Avis 2007 Annual Report Download - page 81

Table of Contents
ADOPTION OF NEW ACCOUNTING STANDARDS DURING 2007
Accounting for Uncertainty in Income Taxes . In June 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with FAS 109. FIN 48 provides that a tax benefit from an uncertain tax
position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of
any related appeals or litigation processes, based on technical merits. Income tax positions must meet a more-likely-than-not recognition
threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. This interpretation also provides
guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN
48 is effective for fiscal years beginning after December 15, 2006.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized
approximately an $18 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January
1, 2007, balance of retained earnings. The Company is entitled to indemnification from Realogy and Wyndham for additional tax related
liabilities of $14 million recognized as a result of the adoption of FIN 48. The Company recorded a $14 million credit, within the
separation costs, net line item on the accompanying Consolidated Statement of Operations for first quarter 2007, reflecting the recognition
of receivables from Realogy and Wyndham for such tax-related matters. At December 31, 2007, certain income tax payable balances have
been classified as long term liabilities and certain receivables from Realogy and Wyndham have been classified as non-current assets
(see Note 15—Other Non-Current Liabilities).
Including the impact of the adoption of FIN 48 discussed above, the Company’s unrecognized tax benefits totaled $559 million and were
reclassified to long-term income taxes payable as of January 1, 2007. If recognized, substantially all would affect the annual effective
income tax rate. The Company’s unrecognized tax benefits were offset by tax loss carryforwards and tax credits in the amount of $15
million and $104 million, respectively.
As of December 31, 2007, the unrecognized tax benefits in long-term income taxes payable were $440 million. The Company does not
anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statute of
limitations within twelve months.
Including the impact of the adoption of FIN 48 discussed above, the Company’s accrual for the potential interest associated with uncertain
tax positions was $26 million as of January 1, 2007. During the twelve months ended December 31, 2007, the Company recorded
additional liabilities of $23 million for the accrual of interest, which had minimal impact on the Company’s results of operations as the
Company is substantially entitled to indemnification for such liabilities and recognized corresponding receivables from Realogy and
Wyndham. The Company recognizes potential interest and the corresponding indemnifications from Realogy and Wyndham, related to
unrecognized tax benefits within interest expense related to corporate debt, net on the accompanying Consolidated Statements of
Operations. Penalties incurred during the twelve months ended December 31, 2007, were not significant and were recognized as a
component of income taxes.
In May 2007, the FASB issued FASB Staff Position FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48” (“FSP FIN 48-
1”). FSP FIN 48-1 provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. The Company retroactively adopted the provisions of FSP FIN 48-1 effective January 1,
2007 and has determined that it had no impact on its Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes
a framework for measuring fair value and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The Company adopted SFAS No. 157 on January 1, 2008, as required, and it had no impact on its
financial statements at the time of adoption.
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