Avis 2015 Annual Report Download - page 107

F-38
Interest Rate Risk. The Company uses various hedging strategies including interest rate swaps and interest
rate caps to create an appropriate mix of fixed and floating rate assets and liabilities. The after-tax amount
of gains or losses reclassified from accumulated other comprehensive income (loss) to earnings resulting
from ineffectiveness for 2015, 2014 and 2013 was not material to the Company’s results of operations. The
Company expects $5 million of losses currently deferred in accumulated other comprehensive income (loss)
to be recognized in earnings during 2016.
Commodity Risk. The Company periodically enters into derivative commodity contracts to manage its
exposure to changes in the price of gasoline. These instruments were designated as freestanding
derivatives and the changes in fair value are recorded in the Company’s consolidated results of operations.
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 counterparty or groups of
counterparties at December 31, 2015 or 2014, other than (i) risks related to the Company’s repurchase and
guaranteed depreciation agreements with domestic and foreign car manufacturers, including Ford, General
Motors, Chrysler, Peugeot, Volkswagen, Fiat, Kia, Toyota, Mercedes, Renault and Hyundai, and primarily
with respect to receivables for 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 their disposition 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. 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 currency exchange contracts,
interest rate swaps, interest rate caps and commodity contracts.
The Company held derivative instruments with absolute notional values as follows:
As of December 31,
2015 2014
Interest rate caps (a) $ 10,179 $ 8,333
Interest rate swaps 900 1,592
Foreign exchange contracts 811 493
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(a) Represents $8.2 billion of interest rate caps sold, partially offset by approximately $2.0 billion of interest rate caps
purchased at December 31, 2015 and $6.2 billion of interest rate caps sold, partially offset by approximately $2.1
billion of interest rate caps purchased at December 31, 2014. These amounts exclude $6.2 billion and $4.2 billion
of interest rate caps purchased by the Company’s Avis Budget Rental Car Funding subsidiary at December 31,
2015 and 2014, respectively.