Hertz 2013 Annual Report Download - page 42

Table of Contents

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 a 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 been in line with the long-term rate of return assumption. See Note 6 to the Notes to our
audited annual consolidated financial statements included in this Annual Report under the caption “Item 8—Financial Statements and
Supplementary Data.” For a discussion of the risks associated with our pension plans, see “Item 1A—Risk Factors” in this Annual Report.
Goodwill
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. Goodwill impairment is deemed to exist if the carrying value of goodwill exceeds its fair
value. Goodwill must be tested at least 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. A reporting unit is an operating segment or a business one level below that operating
segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However,
components are aggregated as a single reporting unit if they have similar economic characteristics. We estimate the fair value of our reporting
units using a discounted cash flow methodology. The key assumptions used in the discounted cash flow valuation model for impairment
testing include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates are set by using the Weighted
Average Cost of Capital, or “WACC,” methodology. The WACC methodology considers market and industry data as well as Company
specific risk factors for each reporting unit in determining the appropriate discount rates to be used. The discount rate utilized for each
reporting unit is indicative of the return an investor would expect to receive for investing in such a business. 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 past restructuring activities. Terminal value
rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected
period assuming a constant WACC and low long-term growth rates. 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. A significant decline in the projected cash flows or a
change in the WACC used to determine fair value could result in a future goodwill impairment charge.
In the fourth quarter 2013, we performed our annual impairment analysis based upon market data as of October 1, 2013 and concluded that
there was no impairment related to our goodwill and our other indefinite lived intangible assets. At October 1, 2013, we had five reporting
units: U.S. Car Rental, Europe Car Rental, Other International Car Rental, Donlen and Worldwide Equipment Rental.
We performed the impairment analyses for our reporting units, using our business and long-term strategic plans, revised to reflect the
current economic conditions. Our weighted average cost of capital used in the discounted cash flow model was calculated based upon the fair
value of our debt and our stock price with a debt to equity ratio comparable to our industry. The total fair value of our reporting units was then
compared to our market capitalization to ensure their reasonableness.
See Note 3 to the Notes to our audited annual consolidated financial statements included in this Annual Report under the caption “Item 8
—Financial Statements and Supplementary Data.”
Intangible and Long-lived Assets
We re-evaluate the estimated useful lives of our intangible assets annually or as circumstances change. 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. Intangible assets with finite useful lives are amortized over their respective estimated useful lives. 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.
39
Source: HERTZ CORP, 10-K, March 31, 2014 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.