Hertz 2009 Annual Report Download - page 126

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Impairment of Long-Lived Assets and Intangibles
We review goodwill and indefinite-lived intangible assets 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, using a two-step process. The first step is to identify any potential impairment by
comparing the carrying value of the reporting unit to its fair value. We estimate the fair value of our
reporting units using a discounted cash flow methodology. The cash flows represent management’s
most recent planning assumptions. These assumptions are based on a combination of industry
outlooks, views on general economic conditions, our expected pricing plans and expected future
savings generated by our ongoing restructuring activities. If a potential impairment is identified, the
second step is to compare the implied fair value of goodwill with its carrying amount to measure the
impairment loss. The fair values of the assets are based upon our estimates of the discounted cash
flows. An impairment charge is recognized for the amount, if any, by which the carrying value of an asset
exceeds its implied fair value. Long-lived assets, other than goodwill and indefinite-lived intangible
assets, are tested for impairment whenever events or changes in circumstances indicate that the
carrying amounts of long-lived assets may not be recoverable. The fair values recoverability of these
assets are based upon our estimates of the undiscounted cash flows that are expected to result from the
use and eventual disposition of the assets. An impairment charge is recognized for the amount, if any, by
which the carrying value of an asset exceeds its fair value. Those intangible assets considered to have
indefinite useful lives, including our trade name, are evaluated for impairment on an annual basis, by
comparing the fair value of the intangible assets to their carrying value. In addition, whenever events or
changes in circumstances indicate that the carrying value of intangible assets might not be recoverable,
we will perform an impairment review. We estimate the fair value of our indefinite lived intangible assets
using the relief from royalty method. Intangible assets with finite useful lives are amortized over their
respective estimated useful lives and reviewed for impairment in accordance with GAAP. We conducted
the impairment review during the fourth quarter of 2009 and concluded that there was no impairment
related to our goodwill and our other intangible assets. See Note 2—Goodwill and Other Intangible
Assets.
Stock-Based Compensation
We measure the cost of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. That cost is to be recognized over the period during
which the employee is required to provide service in exchange for the award. We have estimated the fair
value of options issued at the date of grant using a Black-Scholes option-pricing model, which includes
assumptions related to volatility, expected life, dividend yield, risk-free interest rate and forfeiture rate.
See Note 5—Stock-Based Compensation.
We are using equity accounting for restricted stock unit and performance stock unit awards. For
restricted stock units the expense is based on the grant-date fair value of the stock and the number of
shares that vest, recognized over the service period. For performance stock units the expense is based
on the grant-date fair value of the stock, recognized over a two year service period depending upon a
performance condition. For performance stock units, we re-assess the probability of vesting at each
reporting period and if the target is not attained, we do not recognize any expense. The performance
condition is not considered in determining the grant date fair value.
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