Avis 2008 Annual Report Download - page 110

The following assumptions, calculated on a weighted-average basis, were used to determine pension obligations and pension costs for the
principal plans in which the Company’s employees participated:
To select a discount rate for its defined benefit pension plans, the Company uses a modeling process that involves matching the expected
cash outflows of such plan, to a yield curve constructed from a portfolio of AA rated fixed-income debt instruments. The Company uses the
average yield of this hypothetical portfolio as a discount rate benchmark.
The Company’s expected rate of return on plan assets of 8.25% is a long term rate based on historic plan asset returns over varying long
term periods combined with current market conditions and broad asset mix considerations. The expected rate of return is a long term
assumption and generally does not change annually.
As of December 31, 2008, substantially all of the Company’s defined benefit pension plans had a projected benefit obligation in excess of
the fair value of plan assets. The Company expects to contribute approximately $8 million to these plans in 2009.
The Company’s pension plan assets were $131 million and $167 million as of December 31, 2008 and 2007, respectively. Plan assets are
managed by independent investment advisors with the objective of maximizing returns with a prudent level of risk. Plan assets consist
mainly of equity and fixed income securities of U.S. and foreign issuers and our weighted average asset allocation for the Company’s
pension plan as of December 31, 2008 was as follows:
The Company estimates that future benefit payments from plan assets will be $10 million, $10 million, $10 million, $11 million, $12 million
and $69 million for 2009, 2010, 2011, 2012, 2013 and 2014 to 2018, respectively.
Risk Management
Following is a description of the Company’s risk management policies.
Foreign Currency Risk. The Company uses foreign exchange forward contracts to manage its exposure to changes in foreign currency
exchange rates associated with its foreign currency denominated receivables and forecasted royalties, forecasted earnings of foreign
subsidiaries and forecasted foreign currency denominated acquisitions. The Company primarily hedges its foreign currency exposure to the
British pound, Canadian dollar, Australian dollar and New Zealand dollar. The majority of forward contracts do not qualify for hedge
accounting treatment under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). The
fluctuations in the value of these forward contracts do, however, largely offset the
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47
For the Year Ended
December 31,
2008
2007
2006
Discount rate:
Net periodic benefit cost
6.25
%
5.75
%
5.50
%
Benefit obligation
6.25
%
6.25
%
5.75
%
Long
-
term rate of return on plan assets
8.25
%
8.25
%
8.25
%
Asset Category
2008
Equity
48
%
Debt
50
%
Real estate
2
%
22.
Financial Instruments