Hertz 2011 Annual Report Download - page 120

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Depreciable Assets
The provisions for depreciation and amortization are computed on a straight-line basis over the
estimated useful lives of the respective assets, or in the case of revenue earning equipment over the
estimated holding period, as follows:
Revenue Earning Equipment:
Cars ........................... 4 to 26 months
Other equipment .................. 24 to 108 months
Buildings ......................... 3 to 50 years
Furniture and fixtures ................. 1 to 15 years
Capitalized internal use software ......... 1 to 15 years
Service cars and service equipment ...... 1 to 13 years
Other intangible assets ............... 3 to 20 years
Leasehold improvements .............. The shorter of their economic lives or the lease term.
We follow the practice of charging maintenance and repairs, including the cost of minor replacements, to
maintenance expense accounts. Costs of major replacements of units of property are capitalized to
property and equipment accounts and depreciated on the basis indicated above. Gains and losses on
dispositions of property and equipment are included in income as realized. During the years ended
December 31, 2011 and 2010, gains from the dispositions of property and equipment of $43.1 million
and $5.7 million, respectively, were included in Direct operating in our consolidated statements of
operations.
Generally, when revenue earning equipment is acquired, we estimate the period that we will hold the
asset, primarily based on historical measures of the amount of rental activity (e.g., automobile mileage
and equipment usage) and the targeted age of equipment at the time of disposal. We also estimate the
residual value of the applicable revenue earning equipment at the expected time of disposal. The
residual values for rental vehicles are affected by many factors, including make, model and options, age,
physical condition, mileage, sale location, time of the year and channel of disposition (e.g., auction,
retail, dealer direct). The residual value for rental equipment is affected by factors which include
equipment age and amount of usage. Depreciation is recorded on a straight-line basis over the
estimated holding period. Depreciation rates are reviewed on a quarterly basis based on management’s
ongoing assessment of present and estimated future market conditions, their effect on 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.
Within our Donlen subsidiary, revenue earning equipment is under longer term lease agreements with
our customers. These leases contain provisions whereby we have a contracted residual value
guaranteed to us by the lessee, such that we do not experience any gains or losses on the disposal of
these vehicles. Therefore depreciation rates on these vehicles are not adjusted at any point in time per
the associated lease contract.
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