10-K 1 car-20171231x10k.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 FORM 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
o 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, NJ
 
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
 
NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, Par Value $.01
 
The NASDAQ Global Select Market
Preferred Stock Purchase Right
 
The NASDAQ Global Select Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  þ  No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o  No  þ
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  þ  No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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  þ  No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o  No  þ
As of June 30, 2017, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $2,222,192,349 based on the closing price of its common stock on the NASDAQ Global Select Market. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
As of January 31, 2018, the number of shares outstanding of the registrant’s common stock was 80,952,244.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be mailed to stockholders in connection with the registrant’s 2018 annual meeting of stockholders are incorporated by reference into Part III hereof.



TABLE OF CONTENTS
 
 
 
 
Item
Description
Page
 
 
 
 
PART I
 
1
1A
1B
2
3
4
 
 
 
 
PART II
 
5
6
7
7A
8
9
9A
9B
 
 
 
 
PART III
 
10
11
12
13
14
 
 
 
 
PART IV
 
15
 



FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K 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:

the high level of competition in the vehicle rental industry and the impact such competition may have on pricing and rental volume;

a change in travel demand, including changes or disruptions in airline passenger traffic;

a change in our fleet costs as a result of a change in the cost of new vehicles, manufacturer recalls, disruption in the supply of new vehicles, 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 cars, 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 cars available to us or the rental car industry as a whole on commercially reasonable terms or at all;

any change in economic conditions generally, particularly during our peak season or in key market segments;

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

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;

an occurrence or threat of terrorism, pandemic disease, natural disasters, military conflict, civil unrest or political instability in the locations in which we operate;

our ability to conform to multiple and conflicting laws or regulations in the countries in which we operate;

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

our dependence on the performance and retention of our senior management and key employees;

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 ability to accurately estimate our future results;

any major disruptions in our communication networks or information systems;

our exposure to uninsured or unpaid claims in excess of historical levels;


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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 personal identifiable information and consumer privacy, labor and employment, and tax;

any impact on us from the actions of our licensees, dealers, third party vendors and independent contractors;

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;

risks related to our indebtedness, including our substantial outstanding debt obligations and our ability to incur substantially more debt;

our ability to meet the financial and other covenants contained in the agreements governing our indebtedness;

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

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;

risks related to a proxy contest for the election of directors at our annual meeting, which could negatively impact our operations or cause volatility in our stock price;

risks related to protecting the integrity of, and preventing unauthorized access to, our information technology systems or those of our third party vendors, and protecting the confidential information of our employees and customers against security breaches, including physical or cyber-security breaches, attacks, or other disruptions; 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 for the accuracy and completeness of those statements. Other factors and assumptions not identified above, including those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in Item 7, in “Risk Factors” set forth in Item 1A and in other portions of this Annual Report on Form 10-K, may contain forward-looking statements and involve uncertainties that could cause actual results to differ materially from those projected in such 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. Except to the extent of our obligations under the federal securities laws, 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
 ITEM 1. BUSINESS

Except as expressly indicated or unless the context otherwise requires, the “Company,” “Avis Budget,” “we,” “our” or “us” means Avis Budget Group, Inc. and its subsidiaries. “Avis,” “Budget,” “Budget Truck,” “Zipcar,” “Payless,” “Apex,” “Maggiore” and “FranceCars” refer to our Avis Rent A Car System, LLC, Budget Rent A Car System, Inc., Budget Truck Rental, LLC, Zipcar, Inc., Payless Car Rental, Inc., Apex Car Rentals, Maggiore Rent S.p.A. and AAA France Cars SAS operations, respectively, and, unless the context otherwise requires, do not include the operations of our licensees, as further discussed below.
 OVERVIEW

We are a leading global provider of vehicle rental and other mobility solutions, through our three most recognized brands Avis, Budget and Zipcar together with several brands well recognized in their respective markets, including Payless in the U.S. and certain other regions, Maggiore in Italy, FranceCars in France and Apex in both Australia and New Zealand. We and our licensees operate the Avis and Budget brands in approximately 180 countries throughout the world. We generally maintain a leading share of airport car rental revenue in North America, Europe and Australasia, and we operate one of the leading truck rental businesses in the U.S.

Our brands are differentiated to help us meet a wide range of customer mobility needs throughout the world. Avis is a leading rental vehicle brand positioned to serve the premium commercial and leisure segments of the travel industry, and Budget is a leading rental vehicle brand focused primarily on more value-conscious segments of the industry. Our Zipcar brand is the world’s leading car sharing business offering an alternative to traditional vehicle rental and ownership.

On average, our rental fleet totaled more than 620,000 vehicles and we completed more than 39 million vehicle rental transactions worldwide in 2017. We generate approximately 70% of our time and mileage (“T&M”) revenue from on-airport locations and approximately 30% of our T&M revenue from off-airport locations. We also license the use of the Avis, Budget and Zipcar trademarks to licensees in areas in which we do not operate directly. Our brands have an extended global reach with more than 11,000 car and truck rental locations throughout the world, including approximately 4,750 car rental locations operated by our licensees. We believe that Avis, Budget and Zipcar enjoy complementary demand patterns with mid-week commercial demand balanced by weekend leisure demand.

We operate Budget Truck, one of the leading truck rental businesses in the U.S., through a network of approximately 925 dealer-operated and 450 Company-operated locations throughout the continental U.S. We also own Payless, a car rental brand that operates in the deep-value segment of the industry in the U.S. and other regions; Apex, which is a leading deep-value car rental brand in New Zealand and Australia; Maggiore, a leading vehicle rental brand in Italy; and FranceCars, which operates one of the largest light commercial vehicle fleets in France. We also have investments in certain of our Avis and Budget licensees outside of the U.S., including joint ventures in India and China.
COMPANY HISTORY

Founded in 1946, Avis is believed to be the first company to rent cars from airport locations. Avis expanded its geographic reach throughout the U.S. through growth in licensed and Company-operated locations in the 1950s and 1960s. In 1963, Avis introduced its award winning “We try harder®” advertising campaign, which was recognized as one of the top ten advertising campaigns of the 20th century by Advertising Age magazine.

HFS Incorporated acquired Avis in 1996 and merged with our predecessor company in 1997, with the combined entity being renamed Cendant Corporation. The Company is a Delaware corporation headquartered in Parsippany, New Jersey.

In 2002, Cendant acquired the Budget brand and Budget vehicle rental operations in North America, Australia and New Zealand. Budget was founded in 1958 as a car rental company for the value-conscious vehicle rental

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customer and grew its business rapidly during the 1960s, expanding its rental car offerings throughout North America and significantly expanding its Budget truck rental business in the 1990s.

In 2006, Cendant completed the sales and spin-offs of several significant subsidiaries and changed its name to Avis Budget Group, Inc. In 2011, we expanded our international operations with the acquisition of Avis Europe, which was previously an independently-owned licensee operating the Avis and Budget brands in Europe, the Middle East and Africa, and the Avis brand in Asia. Upon the completion of the acquisition of Avis Europe, the Avis and Budget brands were globally reunited under a single company, making Avis Budget Group one of the largest vehicle rental companies in the world.

In 2013, we acquired Zipcar, the world’s leading car sharing network, to further increase our growth potential and our ability to better serve a greater variety of our customers’ mobility needs. In 2012 and 2013, we acquired our Apex and Payless brands, respectively, which allowed us to expand our presence in the deep-value segment of the car rental industry. In 2015, we acquired Maggiore, a leading provider of vehicle rental services in Italy. In 2016, we acquired FranceCars, a privately held vehicle rental company based in France, and significantly expanded our presence in the French market. In 2017, we acquired the operation of our Budget licensee in Poland complementing the acquisition of our Avis Poland licensee in 2015. These acquisitions have allowed us to further expand our global footprint of Company-operated locations and brand presence.

As a Company, we have a long history of innovation in our industry, including:

in 1973, we launched our proprietary Wizard system, a constantly updated information-technology system that is the backbone of our operations;

in 1987, we introduced our Roving Rapid Return program, powered by a handheld computer device that allows customers to bypass the car return counter;

in 1996, we became one of the first car rental companies to accept online reservations;

in 2000, we introduced Avis Interactive, the first Internet-based reporting system in the car rental industry;

in 2009, we launched what we believe to be the first car rental iPhone application in the U.S.;

in 2012, we believe that our Avis brand became the first in the industry to offer mobile applications to customers on all major mobile platforms;

in 2013, we acquired Zipcar, a constantly innovating pioneer in using advanced vehicle technologies as the first car sharing company in the U.S. to develop a self-service solution which allows the management of the complex interactions of real-time, location-based activities inherent in a large-scale car sharing operation, including new member application, reservations and keyless vehicle access, fleet management and member management;

in 2015, our Avis brand was the first in the industry to offer an Android application that allows customers to use voice-activated technology to make, confirm or cancel their car rental reservations and the first U.S. car rental company to offer an application for the Apple Watch, which enables our customers to email themselves a car rental receipt and view current, upcoming and past car rental reservations from their device;

since 2015, we have continued to expand our use of yield management systems, which the Company designed to help optimize its decision-making with respect to pricing and fleet management;

in 2016, we significantly upgraded the Avis mobile application, which provides our Avis customers with greater control of their rental experience and enabled several mobile features new to the industry, including an ability for customers to open and close rentals, exchange vehicles and extend rentals on their smartphone or tablet device.

In 2017, our pace of innovation and advancement accelerated significantly with the announcement of several key initiatives that we believe will further support our position as a leader in mobility, including:

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the launch of our first-ever Mobility Lab located in the Kansas City, Missouri area, which utilizes connected car technology to deliver both customer benefits and operational efficiencies;

our plan to double the number of connected vehicles in our U.S. Avis fleet to more than 100,000 cars by the end of 2018, as the next step toward our goal of having a 100% global connected fleet by the end of 2020;

our partnership with Waymo, the Alphabet-owned global provider of autonomous vehicle technology, to provide fleet management services and solutions for their current and future markets, providing a unique opportunity to manage and operate self-driving vehicles for both our business and for current and future partners’ fleets and services;

our integration with Amazon Alexa, which allows our customers the ability to book and manage their car rental reservations through the popular voice platform on Amazon Echo devices;

our use of artificial intelligence to enhance our customers’ rental experiences through the launch of a Google Assistant action to book their reservations using voice-controlled access through Google Home;

our partnership with RocketSpace, a leading technology accelerator for start-ups and corporate innovators, in which we are working with a number of diverse global businesses across the mobility landscape to identify market opportunities and encourage cross-industry innovation;

our launch of a new mobility option for Zipcar members who depend on a vehicle during the week to commute to and from work, which provides members unlimited, sole access to a vehicle and a dedicated parking spot; and

our introduction of Zipcar one-way rentals through our new “Flex” product in London.

 SEGMENT INFORMATION

We categorize our operations into two reportable business segments:

Americas, which provides and licenses the Company’s brands to third parties for vehicle rentals and ancillary products and services in North America, South America, Central America and the Caribbean, and operates the Company’s car sharing business in certain of these markets; and

International, which provides and licenses the Company’s brands to third parties for vehicle rentals and ancillary products and services in Europe, the Middle East, Africa, Asia and Australasia, and operates the Company’s car sharing business in certain of these markets.

The following table presents key operating metrics in 2017 for each of our two reportable business segments:
 
 
Average Rental Fleet
 
Average T&M Revenue per Day
 
Total Rental Days
Americas
 
391,966
 
$40.03
 
102
 million
International
 
198,511
 
$31.52
 
52
 million
Total
 
590,477
 
$37.18
 
154
 million
________
Note: Operating metrics exclude Zipcar and U.S. truck rental operations.

The following graphs below present the approximate composition of our net revenue by brand and segment and our T&M revenue by customer and market (excluding Zipcar and U.S. truck rental operations) in 2017.


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chart-739fd505f3b4bcc9e37.jpg     chart-80f9c35552616e177f5.jpg
* Other includes Zipcar, Payless, Apex, Maggiore and FranceCars.

chart-d58324ccc5e7d70645f.jpg     chart-fb0e02cd489c2262888.jpg

Financial data for our segments and geographic areas is reported in Note 19 to our Consolidated Financial Statements.
OUR STRATEGY

Our objective is to drive sustainable, profitable growth for our Company by delivering strategic initiatives aimed at winning customers through differentiated brands and products, increasing our margins via revenue growth and operational efficiency and enhancing our leadership in the evolving mobility landscape.
Supporting and Strengthening Our Brands
In executing our strategy, we will continue to position our distinct and well-recognized global brands to focus on different segments of customer demand, complemented by our other brands in their respective regional markets. With Avis as a premium brand preferred more by corporate and upscale leisure travelers, Budget as a mid-tier brand targeting value-conscious travelers, Payless as a deep-value brand, Maggiore, FranceCars and Apex as well-recognized regional brands and Zipcar offering its members an urban alternative to car ownership, we believe we are able to satisfy a broad range of mobility demands. While our brands address different use-cases and target customers, we achieve efficiencies by sharing the same operational and administrative infrastructure while providing differentiated value propositions tailored to the brand.
While we currently operate our brands, either directly or through independent operators and licensees, in approximately 180 countries around the world, we will continue to strengthen and further expand our global footprint through organic growth and, potentially, through acquisitions, joint ventures, licensing agreements or other relationships:

In countries where we have Company-operated locations, we will continue to identify opportunities to add new rental locations, to grant licenses to independent third parties for areas where we do not currently operate and/or do not wish to operate directly, to strengthen the presence of our brands and to re-acquire previously granted license rights in certain cases.

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In countries operated by licensees or partners, including our joint ventures in India and China, we will seek to ensure that our licensees are well positioned to realize the growth potential of our brands in those countries and are growing their presence in those markets, and we expect to consider the re-acquisition of previously granted license rights in certain cases.

In countries where we have either Company-operated or licensee-operated locations, we will continue to identify opportunities to leverage our Zipcar brand and its car sharing model, which allows us to fulfill the expanding urban mobility needs of customers.

Since our Avis brand represents approximately 58% of our revenue and is recognized as a global leader in vehicle rental, we are particularly focused on maintaining and building its reputation as a reliably high-quality service provider. Our Avis Preferred loyalty program, which offers our customers the ability to bypass the rental counter and also earn reward points, coupled with our continued investment in technology, including the Avis mobile application and new Avis websites, is a key part of our efforts to enhance the Avis experience for our customers.
We aim to provide a range of vehicles, products and services at competitive prices, to leverage various marketing channels and to maintain marketing affiliations and corporate account contracts that complement each brand’s positioning. We continue to invest in our brands through a variety of efforts, including both on-line and off-line marketing. We see particular growth opportunities for our Budget and other local brands in Europe, as the share of airport car rentals for Budget is significantly smaller in Europe than in certain other parts of the world, and for Zipcar internationally, where the brand’s proven car sharing model can be expanded into numerous geographic markets.
To further support and strengthen our brands, we are focused and committed to serving our customers and enhancing their rental experience, including through our Customer Led, Service Driven™ initiative, which aims to optimize our customers’ rental experience with our brands, our systems and our employees. We frequently solicit feedback from and survey our customers to better understand their needs and we have implemented actions that further enhance the services we provide our customers, including the following:
We created our Avis mobile application with significant input from our customers to provide a higher quality end-to-end user experience, building upon direct feedback to re-design the rental experience to meet customers’ needs. In conjunction with our connected-car fleet, our Avis mobile application provides customers a new and innovative way to control many elements of their rental experience via their smartphone or tablet device without the need to visit the rental counter. Through the Avis mobile application, our customers are able to view which cars are available in real-time; exchange or upgrade a car when near or on the rental lot; confirm, cancel or extend a rental; add ancillary products; return a car without assistance; view their rental agreement; confirm their fuel level at beginning and end of rental as well as miles driven; obtain assistance on demand; and seamlessly return and check-in their vehicle at the end of their journey.

We continue to upgrade our technology and the ways that can further serve our customers, to make the reservation, pick-up and return process more convenient and user-friendly, with a particular emphasis on enabling and simplifying our customers’ online interactions with us. We have partnered with other technology and product companies to continuously improve the user experience that serves our customers’ needs through various mobile and technology capabilities. These include applications that allow for voice-controlled access to our services through Amazon Alexa and Google Assistant enabled devices.

We expect to continue to invest in these efforts, with a particular emphasis on technologies, services and products that we believe will allow us to serve customers more effectively and efficiently.

Margins and Operational Efficiency

In executing our strategy, we are focused on identifying and implementing actions that will increase our margins over the next several years. We see significant potential in the areas of optimizing our pricing and customer mix, increasing sales of ancillary products and services through new product developments; optimizing our procurement, deployment and disposition of vehicles, including increased use of non-auction channels for selling

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our cars; continuing to drive operational efficiency in our business; and applying connected-car/in-vehicle systems and other emerging mobility technologies in our operations.
We have pursued and will continue to pursue opportunities intended to drive our margins and increase our revenues and profitability, including:
Informing and offering our customers useful ancillary products and services; promoting car class upgrades, adjusting our mix of vehicles to match customer demand, restructuring our sales strategy to focus on the most profitable segments, increasing the number of rentals that customers book directly through our websites and mobile applications and increasing the proportion of transactions in which customers prepay for rental.
Investing in yield management and pricing analytics tools to increase the margins we earn per rental day. We have implemented, and plan to continue deploying, new technology systems that strengthen our yield management decisions and enable us to tailor our product, service and price offerings to meet our customers’ needs and react quickly to shifting market conditions. We will continue to adjust our pricing to improve profitability and manage our fleet to match changes in demand.
Aggressively managing and improving our fleet to better drive the purchase, deployment, and disposition of our fleet, grow our direct-to-dealer and consumer sales performance, reduce maintenance and repair expenses, better optimize our salvage costs, and reduce the risk of damage to our vehicles, which we believe will create significant financial benefits.
Continue seeking opportunities where our investments will generate strong returns, including by expanding our current rental locations, acquiring and integrating existing licensees in key markets, participating in joint ventures and acquiring leading brands in markets that will contribute to our profitability.
Leveraging Zipcar to increase our membership base within its existing markets, as well as expanding the brand into new markets where our existing car rental presence will help enable the introduction of Zipcar’s car sharing services.
Addressing demand in the deep-value segment of the vehicle rental industry with both our Payless and Apex brands and looking to increase the contribution from this growth segment of the market.
We continued to focus our efforts on rigorously controlling our costs, aggressively reducing expenses and increasing efficiencies throughout our organization by:
Continuing to implement process improvements impacting virtually all areas of our business to increase efficiencies, reduce operating costs and create sustainable cost savings using LEAN, Six Sigma and other similar tools.
Achieving reductions in underlying direct operating and selling, general and administrative expenses, including significant reductions in staff.
Taking significant actions to further streamline our main administrative offices and shared-services infrastructure through a restructuring program.
Assessing location, segment and customer profitability to address less-profitable aspects of our business and focus on the more-profitable accounts that will help drive increased revenue.
Deploying changes to our sales, marketing and affinity programs to improve profitability.
Implementing initiatives to integrate our acquired businesses, to realize cost efficiencies from combined maintenance, systems, technology and administrative infrastructure.
Seeking to better optimize our acquisition, deployment and disposition of fleet to lower costs and better meet customer demand, as well as continued fleet utilization benefits and savings by combining our car rental and car sharing fleets at times to reduce the number of unutilized vehicles.
Continuing to implement innovative technological solutions, including self-service voice reservation technology, mobile communications with customers and fleet optimization technologies to reduce costs.
We believe such operational improvements will continue to assist our financial performance.



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Our Evolving Mobility Platform
Our Company is well-positioned to remain a global leader in the evolving mobility marketplace. We are focused on seizing opportunities that will allow us to increase our overall value through strategies that support our vehicle rental and other mobility solutions in driving improved profitability through our brands, broadening our partnerships and participation with other innovators and finding opportunities to provide new services and offerings for new and evolving mobility market segments. The mobility landscape has significantly expanded over the past few years, with an increasing number of companies launching their own mobility initiatives in support of fleet and supply chain management, electric and autonomous vehicles, financial and insurance services, digital commerce support and integrated transportation services. We have been and will continue to be actively engaged in partnerships that will help us develop and support mobility solutions for our current business models, and also allow us to test and launch new business models that may allow us to further expand our service offerings.
As the mobility landscape continues to evolve, we are strategically positioned to grow our business and engage in partnerships in the following areas:
Traditional vehicle rental and car sharing services;
Autonomous vehicles, electric vehicles and connected-car technologies that support our vehicle rental and car-sharing operations;
New mobility providers and consumer service platforms;
Partnerships with other transportation providers;
Ancillary products and services for our customers;
Digital commerce services, including data collection and other telematics; and
Fleet management and supply chain services.
We believe that new technologies and evolving customer preferences that favor the rental or sharing of, or other new approaches to using vehicles rather than traditional car ownership represent important opportunities for us to meet new and growing consumer and commercial mobility demand by leveraging our existing assets and expertise. We intend to expand our Zipcar brand into new markets and provide new mobility solutions, such as multi-modal trips to both help shape and satisfy our customers’ needs. In addition, we believe there are substantial opportunities for our Avis and Budget brands to benefit and grow as mobility solutions and vehicle-related technologies evolve. We have taken significant steps to enhance our Avis brand offering with our continued investment in the Avis mobile application and see opportunities to drive increased profitability as additional products and services are utilized by more of our customers.
In 2017, we undertook several initiatives and entered into partnerships in support of our strategy, including:
Our launch of our first-ever Mobility Lab in the Kansas City, Missouri area, utilizing fully connected vehicles that allows the Company to leverage its capabilities to deliver operational efficiencies through real-time inventory counts, mileage management and automated maintenance notifications that enhance and optimize the Company’s fleet management capabilities;
Our integration with Amazon Alexa and Google Assistant, which allows travelers to book and manage their car rental reservations through the popular voice platforms on Amazon Echo and Google Home devices;
Our partnership with Waymo, an Alphabet Inc. company, through which we are offering fleet support and maintenance services for their growing fleet of autonomous vehicles beginning with the initial market of Phoenix, Arizona;
Our focus on emerging technologies through our collaboration with RocketSpace, a leading technology accelerator for promising start-ups and corporate innovators, to help us identify market opportunities and fuel cross-industry innovation in areas such as autonomous vehicles, electronic vehicles, data analytics and artificial intelligence, next-generation fleet management, automated driver assisted systems and connected car solutions; and
Our support to the ride-hailing market as we seek to partner with both ride-hailing companies and auto manufacturers to provide fleet and fleet management and maintenance services that allow us to identify new markets and profitability opportunities.

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We are committed to finding new and innovative ways to leverage our global presence and capabilities for leadership in the evolving mobility market. Our brands, customer relationships, locations, assets and infrastructure are all important strategic advantages that we believe enhance and will enable us to grow our position in the industry.
OUR BRANDS AND OPERATIONS

OUR BRANDS

Our Avis, Budget and Zipcar brands are three of the most recognized brands in our industry. We believe that we enjoy significant benefits from operating our Avis and Budget brands to target different customers but sharing the same maintenance facilities, fleet management systems, technology and administrative infrastructure. In addition, we are able to recognize significant benefits and savings by combining our car rental and car sharing maintenance activities and fleets at times to reduce the number of unutilized cars and to meet demand peaks. We believe that Avis, Budget and Zipcar all enjoy complementary demand patterns with mid-week commercial demand balanced by weekend leisure demand. We also operate the Apex and Payless brands, which operate in the deep-value segment of the car rental industry, and augment our Avis, Budget and Zipcar brands. We also operate the Maggiore brand in Italy and the FranceCars brand in France, which further extends the range of vehicle use occasions we are able to serve.

Avis

The Avis brand provides high-quality vehicle rental and other mobility solutions at price points generally above non-branded and value-branded vehicle rental companies to serve the premium commercial and leisure segments of the travel industry. We operate or license the Avis vehicle rental system (the “Avis System”), one of the largest global vehicle rental systems, comprised of approximately 5,450 locations worldwide, including in virtually all of the largest commercial airports and cities in the world.

The Avis System is comprised of an approximately equal number of company-owned and licensee vehicle rental locations worldwide, in both the on-airport and off-airport, or local, rental markets. The table below presents the approximate number of locations that comprise the Avis System as of December 31, 2017.
 
Avis System Locations
 
Americas
 
International
 
Total
Company-operated locations
1,525

 
1,150

 
2,675

Licensee locations
725

 
2,050

 
2,775

Total Avis System Locations
2,250

 
3,200

 
5,450


In 2017, our company-operated Avis locations generated total world-wide revenue of approximately $5.2 billion, 62% of which was derived in the Americas. In 2017, approximately $1.8 billion (or 49%) of our Avis T&M revenue was derived from commercial customers and approximately $2.5 billion (or 70%) was derived from customers renting at airports. The following graphs present the approximate composition of our Avis revenue by segment and our Avis T&M revenue by customer and market in 2017.
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We also license the Avis System to independent commercial owners who operate approximately half of our locations worldwide and generally pay royalty fees to us based on a percentage of applicable revenue. In 2017, approximately 30% of the global Avis System revenue was generated by our licensees. The graphs below present the approximate composition of the Avis System revenue in 2017.

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We offer Avis customers a variety of premium services, including:

the Avis mobile application, which allows customers to reserve, confirm, choose or upgrade their vehicle, add ancillary products, open, close or extend rentals, and, in the case of certain connected vehicles, lock and unlock the vehicle, using their smartphone or tablet device while by-passing the rental counter. The application also allows customers to track courtesy buses to rental locations and help “find my car”;

Avis Preferred, a frequent renter rewards program that offers counter bypass at major airport locations and reward points for every dollar spent on vehicle rentals and related products;

the Avis Select Series, a selection of luxury vehicles including BMWs, Corvettes, Mercedes, Jaguars and others;

rental of portable navigation units, tablets and in-dash satellite radio service;

availability of premium, sport and performance vehicles as well as eco-friendly vehicles, including gasoline/electric hybrids;

roadside assistance;

fuel service options;

e-receipts;

a 100% smoke-free vehicle rental fleet in North America;

electronic toll collection services that allow customers to pay highway tolls without waiting in toll booth lines;

amenities such as Avis Access, a full range of special products and services for drivers and passengers with disabilities;

Avis Interactive, a proprietary management tool that allows corporate clients to easily view and analyze their rental activity via the Internet, permitting these clients to better manage their travel budgets and monitor employee compliance with applicable travel policies; and

Connected car technology that will involve nearly 100,000 vehicles by late 2018 that provide our customers with increased mobility solutions as they seek more control and convenience over their rental experience.


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Applications that serve our customers through various mobile and technology platforms, including Apple Watch devices, voice-controlled access through Amazon Alexa enabled devices, and Google Assistant enabled devices.

Budget

The Budget brand is a leading supplier of vehicle rental and other mobility solutions focused primarily on more value-conscious segments of the industry. We operate or license the Budget vehicle rental system (the “Budget System”), which is comprised of vehicle rental locations at most of the largest airports and cities in the world.

The table below presents the approximate number of locations that comprise the Budget System as of December 31, 2017.
 
Budget System Locations
 
Americas
 
International
 
Total
Company-operated locations
1,375

 
750

 
2,125

Licensee locations
650

 
1,150

 
1,800

Total Budget System Locations
2,025

 
1,900

 
3,925


In 2017, our company-operated Budget vehicle rental operations generated total revenue of approximately $2.6 billion, of which 82% was derived from operations in the Americas. In 2017, approximately $1.4 billion (or 77%) of our Budget T&M revenue was derived from leisure customers and $1.4 billion (or 76%) was derived from customers renting at airports. The following graphs present the approximate composition of our Budget revenue by segment and our Budget T&M revenue by customer and market in 2017.

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We also license the Budget System to independent commercial owners who operate approximately half of our locations worldwide and generally pay royalty fees to us based on a percentage of applicable revenue. In 2017, approximately 28% of the global Budget System revenue was generated by our licensees. The graphs below present the approximate composition of the Budget System revenue in 2017.
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Budget offers its customers several products and services similar to Avis, such as refueling options, roadside assistance, electronic toll collection and other supplemental rental products, emailed receipts and special rental rates for frequent renters. In addition, Budget’s mobile application allows customers to reserve, modify and cancel reservations on their smartphone, and its Fastbreak service, expedites rental service for frequent travelers.

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Zipcar

Zipcar operates the world’s leading membership-based car sharing network and provides the freedom of “wheels when you want them” to members in over 500 cities and towns and on more than 600 college campuses across the U.S., Canada, Europe and Central America. Zipcar provides self-service vehicles in reserved parking spaces located in neighborhoods, business districts, office complexes, college campuses and airports. Members can reserve vehicles online, on a mobile device or over the phone, by the hour or by the day, at rates that include gasoline, insurance and other costs associated with vehicle ownership. In 2017, we widened Zipcar’s global network by launching operations in Taiwan, Costa Rica and Iceland.

Budget Truck

Our Budget Truck rental business is one of the largest local and one-way truck rental businesses in the U.S. As of December 31, 2017, our Budget Truck fleet is comprised of approximately 19,000 vehicles that are rented through a network of approximately 925 dealer-operated and 450 Company-operated locations throughout the continental U.S. These dealers are independently-owned businesses that generally operate other retail service businesses. In addition to their principal businesses, the dealers rent our light- and medium-duty trucks to customers and are responsible for collecting payments on our behalf. The dealers receive a commission on all truck and ancillary equipment rentals. The Budget Truck rental business serves both the consumer and light commercial sectors. The consumer sector consists primarily of individuals who rent trucks to move household goods on either a one-way or local basis. The light commercial sector consists of a wide range of businesses that rent light- to medium-duty trucks, which we define as trucks having a gross vehicle weight of less than 26,000 pounds, for a variety of commercial applications.

Other Brands

Our Payless brand is a leading rental car supplier positioned to serve the deep-value segment of the industry. We operate or license the Payless brand, which is comprised of approximately 280 locations worldwide, including approximately 100 Company-operated locations and more than 180 locations operated by licensees. Company-operated Payless locations are primarily located in North America, the majority of which are at or near major airports. Payless’ base T&M fees are often lower than those of larger, more established brands, but Payless has historically achieved a greater penetration of ancillary products and services with its customers. The Payless business model allows the Company to extend the life cycle of a portion of our fleet, as we “cascade” certain vehicles that exceed certain Avis and Budget age or mileage thresholds to be used by Payless.

Our Apex brand operates primarily in the deep-value segment of the vehicle rental industry in New Zealand and Australia, where we have approximately 25 rental locations. Apex operates its own rental fleet, separate from Avis and Budget vehicles with generally older and less expensive than vehicles offered by Avis and Budget. Apex generates substantially all of its reservations through its proprietary websites and contact center and typically has a greater-than-average length of rental. The substantial majority of Apex locations are at, or near, major airport locations.

Our Maggiore brand is a leading vehicle rental brand in Italy, where we operate or license approximately 140 rental locations under the Maggiore name. Our Maggiore brand has a strong domestic reputation and benefits from a strong presence at airport, off-airport and railway locations.  We have integrated numerous elements of Maggiore’s operations and fleet management into our existing processes. 

Our FranceCars brand operates one of the largest light commercial vehicle fleets in France from more than 70 rental locations. We have integrated a number of elements of FranceCar’s operations and fleet management into our existing processes.

RESERVATIONS, MARKETING AND SALES

Reservations

Our customers can make vehicle rental reservations through our brand-specific websites and through our toll-free reservation centers, by calling a specific location directly, through brand-specific mobile applications, through

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online travel agencies, through travel agents or through selected partners, including many major airlines, associations and retailers. Travel agents can access our reservation systems through all major global distribution systems (“GDSs”), which provide information with respect to rental locations, vehicle availability and applicable rate structures.

Our Zipcar members may reserve cars by the hour or by the day through Zipcar’s reservation system, which is accessible through the Zipcar website, through the Zipcar application on their smartphone or by phone. We also provide two-way SMS texting, enabling us to proactively reach out to members during their reservation via their mobile device to manage their reservation, including instant reservation extension.

Marketing and Sales

We support our brands through a range of marketing channels and campaigns, including traditional off-line media, such as television and print advertising, as well as Internet and email marketing, social media and wireless mobile device applications. We market through sponsorships of major sports entities such as the PGA Tour and the New York Yankees and sponsorships of charitable organizations such as Make-A-Wish. We also utilize a customer relationship management system that enables us to deliver more targeted and relevant offers to customers across online and offline channels and allows our customers to benefit through better and more relevant marketing, improved service delivery and loyalty programs that reward frequent renters with free rental days and car class upgrades.

In 2017, we continued to maintain, expand or enter into marketing alliances with key marketing partners that provide brand exposure and cross-marketing opportunities. For example, in 2017, we became the exclusive car rental partner of Hawaiian Airlines. We also extended or renewed our relationships with International Airlines Group (which includes British Airways, Iberia and Iberia Express and Aer Lingus), Choice Hotels International, and Travelport. Additionally, as the “Official Rental Car of the PGA TOUR,” Avis promoted its products and services to millions of golf enthusiasts worldwide through prominent advertising placements in PGA TOUR television broadcasts, scoreboards at tournaments, online media channels and additional official partner channels.

We continue to maintain strong links to the travel industry including marketing alliances with numerous marketing partners in 2017:

We maintain marketing partnerships with many major airlines, including Air Canada, Air France, Air New Zealand, American Airlines, British Airways, Frontier Airlines, Hawaiian Airlines, Iberia Airlines, Japan Airlines, JetBlue Airways, KLM, Lufthansa, Qantas, SAS, Southwest Airlines and Virgin America;

We also maintain marketing partnerships with many major hotel companies, including Best Western International, Inc., Hilton Hotels Corporation, Hyatt Corporation, MGM Resorts International, Radisson Hotels and Resorts, Universal Parks & Resorts and Wyndham Worldwide;

We offer customers the ability to earn frequent traveler points with many major airlines’ and hotels’ frequent traveler programs, and we are the exclusive rental partner of the Wyndham Rewards program; and

We have marketing relationships with numerous non-travel entities, such as affinity groups, membership organizations, retailers, financial institutions and credit card companies.
 
In 2017, approximately 60% of vehicle rental transactions from our Company-operated Avis locations were generated by travelers who rented from Avis under contracts between Avis and the travelers’ employers or through membership in an organization with which Avis has a contractual affiliation (such as AARP and Costco Wholesale). Avis maintains marketing relationships with other organizations such as American Express, MasterCard International and other organizations, through which we are able to provide their customers with incentives to rent from Avis. Avis licensees also generally have the option to participate in these affiliations.

Additionally, we offer “Unlimited Rewards®,” an award-winning loyalty incentive program for travel agents, and Avis and Budget programs for small businesses that offers discounted rates, central billing options and rental

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credits to members. Budget has contractual arrangements with American Express, MasterCard International and other organizations, which offer members incentives to rent from Budget.

In 2017, Budget Truck signed an agreement with Costco offering Budget Truck rental services to the Costco membership community. Budget Truck also continued to maintain certain truck-rental-specific marketing and/or co-location relationships, such as with Simply Self Storage. We also have an exclusive agreement to advertise Budget Truck rental services in the Mover’s Guide, on the U.S. Postal Service change of address website.

Our Zipcar brand also partners with other active lifestyle brands that appeal to our Zipcar members and organizes, sponsors and participates in charitable and community events with organizations that are important to Zipcar members. Zipcar maintains close relationships with universities that allow us to market to the “next generation consumer” who, upon graduation, may migrate to the major metropolitan areas that we serve, continue their relationship with us and advocate for broad sponsorship of Zipcar membership at their places of work. Through our Zipcar for Business program, we also offer reduced weekday driving rates to employees of companies, federal agencies and local governments that sponsor the use of Zipcars.

LICENSING

We have licensees in approximately 175 countries throughout the world. Royalty fee revenue derived from our vehicle rental licensees in 2017 totaled $136 million, with approximately $97 million in our International segment and $39 million in our Americas segment. Licensed locations are independently operated by our licensees and range from large operations at major airport locations and territories encompassing entire countries to relatively small operations in suburban or rural locations. Our licensees generally maintain separate independently owned and operated fleets. Royalties generated from licensing provide us with a source of high-margin revenue because there are relatively limited additional costs associated with fees paid by licensees to us. Locations operated by licensees represented approximately 50% of our Avis and Budget vehicle rental locations worldwide and approximately 29% of total revenue generated by the Avis and Budget Systems in 2017. We facilitate one-way vehicle rentals between Company-operated and licensed locations, which enables us to offer an integrated network of locations to our customers.

We generally enjoy good relationships with our licensees and meet regularly with them at regional, national and international meetings. Our relationships with our licensees are governed by license agreements that grant the licensee the right to operate independently operated vehicle rental businesses in certain territories. Our license agreements generally provide our licensees with the exclusive right to operate in their assigned territory. These agreements impose obligations on the licensee regarding its operations, and most agreements restrict the licensee’s ability to sell, transfer or assign its license agreement and capital stock.

The terms of our license agreements, including duration, royalty fees and termination provisions, vary based upon brand, territory, and original signing date. Royalty fees are generally structured to be a percentage of the licensee’s gross rental income. We maintain the right to monitor the operations of licensees and, when applicable, can declare a licensee to be in default under its license agreement. We perform audits as part of our program to assure licensee compliance with brand quality standards and contract provisions. Generally, we can terminate license agreements for certain defaults, including failure to pay royalties or adhere to our operational standards. Upon termination of a license agreement, the licensee is prohibited from using our brand names and related marks in any business. In the U.S., these license relationships constitute “franchises” under most federal and state laws regulating the offer and sale of franchises and the relationship of the parties to a franchise agreement.

We continue to optimize the Avis and Budget Systems by issuing new license agreements and evaluating strategic acquisitions of licensees to grow our revenues and expand our global presence. Our acquisitions of licensees over the last three years include locations in Brazil, Norway, Sweden, Denmark and Poland as well as in local markets in Canada and the United States.

OTHER REVENUE

In addition to revenue from our vehicle rentals and licensee royalties, we generate revenue from our customers through the sale and/or rental of optional ancillary products and services. We offer products to customers that will enhance their rental experience, including:


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collision and loss damage waivers, under which we agree to relieve a customer from financial responsibility arising from vehicle damage incurred during the rental such as additional/supplemental liability insurance or personal accident/effects insurance;

products for driving convenience such as fuel service options, chauffeur drive services, roadside assistance services, electronic toll collection, tablet rentals, access to satellite radio, portable navigation units and child safety seat rentals; and

products that supplement truck rental including automobile towing equipment and other moving accessories such as hand trucks, furniture pads and moving supplies.

We also receive payment from our customers for certain operating expenses that we incur, including vehicle licensing fees, as well as airport concession fees that we pay in exchange for the right to operate at airports and other locations. In addition, we collect membership fees in connection with our car sharing business.

OUR TECHNOLOGIES

Vehicle Rental

We use a broad range of technologies in our vehicle rental operations, substantially all of which are linked to what we call our Wizard system, which is a worldwide reservation, rental, fleet control, data processing and information management system. The Wizard system enables us to process millions of incoming customer inquiries each day, providing our customers with accurate and timely information about our locations, rental rates and vehicle availability, as well as the ability to place or modify reservations. Additionally, the Wizard system is linked to all major travel distribution networks worldwide and provides real-time processing for travel agents, travel industry partners (such as airlines and online travel sites), corporate travel departments and individual consumers through our websites or contact centers. The Wizard system also provides personal profile information to our reservation and rental agents to help us better serve our customers.

We also use data supplied from the Wizard system and other third-party reservation and information management systems to maintain centralized control of major business processes such as fleet acquisition and logistics, sales to corporate accounts and determination of rental rates. The principal components of the systems we employ include:

Fleet planning model. We have a comprehensive decision tool to develop fleet plans and schedules for the acquisition and disposition of our fleet, along with fleet age, mix, mileage and cost reports based upon these plans and schedules. This tool allows management to monitor and change fleet deployment on a daily basis and to optimize our fleet plan based on estimated business levels and available repurchase and guaranteed depreciation programs. We also use third-party software to further optimize our fleet acquisition, deployment and disposition activities.

Yield management system. We have a yield management system which is designed to enhance profits by providing greater control of vehicle availability and rate availability changes at our rental locations. Our system monitors and forecasts both supply and demand to support our efforts to optimize volume and rate at each location. Integrated into this yield management system is a fleet distribution module that takes into consideration the costs as well as the potential benefits associated with distributing vehicles to various rental locations within a geographic area to accommodate rental demand at these locations. The fleet distribution module makes specific recommendations for movement of vehicles between locations.

Pricing decision support systems. Pricing in our industry is highly competitive and complex. To improve our ability to respond to rental rate changes in the marketplace, we have utilized sophisticated systems to gather and report competitive industry rental rate changes every day. Our systems, using data from third-party reservation systems as its source of information, automatically scan rate movements and report significant changes to our staff of pricing analysts for evaluation. These systems greatly enhance our ability to gather and respond to rate changes in the marketplace. In 2017, we continued to implement an integrated pricing and fleet optimization tool that has allowed us to test and implement improved pricing strategies and optimization algorithms, as well as automate the implementation of certain price changes.


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Websites and Mobile Applications. We have developed brand-specific websites and mobile applications that leverage our technology across brands and provide the flexibility and ease of transacting that our customers demand for their interactions with us. Our websites and apps are optimized for various devices and provide a simple interface for each mode of communication such as computer, smartphone, tablets and other electronic devices.

Customer service applications. Our customer service applications are comprehensive case management systems that our customer care agents use to handle a variety of issues and questions from our customers. Our multi-branded systems interface with our Wizard system and give our agents current and historical information about a caller so that they are better equipped to provide informed and expedited assistance, while at the same time allowing us to be consistent in our case handling and responses.

Enterprise data warehouse. We have developed a sophisticated and comprehensive electronic data storage and retrieval system which retains information related to various aspects of our business. This data warehouse allows us to take advantage of comprehensive management reports and provides easy access to data for strategic decision making for our brands.

Sales and marketing system. We have developed a sophisticated system of online data tracking which enables our sales force to analyze key account information of our corporate customers including historical and current rental activity, revenue and booking sources, top renting locations, rate usage categories and customer satisfaction data. We use this information, which is updated weekly and captured on a country-by-country basis, to assess opportunities for revenue growth, profitability and improvement.

Campaign management. We have deployed tools that enable us to recognize customer segments and value, and to automatically present appropriate offers on our websites.

Interactive adjustments. We have developed a customer data system that allows us to easily retrieve pertinent customer information and make needed adjustments to completed rental transactions online for superior customer service. This data system links with our other accounting systems to handle any charge card transaction automatically.

Interactive voice response system. We have developed an automated voice response system that enables the automated processing of customer reservation confirmations, cancellations, identification of rental locations, extension of existing rentals and requests for copies of rental receipts over the phone using speech recognition software.

Car Sharing

Our Zipcar car sharing technology was specifically designed and built for our car sharing business and has been continually refined and upgraded. Our fully-integrated platform centralizes the management of our Zipcar reservations, member services, fleet operations and financial systems to optimize the member experience, minimize costs and leverage efficiencies. Through this platform, we:
process new member applications;
provide the mobile and website applications used by members to make and manage reservations and maintain account information;
manage reservations and provide keyless vehicle access;
manage and monitor member interactions and communications, including through interactive voice response systems, email and text messaging;
integrate with third parties that provide additional services such as gas cards and mapping;
manage billing and payment processing across multiple currencies;

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manage our car sharing fleet, including scheduled service and cleanings and vehicle issue tracking and resolution;
manage vehicle locations and location information, including parking agreements; and
monitor and analyze key metrics of each Zipcar such as utilization rate, mileage and maintenance requirements.

Each Zipcar is typically equipped with a combination of telematics modules, including a control unit with mobile data service, radio frequency identification card readers, wireless antennae, wiring harness, vehicle interface modules and transponders for toll systems. This hardware, together with internally developed embedded firmware, vehicle communication protocols and datacenter software, allows us to authorize secure access to our Zipcars from our data centers and provides us with a comprehensive set of fleet management data that is stored in our centralized database.

Interactions between members and our Zipcars are captured in our system, across all communication channels, providing us with knowledge we use to improve our members’ experiences and optimize our business processes. We have built and continue to innovate upon our technology platform in order to provide scale to support growth, drive operational efficiency and improve the member experience.

OUR FLEET

We offer a wide variety of vehicles in our rental fleet, including luxury cars and specialty-use vehicles. Our fleet consists primarily of vehicles from the current and immediately preceding model year. We maintain a single fleet of vehicles for Avis and Budget in countries where we operate both brands. The substantial majority of Zipcar’s fleet is dedicated to use by Zipcar, but we have developed processes to share vehicles between the Avis/Budget fleet and Zipcar’s fleet, primarily to help meet Zipcar’s demand peaks. We maintain a diverse rental fleet, in which no vehicle manufacturer represented more than 15% of our 2017 fleet purchases, and we regularly adjust our fleet levels to be consistent with demand. We participate in a variety of vehicle purchase programs with major vehicle manufacturers. In 2017, we purchased vehicles from Citroen, Fiat Chrysler, Ford, General Motors, Hyundai, Kia, Mercedes, Nissan, Opel, Peugeot, Renault, Seat, Toyota, and Volkswagen, among others. During 2017, approximately 15%, 14% and 10% of the vehicles acquired for our rental fleet were manufactured by Ford, Fiat Chrysler, and General Motors, respectively.

Fleet costs represented approximately 26% of our aggregate expenses in 2017. Fleet costs can vary from year to year based on the prices at which we are able to purchase and dispose of rental vehicles.

In 2017, on average, approximately 37% of our rental car fleet was comprised of vehicles subject to agreements requiring automobile manufacturers to repurchase vehicles at a specified price during a specified time period or guarantee our rate of depreciation on the vehicles during a specified period of time, or were vehicles subject to operating leases, which are subject to a fixed lease period and interest rate. We refer to cars subject to these agreements as “program” cars and cars not subject to these agreements as “risk” cars because we retain the risk associated with such cars’ residual values at the time of their disposition. The following graphs present the approximate percentage of program cars in both our average rental car fleet and fleet purchases within each of our reporting segments in the last three years.

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Our agreements with automobile manufacturers typically require that we pay more for program cars and maintain them in our fleet for a minimum number of months and impose certain return conditions, including car condition and mileage requirements. When we return program cars to the manufacturer, we receive the price guaranteed at the time of purchase and are thus protected from fluctuations in the prices of previously-owned vehicles in the wholesale market. In 2017, approximately 57% of the vehicles we disposed of were sold pursuant to repurchase or guaranteed depreciation programs. The future percentages of program and risk cars in our fleet will depend on several factors, including our expectations for future used car prices, our seasonal needs and the availability and attractiveness of manufacturers’ repurchase and guaranteed depreciation programs. The Company has agreed to purchase approximately $8.1 billion of program vehicles from manufacturers in 2018.

We dispose of our risk cars largely through automobile auctions, including auctions that enable dealers to purchase vehicles online more quickly than through traditional auctions and direct-to-dealer sales. In 2017, we continued to expand the number of states that can participate in our Ultimate Test Drive consumer car sales program, which offers customers the ability to purchase our rental vehicles. Alternative disposition channels such as Ultimate Test Drive, online auctions, retail lots and direct to dealer sales represented approximately 50% of our risk vehicle dispositions in the Americas in 2017 and provide us with per-vehicle cost savings compared to selling cars at auctions.

For 2017, our average monthly vehicle rental fleet size ranged from a low of approximately 534,000 vehicles in January to a high of approximately 721,000 vehicles in July. Our average monthly car rental fleet size typically peaks in the summer months. Average fleet utilization for 2017, which is based on the number of rental days (or portion thereof) that vehicles are rented compared to the total amount of time that vehicles are available for rent, ranged from 64% in January to 76% in August. Our calculation of utilization may not be comparable to other companies’ calculation of similarly titled statistics.

We place a strong emphasis on vehicle maintenance for customer safety and customer satisfaction reasons, and because quick and proper repairs are critical to fleet utilization. To accomplish this task we have developed specialized training programs for our technicians. Our Maintenance and Damage Planning Department prepares technical service bulletins that can be retrieved electronically at our repair locations. In addition, we have implemented policies and procedures to promptly address manufacturer recalls as part of our ongoing maintenance and repair efforts.


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CUSTOMER SERVICE

We believe our commitment to delivering a consistently high level of customer service across all of our brands is a critical element of our success and strategy. Our Customer Led, Service Driven™ program focuses on improving the overall customer experience based on our research of customer service practices, improved customer insights, executing our customer relationship management strategy, delivering customer-centric employee training and leverage our mobile app technology and the enriched experience it provides our customers.

Our associates and managers at our Company-operated locations are trained and empowered to resolve most customer issues at the location level. We also continuously track customer-satisfaction levels by sending location-specific surveys to recent customers and utilize detailed reports and tracking to assess and identify ways that we can improve our customer service delivery and the overall customer experience. In 2017, we received feedback from more than 2 million customers globally. Our location-specific surveys ask customers to evaluate their overall satisfaction with their rental experience and the likelihood that they will recommend our brands, as well as key elements of the rental experience. Results are analyzed in aggregate and by location to help further enhance our service levels to our customers.

We place a high emphasis on valuing our customers’ time through providing complete control with self-service capabilities. While our moble apps provide a fast customer experience, our customers know a company representative is always available to meet their needs. In 2017, we expanded our survey platform to integrate app-specific questions to learn more about individual preferences and find innovative ways to better serve and anticipate our customers’ needs.

EMPLOYEES

As of December 31, 2017, we employed approximately 31,000 people worldwide, of whom approximately 9,400 were employed on a part-time basis. Of our approximately 31,000 employees, approximately 20,000 were employed in our Americas segment and 11,000 in our International segment.

In our Americas segment, the majority of our employees are at-will employees and, therefore, not subject to any type of employment contract or agreement. Certain of our executive officers may be employed under employment contracts that specify a term of employment and specify pay and other benefits. In our International segment, we enter into employment contracts and agreements in those countries in which such relationships are mandatory or customary. The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction. Many of our employees are covered by a wide variety of union contracts and governmental regulations affecting, among other things, compensation, job retention rights and pensions.

As of December 31, 2017, approximately 32% of our employees were covered by collective bargaining or similar agreements with various labor unions. We believe our employee relations are satisfactory. We have never experienced a large-scale work stoppage.

AIRPORT CONCESSION AGREEMENTS

We generally operate our vehicle rental and car sharing services at airports under concession agreements with airport authorities, pursuant to which we typically make airport concession payments and/or lease payments. In general, concession fees for on-airport locations are based on a percentage of total commissionable revenue (as defined by each airport authority), often subject to minimum annual guaranteed amounts. Concessions are typically awarded by airport authorities every three to ten years based upon competitive bids. Our concession agreements with the various airport authorities generally impose certain minimum operating requirements, provide for relocation in the event of future construction and provide for abatement of the minimum annual guarantee in the event of extended low passenger volume.
OTHER BUSINESS CONSIDERATIONS

SEASONALITY

Our vehicle rental business is subject to seasonal variations in customer demand patterns, with the spring and summer vacation periods representing our peak seasons for the majority of the countries in which we operate. We

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vary our fleet size over the course of the year to help manage any seasonal variations in demand, as well as localized changes in demand. The following chart presents our quarterly revenues for the years ended December 31, 2015, 2016 and 2017.

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COMPETITION

The competitive environment for our industry is generally characterized by intense price and service competition among global, local and regional competitors. Competition in our vehicle rental operations is based primarily upon price, customer service quality, including usability of booking systems and ease of rental and return, vehicle availability, reliability, rental locations, product innovation and national or international distribution. In addition, competition is also influenced strongly by advertising, marketing, loyalty programs and brand reputation. We believe the prominence and service reputation of our brands, extensive worldwide ownership of mobility solutions and commitment to innovating will provide us with a competitive advantage.

The use of technology has increased pricing transparency among vehicle rental companies and other mobility solutions providers by enabling cost-conscious customers to more easily compare on the Internet and their mobile devices the rates available for the mobility solutions that fit their needs. This transparency has further increased the prevalence and intensity of price competition in the industry.

Our vehicle rental operations compete primarily with Enterprise Holdings, Inc., which operates the Enterprise, National and Alamo car rental brands; Hertz Global Holdings, Inc., which operates the Hertz, Dollar and Thrifty brands; Europcar Group; and Sixt AG. In addition there are smaller local and regional vehicle rental companies and ride-hailing companies that we compete with largely for short length trips in urban areas. Our Zipcar brand also competes with various local and regional mobility companies, including mobility services sponsored by several auto manufacturers, ride-hailing and car sharing companies and other technology players in the mobility landscape. Our Budget Truck operations in the U.S. competes with several other local, regional and nationwide truck rental companies such as U-Haul International, Inc., Penske Truck Leasing Corporation, Ryder Systems, Inc. and Enterprise.

INSURANCE AND RISK MANAGEMENT

Our vehicle rental and corporate operations expose us to various types of claims for bodily injury, death and property damage related to the use of our vehicles and/or properties, as well as general employment-related matters stemming from our operations. We generally assume the risk of liability to third parties arising from vehicle rental and car sharing services in the United States, Canada, Puerto Rico and the U.S. Virgin Islands, in accordance with the minimum financial responsibility requirements (“MFRs”) and primacy of coverage laws of the relevant jurisdiction. In certain cases, we assume liability above applicable MFRs, but to no more than $1 million per occurrence, other than in cases involving a negligent act on the part of the Company, for which we purchase insurance coverage for exposures beyond retained amounts from a combination of unaffiliated excess insurers.


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In Europe, we insure the risk of liability to third parties arising from vehicle rental and car sharing services in accordance with local regulatory requirements through a combination of insurance policies provided by unaffiliated insurers and through reinsurance. We may retain a portion of the insured risk of liability, including reinsuring certain risks through our captive insurance subsidiary AEGIS Motor Insurance Limited. We limit our retained risk of liability through the unaffiliated insurers. We insure the risk of liability to third parties in Argentina, Australasia and Brazil through a combination of unaffiliated insurers and one of our affiliates. These insurers provide insurance coverage supplemental to minimum local requirements.

We offer our U.S. customers a range of optional insurance products and coverages such as supplemental liability insurance, personal accident insurance, personal effects protection, emergency sickness protection, automobile towing protection and cargo insurance, which create additional risk exposure for us. When a customer elects to purchase supplemental liability insurance or other optional insurance related products, we typically retain economic exposure to loss, since the insurance is provided by an unaffiliated insurer that is reinsuring its exposure through our captive insurance subsidiary, Constellation Reinsurance Co., Ltd. Additional personal accident insurance offered to our customers in Europe is provided by a third-party insurer, and reinsured by our Avis Budget Europe International Reinsurance Limited subsidiary. We also maintain excess insurance coverage through unaffiliated carriers to help mitigate our potential exposure to large liability losses. We otherwise bear these and other risks, except to the extent that the risks are transferred through insurance or contractual arrangements.

OUR INTELLECTUAL PROPERTY

We rely primarily on a combination of trademark, trade secret and copyright laws, as well as contractual provisions with employees and third parties, to establish and protect our intellectual property rights. The service marks “Avis,” “Budget,” and “Zipcar” and related marks or designs incorporating such terms and related logos and marks such as “We try harder,” and “wheels when you want them” are material to our vehicle rental and car sharing businesses. Our subsidiaries and licensees actively use these marks. All of the material marks used by Avis, Budget and Zipcar are registered (or have applications pending for registration) with the United States Patent and Trademark Office as well as in foreign jurisdictions. Our subsidiaries own the marks and other intellectual property, including the Wizard system, used in our business. We also own trademarks and logos related to the “Apex Car Rentals” brand in Australia and New Zealand, the “Payless Car Rental” brand in the United States and several other countries, the “Maggiore” brand in Italy and the “FranceCars” brand in France.

CORPORATE SOCIAL RESPONSIBILITY

At Avis Budget Group, we take our responsibilities as a corporate citizen seriously. We remain aware of how our actions can benefit the community and are sensitive to the needs of the environment, our customers and our employees. We recognize that being a successful organization means our progress is measured not only in economic terms, but also in the many ways we impact the world around us.

We believe in being responsible global corporate citizens and strive to establish and maintain best practices in corporate social responsibility through a focus on:

The Environment: As a responsible corporate citizen, we are committed to monitoring, measuring and managing our environmental impact, and working to reduce it where practicable on an ongoing basis. The following illustrate those commitments:

Car Sharing: Through our Zipcar brand, operating the world’s leading car-sharing network, considered to be one of the most environmentally-friendly transportation alternatives available;

Fleet: Offering our customers a wide variety of vehicles that are environmentally friendly, including as defined by the U.S. Environmental Protection Agency’s SmartWay Certification Program;

Outreach: Partnering with our corporate customers to help them measure and manage the environmental impact of Avis and Budget rental vehicles used by their employees and, where applicable, partnering to help them achieve their sustainability goals;


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Compliance: Meeting or voluntarily exceeding the requirements of all federal, state and local health, safety and environmental protection laws; and

Reduction: Limiting our use of natural resources and recycling where practicable, whether water, oil, tire rubber, paper, plastic or other materials.

Our People and our Customers: We believe that our success has its foundation in how we treat our employees. Avis Budget Group is committed to maintaining a professional and supportive workplace built on trust between employees and management. In concert with our core values, we seek to foster an environment where communication among our employees is open, honest, and respectful; performance is recognized; growth is encouraged; and accomplishments – individual and collective – are celebrated. We also seek to support the well-being and development of the people we employ and the communities in which they work. The following initiatives reflect our commitment to achieving these goals:

Employee Satisfaction: We periodically measure the success of our workplace initiatives in a Company-wide employee survey. Conducted by an independent third party to ensure impartiality and confidentiality, the survey is part of a long tradition of listening to what employees have to say about the Company, about the job they do, and about what they expect. On average, over 90% of all employees respond, which we feel is best in class participation and engagement. The findings from each survey are presented by managers to employees and plans to address areas for improvement are established;

Employee Benefits Programs: Our employees are critical to our success. To ensure their well-being and professional growth, we generally offer a competitive salary, plus incentive compensation potential and comprehensive benefits. In addition, we offer health and welfare benefits that may include a range of training, employee assistance and personal development programs to help employees and their families prosper. Our employee benefit programs are all offered and administered in compliance with applicable local law;

Live Well – Healthy Living: We maintain a comprehensive program of initiatives designed to encourage our employees and their families to be mindful of their health and to enhance their ability to care for themselves and manage their health care expenses;

Equal Opportunity Employment: We are committed to providing equal employment opportunity to all applicants and employees without regard to race, religion, color, sex, sexual orientation, gender, gender identity, age, national origin, ancestry, citizenship, protected veteran or disability status or any factor prohibited by law, and as such we affirm in policy and practice to support and promote the concept of equal employee opportunity and affirmative action, in accordance with all applicable federal, state, provincial and municipal laws. In addition, the Company will reasonably accommodate known disabilities and religious beliefs of employees and qualified applicants; and

Diversity: As a growing global organization, the Company is proud of the diversity of its workforce. We strive to attract and retain talented and diverse people throughout our organization by engaging in several initiatives to support diversity, including programs specifically designed to develop female leaders and to assist current and former military personnel.

Our Communities: The Company is committed to supporting the communities in which it operates by working with nonprofit organizations focused on assisting those in need such as Make-A-Wish. Through relationships with widely-recognized charitable groups and outreach through the Avis Budget Group Charitable Foundation and employee volunteer teams, the Company and its employees contribute to many worthwhile organizations and deserving causes that help improve our communities.

Our Business: We hold our employees to high ethical standards. We place great emphasis on professional conduct, safety and security, information protection and integrity.

Ethical Standards: Our employees are required to follow our Code of Conduct. This important document represents the core of our business philosophy and values and covers numerous areas, including standards of work-related behavior; safe work practices; security of information,

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systems and other assets; conflicts of interest; securities laws; and community service. We provide employees with training to help them understand both our Code of Conduct and how to interpret it in various situations.

Sustainable Procurement: Our Third Party Standards of Conduct represents the Company’s commitment to fostering sustainable relationships with our business partners, agents, consultants, suppliers and other third parties and ensuring that they uphold ethical, social and environmental standards.

Supplier Diversity: The Company also maintains an industry-leading supplier diversity program to promote the growth and development of suppliers who are disadvantaged, minority-owned or women-owned business enterprises. As a result of our commitment, we are honored to be one of America’s Top Corporations for Women’s Business Enterprises for 16 consecutive years and a corporate member of the Billion Dollar Roundtable.

Data Protection: We are committed to taking appropriate measures to properly secure information, records, systems and property. Employees are trained to take particular precautions to protect the Company, our employees, vendors and customers, and, in many cases, themselves, from the unlawful or inappropriate use or disclosure of that information.

REGULATION

We are subject to a wide variety of laws and regulations in the countries in which we operate, including those relating to, among others, consumer protection, insurance products and rates, franchising, customer privacy and data protection, securities and public disclosure, competition and antitrust, environmental matters, taxes, automobile-related liability, corruption and anti-bribery, labor and employment matters, health and safety, claims management, automotive retail sales, currency-exchange and other various banking and financial industry regulations, cost and fee recovery, the protection of our trademarks and other intellectual property, and local ownership or investment requirements. Additional information about the regulations that we are subject to can be found in Item 1A - Risk Factors of this Annual Report on Form 10-K.

COMPANY INFORMATION

Our principal executive office is located at 6 Sylvan Way, Parsippany, New Jersey 07054 (our telephone number is 973-496-4700). The Company files electronically with the Securities and Exchange Commission (the “SEC”) required reports on Form 8-K, Form 10-Q, Form 10-K and Form 11-K; proxy materials; ownership reports for insiders as required by Section 16 of the Securities Exchange Act of 1934; registration statements and other forms or reports as required. Certain of the Company’s officers and directors also file statements of changes in beneficial ownership on Form 4 with the SEC. The public may read and copy any materials that the Company has filed with the SEC at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 800-SEC-0330. Such materials may also be accessed electronically on the SEC’s Internet site (sec.gov). The Company maintains a website (avisbudgetgroup.com) and copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports, proxy materials and any amendments to these reports filed or furnished with the SEC are available free of charge in the Investor Relations section of our website, as soon as reasonably practicable after filing with the SEC. Copies of our board committee charters, Codes of Conduct and Ethics, Corporate Governance Guidelines and other corporate governance information are also available on our website. If the Company should decide to amend any of its board committee charters, Codes of Conduct and Ethics or other corporate governance documents, copies of such amendments will be made available to the public through the Company’s website. The information contained on the Company’s website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.

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 ITEM 1A. RISK FACTORS

The following is a cautionary discussion of the most significant risks, uncertainties and assumptions that we believe are significant to our business and should be considered carefully in conjunction with all of the other information set forth in this Annual Report on Form 10-K. The risks described below are not an exhaustive list of all of the risks that we face and are not listed by order of priority or materiality. In addition to the factors discussed elsewhere in this report, the factors described in this item could, individually or in the aggregate, cause our actual results to differ materially from those described in any forward-looking statements. Should unknown risks or uncertainties materialize or underlying assumptions prove inaccurate, actual results could materially differ from past results and/or those anticipated, estimated or projected. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

RISKS RELATED TO OUR BUSINESS

We face risks related to the high level of competition in the vehicle rental industry.

The vehicle rental industry is highly competitive, with price being one of the primary competitive factors. To the extent that our competitors reduce their pricing and we do not provide competitive pricing or if price increases we implement make us less competitive, we risk losing rental volume from existing customers, as well as lessening the chances of success for future bids for new accounts. If competitive pressures lead us to lose rental volume or match any downward pricing and we are unable to reduce our operating costs, then our financial condition or results of operations could be materially adversely impacted.

Additionally, pricing in the industry is impacted by the size of rental fleets and the supply of vehicles available for rent. Any significant fluctuations in the supply of rental vehicles available in the market due to an unexpected decrease in demand, or actions taken by our competitors to increase market share by acquiring more fleet could negatively affect our pricing, operating plans or results of operations if we are unable to adjust the size of our rental fleet in response to fluctuations in demand.

The risk of competition on the basis of pricing in the truck rental industry can be even more impactful than in the car rental industry because it can be more difficult to reduce the size of our truck rental fleet in response to reduced demand.

We face risks related to fleet costs.

Fleet costs typically represent our single largest expense and can vary from year to year based on the prices that we are able to purchase and dispose of our vehicles. We purchase program cars, which are guaranteed a rate of depreciation through agreements with auto manufacturers, and non-program, or “risk” vehicles. In 2017, on average approximately 63% of our rental car fleet was comprised of risk vehicles.

The costs of our risk vehicles may be adversely impacted by the relative strength of the used car market, particularly the market for one- to two-year old used vehicles. We currently sell risk vehicles through various sales channels in the used vehicle marketplace, including traditional auctions, on-line auctions, direct-to-dealer sales, retail lots and our Ultimate Test Drive consumer car sales program. These channels may not produce stable vehicle prices in the future, as the market for used vehicles is subject to changes in demand for used vehicles, consumer interests, pricing of new car models, fuel costs and general economic conditions. A reduction in residual values for risk vehicles in our rental fleet could cause us to sustain a substantial loss on the ultimate sale of such vehicles or require us to depreciate those vehicles at a more accelerated rate while we own them. Any reduction in the market value of the vehicles in our fleet could effectively increase our fleet costs, adversely impact our profitability and potentially lead to decreased capacity in our asset-backed car rental funding facilities due to the collateral requirements for such facilities that effectively increase as market values for vehicles decrease.

If the market value of the vehicles in our fleet is reduced or our ability to sell vehicles in the used vehicle marketplace were to become severely limited, we may have difficulty meeting collateral requirements due under our asset-backed financing facilities, which could lead to decreased capacity in such facilities and effectively increase our fleet costs or adversely impact our profitability. In addition, if we are unable to meet our collateral requirements under such facilities, the outstanding principal amount due may be required to be repaid earlier than

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anticipated. If that were to occur, the holders of our asset-backed debt may have the ability to exercise their right to instruct the trustee to direct the return of program cars and/or the sale of risk cars to generate proceeds sufficient to repay such debt.

Program cars and leased vehicles enable us to determine our depreciation expense in advance of purchase, which is a significant component of our fleet costs. Our program car purchases also generally provide us with flexibility to reduce the size of our fleet rapidly in response to seasonal demand fluctuations, economic constraints or other changes in demand.

While we source our fleet purchases from a wide range of auto manufacturers, our program car purchases expose us to risk to the extent that any of these auto manufacturers significantly curtail production, increase the cost of purchasing program cars or decline to sell program cars to us on terms or at prices consistent with past agreements. Should any of these risks occur, we may be unable to obtain a sufficient number of vehicles to operate our business without significantly increasing our fleet costs or reducing our volumes.

The flexibility to rapidly reduce the size of our fleet may be impeded to the extent that we are forced to reduce the percentage of program cars in our fleet or features of the programs are altered by auto manufacturers, which could have an adverse impact on our fleet costs and results of operations.

Failure by a manufacturer to fulfill its obligations under any program agreement or incentive payment obligation could leave us with a material expense if we are unable to dispose of program cars at prices estimated at the time of purchase or with a substantial unpaid claim against the manufacturer, particularly with respect to program cars that were either (i) resold for an amount less than the amount guaranteed under the applicable program and therefore subject to a “true-up” payment obligation from the manufacturer; or (ii) returned to the manufacturer but for which we were not yet paid, and therefore we could incur a substantial loss as a result of such failure to perform.

We face risks related to safety recalls affecting our vehicles.

Our vehicles may be subject to safety recalls by their manufacturers that could have an adverse impact on our business when we remove recalled vehicles from our rentable fleet. We cannot control the number of vehicles that will be subject to manufacturer recalls in the future. Recalls often require us to retrieve vehicles from customers and/or hold vehicles until we can arrange for the repairs described in the recalls to be completed. As such, recalls can result in incremental costs, negatively impact our revenues and/or reduce our fleet utilization. If a large number of vehicles were to be the subject of simultaneous recalls, or if needed replacement parts were not in adequate supply, we may be unable to utilize recalled vehicles for a significant period of time. We could also face liability claims related to vehicles subject to a safety recall. Depending on the nature and severity of the recall, it could create customer service problems, reduce the residual value of the vehicles involved, harm our general reputation and/or have an adverse impact on our financial condition or results of operations.

Weakness in travel demand or general economic conditions in the United States, Europe and other areas in which we operate and/or a significant increase in fuel costs can adversely impact our business.

Demand for vehicle rentals can be subject to and impacted by international, national and local economic conditions. If travel demand or economic conditions in the United States, Europe and/or worldwide were to weaken, our financial condition or results of operations could be adversely impacted.

Any significant airline capacity reductions, airfare or related fee increases, reduced flight schedules, or any events that disrupt or reduce business or leisure air travel or weaken travel demand and tourism, such as work stoppages, military conflicts, terrorist incidents, natural disasters, disease epidemics, or the response of governments to any such events, could have an adverse impact on our results of operations. Likewise, any significant increases in fuel prices, a severe protracted disruption in fuel supplies or rationing of fuel could discourage our customers from renting vehicles or reduce or disrupt air travel, which could also adversely impact our results of operations.

Our truck rental business can be impacted by the housing market. If conditions in the housing market were to weaken, we may see a reduction in truck rental transactions, which could have an adverse impact on our business.

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We face risks related to our ability to successfully implement our business strategies and to preserve the value of our brands.

Our strategic objectives involve winning and retaining customers through supporting and strengthening our brands, increasing operational efficiency and margins and enhancing our position in the evolving mobility landscape. We see significant potential in the areas of optimizing our pricing, customer mix and sales of ancillary products and services; optimizing our procurement, deployment and disposition of vehicles, including increased use of non-auction channels for selling our cars; and applying connected-car/in-vehicle systems and other emerging technologies in our operations. If we are unsuccessful in implementing our strategic initiatives, our financial condition or results of operations could be adversely impacted.

The Company continues to take significant actions to further streamline its administrative and shared-services infrastructure through a restructuring program that identifies and replicates best practices, leverages the scale and capabilities of third-party service providers, and is designed to increase the global standardization and consolidation of non-rental-location functions over time. We cannot be certain that such initiatives will continue to be successful. Failure to successfully implement any of these initiatives could have an adverse impact to our financial condition or results of operations.

Any failure to adapt to changes in the mobility landscape, provide a high-quality rental experience for our customers and members, adopt new technologies, capitalize on cost saving initiatives or to meet customer needs could substantially harm our reputation and competitiveness, and could adversely impact our financial condition or results of operations.

We face risks related to political, economic and commercial instability or uncertainty in the countries in which we operate.

Our global operations expose us to a number of risks, including exposure to a wide range of international, national and local economic and political conditions and instability. For example, uncertainty related to the proposed withdrawal of the United Kingdom from the European Union could lead to volatility in the global financial markets, adversely affect tax, legal and regulatory regimes, and could impact the economies of the United Kingdom and other countries in which we operate, which could have a material adverse effect on our results in such countries. Operating or expanding our business in a number of different regions and countries exposes us to a number of risks, including:

multiple and potentially conflicting laws, regulations, trade policies and agreements that are subject to change;

varying tax regimes, including consequences from changes in applicable tax laws;

the imposition of currency restrictions, restrictions on repatriation of earnings or other restraints, as well as difficulties in obtaining financing in foreign countries for local operations;

local ownership or investment requirements, or compliance with local laws, regulations or business practices;

uncertainty and changes to political and regulatory regimes as a result of changing social, political, regulatory and economic environments in the United States and internationally;

national and international conflict, including terrorist acts; and

political and economic instability or civil unrest that may severely disrupt economic activity in affected countries.

Exposure to these risks may adversely impact our financial condition or results of operations. Our licensees’ vehicle rental operations may also be impacted by political, economic and commercial instability, which in turn could impact the amount of royalty payments they make to us.


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We face risks related to third-party distribution channels that we rely upon.

We rely upon third-party distribution channels to generate a significant portion of our car rental reservations, including:

traditional and online travel agencies, airlines and hotel companies, marketing partners such as credit card companies and membership organizations and other entities that help us attract customers; and

global distribution systems (“GDS”), such as Amadeus, Galileo/Apollo, Sabre and Worldspan, that connect travel agents, travel service providers and corporations to our reservations systems.

Changes in our pricing agreements, commission schedules or arrangements with third-party distribution channels, the termination of any of our relationships or a reduction in the transaction volume of such channels, or a GDS’s inability to process and communicate reservations to us could have an adverse impact on our financial condition or results of operations, particularly if our customers are unable to access our reservation systems through alternate channels.

We face risks related to our property leases and vehicle rental concessions.

We lease or have vehicle rental concessions at locations throughout the world, including at most airports where we operate both in the United States and internationally and at train stations throughout Europe, where vehicle rental companies are frequently required to bid periodically for space at these locations. If we were to lose a property lease or vehicle rental concession, particularly at an airport or a train station in a major metropolitan area, there can be no assurance that we would be able to find a suitable replacement location on reasonable terms which could adversely impact our business.

We face risks related to the seasonality of our business.

In our business, the third quarter of the year has historically been our most profitable quarter as measured by net income and Adjusted EBITDA due to the increased level of summer leisure travel and household moving activity. We vary our fleet size over the course of the year to help manage seasonal variations in demand, as well as localized changes in demand that we may encounter in the various regions in which we operate. Any circumstance or occurrence that disrupts rental activity during the third quarter, especially in North America and Europe, could have a disproportionately adverse impact on our financial condition or results of operations.

We are dependent on our senior management and other key personnel.

Our success depends on our senior management team and other key personnel, our ability to effectively recruit and retain high quality employees, and replace those who retire or resign. The loss of services of one or more members of our senior management team could adversely affect our business. Failure to retain and motivate our senior management and to hire, retain and develop other important personnel could impact our management and operations, ability to execute our strategies and adversely affect our business and operating results.


We face risks related to acquisitions, including the acquisition of existing licensees or investments in or partnerships with other related businesses.

We may engage in strategic transactions, including the acquisition of or investment in existing licensees and/or other related businesses, or partnerships or joint ventures with companies in related or cross-function lines of business. The risks involved in engaging in these strategic transactions include the possible failure to successfully integrate the operations of acquired businesses, or to realize the expected benefits of such transactions within the anticipated time frame, or at all, such as cost savings, synergies or sales or growth opportunities. In addition, the integration of an acquired business or oversight of a partnership or joint venture may result in material unanticipated challenges, expenses, liabilities or competitive responses, including:


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a failure to implement our strategy for a particular strategic transaction, including successfully integrating the acquired business into our existing infrastructure, or a failure to realize value from a strategic partnership, joint venture or other investment;

inconsistencies between our standards, procedures and policies and those of the acquired business, partnership and/or joint venture, and costs or inefficiencies associated with the integration of our operational and administrative systems;

the increased scope and complexity of our operations could require significant attention from management and could impose constraints on our operations or other projects;

unforeseen expenses, delays or conditions, including required regulatory or other third-party approvals or consents, or provisions in contracts with third parties that could limit our flexibility to take certain actions;

an inability to retain the customers, employees, suppliers and/or marketing partners of the acquired business, partnership or joint venture or generate new customers or revenue opportunities through a strategic partnership;

the costs of compliance with local laws and regulations and the implementation of compliance processes, as well as the assumption of unexpected liabilities, litigation, penalties or other enforcement actions; and

higher than expected costs arising due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or pension policies.

Any one of these factors could result in delays, increased costs or decreases in the amount of expected revenues related to combining the companies or derived from a strategic transaction and could adversely impact our financial condition or results of operations.

We face risks related to our Zipcar operations.

We expect that the competitive environment for our car sharing services will become more intense as additional companies, including automobile manufacturers, ride-hailing and car sharing companies and other technology players in the mobility landscape, enter our existing markets or try to expand their operations. Competitors could introduce new mobility solutions or technologies that change the car sharing industry or consumer attitudes toward car sharing, offer more competitive price and convenience characteristics, or could undertake more aggressive marketing campaigns or price their products below cost. Such developments could adversely impact our business and results of operations should we be unable to compete with such efforts.

Because Zipcar members are located primarily in cities, we compete for limited parking locations that are convenient to our members or are available on terms that are commercially reasonable to our business. If we are unable to obtain and maintain a sufficient number of parking locations that are convenient to our members, then our ability to attract and retain members could suffer and our business and results of operations could be materially impacted.

We face risks related to fluctuations in currency exchange rates.

Our international operations generate revenue and incur operating costs in a variety of currencies. The financial position and results of operations of many of our foreign subsidiaries are reported in the relevant local currency and then translated to U.S. dollars at the applicable currency exchange rate for inclusion in our Consolidated Financial Statements. Changes in exchange rates among these currencies and the U.S. dollar will affect the recorded levels of our assets and liabilities in our consolidated financial statements. While we take steps to manage our currency exposure, such as currency hedging, we may not be able to effectively limit our exposure to intermediate- or long-term movements in currency exchange rates, which could adversely impact our financial condition or results of operations.


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We face risks related to our derivative instruments.

We typically utilize derivative instruments to manage fluctuations in foreign exchange rates, interest rates and gasoline prices. The derivative instruments we use to manage our risk are usually in the form of interest rate swaps and caps and foreign exchange and commodity contracts. Periodically, we are required to determine the change in fair value, called the “mark to market,” of some of these derivative instruments, which could expose us to substantial mark-to-market losses or gains if such rates or prices fluctuate materially from the time the derivatives were entered into. Accordingly, volatility in rates or prices may adversely impact our financial position or results of operations and could impact the cost and effectiveness of our derivative instruments in managing our risks.

We face risks related to liability and insurance.

Our global operations expose us to several forms of liability, including claims for bodily injury, death and property damage related to the use of our vehicles, or for having our customers on our premises, as well as workers’ compensation and other employment-related claims by our employees. We may become exposed to uninsured liability at levels in excess of our historical levels resulting from unusually high losses or otherwise. In addition, liabilities in respect of existing or future claims may exceed the level of our reserves and/or our insurance, which could adversely impact our financial condition and results of operations. Furthermore, insurance with unaffiliated insurers may not continue to be available to us on economically reasonable terms or at all. Should we be subject to an adverse ruling, or experience other significant liability for which we did not plan and are unable to adequately insure against such liability, our results of operations, financial position or cash flows could be negatively impacted.

We reinsure certain insurance exposures as well as offer optional insurance coverages through unaffiliated third-party insurers, which then reinsure all or a portion of their risks through our insurance company subsidiaries, which subjects us to regulation under various insurance laws and statutes in the jurisdictions in which our insurance company subsidiaries are domiciled. Any changes in regulations that alter or impede our reinsurance obligations or insurance subsidiary operations could adversely impact the economic benefits that we rely upon to support our reinsurance efforts, which in turn would adversely impact our financial condition or results of operations.

Optional insurance products that we offer to renters in the United States, including, but not limited to, supplemental liability insurance, personal accident insurance and personal effects protection, are regulated under state laws governing such products. Our car rental operations outside the United States must also comply with certain local laws and regulations regarding the sale of supplemental liability and personal accident and effects insurance by intermediaries. Any changes in U.S. or international laws that change our operating requirements with respect to our sale of optional insurance products could increase our costs of compliance or make it uneconomical to offer such products, which would lead to a reduction in revenue and profitability. Should more of our customers decline purchasing optional liability insurance products as a result of any changes in these laws or otherwise, our financial condition or results of operations could be adversely impacted.

We offer loss damage waivers to our customers as an option for them to reduce their financial responsibility that may be incurred as a result of loss or damage to the rental vehicle. Certain states in the United States have enacted legislation that mandates disclosure to each customer at the time of rental that damage to the rented vehicle may be covered to some extent by the customer’s personal automobile insurance and that loss damage waivers may not be necessary. In addition, some states have statutes that establish or cap the daily rate that can be charged for loss damage waivers. Should new laws or regulations arise that place new limits on our ability to offer loss damage waivers to our customers, our financial condition or results of operations could be adversely impacted.

Additionally, the current U.S. federal law pre-empts state laws that impute tort liability based solely on ownership of a vehicle involved in an accident. If such federal law were to change, our insurance liability exposure could materially increase.

We may be unable to collect amounts that we believe are owed to us by customers, insurers and other third parties related to vehicle damage claims or liabilities. The inability to collect such amounts in a timely manner or to the extent that we expect could adversely impact our financial condition or results of operations. 

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Costs associated with lawsuits or investigations or increases in the legal reserves that we establish based on our assessment of contingent liabilities may have an adverse effect on our results of operations.

Our global operations expose us to various claims, lawsuits and other legal proceedings that arise in and outside of the ordinary course of our business in the countries in which we operate. We may be subject to complaints and/or litigation involving our customers, licensees, employees, independent operators and others with whom we conduct business, including claims for bodily injury, death and property damage related to use of our vehicles or our locations by customers, or claims based on allegations of discrimination, misclassification as exempt employees under the Fair Labor Standards Act, wage and hourly pay disputes, and various other claims. We could be subject to substantial costs and/or adverse outcomes from such complaints or litigation, which could have a material adverse effect on our financial condition, cash flows or results of operations.

From time to time, our Company and/or other companies in the vehicle rental industry may be reviewed or investigated by state or federal regulators, which could lead to tax assessments, enforcement actions, fines and penalties or the assertion of private litigation claims. It is not possible to predict with certainty the outcome of claims, investigations and lawsuits, and we could in the future incur judgments, taxes, fines or penalties or enter into settlements of lawsuits or claims that could have an adverse impact on our financial condition or results of operations. In addition, while we maintain insurance coverage with respect to exposure for certain types of legal claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against any such claims.

As required by U.S. generally accepted accounting principles (“GAAP”), we establish reserves based on our assessment of actual or potential loss contingencies, including contingencies related to legal claims asserted against us. Subsequent developments may affect our assessment and estimates of such loss contingencies and require us to make payments in excess of our reserves, which could have an adverse effect on our financial condition or results of operations.

We face risks related to laws and regulations that could impact our global operations.

We are subject to multiple, and sometimes conflicting, laws and regulations in the countries in which we operate that relate to, among others, consumer protection, competition and antitrust, customer privacy and data protection, securities and public disclosure, automotive retail sales, franchising, corruption and anti-bribery, environmental matters, taxes, automobile-related liability, labor and employment matters, cost and fee recovery, currency-exchange and other various banking and financial industry regulations, health and safety, insurance rates and products, claims management, protection of our trademarks and other intellectual property and other trade-related laws and regulations. Recent years have seen a substantial increase in the global enforcement of certain of these laws such as the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and similar foreign laws and regulations. Our continued global operations and expansion could increase the risk of governmental investigations and violations of such laws. We cannot predict the nature, scope or effect of future regulatory requirements to which our global operations may be subject or the manner in which existing or future laws may be administered or interpreted. Any alleged or actual violations of any law or regulation, change in law or regulation or changes in the interpretation of existing laws or regulations may subject us to government scrutiny, investigation and civil and criminal penalties, limit our ability to provide services in any of the countries in which we operate and could result in a material adverse impact on our reputation, business, financial position or results of operations.

In certain countries in which we have Company-operated locations, we may recover certain costs from consumers, including costs associated with the title and registration of our vehicles, or concession costs imposed by an airport authority or the owner and/or operator of the premises from which our vehicles are rented. We may in the future be subject to potential laws or regulations that could negatively impact our ability to separately state, charge and recover such costs, which could adversely impact our financial condition or results of operations.

Current consumer privacy and data protection laws and regulations in the jurisdictions in which we operate limit the types of information that we may collect about our customers and other individuals with whom we deal or propose to deal, as well as how we collect, process and retain the information that we are permitted to collect, some of which may be non-public personally identifiable information. The centralized nature of our information systems requires the routine flow of information about customers and potential customers across national

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borders, particularly in the United States and Europe. Should this flow of information become illegal or subject to onerous restrictions, our ability to serve our customers could be negatively impacted for an extended period of time. In addition, our failure to maintain the security of the data we hold, whether as a result of our own error or the actions of others, could harm our reputation or give rise to legal liabilities that adversely impact our financial condition or results of operations. Privacy and data protection laws and regulations restrict the ways that we process our transaction information and the Payment Card Industry imposes strict customer credit card data security standards to ensure that our customers’ credit card information is protected. Failure to meet these data security standards could result in substantial increased fees to credit card companies, other liabilities and/or loss of the right to collect credit card payments, which could adversely impact our financial condition or results of operations.

We face risks related to environmental laws and regulations.

We are subject to a wide variety of environmental laws and regulations in connection with our operations, including, among other things, with respect to the ownership or use of tanks for the storage of petroleum products such as gasoline, diesel fuel and motor and waste oils; the treatment or discharge of waste waters; and the generation, storage, transportation and off-site treatment or disposal of solid or liquid wastes. We maintain liability insurance covering storage tanks at our locations. In the United States, we administer an environmental compliance program designed to ensure that these tanks are properly registered in the jurisdiction in which they are located and are in compliance with applicable technical and operational requirements. The tank systems located at each of our locations may not at all times remain free from undetected leaks, and the use of these tanks may result in significant spills, which may require remediation and expose us to material uninsured liability or liabilities in excess of insurance.

We may also be subject to requirements related to the remediation of substances that have been released into the environment at properties owned or operated by us or at properties to which we send substances for treatment or disposal. Such remediation requirements may be imposed without regard to fault and liability for environmental remediation can be substantial. These remediation requirements and other environmental regulations differ depending on the country where the property is located. We have made, and will continue to make, expenditures to comply with environmental laws and regulations, including, among others, expenditures for the remediation of contamination at our owned and leased properties, as well as contamination at other locations at which our wastes have reportedly been identified. Our compliance with existing or future environmental laws and regulations may, however, require material expenditures by us or otherwise have an adverse impact on our financial condition or results of operations.

Environmental regulatory authorities are likely to continue to pursue measures related to climate change and greenhouse gas emissions. Should rules establishing limitations on greenhouse gas emissions or rules imposing fees on entities deemed to be responsible for greenhouse gas emission become effective in the countries in which we operate, demand for our services could be affected, our fleet and/or other costs could increase, and our business could be adversely impacted.

We face risks related to franchising or licensing laws and regulations.

We license to third parties the right to operate locations using our brands in exchange for royalty payments. Our licensing activities are subject to various laws and regulations in the countries in which we operate. In particular, laws in the United States require that we provide extensive disclosure to prospective licensees in connection with licensing offers and sales, as well as comply with franchise relationship laws that could limit our ability to, among other things, terminate license agreements or withhold consent to the renewal or transfer of these agreements. We are also subject to certain regulations affecting our license arrangements in Europe and other international locations. Although our licensing operations have not been materially adversely affected by such existing regulations, such regulations could have a greater impact on us if we were to become more active in granting or selling new licenses to third parties. Should our operations become subject to new laws or regulations that negatively impact our ability to engage in licensing activities, our financial condition or results of operations could be adversely impacted.


32


We face risks related to the actions of, or failures to act by, our licensees, dealers, independent operators or third-party vendors.

Our vehicle rental licensee and dealer locations are independently owned and operated. We also operate many of our Company-owned locations through agreements with “independent operators,” which are third-party independent contractors who receive commissions to operate such locations. We also enter into service contracts with various third-party vendors that provide services for us or in support of our business. Under our agreements with our licensees, dealers, independent operators and third-party vendors (collectively referred to as “third-party operators”), the third-party operators retain control over the employment and management of all personnel at their locations or in support of the services that they provide our Company. These agreements also generally require that third-party operators comply with all laws and regulations applicable to their businesses, including relevant internal policies and standards. Regulators, courts or others may seek to hold us responsible for the actions of, or failures to act by, third-party operators or their employees based on theories of vicarious liability, negligence, joint operations or joint employer liability. Although we actively monitor the operations of these third-party operators, and under certain circumstances have the ability to terminate their agreements for failure to adhere to contracted operational standards, we are unlikely to detect all misconduct or noncompliance by the third-party operator or its employees. Moreover, there are occasions when the actions of third-party operators may not be clearly distinguishable from our own. It is our policy to vigorously seek to be dismissed from any claims involving third-party operators and to pursue indemnity for any adverse outcomes that affect the Company. Failure of third-party operators to comply with laws and regulations or our operational standards, or our inability to be dismissed from claims against our third-party operators, may expose us to liability, damages and negative publicity that may damage our brand and reputation and adversely affect our financial condition or results of operations.

We face risks related to our reliance on communications networks and centralized information systems.

We rely heavily on the satisfactory performance and availability of our information systems, including our reservation systems, websites and network infrastructure to attract and retain customers, accept reservations, process rental and sales transactions, manage our fleet of vehicles, account for our activities and otherwise conduct our business. We have centralized our information systems and we rely on third-party communications service and system providers to provide technology services and link our systems with the business locations these systems were designed to serve. A failure or interruption that results in the unavailability of any of our information systems, or a major disruption of communications between a system and the locations it serves, could cause a loss of reservations, interfere with our fleet management, slow rental and sales processes, create negative publicity that damages our reputation or otherwise adversely impacts our ability to manage our business effectively. We may experience system interruptions or disruptions for a variety of reasons, including as the result of network failures, power outages, cyber-attacks, employee errors, software errors, an unusually high volume of visitors attempting to access our systems, or localized conditions such as fire, explosions or power outages or broader geographic events such as earthquakes, storms, floods, epidemics, strikes, acts of war, civil unrest or terrorist acts. Because we are dependent in part on independent third parties for the implementation and maintenance of certain aspects of our systems and because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, or at all. Our systems’ business continuity plans and insurance programs seek to mitigate such risks but they cannot fully eliminate the risks as a disruption could be experienced in any of our information systems.

We face risks related to cyber-security breaches of our systems and information technology.
 
Threats to network and data security are becoming increasingly diverse and sophisticated. Third parties may have the technology or expertise to breach the security of our customer transaction data and our security measures may not prevent physical security or cyber-security breaches, which could result in substantial harm to our business, our reputation or our results of operations. We rely on encryption and/or authentication technology licensed from and, at times, administered by independent third parties to secure transmission of confidential information, including credit card numbers and other customer personal information. Our outsourcing agreements with these third-party service providers generally require that they have adequate security systems in place to protect our customer transaction data. However, advances in computer capabilities, new discoveries in the field of cryptography or other cyber-security developments could render our security systems and information technology, or those used by our third-party service providers, vulnerable to a breach. In addition, anyone who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. Cyber-security risks such as hacking, viruses, malicious software, ransomware, phishing attacks,

33


denial of service attacks and other attempts to capture, disrupt or gain unauthorized access to data are rapidly evolving and could lead to disruptions in our reservation system or other data systems, unauthorized release of confidential or otherwise protected information or corruption of data. Any successful efforts by individuals to infiltrate, break into, disrupt, damage or otherwise steal from the Company’s, its licensees’ or its third-party service providers’ security or information systems could damage our reputation and expose us to increased costs, litigation or other liability that could adversely impact our financial condition or results of operations.

We face risks associated with the recently enacted Public Law 115-97, commonly referred to as the U.S. Tax Reform Act (the “Tax Act”).

On December 22, 2017, the Tax Act was signed into law, which broadly reforms the U.S. corporate income tax system. Several provisions of the Tax Act affect the Company, specifically the provision eliminating the use of like-kind exchange for personal property and the provision allowing for full expensing of qualified property purchases through the year 2022. Since 2004, we have utilized a like-kind exchange program whereby we replace vehicles in a manner that allows tax gains on vehicles sold in the U.S. to be deferred, resulting in a material deferral of U.S. federal and state income taxes. The Tax Act repeals like-kind exchange treatment for vehicle sales as of January 1, 2018. The effect of the elimination of our like-kind exchange will be largely offset through 2022 by the full expensing provision of certain business assets in the year placed in service, which we believe includes our vehicles. However, an extended downsizing of our fleet would significantly decrease the amount of tax deductions available under the full expensing provision. This would result in the utilization of tax attributes and increased federal and state income tax liabilities that could require us to make material cash payments. Such a downsizing or reduction in purchases would likely occur if, and to the extent, we are unable to obtain financing when our asset-backed rental car financings mature, or in connection with a significant decrease in demand for vehicle rentals. In addition, the full expensing provision phases out at the end of year 2022 and we are not certain if this provision will be extended. Therefore, we cannot offer assurance that the benefits from the expected tax deductions will continue.

The Tax Act also makes significant changes to the U.S. Internal Revenue Code applicable to corporations. Such changes include reducing the corporate income tax rate, imposing a mandatory repatriation tax on undistributed historic earnings of foreign subsidiaries, eliminating or limiting the deductibility of certain business expenses, and requiring the inclusion in the U.S. tax base certain earnings generated by foreign subsidiaries, among other changes. While the Company is still evaluating the impact of these changes, certain of these changes could adversely impact our financial condition or results of operations.

We face risks related to our protection of our intellectual property.

We have registered certain marks and designs as trademarks in the United States and in certain other countries. At times, competitors may adopt service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered trademarks. From time to time, we have acquired or attempted to acquire Internet domain names held by others when such names have caused consumer confusion or had the potential to cause consumer confusion.

Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.

RISKS RELATED TO OUR INDEBTEDNESS

We face risks related to our current and future debt obligations.

Our ability to satisfy and manage our debt obligations depends on our ability to generate cash flow and on overall financial market conditions. To some extent, this is subject to prevailing economic and competitive conditions and to certain financial, business and other factors, many of which are beyond our control. Our outstanding debt obligations require us to dedicate a significant portion of our cash flows to pay interest and principal on our debt, which reduces the funds available to us for other purposes. Our business may not generate sufficient cash flow from operations to permit us to service our debt obligations and meet our other cash needs, which may force us to

34


reduce or delay capital expenditures, sell or curtail assets or operations, seek additional capital or seek to restructure or refinance our indebtedness. If we must sell or curtail our assets or operations, it may negatively affect our ability to generate revenue. Certain of our debt obligations contain restrictive covenants and provisions applicable to us and our subsidiaries that limit our ability to, among other things:

incur additional debt to fund working capital, capital expenditures, debt service requirements, execution of our business strategy or acquisitions and other purposes;

provide guarantees in respect of obligations of other persons;

pay dividends or distributions, redeem or repurchase capital stock;

prepay, redeem or repurchase debt;

create or incur liens;

make distributions from our subsidiaries;

sell assets and capital stock of our subsidiaries;

consolidate or merge with or into, or sell substantially all of our assets to, another person; and

respond to adverse changes in general economic, industry and competitive conditions, as well as changes in government regulation and changes to our business.

Our failure to comply with the restrictive covenants contained in the agreements or instruments that govern our debt obligations, if not waived, would cause a default under our senior credit facility and could result in a cross-default under several of our other debt obligations, including our U.S. and European asset-backed debt facilities. If such a default were to occur, certain provisions in our various debt agreements could require that we repay or accelerate debt payments to the lenders or holders of our debt, and there can be no assurance that we would be able to refinance or obtain a replacement for such financing programs.

We face risks related to movements or disruptions in the credit and asset-backed securities markets.

We finance our vehicle fleet purchases and operations through the use of asset-backed securities in the United States, Canada, Australia and Europe and other debt financing structures available through the credit markets. If the asset-backed financing and/or credit markets were to be disrupted for any reason, we may be unable to obtain refinancing for our operations or vehicle fleet purchases at current levels, or at all, when our respective asset-backed financings or debt financings mature. Likewise, any disruption of the asset-backed financing or credit markets could also increase our borrowing costs, as we seek to engage in new financings or refinance our existing financings. In addition, we could be subject to increased collateral requirements to the extent that we request any amendment or renewal of any of our existing asset-backed or debt financings.

We face risks related to potential increases in interest rates.

A portion of our borrowings, primarily our vehicle-backed borrowings, bears interest at variable rates that expose us to interest rate risk. If interest rates were to increase, whether due to an increase in market interest rates or an increase in our own cost of borrowing, our debt service obligations for our variable rate indebtedness would increase even though the amount of borrowings remained the same, and our results of operations could be adversely affected. As of December 31, 2017, our total outstanding debt of approximately $12.8 billion included unhedged interest rate sensitive debt of approximately $2.8 billion. During our seasonal borrowing peak in 2017, outstanding unhedged interest rate sensitive debt totaled approximately $5.1 billion.

Virtually all of our debt under vehicle programs and certain of our corporate indebtedness matures within the next five years. If we are unable to refinance maturing indebtedness at interest rates that are equivalent to or lower than the interest rates on our maturing debt, our results of operations or our financial condition may be adversely affected.


35


RISKS RELATED TO OUR COMMON STOCK

We face risks related to the market price of our common stock.

We cannot predict the prices at which our common stock will trade. The market price of our common stock experienced substantial volatility in the past and may fluctuate widely in the future, depending upon many factors, some of which may be beyond our control, including:

weakness in general economic conditions and credit markets;

changes in consumers’, investors’ and analysts’ perceptions of our industry, business or related industries;

our quarterly or annual earnings, or those of other companies in our industry, including our key suppliers;

financial estimates that we provide to the public, any changes in such estimates, or our failure to meet such estimates;

actual or anticipated fluctuations in our operating results;

changes in accounting standards, policies, guidance, interpretations or principles;

announcements by us or our competitors of acquisitions, dispositions, strategies, management or stockholder changes, marketing affiliations, projections, fleet costs, pricing actions or other competitive actions;

changes in earnings estimates by securities analysts or our ability to meet those estimates;

the operating and stock price performance of other comparable companies;

overall stock market fluctuations;

success or failure of competitive service offerings or technologies;

tax or regulatory developments in the United States and other countries in which we operate;

litigation involving us; actions of activist stockholders and responses from our Board and senior management; and

the timing and amount of any share repurchases by us.

If any of the foregoing occurs, it could cause our stock price to fall and may expose us to litigation, including class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Our stockholders’ percentage of ownership may be diluted in the future.

Our stockholders’ percentage of ownership may be diluted in the future due to equity issuances or equity awards that we granted or will grant to our directors, officers and employees. In addition, we may undertake acquisitions financed in part through public or private offerings of securities, or other arrangements. If we issue equity securities or equity-linked securities, the issued securities would have a dilutive effect on the interests of the holders of our common shares. We expect to continue to grant restricted stock units, stock options and/or other types of equity awards in the future.


36


Certain provisions of our certificate of incorporation and by-laws, Delaware law and our stockholder rights plan could prevent or delay a potential acquisition of control of our Company, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation, amended and restated by-laws and the laws in the State of Delaware contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the prospective acquirer and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover. Delaware law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. In January 2018, our Board of Directors adopted a short-term stockholder rights plan, which may cause substantial dilution to a person or group that attempts to acquire control of the Company on terms not approved by our Board of Directors.

We believe these provisions and the stockholder rights plan protect our stockholders from coercive or otherwise unfair takeover tactics by effectively requiring those who seek to obtain control of the Company to negotiate with our Board of Directors and by providing our Board with more time to assess any acquisition of control. However, these provisions could apply even if an acquisition of control of the Company may be considered beneficial by some stockholders and could delay or prevent an acquisition of control that our Board of Directors determines is not in the best interests of our Company and our stockholders.

A currently pending proxy contest could cause us to incur substantial costs, divert management’s attention and resources and have other adverse effects on our business.

On February 15, 2018, SRS Investment Management announced its intention to nominate five candidates for election to our Board of Directors at our 2018 Annual Meeting of Stockholders. As a result of this pending proxy contest, or if other activist stockholder activities ensue, our business could be adversely affected because responding to proxy contests and reacting to other actions by activist stockholders can be disruptive, costly and time-consuming, and can divert the attention of management and our employees. We may incur significant expenses by retaining the services of various professionals to advise us on this matter, including legal, financial and communications advisors, which may negatively impact our future financial results. In addition, this proxy contest and any similar activist stockholder initiatives may lead to perceived uncertainties as to our future direction, strategy or leadership and may lead to the perception of instability or lack of continuity, which may be exploited by our competitors, cause concern to our current or potential customers or vendors, or cause our stock price to experience periods of volatility.
 ITEM 1B. UNRESOLVED STAFF COMMENTS

None.
 ITEM 2. PROPERTIES

Our principal executive offices are located at 6 Sylvan Way, Parsippany, New Jersey 07054 pursuant to a lease agreement that expires in 2023. We own a facility in Virginia Beach, Virginia, which serves as a satellite administrative facility for our car and truck rental operations. We also lease office space in Tulsa, Oklahoma, and Boston, Massachusetts, pursuant to leases expiring in 2022 and 2023, respectively. These locations primarily provide operational and administrative services or contact center operations for our Americas segment. We also lease office space in Bracknell, England, Budapest, Hungary and Barcelona, Spain, pursuant to leases expiring in 2027, 2021 and 2019, respectively, for corporate offices, contact center activities and other administrative functions, respectively, for our International segment. Other office locations throughout the world are leased for administrative, regional sales and operations activities.

We lease or have vehicle rental concessions for our brands at locations throughout the world. We own approximately 2% of the locations from which we operate and in some cases we sublease to franchisees or other third parties. The remaining locations from which we operate our vehicle rental businesses are leased or operated under concession agreements with governmental authorities and private entities. Those leases and concession agreements typically require the payment of minimum rents or minimum concession fees and often also require us to pay or reimburse operating expenses; to pay additional rent, or concession fees above guaranteed

37


minimums, based on a percentage of revenues or sales arising at the relevant premises; or to do both. See Note 14 to our Consolidated Financial Statements for information regarding lease commitments.

We believe that our properties are sufficient to meet our present needs and we do not anticipate any difficulty in securing additional space, as needed, on acceptable terms.
 ITEM 3. LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 14 to our Consolidated Financial Statements.

 ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

38


PART II
 ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
 
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET PRICE OF COMMON STOCK

Our common stock is currently traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “CAR.” The following table sets forth the quarterly high and low sales prices per share of our common stock as reported by NASDAQ for 2017 and 2016. At January 31, 2018, the number of stockholders of record was 2,639.
 
 
High
 
Low
 
2017
 
 
 
 
First Quarter
$
41.00

 
$
27.36

 
Second Quarter
32.52

 
20.71

 
Third Quarter
38.76

 
27.10

 
Fourth Quarter
46.32

 
31.97

 
 
 
 
 
 
 
High
 
Low
 
2016
 
 
 
 
First Quarter
$
36.32

 
$
21.73

 
Second Quarter
34.85

 
21.85

 
Third Quarter
39.54

 
29.72

 
Fourth Quarter
41.53

 
30.60


DIVIDEND POLICY

We neither declared nor paid any cash dividend on our common stock in 2017 and 2016, and we do not currently anticipate paying cash dividends on our common stock. However, we evaluate our dividend policy on a regular basis and may pay dividends in the future, subject to compliance with the covenants in our senior credit facility, the indentures governing our senior notes and our vehicle financing programs. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will also depend upon many factors, including our financial condition, earnings, capital requirements of our businesses, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors that the Board of Directors deems relevant.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table provides information about shares of our common stock that may be issued upon the exercise of options and restricted stock units under all of our existing equity compensation plans as of December 31, 2017.
Plan Category
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, Rights and Restricted Stock Units (a)
 
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(Excludes Restricted
Stock Units) ($) 
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column) (b)
Equity compensation plans approved by security holders
 
2,850,348

 
$
7.08

 
6,427,576

Equity compensation plans not approved by security holders
 

 

 

Total
 
2,850,348

 
$
7.08

 
6,427,576

__________
(a) 
Includes options and other awards granted under the Amended and Restated Equity and Incentive Plan, which plan was approved by stockholders.

39


(b) 
Represents 3,995,921 shares available for issuance under the Amended and Restated Equity and Incentive Plan and 2,431,655 shares available for issuance pursuant to the 2009 Employee Stock Purchase Plan.
    
ISSUER PURCHASES OF EQUITY SECURITIES

The following is a summary of the Company’s common stock repurchases by month for the quarter ended December 31, 2017:
Period
 
Total Number of Shares Purchased(a)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Dollar Value of Shares That May Yet Be Purchased under the Plans or Programs
October 2017
 
845,967

 
$
40.14

 
845,967

 
$
139,791,098

November 2017
 
538,577

 
35.56

 
538,577

 
120,641,379

December 2017
 
464,984

 
43.31

 
464,984

 
100,501,894

Total
 
1,849,528

 
$
39.60

 
1,849,528

 
$
100,501,894

________
(a) 
Excludes, for the three months ended December 31, 2017, 117 shares which were withheld by the Company to satisfy employees’ income tax liabilities attributable to the vesting of restricted stock unit awards.

The Company’s Board of Directors has authorized the repurchase of up to approximately $1.5 billion of its common stock under a plan originally approved in 2013 and subsequently expanded, most recently in 2016. The Companys stock repurchases may occur through open market purchases or trading plans pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors. The repurchase program may be suspended, modified or discontinued at any time without prior notice. The repurchase program has no set expiration or termination date.



40


PERFORMANCE GRAPH

Set forth below are a line graph and table comparing the cumulative total stockholder return of our common stock against the cumulative total returns of peer group indices, the S&P 500 Index and the Dow Jones U.S. Transportation Average Index for the period of five fiscal years commencing December 31, 2012 and ending December 31, 2017. The broad equity market indices used by the Company are the S&P 500 Index, which measures the performance of large-sized companies, and the Dow Jones U.S. Transportation Average Index, which measures the performance of transportation companies. The graph and table depict the result of an investment on December 31, 2012 of $100 in the Company’s common stock, the S&P 500 Index and the Dow Jones U.S. Transportation Average Index, including investment of dividends.


performancegrapha01.jpg


 
As of December 31,
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
Avis Budget Group, Inc.
$
100.00

 
$
203.94

 
$
334.66

 
$
183.10

 
$
185.07

 
$
221.39

S&P 500 Index
$
100.00

 
$
132.39

 
$
150.51

 
$
152.59

 
$
170.84

 
$
208.14

Dow Jones U.S. Transportation Average Index
$
100.00

 
$
141.38

 
$
176.82

 
$
147.19

 
$
180.05

 
$
214.30



41


 ITEM 6. SELECTED FINANCIAL DATA
 
 
As of or For the Year Ended December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
 
 
(In millions, except per share data)
 
 
Results of Operations
 
 
 
 
 
 
 
 
 
Net revenues
$
8,848

 
$
8,659

 
$
8,502

 
$
8,485

 
$
7,937

 
 
 
 
 
 
 
 
 
 
Net income
$
361

 
$
163

 
$
313

 
$
245

 
$
16

 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA (a)
$
735

 
$
838

 
$
903

 
$
876

 
$
769

 
 
 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
 
 
 
Basic
$
4.32

 
$
1.78

 
$
3.02

 
$
2.32

 
$
0.15

 
Diluted
4.25

 
1.75

 
2.98

 
2.22

 
0.15

 
 
 
 
 
 
 
 
 
 
 
Financial Position
 
 
 
 
 
 
 
 
 
Total assets
$
17,699

 
$
17,643

 
$
17,634

 
$
16,842

 
$
16,150

Assets under vehicle programs
11,879

 
11,578

 
11,716

 
11,058

 
10,452

Corporate debt
3,599

 
3,523

 
3,461

 
3,353

 
3,321

Debt under vehicle programs (b)
9,221

 
8,878

 
8,860

 
8,056

 
7,276

Stockholders’ equity
573

 
221

 
439

 
665

 
771

Ratio of debt under vehicle programs to assets under vehicle programs
78
%
 
77
%
 
76
%
 
73
%
 
70
%
__________
(a) 
The following table reconciles Net Income to Adjusted EBITDA within our Selected Financial Data, which we define as income from continuing operations before non-vehicle related depreciation and amortization, any impairment charge, restructuring and other related charges, early extinguishment of debt costs, non-vehicle related interest, transaction-related costs, net charges for an unprecedented personal-injury legal matter and income taxes. Net charges for the legal matter are recorded within operating expenses in our Consolidated Statements of Operations. We have revised our definition of Adjusted EBITDA to exclude costs associated with the separation of certain officers of the Company and our limited voluntary opportunity plans, which offered certain employees the limited opportunity to elect resignation from employment for enhanced severance benefits. Costs associated with the separation of certain officers and the limited voluntary opportunity plans are recorded as part of restructuring and other related charges in our Consolidated Statements of Operations. We did not revise prior years’ Adjusted EBITDA amounts because there were no costs similar in nature to these items. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies. See Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7, for an explanation of why we believe Adjusted EBITDA is a useful measure.
 
 
For the Year Ended December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
Net income
$
361

 
$
163

 
$
313

 
$
245

 
$
16

Provision for (benefit from) income taxes
(150
)
 
116

 
69

 
147

 
81

Income before income taxes
211

 
279

 
382

 
392

 
97

Add:
Non-vehicle related depreciation and amortization
259

 
253

 
218

 
180

 
152

 
Interest expense related to corporate debt, net
188

 
203

 
194

 
209

 
228

 
Restructuring and other related charges
63

 
29

 
18

 
26

 
61

 
Transaction-related costs, net
23

 
21

 
68

 
13

 
51

 
Early extinguishment of corporate debt
3

 
27

 
23

 
56

 
147

 
Impairment
2

 

 

 

 
33

 
Charges for legal matter, net
(14
)
 
26

 

 

 

Adjusted EBITDA
$
735

 
$
838

 
$
903

 
$
876

 
$
769


(b) 
Includes related-party debt due to Avis Budget Rental Car Funding (AESOP) LLC (“Avis Budget Rental Car Funding”). See Note 13 to our Consolidated Financial Statements.
In presenting the financial data above in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported. See “Critical Accounting Policies” under Item 7 of this Annual Report for a detailed discussion of the accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

42


RESTRUCTURING AND OTHER RELATED CHARGES, TRANSACTION-RELATED COSTS, AND OTHER ITEMS
In 2017, 2016, 2015, 2014 and 2013 we recorded restructuring and other related charges of $63 million, $29 million, $18 million, $26 million, and $61 million, respectively. See Note 4 to our Consolidated Financial Statements.
During 2017, 2016, 2015, 2014 and 2013, we recorded $23 million, $21 million, $68 million, $13 million and $51 million, respectively, of transaction-related costs, primarily related to the acquisition and integration of acquired businesses with our operations. In 2017, these costs primarily related to integration-related costs of acquired businesses and acquisition-related costs of businesses pursued. In 2016, these costs primarily related to integration-related costs of acquired businesses. In 2015, these costs were primarily related to acquisition- and integration-related costs of acquired businesses, including $25 million of non-cash charges recognized in connection with the acquisition of the Avis and Budget license rights for Norway, Sweden and Denmark and Avis license rights for Poland, costs associated with the acquisition of the remaining 50% equity interest in our Brazilian licensee, which is now a wholly-owned subsidiary, and expenses related to certain pre-acquisition contingencies. In 2014, these costs were primarily related to acquisition- and integration-related costs of acquired businesses, including a non-cash gain recognized in connection with the acquisition of our Budget license rights in southern California and Las Vegas, and contingent consideration related to our Apex Car Rentals acquisition. In 2013, these costs were primarily related to the acquisition of Zipcar and the integration of acquired businesses. See Notes 2 and 5 to our Consolidated Financial Statements.
In 2017, 2016, 2015, 2014 and 2013 we recorded $3 million, $27 million, $23 million, $56 million and $147 million, respectively, of expense related to the early extinguishment of corporate debt. See Note 12 to our Consolidated Financial Statements.
In 2017, we recorded a $2 million impairment charge related to our Zipcar trademark. In 2013, we recorded a charge of $33 million for the impairment of our equity-method investment in our Brazilian licensee.
In 2017, we recognized recoverable insurance proceeds of $27 million and a charge of $13 million related to an adverse legal judgment against us in a personal injury case. In 2016, we recorded a charge of $26 million related to the same legal matter. This adverse legal judgment is recorded within operating expenses in our consolidated statement of operations.

43


 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
 
OPERATIONS

The following discussion should be read in conjunction with our Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein. Our actual results of operations may differ materially from those discussed in forward-looking statements as a result of various factors, including but not limited to those included in Item 1A, “Risk Factors” and other portions of this Annual Report on Form 10-K. Unless otherwise noted, all dollar amounts in tables are in millions and those relating to our results of operations are presented before taxes.
 OVERVIEW
OUR COMPANY
We operate three of the most globally recognized brands in the vehicle rental and other mobility solutions industry, Avis, Budget and Zipcar together with several brands well recognized in their respective markets, including Payless, Maggiore in Italy, FranceCars in France and Apex in both New Zealand and Australia. We are a leading vehicle rental operator in North America, Europe, Australasia and certain other regions we serve, with an average rental fleet of more than 620,000 vehicles. We also license the use of our trademarks to licensees in the areas in which we do not operate directly. We and our licensees operate our brands in approximately 180 countries throughout the world.
OUR SEGMENTS
We categorize our operations into two reportable business segments: Americas and International, as discussed in Part I of this Form 10-K.
BUSINESS AND TRENDS
Our revenues are derived principally from vehicle rentals in our Company-owned operations and include:
time & mileage fees charged to our customers for vehicle rentals;
payments from our customers with respect to certain operating expenses we incur, including gasoline and vehicle licensing fees, as well as concession fees, which we pay in exchange for the right to operate at airports and other locations; and
sales of loss damage waivers and insurance and other supplemental items in conjunction with vehicle rentals.
In addition, we receive royalty revenue from our licensees in conjunction with their vehicle rental transactions.

Our operating results are subject to variability due to seasonality, macroeconomic conditions and other factors. Car rental volumes tend to be associated with the travel industry, particularly airline passenger volumes, or enplanements, which in turn tend to reflect general economic conditions. Our vehicle rental operations are also seasonal, with the third quarter of the year historically having been our strongest due to the increased level of leisure travel during such quarter. We have a partially variable cost structure and routinely adjust the size, and therefore the cost, of our rental fleet in response to fluctuations in demand.
Throughout 2017, we operated in an uncertain and uneven economic environment marked by heightened geopolitical risks, competitive market conditions and relatively soft used-vehicle values in the U.S. We expect such economic conditions to continue in 2018 along with the incremental impact of rising interest rates. Nonetheless, we continue to anticipate that worldwide demand for vehicle rental and other mobility solutions will increase in 2018, most likely against a backdrop of modest and possibly uneven global economic growth. We will look to pursue opportunities for pricing increases in 2018 to enhance our profitability and returns on invested capital.

Our objective is to drive sustainable, profitable growth by delivering strategic initiatives aimed at winning customers through differentiated brands and products, increasing our margins via revenue growth and operational efficiency and enhancing our leadership in the evolving mobility landscape. Our strategies are intended to support

44


and strengthen our brands, to grow our Adjusted EBITDA over time and to achieve growth and efficiency opportunities as mobility solutions continue to evolve. We operate in a highly competitive industry and we expect to continue to face challenges and risks. We seek to mitigate our exposure to risks in numerous ways, including delivering upon our core strategic initiatives and through continued optimization of fleet levels to match changes in demand for vehicle rentals, maintenance of liquidity to fund our fleet and operations, appropriate investments in technology and adjustments in the size and the nature and terms of our relationships with vehicle manufacturers.
During 2017:
Our net revenues totaled $8.8 billion and grew 2% compared to the prior year due to higher rental volumes, offset by lower time & mileage revenue per day.
Our net income was $361 million, representing $198 million year-over-year higher earnings, and our Adjusted EBITDA was $735 million, representing a $103 million year-over-year reduction, due to higher per-unit fleet costs in the Americas, partially offset by higher revenues, improved utilization and a $25 million positive impact from currency exchange rate movements.
We repurchased $200 million of our common stock, reducing our shares outstanding by approximately 6.1 million shares, or 7%.
We issued €250 million of 4½% euro-denominated Senior Notes due 2025, the proceeds of which were used to redeem all €175 million of our outstanding 6% euro-denominated Senior Notes due 2021 and a portion of our Floating Rate Senior Notes due 2017.
We increased our Floating Rate Term Loan due 2022 to $1.1 billion and reduced the loan interest rate to three-month LIBOR plus 2.00%. The incremental proceeds were used to redeem our outstanding Floating Rate Term Loan due 2019 and the remaining portion of our outstanding Floating Rate Senior Notes due 2017.
On December 22, 2017, the U.S. enacted Public Law 115-97, commonly referred to as the U.S. Tax Reform Act (the “Tax Act”). The Tax Act makes broad and complex changes to U.S. corporate tax laws, including, but not limited to, (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on cumulative earnings of foreign subsidiaries; (iii) repealing the like-kind exchange provisions for personal property; (iv) full capital expensing of qualified property for five years through 2022; (v) requiring a current inclusion in U.S. federal taxable income of certain earnings of foreign subsidiaries; (vi) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (vii) creating a new limitation on deductible interest expense; and (viii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
We expect our 2018 provision for income taxes to be primarily impacted by the reduced U.S. corporate tax rate, the inclusion in the U.S. tax base of certain foreign subsidiary earnings and the limitations on the deductibility of certain business expenses. While we are still evaluating the impact of these changes, certain of these changes could have a material impact on our financial condition or results of operations.
 RESULTS OF OPERATIONS

We measure performance principally using the following key operating statistics: (i) rental days, which represent the total number of days (or portion thereof) a vehicle was rented, (ii) time & mileage revenue per rental day, which represents the average daily revenue we earned from rental time & mileage fees charged to our customers, both of which exclude our U.S. truck rental and Zipcar car sharing operations and (iii) per-unit fleet costs, which represent vehicle depreciation, lease charges and gain or loss on vehicle sales, divided by average rental fleet and exclude our U.S. truck rental operations. We also measure our ancillary revenues (rental-transaction revenue other than time & mileage revenue), such as from the sale of collision and loss damage waivers, insurance products, fuel service options and rental of other supplemental products. Our rental days and time & mileage revenue per rental day vehicle rental operating statistics are all calculated based on the actual rental of the vehicle during a 24-hour period. We believe that this methodology provides us with the most relevant statistics in order to manage the business. Our calculation may not be comparable to other companies’ calculation of similarly-titled statistics. We present currency exchange rate effects to provide a method of assessing how our business performed excluding the effects of foreign currency rate fluctuations. Currency exchange rate effects are calculated by translating the current-year results at the prior-period average exchange rate plus any related gains and losses on currency hedges.


45


We assess performance and allocate resources based upon the separate financial information of our operating segments. In identifying our reportable segments, we also consider the nature of services provided by our operating segments, the geographical areas in which our segments operate and other relevant factors. Management evaluates the operating results of each of our reportable segments based upon revenue and “Adjusted EBITDA,” which we define as income 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 and income taxes. Net charges for unprecedented personal-injury legal matters are recorded within operating expenses in our consolidated results of operations. We have revised our definition of Adjusted EBITDA to exclude costs associated with the separation of certain officers of the Company and our limited voluntary opportunity plans, which offered certain employees the limited opportunity to elect resignation from employment for enhanced severance benefits. Costs associated with the separation of certain officers and the limited voluntary opportunity plans are recorded as part of restructuring and other related charges in our consolidated results of operations. We did not revise prior years’ Adjusted EBITDA amounts because there were no costs similar in nature to these costs. We believe Adjusted EBITDA is useful as a supplemental measure in evaluating the performance of our operating businesses and in comparing our results from period to period. We also believe that Adjusted EBITDA is useful to investors because it allows investors to assess our results of operations and financial condition on the same basis that management uses internally. Adjusted EBITDA is a non-GAAP measure and should not be considered in isolation or as a substitute for net income or other income statement data prepared in accordance with U.S. GAAP. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

Year Ended December 31, 2017 vs. Year Ended December 31, 2016

Our consolidated results of operations comprised the following:
 
 
 
 
Year Ended 
 December 31,
 
$ Change Favorable /(Unfavorable)
 
 
 
 
 
 
2017
 
2016
 
 
% Change
Revenues
 
 
 
 
 
 
 
 
Vehicle rental
$
6,219

 
$
6,081

 
$
138

 
2
%
 
Other
2,629

 
2,578

 
51

 
2
%
Net revenues
8,848

 
8,659

 
189

 
2
%
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
Operating
4,472

 
4,382

 
(90
)
 
(2
%)
 
Vehicle depreciation and lease charges, net
2,221

 
2,047

 
(174
)
 
(9
%)
 
Selling, general and administrative
1,120

 
1,134

 
14

 
1
%
 
Vehicle interest, net
286

 
284

 
(2
)
 
(1
%)
 
Non-vehicle related depreciation and amortization
259

 
253

 
(6
)
 
(2
%)
 
Interest expense related to corporate debt, net:
 
 
 
 


 
 
 
 
Interest expense
188

 
203

 
15

 
7
%
 
 
Early extinguishment of debt
3

 
27

 
24

 
89
%
 
Restructuring and other related charges
63

 
29

 
(34
)
 
*

 
Transaction-related costs, net
23

 
21

 
(2
)
 
(10
%)
 
Impairment
2

 

 
(2
)
 
*

Total expenses
8,637

 
8,380

 
(257
)
 
(3
%)
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
211

 
279

 
(68
)
 
(24
%)
Provision for (benefit from) income taxes
(150
)
 
116

 
266

 
*

 
 
 
 
 
 
 
 
Net income
$
361

 
$
163

 
$
198

 
*

__________
*
Not meaningful.

During 2017, our revenues increased as a result of a 5% increase in rental volumes, partially offset by a 1% decrease in time & mileage revenue per day. Currency exchange rate movements increased revenues by $58 million.


46


Total expenses increased as a result of higher rental volumes, a 4% increase in per-unit fleet costs (including a 1% negative impact from currency exchange rate movements) and increased restructuring and other related charges, partially offset by cost mitigating actions. Currency movements increased expenses by $25 million year-over-year. Our effective tax rates were a benefit of 71% and a provision of 42% in 2017 and 2016, respectively, which in 2017 included a $213 million provisional income tax benefit related to the impact of the Tax Act. This net benefit primarily consists of a benefit of $317 million from the revaluation of net deferred tax liabilities as a result of the corporate income tax rate reduction and a provisional expense of $104 million for the one-time transition tax on cumulative foreign earnings. As a result of these items, our net income increased by $198 million.

For 2017, the Company reported earnings of $4.25 per diluted share, which includes after-tax restructuring and other related charges of ($0.48) per share, after-tax transaction-related costs of ($0.23) per share, after-tax debt extinguishment costs of ($0.02) per share, an after-tax impairment charge of ($0.01) per share and after-tax reversal of charges for legal matter of $0.10 per share and a net tax benefit from the impact of the Tax Act of $2.51 per share. For 2016, the Company reported earnings of $1.75 per diluted share, which includes after-tax restructuring and other related charges of ($0.23) per share, after-tax debt extinguishment costs of ($0.18) per share, after-tax charges for legal matter of ($0.17) per share and after-tax transaction-related costs, net, of ($0.17) per share.

In the year ended December 31, 2017:

Operating expenses were 50.5% of revenue compared to 50.6% in the prior year.

Vehicle depreciation and lease charges increased to 25.1% of revenue from 23.6% in 2016, primarily due to higher per-unit fleet costs and lower time & mileage revenue per day, partially offset by higher utilization.

Selling, general and administrative costs decreased to 12.7% of revenue compared to 13.1% in 2016, primarily due to cost mitigating actions, partially offset by higher marketing commissions.

Vehicle interest costs were 3.2% of revenue compared to 3.3% in the prior year.
Following is a more detailed discussion of the results of each of our reportable segments:
 
 
 
 
2017
 
2016
 
 
 
 
Revenues
 
Adjusted EBITDA
 
Revenues
 
Adjusted EBITDA
Americas
$
6,100

 
$
486

 
$
6,121

 
$
633

International
2,748

 
305

 
2,538

 
273

Corporate and Other (a)

 
(56
)
 

 
(68
)
 
Total Company
$
8,848

 
$
735

 
$
8,659

 
$
838

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of Net income to Adjusted EBITDA
 
 
 
 
 
 
 
 
2017
 
2016
Net income
 
$
361

 
$
163

Provision for (benefit from) income taxes
 
(150
)
 
116

Income before income taxes
 
211

 
279

 
 
 
 
 
 
Add:
Non-vehicle related depreciation and amortization
 
259

 
253

 
 
Interest expense related to corporate debt, net:
 
 
 
 
 
 
Interest expense
 
188

 
203

 
 
Early extinguishment of debt
 
3

 
27

 
 
Restructuring and other related charges (b)
 
63

 
29

 
 
Transaction-related costs, net (c)
 
23

 
21

 
 
Impairment (d)
 
2

 

 
 
Charges for legal matter, net (e)
 
(14
)
 
26

Adjusted EBITDA
 
$
735

 
$
838

__________
(a) 
Includes unallocated corporate overhead which is not attributable to a particular segment.

47


(b) 
Other related charges include costs associated with the separation of certain officers of the Company and our limited voluntary opportunity plans.
(c) 
Primarily comprised of acquisition- and integration-related expenses.
(d) 
Impairment charge is related to our Zipcar trademark.
(e) 
Reported within operating expenses in our consolidated results of operations.

Americas
 
 
2017
 
2016
 
% Change
Revenue
 
$
6,100

 
$
6,121

 
%
Adjusted EBITDA
 
486

 
633

 
(23
%)
Revenues decreased in 2017 compared with 2016, primarily due to a 1% reduction in time & mileage revenue per day, partially offset by 2% growth in rental volumes. Currency movements increased revenues by $9 million year-over-year.

Adjusted EBITDA decreased 23% in 2017 compared with 2016, due a 6% increase in per-unit fleet costs, lower revenues and higher marketing commissions, partially offset by cost mitigating actions and higher utilization.

In the year ended December 31, 2017:

Operating expenses decreased to 49.4% of revenue compared to 49.6% in 2016.

Vehicle depreciation and lease charges increased to 27.4% of revenue from 25.5% in 2016, primarily due to higher per-unit fleet costs, partially offset by higher utilization.

Selling, general and administrative costs, at 11.3% of revenue, remained level with the prior year.

Vehicle interest costs, at 3.7% of revenue, remained level with the prior year.
International
 
 
2017
 
2016
 
% Change
Revenue
 
$
2,748

 
$
2,538

 
8
%
Adjusted EBITDA
 
305

 
273

 
12
%
Revenues increased 8% during 2017 compared with 2016, primarily due to a 12% increase in rental volumes, including a 7% benefit from FranceCars which was acquired in December 2016, partially offset by a 2% reduction in time & mileage revenue per day (including a 1% favorable effect from currency movements). Currency movements increased revenues by $49 million.
Adjusted EBITDA increased 12% in 2017 compared with 2016, due to increased revenues and cost mitigating actions, partially offset by higher marketing commissions. Currency movements increased Adjusted EBITDA by $24 million.

In the year ended December 31, 2017:

Operating expenses were 52.7% of revenue compared to 52.6% in 2016.

Vehicle depreciation and lease charges increased to 20.0% of revenue from 19.2% in the prior year, primarily due to lower time & mileage revenue per day.

Selling, general and administrative costs were reduced to 14.1% of revenue from 15.1% in the prior year, primarily due to increased revenues and cost mitigating actions, partially offset by higher marketing commissions.

Vehicle interest costs were 2.2% of revenue compared to 2.3% in the prior year.

48



Corporate and Other
 
 
2017
 
2016
 
% Change
Revenue
 
$

 
$

 
*
Adjusted EBITDA
 
(56
)
 
(68
)
 
*
__________
*
Not meaningful

Adjusted EBITDA increased $12 million in 2017 compared with 2016, primarily due to lower selling, general and administrative expenses which are not attributable to a particular segment.
Year Ended December 31, 2016 vs. Year Ended December 31, 2015

Our consolidated results of operations comprised the following: 
 
 
 
 
Year Ended 
 December 31,
 
$ Change Favorable /(Unfavorable)
 
 
 
 
 
 
2016
 
2015
 
 
% Change
Revenues
 
 
 
 
 
 
 
 
Vehicle rental
$
6,081

 
$
6,026

 
$
55

 
1
%
 
Other
2,578

 
2,476

 
102

 
4
%
Net revenues
8,659

 
8,502

 
157

 
2
%
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
Operating
4,382

 
4,284

 
(98
)
 
(2
%)
 
Vehicle depreciation and lease charges, net
2,047

 
1,933

 
(114
)
 
(6
%)
 
Selling, general and administrative
1,134

 
1,093

 
(41
)
 
(4
%)
 
Vehicle interest, net
284

 
289

 
5

 
2
%
 
Non-vehicle related depreciation and amortization
253

 
218

 
(35
)
 
(16
%)
 
Interest expense related to corporate debt, net:
 
 
 
 
 
 
 
 
 
Interest expense
203

 
194

 
(9
)
 
(5
%)
 
 
Early extinguishment of debt
27

 
23

 
(4
)
 
(17
%)
 
Restructuring and other related charges
29

 
18

 
(11
)
 
(61
%)
 
Transaction-related costs, net
21

 
68

 
47

 
69
%
Total expenses
8,380

 
8,120

 
(260
)
 
(3
%)
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
279

 
382

 
(103
)
 
(27
%)
Provision for income taxes
116

 
69

 
(47
)
 
(68
%)
 
 
 
 
 
 
 
 
Net income
$
163

 
$
313

 
$
(150
)
 
(48
%)

During 2016, our revenues increased as a result of a 3% increase in rental volumes, partially offset by a 2% decrease in time & mileage revenue per day (including a $36 million (1%) negative impact from currency exchange rate movements).

Total expenses increased as a result of increased volumes, increased marketing costs and commissions, a 3% increase in per-unit fleet costs and a $26 million charge for a legal matter. These increases were partially offset by an approximately $43 million (1%) favorable impact on expenses from currency exchange rate movements. Our effective tax rates were a provision of 42% and 18% in 2016 and 2015, respectively, which in 2015 included a $98 million income tax benefit related to the resolution of a prior-year tax matter. As a result of these items, our net income decreased by $150 million.

For 2016, the Company reported earnings of $1.75 per diluted share, which includes after-tax restructuring and other related charges of ($0.23) per share, after-tax debt extinguishment costs of ($0.18) per share, after-tax charges for legal matter of ($0.17) per share and after-tax transaction-related costs, net, of ($0.17) per share. For 2015, the Company reported earnings of $2.98 per diluted share, which includes after-tax transaction-related costs, net, of ($0.52) per share, after-tax debt extinguishment costs of ($0.13) per share, after-tax restructuring

49


and other related charges of ($0.12) per share and an income tax benefit related to resolution of prior-year tax matter of $0.93 per share. 

In the year ended December 31, 2016:

Operating expenses increased to 50.6% of revenue compared to 50.4% in the prior year.

Vehicle depreciation and lease charges increased to 23.6% of revenue from 22.7% in 2015, due to higher per-unit fleet costs and lower time & mileage revenue per day.

Selling, general and administrative costs were 13.1% of revenue compared to 12.9% in 2015.

Vehicle interest costs were 3.3% of revenue compared to 3.4% in the prior year.
Following is a more detailed discussion of the results of each of our reportable segments:
 
 
 
 
2016
 
2015
 
 
 
 
Revenues
 
Adjusted EBITDA
 
Revenues
 
Adjusted EBITDA
Americas
$
6,121

 
$
633

 
$
6,069

 
$
682

International
2,538

 
273

 
2,433

 
277

Corporate and Other (a)

 
(68
)
 

 
(56
)
 
Total Company
$
8,659

 
$
838

 
$
8,502

 
$
903

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of Net income to Adjusted EBITDA
 
 
 
 
 
 
 
 
2016
 
2015
Net income
 
$
163

 
$
313

Provision for income taxes
 
116

 
69

Income before income taxes
 
279

 
382

 
 
 
 
 
 
Add:
Non-vehicle related depreciation and amortization (b)
 
253

 
218

 
 
Interest expense related to corporate debt, net:
 
 
 
 
 
 
Interest expense
 
203

 
194

 
 
Early extinguishment of debt
 
27

 
23

 
 
Restructuring and other related charges
 
29

 
18

 
 
Transaction-related costs, net (c)
 
21

 
68

 
 
Charges for legal matter, net (d)
 
26

 

Adjusted EBITDA
 
$
838

 
$
903

__________
(a) 
Includes unallocated corporate overhead which is not attributable to a particular segment.
(b) 
Amortization of acquisition-related intangible assets increased to $59 million in 2016 from $55 million in 2015.
(c) 
Primarily comprised of acquisition- and integration-related expenses.
(d) 
Reported within operating expenses in our consolidated results of operations.
Americas
 
 
2016
 
2015
 
% Change
Revenue
 
$
6,121

 
$
6,069

 
1
%
Adjusted EBITDA
 
633

 
682

 
(7
%)
Revenues increased 1% in 2016 compared with 2015, primarily due to 1% growth in rental volumes, partially offset by a $15 million negative impact from currency exchange rate movements. Time & mileage revenue per day was essentially unchanged year-over-year.

Adjusted EBITDA decreased 7% in 2016 compared with 2015, primarily due to a 5% increase in per-unit fleet costs and a $5 million (1%) negative impact from currency exchange rate changes, partially offset by increased rental volumes.


50


In the year ended December 31, 2016:

Operating expenses increased to 49.6% of revenue compared to 49.3% in 2015.

Vehicle depreciation and lease charges increased to 25.5% of revenue from 24.3% in 2015, principally due to higher per-unit fleet costs.

Selling, general and administrative costs were 11.3% of revenue compared to 11.2% in the prior year.

Vehicle interest costs were 3.7% of revenue compared to 3.9% in the prior year.
International
 
 
2016
 
2015
 
% Change
Revenue
 
$
2,538

 
$
2,433

 
4
%
Adjusted EBITDA
 
273

 
277

 
(1
%)
Revenues increased 4% during 2016 compared with 2015, primarily due to an 8% increase in rental volumes, partially offset by a 5% decrease in time & mileage revenue per day (including a 2% negative impact from currency exchange rate changes). Currency movements negatively impacted revenues by $46 million (2%) year-over-year.

Adjusted EBITDA declined 1% in 2016 compared with 2015, due to lower time & mileage revenue per day, a $23 million (8%) negative impact from currency exchange rate changes and increased marketing costs and commissions, partially offset by an increase in rental volumes.

In the year ended December 31, 2016:

Operating expenses were 52.6% of revenue compared to 52.7% in 2015.

Vehicle depreciation and lease charges increased to 19.2% of revenue from 18.7% in the prior year, primarily due to lower time & mileage revenue per day, partially offset by a 1% decrease in per-unit fleet costs (including a 2% favorable impact from currency exchange rate changes).

Selling, general and administrative costs were 15.1% of revenue compared to 14.9% in the prior year.

Vehicle interest costs were 2.3% of revenue compared to 2.2% in the prior year.
Corporate and Other
 
 
2016
 
2015
 
% Change
Revenue
 
$

 
$

 
*
Adjusted EBITDA
 
(68
)
 
(56
)
 
*
__________
*
Not meaningful

Adjusted EBITDA decreased $12 million in 2016 compared with 2015, primarily due to higher selling, general and administrative expenses which are not attributable to a particular segment.

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

51


the source of repayment of such debt is the realization of such assets.
FINANCIAL CONDITION
 
As of December 31,
 
 
 
2017
 
2016
 
Change
Total assets exclusive of assets under vehicle programs
$
5,820

 
$
6,065

 
$
(245
)
Total liabilities exclusive of liabilities under vehicle programs
5,935

 
5,775

 
160

Assets under vehicle programs
11,879

 
11,578

 
301

Liabilities under vehicle programs
11,191

 
11,647

 
(456
)
Stockholders’ equity
573

 
221

 
352


Total assets exclusive of assets under vehicle programs decreased 4% compared to 2016 primarily due to a decrease in deferred income taxes associated with the Tax Act partially offset by an increase in cash and accounts receivable related to timing. See Note 8 to our Consolidated Financial Statements for details regarding the Tax Act. Total liabilities exclusive of liabilities under vehicle programs increased 3% compared to 2016 primarily due to an increase in other current liabilities. See Note 11 to our Consolidated Financial Statements for detail of our other current liabilities.

Assets under vehicle programs increased 3% compared to 2016. Liabilities under vehicle programs decreased 4% compared to 2016 due to a decrease in deferred income taxes associated with the Tax Act partially offset by increased investment in our fleet. See Note 8 to our Consolidated Financial Statements for details regarding the Tax Act. See Note 13 to our Consolidated Financial Statements for the changes in our vehicle financing. The increase in stockholders’ equity is primarily due to our net income.

LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of liquidity are cash on hand and our ability to generate cash through operations and financing activities, as well as available funding arrangements and committed credit facilities, each of which is discussed below.

During 2017, we issued €250 million of 4½% euro-denominated Senior Notes due 2025 at par. The proceeds from this borrowing were used to redeem all of our outstanding 6% euro-denominated Senior Notes due 2021 and a portion of our Floating Rate Senior Notes due 2017. We also increased our Floating Rate Term Loan borrowing by $188 million, these proceeds were used to repay the remainder of our outstanding Floating Rate Senior Notes due 2017. In addition, our Avis Budget Rental Car Funding subsidiary issued approximately $600 million in asset-backed notes with an expected final payment date of September 2022 and $500 million in asset-backed notes with an expected final payment date of December 2022. These borrowings had a weighted average interest rate of 3%. The proceeds from these borrowings were used to fund the repayment of maturing vehicle-backed debt and the acquisition of rental cars in the U.S. We also increased our capacity under our European rental fleet securitization program by €250 million, the proceeds of which were used to finance fleet purchases for certain of our European operations. In addition, we repurchased approximately 6.1 million shares of our outstanding common stock for approximately $200 million during 2017.

52


Cash Flows
Year Ended December 31, 2017 vs. Year Ended December 31, 2016
The following table summarizes our cash flows:
 
Year Ended December 31,
 
 
 
2017
 
2016 (a)
 
Change
Cash provided by (used in):
 
 
 
 
 
Operating activities
$
2,648

 
$
2,640

 
$
8

Investing activities
(2,204
)
 
(2,182
)
 
(22
)
Financing activities
(308
)
 
(449
)
 
141

Effects of exchange rate changes
45

 
(6
)
 
51

Net change in cash and cash equivalents, program and restricted cash
181

 
3

 
178

Cash and cash equivalents, program and restricted cash, beginning of period
720

 
717

 
3

Cash and cash equivalents, program and restricted cash, end of period
$
901

 
$
720

 
$
181

__________
(a) 
See Note 2 to our Consolidated Financial Statements for the impact of adoption of ASU 2016-18 and ASU 2016-09.

Cash provided by operating activities during 2017 was substantially unchanged compared with 2016.

Cash used in investing activities during 2017 was substantially unchanged compared with 2016.

The decrease in cash used in financing activities during 2017 compared with 2016 primarily reflects a decrease in our repurchases of common stock.
We anticipate that our non-vehicle property and equipment additions will be approximately $225 million in 2018. As of December 31, 2017, we had approximately $100 million of authorized share repurchase capacity. We currently anticipate that we will utilize most of such capacity to repurchase common stock in 2018.
Year Ended December 31, 2016 vs. Year Ended December 31, 2015
The following table summarizes our cash flows:
 
Year Ended December 31,
 
 
 
2016 (a)
 
2015 (a)
 
Change
Cash provided by (used in):
 
 
 
 
 
Operating activities
$
2,640

 
$
2,627

 
$
13

Investing activities
(2,182
)
 
(2,685
)
 
503

Financing activities
(449
)
 
72

 
(521
)
Effects of exchange rate changes
(6
)
 
(50
)
 
44

Net change in cash and cash equivalents, program and restricted cash
3

 
(36
)
 
39

Cash and cash equivalents, program and restricted cash, beginning of period
717

 
753

 
(36
)
Cash and cash equivalents, program and restricted cash, end of period
$
720

 
$
717

 
$
3

__________
(a) 
See Note 2 to our Consolidated Financial Statements for the impact of adoption of ASU 2016-18 and ASU 2016-09.

Cash provided by operating activities during 2016 was substantially unchanged compared with 2015.


53


The decrease in cash used in investing activities during 2016 compared with 2015 is primarily due to a net decrease in investment in vehicles and reduced business acquisition activity.

The increase in cash used in financing activities during 2016 compared with 2015 is primarily due to an increase in net payments under vehicle programs.

Debt and Financing Arrangements
At December 31, 2017, we had approximately $12.8 billion of indebtedness (including corporate indebtedness of approximately $3.6 billion and debt under vehicle programs of approximately $9.2 billion). For detailed information regarding our debt and borrowing arrangements, see Notes 12 and 13 to our Consolidated Financial Statements.
 LIQUIDITY RISK
Our primary liquidity needs include the procurement of rental vehicles to be used in our operations, servicing of corporate and vehicle-related debt and the payment of operating expenses. Our primary sources of funding are operating revenue, cash received upon the sale of vehicles, borrowings under our vehicle-backed borrowing arrangements and our senior revolving credit facility, and other financing activities.
As a result of the Tax Act, we are subject to a one-time transition tax on cumulative earnings of foreign subsidiaries. We recorded a provisional charge for the one-time transition tax of $104 million in the fourth quarter of 2017. The Tax Act provides companies the ability to offset the one-time transition tax with available tax attributes or elect to pay the tax over an eight year period. Although the Tax Act generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries effective for years beginning January 1, 2018, we continue to evaluate the expected manner of recovery to determine whether or not to continue to assert indefinite reinvestment on a part or all of our undistributed foreign earnings. This requires us to analyze our global working capital and cash requirements in light of the Tax Act and the potential tax liabilities attributable to a repatriation to the U.S., such as foreign withholding taxes and U.S. tax on currency transaction gains or losses. We did not provide for U.S. taxes related to our undistributed earnings of approximately $1.3 billion as of December 31, 2017. We will record the tax effects of any change in our assertion in the period that the analysis is complete.
As discussed above, as of December 31, 2017, we have cash and cash equivalents of $0.6 billion, available borrowing capacity under our committed credit facilities of $1.0 billion, and available capacity under our vehicle programs of approximately $4.1 billion.
Our liquidity position could be negatively affected by financial market disruptions or a downturn in the U.S. and worldwide economies, which may result in unfavorable conditions in the mobility industry, in the asset-backed financing market and in the credit markets, generally. We believe these factors have in the past affected and could in the future affect the debt ratings assigned to us by credit rating agencies and the cost of our borrowings. Additionally, a downturn in the worldwide economy or a disruption in the credit markets could impact our liquidity due to (i) decreased demand and pricing for vehicles in the used vehicle market, (ii) increased costs associated with, and/or reduced capacity or increased collateral needs under, our financings, (iii) the adverse impact of vehicle manufacturers being unable or unwilling to honor their obligations to repurchase or guarantee the depreciation on the related program vehicles and (iv) disruption in our ability to obtain financing due to negative credit events specific to us or affecting the overall debt market (see Item 1A. Risk Factors for further discussion).
Our liquidity position could also be negatively impacted if we are unable to remain in compliance with the financial and other covenants associated with our senior revolving credit facility and other borrowings, including a maximum leverage ratio. As of December 31, 2017, we were in compliance with the financial covenants governing our indebtedness.

54


CONTRACTUAL OBLIGATIONS
The following table summarizes our principal future contractual obligations as of December 31, 2017:
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Corporate debt
$
26

 
$
20

 
$
16

 
$
14

 
$
1,493

 
$
2,076

 
$
3,645

Debt under vehicle
programs
1,886

 
3,170

 
1,868

 
1,019

 
883