Hertz 2014 Annual Report Download - page 92

Table of Contents
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 
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On an annual basis and at interim periods when circumstances require, we test the recoverability of our goodwill and indefinite-lived intangible
assets. 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 2014, we performed our annual impairment analysis based upon market data as of October 1, 2014 and concluded that there
was no impairment related to our goodwill and our other indefinite lived intangible assets. At October 1, 2014, 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 4, "Goodwill and Other Intangible Assets " 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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Intangible assets include concession agreements, technology, customer relationships, trademarks and trade-names and other intangibles.
Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from
two to fifteen years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate
of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-
lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived assets to be disposed of are
reported at the lower of carrying amount or estimated fair value less costs to sell.
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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
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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