Avis 2008 Annual Report Download - page 81

Aggregate realized gains and losses on investments and preferred dividend income are recorded within other revenues on the Consolidated
Statements of Operations. There were no net realized gains or losses in continuing operations in 2008 and 2007. Gains amounted to $11
million in 2006. Gains and losses on securities sold are based on the specific identification method.
Affinion Group Holdings, Inc. The Company’s former investment in Affinion Group Holdings, Inc. (“Affinion”)
was received in connection
with the October 2005 sale of its former Marketing Services division, along with cash proceeds approximating $1.7 billion. This investment
represented preferred stock with a carrying value of $95 million, including accrued dividends (face value of $125 million) maturing in
October 2017, and warrants with a carrying value of $3 million that were exercisable into 7.5% of the common equity of Affinion upon the
earlier of four years or the achievement of specified investment hurdles.
Pursuant to the Separation Agreement, the Company was obligated to distribute all proceeds received on the sale of its investments in
Affinion to Realogy and Wyndham. Accordingly, following the spin-offs of Realogy and Wyndham on July 31, 2006, the Company began
to recognize a charge on its Consolidated Statement of Operations equal to the dividend and accretion income on the preferred stock of
Affinion. From January 1, 2006 to July 31, 2006, the Company recorded $6 million of dividend and accretion income related to its preferred
stock investment in Affinion. In 2007, the Company sold the majority of its preferred stock investment in Affinion and distributed the
proceeds and the remaining investment to Realogy and Wyndham.
SELF-INSURANCE RESERVES
The Consolidated Balance Sheets include approximately $326 million and $361 million of liabilities with respect to self-insured public
liability and property damage as of December 31, 2008 and 2007, respectively. Such liabilities relate to additional liability insurance,
personal effects protection insurance, public liability, property damage and personal accident insurance claims for which the Company is
self-insured. These obligations represent an estimate for both reported claims not yet paid and claims incurred but not yet reported. The
Company estimates the required reserve for such claims on an undiscounted basis utilizing an actuarial method that is based upon various
assumptions which include, but are not limited to, the Company’s historical loss experience and projected loss development factors. The
required liability is also subject to adjustment in the future based upon the changes in claims experience, including changes in the number of
incidents and changes in the ultimate cost per incident. These amounts are included within accounts payable and other current liabilities and
other non-current liabilities.
The Consolidated Balance Sheets also includes liabilities of approximately $71 million and $76 million as of December 31, 2008 and 2007,
respectively, related to health and welfare, workers’
compensation and other benefits the Company provides to its employees. The Company
estimates the liability required for such benefits based on actual claims outstanding and the estimated cost of claims incurred as of the
balance sheet date. These amounts are included within accounts payable and other current liabilities.
SHARE-BASED PAYMENTS
In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), which eliminates the alternative to
measure stock-based compensation awards using the intrinsic value approach permitted by APB Opinion No. 25 and by SFAS No. 123,
“Accounting for Stock-Based Compensation”. The Company adopted SFAS No. 123R on January 1, 2006, as required, under the modified
prospective application method. Since the Company recorded stock-based compensation expense for all outstanding employee stock awards
prior to the adoption of SFAS No. 123R, the adoption of such standard did not have a significant impact on the Company’s results of
operations. However, during 2006, the Company recorded an after tax credit of $1 million as a cumulative effect of an accounting change,
which represents the Company’s estimate of total future forfeitures of stock-based awards outstanding as of January 1, 2006 (see Note 20—
Stock-Based Compensation).
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