Avis Budget Group: SEC Filing

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 001-10308


Avis Budget Group, Inc.
(Exact name of registrant as specified in its charter)

Delaware

06-0918165

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

6 Sylvan Way

Parsippany,

07054

(Address of principal executive offices)

(Zip Code)

(973)

496-4700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.01	CAR	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the issuer’s common stock was 48,287,272 shares as of April 29, 2022.

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		Page
PART I	Financial Information
Item 1.	Financial Statements
	Consolidated Condensed Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 202 1 (Unaudited)	4
	Consolidated Condensed Balance Sheets as of March 31, 2022 and December 31, 202 1 (Unaudited)	5
	Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31 , 202 2 and 202 1 (Unaudited)	6
	Consolidated Condensed Statements of Stockholders’ Equity for the Three Months Ended March 31 , 202 2 and 202 1 (Unaudited)	8
	Notes to Consolidated Condensed Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33
PART II	Other Information
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	34
	Signatures	35

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FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q may be considered “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by any such forward-looking statements. Forward-looking statements include information concerning our future financial performance, business strategy, projected plans and objectives. These statements may be identified by the fact that they do not relate to historical or current facts and may use words such as “believes,” “expects,” “anticipates,” “will,” “should,” “could,” “may,” “would,” “intends,” “projects,” “estimates,” “plans,” and similar words, expressions or phrases. The following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements. Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the Coronavirus (“COVID-19”) pandemic, the continued restrictions that have been placed on travel in many countries and the resulting adverse impact on the global economy, and the potential effects on the global economy and markets as a result of the ongoing military conflict between Russia and Ukraine. These factors include, but are not limited to:

•COVID-19 and its resulting impact on the global economy, which has had, and is expected to continue to have, a significant impact on our operations, including unprecedented volatility in demand levels, as well as its current, and uncertain future impact including, but not limited to, its effect on the ability or desire of people to travel, including due to travel restrictions, and other restrictions and orders, which may continue to impact our results, operations, outlooks, plans, goals, growth, cash flows, liquidity, and stock price;

•the high level of competition in the mobility industry, including from new companies or technology, and the impact such competition may have on pricing and rental volume;

•a change in our fleet costs, including as a result of a change in the cost of new vehicles, resulting from inflation or otherwise, manufacturer recalls, disruption in the supply of new vehicles, shortages in semiconductors used in new vehicle production, and/or a change in the price at which we dispose of used vehicles either in the used vehicle market or under repurchase or guaranteed depreciation programs;

•the results of operations or financial condition of the manufacturers of our vehicles, which could impact their ability to perform their payment obligations under our agreements with them, including repurchase and/or guaranteed depreciation arrangements, and/or their willingness or ability to make vehicles available to us or the mobility industry as a whole on commercially reasonable terms or at all particularly as COVID-19 related restrictions are lifted and travel demand increases;

•the significant volatility in travel demand as a result of COVID-19, including the current and any future disruptions in airline passenger traffic;

•a deterioration in economic conditions, particularly during our peak season or in key market segments;

•an occurrence or threat of terrorism, the current and any future pandemic diseases, natural disasters, military conflict, including the ongoing military conflict between Russia and Ukraine, or civil unrest in the locations in which we operate, and the potential effects of sanctions on the world economy and markets and/or international trade;

•any substantial changes in the cost or supply of fuel, vehicle parts, energy, labor or other resources on which we depend to operate our business, including as a result of COVID-19, the ongoing military conflict between Russia and Ukraine, and any embargos on oil sales imposed on or by the Russian government;

•our ability to continue to successfully implement our business strategies, achieve and maintain cost savings and adapt our business to changes in mobility;

•political, economic or commercial instability in the countries in which we operate, and our ability to conform to multiple and conflicting laws or regulations in those countries;

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•our dependence on third-party distribution channels, third-party suppliers of other services and co-marketing arrangements with third parties;

•risks related to completed or future acquisitions or investments that we may pursue, including the incurrence of incremental indebtedness to help fund such transactions and our ability to promptly and effectively integrate any acquired businesses or capitalize on joint ventures, partnerships and other investments;

•our ability to utilize derivative instruments, and the impact of derivative instruments we utilize, which can be affected by fluctuations in interest rates, gasoline prices and exchange rates, changes in government regulations and other factors;

•our exposure to uninsured or unpaid claims in excess of historical levels and our ability to obtain insurance at desired levels and the cost of that insurance;

•risks associated with litigation, governmental or regulatory inquiries, or any failure or inability to comply with laws, regulations or contractual obligations or any changes in laws, regulations or contractual obligations, including with respect to personally identifiable information and consumer privacy, labor and employment, and tax;

•risks related to protecting the integrity of, and preventing unauthorized access to, our information technology systems or those of our third-party vendors, licensees, dealers, independent operators and independent contractors, and protecting the confidential information of our employees and customers against security breaches, including physical or cybersecurity breaches, attacks, or other disruptions, compliance with privacy and data protection regulation, and the effects of any potential increase in cyberattacks on the world economy and markets and/or international trade;

•any impact on us from the actions of our third-party vendors, licensees, dealers, independent operators and independent contractors and/or disputes that may arise out of our agreements with such parties;

•any major disruptions in our communication networks or information systems;

•risks related to tax obligations and the effect of future changes in tax laws and accounting standards;

•risks related to our indebtedness, including our substantial outstanding debt obligations, potential interest rate increases, recent and potential further downgrades by rating agencies and our ability to incur substantially more debt;

•our ability to obtain financing for our global operations, including the funding of our vehicle fleet through the issuance of asset-backed securities and use of the global lending markets;

•our ability to meet the financial and other covenants contained in the agreements governing our indebtedness, or to obtain a waiver or amendment of such covenants should we be unable to meet such covenants;

•significant changes in the assumptions and estimates that are used in our impairment testing for goodwill or intangible assets, which could result in a significant impairment of our goodwill or intangible assets; and

•other business, economic, competitive, governmental, regulatory, political or technological factors affecting our operations, pricing or services.

We operate in a continuously changing business environment and new risk factors emerge from time to time. New risk factors, factors beyond our control, or changes in the impact of identified risk factors may cause actual results to differ materially from those set forth in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. Moreover, we do not assume responsibility if future results are materially different from those forecast or anticipated. Other factors and assumptions not identified above, including those discussed in “Management’s Discussion and Analysis of Financial Condition and Results

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of Operations,” in Item 2 and “Risk Factors” in Item 1A in this quarterly report and in similarly titled sections set forth in Item 7 and in Item 1A and in other portions of our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 17, 2022 (the “2021 Form 10-K”), may cause actual results to differ materially from those projected in any forward-looking statements.

Although we believe that our assumptions are reasonable, any or all of our forward-looking statements may prove to be inaccurate and we can make no guarantees about our future performance. Should unknown risks or uncertainties materialize or underlying assumptions prove inaccurate, actual results could differ materially from past results and/or those anticipated, estimated or projected. We undertake no obligation to release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In millions, except per share data)

(Unaudited)


		Three Months Ended March 31,
		2022		2021
Revenues		$	2,432	$	1,372

Expenses
	Operating	1,147		832
	Vehicle depreciation and lease charges, net	111		254
	Selling, general and administrative	283		182
	Vehicle interest, net	77		75
	Non-vehicle related depreciation and amortization	58		68
	Interest expense related to corporate debt, net:
	Interest expense	53		61
	Early extinguishment of debt	—		129
	Restructuring and other related charges	8		20
	Transaction-related costs, net	—		1
Total expenses		1,737		1,622

Income (loss) before income taxes		695		(250)
Provision for (benefit from) income taxes		168		(80)
Net income (loss)		527		(170)
	Less: net loss attributable to non-controlling interests	(2)		—
Net income (loss) attributable to Avis Budget Group, Inc.		$	529	$	(170)

Comprehensive income (loss) attributable to Avis Budget Group, Inc.		$	568	$	(146)

Earnings (loss) per share
	Basic	$	9.96	$	(2.43)
	Diluted	$	9.71	$	(2.43)

See Notes to Consolidated Condensed Financial Statements (Unaudited).

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Avis Budget Group, Inc.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions, except par value)

(Unaudited)


		March 31, 2022		December 31, 2021
Assets
Current assets:
	Cash and cash equivalents	$	550	$	534
	Receivables, net	779		775
	Other current assets	439		538
Total current assets		1,768		1,847

Property and equipment, net		531		537
Operating lease right-of-use assets		2,417		2,368
Deferred income taxes		1,540		1,615
Goodwill		1,096		1,108
Other intangibles, net		706		724
Other non-current assets		379		382
Total assets exclusive of assets under vehicle programs		8,437		8,581

Assets under vehicle programs:
	Program cash	85		89
	Vehicles, net	13,987		12,866
	Receivables from vehicle manufacturers and other	182		222
	Investment in Avis Budget Rental Car Funding (AESOP) LLC—related party	882		842
		15,136		14,019
Total Assets		$	23,573	$	22,600

Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable and other current liabilities	$	2,675	$	2,389
	Short-term debt and current portion of long-term debt	27		19
Total current liabilities		2,702		2,408

Long-term debt		4,678		3,990
Long-term operating lease liabilities		1,918		1,910
Other non-current liabilities		585		625
Total liabilities exclusive of liabilities under vehicle programs		9,883		8,933

Liabilities under vehicle programs:
	Debt	2,356		2,542
	Debt due to Avis Budget Rental Car Funding (AESOP) LLC—related party	9,743		8,848
	Deferred income taxes	2,323		2,242
	Other	251		244
		14,673		13,876
Commitments and contingencies (Note 12)

Stockholders’ equity:
	Preferred stock, $0.01 par value—authorized 10 shares; nonene issued and outstanding, respectively	—		—
	Common stock, $0.01 par value—authorized 250 shares; issued 137 shares, respectively	1		1
	Additional paid-in capital	6,646		6,676
	Retained earnings (accumulated deficit)	344		(185)
	Accumulated other comprehensive loss	(94)		(133)
	Treasury stock, at cost— 87 and 81 shares, respectively	(7,889)		(6,579)
Stockholders’ equity attributable to Avis Budget Group, Inc.		(992)		(220)
	Non-controlling interests	9		11
Total stockholders’ equity		(983)		(209)
Total Liabilities and Stockholders’ Equity		$	23,573	$	22,600

See Notes to Consolidated Condensed Financial Statements (Unaudited).

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Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


			Three Months Ended March 31,
			2022		2021
Operating activities
Net income (loss)			$	527	$	(170)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Vehicle depreciation		381		259
	Amortization of right-of-use assets		194		236
	(Gain) loss on sale of vehicles, net		(303)		(49)
	Non-vehicle related depreciation and amortization		58		68

	Stock-based compensation		6		4
	Amortization of debt financing fees		8		8
	Early extinguishment of debt costs		—		129
	Net change in assets and liabilities:
		Receivables	9		24
		Income taxes and deferred income taxes	158		(80)
		Accounts payable and other current liabilities	303		181
	Operating lease liabilities		(195)		(234)
	Other, net		2		(40)
Net cash provided by operating activities			1,148		336

Investing activities
Property and equipment additions			(37)		(12)
Proceeds received on asset sales			1		2
Net assets acquired (net of cash acquired)			(1)		(4)
Other, net			23		—
Net cash used in investing activities exclusive of vehicle programs			(14)		(14)

Vehicle programs:
	Investment in vehicles		(2,727)		(3,032)
	Proceeds received on disposition of vehicles		1,616		1,679
	Investment in debt securities of Avis Budget Rental Car Funding (AESOP) LLC—related party		(84)		(24)
	Proceeds from debt securities of Avis Budget Rental Car Funding (AESOP) LLC—related party		44		25
			(1,151)		(1,352)
Net cash used in investing activities			(1,165)		(1,366)

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Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)

(In millions)

(Unaudited)


		Three Months Ended March 31,
		2022		2021
Financing activities
Proceeds from long-term borrowings		729		1,100
Payments on long-term borrowings		(5)		(1,101)


Repurchases of common stock		(1,299)		(19)
Debt financing fees		(6)		(12)


Net cash used in financing activities exclusive of vehicle programs		(581)		(32)

Vehicle programs:
	Proceeds from borrowings	4,016		3,481
	Payments on borrowings	(3,403)		(2,535)
	Debt financing fees	(2)		—
		611		946
Net cash provided by financing activities		30		914

Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash		(2)		(10)

Net increase (decrease) in cash and cash equivalents, program and restricted cash		11		(126)
Cash and cash equivalents, program and restricted cash, beginning of period		626		765
Cash and cash equivalents, program and restricted cash, end of period		$	637	$	639

See Notes to Consolidated Condensed Financial Statements (Unaudited).

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Avis Budget Group, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Stockholders’ Equity Attributable to Avis Budget Group, Inc.		Non-controlling Interests		Total Stockholders’ Equity
	Shares	Amount								Shares	Amount
Balance at December 31, 2021	137.1	$	1	$	6,676	$	(185)	$	(133)	(81.2)	$	(6,579)	$	(220)	$	11	$	(209)


Comprehensive income (loss):
Net income (loss)	—	—		—		529		—		—	—		529		(2)		527
Other comprehensive income	—	—		—		—		39		—	—		39		—		39
Total comprehensive income (loss)						529		39					568		(2)		566



Net activity related to restricted stock units	—	—		(30)		—		—		0.2	(3)		(33)		—		(33)
Repurchase of common stock	—	—		—		—		—		(6.4)	(1,307)		(1,307)		—		(1,307)



Balance at March 31, 2022	137.1	$	1	$	6,646	$	344	$	(94)	(87.4)	$	(7,889)	$	(992)	$	9	$	(983)

Balance at December 31, 2020	137.1	$	1	$	6,668	$	(1,470)	$	(187)	(67.3)	$	(5,167)	$	(155)	$	—	$	(155)

Comprehensive income (loss):
Net loss	—	—		—		(170)		—		—	—		(170)		—		(170)
Other comprehensive income	—	—		—		—		24		—	—		24		—		24
Total comprehensive income (loss)						(170)		24					(146)		—		(146)

Net activity related to restricted stock units	—	—		(26)		—		—		0.2	21		(5)		—		(5)
Repurchases of common stock	—	—		—		—		—		(0.1)	(10)		(10)		—		(10)
Balance at March 31, 2021	137.1	$	1	$	6,642	$	(1,640)	$	(163)	(67.2)	$	(5,156)	$	(316)	$	—	$	(316)

See Notes to Consolidated Condensed Financial Statements (Unaudited).

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Avis Budget Group, Inc.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

(Unless otherwise noted, all dollar amounts in tables are in millions, except per share amounts)

1. Basis of Presentation

Avis Budget Group, Inc. provides mobility solutions to businesses and consumers worldwide. The accompanying unaudited Consolidated Condensed Financial Statements include the accounts and transactions of Avis Budget Group, Inc. and its subsidiaries, as well as entities in which Avis Budget Group, Inc. directly or indirectly has a controlling financial interest (collectively, “we”, “our”, “us”, or the “Company”), and have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial reporting.

We operate the following reportable business segments:

•Americas—consisting primarily of (i) vehicle rental operations in North America, South America, Central America and the Caribbean, (ii) car sharing operations in certain of these markets, and (iii) licensees in certain areas in which we do not operate directly.

•International—consisting primarily of (i) vehicle rental operations in Europe, the Middle East, Africa, Asia and Australasia, (ii) car sharing operations in certain of these markets, and (iii) licensees in certain areas in which we do not operate directly.

The operating results of acquired businesses are included in the accompanying Consolidated Condensed Financial Statements from the dates of acquisition. Differences between the preliminary allocation of purchase price and the final allocation for our 2021 acquisitions of various licensees were not material. We consolidate joint venture activities when we have more than 50% controlling interests and record non-controlling interests within stockholders’ equity and the statement of comprehensive income equal to the percentage of ownership interest retained in such entities by the respective non-controlling party.

In presenting the Consolidated Condensed Financial Statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Consolidated Condensed Financial Statements contain all adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These financial statements should be read in conjunction with our 2021 Annual Report on Form 10-K (the “2021 Form 10-K”).

Summary of Significant Accounting Policies

Our significant accounting policies are fully described in Note 2, “Summary of Significant Accounting Policies,” in our 2021 Form 10-K.

Cash and cash equivalents, Program cash and Restricted cash. The following table provides a detail of cash and cash equivalents, program and restricted cash reported within the Consolidated Condensed Balance Sheets to the amounts shown in the Consolidated Condensed Statements of Cash Flows.


	As of March 31,
	2022		2021
Cash and cash equivalents	$	550	$	576
Program cash	85		61
Restricted cash (a)	2		2
Total cash and cash equivalents, program and restricted cash	$	637	$	639

________

(a)Included within other current assets.

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Vehicle Programs. We present separately the financial data of our vehicle programs. These programs are distinct from our other activities since the assets under vehicle programs are generally funded through the issuance of debt that is collateralized by such assets. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of our vehicle programs. We believe it is appropriate to segregate the financial data of our vehicle programs because, ultimately, the source of repayment of such debt is the realization of such assets.

Transaction-related costs, net. Transaction-related costs, net are classified separately in the Consolidated Condensed Statements of Comprehensive Income. These costs are comprised of expenses primarily related to acquisition-related activities such as due diligence and other advisory costs, expenses related to the integration of the acquiree’s operations with those of our operations, including the implementation of best practices and process improvements, non-cash gains and losses related to re-acquired rights, expenses related to pre-acquisition contingencies and contingent consideration related to acquisitions.

Currency Transactions. We record the gain or loss on foreign currency transactions on certain intercompany loans and the gain or loss on intercompany loan hedges within interest expense related to corporate debt, net.

Divestitures. In February 2022, we completed the sale of our operations in the United States Virgin Islands for $13 million, for the right to operate the Avis brand. During the three months ended March 31, 2022, we recorded a gain of $2 million within restructuring and other related charges.

In March 2022, we completed the sale of our operations in the Netherlands for $15 million, subject to working capital adjustments, for the right to operate the Avis and Budget brands. During the three months ended March 31, 2022, we recorded a loss of $7 million, net of impact of foreign currency adjustments, within restructuring and other related charges.

Investments. As of March 31, 2022 and December 31, 2021, we had equity method investments with a carrying value of $71 million and $72 million, respectively, which are recorded within other non-current assets. Earnings from our equity method investments are reported within operating expenses. For the three months ended March 31, 2022 and 2021, we recorded an immaterial amount related to our equity method investments, in each period.

Revenues. Revenues are recognized under “Leases (Topic 842),” with the exception of royalty fee revenue derived from our licensees and revenue related to our customer loyalty program, which were approximately $34 million and $40 million during the three months ended March 31, 2022 and 2021, respectively.

The following table presents our revenues disaggregated by geography:


	Three Months Ended March 31,
	2022		2021
Americas	$	2,000	$	1,080
Europe, Middle East and Africa	324		203
Asia and Australasia	108		89
Total revenues	$	2,432	$	1,372

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The following table presents our revenues disaggregated by brand:


	Three Months Ended March 31,
	2022		2021
Avis	$	1,281	$	717
Budget	982		524
Other	169		131
Total revenues	$	2,432	$	1,372

________

Other includes Zipcar and other operating brands.

Recently Issued Accounting Pronouncements

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which amends Topic 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. ASU 2021-08 becomes effective for us on January 1, 2023. Early adoption is permitted on a retrospective or prospective basis. The adoption of this accounting pronouncement is not expected to have a material impact on our Consolidated Condensed Financial Statements.

Reference Rate Reform

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which amends ASU 2020-04 and clarifies the scope and guidance of Topic 848 to allow derivatives impacted by the reference rate reform to qualify for certain optional expedients and exceptions for contract modifications and hedge accounting. The guidance is optional and is effective for a limited period of time through December 31, 2022. As of March 31, 2022, this guidance had no impact on our Consolidated Condensed Financial Statements and we will continue to evaluate this guidance.

2. Leases

Lessor

The following table presents our lease revenues disaggregated by geography:


	Three Months Ended March 31,
	2022		2021
Americas	$	1,985	$	1,054
Europe, Middle East and Africa	309		192
Asia and Australasia	104		86
Total lease revenues	$	2,398	$	1,332

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The following table presents our lease revenues disaggregated by brand:


	Three Months Ended March 31,
	2022		2021
Avis	$	1,261	$	690
Budget	972		516
Other	165		126
Total lease revenues	$	2,398	$	1,332

_______

Other includes Zipcar and other operating brands.

Lessee

We have operating and finance leases for rental locations, corporate offices, vehicle rental fleet and equipment. Many of our operating leases for rental locations contain concession agreements with various airport authorities that allow us to conduct our vehicle rental operations on site. In general, concession fees for airport locations are based on a percentage of total commissionable revenue as defined by each airport authority, some of which are subject to minimum annual guaranteed amounts. Concession fees other than minimum annual guaranteed amounts are not included in the measurement of operating lease Right of Use (“ROU”) assets and operating lease liabilities, and are recorded as variable lease expense as incurred. Our operating leases for rental locations often also require us to pay or reimburse operating expenses.

The components of lease expense are as follows:


	Three Months Ended March 31,
	2022		2021
Property leases (a)
Operating lease expense	$	161	$	139
Variable lease expense	102		54
Total property lease expense	$	263	$	193

__________

(a) Primarily within operating expense and includes $(7) million and $19 million for the three months ended March 31, 2022 and 2021, respectively, of minimum annual guaranteed rent in excess of concession fees, net, as defined in our rental concession agreements.

Supplemental balance sheet information related to leases is as follows:


	As of March 31, 2022			As of December 31, 2021
Property leases
Operating lease ROU assets	$	2,417		$	2,368

Short-term operating lease liabilities (a)	$	536		$	496
Long-term operating lease liabilities	1,918			1,910
Operating lease liabilities	$	2,454		$	2,406

Weighted average remaining lease term	8.6 years			8.8 years
Weighted average discount rate	3.81		%	3.84		%

_________

(a) Included in Accounts payable and other current liabilities.

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Supplemental cash flow information related to leases is as follows:


	Three Months Ended March 31,
	2022		2021
Cash payments for lease liabilities within operating activities:
Property operating leases	$	164	$	202
Non-cash activities - increase (decrease) in ROU assets in exchange for lease liabilities:
Property operating leases	$	213	$	169

3. Restructuring and Other Related Charges

Restructuring

During the first quarter of 2021, we initiated a global restructuring plan to focus on cost discipline by reviewing headcounts, facilities and contractor agreements. We are transforming our business as we prepare to exit the COVID-19 crisis by controlling fixed costs and matching variable costs to demand (“T21”). During the quarter ended March 31, 2022, we formally communicated the termination of employment to approximately 45 employees, as part of this process, and terminated approximately 40 of these employees. We expect no further restructuring expense to be incurred in 2022 under this program.

The following tables summarize the changes to our restructuring-related liabilities and identifies the amounts recorded within our reporting segments for restructuring charges and corresponding payments and utilizations:


				Americas		International		Total
Balance as of January 1, 2022				$	2	$	8	$	10
	Restructuring expense:
	T21			1		2		3



	Restructuring payment/utilization:
	T21			(1)		(6)		(7)



Balance as of March 31, 2022				$	2	$	4	$	6

		Personnel		Facility Related		Other (a)		Total
Balance as of January 1, 2022		$	7	$	2	$	1	$	10
	Restructuring expense:
	T21	3		—		—		3



	Restructuring payment/utilization:
	T21	(6)		(1)		—		(7)



Balance as of March 31, 2022		$	4	$	1	$	1	$	6

_________

(a)Includes expenses primarily related to the disposition of vehicles.

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4. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) (shares in millions):


		Three Months Ended March 31,
		2022		2021
Net income (loss) attributable to Avis Budget Group, Inc. for basic and diluted EPS		$	529	$	(170)

Basic weighted average shares outstanding		53.1		69.9
Non-vested stock (a)		1.4		—
Diluted weighted average shares outstanding		54.5		69.9

Earnings (loss) per share:
	Basic	$	9.96	$	(2.43)
	Diluted	$	9.71	$	(2.43)

__________

(a)For the three months ended March 31, 2022 and 2021, 0.1 million and 1.1 million non-vested stock awards, respectively, have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding.

5. Other Current Assets

Other current assets consisted of:


	As of March 31, 2022		As of December 31, 2021
Prepaid expenses	$	246	$	205
Sales and use taxes	106		238
Other	87		95
Other current assets	$	439	$	538

6. Intangible Assets

Intangible assets consisted of:


	As of March 31, 2022						As of December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized Intangible Assets
License agreements	$	295	$	203	$	92	$	298	$	193	$	105
Customer relationships	253		204		49		257		204		53
Other	49		36		13		51		36		15
Total	$	597	$	443	$	154	$	606	$	433	$	173
Unamortized Intangible Assets
Goodwill	$	1,096					$	1,108
Trademarks	$	552					$	551

For the three months ended March 31, 2022 and 2021, amortization expense related to amortizable intangible assets was approximately $16 million and $18 million, respectively. Based on our amortizable intangible assets at March 31, 2022, we expect amortization expense of approximately $30 million for the remainder of 2022, $27 million for 2023, $23 million for 2024, $16 million for 2025, $15 million for 2026 and $12 million for 2027, excluding effects of currency exchange rates.

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7. Vehicle Rental Activities

The components of vehicles, net within assets under vehicle programs were as follows:


	As of		As of
	March 31,		December 31,
	2022		2021
Rental vehicles	$	15,768	$	14,612
Less: Accumulated depreciation	(1,955)		(1,911)
	13,813		12,701
Vehicles held for sale	174		165
Vehicles, net	$	13,987	$	12,866

The components of vehicle depreciation and lease charges, net are summarized below:


	Three Months Ended March 31,
	2022		2021
Depreciation expense	$	381	$	259
Lease charges	33		44
(Gain) loss on sale of vehicles, net	(303)		(49)
Vehicle depreciation and lease charges, net	$	111	$	254

At March 31, 2022 and 2021, we had payables related to vehicle purchases included in liabilities under vehicle programs - other of $150 million and $344 million, respectively, and receivables related to vehicle sales included in assets under vehicle programs - receivables from vehicle manufacturers and other of $64 million and $195 million, respectively.

8. Income Taxes

Our effective tax rate for the three months ended March 31, 2022 and 2021 were provision and (benefit) of 24.2% and (32.0)%, respectively. Such rates differed from the Federal Statutory rate of 21.0% primarily due to foreign taxes on our International operations and state taxes.

9. Accounts Payable and Other Current Liabilities

Accounts payable and other current liabilities consisted of:


	As of		As of
	March 31,		December 31,
	2022		2021
Short-term operating lease liabilities	$	536	$	496
Accounts payable	513		407
Deferred lease revenues - current	322		185
Accrued advertising and marketing	248		218
Accrued sales and use taxes	225		313
Accrued payroll and related	175		193
Public liability and property damage insurance liabilities - current	160		159
Other	496		418
Accounts payable and other current liabilities	$	2,675	$	2,389

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10. Long-term Corporate Debt and Borrowing Arrangements

Long-term corporate debt and borrowing arrangements consisted of:


		As of		As of
	Maturity Date	March 31,		December 31,
		2022		2021
4.125% euro-denominated Senior Notes	November 2024	$	332	$	341
4.500% euro-denominated Senior Notes	May 2025	277		284
4.750% euro-denominated Senior Notes	January 2026	387		398
5.750% Senior Notes	July 2027	729		728
4.750% Senior Notes	April 2028	500		500
5.375% Senior Notes	March 2029	600		600
Floating Rate Term Loan (a)	August 2027	1,184		1,187
Floating Rate Term Loan	March 2029	729		—
Other (b)		20		19
Deferred financing fees		(53)		(48)
Total		4,705		4,009
Less: Short-term debt and current portion of long-term debt		27		19
Long-term debt		$	4,678	$	3,990

__________

(a)The floating rate term loan is part of our senior revolving credit facility, which is secured by pledges of capital stock of certain of our subsidiaries, and liens on substantially all of our intellectual property and certain other real and personal property. As of March 31, 2022, the floating rate term loan due 2027 bears interest at one-month LIBOR plus 175 basis points, for an aggregate rate of 2.21%. We have entered into a swap to hedge $700 million of its interest rate exposure related to the floating rate term loan at an aggregate rate of 4.75%.

(b)Primarily includes finance leases which are secured by liens on the related assets.

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 for an aggregate rate of 4.00%.

Committed Credit Facilities and Available Funding Arrangements

As of March 31, 2022, the committed corporate credit facilities available to us and/or our subsidiaries were as follows:


	Total Capacity		Outstanding Borrowings		Letters of Credit Issued		Available Capacity
Senior revolving credit facility maturing 2026 (a)	$	1,950	$	—	$	1,596	$	354

__________

(a)The senior revolving credit facility bears interest at one-month LIBOR plus 175 basis points and is part of our senior credit facilities, which include the floating rate term loan and the senior revolving credit facility, and which are secured by pledges of capital stock of certain of our subsidiaries, liens on substantially all of our intellectual property and certain other real and personal property.

Debt Covenants

The agreements governing our indebtedness contain restrictive covenants, including restrictions on dividends paid to us by certain of our subsidiaries, the incurrence of additional indebtedness by us and certain of our subsidiaries, acquisitions, mergers, liquidations, and sale and leaseback transactions. Our senior credit facility also contains a maximum leverage ratio requirement. As of March 31, 2022, we were in compliance with the financial covenants governing our indebtedness.

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11. Debt Under Vehicle Programs and Borrowing Arrangements

Debt under vehicle programs, including related party debt due to Avis Budget Rental Car Funding (AESOP) LLC (“Avis Budget Rental Car Funding”), consisted of:


	As of		As of
	March 31,		December 31,
	2022		2021
Americas - Debt due to Avis Budget Rental Car Funding	$	9,779	$	8,889
Americas - Debt borrowings	615		612
International - Debt borrowings	1,573		1,757
International - Finance leases	156		177
Other	19		3
Deferred financing fees (a)	(43)		(48)
Total	$	12,099	$	11,390

__________

(a)Deferred financing fees related to Debt due to Avis Budget Rental Car Funding as of March 31, 2022 and December 31, 2021 were $36 million and $41 million, respectively.

Debt Maturities

The following table provides the contractual maturities of our debt under vehicle programs, including related party debt due to Avis Budget Rental Car Funding, at March 31, 2022:


	Debt under Vehicle Programs (a)
Within 1 year (b)	$	2,145
Between 1 and 2 years (c)	1,413
Between 2 and 3 years (d)	5,545
Between 3 and 4 years	1,532
Between 4 and 5 years	1,507

Total	$	12,142

__________

(a) Vehicle-backed debt primarily represents asset-backed securities.

(b) Includes $0.8 billion of bank and bank-sponsored facilities.

(d) Includes $3.8 billion of bank and bank-sponsored facilities.

Committed Credit Facilities and Available Funding Arrangements

As of March 31, 2022, available funding under our vehicle programs, including related party debt due to Avis Budget Rental Car Funding, consisted of:


	Total Capacity (a)		Outstanding Borrowings (b)		Available Capacity
Americas - Debt due to Avis Budget Rental Car Funding	$	10,103	$	9,779	$	324
Americas - Debt borrowings	985		615		370
International - Debt borrowings	2,590		1,573		1,017
International - Finance leases	192		156		36
Other	19		19		—
Total	$	13,889	$	12,142	$	1,747

__________

(a) Capacity is subject to maintaining sufficient assets to collateralize debt.

(b) The outstanding debt is collateralized by vehicles and related assets of $11.5 billion for Americas - Debt due to Avis Budget Rental Car Funding; $0.9 billion for Americas - Debt borrowings; $2.0 billion for International - Debt borrowings; and $0.2 billion for International - Finance leases.

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Debt Covenants

The agreements under our vehicle-backed funding programs contain restrictive covenants, including restrictions on dividends paid to us by certain of our subsidiaries and restrictions on indebtedness, mergers, liens, liquidations, and sale and leaseback transactions and in some cases also require compliance with certain financial requirements. As of March 31, 2022, we are not aware of any instances of non-compliance with any of the financial covenants contained in the debt agreements under our vehicle-backed funding programs.

12. Commitments and Contingencies

Contingencies

In 2006, we completed the spin-offs of our Realogy and Wyndham subsidiaries. We do not believe that the impact of any resolution of pre-existing contingent liabilities in connection with the spin-offs should result in a material liability to us in relation to our consolidated financial position or liquidity, as Realogy and Wyndham each have agreed to assume responsibility for these liabilities. We are also named in litigation that is primarily related to the businesses of our former subsidiaries, including Realogy and Wyndham. We are entitled to indemnification from such entities for any liability resulting from such litigation.

In November 2011, Jose Mendez v. Avis Budget Group Inc., et al. was filed in U.S. District Court for the District of New Jersey. The plaintiff seeks to represent a purported nationwide class and two sub-classes of certain renters of vehicles from our Avis and Budget subsidiaries from April 2007 through December 2015. The plaintiff seeks damages in connection with claims relating to our electronic toll service, including that administrative fees and toll charges were not properly disclosed to customers and/or were excessive. Plaintiff’s motion for class certification was approved by the Court in November 2017. The parties are currently engaged in settlement discussions. We have been named as a defendant in other purported consumer class action law suits, including a class action filed against us in Florida seeking damages in connection with a breach of contract claim and two purported class action suits filed against us in New Jersey, one related to fines and fees charged to car renters by us for violations incurred during the course of their rental and another related to ancillary charges at our Payless subsidiary. In the Florida lawsuit, a motion for preliminary approval of a proposed settlement has been filed with the Court.

We are currently involved, and in the future may be involved, in claims and/or legal proceedings, including class actions, and governmental inquiries that are incidental to our vehicle rental and car sharing operations, including, among others, contract and licensee disputes, competition matters, employment and wage-and-hour claims, insurance and liability claims, intellectual property claims, business practice disputes and other regulatory, environmental, commercial and tax matters. Litigation is inherently unpredictable and, although we believe that our accruals are adequate and/or that we have valid defenses in these matters, unfavorable resolutions could occur. We estimate that the potential exposure resulting from adverse outcomes of current legal proceedings in which it is reasonably possible that a loss may be incurred could, in the aggregate, be up to approximately $35 million in excess of amounts accrued as of March 31, 2022. We do not believe that the impact should result in a material liability to us in relation to our consolidated financial condition or results of operations.

Commitments to Purchase Vehicles

We maintain agreements with vehicle manufacturers under which we have agreed to purchase approximately $5.1 billion of vehicles from manufacturers over the next 12 months, a $0.8 billion decrease compared to December 31, 2021, financed primarily through the issuance of vehicle-backed debt and cash received upon the disposition of vehicles. Certain of these commitments are subject to the vehicle manufacturers satisfying their obligations under their respective repurchase and guaranteed depreciation agreements.

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Concentrations

Concentrations of credit risk as of March 31, 2022 include (i) risks related to our repurchase and guaranteed depreciation agreements with domestic and foreign car manufacturers, primarily with respect to receivables for program cars that have been disposed but for which we have not yet received payment from the manufacturers and (ii) risks related to Realogy and Wyndham, including receivables of $26 million and $16 million, respectively, related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with their disposition.

13. Stockholders’ Equity

Share Repurchases

Our Board of Directors has authorized the repurchase of up to $5.1 billion of our common stock under a plan originally approved in 2013 and subsequently expanded most recently in March 2022 (the “Stock Repurchase Program”). During the three months ended March 31, 2022, we repurchased approximately 6.4 million shares of common stock at a cost of approximately $1.3 billion under the program. As of March 31, 2022, approximately $652 million of authorization remains available to repurchase common stock under the program.

Total Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income (loss).

The components of other comprehensive income (loss) were as follows:


		Three Months Ended March 31,
		2022		2021
Net income (loss)		$	527	$	(170)
	Less: net loss attributable to non-controlling interests	(2)		—
Net income (loss) attributable to Avis Budget Group, Inc.		529		(170)
Other comprehensive income (loss):
	Currency translation adjustments (net of tax of $(3) and $(12), respectively)	7		(14)
	Net unrealized gain (loss) on cash flow hedges (net of tax of $(11) and $3, respectively)	30		35
	Minimum pension liability adjustment (net of tax of $0 and $0, respectively)	2		3
		39		24
Comprehensive income (loss) attributable to Avis Budget Group, Inc.		$	568	$	(146)

__________

Currency translation adjustments exclude income taxes related to indefinite investments in foreign subsidiaries.

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Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) were as follows:

Currency
Translation
Adjustments

Net Unrealized

Gains (Losses)

on Cash Flow

Hedges(a)

Minimum

Pension

Liability

Adjustment(b)

Accumulated
Other
Comprehensive
Income (Loss)

Balance, January 1, 2022