Avis 2010 Annual Report Download - page 108

Table of Contents
Credit Risk and Exposure . The Company is exposed to counterparty credit risks in the event of nonperformance by counterparties to
various agreements and sales transactions. The Company manages such risk by evaluating the financial position and creditworthiness of
such counterparties and by requiring collateral in certain instances in which financing is provided. The Company mitigates counterparty
credit risk associated with its derivative contracts by monitoring the amount for which it is at risk with each counterparty, periodically
evaluating counterparty creditworthiness and financial position, and where possible, dispersing its risk among multiple counterparties.
There were no significant concentrations of credit risk with any individual counterparties or groups of counterparties at December 31, 2010
or 2009 other than (i) risks related to the Company’s purchase, repurchase and guaranteed depreciation agreements with General Motors
Company, Ford Motor Company, Chrysler Group LLC, Hyundai Motor America and Kia Motors America, Inc. with respect to program cars
that were disposed but for which the Company has not yet received payment from the manufacturers (see Note 2—Summary of Significant
Accounting Policies), (ii) receivables from Realogy and Wyndham related to certain contingent, income tax and other corporate liabilities
assumed by Realogy and Wyndham in connection with the Separation and (iii) risks related to leases which have been assumed by Realogy,
Wyndham or Travelport but of which the Company is a guarantor. Concentrations of credit risk associated with trade receivables are
considered minimal due to the Company’s diverse customer base. Bad debts have been minimal historically. The Company does not
normally require collateral or other security to support credit sales.
Fair Value
Derivative instruments and hedging activities
As described above, derivative assets and liabilities consist principally of foreign exchange forward contracts, interest rate swaps, interest
rate contracts and commodity contracts.
Certain of the Company’
s derivative instruments contain collateral support provisions that require the Company to post cash collateral to the
extent that these derivatives are in a liability position. The aggregate fair value of such derivatives that are in a liability position and the
aggregate fair value of assets needed to settle these derivatives as of December 31, 2010 was approximately $7 million, for which the
Company has posted cash collateral in the same amount in the normal course of business.
As of December 31, 2010 and 2009, respectively, the Company held derivative instruments with absolute notional values as follows: interest
rate caps of $5.0 billion and $3.9 billion, interest rate swaps of $139 million and $1.1 billion, and foreign exchange forward contracts of
$128 million and $71 million.
Fair values of derivative instruments are as follows:
F
-
44
As of December 31, 2010
As of December 31, 2009
Fair Value,
Asset
Derivatives
Fair Value,
Liability
Derivatives
Fair Value,
Asset
Derivatives
Fair Value,
Liability
Derivatives
Derivatives designated as hedging instruments
Interest rate swaps
$
-
$
4
$
-
$
39
Derivatives not designated as hedging
instruments
Foreign exchange forward contracts
-
3
-
-
Interest rate swaps
-
1
-
-
Interest rate contracts
1
7
-
9
Total
$
1
$
15
$
-
$
48
Amounts in this table exclude derivatives issued by Avis Budget Rental Car Funding, as it is not consolidated by the Company;
however, certain amounts related to the derivatives held by Avis Budget Rental Car Funding are included within accumulated other
comprehensive income, as discussed in Note 17
—
Stockholders
’
Equity.
(a)
(b)
(a)
(c)
(b)
(d)
(a)