||||||||||||||||||||||||||||||||||||
| Total Budget System Locations | 2,025 | 1,900 | 3,925 | |||||||||||||||||||||||||||||||||||||||
| Total Budget Locations | ||||||||||||||||||||||||||||||||||||||||||
* Certain locations support multiple brands.
We also license the Budget Systembrand to independent commercial owners who operate approximately half of our locations worldwide and generally pay royalty fees to us based on a percentage of applicable revenue.revenues. In 2017,2023, these royalty fees totaled approximately 28%1% of the globalour Budget System revenue was generated by our licensees. The graphs below present the approximate composition of the Budget System revenue in 2017.revenues.
Budget offers its customers several products and services similar to Avis, such as refueling options, roadside assistance, electronic toll collection, and other supplemental rental products, emailed receipts and special rental rates for frequent renters. In addition, Budget’s mobile application allows customers to reserve, modify and cancel reservations on their smartphone,mobile device, and its Fastbreak and QuickPass service expedites rental service for frequent travelers.
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Budget Truck
Our Budget Truck rental business is one of the largest local and one-way truck and cargo van rental businesses in the U.S.United States. As of December 31, 2017,2023, our Budget Truck fleet is comprised of approximately 19,00021,000 vehicles that are rented through a network of approximately 925440 dealer-operated and 450415 Company-operated locations throughout the continental U.S.United States. These dealers are independently-owned businesses that generally operate other retail service businesses. In addition to their principal businesses, the dealers rent our light- and medium-duty trucks and commercial cargo vans to customers and are responsible for collecting payments on our behalf. The dealers receive a commission on all truck, van and ancillary equipment rentals. The Budget Truck rental business serves both the consumer and light commercial sectors. Theand consumer sector consists primarily of individuals who rent trucks to move household goods on either a one-way or local basis.sectors. The light commercial sector consists of a wide range of businesses that rent light- to medium-duty trucks, which we define as trucks having a gross vehicle weight of less than 26,000 pounds, for a variety of commercial applications. The consumer sector consists primarily of individuals who rent trucks to move household goods on either a one-way or local basis.
In 2023, our Company-operated Budget vehicle rental operations generated total revenues of approximately $4.5 billion. The following graphs present the approximate composition of our Budget revenues in 2023.
Zipcar is a leading car sharing network, driven by a mission to enable simple and responsible urban living. With its wide variety of self-service vehicles available by the hour or day, Zipcar offers comprehensive, convenient and flexible car sharing options in urban areas and college campuses in hundreds of cities and towns. Zipcar provides its members on-demand, self-service vehicles in reserved parking spaces located in neighborhoods, business districts, office complexes and college campuses, as an alternative to car ownership. We continue to offer our Zipcar Flex product in London providing one-way rentals, including to and from Heathrow airport, which can be parked in public on-street parking spots in designated areas of the city.
Other Brands
Our other brands include the following:
•Payless, brand is a leading rental car supplier positioned to serveserving the deep-value segment of the industry. Weindustry, which we license or operate or license the Payless brand, which is comprised ofin approximately 280270 locations worldwide, including approximately 100 Company-operated locations and more than 180160 locations operated by licensees. licensees and approximately 110 Company-operated locations.
◦Company-operated Payless locations are primarily located in North America, the majority of which are at or near major airports. Payless’ base T&Mrental fees are often lower than those of larger, more established brands, but Payless has historically achieved a greater penetration of ancillary products and services with its customers.vehicle rental brands.
◦The Payless business model allows the Companyus to extend the life cyclelife-cycle of a portion of our rental fleet, as we “cascade” certain vehicles that exceed certain Avis and Budget age or mileage thresholds to be used by Payless.
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•Maggiore and Australia, where we have approximately 25 rental locations. Apex operates its own rental fleet, separate from Avis and Budget vehicles with generally older and less expensive than vehicles offered by Avis and Budget. Apex generates substantially all of its reservations through its proprietary websites and contact center and typically has a greater-than-average length of rental. The substantial majority of Apex locations are at, or near, major airport locations.
◦Maggiore name. Our Maggiore brand has a strong domesticlocal reputation and benefits from a strong presence at airport, off-airport and railway locations. We have integrated numerous elementslocations and from the integration of Maggiore’sour existing operations and rental fleet management into our existing processes. expertise. We operate or license in approximately 140 rental locations throughout the country.
◦Morini Rent offers rental of cars, vans, and refrigerated vehicles. We operate in approximately 45 rental locations throughout the country.
•FranceCars, brandwhich operates one of the largest light commercial vehicle rental fleets in France, from more thanin approximately 70 rental locations. We have integrated a number of elements of FranceCar’s operationslocations, and fleet management intoleverages our existing processes.operational processes and local customer base.
•Apex, which operates in approximately 25 rental locations at, or near, major airports and in several metropolitan cities in New Zealand and Australia.
•Turiscar, a leading vehicle rental brand in Portugal, which operates primarily in the corporate market, including light commercial vehicles, at approximately 30 rental locations throughout the country.
•ACL Hire and McNicoll Hire, providers of quality vehicle rental and maintenance services in the UK, with a strong focus on light commercial vehicles.
RESERVATIONS, MARKETING AND SALES
Reservations
Our customers can make vehicle rental reservations through our brand-specific websites and through our toll-free reservation centers, by calling a specific location directly, through our brand-specific mobile applications, through
online travel agencies, through travel agents or through selected partners, including many major airlines, associations and retailers. Travel agents can access our reservation systems through all major global distribution systems, (“GDSs”), which provide information with respect to rental locations, vehicle availability and applicable rate structures.
Our Zipcar members maycan reserve cars by the hour or by the dayvehicles through Zipcar’s reservation system, which is accessible through the Zipcar website, through the Zipcar applicationonline or on their smartphone or by phone. We also provide two-way SMS texting, enabling us to proactively reach out to members during their reservation via theira mobile device, to manage their reservation, including instant reservation extension.by the hour or day, at rates that include fuel, secondary insurance and other costs typically associated with vehicle ownership.
Marketing and Sales
We support our brands through a range of marketing channels and campaigns, including traditional off-line media such as television and print advertising, as well as Internetdigital media, including internet and email marketing, social media, streaming services, and wireless mobile device applications. In 2023, we launched the Plan On Us campaign as the Avisbrand platform to highlight the trust our customers have in us. We also market through sponsorships of major sports entities such as the PGA Tour and the New York Yankees and sponsorships of charitable organizations such as Make-A-Wish.organizations. We also utilize a customer relationship management system that enables us to deliver more targeted and relevant offers to customers across online and offline channels, including an expedited and allows our customers to benefit through better and more relevant marketing, improved service deliverycontactless rental process and loyalty programs that reward frequent renters with free rental days and car class upgrades.
We continueare able to reach and merchandise cars and rentals to a diverse demographic of consumers through our strategic partnerships with airlines, associations and hotel companies, and we maintain strong links to the travel industryindustry. In addition, we have developed relationships that provide brand exposure and access to new customers, including marketing alliances with numerous marketing partnersdeals to provide vehicles to ride-hail drivers in 2017:cities across North America.
In 2017,2023, approximately 60%50% of vehicle rental transactions originating from our Company-operated Avis locations were generated by travelers who rented from Avis under contracts between Avis and the travelers’their employers or through membership in an organization with which Avis has a contractual affiliation (such as AARPaffiliation. We offer Avis Budget Group Business Intelligence, an online portal complete with rental summary dashboards, visualizations and Costco Wholesale).detailed reports that provides our corporate customers with insight into their program’s performance, giving them direct access to more data in a customer-facing portal offering useful data insights, including options to customize and schedule reports. Avis also
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maintains marketing relationships with other organizations such as American Express, MasterCard International and other organizations,travel partners through which we are able to provideoffer their customers with incentives to rent from Avis. Avis licensees also generally have the option to participate in these affiliations.
Additionally, we offer “UnlimitedUnlimited Rewards®,” an award-winning our loyalty incentive program for travel agents, and Avis and Budget programs for small businesses that offersoffer discounted rates, central billing options and rental
credits to members. Budget has contractual arrangements with American Express, MasterCard International and other organizations, which offer members incentives to rent from Budget.
Our Zipcar brand also partners with other active lifestyle brands that appealutilizes a diverse set of marketing and sales strategies to our Zipcaracquire and engage members, including digital marketing, email and organizes, sponsorsin-app messaging, and participates in charitable and community events with organizations that are important to Zipcar members.social media engagement. Zipcar maintains close relationships with universities that allow usprovide access to marketcampuses and various marketing channels to the “next generation consumer”attract students who, upon graduation, may migrate to the major metropolitan areas that we serve, continue their relationship with us and advocate for broad sponsorship of Zipcar membership at their places of work.us. Through our Zipcar for Business program, we also offer reduced weekday driving ratesdirect-bill accounts and employee benefit programs to employees of companies federal agencies and local governments that sponsorsupport the use of Zipcars.Zipcar vehicles.
LICENSING
We have licensees in approximately 175 countries throughout the world. Royalty fee revenuerevenues derived from our vehicle rental licensees in 20172023 totaled $136$133 million, with approximately $97$92 million in our International segment and $39$41 million in our Americas segment. Licensed locations are independently operated by our licensees and range from large operations at major airport locations and territories encompassing entire countries to relatively small operations in suburban or rural locations. Our licensees generally maintain separate independently owned and operated fleets. Royalties generated from licensing provide us with a source of high-margin revenue because there are relatively limited additional costs associated with fees paid by licensees to us. Locations operated by licensees represented approximately 50% of our Avis and Budget vehicle rental locations worldwide and approximately 29% of total revenue generated by the Avis and Budget Systems in 2017. WeIn some geographies we facilitate one-way vehicle rentals between Company-operated and licensed locations, which enables us to offer an integrated network of locations to our customers.
We generally enjoy good relationships with our licensees and meet regularly with them at regional, national and international meetings. Our relationships with our licensees are governed by license agreements that grant the licensee the right to operate independently operated vehicle rental businesses in certain territories. Our license agreements generally provide our licensees with the exclusive right to operate under one or more of our brands in their assigned territory. These agreements impose obligations on the licensee regarding its operations, and most agreements restrict the licensee’s ability to sell, transfer or assign its rights granted under the license agreement and capital stock.or to change the control of its ownership without our consent.
The terms of our license agreements, including duration, royalty fees and termination provisions, vary based upon brand, territory, and original signing date. Royalty fees are generally structured to be a percentage of the licensee’s gross rental income. We maintain the right to monitor the operations of licensees and, when applicable, can declare a licensee to be in default under its license agreement. We perform audits as part of our program to assure licensee compliance with brand quality standards and contract provisions. Generally, we can terminate license agreements for certain defaults, including failure to pay royalties or to adhere to our operational standards. Upon termination of a license agreement, the licensee is prohibited from using our brand names and related marks in any business. In the U.S.,United States, these license relationships constitute “franchises” under most federal and state laws regulating the offer and sale of franchises and the relationship of the parties to a franchise agreement.
We continue to optimize the Avis, Budget and Budget SystemsPayless brands by issuing new license agreements and evaluating strategic acquisitions ofperiodically acquiring licensees to grow our revenues and expand our global presence. OurDiscussion of our acquisitions of licensees overis included in Note 6 – Acquisitions to the last three years include locationsConsolidated Financial Statements included in Brazil, Norway, Sweden, Denmark and Poland as well as in local markets in Canada and the United States.this Annual Report on Form 10-K.
OTHER REVENUEREVENUES
In addition to revenuerevenues derived from time and mileage fees from our vehicle rentals and licensee royalties, we generate revenuerevenues from our customers through the sale and/or rental of optional ancillary products and services. We offer products to customers that will enhance their rental experience, including:
•collision and loss damage waivers, under which we agree to relieve a customer from financial responsibility arising from vehicle damage incurred during the rental such as rental;
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•additional/supplemental liability insurance or personal accident/effects insurance;insurance products which provide customers with additional protections for personal or third-party losses incurred;
•products for driving convenience such as fuel service options, chauffeur drive services, roadside assistance services, electronic toll collection tablet rentals,services, access to satellite radio, portablemobile WiFi devices, GPS navigation units and child safety seat rentals; and
•products that supplement truck rental including automobile towing equipment and other moving accessories, such as hand trucks, furniture pads and moving supplies.
We also receive payment from our customers for certain operating expenses that we incur, including vehicle licensing fees, as well as airport concession fees that we pay in exchange for the right to operate at airports and other locations. In addition, we collect membership fees in connection with our car sharing business.
OUR FLEET
We offer a wide variety of vehicles in our rental fleet, including luxury carsvehicles, electrified vehicles, specialty-use vehicles and specialty-uselight commercial vehicles. Our fleet consists primarily of vehicles from the current and immediately preceding model year. We maintain a single fleet of vehicles for Avis and Budget in countries where we operate both brands. TheA substantial majority of Zipcar’s fleet is dedicated to use by Zipcar, but we have developed processes to share vehicles between the Avis/Budget fleet and Zipcar’s fleet, primarily to help meet Zipcar’s demand peaks. Zipcar.
Fleet Purchases
We maintain a diverse rental fleet, in which no vehicle manufacturer represented more than 15%23% of our 20172023 fleet purchases, and we regularly adjust our fleet levels to be consistent with demand. We participate in a variety of vehicle purchase programs with major vehicle manufacturers. In 2017,2023, we primarily purchased vehicles from Citroen, Fiat Chrysler, Ford,Stellantis N.V., General Motors Company, Renault-Nissan-Mitsubishi Alliance, Toyota Motor Corporation, Hyundai Kia, Mercedes, Nissan, Opel, Peugeot, Renault, Seat, Toyota,Motor Group, Ford Motor Company and Volkswagen among others. During 2017, approximately 15%, 14% and 10% of the vehicles acquired for our rental fleet were manufactured by Ford, Fiat Chrysler, and General Motors, respectively.Group.
Fleet costs represented approximately 26%17% of our aggregate expenses in 2017.2023. Fleet costs can vary from year to year based on the prices at which we are able to purchase and dispose of rental vehicles.vehicles, the mix of risk and program vehicles, holding periods, and overall fleet mix.
In 2017, on average,2023, approximately 37%10% of our average rental car fleet was comprised of vehicles subject to agreements requiring automobile manufacturers to repurchase vehicles at a specified price during a specified time period or guarantee our rate of depreciation on the vehicles during a specified period of time,time; or were vehicles subject to operating leases which are subject towith a fixed lease period and interest rate. We refer to carsvehicles subject to these agreements as “program” carsvehicles and carsvehicles not subject to these agreements as “risk” carsvehicles because we retain the risk associated with such cars’vehicles’ residual values at the time of their disposition. The following graphs present the approximate percentage of program cars in both our average rental car fleet and fleet purchases within each of our reporting segments in the last three years.
Our agreements with automobile manufacturers typically require that we pay more for program carsvehicles and maintain them in our fleet for a minimum number of months and impose certain return conditions, including carvehicle condition and mileage requirements. When we return program carsvehicles to the manufacturer, we receive the price guaranteed at the time of purchase and are thustherefore protected from fluctuations in the pricesprice of previously-owned vehicles in the wholesale market. In 2017,2023, approximately 57%20% of the vehicles we disposed of were program vehicles sold pursuant to repurchase or guaranteed depreciation programs. Over the past several years, program vehicles have comprised of a decreasing proportion of our fleet. The approximate percentage of program vehicles in our average rental fleet within each of our reporting segments in 2023 was 40% for International and less than 1% for the Americas. The future percentages of program and risk carsvehicles in our fleet will depend on several factors, including our expectations for future used carvehicle prices, our seasonal needs and the availability and attractiveness of manufacturers’ repurchase and guaranteed depreciation programs. The Company has agreed to purchase approximately $8.1 billion
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Fleet Dispositions
We dispose of our risk carsvehicles largely through automobile auctions,alternative disposition channels, including auctions that enable dealers to purchase vehiclesdirect-to-consumer, online more quickly than through traditional auctions, and direct-to-dealer sales. In 2017, we continuedsales, as well as through more traditional automobile auctions. Alternative disposition channels provide the opportunity to expand the number of states that can participate inincrease vehicle sales prices and reduce relevant fleet costs compared to selling vehicles at auctions. We sell vehicles direct to consumers through our Ultimate Test Drive consumer carretail locations, and through RubyCar, our online retail sales program,platform, which offers customers the ability to purchase well-maintained, late-model rental vehicles from our rental vehicles. Alternative disposition channels such as Ultimate Test Drive, online auctions, retail lots and direct to dealer sales represented approximately 50%fleet. We dispose of our riskprogram vehicles in accordance with repurchase or guaranteed depreciation programs with major vehicle dispositions in the Americas in 2017 and provide us with per-vehicle cost savings compared to selling cars at auctions.manufacturers.
In 2023, our average monthlyquarterly vehicle rental fleet size ranged from a low of approximately 534,000621,000 vehicles in Januarythe first quarter to a high of approximately 721,000754,000 vehicles in July. Our average monthly car rental fleet size typically peaks in the summer months.third quarter. Average quarterly fleet utilization for 2017,2023, which is based on the number of rental days (or portion thereof) that vehicles are rented compared to the total amount of time that vehicles are available for rent, ranged from 64%approximately 65% to approximately 71%. Our average car rental fleet size and utilization are typically highest in January to 76% in August.the summer months. Our calculation of utilization may not be comparable to other companies’ calculation of similarly titled statistics.metrics.
Fleet Maintenance
We place a strong emphasis on the quality of our vehicle maintenance for customer safety and customer satisfaction reasons, and because quick and proper repairs are critical to fleet utilization. To accomplish this task, we have developed and continue to evolve specialized training programs for our technicians. Our MaintenanceSupply Chain Department reviews, distributes, and Damage Planning Department preparesmakes accessible original equipment manufacturer (“OEM”) technical service bulletins that can be retrieved electronically at our repair locations. In addition, we have implemented policies and procedures to promptly address manufacturer recalls as part of our ongoing maintenance and repair efforts.efforts to maximize the customer experience.
CUSTOMER SERVICE
We place a high emphasis on valuing our customers’ time through providing completealso offer rental options that provide greater control, with self-service and contactless capabilities. While our moble appsmobile applications provide a fast customer experience, our customers know a company representative is always available to meet theircustomers’ needs. In 2017, we expanded ourOur survey platform to integrate app-specificincludes specific questions to learn more about individual preferences and find innovative ways to better serve and anticipate our customers’ needs.
AIRPORT CONCESSION AGREEMENTS
We generally operate our vehicle rental and car sharing services at airports under concession agreements with airport authorities, pursuant to which we typically make airport concession payments and/or lease payments. In general, concession fees for on-airport locations are based on a percentage of total commissionable revenuerevenues (as
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defined by each airport authority), often subject to minimum annual guaranteed amounts. Concessions are typically awarded by airport authorities every three to ten years based upon competitive bids. Our concession agreements with the various airport authorities generally impose certain minimum operating requirements, provide for relocation in the event of future construction and in some cases provide for abatement of the minimum annual guarantee in the event of extended low passenger volume.
| OTHER BUSINESS CONSIDERATIONS | ||
SEASONALITY
Our vehicle rental business isoperating results are subject to seasonal variations in customer demand patterns,variability due to seasonality, macroeconomic conditions and other factors. Car rental volumes tend to be associated with the spring and summer vacation periods representing our peak seasons fortravel industry, particularly airline passenger volumes, or enplanements, which in turn tend to reflect general economic conditions. Our operations are also seasonal, with the majority of the countries in which we operate. We
The following chart presents our quarterly revenues for the years ended December 31, 2015, 20162021, 2022 and 2017.2023.
COMPETITION
The competitive environment for our industry is generally characterized by intense price and service competition among global, local and regional competitors. Competition in our vehicle rental operations is based primarily upon price, customer service quality, including usability of booking systems and ease of rental and return, vehicle availability, reliability, rental locations, product innovation and national or international distribution. In addition, competition is also influenced strongly by advertising, marketing, loyalty programs and brand reputation. We believe the prominence and service reputation of our brands, extensive worldwide ownership of mobility solutions and commitment to innovating will provideinnovation provides us with a competitive advantage.
The use of technology has increased pricing transparency among vehicle rental companies and other mobility solutions providers by enabling cost-conscious customers to more easily compare on the Internet and their mobile devices the rates available for the mobility solutions that fit their needs. This transparency has further increased the prevalence and intensity of price competition in the industry.
Our vehicle rental operations compete primarily with Enterprise Holdings, Inc., which operates the Enterprise, National and Alamo car rental brands; Hertz Global Holdings, Inc., which operates the Hertz, Dollar and Thrifty brands; Europcar Group;Mobility Group, which operates the Europcar, Goldcar, InterRent, Buchbinder, Fox Rent A Car and Ubeeqo brands; and Sixt AG. In addition there areSE. We also compete with smaller local and regional vehicle rental companies for vehicle rental market share, and with ride-hailing companies that we compete with largely for short length trips in urban areas. Our Zipcar brand also competes with various local and regional mobility companies, including mobility services sponsored by several auto manufacturers, ride-hailing and car sharing companies and other technology players in the mobility landscape.industry. Our Budget Truck operations in the U.S.United States competes with several other local, regional
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and nationwide truck rental companies such asincluding U-Haul International, Inc., Penske Truck Leasing Corporation, Ryder Systems,System, Inc., Enterprise Truck Rental, and Enterprise.Hertz Global Holdings, Inc.
INSURANCE AND RISK MANAGEMENT
Our vehicle rental and corporate operations expose us to various types of claims for bodily injury, death and property damage related to the use of our vehicles and/or properties, as well as general employment-related matters stemming from our operations. In addition, we currently purchase insurance coverage to limit our exposure to legal fees and expenses resulting from cybersecurity breaches. We generally assume the risk ofretain economic exposure for liability to third parties arising from vehicle rental and car sharing services in the United States, Canada and Puerto Rico and the U.S. Virgin Islands, in accordance with the minimum financial responsibility requirements (“MFRs”) and primacy of coverage laws of the relevant jurisdiction. In certain cases, we assume liability above applicable MFRs, butup to no more than $1$5 million per occurrence, other than in cases involving a negligent act on the part of the Company, for which we purchase insurance coverage for exposures beyond retained amounts from a combination of unaffiliated excess insurers.
In Europe, we insure the risk of liability to third parties arising from vehicle rental and car sharing services in accordance with local regulatory requirements primarily through a combination of insurance policies provided by unaffiliated insurers and through reinsurance.insurers. We may retain a portion of the insured risk of liability includingthrough local deductibles, and by reinsuring certain risks through our captive insurance subsidiary AEGIS Motor Insurance Limited. We limit our retained risk of liabilityAEGIS Motor Insurance Limited reinsures certain risks through the unaffiliated insurers. We insure the risk of liability to third parties in Argentina,companies, which limits its liabilities. In Australasia, and Brazil through a combination of unaffiliated insurers and one of our affiliates. These insurers providemotor vehicle bodily injury insurance coverage supplemental to minimumis compulsory and provided upon vehicle registration. In addition, we provide our customers with third-party property damage insurance through an unaffiliated third-party insurer. We retain a share of property damage risk through local requirements.deductibles.
We offer our U.S.United States customers a range of optional insurance products and coverages such as supplemental liability insurance, personal accident insurance, personal effects protection, emergency sickness protection, automobile towing protection and cargo insurance, which create additional risk exposure for us. When a customer elects to purchase supplemental liability insurance or other optional insurance related products, we typically retain economic exposure to loss, since the insurance is provided by an unaffiliated insurer that is reinsuring its exposure through our captive insurance subsidiary, Constellation Reinsurance Co., Ltd.Company Limited. Additional personal accident insurance offered to our customers in Europe is provided by a third-party insurer, and primarily reinsured by our Avis Budget Europe International Reinsurance Limited subsidiary. We also maintain excess insurance coverage through unaffiliated carriers to help mitigate our potential exposure to large liability losses. We otherwise bear these and other risks, except to the extent that the risks are transferred through insurance or contractual arrangements.
OUR INTELLECTUAL PROPERTY
We rely primarily on a combination of trademark, trade secret and copyright laws, as well as contractual provisions with employees and third parties, to establish and protect our intellectual property rights. The service marks “Avis,” “Budget,”“Budget” and “Zipcar” and related marks or designs incorporating such terms and related logos and marks such as “Plan On Us,” “We try harder,Try Harder,” “We Know The Road” and “wheels when you want them”“Own The Trip, Not The Car”, “Preferred” and “Fastbreak” are material to our vehicle rental and car sharing businesses. Our subsidiaries and licensees actively use these marks. All of the material marks used by Avis, Budget and Zipcar are registered (or have applications pending for registration) with the United StatesU.S. Patent and Trademark Office as well as in foreign jurisdictions. Our subsidiaries own the marks and other intellectual property, including the Wizard system, used in our business. We also own trademarks and logos related to the “Apex Car Rentals” brand in Australia and New Zealand, the “Payless Car Rental” brand in the United States and several other countries, the “Maggiore” brandand “Morini Rent” brands in Italy, and the “FranceCars” brand in France.France and the “Turiscar” brand in Portugal. Our subsidiaries have also filed patent applications pertaining to fleet and connected car technology in the United States and other countries.
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The Environment: We are committed to monitoring, measuringoffering safe and managinglow-carbon transportation solutions:
•Greenhouse Gas Emissions: As our corporate and leisure customers become increasingly aware and concerned about pollution and congestion caused by vehicles, we aim to provide more sustainable transportation solutions by leveraging connected vehicle technology and introducing more fuel efficient, low emission, and electric vehicles.
•Sustainable Operations Improvements: We are driving the efficiencies needed to reduce our environmental impact and working to reduce it where practicable on an ongoing basis. The following illustrate those commitments:
enhance the sustainability of our operations. These are mainly driven by improvements in vehicle preventive maintenance, the incorporation of green building practices and by complying with environmental regulations.•More Sustainable Fleet: We are actively anticipating and Budget rentaldriving changes in mobility. Connected and autonomous vehicles used by their employees and, where applicable, partneringare likely to help them achieve their sustainability goals;
◦Car Sharing: Zipcar continually improves its car sharing technology, which includes its mobile member app, in-vehicle telematics hardware and reservation, fleet management and community management systems.Zipcar’s technology platform is key to providing a successful self-service experience for its members and effectively managing a distributed fleet of vehicles and associated parking locations.
◦Connected Vehicles: Connected vehicles support our ability to reduce emissions through a steadfast focus on fleet maintenance and optimization.
◦Fleet Efficiency: We offer our customers the opportunity to choose from a wide variety of vehicles, including fuel-efficient, hybrid, or other materials.electric vehicles at almost all of our locations. Our fleet consists primarily of vehicles from the current and immediately preceding model year - this ensures the highest possible standards of air emissions control.
•Giving Back: We are a global company with local reach in numerous communities around the world. Whether we work individually or as a team, doing the right thing and supporting our communities helps employees feel their work is more than just a job, and makes them feel proud to be part of the Avis Budget Group family. As well as encouraging our employees to volunteer in their local communities, we are committed to supporting a variety of causes and charities that aid people in crisis situations.
•Supporting Community Resilience: We have developed strong competencies in responding to business disruptions. Whether the disruption is man-made, an extreme weather event or a global health crisis, our business continuity programs are central to how we respond in times of crisis. Our program’s focus is on preparing and protecting our people, property and infrastructure. We utilize an “all hands on deck” approach within our incident management and command structure to ensure that we respond as rapidly and effectively as possible. We have also developed longstanding partnerships with leading national disaster response agencies, which strengthen our ability to provide support to affected customers, employees and communities.
Governance: Our Board of Directors monitors the effectiveness of our policy and decision making, including with respect to ESG, on the current and long-term value of our company.
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Our most recent Corporate Governance documents are available on the Company’s website. The following initiativesinformation contained on the Company’s website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.
OUR HUMAN CAPITAL RESOURCES AND MANAGEMENT
Our human capital objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and future or prospective employees. Our compensation program is designed to attract, retain and motivate highly qualified employees and executives.
Employees
As of December 31, 2023, we employed approximately 24,500 people worldwide, of whom approximately 6,500 were employed on a part-time basis. Of our approximately 24,500 employees, approximately 8,500 were employed in our International segment. In our Americas segment, the majority of our employees are at-will employees and, therefore, not subject to any type of employment contract or agreement. In our International segment, we enter into employment contracts and agreements in those countries in which such relationships are mandatory or customary. The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction. Many of our employees are covered by a variety of union contracts and governmental regulations affecting, among other things, compensation, job retention rights and pensions.
We strive to maintain satisfactory relationships with all of our employees, including the unions and work councils representing these employees. As of December 31, 2023, approximately 28% of our employees were covered by collective bargaining or similar agreements with various labor unions. We believe our employee relations are satisfactory. We have never experienced a large-scale work stoppage.
Employee Benefits
Supporting our employees with the right benefits is one of the most important things we do. We understand benefits are a key element to a total reward package, so ensuring we provide meaningful benefit programs and resources across the globe is an integral part of how we reward employees, including with respect to healthcare and retirement. As a global company, benefits will vary by country to reflect local practices and cultures, but our commitment to achieving these goals:
Global Gender Pay Equity
To ensure we are compensating both men and women employees fairly and equitably, we utilize a global Center of Excellence total rewards function which standardizes and harmonizes our rewards programs across all countries. As a result, we have established pay programs that provide for equal incentive pay opportunity for all employees in same or similar positions across the globe. Additionally, we utilize global guidelines and standards to inform compensation decisions for all new hires and promotions. To monitor our performance for our management employees, we evaluate base salary placement relative to our internal salary ranges for men and women. For our hourly field workforce (non-management employees), we maintain pay equity through our standardized compensation practices in which all employees begin at the same start rate, based on their location and position, and annual pay increases are applied consistently to all employees based on tenure.
Recruitment and Development
Our talent strategy is solidly rooted in attracting and retaining a diverse workforce. Our Talent Acquisition teams have strong relationships with organizations that help us reach a diverse pool of candidates including those who identify as LGBTQ+ and those with disabilities. We believe that our employees possess a wealth of knowledge that could and should be mindfulshared with others. We have a wealth of established learning and talent programs that we make available to our employees, including a digital learning platform that has transformed the way we produce, manage and share learning resources.
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Diversity, Inclusion and Belonging
We embrace diversity and inclusion. We value each employee around the world, whose talent, skill and personality has helped establish us as a leading global mobility provider. We believe that embracing and promoting diversity is a critical component of our success and we have committed to creating a safe, supportive and inclusive environment. As an equal-opportunity employer, we are proud to provide an inclusive workplace that embraces and celebrates demographic, cultural and lifestyle differences. We strive to have a diverse and inclusive work environment where employees feel valued for their uniqueness, recognized for their diverse talents, and where they can bring their whole selves to work. We have created employee resource groups (“ERGs”) to advocate for equality, provide opportunities for advancement, and facilitate discussion around better practices and resources to advance more targeted cultural and racial understanding and diversity. These ERGs provide a space where employees can foster connections and develop in a supportive environment. As of the end of 2023, we had the following ERGs: Power of Women, Power of Veterans, Power of Pride, and Power of Color.
Health and Safety
The health and to enhance their ability to care for themselves and manage their health care expenses;
Well-being
We take a holistic approach to high ethical standards.well-being. We place great emphasis on professional conduct, safety and security, information protection and integrity.
REGULATION
We are subject to a wide variety of laws and regulations in the countries in which we operate, including those relating to, among others, consumer protection, insurance products and rates, franchising, customer privacy and data protection, securities and public disclosure, competition and antitrust, environmental matters, taxes, automobile-related liability, corruption and anti-bribery, labor and employment matters, health and safety, claims management, automotive retail sales, currency-exchange and other various banking and financial industry regulations, cost and fee recovery, the protection of our trademarks and other intellectual property, ESG matters and local ownership or investment requirements. Additional information about the regulations that we are subject to can be found in Part I, Item 1A, - Risk Factors of“Risk Factors” in this Annual Report on Form 10-K.
COMPANY INFORMATION
Our principal executive office is located at 6 Sylvan Way,379 Interpace Parkway, Parsippany, New Jersey 07054 (our telephone number is 973-496-4700). The Company files electronically with the Securities and Exchange Commission (the “SEC”) required reports on Form 8-K, Form 10-Q Form 10-K and Form 11-K;10-K; proxy materials; ownership reports for insiders as required by Section 16 of the Securities Exchange Act of 1934; registration statements and other forms or reports as required. Certain of the Company’s officers, directors and directorsstockholders also file statements of beneficial ownership and of changes in beneficial ownership on FormForms 3, 4 and 5 with the SEC. The public may read and copy any materials that the Company has filed with the SEC at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 800-SEC-0330. Such materials may also be accessed electronically on the SEC’s Internet site (sec.gov). The Company maintains a website (avisbudgetgroup.com) and copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports, proxy materials and any amendments to these reports filed or furnished with the SEC are available free of charge in the Investor Relations section of our website (ir.avisbudgetgroup.com), as soon as reasonably practicable after filing with the SEC. Copies of our board committee charters, Codes of Conduct and Ethics, Corporate Governance Guidelines and other corporate governance information are also available on our website. If the Company should decide to amend any of its board committee charters, Codes of Conduct and Ethics or other corporate governance documents, copies of such amendments will be made available to the public through the Company’s website. The information contained on the Company’s website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.
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| ITEM 1A. RISK FACTORS | ||
The following is a cautionary discussion of the most significant risks, uncertainties and assumptions that we believe are significantmaterial to our business and should be considered carefully in conjunction with all of the other information set forth in this Annual Report on Form 10-K. The risks described below are not an exhaustive list of all ofAlthough the risks that we faceare organized by headings, and each risk is discussed separately, many are not listed by order of priority or materiality.interrelated. In addition to the factors discussed elsewhere in this report,Annual Report on Form 10-K, the factors described in this item could, individually or in the aggregate, cause our actual results to differ materially from those described in any forward-looking statements. Should unknown risks or uncertainties materialize or underlying assumptions prove inaccurate, actual results could materially differ from past results and/or those anticipated, estimated or projected. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
RISKS RELATED TO OUR BUSINESSINDUSTRY AND THE BROADER ECONOMY
We face risks related to the high level of competition in the vehicle rentalmobility industry.
The vehicle rentalmobility industry is highly competitive, with price being one of the primary competitive factors. To the extent that our competitors reduce their pricing and we do not provide competitive pricing, or if price increases we implement make us less competitive, we risk losing rental volume, from existing customers, as well as lesseningand reducing the chances of success for future bids for newcustomer accounts. If competitive pressures lead us to lose rental volume or match any downward pricing and we are unable to reduce our operating costs, then our financial condition or results of operations could be materially adversely impacted.
Additionally, pricing in the vehicle rental industry is impacted by the size of rental fleets and the supply of vehicles available for rent. Any significant fluctuations in the supply of rental vehicles, available in the market due to an unexpected decrease in demand, orincluding as a result of actions taken by our competitors to increasethat increases fleet significantly above market share by acquiring more fleetdemand, could negatively affect our pricing, operating plans or results of operations.
The competitive environment for our mobility services has become more intense as additional companies, including automobile manufacturers, ride-hailing companies, car sharing companies and other technology players in the mobility industry enter our existing markets or expand their operations, ifwhich may affect demand for rental vehicles. Some of these companies may have access to substantial capital, innovative technologies or have the ability to provide services at a relatively low cost. To the extent these companies can improve transportation efficiency, alter driving patterns or attitudes toward vehicle rental, offer more competitive prices, undertake more aggressive marketing campaigns, price their competing services below market or otherwise disrupt the mobility industry, we are unable to adjust the sizerisk heightened pricing competition and/or loss of rental volume, which could adversely impact our rental fleet in response to fluctuations in demand.business and results of operations.
The risk of competition on the basis of pricing in the truck rental industry can be even more impactful than in the car rental industry becauseas it can be more difficult to reduce the size of our truck rental fleet in response to significantly reduced demand.
We face risks related to fleet costs.costs and availability.
Fleet costs typically represent our single largest expense and can vary from year to year based on the prices that we are able to purchase and dispose of our vehicles. We purchase program cars,vehicles, which are guaranteed a rate of depreciation through agreements with auto manufacturers, and non-program, or “risk”risk vehicles. In 2017,2023, on average approximately 63%90% of our rental car fleet was comprised of risk vehicles.
The costs of our risk vehicles may be adversely impacted by the relative strength of the used car market, particularly the market for one- to two-year old used vehicles, or potentially by the insolvency or bankruptcy of an auto manufacturer from whom we purchase vehicles. We currently sell risk vehicles through various sales channels in the used vehicle marketplace, including traditional auctions, on-lineand alternative disposition channels, including online auctions, direct-to-dealer sales and directly to consumers through either retail lots and our Ultimate Test Drive consumer car sales program.or online. These channels may not produce stable vehicle prices in the future, as the market for used vehicles is subject to changes in demand for usedsuch vehicles, consumer interests, pricing ofinventory levels, new car models,pricing, interest rates, fuel costs, tariffs and general economic conditions.conditions, and recent reports have suggested that prices in the used vehicle market may decrease in 2024. A reduction in residual values for risk vehicles in our rental fleet could cause us to
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sustain a substantial loss on the ultimate sale of such vehicles or require us to depreciate those vehicles at a more accelerated rate than previously anticipated while we own them. Any reduction in the market value of the vehicles in our fleet could effectively increase our fleet costs, adversely impact our profitability and potentially lead to decreased capacity in our asset-backed car rental funding facilities due to the collateral requirements for such facilities that effectively increase as market values for vehicles decrease.
If the market value of the vehicles in our fleet is reduced or our ability to sell vehicles in the used vehicle marketplace were to become severely limited, we may have difficulty meeting collateral requirements due under our asset-backed financing facilities, which could lead to decreased capacity in such facilities and effectively increase our fleet costs or adversely impact our profitability. In addition, if we are unable to meet our collateral requirements under such facilities, the outstanding principal amount due may be required to be repaid earlier than
anticipated. If that were to occur, the holders of our asset-backed debt may have the ability to exercise their right to instruct the trustee to direct the return of program carsvehicles and/or the sale of risk carsvehicles to generate proceeds sufficient to repay such debt.
Program cars and leased vehicles enable us to determine our depreciation expense in advance of purchase, which is a significant component of our fleet costs.purchase. Our program car purchasesvehicles also generally provide us with flexibility to reduce the size of our fleet rapidlyrapidly. This flexibility is negatively affected as the percentage of program vehicles in our fleet is reduced as has been the trend over the last several years, or if the features of the programs provided by auto manufacturers are less favorable. Our inability to reduce the size of our fleet in response to seasonal demand fluctuations, economic constraints or other changes in demand.demand could have an adverse impact on our fleet costs and results of operations.
Failure by a manufacturer to fulfill its obligations under any program agreement or incentive payment obligation, due to insolvency, bankruptcy or other reasons, could leave us with a material expense if we are unable to dispose of program vehicles at prices estimated at the time of purchase or with a substantial unpaid claim against the manufacturer, particularly with respect to program vehicles that were either (i) resold for an amount less than the amount guaranteed under the applicable program; or (ii) returned to the manufacturer, but for which we were not paid, and therefore we could incur a substantial loss as a result of such failure to perform.
While we source our fleet purchases from a wide range of auto manufacturers, our program car purchases expose uswe are exposed to risk to the extent that any auto manufacturer significantly curtails production. Such production may be curtailed as a result of thesea wide range of factors, including impacts of a pandemic and supply chain impacts, including shortages of parts, which have impacted certain manufacturers in the past.We are also exposed to risk to the extent that any auto manufacturers significantly curtail production, increasemanufacturer increases the cost of purchasing program carsvehicles, including as a result of inflation, labor shortages or declinedisruptions, or supply chain disruptions, or declines to sell program carsvehicles to us on terms or at prices consistent with past agreements.practice. Should any of these risks occur, we may be unable to obtain a sufficient number of vehicles to operate our business without significantly increasing our fleet costs or reducing our volumes.
We face risks related to safety recalls affecting our vehicles.
Our vehicles may be subject to safety recalls by their manufacturers, thatwhich could have an adverse impact on our business when we remove recalled vehicles from our rentable fleet. We cannot control nor predict the number of vehicles that will be subject to manufacturer recalls in the future. Recalls often require us to retrieve vehicles from customers and/or hold vehicles until we can arrange for the repairs described in the recalls to be completed. As such, recalls can result in incrementalincrease our costs, negatively impact our revenues and/or reduce our fleet utilization. If a large number of vehicles were to be the subject of simultaneousone or more recalls, or if needed replacement parts were not in adequate supply, we may be unable to utilize recalled vehicles for a significant period of time. We couldmay also facebe subject to material liability claims or regulatory action related to vehicles subject to a safety recall. Depending on the nature and severity of the recall, it could create customer service problems, reduce the residual value of the vehicles involved, harm our general reputation and/or have an adverse impact on our financial condition or results of operations.
Weakness or fluctuations in travel demand or general economic conditions, in the United States, Europe and other areas in which we operate and/or a significant increase in fuel costs, can adversely impact our business.
Demand for vehicle rentals can beis generally subject to and impacted by international, national and local economic conditions. Ifconditions and travel demand, which can be impacted by many factors, including inflation. When travel demand or economic conditions in the United States, Europe and/or worldwide were to weaken, our financial condition orand results of operations could beare often adversely impacted.
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Any significant airline capacity reductions, airfare or related fee increases, reduced flight schedules, or any events that disrupt or reduce business or leisure air travel or weaken travel demand and tourism, such as work stoppages, military conflicts, terrorist incidents, natural disasters, disease epidemics, or the response of governments to any such events, could have an adverse impact on our results of operations. Likewise,For example, events of a global nature such as the COVID-19 pandemic have had, and may in the future have, material impacts on the Company. In addition, any significant increases in fuel prices, a severe protracted disruption in fuel supplies or rationing of fuel, or severe inflation that disrupts consumers’ discretionary spending patterns could discourage our customers from renting vehicles or reduce or disrupt air travel, which could also adversely impact our results of operations.
Our truck rental business can be impacted by the housing market. If conditions in the housing market were to weaken, we may see a reduction in truck rental transactions, which could have an adverse impact on our business.
We face risks related to political, economic and commercial instability or uncertainty in the countries in which we operate.
Our global operations expose us to a number of risks including exposurerelated to a wide range of international, national and local economic and political conditions and instability. For example, uncertainty related to the proposed withdrawal of the United Kingdom from the European Union could lead to volatility in the global financial markets, adversely affect tax, legal and regulatory regimes, and could impact the economies of the United Kingdom and other countries in which we operate, which could have a material adverse effect on our results in such countries. Operating or expanding our business in a number of different regions and countries exposes us to a number of other risks, including:
•multiple and potentially conflicting laws, regulations, trade policies and agreements, and varying tax regimes that are subject to change;
•the imposition of currency restrictions, restrictions on repatriation of earnings or other restraints, as well as difficulties in obtaining financing in foreign countries for local operations;
•potential changes to import-export laws, trade treaties or tariffs in the countries where we purchase vehicles;
•international trade disruptions or disputes;
•local ownership or investment requirements, or compliance with local laws, regulations or business practices;
•uncertainty and changes to political and regulatory regimes as a result of changing social, political, regulatory and economic environments in the United States and internationally;
•national and international conflict, including terrorist acts; and
•political and economic instability or civil unrest that may severely disrupt economic activity in affected countries.
Exposure to these risks may adversely impact our financial condition or results of operations. Our licensees’ vehicle rental operations may also be impacted by political, economic and commercial instability,these risks, which in turn could impact the amount of royalty payments they make to us.
The ongoing military conflicts in the Middle East and Eastern Europe are causing uncertainty that may have an adverse impact on our business, financial condition and results of operations.
The world economy and markets are experiencing volatility and disruption from the ongoing military conflicts in the Middle East and Eastern Europe, the length and impact of which are highly unpredictable. These conflicts have led to, and could in the future lead to, significant volatility in our costs, including fuel and fleet costs, including as a result of sanctions or any embargoes on oil sales imposed on or by the Russian government; impacts to fleet availability; and impacts on demand for travel as a result of weakness in economic conditions, increased inflation
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or increases in the cost of fuel as well as other factors. In addition, as a result of the conflict in Eastern Europe, governmental and non-governmental entities have issued alerts noting the potential for increased cyber-attacks. Such risks and disruptions could adversely impact our business, results of operations and financial condition.
RISKS RELATED TO THE NATURE OF OUR BUSINESS
Damage to our reputation or brands may negatively impact our business.
Our reputation and global brands are integral to the success of our business. Maintenance of our Company’s reputation and brands depends on many factors, including the quality of our products and services and the trust we maintain with our customers. Negative claims or publicity regarding our Company or our operations, offerings, practices, among many other things, may damage our brands or reputation, even if such claims are untrue. Damage to our reputation or brands could adversely impact our revenue and profitability.
We face risks related to third-party distribution channels that we rely upon.
We rely upon third-party distribution channels to generate a significant portion of our carvehicle rental reservations, including:
•traditional and online travel agencies, airlines and hotel companies, marketing partners such as credit card companies and membership organizations and other entities that help us attract customers; and
•global distribution systems (“GDS”), such as Amadeus, Galileo/Apollo, Sabre and Worldspan, that connect travel agents, travel service providers and corporations to our reservationsreservation systems.
Changes in our pricing agreements, commission schedules or arrangements with third-party distribution channels, the termination of any of our relationships or a reduction in the transaction volume of such channels, or a GDS’s inability to process and communicate reservations to us could have an adverse impact on our financial condition or results of operations, particularly if our customers are unable to access our reservation systems through alternate channels.operations.
We face risks related to our property leases and vehicle rental concessions.
We leasehave property leases or have vehicle rental concessions at locations throughout the world, including at most airports where we operate both in the United States and internationally and at train stations throughout Europe, where vehicle rental companies are frequently required to bid periodically for space at these locations. If we were to lose a property lease or vehicle rental concession, particularly at an airport or a train station in a major metropolitan area, there can be no assurance that we would be able to find a suitable replacement location on reasonable terms, which could adversely impact our business. Most leases and airport concessions have fixed obligations that can be required even if our volume drops significantly. While we have been successful at partially mitigating some of these requirements in the past, including when enplanements have decreased significantly, there is no guarantee that we will be able to do so in the future, and if we are not successful our costs as a percentage of revenue could increase.
We face risks related to the seasonality of our business.
In our business, the third quarter of the year has historically been our most profitable quarter, as measured by net income and Adjusted EBITDA, due primarily to the increased level of summer leisure travel and household moving activity.travel. We vary our fleet size over the course of the year to help manage seasonal variations in demand, as well as localized changes in demand that we may encounter in the various regions in which we operate. Any circumstance or occurrence that disrupts rental activity during the third quarter, especially in North America and Europe, could have a disproportionately adverse impact on our financial condition or results of operations.
We face risks related to acquisitions, including the acquisition of existing licensees or investments in or partnerships with other related businesses.
We may engage in strategic transactions, including the acquisition of, or investment in, existing licensees and/or other related businesses, or partnerships or joint ventures with companies in related or cross-function lines of business.ventures. The risks involved in engaging in these strategictypes of transactions include the possible failure to successfully integrate the operations of acquired businesses, or to realize the expected benefits of such transactions within the anticipated time frame, or at all, such as cost savings, synergies, or sales orand growth
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opportunities. In addition, the integration of an acquired business or oversight of a partnership or joint venture may result in material unanticipated challenges, expenses, liabilities or competitive responses, including:
•inconsistencies between our standards, procedures and policies and those of thean acquired business, partnership and/or joint venture, and venture;
•costs or inefficiencies associated with the integration of our operational and administrative systems;
•the increased scope and complexity of our operations could require significant attention from management and could impose constraints on our operations or other projects;
•unforeseen expenses, delays or conditions, including required regulatory or other third-party approvals or consents, or provisions in contracts with third parties that could limit our flexibility to take certain actions;
•an inability to retain the customers, employees, suppliers and/or marketing partners of thean acquired business, partnership or joint venture or generate new customers or revenue opportunities through a strategic partnership;
•the costs of compliance with local laws and regulations and the implementation of compliance processes, as well as the assumption of unexpected liabilities, litigation, penalties or other enforcement actions;
•exposure to undetected malware and viruses embedded in the acquired IT systems of the acquired entity; and
•higher than expected costs arising due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or pension policies.
Any one of these factors could result in delays, increased costs or decreases in the amount of expected revenues related to combining the companies or derived from a strategic transaction and could adversely impact our financial condition or results of operations.
We face risks related to our Zipcar operations.vehicle electrification.
Vehicle electrification refers to a range of technologies that uses electricity to propel a vehicle and includes hybrid, plug-in, extended range and battery electric vehicles, as well as autonomous vehicles. We expectbelieve that the competitive environment for our car sharing servicesvehicle industry will become more intense as additional companies, including automobile manufacturers, ride-hailing and car sharing companies and other technology playerscontinue to experience significant change in the mobility landscape, enter our existing markets or trycoming years, in particular as it relates to expand their operations. Competitors could introduce new mobility solutions or technologies that change the car sharing industry orvehicle electrification. Worldwide demand for electric and hybrid vehicles continues to increase, and manufacturers continue to invest more time and cost into producing these types of vehicles in an effort to reduce fuel consumption and greenhouse gas emissions, as mandated by various governmental standards and regulations. If we are not adequately prepared to meet consumer attitudes toward car sharing, offer more competitive pricedemand for electric, hybrid and convenience characteristics, or could undertake more aggressive marketing campaigns or price their products below cost. Such developments could adversely impact our business and results of operations should we be unable to compete withautonomous vehicles as such efforts.
We face risks related to liability and insurance.
Our global operations expose us to several forms of liability, including claims for bodily injury, death and property damage related to the use of our vehicles, or for having our customers on our premises, as well as workers’ compensation and other employment-related claims by our employees.claims. We may become exposed to uninsured liability at levels in excess of our historical levels, resulting from unusually high losses or otherwise. In addition, liabilities in respect of existing or future claimswhich may exceed the level of our reserves and/or our insurance, whichand could adversely impact our financial condition and results of operations. Furthermore, insurance with unaffiliated insurers may not continue to be available to us on economically reasonable terms or at all. Should we be subject to an adverse ruling, or experience other significant liability for which we did not plan and are unable towere not adequately insure against such liability,insured, our results of operations, financial position or cash flows could be negatively impacted.
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We reinsure certain insurance exposures as well as offer optional insurance coverages through unaffiliated third-party insurers whichthat then reinsure all or a portion of their risks through our insurance company subsidiaries, which subjects us to regulation under various insurance laws and statutes in the jurisdictions in which our insurance company subsidiaries are domiciled.statutes. Any changes in regulations that alter or impede our reinsurance obligations or insurance subsidiary operations, or any negative regulatory or other legal action against us with respect to our reinsurance, could adversely impact the economic benefits that we rely upon to support our reinsurance efforts, which in turn would adversely impact our financial condition or results of operations.
Optional insurance products that we offer to renters in the United States, including, but not limited to, supplemental or additional liability insurance, personal accident insurance and personal effects protection, are regulated under state laws governing such products.laws. Our carvehicle rental operations outside the United States must also comply with certain local laws and regulations regarding the sale of supplemental liability and personal accident and effects insurance by intermediaries. Any changes in U.S. or international lawslaw that changeaffect our operating requirements with respect to our sale of optional insurance products could increase our costs of compliance or make it uneconomical to offer such products, which would lead to a reduction in revenue and profitability. Should more of our customers decline purchasingto purchase optional liability insurance products as a result of any changes in these laws, or otherwise, our financial condition or results of operations could be adversely impacted.
We offer loss damage waivers to our customers as an option for them to reduce their financial responsibility that may be incurred as a result of loss or damage to the rental vehicle. Certain states in the United States have enacted legislation that mandates disclosure to each customer at the time of rental that damage to the rented vehicle may be covered to some extent by the customer’s personal automobile insurance and that loss damage waivers may not be necessary. In addition, some states have statutes that establish or cap the daily rate that can be charged for loss damage waivers. Should new laws or regulations arise that place new limits on our ability to offer loss damage waivers to our customers, our financial condition or results of operations could be adversely impacted.
Additionally, the current U.S.United States. federal law pre-empts state laws that impute tort liability based solely on ownership of a vehicle involved in an accident. If such federal law were to change, our insurance liability exposure could materially increase.
We may be unable to collect amounts that we believe are owed to us by customers, insurers and other third parties related to vehicle damage claims or liabilities. The inability to collect such amounts in a timely manner or to the extent that we expect could adversely impact our financial condition or results of operations.
We face risks related to fluctuations in currency exchange rates.
Our operations generate revenue and incur operating costs in a variety of currencies. The financial position and results of operations of many of our foreign subsidiaries are reported in the relevant local currency and then translated to United States dollars at the applicable currency exchange rate for inclusion in our Consolidated Financial Statements. Changes in exchange rates among these currencies and the U.S. dollar have affected, and will continue to affect, among other things, the recorded levels of our assets and liabilities in our Consolidated Financial Statements. While we take steps to manage our currency exposure, such as currency hedging, we may not be able to effectively limit our exposure to intermediate- or long-term movements in currency exchange rates, which could adversely impact our financial condition or results of operations.
We face risks related to our derivative instruments.
We typically utilize derivative instruments to manage fluctuations in foreign exchange rates, interest rates and fuel prices. The derivative instruments we use to manage our risk are usually in the form of interest rate swaps and caps and foreign exchange and commodity contracts. Periodically, we are required to determine the change in fair value, called the “mark-to-market,” of some of these derivative instruments, which could expose us to substantial mark-to-market losses or gains if such rates or prices fluctuate materially from the time we entered into the derivatives. Accordingly, volatility in rates or prices may adversely impact our financial position or results of operations and could impact the cost and effectiveness of our derivative instruments in managing our risks.
Earnings for future periods may be impacted by impairment charges for goodwill and intangible assets.
We carry a significant amount of goodwill and identifiable intangible assets on our Consolidated Balance Sheets. Goodwill is the excess of purchase price over the fair value of the net assets of acquired businesses. We assess
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goodwill and indefinite-lived intangible assets for impairment each year, or more frequently if circumstances suggest an impairment may have occurred. We have determined in the past and may again determine in the future that a significant impairment has occurred in the value of our goodwill. Additionally, we have a significant amount of identifiable intangible assets and fixed assets that could also be subject to impairment. If we determine that a significant impairment has occurred in the value of our unamortized intangible assets or fixed assets, we could be required to write off a portion of our assets, which could adversely affect our consolidated financial condition or our reported results of operations.
RISKS RELATED TO LEGAL, REGULATORY AND ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (“ESG”) RELATED MATTERS
Costs associated with lawsuits, or investigations or increases in the legal reserves that we establish based on our assessment of contingent liabilities may have an adverse effect on our results of operations.
Our global operations expose us to various claims, lawsuits and other legal proceedings that arise in and outside of the ordinary course of our business in the countries in which we operate. We may be subject to complaints and/or litigation involving our customers, licensees, employees, independent operators and others with whom we conduct business, including claims for bodily injury, death and property damage related to use of our vehicles or our locations, by customers, or claims based on allegations of discrimination, misclassification as exempt, employees under the Fair Labor Standards Act, wage and hourlyhour pay disputes or allegations related to our business practices, and various other claims. We could be subject to substantial costs and/or adverse outcomes from such complaints or litigation,claims, which could have a material adverse effect on our financial condition, cash flows or results of operations.
At some of our locations, we outsource to third-party independent contractors who operate the business as a separate entity and we pay these independent contractors a commission for operating their business under our brands. There is a growing trend in the United States aimed at the gig economy to define independent contractors as employees. As such, we are subject to legislative and or judicial determination that any such changes are applicable to these independent contractors. Such determinations may require us to change the business operations and make such independent contractor locations employee operated. This could potentially expose us to additional costs and material liability under federal and state labor and employment and tax laws.
From time to time, our Company and/or other companies in the vehicle rental industry may be reviewed or investigated by state or federalgovernment regulators, which could lead to tax assessments, enforcement actions, fines and penalties or the assertion of private litigation claims. It is not possible to predict with certainty the outcome of claims, investigations and lawsuits, and we could in the future incur judgments, taxes, fines or penalties or enter into settlements of lawsuits or claims thatwhich could have an adverse impact on our financial condition or results of operations. In addition, while we maintain insurance coverage with respect to exposure for certain types of legal claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against any such claims.
We face risks related to laws and regulations that could impact our global operations.
We are subject to multiple, and sometimes conflicting, laws and regulations in the countries in which we operate that relate to, among others, consumer protection, competition and antitrust, customer privacy and data protection, securities and public disclosure, automotive retail sales, franchising, corruption and anti-bribery, environmental matters, taxes, automobile-related liability, labor and employment matters, cost and fee recovery, currency-exchange and other various banking and financial industry regulations, health and safety, insurance rates and products, claims management, protection of our trademarks and other intellectual property and other trade-related laws and regulations. Recent years have seen a substantial increase in the global enforcement of certain of these laws such as the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and similar foreign laws and regulations. Our continued global operations and expansion could increase the risk of governmental investigations and violations of such laws. We cannot predict the nature, scope or effect of future regulatory requirements to which our global operations may be subject or the manner in which existing or future laws may be administered or interpreted. Any alleged or actual violations of any law or regulation, change in law, regulation, trade treaties or regulationtariffs, or changes in the interpretation of existing laws or regulations may subject us to government scrutiny, investigation and civil and criminal penalties, limit our ability to provide services in any of the countries in which we operate and could result in a material adverse impact on our reputation, business, financial position or results of operations.
In certain countries in whichwhere we have Company-operated locations, we may recover certain costs from consumers, including costs associated with the title and registration of our vehicles, or concession costs imposed by an airport authority or the owner and/or operator of the premises from which our vehicles are rented. We may in the future be subject to potential laws or regulations that could negatively impact our ability to separately state, charge and recover such costs, which could adversely impact our financial condition or results of operations.
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We are seeking Advanced Pricing Agreements with certain tax authorities to obtain certainty regarding our transfer pricing policy. While this effort is ongoing, the process of negotiating and data protection lawsultimately entering into these agreements has been lengthy and regulationsmay take several more years. The ultimate results of our negotiations of these agreements with tax authorities, the expiration of such agreements, or changes in circumstances or in the interpretation of such agreements could increase our tax costs in these jurisdictions, including through the assessment of significant interest charges and/or penalties if non-compliance is adjudicated. To the extent we do not have an existing Advance Pricing Agreement or other agreement, governmental authorities could challenge our transfer pricing policy in which we operate limit the types of information thatfuture and, if challenged, we may collect about our customers and other individuals with whom we deal or propose to deal, as well as how we collect, process and retain the information that we are permitted to collect, some of which may be non-public personally identifiable information. The centralized nature of our information systems requires the routine flow of information about customers and potential customers across national
We face risks related to environmental laws and regulations.
We are subject to a wide variety of environmental laws and regulations in connection with our operations, including, among other things, with respect to the ownership or use of tanks for the storage of petroleum products such as gasoline, diesel fuel and motor and waste oils; the treatment or discharge of waste waters; and the generation, storage, transportation and off-site treatment or disposal of solid or liquid wastes. We maintain liability insurance covering storage tanks at our locations. In the United States, we administer an environmental compliance program designed to ensure that these tanks are properly registered in the jurisdiction in which they are located and are in compliance with applicable technical and operational requirements. The tank systems located at each of our locations may not at all times remain free from undetected leaks, and the use of these tanks has resulted in, and from time to time in the future may result in, significant spills, which may be significant and may require remediation and expose us to material uninsured liability or liabilities in excess of insurance.
We may also be subject to requirements related to the remediation of substances that have been released into the environment at properties owned or operated by us or at properties to which we send substances for treatment or disposal. Such remediation requirements may be imposed without regard to fault and liability for environmental remediation can be substantial. These remediation requirements and other environmental regulations differ depending on the country where the property is located. We have made, and will continue to make, expenditures to comply with environmental laws and regulations, including, among others, expenditures for the remediation of contamination at our owned and leased properties, as well as contamination at other locations at which our wastes have reportedly been identified. Our compliance with existing or future environmental laws and regulations may, however, require material expenditures by us or otherwise have an adverse impact on our financial condition or results of operations.
We face risks related to ESG matters.
Increasing attention to climate change, increasing societal expectations on companies to address climate change, the increase in proposed and adopted ESG regulations and laws, both domestically (including in California) and globally (especially in the European continent) and potential consumer and customer use of substitutes to our products may result in increased costs, reduced demand for our products, reduced profits, increased investigations and litigation, reputational harm and negative impacts on our stock price and access to capital markets. We have developed certain initiatives, goals and practices relating to ESG matters. We may not be successful in implementing these initiatives, goals and practices, including due to factors beyond our control, and even if successful, they may not achieve our desired or expected outcomes. If our ESG initiatives, goals, and practices do not meet our expectations, those of our investors or other stakeholders, or requirements of local rules and regulations, each of which continue to evolve, we may incur additional costs, and our brand, reputation and our results of operations and financial condition may be adversely impacted.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings and investment
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community divestment initiatives may lead to negative publicity or investor sentiment toward us and to the diversion of investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital.
We face risks related to franchising or licensing laws and regulations.
We license to third parties the right to operate locations using our brands in exchange for royalty payments. Our licensing activities are subject to various laws and regulations in the countries in which we operate. In particular, laws in the United States require that we provide extensive disclosure to prospective licensees in connection with licensing offers and sales, as well as comply with franchise relationship laws that could limit our ability to, among other things, terminate license agreements or withhold consent to the renewal or transfer of these agreements. We are also subject to certain regulations affecting our license arrangements in Europe and other international locations. Although our licensing operations have not been materially adversely affected by such existing regulations, such regulations could have a greater impact on us if we were to become more active in granting or selling new licenses to third parties. Should our operations become subject to new laws or regulations that negatively impact our ability to engage in licensing activities, our financial condition or results of operations could be adversely impacted.
We face risks related to the actions of, or failures to act by, our licensees, dealers, independent operators or third-party vendors.
Our vehicle rental licensee and dealer locations are independently owned and operated. We also operate many of our Company-owned locations through agreements with “independentindependent operators,” which are third-party independent contractors who receive commissions to operate such locations. We also enter into service contracts with various third-party vendors that provide services for us or in support of our business. Under our agreements with our licensees, dealers, independent operators and third-party vendors (collectively referred to as “third-party operators”), the third-party operators retain control over the employment and management of all personnel at their locations or in support of the services that they provide our Company. These agreements also generally require that third-party operators comply with all laws and regulations applicable to their businesses, including relevant internal policies and standards. Regulators, courts or others may seek to hold us responsible for the actions of, or failures to act by, third-party operators or their employees based on theories of vicarious liability, negligence, joint operations or joint employer liability. Although we actively monitor the operations of these third-party operators, and under certain circumstances have the ability to terminate their agreements for failure to adhere to contracted operational standards, we are unlikely to detect all misconduct or noncompliance by thea third-party operator or its employees. Moreover, there are occasions when the actions of third-party operators may not be clearly distinguishable from our own. It is our policy to vigorously seek to be dismissed from any claims involving third-party operators and to pursue indemnity for any adverse outcomes that affect the Company. Failure of third-party operators to comply with laws and regulations or our operational standards, or our inability to be dismissed from claims against our third-party operators, may expose us to liability, damages and negative publicity that may damage our brand and reputation and adversely affect our financial condition or results of operations.
We face risks associated with the recently enacted Public Law 115-97, commonly referred to as the U.S.changes in tax laws.
The Tax ReformCuts and Jobs Act of 2017 (the “Tax Act”).
The TaxInflation Reduction Act also makes significant changes to the U.S. Internal Revenue Code applicable to corporations. Such changes include reducing theof 2022 (the “IRA”) includes a 15% corporate income tax rate, imposing a mandatory repatriationalternative minimum tax on undistributed historic earnings of foreign subsidiaries, eliminating or limiting the deductibility of certain business expenses,large corporations and requiring the inclusion in the U.S.a 1% excise tax baseon certain earnings generated by foreign subsidiaries, among other changes. Whilecorporate stock repurchases. The impact on the Company is still evaluating the impact of these changes, certainprovisions, which became effective on January 1, 2023, will depend on several factors, including recently released and forthcoming interpretive regulatory guidance. The Company continues to review and assess the provisions of these changes could adverselythe IRA, and its potential impact on our financial condition, or results of operations.operations, liquidity, and cash flows.
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There is also a high level of uncertainty in today’s tax environment stemming from both global initiatives put forth by the Organisation for Economic Co-operation and Development (the “OECD”), and unilateral measures being implemented by various countries. As an example, the OECD has put forth two proposals—Pillar One and Pillar Two—that revise the existing profit allocation and nexus rules (profit allocation based on location of sales versus physical presence) and ensure a minimal level of taxation, respectively. During 2023, the OECD issued administrative guidance which provides for transition and safe harbor rules for the global minimum tax.Further, many countries have proposed or have begun to implement changes to existing tax laws in response to the OECD’s proposals.The Company continues to closely monitor any such developments and guidance issued to determine any impact on our protection of our intellectual property.effective tax rate, cash tax obligations and operations.
RISKS RELATED TO OUR CAPITAL STRUCTURE AND INDEBTEDNESS
We face risks related to our current and future debt obligations.obligations, including risks related to conditions in the credit and asset-backed securities markets.
Our ability to satisfy and manage our debt obligations depends on our ability to generate cash flow and on overall financial market conditions. To some extent, this is subject to prevailing economic and competitive conditions and to certain financial, business and other factors, many of which are beyond our control. Our outstanding debt obligations require us to dedicate a significant portion of our cash flows to pay interest and principal on our debt, which reduces the funds available to us for other purposes. Our business may not generate sufficient cash flow from operations to permit us to service our debt obligations and meet our other cash needs, which may force us to
reduce or delay capital expenditures, sell or curtail assets or operations, seek additional capital or seek to restructure or refinance our indebtedness. If we must sell or curtail our assets or operations, it may negatively affect our ability to generate revenue. Certain of our debt obligations contain restrictive covenants and provisions applicable to us and our subsidiaries that may limit our ability to, among other things:
things, incur additional debt to fund working capital, capital expenditures, debt service requirements, execution of our business strategy or acquisitions and other purposes;
debt; provide guarantees in respect of obligations of other persons;
guarantees; pay dividends or distributions, redeem or repurchase capital stock;
prepay, redeem or repurchase debt;
create or incur liens;
make distributions from our subsidiaries;
sell assets and capital stock of our subsidiaries;
and consolidate or merge with or into, or sell substantially all of our assets to, another person;person. These covenants and
provisions also may limit our ability to respond to adverse changes in general economic, industry and competitive conditions, as well as changes in government regulation and changes to our business.
Our failure to comply with thethese restrictive covenants contained in the agreements or instruments that govern our debt obligations,and provisions, if not waived, would cause a default under our senior credit facilitythe applicable debt agreement and could result in a cross-default under several of our other debt obligations, including our U.S.United States and European asset-backed debt facilities. If such a default were to occur, certain provisions in our various debt agreementswe could require that webe required to repay or accelerate debt payments to the lenders or holders of our debt, and there can be no assurance that we would be able to refinance or obtain a replacement for such financing programs.
We finance our vehicle fleet purchases and operations through the use of asset-backed securities in the United States, Canada, Australia and Europe and other debt financing structures available through the credit markets. If the asset-backed financing and/or credit markets were to be disrupted for any reason, we may be unable to obtain refinancing for our operations or vehicle fleet purchases at current levels, or at all, when our respective asset-backed financings or debt financings mature. Likewise, any disruption of the asset-backed financing or credit markets could also increase our borrowing costs, as we seek to engage in new financingsrefinance existing debt or refinanceincrease our existing financings.indebtedness. In addition, we could be subject to increased collateral requirements to the extent that we request any amendment or renewal of any of our existing asset-backed or debt financings.
We face risks related to potential increases in interest rates.
A portion of our borrowings, primarily our vehicle-backed borrowings, bears interest at variable rates that expose us to interest rate risk. If interest rates werecontinue to increase, whether due to an increasecontinued increases in market interest rates or an increaseone or more increases in our own cost of borrowing, our debt service obligations for our variable rate indebtedness would increase even though the amount of borrowings remainedremain the same, and our results of operations could be adversely affected. As of December 31, 2017,2023, our total outstanding debt of approximately $12.8$23.9 billion included unhedged interest rate sensitive debt of approximately $2.8$7.6 billion. During our seasonal borrowing peak in 2017,2023, outstanding unhedged interest rate sensitive debt totaled approximately $5.1$7.6 billion.
Virtually all of our debt under vehicle programs and certain of our corporate indebtedness matures within the next five years. If we are unable to refinance maturing indebtedness at interest rates that are equivalent to or lower
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than the interest rates on our maturing debt, our results of operations or our financial condition may be adversely affected.
We face certain risks related to our share repurchase program.
Our Board of Directors previously authorized the repurchase of up to $8.1 billion of our common stock under a plan originally approved in 2013 and subsequently expanded most recently in February 2023 (the “Share Repurchase Program”). As of December 31, 2023, approximately $802 million remains available under the Share Repurchase Program. If we purchase additional shares of our common stock under the Share Repurchase Program, the percentage of our outstanding common stock owned by SRS Investment Management, LLC and its affiliates (“SRS”) may increase, even without further action by SRS. Under the terms of the Fourth Amended and Restated Cooperation Agreement between the Company and SRS, SRS has committed, with respect to shares of common stock SRS holds in excess of 35% of the Company’s outstanding common stock, to exercise its voting rights in the same proportion in which other shares of common stock are voted. Notwithstanding this commitment, the ownership by SRS of more than 50% of the Company’s outstanding common stock could trigger, or increase the likelihood that we trigger, certain change in control provisions in the indentures governing our senior notes. The Company must make a 101% change of control offer for the senior notes if, within 60 days following a change of control, the ratings on the notes are downgraded by one or more gradations or withdrawn and the applicable rating agency announces that such downgrade or withdrawal is attributable to the change of control.
RISKS RELATED TO OUR COMMON STOCKINTELLECTUAL PROPERTY MATTERS, DATA SECURITY AND PRIVACY
We face risks related to our protection of our intellectual property.
We have registered certain marks and designs as trademarks in the United States and in certain other countries. At times, competitors may adopt service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, we have been subject to, and from time to time in the future may be subject to, trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered trademarks. From time to time, we have acquired or attempted to acquire Internet domain names held by others when such names have caused consumer confusion or had the potential to cause consumer confusion. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.
We face risks related to our reliance on communications networks and centralized information systems.
We rely heavily on the satisfactory performance and availability of our information systems, including our reservation systems, websites and network infrastructure to attract and retain customers, accept reservations, process rental and sales transactions, manage our fleet of vehicles, account for our activities and otherwise conduct our business. We rely on third-party communications service and system providers for technology services. We have been subjected to, and from time to time in the future may be subject to, a failure or interruption that results in the unavailability of certain of our information systems. Such a failure or interruption, or a major disruption, could cause a loss of reservations, interfere with our fleet management, slow rental and sales processes, create negative publicity that damages our reputation or otherwise adversely impacts our ability to manage our business effectively. We may experience system interruptions or disruptions for a variety of reasons, including from network failures, power outages, cyber-attacks, employee errors, software errors, an unusually high volume of visitors attempting to access our systems, or other events such as fire, explosions, earthquakes, storms, floods, epidemics, strikes, acts of war, civil unrest or terrorist acts. Because we are dependent in part on independent third parties for the implementation and maintenance of certain aspects of our systems and because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, or at all. Our systems’ business continuity plans and insurance programs seek to mitigate such risks but they cannot fully eliminate the risks.
We face risks related to cybersecurity breaches of our systems and information technology.
Threats to network and data security are becoming increasingly diverse and sophisticated. As cybersecurity threats become more frequent, intense and sophisticated, costs of proactive defense measures may increase.
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Third parties may have the technology or expertise to breach the security of our customer transaction data and our security measures may not prevent or timely detect physical security or cybersecurity breaches, which could result in substantial harm to our business, our reputation or our results of operations. We rely on encryption and/or authentication technology licensed from and, at times, administered by independent third parties to secure transmission of confidential information, including credit card numbers and other customer personal information. Our outsourcing agreements with these third-party service providers, including third-party hosted cloud environments, generally require that they have adequate security systems in place to protect our customer transaction data. Despite the implementation of cybersecurity measures (including access controls, data encryption, vulnerability assessments, continuous monitoring, and maintenance of backup and protective systems), our information technology systems or those used by our third-party service providers may still be vulnerable to a breach. Additionally, if a third-party service provider on which we rely experiences a breach, we may not learn of such breach in a timely manner, or at all, which may inhibit our ability to mitigate its impacts, and exacerbate the risks described in this paragraph.
In addition, anyone who is able to circumvent our security measures, or those of our third-party service providers, could misappropriate proprietary information or cause interruptions in our operations. Risks of cybersecurity incidents caused by malicious third parties using sophisticated, targeted methods to circumvent firewalls, encryption, and other security defenses, could include hacking, viruses, malicious software, ransomware, phishing attacks, denial of service attacks and other attempts to capture, disrupt or gain unauthorized access to data are rapidly evolving and could lead to disruptions in our reservation system or other data systems, unauthorized release of confidential or otherwise protected information or corruption of data. The techniques used by third parties change frequently and may be difficult to detect for long periods of time. Any successful efforts by individuals to infiltrate, break into, disrupt, damage or otherwise steal from the Company’s, its licensees’ or its third-party service providers’ security or information systems could damage our reputation and expose us to increased cybersecurity protection costs, litigation or other liability that could adversely impact our financial condition or results of operations. A cybersecurity breach resulting in the unauthorized use or disclosure of certain personal information could put individuals at risk of identity theft and financial or other harm and result in costs to the Company in investigation, remediation, legal defense and in liability to parties who are financially harmed. Failure to appropriately address these issues could also give rise to potentially material legal risks and liabilities.
We are subject to privacy, data protection, data security and other regulations, as well as private industry standards, which could negatively impact our global operations and cause us to incur additional incremental expense or reputational harm that impacts our future operating results.
Our business requires the secure processing and storage of personal information relating to our customers, employees, business partners and others. Current privacy and data protection laws, particularly the European Union’s General Data Protection Regulation (“GDPR”), the United Kingdom Data Protection Act (“UK DPA”), the California Consumer Privacy Act including modifications by the California Privacy Rights Act (collectively, the “CCPA”), the Virginia Consumer Data Protection Act (“VCDPA”), and other regulations in the jurisdictions in which we operate impose obligations and restrictions regarding the types of information that we may collect, process, sell and retain about our customers, employees and other individuals with whom we deal or propose to deal, some of which may be non-public personal data. A patchwork of new and proposed privacy and data protection legislation and regulation continues to evolve across the jurisdictions in which we operate. These laws and regulations, each wide-ranging in scope, provide individuals located in those jurisdictions with greater control over their personal data and impose various requirements on our business relating to the collection and processing of personal data. These laws also impose significant forfeitures and penalties for noncompliance and afford private rights of action to individuals under certain circumstances. The Company has adopted policies and procedures in compliance with these laws, which may need to be updated as new laws are passed or as additional guidance is made available from regulatory authorities or published enforcement decisions. Data protection laws in the countries where we operate are developing at a rapid pace and may be interpreted and applied inconsistently from jurisdiction to jurisdiction and impose inconsistent or conflicting requirements. Complying with varying jurisdictional privacy and data protection requirements could increase our operating costs, divert management attention or require additional changes to our business practices. Should we be found to not be in compliance with the GDPR, UK DPA, CCPA, VCDPA or similar privacy and data protection laws, we could be subject to substantial monetary penalties, government consent decrees, regulatory enforcement actions, and other sanctions that could negatively impact our operating results or harm our reputation.
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The centralized nature of our information systems combined with the expansive nature of our global business requires the routine flow of information regarding employees, customers and potential customers, and suppliers across national borders, particularly in the United States, the United Kingdom, and Europe. Although new and updated personal data transfer mechanisms, such as the European Commission’s Standard Contractual Clauses, have been adopted by regulators following the invalidation of previously available transfer mechanisms in 2020 by the Court of Justice of the European Union, these mechanisms remain subject to legal uncertainty and face ongoing scrutiny from EU supervisory authorities. This continued uncertainty may affect our ability to process and transfer personal data, which could impact our ability to serve our customers and efficiently manage our employees and operations. Moreover, our failure to maintain the security of the data we hold, whether as a result of our own error or the actions of others, could harm our reputation or give rise to legal liabilities that adversely impact our financial condition or results of operations. Privacy and data protection laws and regulations restrict the ways that we process our transaction information, and the payment card industry imposes strict customer credit card data security standards to ensure that our customers’ credit card information is protected. Failure to meet these data privacy and security standards could result in substantial increased fees to credit card companies, other liabilities and/or loss of the right to collect credit card payments, which could adversely impact our financial condition or results of operations.
GENERAL RISK FACTORS
We face risks related to the market price of our common stock.
We cannot predict the prices at which our common stock will trade. The market price of our common stock has experienced substantial volatility in the past and may fluctuate widely in the future, depending uponon many factors, some of which may be beyond our control, including:
this “Risk Factors” section and the operating and stock price performance of other comparable companies;
section titled “Forward-Looking Statements.” If any of the foregoing occurs,these factors materialize, it could cause our stock price to fall and may expose us to litigation, including class action lawsuits that, even if unsuccessful, could be costly to defend, distract management, and a distraction to management.harm our reputation.
Certain provisions of our certificate of incorporation and by-laws and Delaware law and our stockholder rights plan could prevent or delay a potential acquisition of control of our Company, which could decrease the trading price of our common stock.
Our amended and restated certificate of incorporation, amended and restated by-laws and the laws in the State of Delaware contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the prospective acquirer and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover. Delaware law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. In January 2018, our Board of Directors adopted a short-term stockholder rights plan, which may cause substantial dilution to a person or group that attempts to acquire control of the Company on terms not approved by our Board of Directors.
We believe these provisions and the stockholder rights plan protect our stockholders from coercive or otherwise unfair takeover tactics by effectively requiring those who seek to obtain control of the Company to negotiate with our Board of Directors and by providing our Board with more time to assess any such potential acquisition of control. However, these provisions could apply even if ansuch a potential acquisition of control of the Company may be considered beneficial by some stockholders and could delay or prevent an acquisition of control that our Board of Directors determines is not in the best interests of our Company and our stockholders.
| ITEM 1B. UNRESOLVED STAFF COMMENTS | ||
None.
| ITEM 1C. CYBERSECURITY | ||
We maintain processes for assessing, identifying and managing material risks from cybersecurity threats.
We regularly use both outsourced and in-house information security expertise to employ a variety of administrative, technical, and physical data safeguards designed to both deter and mitigate cybersecurity risks, including cyber incident response procedures, endpoint threat detection and response solutions, employee
29
training, third-party risk reviews, penetration testing, technical control reviews, vulnerability assessments, and enterprise-wide risk assessments. These policies and procedures, which are based on the National Institute of Standards and Technology framework, align with international standards under ISO/IEC 27001 and are reviewed annually, including via an annual assessment of relevant IT SOX controls and Payment Card Industry Data Security Standard reviews performed both by external Qualified Security Assessors and authorized members of our internal information security team. Our third-party due diligence processes also include procedures for identifying cybersecurity threats associated with third-party service providers. Cybersecurity risks are also identified and evaluated through our enterprise risk management (ERM) processes, which are overseen by the Audit Committee of our Board of Directors. Through our ERM processes, key stakeholders across the business identify, assess, and manage risk, including material cybersecurity risks. These processes enable us to incur substantial costs, divert management’s attentionmonitor and resourcesassess the evolving landscape of cybersecurity risks.
Our information security program is administered under the supervision of our EVP, Chief Digital and Innovation Officer (CDIO) and Vice President (VP) of Platforms, Infrastructure and Cybersecurity, who share responsibility for assessing and managing the Company’s cybersecurity risks. Both our CDIO and VP of Platforms, Infrastructure, and Cybersecurity have other adverse effects on our business.over 20 years of related experience, holding technical leadership roles at notable multinational organizations, across diverse industries.
Our CDIO and VP of Platforms, Infrastructure and Cybersecurity also monitor the prevention, detention, mitigation and remediation of cybersecurity incidents through the same processes described above for the identification and management of material cybersecurity risks.
Information about our business could be adversely affected because responding to proxy contests and reacting to other actions by activist stockholdersmaterial cybersecurity risks can be disruptive, costly and time-consuming, and can divert the attention of management and our employees. We may incur significant expenses by retaining the services of various professionals to advise usfound in Part I, Item 1A, “Risk Factors” in this Annual Report on this matter, including legal, financial and communications advisors, which may negatively impact our future financial results. In addition, this proxy contest and any similar activist stockholder initiatives may lead to perceived uncertainties as to our future direction, strategy or leadership and may lead to the perception of instability or lack of continuity, which may be exploited by our competitors, cause concern to our current or potential customers or vendors, or cause our stock price to experience periods of volatility.Form 10-K.
| ITEM | ||
Our principal executive offices are owned and located at 6 Sylvan Way,379 Interpace Parkway, Parsippany, New Jersey 07054 pursuant to a lease agreement that expires in 2023.07054. We own a facility in Virginia Beach, Virginia, which serves as a satellite administrative facility for our car and truck rental operations. We also lease office space in Tulsa, Oklahoma and Boston, Massachusetts, pursuant to leases expiring in 20222028 and 2023,2031, respectively. These locations primarily provide operational and administrative services or contact center operations for our Americas segment. We also lease office space in Bracknell, England, Barcelona, Spain and Budapest, Hungary, and Barcelona, Spain, pursuant to leases expiring in 2027, 20212032, 2026 and 2019,2026, respectively, for corporate offices, contact center activities and other administrative functions, respectively, for our International segment. Other office locations throughout the world are leased for administrative, regional sales and operations activities.
We lease or have vehicle rental concessions for our brands at locations throughout the world. We own approximately 2%3% of the locations from which we operate and in some cases we sublease to franchiseeslicensees or other third parties. The remaining locations from which we operate our vehicle rental businesses are leased or operated under concession agreements with governmental authorities and private entities. Those leases and concession agreements typically require the payment of minimum rents or minimum concession fees and often also require us to pay or reimburse operating expenses;expenses, to pay additional rent, or concession fees above guaranteed
minimums based on a percentage of revenues or sales arising at the relevant premises;premises, or to do both. See Note 143 – Leases to our Consolidated Financial Statements for information regarding lease commitments.
We believe that our properties are sufficient to meet our present needs and we do not anticipate any difficulty in securing additional space, as needed, on acceptable terms.
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| ITEM 3. LEGAL PROCEEDINGS | ||
For information regarding legal proceedings, see Note 1415 – Commitments and Contingencies to our Consolidated Financial Statements.
| ITEM 4. MINE SAFETY DISCLOSURES | ||
Not applicable.
31
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER | ||||
| MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | |||||
MARKET PRICE OFFOR COMMON STOCKEQUITY
Our common stock is currently traded on the NASDAQNasdaq Global Select Market (“NASDAQ”Nasdaq”) under the symbol “CAR.” The following table sets forth the quarterly high and low sales prices per share of our common stock as reported by NASDAQ for 2017 and 2016. At January 31, 2018,2024, the number of stockholders of record was 2,639.1,980.
| High | Low | |||||||
| 2017 | ||||||||
| First Quarter | $ | 41.00 | $ | 27.36 | ||||
| Second Quarter | 32.52 | 20.71 | ||||||
| Third Quarter | 38.76 | 27.10 | ||||||
| Fourth Quarter | 46.32 | 31.97 | ||||||
| High | Low | |||||||
| 2016 | ||||||||
| First Quarter | $ | 36.32 | $ | 21.73 | ||||
| Second Quarter | 34.85 | 21.85 | ||||||
| Third Quarter | 39.54 | 29.72 | ||||||
| Fourth Quarter | 41.53 | 30.60 | ||||||
DIVIDEND POLICY
We neither declared nor paid any cash dividend on our common stock in 2017 and 2016, and we do not currently anticipate paying cash dividends on our common stock. However, we evaluate our dividend policy on a regular basis and may pay dividends in the future, subject to compliance with the covenants in our senior credit facility, the indentures governing our senior notes and our vehicle financing programs. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will also depend upon many factors, including our financial condition, earnings, capital requirements of our businesses, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors that theour Board of Directors deems relevant.
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, Rights and Restricted Stock Units (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (Excludes Restricted Stock Units) ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column) (b) | |||||||
| Equity compensation plans approved by security holders | 2,850,348 | $ | 7.08 | 6,427,576 | ||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||
| Total | 2,850,348 | $ | 7.08 | 6,427,576 | ||||||
ISSUER PURCHASES OF EQUITY SECURITIES
| Total Number of Shares Purchased (in millions) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in millions) | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ($ in millions) | ||||||||||||||||||||
| October 2023 | 0.66 | $ | 171.80 | 0.66 | $ | 945 | |||||||||||||||||
| November 2023 | 0.55 | 189.29 | 0.55 | 841 | |||||||||||||||||||
| December 2023 | 0.20 | 192.48 | 0.20 | 802 | |||||||||||||||||||
| 1.41 | $ | 181.52 | 1.41 | $ | 802 | ||||||||||||||||||
| Period | Total Number of Shares Purchased(a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares That May Yet Be Purchased under the Plans or Programs | ||||||||||
| October 2017 | 845,967 | $ | 40.14 | 845,967 | $ | 139,791,098 | ||||||||
| November 2017 | 538,577 | 35.56 | 538,577 | 120,641,379 | ||||||||||
| December 2017 | 464,984 | 43.31 | 464,984 | 100,501,894 | ||||||||||
| Total | 1,849,528 | $ | 39.60 | 1,849,528 | $ | 100,501,894 | ||||||||
PERFORMANCE GRAPH
Set forth below are a line graph and table comparing the cumulative total stockholder return of our common stock against the cumulative total returns of peer group indices, the S&P 500MidCap 400 Index and the Dow Jones U.S.US Transportation Average Index for the period of five fiscal years commencing December 31, 20122018 and ending December 31, 2017.2023. The broad equity market indicesindex used by the Company areis the S&P 500MidCap 400 Index, which measures the performance of large-sizedmid-sized companies, and the published industry index used by the Company is the Dow Jones U.S.US Transportation Average Index, which measures the performance of transportation companies. The graph and table depict the result of an investment on December 31, 20122018 of $100 in the Company’s common stock, the S&P 500MidCap 400 Index and the Dow Jones U.S.US Transportation Average Index, including investment of dividends.
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| As of December 31, | |||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||
| Avis Budget Group, Inc. | $ | 100.00 | $ | 203.94 | $ | 334.66 | $ | 183.10 | $ | 185.07 | $ | 221.39 | |||||||||||
| S&P 500 Index | $ | 100.00 | $ | 132.39 | $ | 150.51 | $ | 152.59 | $ | 170.84 | $ | 208.14 | |||||||||||
| Dow Jones U.S. Transportation Average Index | $ | 100.00 | $ | 141.38 | $ | 176.82 | $ | 147.19 | $ | 180.05 | $ | 214.30 | |||||||||||
| As of December 31, | |||||||||||||||||||||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||
| Avis Budget Group, Inc. | $ | 100.00 | $ | 143.42 | $ | 165.93 | $ | 922.46 | $ | 729.23 | $ | 829.47 | |||||||||||||||||||||||
| S&P MidCap 400 Index | $ | 100.00 | $ | 126.20 | $ | 143.44 | $ | 178.95 | $ | 155.58 | $ | 181.15 | |||||||||||||||||||||||
| Dow Jones US Transportation Average Index | $ | 100.00 | $ | 120.83 | $ | 140.80 | $ | 187.56 | $ | 154.62 | $ | 186.46 | |||||||||||||||||||||||
| ITEM 6. | RESERVED | ||||
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ITEM | ||||
| As of or For the Year Ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||||||
| Results of Operations | ||||||||||||||||||||
| Net revenues | $ | 8,848 | $ | 8,659 | $ | 8,502 | $ | 8,485 | $ | 7,937 | ||||||||||
| Net income | $ | 361 | $ | 163 | $ | 313 | $ | 245 | $ | 16 | ||||||||||
Adjusted EBITDA (a) | $ | 735 | $ | 838 | $ | 903 | $ | 876 | $ | 769 | ||||||||||
| Earnings per share | ||||||||||||||||||||
| Basic | $ | 4.32 | $ | 1.78 | $ | 3.02 | $ | 2.32 | $ | 0.15 | ||||||||||
| Diluted | 4.25 | 1.75 | 2.98 | 2.22 | 0.15 | |||||||||||||||
| Financial Position | ||||||||||||||||||||
| Total assets | $ | 17,699 | $ | 17,643 | $ | 17,634 | $ | 16,842 | $ | 16,150 | ||||||||||
| Assets under vehicle programs | 11,879 | 11,578 | 11,716 | 11,058 | 10,452 | |||||||||||||||
| Corporate debt | 3,599 | 3,523 | 3,461 | 3,353 | 3,321 | |||||||||||||||
Debt under vehicle programs (b) | 9,221 | 8,878 | 8,860 | 8,056 | 7,276 | |||||||||||||||
| Stockholders’ equity | 573 | 221 | 439 | 665 | 771 | |||||||||||||||
| Ratio of debt under vehicle programs to assets under vehicle programs | 78 | % | 77 | % | 76 | % | 73 | % | 70 | % | ||||||||||
| For the Year Ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
| Net income | $ | 361 | $ | 163 | $ | 313 | $ | 245 | $ | 16 | ||||||||||
| Provision for (benefit from) income taxes | (150 | ) | 116 | 69 | 147 | 81 | ||||||||||||||
| Income before income taxes | 211 | 279 | 382 | 392 | 97 | |||||||||||||||
| Add: | Non-vehicle related depreciation and amortization | 259 | 253 | 218 | 180 | 152 | ||||||||||||||
| Interest expense related to corporate debt, net | 188 | 203 | 194 | 209 | 228 | |||||||||||||||
| Restructuring and other related charges | 63 | 29 | 18 | 26 | 61 | |||||||||||||||
| Transaction-related costs, net | 23 | 21 | 68 | 13 | 51 | |||||||||||||||
| Early extinguishment of corporate debt | 3 | 27 | 23 | 56 | 147 | |||||||||||||||
| Impairment | 2 | — | — | — | 33 | |||||||||||||||
| Charges for legal matter, net | (14 | ) | 26 | — | — | — | ||||||||||||||
| Adjusted EBITDA | $ | 735 | $ | 838 | $ | 903 | $ | 876 | $ | 769 | ||||||||||
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF | |||||
| OPERATIONS | |||||
The following discussion should be read in conjunction with Part I, Item 1, “Business”, Item 1A, “Risk Factors” and our Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein.in this Annual Report on Form 10-K commencing on page F-1. Our actual results of operations may differ materially from those discussed in forward-looking statements as a result of various factors, including but not limited to those included in Part I, Item 1A, “Risk Factors” and other portions of this Annual Report on Form 10-K. Unless otherwise noted, all dollar amounts in tables are in millions and those relating to our results of operations are presented before taxes.millions.
| OVERVIEW | ||
OUR COMPANY
We operate three of the most globally recognized brands in the vehicle rental and other mobility solutions, industry, Avis, Budget and Zipcar together with several other brands well recognized in their respective markets, including Payless, Maggiore in Italy, FranceCars in France and Apex in both New Zealand and Australia.markets. We are a leading vehicle rental operator in North America, Europe, Australasia and certain other regions we serve, with an average rental fleet of more than 620,000 vehicles.approximately 691,500 vehicles in 2023. We also license the use of our trademarks to licensees in the areas in which we do not operate directly. We and our licensees operate our brands in approximately 180 countries throughout the world.
| RESULTS OF OPERATIONS | ||
In 2023, we saw strong volume as normal seasonality returned to our industry. This coupled with revenue per day and inflationary pressures resulted in revenues of approximately $12.0 billion, net income of $1.6 billion and Adjusted EBITDA of $2.5 billion for the year ended December 31, 2023.
We continue to be susceptible to a number of industry-specific and global macroeconomic factors that may cause our actual results of operations to differ from our historical results of operations or current expectations. The factors and trends that we currently believe are or will be most impactful to our results of operations and financial condition include the following: interest rates, inflationary impact on items such as commodity prices and wages, disruption in the supply of new vehicles, used car values, and an economic downturn that may impact travel demand, all of which may be exacerbated by the ongoing military conflicts in the Middle East and Eastern Europe. We continue to monitor the potential favorable or unfavorable impacts of these and other factors on our business, operations, financial condition, and future results of operations. Our strategy continues to primarily focus on customer experience and costs to strengthen our Company, maximize profitability, and deliver stakeholder value.
We measure performance principally using the following key operating statistics:metrics: (i) rental days, which represent the total number of days (or portion thereof) a vehicle was rented, (ii) time & mileage revenue per rental day, which represents revenues divided by rental days, (iii) vehicle utilization, which represents rental days divided by available rental days, with available rental days being defined as average rental fleet times the average daily revenue we earned from rental time & mileage fees charged to our customers, bothnumber of which exclude our U.S. truck rentaldays in the period, and Zipcar car sharing operations and (iii)(iv) per-unit fleet costs, which represent vehicle depreciation, lease charges and gain or loss on vehicle sales, divided by average rental fleet and exclude our U.S. truck rental operations. We also measure our ancillary revenues (rental-transaction revenue other than time & mileage revenue), such as from the sale of collision and loss damage waivers, insurance products, fuel service options and rental of other supplemental products.fleet. Our rental days, and time & mileage revenue per rental day and vehicle rental operating statisticsutilization metrics are all calculated based on the actual rental of the vehicle during a 24-hour period. We believe that this methodology provides usmanagement with the most relevant statisticsmetrics in order to effectively manage the performance of the business. Our calculation may not be comparable to other companies’the calculation of similarly-titled statistics.similarly titled metrics by other companies. We present currency exchange rate effects to provide a method of assessing how our business performed excluding the effects of foreign currency rate fluctuations. Currency exchange rate effects are calculated by translating the current-year results at the prior-period average exchange rate plus any related gains and losses on currency hedges.
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We assess performance and allocate resources based upon the separate financial information of our operating segments. In identifying our reportable segments, we also consider the nature of services provided by our operating segments, the geographical areas in which our segments operate and other relevant factors. Management evaluates the operating results of each of our reportable segments based upon revenuerevenues and “AdjustedAdjusted EBITDA,” which we define as income (loss) from continuing operations before non-vehicle related depreciation and amortization,amortization; any impairment charges,charges; restructuring and other related charges,charges; early extinguishment of debt costs,costs; non-vehicle related interest,interest; transaction-related costs, netnet; charges for unprecedented personal-injury legal matters, net, which includes amounts recorded in excess of $5 million related to class action lawsuits and personal injury matters; non-operational charges related to shareholder activist activity, which includes third-party advisory, legal and other professional fees; COVID-19 charges, net; cloud computing costs; other (income) expense, net, and income taxes. Net charges for unprecedented personal-injury legal matters are recorded within operating expenses in our consolidated results of operations. We have revised our definition of Adjusted EBITDA to exclude costs associated with the separation of certain officers of the Company and our limited voluntary opportunity plans, which offered certain employees the limited opportunity to elect resignation from employment for enhanced severance benefits. Costs associated with the separation of certain officers and the limited voluntary opportunity plans are recorded as part of restructuring and other related charges in our consolidated results of operations. We did not revise prior years’ Adjusted EBITDA amounts because there were no costs similar in nature to these costs.
We believe Adjusted EBITDA is useful as a supplemental measure in evaluating the performance of our operating businesses and in comparing our results from period to period. We also believe that Adjusted EBITDA is useful to investors because it allows investorsthem to assess our results of operations and financial condition on the same basis that management uses internally. Adjusted EBITDA is a non-GAAP measure and should not be considered in isolation or as a substitute for net income or other income statement data prepared in accordance with U.S. GAAP. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.
Year Ended December 31, 20172023 vs. Year Ended December 31, 20162022
Our consolidated results of operations comprised the following:
| Year Ended December 31, | $ Change Favorable /(Unfavorable) | ||||||||||||||||
| 2017 | 2016 | % Change | |||||||||||||||
| Revenues | |||||||||||||||||
| Vehicle rental | $ | 6,219 | $ | 6,081 | $ | 138 | 2 | % | |||||||||
| Other | 2,629 | 2,578 | 51 | 2 | % | ||||||||||||
| Net revenues | 8,848 | 8,659 | 189 | 2 | % | ||||||||||||
| Expenses | |||||||||||||||||
| Operating | 4,472 | 4,382 | (90 | ) | (2 | %) | |||||||||||
| Vehicle depreciation and lease charges, net | 2,221 | 2,047 | (174 | ) | (9 | %) | |||||||||||
| Selling, general and administrative | 1,120 | 1,134 | 14 | 1 | % | ||||||||||||
| Vehicle interest, net | 286 | 284 | (2 | ) | (1 | %) | |||||||||||
| Non-vehicle related depreciation and amortization | 259 | 253 | (6 | ) | (2 | %) | |||||||||||
| Interest expense related to corporate debt, net: | |||||||||||||||||
| Interest expense | 188 | 203 | 15 | 7 | % | ||||||||||||
| Early extinguishment of debt | 3 | 27 | 24 | 89 | % | ||||||||||||
| Restructuring and other related charges | 63 | 29 | (34 | ) | * | ||||||||||||
| Transaction-related costs, net | 23 | 21 | (2 | ) | (10 | %) | |||||||||||
| Impairment | 2 | — | (2 | ) | * | ||||||||||||
| Total expenses | 8,637 | 8,380 | (257 | ) | (3 | %) | |||||||||||
| Income before income taxes | 211 | 279 | (68 | ) | (24 | %) | |||||||||||
| Provision for (benefit from) income taxes | (150 | ) | 116 | 266 | * | ||||||||||||
| Net income | $ | 361 | $ | 163 | $ | 198 | * | ||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||||||||||
| Revenues | $ | 12,008 | $ | 11,994 | $ | 14 | — | % | ||||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||||||
| Operating | 5,675 | 5,285 | 390 | 7 | % | |||||||||||||||||||||||||||
| Vehicle depreciation and lease charges, net | 1,739 | 828 | 911 | 110 | % | |||||||||||||||||||||||||||
| Selling, general and administrative | 1,408 | 1,348 | 60 | 4 | % | |||||||||||||||||||||||||||
| Vehicle interest, net | 736 | 402 | 334 | 83 | % | |||||||||||||||||||||||||||
| Non-vehicle related depreciation and amortization | 216 | 225 | (9) | (4 | %) | |||||||||||||||||||||||||||
| Interest expense related to corporate debt, net: | ||||||||||||||||||||||||||||||||
| Interest expense | 296 | 250 | 46 | 18 | % | |||||||||||||||||||||||||||
| Early extinguishment of debt | 5 | — | 5 | n/m | ||||||||||||||||||||||||||||
| Restructuring and other related charges | 11 | 19 | (8) | (42 | %) | |||||||||||||||||||||||||||
| Transaction-related costs, net | 5 | 8 | (3) | (38 | %) | |||||||||||||||||||||||||||
| Other (income) expense, net | 3 | (7) | 10 | n/m | ||||||||||||||||||||||||||||
| Total expenses | $ | 10,094 | $ | 8,358 | $ | 1,736 | 21 | % | ||||||||||||||||||||||||
| Income before income taxes | 1,914 | 3,636 | (1,722) | (47 | %) | |||||||||||||||||||||||||||
| Provision for income taxes | 279 | 880 | (601) | (68 | %) | |||||||||||||||||||||||||||
| Net income | $ | 1,635 | $ | 2,756 | $ | (1,121) | (41 | %) | ||||||||||||||||||||||||
| Less: Net income (loss) attributable to non-controlling interests | 3 | (8) | 11 | n/m | ||||||||||||||||||||||||||||
| Net income attributable to Avis Budget Group, Inc. | $ | 1,632 | $ | 2,764 | $ | (1,132) | (41 | %) | ||||||||||||||||||||||||
__________
n/m Not meaningful. |
35
Revenues for the year ended December 31, 2023 were consistent with the similar period in 2022, primarily due to a 5% increase in rental volumes,volume, partially offset by a 1%5% decrease in time & mileage revenue per day. Currencyday, excluding exchange rate movements increased revenues by $58 million.
effects.Total expenses increased as a result of higher rental volumes, a 4% increase21% for the year ended December 31, 2023, compared to the similar period in per-unit2022, primarily due to increased fleet costs, (including a 1% negativeinterest costs, and the impact from currency exchange rate movements) and increased restructuring and other related charges, partially offset by cost mitigating actions. Currency movements increased expenses by $25 million year-over-year.of inflation. Our effective tax rates were a benefit of 71% and a provision of 42% in 2017 and 2016, respectively, which in 2017 included a $213 million provisional income tax benefit related to the impact of the Tax Act. This net benefit primarily consists of a benefit of $317 million from the revaluation of net deferred tax liabilities as a result of the corporate income tax rate reduction and a provisional expense of $104 million for the one-time transition tax on cumulative foreign earnings.years ended December 31, 2023 and 2022 were provisions of 14.6% and 24.2%, respectively. As a result of these items, our net income increaseddecreased by $198 million.
$1.1 billion compared to the similar period in 2022. For 2017, the Company years ended December 31, 2023 and 2022, we reported earnings of $4.25 per diluted share which includes after-tax restructuringof $42.08 and other related charges$57.16, respectively.
Operating expenses increased to 47.3% of ($0.48) per share, after-tax transaction-related costs of ($0.23) per share, after-tax debt extinguishment costs of ($0.02) per share, an after-tax impairment charge of ($0.01) per share and after-tax reversal of chargesrevenue for legal matter of $0.10 per share and a net tax benefit from the impact of the Tax Act of $2.51 per share. For 2016, the Company reported earnings of $1.75 per diluted share, which includes after-tax restructuring and other related charges of ($0.23) per share, after-tax debt extinguishment costs of ($0.18) per share, after-tax charges for legal matter of ($0.17) per share and after-tax transaction-related costs, net, of ($0.17) per share.
2022, primarily due to cost inflation. Vehicle depreciation and lease charges increased to 25.1%14.5% of revenue from 23.6%for the year ended December 31, 2023 compared to 6.9% during the similar period in 2016, 2022, primarily due to higher per-unitincreased per unit fleet costs, excluding exchange rate effects, driven by increased fleet levels, increased depreciation rates, and lower time & mileage revenue per day, partially offset by higher utilization.
a decrease in the gain on sale of vehicles. Selling, general and administrative costs decreasedincreased to 12.7%11.7% of revenue for the year ended December 31, 2023 compared to 13.1%11.2% during the similar period in 2016, 2022, primarily due to cost mitigating actions, partially offset by higherincreased marketing commissions.
costs and inflation. Vehicle interest costs were 3.2%increased to 6.1% of revenue for the year ended December 31, 2023, compared to 3.3%3.4% during the similar period in the prior year.2022, primarily due to rising interest rates and additional funding for vehicles.
Following is a more detailed discussion of the results of each of our reportable segments:
| 2017 | 2016 | |||||||||||||||||
| Revenues | Adjusted EBITDA | Revenues | Adjusted EBITDA | |||||||||||||||
| Americas | $ | 6,100 | $ | 486 | $ | 6,121 | $ | 633 | ||||||||||
| International | 2,748 | 305 | 2,538 | 273 | ||||||||||||||
Corporate and Other (a) | — | (56 | ) | — | (68 | ) | ||||||||||||
| Total Company | $ | 8,848 | $ | 735 | $ | 8,659 | $ | 838 | ||||||||||
| Reconciliation of Net income to Adjusted EBITDA | ||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||
| Net income | $ | 361 | $ | 163 | ||||||||||||||
| Provision for (benefit from) income taxes | (150 | ) | 116 | |||||||||||||||
| Income before income taxes | 211 | 279 | ||||||||||||||||
| Add: | Non-vehicle related depreciation and amortization | 259 | 253 | |||||||||||||||
| Interest expense related to corporate debt, net: | ||||||||||||||||||
| Interest expense | 188 | 203 | ||||||||||||||||
| Early extinguishment of debt | 3 | 27 | ||||||||||||||||
Restructuring and other related charges (b) | 63 | 29 | ||||||||||||||||
Transaction-related costs, net (c) | 23 | 21 | ||||||||||||||||
Impairment (d) | 2 | — | ||||||||||||||||
Charges for legal matter, net (e) | (14 | ) | 26 | |||||||||||||||
| Adjusted EBITDA | $ | 735 | $ | 838 | ||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||
| Revenues | Adjusted EBITDA | Revenues | Adjusted EBITDA | |||||||||||||||||||||||||||||
| Americas | $ | 9,347 | $ | 2,196 | $ | 9,474 | $ | 3,660 | ||||||||||||||||||||||||
| International | 2,661 | 400 | 2,520 | 560 | ||||||||||||||||||||||||||||
Corporate and Other (a) | — | (106) | — | (87) | ||||||||||||||||||||||||||||
| Total Company | $ | 12,008 | $ | 2,490 | $ | 11,994 | $ | 4,133 | ||||||||||||||||||||||||
| Reconciliation of net income to Adjusted EBITDA | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||
| Net income | $ | 1,635 | $ | 2,756 | ||||||||||||||||||||||||||||
| Provision for income taxes | 279 | 880 | ||||||||||||||||||||||||||||||
| Income before income taxes | $ | 1,914 | $ | 3,636 | ||||||||||||||||||||||||||||
| Add: | Non-vehicle related depreciation and amortization | 216 | 225 | |||||||||||||||||||||||||||||
| Interest expense related to corporate debt, net | ||||||||||||||||||||||||||||||||
| Interest expense | 296 | 250 | ||||||||||||||||||||||||||||||
| Early extinguishment of debt | 5 | — | ||||||||||||||||||||||||||||||
| Restructuring and other related charges | 11 | 19 | ||||||||||||||||||||||||||||||
| Transaction-related costs, net | 5 | 8 | ||||||||||||||||||||||||||||||
Other (income) expense, net (b) | 3 | (7) | ||||||||||||||||||||||||||||||
| Reported within operating expenses: | ||||||||||||||||||||||||||||||||
| Cloud computing costs | 35 | 10 | ||||||||||||||||||||||||||||||
| COVID-19 charges, net | — | (9) | ||||||||||||||||||||||||||||||
| Legal matters, net | 5 | 1 | ||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 2,490 | $ | 4,133 | ||||||||||||||||||||||||||||
__________
(a)Includes unallocated corporate overhead which is not attributable to a particular segment.
36
| 2017 | 2016 | % Change | |||||||||
| Revenue | $ | 6,100 | $ | 6,121 | — | % | |||||
| Adjusted EBITDA | 486 | 633 | (23 | %) | |||||||
| 2023 | 2022 | % Change | ||||||||||||||||||
| Revenues | $ | 9,347 | $ | 9,474 | (1 | %) | ||||||||||||||
| Adjusted EBITDA | $ | 2,196 | $ | 3,660 | (40 | %) | ||||||||||||||
Revenues decreased 1% for the year ended December 31, 2023 compared to the similar period in 2017 compared with 2016,2022, primarily due to a 1% reduction6% decrease in time & mileage revenue per day, partially offset by 2% growth in rental volumes. Currency movements increased revenues by $9 million year-over-year.
2022, primarily due to cost inflation. Vehicle depreciation and lease charges increased to 27.4%13.0% of revenue from 25.5%for the year ended December 31, 2023 compared to 4.4% during the similar period in 2016,2022, primarily due to increased per-unit fleet costs, driven by increased fleet levels, increased depreciation rates, and a decrease in the gain on sale of vehicles. Selling, general and administrative costs were approximately 9.6% of revenue for the year ended December 31, 2023, consistent with the similar period in 2022, primarily due to increased marketing costs, offset by a decrease in other selling, general and administrative costs. Vehicle interest costs increased to 6.6% of revenue for the year ended December 31, 2023 compared to 3.7% during the similar period in 2022, primarily due to rising interest rates and additional funding for vehicles.
Adjusted EBITDA decreased 40% for the year ended December 31, 2023 compared to the similar period in 2022, primarily due to higher per-unit fleet costs partially offset by higher utilization.and inflationary pressures.
International
| 2023 | 2022 | % Change | ||||||||||||||||||
| Revenues | $ | 2,661 | $ | 2,520 | 6 | % | ||||||||||||||
| Adjusted EBITDA | $ | 400 | $ | 560 | (29 | %) | ||||||||||||||
| 2017 | 2016 | % Change | |||||||||
| Revenue | $ | 2,748 | $ | 2,538 | 8 | % | |||||
| Adjusted EBITDA | 305 | 273 | 12 | % | |||||||
Revenues increased 8% during 2017 compared with 2016, primarily due to a 12% increase in rental volumes, including a 7% benefit from FranceCars which was acquired in December 2016, partially offset by a 2% reduction in time & mileage revenue per day (including a 1% favorable effect from currency movements). Currency movements increased revenues by $49 million.
Operating expenses were 52.7%increased to 45.6% of revenue for the year ended December 31, 2023 compared to 52.6%44.3% during the similar period in 2016.
2022, primarily due to cost inflation. Vehicle depreciation and lease charges increased to 20.0%19.7% of revenue from 19.2% in the prior year, primarily due to lower time & mileage revenue per day.
| 2017 | 2016 | % Change | ||||||||
| Revenue | $ | — | $ | — | * | |||||
| Adjusted EBITDA | (56 | ) | (68 | ) | * | |||||
| Year Ended December 31, | $ Change Favorable /(Unfavorable) | ||||||||||||||||
| 2016 | 2015 | % Change | |||||||||||||||
| Revenues | |||||||||||||||||
| Vehicle rental | $ | 6,081 | $ | 6,026 | $ | 55 | 1 | % | |||||||||
| Other | 2,578 | 2,476 | 102 | 4 | % | ||||||||||||
| Net revenues | 8,659 | 8,502 | 157 | 2 | % | ||||||||||||
| Expenses | |||||||||||||||||
| Operating | 4,382 | 4,284 | (98 | ) | (2 | %) | |||||||||||
| Vehicle depreciation and lease charges, net | 2,047 | 1,933 | (114 | ) | (6 | %) | |||||||||||
| Selling, general and administrative | 1,134 | 1,093 | (41 | ) | (4 | %) | |||||||||||
| Vehicle interest, net | 284 | 289 | 5 | 2 | % | ||||||||||||
| Non-vehicle related depreciation and amortization | 253 | 218 | (35 | ) | (16 | %) | |||||||||||
| Interest expense related to corporate debt, net: | |||||||||||||||||
| Interest expense | 203 | 194 | (9 | ) | (5 | %) | |||||||||||
| Early extinguishment of debt | 27 | 23 | (4 | ) | (17 | %) | |||||||||||
| Restructuring and other related charges | 29 | 18 | (11 | ) | (61 | %) | |||||||||||
| Transaction-related costs, net | 21 | 68 | 47 | 69 | % | ||||||||||||
| Total expenses | 8,380 | 8,120 | (260 | ) | (3 | %) | |||||||||||
| Income before income taxes | 279 | 382 | (103 | ) | (27 | %) | |||||||||||
| Provision for income taxes | 116 | 69 | (47 | ) | (68 | %) | |||||||||||
| Net income | $ | 163 | $ | 313 | $ | (150 | ) | (48 | %) | ||||||||
increased depreciation rates. Selling, general and administrative costs were 13.1%costs increased to 15.4% of revenue compared to 12.9% in 2015.
| 2016 | 2015 | |||||||||||||||||
| Revenues | Adjusted EBITDA | Revenues | Adjusted EBITDA | |||||||||||||||
| Americas | $ | 6,121 | $ | 633 | $ | 6,069 | $ | 682 | ||||||||||
| International | 2,538 | 273 | 2,433 | 277 | ||||||||||||||
Corporate and Other (a) | — | (68 | ) | — | (56 | ) | ||||||||||||
| Total Company | $ | 8,659 | $ | 838 | $ | 8,502 | $ | 903 | ||||||||||
| Reconciliation of Net income to Adjusted EBITDA | ||||||||||||||||||
| 2016 | 2015 | |||||||||||||||||
| Net income | $ | 163 | $ | 313 | ||||||||||||||
| Provision for income taxes | 116 | 69 | ||||||||||||||||
| Income before income taxes | 279 | 382 | ||||||||||||||||
| Add: | Non-vehicle related depreciation and amortization (b) | 253 | 218 | |||||||||||||||
| Interest expense related to corporate debt, net: | ||||||||||||||||||
| Interest expense | 203 | 194 | ||||||||||||||||
| Early extinguishment of debt | 27 | 23 | ||||||||||||||||
| Restructuring and other related charges | 29 | 18 | ||||||||||||||||
Transaction-related costs, net (c) | 21 | 68 | ||||||||||||||||
Charges for legal matter, net (d) | 26 | — | ||||||||||||||||
| Adjusted EBITDA | $ | 838 | $ | 903 | ||||||||||||||
| 2016 | 2015 | % Change | |||||||||
| Revenue | $ | 6,121 | $ | 6,069 | 1 | % | |||||
| Adjusted EBITDA | 633 | 682 | (7 | %) | |||||||
| 2016 | 2015 | % Change | |||||||||
| Revenue | $ | 2,538 | $ | 2,433 | 4 | % | |||||
| Adjusted EBITDA | 273 | 277 | (1 | %) | |||||||
Adjusted EBITDA decreased 29% for the year ended December 31, 2023 compared to the similar period in 2022, primarily due to higher per-unit fleet costs (including a 2% favorable impact from currency exchange rate changes).andinflationary pressures.
37
Corporate and administrative costs were 15.1% of revenueOther
| 2023 | 2022 | % Change | ||||||||||||||||||
| Revenues | $ | — | $ | — | n/m | |||||||||||||||
| Adjusted EBITDA | $ | (106) | $ | (87) | (22 | %) | ||||||||||||||
__________
n/m Not meaningful.
Adjusted EBITDA decreased 22% for the year ended December 31, 2023 compared to 14.9%the similar period in the prior year.
| 2016 | 2015 | % Change | ||||||||
| Revenue | $ | — | $ | — | * | |||||
| Adjusted EBITDA | (68 | ) | (56 | ) | * | |||||
| FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES | ||
We present separately the financial data of our vehicle programs. These programs are distinct from our other activities as 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 generation or 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.
FINANCIAL CONDITION
| As of December 31, | |||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| Total assets exclusive of assets under vehicle programs | $ | 9,590 | $ | 8,499 | $ | 1,091 | |||||||||||
| Total liabilities exclusive of liabilities under vehicle programs | 10,095 | 9,656 | 439 | ||||||||||||||
| Assets under vehicle programs | 22,979 | 17,428 | 5,551 | ||||||||||||||
| Liabilities under vehicle programs | 22,817 | 16,971 | 5,846 | ||||||||||||||
| Stockholders’ equity | (343) | (700) | 357 | ||||||||||||||
| As of December 31, | |||||||||||
| 2017 | 2016 | Change | |||||||||
| Total assets exclusive of assets under vehicle programs | $ | 5,820 | $ | 6,065 | $ | (245 | ) | ||||
| Total liabilities exclusive of liabilities under vehicle programs | 5,935 | 5,775 | 160 | ||||||||
| Assets under vehicle programs | 11,879 | 11,578 | 301 | ||||||||
| Liabilities under vehicle programs | 11,191 | 11,647 | (456 | ) | |||||||
| Stockholders’ equity | 573 | 221 | 352 | ||||||||
The increase in liabilities exclusive of liabilities under vehicle programs increased 3% compared to 2016 primarily due2022 is principally related to anthe increase in other current liabilities.operating lease liabilities and corporate indebtedness from the issuance of senior notes. See “Liquidity and Capital Resources,” Note 113 – Leases and Note 13 – Long-term Corporate Debt and Borrowing Arrangements to our Consolidated Financial Statements for detail of our other current liabilities.Statements.
The increase in stockholders’ equity compared to 2022 is primarily dueprincipally related to comprehensive income, partially offset by our net income.share repurchase activity.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of liquidity are cash on hand and our ability to generate cash through operations and financing activities, as well as available funding arrangements and committed credit facilities, each of which is discussed below.
38
In November 2023, we issued $500 million of 8.000% Senior Notes due February 2031, at 99.3% of face value, with interest payable semi-annually. Net proceeds were used to fully redeem our 4.500% euro-denominated Senior Notes due 2025 at par. The proceeds from this borrowing were used to redeem all of our outstanding 6% euro-denominated Senior Notes due 2021 and a portion of our Floating Rate Senior Notes due 2017. We also increasedoutstanding balance on our Floating Rate Term Loan borrowing by $188 million, these proceeds were used to repaydue 2029, with the remainder of our outstanding Floating Rate Senior Notes due 2017. In addition,being used for general corporate purposes.
During 2023, our Avis Budget Rental Car Funding (AESOP) subsidiary issued approximately $600 million in$3.9 billion of asset-backed notes with expected final payment dates ranging from October 2026 to February 2029, and a weighted average interest rate of 5.81%. In January 2024, AESOP issued $1.2 billion of asset-backed notes to investors with an expected final payment date of September 2022June 2029 and $500 million in asset-backed notes with an expected final payment date of December 2022. These borrowings had a weighted average interest rate of 3%5.51%. The proceeds from these borrowings were used to fund the repayment of maturing vehicle-backed debt and the acquisition of rental cars in the U.S. We also increasedUnited States.
In December 2023, we paid a special cash dividend of $10.00 per share to all holders of our common stock as of December 15, 2023, totaling approximately $355 million.
Our Board of Directors has authorized the repurchase of up to approximately $8.1 billion of our common stock under a plan originally approved in 2013 and subsequently expanded, most recently in February 2023. Our stock repurchases may occur through open market purchases, privately negotiated transactions or trading plans pursuant to Rule 10b5-1 of the Exchange Act. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements, restricted payment capacity under our European rental fleet securitizationdebt instruments and other factors. The repurchase program by €250 million,may be suspended, modified or discontinued at any time without prior notice. The repurchase program has no set expiration or termination date. For the proceeds of which were used to finance fleet purchases for certain of our European operations. In addition,year ended December 31, 2023, we repurchased approximately 6.14.3 million shares of our outstanding common stock forat a cost of approximately $200$889 million during 2017.
(excluding excise taxes due under the Inflation Reduction Act of 2022) under the program. As of December 31, 2023, approximately $802 million of authorization remained available to repurchase common stock under the program.
Cash Flows
Year Ended December 31, 20172023 vs. Year Ended December 31, 20162022
The following table summarizes our cash flows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| Cash provided by (used in): | |||||||||||||||||
| Operating activities | $ | 3,828 | $ | 4,707 | $ | (879) | |||||||||||
| Investing activities | (7,346) | (4,299) | (3,047) | ||||||||||||||
| Financing activities | 3,506 | (360) | 3,866 | ||||||||||||||
| Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash | 14 | (32) | 46 | ||||||||||||||
| Net change in cash and cash equivalents, program and restricted cash | 2 | 16 | (14) | ||||||||||||||
| Cash and cash equivalents, program and restricted cash, beginning of period | 642 | 626 | 16 | ||||||||||||||
| Cash and cash equivalents, program and restricted cash, end of period | $ | 644 | $ | 642 | $ | 2 | |||||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 (a) | Change | |||||||||
| Cash provided by (used in): | |||||||||||
| Operating activities | $ | 2,648 | $ | 2,640 | $ | 8 | |||||
| Investing activities | (2,204 | ) | (2,182 | ) | (22 | ) | |||||
| Financing activities | (308 | ) | (449 | ) | 141 | ||||||
| Effects of exchange rate changes | 45 | (6 | ) | 51 | |||||||
| Net change in cash and cash equivalents, program and restricted cash | 181 | 3 | 178 | ||||||||
| Cash and cash equivalents, program and restricted cash, beginning of period | 720 | 717 | 3 | ||||||||
| Cash and cash equivalents, program and restricted cash, end of period | $ | 901 | $ | 720 | $ | 181 | |||||
39
The decreaseincrease in cash used inprovided by financing activities during 20172023 compared with 20162022 is primarily reflects adue to the increase in our net borrowings under vehicle programs and the decrease in our common stock repurchases, offset by the increase in our payments of common stock.corporate borrowings.
We anticipate that our non-vehicle property and equipment additions will be approximately $225$285 million in 2018. As of December 31, 2017, we had approximately $100 million of authorized share repurchase capacity. We currently anticipate that we will utilize most of such capacity to repurchase common stock in 2018.2024.
| Year Ended December 31, | |||||||||||
2016 (a) | 2015 (a) | Change | |||||||||
| Cash provided by (used in): | |||||||||||
| Operating activities | $ | 2,640 | $ | 2,627 | $ | 13 | |||||
| Investing activities | (2,182 | ) | (2,685 | ) | 503 | ||||||
| Financing activities | (449 | ) | 72 | (521 | ) | ||||||
| Effects of exchange rate changes | (6 | ) | (50 | ) | 44 | ||||||
| Net change in cash and cash equivalents, program and restricted cash | 3 | (36 | ) | 39 | |||||||
| Cash and cash equivalents, program and restricted cash, beginning of period | 717 | 753 | (36 | ) | |||||||
| Cash and cash equivalents, program and restricted cash, end of period | $ | 720 | $ | 717 | $ | 3 | |||||
Debt and Financing Arrangements
At December 31, 2017,2023, we had approximately $12.8approximately $23.8 billion of indebtedness (including corporate indebtedness of approximately $3.6$4.8 billion and debt under vehicle programs of approximately $9.2$18.9 billion). For detailed information regarding our debt and borrowing arrangements, see Notes 12Note 1 – Basis of Presentation, Note 13 – Long-term Corporate Debt and 13Borrowing Arrangements, and Note 14 – Debt Under Vehicle Programs and Borrowing Arrangements to our Consolidated Financial Statements.
LIQUIDITY RISK | ||
Our primary liquidity needs include the procurement of rental vehicles to be used in our operations, servicing of corporate and vehicle-related debt and the payment of operating expenses. The present intention of management is to reinvest the undistributed earnings of our foreign subsidiaries indefinitely into our foreign operations. Our primary sources of funding are operating revenue, cash received upon the sale of vehicles, borrowings under our vehicle-backed borrowing arrangements and our senior revolving credit facility, and other financing activities.
As of December 31, 2023, we had access to $555 million of available cash and cash equivalents and available borrowings under our revolving credit facility of approximately $261 million, providing us with access to an approximate $816 million of total liquidity.
Our liquidity position could also be negatively impacted if we are unable to remain in compliance with the financialconsolidated first lien leverage ratio requirement and other covenants associated with our senior revolving credit facilityfacilities and other borrowings, including a maximum leverage ratio.borrowings. As of December 31, 2017,2023, we were in compliance with the financial covenants governing our indebtedness. For additional information regarding our liquidity risks, see Part I, Item 1A, “Risk Factors”.
CONTRACTUAL OBLIGATIONS
For contractual obligations for material cash requirements from known contractual and other obligations as part of December 31, 2017:
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
| Corporate debt | $ | 26 | $ | 20 | $ | 16 | $ | 14 | $ | 1,493 | $ | 2,076 | $ | 3,645 | |||||||||||||
Debt under vehicle programs | 1,886 | 3,170 | 1,868 | 1,019 | 883 | 439 | 9,265 | ||||||||||||||||||||
| Debt interest | 412 | 341 | 264 | 224 | 152 | 145 | 1,538 | ||||||||||||||||||||
Operating leases (a) | 729 | 611 | 401 | 291 | 183 | 549 | 2,764 | ||||||||||||||||||||
Commitments to purchase vehicles (b) | 8,146 | — | — | — | — | — | 8,146 | ||||||||||||||||||||
Defined benefit pension plan contributions (c) | 9 | — | — | — | — | — | 9 | ||||||||||||||||||||
Other purchase commitments (d) | 89 | 49 | 36 | 32 | 18 | — | 224 | ||||||||||||||||||||
Total (e) | $ | 11,297 | $ | 4,191 | $ | 2,585 | $ | 1,580 | $ | 2,729 | $ | 3,209 | $ | 25,591 | |||||||||||||
CRITICAL ACCOUNTING POLICIESESTIMATES
The results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex. However, in presenting our financial statements in conformity with GAAP,generally accepted accounting principles (GAAP), we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertainrelate to future events and/or events that are outside of our control. If there is a significant unfavorable change to current conditions, it could result in a material
40
adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, our businesses operate in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
Goodwill and Other Indefinite-lived Intangible Assets. We have reviewed the carrying value of our goodwill and other indefinite-lived intangible assets for impairment. In performing this review, we are required to make an assessment of fair value for our goodwill and other indefinite-lived intangible assets. When determining fair value, we utilize various assumptions, including the fair market trading price of our common stock and management’s projections of future cash flows.flows, which include forecast of future revenue and Adjusted EBITDA. When appropriate, comparative market multiples and other factors are used to corroborate the discounted cash flow results. A change in these underlying assumptions will cause a change in the results of the tests and, as such, could cause the fair value to be less than the respective carrying amount. In such event, we would then be required to record a charge, which would impact earnings. We review the carrying value of goodwill and other indefinite-lived intangible assets for impairment annually or more frequently if circumstances indicate that an impairment may have occurred.
Our goodwill and other indefinite-lived intangible assets are allocated among our reporting units. During 2017, 20162023, 2022 and 2015,2021, there was no impairment of goodwill and no material impairment of other intangible assets, seeassets. See Note 67 – Intangible Assets to our Consolidated Financial Statements. For our Europe, Middle East and Africa (“EMEA”) reporting unit, the percentage by which the estimated fair value exceeded the carrying value as of October 1, 2023 was approximately 14% and the amount of goodwill allocated to our reporting unit was approximately $460 million. We will continue to closely monitor actual results versus our expectations, as well as any significant changes in events or conditions, and the resulting impact to our assumptions about future estimated cash flows, the discount rate and market multiples. In the future, failure to achieve our business plans, a significant deterioration of the macroeconomic conditions of the countries in which we operate, or significant changes in the assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets (such as the discount rate) could result in significantly different estimates of fair value that could trigger an impairment of the goodwill of our reporting units or intangible assets.
Vehicles. We present vehicles at cost, net of accumulated depreciation, on the Consolidated Balance Sheets. We record the initial cost of the vehicle, net of incentives and allowances from manufactures.manufacturers. We acquire our rental vehicles either through repurchase and guaranteed depreciation programs with certain automobile manufacturers or outside of such programs. For rental vehicles purchased under such programs, we depreciate the vehicles such that the net book value on the date of sale or return to the manufacturers is intended to equal the contractual guaranteed residual values. For risk vehicles acquired outside of manufacturer repurchase and guaranteed depreciation programs, we depreciate based on the vehicles’ estimated residual market values andat their expected dates of disposition. The estimation of residual values requires the Companyus to make assumptions regarding the age and mileage of the vehicle at the time of disposal, as well as expected used vehicle market conditions. The Company periodically evaluatesWe regularly evaluate estimated residual values and adjusts depreciation rates as appropriate. Differences between actual residual values and those estimated result in a gain or loss on disposal and are recorded as part of vehicle depreciation and lease charges, net, at the time of sale. See Note 2 – Summary of Significant Accounting Policies to our Consolidated Financial Statements. For a discussion of risk factors and assumptions relative to our vehicle valuations, refer to Item 1A, “Risk Factors”, included under Part 1 of this Annual Report on Form 10-K.
Income Taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been reflected in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Tax Act enacted in the fourth quarter of 2017 included a change in the U.S. federal corporate income tax rate. For more information regarding the accounting for the effects of the Tax Act, see Note 8 of our Consolidated Financial Statements.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event we were to determine that we would be able to realize deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes. Currently we do not record valuation allowances on the majority of
41
our tax loss carryforwards as there are adequate deferred tax liabilities that could be realized within the carryforward period.
See NotesNote 2 – Summary of Significant Accounting Policies and 8Note 9 – Income Taxes to our Consolidated Financial Statements for more information regarding income taxes.
Public Liability, Property Damage and Other Insurance Liabilities. Insurance liabilities on our Consolidated Balance Sheets include supplemental liability insurance, personal effects protection insurance, public liability, property damage and personal accident insurance claims for which we are self-insured. We estimate the required liability of such claims on an undiscounted basis utilizing an actuarial method that is based upon various assumptions which include, but are not limited to, our historical loss experience and projected loss development factors. The required liability is also subject to adjustment in the future based upon changes in claims experience, including changes in the number of incidents for which we are ultimately liable and changes in the cost per incident. See Note 2 – Summary of Significant Accounting Policies to our Consolidated Financial Statements.
Adoption of New Accounting Pronouncements
For a description of our adoption of new accounting pronouncements and the impact thereof on our business, see Note 2 – Summary of Significant Accounting Policies to our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
For a description of recently issued accounting pronouncements and the impact thereof on our business, see Note 2 – Summary of Significant Accounting Policies to our Consolidated Financial Statements.
| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||
We are exposed to a variety of market risks, including changes in currency exchange rates, interest rates and gasolinefuel prices. We manage our exposure to market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments, particularly currency forward contracts to manage and reduce currency exchange rate risk; swap contracts, futures and options contracts, to manage and reduce the interest rate risk related to our debt; and derivative commodity instruments to manage and reduce the risk of changing unleaded gasolinefuel prices.
We are exclusively an end user of these instruments. We do not engage in trading, market-making or other speculative activities in the derivatives markets. We manage our exposure to counterparty credit risk related to our use of derivatives through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Our counterparties are substantial investment and commercial banks with significant experience providing such derivative instruments.
Our total market risk is influenced by a wide variety of factors including the volatility present within the markets and the liquidity of the markets. There are certain limitations inherent in the sensitivity analyses discussed below. These “shock tests” are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled. For additional information regarding our borrowings and financial instruments, see Notes 12,Note 13 – Long-term Corporate Debt and 18Borrowing Arrangements, Note 14 – Debt Under Vehicle Programs and Borrowing Arrangements and Note 20 – Financial Instruments to our Consolidated Financial Statements.
Currency Risk Management
We have exposure to currency exchange rate fluctuations worldwide and particularly with respect to the Australian, Canadian and New Zealand dollars, the euro and British pound sterling. We use currency forward contracts and currency swap contracts to manage exchange rate risk that arises from certain intercompany transactions and from non-functional currency denominated assets and liabilities and earnings denominated in non-U.S. dollar currencies. Our currency forward contracts are often not designated as hedges and therefore changes in the fair value of these derivatives are recognized in earnings as they occur. We anticipate that such currency exchange rate risk will remain a market risk exposure for the foreseeable future.
We assess our market risk based on changes in currency exchange rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on earnings, cash flows and fair values based on a hypothetical
42
10% appreciation or depreciation in the value of the underlying currencies being hedged, against the U.S. dollar at December 31, 2017.2023. With all other variables held constant, a hypothetical 10% change (increase or decrease) in currency exchange rates would not have a material impact on our 20172023 earnings. Because unrealized gains or losses related to foreign currency forward and swap contracts are expected to be offset by corresponding gains or losses on the underlying exposures being hedged, when combined, these foreign currency contracts and the offsetting underlying commitments do not create a material impact on our Consolidated Financial Statements.
Interest Rate Risk Management
Our primary interest rate exposure at December 31, 20172023 was interest rate fluctuationsfluctuation in the U.S., specifically LIBOR and commercial paper interest ratesUnited States due to theirits impact on variable rate borrowings and other interest rate sensitive liabilities. We use interest rate swaps and caps to manage our exposure to interest rate movements. We anticipate that LIBOR and commercial paper ratesinterest rate fluctuation will remain a primary market risk exposure for the foreseeable future.
We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. Based on our interest rate exposures and derivatives as of December 31, 2017,2023, we estimate that a 10% change in interest rates would not have a material impact on our 20172023 earnings. Because gains or losses related to interest rate derivatives are expected to be offset by corresponding gains or losses on the underlying exposures being hedged, when combined, these interest rate contracts and the offsetting underlying commitments do not create a material impact on our Consolidated Financial Statements.
Commodity Risk Management
We have commodity price exposure related to fluctuations in the price of gasoline.fuel. We anticipate that such commodity risk will remain a market risk exposure for the foreseeable future. We determined that a hypothetical 10% change in the price of gasolinefuel would not have a material impact on our earnings as of December 31, 2017.2023.
| ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | ||
See Consolidated Financial Statements and Consolidated Financial Statement Index commencing on Page F-1 hereof.
| ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | ||
None.
| ITEM 9A. CONTROLS AND PROCEDURES | ||
(a) Disclosure Controls and Procedures. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report. (b) Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in InternalControl - Integrated Framework (2013). Based on this assessment, our management believes that, as of December 31, 2023, our internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm. Their attestation report is included below. (c) Changes in Internal Control Over Financial Reporting. During the fourth quarter of 2023, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under 43 the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 44 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Avis Budget Group, Inc.
Parsippany, New Jersey
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Avis Budget Group, Inc. and subsidiaries (the "Company") as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 20172023 of the Company and our report dated February 22, 201816, 2024 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 16, 2024
45
| ITEM 9B. OTHER INFORMATION | ||
During the three months ended December 31, 2023, no director or Section 16 officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
| ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | ||
Not Applicable.
46
PART III
| ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 11. EXECUTIVE COMPENSATION | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
47
PART IV
| ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES | ||
| ITEM 15(A)(1). FINANCIAL STATEMENTS | ||
See Consolidated Financial Statements and Consolidated Financial Statements Index commencing on page F-1 hereof.
| ITEM 15(A)(2). FINANCIAL STATEMENT SCHEDULES | ||
See Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2023, 2022 and 2021 commencing on page G-1 hereof.
| ITEM 15(A)(3). EXHIBITS | ||
See Exhibit Index commencing on page H-1 hereof.
| ITEM 16. FORM 10-K SUMMARY | ||
None.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| AVIS BUDGET GROUP, INC. | |||||||||||
| By: | /s/ CATHLEEN DEGENOVA | ||||||||||
| Cathleen DeGenova | |||||||||||
| Vice President and Chief Accounting Officer | |||||||||||
| Date: | February 16, 2024 | ||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ JOSEPH A. FERRARO | President and Chief Executive Officer | February 16, 2024 | ||||||||||||
| (Joseph A. Ferraro) | ||||||||||||||
| /s/ IZILDA P. MARTINS | Executive Vice President and Chief Financial Officer | February 16, 2024 | ||||||||||||
| (Izilda P. Martins) | ||||||||||||||
| /s/ CATHLEEN DEGENOVA | Vice President and Chief Accounting Officer | February 16, 2024 | ||||||||||||
| (Cathleen DeGenova) | ||||||||||||||
| /s/ BERNARDO HEES | Executive Chairman of the Board of Directors | February 16, 2024 | ||||||||||||
| (Bernardo Hees) | ||||||||||||||
| /s/ JAGDEEP PAHWA | Vice Chairman of the Board of Directors | February 16, 2024 | ||||||||||||
| (Jagdeep Pahwa) | ||||||||||||||
| /s/ ANU HARIHARAN | Director | February 16, 2024 | ||||||||||||
| (Anu Hariharan) | ||||||||||||||
| /s/ LYNN KROMINGA | Director | February 16, 2024 | ||||||||||||
| (Lynn Krominga) | ||||||||||||||
| /s/ GLENN LURIE | Director | February 16, 2024 | ||||||||||||
| (Glenn Lurie) | ||||||||||||||
| /s/ KARTHIK SARMA | Director | February 16, 2024 | ||||||||||||
| (Karthik Sarma) | ||||||||||||||
49
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | |||||
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Avis Budget Group, Inc.
Parsippany, New Jersey
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Avis Budget Group, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Vehicles - Depreciation Expense - United States Risk Vehicles - Refer to Notes 2 and 8 to the financial statements
Critical Audit Matter Description
The Company records rental vehicles at cost, net of accumulated depreciation. The initial cost of the vehicles is recorded net of incentives and allowances from manufacturers. Rental vehicles acquired by the Company outside of manufacturer repurchase and guaranteed depreciation programs are referred to as risk vehicles and the carrying values of these risk vehicles are depreciated based upon the vehicles’ estimated residual values at their expected dates of disposition. The estimation of residual values for risk vehicles requires the Company to make assumptions regarding factors which include, but are not limited to, the anticipated age of the vehicles and market conditions for used vehicles at the time of disposal. The Company regularly evaluates estimated residual values and adjusts vehicle depreciation rates as appropriate. Any adjustments to depreciation are made prospectively.
Given the volume of risk vehicles in the United States and the significant estimation uncertainty and judgments made by management to calculate the estimated residual values of these risk vehicles, auditing the estimated residual values of United States risk vehicles and related vehicle depreciation expense required extensive audit effort to develop an independent expectation of residual values and depreciation expense, and a high degree of auditor judgment was required when performing audit procedures and evaluating the results of those procedures. The significant estimation uncertainty was primarily due to management’s assumptions regarding the impact of future consumer demand and general economic conditions on expected pricing of used vehicles. Additionally, auditing the calculation of the estimated residual values for United States risk vehicles was challenging due to the volume of data inputs utilized in management’s calculation, including historical sales data and data specific to the Company’s current fleet.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to assess the reasonableness of the estimated residual values and vehicle depreciation expense related to United States risk vehicles included the following, among others:
•We evaluated the appropriateness and consistency of the Company’s methods, significant assumptions and judgments to calculate the estimated residual values of risk vehicles and the expected dates of disposition.
•We tested the effectiveness of controls over vehicle depreciation expense related to risk vehicles and management’s review of the significant assumptions and judgments to calculate the estimated residual values of risk vehicles, including those over the Company’s monitoring of residual values and used vehicle market conditions.
•We assessed the reasonableness of the estimated residual values of risk vehicles by performing the following procedures on a selection of risk vehicles:
–We tested the underlying historical data that served as the basis for the Company’s calculation of the estimated residual values to evaluate the reasonableness of the inputs.
–We tested the mathematical accuracy of the Company’s calculation of the estimated residual values and vehicle depreciation expense rates.
–We tested significant assumptions and judgments used in the Company’s calculation by developing an independent expectation of residual values and compared them to the estimated residual values calculated by the Company. Our independent expectation was calculated using our professional judgment by reference to third-party data, information produced by the Company, subsequent vehicle sales, and inquiries of management.
–We searched for contradictory evidence associated with the significant assumptions and judgments made by management based on our knowledge of the industry and review of third-party industry data.
•We developed an independent expectation of depreciation expense based on, but not limited to, the vehicles’ age and results of our residual value testing and compared it to the amount recorded by the Company as depreciation expense.
F-3
Self-Insurance Reserves - Public Liability and Property Damage Claims - United States - Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company is self-insured for public liability and property damage claims. These self-insurance reserves represent an estimate for both reported claims not yet paid and claims incurred but not yet reported. The estimated reserve requirements for such claims are calculated on an undiscounted basis using actuarial methods and various assumptions which include, but are not limited to, historical loss experience and projected loss development factors. The required liability is subject to adjustment in the future based upon changes in claims experience, including changes in the number of incidents for which the Company is ultimately liable and changes in the cost per incident.
Given the volume of public liability and property damage claims in the United States and the subjectivity of estimating the related self-insurance reserves for reported claims not yet paid and claims incurred but not yet reported due to uncertain exposure and projected loss development, performing audit procedures to evaluate whether these self-insurance reserves were appropriately recorded as of December 31, 2023 required a significant degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to United States public liability and property damage self-insurance reserves included the following, among others:
•We tested the effectiveness of controls over management’s review of significant assumptions, key inputs and methods used to calculate the estimate of the reported claims not yet paid and claims incurred but not yet reported.
•We tested the underlying data that served as the basis for the Company’s actuarial analysis, including historical claims, to test the reasonableness of the inputs to the actuarial estimate.
•With the assistance of our actuarial specialists, we developed an independent estimate of the self-insurance reserves, including assessment of loss data and claim development factors, and compared our estimate to management’s estimate. In addition, we performed the following:
–Evaluated the reasonableness of the methodologies used in management’s estimate based on actuarial methods followed in the insurance industry associated with such liabilities.
–Evaluated the reasonableness of the assumptions used in management’s estimate by comparing prior-year assumptions of expected development and ultimate loss to actuals incurred during the current year to identify potential bias in the determination of these liabilities.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 22, 201816, 2024
We have served as the Company’s auditor since 1997.
F-4
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vehicle rental | $ | 6,219 | $ | 6,081 | $ | 6,026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 2,629 | 2,578 | 2,476 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenues | 8,848 | 8,659 | 8,502 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Vehicle depreciation and lease charges, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Vehicle interest, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-vehicle related depreciation and amortization | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense related to corporate debt, net: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Early extinguishment of debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and other related charges | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction-related costs, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating | 4,472 | 4,382 | 4,284 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vehicle depreciation and lease charges, net | 2,221 | 2,047 | 1,933 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 1,120 | 1,134 | 1,093 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vehicle interest, net | 286 | 284 | 289 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-vehicle related depreciation and amortization | 259 | 253 | 218 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense related to corporate debt, net: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 188 | 203 | 194 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Early extinguishment of debt | 3 | 27 | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and other related charges | 63 | 29 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction-related costs, net | 23 | 21 | 68 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impairment | 2 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | Total expenses | 8,637 | 8,380 | 8,120 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | Income before income taxes | 211 | 279 | 382 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (benefit from) income taxes | (150 | ) | 116 | 69 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | Net income | $ | 361 | $ | 163 | $ | 313 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: Net income (loss) attributable to non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Avis Budget Group, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | Earnings per share | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 4.32 | $ | 1.78 | $ | 3.02 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted | $ | 4.25 | $ | 1.75 | $ | 2.98 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
F-5
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| Year Ended December 31, | |||||||||||||
| 2017 | 2016 | 2015 | |||||||||||
| Net income | $ | 361 | $ | 163 | $ | 313 | |||||||
| Other comprehensive income (loss), net of tax | |||||||||||||
| Currency translation adjustments, net of tax of $33, $(9) and $(22), respectively | $ | 110 | $ | 41 | $ | (131 | ) | ||||||
| Available-for-sale securities: | |||||||||||||
| Net unrealized gains (losses) on available-for-sale securities, net of tax of $(1), $(1),and $1, respectively | 1 | 1 | (2 | ) | |||||||||
| Cash flow hedges: | |||||||||||||
| Net unrealized holding gains (losses), net of tax of $0, $(1), and $4, respectively | 1 | — | (6 | ) | |||||||||
| Reclassification of cash flow hedges to earnings, net of tax of $(2), $(2) and $(3), respectively | 2 | 4 | 5 | ||||||||||
| Minimum pension liability adjustment: | |||||||||||||
| Pension and post-retirement benefits, net of tax of $(4), $21 and $(1), respectively | 11 | (57 | ) | 6 | |||||||||
| Reclassification of pension and post-retirement benefits to earnings, net of tax of $(3), $(2) and $(2), respectively | 5 | 4 | 3 | ||||||||||
| 130 | (7 | ) | (125 | ) | |||||||||
| Total comprehensive income | $ | 491 | $ | 156 | $ | 188 | |||||||
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Net income | $ | 1,635 | $ | 2,756 | $ | 1,283 | |||||||||||||||||
| Less: Net income (loss) attributable to non-controlling interests | 3 | (8) | (2) | ||||||||||||||||||||
| Net income attributable to Avis Budget Group, Inc. | 1,632 | 2,764 | 1,285 | ||||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Currency translation adjustments: | |||||||||||||||||||||||
| Currency translation adjustments, net of tax of $7, $(11) and $(20), respectively | 27 | (46) | (35) | ||||||||||||||||||||
| Reclassification of currency translation adjustments to earnings | — | — | 11 | ||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Net unrealized holding gains (losses), net of tax of $(2), $(20), and $(6), respectively | 5 | 57 | 18 | ||||||||||||||||||||
| Reclassification of cash flow hedges to earnings, net of tax of $5, $(2), and $(5), respectively | (13) | 7 | 14 | ||||||||||||||||||||
| Minimum pension liability adjustment: | |||||||||||||||||||||||
| Pension and post-retirement benefits, net of tax of $6, $(4), and $(13), respectively | (18) | 11 | 39 | ||||||||||||||||||||
| Reclassification of pension and post-retirement benefits to earnings, net of tax of $(1), $(2), and $(2), respectively | 4 | 3 | 7 | ||||||||||||||||||||
| 5 | 32 | 54 | |||||||||||||||||||||
| Total comprehensive income attributable to Avis Budget Group, Inc. | $ | 1,637 | $ | 2,796 | $ | 1,339 | |||||||||||||||||
See Notes to Consolidated Financial Statements.
F-6
Avis Budget Group, Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
| December 31, | ||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||||||||||||||||
| As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||
| Assets | Assets | |||||||||||||||||||||||||||||||||||||
| Current assets: | Current assets: | |||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 611 | $ | 490 | ||||||||||||||||||||||||||||||||||
| Receivables (net of allowance for doubtful accounts of $36 and $38, respectively) | 922 | 808 | ||||||||||||||||||||||||||||||||||||
| Other current assets | 533 | 519 | ||||||||||||||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||||
| Receivables (net of allowance for doubtful accounts of $87 and $86, respectively) | ||||||||||||||||||||||||||||||||||||||
| Other current assets | ||||||||||||||||||||||||||||||||||||||
| Total current assets | Total current assets | 2,066 | 1,817 | |||||||||||||||||||||||||||||||||||
| Property and equipment, net | Property and equipment, net | 704 | 685 | |||||||||||||||||||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||||||||||||||||||||
| Operating lease right-of-use assets | ||||||||||||||||||||||||||||||||||||||
| Deferred income taxes | Deferred income taxes | 931 | 1,493 | |||||||||||||||||||||||||||||||||||
| Goodwill | Goodwill | 1,073 | 1,007 | |||||||||||||||||||||||||||||||||||
| Other intangibles, net | Other intangibles, net | 850 | 870 | |||||||||||||||||||||||||||||||||||
| Other non-current assets | Other non-current assets | 196 | 193 | |||||||||||||||||||||||||||||||||||
| Total assets exclusive of assets under vehicle programs | Total assets exclusive of assets under vehicle programs | 5,820 | 6,065 | |||||||||||||||||||||||||||||||||||
| Assets under vehicle programs: | Assets under vehicle programs: | |||||||||||||||||||||||||||||||||||||
| Program cash | 283 | 225 | ||||||||||||||||||||||||||||||||||||
| Vehicles, net | 10,626 | 10,464 | ||||||||||||||||||||||||||||||||||||
| Receivables from vehicle manufacturers and other | 547 | 527 | ||||||||||||||||||||||||||||||||||||
| Investment in Avis Budget Rental Car Funding (AESOP) LLC—related party | 423 | 362 | ||||||||||||||||||||||||||||||||||||
| 11,879 | 11,578 | |||||||||||||||||||||||||||||||||||||
| Assets under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Assets under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Assets under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Assets under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Assets under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Program cash | ||||||||||||||||||||||||||||||||||||||
| Program cash | ||||||||||||||||||||||||||||||||||||||
| Program cash | ||||||||||||||||||||||||||||||||||||||
| Vehicles, net | ||||||||||||||||||||||||||||||||||||||
| Receivables from vehicle manufacturers and other | ||||||||||||||||||||||||||||||||||||||
| Investment in Avis Budget Rental Car Funding (AESOP) LLC—related party | ||||||||||||||||||||||||||||||||||||||
| 22,979 | ||||||||||||||||||||||||||||||||||||||
| Total assets | Total assets | $ | 17,699 | $ | 17,643 | |||||||||||||||||||||||||||||||||
| Liabilities and stockholders’ equity | Liabilities and stockholders’ equity | |||||||||||||||||||||||||||||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||||||||
| Current liabilities: | Current liabilities: | |||||||||||||||||||||||||||||||||||||
| Accounts payable and other current liabilities | $ | 1,619 | $ | 1,488 | ||||||||||||||||||||||||||||||||||
| Short-term debt and current portion of long-term debt | 26 | 279 | ||||||||||||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||||||||||||||
| Accounts payable and other current liabilities | ||||||||||||||||||||||||||||||||||||||
| Accounts payable and other current liabilities | ||||||||||||||||||||||||||||||||||||||
| Accounts payable and other current liabilities | ||||||||||||||||||||||||||||||||||||||
| Short-term debt and current portion of long-term debt | ||||||||||||||||||||||||||||||||||||||
| Total current liabilities | Total current liabilities | 1,645 | 1,767 | |||||||||||||||||||||||||||||||||||
| Long-term debt | Long-term debt | 3,573 | 3,244 | |||||||||||||||||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||||||||||||||||||||
| Long-term operating lease liabilities | ||||||||||||||||||||||||||||||||||||||
| Other non-current liabilities | Other non-current liabilities | 717 | 764 | |||||||||||||||||||||||||||||||||||
| Total liabilities exclusive of liabilities under vehicle programs | Total liabilities exclusive of liabilities under vehicle programs | 5,935 | 5,775 | |||||||||||||||||||||||||||||||||||
| Liabilities under vehicle programs: | Liabilities under vehicle programs: | |||||||||||||||||||||||||||||||||||||
| Liabilities under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Liabilities under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Liabilities under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Liabilities under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Liabilities under vehicle programs: | ||||||||||||||||||||||||||||||||||||||
| Debt | ||||||||||||||||||||||||||||||||||||||
| Debt | ||||||||||||||||||||||||||||||||||||||
| Debt | ||||||||||||||||||||||||||||||||||||||
| Debt due to Avis Budget Rental Car Funding (AESOP) LLC—related party | ||||||||||||||||||||||||||||||||||||||
| Deferred income taxes | ||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| 22,817 | ||||||||||||||||||||||||||||||||||||||
| Debt | 2,741 | 2,183 | ||||||||||||||||||||||||||||||||||||
| Debt due to Avis Budget Rental Car Funding (AESOP) LLC—related party | 6,480 | 6,695 | ||||||||||||||||||||||||||||||||||||
| Deferred income taxes | 1,594 | 2,429 | ||||||||||||||||||||||||||||||||||||
| Other | 376 | 340 | ||||||||||||||||||||||||||||||||||||
| 11,191 | 11,647 | |||||||||||||||||||||||||||||||||||||
| Commitments and contingencies (Note 14) | ||||||||||||||||||||||||||||||||||||||
| Commitments and contingencies (Note 15) | ||||||||||||||||||||||||||||||||||||||
| Commitments and contingencies (Note 15) | ||||||||||||||||||||||||||||||||||||||
| Commitments and contingencies (Note 15) | ||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity: | Stockholders’ equity: | |||||||||||||||||||||||||||||||||||||
| Preferred stock, $.01 par value—authorized 10 shares; none issued and outstanding | — | — | ||||||||||||||||||||||||||||||||||||
| Common stock, $.01 par value—authorized 250 shares; issued 137 shares, respectively | 1 | 1 | ||||||||||||||||||||||||||||||||||||
| Additional paid-in capital | 6,820 | 6,918 | ||||||||||||||||||||||||||||||||||||
| Accumulated deficit | (1,222 | ) | (1,639 | ) | ||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive loss | (24 | ) | (154 | ) | ||||||||||||||||||||||||||||||||||
| Treasury stock, at cost—56 and 51 shares, respectively | (5,002 | ) | (4,905 | ) | ||||||||||||||||||||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||||||||||||||||||||
| Preferred stock, $.01 par value—authorized 10 shares; none issued and outstanding | ||||||||||||||||||||||||||||||||||||||
| Preferred stock, $.01 par value—authorized 10 shares; none issued and outstanding | ||||||||||||||||||||||||||||||||||||||
| Preferred stock, $.01 par value—authorized 10 shares; none issued and outstanding | ||||||||||||||||||||||||||||||||||||||
| Common stock, $.01 par value—authorized 250 shares; issued 137 shares, respectively | ||||||||||||||||||||||||||||||||||||||
| Additional paid-in capital | ||||||||||||||||||||||||||||||||||||||
| Retained earnings | ||||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive loss | ||||||||||||||||||||||||||||||||||||||
Treasury stock, at cost 102 and 98 shares, respectively | ||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity attributable to Avis Budget Group, Inc. | ||||||||||||||||||||||||||||||||||||||
| Non-controlling interests | ||||||||||||||||||||||||||||||||||||||
| Total stockholders’ equity | Total stockholders’ equity | 573 | 221 | |||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 17,699 | $ | 17,643 | |||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
F-7
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||
| Net income | $ | 1,635 | $ | 2,756 | $ | 1,283 | |||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||
| Vehicle depreciation | 2,228 | 1,709 | 1,402 | ||||||||||||||||||||
| Amortization of right-of-use assets | 1,006 | 877 | 806 | ||||||||||||||||||||
| (Gain) loss on sale of vehicles, net | (656) | (1,019) | (361) | ||||||||||||||||||||
| Non-vehicle related depreciation and amortization | 216 | 225 | 272 | ||||||||||||||||||||
| Deferred income taxes | 191 | 682 | 378 | ||||||||||||||||||||
| Stock-based compensation | 30 | 25 | 30 | ||||||||||||||||||||
| Amortization of debt financing fees | 40 | 34 | 33 | ||||||||||||||||||||
| Early extinguishment of debt costs | 5 | — | 136 | ||||||||||||||||||||
| Net change in assets and liabilities: | |||||||||||||||||||||||
| Receivables | (43) | (97) | (143) | ||||||||||||||||||||
| Income taxes | (81) | 6 | (28) | ||||||||||||||||||||
| Accounts payable and other current liabilities | (72) | 217 | 414 | ||||||||||||||||||||
| Operating lease liabilities | (1,002) | (879) | (801) | ||||||||||||||||||||
| Other, net | 331 | 171 | 70 | ||||||||||||||||||||
| Net cash provided by operating activities | 3,828 | 4,707 | 3,491 | ||||||||||||||||||||
| Investing activities | |||||||||||||||||||||||
| Property and equipment additions | (273) | (246) | (108) | ||||||||||||||||||||
| Proceeds received on asset sales | 3 | 2 | 3 | ||||||||||||||||||||
| Net assets acquired (net of cash acquired) | (65) | (3) | (46) | ||||||||||||||||||||
| Other, net | 6 | (33) | (3) | ||||||||||||||||||||
| Net cash used in investing activities exclusive of vehicle programs | (329) | (280) | (154) | ||||||||||||||||||||
| Vehicle programs: | |||||||||||||||||||||||
| Investment in vehicles | (15,185) | (10,491) | (10,054) | ||||||||||||||||||||
| Proceeds received on disposition of vehicles | 8,403 | 6,606 | 4,077 | ||||||||||||||||||||
| Investment in debt securities of Avis Budget Rental Car Funding (AESOP)—related party | (541) | (439) | (367) | ||||||||||||||||||||
| Proceeds from debt securities of Avis Budget Rental Car Funding (AESOP)—related party | 306 | 305 | 192 | ||||||||||||||||||||
| (7,017) | (4,019) | (6,152) | |||||||||||||||||||||
| Net cash used in investing activities | (7,346) | (4,299) | (6,306) | ||||||||||||||||||||
F-8
| Year Ended December 31, | |||||||||||||
| 2017 | 2016 | 2015 | |||||||||||
| Operating activities | |||||||||||||
| Net income | $ | 361 | $ | 163 | $ | 313 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||
| Vehicle depreciation | 1,947 | 1,877 | 1,837 | ||||||||||
| (Gain) loss on sale of vehicles, net | 52 | (10 | ) | (60 | ) | ||||||||
| Non-vehicle related depreciation and amortization | 259 | 253 | 218 | ||||||||||
| Deferred income taxes | (192 | ) | 51 | 58 | |||||||||
| Stock-based compensation | 13 | 27 | 28 | ||||||||||
| Amortization of debt financing fees | 34 | 37 | 42 | ||||||||||
| Early extinguishment of debt costs | 3 | 27 | 23 | ||||||||||
| Net change in assets and liabilities: | |||||||||||||
| Receivables | (59 | ) | (65 | ) | (42 | ) | |||||||
| Income taxes | (16 | ) | 5 | (18 | ) | ||||||||
| Accounts payable and other current liabilities | 49 | 2 | (36 | ) | |||||||||
| Other, net | 197 | 273 | 264 | ||||||||||
| Net cash provided by operating activities | 2,648 | 2,640 | 2,627 | ||||||||||
| Investing activities | |||||||||||||
| Property and equipment additions | (197 | ) | (190 | ) | (199 | ) | |||||||
| Proceeds received on asset sales | 8 | 19 | 15 | ||||||||||
| Net assets acquired (net of cash acquired) | (21 | ) | (55 | ) | (256 | ) | |||||||
| Other, net | 5 | 1 | 3 | ||||||||||
| Net cash used in investing activities exclusive of vehicle programs | (205 | ) | (225 | ) | (437 | ) | |||||||
| Vehicle programs: | |||||||||||||
| Investment in vehicles | (11,538 | ) | (12,461 | ) | (11,928 | ) | |||||||
| Proceeds received on disposition of vehicles | 9,600 | 10,504 | 9,680 | ||||||||||
| Investment in debt securities of Avis Budget Rental Car Funding (AESOP)—related party | (61 | ) | — | — | |||||||||
| (1,999 | ) | (1,957 | ) | (2,248 | ) | ||||||||
| Net cash used in investing activities | (2,204 | ) | (2,182 | ) | (2,685 | ) | |||||||
| Financing activities | |||||||||||||
| Proceeds from long-term borrowings | 589 | 894 | 377 | ||||||||||
| Payments on long-term borrowings | (602 | ) | (847 | ) | (301 | ) | |||||||
| Net change in short-term borrowings | (4 | ) | 4 | (22 | ) | ||||||||
| Debt financing fees | (9 | ) | (20 | ) | (7 | ) | |||||||
| Repurchases of common stock | (210 | ) | (398 | ) | (436 | ) | |||||||
| Other, net | 1 | — | (7 | ) | |||||||||
| Net cash used in financing activities exclusive of vehicle programs | (235 | ) | (367 | ) | (396 | ) | |||||||
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Financing activities | |||||||||||||||||||||||
| Proceeds from long-term borrowings | $ | 936 | $ | 729 | $ | 1,100 | |||||||||||||||||
| Payments on long-term borrowings | (818) | (24) | (1,354) | ||||||||||||||||||||
| Net change in short-term borrowings | — | (1) | 1 | ||||||||||||||||||||
| Debt financing fees | (22) | (7) | (24) | ||||||||||||||||||||
| Repurchases of common stock | (951) | (3,329) | (1,460) | ||||||||||||||||||||
| Dividends paid | (355) | — | — | ||||||||||||||||||||
| Contributions from non-controlling interests | — | 40 | 38 | ||||||||||||||||||||
| Net cash used in financing activities exclusive of vehicle programs | (1,210) | (2,592) | (1,699) | ||||||||||||||||||||
| Vehicle programs: | |||||||||||||||||||||||
| Proceeds from borrowings | 23,980 | 17,419 | 14,467 | ||||||||||||||||||||
| Payments on borrowings | (19,220) | (15,160) | (10,056) | ||||||||||||||||||||
| Debt financing fees | (44) | (27) | (25) | ||||||||||||||||||||
| 4,716 | 2,232 | 4,386 | |||||||||||||||||||||
| Net cash provided by (used in) financing activities | 3,506 | (360) | 2,687 | ||||||||||||||||||||
| Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash | 14 | (32) | (11) | ||||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents, program and restricted cash | 2 | 16 | (139) | ||||||||||||||||||||
| Cash and cash equivalents, program and restricted cash, beginning of period | 642 | 626 | 765 | ||||||||||||||||||||
| Cash and cash equivalents, program and restricted cash, end of period | $ | 644 | $ | 642 | $ | 626 | |||||||||||||||||
| Supplemental disclosure | |||||||||||||||||||||||
| Interest payments | $ | 988 | $ | 543 | $ | 509 | |||||||||||||||||
| Income tax payments, net | $ | 169 | $ | 192 | $ | 75 | |||||||||||||||||
| Year Ended December 31, | |||||||||||||
| 2017 | 2016 | 2015 | |||||||||||
| Vehicle programs: | |||||||||||||
| Proceeds from borrowings | 17,212 | 15,769 | 14,138 | ||||||||||
| Payments on borrowings | (17,269 | ) | (15,826 | ) | (13,648 | ) | |||||||
| Debt financing fees | (16 | ) | (25 | ) | (22 | ) | |||||||
| (73 | ) | (82 | ) | 468 | |||||||||
| Net cash (used in) provided by financing activities | (308 | ) | (449 | ) | 72 | ||||||||
| Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash | 45 | (6 | ) | (50 | ) | ||||||||
| Net increase (decrease) in cash and cash equivalents, program and restricted cash | 181 | 3 | (36 | ) | |||||||||
| Cash and cash equivalents, program and restricted cash, beginning of period | 720 | 717 | 753 | ||||||||||
| Cash and cash equivalents, program and restricted cash, end of period | $ | 901 | $ | 720 | $ | 717 | |||||||
| Supplemental disclosure | |||||||||||||
| Interest payments | $ | 460 | $ | 461 | $ | 454 | |||||||
| Income tax payments, net | $ | 58 | $ | 60 | $ | 29 | |||||||
See Notes to Consolidated Financial Statements.
F-9
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
| Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Stockholders’ Equity Attributable to Avis Budget Group, Inc. | Non-controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | 137.1 | $ | 1 | $ | 6,668 | $ | (1,470) | $ | (187) | (67.3) | $ | (5,167) | $ | (155) | $ | — | $ | (155) | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,285 | — | — | — | — | (2) | 1,283 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 54 | — | — | — | — | 54 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 1,285 | 54 | 1,339 | (2) | 1,337 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interests | — | — | 25 | — | — | — | — | 25 | 13 | 38 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (17) | — | — | 0.4 | 31 | 14 | — | 14 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | — | (14.3) | (1,443) | (1,443) | — | (1,443) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 137.1 | $ | 1 | $ | 6,676 | $ | (185) | $ | (133) | (81.2) | $ | (6,579) | $ | (220) | $ | 11 | $ | (209) | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 2,764 | — | — | — | 2,764 | (8) | 2,756 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 32 | — | — | 32 | — | 32 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 2,764 | 32 | 2,796 | (8) | 2,788 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interests | — | — | 24 | — | — | — | — | 24 | — | 24 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (34) | — | — | 0.3 | (2) | (36) | — | (36) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | — | (16.7) | (3,267) | (3,267) | — | (3,267) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 137.1 | $ | 1 | $ | 6,666 | $ | 2,579 | $ | (101) | (97.6) | $ | (9,848) | $ | (703) | $ | 3 | $ | (700) | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,632 | — | — | — | 1,632 | 3 | 1,635 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 5 | — | — | 5 | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 1,632 | 5 | 1,637 | 3 | 1,640 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (32) | (2) | — | 0.3 | 3 | (31) | — | (31) | |||||||||||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock(a) | — | — | — | — | — | (4.3) | (897) | (897) | — | (897) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid ($10.00 per share) | — | — | — | (355) | — | — | — | (355) | — | (355) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 137.1 | $ | 1 | $ | 6,634 | $ | 3,854 | $ | (96) | (101.6) | $ | (10,742) | $ | (349) | $ | 6 | $ | (343) | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
| Balance at January 1, 2015 | 137.1 | $ | 1 | $ | 7,212 | $ | (2,115 | ) | $ | (22 | ) | (31.4 | ) | $ | (4,411 | ) | $ | 665 | |||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||
| Net income | — | — | — | 313 | — | — | — | ||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (125 | ) | — | — | |||||||||||||||||||||
| Total comprehensive income | 188 | ||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (191 | ) | — | — | 0.9 | 178 | (13 | ) | |||||||||||||||||||
| Exercise of stock options | — | — | (3 | ) | — | — | — | 3 | — | ||||||||||||||||||||
| Change in excess tax benefit on equity awards | — | — | (7 | ) | — | — | — | — | (7 | ) | |||||||||||||||||||
| Activity related to employee stock purchase plan | — | — | (1 | ) | — | — | — | 1 | — | ||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (8.8 | ) | (394 | ) | (394 | ) | ||||||||||||||||||
| Balance at December 31, 2015 | 137.1 | $ | 1 | $ | 7,010 | $ | (1,802 | ) | $ | (147 | ) | (39.3 | ) | $ | (4,623 | ) | $ | 439 | |||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||
| Net income | — | — | — | 163 | — | — | — | ||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (7 | ) | — | — | |||||||||||||||||||||
| Total comprehensive income | 156 | ||||||||||||||||||||||||||||
| Non-controlling interest | — | — | 5 | — | — | — | — | 5 | |||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (89 | ) | — | — | 0.5 | 104 | 15 | ||||||||||||||||||||
| Exercise of stock options | — | — | (2 | ) | — | — | — | 2 | — | ||||||||||||||||||||
| Change in excess tax benefit on equity awards | — | — | (5 | ) | — | — | — | — | (5 | ) | |||||||||||||||||||
| Activity related to employee stock purchase plan | — | — | (1 | ) | — | — | — | 2 | 1 | ||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (12.3 | ) | (390 | ) | (390 | ) | ||||||||||||||||||
| Balance at December 31, 2016 | 137.1 | $ | 1 | $ | 6,918 | $ | (1,639 | ) | $ | (154 | ) | (51.1 | ) | $ | (4,905 | ) | $ | 221 | |||||||||||
| Cumulative effect of accounting change | — | — | — | 56 | — | — | — | 56 | |||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||
| Net income | — | — | — | 361 | — | — | — | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 130 | — | — | ||||||||||||||||||||||
| Total comprehensive income | 491 | ||||||||||||||||||||||||||||
| Non-controlling interest | — | — | 1 | — | — | — | — | 1 | |||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (50 | ) | — | — | 0.4 | 54 | 4 | ||||||||||||||||||||
| Exercise of stock options | — | — | (48 | ) | — | — | 0.5 | 48 | — | ||||||||||||||||||||
| Activity related to employee stock purchase plan | — | — | (1 | ) | — | — | — | 1 | — | ||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (6.1 | ) | (200 | ) | (200 | ) | ||||||||||||||||||
| Balance at December 31, 2017 | 137.1 | $ | 1 | $ | 6,820 | $ | (1,222 | ) | $ | (24 | ) | (56.3 | ) | $ | (5,002 | ) | $ | 573 | |||||||||||
(a) Amount includes excise taxes due under the Inflation Reduction Act of 2022.
See Notes to Consolidated Financial Statements.
F-10
Avis Budget Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all dollar amounts are in millions, except per share amounts)
1. Basis of Presentation
Avis Budget Group, Inc. provides vehicle rental and other mobility solutions to businesses and consumers worldwide. The accompanying Consolidated 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”).
•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 the areas in which the Company doeswe 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 the areas in which the Company doeswe do not operate directly.
2. Summary of Significant |
Accounting Policies
Principles of Consolidation
The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates and Assumptions
The use of estimates and assumptions as determined by management is required in the preparation of the Consolidated Financial Statements in conformity with GAAP. These estimates are based on management’s evaluation of historical trends and other information available when the Consolidated Financial Statements are prepared and may affect the amounts reported and related disclosures. Actual results could differ from those estimates.
Revenue Recognition
We derive revenues primarily through the operation and licensing of its rental systems and by providing vehicle rentals and other related products and mobility services to businesscommercial and leisure travelerscustomers, as well as through licensing of our rental brands. Other related products and others. Other revenue includesmobility services include sales of collision and loss damage waivers under which a customer is relieved from financial responsibility arising from vehicle damage incurred during the rental; products and insurance products, fuel andservices for driving convenience such as fuel service charges,options, roadside safety net, electronic toll collection,
F-11
access to satellite radio, mobile WiFi devices, GPS navigation, child safety seat rentals, and rentals of other supplemental items. Revenue is recognized when persuasive evidenceitems including automobile towing equipment and other moving accessories and supplies. We also receive payment from customers for certain operating expenses that we incur, including airport concession fees that are paid by us in exchange for the right to operate at airports and other locations, as well as vehicle licensing fees. In addition, we collect membership fees in connection with our car sharing business.
We combine all lease and non-lease components of our vehicle rental contracts for which the timing and pattern of transfer are the same and the lease component meets the classification of an arrangement exists, theoperating lease. Vehicle rentals and other related products and mobility services have been rendered to customers, the pricing is fixed or determinable and collection is reasonably assured.
Licensing revenuerevenues principally consistsconsist of royalties paid by the Company’sour licensees and isare recorded within other revenues as the licensees’ revenue isrevenues are earned (over the rental period of a vehicle)period). The Company renewsWe renew license agreements in the normal course of business and occasionally terminates, purchasesterminate, purchase or sellssell license agreements. In connection with ongoing fees that the Company receiveswe receive from itsour licensees pursuant to license agreements, the Company iswe are required to provide certain services, such as training, marketing and the operation of reservation systems. Revenue
We exclude from the measurement of our transaction price any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer. As a result, revenue is recorded net of such taxes collected. Revenues and expenses associated with gasoline,fuel, airport concessions and vehicle licensing and airport concessions are recorded on a gross basis within revenuerevenues and operating expenses. Membership fees related to the Company’sour car sharing business are generally nonrefundable, are deferred and recognized ratably over the period of membershipmembership.
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 $187 million, $165 million, and $127 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table presents our revenues disaggregated by geography:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Americas | $ | 9,347 | $ | 9,474 | $ | 7,557 | |||||||||||
| Europe, Middle East and Africa | 2,014 | 1,927 | 1,400 | ||||||||||||||
| Asia and Australasia | 647 | 593 | 356 | ||||||||||||||
| Total revenues | $ | 12,008 | $ | 11,994 | $ | 9,313 | |||||||||||
The following table presents our revenues disaggregated by brand:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Avis | $ | 6,779 | $ | 6,519 | $ | 4,894 | |||||||||||
| Budget | 4,478 | 4,701 | 3,715 | ||||||||||||||
| Other | 751 | 774 | 704 | ||||||||||||||
| Total revenues | $ | 12,008 | $ | 11,994 | $ | 9,313 | |||||||||||
________
Other includes Zipcar and other operating brands.
F-12
Deferred Revenue
We record deferred revenues when cash payments are received in advance of satisfying our performance obligations, including amounts that are refundable. In addition, certain customers earn loyalty points on rentals, for which we defer a portion of our rental revenues generally equivalent to the estimated retail value of points expected to be redeemed. We estimate points that will never be redeemed based upon actual redemption and expiration patterns. Currently, loyalty points expire after 12 months of member inactivity. Future changes to expiration assumptions or expiration policy, or to program rules, may result in changes to deferred revenue as well as recognized revenues from the program.
The following table presents changes in deferred revenue associated with our customer loyalty program:
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Balance, January 1 | $ | 61 | $ | 50 | |||||||
| Revenue deferred | 58 | 52 | |||||||||
| Revenue recognized | (52) | (41) | |||||||||
| Balance, December 31 | $ | 67 | $ | 61 | |||||||
_______
At December 31, 2023 and 2022, $20 million and $15 million was included in accounts payable and other current liabilities, respectively, and $47 million and $46 million in the Consolidated Balance Sheets.other non-current liabilities, respectively. Non-current amounts are expected to be recognized as revenue within two to three years.
Currency Translation
Assets and liabilities of foreign operations are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the prevailing monthly average rate of exchange. The related translation adjustments are reflected in accumulated other comprehensive income (loss) in the stockholders’ equity section of the Consolidated Balance Sheets and in the Consolidated Statements of Comprehensive Income. The accumulated currency translation adjustment as of December 31, 2017 and 2016 was $71 million and $(39) million, respectively. The Company hasIncome (See Note 16 – Stockholders' Equity). We have designated itsour euro-denominated Notes as a hedge of itsour investment in euro-denominated foreign operations and, accordingly, recordsrecord the effective portion of gains or losses on this net investment hedge in accumulated other comprehensive income (loss) as part of currency translation adjustments.
Cash and Cash Equivalents, Program Cash and Restricted Cash
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash and cash equivalents | $ | 555 | $ | 570 | |||||||
| Program cash | 85 | 70 | |||||||||
Restricted cash (a) | 4 | 2 | |||||||||
| Total cash and cash equivalents, program and restricted cash | $ | 644 | $ | 642 | |||||||
_________
(a)Included within other current assets.
Property and Equipment
Property and equipment (including leasehold improvements) are stated at cost, net of accumulated depreciation and amortization. Depreciation (non-vehicle related) is computed utilizing the straight-line method over the estimated useful lives of the related assets. Amortization of leaseholdLeasehold improvements is computed utilizing the straight-line methodare amortized over the estimated benefit periodshorter of the related assets, which may not exceed 20 years,term of the lease or the lease term, if shorter.estimated useful lives of the improvements. Useful lives are as follows:
F-13
| Buildings | 30 years | ||||
| Furniture, fixtures & equipment | 3 to 10 years | ||||
| Capitalized software | 3 to 7 years | ||||
| Buses and support vehicles | 4 to 15 years | ||||
Goodwill and Other Intangible Assets
Goodwill represents the excess, if any, of the fair value of the consideration transferred by the acquirer and the fair value of any non-controlling interest remaining in the acquiree, if any, over the fair values of the identifiable net assets acquired. The Company doesWe do not amortize goodwill, but assessesassess it for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amounts of their respective reporting units exceed their fair values. The Company performs itsWe perform our annual impairment assessment in the fourth quarter of each year at the reporting unit level. The Company assessesWe assess goodwill for such impairment by comparing the carrying value of each reporting unit to its fair value using the present value of expected future cash flows. When appropriate, comparative market multiples and other factors are used to corroborate the discounted cash flow results.
Other intangible assets, primarily trademarks, with indefinite lives are not amortized but are evaluated annually for impairment and whenever events or changes in circumstances indicate that the carrying amount of this asset may exceed its fair value. If the carrying value of an other intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Other intangible assets with finite lives are amortized over their estimated useful lives and are evaluated each reporting period to determine if circumstances warrant a revision to these lives.
Impairment of Long-Lived Assets
Vehicles
Vehicles are stated at cost, net of accumulated depreciation. The initial cost of the vehicles is recorded net of incentives and allowances from manufacturers. The Company acquiresWe acquire a portion of itsour rental vehicles pursuant to repurchase and guaranteed depreciation programs established by automobile manufacturers. Under these programs, the manufacturers agree to repurchase vehicles at a specified price and date, or guarantee the depreciation rate for a specified period of time, subject to certain eligibility criteria (such as car condition and mileage requirements). The Company depreciatesWe depreciate vehicles such that the net book value on the date of return to the manufacturers is intended to equal the contractual guaranteed residual values, thereby minimizing any gain or loss.
Rental vehicles acquired outside of manufacturer repurchase and guaranteed depreciation programs are depreciated based upon their estimated residual values at their expected dates of disposition, after giving effect to anticipated conditions in the used car market. Any adjustments to depreciation are made prospectively.
The estimation of residual values requires the Companyus to make assumptions regarding the age and mileage of the car at the time of disposal, as well as expected used vehicle auction market conditions. The Company periodically evaluatesWe regularly evaluate estimated residual values and adjustsadjust depreciation rates as appropriate. Differences between actual residual values and those estimated result in a gain or loss on disposal and are recorded as part of
F-14
vehicle depreciation at the time of sale. Vehicle-related interest expense amounts are net of vehicle-related interest income of $8$34 million,, $18 $1 million, and $13$1 million for 2017, 20162023, 2022 and 2015,2021, respectively.
Advertising Expenses
Advertising and digital marketing costs are generally expensed in the period incurred. Advertising expenses,incurred and are recorded within selling, general and administrative expense onexpenses in our Consolidated Statements of Operations, include
Taxes
Recently Issued Accounting Pronouncements
For a description of recently issued accounting pronouncements and the underlying exposure. The Company principally uses discounted cash flowsimpact thereof on our business, see Note 2 – Summary of Significant Accounting Policies to value these instruments. These models take into accountour Consolidated Financial Statements.
| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||
We are exposed to a variety of factors including, where applicable, maturity, currency exchange rates, interest rate yield curves of the Company and counterparties, credit curves, counterparty creditworthiness and commodity prices. These factors are applied on a consistent basis and are based upon observable inputs where available.
We are exclusively an end user of these instruments. We do not engage in trading, market-making or other speculative activities in the derivatives markets. We manage our exposure to counterparty credit risk related to our use of derivatives through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Our counterparties are substantial investment and commercial banks with significant experience providing such derivative instruments.
Our total market risk is influenced by a matterwide variety of policy, derivativesfactors including the volatility present within the markets and the liquidity of the markets. There are certain limitations inherent in the sensitivity analyses discussed below. These “shock tests” are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled. For additional information regarding our borrowings and financial instruments, see Note 13 – Long-term Corporate Debt and Borrowing Arrangements, Note 14 – Debt Under Vehicle Programs and Borrowing Arrangements and Note 20 – Financial Instruments to our Consolidated Financial Statements.
Currency Risk Management
We have exposure to currency exchange rate fluctuations worldwide and particularly with respect to the Australian, Canadian and New Zealand dollars, the euro and British pound sterling. We use currency forward contracts and currency swap contracts to manage exchange rate risk that arises from certain intercompany transactions and from non-functional currency denominated assets and liabilities and earnings denominated in non-U.S. dollar currencies. Our currency forward contracts are often not used for trading or speculative purposes.
We assess our market risk based on changes in currency exchange rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on earnings, cash flows and fair values based on a hypothetical
42
10% appreciation or depreciation in the value of the underlying currencies being hedged, against the U.S. dollar at December 31, 2023. With all other variables held constant, a hypothetical 10% change (increase or decrease) in currency exchange rates would not have a material impact on our 2023 earnings. Because unrealized gains or losses related to foreign currency forward and swap contracts are expected to be offset by corresponding gains or losses on the underlying exposures being hedged, when combined, these foreign currency contracts and the offsetting underlying commitments do not create a material impact on our Consolidated Financial Statements.
Interest Rate Risk Management
Our primary interest rate exposure at December 31, 2023 was interest rate fluctuation in the United States due to its impact on variable rate borrowings and other interest rate sensitive liabilities. We use interest rate swaps and caps to manage our exposure to interest rate movements. We anticipate interest rate fluctuation will remain a primary market risk exposure for the foreseeable future.
We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. Based on our interest rate exposures and derivatives as of December 31, 2023, we estimate that a 10% change in interest rates would not have a material impact on our 2023 earnings. Because gains or losses related to interest rate derivatives are expected to be offset by corresponding gains or losses on the underlying exposures being hedged, item.when combined, these interest rate contracts and the offsetting underlying commitments do not create a material impact on our Consolidated Financial Statements.
Commodity Risk Management
We have commodity price exposure related to fluctuations in the price of fuel. We anticipate that such commodity risk will remain a market risk exposure for the foreseeable future. We determined that a hypothetical 10% change in the price of fuel would not have a material impact on our earnings as of December 31, 2023.
| ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | ||
See Consolidated Financial Statements and Consolidated Financial Statement Index commencing on Page F-1 hereof.
| ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | ||
None.
| ITEM 9A. CONTROLS AND PROCEDURES | ||
(a) Disclosure Controls and Procedures. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
(b) Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in InternalControl - Integrated Framework (2013). Based on this assessment, our management believes that, as of December 31, 2023, our internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm. Their attestation report is included below.
(c) Changes in Internal Control Over Financial Reporting. During the fourth quarter of 2023, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
43
the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Avis Budget Group, Inc.
Parsippany, New Jersey
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Avis Budget Group, Inc. and subsidiaries (the "Company") as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective portioninternal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023 of the Company and our report dated February 16, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in fair valueconditions, or that the degree of a derivative that is designated as either a cash flow or net investment hedge is recorded as a component of accumulated other comprehensive income (loss). The ineffective portion is recognized in earnings within the same line item as the hedged item, including vehicle interest, net or interest related to corporate debt, net. Amounts included in accumulated other comprehensive income (loss) are reclassified into earnings in the same period during which the hedged item affects earnings. Amounts related to our derivative instruments are recognized in the Consolidated Statements of Cash Flows consistentcompliance with the naturepolicies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 16, 2024
45
| ITEM 9B. OTHER INFORMATION | ||
During the three months ended December 31, 2023, no director or Section 16 officer of the hedged item (principally operating activities).Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
| ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | ||
Not Applicable.
46
PART III
| ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | ||
The information required by this Item is incorporated by reference from foreign currency transactions are generally included in operating expensesour definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within the Consolidated Statement of Operations; however, the net gain or loss of currency transactions on intercompany loans and the unrealized gain or loss on intercompany loan hedges are included within interest expense related to corporate debt, net. During120 days after December 31, 2017,2023.
| ITEM 11. EXECUTIVE COMPENSATION | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the Company recorded a gain2024 Annual Meeting of $3 millionStockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
47
PART IV
| ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES | ||
| ITEM 15(A)(1). FINANCIAL STATEMENTS | ||
See Consolidated Financial Statements and duringConsolidated Financial Statements Index commencing on page F-1 hereof.
| ITEM 15(A)(2). FINANCIAL STATEMENT SCHEDULES | ||
See Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 20162023, 2022 and 2015,2021 commencing on page G-1 hereof.
| ITEM 15(A)(3). EXHIBITS | ||
See Exhibit Index commencing on page H-1 hereof.
| ITEM 16. FORM 10-K SUMMARY | ||
None.
48
SIGNATURES
Pursuant to the Company recorded lossesrequirements of $6 millionSection 13 or 15(d) 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.
| AVIS BUDGET GROUP, INC. | |||||||||||
| By: | /s/ CATHLEEN DEGENOVA | ||||||||||
| Cathleen DeGenova | |||||||||||
| Vice President and Chief Accounting Officer | |||||||||||
| Date: | February 16, 2024 | ||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and $11 million, respectively,in the capacities and on such items.the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ JOSEPH A. FERRARO | President and Chief Executive Officer | February 16, 2024 | ||||||||||||
| (Joseph A. Ferraro) | ||||||||||||||
| /s/ IZILDA P. MARTINS | Executive Vice President and Chief Financial Officer | February 16, 2024 | ||||||||||||
| (Izilda P. Martins) | ||||||||||||||
| /s/ CATHLEEN DEGENOVA | Vice President and Chief Accounting Officer | February 16, 2024 | ||||||||||||
| (Cathleen DeGenova) | ||||||||||||||
| /s/ BERNARDO HEES | Executive Chairman of the Board of Directors | February 16, 2024 | ||||||||||||
| (Bernardo Hees) | ||||||||||||||
| /s/ JAGDEEP PAHWA | Vice Chairman of the Board of Directors | February 16, 2024 | ||||||||||||
| (Jagdeep Pahwa) | ||||||||||||||
| /s/ ANU HARIHARAN | Director | February 16, 2024 | ||||||||||||
| (Anu Hariharan) | ||||||||||||||
| /s/ LYNN KROMINGA | Director | February 16, 2024 | ||||||||||||
| (Lynn Krominga) | ||||||||||||||
| /s/ GLENN LURIE | Director | February 16, 2024 | ||||||||||||
| (Glenn Lurie) | ||||||||||||||
| /s/ KARTHIK SARMA | Director | February 16, 2024 | ||||||||||||
| (Karthik Sarma) | ||||||||||||||
49
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | |||||
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and $437 millionthe Board of liabilities associated with retained risksDirectors of liability to third parties
Avis Budget Group, Inc.
Parsippany, New Jersey
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Avis Budget Group, Inc. and subsidiaries (the "Company") as of December 31, 20172023 and 2016, respectively.2022, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such liabilities relate primarily to public liabilityprocedures included examining, on a test basis, evidence regarding the amounts and third-party property damage claims,disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as claimsevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the salecurrent-period audit of ancillary insurance productsthe financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Vehicles - Depreciation Expense - United States Risk Vehicles - Refer to Notes 2 and 8 to the financial statements
Critical Audit Matter Description
The Company records rental vehicles at cost, net of accumulated depreciation. The initial cost of the vehicles is recorded net of incentives and allowances from manufacturers. Rental vehicles acquired by the Company outside of manufacturer repurchase and guaranteed depreciation programs are referred to as risk vehicles and the carrying values of these risk vehicles are depreciated based upon the vehicles’ estimated residual values at their expected dates of disposition. The estimation of residual values for risk vehicles requires the Company to make assumptions regarding factors which include, but are not limited to, the anticipated age of the vehicles and market conditions for used vehicles at the time of disposal. The Company regularly evaluates estimated residual values and adjusts vehicle depreciation rates as appropriate. Any adjustments to depreciation are made prospectively.
Given the volume of risk vehicles in the United States and the significant estimation uncertainty and judgments made by management to calculate the estimated residual values of these risk vehicles, auditing the estimated residual values of United States risk vehicles and related vehicle depreciation expense required extensive audit effort to develop an independent expectation of residual values and depreciation expense, and a high degree of auditor judgment was required when performing audit procedures and evaluating the results of those procedures. The significant estimation uncertainty was primarily due to management’s assumptions regarding the impact of future consumer demand and general economic conditions on expected pricing of used vehicles. Additionally, auditing the calculation of the estimated residual values for United States risk vehicles was challenging due to the volume of data inputs utilized in management’s calculation, including historical sales data and data specific to the Company’s current fleet.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to assess the reasonableness of the estimated residual values and vehicle depreciation expense related to United States risk vehicles included the following, among others:
•We evaluated the appropriateness and consistency of the Company’s methods, significant assumptions and judgments to calculate the estimated residual values of risk vehicles and the expected dates of disposition.
•We tested the effectiveness of controls over vehicle depreciation expense related to risk vehicles and management’s review of the significant assumptions and judgments to calculate the estimated residual values of risk vehicles, including those over the Company’s monitoring of residual values and used vehicle market conditions.
•We assessed the reasonableness of the estimated residual values of risk vehicles by performing the following procedures on a selection of risk vehicles:
–We tested the underlying historical data that served as the basis for the Company’s calculation of the estimated residual values to evaluate the reasonableness of the inputs.
–We tested the mathematical accuracy of the Company’s calculation of the estimated residual values and vehicle depreciation expense rates.
–We tested significant assumptions and judgments used in the Company’s calculation by developing an independent expectation of residual values and compared them to the estimated residual values calculated by the Company. Our independent expectation was calculated using our professional judgment by reference to third-party data, information produced by the Company, subsequent vehicle sales, and inquiries of management.
–We searched for contradictory evidence associated with the significant assumptions and judgments made by management based on our knowledge of the industry and review of third-party industry data.
•We developed an independent expectation of depreciation expense based on, but not limited to, supplementalthe vehicles’ age and results of our residual value testing and compared it to the amount recorded by the Company as depreciation expense.
F-3
Self-Insurance Reserves - Public Liability and Property Damage Claims - United States - Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company is self-insured for public liability personal effects protection and personal accident insurance.property damage claims. These obligationsself-insurance reserves represent an estimate for both reported claims not yet paid and claims incurred but not yet reported. The estimated reserve requirements for such claims are recordedcalculated on an undiscounted basis utilizingusing actuarial methodologiesmethods and various assumptions which include, but are not limited to, the Company’s historical loss experience and projected loss development factors. The required liability is also subject to adjustment in the future based upon changes in claims experience, including changes in the number of incidents for which the Company is ultimately liable and changes in the cost per incident. These amounts are included within accounts payable
Given the volume of public liability and other current liabilitiesproperty damage claims in the United States and other non-current liabilities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to United States public liability and property damage self-insurance reserves included the following, among others:
•We tested the effectiveness of controls over management’s review of significant assumptions, key inputs and methods used to calculate the estimate of the reported claims not yet paid and claims incurred but not yet reported.
•We tested the underlying data that served as the basis for the Company’s actuarial analysis, including historical claims, to test the reasonableness of the inputs to the actuarial estimate.
•With the assistance of our actuarial specialists, we developed an independent estimate of the self-insurance reserves, including assessment of loss data and claim development factors, and compared our estimate to management’s estimate. In addition, we performed the following:
–Evaluated the reasonableness of the methodologies similarused in management’s estimate based on actuarial methods followed in the insurance industry associated with such liabilities.
–Evaluated the reasonableness of the assumptions used in management’s estimate by comparing prior-year assumptions of expected development and ultimate loss to those described above. Theseactuals incurred during the current year to identify potential bias in the determination of these liabilities.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 16, 2024
We have served as the Company’s auditor since 1997.
F-4
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Revenues | $ | 12,008 | $ | 11,994 | $ | 9,313 | |||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Operating | 5,675 | 5,285 | 4,255 | ||||||||||||||||||||
| Vehicle depreciation and lease charges, net | 1,739 | 828 | 1,197 | ||||||||||||||||||||
| Selling, general and administrative | 1,408 | 1,348 | 1,145 | ||||||||||||||||||||
| Vehicle interest, net | 736 | 402 | 313 | ||||||||||||||||||||
| Non-vehicle related depreciation and amortization | 216 | 225 | 272 | ||||||||||||||||||||
| Interest expense related to corporate debt, net: | |||||||||||||||||||||||
| Interest expense | 296 | 250 | 218 | ||||||||||||||||||||
| Early extinguishment of debt | 5 | — | 136 | ||||||||||||||||||||
| Restructuring and other related charges | 11 | 19 | 64 | ||||||||||||||||||||
| Transaction-related costs, net | 5 | 8 | 5 | ||||||||||||||||||||
| Other (income) expense, net | 3 | (7) | — | ||||||||||||||||||||
| Total expenses | 10,094 | 8,358 | 7,605 | ||||||||||||||||||||
| Income before income taxes | 1,914 | 3,636 | 1,708 | ||||||||||||||||||||
| Provision for income taxes | 279 | 880 | 425 | ||||||||||||||||||||
| Net income | 1,635 | 2,756 | 1,283 | ||||||||||||||||||||
| Less: Net income (loss) attributable to non-controlling interests | 3 | (8) | (2) | ||||||||||||||||||||
| Net income attributable to Avis Budget Group, Inc. | $ | 1,632 | $ | 2,764 | $ | 1,285 | |||||||||||||||||
| Earnings per share | |||||||||||||||||||||||
| Basic | $ | 42.57 | $ | 58.41 | $ | 19.79 | |||||||||||||||||
| Diluted | $ | 42.08 | $ | 57.16 | $ | 19.44 | |||||||||||||||||
See Notes to Consolidated Financial Statements.
F-5
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Net income | $ | 1,635 | $ | 2,756 | $ | 1,283 | |||||||||||||||||
| Less: Net income (loss) attributable to non-controlling interests | 3 | (8) | (2) | ||||||||||||||||||||
| Net income attributable to Avis Budget Group, Inc. | 1,632 | 2,764 | 1,285 | ||||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Currency translation adjustments: | |||||||||||||||||||||||
| Currency translation adjustments, net of tax of $7, $(11) and $(20), respectively | 27 | (46) | (35) | ||||||||||||||||||||
| Reclassification of currency translation adjustments to earnings | — | — | 11 | ||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Net unrealized holding gains (losses), net of tax of $(2), $(20), and $(6), respectively | 5 | 57 | 18 | ||||||||||||||||||||
| Reclassification of cash flow hedges to earnings, net of tax of $5, $(2), and $(5), respectively | (13) | 7 | 14 | ||||||||||||||||||||
| Minimum pension liability adjustment: | |||||||||||||||||||||||
| Pension and post-retirement benefits, net of tax of $6, $(4), and $(13), respectively | (18) | 11 | 39 | ||||||||||||||||||||
| Reclassification of pension and post-retirement benefits to earnings, net of tax of $(1), $(2), and $(2), respectively | 4 | 3 | 7 | ||||||||||||||||||||
| 5 | 32 | 54 | |||||||||||||||||||||
| Total comprehensive income attributable to Avis Budget Group, Inc. | $ | 1,637 | $ | 2,796 | $ | 1,339 | |||||||||||||||||
See Notes to Consolidated Financial Statements.
F-6
Avis Budget Group, Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
| As of December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 555 | $ | 570 | ||||||||||
| Receivables (net of allowance for doubtful accounts of $87 and $86, respectively) | 900 | 810 | ||||||||||||
| Other current assets | 684 | 506 | ||||||||||||
| Total current assets | 2,139 | 1,886 | ||||||||||||
| Property and equipment, net | 719 | 594 | ||||||||||||
| Operating lease right-of-use assets | 2,654 | 2,405 | ||||||||||||
| Deferred income taxes | 1,868 | 1,379 | ||||||||||||
| Goodwill | 1,099 | 1,070 | ||||||||||||
| Other intangibles, net | 670 | 666 | ||||||||||||
| Other non-current assets | 441 | 499 | ||||||||||||
| Total assets exclusive of assets under vehicle programs | 9,590 | 8,499 | ||||||||||||
| Assets under vehicle programs: | ||||||||||||||
| Program cash | 85 | 70 | ||||||||||||
| Vehicles, net | 21,240 | 15,961 | ||||||||||||
| Receivables from vehicle manufacturers and other | 443 | 421 | ||||||||||||
| Investment in Avis Budget Rental Car Funding (AESOP) LLC—related party | 1,211 | 976 | ||||||||||||
| 22,979 | 17,428 | |||||||||||||
| Total assets | $ | 32,569 | $ | 25,927 | ||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and other current liabilities | $ | 2,627 | $ | 2,547 | ||||||||||
| Short-term debt and current portion of long-term debt | 32 | 27 | ||||||||||||
| Total current liabilities | 2,659 | 2,574 | ||||||||||||
| Long-term debt | 4,791 | 4,644 | ||||||||||||
| Long-term operating lease liabilities | 2,117 | 1,884 | ||||||||||||
| Other non-current liabilities | 528 | 554 | ||||||||||||
| Total liabilities exclusive of liabilities under vehicle programs | 10,095 | 9,656 | ||||||||||||
| Liabilities under vehicle programs: | ||||||||||||||
| Debt | 3,496 | 2,534 | ||||||||||||
| Debt due to Avis Budget Rental Car Funding (AESOP) LLC—related party | 15,441 | 11,275 | ||||||||||||
| Deferred income taxes | 3,418 | 2,754 | ||||||||||||
| Other | 462 | 408 | ||||||||||||
| 22,817 | 16,971 | |||||||||||||
| Commitments and contingencies (Note 15) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
| Preferred stock, $.01 par value—authorized 10 shares; none issued and outstanding | — | — | ||||||||||||
| Common stock, $.01 par value—authorized 250 shares; issued 137 shares, respectively | 1 | 1 | ||||||||||||
| Additional paid-in capital | 6,634 | 6,666 | ||||||||||||
| Retained earnings | 3,854 | 2,579 | ||||||||||||
| Accumulated other comprehensive loss | (96) | (101) | ||||||||||||
Treasury stock, at cost 102 and 98 shares, respectively | (10,742) | (9,848) | ||||||||||||
| Stockholders’ equity attributable to Avis Budget Group, Inc. | (349) | (703) | ||||||||||||
| Non-controlling interests | 6 | 3 | ||||||||||||
| Total stockholders’ equity | (343) | (700) | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 32,569 | $ | 25,927 | ||||||||||
See Notes to Consolidated Financial Statements.
F-7
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||
| Net income | $ | 1,635 | $ | 2,756 | $ | 1,283 | |||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||
| Vehicle depreciation | 2,228 | 1,709 | 1,402 | ||||||||||||||||||||
| Amortization of right-of-use assets | 1,006 | 877 | 806 | ||||||||||||||||||||
| (Gain) loss on sale of vehicles, net | (656) | (1,019) | (361) | ||||||||||||||||||||
| Non-vehicle related depreciation and amortization | 216 | 225 | 272 | ||||||||||||||||||||
| Deferred income taxes | 191 | 682 | 378 | ||||||||||||||||||||
| Stock-based compensation | 30 | 25 | 30 | ||||||||||||||||||||
| Amortization of debt financing fees | 40 | 34 | 33 | ||||||||||||||||||||
| Early extinguishment of debt costs | 5 | — | 136 | ||||||||||||||||||||
| Net change in assets and liabilities: | |||||||||||||||||||||||
| Receivables | (43) | (97) | (143) | ||||||||||||||||||||
| Income taxes | (81) | 6 | (28) | ||||||||||||||||||||
| Accounts payable and other current liabilities | (72) | 217 | 414 | ||||||||||||||||||||
| Operating lease liabilities | (1,002) | (879) | (801) | ||||||||||||||||||||
| Other, net | 331 | 171 | 70 | ||||||||||||||||||||
| Net cash provided by operating activities | 3,828 | 4,707 | 3,491 | ||||||||||||||||||||
| Investing activities | |||||||||||||||||||||||
| Property and equipment additions | (273) | (246) | (108) | ||||||||||||||||||||
| Proceeds received on asset sales | 3 | 2 | 3 | ||||||||||||||||||||
| Net assets acquired (net of cash acquired) | (65) | (3) | (46) | ||||||||||||||||||||
| Other, net | 6 | (33) | (3) | ||||||||||||||||||||
| Net cash used in investing activities exclusive of vehicle programs | (329) | (280) | (154) | ||||||||||||||||||||
| Vehicle programs: | |||||||||||||||||||||||
| Investment in vehicles | (15,185) | (10,491) | (10,054) | ||||||||||||||||||||
| Proceeds received on disposition of vehicles | 8,403 | 6,606 | 4,077 | ||||||||||||||||||||
| Investment in debt securities of Avis Budget Rental Car Funding (AESOP)—related party | (541) | (439) | (367) | ||||||||||||||||||||
| Proceeds from debt securities of Avis Budget Rental Car Funding (AESOP)—related party | 306 | 305 | 192 | ||||||||||||||||||||
| (7,017) | (4,019) | (6,152) | |||||||||||||||||||||
| Net cash used in investing activities | (7,346) | (4,299) | (6,306) | ||||||||||||||||||||
F-8
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Financing activities | |||||||||||||||||||||||
| Proceeds from long-term borrowings | $ | 936 | $ | 729 | $ | 1,100 | |||||||||||||||||
| Payments on long-term borrowings | (818) | (24) | (1,354) | ||||||||||||||||||||
| Net change in short-term borrowings | — | (1) | 1 | ||||||||||||||||||||
| Debt financing fees | (22) | (7) | (24) | ||||||||||||||||||||
| Repurchases of common stock | (951) | (3,329) | (1,460) | ||||||||||||||||||||
| Dividends paid | (355) | — | — | ||||||||||||||||||||
| Contributions from non-controlling interests | — | 40 | 38 | ||||||||||||||||||||
| Net cash used in financing activities exclusive of vehicle programs | (1,210) | (2,592) | (1,699) | ||||||||||||||||||||
| Vehicle programs: | |||||||||||||||||||||||
| Proceeds from borrowings | 23,980 | 17,419 | 14,467 | ||||||||||||||||||||
| Payments on borrowings | (19,220) | (15,160) | (10,056) | ||||||||||||||||||||
| Debt financing fees | (44) | (27) | (25) | ||||||||||||||||||||
| 4,716 | 2,232 | 4,386 | |||||||||||||||||||||
| Net cash provided by (used in) financing activities | 3,506 | (360) | 2,687 | ||||||||||||||||||||
| Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash | 14 | (32) | (11) | ||||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents, program and restricted cash | 2 | 16 | (139) | ||||||||||||||||||||
| Cash and cash equivalents, program and restricted cash, beginning of period | 642 | 626 | 765 | ||||||||||||||||||||
| Cash and cash equivalents, program and restricted cash, end of period | $ | 644 | $ | 642 | $ | 626 | |||||||||||||||||
| Supplemental disclosure | |||||||||||||||||||||||
| Interest payments | $ | 988 | $ | 543 | $ | 509 | |||||||||||||||||
| Income tax payments, net | $ | 169 | $ | 192 | $ | 75 | |||||||||||||||||
See Notes to Consolidated Financial Statements.
F-9
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
| Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Stockholders’ Equity Attributable to Avis Budget Group, Inc. | Non-controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | 137.1 | $ | 1 | $ | 6,668 | $ | (1,470) | $ | (187) | (67.3) | $ | (5,167) | $ | (155) | $ | — | $ | (155) | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,285 | — | — | — | — | (2) | 1,283 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 54 | — | — | — | — | 54 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 1,285 | 54 | 1,339 | (2) | 1,337 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interests | — | — | 25 | — | — | — | — | 25 | 13 | 38 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (17) | — | — | 0.4 | 31 | 14 | — | 14 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | — | (14.3) | (1,443) | (1,443) | — | (1,443) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 137.1 | $ | 1 | $ | 6,676 | $ | (185) | $ | (133) | (81.2) | $ | (6,579) | $ | (220) | $ | 11 | $ | (209) | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 2,764 | — | — | — | 2,764 | (8) | 2,756 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 32 | — | — | 32 | — | 32 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 2,764 | 32 | 2,796 | (8) | 2,788 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interests | — | — | 24 | — | — | — | — | 24 | — | 24 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (34) | — | — | 0.3 | (2) | (36) | — | (36) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | — | (16.7) | (3,267) | (3,267) | — | (3,267) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 137.1 | $ | 1 | $ | 6,666 | $ | 2,579 | $ | (101) | (97.6) | $ | (9,848) | $ | (703) | $ | 3 | $ | (700) | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,632 | — | — | — | 1,632 | 3 | 1,635 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 5 | — | — | 5 | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 1,632 | 5 | 1,637 | 3 | 1,640 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (32) | (2) | — | 0.3 | 3 | (31) | — | (31) | |||||||||||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock(a) | — | — | — | — | — | (4.3) | (897) | (897) | — | (897) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid ($10.00 per share) | — | — | — | (355) | — | — | — | (355) | — | (355) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 137.1 | $ | 1 | $ | 6,634 | $ | 3,854 | $ | (96) | (101.6) | $ | (10,742) | $ | (349) | $ | 6 | $ | (343) | |||||||||||||||||||||||||||||||||||||||||
__________
(a) Amount includes excise taxes due under the Inflation Reduction Act of 2022.
See Notes to Consolidated Financial Statements.
F-10
Avis Budget Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all dollar amounts 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 Consolidated 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”).
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 the 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 the areas in which we do not operate directly.
We have completed the business acquisitions discussed in Note 6 – Acquisitions to these Consolidated Financial Statements. The operating results of the acquired businesses are included in the accompanying Consolidated Financial Statements from the dates of acquisition.
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.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of our Company and all entities in which we have a direct or indirect controlling financial interest and variable interest entities for which we have determined we are the primary beneficiary. 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. Intercompany transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The use of estimates and assumptions as determined by management is required in the preparation of the Consolidated Financial Statements in conformity with GAAP. These estimates are based on management’s evaluation of historical trends and other information available when the Consolidated Financial Statements are prepared and may affect the amounts reported and related disclosures. Actual results could differ from those estimates.
Revenue Recognition
We derive revenues primarily by providing vehicle rentals and other related products and mobility services to commercial and leisure customers, as well as through licensing of our rental brands. Other related products and mobility services include sales of collision and loss damage waivers under which a customer is relieved from financial responsibility arising from vehicle damage incurred during the rental; products and services for driving convenience such as fuel service options, roadside safety net, electronic toll collection,
F-11
access to satellite radio, mobile WiFi devices, GPS navigation, child safety seat rentals, and rentals of other supplemental items including automobile towing equipment and other moving accessories and supplies. We also receive payment from customers for certain operating expenses that we incur, including airport concession fees that are paid by us in exchange for the right to operate at airports and other locations, as well as vehicle licensing fees. In addition, we collect membership fees in connection with our car sharing business.
We combine all lease and non-lease components of our vehicle rental contracts for which the timing and pattern of transfer are the same and the lease component meets the classification of an operating lease. Vehicle rentals and other related products and mobility services are recognized evenly over the period of rental, which is on average approximately five days. (See Note 3 – Leases).
Licensing revenues principally consist of royalties paid by our licensees and are recorded as the licensees’ revenues are earned (over the rental period). We renew license agreements in the normal course of business and occasionally terminate, purchase or sell license agreements. In connection with ongoing fees that we receive from our licensees pursuant to license agreements, we are required to provide certain services, such as training, marketing and the operation of reservation systems.
We exclude from the measurement of our transaction price any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer. As a result, revenue is recorded net of such taxes collected. Revenues and expenses associated with fuel, airport concessions and vehicle licensing are recorded on a gross basis within revenues and operating expenses. Membership fees related to our car sharing business are generally nonrefundable, are deferred and recognized ratably over the period of membership.
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 $187 million, $165 million, and $127 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table presents our revenues disaggregated by geography:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Americas | $ | 9,347 | $ | 9,474 | $ | 7,557 | |||||||||||
| Europe, Middle East and Africa | 2,014 | 1,927 | 1,400 | ||||||||||||||
| Asia and Australasia | 647 | 593 | 356 | ||||||||||||||
| Total revenues | $ | 12,008 | $ | 11,994 | $ | 9,313 | |||||||||||
The following table presents our revenues disaggregated by brand:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Avis | $ | 6,779 | $ | 6,519 | $ | 4,894 | |||||||||||
| Budget | 4,478 | 4,701 | 3,715 | ||||||||||||||
| Other | 751 | 774 | 704 | ||||||||||||||
| Total revenues | $ | 12,008 | $ | 11,994 | $ | 9,313 | |||||||||||
________
Other includes Zipcar and other operating brands.
F-12
Deferred Revenue
We record deferred revenues when cash payments are received in advance of satisfying our performance obligations, including amounts that are refundable. In addition, certain customers earn loyalty points on rentals, for which we defer a portion of our rental revenues generally equivalent to the estimated retail value of points expected to be redeemed. We estimate points that will never be redeemed based upon actual redemption and expiration patterns. Currently, loyalty points expire after 12 months of member inactivity. Future changes to expiration assumptions or expiration policy, or to program rules, may result in changes to deferred revenue as well as recognized revenues from the program.
The following table presents changes in deferred revenue associated with our customer loyalty program:
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Balance, January 1 | $ | 61 | $ | 50 | |||||||
| Revenue deferred | 58 | 52 | |||||||||
| Revenue recognized | (52) | (41) | |||||||||
| Balance, December 31 | $ | 67 | $ | 61 | |||||||
_______
At December 31, 2023 and 2022, $20 million and $15 million was included in accounts payable and other current liabilities, respectively, and $47 million and $46 million in other non-current liabilities.liabilities, respectively. Non-current amounts are expected to be recognized as revenue within two to three years.
Cash and Cash Equivalents, Program Cash and Restricted Cash
We consider highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Program cash primarily represents amounts specifically designated to purchase assets under vehicle programs and/or to repay the related debt, as such we consider it a restricted cash equivalent. The following table provides a detail of cash and cash equivalents, program and restricted cash reported within the Consolidated Balance Sheets to the amounts shown in the Consolidated Statements of Cash Flows:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash and cash equivalents | $ | 555 | $ | 570 | |||||||
| Program cash | 85 | 70 | |||||||||
Restricted cash (a) | 4 | 2 | |||||||||
| Total cash and cash equivalents, program and restricted cash | $ | 644 | $ | 642 | |||||||
_________
(a)Included within other current assets.
Property and Equipment
Property and equipment (including leasehold improvements) are stated at cost, net of accumulated depreciation and amortization. Depreciation (non-vehicle related) is recognizedcomputed utilizing the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements. Useful lives are as expensefollows:
F-13
| Buildings | 30 years | ||||
| Furniture, fixtures & equipment | 3 to 10 years | ||||
| Capitalized software | 3 to 7 years | ||||
| Buses and support vehicles | 4 to 15 years | ||||
We capitalize the costs of software developed for internal use when the preliminary project stage is completed and management (i) commits to funding the project and (ii) believes it is probable that the project will be completed and the software will be used to perform the function intended. The software developed or obtained for internal use is amortized on a straight-line basis over the vesting period.commencing when such software is ready for its intended use. The Company’s policy is to record compensation expense for stock options, and restricted stock units that are time- and performance-based, for the portion of the award that is expected to vest. Compensation expense related to market-based restricted stock units is recognized provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. We estimate the fairnet carrying value of restricted stock units usingsoftware developed or obtained for internal use was $143 million and $174 million as of December 31, 2023 and 2022, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the market price of the Company’s common stock on the date of grant. We estimate the fair value of stock-based and cash unit awards containing a market condition using a Monte Carlo simulation model. Key inputs and assumptions used in the Monte Carlo simulation model include the stock price of the award on the grant date, the expected term, the risk-free interest rate over the expected term, the expected annual dividend
Other intangible assets, primarily trademarks, with indefinite lives are not amortized but are evaluated annually for impairment charge ifand whenever events or changes in circumstances indicate that the loss in value is deemed other than temporary. Ascarrying amount of December 31, 2017 and 2016,this asset may exceed its fair value. If the Company had investments in several joint ventures with a carrying value of $32an other intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Other intangible assets with finite lives are amortized over their estimated useful lives and are evaluated each reporting period to determine if circumstances warrant a revision to these lives.
Impairment of Long-Lived Assets
We are required to assess long-lived assets for impairment whenever circumstances indicate impairment may have occurred. This analysis is performed by comparing the respective carrying values of the assets to the undiscounted expected future cash flows to be generated from such assets. Property and equipment is evaluated separately at the lowest level of identifiable cash flows. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.
Vehicles
Vehicles are stated at cost, net of accumulated depreciation. The initial cost of the vehicles is recorded net of incentives and allowances from manufacturers. We acquire a portion of our rental vehicles pursuant to repurchase and guaranteed depreciation programs established by automobile manufacturers. Under these programs, the manufacturers agree to repurchase vehicles at a specified price and date, or guarantee the depreciation rate for a specified period of time, subject to certain eligibility criteria (such as car condition and mileage requirements). We depreciate vehicles such that the net book value on the date of return to the manufacturers is intended to equal the contractual guaranteed residual values, thereby minimizing any gain or loss.
Rental vehicles acquired outside of manufacturer repurchase and guaranteed depreciation programs are depreciated based upon their estimated residual values at their expected dates of disposition, after giving effect to anticipated conditions in the used car market. Any adjustments to depreciation are made prospectively.
The estimation of residual values requires us to make assumptions regarding the age and mileage of the car at the time of disposal, as well as expected used vehicle auction market conditions. We regularly evaluate estimated residual values and adjust depreciation rates as appropriate. Differences between actual residual values and those estimated result in a gain or loss on disposal and are recorded as part of
F-14
vehicle depreciation at the time of sale. Vehicle-related interest expense amounts are net of vehicle-related interest income of $34 million, $1 million, and $36$1 million respectively, recorded within other non-current assets onfor 2023, 2022 and 2021, respectively.
Advertising Expenses
Advertising and digital marketing costs are generally expensed in the Consolidated Balance Sheets.
Taxes
We account for income taxes under the amounts realized fromasset and liability method, which requires the salerecognition of equity investmentsdeferred tax assets and dividendliabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. As a result of the provisions of the Tax Cuts and Jobs Act, we account for Global Intangible Low-Taxed Income (“GILTI”) as a component of current period income tax expense in the year incurred.
We record net deferred tax assets to the extent we believe that it is more likely than not that these assets will be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event we were not material.to determine that we would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income taxes.
Adoption of New Accounting Pronouncements
Year Ended December 31, 2016 | |||||||||||
| As Previously Reported | Effect of Change | As Adjusted | |||||||||
| Decrease in program cash | $ | 31 | $ | (31 | ) | $ | — | ||||
| Other, net | 3 | (2 | ) | 1 | |||||||
| Net cash used in investing activities | (2,149 | ) | (33 | ) | (2,182 | ) | |||||
Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash | (4 | ) | (2 | ) | (6 | ) | |||||
| Net increase in cash and cash equivalents, program and restricted cash | 38 | (35 | ) | 3 | |||||||
Cash and cash equivalents, program and restricted cash, beginning of period | 452 | 265 | 717 | ||||||||
Cash and cash equivalents, program and restricted cash, end of period | $ | 490 | $ | 230 | $ | 720 | |||||
Year Ended December 31, 2015 | |||||||||||
| As Previously Reported | Effect of Change | As Adjusted | |||||||||
| Increase in program cash | $ | (148 | ) | $ | 148 | $ | — | ||||
| Other, net | 6 | (3 | ) | 3 | |||||||
| Net cash used in investing activities | (2,830 | ) | 145 | (2,685 | ) | ||||||
Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash | (41 | ) | (9 | ) | (50 | ) | |||||
| Net decrease in cash and cash equivalents, program and restricted cash | (172 | ) | 136 | (36 | ) | ||||||
Cash and cash equivalents, program and restricted cash, beginning of period | 624 | 129 | 753 | ||||||||
Cash and cash equivalents, program and restricted cash, end of period | $ | 452 | $ | 265 | $ | 717 | |||||
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Cash and cash equivalents | $ | 611 | $ | 490 | |||
| Program cash | 283 | 225 | |||||
Restricted cash (a) | 7 | 5 | |||||
| Total cash and cash equivalents, program and restricted cash | $ | 901 | $ | 720 | |||
Recently Issued Accounting Pronouncements
For a description of recently issued accounting pronouncements and the impact thereof on our business, see Note 2 – Summary of Significant Accounting Policies to our Consolidated Financial Statements.
| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||
We are exposed to a variety of market risks, including changes in currency exchange rates, interest rates and fuel prices. We manage our exposure to market risks through our regular operating and financing activities and, when deemed appropriate, through the Presentationuse of Net Periodic Pension Costderivative financial instruments, particularly currency forward contracts to manage and Net Periodic Postretirement Benefit Costreduce currency exchange rate risk; swap contracts, futures and options contracts, to manage and reduce the interest rate risk related to our debt; and derivative commodity instruments to manage and reduce the risk of changing unleaded fuel prices.
We are exclusively an end user of these instruments. We do not engage in trading, market-making or other speculative activities in the derivatives markets. We manage our exposure to counterparty credit risk related to our use of derivatives through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Our counterparties are substantial investment and commercial banks with significant experience providing such derivative instruments.
Currency Risk Management
We have exposure to currency exchange rate fluctuations worldwide and particularly with respect to the Australian, Canadian and New Zealand dollars, the euro and British pound sterling. We use currency forward contracts and currency swap contracts to manage exchange rate risk that arises from certain intercompany transactions and from non-functional currency denominated assets and liabilities and earnings denominated in non-U.S. dollar currencies. Our currency forward contracts are often not designated as hedges and therefore changes in the fair value of these derivatives are recognized in earnings as they occur. We anticipate that such currency exchange rate risk will remain a market risk exposure for the foreseeable future.
We assess our market risk based on changes in currency exchange rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on earnings, cash flows and fair values based on a hypothetical
42
10% appreciation or depreciation in the value of the underlying currencies being hedged, against the U.S. dollar at December 31, 2023. With all other variables held constant, a hypothetical 10% change (increase or decrease) in currency exchange rates would not have a material impact on our 2023 earnings. Because unrealized gains or losses related to foreign currency forward and swap contracts are expected to be offset by corresponding gains or losses on the underlying exposures being hedged, when combined, these foreign currency contracts and the offsetting underlying commitments do not create a material impact on our Consolidated Financial Statements.
Interest Rate Risk Management
Our primary interest rate exposure at December 31, 2023 was interest rate fluctuation in the United States due to its impact on variable rate borrowings and other interest rate sensitive liabilities. We use interest rate swaps and caps to manage our exposure to interest rate movements. We anticipate interest rate fluctuation will remain a primary market risk exposure for the foreseeable future.
We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. Based on our interest rate exposures and derivatives as of December 31, 2023, we estimate that a 10% change in interest rates would not have a material impact on our 2023 earnings. Because gains or losses related to interest rate derivatives are expected to be offset by corresponding gains or losses on the underlying exposures being hedged, when combined, these interest rate contracts and the offsetting underlying commitments do not create a material impact on our Consolidated Financial Statements.
Commodity Risk Management
We have commodity price exposure related to fluctuations in the price of fuel. We anticipate that such commodity risk will remain a market risk exposure for the foreseeable future. We determined that a hypothetical 10% change in the price of fuel would not have a material impact on our earnings as of December 31, 2023.
| ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | ||
See Consolidated Financial Statements and Consolidated Financial Statement Index commencing on Page F-1 hereof.
| ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | ||
None.
| ITEM 9A. CONTROLS AND PROCEDURES | ||
(a) Disclosure Controls and Procedures. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
(b) Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in InternalControl - Integrated Framework (2013). Based on this assessment, our management believes that, as of December 31, 2023, our internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm. Their attestation report is included below.
(c) Changes in Internal Control Over Financial Reporting. During the fourth quarter of 2023, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
43
the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Avis Budget Group, Inc.
Parsippany, New Jersey
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Avis Budget Group, Inc. and subsidiaries (the "Company") as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023 of the Company and our report dated February 16, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 16, 2024
45
| ITEM 9B. OTHER INFORMATION | ||
During the three months ended December 31, 2023, no director or Section 16 officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
| ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | ||
Not Applicable.
46
PART III
| ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 11. EXECUTIVE COMPENSATION | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
| ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES | ||
The information required by this Item is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2023.
47
PART IV
| ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES | ||
| ITEM 15(A)(1). FINANCIAL STATEMENTS | ||
See Consolidated Financial Statements and Consolidated Financial Statements Index commencing on page F-1 hereof.
| ITEM 15(A)(2). FINANCIAL STATEMENT SCHEDULES | ||
See Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2023, 2022 and 2021 commencing on page G-1 hereof.
| ITEM 15(A)(3). EXHIBITS | ||
See Exhibit Index commencing on page H-1 hereof.
| ITEM 16. FORM 10-K SUMMARY | ||
None.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| AVIS BUDGET GROUP, INC. | |||||||||||
| By: | /s/ CATHLEEN DEGENOVA | ||||||||||
| Cathleen DeGenova | |||||||||||
| Vice President and Chief Accounting Officer | |||||||||||
| Date: | February 16, 2024 | ||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ JOSEPH A. FERRARO | President and Chief Executive Officer | February 16, 2024 | ||||||||||||
| (Joseph A. Ferraro) | ||||||||||||||
| /s/ IZILDA P. MARTINS | Executive Vice President and Chief Financial Officer | February 16, 2024 | ||||||||||||
| (Izilda P. Martins) | ||||||||||||||
| /s/ CATHLEEN DEGENOVA | Vice President and Chief Accounting Officer | February 16, 2024 | ||||||||||||
| (Cathleen DeGenova) | ||||||||||||||
| /s/ BERNARDO HEES | Executive Chairman of the Board of Directors | February 16, 2024 | ||||||||||||
| (Bernardo Hees) | ||||||||||||||
| /s/ JAGDEEP PAHWA | Vice Chairman of the Board of Directors | February 16, 2024 | ||||||||||||
| (Jagdeep Pahwa) | ||||||||||||||
| /s/ ANU HARIHARAN | Director | February 16, 2024 | ||||||||||||
| (Anu Hariharan) | ||||||||||||||
| /s/ LYNN KROMINGA | Director | February 16, 2024 | ||||||||||||
| (Lynn Krominga) | ||||||||||||||
| /s/ GLENN LURIE | Director | February 16, 2024 | ||||||||||||
| (Glenn Lurie) | ||||||||||||||
| /s/ KARTHIK SARMA | Director | February 16, 2024 | ||||||||||||
| (Karthik Sarma) | ||||||||||||||
49
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | |||||
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Avis Budget Group, Inc.
Parsippany, New Jersey
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Avis Budget Group, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Vehicles - Depreciation Expense - United States Risk Vehicles - Refer to Notes 2 and 8 to the financial statements
Critical Audit Matter Description
The Company records rental vehicles at cost, net of accumulated depreciation. The initial cost of the vehicles is recorded net of incentives and allowances from manufacturers. Rental vehicles acquired by the Company outside of manufacturer repurchase and guaranteed depreciation programs are referred to as risk vehicles and the carrying values of these risk vehicles are depreciated based upon the vehicles’ estimated residual values at their expected dates of disposition. The estimation of residual values for risk vehicles requires the Company to make assumptions regarding factors which include, but are not limited to, the anticipated age of the vehicles and market conditions for used vehicles at the time of disposal. The Company regularly evaluates estimated residual values and adjusts vehicle depreciation rates as appropriate. Any adjustments to depreciation are made prospectively.
Given the volume of risk vehicles in the United States and the significant estimation uncertainty and judgments made by management to calculate the estimated residual values of these risk vehicles, auditing the estimated residual values of United States risk vehicles and related vehicle depreciation expense required extensive audit effort to develop an independent expectation of residual values and depreciation expense, and a high degree of auditor judgment was required when performing audit procedures and evaluating the results of those procedures. The significant estimation uncertainty was primarily due to management’s assumptions regarding the impact of future consumer demand and general economic conditions on expected pricing of used vehicles. Additionally, auditing the calculation of the estimated residual values for United States risk vehicles was challenging due to the volume of data inputs utilized in management’s calculation, including historical sales data and data specific to the Company’s current fleet.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to assess the reasonableness of the estimated residual values and vehicle depreciation expense related to United States risk vehicles included the following, among others:
•We evaluated the appropriateness and consistency of the Company’s methods, significant assumptions and judgments to calculate the estimated residual values of risk vehicles and the expected dates of disposition.
•We tested the effectiveness of controls over vehicle depreciation expense related to risk vehicles and management’s review of the significant assumptions and judgments to calculate the estimated residual values of risk vehicles, including those over the Company’s monitoring of residual values and used vehicle market conditions.
•We assessed the reasonableness of the estimated residual values of risk vehicles by performing the following procedures on a selection of risk vehicles:
–We tested the underlying historical data that served as the basis for the Company’s calculation of the estimated residual values to evaluate the reasonableness of the inputs.
–We tested the mathematical accuracy of the Company’s calculation of the estimated residual values and vehicle depreciation expense rates.
–We tested significant assumptions and judgments used in the Company’s calculation by developing an independent expectation of residual values and compared them to the estimated residual values calculated by the Company. Our independent expectation was calculated using our professional judgment by reference to third-party data, information produced by the Company, subsequent vehicle sales, and inquiries of management.
–We searched for contradictory evidence associated with the significant assumptions and judgments made by management based on our knowledge of the industry and review of third-party industry data.
•We developed an independent expectation of depreciation expense based on, but not limited to, the vehicles’ age and results of our residual value testing and compared it to the amount recorded by the Company as depreciation expense.
F-3
Self-Insurance Reserves - Public Liability and Property Damage Claims - United States - Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company is self-insured for public liability and property damage claims. These self-insurance reserves represent an estimate for both reported claims not yet paid and claims incurred but not yet reported. The estimated reserve requirements for such claims are calculated on an undiscounted basis using actuarial methods and various assumptions which include, but are not limited to, historical loss experience and projected loss development factors. The required liability is subject to adjustment in the future based upon changes in claims experience, including changes in the number of incidents for which the Company is ultimately liable and changes in the cost per incident.
Given the volume of public liability and property damage claims in the United States and the subjectivity of estimating the related self-insurance reserves for reported claims not yet paid and claims incurred but not yet reported due to uncertain exposure and projected loss development, performing audit procedures to evaluate whether these self-insurance reserves were appropriately recorded as of December 31, 2023 required a significant degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to United States public liability and property damage self-insurance reserves included the following, among others:
•We tested the effectiveness of controls over management’s review of significant assumptions, key inputs and methods used to calculate the estimate of the reported claims not yet paid and claims incurred but not yet reported.
•We tested the underlying data that served as the basis for the Company’s actuarial analysis, including historical claims, to test the reasonableness of the inputs to the actuarial estimate.
•With the assistance of our actuarial specialists, we developed an independent estimate of the self-insurance reserves, including assessment of loss data and claim development factors, and compared our estimate to management’s estimate. In addition, we performed the following:
–Evaluated the reasonableness of the methodologies used in management’s estimate based on actuarial methods followed in the insurance industry associated with such liabilities.
–Evaluated the reasonableness of the assumptions used in management’s estimate by comparing prior-year assumptions of expected development and ultimate loss to actuals incurred during the current year to identify potential bias in the determination of these liabilities.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 16, 2024
We have served as the Company’s auditor since 1997.
F-4
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Revenues | $ | 12,008 | $ | 11,994 | $ | 9,313 | |||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Operating | 5,675 | 5,285 | 4,255 | ||||||||||||||||||||
| Vehicle depreciation and lease charges, net | 1,739 | 828 | 1,197 | ||||||||||||||||||||
| Selling, general and administrative | 1,408 | 1,348 | 1,145 | ||||||||||||||||||||
| Vehicle interest, net | 736 | 402 | 313 | ||||||||||||||||||||
| Non-vehicle related depreciation and amortization | 216 | 225 | 272 | ||||||||||||||||||||
| Interest expense related to corporate debt, net: | |||||||||||||||||||||||
| Interest expense | 296 | 250 | 218 | ||||||||||||||||||||
| Early extinguishment of debt | 5 | — | 136 | ||||||||||||||||||||
| Restructuring and other related charges | 11 | 19 | 64 | ||||||||||||||||||||
| Transaction-related costs, net | 5 | 8 | 5 | ||||||||||||||||||||
| Other (income) expense, net | 3 | (7) | — | ||||||||||||||||||||
| Total expenses | 10,094 | 8,358 | 7,605 | ||||||||||||||||||||
| Income before income taxes | 1,914 | 3,636 | 1,708 | ||||||||||||||||||||
| Provision for income taxes | 279 | 880 | 425 | ||||||||||||||||||||
| Net income | 1,635 | 2,756 | 1,283 | ||||||||||||||||||||
| Less: Net income (loss) attributable to non-controlling interests | 3 | (8) | (2) | ||||||||||||||||||||
| Net income attributable to Avis Budget Group, Inc. | $ | 1,632 | $ | 2,764 | $ | 1,285 | |||||||||||||||||
| Earnings per share | |||||||||||||||||||||||
| Basic | $ | 42.57 | $ | 58.41 | $ | 19.79 | |||||||||||||||||
| Diluted | $ | 42.08 | $ | 57.16 | $ | 19.44 | |||||||||||||||||
See Notes to Consolidated Financial Statements.
F-5
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Net income | $ | 1,635 | $ | 2,756 | $ | 1,283 | |||||||||||||||||
| Less: Net income (loss) attributable to non-controlling interests | 3 | (8) | (2) | ||||||||||||||||||||
| Net income attributable to Avis Budget Group, Inc. | 1,632 | 2,764 | 1,285 | ||||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Currency translation adjustments: | |||||||||||||||||||||||
| Currency translation adjustments, net of tax of $7, $(11) and $(20), respectively | 27 | (46) | (35) | ||||||||||||||||||||
| Reclassification of currency translation adjustments to earnings | — | — | 11 | ||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Net unrealized holding gains (losses), net of tax of $(2), $(20), and $(6), respectively | 5 | 57 | 18 | ||||||||||||||||||||
| Reclassification of cash flow hedges to earnings, net of tax of $5, $(2), and $(5), respectively | (13) | 7 | 14 | ||||||||||||||||||||
| Minimum pension liability adjustment: | |||||||||||||||||||||||
| Pension and post-retirement benefits, net of tax of $6, $(4), and $(13), respectively | (18) | 11 | 39 | ||||||||||||||||||||
| Reclassification of pension and post-retirement benefits to earnings, net of tax of $(1), $(2), and $(2), respectively | 4 | 3 | 7 | ||||||||||||||||||||
| 5 | 32 | 54 | |||||||||||||||||||||
| Total comprehensive income attributable to Avis Budget Group, Inc. | $ | 1,637 | $ | 2,796 | $ | 1,339 | |||||||||||||||||
See Notes to Consolidated Financial Statements.
F-6
Avis Budget Group, Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
| As of December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 555 | $ | 570 | ||||||||||
| Receivables (net of allowance for doubtful accounts of $87 and $86, respectively) | 900 | 810 | ||||||||||||
| Other current assets | 684 | 506 | ||||||||||||
| Total current assets | 2,139 | 1,886 | ||||||||||||
| Property and equipment, net | 719 | 594 | ||||||||||||
| Operating lease right-of-use assets | 2,654 | 2,405 | ||||||||||||
| Deferred income taxes | 1,868 | 1,379 | ||||||||||||
| Goodwill | 1,099 | 1,070 | ||||||||||||
| Other intangibles, net | 670 | 666 | ||||||||||||
| Other non-current assets | 441 | 499 | ||||||||||||
| Total assets exclusive of assets under vehicle programs | 9,590 | 8,499 | ||||||||||||
| Assets under vehicle programs: | ||||||||||||||
| Program cash | 85 | 70 | ||||||||||||
| Vehicles, net | 21,240 | 15,961 | ||||||||||||
| Receivables from vehicle manufacturers and other | 443 | 421 | ||||||||||||
| Investment in Avis Budget Rental Car Funding (AESOP) LLC—related party | 1,211 | 976 | ||||||||||||
| 22,979 | 17,428 | |||||||||||||
| Total assets | $ | 32,569 | $ | 25,927 | ||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and other current liabilities | $ | 2,627 | $ | 2,547 | ||||||||||
| Short-term debt and current portion of long-term debt | 32 | 27 | ||||||||||||
| Total current liabilities | 2,659 | 2,574 | ||||||||||||
| Long-term debt | 4,791 | 4,644 | ||||||||||||
| Long-term operating lease liabilities | 2,117 | 1,884 | ||||||||||||
| Other non-current liabilities | 528 | 554 | ||||||||||||
| Total liabilities exclusive of liabilities under vehicle programs | 10,095 | 9,656 | ||||||||||||
| Liabilities under vehicle programs: | ||||||||||||||
| Debt | 3,496 | 2,534 | ||||||||||||
| Debt due to Avis Budget Rental Car Funding (AESOP) LLC—related party | 15,441 | 11,275 | ||||||||||||
| Deferred income taxes | 3,418 | 2,754 | ||||||||||||
| Other | 462 | 408 | ||||||||||||
| 22,817 | 16,971 | |||||||||||||
| Commitments and contingencies (Note 15) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
| Preferred stock, $.01 par value—authorized 10 shares; none issued and outstanding | — | — | ||||||||||||
| Common stock, $.01 par value—authorized 250 shares; issued 137 shares, respectively | 1 | 1 | ||||||||||||
| Additional paid-in capital | 6,634 | 6,666 | ||||||||||||
| Retained earnings | 3,854 | 2,579 | ||||||||||||
| Accumulated other comprehensive loss | (96) | (101) | ||||||||||||
Treasury stock, at cost 102 and 98 shares, respectively | (10,742) | (9,848) | ||||||||||||
| Stockholders’ equity attributable to Avis Budget Group, Inc. | (349) | (703) | ||||||||||||
| Non-controlling interests | 6 | 3 | ||||||||||||
| Total stockholders’ equity | (343) | (700) | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 32,569 | $ | 25,927 | ||||||||||
See Notes to Consolidated Financial Statements.
F-7
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||
| Net income | $ | 1,635 | $ | 2,756 | $ | 1,283 | |||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||
| Vehicle depreciation | 2,228 | 1,709 | 1,402 | ||||||||||||||||||||
| Amortization of right-of-use assets | 1,006 | 877 | 806 | ||||||||||||||||||||
| (Gain) loss on sale of vehicles, net | (656) | (1,019) | (361) | ||||||||||||||||||||
| Non-vehicle related depreciation and amortization | 216 | 225 | 272 | ||||||||||||||||||||
| Deferred income taxes | 191 | 682 | 378 | ||||||||||||||||||||
| Stock-based compensation | 30 | 25 | 30 | ||||||||||||||||||||
| Amortization of debt financing fees | 40 | 34 | 33 | ||||||||||||||||||||
| Early extinguishment of debt costs | 5 | — | 136 | ||||||||||||||||||||
| Net change in assets and liabilities: | |||||||||||||||||||||||
| Receivables | (43) | (97) | (143) | ||||||||||||||||||||
| Income taxes | (81) | 6 | (28) | ||||||||||||||||||||
| Accounts payable and other current liabilities | (72) | 217 | 414 | ||||||||||||||||||||
| Operating lease liabilities | (1,002) | (879) | (801) | ||||||||||||||||||||
| Other, net | 331 | 171 | 70 | ||||||||||||||||||||
| Net cash provided by operating activities | 3,828 | 4,707 | 3,491 | ||||||||||||||||||||
| Investing activities | |||||||||||||||||||||||
| Property and equipment additions | (273) | (246) | (108) | ||||||||||||||||||||
| Proceeds received on asset sales | 3 | 2 | 3 | ||||||||||||||||||||
| Net assets acquired (net of cash acquired) | (65) | (3) | (46) | ||||||||||||||||||||
| Other, net | 6 | (33) | (3) | ||||||||||||||||||||
| Net cash used in investing activities exclusive of vehicle programs | (329) | (280) | (154) | ||||||||||||||||||||
| Vehicle programs: | |||||||||||||||||||||||
| Investment in vehicles | (15,185) | (10,491) | (10,054) | ||||||||||||||||||||
| Proceeds received on disposition of vehicles | 8,403 | 6,606 | 4,077 | ||||||||||||||||||||
| Investment in debt securities of Avis Budget Rental Car Funding (AESOP)—related party | (541) | (439) | (367) | ||||||||||||||||||||
| Proceeds from debt securities of Avis Budget Rental Car Funding (AESOP)—related party | 306 | 305 | 192 | ||||||||||||||||||||
| (7,017) | (4,019) | (6,152) | |||||||||||||||||||||
| Net cash used in investing activities | (7,346) | (4,299) | (6,306) | ||||||||||||||||||||
F-8
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Financing activities | |||||||||||||||||||||||
| Proceeds from long-term borrowings | $ | 936 | $ | 729 | $ | 1,100 | |||||||||||||||||
| Payments on long-term borrowings | (818) | (24) | (1,354) | ||||||||||||||||||||
| Net change in short-term borrowings | — | (1) | 1 | ||||||||||||||||||||
| Debt financing fees | (22) | (7) | (24) | ||||||||||||||||||||
| Repurchases of common stock | (951) | (3,329) | (1,460) | ||||||||||||||||||||
| Dividends paid | (355) | — | — | ||||||||||||||||||||
| Contributions from non-controlling interests | — | 40 | 38 | ||||||||||||||||||||
| Net cash used in financing activities exclusive of vehicle programs | (1,210) | (2,592) | (1,699) | ||||||||||||||||||||
| Vehicle programs: | |||||||||||||||||||||||
| Proceeds from borrowings | 23,980 | 17,419 | 14,467 | ||||||||||||||||||||
| Payments on borrowings | (19,220) | (15,160) | (10,056) | ||||||||||||||||||||
| Debt financing fees | (44) | (27) | (25) | ||||||||||||||||||||
| 4,716 | 2,232 | 4,386 | |||||||||||||||||||||
| Net cash provided by (used in) financing activities | 3,506 | (360) | 2,687 | ||||||||||||||||||||
| Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash | 14 | (32) | (11) | ||||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents, program and restricted cash | 2 | 16 | (139) | ||||||||||||||||||||
| Cash and cash equivalents, program and restricted cash, beginning of period | 642 | 626 | 765 | ||||||||||||||||||||
| Cash and cash equivalents, program and restricted cash, end of period | $ | 644 | $ | 642 | $ | 626 | |||||||||||||||||
| Supplemental disclosure | |||||||||||||||||||||||
| Interest payments | $ | 988 | $ | 543 | $ | 509 | |||||||||||||||||
| Income tax payments, net | $ | 169 | $ | 192 | $ | 75 | |||||||||||||||||
See Notes to Consolidated Financial Statements.
F-9
Avis Budget Group, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
| Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Stockholders’ Equity Attributable to Avis Budget Group, Inc. | Non-controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | 137.1 | $ | 1 | $ | 6,668 | $ | (1,470) | $ | (187) | (67.3) | $ | (5,167) | $ | (155) | $ | — | $ | (155) | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,285 | — | — | — | — | (2) | 1,283 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 54 | — | — | — | — | 54 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 1,285 | 54 | 1,339 | (2) | 1,337 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interests | — | — | 25 | — | — | — | — | 25 | 13 | 38 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (17) | — | — | 0.4 | 31 | 14 | — | 14 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | — | (14.3) | (1,443) | (1,443) | — | (1,443) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 137.1 | $ | 1 | $ | 6,676 | $ | (185) | $ | (133) | (81.2) | $ | (6,579) | $ | (220) | $ | 11 | $ | (209) | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 2,764 | — | — | — | 2,764 | (8) | 2,756 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 32 | — | — | 32 | — | 32 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 2,764 | 32 | 2,796 | (8) | 2,788 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interests | — | — | 24 | — | — | — | — | 24 | — | 24 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (34) | — | — | 0.3 | (2) | (36) | — | (36) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | — | (16.7) | (3,267) | (3,267) | — | (3,267) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 137.1 | $ | 1 | $ | 6,666 | $ | 2,579 | $ | (101) | (97.6) | $ | (9,848) | $ | (703) | $ | 3 | $ | (700) | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,632 | — | — | — | 1,632 | 3 | 1,635 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 5 | — | — | 5 | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 1,632 | 5 | 1,637 | 3 | 1,640 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net activity related to restricted stock units | — | — | (32) | (2) | — | 0.3 | 3 | (31) | — | (31) | |||||||||||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock(a) | — | — | — | — | — | (4.3) | (897) | (897) | — | (897) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid ($10.00 per share) | — | — | — | (355) | — | — | — | (355) | — | (355) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 137.1 | $ | 1 | $ | 6,634 | $ | 3,854 | $ | (96) | (101.6) | $ | (10,742) | $ | (349) | $ | 6 | $ | (343) | |||||||||||||||||||||||||||||||||||||||||
__________
(a) Amount includes excise taxes due under the Inflation Reduction Act of 2022.
See Notes to Consolidated Financial Statements.
F-10
Avis Budget Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all dollar amounts 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 Consolidated 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”).
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 the 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 the areas in which we do not operate directly.
We have completed the business acquisitions discussed in Note 6 – Acquisitions to these Consolidated Financial Statements. The operating results of the acquired businesses are included in the accompanying Consolidated Financial Statements from the dates of acquisition.
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.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of our Company and all entities in which we have a direct or indirect controlling financial interest and variable interest entities for which we have determined we are the primary beneficiary. 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. Intercompany transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The use of estimates and assumptions as determined by management is required in the preparation of the Consolidated Financial Statements in conformity with GAAP. These estimates are based on management’s evaluation of historical trends and other information available when the Consolidated Financial Statements are prepared and may affect the amounts reported and related disclosures. Actual results could differ from those estimates.
Revenue Recognition
We derive revenues primarily by providing vehicle rentals and other related products and mobility services to commercial and leisure customers, as well as through licensing of our rental brands. Other related products and mobility services include sales of collision and loss damage waivers under which a customer is relieved from financial responsibility arising from vehicle damage incurred during the rental; products and services for driving convenience such as fuel service options, roadside safety net, electronic toll collection,
F-11
access to satellite radio, mobile WiFi devices, GPS navigation, child safety seat rentals, and rentals of other supplemental items including automobile towing equipment and other moving accessories and supplies. We also receive payment from customers for certain operating expenses that we incur, including airport concession fees that are paid by us in exchange for the right to operate at airports and other locations, as well as vehicle licensing fees. In addition, we collect membership fees in connection with our car sharing business.
We combine all lease and non-lease components of our vehicle rental contracts for which the timing and pattern of transfer are the same and the lease component meets the classification of an operating lease. Vehicle rentals and other related products and mobility services are recognized evenly over the period of rental, which is on average approximately five days. (See Note 3 – Leases).
Licensing revenues principally consist of royalties paid by our licensees and are recorded as the licensees’ revenues are earned (over the rental period). We renew license agreements in the normal course of business and occasionally terminate, purchase or sell license agreements. In connection with ongoing fees that we receive from our licensees pursuant to license agreements, we are required to provide certain services, such as training, marketing and the operation of reservation systems.
We exclude from the measurement of our transaction price any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer. As a result, revenue is recorded net of such taxes collected. Revenues and expenses associated with fuel, airport concessions and vehicle licensing are recorded on a gross basis within revenues and operating expenses. Membership fees related to our car sharing business are generally nonrefundable, are deferred and recognized ratably over the period of membership.
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 $187 million, $165 million, and $127 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table presents our revenues disaggregated by geography:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Americas | $ | 9,347 | $ | 9,474 | $ | 7,557 | |||||||||||
| Europe, Middle East and Africa | 2,014 | 1,927 | 1,400 | ||||||||||||||
| Asia and Australasia | 647 | 593 | 356 | ||||||||||||||
| Total revenues | $ | 12,008 | $ | 11,994 | $ | 9,313 | |||||||||||
The following table presents our revenues disaggregated by brand:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Avis | $ | 6,779 | $ | 6,519 | $ | 4,894 | |||||||||||
| Budget | 4,478 | 4,701 | 3,715 | ||||||||||||||
| Other | 751 | 774 | 704 | ||||||||||||||
| Total revenues | $ | 12,008 | $ | 11,994 | $ | 9,313 | |||||||||||
________
Other includes Zipcar and other operating brands.
F-12
Deferred Revenue
We record deferred revenues when cash payments are received in advance of satisfying our performance obligations, including amounts that are refundable. In addition, certain customers earn loyalty points on rentals, for which we defer a portion of our rental revenues generally equivalent to the estimated retail value of points expected to be redeemed. We estimate points that will never be redeemed based upon actual redemption and expiration patterns. Currently, loyalty points expire after 12 months of member inactivity. Future changes to expiration assumptions or expiration policy, or to program rules, may result in changes to deferred revenue as well as recognized revenues from the program.
The following table presents changes in deferred revenue associated with our customer loyalty program:
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Balance, January 1 | $ | 61 | $ | 50 | |||||||
| Revenue deferred | 58 | 52 | |||||||||
| Revenue recognized | (52) | (41) | |||||||||
| Balance, December 31 | $ | 67 | $ | 61 | |||||||
_______
At December 31, 2023 and 2022, $20 million and $15 million was included in accounts payable and other current liabilities, respectively, and $47 million and $46 million in other non-current liabilities, respectively. Non-current amounts are expected to be recognized as revenue within two to three years.
Currency Translation
Assets and liabilities of foreign operations are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the prevailing monthly average rate of exchange. The related translation adjustments are reflected in accumulated other comprehensive income (loss) in the stockholders’ equity section of the Consolidated Balance Sheets and in the Consolidated Statements of Comprehensive Income (See Note 16 – Stockholders' Equity). We have designated our euro-denominated Notes as a hedge of our investment in euro-denominated foreign operations and, accordingly, record the effective portion of gains or losses on this net investment hedge in accumulated other comprehensive income (loss) as part of currency translation adjustments.
Cash and Cash Equivalents, Program Cash and Restricted Cash
We consider highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Program cash primarily represents amounts specifically designated to purchase assets under vehicle programs and/or to repay the related debt, as such we consider it a restricted cash equivalent. The following table provides a detail of cash and cash equivalents, program and restricted cash reported within the Consolidated Balance Sheets to the amounts shown in the Consolidated Statements of Cash Flows:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash and cash equivalents | $ | 555 | $ | 570 | |||||||
| Program cash | 85 | 70 | |||||||||
Restricted cash (a) | 4 | 2 | |||||||||
| Total cash and cash equivalents, program and restricted cash | $ | 644 | $ | 642 | |||||||
_________
(a)Included within other current assets.
Property and Equipment
Property and equipment (including leasehold improvements) are stated at cost, net of accumulated depreciation and amortization. Depreciation (non-vehicle related) is computed utilizing the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements. Useful lives are as follows:
F-13
| Buildings | 30 years | ||||
| Furniture, fixtures & equipment | 3 to 10 years | ||||
| Capitalized software | 3 to 7 years | ||||
| Buses and support vehicles | 4 to 15 years | ||||
We capitalize the costs of software developed for internal use when the preliminary project stage is completed and management (i) commits to funding the project and (ii) believes it is probable that the project will be completed and the software will be used to perform the function intended. The software developed or obtained for internal use is amortized on a straight-line basis commencing when such software is ready for its intended use. The net carrying value of software developed or obtained for internal use was $143 million and $174 million as of December 31, 2023 and 2022, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess, if any, of the fair value of the consideration transferred by the acquirer and the fair value of any non-controlling interest remaining in the acquiree, if any, over the fair values of the identifiable net assets acquired. We do not amortize goodwill, but assess it for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amounts of their respective reporting units exceed their fair values. We perform our annual impairment assessment in the fourth quarter of each year at the reporting unit level. We assess goodwill for such impairment by comparing the carrying value of each reporting unit to its fair value using the present value of expected future cash flows. When appropriate, comparative market multiples and other factors are used to corroborate the discounted cash flow results.
Other intangible assets, primarily trademarks, with indefinite lives are not amortized but are evaluated annually for impairment and whenever events or changes in circumstances indicate that the carrying amount of this asset may exceed its fair value. If the carrying value of an other intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Other intangible assets with finite lives are amortized over their estimated useful lives and are evaluated each reporting period to determine if circumstances warrant a revision to these lives.
Impairment of Long-Lived Assets
We are required to assess long-lived assets for impairment whenever circumstances indicate impairment may have occurred. This analysis is performed by comparing the respective carrying values of the assets to the undiscounted expected future cash flows to be generated from such assets. Property and equipment is evaluated separately at the lowest level of identifiable cash flows. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.
Vehicles
Vehicles are stated at cost, net of accumulated depreciation. The initial cost of the vehicles is recorded net of incentives and allowances from manufacturers. We acquire a portion of our rental vehicles pursuant to repurchase and guaranteed depreciation programs established by automobile manufacturers. Under these programs, the manufacturers agree to repurchase vehicles at a specified price and date, or guarantee the depreciation rate for a specified period of time, subject to certain eligibility criteria (such as car condition and mileage requirements). We depreciate vehicles such that the net book value on the date of return to the manufacturers is intended to equal the contractual guaranteed residual values, thereby minimizing any gain or loss.
Rental vehicles acquired outside of manufacturer repurchase and guaranteed depreciation programs are depreciated based upon their estimated residual values at their expected dates of disposition, after giving effect to anticipated conditions in the used car market. Any adjustments to depreciation are made prospectively.
The estimation of residual values requires us to make assumptions regarding the age and mileage of the car at the time of disposal, as well as expected used vehicle auction market conditions. We regularly evaluate estimated residual values and adjust depreciation rates as appropriate. Differences between actual residual values and those estimated result in a gain or loss on disposal and are recorded as part of
F-14
vehicle depreciation at the time of sale. Vehicle-related interest expense amounts are net of vehicle-related interest income of $34 million, $1 million, and $1 million for 2023, 2022 and 2021, respectively.
Advertising Expenses
Advertising and digital marketing costs are generally expensed in the period incurred and are recorded within selling, general and administrative expenses in our Consolidated Statements of Operations. During 2023, 2022 and 2021, advertising costs were approximately $86 million, $64 million, and $81 million, respectively. In addition, during 2023, 2022 and 2021, digital marketing costs were approximately $86 million, $71 million, and $44 million, respectively.
Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. As a result of the provisions of the Tax Cuts and Jobs Act, we account for Global Intangible Low-Taxed Income (“GILTI”) as a new accounting pronouncement,component of current period income tax expense in the Company adopted ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improvingyear incurred.
We record net deferred tax assets to the Presentationextent we believe that it is more likely than not that these assets will be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of Net Periodic Pension Costsdeferred tax liabilities, projected future taxable income, tax planning strategies and Net Periodic Postretirement Benefit Cost,”recent results of operations. In the event we were to determine that we would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, we would adjust the valuation allowance, which requireswould reduce the provision for income taxes.
Fair Value Measurements
We measure the fair value of assets and liabilities and discloses the source for such fair value measurements. Financial assets and liabilities are classified as follows: Level 1, which refers to assets and liabilities valued using quoted prices from active markets for identical assets or liabilities; Level 2, which refers to assets and liabilities for which significant other observable market inputs are readily available; and Level 3, which are valued based on significant unobservable inputs.
The fair value of our financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in an entityover-the-counter market (Level 1 inputs). In some cases where quoted market prices are not available, prices are derived by considering the yield of the benchmark security that was issued to disaggregateinitially price the componentsinstruments and adjusting this rate by the credit spread that market participants would demand for the instruments as of the measurement date (Level 2 inputs). In situations where long-term borrowings are part of a conduit facility backed by short-term floating rate debt, we have determined that its carrying value approximates the fair value of this debt (Level 2 inputs). The carrying amounts of cash and cash equivalents, available-for-sale securities, accounts receivable, program cash and accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.
Our derivative assets and liabilities consist principally of currency exchange contracts, interest rate swaps, interest rate caps and commodity contracts, and are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by us are typically executed over-the-counter and are valued using internal valuation techniques, as no quoted market prices exist for such instruments. The valuation technique and inputs depend on the type of derivative and the nature of the underlying exposure. We principally use discounted cash flows to value these instruments. These models take into account a variety of factors including, where applicable, maturity, currency exchange rates, our interest rate yield curves and counterparties, credit curves, counterparty creditworthiness and commodity prices. These factors are applied on a consistent basis and are based upon observable inputs where available.
F-15
Derivative Instruments
Derivative instruments are used as part of our overall strategy to manage exposure to market risks associated with fluctuations in currency exchange rates, interest rates and fuel costs. As a matter of policy, derivatives are not used for trading or speculative purposes.
All derivatives are recorded at fair value either as assets or liabilities. Changes in fair value of derivatives not designated as hedging instruments are recognized currently in earnings within the same line item as the hedged item. The changes in fair value of a derivative that is designated as either a cash flow or net benefit costinvestment hedge is recorded as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods 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. Amounts related to our derivative instruments are recognized in the Consolidated Statements of Cash Flows consistent with the nature of the hedged item (principally operating activities).
Currency Transactions
Currency gains and losses resulting from foreign currency transactions are generally included in operating expenses within the Consolidated Statements of Operations; however, the net gain or loss of currency transactions on intercompany loans and the unrealized gain or loss on intercompany loan hedges are included within interest expense related to corporate debt, net.
Self-Insurance Reserves
The Consolidated Balance Sheets include $397 million and $391 million of liabilities associated with retained risks of liability to third parties as of December 31, 2023 and 2022, respectively. Such liabilities relate primarily to public liability and third-party property damage claims, as well as claims arising from the sale of ancillary insurance products including, but not limited to, supplemental liability, personal effects protection and personal accident insurance. These obligations represent an estimate for both reported claims not yet paid and claims incurred but not yet reported. The estimated reserve requirements for such claims are recorded on an undiscounted basis utilizing actuarial methodologies and various assumptions which include, but are not limited to, our historical loss experience and projected loss development factors. The required liability is also subject to adjustment in the future based upon changes in claims experience, including changes in the number of incidents for which we are ultimately liable and changes in the cost per incident. These amounts are included within accounts payable and other current liabilities and other non-current liabilities.
The Consolidated Balance Sheets also include liabilities of approximately $49 million and $53 million as of December 31, 2023 and 2022, respectively, related to workers’ compensation, health and welfare and other employee benefit programs. The liabilities represent an estimate for both reported claims not yet paid and claims incurred but not yet reported, utilizing actuarial methodologies similar to those described above. These amounts are included within accounts payable and other current liabilities and other non-current liabilities.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the vesting period. Our policy is to record compensation expense for stock options, and restricted stock units that are time- and performance-based, for the portion of the award that vests. Compensation expense related to market-based restricted stock units is recognized provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. We estimate the fair value of restricted stock units using the market price of our common stock on the date of grant. We estimate the fair value of stock-based and cash unit awards containing a market condition using a Monte Carlo simulation model. Key inputs and assumptions used in the Monte Carlo simulation model include the stock price of the award on the grant date, the expected term, the risk-free interest rate over the expected term, the expected annual dividend yield and the expected stock price volatility. The expected volatility is based on a combination of the historical and implied volatility of our publicly traded, near-the-money stock options, and the valuation period is based on the vesting period of the awards. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the
F-16
time of grant and, since we do not currently pay or plan to pay a recurring dividend on our common stock, the expected dividend yield was zero.
Business Combinations
We use the acquisition method of accounting for business combinations, which requires that the assets acquired and liabilities assumed be recorded at their respective fair values at the date of acquisition. Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized if fair value can be reasonably estimated at the acquisition date. The excess, if any, of (i) the fair value of the consideration transferred by the acquirer and the fair value of any non-controlling interest remaining in the acquiree, over (ii) the fair values of the identifiable net assets acquired is recorded as goodwill. Gains and losses on the re-acquisition of license agreements are recorded in the Consolidated Statements of Operations within transaction-related costs, net, upon completion of the respective acquisition. Costs incurred to effect a business combination are expensed as incurred, except for the cost to issue debt related to the acquisition.
We record contingent consideration resulting from a business combination at its fair value on the acquisition date. The fair value of the contingent consideration is generally estimated by utilizing a Monte Carlo simulation technique, based on a range of possible future results (Level 3). Any changes in contingent consideration are recorded in transaction-related costs, net.
Transaction-related Costs, net
Transaction-related costs, net are classified separately in the Consolidated Statements of Operations. 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 our comparable expenses, 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.
Investments
We account for investments for which we have the ability to exercise significant influence, but do not have a controlling interest, using the equity method of accounting and record our proportional share of net income or loss within operating expenses in the Consolidated Statements of Operations. We assess equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. Any difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment charge if the loss in value is deemed other than temporary. As of December 31, 2023 and 2022, we had investments with a carrying value of $93 million and $77 million, respectively, recorded within other non-current assets on the Consolidated Balance Sheets.
Aggregate realized gains and losses on equity investments and dividend income are recorded within operating expenses on the Consolidated Statements of Operations. During 2023, 2022 and 2021, the amounts realized from the sale of equity investments and dividend income was $12 million, $12 million, and $10 million, respectively. See Note 17 – Related Party Transactions for our equity method investment in our former subsidiary.
Divestitures
We classify long-lived assets and liabilities to be disposed of as held for sale in the period in which they are available for immediate sale in their present condition and the sale is probable and expected to be completed within one year. We initially measure assets and liabilities held for sale at the lower of their carrying value or fair value less costs to sell, and we reassess their fair value each reporting period until disposed. When the divestiture represents a strategic shift that has, or will have, a major effect on our operations and financial results, the disposal is presented as a discontinued operation.
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 year ended December 31, 2022, we recorded a gain of $2 million within restructuring and other related charges.
F-17
In December 2021, we entered into a stock purchase agreement with Spuigroep B.V. to sell our operations in the Netherlands. 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 year ended December 31, 2022, we recorded a loss of $7 million, net of impact of foreign currency adjustments, within restructuring and other related charges. The Netherlands operations are reported within our International reporting segment.
In May 2021, we completed the sale of our operation in Argentina to Urbiz S.A. for $4 million. As part of the sale, Urbiz S.A. agreed to pay the purchase price, plus interest, over two years for the right to operate the Avis and Budget brands. During the year ended December 31, 2021, we recorded a loss of $14 million, net of the impact of foreign currency adjustments, within restructuring and other related charges. In addition, we paid severance to terminated employees of $2 million.
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 statementsif we are the primary beneficiary of operations.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 17 – Related Party Transactions for our VIE investment in our former subsidiary.
Nonmarketable Equity Securities
We classify investments without readily determinable fair values that are not accounted for under the equity method as nonmarketable equity securities. The accounting guidance requires nonmarketable equity securities to be recorded at cost and adjusted to fair value at each reporting period. We apply the measurement alternative, which allows these investments to be recorded at cost, less impairment, if any, and subsequently adjust for observable price changes of identical or similar investments of the same issuer. Any changes in value are recorded within operating expenses. As of December 31, 2023 and 2022, our nonmarketable equity securities within non-current assets on our Consolidated Balance sheets were not material and no material adjustments were made to the carrying values of these securities during the years ended December 31, 2023, 2022 or 2021.
Recently Issued Accounting Pronouncements
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures,” which amends Topic 740 primarily through enhanced disclosures about an entity’s tax risks and tax planning. The amendments are effective for public business entities in annual periods beginning after December 15, 2024, with early adoption permitted on a prospective or retrospective basis. ASU 2023-09 will become effective for us on January 1, 2025. We are currently evaluating the impact of the adoption of this accounting pronouncement did not have an impact on the Company’sour Consolidated Financial Statements.
In November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures,” which amends Topic 280 primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023 and Measurementinterim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 became effective for us on January 1, 2024. We are currently evaluating the impact of the adoption of this accounting pronouncement on our Consolidated Financial Statements.
F-18
Accounting for Contract Assets and FinancialContract Liabilities from Contracts with Customers
In August 2017,January 2021, the FASB issued ASU 2017-12, “Derivatives and Hedging2021-01, “Reference Rate Reform (Topic 815): Targeted Improvements to Accounting for Hedging Activities,848),” which amends ASU 2020-04 and clarifies the existingscope and guidance of Topic 848 to allow companiesderivatives impacted by the reference rate reform to more accurately presentqualify 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. In December 2022, the economic resultsFASB also issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of an entity’s risk management activitiesthe Sunset Date of Topic 848,” to defer the sunset date of ASC 848 from December 31, 2022 to December 31, 2024. As of December 31, 2023, this guidance had no impact on our Consolidated Financial Statements and we will continue to evaluate this guidance.
3. Leases
Lessor
The following table presents our lease revenues disaggregated by geography:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Americas | $ | 9,261 | $ | 9,401 | $ | 7,501 | |||||||||||
| Europe, Middle East and Africa | 1,932 | 1,852 | 1,343 | ||||||||||||||
| Asia and Australasia | 628 | 576 | 342 | ||||||||||||||
| Total lease revenues | $ | 11,821 | $ | 11,829 | $ | 9,186 | |||||||||||
The following table presents our lease revenues disaggregated by brand:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Avis | $ | 6,660 | $ | 6,420 | $ | 4,828 | |||||||||||
| Budget | 4,425 | 4,650 | 3,674 | ||||||||||||||
| Other | 736 | 759 | 684 | ||||||||||||||
| Total lease revenues | $ | 11,821 | $ | 11,829 | $ | 9,186 | |||||||||||
________
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 financial statements. ASU 2017-12 becomes effective for the Company on January 1, 2019. Early adoption is permitted. The Company is currently evaluating the effectmeasurement of this accounting pronouncement on its Consolidated Financial Statements.
F-19
We lease a portion of our vehicles under operating leases. As of December 31, 2023 and 2022, we have guaranteed up to $52 million and $65 million, respectively, of residual values for these vehicles at the end of their respective lease terms. We believe that, based on current market conditions, the net proceeds from the sale of these vehicles at the end of their lease terms will materially increase total assetsequal or exceed their net book values and total liabilities relativetherefore have not recorded a liability related to such amounts prior to adoption. guaranteed residual values.
The Company has determined portionscomponents of its vehicle rental contracts that convey the right to control the use of identified assetslease expense are within the scope of the accounting guidance containedas follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Property leases | |||||||||||||||||
| Operating lease expense | $ | 860 | $ | 703 | $ | 561 | |||||||||||
| Variable lease expense | 402 | 520 | 433 | ||||||||||||||
| Sublease income | (6) | (5) | (6) | ||||||||||||||
Total property lease expense (a) | $ | 1,256 | $ | 1,218 | $ | 988 | |||||||||||
| Vehicle leases | |||||||||||||||||
| Finance lease expense: | |||||||||||||||||
Amortization of ROU assets (b) | $ | 28 | $ | 29 | $ | 37 | |||||||||||
Interest on lease liabilities (c) | 6 | 3 | 4 | ||||||||||||||
Operating lease expense (b) | 167 | 138 | 156 | ||||||||||||||
| Total vehicle lease expense | $ | 201 | $ | 170 | $ | 197 | |||||||||||
__________
(a) Primarily included in ASU 2016-02. As discussed in Revenue from Contracts with Customers above, the Company’s vehicle rental revenues will be accounted for under the revenue accounting standard Topic 606 effective January 1, 2018, until the adoption of this accounting pronouncement on January 1, 2019.
(b) Included in vehicle depreciation and lease charges, net.
(c) Included in vehicle interest, net.
F-20
Supplemental balance sheet information related to such provision. The Company will complete its analysisleases is as follows:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Property leases | |||||||||||
| Operating lease ROU assets | $ | 2,654 | $ | 2,405 | |||||||
Short-term operating lease liabilities (a) | $ | 576 | $ | 555 | |||||||
| Long-term operating lease liabilities | 2,117 | 1,884 | |||||||||
| Operating lease liabilities | $ | 2,693 | $ | 2,439 | |||||||
| Weighted average remaining lease term | 8.1 years | 8.2 years | |||||||||
| Weighted average discount rate | 4.83% | 4.30% | |||||||||
| Vehicle leases | |||||||||||
| Finance | |||||||||||
| Finance lease ROU assets, gross | $ | 265 | $ | 267 | |||||||
| Accumulated amortization | (41) | (45) | |||||||||
Finance lease ROU assets, net (b) | $ | 224 | $ | 222 | |||||||
| Short-term vehicle finance lease liabilities | $ | 59 | $ | 44 | |||||||
| Long-term vehicle finance lease liabilities | 113 | 132 | |||||||||
Vehicle finance lease liabilities (c) | $ | 172 | $ | 176 | |||||||
| Weighted average remaining lease term | 2.8 years | 2.0 years | |||||||||
| Weighted average discount rate | 3.68% | 1.82% | |||||||||
| Operating | |||||||||||
Vehicle operating lease ROU assets (d) | $ | 117 | $ | 86 | |||||||
| Short-term vehicle operating lease liabilities | $ | 83 | $ | 64 | |||||||
| Long-term vehicle operating lease liabilities | 36 | 22 | |||||||||
Vehicle operating lease liabilities (e) | $ | 119 | $ | 86 | |||||||
| Weighted average remaining lease term | 1.5 years | 1.4 years | |||||||||
| Weighted average discount rate | 5.13% | 4.86% | |||||||||
_________
(a) Included in a subsequent period notaccounts payable and other current liabilities.
(b) Included in vehicles, net within assets under vehicle programs.
(c) Included in debt within liabilities under vehicle programs.
(d) Included in receivables from vehicle manufacturers and other within assets under vehicle programs.
(e) Included in other within liabilities under vehicle programs.
F-21
Supplemental cash flow information related to exceed one year from the dateleases is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash payments for lease liabilities within operating activities: | |||||||||||||||||
| Property operating leases | $ | 838 | $ | 743 | $ | 639 | |||||||||||
| Vehicle finance leases | 6 | 3 | 4 | ||||||||||||||
| Vehicle operating leases | 167 | 137 | 162 | ||||||||||||||
| Cash payments for lease liabilities within financing activities: | |||||||||||||||||
| Vehicle finance leases | 105 | 181 | 193 | ||||||||||||||
| Non-cash activities - increase in ROU assets in exchange for lease liabilities: | |||||||||||||||||
| Property operating leases | 1,079 | 812 | 484 | ||||||||||||||
| Vehicle finance leases | 118 | 153 | 223 | ||||||||||||||
| Vehicle operating leases | 191 | 161 | 115 | ||||||||||||||
Maturities of the enactmentlease liabilities as of the Tax Act and will elect an accounting policy at such time.December 31, 2023 are as follows:
| Property Operating Leases | Vehicle Finance Leases | Vehicle Operating Leases | |||||||||||||||
| Within 1 year | $ | 688 | $ | 59 | $ | 83 | |||||||||||
| Between 1 and 2 years | 478 | — | 30 | ||||||||||||||
| Between 2 and 3 years | 414 | — | 8 | ||||||||||||||
| Between 3 and 4 years | 357 | 108 | 2 | ||||||||||||||
| Between 4 and 5 years | 263 | 5 | — | ||||||||||||||
| Thereafter | 1,051 | — | — | ||||||||||||||
| Total lease payments | 3,251 | 172 | 123 | ||||||||||||||
| Less: Imputed interest | (558) | — | (4) | ||||||||||||||
| Total | $ | 2,693 | $ | 172 | $ | 119 | |||||||||||
4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (“EPS”) (shares in millions):
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Net income attributable to Avis Budget Group, Inc. for basic and diluted EPS | $ | 1,632 | $ | 2,764 | $ | 1,285 | ||||||||||||||
| Basic weighted average shares outstanding | 38.3 | 47.3 | 64.9 | |||||||||||||||||
| Non-vested stock | 0.5 | 1.1 | 1.2 | |||||||||||||||||
| Diluted weighted average shares outstanding | 38.8 | 48.4 | 66.1 | |||||||||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic | $ | 42.57 | $ | 58.41 | $ | 19.79 | ||||||||||||||
| Diluted | $ | 42.08 | $ | 57.16 | $ | 19.44 | ||||||||||||||
F-22
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Net income for basic and diluted EPS | $ | 361 | $ | 163 | $ | 313 | ||||||
| Basic weighted average shares outstanding | 83.4 | 92.0 | 103.4 | |||||||||
| Options and non-vested stock | 1.4 | 1.3 | 1.6 | |||||||||
| Diluted weighted average shares outstanding | 84.8 | 93.3 | 105.0 | |||||||||
| Earnings per share: | ||||||||||||
| Basic | $ | 4.32 | $ | 1.78 | $ | 3.02 | ||||||
| Diluted | $ | 4.25 | $ | 1.75 | $ | 2.98 | ||||||
Diluted EPS was computed using the treasury stock method for non-vested stock. The following table summarizes the Company’sour outstanding common stock equivalents that were anti-dilutive and therefore excluded from the computation of diluted EPS (shares in millions):
| As of December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
Non-vested stock (a) | 0.5 | 0.2 | 0.1 | |||||
| As of December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
Non-vested stock (a) | 0.1 | 0.2 | — | ||||||||||||||
__________
(a)The weighted average grant date fair value for anti-dilutive non-vested stock for 2023 and 2022 was $198.92 and $177.70, respectively.
5. Restructuring and Other Related Charges
During fourthsecond quarter 2017, the Company2022, we initiated a strategic restructuring initiativeplan to better position its truck rentalfocus on consolidating our global operations in the U.S., in which it closed certain rental locationsby designing new processes and reduced the size of the older rental fleet, with the intent to increase fleet utilization and reduce vehicle and overhead costsimplementing new systems (“Truck initiative”Cost Optimization”). During the year endedAs of December 31, 2017, as part of this initiative, the Company2023, we formally communicated the termination of employment to approximately 25400 employees and as of December 31, 2017, the Company had terminated the employment of approximately 20 of these employees. The Company expects further restructuring expense of approximately $3 million related to this initiative to be incurred in 2018.
During first quarter 2021, we initiated a global restructuring plan to focus on cost discipline by reviewing headcounts, facilities and contractor agreements. We transformed our business as we exited the COVID-19 crisis by controlling fixed costs and matching variable costs to demand (“T21”). This initiative is substantially complete.
During third quarter 2019, we initiated a restructuring plan to various strategic initiativesexit our operations in Brazil by closing rental facilities, disposing of assets and terminating personnel (“Brazil”). This initiative is complete.
During first quarter 2019, we initiated a restructuring plan to identify best practices and drive global efficiency throughout its organization, by reducing headcount, improving processes and consolidating functions, and to create new objectives and strategies for our truck rental operations in the United States by reducing headcount, large vehicles and rental locations (“T15”T19”). In first quarter 2016, the Company expanded the T15 restructuring to take advantage of additional efficiency opportunities. The expanded T15 restructuring fits within the initiative’s focus areas to identify best practices and drive efficiency throughout the organization, including the consolidation of rental locations. During the years ended December 31, 2016 and 2015, as part of this process, the Company formally communicated the termination of employment to approximately 615 and 325 employees, respectively. At December 31 2017, the Company had terminated approximately 990 employees as part of this initiative. The costs associated with this initiative primarily represent severance, outplacement services and other costs associated with employee terminations, the majority of which have been or are expected to be settled in cash. This initiative is complete.
The following tables summarize the change to our restructuring-related liabilities and identifyidentifies the amounts recorded within the Company’sour reporting segments for restructuring charges and corresponding payments and utilizations:
F-23
| Personnel Related | Facility Related | Other (a) | Total | ||||||||||||
| Balance as of January 1, 2015 | $ | 14 | $ | 3 | $ | — | $ | 17 | |||||||
| Restructuring expense: | |||||||||||||||
| T15 | 9 | — | — | 9 | |||||||||||
| Acquisition integration | 9 | — | — | 9 | |||||||||||
| Restructuring payment: | |||||||||||||||
| T15 | (12 | ) | — | — | (12 | ) | |||||||||
| Acquisition integration | (3 | ) | — | — | (3 | ) | |||||||||
| Avis Europe | (7 | ) | (2 | ) | — | (9 | ) | ||||||||
| Balance as of December 31, 2015 | 10 | 1 | — | 11 | |||||||||||
| Restructuring expense: | |||||||||||||||
| T15 | 15 | 1 | 5 | 21 | |||||||||||
| Acquisition integration | 9 | — | — | 9 | |||||||||||
| Avis Europe | (1 | ) | — | — | (1 | ) | |||||||||
| Restructuring payment/utilization: | |||||||||||||||
| T15 | (12 | ) | (1 | ) | (5 | ) | (18 | ) | |||||||
| Acquisition integration | (15 | ) | — | — | (15 | ) | |||||||||
| Avis Europe | (1 | ) | — | — | (1 | ) | |||||||||
| Balance as of December 31, 2016 | 5 | 1 | — | 6 | |||||||||||
| Restructuring expense: | |||||||||||||||
| Truck initiative | 1 | — | 4 | 5 | |||||||||||
| T17 | 20 | — | 15 | 35 | |||||||||||
| Restructuring payment/utilization: | |||||||||||||||
| Truck initiative | (1 | ) | — | (4 | ) | (5 | ) | ||||||||
| T17 | (17 | ) | (1 | ) | (15 | ) | (33 | ) | |||||||
| T15 | (3 | ) | — | — | (3 | ) | |||||||||
| Acquisition integration | (1 | ) | — | — | (1 | ) | |||||||||
| Balance as of December 31, 2017 | $ | 4 | $ | — | $ | — | $ | 4 | |||||||
| Personnel Related | Facility Related | Other | Total | ||||||||||||||||||||
| Balance at January 1, 2021 | $ | 4 | $ | 2 | $ | 3 | $ | 9 | |||||||||||||||
| Restructuring expense: | |||||||||||||||||||||||
| T21 | 26 | 4 | 2 | 32 | |||||||||||||||||||
| T19 | — | — | (2) | (2) | |||||||||||||||||||
| Restructuring payment/utilization: | |||||||||||||||||||||||
| T21 | (17) | (4) | (4) | (25) | |||||||||||||||||||
| 2020 Optimization | (5) | — | — | (5) | |||||||||||||||||||
| T19 | (1) | — | 2 | 1 | |||||||||||||||||||
| Balance as of December 31, 2021 | $ | 7 | $ | 2 | $ | 1 | $ | 10 | |||||||||||||||
| Restructuring expense: | |||||||||||||||||||||||
| Cost Optimization | 9 | — | — | 9 | |||||||||||||||||||
| T21 | 3 | — | — | 3 | |||||||||||||||||||
| Brazil | — | — | 1 | 1 | |||||||||||||||||||
| Restructuring payment/utilization: | |||||||||||||||||||||||
| Cost Optimization | (6) | — | (1) | (7) | |||||||||||||||||||
| T21 | (8) | (1) | — | (9) | |||||||||||||||||||
| 2020 Optimization | (1) | — | — | (1) | |||||||||||||||||||
| Brazil | — | — | (1) | (1) | |||||||||||||||||||
| T19 | — | (1) | — | (1) | |||||||||||||||||||
| Balance as of December 31, 2022 | $ | 4 | $ | — | $ | — | $ | 4 | |||||||||||||||
| Restructuring expense: | |||||||||||||||||||||||
| Cost Optimization | 8 | — | 2 | 10 | |||||||||||||||||||
| Brazil | — | — | 1 | 1 | |||||||||||||||||||
| Restructuring payment/utilization: | |||||||||||||||||||||||
| Cost Optimization | (8) | — | (2) | (10) | |||||||||||||||||||
| Brazil | — | — | (1) | (1) | |||||||||||||||||||
| Balance as of December 31, 2023 | $ | 4 | $ | — | $ | — | $ | 4 | |||||||||||||||
F-24
| Americas | International | Total | |||||||||
| Balance as of January 1, 2015 | $ | 4 | $ | 13 | $ | 17 | |||||
| Restructuring expense: | |||||||||||
| T15 | 6 | 3 | 9 | ||||||||
| Acquisition integration | 1 | 8 | 9 | ||||||||
| Restructuring payment: | |||||||||||
| T15 | (8 | ) | (4 | ) | (12 | ) | |||||
| Acquisition integration | (1 | ) | (2 | ) | (3 | ) | |||||
| Avis Europe | (1 | ) | (8 | ) | (9 | ) | |||||
| Balance as of December 31, 2015 | 1 | 10 | 11 | ||||||||
| Restructuring expense: | |||||||||||
| T15 | 11 | 10 | 21 | ||||||||
| Acquisition integration | — | 9 | 9 | ||||||||
| Avis Europe | — | (1 | ) | (1 | ) | ||||||
| Restructuring payment/utilization: | |||||||||||
| T15 | (11 | ) | (7 | ) | (18 | ) | |||||
| Acquisition integration | — | (15 | ) | (15 | ) | ||||||
| Avis Europe | — | (1 | ) | (1 | ) | ||||||
| Balance as of December 31, 2016 | 1 | 5 | 6 | ||||||||
| Restructuring expense: | |||||||||||
| Truck initiative | 5 | — | 5 | ||||||||
| T17 | 25 | 10 | 35 | ||||||||
| Restructuring payment/utilization: | |||||||||||
| Truck initiative | (5 | ) | — | (5 | ) | ||||||
| T17 | (24 | ) | (9 | ) | (33 | ) | |||||
| T15 | (1 | ) | (2 | ) | (3 | ) | |||||
| Acquisition integration | — | (1 | ) | (1 | ) | ||||||
| Balance as of December 31, 2017 | $ | 1 | $ | 3 | $ | 4 | |||||
| Americas | International | Total | |||||||||||||||
| Balance at January 1, 2021 | $ | 3 | $ | 6 | $ | 9 | |||||||||||
| Restructuring expense: | |||||||||||||||||
| T21 | 5 | 27 | 32 | ||||||||||||||
| T19 | (2) | — | (2) | ||||||||||||||
| Restructuring payment/utilization: | |||||||||||||||||
| T21 | (4) | (21) | (25) | ||||||||||||||
| 2020 Optimization | (2) | (3) | (5) | ||||||||||||||
| T19 | 2 | (1) | 1 | ||||||||||||||
| Balance as of December 31, 2021 | 2 | 8 | 10 | ||||||||||||||
| Restructuring expense: | |||||||||||||||||
| Cost Optimization | 2 | 7 | 9 | ||||||||||||||
| T21 | 1 | 2 | 3 | ||||||||||||||
| Brazil | 1 | — | 1 | ||||||||||||||
| Restructuring payment/utilization: | |||||||||||||||||
| Cost Optimization | (2) | (5) | (7) | ||||||||||||||
| T21 | (2) | (7) | (9) | ||||||||||||||
| 2020 Optimization | — | (1) | (1) | ||||||||||||||
| Brazil | (1) | — | (1) | ||||||||||||||
| T19 | — | (1) | (1) | ||||||||||||||
| Balance as of December 31, 2022 | 1 | 3 | 4 | ||||||||||||||
| Restructuring expense: | |||||||||||||||||
| Cost Optimization | 7 | 3 | 10 | ||||||||||||||
| Brazil | 1 | — | 1 | ||||||||||||||
| Restructuring payment/utilization: | |||||||||||||||||
| Cost Optimization | (6) | (4) | (10) | ||||||||||||||
| Brazil | (1) | — | (1) | ||||||||||||||
| Balance as of December 31, 2023 | $ | 2 | $ | 2 | $ | 4 | |||||||||||
Other Related Charges
Limited Voluntary Opportunity Plans (“LVOP”)
During 2017, the Companysecond quarter of 2021, our operations in our International segment offered a voluntary termination programsprogram to certain employees in the Americas’ field operations shared services, and general and administrative functions for a limited time. These employees, if qualified, elected resignation from employment in return for enhanced severance benefits to be settled in cash. During the year ended December 31, 2017, the Company2021, we recorded other related charges of $16approximately $17 million in connection with the LVOP. Approximately 355 qualified As of December 31, 2021, approximately 130 employees elected to participate in the plans,plan and the participants have been terminated.
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 year ended December 31, 2017, the Company had terminated the employment2022.
F-25
6. Acquisitions
In connection with these acquisitions,this acquisition, approximately $12$14 million was recorded into other intangibles related to license agreements. The license agreements will beare being amortized over a weighted average useful life of approximately threefive years. In addition, at the time of the acquisitions, the Company recorded $2 million in non-cash charges within transaction-related costs, net in connection with the license rights reacquired by the Company. The fair value of the assets acquired and liabilities assumed has not yet been finalized and is therefore subject to change.
In November 2017, the CompanySeptember 2023, we completed the acquisition of ACLMcNicoll Vehicle Hire, Limited, a vehicle rental company in Scotland and the UK specializing in commercialvan and mid-size transit vans,car rentals, for approximately $5$17 million, net of acquired cash, and agreedcash. The investment enabled the Company to an additional $2 millionexpand its footprint of contingent consideration which is contingent on ACL Hire Limited’s future financial performance.vehicle rental services in Scotland. The excess of the purchase price over preliminary fair value of net assets acquired was allocated to goodwill, which was assigned to the Company’s International reportable segment. In connection with this acquisition, approximately $5$10 million was recorded in goodwill.to goodwill, $4 million was recorded to trade names, and $1 million was recorded to customer relationships. The trade names and customer relationships will be amortized over a weighted average useful life of approximately 10 years. The goodwill is not deductible for tax purposes. The fair value of the assets acquired and liabilities assumed has not yet been finalized and is therefore subject to change.
In December 2016, the CompanyOctober 2023, we completed the acquisition of FranceCarsa licensee in North America for approximately $45$10 million, net ofplus approximately $4 million for acquired cash. Thefleet. This investment enabled the Companyis in-line with our strategy to re-acquire licensees when advantageous to expand itsour footprint with a leading provider of vehicle rental services in France.Company-operated locations. The excess of the purchase price over preliminary fair value of net assets acquired fleet was allocated to goodwill, which was assigned to the Company’s International reportable segment.financed under our existing financing arrangements. In connection with this acquisition, approximately $22$10 million was recorded in goodwill, $6 million was recorded in customer relationships, and $9 millionto other intangibles related to trademarks was recorded in other intangibles.license agreements. The customer relationships and trademarkslicense agreements are being amortized over a weighted average useful life of approximately eightthree years. The goodwillfair value of the assets acquired and liabilities assumed has not yet been finalized and is not deductibletherefore subject to change.
2021
During 2021, we completed the acquisitions of various licensees in Europe and North America, for tax purposes.approximately $23 million, plus $22 million for acquired fleet. These investments were in-line with our strategy to re-acquire licensees when advantageous to expand our footprint of Company-operated locations. The acquired fleet was financed under our existing financing arrangements. In connection with these acquisitions, approximately $28 million was recorded to other intangibles related to license agreements. The license agreements are being amortized over a weighted average useful life of approximately one year. Differences between the preliminary allocation of purchase price and the final allocation were not material for FranceCars.material.
F-26
7. Intangible Assets
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||
| Amortized Intangible Assets | |||||||||||||||||||||||||||||||||||
License agreements (a) | $ | 316 | $ | 234 | $ | 82 | $ | 290 | $ | 217 | $ | 73 | |||||||||||||||||||||||
Customer relationships (b) | 253 | 221 | 32 | 247 | 207 | 40 | |||||||||||||||||||||||||||||
Other (c) | 56 | 46 | 10 | 48 | 39 | 9 | |||||||||||||||||||||||||||||
| $ | 625 | $ | 501 | $ | 124 | $ | 585 | $ | 463 | $ | 122 | ||||||||||||||||||||||||
| Unamortized Intangible Assets | |||||||||||||||||||||||||||||||||||
| Goodwill | $ | 1,099 | $ | 1,070 | |||||||||||||||||||||||||||||||
| Trademarks | $ | 546 | $ | 544 | |||||||||||||||||||||||||||||||
_________
(a)Primarily amortized over a period ranging from 0 to 40 years with a weighted average useful life of approximately ten15 years. The goodwill is not deductible for tax purposes. Differences between the preliminary allocation of purchase price and the final allocation were not material for Maggiore.
(c)Primarily amortized over a period ranging from 2 to 10 years with a weighted average life of acquisition, the Company recorded a $25 million non-cash charge within transaction-related costs, net in connection with license rights reacquired by the Company. The goodwill is not deductible for tax purposes. Differences between the preliminary allocation of purchase price and the final allocation were not material for Avis and Budget Licensees.9 years.
| As of December 31, 2017 | As of December 31, 2016 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||
| Amortized Intangible Assets | |||||||||||||||||||||||
License agreements (a) | $ | 281 | $ | 140 | $ | 141 | $ | 261 | $ | 109 | $ | 152 | |||||||||||
Customer relationships (b) | 242 | 119 | 123 | 224 | 90 | 134 | |||||||||||||||||
Other (c) | 51 | 18 | 33 | 46 | 12 | 34 | |||||||||||||||||
| $ | 574 | $ | 277 | $ | 297 | $ | 531 | $ | 211 | $ | 320 | ||||||||||||
| Unamortized Intangible Assets | |||||||||||||||||||||||
| Goodwill | $ | 1,073 | $ | 1,007 | |||||||||||||||||||
| Trademarks | $ | 553 | $ | 550 | |||||||||||||||||||
Amortization expense relating to all intangible assets was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| License agreements | $ | 14 | $ | 29 | $ | 47 | |||||||||||
| Customer relationships | 9 | 10 | 14 | ||||||||||||||
| Other | 6 | 5 | 6 | ||||||||||||||
| Total | $ | 29 | $ | 44 | $ | 67 | |||||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| License agreements | $ | 33 | $ | 35 | $ | 31 | |||||
| Customer relationships | 24 | 23 | 21 | ||||||||
| Other | 5 | 7 | 7 | ||||||||
| Total | $ | 62 | $ | 65 | $ | 59 | |||||
Based on the Company’sour amortizable intangible assets at December 31, 2017, the Company expects2023, we expect related amortization expenseexpense of approximately $47$29 million for 2018, $422024, $23 million for 2019, $402025, $21 million for 2020, $302026, $15 million for 20212027 and $24$11 million for 2022,2028 excluding effects of currency exchange rates.
The carrying amounts of goodwill and related changes are as follows:
| Americas | International | Total Company | ||||||||||||||||||
| Goodwill as of January 1, 2022 | $ | 2,140 | $ | 1,086 | $ | 3,226 | ||||||||||||||
| Accumulated impairment losses as of January 1, 2022 | (1,587) | (531) | (2,118) | |||||||||||||||||
| Goodwill as of January 1, 2022 | 553 | 555 | 1,108 | |||||||||||||||||
| Currency translation adjustments and other | (3) | (35) | (38) | |||||||||||||||||
| Goodwill as of December 31, 2022 | 550 | 520 | 1,070 | |||||||||||||||||
| Acquisitions | — | 10 | 10 | |||||||||||||||||
| Currency translation adjustments and other | 1 | 18 | 19 | |||||||||||||||||
| Goodwill as of December 31, 2023 | $ | 551 | $ | 548 | $ | 1,099 | ||||||||||||||
F-27
| Americas | International | Total Company | ||||||||||
| Gross goodwill as of January 1, 2016 | $ | 2,124 | $ | 967 | $ | 3,091 | ||||||
| Accumulated impairment losses as of January 1, 2016 | (1,587 | ) | (531 | ) | (2,118 | ) | ||||||
| Goodwill as of January 1, 2016 | 537 | 436 | 973 | |||||||||
| Acquisitions | 2 | 23 | 25 | |||||||||
| Currency translation adjustments and other | 13 | (4 | ) | 9 | ||||||||
| Goodwill as of December 31, 2016 | 552 | 455 | 1,007 | |||||||||
| Acquisitions | — | 5 | 5 | |||||||||
| Currency translation adjustments and other | — | 61 | 61 | |||||||||
| Goodwill as of December 31, 2017 | $ | 552 | $ | 521 | $ | 1,073 | ||||||
8. Vehicle Rental Activities
The components of vehicles, net within assets under vehicle programs are as follows:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Rental vehicles | $ | 23,114 | $ | 17,819 | |||||||
| Less: Accumulated depreciation | (2,639) | (2,211) | |||||||||
| 20,475 | 15,608 | ||||||||||
| Vehicles held for sale | 734 | 317 | |||||||||
Vehicles, net investment in lease(a) | 31 | 36 | |||||||||
| Vehicles, net | $ | 21,240 | $ | 15,961 | |||||||
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Rental vehicles | $ | 11,652 | $ | 10,937 | |||
| Less: Accumulated depreciation | (1,652 | ) | (1,454 | ) | |||
| 10,000 | 9,483 | ||||||
| Vehicles held for sale | 626 | 981 | |||||
| Vehicles, net | $ | 10,626 | $ | 10,464 | |||
The components of vehicle depreciation and lease charges, net are summarized below:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Depreciation expense | $ | 2,228 | $ | 1,709 | $ | 1,402 | |||||||||||
| Lease charges | 167 | 138 | 156 | ||||||||||||||
| (Gain) loss on sale of vehicles, net | (656) | (1,019) | (361) | ||||||||||||||
| Vehicle depreciation and lease charges, net | $ | 1,739 | $ | 828 | $ | 1,197 | |||||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Depreciation expense | $ | 1,947 | $ | 1,877 | $ | 1,837 | |||||
| Lease charges | 222 | 180 | 156 | ||||||||
| (Gain) loss on sale of vehicles, net | 52 | (10 | ) | (60 | ) | ||||||
| Vehicle depreciation and lease charges, net | $ | 2,221 | $ | 2,047 | $ | 1,933 | |||||
At December 31, 2017, 20162023, 2022 and 2015, the Company2021, we had payables related to vehicle purchases included in liabilities under vehicle programs - other of $346of $287 million, $265 million, $321and $142 million and $269 million,, respectively, and receivables related to vehicle sales included in assets under vehicle programs - receivables from vehicle manufacturers and other of $545 $237 million, $520$212 million, and $433$134 million, respectively.
F-28
9. Income Taxes in the reporting period that the Tax Act was signed into law.
The provision for (benefit from) income taxes consists of the following:
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Current | ||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | ||||||||||||||
| State | 45 | 137 | 35 | |||||||||||||||||
| Foreign | 43 | 61 | 12 | |||||||||||||||||
| Current income tax provision | 88 | 198 | 47 | |||||||||||||||||
| Deferred | ||||||||||||||||||||
| Federal | 77 | 622 | 309 | |||||||||||||||||
| State | 47 | (22) | 78 | |||||||||||||||||
| Foreign | 67 | 82 | (9) | |||||||||||||||||
| Deferred income tax provision | 191 | 682 | 378 | |||||||||||||||||
| Provision for income taxes | $ | 279 | $ | 880 | $ | 425 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Current | ||||||||||||
| Federal | $ | — | $ | (1 | ) | $ | (32 | ) | ||||
| State | 5 | 3 | 3 | |||||||||
| Foreign | 37 | 63 | 40 | |||||||||
| Current income tax provision | 42 | 65 | 11 | |||||||||
| Deferred | ||||||||||||
| Federal | (205 | ) | 51 | 45 | ||||||||
| State | (5 | ) | 5 | (1 | ) | |||||||
| Foreign | 18 | (5 | ) | 14 | ||||||||
| Deferred income tax provision | (192 | ) | 51 | 58 | ||||||||
| Provision for (benefit from) income taxes | $ | (150 | ) | $ | 116 | $ | 69 | |||||
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| United States (U.S.) | $ | 1,418 | $ | 3,114 | $ | 1,529 | |||||||||||
| Foreign | 496 | 522 | 179 | ||||||||||||||
| Income before income taxes | $ | 1,914 | $ | 3,636 | $ | 1,708 | |||||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
United States (a) | $ | 17 | $ | 127 | $ | 258 | |||||
| Foreign | 194 | 152 | 124 | ||||||||
| Pretax income | $ | 211 | $ | 279 | $ | 382 | |||||
Deferred income tax assets, and liabilities arenet is comprised of the following:
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| Deferred income tax assets: | ||||||||
| Net tax loss carryforwards | $ | 1,104 | $ | 1,587 | ||||
| Accrued liabilities and deferred revenue | 216 | 281 | ||||||
| Tax credits | 24 | 62 | ||||||
| Depreciation and amortization | 4 | 2 | ||||||
| Acquisition and integration-related liabilities | 2 | 5 | ||||||
| Provision for doubtful accounts | 8 | 7 | ||||||
| Other | 48 | 52 | ||||||
Valuation allowance (a) | (331 | ) | (357 | ) | ||||
| Deferred income tax assets | 1,075 | 1,639 | ||||||
| Deferred income tax liabilities: | ||||||||
| Depreciation and amortization | 121 | 112 | ||||||
| Prepaid expenses | 20 | 32 | ||||||
| Other | 3 | 2 | ||||||
| Deferred income tax liabilities | 144 | 146 | ||||||
| Deferred income tax assets, net | $ | 931 | $ | 1,493 | ||||
| As of December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Deferred income tax assets: | ||||||||||||||
| Net tax loss carryforwards | $ | 1,373 | $ | 1,109 | ||||||||||
| Long-term operating lease liabilities | 703 | 666 | ||||||||||||
| Accrued liabilities and deferred revenue | 169 | 231 | ||||||||||||
| Tax credits | 323 | 38 | ||||||||||||
| Depreciation and amortization | 22 | 25 | ||||||||||||
| Provision for doubtful accounts | 18 | 19 | ||||||||||||
| Other | 213 | 167 | ||||||||||||
Valuation allowance (a) | (103) | (101) | ||||||||||||
| Deferred income tax assets | 2,718 | 2,154 | ||||||||||||
| Deferred income tax liabilities: | ||||||||||||||
| Operating lease right-of-use assets | 693 | 657 | ||||||||||||
| Depreciation and amortization | 117 | 90 | ||||||||||||
| Prepaid expenses | 33 | 24 | ||||||||||||
| Other | 7 | 4 | ||||||||||||
| Deferred income tax liabilities | 850 | 775 | ||||||||||||
| Deferred income tax assets, net | $ | 1,868 | $ | 1,379 | ||||||||||
__________
F-29 (a)The valuation allowance at December 31, 2023 relates to tax loss carryforwards |
Deferred income tax assets and liabilities related to vehicle programs are comprised of the following:
| As of December 31, | |||||||||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||||||||
| As of December 31, | As of December 31, | ||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | |||||||||||||||||||||||||||
| Deferred income tax assets: | |||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 58 | $ | 52 | |||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Deferred income tax assets | |||||||||||||||||||||||||||||
| Deferred income tax liabilities: | |||||||||||||||||||||||||||||
| Deferred income tax liabilities: | |||||||||||||||||||||||||||||
| Deferred income tax liabilities: | |||||||||||||||||||||||||||||
| Depreciation and amortization | 1,652 | 2,481 | |||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Deferred income tax liabilities | |||||||||||||||||||||||||||||
| Deferred income tax liabilities under vehicle programs, net | $ | 1,594 | $ | 2,429 | |||||||||||||||||||||||||
At December 31, 2017, the Company2023, we had U.S. federal net operating loss carryforwards of approximately $3.2 billion, most$4.9 billion. The majority of which expire in 2031.the net operating loss carryforwards have an indefinite utilization period pursuant to the Tax Act and a significant remaining portion expires by 2031. Such net operating loss carryforwards are primarily related to accelerated depreciation of the Company’sour U.S. vehicles. Currently, the Company doeswe do not record valuation allowances on the majority of itsour U.S. federal tax loss carryforwards as there are adequate deferred tax liabilities that could be realized within the carryforward period. At December 31, 2017, the Company2023, we had foreign net operating loss carryforwards of approximately $889 million with$1.0 billion, the majority of which has an indefinite utilization period.
The reconciliation between the U.S. federal income tax statutory rate and the Company’sour effective income tax rate is as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| U.S. federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||||
| Adjustments to reconcile to the effective rate: | ||||||||||||||||||||
| State and local income taxes, net of federal tax benefits | 4.0 | 3.9 | 5.5 | |||||||||||||||||
| Changes in valuation allowances | — | (1.3) | (0.6) | |||||||||||||||||
| Taxes on foreign operations at rates different than U.S. federal statutory rates | 2.8 | 1.2 | (2.0) | |||||||||||||||||
Tax credits (a) | (11.7) | (0.4) | — | |||||||||||||||||
| Stock-based compensation | (1.1) | (0.5) | (0.3) | |||||||||||||||||
| Other non-deductible (non-taxable) items | 0.7 | 0.4 | 0.6 | |||||||||||||||||
Other (a) | (1.1) | (0.1) | 0.7 | |||||||||||||||||
| 14.6 | % | 24.2 | % | 24.9 | % | |||||||||||||||
_______
(a)For the year ended December 31, 2022, we reclassified (0.4%) of certain tax credits to conform to the current year presentation. This reclassification had no impact to our reported effective income tax rate.
F-30
| Year Ended December 31, | |||||||||
| 2017 | 2016 | 2015 | |||||||
| U.S. federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
| Adjustments to reconcile to the effective rate: | |||||||||
| State and local income taxes, net of federal tax benefits | 3.8 | 2.0 | 2.8 | ||||||
| Changes in valuation allowances | (4.7 | ) | (0.2 | ) | (0.6 | ) | |||
| Taxes on foreign operations at rates different than statutory U.S. federal rates | (3.6 | ) | 3.1 | 3.7 | |||||
Resolution of a prior-year tax matter (a) | — | — | (25.6 | ) | |||||
| Stock-based compensation | (3.4 | ) | — | — | |||||
| Non-deductible transaction-related costs | — | — | 0.9 | ||||||
| U.S. Tax Act benefit | (100.8 | ) | — | — | |||||
| Other non-deductible expenses | 2.2 | 1.7 | 1.8 | ||||||
| Other | 0.4 | — | 0.1 | ||||||
| (71.1 | )% | 41.6 | % | 18.1 | % | ||||
The following is a tabular reconciliation of the gross amount of unrecognized tax benefits for the year:
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Balance, January 1 | $ | 53 | $ | 58 | $ | 57 | ||||||||||||||
| Additions for tax positions related to current year | 5 | 4 | 4 | |||||||||||||||||
| Additions for tax positions for prior years | 5 | 3 | 3 | |||||||||||||||||
| Reductions for tax positions for prior years | — | (5) | (3) | |||||||||||||||||
| Settlements | — | (5) | — | |||||||||||||||||
| Statute of limitations | (2) | — | — | |||||||||||||||||
| Foreign currency translation | 2 | (2) | (3) | |||||||||||||||||
| Balance, December 31 | $ | 63 | $ | 53 | $ | 58 | ||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Balance at January 1 | $ | 59 | $ | 56 | $ | 63 | ||||||
| Additions for tax positions related to current year | 6 | 3 | 6 | |||||||||
| Additions for tax positions for prior years | 9 | 3 | 3 | |||||||||
| Reductions for tax positions for prior years | (10 | ) | (3 | ) | (14 | ) | ||||||
| Settlements | — | — | (1 | ) | ||||||||
| Statute of limitations | (1 | ) | — | (1 | ) | |||||||
| Balance at December 31 | $ | 63 | $ | 59 | $ | 56 | ||||||
Substantially all of the gross amount of the unrecognized tax benefits at December 31, 2017, 20162023, 2022 and 2015,2021, if recognized, would affect the Company’sour provision for or benefit from, income taxes. As of December 31, 2017, the Company’s2023, our unrecognized tax benefits were offset by tax loss carryforwards and other deferred tax assets in the amount of $19 million.$28 million.
The following table presents unrecognized tax benefits:
| As of December 31, | |||||||||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||||||||
Unrecognized tax benefit in non-current income taxes payable (a) | $ | 46 | $ | 40 | |||||||||||||||||||||||||
| As of December 31, | As of December 31, | ||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | |||||||||||||||||||||||||||
Unrecognized tax benefits in current income taxes payable (a) | |||||||||||||||||||||||||||||
Unrecognized tax benefits in non-current income taxes payable (a) | |||||||||||||||||||||||||||||
Accrued interest payable on potential tax liabilities (b) | 26 | 29 | |||||||||||||||||||||||||||
__________
(a)Pursuant to the agreements governing the disposition of certain subsidiaries in 2006, we are entitled to indemnification for certain predisposition tax contingencies. As of December 31, 2023, $17 million of unrecognized tax benefits in current income taxes payable are related to tax contingencies which we believe we are entitled to indemnification. As of December 31, 2022, $13 million unrecognized tax benefits in non-current income taxes payable are related to tax contingencies for which we believe we are entitled to indemnification.
(b)We recognize potential interest related to unrecognized tax benefits within interest expense related to corporate debt, net on the accompanying Consolidated Statements of Operations. Penalties incurred during the years ended December 31, 2023, 2022 and 2021, were not significant and were recognized as a component of the provision for income taxes.
10. Other Current Assets
Other current assets consisted of:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Prepaid expenses | $ | 239 | $ | 252 | |||||||
| Sales and use taxes | 192 | 142 | |||||||||
| Other | 253 | 112 | |||||||||
| Other current assets | $ | 684 | $ | 506 | |||||||
F-31
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Prepaid expenses | $ | 196 | $ | 212 | |||
| Sales and use taxes | 174 | 153 | |||||
| Other | 163 | 154 | |||||
| Other current assets | $ | 533 | $ | 519 | |||
11. Property and Equipment, net
Property and equipment, net consisted of:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Land | $ | 61 | $ | 59 | |||||||
| Buildings and leasehold improvements | 574 | 507 | |||||||||
| Capitalized software | 957 | 906 | |||||||||
| Furniture, fixtures and equipment | 440 | 382 | |||||||||
| Projects in process | 154 | 89 | |||||||||
| Buses and support vehicles | 94 | 90 | |||||||||
| 2,280 | 2,033 | ||||||||||
| Less: Accumulated depreciation and amortization | (1,561) | (1,439) | |||||||||
| Property and equipment, net | $ | 719 | $ | 594 | |||||||
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Land | $ | 49 | $ | 47 | |||
| Buildings and leasehold improvements | 626 | 597 | |||||
| Capitalized software | 583 | 524 | |||||
| Furniture, fixtures and equipment | 387 | 354 | |||||
| Projects in process | 118 | 99 | |||||
| Buses and support vehicles | 93 | 91 | |||||
| 1,856 | 1,712 | ||||||
| Less: Accumulated depreciation and amortization | (1,152 | ) | (1,027 | ) | |||
| Property and equipment, net | $ | 704 | $ | 685 | |||
Depreciation and amortization expense relating to property and equipment during 2017, 20162023, 2022 and 20152021 was $197$187 million,, $188 $181 million, and $159$205 million,, respectively (including $95$101 million,, $87 $115 million, and $61$105 million,, respectively, of amortization expense relating to capitalized software). At December 31, 2023, we had payables related to property and equipment included in accounts payable and other current liabilities and in other non-current liabilities of $18 million and $6 million, respectively. At December 31, 2022, we had payables related to property and equipment included in accounts payable and other current liabilities and in other non-current liabilities of $19 million and $1 million, respectively.
12. Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities consisted of:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Short-term operating lease liabilities | $ | 576 | $ | 555 | |||||||
| Accounts payable | 487 | 466 | |||||||||
| Accrued advertising and marketing | 276 | 268 | |||||||||
| Accrued sales and use taxes | 251 | 246 | |||||||||
| Accrued payroll and related | 188 | 205 | |||||||||
| Deferred lease revenues – current | 168 | 188 | |||||||||
| Public liability and property damage insurance liabilities – current | 181 | 174 | |||||||||
| Other | 500 | 445 | |||||||||
| Accounts payable and other current liabilities | $ | 2,627 | $ | 2,547 | |||||||
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| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Accounts payable | $ | 359 | $ | 343 | |||
| Accrued sales and use taxes | 218 | 206 | |||||
| Accrued payroll and related | 176 | 173 | |||||
| Public liability and property damage insurance liabilities – current | 145 | 141 | |||||
| Deferred revenue – current | 135 | 114 | |||||
| Accrued commissions | 117 | 86 | |||||
| Accrued insurance | 103 | 70 | |||||
| Other | 366 | 355 | |||||
| Accounts payable and other current liabilities | $ | 1,619 | $ | 1,488 | |||
13. Long-term Corporate Debt and Borrowing Arrangements
Long-term debt and other borrowing arrangements consisted of:
| Maturity Date | As of December 31, | ||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| 4.125% euro-denominated Senior Notes | November 2024 | $ | — | $ | 321 | ||||||||||||
| 4.500% euro-denominated Senior Notes | May 2025 | — | 268 | ||||||||||||||
| 4.750% euro-denominated Senior Notes | January 2026 | 386 | 375 | ||||||||||||||
| 5.750% Senior Notes | July 2027 | 736 | 732 | ||||||||||||||
| 4.750% Senior Notes | April 2028 | 500 | 500 | ||||||||||||||
| 5.375% Senior Notes | March 2029 | 600 | 600 | ||||||||||||||
| 7.250% euro-denominated Senior Notes | July 2030 | 441 | — | ||||||||||||||
| 8.000% Senior Notes | February 2031 | 497 | — | ||||||||||||||
Floating Rate Term Loan (a) | August 2027 | 1,164 | 1,176 | ||||||||||||||
Floating Rate Term Loan (a) | March 2029 | 524 | 725 | ||||||||||||||
Other (b) | 30 | 18 | |||||||||||||||
| Deferred financing fees | (55) | (44) | |||||||||||||||
| Total | 4,823 | 4,671 | |||||||||||||||
| Less: Short-term debt and current portion of long-term debt | 32 | 27 | |||||||||||||||
| Long-term debt | $ | 4,791 | $ | 4,644 | |||||||||||||
_________
| Maturity Date | As of December 31, | ||||||||
| 2017 | 2016 | ||||||||
| Floating Rate Senior Notes | December 2017 | — | 249 | ||||||
| Floating Rate Term Loan | March 2019 | — | 144 | ||||||
| 6% euro-denominated Senior Notes | March 2021 | — | 194 | ||||||
Floating Rate Term Loan (a) | March 2022 | 1,136 | 816 | ||||||
| 5⅛% Senior Notes | June 2022 | 400 | 400 | ||||||
| 5½% Senior Notes | April 2023 | 675 | 675 | ||||||
| 6⅜% Senior Notes | April 2024 | 350 | 350 | ||||||
| 4⅛% euro-denominated Senior Notes | November 2024 | 360 | 316 | ||||||
| 5¼% Senior Notes | March 2025 | 375 | 375 | ||||||
| 4½% euro-denominated Senior Notes | May 2025 | 300 | — | ||||||
Other (b) | 49 | 57 | |||||||
| Deferred financing fees | (46 | ) | (53 | ) | |||||
| Total | 3,599 | 3,523 | |||||||
| Less: Short-term debt and current portion of long-term debt | 26 | 279 | |||||||
| Long-term debt | $ | 3,573 | $ | 3,244 | |||||
(a)The floating rate term loans are 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.
(b)Primarily includes finance leases which are secured by liens on the related assets. |
Term Loan
Floating Rate Term Loan due 2019. The Company issued $500 million, $200 million, and $300 million of2027. In February 2020, we amended our Floating Rate Term Loan due 2019 in March 2012, October 2012 and October 2013, respectively, underextended its maturity term to 2027. As of December 31, 2023, the Company’s senior credit facility. The term loan bears interest at the greater of three-month LIBOR or 0.75%,one-month Secured Overnight Financing Rate (“SOFR”) plus 225 basis points, for an aggregate rate of 3.25% at December 31, 2016. In March 2017, the Company repaid all of it outstanding Floating Rate Term Loan due 2019.
Senior Notes
4.500% euro-denominated Senior Notes due 2025. In March 2017, the Companywe issued €250 million of 4½%4.500% euro-denominated Senior Notes due 2025, at par, with interest payable semi-annually. The notes are unsecured obligations of the Company’s Avis Budget Finance plc subsidiary, are guaranteed on a senior basis by the Company and certain of its domestic subsidiaries and rank equally with all of the Company’s existing senior unsecured debt. The Company hasWe have the right to redeem these notes in whole or in part on or after May 15, 2020 at specified redemption prices plus accrued interest. In April 2017, the Companywe used the net proceeds from the offering to redeem itsour outstanding €175 million principal amount of 6%6.000% euro-denominated Senior Notes due 2021 for €180 million plus accrued interest. In June 2017, the Companywe used the remaining proceeds to redeem a portion of itsour Floating Rate Senior
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Notes due 2017.
4.750% euro-denominated Senior Notes 6⅜%due 2026. In October 2018, we issued €350 million of 4.750% euro-denominated Senior Notes anddue 2026, at par, with interest payable semi-annually. We have the 5¼%right to redeem these notes in whole or in part on or after September 30, 2021 at specified redemption prices plus accrued interest. In October 2018, we used the net proceeds from the offering to redeem our 5.125% Senior Notes are senior unsecured obligationsdue June 2022 for $410 million plus accrued interest.
5.750% Senior Notes due 2027. In July 2019, we issued $400 million of 5.750% Senior Notes due July 2027, at par, with interest payable semi-annually. We used the Company’s Avis Budget Car Rental, LLC (“ABCR”) subsidiary, are guaranteed bynet proceeds from the Company and certainoffering to redeem $400 million principal amount of its domestic subsidiaries and rank equallyour 5.500% Senior Notes due April 2023. In August 2020, we issued $350 million of additional 5.750% Senior Notes due July 2027, at 92% of face value, under the indenture governing our existing 5.750% Senior Notes. We used the proceeds from this offering to redeem the outstanding $100 million in aggregate principal amount of our 5.500% Senior Notes due 2023, with the remainder being used for general corporate purposes.
4.750% Senior Notes due 2028. In March 2021, we issued $500 million of 4.750% Senior Notes due April 2028, at par, with interest paid semiannually. We have the right of paymentto redeem these notes in whole or in part at any time on or after April 1, 2024 at specified redemption prices plus accrued interest. Net proceeds, together with cash on hand, were used to redeem all of the Company’s existingoutstanding 6.375% Senior Notes due 2024 for $356 million plus accrued interest and future senior unsecured indebtedness.a portion of our outstanding 5.250% Senior Notes due 2025 for $142 million plus accrued interest.
5.375% Senior Notes due 2029. In March 2021, we issued $600 million of 5.375% Senior Notes due March 2029, at par, with interest paid semiannually. We have the right to redeem these notes in whole or in part at any time on or after March 1, 2024 at specified redemption prices plus accrued interest. Net proceeds, together with cash on hand, were used to redeem all of the outstanding 10.500% Senior Secured Notes due 2025 for $599 million plus accrued interest.
7.250% euro-denominated Senior Notes due July 2030. In July 2023, we issued €400 million of 7.250% euro-denominated Senior Notes due July 2030, at par, with interest payable semi-annually. We have the right to redeem these notes in whole or in part at any time on or after July 2026 at a specified redemption price plus accrued interest. In September 2023, we used net proceeds from the offering primarily to redeem all of the €300 million of our outstanding 4.125% euro-denominated Senior Notes due 2024 plus accrued interest.
8.000% Senior Notes due February 2031. In November 2023, we issued $500 million of 8.000% Senior Notes due February 2031, at 99.3% of face value, with interest payable semi-annually. We have the right to redeem these notes in whole or in part at any time on or after November 2026 at a specified redemption price plus accrued interest. Net proceeds were used to fully redeem our 4.500% euro-denominated Senior Notes due 2025 and a portion of our outstanding balance on our Term Loan due 2029, with the remainder being used for general corporate purposes.
In connection with the debt amendments and repayments for the years ended December 31, 2017, 20162023 and 2015, the Company recorded $3 million, $272021, we recorded $5 million and $23$136 million in early extinguishment of debt costs, respectively.
The 5.750% Senior Notes, the 4.750% Senior Notes, the 5.375% Senior Notes and the 8.000% Senior Notes are senior unsecured obligations of our Avis Budget Car Rental, LLC (“ABCR”) subsidiary, are guaranteed by us and certain of our domestic subsidiaries and rank equally in right of payment with all of our existing and future senior unsecured indebtedness.
The 4.125% euro-denominated Senior Notes and 4.500% euro-denominated Senior Notes were, and the 4.750% euro-denominated Senior Notes and the 7.250% euro-denominated Senior Notes are, unsecured obligations of our Avis Budget Finance plc subsidiary, and are (or were) guaranteed on a senior basis by us and certain of our domestic subsidiaries and rank (or ranked) equally with all of our existing senior unsecured debt.
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Debt Maturities
The following table provides contractual maturities of the Company’sour corporate debt at December 31, 2017:2023:
| Year | Amount | ||||
2024 (a) | $ | 32 | |||
| 2025 | 25 | ||||
| 2026 | 408 | ||||
| 2027 | 1,872 | ||||
| 2028 | 506 | ||||
| Thereafter | 2,035 | ||||
| $ | 4,878 | ||||
| Year | Amount | ||
| 2018 | $ | 26 | |
| 2019 | 20 | ||
| 2020 | 16 | ||
| 2021 | 14 | ||
| 2022 | 1,493 | ||
| Thereafter | 2,076 | ||
| $ | 3,645 | ||
(a)These short-term borrowings have weighted average interest rates which range from 6.19% to 6.68% as of December 31, 2023.
Committed Credit Facilities And Available Funding Arrangements
At December 31, 2017,2023, the committed corporate credit facilities available to the Companyus and/or itsour subsidiaries were as follows:
| Total Capacity | Outstanding Borrowings | Letters of Credit Issued | Available Capacity | ||||||||||||
Senior revolving credit facility maturing 2021 (a) | $ | 1,800 | $ | — | $ | 782 | $ | 1,018 | |||||||
Other facilities (b) | 3 | 3 | — | — | |||||||||||
| Total Capacity | Outstanding Borrowings | Letters of Credit Issued | Available Capacity | ||||||||||||||||||||
Senior revolving credit facility maturing 2028 (a) | $ | 2,000 | $ | — | $ | 1,739 | $ | 261 | |||||||||||||||
__________
(a)The senior revolving credit facility bears interest at one-month SOFR plus 1.75% and is part of our senior |
Debt Covenants
The agreements governing the Company’sour indebtedness contain restrictive covenants, including restrictions on dividends paid to the Companyus by certain of itsour subsidiaries, the incurrence of additional indebtedness and/or liens by the Companyus and certain of itsour subsidiaries, acquisitions, mergers, liquidations, and sale and leaseback transactions. The Company’sOur senior credit facility also contains a maximum leverage ratio requirement. As of December 31, 2017, the Company was2023, we were in compliance with the financial covenants governing itsour indebtedness.
14. 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 December 31, | |||||||
| 2017 | 2016 | ||||||
| Americas – Debt due to Avis Budget Rental Car Funding | $ | 6,516 | $ | 6,733 | |||
| Americas – Debt borrowings | 660 | 577 | |||||
International – Debt borrowings (a) | 1,942 | 1,449 | |||||
| International – Capital leases | 146 | 162 | |||||
| Other | 1 | 7 | |||||
Deferred financing fees (b) | (44 | ) | (50 | ) | |||
| Total | $ | 9,221 | $ | 8,878 | |||
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Americas – Debt due to Avis Budget Rental Car Funding | $ | 15,502 | $ | 11,322 | |||||||
| Americas – Debt borrowings | 1,075 | 598 | |||||||||
| International – Debt borrowings | 2,203 | 1,700 | |||||||||
| International – Finance leases | 172 | 176 | |||||||||
| Other | 55 | 65 | |||||||||
Deferred financing fees (a) | (70) | (52) | |||||||||
| Total | $ | 18,937 | $ | 13,809 | |||||||
__________
(a)Deferred financing fees related to |
Debt due to Avis Budget Rental Car Funding as of December 31, 2023 and 2022 were $61 million and $47 million, respectively.
F-35
Americas
Debt due to Avis Budget Rental Car Funding. Avis Budget Rental Car Funding, an unconsolidated bankruptcy remote qualifying special purpose limited liability company, issues privately placed notes to investors as well as to banks and bank-sponsored conduit entities. Avis Budget Rental Car Funding uses the proceeds from its note issuances to make loans to aour wholly-owned subsidiary, of the Company, AESOP Leasing LP (“AESOP Leasing”), on a continuing basis. AESOP Leasing is required to use the proceeds of such loans to acquire or finance the acquisition of vehicles used in the Company’sour rental car operations. By issuing debt through the Avis Budget Rental Car Funding program, the Company payswe pay a lower rate of interest than if itwe had issued debt directly to third parties. Avis Budget Rental Car Funding is not consolidated, as the Company iswe are not the “primary beneficiary” of Avis Budget Rental Car Funding. The CompanyWe determined that it iswe are not the primary beneficiary because the Company doeswe do not have the obligation to absorb the potential losses or receive the benefits of Avis Budget Rental Car Funding’s activities since the Company’sour only significant source of variability in the earnings, losses or cash flows of Avis Budget Rental Car Funding is exposure to itsour own creditworthiness, due to itsour loan from Avis Budget Rental Car Funding. Because Avis Budget Rental Car Funding is not consolidated, AESOP Leasing’s loan obligations to Avis Budget Rental Car Funding are reflected as related party debt on the Company’sour Consolidated Balance Sheets. The CompanyWe also hashave an asset within Assets under vehicle programs on itsour Consolidated Balance Sheets which represents securities issued to the Companyus by Avis Budget Rental Car Funding. AESOP Leasing is consolidated, as the Company iswe are the “primary beneficiary” of AESOP Leasing; as a result, the vehicles purchased by AESOP Leasing remain on the Company’sour Consolidated Balance Sheets. The CompanyWe determined it iswe are the primary beneficiary of AESOP Leasing, as it haswe have the ability to direct its activities, an obligation to absorb a majority of its expected losses and the right to receive the benefits of AESOP Leasing’s activities. AESOP Leasing’s vehicles and related assets, which as of December 31, 2017, approximate $8.22023, approximate $18 billion and manysome of which are subject to manufacturer repurchase and guaranteed depreciation agreements, collateralize the debt issued by Avis Budget Rental Car Funding. The assets and liabilities of AESOP Leasing are presented on the Company’sour Consolidated Balance Sheets within Assets under vehicle programs and Liabilities under vehicle programs, respectively. The assets of AESOP Leasing, included within assets under vehicle programs (excluding the investment in Avis Budget Rental Car Funding (AESOP) LLC—related party) are restricted. Such assets may be used only to repay the respective AESOP Leasing liabilities, included within Liabilities under vehicle programs, and to purchase new vehicles, although if certain collateral coverage requirements are met, AESOP Leasing may pay dividends from excess cash. The creditors of AESOP Leasing and Avis Budget Rental Car Funding have no recourse to theour general credit of the Company. The Companycredit. We periodically providesprovide Avis Budget Rental Car Funding with non-contractually required support, in the form of equity and loans, to serve as additional collateral for the debt issued by Avis Budget Rental Car Funding.
The business activities of Avis Budget Rental Car Funding are limited primarily to issuing indebtedness and using the proceeds thereof to make loans to AESOP Leasing for the purpose of acquiring or financing the acquisition of vehicles to be leased to the Company’sour rental car subsidiaries and pledging its assets to secure the indebtedness. Because Avis Budget Rental Car Funding is not consolidated by the Company,us, its results of operations and cash flows are not reflected within the Company’sour financial statements.
F-36
The following table provides a summary of debt issued by AESOP during the years ended December 31, 2023 and June 2016, Avis Budget Rental Car Funding issued approximately $450 million in asset-backed notes with an expected final payment date of June 2021 and approximately $500 million in asset-backed notes with an expected final payment date of November 2021, respectively. During March 2017 and December 2017, Avis Budget Rental Car Funding issued approximately $600 million in asset-backed notes with an expected final payment date of September 2022 and $500 million in asset-backed notes with an expected final payment date of March 2023, respectively. The Company2022:
| Issuance Date | Maturity Date | Weighted Average Interest Rate | Amount Issued | |||||||||||||||||
| April 2022 | August 2027 | 3.96 | % | $ | 660 | |||||||||||||||
| May 2022 | March 2025 | 5.43 | % | 87 | ||||||||||||||||
| May 2022 | March 2023 | 4.56 | % | 68 | ||||||||||||||||
| May 2022 | September 2023 | 5.25 | % | 55 | ||||||||||||||||
| July 2022 | February 2026 | 4.81 | % | 389 | ||||||||||||||||
| July 2022 | February 2028 | 4.99 | % | 374 | ||||||||||||||||
| November 2022 | April 2026 | 6.25 | % | 500 | ||||||||||||||||
| January 2023 | April 2028 | 5.36 | % | 500 | ||||||||||||||||
| January 2023 | October 2026 | 5.31 | % | 350 | ||||||||||||||||
| April 2023 | February 2027 | 5.67 | % | 450 | ||||||||||||||||
| April 2023 | June 2028 | 5.76 | % | 550 | ||||||||||||||||
| June 2023 | April 2027 | 5.91 | % | 476 | ||||||||||||||||
| June 2023 | December 2028 | 5.98 | % | 526 | ||||||||||||||||
| September 2023 | August 2027 | 6.09 | % | 300 | ||||||||||||||||
| September 2023 | February 2029 | 6.21 | % | 700 | ||||||||||||||||
We used the proceeds from these borrowings to fund the repayment of maturing vehicle-backed debt and the acquisition of rental cars in the United States. Borrowings under the Avis Budget Rental Car Funding program primarily represent fixed rate notes and had a weighted average interest rate of 3%4.99% and 4.07% as of December 31, 20172023 and 2016.2022 respectively.
Debt borrowings. The Company financesWe finance the acquisition of vehicles used in itsour Canadian rental operations through a consolidated, bankruptcy remote special-purpose entity, which issues privately placed notes to investors and bank-sponsored conduits. The Company financesWe finance the acquisition of fleet for itsour truck rental operations in the United States through a combination of debt facilities and leases. These debt borrowings represent a mix of fixed and floating rate debt and had a weighted average interest rate of 3%5.77% and 4%4.26% as of December 31, 20172023 and 2016,2022 respectively.
International
Debt borrowings. In 2013, the Company entered intoEMEA we operate a three-year, €500 million (approximately $687 million)€1.7 billion European rental fleet securitization program, with maturity in 2024, which is used to finance fleet purchases for certain of the Company’sour European operations. During 2017, 2016, 2015 and 2014, the Company increased its capacity under this program by €250 million (approximately $281 million), €400 million (approximately $458 million), €210 million (approximately $235 million) and €290 million (approximately $370 million), respectively, and extended the securitization’s maturity to 2019. The Company finances the acquisition of vehicles used in its International rental car operations through this and other consolidated, bankruptcy remote special-purpose entities, which issue privately placed notes to banks and bank-sponsored conduits. The International borrowings primarily represent floating rate notes and had a weighted average interest rate of 2%5.51% and 3.92% as of December 31, 20172023 and 2016.2022, respectively.
Finance leases. The Company obtainedWe obtain a portion of itsour International vehicles under capitalfinance lease arrangements. For the yearyears ended December 31, 20172023 and 2016,2022, the weighted average interest rate on these borrowings were 1%was 3.68% and 2%,1.82% respectively. All capitalfinance leases are on a fixed repayment basis and interest rates are fixed at the contract date.
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Debt Maturities
The following table provides the contractual maturities of the Company’sour debt under vehicle programs, including related party debt due to Avis Budget Rental Car Funding, at December 31, 2017:2023:
| Debt under Vehicle Programs | |||
2018(a) | $ | 1,886 | |
| 2019 | 3,170 | ||
| 2020 | 1,868 | ||
| 2021 | 1,019 | ||
| 2022 | 883 | ||
| Thereafter | 439 | ||
| $ | 9,265 | ||
Debt under Vehicle Programs (a) | |||||
2024 (b) | $ | 4,120 | |||
2025 (c) | 6,717 | ||||
| 2026 | 3,154 | ||||
2027 (d) | 2,520 | ||||
| 2028 | 2,126 | ||||
| Thereafter | 370 | ||||
| $ | 19,007 | ||||
__________
(a) Vehicle-backed debt primarily represents asset-backed securities.
(b) Includes $2.4 billion of bank and bank-sponsored facilities. These short-term borrowings have a weighted average interest rate of 4.80% as of December 31, 2023.
(c) Includes $4.5 billion of bank and bank-sponsored facilities.
(d) Includes $0.1 billion of bank and bank-sponsored facilities.
Committed Credit Facilities And Available Funding Arrangements
The following table presents available funding under the Company’sour debt arrangements related to itsour vehicle programs, including related party debt due to Avis Budget Rental Car Funding, at December 31, 2017:2023:
Total Capacity (a) | Outstanding Borrowings | Available Capacity | |||||||||
Americas – Debt due to Avis Budget Rental Car Funding (b) | $ | 9,296 | $ | 6,516 | $ | 2,780 | |||||
Americas – Debt borrowings (c) | 924 | 660 | 264 | ||||||||
International – Debt borrowings (d) | 2,942 | 1,942 | 1,000 | ||||||||
International – Capital leases (e) | 169 | 146 | 23 | ||||||||
| Other | 1 | 1 | — | ||||||||
| Total | $ | 13,332 | $ | 9,265 | $ | 4,067 | |||||
Total Capacity (a) | Outstanding Borrowings (b) | Available Capacity | |||||||||||||||
Americas – Debt due to Avis Budget Rental Car Funding | $ | 15,537 | $ | 15,502 | $ | 35 | |||||||||||
Americas – Debt borrowings | 1,234 | 1,075 | 159 | ||||||||||||||
International – Debt borrowings | 2,816 | 2,203 | 613 | ||||||||||||||
| International – Finance leases | 246 | 172 | 74 | ||||||||||||||
| Other | 55 | 55 | — | ||||||||||||||
| Total | $ | 19,888 | $ | 19,007 | $ | 881 | |||||||||||
__________
(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 asset-backed variable funding financing facilities during March 2023 and was most recently amended during January 2024.
(b)The outstanding debt is collateralized by vehicles and related assets of $17.4 billion for Americas - Debt due to Avis Budget Rental Car Funding; $1.5 billion for Americas - Debt borrowings; $2.8 billion for International - Debt borrowings; and $0.2 billion for International - Finance leases.
Debt Covenants
The agreements under the Company’sour vehicle-backed funding programs contain restrictive covenants, including restrictions on dividends paid to the Companyus by certain of itsour 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 December 31, 2017, the Company is2023, we are not aware of any instances of non-compliance with any of the financial or restrictive covenants contained in the debt agreements under itsour vehicle-backed funding programs.
F-38
15. Commitments and Contingencies |
| Amount | |||
| 2018 | $ | 729 | |
| 2019 | 611 | ||
| 2020 | 401 | ||
| 2021 | 291 | ||
| 2022 | 183 | ||
| Thereafter | 549 | ||
| $ | 2,764 | ||
| 2017 | 2016 | 2015 | |||||||||
| Rent expense (including minimum concession fees) | $ | 715 | $ | 699 | $ | 679 | |||||
| Contingent concession expense | 221 | 214 | 195 | ||||||||
| 936 | 913 | 874 | |||||||||
| Less: sublease rental income | (4 | ) | (5 | ) | (5 | ) | |||||
| Total | $ | 932 | $ | 908 | $ | 869 | |||||
Contingencies
In 2006, the Companywe completed the spin-offs of itsour Realogy and Wyndham subsidiaries. The Company doessubsidiaries (now known as Anywhere Real Estate, Inc., and Wyndham Hotels and Resorts, Inc. and Travel + Leisure Co., respectively). 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 the Companyus in relation to itsour consolidated financial position or liquidity, as RealogyAnywhere Real Estate, Inc., Wyndham Hotels and Wyndham eachResorts, Inc. and Travel + Leisure Co. have agreed to assume responsibility for these liabilities. In March 2023, the California Office of Tax Appeals (“OTA”) issued an opinion in a case involving notices of proposed assessment of California corporation franchise tax for tax year 1999 issued to us. The Company iscase involves whether (i) the notices of proposed assessment were barred by the statute of limitations; and (ii) a transaction undertaken by us in tax year 1999 constituted a tax-free reorganization under the Internal Revenue Code (“IRC”). The OTA concluded that the notices of proposed assessment were not barred by the statute of limitations and that the 1999 transaction was not a tax-free reorganization under the IRC. Anywhere Real Estate, Inc. has assumed 62.5%, and Wyndham Hotels and Resorts, Inc. and Travel + Leisure Co. have assumed 37.5% of the potential tax liability in this matter, respectively. We have filed a petition for rehearing and intend to vigorously pursue this matter. We are also named in litigation that is primarily related to the businesses of itsour former subsidiaries,
including Realogy and Wyndham. The Company isWe are entitled to indemnification from such entities for any liability resulting from such litigation.
In February 2017, followingSeptember 2014, Dawn Valli et al. v. Avis Budget Group Inc., et al. was filed in U.S. District Court for the District of New Jersey. The plaintiffs seek to represent a state court trialpurported nationwide class of certain renters of vehicles from our Avis and Budget subsidiaries from September 30, 2008 through the present. The plaintiffs seek damages in Georgia,connection with claims relating to alleged misrepresentations and omissions concerning charging customers for traffic infractions and related administrative fees. On October 10, 2023, plaintiffs’ motion for class certification was denied as to their proposed nationwide class and granted as to a jury foundsubclass, created at the Court’s discretion, of Avis Preferred and Budget Fastbreak members. We have been named as a defendant in other purported consumer class action lawsuits, including two class actions filed against us in New Jersey, one seeking damages in connection with a breach of contract claim and another related to ancillary charges at our Payless subsidiary. However, the Company liable for damages in a case brought by a plaintiff who was injured in a vehicle accident allegedly caused by an employee of an independent contractor of the Company who was acting outside of the scope of employment. In March 2017, the Company was also found liable for damages in a companion case arising from the same incident. The Company considers the attribution of liability to the Company, and the amount of damages awarded, to be unsupported by the facts of these cases and intends to appealvigorously defend them.
We are currently involved, and in the verdicts. The Company has recognized a liability for the expected loss related to these cases, net of recoverable insurance proceeds, of approximately $12 million.
Litigation is inherently unpredictable and, although the Company believeswe believe that itsour accruals are adequate and/or that it haswe have valid defenses in these matters, unfavorable resolutions could occur. The Company estimatesWe 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 $50$40 million in excess of amounts accrued as of December 31, 2017; however, the Company does2023. We do not believe that the impact should result in a material liability to the Companyus in relation to itsour consolidated financial condition or results of operations.
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Commitments to Purchase Vehicles
Other Purchase Commitments
In the normal course of business, the Company makeswe make various commitments to purchase other goods or services from specific suppliers, including those related to marketing, advertising, computer services and capital expenditures. As of December 31, 2017, the Company2023, we had approximately $224$149 million of purchase obligations, which extend through 2022.2028.
Concentrations
Concentrations of credit risk at December 31, 2017,2023, include (i) risks related to the Company’sour repurchase and guaranteed depreciation agreements with domestic and foreign car manufacturers including Ford, Fiat Chrysler and General Motors, and primarily with respect to receivables for program cars that have been disposed, but for which the Company haswe have not yet received payment from the manufacturers and (ii) risks related to Realogy and Wyndham, including receivables of $23$38 million and $14$23 million, respectively, related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with their disposition.
Asset Retirement Obligations
Standard Guarantees/Indemnifications
In the ordinary course of business, the Company enterswe enter into numerous agreements that contain standard guarantees and indemnities whereby the Company agreeswe agree to indemnify another party, among other things,
for performance under contracts and any breaches of representations and warranties thereunder. In addition, many of these parties are also indemnified against any third-party claim resulting from the transaction that is contemplated in the underlying agreement. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases, sales or outsourcing of assets, businesses or activities, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities and use of derivatives and (v) issuances of debt or equity securities. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts, (iii) licensees under licensing agreements, (iv) financial institutions in credit facility arrangements and derivative contracts and (v) underwriters and placement agents in debt or equity security issuances. While some of these guarantees extend only for the duration of the underlying agreement, many may survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that the Companywe could be required to make under these guarantees, nor is the Companyare we able to develop an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering events are not subject to predictability. With respect to certain of the aforementioned guarantees, such as indemnifications provided to landlords against third-party claims for the use of real estate property leased by the Company, the Company maintainsus, we maintain insurance coverage that mitigates itsour potential exposure.
16. Stockholders' Equity
Cash Dividend Payments
In December 2023, we paid a special cash dividend of $10.00 per share to all holders of our common stock as of December 15, 2023, totaling approximately $355 million. During 2017, 20162022 and 2015, the Company2021, we did not declare or
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pay any cash dividends. The Company’sOur ability to pay dividends to holders of itsour common stock is limited by the Company’sour senior credit facility, the indentures governing itsour senior notes and itsour vehicle financing programs.
Share Repurchases
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are 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, 2021 | $ | 40 | $ | (51) | $ | (176) | $ | (187) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (35) | 18 | 39 | 22 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 11 | 14 | 7 | 32 | |||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | (24) | 32 | 46 | 54 | |||||||||||||||||||||||||
| Balance, December 31, 2021 | 16 | (19) | (130) | (133) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (46) | 57 | 11 | 22 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 7 | 3 | 10 | |||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | (46) | 64 | 14 | 32 | |||||||||||||||||||||||||
| Balance, December 31, 2022 | (30) | 45 | (116) | (101) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 27 | 5 | (18) | 14 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (13) | 4 | (9) | |||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | 27 | (8) | (14) | 5 | |||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | (3) | $ | 37 | $ | (130) | $ | (96) | |||||||||||||||||||||
Currency Translation Adjustments | Net Unrealized Gains (Losses) on Cash Flow Hedges (a) | Net Unrealized Gains (Losses) on Available-For-Sale Securities | Minimum Pension Liability Adjustment (b) | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||
| Balance, January 1, 2015 | $ | 51 | $ | (1 | ) | $ | 2 | $ | (74 | ) | $ | (22 | ) | ||||||
| Other comprehensive income (loss) before reclassifications | (131 | ) | (6 | ) | (2 | ) | 6 | (133 | ) | ||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 5 | — | 3 | 8 | ||||||||||||||
| Net current-period other comprehensive income (loss) | (131 | ) | (1 | ) | (2 | ) | 9 | (125 | ) | ||||||||||
| Balance, December 31, 2015 | (80 | ) | (2 | ) | — | (65 | ) | (147 | ) | ||||||||||
| Other comprehensive income (loss) before reclassifications | 41 | — | 1 | (57 | ) | (15 | ) | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 4 | — | 4 | 8 | ||||||||||||||
| Net current-period other comprehensive income (loss) | 41 | 4 | 1 | (53 | ) | (7 | ) | ||||||||||||
| Balance, December 31, 2016 | (39 | ) | 2 | 1 | (118 | ) | (154 | ) | |||||||||||
| Other comprehensive income (loss) before reclassifications | 110 | 1 | 1 | 11 | 123 | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 2 | — | 5 | 7 | ||||||||||||||
| Net current-period other comprehensive income (loss) | 110 | 3 | 1 | 16 | 130 | ||||||||||||||
| Balance, December 31, 2017 | $ | 71 | $ | 5 | $ | 2 | $ | (102 | ) | $ | (24 | ) | |||||||
__________
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 (see Note 8-Income Taxes for potential impacts of the Tax Act)9 – Income Taxes) and include a $33$93 million gain, net of tax, related to the Company’sour hedge of itsour investment in euro-denominated foreign operations (See Note 18-Financial20 – Financial Instruments).
(a)For the year ended December 31, 2021 the amounts were reclassified from accumulated other comprehensive income (loss) into restructuring and other related charges.
(b)For the years ended December 31, 2023, 2022 and 2021, the amounts reclassified from accumulated other comprehensive income (loss) into corporate interest expense were income of $18 million ($13 million, net of tax), losses of $9 million ($7 million, net of tax) and losses of $17 million ($12 million, net of tax), respectively. For the year ended December 31, 2021, the amount reclassified from accumulated other comprehensive income (loss) into vehicle interest expense was losses of $2 million ($2 million, net of tax).
(c)For the years ended December 31, 2023, 2022 and 2021, amounts reclassified from accumulated other comprehensive income (loss) into selling, general and administrative expenses were losses of $5 million ($4 million, net of tax), $5 million ($3 million, net of tax) and $9 million ($7 million, net of tax), respectively.
17. Related Party Transactions
SRS Mobility Ventures, LLC
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
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statements and began to report our proportional share of the Tax Act, management is evaluating its intentionformer subsidiary’s income or loss within other (income) expense, net in our Consolidated Statements of Operations 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 August and October 2023, SRS made capital contributions to AMV, increasing their ownership to approximately 65%.
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 was reported within other (income) expense, net during the year ended December 31, 2022.
We continue to indefinitely reinvestprovide vehicles, related fleet services, and certain administrative services to AMV to support their operations. For the years ended December 31, 2023 and 2022, we recorded $22 million and $7 million of related income within other (income) expense, net, respectively. For the years ended December 31, 2023 and 2022, we recorded losses of $25 million and $10 million within other (income) expense, net, related to our equity method investment, respectively.
As of December 31, 2023 and 2022, receivables from AMV related to these services were $2 million and $6 million, respectively, and our net investment in foreign subsidiaries.
vehicle finance lease with AMV, which is included in vehicles, net, was $31 million and $36 million, respectively. The carrying value of our equity investment in AMV as of December 31, 2023 and 2022 was approximately $24 million and $49 million, respectively, which is included in other non-current assets.
18. Stock-Based Compensation
Our Amended and Restated Equity and Incentive Plan provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and other stock- or cash-based awards to employees, directors and other individuals who perform services for the Companyus and itsour subsidiaries. The maximum number of shares reserved for grant of awards under the plan is 20.122.5 million, with approximately 4.03.9 million shares available as of December 31, 2017. The Company2023. We typically settlessettle stock-based awards with treasury shares.
Time-based awards generally vest ratably over a three-year period following the date of grant, and performance- or market-based awards generally vest three years following the date of grant based on the attainment of performance- or market-based goals, all of which are subject to a service condition.
Stock Unit Awards
Stock unit awards entitle the holder to receive shares of common stock upon vesting on a one-to-one basis. Performance-basedCertain performance-based RSUs principally vest based upon the level of performance attained, but vesting can increase (typically by up to 20%) if certain relative total shareholder return goals are achieved. Market-based RSUs generally vest based on the level of total shareholder return or absolute stock price attainment.
As part of our declaration and payment of a special cash dividend in December 2023, we granted additional RSUs to our award holders with unvested shares as a dividend equivalent, which has been deferred until, and will not be paid unless, the shares of stock underlying the award vest.
In 2020, we granted market-based RSUs that vest based on absolute stock price attainment. The grant date fair value of the performance-based RSUs incorporates the total shareholder return metric, whichthis award is estimated using a Monte Carlo simulation model. The weighted average assumptions used in the model to estimateare outlined in the Company’s ranking relative to an applicable stock index.table below. During the yearyears ended December 31, 2017, the Company2023 and 2022, we did not issue any stock unit awards containing a market condition. The weighted average assumptions used in the Monte Carlo simulation model to calculate the fair value
| Expected volatility of stock price | 91% | ||||||||||
| Risk-free interest rate | 0.18% | ||||||||||
| Valuation period | 3 years | ||||||||||
| Dividend yield | —% | ||||||||||
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Contents
| 2016 | 2015 | ||||
| Expected volatility of stock price | 46% | 37% | |||
| Risk-free interest rate | 0.98% | 0.74% | |||
| Valuation period | 3 years | 3 years | |||
| Dividend yield | 0% | 0% | |||
Annual activity related to stock units 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, 2017 | 878 | $ | 34.83 | |||||||||||
Granted (a) | 914 | 35.32 | ||||||||||||
Vested (b) | (470 | ) | 37.12 | |||||||||||
| Forfeited | (162 | ) | 33.07 | |||||||||||
Outstanding and expected to vest at December 31, 2017 (c) | 1,160 | $ | 34.54 | 0.9 | $ | 51 | ||||||||
| Performance-based and market-based RSUs | ||||||||||||||
| Outstanding at January 1, 2017 | 923 | $ | 34.11 | |||||||||||
Granted (a) | 572 | 35.21 | ||||||||||||
Vested (b) | (146 | ) | 36.55 | |||||||||||
| Forfeited | (355 | ) | 37.82 | |||||||||||
| Outstanding at December 31, 2017 | 994 | $ | 33.06 | 1.4 | $ | 44 | ||||||||
Outstanding and expected to vest at December 31, 2017 (c) | 97 | $ | 36.64 | 2.2 | $ | 4 | ||||||||
| 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, 2023 | 451 | $ | 92.06 | ||||||||||||||||||||||||||
Granted (a) | 98 | 204.17 | |||||||||||||||||||||||||||
Vested (b) | (252) | 53.44 | |||||||||||||||||||||||||||
| Forfeited | (7) | 165.67 | |||||||||||||||||||||||||||
Outstanding and expected to vest at December 31, 2023 (c) | 290 | $ | 161.87 | 1.2 | $ | 51 | |||||||||||||||||||||||
| Performance-based and market-based RSUs | |||||||||||||||||||||||||||||
| Outstanding at January 1, 2023 | 691 | $ | 57.56 | ||||||||||||||||||||||||||
Granted (a) | 111 | 204.13 | |||||||||||||||||||||||||||
Vested (b) | (381) | 21.05 | |||||||||||||||||||||||||||
| Forfeited | (10) | 148.96 | |||||||||||||||||||||||||||
| Outstanding at December 31, 2023 | 411 | $ | 128.77 | 0.9 | $ | 73 | |||||||||||||||||||||||
Outstanding and expected to vest at December 31, 2023 (c) | 333 | $ | 112.18 | 0.9 | $ | 59 | |||||||||||||||||||||||
__________
(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, which are discussed separately below. The weighted-average fair value of time-based RSUs, and performance-based and market-based RSUs granted in 2022 was $172.34 and $193.48, respectively, and the weighted-average fair value of time-based RSUs and performance-based RSUs granted in 2021 was $65.23 and $62.27, respectively.
(b)The total fair value of RSUs vested during 2023, 2022 and 2021 was $21 million, $22 million and $17 million, respectively.
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (in millions) | ||||||||||
| Outstanding at January 1, 2017 | 810 | $ | 2.91 | 2.3 | $ | 27 | |||||||
Granted (a) | — | — | — | ||||||||||
Exercised (b) | (537 | ) | 0.79 | 21 | |||||||||
| Forfeited/expired | — | — | |||||||||||
| Outstanding and exercisable at December 31, 2017 | 273 | $ | 7.08 | 1.7 | $ | 10 | |||||||
Non-employee Directors Deferred Compensation Plan
Stock-Compensation Expense
During 2017, 20162023, 2022 and 2015, the Company2021, we recorded stock-based compensation expense of $10$30 million ($721 million, net of tax), $28$25 million ($18 million, net of tax) and $26 million ($ ($17 million,, net of tax), respectively. Approximately $56and $30 million ($21 million, net of tax benefits were recorded in accumulated deficit upon adoption of ASU 2016-09 on January 1, 2017 related to these tax deductions (see Note 2-Summary of Significant Accounting Policies).tax), respectively.
19. Employee Benefit Plans
Defined Contribution Savings Plans
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Defined Benefit Pension Plans
The funded status of the defined benefit pension plans is recognized on the Consolidated Balance Sheets and the gains or losses and prior service costs or credits that arise during the period, but are not recognized
as components of net periodic benefit cost, are recognized as a component of accumulated other comprehensive loss, net of tax.
The components of net periodic benefit(benefit) cost consisted of the following:
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Service cost | $ | 5 | $ | 4 | $ | 5 | |||||
| Interest cost | 19 | 21 | 22 | ||||||||
| Expected return on plan assets | (30 | ) | (27 | ) | (31 | ) | |||||
| Amortization of unrecognized amounts | 8 | 5 | 5 | ||||||||
Net periodic benefit cost (a) | $ | 2 | $ | 3 | $ | 1 | |||||
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
Service cost (a) | $ | 3 | $ | 5 | $ | 6 | |||||||||||
Interest cost (b) | 27 | 16 | 12 | ||||||||||||||
Expected return on plan assets (b) | (30) | (37) | (35) | ||||||||||||||
Amortization of unrecognized amounts (b) | 5 | 5 | 9 | ||||||||||||||
| Net periodic (benefit) cost | $ | 5 | $ | (11) | $ | (8) | |||||||||||
__________
We use a measurement date of December 31 for itsour pension plans. The funded status of the pension plans were as follows:
| As of December 31, | |||||||||||
| Change in Benefit Obligation | 2023 | 2022 | |||||||||
| Benefit obligation at end of prior year | $ | 575 | $ | 881 | |||||||
| Service cost | 3 | 5 | |||||||||
| Interest cost | 27 | 16 | |||||||||
| Actuarial (gain) loss | 30 | (247) | |||||||||
| Plan amendments | — | (1) | |||||||||
| Currency translation adjustment | 15 | (51) | |||||||||
| Net benefits paid | (30) | (28) | |||||||||
| Benefit obligation at end of current year | $ | 620 | $ | 575 | |||||||
| Change in Plan Assets | |||||||||||
| Fair value of assets at end of prior year | $ | 514 | $ | 772 | |||||||
| Actual return on plan assets | 35 | (196) | |||||||||
| Employer contributions | 6 | 12 | |||||||||
| Currency translation adjustment | 15 | (46) | |||||||||
| Net benefits paid | (30) | (28) | |||||||||
| Fair value of assets at end of current year | $ | 540 | $ | 514 | |||||||
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| As of December 31, | |||||||
| Change in Benefit Obligation | 2017 | 2016 | |||||
| Benefit obligation at end of prior year | $ | 720 | $ | 656 | |||
| Service cost | 5 | 4 | |||||
| Interest cost | 19 | 21 | |||||
| Actuarial (gain) loss | 15 | 115 | |||||
| Currency translation adjustment | 44 | (53 | ) | ||||
| Net benefits paid | (24 | ) | (23 | ) | |||
| Benefit obligation at end of current year | $ | 779 | $ | 720 | |||
| Change in Plan Assets | |||||||
| Fair value of assets at end of prior year | $ | 523 | $ | 527 | |||
| Actual return on plan assets | 59 | 60 | |||||
| Employer contributions | 24 | 12 | |||||
| Currency translation adjustment | 32 | (53 | ) | ||||
| Net benefits paid | (24 | ) | (23 | ) | |||
| Fair value of assets at end of current year | $ | 614 | $ | 523 | |||
| As of December 31, | |||||||||||||||||||||||||||||
| As of December 31, | As of December 31, | ||||||||||||||||||||||||||||
| Funded Status | 2017 | 2016 | Funded Status | 2023 | 2022 | ||||||||||||||||||||||||
| Classification of net balance sheet assets (liabilities): | |||||||||||||||||||||||||||||
| Non-current assets | |||||||||||||||||||||||||||||
| Non-current assets | |||||||||||||||||||||||||||||
| Non-current assets | $ | 24 | $ | — | |||||||||||||||||||||||||
| Current liabilities | (3 | ) | (1 | ) | |||||||||||||||||||||||||
| Non-current liabilities | (186 | ) | (196 | ) | |||||||||||||||||||||||||
| Net funded status | $ | (165 | ) | $ | (197 | ) | |||||||||||||||||||||||
The following assumptions were used to determine pension obligations and pension costs for the principal plans in which the Company’sour employees participated:
| For the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||
| For the Year Ended December 31, | For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Pension Benefit Plans | U.S. Pension Benefit Plans | 2017 | 2016 | 2015 | U.S. Pension Benefit Plans | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||
| Discount rate: | Discount rate: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | 3.90 | % | 4.40 | % | 4.00 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Benefit obligation | 3.50 | % | 3.90 | % | 4.40 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | 5.18 | % | 2.67 | % | 2.25 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Benefit obligation | Benefit obligation | 4.96 | % | 5.18 | % | 2.67 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Long-term rate of return on plan assets | Long-term rate of return on plan assets | 7.00 | % | 7.00 | % | 7.25 | % | Long-term rate of return on plan assets | 6.25 | % | 6.25 | % | 6.75 | % | |||||||||||||||||||||||||||||||||||||
| Non-U.S. Pension Benefit Plans | Non-U.S. Pension Benefit Plans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-U.S. Pension Benefit Plans | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-U.S. Pension Benefit Plans | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount rate: | Discount rate: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | 2.45 | % | 3.45 | % | 3.30 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Benefit obligation | 2.55 | % | 2.45 | % | 3.45 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Discount rate: | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount rate: | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | 4.79 | % | 1.83 | % | 1.40 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Benefit obligation | Benefit obligation | 4.40 | % | 4.79 | % | 1.83 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Long-term rate of return on plan assets | Long-term rate of return on plan assets | 4.70 | % | 4.45 | % | 4.65 | % | Long-term rate of return on plan assets | 5.59 | % | 4.39 | % | 3.71 | % | |||||||||||||||||||||||||||||||||||||
To select discount rates for itsour defined benefit pension plans, the Company useswe use a modeling process that involves matching the expected cash outflows of such plans, to yield curves constructed from portfolios of AA-rated fixed-income debt instruments. The Company usesWe use the average yields of the hypothetical portfolios as a discount rate benchmark.
As of December 31, 2017,2023 and 2022, plans with projected benefit obligations in excess of plan assets had projected benefit obligations of $350 million and $332 million, respectively, and plan assets of $246 million and $235 million, respectively. As of December 31, 2023 and 2022, plans with accumulated benefit obligations in excess of plan assets had accumulated benefit obligations of $453$346 million and $329 million, respectively, and plan assets of $264 million. As of December 31, 2016, plans with benefit obligations in excess of plan assets had accumulated benefit obligations of $720$246 million and plan assets of $523 million.$235 million, respectively. The accumulated benefit obligation for all plans was $769$615 million and $712$571 million as of December 31, 20172023 and 2016,2022, respectively. The Company expectsWe expect to contribute approximately $4$1 million to the U.S. plans and $5 million to the non-U.S. plans in 2018.2024.
The defined benefit pension plans’ investment goals and objectives are managed by the Companyus or Company-appointed and member-appointed trustees with consultation from independent investment advisors. While the objectives may vary slightly by country and jurisdiction, collectively the Company seekswe seek to produce returns on pension plan investments, which are based on levels of liquidity and investment risk that the Company believeswe believe are prudent and reasonable, given prevailing capital market conditions. The pension plans’ assets are managed
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in the long-term interests of the participants and the beneficiaries of the plans. A suitable strategic asset allocation benchmark is determined for each plan to maintain a diversified portfolio, taking into account government requirements, if any, regarding unnecessary investment risk and protection of pension plans’ assets. The Company believesWe believe that diversification of the pension plans’ assets is an important investment strategy to provide reasonable assurance that no single security or class of securities will have a disproportionate impact on the pension plans. As such, the Company allocateswe allocate assets among traditional equity, fixed income (government issued securities, corporate bonds and short-term cash investments) and other investment strategies.
The equity component’s purpose is to provide a total return that will help preserve the purchasing power of the assets. The pension plans hold various mutual funds that invest in equity securities and are diversified among funds that invest in large cap, small cap, growth, value and international stocks as well as funds that are intended to “track” an index, such as the S&P 500. The equity investments in the portfolios will represent a greater assumption of market volatility and risk as well as provide higher anticipated total return over the long term. The equity component is expected to approximate 40%-60%35%-55% of the plans’ assets.
The purpose of the fixed income component is to provide a deflation hedge, to reduce the overall volatility of the pension plans’ assets in relation to the liability and to produce current income. The pension plans hold mutual funds that invest in securities issued by governments, government agencies and corporations. The fixed income component is expected to approximate 40%-60%35%-55% of the plans’ assets.
The purpose of the alternative investment component is to provide diversification and risk reduction through less correlated investment strategies with the goal of enhanced returns and downside protection. Alternative strategies will not be used if they are designed solely to enhance return and/or employ significant leverage. Diversification of asset categories, investment styles and managers is central to managing investment risk. The alternative investment component is expected to approximate 5%-15% of the plans’ assets.
The following table presents the defined benefit pension plans’ assets measured at fair value,value:
| As of December 31, 2023 | |||||||||||||||||||||||
| Asset Class | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Cash equivalents and short-term investments | $ | 12 | $ | 12 | $ | — | $ | 24 | |||||||||||||||
| U.S. equities | 73 | 15 | — | 88 | |||||||||||||||||||
| Non-U.S. equities | 40 | 23 | — | 63 | |||||||||||||||||||
| Government bonds | 1 | — | — | 1 | |||||||||||||||||||
| Corporate bonds | 138 | 47 | — | 185 | |||||||||||||||||||
| Other assets | — | 118 | 61 | 179 | |||||||||||||||||||
| Total assets | $ | 264 | $ | 215 | $ | 61 | $ | 540 | |||||||||||||||
__________
For the year ended December 31, 2023, we purchased and classified $11 million of investments as Level 3.
| As of December 31, 2022 | |||||||||||||||||||||||
| Asset Class | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Cash equivalents and short-term investments | $ | 18 | $ | 6 | $ | — | $ | 24 | |||||||||||||||
| U.S. equities | 69 | 19 | — | 88 | |||||||||||||||||||
| Non-U.S. equities | 39 | 30 | — | 69 | |||||||||||||||||||
| Government bonds | — | 2 | — | 2 | |||||||||||||||||||
| Corporate bonds | 126 | 48 | — | 174 | |||||||||||||||||||
| Other assets | 2 | 101 | 54 | 157 | |||||||||||||||||||
| Total assets | $ | 254 | $ | 206 | $ | 54 | $ | 514 | |||||||||||||||
__________
For the year ended December 31, 2022, we purchased and classified $54 million of December 31:investments as Level 3.
| 2017 | |||||||||||
| Asset Class | Level 1 | Level 2 | Total | ||||||||
| Cash equivalents and short-term investments | $ | 12 | $ | 29 | $ | 41 | |||||
| U.S. equities | 102 | 43 | 145 | ||||||||
| Non-U.S. equities | 50 | 100 | 150 | ||||||||
| Real estate | — | 18 | 18 | ||||||||
| Government bonds | 7 | 11 | 18 | ||||||||
| Corporate bonds | 90 | 37 | 127 | ||||||||
| Other assets | 3 | 112 | 115 | ||||||||
| Total assets | $ | 264 | $ | 350 | $ | 614 | |||||
| 2016 | |||||||||||
| Asset Class | Level 1 | Level 2 | Total | ||||||||
| Cash equivalents and short-term investments | $ | 12 | $ | 15 | $ | 27 | |||||
| U.S. equities | 87 | 34 | 121 | ||||||||
| Non-U.S. equities | 40 | 70 | 110 | ||||||||
| Real estate | — | 15 | 15 | ||||||||
| Government bonds | 7 | 70 | 77 | ||||||||
| Corporate bonds | 82 | 40 | 122 | ||||||||
| Other assets | 2 | 49 | 51 | ||||||||
| Total assets | $ | 230 | $ | 293 | $ | 523 | |||||
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Multiemployer Plans
20. Financial Instruments
Risk Management
Currency Risk. The Company usesWe use currency exchange contracts to manage itsour exposure to changes in currency exchange rates associated with itscertain of our non-U.S.-dollar denominated receivables and forecasted royalties, forecasted earnings of non-U.S. subsidiaries and forecasted non-U.S.-dollarnon-U.S. dollar denominated
acquisitions. The CompanyWe primarily hedgeshedge a portion of itsour 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. The Company hasWe have designated itsour euro-denominated notes as a hedge of itsour investment in euro-denominated foreign operations.
The estimated net amount of existing gains or losses reclassified from other comprehensive income (loss) to earnings resulting from ineffectiveness or from excluding a component of the hedges’ gain or loss from the effectiveness calculation for cash flow and net investment hedges during 2017, 2016 and 2015 was not material, nor is the amount of gains or losses the Company expectswe expect to reclassify from accumulated other comprehensive income (loss) to earnings for cash flow and net investment hedges over the next 12 months.months is not material.
Interest Rate Risk. The Company usesWe 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. The after-tax amountWe 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 reclassified fromrelated 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 $24 million of gain currently recorded in accumulated other comprehensive income (loss) to earnings resulting from ineffectiveness for 2017, 2016 and 2015 was not material to the Company’s results of operations, nor is the amount of gains or losses the Company expects to reclassify from accumulated other comprehensive income (loss) towill be recognized in earnings over the next 12 months.
Commodity Risk. The Company We periodically entersenter into derivative commodity contracts to manage itsour exposure to changes in the price of gasoline.fuel. These instruments were designated as freestanding derivatives and the changes in fair value are recorded in earnings and are presented in the Company’s consolidated resultssame line of operations.the income statement expected for the hedged item.
Credit Risk and Exposure. The Company isWe are exposed to counterparty credit risks in the event of nonperformance by counterparties to various agreements and sales transactions. The Company managesWe manage such risk by evaluating the financial position and creditworthiness of such counterparties and by requiring collateral in certain instances in which financing is provided. The Company mitigatesWe mitigate counterparty credit risk associated with itsour derivative contracts by monitoring the amount for which it iswe are at risk with each counterparty, periodically evaluating counterparty creditworthiness and financial position, and where possible, dispersing itsour risk among multiple counterparties.
There were no significant concentrations of credit risk with any individual counterparty or groups of counterparties at December 31, 20172023 or 2016,2022, other than (i) risks related to the Company’sour repurchase and guaranteed depreciation agreements with domestic and foreign car manufacturers, and primarily with respect to
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receivables for program cars that were disposed but for which the Company haswe have not yet received payment from the manufacturers (see Note 2-Summary2 – Summary of Significant Accounting Policies), (ii) receivables from Realogy and Wyndham related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with their disposition and (iii) risks related to leases which have been assumed by Realogy but of which the Company iswe are a guarantor. Concentrations of credit risk associated with trade receivables are considered minimal due to the Company’sour diverse customer base. The Company doesWe do not normally require collateral or other security to support credit sales.
Fair Value
Derivative instruments and hedging activities
As described above, derivative assets and liabilities consist principally of currency exchange contracts, interest rate swaps, interest rate caps and commodity contracts.
| As of December 31, | |||||||||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||||||||
| As of December 31, | As of December 31, | ||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | |||||||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||||||||
Interest rate caps (a) | $ | 10,968 | $ | 9,736 | |||||||||||||||||||||||||
| Interest rate swaps | 1,000 | 1,950 | |||||||||||||||||||||||||||
| Foreign exchange contracts | 934 | 692 | |||||||||||||||||||||||||||