Hertz 2008 Annual Report Download - page 94

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
residual values at the time of disposal and the estimated holding periods. Market conditions for used
vehicle and equipment sales can also be affected by external factors such as the economy, natural
disasters, fuel prices and incentives offered by manufacturers of new cars. These key factors are
considered when estimating future residual values and assessing depreciation rates. As a result of this
ongoing assessment, we make periodic adjustments to depreciation rates of revenue earning
equipment in response to changed market conditions. Upon disposal of revenue earning equipment,
depreciation expense is adjusted for the difference between the net proceeds received and the
remaining net book value.
See Note 6 to the Notes to our consolidated financial statements included in this Annual Report under
the caption ‘‘Item 8—Financial Statements and Supplementary Data.’’
Public Liability and Property Damage
The obligation for public liability and property damage on self-insured U.S. and international vehicles
and equipment represents an estimate for both reported accident claims not yet paid, and claims
incurred but not yet reported. The related liabilities are recorded on a non-discounted basis. Reserve
requirements are based on actuarial evaluations of historical accident claim experience and trends, as
well as future projections of ultimate losses, expenses, premiums and administrative costs. The
adequacy of the liability is regularly monitored based on evolving accident claim history and insurance
related state legislation changes. If our estimates change or if actual results differ from these
assumptions, the amount of the recorded liability is adjusted to reflect these results. Our actual results as
compared to our estimates have historically resulted in relatively minor adjustments to our recorded
liability.
Pensions
Our employee pension costs and obligations are dependent on our assumptions used by actuaries in
calculating such amounts. These assumptions include discount rates, salary growth, long-term return
on plan assets, retirement rates, mortality rates and other factors. Actual results that differ from our
assumptions are accumulated and amortized over future periods and, therefore, generally affect our
recognized expense in such future periods. While we believe that the assumptions used are appropriate,
significant differences in actual experience or significant changes in assumptions would affect our
pension costs and obligations. The various employee-related actuarial assumptions (e.g., retirement
rates, mortality rates, salary growth) used in determining pension costs and plan liabilities are reviewed
periodically by management, assisted by the enrolled actuary, and updated as warranted. The discount
rate used to value the pension liabilities and related expenses and the expected rate of return on plan
assets are the two most significant assumptions impacting pension expense. The discount rate used is
an actual market-based spot rate as of the valuation date. For the expected return on assets assumption,
we use a forward-looking rate that is based on the expected return for each asset class (including the
value added by active investment management), weighted by the target asset allocation. The past
annualized long-term performance of the Plans’ assets has generally exceeded the long-term rate of
return assumption. See Note 4 to the Notes to our consolidated financial statements included in this
Annual Report under the caption ‘‘Item 8—Financial Statements and Supplementary Data.’’
Goodwill and Other Intangible Assets
We review goodwill for impairment whenever events or changes in circumstances indicate that the
carrying amount of the goodwill may not be recoverable, and also review goodwill annually in
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