What changed in this filing

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Item 1A. Risk Factors

2022-02-17 compared with 2021-02-17 · 45 added, 58 removed, 284 unchanged (27% of the section changed)

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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.

RISKS RELATED TO COVID-19

The COVID-19 pandemic has significantly affected our business and is expected to continue to materially affect our business, financial condition, results of operations and/or cash flows for an extended period.

Governmental authorities have taken and continue to take measures to address the outbreak, including restrictions on travel and other orders, including partial shelter-in-place orders.

The pandemic is a highly fluid and rapidly evolving situation and we cannot anticipate with any certainty the length, scope or severity of such restrictions in each of the jurisdictions that we operate.

The full impact that COVID-19 will have on our business cannot be predicted at this time due to numerous uncertainties, including the duration and severity of the outbreak, future mutations in the virus that causes COVID-19, increases or spikes in the number of cases, the availability of vaccines and effectiveness of actions taken to contain the disease, the length of time it takes for rental volume and pricing to return and normal economic and operating conditions to resume, and other factors.

This impact could include, but is not limited to, those discussed below:

• Changes in our revenues and customer demand:

Our revenues and profitability were materially impacted during 2020 compared to prior years, and we expect they will continue to be adversely affected.

Although we believe that renting a vehicle will continue to be a safe, clean and attractive transport alternative, we cannot predict whether and when volumes will increase to historical levels.

As we typically generate approximately 64% of our revenues from on-airport locations, our business is highly dependent on travel and both commercial demand and leisure demand.

In addition, our truck rental business is affected by the housing, light commercial and consumer sectors, all of which have been adversely impacted by the COVID-19 pandemic, and we cannot predict the pace of recovery in those sectors.

• Our expenses:

To date we have incurred, and expect to continue to incur, certain increased costs related to COVID-19, such as procurement of overflow parking for our idle vehicles and costs associated with sanitizing our vehicles and facilities.

In April 2020, we experienced a fire at an overflow parking lot near Southwest Florida International Airport.

As a result, we lost vehicles with an estimated carrying value of approximately $50 million.

We could experience similar casualty losses in other overflow parking lots.

In addition, the industry may become subject to enhanced health and hygiene requirements in attempts to address future outbreaks, which may increase our costs and take a significant amount of time to implement across our global operations.

These additional costs may be required by regulators or expected by consumers even after the effects of COVID-19 subside.

In response to the COVID-19 outbreak, we aimed to right-size our business for vehicle rental demand by reducing operating costs, in some cases by working with suppliers, landlords and other stakeholders.

There can be no guarantee that our costs reduction efforts will be successful as the pandemic continues.

• Our workforce:

The COVID-19 outbreak has caused us to reduce and furlough employees as we seek to keep our costs in line with demand.

These actions could create risks, including but not limited to, our ability to manage the size of our workforce given uncertain future demand.

Further, we may incur additional costs as a result of negotiations with labor unions that represent our employees or severance payments in the event our workforce is further reduced, and we could experience labor disputes or disruptions as we continue to implement our mitigation plans.

• Our relationship with, and the financial and operational capacities of, vehicle manufacturers and other suppliers:

We have, and could face disruptions in the supply of vehicles from vehicle manufacturers or supply chain, whether due to outbreaks of COVID-19 at their manufacturing facilities, measures they take in response to COVID-19 or otherwise.

We have faced, and may face additional, delays in receiving delivery of vehicles or other supplies that may make it difficult to meet consumer demand.

• The used car market:

We depend on the used car market to sell vehicles and enable us to refresh our fleet.

The used car market has faced and may again experience lower demand due to shutdowns of sales channels, other restrictions and the slowdown in overall global economic activity due to COVID-19, unemployment rates, depressed consumer demand and related factors.

• Our indebtedness and the adequacy of our cash flow and earnings and other conditions may affect our liquidity:

We have taken a number of actions as a result of COVID-19 that have increased our long-term debt.

As we manage through the effects of the pandemic, our level of indebtedness may further increase.

In addition, we obtained covenant relief under the credit agreement governing our senior credit facilities through June 30, 2021.

A default under our senior credit facilities would enable our lenders to terminate their commitments thereunder and could trigger a cross-default, acceleration or other consequences under our other indebtedness or financial instruments.

There is no guarantee that debt financings will be available in the future to fund our obligations or will be available on terms consistent with our expectations.

• Consumer sentiment and discretionary spending patterns:

To date there have been significant increases in unemployment in the United States and other regions due to the adoption of social distancing and other policies to slow the spread of the virus, which are likely to continue to have a significant negative impact on consumer discretionary spending, including in the mobility industry and the travel industry, which we serve.

Even when economic and operating conditions for our business improve, we cannot predict the long-term effects of the pandemic on our business or the mobility industry.

RISKS RELATED TO THE COVID-19 PANDEMIC

COVID-19 is continuing to impact our industry, operations, strategies and financial position, and the duration of the pandemic and its implications on our business are still uncertain.

The COVID-19 pandemic has affected, and is expected to continue to affect, our business, financial condition, results of operations and/or cash flows for an extended period.

Governmental authorities have taken, and continue to take, measures to address the pandemic, including restrictions on travel and other measures, such as lockdowns.

The pandemic is highly fluid and rapidly evolving and we cannot anticipate with any certainty the length, scope or severity of its impact in each of the jurisdictions that we operate, including due to new variants emerging such as the Omicron variant.

If the pandemic continues, there could be adverse impacts to our revenues, customer demand and expenses, the used car market, our workforce, our indebtedness and adequacy of cash flow, earnings and liquidity, consumer sentiment and discretionary spending patterns, and our overall financial condition, any of which could be material.

Due to the pandemic, we have faced, among other impacts to our business, reductions in travel volumes, impacts to staffing levels, and delays in receiving delivery of new vehicles from vehicle manufacturers, including, but not limited to, due to a global semiconductor supply shortage, as further described below.

As a result of delays in receiving new vehicle deliveries, the average mileage of a portion of the vehicles in our fleet has increased, and we could face challenges meeting consumer demand and customer expectations should such delays continue.

RISKS RELATED TO OUR INDUSTRY AND THE BROADER ECONOMY

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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 as 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 and availability.

We face risks related to fleet costs and availability, including as a result of disruptions in the production and delivery of new vehicles due to the lack of availability of parts and key components, such as semiconductor chips.

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.

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or (ii) returned to the manufacturer, but for which we were not yet 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, we are exposed to risk to the extent that any auto manufacturer significantly curtails production, increases the cost of vehicles or declines to sell vehicles to us on terms or at prices consistent with past practice.

While we source our fleet purchases from a wide range of auto manufacturers, we are exposed to risk to the extent that any auto manufacturer significantly curtails production.

Such production may be curtailed as a result of a wide range of factors, including impacts of the COVID-19 pandemic and supply chain impacts, including shortages of semiconductors, which have caused and may continue to cause certain auto manufacturers to suspend or slow production of new vehicles.

We are also exposed to risk to the extent that any auto manufacturer increases the cost of vehicles, including as a result of inflation, or declines to sell vehicles to us on terms or at prices consistent with past 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.

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Weakness in travel demand or general economic conditions, or a significant increase in fuel costs, can adversely impact our business.

Demand for vehicle rentals is generally subject to and impacted by international, national and local economic conditions and travel demand.

Demand for vehicle rentals is generally subject to and impacted by international, national and local economic conditions 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 weakens, our financial condition and results of operations are often adversely impacted.

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Our global operations expose us to risks related to international, national and local economic and political conditions and instability.

For example, our operations in the United Kingdom include a significant amount of cross-border business that could be negatively impacted by the United Kingdom’s exit from the European Union.

Given the lack of comparable precedent, it is unclear what financial, trade and legal implications the withdrawal of the United Kingdom from the European Union will have and how such withdrawal will affect our operations.

Such withdrawal 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 our business in a number of different regions and countries exposes us to a number of other risks, including:

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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 AND REGULATORY MATTERS

RISKS RELATED TO LEGAL, REGULATORY AND ESG-RELATED MATTERS

Costs associated with lawsuits, investigations or increases in legal reserves that we establish based on our assessment of contingent liabilities may have an adverse effect on our results of operations.

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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.

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.

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.

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Environmental regulatory authorities are likely to continue to pursue measures related to climate change and greenhouse gas emissions, including vehicle travel restrictions.

Should rules establishing limitations on greenhouse gas or other emissions or rules imposing fees on entities deemed to be responsible for greenhouse gas emission, or rules establishing bans on diesel or fuel vehicles from entering certain locations become effective in the countries in which we operate, demand for our services could be affected, our fleet and/or other costs could increase, and our business could be adversely impacted.

effective in the countries in which we operate, demand for our services could be affected, our fleet and/or other costs could increase, and our business could be adversely impacted.

We face risks related to the increasing attention to ESG matters.

Increasing attention to climate change, increasing societal expectations on companies to address climate change, 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.

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 community divestment initiatives may lead to negative 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.

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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

We are also subject to certain regulations affecting our license arrangements in Europe and other international locations.

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.

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federal and state income taxes.

While the Tax Act repealed like-kind exchange treatment for vehicle sales, the effect of the repeal will be largely offset through 2022 by the full expensing provision of certain business assets in the year placed in service, which we believe includes our vehicles.

we believe includes our vehicles.

However, the downsizing of our fleet in 2020 resulted in significant taxable gains and has significantly decreased the amount of tax deductions available under the full expensing provision.

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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.

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 limit our ability to, among other things:

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If we are unable to refinance maturing indebtedness at interest rates that are equivalent to or lower than the interest rates on our maturing debt, our results of operations or our financial condition may be adversely affected.

The interest rates of certain of our financing instruments are priced using a spread over LIBOR.

Certain of our debt agreements use LIBOR as a reference rate for interest rate calculations.

On March 5, 2021, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it will not compel panel banks to contribute to the US Dollar LIBOR tenors after June 30, 2023.

Federal Reserve has begun publishing a Secured Overnight Funding Rate, which is intended to replace U.S.

dollar LIBOR.

Plans for alternative reference rates for other currencies have also been announced.

At this time, we cannot predict how markets will respond to these proposed alternative rates or the effect of any changes to LIBOR or the discontinuation of LIBOR.

If LIBOR is no longer available or if our lenders have increased costs due to changes in LIBOR, we may experience potential increases in interest rates on our variable rate debt, which could adversely impact our results of operations.

If LIBOR is discontinued, we may incur additional costs related to contract renegotiation for such agreements.

RISKS RELATED TO OUR INTELLECTUAL PROPERTY MATTERS, DATA SECURITY AND PRIVACY

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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.

conduct our business.

We have centralized our information systems and we rely on third-party communications service and system providers for technology services and link our systems with the business locations these systems were designed to serve.

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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.

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.

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.

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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 and the equivalent in the United Kingdom (collectively, the “GDPR”), California Consumer Privacy Act including modifications by the California Privacy Rights Act (collectively, the “CCPA”), 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.

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.

The GDPR and CCPA, are each wide-ranging in scope, providing individuals located in the European Union and the United Kingdom, and California residents, respectively, greater control over their personal data.

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The centralized nature of our information systems combined with the global nature of our business requires the routine flow of information about employees, customers and potential customers across national borders, particularly in the United States, the United Kingdom and Europe.

Should this flow of information become illegal or subject us to onerous requirements or restrictions, our ability to serve our customers and efficiently manage our employees and operations could be negatively impacted for an extended period of time.

In 2020, the Court of Justice of the European Union invalidated mechanisms for transferring personal information out of the EU.

This decision imposes additional obligations and restrictions related to data transfers between the EU and other countries, including the U.S., and may affect our ability to serve our customers and efficiently manage our employees and operations.

In addition, 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.

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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.

We believe these provisions 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 acquisition of control.

by providing our Board with more time to assess any acquisition of control.

However, these provisions could apply even if an 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors