Business Context and Reporting Period
Company: Avis Budget Group, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Overview: The Company operates two primary brands, Avis (premium) and Budget (value), providing car and truck rentals globally. Operations are segmented into Domestic Car Rental, International Car Rental, and Truck Rental. The 2009 fiscal year was significantly impacted by the global economic recession, resulting in reduced travel demand and airline passenger traffic.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net Revenues | $5,131 million | $5,984 million |
| Net Loss | $(47) million | $(1,124) million |
| EBITDA | $205 million | $136 million |
| Total Assets | $10,093 million | $11,318 million |
| Total Debt | $6.5 billion | $7.8 billion |
| Cash and Cash Equivalents | $482 million | $258 million |
| Stockholders' Equity | $222 million | $93 million |
Note: EBITDA is defined by the Company as income from continuing operations before non-vehicle related depreciation and amortization, impairment charges, non-vehicle related interest, and income taxes.
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 14% ($853 million) primarily due to a 20% decrease in car rental days, partially offset by a 6% increase in revenue per rental day.
- Profitability Improvement: Net loss improved significantly by $1,077 million compared to 2008. This was driven by a $1,229 million decrease in impairment charges (2008 included a $1.26 billion charge for goodwill and tradenames) and aggressive cost-cutting measures.
- Expense Reduction: Total expenses decreased 29% ($2,119 million). Key drivers included a 16% decrease in direct operating expenses, a 16% decrease in vehicle depreciation/lease charges (due to a 19% reduction in average fleet size), and a 16% decrease in SG&A expenses.
- Segment Performance:
- Domestic Car Rental: Revenue down 16%; EBITDA increased from $12 million to $108 million due to cost reductions and price increases.
- International Car Rental: Revenue down 11%; EBITDA down 11% to $126 million, impacted by foreign currency fluctuations.
- Truck Rental: Revenue down 7%; EBITDA improved from a loss of $4 million to $13 million.
Guidance, Outlook, and Risks
Management Outlook: For 2010, the Company aims to focus on profitability and maintaining cost savings. Strategic initiatives include optimizing the two-brand strategy, expanding revenue sources (ancillary products), capturing incremental profit opportunities through yield management, and controlling costs. The Company expects demand for travel services to remain below 2007 and 2008 levels.
Key Risks and Contingencies:
- Debt and Liquidity: The Company carries substantial debt ($6.5 billion). Liquidity is dependent on cash flow and the ability to refinance maturing asset-backed debt. The Company is subject to financial covenants in its credit facilities.
- Manufacturer Dependence: Approximately 55% of the domestic fleet consists of "program cars" subject to manufacturer repurchase or guaranteed depreciation agreements. Risks include manufacturer insolvency (e.g., GM, Chrysler) or changes to program terms.
- Legal Proceedings: A $16 million judgment was entered against the Company in October 2009 regarding a breach of contract claim; the Company intends to appeal. Additionally, the Company is involved in the "Credentials Litigation" (approx. $98 million judgment), though liabilities are assumed by Realogy and Wyndham under the Separation Agreement.
- Investment Impairment: The Company recorded a $33 million impairment charge related to its investment in Carey Holdings, Inc., reducing the carrying value to zero.
Investor Verification Checklist
- Debt Maturities: Verify the Company's ability to refinance approximately $1.0 billion of term asset-backed financings maturing in 2010 and the $1.95 billion conduit facility.
- Manufacturer Solvency: Monitor the financial health of key vehicle manufacturers (GM, Ford, Chrysler) and their ability to honor repurchase/guaranteed depreciation agreements.
- Covenant Compliance: Confirm continued compliance with financial covenants in senior credit facilities, specifically the transition from minimum EBITDA requirements to maximum leverage ratios starting June 30, 2010.
- Legal Outcomes: Track the status of the $16 million Alaska breach-of-contract appeal and the final determination of attorney fees in the Credentials Litigation.
- Travel Demand Recovery: Assess the correlation between domestic airline enplanements and the Company's revenue recovery, given that 81% of domestic car rental revenue is airport-based.