Hertz 2012 Annual Report Download - page 125

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property and Equipment
Property and equipment are stated at cost and are depreciated utilizing the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are amortized over the estimated
useful lives of the related assets or leases, whichever is shorter. Useful lives are as follows:
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, 2012 and 2011, gains from the dispositions of property and equipment of $6.3 million and
$43.1 million, respectively, were included in ‘‘Direct operating’’ in our consolidated statements of
operations.
Revenue Earning Equipment
Revenue earning equipment is stated at cost, net of related discounts. Useful lives are as follows:
Cars ............................. 4 to 28 months
Other equipment .................... 24 to 108 months
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 Donlen, 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
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