Avis 2010 Annual Report Download - page 109

Table of Contents
The effect of derivative instruments on the Consolidated Statement of Operations for the year ended December 31, 2010 was (i) a gain of
$12 million recognized as a component of operating expenses related to foreign exchange swaps and foreign exchange forward contracts,
(ii) a $4 million loss recognized as a component of interest expense related to interest rate swaps and interest rate caps not designated as
hedging instruments and (iii) a gain of $1 million recognized as a component of operating expenses related to our commodity contracts. The
gain on foreign exchange swaps and foreign exchange forward contracts was largely offset by the foreign exchange losses on the underlying
hedged items, primarily intracompany loans. The loss on the interest rate swaps had no impact on net interest expense as it was offset by
reduced interest expense on the underlying floating rate debt which it hedges.
The effect of derivative instruments on the Consolidated Statement of Operations for the year ended December 31, 2009 was (i) a loss of $5
million recognized as a component of operating expenses related to foreign exchange forward contracts, (ii) a gain of $3 million recognized
as a component of operating expenses related to our commodity contracts and (iii) a $6 million loss recognized as a component of interest
expense related to interest rate swaps and interest rate caps not designated as hedging instruments. The loss on the interest rate swaps had no
impact on net interest expense as it was offset by reduced interest expense on the underlying floating rate debt which it hedges.
Debt Instruments
The fair value of the Company’s financial instruments is generally determined by reference to market values resulting from trading on a
national securities exchange or in an over-the-
counter market. In some cases where quoted market prices are not available, prices are derived
by considering the yield of the benchmark security that was issued to initially price the instruments and adjusting this rate by the credit
spread that market participants would demand for the instruments as of the measurement date. In situations where long-term borrowings are
part of a conduit facility backed by short term floating rate debt, the Company has determined that its carrying value approximates the fair
value of this debt. The carrying amounts of cash and cash equivalents, available-for-sale securities, accounts receivable, program cash and
accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.
The carrying amounts and estimated fair values of financial instruments at December 31 are as follows:
F
-
45
Included in other non
-
current liabilities.
Included in other current liabilities.
Included in assets under vehicle programs and liabilities under vehicle programs.
2010
2009
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
Corporate debt
Current portion of long
-
term debt
$
8
$
8
$
12
$
12
Long
-
term debt, excluding convertible debt
2,149
2,211
1,774
1,675
Convertible debt
345
407
345
376
Interest rate swaps and interest rate contracts
(5
)
(5
)
(39
)
(39
)
Foreign exchange forward contracts
(3
)
(3
)
-
-
Debt under vehicle programs
Vehicle
-
backed debt due to Avis Budget Rental Car
Funding
$
3,987
$
4,045
$
3,660
$
3,634
Vehicle
-
backed debt
521
526
705
707
Interest rate swaps and interest rate contracts
(7
)
(7
)
(9
)
(9
)
Interest rate contracts
1
1
-
-
Derivatives in (liability) position.
(b)
(c)
(d)
(a)
(a)
(a)