Hertz 2013 Annual Report Download - page 69

Table of Contents


The increased cost of vehicles is the primary inflationary factor affecting us. Many of our other operating expenses are also expected to
increase with inflation, including health care costs and gasoline. Management does not expect that the effect of inflation on our overall
operating costs will be greater for us than for our competitors.

In January 2006, we implemented a LKE Program for our U.S. car rental business. Pursuant to the program, we dispose of vehicles and
acquire replacement vehicles in a form intended to allow such dispositions and replacements to qualify as tax-deferred "like-kind exchanges"
pursuant to section 1031 of the Internal Revenue Code. The program has resulted in deferral of federal and state income taxes for fiscal years
2006 through 2009 and 2013, and part of 2010 and 2012. An LKE Program for HERC has also been in place for several years. The program
allows tax deferral if a qualified replacement asset is acquired within a specific time period after asset disposal. Accordingly, if a qualified
replacement asset is not purchased within this limited time period, taxable gain is recognized. Over the last few years, for strategic purposes,
such as cash management, we have recognized some taxable gains in the program. We cannot offer assurance that the expected tax deferral
will continue or that the relevant law concerning the programs will remain in its current form. An extended reduction in our car rental fleet
could result in reduced deferrals in the future, which in turn could require us to make material cash payments for federal and state income
tax liabilities. Our inability to obtain replacement financing as our fleet financing facilities mature would likely result in an extended reduction
in the fleet value. In August 2010, we elected to temporarily suspend the U.S. car rental LKE Program allowing cash proceeds from sales of
vehicles to be utilized for various business purposes, including paying down existing debt obligations, future growth initiatives and for
general operating purposes. From August 2010 through year end 2011, recognized tax gains on vehicle dispositions resulting from the LKE
suspension were more than offset by 100% tax depreciation on newly acquired vehicles. The U.S. car rental LKE Program was reinstated on
October 15, 2012. During 2012 the allowable 50% bonus depreciation helped offset tax gains during the period of LKE suspension.
Current year to date dispositions of Hertz Holdings' common stock by certain significant shareholders, when combined with other
dispositions of Hertz Holdings' stock over the previous 36 months, have not resulted in a change in control as that term is defined in Section
382 of the Internal Revenue Code. Consequently, there is no limitation on the utilization of all pre-2013 U.S. net operating losses.
The Internal Revenue service completed their audit of the company's 2007 to 2011 tax returns and had no changes to the previously filed tax
returns.

Pension
We sponsor defined benefit pension plans worldwide. Pension obligations give rise to significant expenses that are dependent on
assumptions discussed in 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." Our 2013 worldwide pre-tax pension expense is $38.1 million, which
represents an increase of $3.4 million from 2012. In general, pension expense increased from 2012 to 2013 due to a decrease in the
discount rates used to determine plan benefit obligations and a decrease in the long-term expected asset return assumption. The increase in
expense was offset somewhat by higher than assumed investment returns, company contributions to the plans and plan changes reducing
future benefit accruals.
The funded status (i.e., the dollar amount by which the projected benefit obligations exceeded the market value of pension plan assets) of our
U.S. qualified plan, in which most domestic employees participate, improved as of December 31, 2013, compared with December 31, 2012
because asset values increased due to gains in the securities markets. We contributed $18.7 million to our U.S. pension plan during 2013.
We expect to contribute between $25.0 million and $35.0 million to our U.S. plan during 2014. The level of 2014 and future contributions will
vary, and is dependent on a number of factors including investment returns, interest rate fluctuations, plan demographics, funding
regulations and the results of the final actuarial valuation.
We participate in various "multiemployer" pension plans. In the event that we withdraw from participation in one of these plans, then
applicable law could require us to make an additional lump-sum contribution to the plan, and we would have to reflect that as an expense in
our consolidated statement of operations and as a liability on our consolidated balance sheet. Our withdrawal liability for any multiemployer
plan would depend on the extent of the plan's funding of
66
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.