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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2011

Goodwill and Other Intangible Assets

Note 4—Goodwill and Other Intangible Assets

The following summarizes the changes in our goodwill, by segment (in millions of dollars):

		Car Rental			Equipment Rental			Total

Balance as of January 1, 2011
	Goodwill	$	367.9		$	681.7		$	1,049.6
	Accumulated impairment losses		(46.1	)		(674.9	)		(721.0	)

			321.8			6.8			328.6

	Goodwill acquired during the period		50.9			0.2			51.1
	Adjustments to previously recorded purchase price allocation		(0.8	)		—			(0.8	)
	Other changes during the period⁽¹⁾		1.0			—			1.0

			51.1			0.2			51.3
Balance as of September 30, 2011
	Goodwill		419.0			681.9			1,100.9
	Accumulated impairment losses		(46.1	)		(674.9	)		(721.0	)

		$	372.9		$	7.0		$	379.9

		Car Rental			Equipment Rental			Total

Balance as of January 1, 2010
	Goodwill	$	367.3		$	677.5		$	1,044.8
	Accumulated impairment losses		(46.1	)		(674.9	)		(721.0	)

			321.2			2.6			323.8

	Goodwill acquired during the year		2.7			4.3			7.0
	Other changes during the year⁽¹⁾		(2.1	)		(0.1	)		(2.2	)

			0.6			4.2			4.8
Balance as of December 31, 2010
	Goodwill		367.9			681.7			1,049.6
	Accumulated impairment losses		(46.1	)		(674.9	)		(721.0	)

		$	321.8		$	6.8		$	328.6

(1): Primarily consists of changes resulting from the translation of foreign currencies at different exchange rates from the beginning of the period to the end of the period.

Other intangible assets, net, consisted of the following major classes (in millions of dollars):

				September 30, 2011

				Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Amortizable intangible assets:
	Customer-related			$	671.6	$	(349.3	)	$	322.3
	Other⁽¹⁾				73.9		(25.1	)		48.8

		Total			745.5		(374.4	)		371.1

Indefinite-lived intangible assets:
	Trade name				2,190.0		—			2,190.0
	Other⁽²⁾				18.2		—			18.2

		Total			2,208.2		—			2,208.2

			Total other intangible assets, net	$	2,953.7	$	(374.4	)	$	2,579.3

				December 31, 2010

				Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Amortizable intangible assets:
	Customer-related			$	606.5	$	(304.6	)	$	301.9
	Other⁽¹⁾				59.1		(18.6	)		40.5

		Total			665.6		(323.2	)		342.4

Indefinite-lived intangible assets:
	Trade name				2,190.0		—			2,190.0
	Other⁽²⁾				18.2		—			18.2

		Total			2,208.2		—			2,208.2

			Total other intangible assets, net	$	2,873.8	$	(323.2	)	$	2,550.6

(1): Other amortizable intangible assets primarily consist of our Advantage trade name and concession rights, Donlen trade name, reacquired franchise rights, non-compete agreements and technology-related intangibles.
(2): Other indefinite-lived intangible assets primarily consist of reacquired franchise rights.

Amortization of other intangible assets for the three months ended September 30, 2011 and 2010, was approximately $17.5 million and $16.3 million, respectively, and for the nine months ended September 30, 2011 and 2010, was approximately $51.2 million and $49.0 million, respectively. Based on our amortizable intangible assets as of September 30, 2011, we expect amortization expense to be approximately $17.7 million for the remainder of 2011, $72.5 million in 2012, $71.2 million in 2013, $67.9 million in 2014, $66.4 million in 2015 and $19.3 million in 2016.

Donlen Acquisition

On September 1, 2011, Hertz acquired 100% of the equity interest in Donlen, a leading provider of fleet leasing and management services. Donlen provides Hertz an immediate leadership position in long-term car, truck and equipment leasing and fleet management. This transaction is part of the overall growth strategy of Hertz to provide the most flexible transportation programs for corporate and general consumers. Additionally, Donlen brings to Hertz a specialized consulting and technology expertise that we expect to enable us to better model, measure and manage fleet performance. All goodwill recognized as part of this acquisition is reported in the car rental segment.

The Donlen base equity valuation for the transaction was $250.0 million, subject to adjustment based on the net assets of Donlen at closing. The preliminary purchase price adjustment at closing resulted in a downward adjustment of $2.4 million (resulting in a closing cash payment for equity of $247.6 million) and is subject to further adjustment upon finalization of the Donlen closing date balance sheet. None of the goodwill recognized as part of this acquisition is expected to be deductible for tax purposes.

The following summarizes the fair values of the assets purchased and liabilities assumed as of the acquisition date (in millions):


Cash and cash equivalents		$	35.6
Receivables			64.0
Prepaid expenses and other assets			7.0
Revenue earning equipment			1,120.6
Property and equipment			13.5
Other intangible assets			75.0
Goodwill			48.8
Accounts payable			(39.4	)
Accrued liabilities			(235.2	)
Deferred taxes on income			(113.5	)
Debt			(728.8	)

	Total	$	247.6

Other intangible assets and their amortization periods are as follows:

			Fair value (in millions)

Customer relationships		16	$	65.0
Trademark		20		7.0
Non-compete agreement		5		3.0

	Total		$	75.0

The amount of Donlen's revenue and earnings included in Hertz's consolidated statement of operations for the three and nine months ended September 30, 2011, and the revenue and earnings of the combined entity had the acquisition date been January 1, 2010, are as follows (in millions):

	Revenue		Earnings

Actual from 9/1/11–9/30/11	$	35.1	$	0.1
2011 supplemental pro forma from 7/1/11–9/30/11	$	2,500.8	$	216.9
2011 supplemental pro forma from 1/1/11–9/30/11	$	6,545.8	$	161.5
2010 supplemental pro forma from 7/1/10–9/30/10	$	2,272.1	$	138.6
2010 supplemental pro forma from 1/1/10–9/30/10	$	5,977.8	$	(2.6	)

Donlen's actual earnings for the month of September 2011 was impacted by $0.7 million related to the amortization expense associated with the acquired intangible assets and the fair value adjustment related to acquired software, as well as, the write-off of certain unamortized debt costs.

2011 supplemental pro forma revenue for the three and nine months ended September 30, 2011 excludes $0.6 million and $3.2 million, respectively, related to deferred revenue which was eliminated as part of acquisition accounting. 2011 supplemental pro forma earnings for the three and nine months ended September 30, 2011 excludes $0.4 million and $2.0 million, respectively, related to deferred income which was eliminated as part of acquisition accounting; and $5.3 million and $5.3 million, respectively, of acquisition related costs incurred in 2011.

2010 supplemental pro forma revenue for the three and nine months ended September 30, 2010 excludes $2.0 million and $7.0 million, respectively, related to deferred revenue which was eliminated as part of acquisition accounting. 2010 supplemental pro forma earnings for the three and nine months ended September 30, 2010 excludes $1.2 million and $4.3 million, respectively, related to deferred income which was eliminated as part of acquisition accounting, and includes $5.3 million and $5.3 million, respectively, of acquisition related costs incurred.

This transaction has been accounted for using the acquisition method of accounting in accordance with GAAP and operating results of Donlen from the date of acquisition are included in our consolidated statement of operations. The allocation of the purchase price to the tangible and intangible net assets acquired is preliminary and subject to finalization.

Other Acquisitions

Additionally, during the nine months ended September 30, 2011, we added eight international car rental locations and one domestic equipment rental location through external acquisitions. These acquisitions are not material to the consolidated amounts presented within our statement of operations for the three-month and nine-month periods ended September 30, 2011.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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