Avis 2011 Annual Report Download - page 67

F-13
Valuation Techniques. Derivatives entered into by the Company are typically executed over-the-counter and are valued
using internal valuation techniques, as no quoted market prices exist for such instruments. The valuation technique and
inputs depend on the type of derivative and the nature of the underlying exposure. The Company principally uses
discounted cash flows to value these instruments. These models take into account a variety of factors including, where
applicable, maturity, commodity prices, interest rate yield curves of the Company and counterparties, credit curves,
counterparty creditworthiness and currency exchange rates. These factors are applied on a consistent basis and are based
upon observable inputs where available.
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. Common stock investments in affiliates over
which the Company has the ability to exercise significant influence but not a controlling interest are carried on the equity
method of accounting. Available-for-sale securities are carried at current fair value with unrealized gains or losses
reported net of taxes as a separate component of stockholders’ equity. Trading securities are recorded at fair value with
realized and unrealized gains and losses reported currently in earnings. As of December 31, 2011, the Company has
investments in equity securities with a fair value of $9 million.
Joint venture investments are typically accounted for under the equity method of accounting. Under this method, the
Company records its proportional share of the joint venture’s net income or loss within operating expenses in the
Consolidated Statements of Operations. As of December 31, 2011, the Company had investments in several joint
ventures with a carrying value of $29 million, recorded within the non-current assets on the Consolidated Balance
Sheets.
The Company recorded a $33 million charge ($20 million, net of tax) for impairment of its investments in 2009 to reflect
the other-than-temporary decline of the investments’ fair value below their carrying value, based on estimated future
cash flows, thereby reducing the carrying value of the investment to zero.
Aggregate realized gains and losses on investments and dividend income are recorded within operating expenses on the
Consolidated Statements of Operations. During 2011, the Company realized a gain of $1 million from the sale of certain
equity investments. There were no net realized gains or losses in 2010 and 2009.
Self-Insurance Reserves
The Consolidated Balance Sheets include $409 million and $305 million of liabilities associated with retained risks of
liability to third parties as of December 31, 2011 and 2010, respectively. Such liabilities relate primarily to public
liability and third-party property damage claims, as well as claims arising from the sale of ancillary insurance products
including but not limited to supplemental liability, personal effects protection and personal accident insurance. These
obligations represent an estimate for both reported claims not yet paid and claims incurred but not yet reported. The
estimated reserve requirements for such claims are recorded on an undiscounted basis utilizing actuarial methodologies
and 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 include liabilities of approximately $50 million and $56 million as of
December 31, 2011 and 2010, respectively, related to workers’ compensation, health and welfare and other employee
benefit programs. The liabilities represent an estimate for both reported claims not yet paid and claims incurred but not
yet reported, utilizing actuarial methodologies similar to those mentioned above. These amounts are included within
accounts payable and other current liabilities and other non-current liabilities.
Business Combinations
The Company uses the acquisition method of accounting for business combinations, which requires that the assets
acquired and liabilities assumed be recorded at their respective fair values at the date of acquisition. Assets acquired and
liabilities assumed in a business combination that arise from contingencies are recognized if fair value can be reasonably
estimated at the acquisition date. The excess, if any, of (i) the fair value of the consideration transferred by the acquirer
and the fair value of any non-controlling interest remaining in the acquiree, over (ii) the fair values of the identifiable net
assets acquired is recorded as goodwill. Gains and losses on the re-acquisition of unfavorable license agreements are
recorded in the Consolidated Statements of Operations upon completion of the respective acquisition. Transaction-