Avis 2011 Annual Report Download - page 48

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ACCOUNTING POLICIES
Critical Accounting Policies
In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make
estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required
to make relate to matters that are inherently uncertain as they pertain to future events and/or events that are outside of our
control. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our
consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used
when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies
that we believe require subjective and complex judgments that could potentially affect reported results. However, our
businesses operate in environments where we are paid a fee for a service performed, and therefore the results of the majority
of our recurring operations are recorded in our financial statements using accounting policies that are not particularly
subjective, nor complex.
Goodwill and Other Indefinite-lived Intangible Assets. We have reviewed the carrying value of our goodwill and other
indefinite-lived intangible assets for impairment. In performing this review, we are required to make an assessment of fair
value for our goodwill and other indefinite-lived intangible assets. When determining fair value, we utilize various consistent
assumptions, including the fair market trading price of our common stock and management’s projections of future cash flows.
A change in these underlying assumptions will cause a change in the results of the tests and, as such, could cause the fair
value to be less than the respective carrying amount. In such event, we would then be required to record a charge, which
would impact earnings. We review the carrying value of goodwill and other indefinite-lived intangible assets for impairment
annually, or more frequently if circumstances indicate impairment may have occurred.
Our goodwill and other indefinite-lived intangible assets are allocated among our reporting units. During 2011, 2010 and
2009, there was no impairment of goodwill or other intangible assets.
Business Combinations. The Company uses the acquisition method of accounting for business combinations, which requires
that the purchase price of acquired companies be allocated to the tangible and intangible assets acquired and the liabilities
assumed, as applicable, at their respective estimated fair values at the date of acquisition.
Our assessment of the purchase price allocation and the related fair values requires management to make significant estimates
and assumptions with respect to intangible assets. Examples of critical valuation assumptions used by management include
projected future cash flows, the estimated weighted average cost of capital and market royalty rates. We believe that our
estimates are based on reasonable assumptions and, in part, on historical experience and information obtained from the
management of the acquired companies and are unpredictable and inherently uncertain, and actual results could differ from
those assumptions.
Vehicles. We present vehicles at cost, net of accumulated depreciation, on the Consolidated Balance Sheets. We record the
initial cost of the vehicle net of incentives and allowances from manufactures. We acquire our rental vehicles either through
repurchase and guaranteed depreciation programs with certain automobile manufacturers or outside of such programs. For
rental vehicles purchased under such programs, we depreciate the vehicles such that the net book value on the date of sale or
return to the manufacturers is intended to equal the contractual guaranteed residual values. For vehicles acquired outside of
manufacturer repurchase and guaranteed depreciation programs, we depreciate based on the vehicles’ estimated residual
market values and their expected dates of disposition. See Note 2 to our Consolidated Financial Statements.
Income Taxes. We account 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 reflected in the financial
statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the
financial statement and tax bases 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.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such
determination, we consider 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 we were to
determine that we would be able to realize deferred income tax assets in the future in excess of their net recorded amount, we
would make an adjustment to the valuation allowance which would reduce the provision for income taxes. Currently we do
not record valuation allowances on the majority of our tax loss carryforwards as there are adequate deferred tax liabilities that
could be realized within the carryforward period.