The following discussion should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes included in this Quarterly Report on Form 10-Q, and with our 2021 Form 10-K. Our actual results of operations may differ materially from those discussed in forward-looking statements as a result of various factors, including those discussed in "Forward-Looking Statements". See "Forward-Looking Statements" and "Risk Factors" for additional information. Unless otherwise noted, all dollar amounts in tables are in millions. OVERVIEW Our Company We operate three of the most globally recognized brands in mobility solutions,Avis, Budget and Zipcar, together with several other brands well recognized in their respective markets. We are a leading vehicle rental operator inNorth America ,Europe ,Australasia and certain other regions we serve, with an average rental fleet of over 668,000 vehicles in second quarter 2022. 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 , consisting primarily of our vehicle rental operations inNorth America ,South America ,Central America and theCaribbean , car sharing operations in certain of these markets, and licensees in certain areas in which we do not operate directly; and International, consisting primarily of our vehicle rental operations inEurope , theMiddle East ,Africa ,Asia andAustralasia , car sharing operations in certain of these markets, and licensees in certain areas in which we do not operate directly. Business and Trends Over the past year, we have seen a number of encouraging developments, such as a significant increase in global travel demand, which generated an increase in demand for rental vehicles and improved pricing across the industry, suggesting a steady return to historic seasonal travel trends. Our strategy continues to focus on cost optimization, core revenue growth and capital investments aimed to allow us to maximize our infrastructure to capitalize on what we believe will be continued travel demand. During the quarter endedJune 30, 2022 , we generated revenues of$3.2 billion , net income of$774 million and Adjusted EBITDA of$1.2 billion . These results were driven by increased demand for rental vehicles, improved pricing across the industry, disciplined cost management and continued fleet management. The full extent of the ongoing impact of the COVID-19 pandemic on our long-term operational and financial performance will depend on future developments, including those outside of our control, such as the spread of new variants of the virus and the implementation of new or continued travel restrictions and the overall economic environment. These variants could cause prolonged impacts on the economy, our industry and on us, with reductions in available staffing and increasing inflation, among other impacts. We will continue to monitor these and other impacts and take action in connection with it, by leveraging our technology and reviewing cost mitigating actions, among other actions. Significant events affecting travel have historically had an impact on vehicle rental volumes, with the full extent of the impact generally determined by the length of time the event influences travel decisions. As a consequence, we cannot estimate the impact on our business, financial condition or forecast financial or operational results with reasonable certainty. The global semiconductor shortage is impacting fleet supply, resulting in tighter fleets throughout the industry and causing us to hold cars longer compared to periods prior to the COVID-19 pandemic. We have historically navigated through significant vehicle recalls and worked with our vehicle manufacturers, and believe we have the logistics in place to effectively manage our fleet during this disruption in supply. We continue to purchase vehicles and believe we can increase our fleet utilization efficiency to capture increased demand. 28 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS We measure performance principally using the following key metrics: (i) rental days, which represent the total number of days (or portion thereof) a vehicle was rented, (ii) revenue per day, which represents revenues divided by rental days, (iii) vehicle utilization, which represents rental days divided by available rental days, with available rental days defined as average rental fleet times the number of days in the period, and (iv) per-unit fleet costs, which represent vehicle depreciation, lease charges and gain or loss on vehicle sales, divided by average rental fleet. Our rental days, revenue per day and vehicle utilization metrics are all calculated based on the actual rental of the vehicle during a 24-hour period. We believe that this methodology provides management with the most relevant metrics in order to effectively manage the performance of the business. Our calculation may not be comparable to the calculation of similarly-titled metrics by other companies. 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. 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 revenues 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 and other legal matters, net, which includes amounts recorded in excess of$5 million related to class action lawsuits, non-operational charges related to shareholder activist activity, which include third party advisory, legal and other professional fees, COVID-19 charges, net and income taxes. Net charges for unprecedented personal-injury and other legal matters are recorded within operating expenses in our consolidated results of operations. Non-operational charges related to shareholder activist activity include third party advisory, legal and other professional service fees and are recorded within selling, general and administrative expenses in our consolidated results of operations. COVID-19 charges include unusual, direct and incremental costs due to the COVID-19 pandemic, such as minimum annual guaranteed rent in excess of concession fees for the period, overflow parking for idle vehicles and related shuttling costs, incremental cleaning supplies to sanitize vehicles and facilities and other charges, and losses associated with vehicles damaged in overflow parking lots, net of insurance proceeds, and are primarily recorded within operating expenses in our consolidated results of operations. 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 them 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 withU.S. GAAP. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.
During the six months ended
•Our revenues totaled$5.7 billion , an increase of 52% compared to the similar period in 2021, primarily due to increased demand for rental vehicles and a significant increase in pricing. The significant increase in revenues was a direct result of the global effort to combat the incidence and spread of the COVID-19 virus, which led to a significant increase in global travel demand, suggesting a steady return to historic travel levels.
•Our net income was
•Our Adjusted EBITDA was$2.0 billion , representing a significant increase of$1.3 billion year-over-year, primarily due to significantly higher revenues and disciplined cost management.
•We have redeemed about
29 --------------------------------------------------------------------------------
Three months ended
Our consolidated combined operating results were as follows:
Three Months Ended June 30,
2022 2021 $ Change % Change
Revenues $ 3,244 $ 2,371 $ 873 37 %
Expenses
Operating 1,349 1,032 317 31 %
Vehicle depreciation and lease charges, net 234 338 (104) (31 %)
Selling, general and administrative 359 294 65 22 %
Vehicle interest, net 97 77 20 26 %
Non-vehicle related depreciation and amortization 51 62 (11) (18 %)
Interest expense related to corporate debt, net:
Interest expense 64 59 5 8 %
Restructuring and other related charges 6 22 (16) (73 %)
Transaction-related costs, net 1 1 - 0 %
Total expenses 2,161 1,885 276 15 %
Income before income taxes 1,083 486 597
n/m
Provision for income taxes 309 88 221 n/m Net income 774 398 376 94 % Less: net loss attributable to non-controlling interests (4) - (4)
n/m
Net income attributable to Avis Budget Group, Inc.$ 778 $ 398 $ 380 95 % ___________ n/m - Not Meaningful Revenues increased$873 million , or 37%, during the three months endedJune 30, 2022 compared to the similar period in 2021, primarily due to a 29% increase in volume as the mobility industry recovers from the pandemic and a 9% increase in revenue per day, excluding exchange rate effects, partially offset by a$86 million negative impact from currency exchange rate movements. Total expenses increased 15% during the three months endedJune 30, 2022 , compared to the similar period in 2021, primarily due to increased demand, partially offset by cost discipline as volume returned. Our effective tax rates were a provision of 28.5% and 18.1% for the three months endedJune 30, 2022 and 2021, respectively. As a result of these items, our net income increased by$376 million compared to the similar period in 2021. For the three months endedJune 30, 2022 and 2021, we reported earnings per diluted share of$15.71 and$5.63 , respectively. Operating expenses decreased to 41.6% of revenue during the three months endedJune 30, 2022 compared to 43.5% during the similar period in 2021, primarily due to the increased revenues and cost discipline as volume returned. Vehicle depreciation and lease charges decreased to 7.2% of revenue during the three months endedJune 30, 2022 compared to 14.3% during the similar period in 2021, primarily due to increased revenues and a 44% lower per unit fleet cost, excluding exchange rate effects, driven by the continued favorable trend in the used-vehicle market. Selling, general and administrative costs decreased to 11.1% of revenue during the three months endedJune 30, 2022 compared to 12.4% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle interest costs were 3.0% of revenue during the three months endedJune 30, 2022 , which is consistent with 3.2% during the similar period in 2021. 30 --------------------------------------------------------------------------------
The following is a more detailed discussion of the results of each of our reportable segments and the reconciliation of net income to Adjusted EBITDA:
Three Months Ended June 30,
2022 2021
Revenues Adjusted EBITDA Revenues Adjusted EBITDA
Americas $ 2,567 $ 1,041 $ 1,974 $ 634
International 677 183 397 8
Corporate and Other (a) - (19) - (18)
Total Company $ 3,244 $ 1,205 $ 2,371 $ 624
Reconciliation to Adjusted EBITDA
2022 2021
Net income $ 774 $ 398
Provision for income taxes 309 88
Income before income taxes 1,083 486
Add: Non-vehicle related depreciation and amortization (b) 53 67
Interest expense related to corporate debt, net:
Interest expense 64 59
Restructuring and other related charges 6 22
Unprecedented personal-injury and other legal matters, net (c) - (11)
Transaction-related costs, net 1 1
COVID-19 charges (d) (2) -
Adjusted EBITDA $ 1,205 $ 624
(a) Includes unallocated corporate overheads not attributable to a specific segment.
(b) For the past three months
(c) Reported as operating expenses in our consolidated summarized operating results.
(d)The following table presents the unusual, direct and incremental costs due to
the COVID-19 pandemic:
2022 2021
Minimum annual guaranteed rent in excess of concession fees, net $ (2) $ (3)
Vehicles damaged in overflow parking lots, net of insurance proceeds - 2
Other charges - 1
Operating expenses (2) -
COVID-19 charges, net $ (2) $ -
Americas
Three Months Ended June 30,
2022 2021 % Change
Revenues $ 2,567 $ 1,974 30 %
Adjusted EBITDA 1,041 634 64 %
Revenues increased 30% during the three months ended June 30, 2022 compared to
the similar period in 2021, primarily due to a 28% increase in volume and a 2%
increase in revenue per day.
Operating expenses increased to 41.6% of revenue during the three months ended
June 30, 2022 compared to 40.9% during the similar period in 2021, primarily due
to higher fuel prices, partially offset by revenue. Vehicle depreciation and
lease charges decreased to 5.0% of revenue during the three months ended June
30, 2022 compared to 13.1% during the similar period in 2021, primarily due to
increased revenues and a 62% decrease in per-unit fleet costs, excluding
exchange rate effects, driven by the continued favorable trend in the
used-vehicle market. Selling, general and administrative costs decreased to 9.6%
of revenue during the three months ended June 30, 2022 compared to 10.0% during
the similar period in 2021, primarily due to increased revenues and cost
discipline as volume returned. Vehicle interest costs were 3.3% of revenue
during the three months ended June 30, 2022 consistent with 3.2% during the
similar period in 2021.
31
--------------------------------------------------------------------------------
Adjusted EBITDA was $407 million higher during the three months ended June 30,
2022 compared to the similar period in 2021, primarily due to increased
revenues, lower per-unit fleet costs and cost discipline as volume returned.
International
Three Months Ended June 30,
2022 2021 % Change
Revenues $ 677 $ 397 71 %
Adjusted EBITDA 183 8 n/m
___________
n/m - Not Meaningful
Revenues increased 71% during the three months ended June 30, 2022 , compared to
the similar period in 2021, primarily due to 44% increase in revenue per day,
excluding exchange rate effects and a 33% increase in volume, partially offset
by an $81 million negative impact from currency exchange rate movements.
Operating expenses decreased to 41.4% of revenue during the three months ended
June 30, 2022 compared to 56.4% during the similar period in 2021, primarily due
to increased revenues and cost discipline as volume returned. Vehicle
depreciation and lease charges decreased to 15.8% of revenue during the three
months ended June 30, 2022 compared to 19.9% during the similar period in 2021,
primarily due to increased revenues, partially offset by a 19% increase in
per-unit fleet costs, excluding exchange rate effects. Selling, general and
administrative costs decreased to 14.2% of revenue during the three months ended
June 30, 2022 compared to 19.2% during the similar period in 2021, primarily due
to increased revenues and cost discipline as volume returned. Vehicle interest
costs decreased to 1.7% of revenue during the three months ended June 30, 2022
compared to 3.3% during the similar period in 2021, primarily due to increased
revenues.
Adjusted EBITDA was $175 million higher in second quarter 2022 compared to the
similar period in 2021, primarily due to increased revenues and cost discipline
as volume returned, partially offset by an increase in per-unit fleet costs and
a $22 million negative impact from currency exchange rate movements.
32
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Six months ended
Our consolidated combined operating results were as follows:
Six Months Ended June 30,
2022 2021 $ Change % Change
Revenues $ 5,676 $ 3,743 $ 1,933 52 %
Expenses
Operating 2,496 1,864 632 34 %
Vehicle depreciation and lease charges, net 345 592 (247) (42 %)
Selling, general and administrative 642 476 166 35 %
Vehicle interest, net 174 152 22 14 %
Non-vehicle related depreciation and amortization 109 130 (21) (16 %)
Interest expense related to corporate debt, net:
Interest expense 117 120 (3) (3 %)
Early extinguishment of debt - 129 (129) n/m
Restructuring and other related charges 14 42 (28) (67 %)
Transaction-related costs, net 1 2 (1) (50 %)
Total expenses 3,898 3,507 391 11 %
Income before income taxes 1,778 236 1,542 n/m
Provision for income taxes 477 8 469 n/m
Net income 1,301 228 1,073
n/m
Less: net loss attributable to non-controlling interests (6) - (6)
n/m
Net income attributable to Avis Budget Group, Inc.$ 1,307 $ 228 $ 1,079 n/m ___________ n/m - Not Meaningful Revenues increased$1.9 billion , or 52%, during the six months endedJune 30, 2022 compared to the similar period in 2021, primarily due to a 36% increase in volume as the mobility industry recovers from the pandemic and a 14% increase in revenue per day, excluding exchange rate effects, partially offset by a$115 million negative impact from currency exchange rate movements. Total expenses increased 11% during the six months endedJune 30, 2022 , compared to the similar period in 2021, primarily due to increased demand, partially offset by cost discipline as volume returned. Our effective tax rates were a provision of 26.8% and 3.4% for the six months endedJune 30, 2022 and 2021, respectively. As a result of these items, our net income increased by$1.1 billion compared to the similar period in 2021. For the six months endedJune 30, 2022 and 2021, we reported earnings per diluted share of$25.14 and$3.23 , respectively. Operating expenses decreased to 44.0% of revenue during the six months endedJune 30, 2022 compared to 49.8% during the similar period in 2021, primarily due to the increased revenues and cost discipline as volume returned. Vehicle depreciation and lease charges decreased to 6.1% of revenue during the six months endedJune 30, 2022 compared to 15.8% during the similar period in 2021, primarily due to increased revenues and a 55% lower per unit fleet cost, excluding exchange rate effects, driven by the continued favorable trend in the used-vehicle market. Selling, general and administrative costs decreased to 11.3% of revenue during the six months endedJune 30, 2022 compared to 12.7% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle interest costs decreased to 3.1% of revenue during the six months endedJune 30, 2022 compared to 4.1% during the similar period in 2021, primarily due to increased revenues. 33 --------------------------------------------------------------------------------
The following is a more detailed discussion of the results of each of our reportable segments and the reconciliation of net income to Adjusted EBITDA:
Six Months Ended June 30,
2022 2021
Revenues Adjusted EBITDA Revenues Adjusted EBITDA
Americas $ 4,567 $ 1,851 $ 3,054 $ 742
International 1,109 206 689 (42)
Corporate and Other (a) - (42) - (29)
Total Company $ 5,676 $ 2,015 $ 3,743 $ 671
Reconciliation to Adjusted EBITDA
2022 2021
Net income $ 1,301 $ 228
Provision for income taxes 477 8
Income before income taxes 1,778 236
Add: Non-vehicle related depreciation and amortization (b) 113 135
Interest expense related to corporate debt, net:
Interest expense 117 120
Early extinguishment of debt - 129
Restructuring and other related charges 14 42
Unprecedented personal-injury and other legal matters, net (c) 1 (11)
Transaction-related costs, net 1 2
COVID-19 charges (d) (9) 18
Adjusted EBITDA $ 2,015 $ 671
(a)Includes unallocated corporate overhead which is not attributable to a
particular segment.
(b)For the six months ended June 30, 2022 , includes operating expenses related
to cloud computing costs of $4 million . For the six months ended June 30, 2021 ,
includes operating expenses and selling, general and administrative expenses
related to cloud computing costs of $3 million and $2 million , respectively.
(c) Reported as operating expenses in our consolidated summarized operating results.
(d)The following table presents the unusual, direct and incremental costs due to
the COVID-19 pandemic:
2022 2021
Minimum annual guaranteed rent in excess of concession fees, net $ (9) $ 16
Vehicles damaged in overflow parking lots, net of insurance proceeds - (4)
Other charges - 6
Operating expenses (9) 17
Selling, general and administrative expenses - 1
COVID-19 charges, net $ (9) $ 18
Americas
Six Months Ended June 30,
2022 2021 % Change
Revenues $ 4,567 $ 3,054 50 %
Adjusted EBITDA 1,851 742 149 %
Revenue increased by 50% in the past six months
Operating expenses decreased to 43.0% of revenue during the six months endedJune 30, 2022 compared to 46.9% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle depreciation and lease charges decreased to 3.4% of revenue during the six months endedJune 30, 2022 compared to 14.5% during the similar period in 2021, primarily due to increased revenues and a 75% decrease in per-unit fleet costs, driven by the continued favorable trend in the used-vehicle market. Selling, general and administrative costs decreased to 9.7% of revenue during the six months endedJune 30, 2022 34 -------------------------------------------------------------------------------- compared to 10.2% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle interest costs decreased to 3.3% of revenue during the six months endedJune 30, 2022 compared to 4.1% during the similar period in 2021, primarily due to increased revenues. Adjusted EBITDA was$1.1 billion higher during the six months endedJune 30, 2022 compared to the similar period in 2021, primarily due to increased revenues, lower per-unit fleet costs and cost discipline as volume returned. International Six Months Ended June 30, 2022 2021 % Change Revenues$ 1,109 $ 689 61 % Adjusted EBITDA 206 (42) 590 % Revenues increased 61% during the six months endedJune 30, 2022 , compared to the similar period in 2021, primarily due to a 37% increase in revenue per day, excluding exchange rate effects and a 30% increase in volume, partially offset by a$110 million negative impact from currency exchange rate movements. Operating expenses decreased to 47.1% of revenue during the six months endedJune 30, 2022 compared to 62.7% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle depreciation and lease charges decreased to 17.2% of revenue during the six months endedJune 30, 2022 compared to 21.6% during the similar period in 2021, primarily due to increased revenues partially offset by a 10% increase in per-unit fleet costs, excluding exchange rate effects. Selling, general and administrative costs decreased to 15.2% of revenue during the six months endedJune 30, 2022 compared to 19.1% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle interest costs decreased to 2.0% of revenue during the six months endedJune 30, 2022 compared to 3.8% during the similar period in 2021, primarily due to increased revenues. Adjusted EBITDA was$248 million higher during the six months endedJune 30, 2022 compared to the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned, offset by higher per-unit fleet costs and a$23 million negative impact from currency exchange rate movements. 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, the source of repayment of such debt is the realization of such assets.
FINANCIAL SITUATION
June 30,
2022 December 31, 2021 Change
Total assets exclusive of assets under vehicle
programs $ 8,445 $ 8,581 $ (136)
Total liabilities exclusive of liabilities
under vehicle programs 9,800 8,933 867
Assets under vehicle programs 17,650 14,019 3,631
Liabilities under vehicle programs 16,944 13,876 3,068
Stockholders' equity (649) (209) (440)
The increase in liabilities exclusive of liabilities under vehicle programs is
principally related to the increase in corporate indebtedness from the issuance
of Floating Rate Term Loan due March 2029 . See "Liquidity and Capital Resources"
and Note 10 to our Consolidated Condensed Financial Statements.
The increase in vehicle program assets and vehicle program liabilities is primarily related to the expansion of our vehicle rental fleet to meet increased rental demand.
35 --------------------------------------------------------------------------------
The decrease in equity is primarily due to our share buybacks, partially offset by overall results.
LIQUIDITY AND CAPITAL RESOURCES
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. InMarch 2022 , we entered into a$750 million Floating Rate Term Loan dueMarch 2029 , at a price of 97% of the aggregate principal amount, with interest paid monthly, which is part of our senior credit facilities. The Floating Rate Term Loan dueMarch 2029 bears interest at one-month SOFR plus 350 basis points for an aggregate rate of 5.13%. During second quarter 2022, ourAvis Budget Rental Car Funding (AESOP) LLC subsidiary issued an aggregate of approximately$870 million of asset-backed notes. We used the proceeds from these borrowings to fund the repayment of maturing vehicle-backed debt and the acquisition of rental cars inthe United States . Borrowings under the Avis Budget Rental Car Funding program primarily represent fixed rate notes. OurAvis Budget Rental Car Funding (AESOP) LLC subsidiary also entered into$800 million of variable funding asset-backed notes and as ofJune 30, 2022 , no funds were drawn on these notes. Our Board of Directors has authorized the repurchase of up to$7.1 billion of our common stock under a plan originally approved in 2013 and subsequently expanded, most recently inMay 2022 . Our stock repurchases may occur through open market purchases, privately negotiated transactions or trading plans pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements, restricted payment capacity under our debt instruments 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. During the six months endedJune 30, 2022 , we repurchased approximately 7.9 million shares of common stock at a cost of approximately$1.7 billion under the program. As ofJune 30, 2022 , approximately$2.25 billion of authorization remained available to repurchase common stock under the program. CASH FLOWS
The table below summarizes our cash flows:
Six months ended
2022 2021 Change
Cash provided by (used in):
Operating activities$ 2,371 $ 1,255 $ 1,116 Investing activities (3,870) (4,035) 165 Financing activities 1,582 3,430 (1,848)
Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash
(25) (4) (21)
Net increase in cash and cash equivalents, program and restricted cash
58 646 (588)
Cash and cash equivalents, program and earmarked cash, start of period
626 765 (139)
Cash and Cash Equivalents, Program and Restricted Cash, Period End $
684$ 1,411 $ (727)
The increase in cash provided by operations over the past six months
The decrease in cash used in investing activities over the past six months
The decrease in cash provided by financing activities during the six months endedJune 30, 2022 compared with the same period in 2021 is primarily due to the increase in repurchases of common stock and payments on vehicle borrowings, offset by a decrease in net payments on corporate borrowings. 36 --------------------------------------------------------------------------------
DEBT AND FUNDING RULES
AtJune 30, 2022 , we had approximately$19 billion of indebtedness, including corporate indebtedness of approximately$5 billion and debt under vehicle programs of approximately$14 billion . For information regarding our debt and borrowing arrangements, see Notes 1, 10 and 11 to our Consolidated Condensed 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. The present intention of management is to reinvest the undistributed earnings of our foreign subsidiaries indefinitely into our foreign operations. 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. Our liquidity position was impacted by COVID-19 as a result of significant volume declines. However, since 2021, travel advisories and restrictions were eased, which led to a significant increase in global travel demand, resulting in increased demand for rental vehicles and improved pricing across the industry. However, the full extent of the ongoing impact of this virus on our long-term operational performance and liquidity will depend on future developments, including those outside of our control, such as the spread of new variants of the virus, which may be resistant to currently approved vaccines and the implementation of new or continued travel restrictions. Our liquidity could be negatively affected by any financial market disruptions or the absence of a recovery or worsening of theU.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 affected and could further affect the debt ratings assigned to us by credit rating agencies and the cost of our borrowings. Additionally, a worsening or prolonged downturn in the worldwide economy or a disruption in the credit markets could further 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.
away
Our liquidity position could also be negatively impacted if we are unable to remain in compliance with the consolidated first lien leverage ratio requirement and other covenants associated with our senior credit facilities and other borrowings. As ofJune 30, 2022 , we were in compliance with the financial covenants governing our indebtedness. For additional information regarding our liquidity risks, see Part I, Item 1A, "Risk Factors" of our 2021 Form 10-K, as well as the "Risk Factors" section in this quarterly report.
CONTRACTUAL OBLIGATIONS
Our future contractual obligations have not changed significantly from the amounts reported within our 2021 Form 10-K with the exception of our commitment to purchase vehicles, which decreased by approximately$2.1 billion fromDecember 31, 2021 , to approximately$3.8 billion as ofJune 30, 2022 due to seasonality. Changes to our obligations related to corporate indebtedness and debt under vehicle programs are presented above within the section titled "Liquidity and Capital Resources-Debt and Financing Arrangements" and also within Notes 10 and 11 to our Consolidated Condensed Financial Statements.
ACCOUNTING POLICIES
The results of most of our recurring businesses are recorded in our financial statements using accounting principles that are not particularly subjective or complex. However, in presenting our financial statements in accordance with generally accepted accounting principles, we are required to make estimates and assumptions
37 -------------------------------------------------------------------------------- that affect the amounts reported therein. Several of the estimates and assumptions that we are required to make pertain to matters that are inherently uncertain as they relate to future events. Presented within the section titled "Critical Accounting Policies" of our 2021 Form 10-K are the accounting policies (related to goodwill and other indefinite-lived intangible assets, vehicles, income taxes and public liability, property damage and other insurance liabilities) that we believe require subjective and/or complex judgments that could potentially affect 2022 reported results. There have been no significant changes to those accounting policies or our assessment of which accounting policies we would consider to be critical accounting policies.Goodwill and Other Indefinite-lived Intangible Assets. We perform our annual goodwill and other indefinite-lived intangible assets impairment assessment in the fourth quarter of each year at the reporting unit level, or more frequently if events or circumstances indicate that the carrying amount of goodwill and other indefinite-lived intangible assets may be impaired. For ourEurope ,Middle East andAfrica ("EMEA") reporting unit, the percentage by which the estimated fair value exceeded the carrying value as ofOctober 1, 2021 was 10% and the amount of goodwill allocated to our reporting unit was$488 million . We evaluated qualitative factors and determined that an interim impairment test was not required this quarter as we believe it is more likely than not that the fair value of our goodwill and other indefinite-lived intangible assets exceeds the carrying value. We will continue to closely monitor actual results versus our expectations as well as any significant changes in events or conditions, including the impact of COVID-19 on our business and the travel industry, and the resulting impact to our assumptions about future estimated cash flows, the discount rate and market multiples. In the future, failure to achieve our business plans, a deterioration of the general economic conditions of the countries in which we operate, or significant changes in the assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets (such as the discount rate) could result in significantly different estimates of fair value that could trigger an impairment of the goodwill of our reporting units or intangible assets.
New accounting standards
See Note 1 to our Condensed Consolidated Financial Statements for detailed information on new accounting standards and their impact on our business.
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