Avis 2011 Annual Report Download - page 84

F-30
Commitments under capital leases, other than those within the Company’s vehicle rental programs, for which the future
minimum lease payments have been reflected in Note 16—Debt Under Vehicle Programs and Borrowing Arrangements,
are not significant.
The Company leases a portion of its vehicles under operating leases, which terms extend through 2015. As of December
31, 2011, the Company has guaranteed $43 million of residual values for these vehicles at the end of their respective
lease terms. The Company believes that, based on current market conditions, the net proceeds from the sale of these
vehicles at the end of their lease terms will be equal to or exceed their net book values and therefore has not recorded a
liability related to guaranteed residual values.
Contingencies
In connection with the spin-offs of Realogy and Wyndham, the Company entered into a Separation Agreement, pursuant
to which Realogy assumed 62.5% and Wyndham assumed 37.5% of certain contingent and other corporate liabilities of
the Company or its subsidiaries, which are not primarily related to any of the respective businesses of Realogy,
Wyndham, our former Travelport subsidiary and/or the Company’s vehicle rental operations, and in each case incurred
or allegedly incurred on or prior to the Separation (“Assumed Liabilities”). Realogy is entitled to receive 62.5% and
Wyndham is entitled to receive 37.5% of the proceeds from certain contingent corporate assets of the Company, which
are not primarily related to any of the respective businesses of Realogy, Wyndham, Travelport and/or the Company’s
vehicle rental operations, arising or accrued on or prior to the Separation (“Assumed Assets”). Additionally, if Realogy
or Wyndham were to default on its payment of costs or expenses to the Company related to any Assumed Liabilities, the
Company would be responsible for 50% of the defaulting party’s obligation. In such event, the Company would be
allowed to use the defaulting party’s share of the proceeds of any Assumed Assets as a right of offset.
The Company does not believe that the impact of any resolution of contingent liabilities constituting Assumed Liabilities
should result in a material liability to the Company in relation to its consolidated financial position or liquidity, as
Realogy and Wyndham each have agreed to assume responsibility for these liabilities.
The Company is also named in various litigation that is primarily related to the businesses of its former subsidiaries,
including Realogy, Wyndham and Travelport and their current or former subsidiaries. The Company is entitled to
indemnification under the Separation Agreement from such entities for any liability resulting from such litigation.
In April 2007, Realogy was acquired by an affiliate of Apollo Management VI, L.P. The acquisition does not affect
Realogy’s obligation to satisfy 62.5% of the contingent and other corporate liabilities of the Company or its subsidiaries
pursuant to the terms of the Separation Agreement. As a result of the acquisition, Realogy has greater debt obligations
and its ability to satisfy its portion of the contingent and other corporate liabilities may be adversely impacted. In
accordance with the terms of the Separation Agreement, Realogy posted a letter of credit in April 2007 for the benefit of
the Company to cover its estimated share of the Assumed Liabilities discussed above, subject to adjustment, although
there can be no assurance that such letter of credit will be sufficient or effective to cover Realogy’s actual obligations if
and when they arise.
In October 2009, a judgment was entered against the Company in the amount of $16 million following the completion of
a jury trial for damages related to breach of contract in the United States District Court for the District of Alaska. The
lawsuit, which was filed in 2003, involved breach of contract and other claims by one of the Company’s licensees related
to the acquisition of its Budget vehicle rental business in 2002. The Company believes the verdict in this case is
unsupported by the evidence. In addition to the judgment for damages, in June 2010, the district court also entered an
order against the Company in the amount of $3 million, in favor of the plaintiff’s motions for pre-judgment interest and
attorneys’ fees. The Company has filed an appeal of the judgment and attorney’s fees awarded with the United States
Court of Appeals for the Ninth Circuit.
In addition to the matters discussed above, the Company is also involved in claims, legal proceedings and governmental
inquiries related to its vehicle rental operations, including with respect to contract disputes, business practices including
wage and hour claims, insurance claims, intellectual property claims, environmental issues and other commercial,
employment and tax matters, and breach of contract claims by licensees. The Company believes that it has adequately
accrued for such matters as appropriate or, for matters not requiring accrual, believes that they will not have a material
impact on its results of operations, financial position or cash flows based on information currently available. However,
litigation is inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has
valid defenses in these matters, unfavorable resolutions could occur, which could materially impact the Company’s
results of operations or cash flows in a particular reporting period.