Hertz 2012 Annual Report Download - page 127

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivative Instruments
We are exposed to a variety of market risks, including the effects of changes in interest rates, gasoline
and diesel fuel prices and foreign currency exchange rates. We manage our exposure to these market
risks through our regular operating and financing activities and, when deemed appropriate, through the
use of derivative financial instruments. Derivative financial instruments are viewed as risk management
tools and have not been used for speculative or trading purposes. In addition, derivative financial
instruments are entered into with a diversified group of major financial institutions in order to manage our
exposure to counterparty nonperformance on such instruments. We account for all derivatives in
accordance with GAAP, which requires that all derivatives be recorded on the balance sheet as either
assets or liabilities measured at their fair value. The effective portion of changes in fair value of derivatives
designated as cash flow hedging instruments is recorded as a component of other comprehensive
income. The ineffective portion is recognized currently in earnings within the same line item as the
hedged item, based upon the nature of the hedged item. For derivative instruments that are not part of a
qualified hedging relationship, the changes in their fair value are recognized currently in earnings. See
Note 14—Financial Instruments.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates is recognized in the statement of operations in
the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax
assets when it is more likely than not that a tax benefit will not be realized. Subsequent changes to
enacted tax rates and changes to the global mix of earnings will result in changes to the tax rates used to
calculate deferred taxes and any related valuation allowances. Provisions are not made for income taxes
on undistributed earnings of international subsidiaries that are intended to be indefinitely reinvested
outside of the United States or are expected to be remitted free of taxes. Future distributions, if any, from
these international subsidiaries to the United States or changes in U.S. tax rules may require a change to
reflect tax on these amounts. See Note 9—Taxes on Income.
Advertising
Advertising and sales promotion costs are expensed the first time the advertising or sales promotion
takes place. Advertising costs are reflected as a component of ‘‘Selling, general and administrative’’ in
our consolidated statements of operations and for the years ended December 31, 2012, 2011 and 2010
were $158.0 million, $145.8 million and $133.8 million, respectively.
Goodwill
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with Financial
Accounting Standards Board, or ‘‘FASB,’’ Accounting Standards Codification, or ‘‘ASC,’’ Topic 350,
‘‘Intangibles—Goodwill and Other,’’ or ‘‘ASC 350,’’ at the reporting unit level which is one level below our
operating segments. The assessment of goodwill impairment is conducted by estimating and
comparing the fair value of our reporting units, as defined in ASC 350, to their carrying value as of that
date. The fair value is estimated using an income approach whereby the fair value of the reporting unit is
based on the future cash flows that each reporting unit’s assets can be expected to generate. Future
cash flows are based on forward-looking information regarding market share and costs for each
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