Hertz 2014 Annual Report Download - page 95

Table of Contents
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We also manage exposure to fluctuations in currency risk on cross currency intercompany loans we make to certain of our subsidiaries by entering
into foreign currency forward contracts at the time of the loans are entered which are intended to offset the impact of foreign currency movements
on the underlying intercompany loan obligations.
We do not hedge our operating results against currency movement as they are primarily translational in nature. Using foreign currency forward
rates as of December 2014, we expect revenue growth to be negatively impacted by approximately 2% over a 12-month period. Additionally, each
1% point change in foreign currency movements is estimated to impact our adjusted pre-tax income by an estimated $3 million over a 12-month
period.

We purchase unleaded gasoline and diesel fuel at prevailing market rates. We are subject to price exposure related to the fluctuations in the price
of fuel. We anticipate that fuel risk will remain a market risk for the foreseeable future. We have determined that a 10% hypothetical change in the
price of fuel will not have a material impact on our earnings.

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 an 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, 2014 and part of 2010 and 2012. These programs allow 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 programs.
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. An LKE program for HERC has also been in place for several years. In addition, Dollar Thrifty and Donlen similarly used an LKE
program prior to our acquisition of these companies and both companies continue to use the LKE programs.
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-2014 U.S. net operating losses.
The Internal Revenue Service completed their audit of our 2007 to 2011 tax returns and had no changes to the previously filed tax returns.
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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