Avis 2010 Annual Report Download - page 77

Table of Contents
Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred
tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent it believes that it is more likely than not that these assets will be realized. In
making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred
tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event the Company were to
determine that it would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, the Company
would adjust the valuation allowance, which would reduce the provision for income taxes.
The Company reports revenues net of any tax assessed by a governmental authority that is both imposed on and concurrent with a specific
revenue-producing transaction between a seller and a customer.
Fair Value Measurements
The Company measures its assets and liabilities at fair value on acquisition and revalues its derivative assets and liabilities on a recurring
basis. Financial assets and liabilities are classified as follows: Level 1, which refers to assets and liabilities valued using quoted prices from
active markets for identical assets or liabilities; Level 2, which refers to assets and liabilities for which significant other observable market
inputs are readily available; and Level 3, which are valued based on significant unobservable inputs.
Derivative Instruments
Derivative instruments are used as part of the Company’
s overall strategy to manage exposure to market risks associated with fluctuations in
foreign currency exchange rates, interest rates and gasoline costs. As a matter of policy, derivatives are not used for trading or speculative
purposes.
All derivatives are recorded at fair value either as assets or liabilities. Changes in fair value of derivatives not designated as hedging
instruments are recognized currently in earnings within the same line item as the hedged item (principally vehicle interest, net). The
effective portion of changes in fair value of derivatives designated as cash flow hedging instruments is recorded as a component of other
comprehensive income. The ineffective portion is recognized currently in earnings within the same line item as the hedged item, including
vehicle interest, net or interest related to corporate debt, net, based upon the nature of the hedged item. Amounts included in other
comprehensive income are reclassified into earnings in the same period during which the hedged item affects earnings. Generally, all
amounts related to our derivative instruments are recognized in the Consolidated Statements of Cash Flows consistent with the nature of the
hedged item (principally operating activities).
During 2010, 2009 and 2008, the Company did not utilize fair value hedges.
Investments
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and
reevaluates such determination at each balance sheet date. The Company’s non-marketable preferred stock investments are accounted for at
cost plus accretion. Common stock
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