Avis 2010 Annual Report Download - page 59

Table of Contents
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.
Insurance liabilities on our Consolidated Balance Sheets include
supplemental 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 2010, we adopted the following standards as a result of the issuance of new accounting pronouncements:
We will adopt the following recently issued accounting pronouncements as required:
For detailed information regarding these pronouncements and the impact thereof on our business, see Notes 1 and 2 to our Consolidated
Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of market risks, including changes in foreign currency exchange rates, interest rates and gasoline prices. We manage
our exposure to market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative
financial instruments, particularly swap contracts, futures and options contracts, to manage and reduce the interest rate risk related to our debt;
foreign currency forwards to manage and reduce foreign currency exchange rate risk; and derivative commodity instruments to manage and
reduce the risk of changing unleaded gasoline prices.
We are exclusively an end user of these instruments. We do not engage in trading, market-making or other speculative activities in the
derivatives markets. We manage our exposure to counterparty credit risk related to our use of derivatives through specific minimum credit
standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Our counterparties are substantial investment
and commercial banks with significant experience providing such derivative instruments.
Our total market risk is influenced by a wide variety of factors including the volatility present within the markets and the liquidity of the markets.
There are certain limitations inherent in the sensitivity analyses presented. These “shock tests” are constrained by several factors, including the
necessity to conduct the analysis based on a single
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•
ASU No. 2009
-
16,
“
Accounting for Transfers of Financial Assets
”
•
ASU No. 2009
-
17,
“
Accounting by Enterprises Involved with Variable Interest Entities
”
•
ASU No. 2010
-
09,
“
Subsequent Events
–
Amendments to Certain Recognition and Disclosure Requirements
”
• ASU No. 2010-06, “Fair Value Measurements and Disclosures”, except for certain disclosure requirements that were adopted on
January 1, 2011, as required
•
ASU No. 2010
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28,
“
When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying
Amounts
”
•
ASU No. 2010
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29,
“
Disclosure of Supplementary Pro Forma Information for Business Combinations
”