Avis 2012 Annual Report Download - page 23

16
total revenue for the year and was our most profitable quarter as measured by Adjusted 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 typically 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 to manage our risk are usually in the form of interest rate and
commodity swaps and foreign exchange forward and swap agreements. Periodically, we are required to determine the change
in fair value, called the “mark to market,” of some of these derivative instruments, which can result in a non-cash loss or gain
being recognized in our financial results. Significant changes or shifts in interest rates, gas prices or foreign exchange rates
will 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 current or future 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 currency exchange rates that may adversely impact our results of operations.
Our international operations generate revenue and incur operating costs in a variety of currencies other than the U.S. dollar.
In addition, the financial position and results of operations of many 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 among these 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, and we may not be able to effectively limit our exposure to
intermediate-and long-term movements in currency exchange rates. We customarily enter into financial transactions such as
currency hedging instruments to address these risks, but there can be no assurance that currency exchange rate fluctuations
will not adversely affect our results of operations, financial condition and cash flows. In addition, while the use of currency
hedging instruments may provide us with protection from adverse fluctuations in currency exchange rates, by utilizing these
instruments we potentially forego the benefits that might result from favorable fluctuations in currency exchange rates. We
also face risks arising from the imposition of exchange controls and currency devaluations. Exchange controls may limit our
ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or
businesses located in or conducted within a country imposing controls. Currency devaluations result in a diminished value of
funds denominated in the currency of the country instituting the devaluation.
We face risks related to liability and insurance.
Our businesses expose us to claims for personal injury, death and property damage related to the use of our vehicles and/or
customers on our premises and for workers’ compensation claims and other employment-related claims by our employees.
We may become exposed to uninsured liability at levels in excess of our historical levels resulting from unusually high losses
or otherwise. In addition, liabilities in respect of existing or future claims may exceed the level of our reserves and/or our
insurance, which could adversely impact our financial condition and results of operations. Furthermore, insurance with
unaffiliated carriers may not continue to be available to us on economically reasonable terms or at all. Should we experience
significant liability for which we did not plan, our results of operations and financial position could be negatively impacted.
We face risks related to our locations.
We lease or have vehicle rental concessions for both the Avis and Budget brands at locations throughout the world, including
at airports both in the United States and internationally and train stations throughout Europe, where vehicle rental companies
are frequently required to bid periodically for the available locations. If we were to lose any lease or vehicle rental
concession, particularly at an airport or a train station in a major metropolitan area, there can be no assurance that we would
be able to find a suitable replacement on reasonable terms or at all and our business could be adversely affected.