Hertz 2014 Annual Report Download - page 120

Table of Contents
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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, the Company makes
periodic adjustments to depreciation rates of revenue earning equipment in response to changing 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.
Under the Company's car repurchase programs, the manufacturers agree to repurchase cars at a specified price or guarantee the depreciation rate
on the cars during established repurchase or auction periods, subject to, among other things, certain car condition, mileage and holding period
requirements. Guaranteed depreciation programs guarantee on an aggregate basis the residual value of the cars covered by the programs upon
sale according to certain parameters which include the holding period, mileage and condition of the cars. These repurchase and guaranteed
depreciation programs limit the Company's residual risk with respect to cars purchased under the programs and allow us to determine depreciation
expense in advance, however, typically the acquisition cost is higher for these program cars.
Donlen's revenue earning equipment is leased under long term agreements with customers. These leases contain provisions whereby the Donlen
has a contracted residual value guaranteed by the lessee, such that Donlen does not experience any gains or losses on the disposal of these
vehicles or adjustments to depreciation rates during the holding period.
The Company continually evaluates revenue earning equipment to determine whether events or changes in circumstances have occurred that may
warrant revision of the estimated useful life or whether the equipment should be evaluated for possible impairment. The Company uses a
combination of the undiscounted cash flows and market approaches in assessing whether an asset has been impaired. The Company measures
impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value.
During 2014, the Company decided to sell certain revenue earning equipment in its equipment rental business which has been categorized as held
for sale. As a result, the Company determined the fair value of these assets and recorded an impairment charge of $10 million.
During 2013, FSNA, the parent of Simply Wheelz LLC, or "Simply Wheelz," the owner and operator of Hertz’s divested Advantage brand, filed for
bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. As a result, Hertz performed an impairment analysis of the vehicles
subleased to Simply Wheelz and recorded an impairment charge of $40 million.
Public Liability and Property Damage
The obligation for public liability and property damage on self-insured U.S. and international vehicles and equipment represents an estimate for
both reported accident claims not yet paid, and claims incurred but not yet reported. The related liabilities are recorded on a non-discounted basis.
Reserve requirements are based on actuarial evaluations of historical accident claim experience and trends, as well as future projections of
ultimate losses, expenses, premiums and administrative costs. The adequacy of the liability is periodically monitored based on evolving accident
claim history and insurance-related state legislation changes. If the Company's estimates change or if actual results differ from these
assumptions, the amount of the recorded liability is adjusted to reflect these results.
Defined Benefit Pension Plans and Other Employee Benefits
The Company has defined benefit plans that cover various employees. The Company also participates in multi-employer defined benefit plans for
which Hertz is not the sponsor. For the Company sponsored plans, the relevant accounting guidance requires that management make certain
assumptions relating to discount rates, salary growth, long-term return on plan assets, retirement rates, mortality rates and other factors. The
Company believes that the accounting estimates related to its pension are critical accounting estimates, because they are susceptible to change
from period to period based on the performance of plan assets, actuarial valuations, market conditions and contracted benefit changes. The
selection of assumptions is based on historical trends and known economic and market conditions at the time of valuation, as well as independent
studies of trends performed by the Company’s actuaries. However, actual
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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