Avis 2013 Annual Report Download - page 86

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F-14
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is
recognized as expense on a straight-line basis over the vesting period. The Company’s policy is to record
compensation expense for stock options, and restricted stock units that are time- and performance-
based, for the portion of the award that is expected to vest. Compensation expense related to market-based
restricted stock units is recognized provided that the requisite service is rendered, regardless of when, if
ever, the market condition is satisfied. We estimate the fair value of restricted stock units using the market
price of the Company’s common stock on the date of grant. We estimate the fair value of stock-based and
cash unit awards containing a market condition using a Monte Carlo simulation model. Key inputs and
assumptions used in the Monte Carlo simulation model include the stock price of the award on the grant
date, the expected term, the risk-free interest rate over the expected term, the expected annual dividend
yield and the expected stock price volatility. The expected volatility is based on a combination of the
historical and implied volatility of the Company’s publicly traded, near-the-money stock options, and the
valuation period is based on the vesting period of the awards. The risk-free interest rate is derived from the
U.S. Treasury yield curve in effect at the time of grant and, since the Company does not currently pay or
plan to pay a dividend on its common stock, the expected dividend yield was zero.
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-related
costs incurred to effect a business combination are expensed as incurred, except for the cost to issue debt
related to the acquisition.
Transaction-related Costs
Transaction-related costs are classified separately in the Consolidated Statements of Operations. These
costs comprise expenses related to the integration of the acquiree’s operations with those of the Company,
including duplicate headcount costs for functions or positions that are integrated, costs associated with the
implementation of incremental compliance-related programs, expenses for the implementation of best
practices and process improvements, and expenses related to acquisition-related activities such as due-
diligence and other advisory costs. Transaction-related costs in 2011 also include a non-cash charge
related to the reacquired unfavorable license rights and losses on currency transactions related to the Avis
Europe acquisition.
Currency Transactions
The Company records the net gain or loss of currency transactions on certain intercompany loans and the
unrealized gain or loss on intercompany loan hedges within interest expense related to corporate debt, net.
During the years ended December 31, 2013 and 2012, the Company recorded losses of $11 million and
$17 million, respectively, on such items. There was no such item in the year ended December 31, 2011.
Adoption of New Accounting Standards During 2013
In January 2013, as a result of the issuance of a new accounting pronouncement, the Company adopted
Accounting Standards Update (“ASU”) No. 2012-2, “Testing Indefinite-Lived Intangible Assets for
Impairment,” which provides companies the option to first assess qualitative factors to determine whether
there are events or circumstances which would lead to a determination that it is more likely than not that the
indefinite-lived intangible asset is impaired, and it did not have an impact on the Company’s financial
statements.
In January 2013, as a result of issuance of a new accounting pronouncement, the Company adopted, as
required, ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive