Avis 2008 Annual Report Download - page 25

our vehicle rental revenue for each of our Domestic Car Rental, International Car Rental and Truck Rental segments and was our most profitable
quarter for each of our segments as measured by EBITDA. Any circumstance or occurrence that disrupts rental activity during the third quarter
could have a disproportionately adverse impact on our financial condition and our results of operations.
Our derivative instruments may impact our results of operations.
We utilize derivative instruments to manage a portion of our risk related to fluctuations in interest rates, gas prices and foreign exchange rates.
The derivative instruments we use are typically in the form of interest rate and commodity swaps and foreign exchange forwards. Periodically,
we are required to determine the change in fair value, called the “mark to market,” of these derivative instruments, which can result in a non-
cash
charge or gain being recognized in our financial results for a period preceding the period or periods in which settlement occurs under the
derivative instruments and, for example, interest payments are made. Changes or shifts in interest rates, gas prices and foreign exchange rates
can significantly impact the valuation of our derivatives and therefore 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, a fluctuation in such rates or prices may impact our
financial position, results of operations and cash flows. In addition, volatility in rates and prices can also impact the cost and effectiveness of our
derivative instruments in managing our risks. To the extent any of our derivatives were to result in a gain upon settlement, we would be exposed
to credit risk of the counterparties to such derivatives, which are typically financial institutions.
We are exposed to fluctuations in foreign exchange rates, which may adversely affect our results of operations.
Certain of our international operations generate revenue and incur operating costs in currencies other than the U.S. dollar, including our
operations in Australia, Canada and New Zealand. In addition, the financial position and results of operations of some 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 between these foreign currencies and the U.S. dollar will affect the recorded levels
of our assets and liabilities, to the extent such figures reflect the inclusion of foreign assets and liabilities that are translated into U.S. dollars for
presentation in our financial statements, as well as our results of operations. While we take steps to manage our currency exposure, we cannot
accurately predict the nature or extent of future exchange rate variability, which could adversely impact our results of operations and financial
position.
We may not be successful in implementing our cost-saving and efficiency improvements or other business strategies.
We expect to face a challenging operating environment in 2009, given the weakness in the economy and the disruption in the credit markets. As
a result, we announced actions designed to reduce costs and improve efficiency. Such actions include (i) reduction of operating costs, fleet costs
and other expenses; (ii) targeted pricing increases; (iii) assessment and modification or elimination of unprofitable aspects of our business; and
(iv) consolidation of certain back office and other functions. We also anticipate generating additional cost savings in 2009 through
implementation of our Performance Excellence process improvement initiative. If we are unable to achieve sufficient cost savings through these
actions, our financial condition and results of operations could be adversely impacted.
Part of our business strategy also includes enhancing profitability by expanding our ancillary revenues such as revenue from selling insurance
coverages and where2 GPS navigation rentals. If we are unable to achieve targeted price increases aimed at improving revenue per day, overall
profitability or ancillary revenue growth through our actions, our financial condition and results of operations could be adversely impacted.
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