Avis 2007 Annual Report Download - page 103

Table of Contents
The Company does not believe that the impact of any unresolved proceedings constituting an Assumed Liability related to the CUC
accounting irregularities should result in a material liability to the Company in relation to its consolidated financial position or liquidity, as
Realogy and Wyndham each have agreed to assume responsibility for these liabilities as well as other liabilities related to the Company’s
litigation that are not related to its vehicle rental operations. Such litigation assumed by Realogy and Wyndham includes litigation which
was retained by the Company in connection with the sale of its former Marketing Services division.
On April 10, 2007, Realogy was acquired by an affiliate of Apollo Management VI, L.P. and no longer is listed as an independent public
company. The acquisition does not affect Realogy’s obligation to satisfy 62.5% of the contingent and other corporate liabilities of the
Company or its subsidiaries pursuant to the terms of the Separation Agreement. As a result of the acquisition, Realogy has greater debt
obligations and its ability to satisfy its portion of the contingent and other corporate liabilities may be adversely impacted. In accordance
with the terms of the Separation Agreement, Realogy posted a letter of credit in April 2007 for the benefit of the Company to cover its
estimated share of the Assumed Liabilities discussed above, subject to adjustment, although there can be no assurance that such letter of
credit will be sufficient to cover Realogy’s actual obligations if and when they arise.
On December 21, 2007, the Company and certain other parties entered into a settlement agreement with Ernst & Young to settle all claims
between the parties arising out of the Securities Action. Pursuant to the terms of the settlement, Ernst & Young has agreed to pay into
escrow an aggregate of $298.5 million to settle all claims arising from the Securities Action. Pursuant to the Separation Agreement, the
Company will not receive the proceeds from this settlement agreement.
In addition to the matters discussed above, the Company is also involved in claims and legal proceedings related to its vehicle rental
operations, including contract disputes, business practices, intellectual property, environmental issues and other commercial, employment
and tax matters, including patent claims, wage and hour claims and breach of contract claims by licensees. The Company believes that it
has adequately accrued for such matters as appropriate or, for matters not requiring accrual, believes that they will not have a material
adverse impact on its results of operations, financial position or cash flows based on information currently available. However, litigation is
inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has valid defenses in these
matters, unfavorable resolutions could occur, which could adversely impact the Company’s results of operations or cash flows in a
particular reporting period.
Asset Retirement Obligations
The Company maintains a liability for asset retirement obligations. An asset retirement obligation is a legal obligation to perform certain
activities in connection with the retirement, disposal or abandonment of assets. The Company’s asset retirement obligations, which are
measured at discounted fair value, are primarily related to the removal of underground gas storage tanks at its rental facilities. Liabilities
for asset retirement obligations were $20 million and $15 million at December 31, 2007 and 2006, respectively.
Standard Guarantees/Indemnifications
In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees and indemnities
whereby the Company indemnifies another party for breaches of representations and warranties. In addition, many of these parties are also
indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement. Such guarantees
or indemnifications are granted under various agreements, including those governing (i) purchases, sales or outsourcing of assets or
businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities and use of derivatives and (v) issuances of
debt or equity securities. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in
purchase agreements, (ii) landlords in lease
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