Hertz 2014 Annual Report Download - page 122

Table of Contents
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in the same period that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of financial instruments
designated as cash flow hedges is recognized currently in earnings within the same line item as the hedged item, based upon the nature of the
hedged item. For financial instruments that are not part of a qualified hedging relationship, the changes in their fair value are recognized currently
in earnings.
Stock-Based Compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value
of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. The
Company has estimated the fair value of options issued at the date of grant using a Black-Scholes option-pricing model, which includes
assumptions related to volatility, expected life, dividend yield and risk-free interest rate.
The Company accounts for restricted stock unit and performance stock unit awards as equity classified awards. For restricted stock units the
expense is based on the grant-date fair value of the stock and the number of shares that vest, recognized over the service period. For
performance stock units the expense is based on the grant-date fair value of the stock, recognized over a two to four year service period
depending upon the applicable performance condition. For performance stock units, the Company re-assesses the probability of achieving the
applicable performance condition each reporting period and adjusts the recognition of expense accordingly.
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 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 recording a tax on these amounts. The Company has recorded a
deferred tax asset for unutilized net operating loss carryforwards in various tax jurisdictions. Upon utilization, the taxing authorities may examine
the positions that led to the generation of those net operating losses. If the utilization of any of those losses are disallowed a deferred tax liability
may have to be recorded.
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Revenue Recognition
The Company derives revenue through rental activities by the operations and licensing of the Hertz, Dollar, Thrifty and Firefly brands under
franchise agreements. The Company also derives revenue from other forms of rental related activities, such as sales of loss damage waivers,
insurance products, fuel and fuel service charges, navigation units, new equipment sales and other consumable items. Revenue is recognized
when persuasive evidence of an arrangement exists, the services have been rendered to customers, the pricing is fixed or determinable and
collection is reasonably assured.
Franchise fees are based on a percentage of net sales of the franchised business and are recognized as earned and when collectability is
reasonably assured. Initial franchise fees are recorded as deferred income when received and are recognized as revenue when all material
services and conditions related to the franchise fee have been substantially performed. Renewal franchise fees are recognized as revenue when
the license agreements are effective and collectability is reasonably assured.
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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