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Financial Instruments | 9 Months Ended
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Sep. 30, 2017
Investments, All Other Investments [Abstract] |
Financial Instruments | Financial Instruments Derivative Instruments and Hedging Activities Currency Risk. The Company uses currency exchange contracts to manage its exposure to changes in currency exchange rates associated with certain of its non-U.S.-dollar denominated receivables and forecasted royalties, forecasted earnings of non-U.S. subsidiaries and forecasted non-U.S.-dollar denominated acquisitions. The Company primarily hedges a portion of its current-year currency exposure to the Australian, Canadian and New Zealand dollars, the euro and the British pound sterling. The majority of forward contracts do not qualify for hedge accounting treatment. The fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk they economically hedge. Forward contracts used to hedge forecasted third-party receipts and disbursements up to 12 months are designated and do qualify as cash flow hedges. The Company has designated its euro-denominated notes as a hedge of its investment in euro-denominated foreign operations. The amount of gains or losses reclassified from other comprehensive income (loss) to earnings resulting from ineffectiveness or from excluding a component of the hedges’ gain or loss from the effectiveness calculation for cash flow and net investment hedges during the three and nine months ended September 30, 2017 and 2016 was not material, nor is the amount of gains or losses the Company expects to reclassify from accumulated other comprehensive income (loss) to earnings over the next 12 months. Interest Rate Risk. The Company uses various hedging strategies including interest rate swaps and interest rate caps to create what it deems an appropriate mix of fixed and floating rate assets and liabilities. The Company uses interest rate swaps and interest rate caps to manage the risk related to its floating rate corporate debt and its floating rate vehicle-backed debt. The Company records the effective portion of changes in the fair value of its cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized. The Company records the gains or losses related to freestanding derivatives, which are not designated as a hedge for accounting purposes, in its consolidated results of operations. The changes in fair values of hedges that are determined to be ineffective are immediately reclassified from accumulated other comprehensive income (loss) into earnings. The amount of gains or losses reclassified from other comprehensive income (loss) to earnings resulting from ineffectiveness related to the Company’s cash flow hedges was not material during the three and nine months ended September 30, 2017 and 2016. The Company estimates that $2 million of losses currently recorded in accumulated other comprehensive income (loss) will be recognized in earnings over the next 12 months. The Company enters into derivative commodity contracts to manage its exposure in the U.S. to changes in the price of unleaded gasoline. Changes in the fair value of these derivatives are recorded within operating expenses. The Company held derivative instruments with absolute notional values as follows:
| As of September 30, 2017
Interest rate caps (a) | $ | 11,035 |
Interest rate swaps | 1,100 |
Foreign exchange contracts | 887 |
Commodity contracts (millions of gallons of unleaded gasoline) | 4 |
__________
(a) | Represents $8.0 billion of interest rate caps sold, partially offset by approximately $3.0 billion of interest rate caps purchased. These amounts exclude $5.0 billion of interest rate caps purchased by the Company’s Avis Budget Rental Car Funding subsidiary as it is not consolidated by the Company.
Estimated fair values (Level 2) of derivative instruments were as follows:
|  | As of September 30, 2017 |  | As of December 31, 2016
|  | Fair Value, Asset Derivatives |  | Fair Value, Liability Derivatives |  | Fair Value, Asset Derivatives |  | Fair Value, Liability Derivatives
Derivatives designated as hedging instruments |  |  |  |  |  |  |
| Interest rate swaps (a) | $ | 4 |  |  | $ | 2 |  |  | $ | 7 |  |  | $ | 4 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |
| Interest rate caps (b) | — |  |  | 1 |  |  | 1 |  |  | 7 |
| Foreign exchange contracts (c) | 7 |  |  | 10 |  |  | 7 |  |  | 2 |
| Total | $ | 11 |  |  | $ | 13 |  |  | $ | 15 |  |  | $ | 13 |
__________ Amounts in this table exclude derivatives issued by Avis Budget Rental Car Funding; however, certain amounts related to the derivatives held by Avis Budget Rental Car Funding are included within accumulated other comprehensive income (loss).
(a) | Included in other non-current assets or other non-current liabilities.
(b) | Included in assets under vehicle programs or liabilities under vehicle programs.
(c) | Included in other current assets or other current liabilities.
The effects of derivatives recognized in the Company’s Consolidated Condensed Financial Statements were as follows:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2017 |  | 2016 |  | 2017 |  | 2016
Derivatives designated as hedging instruments (a) |  |  |  |  |  |  |
| Interest rate swaps | $ | 1 |  |  | $ | 4 |  |  | $ | — |  |  | $ | (4 | )
| Euro-denominated notes | (13 | ) |  | (3 | ) |  | (44 | ) |  | (11 | )
Derivatives not designated as hedging instruments (b) |  |  |  |  |  |  |
| Interest rate caps (c) | (1 | ) |  | — |  |  | (1 | ) |  | (1 | )
| Foreign exchange contracts (d) | (11 | ) |  | 5 |  |  | (44 | ) |  | 17 |
| Commodity contracts (e) | 1 |  |  | — |  |  | (1 | ) |  | — |
| Total | $ | (23 | ) |  | $ | 6 |  |  | $ | (90 | ) |  | $ | 1 |
__________
(a) | Recognized, net of tax, as a component of other comprehensive income (loss) within stockholders’ equity.
(b) | Gains (losses) related to derivative instruments are expected to be largely offset by (losses) gains on the underlying exposures being hedged.
(c) | For the three and nine months ended September 30, 2016 and 2017, included in vehicle interest, net.
(d) | For the three months ended September 30, 2017, included a $7 million loss in interest expense and a $4 million loss in operating expense and for the nine months ended September 30, 2017, included a $25 million loss in interest expense and a $19 million loss in operating expense. For the three months ended September 30, 2016, included a $8 million gain in interest expense and a $3 million loss in operating expense and for the nine months ended September 30, 2016, included a $43 million gain in interest expense and a $26 million loss in operating expense.
(e) | Included in operating expense.
Debt Instruments The carrying amounts and estimated fair values (Level 2) of debt instruments were as follows:
|  | As of September 30, 2017 |  | As of December 31, 2016
|  | Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value
Corporate debt |  |  |  |  |  |  |
| Short-term debt and current portion of long-term debt | $ | 26 |  |  | $ | 26 |  |  | $ | 279 |  |  | $ | 280 |
| Long-term debt | 3,565 |  |  | 3,667 |  |  | 3,244 |  |  | 3,265 |
Debt under vehicle programs |  |  |  |  |  |  |
| Vehicle-backed debt due to Avis Budget Rental Car Funding | $ | 6,785 |  |  | $ | 6,834 |  |  | $ | 6,695 |  |  | $ | 6,722 |
| Vehicle-backed debt | 3,780 |  |  | 3,786 |  |  | 2,176 |  |  | 2,187 |
| Interest rate swaps and interest rate caps (a) | 1 |  |  | 1 |  |  | 7 |  |  | 7 |
__________
(a) | Derivatives in a liability position.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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