Avis 2007 Annual Report Download - page 77

Table of Contents
comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be
generated from such assets. Property and equipment is evaluated separately within each segment. If such analysis indicates that the
carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.
During 2007, a $1,195 million ($1,073 million after tax) charge was recorded for the impairment of goodwill at each of the Company’s
reporting units to reflect the decline in their fair value as evidenced by a decline in the market value of the Company’s common stock.
Domestic Car Rental recorded $786 million of the goodwill impairment, International Car Rental recorded $268 million and Truck Rental
recorded $141 million. There was no impairment under SFAS No. 142 on indefinite lived assets or under SFAS No. 144 on long-lived
assets.
During 2006 and 2005, there was no impairment of goodwill or other intangible assets within the Company’s continuing operations.
During 2006, the Company recorded an impairment charge of approximately $1.3 billion within discontinued operations to reflect the
difference between Travelport’s carrying value and its estimated fair value, less costs to dispose.
During 2005, the Company determined that the carrying values of goodwill and certain other indefinite-lived intangible assets assigned to
Travelport’s consumer travel businesses within discontinued operations exceeded their estimated fair values. In connection with the
impairment assessments performed, the Company recorded a pretax charge of $425 million within discontinued operations, of which $254
million reduced the value of goodwill and $171 million reduced the value of other intangible assets (including $120 million related to
trademarks). This impairment resulted from a decline in future anticipated cash flows primarily generated by Travelport’s consumer travel
businesses.
PROGRAM CASH
Program cash primarily represents amounts specifically designated to purchase assets under vehicle programs and/or to repay the related
debt.
VEHICLES
Vehicles are stated at cost, net of accumulated depreciation. The initial cost of the vehicles is net of incentives and allowances from
manufacturers. The Company acquires many of its rental vehicles pursuant to repurchase and guaranteed depreciation programs established
by automobile manufacturers. Under these programs, the manufacturers agree to repurchase vehicles at a specified price and date, or
guarantee the depreciation rate for a specified period of time, subject to certain eligibility criteria (such as car condition and mileage
requirements). The Company depreciates vehicles such that the net book value on the date of return to the manufacturers is intended to
equal the contractual guaranteed residual values, thereby minimizing any gain or loss. The Company records depreciation expense for any
deficiency in the contractual guaranteed residual values due to excessive wear or damages. At December 31, 2007, the Company has
cumulatively recorded $47 million for the projected difference between the contracted guaranteed residual value and the carrying value of
such vehicles, which is reflected in the Consolidated Statement of Operations.
Rental vehicles acquired outside of manufacturer repurchase and guaranteed depreciation programs are depreciated based upon their
estimated residual values at their expected dates of disposition, after giving effect to anticipated conditions in the used car market.
For 2007, 2006 and 2005, rental vehicles were depreciated at rates ranging from 5% to 48% per annum. Upon disposal of the vehicles,
depreciation expense is adjusted for any difference between the net sales proceeds and the remaining book value. Vehicle-related interest
amounts are net of interest income of $5 million, $6 million and $4 million for 2007, 2006 and 2005, respectively.
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