Avis 2007 Annual Report Download - page 58

Table of Contents
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we
consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income,
tax planning strategies and recent results of operations. In the event we were to determine that we would be able to realize deferred income tax
assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the
provision for income taxes.
See Notes 2 and 10 to our Consolidated Financial Statements for more information regarding income taxes.
Financial Instruments.
We estimate fair values for each of our financial instruments, including derivative instruments. Most of these financial
instruments are not publicly traded on an organized exchange. In the absence of quoted market prices, we must develop an estimate of fair
value using dealer quotes, present value cash flow models, option pricing models or other conventional valuation methods, as appropriate. The
use of these fair value techniques involves significant judgments and assumptions, including estimates of future interest rate levels based on
interest rate yield curves, volatility factors, and an estimation of the timing of future cash flows. The use of different assumptions may have a
material effect on the estimated fair value amounts recorded in the financial statements, which are disclosed in Note 22 to our Consolidated
Financial Statements. In addition, hedge accounting requires that at the beginning of each hedge period, we justify an expectation that the
relationship between the changes in fair value of derivatives designated as hedges compared to changes in the fair value of the underlying
hedged items will be highly effective. This effectiveness assessment, which is performed at least quarterly, involves an estimation of changes in
fair value resulting from changes in interest rates, as well as the probability of the occurrence of transactions for cash flow hedges. The use of
different assumptions and changing market conditions may impact the results of the effectiveness assessment and ultimately the timing of when
changes in derivative fair values and the underlying hedged items are recorded in earnings. See Item 7a. “Quantitative and Qualitative
Disclosures about Market Risk” for a discussion of the effect of hypothetical changes to these assumptions.
Public Liability, Property Damage and Other Insurance Liabilities, Net.
Insurance liabilities on our Consolidated Balance Sheets include
additional liability insurance, personal effects protection insurance, public liability, property damage and personal accident insurance claims for
which we are self-
insured. We estimate the required liability of such claims on an undiscounted basis utilizing an actuarial method that is based
upon various assumptions which include, but are not limited to, our historical loss experience and projected loss development factors. The
required liability is also subject to adjustment in the future based upon changes in claims experience, including changes in the number of
incidents and changes in the ultimate cost per incident.
Adoption of New Accounting Pronouncements
During 2007, we adopted the following standards as a result of the issuance of a new accounting pronouncement:
We will adopt the following recently issued standards as required:
53
•
FASB Interpretation No. 48,
“
Accounting for Uncertainty in Income Taxes
”
•
FASB Staff Position FIN 48
-
1,
“
Definition of Settlement in FASB Interpretation No. 48
”
•
SFAS No. 157,
“
Fair Value Measurements
”
• FASB Staff Position FAS 157-1, “Application of SFAS No. 157 to SFAS No. 13 and its Related Interpretative Accounting
Pronouncements that Address Leasing Transactions
”
•
FASB Staff Position FAS 157
-
2,
“
Effective Date of SFAS 157
”
•
SFAS No. 159,
“
The Fair Value Option for Financial Assets and Financial Liabilities
”
•
SFAS No. 141(R),
“
Business Combinations
”