What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-16 compared with 2022-02-17 · 95 added, 115 removed, 156 unchanged (57% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

The following discussion should be read in conjunction with Item 1 Business, Item 1A Risk Factors and our Consolidated Financial Statements and accompanying Notes included 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 Item 1A, “Risk Factors” and other portions of this Annual Report on Form 10-K.

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 included 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.

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 over 590,000 vehicles in fourth quarter 2021.

We are a leading vehicle rental operator in North America, Europe, Australasia and certain other regions we serve, with an average rental fleet of approximately 655,000 vehicles in 2022.

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.

Business and Trends

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.

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

A discussion regarding our financial condition and results of operations for the year ended December 31, 2022 compared to 2021 is presented below.

A discussion regarding our financial condition and results of operations for the year ended December 31, 2020 compared to 2019 can be found under Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 17, 2021, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at ir.avisbudgetgroup.com.

A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to 2020 can be found under Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at ir.avisbudgetgroup.com.

In 2022, we saw strong demand and pricing for vehicle rentals, driven by global travel demand, and favorable conditions in the used-vehicle market in the United States.

This coupled with disciplined cost management and continued fleet management resulted in revenues of approximately $12.0 billion, net income of $2.8 billion and Adjusted EBITDA of $4.1 billion for the year ended December 31, 2022.

We are 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, used car values, and an economic downturn that may impact travel demand.

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 costs and customer experience to strengthen our company, enable resilience, and deliver stakeholder value.

We measure performance principally using the following key metrics:

(i) rental days, which represent the total number of days (or portion thereof) a vehicle was rented, (ii) revenue per day, which represents revenues divided by rental days, (iii) vehicle utilization, which represents rental days divided by available rental days, available rental days is defined as average rental fleet times the number of days in the period, and (iv) per-unit fleet costs, which represent vehicle depreciation, lease charges and gain or loss on vehicle sales, divided by average rental fleet.

(i) rental days, which represent the total number of days (or portion thereof) a vehicle was rented, (ii) revenue per 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 number of days in the period, and (iv) per-unit fleet costs, which represent vehicle depreciation, lease charges and gain or loss on vehicle sales, divided by average rental fleet.

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.

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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, 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.

Non-operational charges related to shareholder activist activity include third party advisory, legal and other professional service fees and are recorded within selling, general and administrative expenses in our consolidated results of operations.

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 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.

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;

COVID-19 charges, net;

other (income) expense, net, and income taxes.

We revised our definition of Adjusted EBITDA to exclude other (income) expense, net.

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

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.

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Transaction-related costs, net 8 5 3 60%

Other (income) expense, net (7) — (7) n/m

Total expenses $ 8,358 $ 7,605 $ 753 10%

Income (loss) before income taxes 1,708 (956) 2,664 n/m

Provision for (benefit from) income taxes 425 (272) 697 n/m

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

Income before income taxes 3,636 1,708 1,928 n/m

Provision for income taxes 880 425 455 n/m

Net income $ 2,756 $ 1,283 $ 1,473 n/m

net loss attributable to non-controlling interests (8) (2) (6) n/m

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

Net income attributable to Avis Budget Group, Inc.

$ 2,764 $ 1,285 $ 1,479 n/m

n/m Not meaningful.

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.

Revenues increased $2.7 billion, or 29%, for the year ended December 31, 2022 compared to 2021, primarily due to a 23% increase in volume and a 8% incr ease in revenue per day, excluding exchange rate effects, partially offset by a $327 million negative impact fro m currency exchange rate movements.

Total expenses increased 10% for the year ended December 31, 2022, compared to 2021, 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.

Our effective tax rates for the years ended December 31, 2022 and 2021 were provisions of approximately 24% and 25% , respectively .

As a result of these items, our net income increased by $1.5 billion compared to 2021.

For the years ended December 31, 2022 and 2021, we reported earnings per diluted share of $57.16 and $19.44, respectively.

Operating expenses decreased to 44.1% of revenue for the year ended December 31, 2022 compared to 45.7% in 2021 , primarily due to increased revenues and cost discipline as volume returned.

Vehicle depreciation and lease charges decreased to 6.9% of revenue for the year ended December 31, 2022 compared to 12.9% in 2021 , primarily due to 41% lower per unit fleet cost, excluding exchange rate effects, driven by a favorable trend in the used-vehicle market.

Selling, general and administrative costs decreased to 11.2% of revenue for the year ended December 31, 2022 compared to 12.3% in 2021, 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:

Vehicle interest costs represented 3.4% of revenue, unchanged for the year ended December 31, 2022 compared to 2021.

Following is a more detailed discussion of the results of each of our reportable segments and reconciliation of net income to Adjusted EBITDA:

Revenues Adjusted EBITDA Revenues Adjusted EBITDA

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Reconciliation of net income (loss) to Adjusted EBITDA

Net income (loss) $ 1,283 $ (684)

Provision for (benefit from) income taxes 425 (272)

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

Net income $ 2,756 $ 1,283

Provision for income taxes 880 425

Income before income taxes $ 3,636 $ 1,708

Non-vehicle related depreciation and amortization (b)

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

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

COVID-19 charges, net (g)

COVID-19 charges, net (f)

Other (income) expense, net (7) —

Adjusted EBITDA $ 4,133 $ 2,411

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

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

(b) Includes cloud computing costs of $10 million and $7 million in 2022 and 2021, respectively, within operating expenses.

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(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:

(f) 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 $ (9) $ (2)

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

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

Other charges — 7

Operating expenses (9) (3)

Vehicle depreciation and lease charges — 1

Selling, general and administrative expenses — 1

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Revenues $ 9,474 $ 7,557 25 %

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.

Adjusted EBITDA $ 3,660 $ 2,364 55 %

Revenues increased 25% for the year ended December 31, 2022 compared to 2021 , primarily due to a 22% increase in volume and a 3% increase in revenue per day.

Operating expenses are consistent with prior year at 43.8% of revenue for the year ended December 31, 2022 compared to 43.7% in 2021.

Vehicle depreciation and lease charges decreased to 4.4% of revenue for the year ended December 31, 2022 compared to 11.3% in 2021, primarily due to increased revenues and a 61% decrease in per-unit fleet costs, excluding exchange rate effects, driven by a favorable trend in the used-vehicle market.

Selling, general and administrative costs decreased to 9.5% of revenue for the year ended December 31, 2022 compared to 10.3% in 2021, primarily due to increased revenues and cost discipline as volume returned.

Vehicle interest costs increased to 3.7% of revenue for the year ended December 31, 2022 compared to 3.4% in 2021, primarily due to higher interest rates.

Adjusted EBITDA was $1.3 billion higher for the year ended December 31, 2022 compared to 2021, primarily due to increased revenues, lower per-unit fleet costs and cost discipline as volume returned.

International

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Adjusted EBITDA $ 560 $ 118 375 %

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.

Revenues increased 44% for the year ended December 31, 2022, compared to 2021, primarily due to a 31% increase in revenue per day, excluding exchange r ate effects, a 23% increase in vo lume, partially offset by a $310 million negative impact from currency exchange rate movements.

Operating expenses decreased to 44.3% of revenue for the year ended December 31, 2022 compared to 53.5% in 2021, primarily due to increased revenues and cost discipline as volume returned.

Vehicle depreciation and lease charges decreased to 16.4% of revenue for the year ended December 31, 2022 compared to 19.7% in 2021, primarily due to increased revenues and improved utilization, partially offset by a 10% increase in p er-unit fleet costs, excluding exchange rate effects.

Selling, general and administrative cost s decreased to 15.0% of revenue for the year ended December 31, 2022 compared to 17.1% in 2021, primarily due to increased revenues and cost discipline as volume returned.

Vehicle interest costs decreased to 2.2% of revenue for the year ended December 31, 2022 compared to 3.1% in 2021, primarily due to increased revenue.

Adjusted EBITDA was $442 million higher for the year ended December 31, 2022 compared to 2021, primarily due to increased revenues and cost discipline as volume returned, partially offset by an increase in per-unit fleet costs an d a $80 million negative impact from currency exchange rate movements.

Corporate and Other

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Revenues $ — $ — n/m

Adjusted EBITDA (71) (45) n/m

Adjusted EBITDA $ (87) $ (71) 23 %

n/m Not meaningful.

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.

Adju sted EBITDA decreased $16 million for the year ended December 31, 2022, compared to 2021, due to higher selling, general and administrative expenses related to current year performance accruals and computer technology transformation costs, 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 (700) (209) (491)

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.

The increase in liabilities exclusive of liabilities under vehicle programs compared to 2021 is principally related to the increase in corporate indebtedness from the issuance of Floating Rate Term Loan due March 2029.

See “Liquidity and Capital Resources” and Note 13 – Long-term Corporate Debt and Borrowing Arrangements to our Consolidated Financial Statements.

The increases in assets and liabilities under vehicle programs are principally related to the increase in the size of our vehicle rental fleet to meet increased demand.

The decrease in stockholders’ equity compared to 2021 is principally related 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.

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 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.

In March 2022, we entered into a $750 million Floating Rate Term Loan due March 2029, at a price of 97% of the aggregate principal amount, with interest paid monthly, which is part of our senior credit facilities.

The Floating Rate Term Loan due March 2029 bears interest at one-month Secured Overnight Financing Rate (“SOFR”) plus 350 basis points.

During 2022, our Avis Budget Rental Car Funding (AESOP) LLC subsidiary issued approximately $2.1 billion of asset-backed notes with expected final payment dates ranging from March 2023 to February 2028, and a weighted average interest rate of 4.94%.

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.

Our Board of Directors has 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.

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 debt instruments and other factors.

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For the year ended December 31, 2022, we repurchased approximately 16.7 million shares of common stock at a cost of approximately $3.3 billion under the program.

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

As of February 13, 2023, approximately $1.7 billion of authorization remained available to repurchase common stock under the program.

Year Ended December 31, 2022 vs.

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Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash

Net change in cash and cash equivalents, program and restricted cash

(32) (11) (21)

Net change in cash and cash equivalents, program and restricted cash

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

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The increase in cash provided by operating activities during 2022 compared with 2021 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.

The decrease in cash used in investing activities during 2022 compared with 2021 is primarily due to the increase in proceeds received on vehicle sales.

The decrease in cash provided by financing activities during 2022 compared with 2021 is primarily due to the increase in repurchases of common stock and net payments on vehicle borrowings, offset by a decrease in net payments on corporate borrowings.

We anticipate that our non-vehicle property and equipment additions will be approximately $325 million in 2023.

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At December 31, 2022, we had approximatel y $18.5 billion of indebtedness (including corporate indebtedness of approximately $4.7 billion and debt under vehicle programs of approximately $13.8 billion).

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

For information regarding our debt and borrowing arrangements, see Note 1 – Basis of Presentation, Note 13 – Long-term Corporate Debt and Borrowing Arrangements, and Note 14 – Debt Under Vehicle Programs and Borrowing Arrangements to our Consolidated Financial Statements.

LIQUIDITY RISK

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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.

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.

Our liquidity has in the past been, and could in the future 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.

Risk Factors for further discussion).

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 Part I, Item 1A, “Risk Factors” for further discussion).

As of December 31, 2022, we had access to $0.6 billion of available cash and cash equivalents and available borrowings under our revolving credit facility of approximately $1.0 billion, providing us with access to an approximate $1.6 billion of total liquidity.

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 consolidated first lien leverage ratio requirement and other covenants associated with our senior credit facilities and other borrowings.

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CONTRACTUAL OBLIGATIONS

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.

For contractual obligations for material cash requirements from known contractual and other obligations as part of a liquidity and capital resources discussion, see Note 3 – Leases, Note 13 – Long-term Corporate Debt and Borrowing Arrangements, Note 14 – Debt Under Vehicle Programs and Borrowing Arrangements, and Note 15 – Commitments and Contingencies to our Consolidated Financial Statements.

CRITICAL ACCOUNTING ESTIMATES

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.

Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events and/or events that are outside of our control.

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 generally accepted accounting principals (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 relate 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 adverse impact to our consolidated results of operations, financial position and liquidity.

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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.

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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.

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 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 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.

During 2022, 2021 and 2020, there was no impairment of goodwill and other intangible assets.

See Note 7 – Intangible Assets to our Consolidated Financial Statements.

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 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.

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.

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.

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Currently we do not record valuation allowances on the majority of our tax loss carryforwards as there are adequate deferred tax liabilities that could be realized within the carryforward period.

See Notes 2 and 9 to our Consolidated Financial Statements for more information regarding income taxes.

See Note 2 – Summary of Significant Accounting Policies and Note 9 – Income Taxes to our Consolidated Financial Statements for more information regarding income taxes.

Public Liability, Property Damage and Other Insurance Liabilities.

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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.

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 to our Consolidated Financial Statements.

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 to our Consolidated Financial Statements.

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.

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