Thrifty Car Rental 2010 Annual Report Download - page 64

depreciation rates accordingly, on a prospective basis. Differences between actual residual
values and those estimated by the Company result in a gain or loss on disposal and are
recorded as an adjustment to depreciation expense. Actual timing of disposal either shorter or
longer than the life used for depreciation purposes could result in a loss or gain on sale.
Vehicle rental companies bear residual value risk for these vehicles, which are referred to as
“Non-Program Vehicles”. Generally, the average holding term for Non-Program Vehicles is
approximately 18 to 20 months.
The Company is required to depreciate the vehicle according to the terms of the guaranteed
depreciation or repurchase program (“Program Vehicles”) and in doing so is guaranteed to
receive the full net book value in proceeds upon the sale of the vehicle. In some cases, the
sales proceeds are received directly from auctions, with any shortfall in value being paid by the
vehicle manufacturer. With certain other vehicle manufacturers, the entire balance of proceeds
from vehicle sales comes directly from the manufacturer. In either case, the Company bears
the risk of collectability on the receivable from the vehicle manufacturer. The Company
monitors its vehicle manufacturer receivables based on time outstanding, manufacturer
strength and length of the relationship. Generally, the average holding term for Program
Vehicles is approximately six to eight months.
Property and Equipment – Property and equipment are recorded at cost and are depreciated
using principally the straight-line method over the estimated useful lives of the related assets.
Estimated useful lives generally range from ten to thirty years for buildings and improvements
and two to seven years for furniture and equipment. Leasehold improvements are amortized
over the estimated useful lives of the related assets or leases, whichever is shorter.
Software – Software is recorded at cost and amortized using the straight-line method generally
ranging from three to five years. The remaining useful life of software is evaluated annually to
assess whether events and circumstances warrant a revision to the remaining amortization
period.
Website Development Costs – The Company capitalizes qualifying internal-use software
development, including Website development, incurred subsequent to the completion of the
preliminary project stage. Development costs are amortized over the shorter of the expected
useful life of the software or five years. Costs related to planning, maintenance, and minor
upgrades are expensed as incurred.
Long–Lived Assets – The Company reviews the value of long-lived assets, including software,
for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable based upon estimated future cash flows and records an
impairment charge, equaling the excess of the carrying value over the estimated fair value, if
the carrying value exceeds estimated future cash flows.
Accounts Payable – Book overdrafts of $17.0 million and $20.5 million, which represent
outstanding checks not yet presented to the bank, are included in accounts payable at
December 31, 2010 and 2009, respectively. These amounts do not represent bank overdrafts,
which would constitute checks presented in excess of cash on hand, and would be effectively a
loan to the Company.
Derivative Instruments – The Company records all derivatives on the balance sheet as either
assets or liabilities measured at their fair value and changes in the derivatives’ fair value are
recognized currently in earnings unless specific hedge accounting criteria are met. The
Company has entered into interest rate swap and cap agreements, which do not qualify for
hedge accounting treatment; therefore, the changes in the interest rate swap and cap
agreements’ fair values have been recognized as an (increase) decrease in fair value of
derivatives in the consolidated statement of operations. The Company has also entered into
interest rate swap and cap agreements which constitute cash flow hedges and qualify for
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