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, the “Company”), and have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial reporting.
The Company operates 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 the areas in which the Company does 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 the areas in which the Company does not operate directly.
The operating results of acquired businesses are included in the accompanying Consolidated Condensed Financial Statements from the dates of acquisition. The fair value of the assets acquired and liabilities assumed in connection with the Company’s 2019 acquisitions of various licensees has not yet been finalized; however, there have been no significant changes to the preliminary allocation of the purchase price during the nine months ended September 30, 2020.
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 the Company’s 2019 Form 10-K.
Liquidity and Management’s Plans
The continuing cases of COVID-19 and the developments surrounding the global pandemic are having a material negative impact on all aspects of the Company’s business. Significant events affecting travel and the overall economy 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 well as general economic conditions. The COVID-19 outbreak and resulting economic conditions have had, and the Company believes will continue to have, a significant adverse impact on its operations and vehicle rental volumes, and on its financial results and liquidity, and such negative impact may continue well beyond the containment of the outbreak.
The Company cannot assure its assumptions used to estimate its liquidity requirements will be correct because it has never previously experienced such a decrease in demand, and as a consequence, its ability to be predictive is uncertain. In addition, the duration of the global pandemic is uncertain. Therefore, the Company has taken, and plans to take further actions to manage its liquidity, including reducing capital expenditures, operating expenses and the number of vehicles in its fleet. The Company has no meaningful corporate debt maturities until 2023. The Company plans to finance the routine Asset Backed Securities (“ABS”) maturities with program cash on hand, available revolving debt capacity and fleet sales. As a result,
based on current operational assumptions, the Company believes it has adequate liquidity beyond the next twelve months.
In April 2020, the Company entered into an amendment (the “Amendment”) to its senior credit facilities, consisting of an approximately $1.2 billion term loan maturing in 2027 and a $1.8 billion revolving credit facility maturing in 2023, which remain in place after the Amendment. The Amendment provides for relief from the quarterly-tested leverage covenant contained in the credit agreement governing the senior credit facilities until the end of a specific relief period, including a holiday from such leverage covenant through June 30, 2021, during which time (i) certain negative covenant exceptions are not available to the Company, (ii) pricing on the senior credit facilities is increased, (iii) the Company must comply with a liquidity covenant and additional reporting requirements and (iv) the Company must meet additional conditions to borrow under the revolving credit facility.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are fully described in Note 2, “Summary of Significant Accounting Policies,” in the 2019 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 September 30,
|
|
2020
|
|
2019
|
Cash and cash equivalents
|
$
|
1,564
|
|
|
$
|
615
|
|
Program cash
|
94
|
|
|
89
|
|
Restricted cash (a)
|
2
|
|
|
4
|
|
Total cash and cash equivalents, program and restricted cash
|
$
|
1,660
|
|
|
$
|
708
|
|
________
(a)Included within other current assets.
Vehicle Programs. The Company presents separately the financial data of its vehicle programs. These programs are distinct from the Company’s 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 the Company’s vehicle programs. The Company believes it is appropriate to segregate the financial data of its 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 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 the Company, 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. The Company records 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. During the three months ended September 30, 2020 and 2019, the Company recorded an immaterial amount, in each period, related to such items. During the nine months ended September 30, 2020 and 2019, the Company recorded a loss of $5 million and a gain of $3 million, respectively, related to such items.
Divestitures. In 2018, the Company entered into a definitive stock purchase agreement to sell its 50% equity method investment in Anji Car Rental & Leasing Company Limited (“China”), located in China, to Shanghai Automotive Industry Sales Company, Ltd., a 50% owner of China. In 2019, the Company completed the sale for $64 million, net of cross-border withholding taxes and recorded a $44 million gain within operating
expenses. China’s operations were reported within the Company’s International segment.
Investments. As of September 30, 2020 and December 31, 2019, the Company had equity method investments with a carrying value of $59 million and $56 million, respectively, which are recorded within other non-current assets. Earnings from the Company’s equity method investments are reported within operating expenses. For the three months ended September 30, 2020 and 2019, the Company recorded income of $3 million and $5 million, respectively related to its equity method investments, and for the nine months ended September 30, 2020 and 2019, the Company recorded income of $4 million and $9 million, respectively.
Nonmarketable Equity Securities. As of September 30, 2020 and December 31, 2019, the Company had nonmarketable equity securities with a carrying value of $8 million, respectively, which are recorded within other non-current assets. During the nine months ended September 30, 2019, the Company realized a $12 million gain from the sale of a nonmarketable equity security, which is recorded within operating expenses. No adjustments were made to the carrying amounts during the three months ended September 30, 2020 and 2019, and during the nine months ended September 30, 2020.
Revenues. Revenues are recognized under “Leases (Topic 842),” with the exception of royalty fee revenue derived from the Company’s licensees and revenue related to the Company’s customer loyalty program, which were approximately $30 million and $40 million during the three months ended September 30, 2020 and 2019, respectively, and $84 million and $103 million during the nine months ended September 30, 2020 and 2019, respectively.
The following table presents the Company’s revenues disaggregated by geography.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Americas
|
$
|
1,114
|
|
|
$
|
1,868
|
|
|
$
|
2,936
|
|
|
$
|
4,822
|
|
Europe, Middle East and Africa
|
363
|
|
|
742
|
|
|
879
|
|
|
1,747
|
|
Asia and Australasia
|
57
|
|
|
143
|
|
|
232
|
|
|
441
|
|
Total revenues
|
$
|
1,534
|
|
|
$
|
2,753
|
|
|
$
|
4,047
|
|
|
$
|
7,010
|
|
The following table presents the Company’s revenues disaggregated by brand.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Avis
|
$
|
843
|
|
|
$
|
1,580
|
|
|
$
|
2,230
|
|
|
$
|
4,008
|
|
Budget
|
539
|
|
|
950
|
|
|
1,425
|
|
|
2,417
|
|
Other
|
152
|
|
|
223
|
|
|
392
|
|
|
585
|
|
Total revenues
|
$
|
1,534
|
|
|
$
|
2,753
|
|
|
$
|
4,047
|
|
|
$
|
7,010
|
|
________
Other includes Zipcar and other operating brands.
Adoption of New Accounting Pronouncements
Intangibles—Goodwill and Other—Internal-Use Software
On January 1, 2020, as the result of a new accounting pronouncement, the Company adopted Accounting Standard Update (“ASU”) 2018-15 “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement That Is a Service Contract,” which provides guidance for determining when the arrangement includes a software license. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The amendments in this Update also require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the
hosting arrangement, to present the expense in the same line in its statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in its statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in its balance sheet in the same line that a prepayment for the fees of the associated hosting arrangement would be presented. The adoption of this accounting pronouncement did not have a material impact on the Company's Consolidated Condensed Financial Statements.
Fair Value Measurement
On January 1, 2020, as the result of a new accounting pronouncement, the Company adopted ASU 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” which adds, removes, and modifies disclosure requirements related to fair value measurements. The adoption of this accounting pronouncement did not have a material impact on the Company's Consolidated Condensed Financial Statements.
Measurement of Credit Losses on Financial Instruments
On January 1, 2020, as the result of a new accounting pronouncement, the Company adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and related updates which sets forth a current expected credit loss impairment model for financial assets that replaces the current incurred loss model. This model requires a financial asset (or group of financial assets), including trade receivables, measured at amortized cost to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The adoption of this accounting pronouncement did not have a material impact on the Company's Consolidated Condensed Financial Statements.
Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities
During first quarter 2020, the Company early adopted the Securities Exchange Commission’s, “Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities” rules, which simplify the disclosure requirements related to the Company’s registered securities under Rule 3-10 of Regulation S-X. The final rule also allows for the simplified disclosure to be included within Management’s Discussion and Analysis of Financial Condition and Results of Operations. During third quarter 2020, the Company redeemed its remaining $100 million of publicly registered debt securities (see Note 11—Long-term corporate debt and borrowing arrangements for details). The Company’s remaining outstanding debt securities were issued in private placements exempt from the registration requirements of the federal securities laws, and therefore, such disclosure is not required.
Recently Issued Accounting Pronouncements
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions and improving the application of existing guidance. ASU 2019-12 becomes effective for the Company on January 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact of this accounting pronouncement on its Consolidated Condensed Financial Statements but does not expect it to have a material impact.
Compensation—Retirement Benefits—Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,” which adds, removes, and clarifies disclosure requirements related to defined benefit pension and other postretirement plans. These changes are part of the FASB’s
disclosure framework project, which the Board launched in 2014 to improve the effectiveness of disclosures in notes to financial statements. ASU 2018-14 becomes effective for the Company on January 1, 2021. Early adoption is permitted. The adoption of this accounting pronouncement is not expected to have a material impact on the Company's Consolidated Condensed Financial Statements.
2. Leases
The following table presents the Company’s lease revenues disaggregated by geography.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Americas
|
$
|
1,099
|
|
|
$
|
1,856
|
|
|
$
|
2,896
|
|
|
$
|
4,792
|
|
Europe, Middle East and Africa
|
350
|
|
|
717
|
|
|
843
|
|
|
1,684
|
|
Asia and Australasia
|
55
|
|
|
140
|
|
|
224
|
|
|
431
|
|
Total lease revenues
|
$
|
1,504
|
|
|
$
|
2,713
|
|
|
$
|
3,963
|
|
|
$
|
6,907
|
|
The following table presents the Company’s lease revenues disaggregated by brand.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Avis
|
$
|
824
|
|
|
$
|
1,559
|
|
|
$
|
2,181
|
|
|
$
|
3,953
|
|
Budget
|
532
|
|
|
935
|
|
|
1,401
|
|
|
2,379
|
|
Other
|
148
|
|
|
219
|
|
|
381
|
|
|
575
|
|
Total lease revenues
|
$
|
1,504
|
|
|
$
|
2,713
|
|
|
$
|
3,963
|
|
|
$
|
6,907
|
|
_______
Other includes Zipcar and other operating brands.
Lessee
The Company has operating and finance leases for rental locations, corporate offices, vehicle rental fleet and equipment. Many of the Company’s operating leases for rental locations contain concession agreements with various airport authorities that allow the Company to conduct its 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. The Company’s operating leases for rental locations often also require the Company to pay or reimburse operating expenses.
The components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Property leases (a)
|
|
|
|
|
|
|
|
Operating lease expense
|
$
|
130
|
|
|
$
|
184
|
|
|
$
|
443
|
|
|
$
|
540
|
|
Variable lease expense
|
51
|
|
|
93
|
|
|
107
|
|
|
219
|
|
Total property lease expense
|
$
|
181
|
|
|
$
|
277
|
|
|
$
|
550
|
|
|
$
|
759
|
|
__________
(a) Primarily included in operating expense and includes $11 million and $41 million of minimum annual guaranteed rent in excess of concession fees as defined in our rental concession agreement for the three and nine months ended September 30, 2020, respectively.
Supplemental balance sheet information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
September 30, 2020
|
|
As of
December 31, 2019
|
Property leases
|
|
|
|
Operating lease ROU assets
|
$
|
2,642
|
|
|
$
|
2,596
|
|
|
|
|
|
Short-term operating lease liabilities (a)
|
$
|
501
|
|
|
$
|
479
|
|
Long-term operating lease liabilities
|
2,166
|
|
|
2,140
|
|
Operating lease liabilities
|
$
|
2,667
|
|
|
$
|
2,619
|
|
|
|
|
|
Weighted average remaining lease term
|
8.7 years
|
|
8.9 years
|
Weighted average discount rate
|
4.01
|
%
|
|
4.31
|
%
|
_________
(a) Included in Accounts payable and other current liabilities.
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
Cash payments for lease liabilities within operating activities:
|
|
|
|
Property operating leases
|
$
|
554
|
|
|
$
|
564
|
|
Non-cash activities - increase (decrease) in ROU assets in exchange for lease liabilities:
|
|
|
|
Property operating leases (a)
|
588
|
|
|
149
|
|
_________
(a)For the nine months ended September 2019, ROU assets obtained in exchange for lease liabilities from initial recognition.
3. Restructuring and Other Related Charges
Restructuring
During first quarter 2020, the Company initiated a global restructuring plan to reduce operating costs, such as headcount and facilities, due to declining reservations and revenue resulting from the COVID-19 outbreak (“2020 Optimization Plan”). During the nine months ended September 30, 2020, as part of this process, the Company formally communicated the termination of employment to approximately 3,600 employees, and as of September 30, 2020, the Company terminated approximately 3,500 of these employees. The Company expects further restructuring expense of approximately $7 million related to this initiative to be incurred in 2020.
During third quarter 2019, the Company initiated a restructuring plan to exit its operations in Brazil by closing rental facilities, disposing of assets and terminating personnel (“Brazil”). During the nine months ended September 30, 2020, as part of this initiative, the Company formally communicated the termination of employment to approximately 20 employees. The Company expects further restructuring expense of approximately $5 million to be incurred.
During first quarter 2019, the Company initiated a restructuring plan to drive global efficiency by improving processes and consolidating functions, and to create new objectives and strategies for its U.S. truck rental operations by reducing headcount, large vehicles and rental locations (“T19”). This initiative is substantially complete.
The following tables summarize the changes to our restructuring-related liabilities and identifies the amounts recorded within the Company’s reporting segments for restructuring charges and corresponding payments and utilizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
International
|
|
Total
|
Balance as of January 1, 2020
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
6
|
|
|
Restructuring expense:
|
|
|
|
|
|
|
|
|
2020 Optimization Plan
|
|
|
26
|
|
|
33
|
|
|
59
|
|
|
Brazil
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
T19
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
Restructuring payment/utilization:
|
|
|
|
|
|
|
|
|
2020 Optimization Plan
|
|
|
(24)
|
|
|
(26)
|
|
|
(50)
|
|
|
Brazil
|
|
|
(2)
|
|
|
—
|
|
|
(2)
|
|
|
T19
|
|
|
(6)
|
|
|
(3)
|
|
|
(9)
|
|
Balance as of September 30, 2020
|
|
|
$
|
2
|
|
|
$
|
8
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
Facility
Related
|
|
Other (a)
|
|
Total
|
Balance as of January 1, 2020
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
6
|
|
|
Restructuring expense:
|
|
|
|
|
|
|
|
|
2020 Optimization Plan
|
56
|
|
|
1
|
|
|
2
|
|
|
59
|
|
|
Brazil
|
1
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|
T19
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
Restructuring payment/utilization:
|
|
|
|
|
|
|
|
|
2020 Optimization Plan
|
(49)
|
|
|
—
|
|
|
(1)
|
|
|
(50)
|
|
|
Brazil
|
(1)
|
|
|
(1)
|
|
|
—
|
|
|
(2)
|
|
|
T19
|
(4)
|
|
|
—
|
|
|
(5)
|
|
|
(9)
|
|
Balance as of September 30, 2020
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
10
|
|
__________
(a)Includes expenses primarily related to the disposition of vehicles.
Other Related Charges
Limited Voluntary Opportunity Plan (“LVOP”)
During 2020, the Company offered a voluntary termination program to certain employees in field operations, shared services, and general and administrative functions for a limited time. These employees, if qualified, elected resignation from employment in return for enhanced severance benefits to be settled in cash. During the nine months ended September 30, 2020, the Company recorded other related charges of approximately $18 million in connection with the LVOP. As of September 30, 2020, approximately 400 qualified employees elected to participate in the plan and the employment of all participants had been terminated.
Officer Separation Costs
In August 2020, the Company announced the resignation of John F. North, III as the Company’s Chief Financial Officer. Following his post-resignation transition to an advisory position, Mr. North will continue to serve as a consultant through January 1, 2021. In connection with Mr. North’s departure, the Company recorded other related charges of approximately $3 million, inclusive of accelerated stock-based compensation expense for the three months ended September 30, 2020, and expects another $2 million to be incurred during the remainder of 2020 for the remaining portion of accelerated stock-based compensation expense.
In March 2020, the Company announced the departure of Michael K. Tucker as Executive Vice President, General Counsel effective March 27, 2020. In connection with Mr. Tucker’s separation, the Company recorded other related charges of approximately $2 million for the nine months ended September 30, 2020.
In March 2019, the Company announced the resignation of Mark J. Servodidio as the Company’s President, International effective June 14, 2019. In connection with Mr. Servodidio’s departure, the Company recorded other related charges of approximately $3 million, inclusive of accelerated stock-based compensation expense for the nine months ended September 30, 2019.
In May 2019, the Company announced the resignation of Larry D. De Shon as the Company’s President and Chief Executive Officer. Mr. De Shon continued to serve in his role until December 31, 2019. In connection with Mr. De Shon’s departure, the Company recorded other related charges of approximately $1 million for consulting fees and $12 million for severance, inclusive of accelerated stock-based compensation expense, for the nine months ended September 30, 2020 and 2019, respectively.
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
September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income (loss) for basic and diluted EPS
|
$
|
45
|
|
|
$
|
189
|
|
|
$
|
(594)
|
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
69.7
|
|
|
75.2
|
|
|
70.8
|
|
|
75.6
|
|
Options and non-vested stock (a)
|
0.5
|
|
|
0.5
|
|
|
—
|
|
|
0.6
|
|
Diluted weighted average shares outstanding
|
70.2
|
|
|
75.7
|
|
|
70.8
|
|
|
76.2
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.64
|
|
|
$
|
2.52
|
|
|
$
|
(8.40)
|
|
|
$
|
2.12
|
|
|
Diluted
|
$
|
0.63
|
|
|
$
|
2.50
|
|
|
$
|
(8.40)
|
|
|
$
|
2.10
|
|
__________
(a)For the three months ended September 30, 2020 and 2019, 0.2 million and 0.4 million non-vested stock awards, respectively, have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding. For the nine months ended September 30, 2020 and 2019, 1.4 million and 0.5 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. Acquisitions
Avis and Budget Licensees
During the nine months ended September 30, 2020, the Company completed the acquisitions of various licensees in North America and Europe, for approximately $28 million, plus $21 million for acquired fleet. These investments were in-line with the Company’s strategy to re-acquire licensees when advantageous to expand its footprint of Company-operated locations. The acquired fleet was financed under the Company’s existing financing arrangements. In connection with these acquisitions, approximately $26 million was recorded in other intangibles related to license agreements. The license agreements are being amortized over a weighted average useful life of approximately two years. The fair value of the assets acquired and liabilities assumed has not yet been finalized and is therefore subject to change.
6. Other Current Assets
Other current assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
September 30,
2020
|
|
As of December 31, 2019
|
Prepaid expenses
|
$
|
177
|
|
|
$
|
234
|
|
Sales and use taxes
|
147
|
|
|
173
|
|
Other
|
146
|
|
|
141
|
|
Other current assets
|
$
|
470
|
|
|
$
|
548
|
|
7. Intangible Assets
Intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020
|
|
As of December 31, 2019
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Amortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
License agreements
|
$
|
271
|
|
|
$
|
136
|
|
|
$
|
135
|
|
|
$
|
241
|
|
|
$
|
108
|
|
|
$
|
133
|
|
Customer relationships
|
261
|
|
|
186
|
|
|
75
|
|
|
255
|
|
|
165
|
|
|
90
|
|
Other
|
52
|
|
|
30
|
|
|
22
|
|
|
50
|
|
|
25
|
|
|
25
|
|
Total
|
$
|
584
|
|
|
$
|
352
|
|
|
$
|
232
|
|
|
$
|
546
|
|
|
$
|
298
|
|
|
$
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
1,112
|
|
|
|
|
|
|
$
|
1,101
|
|
|
|
|
|
Trademarks
|
$
|
548
|
|
|
|
|
|
|
$
|
550
|
|
|
|
|
|
For the three months ended September 30, 2020 and 2019, amortization expense related to amortizable intangible assets was approximately $17 million and $13 million, respectively. For the nine months ended September 30, 2020 and 2019, amortization expense related to amortizable intangible assets was approximately $46 million and $44 million, respectively. Based on the Company’s amortizable intangible assets at September 30, 2020, the Company expects amortization expense of approximately $18 million for the remainder of 2020, $64 million for 2021, $33 million for 2022, $25 million for 2023, $22 million for 2024 and $16 million for 2025, excluding effects of currency exchange rates.
8. Vehicle Rental Activities
The components of vehicles, net within assets under vehicle programs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Rental vehicles
|
$
|
9,826
|
|
|
$
|
13,461
|
|
Less: Accumulated depreciation
|
(1,331)
|
|
|
(1,621)
|
|
|
8,495
|
|
|
11,840
|
|
Vehicles held for sale
|
285
|
|
|
337
|
|
Vehicles, net
|
$
|
8,780
|
|
|
$
|
12,177
|
|
|
|
|
|
The components of vehicle depreciation and lease charges, net are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
Depreciation expense
|
$
|
315
|
|
|
$
|
516
|
|
|
$
|
1,063
|
|
|
$
|
1,457
|
|
|
|
|
|
Lease charges
|
50
|
|
|
72
|
|
|
149
|
|
|
191
|
|
|
|
|
|
(Gain) loss on sale of vehicles, net
|
(109)
|
|
|
(37)
|
|
|
(123)
|
|
|
(69)
|
|
|
|
|
|
Vehicle depreciation and lease charges, net
|
$
|
256
|
|
|
$
|
551
|
|
|
$
|
1,089
|
|
|
$
|
1,579
|
|
|
|
|
|
At September 30, 2020 and 2019, the Company had payables related to vehicle purchases included in liabilities under vehicle programs - other of $213 million and $297 million, respectively, and receivables related to vehicle sales included in assets under vehicle programs - receivables from vehicle manufacturers and other of $357 million and $693 million, respectively.
9. Income Taxes
The Company’s effective tax rate for the nine months ended September 30, 2020 was a benefit of 27.6%. Such rate differed from the Federal Statutory rate of 21.0% primarily due to foreign taxes on our
International operations and state taxes.
The Company’s effective tax rate for the nine months ended September 30, 2019 was a provision of 41.4%. Such rate differed from the Federal Statutory rate of 21.0% primarily due to foreign taxes on our International operations, state taxes and a one-time net tax benefit from the sale of an equity investment in China during the second quarter of 2019.
10. Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Short-term operating lease liabilities
|
$
|
501
|
|
|
$
|
479
|
|
Accounts payable
|
404
|
|
|
378
|
|
Accrued sales and use taxes
|
249
|
|
|
223
|
|
Public liability and property damage insurance liabilities – current
|
179
|
|
|
178
|
|
Accrued advertising and marketing
|
145
|
|
|
191
|
|
Accrued payroll and related
|
131
|
|
|
195
|
|
|
|
|
|
|
|
|
|
Other
|
538
|
|
|
562
|
|
Accounts payable and other current liabilities
|
$
|
2,147
|
|
|
$
|
2,206
|
|
11. Long-term Corporate Debt and Borrowing Arrangements
Long-term corporate debt and borrowing arrangements consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
Maturity
Date
|
|
September 30,
|
|
December 31,
|
|
|
2020
|
|
2019
|
5½% Senior Notes
|
April 2023
|
|
$
|
—
|
|
|
$
|
200
|
|
6⅜% Senior Notes
|
April 2024
|
|
350
|
|
|
350
|
|
4⅛% euro-denominated Senior Notes
|
November 2024
|
|
352
|
|
|
336
|
|
5¼% Senior Notes
|
March 2025
|
|
375
|
|
|
375
|
|
4½% euro-denominated Senior Notes
|
May 2025
|
|
293
|
|
|
280
|
|
10½% Senior Secured Notes
|
May 2025
|
|
486
|
|
|
—
|
|
4¾% euro-denominated Senior Notes
|
January 2026
|
|
410
|
|
|
393
|
|
5¾% Senior Notes
|
July 2027
|
|
723
|
|
|
400
|
|
Floating Rate Term Loan (a)
|
August 2027
|
|
1,201
|
|
|
1,112
|
|
Other (b)
|
|
|
24
|
|
|
28
|
|
Deferred financing fees
|
|
|
(50)
|
|
|
(39)
|
|
Total
|
|
|
4,164
|
|
|
3,435
|
|
Less: Short-term debt and current portion of long-term debt
|
|
|
19
|
|
|
19
|
|
Long-term debt
|
|
|
$
|
4,145
|
|
|
$
|
3,416
|
|
__________
(a)The floating rate term loan is part of the Company’s senior revolving credit facility, which is secured by pledges of capital stock of certain subsidiaries of the Company, and liens on substantially all of the Company’s intellectual property and certain other real and personal property. As of September 30, 2020, the floating rate term loan due 2027 bears interest at one-month LIBOR plus 225 basis points, for an aggregate rate of 2.40%. The Company has 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 4.58%.
(b)Primarily includes finance leases which are secured by liens on the related assets.
In February 2020, the Company amended its Floating Rate Term Loan due 2025 to extend its maturity term to 2027 and reduce its interest to one-month LIBOR plus 1.75%. The Company increased the outstanding borrowing principal amount of the Floating Rate Term Loan to $1.2 billion and on April 1, 2020 used the additional loan amount to redeem $100 million of its outstanding 5½% Senior Notes due 2023.
In May 2020, the Company issued $500 million of 10½% Senior Secured Notes due May 2025, at 97% of face value. The notes are guaranteed on a senior unsecured basis by the Company and on a senior secured basis by certain of the Company’s subsidiaries. The Company used the proceeds from this offering for general corporate purposes.
In August 2020, the Company issued $350 million of additional 5¾% Senior Notes due July 2027, at 92% of face value, under the indenture governing our existing 5¾% Senior Notes. The notes are guaranteed on a senior unsecured basis by the Company and certain of its subsidiaries. The Company used the proceeds from this offering to redeem the outstanding $100 million in aggregate principal amount of its 5½% Senior Notes due 2023, with the remainder being used for general corporate purposes.
Committed Credit Facilities and Available Funding Arrangements
At September 30, 2020, the committed corporate credit facilities available to the Company and/or its subsidiaries were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capacity
|
|
Outstanding
Borrowings
|
|
Letters of Credit Issued
|
|
Available
Capacity
|
Senior revolving credit facility maturing 2023 (a)
|
$
|
1,800
|
|
|
$
|
—
|
|
|
$
|
982
|
|
|
$
|
818
|
|
__________
(a)The senior revolving credit facility bears interest at one-month LIBOR plus 250 basis points and is part of the Company’s 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 subsidiaries of the Company, liens on substantially all of the Company’s intellectual property and certain other real and personal property.
Debt Covenants
The agreements governing the Company’s indebtedness contain restrictive covenants, including restrictions on dividends paid to the Company by certain of its subsidiaries, the incurrence of additional indebtedness by the Company and certain of its subsidiaries, acquisitions, mergers, liquidations, and sale and leaseback transactions. The Company’s senior credit facilities also contain a consolidated first lien leverage ratio requirement which has been amended to provide a holiday from such leverage covenant through June 30, 2021 (See Note 1 – Basis of Presentation). As of September 30, 2020, the Company was in compliance with the financial covenants governing its indebtedness.
12. 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
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Americas - Debt due to Avis Budget Rental Car Funding
|
$
|
6,144
|
|
|
$
|
7,975
|
|
Americas - Debt borrowings
|
634
|
|
|
827
|
|
International - Debt borrowings
|
1,449
|
|
|
2,100
|
|
International - Finance leases
|
157
|
|
|
215
|
|
|
|
|
|
Deferred financing fees (a)
|
(45)
|
|
|
(49)
|
|
Total
|
$
|
8,339
|
|
|
$
|
11,068
|
|
__________
(a)Deferred financing fees related to Debt due to Avis Budget Rental Car Funding as of September 30, 2020 and December 31, 2019 were $39 million and $40 million, respectively
In January 2020, the Company’s Avis Budget Rental Car Funding subsidiary issued approximately $700 million in asset-backed notes with an expected final payment date of August 2025, incurring interest at a weighted average rate of 2.42%.
In August 2020, the Company’s Avis Budget Rental Car Funding subsidiary issued approximately $650 million in asset-backed notes with an expected final payment date of February 2026, incurring interest at a
weighted average rate of 2.28%.
Debt Maturities
The following table provides the contractual maturities of the Company’s debt under vehicle programs, including related party debt due to Avis Budget Rental Car Funding, at September 30, 2020.
|
|
|
|
|
|
|
Debt under Vehicle Programs (a)
|
Within 1 year (b)
|
$
|
2,588
|
|
Between 1 and 2 years (c)
|
2,038
|
|
Between 2 and 3 years
|
1,186
|
|
Between 3 and 4 years
|
1,430
|
|
Between 4 and 5 years
|
1,049
|
|
Thereafter
|
93
|
|
Total
|
$
|
8,384
|
|
__________
(a) Vehicle-backed debt primarily represents asset-backed securities.
(b) Includes $1.5 billion of bank and bank-sponsored facilities.
(c) Includes $0.5 billion of bank and bank-sponsored facilities.
Committed Credit Facilities and Available Funding Arrangements
As of September 30, 2020, available funding under the Company’s 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
|
$
|
8,894
|
|
|
$
|
6,144
|
|
|
$
|
2,750
|
|
Americas - Debt borrowings
|
719
|
|
|
634
|
|
|
85
|
|
International - Debt borrowings
|
2,859
|
|
|
1,449
|
|
|
1,410
|
|
International - Finance leases
|
219
|
|
|
157
|
|
|
62
|
|
|
|
|
|
|
|
Total
|
$
|
12,691
|
|
|
$
|
8,384
|
|
|
$
|
4,307
|
|
__________
(a) Capacity is subject to maintaining sufficient assets to collateralize debt.
(b) The outstanding debt is collateralized by vehicles and related assets of $6.9 billion for Americas - Debt due to Avis Budget Rental Car Funding; $0.9 billion for Americas - Debt borrowings; $1.7 billion for International - Debt borrowings; and $0.2 billion for International - Finance leases.
Debt Covenants
The agreements under the Company’s vehicle-backed funding programs contain restrictive covenants, including restrictions on dividends paid to the Company by certain of its 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 September 30, 2020, the Company is not aware of any instances of non-compliance with any of the financial covenants contained in the debt agreements under its vehicle-backed funding programs.
13. Commitments and Contingencies
Contingencies
In 2006, the Company completed the spin-offs of its Realogy and Wyndham subsidiaries. The Company does 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 the Company in relation to its consolidated financial position or liquidity, as Realogy and Wyndham each have agreed to assume responsibility for these liabilities. The Company is also named in litigation that is primarily related to the businesses of its former subsidiaries, including Realogy and Wyndham. The Company is entitled to indemnification from such entities for any
liability resulting from such litigation.
In February 2017, following a state court trial in Georgia, a jury found the Company liable for damages in a case brought by a plaintiff who was injured in a vehicle accident allegedly caused by an employee of an independent contractor of the Company who was acting outside of the scope of employment. In fourth quarter 2019, the Company appealed both verdicts resulting in a reversal of the opinions rendered. The plaintiffs filed a petition to have the Georgia Supreme Court review the state appellate court’s reversal of the opinion, which petition has been granted. The Company has recognized a liability related to these cases, net of recoverable insurance proceeds, of approximately $12 million.
The Company is currently involved, and in the future may be involved, in claims, legal proceedings and governmental inquiries that are incidental to its 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 the Company believes that its accruals are adequate and/or that it has valid defenses in these matters, unfavorable resolutions could occur. The Company estimates 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 $40 million in excess of amounts accrued as of September 30, 2020. The Company does not believe that the impact should result in a material liability to the Company in relation to its consolidated financial condition or results of operations.
Commitments to Purchase Vehicles
The Company maintains agreements with vehicle manufacturers under which the Company has agreed to purchase approximately $3.4 billion of vehicles from manufacturers over the next 12 months, a $4.3 billion decrease compared to December 31, 2019, 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.
Concentrations
Concentrations of credit risk at September 30, 2020 include (i) risks related to the Company’s 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 the Company has not yet received payment from the manufacturers and (ii) risks related to Realogy and Wyndham, including receivables of $25 million and $15 million, respectively, related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with their disposition.
14. Stockholders’ Equity
Share Repurchases
The Company’s Board of Directors has authorized the repurchase of up to $1.8 billion of its common stock under a plan originally approved in 2013 and subsequently expanded, most recently in August 2019. During the first quarter of 2020, the Company repurchased approximately 5.0 million shares of common stock at a cost of approximately $113 million at an average price of $22.49 under the program. As of September 30, 2020, approximately $76 million of authorization remains available to repurchase common stock under this plan.
In June 2019 as part of its share repurchase program, the Company entered into a structured repurchase agreement involving the use of capped call options for the purchase of the Company’s common stock. The Company paid a fixed sum upon the execution of the agreement in exchange for the right to receive either a pre-determined amount of cash or stock. The Company paid net premiums of $16 million to enter into this agreement, which is recorded as a reduction of additional paid in capital. In September 2019, the capped call options expired and all outstanding options settled for 0.6 million shares.
Share Issuances
On February 10, 2020, the Company announced it had appointed a new Chairman of the Board of Directors and in connection with this appointment, the new Chairman purchased an aggregate $15 million of unregistered shares of the Company’s common stock at a price per share equal to the closing price of the Company’s common stock on February 7, 2020.
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
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income (loss)
|
$
|
45
|
|
|
$
|
189
|
|
|
$
|
(594)
|
|
|
$
|
160
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Currency translation adjustments (net of tax of $12, $(12), $12, and $(14), respectively)
|
35
|
|
|
(31)
|
|
|
(9)
|
|
|
(21)
|
|
|
Net unrealized gain (loss) on cash flow hedges (net of tax of $3, $2, $12, and $9, respectively)
|
(7)
|
|
|
(4)
|
|
|
(33)
|
|
|
(25)
|
|
|
Minimum pension liability adjustment (net of tax of $(1), $(1), $(1), and $(1), respectively)
|
1
|
|
|
1
|
|
|
5
|
|
|
5
|
|
|
|
29
|
|
|
(34)
|
|
|
(37)
|
|
|
(41)
|
|
Comprehensive income (loss)
|
$
|
74
|
|
|
$
|
155
|
|
|
$
|
(631)
|
|
|
$
|
119
|
|
__________
Currency translation adjustments exclude income taxes related to indefinite investments in foreign subsidiaries.
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, 2020
|
$
|
9
|
|
|
$
|
(20)
|
|
|
$
|
(146)
|
|
|
$
|
(157)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(9)
|
|
|
(38)
|
|
|
1
|
|
|
(46)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
5
|
|
|
4
|
|
|
9
|
|
Net current-period other comprehensive income (loss)
|
(9)
|
|
|
(33)
|
|
|
5
|
|
|
(37)
|
|
Balance, September 30, 2020
|
$
|
—
|
|
|
$
|
(53)
|
|
|
$
|
(141)
|
|
|
$
|
(194)
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
$
|
(3)
|
|
|
$
|
2
|
|
|
$
|
(132)
|
|
|
$
|
(133)
|
|
|
Cumulative effect of accounting change
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Balance, January 1, 2019
|
$
|
(3)
|
|
|
$
|
3
|
|
|
$
|
(132)
|
|
|
$
|
(132)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(21)
|
|
|
(23)
|
|
|
1
|
|
|
(43)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
(2)
|
|
|
4
|
|
|
2
|
|
Net current-period other comprehensive income (loss)
|
(21)
|
|
|
(25)
|
|
|
5
|
|
|
(41)
|
|
Balance, September 30, 2019
|
$
|
(24)
|
|
|
$
|
(22)
|
|
|
$
|
(127)
|
|
|
$
|
(173)
|
|
__________
All components of accumulated other comprehensive income (loss) are net of tax, except currency translation adjustments, which exclude income taxes related to indefinite investments in foreign subsidiaries and include a $47 million gain, net of tax, as of September 30, 2020 related to the Company’s hedge of its net investment in euro-denominated foreign operations (see Note 16–Financial Instruments).
(a)For the three and nine months ended September 30, 2020, the amount reclassified from accumulated other comprehensive income (loss) into corporate interest expense was $3 million ($3 million, net of tax) and $5 million ($4 million, net of tax), respectively. For the three and nine months ended September 30, 2020, the amount reclassified from accumulated other comprehensive income (loss) into vehicle interest expense was $1 million ($0 million, net of tax) and $2 million ($1 million, net of tax), respectively. For the three and nine months ended September 30, 2019, the amount reclassified from accumulated other comprehensive income (loss) in corporate interest expense was $1 million ($0 million, net of tax) and $4 million ($2 million, net of tax), respectively.
(b)For the three and nine months ended September 30, 2020, amounts reclassified from accumulated other comprehensive income (loss) into selling, general and administrative expenses were $2 million ($1 million, net of tax) and $6 million ($4 million, net of tax), respectively. For the three and nine months ended September 30, 2019, amounts reclassified from accumulated other comprehensive income (loss) into selling, general and administrative expenses were $2 million ($1 million, net of tax) and $6 million ($4 million, net of tax), respectively.
15. Stock-Based Compensation
The Company recorded stock-based compensation expense of $4 million and $6 million ($3 million and $5 million, net of tax) during the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, the company recorded stock-based compensation expenses of $6 million and $18 million ($4 million and $14 million, net of tax), respectively.
In June 2020, the Company granted market-based restricted stock units (“RSUs”) that vest based on absolute stock price attainment. The grant date fair value of this award is estimated using a Monte Carlo simulation model. The weighted average assumptions used in the model are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2020
|
Expected volatility of stock price
|
|
91%
|
|
Risk-free interest rate
|
|
0.18%
|
|
Valuation period
|
|
3 years
|
|
Dividend yield
|
|
—%
|
|
The activity related to RSUs consisted of (in thousands of shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Weighted Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value (in millions)
|
Time-based RSUs
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2020
|
847
|
|
|
$
|
36.99
|
|
|
|
|
|
|
|
Granted (a)
|
798
|
|
|
23.14
|
|
|
|
|
|
|
|
Vested (b)
|
(420)
|
|
|
37.82
|
|
|
|
|
|
|
|
Forfeited
|
(81)
|
|
|
32.90
|
|
|
|
|
|
|
Outstanding and expected to vest at September 30, 2020 (c)
|
1,144
|
|
|
$
|
27.31
|
|
|
1.2
|
|
$
|
30
|
|
Performance-based and market-based RSUs
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2020
|
1,061
|
|
|
$
|
38.89
|
|
|
|
|
|
|
|
Granted (a)
|
553
|
|
|
21.06
|
|
|
|
|
|
|
|
Vested (b)
|
(73)
|
|
|
36.64
|
|
|
|
|
|
|
|
Forfeited
|
(424)
|
|
|
35.15
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
1,117
|
|
|
$
|
31.64
|
|
|
1.7
|
|
$
|
29
|
|
|
Outstanding and expected to vest at September 30, 2020 (c)
|
38
|
|
|
$
|
20.70
|
|
|
2.7
|
|
$
|
1
|
|
__________
(a)Reflects the maximum number of stock units assuming achievement of all performance-, market- and time-vesting criteria and does not include those for non-employee directors. The weighted-average fair value of time-based RSUs and performance-based and market-based RSUs granted during the nine months ended September 30, 2019 was $34.17 and $34.56, respectively.
(b)The total fair value of RSUs vested during September 30, 2020 and 2019 was $19 million and $18 million, respectively.
(c)Aggregate unrecognized compensation expense related to time-based RSUs and performance-based and market-based RSUs amounted to $23 million and will be recognized over a weighted average vesting period of 1.3 years.
16. Financial Instruments
Derivative Instruments and Hedging Activities
Currency Risk. The Company uses currency exchange contracts to manage its exposure to changes in currency exchange rates associated with certain of its non-U.S.-dollar denominated receivables and forecasted royalties, forecasted earnings of non-U.S. subsidiaries and forecasted non-U.S.-dollar denominated acquisitions. The Company primarily hedges a portion of its current-year currency exposure to the Australian, Canadian and New Zealand dollars, the euro and the British pound sterling. The majority of forward contracts do not qualify for hedge accounting treatment. The fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk they economically hedge. Forward contracts used to hedge forecasted third-party receipts and disbursements up to 12 months are designated and do qualify as cash flow hedges. The Company has designated its euro-denominated notes as a hedge of its investment in euro-denominated foreign operations.
The estimated net amount of existing gains or losses the Company expects to reclassify from accumulated other comprehensive income (loss) to earnings for cash flow and net investment hedges over the next 12 months is not material.
Interest Rate Risk. The Company uses various hedging strategies including interest rate swaps and interest rate caps to create what it deems an appropriate mix of fixed and floating rate assets and liabilities. The Company uses interest rate swaps and interest rate caps to manage the risk related to its floating rate corporate debt and its floating rate vehicle-backed debt. The Company records the changes in the fair value of its cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item. The Company records the gains or losses related to freestanding derivatives, which are not designated as a hedge for accounting purposes, currently in earnings and are presented in the same line of the income statement expected for the hedged item. The Company estimates that approximately $18 million of losses currently recorded in accumulated other comprehensive income (loss) will be recognized in earnings over the next 12 months.
Commodity Risk. The Company periodically enters into derivative commodity contracts to manage its exposure to changes in the price of gasoline. These instruments were designated as freestanding derivatives and the changes in fair value are recorded in earnings and are presented in the same line of the income statement expected for the hedged item.
The Company held derivative instruments with absolute notional values as follows:
|
|
|
|
|
|
|
As of September 30, 2020
|
Foreign exchange contracts
|
$
|
1,309
|
|
Interest rate caps (a)
|
8,552
|
|
Interest rate swaps
|
1,950
|
|
|
|
Commodity contracts (millions of gallons of unleaded gasoline)
|
5
|
|
__________
(a)Represents $5.8 billion of interest rate caps sold, partially offset by approximately $2.8 billion of interest rate caps purchased. These amounts exclude $3.0 billion of interest rate caps purchased by the Company’s Avis Budget Rental Car Funding subsidiary as it is not consolidated by the Company.
Estimated fair values (Level 2) of derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020
|
|
As of December 31, 2019
|
|
|
Fair Value,
Derivative
Assets
|
|
Fair Value,
Derivative
Liabilities
|
|
Fair Value,
Derivative
Assets
|
|
Fair Value,
Derivative
Liabilities
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
Interest rate swaps (a)
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (b)
|
2
|
|
|
4
|
|
|
5
|
|
|
10
|
|
|
Interest rate caps (c)
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Commodity contracts (b)
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
2
|
|
|
$
|
77
|
|
|
$
|
5
|
|
|
$
|
38
|
|
__________
Amounts in this table exclude derivatives issued by Avis Budget Rental Car Funding, as it is not consolidated by the Company; however, certain amounts related to the derivatives held by Avis Budget Rental Car Funding are included within accumulated other comprehensive income (loss), as discussed in Note 14–Stockholders’ Equity.
(a)Included in other non-current assets or other non-current liabilities.
(b)Included in other current assets or other current liabilities.
(c)Included in assets under vehicle programs or liabilities under vehicle programs.
The effects of derivatives recognized in the Company’s Consolidated Condensed Financial Statements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Derivatives designated as hedging instruments (a)
|
|
|
|
|
|
|
|
|
Interest rate swaps (b)
|
$
|
(7)
|
|
|
$
|
(4)
|
|
|
$
|
(33)
|
|
|
$
|
(25)
|
|
|
Euro-denominated notes (c)
|
(32)
|
|
|
32
|
|
|
(34)
|
|
|
37
|
|
Derivatives not designated as hedging instruments (d)
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (e)
|
(12)
|
|
|
10
|
|
|
14
|
|
|
21
|
|
|
Interest rate caps (f)
|
(1)
|
|
|
—
|
|
|
(2)
|
|
|
—
|
|
|
Commodity contracts (g)
|
1
|
|
|
(1)
|
|
|
(6)
|
|
|
3
|
|
|
Total
|
$
|
(51)
|
|
|
$
|
37
|
|
|
$
|
(61)
|
|
|
$
|
36
|
|
__________
(a)Recognized, net of tax, as a component of other comprehensive income (loss) within stockholders’ equity.
(b)Classified as a net unrealized gain (loss) on cash flow hedges in accumulated other comprehensive income (loss). Refer to Note 14–Stockholders’ Equity for amounts reclassified from accumulated other comprehensive income into earnings.
(c)Classified as a net investment hedge within currency translation adjustment in accumulated other comprehensive income (loss).
(d)Gains (losses) related to derivative instruments are expected to be largely offset by (losses) gains on the underlying exposures being hedged.
(e)For the three months ended September 30, 2020, included a $10 million loss in interest expense and a $2 million loss in operating expense and for the nine months ended September 30, 2020, included a $18 million gain in interest expense and $4 million loss in operating expense. For the three months ended September 30, 2019, included $9 million gain in interest expense and a $1 million gain in operating expense and for the nine months ended September 30, 2019, included a $20 million gain in interest expense and a $1 million gain in operating expense.
(f)Included primarily in vehicle interest, net.
(g)Included in operating expense.
Debt Instruments
The carrying amounts and estimated fair values (Level 2) of debt instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020
|
|
As of December 31, 2019
|
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
Corporate debt
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt
|
$
|
19
|
|
|
$
|
17
|
|
|
$
|
19
|
|
|
$
|
19
|
|
|
Long-term debt
|
4,145
|
|
|
3,920
|
|
|
3,416
|
|
|
3,572
|
|
|
|
|
|
|
|
|
|
|
Debt under vehicle programs
|
|
|
|
|
|
|
|
|
Vehicle-backed debt due to Avis Budget Rental Car Funding
|
$
|
6,105
|
|
|
$
|
6,312
|
|
|
$
|
7,936
|
|
|
$
|
8,077
|
|
|
Vehicle-backed debt
|
2,231
|
|
|
2,240
|
|
|
3,129
|
|
|
3,142
|
|
|
Interest rate swaps and interest rate caps (a)
|
3
|
|
|
3
|
|
|
3
|
|
|
3
|
|
__________
(a) Derivatives in a liability position.
17. Segment Information
The Company’s chief operating decision-maker assesses performance and allocates resources based upon the separate financial information from each of the Company’s operating segments. In identifying its reportable segments, the Company considered the nature of services provided, the geographical areas in which the segments operated and other relevant factors. The Company aggregates certain of its operating segments into its reportable segments.
Management evaluates the operating results of each of its reportable segments based upon revenues and “Adjusted EBITDA,” which the Company defines as income (loss) 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 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 the Company’s Consolidated Condensed Statement of Comprehensive Income. 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 the Company’s Consolidated Condensed Statement of Comprehensive Income. 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 the Company’s Consolidated Condensed Statement of Comprehensive Income. The Company has revised its definition of Adjusted EBITDA to exclude COVID-19 charges. The Company has not revised prior years' Adjusted EBITDA amounts because there were no other charges similar in nature to these. The Company’s presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 of Adjusted EBITDA to income (loss) before income taxes
|
|
|
|
2020
|
|
|
|
2019
|
Adjusted EBITDA
|
|
|
$
|
220
|
|
|
|
|
$
|
471
|
|
Less:
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
COVID-19 charges (b)
|
10
|
|
|
|
|
—
|
|
Income before income taxes
|
|
|
$
|
53
|
|
|
|
|
$
|
328
|
|
__________
(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. 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.
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Nine Months Ended September 30,
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2020
|
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2019
|
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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)
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|
|
—
|
|
|
(50)
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|
|
Total Company
|
$
|
4,047
|
|
|
$
|
(249)
|
|
|
$
|
7,010
|
|
|
$
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EBITDA to income (loss) before income taxes
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
Adjusted EBITDA
|
|
|
$
|
(249)
|
|
|
|
|
$
|
645
|
|
Less:
|
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
|
|
|
3
|
|
|
|
|
6
|
|
|
|
Gain on sale of equity method investment in China (d)
|
|
—
|
|
|
|
|
(44)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
$
|
(821)
|
|
|
|
|
$
|
273
|
|
__________
(a)Includes unallocated corporate overhead which is not attributable to a particular segment.
(b)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. 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 expenses.
(d)Reported within operating expenses.
Since December 31, 2019, there have been no significant changes in segment assets exclusive of assets under vehicle programs. As of September 30, 2020 and December 31, 2019, Americas’ segment assets under vehicle programs were approximately $7.8 billion and $10.5 billion, respectively, and International segment assets under vehicle programs were approximately $2.2 billion and $3.3 billion, respectively. The changes in assets under vehicle programs is primarily due to the reduction of vehicles in response to the COVID-19 pandemic.
* * * *