Avis Budget Group, Inc. — FY2010 Form 10-K Summary
Business context and reporting period
The filing is an annual report for the fiscal year ended December 31, 2010; the source does not provide a separate fourth-quarter filing. Avis Budget operates Avis and Budget car-rental brands and Budget Truck Rental across domestic and international markets. 2010 revenue was generated primarily by Avis, Budget and Budget Truck, representing approximately 62%, 31% and 7% of total revenue, respectively.
- Average rental fleet exceeded 345,000 vehicles, with more than 22 million rental transactions worldwide.
- Reportable segments were Domestic Car Rental, International Car Rental and Truck Rental.
- The company continued its five-point cost-reduction and efficiency-improvement plan and Performance Excellence initiatives.
Financial performance and key metrics
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Net revenue | $5,185 million | $5,131 million | +$54 million, 1% |
| Income before income taxes | $72 million | $(77) million | +$149 million |
| Net income | $54 million | $(47) million | +$101 million |
| Diluted EPS | $0.49 | $(0.46) | +$0.95 |
| Adjusted EBITDA | $384 million | $205 million | +$179 million, 87% |
| Cash flow from operating activities | $1,640 million | $1,491 million | +$149 million |
| Cash and cash equivalents | $911 million | $482 million | +$429 million |
- Approximate 2010 net margin was 1.0%, pretax margin was 1.4% and Adjusted EBITDA margin was 7.4%.
- Vehicle rental revenue was $3,882 million; other revenue was $1,303 million. Licensing revenue was approximately $46 million.
- Total expenses declined 2% to $5,113 million. Vehicle depreciation and lease charges declined 10% to $1,287 million, while vehicle interest increased to $304 million.
- Domestic Car Rental revenue declined 2% to $3,893 million, while Adjusted EBITDA increased 108% to $225 million. International Car Rental revenue increased 14% to $922 million and Adjusted EBITDA increased 23% to $155 million. Truck Rental revenue increased 4% to $367 million and Adjusted EBITDA increased 162% to $34 million.
- Stockholders’ equity increased to $410 million from $222 million, primarily due to net income and gains in accumulated other comprehensive income.
Cash flow, debt and liquidity
- Investing activities used $1,603 million, reflecting vehicle purchases of $8,031 million partially offset by $6,319 million of vehicle-disposition proceeds.
- Financing activities provided $380 million. The company issued approximately $1.1 billion of senior notes and used proceeds to repay or refinance corporate debt.
- Total debt was approximately $7.0 billion at December 31, 2010, consisting of $2.5 billion of corporate debt and $4.5 billion of debt under vehicle programs.
- Available liquidity included $911 million of cash, $797 million of available revolving-credit capacity and approximately $2.4 billion of available vehicle-program capacity, for approximately $3.2 billion in aggregate available funding.
- The company was in compliance with the financial covenants under its senior credit facilities and reported no known covenant violations under its vehicle-backed funding programs.
- Corporate debt maturities include approximately $1.1 billion due in 2014. Vehicle-program debt maturities include approximately $912 million due in 2011 and $1.96 billion due in 2012.
- The company did not pay cash dividends in 2010 or 2009 and did not repurchase common stock in 2010.
Material changes versus the prior comparable period
- Revenue increased modestly despite a 2% decline in domestic and international car-rental days; ancillary revenue increased 6% and revenue per rental day increased 1% overall.
- Profitability improved substantially because of lower fleet costs, reduced operating expenses, staffing reductions and location rationalization. Per-unit car fleet costs declined 9%, and the average car-rental fleet declined 1%.
- 2010 benefited from the absence of 2009 impairment charges of $33 million and an $18 million litigation charge recorded in 2009. These benefits were partly offset by $52 million of early-debt-extinguishment expense, higher corporate and vehicle interest expense, and $14 million of costs related to the proposed Dollar Thrifty acquisition.
- International revenue included a $97 million favorable foreign-exchange translation effect, substantially offset by an $80 million adverse effect on expenses.
- Cash flow and fleet investment returned toward a more typical pattern after 2009, when the company reduced fleet size in response to weak demand. Vehicle-program assets increased $343 million to $6.865 billion.
Guidance, outlook, commentary and risks
Management’s 2011 objective was profitable growth, continued efficiency gains and a stronger competitive position. Planned initiatives included optimizing the two-brand strategy, expanding ancillary revenue, improving yield management and pricing, controlling costs and matching fleet levels to demand. The company expected domestic enplanements to increase in 2011 and estimated non-rental capital expenditures of approximately $85 million to $95 million.
- The proposed acquisition of Dollar Thrifty was valued at approximately $1.5 billion and was expected to require available cash and additional debt financing. Completion remained subject to regulatory approval, financing, litigation and integration risks; the filing provided no assurance that the transaction would close.
- Key risks include intense price competition, weak travel or housing demand, fuel and fleet-cost increases, used-vehicle residual-value declines, manufacturer defaults under repurchase or guaranteed-depreciation programs, and disruption in asset-backed financing markets.
- The company had approximately $4.6 billion of vehicle purchase commitments over the following twelve months, primarily subject to manufacturer obligations and vehicle-backed financing availability.
- Asset-backed funding depended partly on financial guarantors whose credit ratings had deteriorated. Certain guarantor insolvency events could accelerate repayment obligations.
- Other risks include substantial leverage, variable interest rates, foreign-exchange exposure, seasonal demand, third-party distribution dependence, information-system and data-security failures, uninsured claims, environmental liabilities, litigation and tax contingencies.
- Reported unusual items included $11 million of restructuring charges and $52 million of early-debt-extinguishment expense. No goodwill or other intangible-asset impairment was recorded in 2010.
Investor verification checklist
- Verify the composition, maturities, interest rates and covenant requirements of the approximately $7.0 billion debt balance.
- Assess refinancing exposure for the $912 million of vehicle-program debt due in 2011, $1.96 billion due in 2012 and approximately $1.1 billion of corporate debt due in 2014.
- Reconcile Adjusted EBITDA to GAAP income and evaluate the sustainability of cost savings versus the effects of lower rental volume and favorable foreign exchange.
- Review vehicle residual values, manufacturer repurchase obligations, program-car exposure and the $4.6 billion of vehicle purchase commitments.
- Monitor the status, financing, regulatory clearance and potential dilution or leverage effects of the proposed Dollar Thrifty acquisition.
- Evaluate liquidity after considering seasonal fleet needs, restricted vehicle-program assets, available borrowing capacity and required debt service.
- Review litigation, self-insurance reserves, tax indemnifications from Realogy and Wyndham, and the adequacy of related letters of credit.