Hertz 2014 Annual Report Download - page 90

Table of Contents
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of market conditions, to set depreciation rates. Generally, when revenue earning equipment is acquired outside of a car repurchase program, we
estimate the period that we will hold the asset, primarily based on historical measures of the amount of rental activity (e.g., automobile mileage
and equipment usage) and the targeted age of equipment at the time of disposal. We also estimate the residual value of the applicable revenue
earning equipment at the expected time of disposal. The residual values for rental vehicles are affected by many factors, including make, model
and options, age, physical condition, mileage, sale location, time of the year and channel of disposition (e.g., auction, retail, dealer direct). The
residual value for rental equipment is affected by factors which include equipment age and amount of usage. Depreciation is recorded over the
estimated holding period. Depreciation rates are reviewed on a quarterly basis based on management's ongoing assessment of present and
estimated future market conditions, their effect on residual 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. Depreciation rates are adjusted
prospectively through the remaining expected life. As a result of this ongoing assessment, we make 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 any difference between the net proceeds received and the remaining net book value and a corresponding gain or loss is recorded.
Under our 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 our 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.
Within Donlen, revenue earning equipment is leased under longer term agreements with our customers. These leases contain provisions whereby
we have a contracted residual value guaranteed to us by the lessee, such that we do not experience any gains or losses on the disposal of these
vehicles.
See Note 9, "Revenue Earning Equipment"to the Notes to our consolidated financial statements included in this Annual Report under the caption
Item 8, "Financial Statements and Supplementary Data."
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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 rental volume and 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 regularly monitored based on
evolving accident claim history and insurance related state legislation changes. If our estimates change or if actual results differ from these
assumptions, the amount of the recorded liability is adjusted to reflect these results.

We have defined benefit plans that cover various employees. We also participate in multi-employer defined benefit plans for which Hertz is not the
sponsor. Our employee pension costs and obligations are dependent on our assumptions used by actuaries in calculating such amounts. These
assumptions include discount rates, salary growth, long-term return on plan assets, retirement rates, mortality rates and other factors. Actual
results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense
in such future periods. While we believe that 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 and 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
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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