Hertz 2015 Annual Report Download - page 79

Table of Contents
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 
The assumed volatility for our stock is based on our historical stock price data. The assumed dividend yield is zero. The risk-free interest rate is
the implied zero-coupon yield for U.S. Treasury securities having a maturity approximately equal to the expected term of the options, as of the
grant dates. The non-cash stock-based compensation expense associated with the Hertz Global Holdings, Inc. Stock Incentive Plan (“Stock
Incentive Plan”) the Hertz Global Holdings, Inc. Director Stock Incentive Plan (“Director Plan”) and the Hertz Global Holdings, Inc. 2008 Omnibus
Incentive Plan (“Omnibus Plan”) are pushed down from Hertz Holdings and recorded on the books at the Hertz level. See Note 8, "Stock-Based
Compensation," to the Notes to our consolidated financial statements included in this Annual Report under the caption Item 8, "Financial
Statements and Supplementary Data.”

We record acquisitions resulting in the consolidation of an enterprise using the acquisition method of accounting. Under this method, the acquiring
company records the assets acquired, including intangible assets that can be identified and named, and liabilities assumed based on their
estimated fair values at the date of acquisition. The purchase price in excess of the fair value of the assets acquired and liabilities assumed is
recorded as goodwill. If the assets acquired, net of liabilities assumed, are greater than the purchase price paid then a bargain purchase has
occurred and we will recognize the gain immediately in earnings. Among other sources of relevant information, we may use independent appraisals
and actuarial or other valuations to assist in determining the estimated fair values of the assets and liabilities. Various assumptions are used in the
determination of these estimated fair values including discount rates, market and volume growth rates, expected royalty rates, EBITDA margins
and other prospective financial information. Transaction costs associated with acquisitions are expensed as incurred.
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For a discussion of recent accounting pronouncements, see Note 2, "Summary of Critical and Significant Accounting Policies," — "Recent
Accounting Pronouncements," to the Notes to our consolidated financial statements included in this Annual Report under the caption Item 8,
"Financial Statements and Supplementary Data.”


For a discussion of additional risks arising from our operations, including vehicle liability, general liability and property damage insurable risks, see
“Item 1—Business—Risk Management” in this Annual Report.
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We are exposed to a variety of market risks, including the effects of changes in interest rates (including credit spreads), foreign currency
exchange rates and fluctuations in fuel prices. We manage our exposure to these market risks through our regular operating and financing
activities and, when deemed appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk
management tools and have not been used for speculative or trading purposes. In addition, derivative financial instruments are entered into with a
diversified group of major financial institutions in order to manage our exposure to counterparty nonperformance on such instruments.

We have a significant amount of debt with a mix of fixed and variable rates of interest. Floating rate debt carries interest based generally on
LIBOR, Euro inter-bank offered rate (“EURIBOR”) or their equivalents for local currencies or bank conduit commercial paper rates plus an
applicable margin. Increases in interest rates could therefore significantly increase the associated interest payments that we are required to make
on this debt. See Note 6, "Debt," to the Notes to our consolidated financial statements included in this Annual Report under the caption Item 8,
"Financial Statements and Supplementary Data.”
We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our earnings assuming various changes in market
interest rates. Assuming a hypothetical increase of one percentage point in interest rates
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