AVIS BUDGET GROUP, INC.
The following discussion should be read in conjunction with our Consolidated
Condensed Financial Statements and accompanying Notes included in this Quarterly
Report on Form 10-Q, and with our 2019 Form 10-K. 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 this Quarterly Report on Form 10-Q and those included in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Risk Factors" and other portions of our 2019 Form 10-K. Unless
otherwise noted, all dollar amounts in tables are in millions.
OVERVIEW
Our Company
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. We are a leading vehicle rental operator in North
America , Europe , Australasia and certain other regions we serve, with an average
rental fleet during 2019 of nearly 660,000 vehicles. 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.
Our Segments
We categorize our operations into two reportable business segments: Americas ,
consisting primarily of our vehicle rental operations in North America , South
America , Central America and the Caribbean , car sharing operations in certain of
these markets, and licensees in the areas in which we do not operate directly;
and International, consisting primarily of our vehicle rental operations in
Europe , the Middle East , Africa , Asia and Australasia , car sharing operations in
certain of these markets, and licensees in the areas in which we do not operate
directly.
Business and Trends
The spread of the novel coronavirus ("COVID-19") and the impact on travel demand
and the global economy are having significant negative impacts on all aspects of
our business.
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 thus far in 2020 is significantly behind 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 and cannot predict the travel volume
for the holidays, particularly if the pandemic's effects increase as the winter
season approaches.
•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 quarter, 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.
29
--------------------------------------------------------------------------------
Table of Contents
•As a result of decreased rental volume, we have 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 the
first nine months of 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
September with 30% 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. Finally, we
have negotiated a significant number of new vehicle cancellations to improve
utilization and shrink the fleet size.
The momentum from the second quarter carried into the third quarter, during
which we generated revenues of $1,534 million , net income of $45 million and
Adjusted EBITDA of $220 million . These results were driven by ongoing cost
removal and mitigation actions of another approximately $1 billion in savings
for the quarter and improved residual values, which resulted from a strong used
car market. Our per-unit fleet costs per month, excluding exchange rate effects,
decreased to $163 , or 35%, compared to third quarter 2019. Rental volumes
improved by 60% compared to the previous quarter. Our utilization was 60.6%
showing our ability to align our fleet with demand, which is a 25.5 point
improvement compared to the previous quarter, and ended September 2020 at 63.1%.
Although our revenues are significantly down compared to the prior year, we have
taken positive actions to weather the crisis. 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. Although we have seen significant improvement,
these trends could be hindered if a another wave of the virus were to impact the
economy.
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 global pandemic is uncertain. As a
consequence, we cannot estimate the impact on our business, financial condition
or forecast financial or operational results with reasonable certainty. Our
results of operations, financial condition, and cash flows were impacted during
the three and nine months ended September 30, 2020 , by the ongoing COVID-19
pandemic. The trends and results for the three and nine months ended September
30, 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.
RESULTS OF OPERATIONS
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, with available rental days 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. We believe that this methodology provides us
with the most relevant metrics in order to manage the business. Our calculation
may not be comparable to the calculation of similarly-titled metrics by other
companies. We present currency exchange rate effects to provide a method of
assessing how our business performed excluding the effects of foreign currency
rate fluctuations. Currency exchange rate effects are calculated by translating
the current-year results at the prior-period average exchange rate plus any
related gains and losses on currency hedges.
We assess performance and allocate resources based upon the separate financial
information of our operating segments. In identifying our reportable segments,
we also consider the nature of services provided by our operating segments, the
geographical areas in which our segments operate and other relevant factors.
Management evaluates the operating results of each of our reportable segments
based upon revenues and "Adjusted EBITDA," which we define as income from
continuing operations before non-vehicle related
30
--------------------------------------------------------------------------------
Table of Contents
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 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. Net charges for unprecedented personal-injury legal
matters and gain on sale of equity method investment in China are recorded
within operating expenses in our consolidated condensed 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
condensed results of operations. COVID-19 charges include unusual, direct and
incremental costs due to the COVID-19 global pandemic such as minimum annual
guaranteed rent in excess of concession fees for the period, overflow parking
for idle vehicles and related shuttling costs, incremental cleaning supplies to
sanitize vehicles and facilities, and losses associated with vehicles damaged in
overflow parking lots, net of insurance proceeds, and are primarily recorded
within operating expenses in our consolidated condensed 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 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. Adjusted EBITDA is a non-GAAP measure and should not be
considered in isolation or as a substitute for net income or other income
statement data prepared in accordance with U.S. GAAP. Our presentation of
Adjusted EBITDA may not be comparable to similarly-titled measures used by other
companies.
During the nine months ended
•Our revenues totaled$4.0 billion and decreased 42% compared to the similar period in 2019, primarily due to reduced rental volume due to impacts directly related to COVID-19. •Our net loss was$594 million and our Adjusted EBITDA loss was$249 million , representing losses of$754 million and$894 million year-over-year, respectively, primarily due to impacts directly related to COVID-19, partially offset by an 18% decrease in per-unit fleet costs.
•We repurchased
•We acquired various licensees in
31--------------------------------------------------------------------------------
Table of Contents
Three Months Ended
Our consolidated condensed results of operations comprised the following:
Three Months Ended
September 30,
2020 2019 $ Change % Change
Revenues $ 1,534 $ 2,753 $ (1,219) (44 %)
Expenses
Operating 825 1,291 (466) (36 %)
Vehicle depreciation and lease charges, net 256 551 (295) (54 %)
Selling, general and administrative 166 350 (184) (53 %)
Vehicle interest, net 77 90 (13) (14 %)
Non-vehicle related depreciation and amortization 74 62 12 19 %
Interest expense related to corporate debt, net:
Interest expense 64 49 15 31 %
Early extinguishment of debt 2 10 (8) (80 %)
Restructuring and other related charges 17 22 (5) (23 %)
Total expenses 1,481 2,425 (944) (39 %)
Income before income taxes 53 328 (275) (84 %)
Provision for income taxes 8 139 (131) (94 %)
Net income $ 45 $ 189 $ (144) (76 %)
__________
n/m Not meaningful.
Revenues decreased during the three months ended September 30, 2020 compared to
the similar period in 2019, primarily due to a 42% decrease in volume and a 5%
decrease in revenue per day excluding exchange rate movements as a result of the
impact of COVID-19, partially offset by a $15 million positive impact from
currency exchange rate movements. Total expenses decreased during the three
months ended September 30, 2020 , compared to the similar period in 2019,
primarily due to strategic cost reduction initiatives and reduced operational
activities as a result of the impact of COVID-19.
Operating expenses increased to 53.8% of revenue during the three months ended
September 30, 2020 compared to 46.9% during the similar period in 2019,
primarily due to impacts directly related to COVID-19. Vehicle depreciation and
lease charges decreased to 16.7% of revenue during the three months ended
September 30, 2020 compared to 20.0% during the similar period in 2019,
primarily due to 35% lower per-unit fleet costs per month, excluding exchange
rate effects. Selling, general and administrative costs decreased to 10.8% of
revenue during the three months ended September 30, 2020 compared to 12.7%
during the similar period in 2019, primarily due to strategic cost reduction
initiatives to right size the business. Vehicle interest costs increased to 5.1%
of revenue during the three months ended September 30, 2020 compared to 3.3%
during the similar period in 2019, primarily due to impacts directly related to
COVID-19.
Our effective tax rates were a provision of 15% and 42% for the three months
ended September 30, 2020 and 2019, respectively. As a result of these items, our
net income decreased by $144 million compared to the similar period in 2019. For
the three months ended September 30, 2020 and 2019, the Company reported income
of $0.63 and $2.50 per diluted share, respectively.
Following is a more detailed discussion of the results of each of our reportable segments and reconciliation of net income to Adjusted EBITDA:
32--------------------------------------------------------------------------------
Table of Contents
Three Months Ended September 30,
2020 2019
Revenues Adjusted EBITDA Revenues Adjusted EBITDA
Americas $ 1,114 $ 222 $ 1,868 $ 321
International 420 6 885 169
Corporate and Other (a) - (8) - (19)
Total Company $ 1,534 $ 220 $ 2,753 $ 471
Reconciliation to Adjusted EBITDA
2020 2019
Net income $ 45 $ 189
Provision for income taxes 8 139
Income before income taxes 53 328
Add: Non-vehicle related depreciation and amortization 74 62
Interest expense related to corporate debt, net:
Interest expense 64 49
Early extinguishment of debt 2 10
Restructuring and other related charges 17 22
COVID-19 charges (b) 10 -
Adjusted EBITDA $ 220 $ 471
__________
(a)Includes unallocated corporate overhead which is not attributable to a
particular segment.
(b)For three months ended September 30, 2020 , consists of $8 million within
operating expenses, $1 million within selling, general and administrative
expenses and $1 million within vehicle depreciation and lease charges, net in
our consolidated condensed results of operations. Primarily consisting of $18
million of incremental cleaning supplies to sanitize vehicles and facilities,
and overflow parking for idle vehicles and related shuttling costs, $11 million
of minimum annual guaranteed rent in excess of concession fees and $(19) million
associated with vehicles damaged in overflow parking lots, net of insurance
proceeds.
Americas
Three Months Ended
September 30,
2020 2019 % Change
Revenues $ 1,114 $ 1,868 (40 %)
Adjusted EBITDA 222 321 (31 %)
Revenues decreased 40% during the three months ended September 30, 2020 compared
to the similar period in 2019, primarily due to a 39% decrease in volume and 3%
lower revenue per day as a result of the impacts of COVID-19.
Operating expenses increased to 51.0% of revenue during the three months ended
September 30, 2020 compared to 46.9% during the similar period in 2019,
primarily due to impacts directly related to COVID-19. Vehicle depreciation and
lease charges decreased to 14.8% of revenue during the three months ended
September 30, 2020 compared to 20.1% during the similar period in 2019,
primarily due to 43% lower per-unit fleet costs. Selling, general and
administrative costs decreased to 8.3% of revenue during the three months ended
September 30, 2020 compared to 11.8% during the similar period in 2019,
primarily due to strategic cost reduction initiatives to right size the
business. Vehicle interest costs increased to 5.8% of revenue during the three
months ended September 30, 2020 compared to 4.0% during the similar period in
2019, primarily due to impacts directly related to COVID-19.
Adjusted EBITDA was $99 million lower during the three months ended September
30, 2020 compared to the similar period in 2019, primarily due to lower revenues
directly related to COVID-19, partially offset by a decrease in per-unit fleet
costs.
33
--------------------------------------------------------------------------------
Table of Contents
International
Three Months Ended
September 30,
2020 2019 % Change
Revenues $ 420 $ 885 (53 %)
Adjusted EBITDA 6 169 (96 %)
Revenues decreased 53% during the three months ended September 30, 2020 ,
compared to the similar period in 2019, primarily due to a 47% decrease in
volume and a 14% decrease in revenue per day excluding exchange rate movements
as a result of the impacts of COVID-19, partially offset by $17 million positive
impact from currency exchange rate movements.
Operating expenses increased to 61.5% of revenue during the three months ended
September 30, 2020 compared to 46.8% during the similar period in 2019. Vehicle
depreciation and lease charges increased to 21.6% of revenue during the three
months ended September 30, 2020 compared to 19.8% during the similar period in
2019. Selling, general and administrative costs increased to 15.1% of revenue
during the three months ended September 30, 2020 compared to 12.5% during the
similar period in 2019. Vehicle interest costs increased to 3.0% of revenue
during the three months ended September 30, 2020 compared to 1.8% during the
similar period in 2019. During the three months ended September 30, 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.
Adjusted EBITDA was $163 million lower in third quarter 2020 compared to the
similar period in 2019, primarily due to lower revenues directly related to
COVID-19, partially offset by a 16% decrease in per-unit fleet costs excluding
exchange rate effects.
34--------------------------------------------------------------------------------
Table of Contents
Nine Months Ended
Our consolidated condensed results of operations comprised the following:
Nine Months Ended
September 30,
2020 2019 $ Change % Change
Revenues $ 4,047 $ 7,010 $ (2,963) (42 %)
Expenses
Operating 2,505 3,534 (1,029) (29 %)
Vehicle depreciation and lease charges, net 1,089 1,579 (490) (31 %)
Selling, general and administrative
549 947 (398) (42 %)
Vehicle interest, net 247 261 (14) (5 %)
Non-vehicle related depreciation and amortization 214 195 19 10 %
Interest expense related to corporate debt, net:
Interest expense 163 139 24 17 %
Early extinguishment of debt 9 10 (1) (10 %)
Restructuring and other related charges 89 66 23 35 %
Transaction-related costs, net
3 6 (3) (50 %)
Total expenses 4,868 6,737 (1,869) (28 %)
Income (loss) before income taxes (821) 273 (1,094) n/m
Provision for (benefit from) income taxes (227) 113 (340) n/m Net income (loss)$ (594) $ 160 $ (754) n/m __________ n/m Not meaningful. Revenues decreased during the nine months endedSeptember 30, 2020 compared to the similar period in 2019, primarily as a result of a 38% decrease in volume and a 7% decrease in revenue per day excluding exchange rate movements as a result of the impact of COVID-19, and a$13 million negative impact from currency exchange rate movements. Total expenses decreased during the nine months endedSeptember 30, 2020 compared to the similar period in 2019, primarily due to strategic cost reduction initiatives and reduced operational activities as a result of the impact of COVID-19. Operating expenses increased to 61.9% of revenue during the nine months endedSeptember 30, 2020 compared to 50.4% during the similar period in 2019. Vehicle depreciation and lease charges increased to 26.9% of revenue during the nine months endedSeptember 30, 2020 compared to 22.5% during the similar period in 2019. Selling, general and administrative costs increased to 13.6% of revenue during the nine months endedSeptember 30, 2020 compared to 13.5% during the similar period in 2019. Vehicle interest costs increased to 6.1% of revenue during the nine months endedSeptember 30, 2020 compared to 3.7% during the similar period in 2019. During the nine months endedSeptember 30, 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. Our effective tax rates were a benefit of 28% and provision of 41% for the nine months endedSeptember 30, 2020 and 2019, respectively. As a result of these items, our net loss increased by$754 million . For the nine months endedSeptember 30, 2020 and 2019, the Company reported a loss of$8.40 and earnings of$2.10 per diluted share, respectively. 35 -------------------------------------------------------------------------------- Table of Contents Following is a more detailed discussion of the results of each of our reportable segments and reconciliation of net income (loss) to Adjusted EBITDA: Nine Months Ended September 30, 2020 2019 Revenues Adjusted EBITDA Revenues Adjusted EBITDA Americas$ 2,936 $ (41)$ 4,822 $ 508 International 1,111 (174) 2,188 187 Corporate and Other (a) - (34) - (50)Total Company $ 4,047 $ (249)$ 7,010 $ 645 Reconciliation to Adjusted EBITDA 2020 2019 Net income (loss)$ (594) $ 160 Provision for (benefit from) income taxes (227)
113
Income (loss) before income taxes (821) 273
Add: Non-vehicle related depreciation and amortization 214 195
Interest expense related to corporate debt, net:
Interest expense 163 139
Early extinguishment of debt 9 10
COVID-19 charges (b) 90 -
Restructuring and other related charges 89 66
Non-operational charges related to shareholder activist activity (c) 4 -
Transaction-related costs, net (d) 3 6
Gain on sale of equity method investment in China (e) - (44)
Adjusted EBITDA $ (249) $ 645
_________
(a)Includes unallocated corporate overhead which is not attributable to a
particular segment.
(b)For the nine months ended September 30, 2020 , consists of $87 million within
operating expenses, $2 million within selling, general and administrative
expenses and $1 million within vehicle depreciation and lease charges, net in
our consolidated condensed results of operations. Primarily consisting of $41
million of minimum annual guaranteed rent in excess of concession fees, $35
million of incremental cleaning supplies to sanitize vehicles and facilities,
and overflow parking for idle vehicles and related shuttling costs and $14
million of losses associated with vehicles damaged in overflow parking lots, net
of insurance proceeds.
(c)Reported within selling, general and administrative in our consolidated
condensed results of operations.
(d)Primarily comprised of acquisition- and integration-related expenses.
(e)Reported within operating expenses in our consolidated condensed results of
operations (see Note 1 to our Consolidated Condensed Financial Statements).
Americas
Nine Months Ended
September 30,
2020 2019 % Change
Revenues $ 2,936 $ 4,822 (39 %)
Adjusted EBITDA (41) 508 n/m
Revenues decreased 39% during the nine months ended September 30, 2020 compared
to the similar period in 2019, primarily due to a 36% decrease in volume and 5%
decrease in revenue per day as a result of the impact of COVID-19.
36-------------------------------------------------------------------------------- Table of Contents Operating expenses increased to 59.5% of revenue during the nine months endedSeptember 30, 2020 compared to 49.6% during the similar period in 2019, primarily due to impacts directly related to COVID-19, partially offset by strategic cost reduction initiatives to right size the business. Vehicle depreciation and lease charges increased to 26.1% of revenue during the nine months endedSeptember 30, 2020 compared to 23.3% during the similar period 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 11.1% of revenue during the nine months endedSeptember 30, 2020 compared to 12.1% during the similar period in 2019, primarily due to strategic cost reduction initiatives to right size the business. Vehicle interest costs increased to 7.1% of revenue during the nine months endedSeptember 30, 2020 compared to 4.5% during the similar period 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 was
International
Nine Months Ended
September 30,
2020 2019 % Change
Revenues $ 1,111 $ 2,188 (49 %)
Adjusted EBITDA (174) 187 n/m
Revenues decreased 49% during the nine months ended September 30, 2020 compared
to the similar period in 2019, primarily due to a 41% decrease in volume and a
13% decrease in revenue per day excluding exchange rate movements as a result of
the impact of COVID-19, and an $11 million negative impact from currency
exchange rate movements.
Operating expenses increased to 68.2% of revenue during the nine months ended
September 30, 2020 compared to 52.1% during the similar period in 2019. Vehicle
depreciation and lease charges increased to 29.0% of revenue during the nine
months ended September 30, 2020 compared to 20.9% during the similar period in
2019. Selling, general and administrative costs increased to 16.6% of revenue
during the nine months ended September 30, 2020 compared to 14.5% during the
similar period in 2019. Vehicle interest costs increased to 3.5% of revenue
during the nine months ended September 30, 2020 compared to 2.1% during the
similar period in 2019. During the nine months ended September 30, 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.
Adjusted EBITDA was
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We present separately the financial data of our vehicle programs. These programs
are distinct from our other activities as the assets under vehicle programs are
generally funded through the issuance of debt that is collateralized by such
assets. The income generated by these assets is used, in part, to repay the
principal and interest associated with the debt. Cash inflows and outflows
relating to the generation or acquisition of such assets and the principal debt
repayment or financing of such assets are classified as activities of our
vehicle programs. We believe it is appropriate to segregate the financial data
of our vehicle programs because, ultimately, the source of repayment of such
debt is the realization of such assets.
FINANCIAL CONDITION
September 30,
2020 December 31, 2019 Change
Total assets exclusive of assets under vehicle
programs $ 9,553 $ 9,311 $ 242
Total liabilities exclusive of liabilities
under vehicle programs 9,241 8,538 703
Assets under vehicle programs 10,043 13,815 (3,772)
Liabilities under vehicle programs 10,431 13,932 (3,501)
Stockholders' equity (76) 656 (732)
37--------------------------------------------------------------------------------
Table of Contents
The decreases in assets under vehicle programs and liabilities under vehicle programs are principally 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 is primarily due to our comprehensive loss and share repurchases.
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. InJanuary 2020 , our Avis Budget Rental Car Funding subsidiary issued approximately$700 million in asset-backed notes with an expected final payment date ofAugust 2025 , and a weighted average interest rate of 2.42%. The proceeds from these borrowings were used to fund the repayment of maturing vehicle-backed debt and the acquisition of rental cars inthe United States . InMay 2020 , we issued$500 million of 10½% Senior Secured Notes dueMay 2025 , at 97% of face value. We used the proceeds from this offering for general corporate purposes. InAugust 2020 , we issued$350 million of additional 5¾% Senior Notes dueJuly 2027 , at 92% of face value. We used the proceeds from this offering 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. InAugust 2020 , our Avis Budget Rental Car Funding subsidiary issued approximately$650 million in asset-backed notes with an expected final payment date ofFebruary 2026 , and a weighted average rate of 2.28%. We have no meaningful corporate debt maturities until 2023.
During the first quarter of 2020, we repurchased approximately 5.0 million
shares of our outstanding common stock for approximately
CASH FLOWS
The following table summarizes our cash flows:
Nine Months Ended
2020 2019 Change
Cash provided by (used in):
Operating activities $ 632 $ 1,931 $ (1,299)
Investing activities 2,483 (3,038) 5,521
Financing activities (2,383) 1,090 (3,473)Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash
28 (10) 38
Net increase (decrease) in cash and cash equivalents, program and restricted cash
760 (27) 787
Cash and cash equivalents, program and restricted cash, beginning of period
900 735 165
Cash and cash equivalents, program and restricted cash, end of period $
1,660
The decrease in cash provided by operating activities during the nine months endedSeptember 30, 2020 compared with the same period in 2019 is principally due to the increase in our net loss. The increase in cash provided by investing activities during the nine months endedSeptember 30, 2020 compared with the same period in 2019 is primarily due to reduced net investment in vehicles. The increase in cash used in financing activities during the nine months endedSeptember 30, 2020 compared with the same period in 2019 is primarily due to a decrease in net borrowings under vehicle programs partially offset by an increase in net corporate borrowings. DEBT AND FINANCING ARRANGEMENTS
At
38
--------------------------------------------------------------------------------
Table of Contents
regarding our debt and borrowing arrangements, see Notes 1, 11 and 12 to our
Consolidated Condensed Financial Statements.
LIQUIDITY RISK
Our primary liquidity needs include the procurement of rental vehicles to be used in our operations, servicing of corporate and vehicle-related debt and the payment of operating expenses. The present intention of management is to reinvest the undistributed earnings of our foreign subsidiaries indefinitely into our foreign operations. Our primary sources of funding are operating revenue, cash received upon the sale of vehicles, borrowings under our vehicle-backed borrowing arrangements and our senior revolving credit facility, and other financing activities. 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 theU.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 theU.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. As ofSeptember 30, 2020 , we had access to$1.6 billion of available cash and cash equivalents and available borrowings under our revolving credit facility of approximately$0.8 billion , providing us with access to an approximate$2.4 billion of total liquidity. See Note 1 to our Consolidated Condensed 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 onJune 30, 2021 and other covenants associated with our senior credit facilities and other borrowings. As ofSeptember 30, 2020 , 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" of our 2019 Form 10-K as well as "Risk Factors" section in this quarterly report.
CONTRACTUAL OBLIGATIONS
Our future contractual obligations have not changed significantly from the amounts reported within our 2019 Form 10-K with the exception of our commitment to purchase vehicles, which decreased by approximately$4.3 billion fromDecember 31, 2019 , to approximately$3.4 billion atSeptember 30, 2020 due to the COVID-19 impact on our business. Changes to our obligations related to corporate indebtedness and debt under vehicle programs are presented above within the section titled "Liquidity and Capital Resources-Debt and Financing Arrangements" and also within Notes 11 and 12 to our Consolidated Condensed Financial Statements.
ACCOUNTING POLICIES
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 principles, we are required to
make estimates and assumptions that affect the amounts reported therein. Several
of the estimates and assumptions that we are required to make pertain to matters
that are inherently uncertain as they relate to future events. Presented within
the section titled "Critical Accounting Policies" of our 2019 Form 10-K are the
accounting policies (related to goodwill and other indefinite-lived intangible
assets, vehicles, income taxes and public liability, property damage and other
insurance liabilities) that we believe require subjective and/or complex
judgments that could potentially affect 2020 reported results. There have been
no significant changes to those accounting policies or our assessment of which
accounting policies we would consider to be critical accounting policies.
39--------------------------------------------------------------------------------
Table of Contents
Goodwill and Other Indefinite-lived Intangible Assets. We perform our annual goodwill and other indefinite-lived intangible assets impairment assessment in the fourth quarter of each year at the reporting unit level, or more frequently if events or circumstances indicate that the carrying amount of goodwill and other indefinite-lived intangible assets may be impaired. As a result of the impacts of COVID-19 on our business, we reviewed the carrying value of our goodwill and other indefinite-lived intangibles assets for impairment during the quarter endedJune 30, 2020 . For ourEurope ,Middle East andAfrica ("EMEA") reporting unit, the percentage by which the estimated fair value exceeded the carrying value was approximately 24% and the amount of goodwill allocated to our reporting unit was$464 million at the date of our review. 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. 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. Our goodwill and other indefinite-lived intangible assets are allocated among our reporting units. During the quarter endedSeptember 30, 2020 , we continued to observe impacts of COVID-19 on our business. We evaluated qualitative factors and determined that an interim impairment test was not required this quarter as we believe it is more likely than not that the fair value of our goodwill and other indefinite-lived intangible assets exceeds the carrying value. Further deterioration in the general economic conditions in the travel industry may result in an impairment charge to earnings in future quarters. 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 weighted average cost of capital and market multiples. If our expectations of the operating results, both in magnitude or timing, do not materialize, or if our weighed average cost of capital increases or if market multiples decline, we may be required to record goodwill and indefinite-lived intangible asset impairment charges, which may be material. New Accounting Standards
For detailed information regarding new accounting standards and their impact on our business, see Note 1 to our Consolidated Condensed Financial Statements.
© Edgar Online, source
