Avis 2009 Annual Report Download - page 26

Table of Contents
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 business, financial condition and results of operations.
Our business is seasonal, and a disruption in rental activity during our peak season could adversely affect our results of operations.
Seasonal changes in our revenues do not alter certain of our expenses, like rent and insurance, that are fixed in the short run, typically resulting
in higher profitability in periods when our revenues are higher and lower profitability in periods when our revenues are lower. In our business,
the third quarter of the year has historically been our strongest quarter due to the increased level of leisure travel and household moving activity.
In 2009, the third quarter accounted for 29% of our total 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.
We may not be successful in maintaining or further implementing our cost savings and efficiency improvements or other business strategies.
In light of the economic recession, we undertook numerous actions in 2009 designed to reduce costs and improve efficiency. We closed and
consolidated certain facilities and reduced staff in conjunction with this initiative. While we intend to maintain these cost savings and pursue
additional cost efficiencies through continued implementation of our Performance Excellence process improvement initiative and other actions,
if we are unable to effectively control costs through these actions, our financial condition and results of operations could be adversely impacted.
Similarly, we have been increasing the ancillary revenues associated with our vehicle rental business, such as revenue from selling insurance
coverages and where2 GPS navigation rentals. Part of our strategy is to continue to grow such ancillary revenues. We expect to execute this
strategy through additional ancillary product offerings, as well as the continued marketing of existing products. If we are unable to grow
ancillary revenue, properly react to changes in market conditions or successfully market to our customers, our financial condition, results of
operations and cash flows could be adversely affected.
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 large 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
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