What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-17 compared with 2021-02-17 · 114 added, 124 removed, 157 unchanged (60% of the section changed)

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We operate three of the most globally recognized brands in mobility solutions, Avis, Budget and Zipcar together with several other brands, well recognized in their respective markets.

Our brands offer a range of options, from car and truck rental to car sharing in North America, Europe, Australasia and certain other regions we serve, with an average rental fleet of approximately 533,000 vehicles.

We also license the use of our trademarks to licensees in the areas in which we do not operate directly.

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Business and Trends

The spread of the novel coronavirus (“COVID-19”) and the impact on travel demand and the global economy has had significant negative impacts on all aspects of our business.

The positive momentum from the fourth quarter of 2020 carried throughout 2021.

For the year ended December 31, 2021, we generated revenues of $9.3 billion, net income of $1.3 billion, and Adjusted EBITDA of $2.4 billion.

These results were driven by increased demand for rental vehicles, improved pricing across the industry, disciplined cost removal achieved in 2020 and continued fleet management.

Our per-unit fleet costs per month was $189, a 27% improvement compared to 2019.

Revenue per day was $69.14, a 29% improvement compared to 2019.

The global economy and our business were significantly impac ted by the COVID-19 pandemic in 2020.

However, due to the continued distribution of effective vaccines, along with other protective measures, over the past year travel advisories and restrictions have eased, primarily in the Americas.

There continues to be a number of encouraging developments, such as a significant increase in global travel demand, which generated an increase in demand for rental vehicles and improved pricing across the industry, suggesting a steady return to historic travel trends.

We have positioned ourselves to capitalize on what we believe will be a continued surge in travel demand.

As our revenues reach pre-pandemic levels, we continue to take actions to keep us on a path of profitability.

We continue to look for ways to capitalize on the changes prompted by the pandemic and to expand our business in a post-COVID-19 environment.

However, the full extent of the ongoing impact of this virus on our long-term operational and financial performance will depend on future developments, including those outside of our control, such as the spread of new variants of the virus and the implementation of new or continued travel restrictions and the overall economic environment.

The rapidly spreading Omicron variant could cause prolonged impacts on the economy, our industry and on us, with reductions in available staffing and increasing inflation, among other impacts.

We will continue to monitor these and other impacts and take action in connection with it, by leveraging our technology and reviewing cost mitigating actions, among other actions.

Significant events affecting travel have historically had an impact on vehicle rental volumes, with the full extent of the impact generally determined by the length of time the event influences travel decisions.

COVID-19 and the resulting economic conditions have had, and we believe will continue to have, a significant negative impact on our operations and vehicle rental volumes and consequently our financial results, and such negative impact may continue well beyond the containment of this outbreak.

In particular:

• Reservation volume was significantly behind the prior year on a comparable basis as a result of the effects of COVID-19, which impacted our peak summer season.

We are not able to predict the impact that the COVID-19 pandemic may have on the seasonality of our business, particularly if the pandemic's effects increase.

• The used vehicle market was significantly disrupted in the first half of the second quarter, impacting our ability to dispose of used vehicles as a result of COVID-19.

Beginning in the second half of the second quarter and continuing throughout the third and fourth quarters, the used car market improved significantly.

If there are further disruptions due to COVID-19, we may experience a reduction in residual values for risk vehicles in our fleet which could cause us to sustain a substantial loss on the ultimate sale of such vehicles or require us to depreciate those vehicles at a more accelerated rate than we have anticipated.

If our ability to sell vehicles in the used vehicle market becomes severely limited again, we may have difficulty meeting collateral requirements due under our asset-backed financing facilities.

• In April 2020, Moody’s and S&P Global (the “Rating Agencies”) downgraded our long-term corporate debt rating.

If we were to experience a further downgrade, this could negatively impact 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.

• As a result of decreased rental volume, we parked our vehicles in overflow parking lots.

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

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

We realized a loss of approximately $10 million related to this incident, which has been treated as COVID-19 charges and excluded from Adjusted EBITDA.

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

• We have taken cost removal and mitigation actions by eliminating all non-essential capital and operating expenditures and we are continuing to negotiate with partners and suppliers for further reductions.

Expenses for 2020 reflect the reduction or furlough of a large part of our global workforce, reduction of base compensation at the level of vice presidents and above, frozen merit increases, elimination of our 401(k) match for highly compensated employees, and cancellation of future hiring.

We aggressively reduced the size of our global fleet beginning in March and ended December with 31% fewer units than the prior year.

Our vehicle dispositions will occur through both traditional methods and by utilizing our alternative distribution strategy by selling directly to dealers and consumers.

We also negotiated a significant number of new vehicle cancellations during 2020 to improve utilization and shrink the fleet size.

We have never previously experienced such a decrease in demand, and as a result, our ability to be predictive regarding the impact of such a decrease is uncertain.

In addition, the duration of the pandemic is uncertain.

As a consequence, we cannot estimate the impact on our business, financial condition or financial forecast or operational results with reasonable certainty.

Our results of operations, financial condition, and cash flows were significantly impacted during the year ended December 31, 2020, by the ongoing COVID-19 pandemic.

The trends and results for the year ended December 31, 2020 may not be indicative of results that may be expected in the future due to uncertainty regarding the extent and duration of the COVID-19 pandemic.

As a consequence, we cannot estimate the impact on our business, financial condition or forecast financial or operational results with reasonable certainty.

The global semiconductor shortage is impacting fleet supply, resulting in tighter fleets throughout the industry and causing us to hold cars longer compared to periods prior to the COVID-19 pandemic.

We have historically navigated through significant vehicle recalls and worked with our vehicle manufacturers, and believe we have the logistics in place to effectively manage our fleet during this disruption in supply.

We continue to purchase new vehicles and believe we can increase our fleet utilization efficiency to capture increased demand.

RESULTS OF OPERATIONS

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Our rental days, revenue per day and vehicle utilization metrics are all calculated based on the actual rental of the vehicle during a 24-hour period.

We believe that this methodology provides us with the most relevant metrics in order to manage the business.

We believe that this methodology provides management with the most relevant metrics in order to effectively manage the performance of the business.

Our calculation may not be comparable to the calculation of similarly-titled metrics by other companies.

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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 revenues and “Adjusted EBITDA,” which we define as income from continuing operations before non-vehicle related depreciation and amortization, any impairment charges, restructuring and other related charges, early extinguishment of debt costs, non-vehicle related interest, transaction-related costs, net, charges for unprecedented personal-injury and other legal matters, non-operational charges related to shareholder activist activity, gain on sale of equity method investment in China, COVID-19 charges and income taxes.

Management evaluates the operating results of each of our reportable segments based upon revenues and “Adjusted EBITDA,” which we define as income from continuing operations before non-vehicle related depreciation and amortization, any impairment charges, restructuring and other related charges, early extinguishment of debt costs, non-vehicle related interest, transaction-related costs, net, charges for unprecedented personal-injury and other legal matters, net, which includes amounts recorded in excess of $5 million related to class action lawsuits, non-operational charges related to shareholder activist activity, which include third party advisory, legal and other professional fees, gain on sale of equity method investment in China, COVID-19 charges and income taxes.

Net charges for unprecedented personal-injury and other legal matters and gain on sale of equity method investment in China are recorded within operating expenses in our consolidated results of operations.

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COVID-19 charges include unusual, direct and incremental costs due to the COVID-19 pandemic, such as minimum annual guaranteed rent in excess of concession fees for the period, overflow parking for idle vehicles and related shuttling costs, incremental cleaning supplies to sanitize vehicles and facilities and other charges, and losses associated with vehicles damaged in overflow parking lots, net of insurance proceeds, and are primarily recorded within operating expenses in our consolidated results of operations.

We have revised our definition of Adjusted EBITDA to exclude COVID-19 charges.

We did not revise prior years' Adjusted EBITDA amounts because there were no other charges similar in nature to these.

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 have revised our definition of Adjusted EBITDA to exclude amounts recorded in excess of $5 million related to class action lawsuits.

We did not revise prior years' Adjusted EBITDA amounts because there were no other charges 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 them to assess our results of operations and financial condition on the same basis that management uses internally.

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Non-vehicle related depreciation and amortization 272 286 (14) (5%)

286 263 23 9 %

Interest expense related to corporate debt, net:

Interest expense 218 231 (13) (6%)

Early extinguishment of debt 9 12 (3) (25 %)

Early extinguishment of debt 136 9 127 n/m

Restructuring and other related charges 64 118 (54) (46%)

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Net income (loss) 1,283 (684) 1,967 n/m

net loss attributable to non-controlling interests (2) — (2) n/m

Net income (loss) attributable to Avis Budget Group, Inc.

$ 1,285 $ (684) $ 1,969 n/m

n/m Not meaningful.

Because of the impact of COVID-19, revenues decreased during 2020 compared to 2019, driven by a 38% decrease in volume and a 6% decrease in revenue per day excluding exchange rate movements, partially offset by an $8 million benefit from currency exchange rate movements.

Total expenses during the year ended December 31, 2020 decreased compared to 2019, primarily due to strategic cost reduction initiatives and reduced operational activities because of the impact of COVID-19.

During the year ended December 31, 2020, all expenses increased as a percentage of revenue, with the exception of selling, general and administrative costs, as a result of the impact of COVID-19, partially offset by strategic cost reduction initiatives to right-size the business.

Operating expenses increased to 61.5% of revenue during 2020 compared to 51.2% in 2019.

Vehicle depreciation and lease charges increased to 25.3% of revenue during 2020 compared to 22.5% in 2019.

Selling, general and administrative costs decreased to 13.0% of revenue during 2020 compared to 13.5% in 2019, primarily due to strategic cost reduction initiatives to right-size the business.

Vehicle interest costs increased to 5.9% of revenue during 2020 compared to 3.8% in 2019.

Our effective tax rates were a benefit of 28% and 5% for the year ended December 31, 2020 and 2019, respectively, which in 2019 included a $113 million one-time benefit arising from the release of valuation allowances on certain of our foreign deferred tax assets primarily driven by tax planning strategies.

As a result of these items, our net income decreased compared to 2019.

For 2020, the Company reported losses of $9.71 per diluted share.

For 2019, the Company reported earnings of $3.98 per diluted share, which includes a one-time benefit arising from the release of valuation allowances on certain of our foreign deferred tax assets primarily driven by tax planning strategies of $1.50 per share.

Revenues increased $3.9 billion, or 72%, for the year ended December 31, 2021 compared to 2020, primarily due to a 35 % incr ease in revenue per day, excluding exchange rate effects, a 27% increase in volume as the mobility industry recovers from the pandemic and an $80 million benefit fro m currency exchange rate movements.

Total expenses increased 20% for the year ended December 31, 2021, compared to 2020, primarily due to increased demand, partially offset by cost discipline as volume returned.

Our effective tax rates for the year ended December 31, 2021 and 2020 were a provision for (benefit from) of 25% a nd (28%), respectivel y.

For the years ended December 31, 2021 and 2020, we reported earnings (loss) per diluted share of $19.44 and $(9.71), respectively.

Operating expenses decreased to 45.7% of revenue for the year ended December 31, 2021 compared to 61.5% in 2020, primarily due to the increased revenues and cost discipline as volume returned.

Vehicle depreciation and lease charges decreased to 12.9% of revenue for the year ended December 31, 2021 compared to 25.3% in 2020, primarily due to increased revenues and a 13% decrease per unit fleet cost, excluding exchange rate effects, driven by the continued favorable trend in residual values.

Selling, general and administrative costs decreased to 12.3% of revenue for the year ended December 31, 2021 compared to 13.0% in 2020, primarily due to increased revenues and cost discipline as volume returned.

Vehicle interest costs decreased to 3.4% of revenue for the year ended December 31, 2021 compared to 5.9% in 2020, primarily due to increased revenues.

Following is a more detailed discussion of the results of each of our reportable segments:

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Income (loss) before income taxes 1,708 (956)

Non-vehicle related depreciation and amortization 286 263

Non-vehicle related depreciation and amortization (b)

Interest expense related to corporate debt, net:

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Early extinguishment of debt 136 9

COVID-19 Charges (b)

Restructuring and other related charges (c)

Unprecedented personal-injury and other legal matters, net (d)

Non-operational charges related to shareholder activist activity (e)

Transaction-related costs, net (f)

Gain on sale of equity method investment in China (d)

Transaction-related costs, net (d)

Unprecedented personal-injury and other legal matters, net (e)

Non-operational charges related to shareholder activist activity (f)

COVID-19 charges, net (g)

Adjusted EBITDA $ 2,411 $ (175)

(a) Includes unallocated corporate overhead which is not attributable to a particular segment.

(b) For the year ended December 31, 2020, consists of $116 million within operating expenses, $5 million within selling, general and administrative expenses and $1 million within vehicle depreciation and lease charges, net in our consolidated results of operations.

Primarily consisting of $60 million of minimum annual guaranteed rent in excess of concession fees, $48 million of incremental cleaning supplies to sanitize vehicles and facilities, overflow parking for idle vehicles and related shuttling costs and other charges and $14 million of losses associated with vehicles damaged in overflow parking lots, net of insurance proceeds.

(d) Reported within operating expenses in our consolidated results of operations.

(e) Reported within selling, general and administrative expenses in our consolidated results of operations.

(f) Primarily comprised of acquisition- and integration-related expenses.

(b) Includes cloud computing costs of $7 million within operating expenses.

(d) Primarily comprised of acquisition- and integration-related expenses.

(e) Reported within operating expenses in our consolidated results of operations.

(f) Reported within selling, general and administrative expenses in our consolidated results of operations.

(g) The following table presents the unusual, direct and incremental costs due to the COVID-19 pandemic:

Minimum annual guaranteed rent in excess of concession fees, net $ (2) $ 60

Vehicles damaged in overflow parking lots, net of insurance proceeds (7) 14

Incremental cleaning supplies to sanitize vehicles and facilities, and over flow parking for idle vehicles — 48

Other charges 7 —

Operating expenses (3) 116

Vehicle depreciation and lease charges — 1

Selling, general and administrative expenses 1 5

COVID-19 charges, net $ (2) $ 122

2021 2020 % Change

Revenues $ 7,557 $ 3,965 91 %

Adjusted EBITDA 72 652 (89 %)

Revenues decreased 38% during 2020, compared to 2019, primarily due to a 36% decrease in volume and a 3% decrease in revenue per day excluding exchange rate effects as a result of the impact of COVID-19.

Operating expenses increased to 58.9% of revenue during 2020 compared to 50.2% in 2019, primarily due to impacts directly related to COVID-19, partially offset by strategic cost reduction initiatives to right-size the

Vehicle depreciation and lease charges increased to 24.4% of revenue during 2020 compared to 23.0% in 2019, primarily due to impacts directly related to COVID-19, partially offset by 23% lower per-unit fleet costs.

Selling, general and administrative costs decreased to 10.5% of revenue during 2020 compared to 12.1% in 2019, primarily due to strategic cost reduction initiatives to right-size the business.

Vehicle interest costs increased to 6.9% of revenue during 2020 compared to 4.5% in 2019, primarily due to impacts directly related to COVID-19, partially offset by strategic cost reduction initiatives to right-size the business.

Adjusted EBITDA decreased 89% during 2020, compared to 2019, due to lower revenues directly related to COVID-19.

Adjusted EBITDA 2,364 72 n/m

n/m Not meaningful.

Revenues increased 91% for the year ended December 31, 2021 compared to 2020, primarily due to a 39% increase in volume, a 37% increase in revenue per day, excluding exchange rate effects, and a $14 million benefit from currency exchange rate movements.

Operating expenses decreased to 43.7% of revenue for the year ended December 31, 2021 compared to 58.9% 2020, primarily due to increased revenues and cost discipline as volume returned.

Vehicle depreciation and lease charges decreased to 11.3% of revenue for the year ended December 31, 2021 compared to 24.4% during 2020, primarily due to increased revenues and a 16% decrease in per-unit fleet costs, excluding exchange rate effects, driven by the continued favorable trend in residual values.

Selling, general and administrative costs decreased to 10.3% of revenue for the year ended December 31, 2021 compared to 10.5% in 2020.

Vehicle interest costs decreased to 3.4% of revenue for the year ended December 31, 2021 compared to 6.9% in 2020, primarily due to increased revenues.

Adjusted EBITDA was $2.3 billion higher for the year ended December 31, 2021 compared to similar period in 2020, primarily due to increased revenues, decreased per-unit fleet costs and cost discipline as volume returned.

International

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Revenues $ 1,756 $ 1,437 22 %

Adjusted EBITDA (202) 203 n/m

Revenues decreased 49% during 2020, compared to 2019, primarily due to a 42% decrease in volume and a 13% decrease in revenue per day excluding exchange rate movements as a result of the impact of COVID-19, partially offset by a $9 million benefit from currency exchange rate movements.

During the year ended December 31, 2020, all expenses increased as a percentage of revenue as a result of the impact of COVID-19, partially offset by strategic cost reduction initiatives to right-size the business.

Operating expenses increased to 68.5% of revenue during 2020 compared to 53.5% in 2019.

Vehicle depreciation and lease charges increased to 27.9% of revenue during 2020 compared to 21.3% in 2019.

Selling, general and administrative costs increased to 16.5% of revenue during 2020 compared to 14.3% in 2019.

Vehicle interest costs increased to 3.1% of revenue during 2020 compared to 2.1% in 2019.

Adjusted EBITDA decreased during 2020, compared to 2019, due to lower revenues directly related to COVID-19.

Adjusted EBITDA 118 (202) 158 %

Revenues increased 22% for the year ended December 31, 2021, compared to 2020, primarily due to a 16% increase in revenue per day, excluding exchange r ate effects, a 2% increase in vo lume as travel restrictions continued across certain International countries throughout the first half of the year and a $66 million benefit from currency exchange rate movements .

Operating expenses decreased to 53.5% of revenue for the year ended December 31, 2021 compared to 68.5% in 2020, primarily due to increased revenues and cost discipline as volume recovers.

Vehicle depreciation and lease charges decreased to 19.7% of revenue for the year ended December 31, 2021 compared to 27.9% in 2020, primarily due to increased revenues and a 6% decrease in p er-unit fleet costs, excluding exchange rate effects, driven by the continued favorable trend in residual values.

Selling, general and administrative cost s increased to 17.1% of revenue for the year ended December 31, 2021 compared to 16.5% in 2020, primarily due to prior year furloughed employees and higher current year performance accruals, partially offset by cost discipline as volume returned.

Vehicle interest costs, at 3.1% of revenue, remained unchanged for the year ended December 31, 2021 compared to 2020.

Adjusted EBITDA was $320 million higher for the year ended December 31, 2021 compared to similar period in 2020, primarily due to increased revenues, while maintaining cost discipline and decreased per-unit fleet costs.

Corporate and Other

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n/m Not meaningful.

Adjusted EBITDA decreased $22 million during 2020, compared to 2019, primarily due to lower selling, general and administrative expenses related to cost reduction initiatives, which are not attributable to a particular segment.

Adju sted EBITDA decreased $26 million during 2021, compared to 2020, primarily due to higher selling, general and administrative expenses related to higher current year performance accruals, which are not attributable to a particular segment.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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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.

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.

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Stockholders’ equity (209) (155) (54)

The decrease in assets and liabilities under vehicle programs compared to 2019 is primarily related to the reduction of our vehicle rental fleet to right-size our business in response to the COVID-19 pandemic.

The decrease in stockholders’ equity compared to 2019 is primarily due to our comprehensive loss and share repurchases.

The increase in assets and liabilities under vehicle programs compared to 2020 is primarily related to the increase of our vehicle rental fleet as volume returned.

The decrease in stockholders’ equity compared to 2020 is primarily due to our share repurchases, partially offset by comprehensive income.

LIQUIDITY AND CAPITAL RESOURCES

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.

During 2020, our Avis Budget Rental Car Funding subsidiary issued approximately $700 million and $650 million in asset-backed notes with an expected final payment date of August 2025 and February 2026, and a weighted average interest rate of 2.42% and 2.28%, respectively.

In March 2021, we issued $600 million of 5.375% Senior Notes due 2029, at par.

We used the proceeds, together with cash on hand, to redeem all of our outstanding 10.500% Senior Secured Notes due 2025.

In March 2021, we issued $500 million of 4.750% Senior Notes due 2028.

We used the proceeds, together with cash on hand, to redeem all of our outstanding 6.375% Senior Notes due 2024 and $140 million in aggregate principal amount of our 5.250% Senior Notes due in 2025.

In July, we amended the credit agreement governing our senior credit facilities to remove the restrictions imposed in April 2020, to increase the revolving credit facility to $1.95 billion and to extend the maturity of the facility to 2026.

In September 2021, we redeemed $235 million remaining principal amount of 5.250% Senior Notes due March 2025 with cash on hand.

We have no meaningful corporate debt maturities until 2024.

During 2021, our Avis Budget Rental Car Funding subsidiary issued approximately $1.8 billion in asset-backed notes with an expected final payment date ranging from March 2024 to February 2027, and a weighted average interest rate of 2.08%.

The proceeds from these borrowings were used to fund the repayment of maturing vehicle-backed debt and the acquisition of rental cars in the United States.

In April 2020, we entered into an amendment (the “Amendment”) to our senior credit facilities, consisting of an approximately $1.2 billion term loan maturing in 2027 and a $1.8 billion revolving credit facility maturing in 2023, which remain in place after the Amendment.

The Amendment provides for relief from the quarterly-tested leverage covenant contained in the credit agreement governing the senior credit facilities until the end of a specific relief period, including a holiday from such leverage covenant through June 30, 2021, during which time (i) certain negative covenant exceptions are not available to the Company, (ii) pricing on the senior credit facilities is increased, (iii) the Company must comply with a liquidity covenant and additional reporting requirements and (iv) the Company must meet additional conditions to borrow under the revolving credit facility.

In May 2020, we issued $500 million of 10 ½ % Senior Secured Notes due May 2025.

We used the proceeds from this offering for general corporate purposes.

In August 2020, we issued $350 million of additional 5¾ % Senior Notes due July 2027 to redeem the outstanding $100 million in aggregate principal amount of our 5½% Senior Notes due 2023, with the remainder being used for general corporate purposes.

During the first quarter of 2020, we repurchased approximately 5.0 million shares of our outstanding common stock for approximately $113 million.

In December 2021, we amended our European rental fleet securitization program to extend the maturity to September 2024.

Our Board of Directors has authorized the repurchase of up to $4.1 billion of our common stock under a plan originally approved in 2013 and subsequently expanded, most recently in November 2021 .

Our stock repurchases may occur through open market purchases, privately negotiated transactions or trading plans pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements, restricted payment capacity under our debt instruments and other factors.

The repurchase program may be suspended, modified or discontinued at any time without prior notice.

The repurchase program has no set expiration or termination date.

For the year ended December 31, 2021, we repurchased approximately 14.3 million shares of common stock at a cost of approximately $1.4 billion under the program.

As of December 31, 2021, approximately $959 million of authorization remained available to repurchase common stock under the program.

Year Ended December 31, 2021 vs.

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Cash and cash equivalents, program and restricted cash, beginning of period

765 900 (135)

Cash and cash equivalents, program and restricted cash, end of period

$ 626 $ 765 $ (139)

Cash provided by operating activities during 2020 was substantially lower compared with 2019 due to reduced operational activities as a result of the impact of COVID-19.

The decrease in cash used in investing activities during 2020 compared with 2019 is primarily due to a decrease in investment in vehicles.

The decrease in cash provided by financing activities during 2020 compared with 2019 is primarily due to a decrease in net borrowings under vehicle programs.

The increase in cash provided by operating activities during 2021 compared with 2020 is primarily due to the increase in our net income.

The increase in cash used in investing activities during 2021 compared with 2020 is primarily due to an increase in investment in vehicles and a decrease in proceeds received on the disposition vehicles.

The increase in cash provided by financing activities during 2021 compared with 2020 is primarily due to a decrease in payments on vehicle borrowings.

We anticipate that our non-vehicle property and equipment additions will be approximately $200 million in 2022.

Debt and Financing Arrangements

At December 31, 2020, we had approximately $11.1 billion of indebtedness (including corporate indebtedness of approximately $4.2 billion and debt under vehicle programs of approximately $6.9 billion).

At December 31, 2021, we had approximatel y $15.4 billion of indebtedness (including corporate indebtedness of approximately $4.0 billion and debt under vehicle programs of approximately $11.4 billion).

For detailed information regarding our debt and borrowing arrangements, see Notes 1, 13 and 14 to our Consolidated Financial Statements.

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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.

Our liquidity position has been impacted by COVID-19 as a result of significant volume declines and we expect the impact of COVID-19 on the U.S.

and worldwide economies to continue to affect our volumes even after the outbreak is contained.

Our liquidity could be further negatively affected by any financial market disruptions or the absence of a recovery or worsening of the U.S.

During 2020, our liquidity position was impacted by COVID-19 as a result of significant volume declines.

However, during 2021, travel advisories and restrictions were eased, which led to a significant increase in global travel demand, resulting in increased demand for rental vehicles and improved pricing across the industry.

However, the full extent of the ongoing impact of this virus on our long-term operational performance and liquidity will depend on future developments, including those outside of our control, such as the spread of new variants of the virus, which may be resistant to currently approved vaccines and the implementation of new or continued travel restrictions.

Our liquidity could be negatively affected by any financial market disruptions or the absence of a recovery or worsening of the U.S.

and worldwide economies, which may result in unfavorable conditions in the mobility industry, in the asset-backed financing market and in the credit markets generally.

We believe these factors have affected and could further affect the debt ratings assigned to us by credit rating agencies and the cost of our borrowings.

Additionally, a worsening or prolonged downturn in the worldwide economy or a disruption in the credit markets could further impact our liquidity due to (i) decreased demand and pricing for vehicles in the used-vehicle market, (ii) increased costs associated with, and/or reduced capacity or increased collateral needs under, our financings, (iii) the adverse impact of vehicle manufacturers being unable or unwilling to honor their obligations to repurchase or guarantee the depreciation on the related program vehicles and (iv) disruption in our ability to obtain financing due to negative credit events specific to us or affecting the overall debt market (see Item 1A.

Additionally, a worsening or prolonged downturn in the worldwide economy or a disruption in the

credit markets could further impact our liquidity due to (i) decreased demand and pricing for vehicles in the used-vehicle market, (ii) increased costs associated with, and/or reduced capacity or increased collateral needs under, our financings, (iii) the adverse impact of vehicle manufacturers being unable or unwilling to honor their obligations to repurchase or guarantee the depreciation on the related program vehicles and (iv) disruption in our ability to obtain financing due to negative credit events specific to us or affecting the overall debt market (see Item 1A.

Risk Factors for further discussion).

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See Note 1 to our Consolidated Financial Statements for detailed information on liquidity and management’s plans.

Our liquidity position could also be negatively impacted if we are unable to remain in compliance with the new liquidity covenant, the consolidated first lien leverage ratio requirement after the end of the waiver period on June 30, 2021 and other covenants associated with our senior credit facilities and other borrowings.

Our liquidity position could also be negatively impacted if we are unable to remain in compliance with the consolidated first lien leverage ratio requirement and other covenants associated with our senior credit facilities and other borrowings.

As of December 31, 2021, 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

The following table summarizes our principal future contractual obligations as of December 31, 2020:

2021 2022 2023 2024 2025 Thereafter Total

Corporate debt $ 19 $ 18 $ 18 $ 732 $ 1,182 $ 2,289 $ 4,258

Debt under vehicle

programs 1,626 2,444 1,224 885 621 102 6,902

Debt interest 481 414 353 276 156 130 1,810

Operating leases 686 498 424 297 223 1,081 3,209

Commitments to purchase vehicles (a)

8,740 — — — — — 8,740

Defined benefit pension plan contributions (b)

9 — — — — — 9

Other purchase

commitments (c)

86 53 27 7 4 — 177

$ 11,647 $ 3,427 $ 2,046 $ 2,197 $ 2,186 $ 3,602 $ 25,105

(a) Represents commitments to purchase vehicles, the majority of which are from Ford, Fiat Chrysler and General Motors.

These commitments are generally subject to the vehicle manufacturers satisfying their obligations under the repurchase and guaranteed depreciation agreements.

The purchase of such vehicles is generally financed through borrowings under vehicle programs in addition to cash received upon the sale of vehicles, some of which were purchased under repurchase and guaranteed depreciation programs (see Note 15 to our Consolidated Financial Statements).

(b) Represents the expected contributions to our defined benefit pension plans in 2021.

The amount of future contributions to our defined benefit pension plans will depend on the rates of return generated from plan assets and other factors (see Note 18 to our Consolidated Financial Statements) and are not included above.

(c) Primarily represents commitments under service contracts for information technology, telecommunications and marketing agreements with travel service companies.

(d) Excludes income tax uncertainties of $24 million, $13 million of which is subject to indemnification by Realogy and Wyndham.

We are unable to estimate the period in which these income tax uncertainties are expected to be settled.

For more information regarding guarantees and indemnifications, see Note 15 to our Consolidated Financial Statements.

For contractual obligations for material cash requirements from known contractual and other obligations as part of a liquidity and capital resources discussion, see Notes 3, 13, 14 and 15 to our Consolidated Financial Statements.

ACCOUNTING POLICIES

Critical Accounting Policies

Critical Accountin g Estimates

In presenting our financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported therein.

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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, which include forecast of future revenue and Adjusted EBITDA.

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, 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.

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Our goodwill and other indefinite-lived intangible assets are allocated among our reporting units.

During 2020, 2019 and 2018, there was no impairment of goodwill and no material impairment of other intangible assets, see Note 7 to our Consolidated Financial Statements.

During 2021, 2020 and 2019, there was no impairment of goodwill and other intangible assets, see Note 7 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, 2021 was 10% and the amount of goodwill allocated to our reporting unit was $488 million.

We will continue to closely monitor actual results versus our expectations as well as any significant changes in events or conditions, including the impact of COVID-19 on our business and the travel industry, 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 further deterioration of the general economic 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.

In the future, failure to achieve our business plans, a deterioration of the general economic 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.

We present vehicles at cost, net of accumulated depreciation, on the Consolidated Balance Sheets.

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For risk vehicles acquired outside of manufacturer repurchase and guaranteed depreciation programs, we depreciate based on the vehicles’ estimated residual market values at their expected dates of disposition.

The estimation of residual values requires the Company 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 regularly evaluates estimated residual values and adjusts depreciation rates as appropriate.

The estimation of residual values requires us to make assumptions regarding the age and mileage of the vehicle at the time of disposal, as well as expected used vehicle market conditions.We 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 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 - “Business Section” of this Annual Report on Form 10-K.

Income Taxes.

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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 to our Consolidated Financial Statements.

Adoption of New Accounting Pronouncements

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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 7. Management’s Discussion and Analysis