Hertz 2007 Annual Report Download - page 182

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Currency Risk
We manage our foreign currency risk primarily by incurring, to the extent practicable, operating and
financing expenses in the local currency in the countries in which we operate, including making fleet and
equipment purchases and borrowing for working capital needs. Also, we have purchased foreign
exchange options to manage exposure to fluctuations in foreign exchange rates for selected marketing
programs. The effect of exchange rate changes on these financial instruments would not materially
affect our consolidated financial position, results of operations or cash flows. Our risks with respect to
foreign exchange option contracts are limited to the premium paid for the right to exercise the option and
the future performance of the option’s counterparty. Premiums paid for options outstanding as of
December 31, 2007 were approximately $0.3 million and we limit counterparties to financial institutions
that have strong credit ratings. At December 31, 2007, the total notional amount of these foreign
exchange options was $8.0 million, maturing at various dates in 2008 and 2009, and the fair value of all
outstanding foreign exchange options, was approximately $0.1 million. The fair value of the foreign
currency options were estimated using market prices provided by financial institutions. Gains and losses
resulting from changes in the fair value of these options are included in our results of operations. The
total notional amount included options to sell Euro, Canadian dollars and yen in the amounts of
$4.6 million, $2.4 million and $1.0 million, respectively.
We also manage exposure to fluctuations in currency risk on intercompany loans we make to certain of
our subsidiaries by entering into foreign currency forward contracts at the time of the loans. The forward
rate is reflected in the intercompany loan rate to the subsidiaries, and as a result, the forward contracts
have no material impact on our results of operations. At December 31, 2007, the total notional amount of
these forwards was $230.2 million, maturing within one to four months. The total notional amount
includes forwards translated into U.S. dollar equivalent amounts as follows (in millions of dollars):
Buy
Canadian New Zealand Australian
Sell Dollar Dollar Dollar
Euro ............................................ $205.1 — —
Australian Dollar ................................... — $13.8 —
U.S. Dollar ....................................... — — $11.3
In connection with the Transactions, we issued e225 million of Senior Euro Notes. Prior to October 1,
2006, our Senior Euro Notes were not designated as a net investment hedge of our Euro-denominated
net investments in our foreign operations. For the nine months ended September 30, 2006, we incurred
unrealized exchange transaction losses of $19.2 million, resulting from the translation of these
Euro-denominated notes into the U.S. dollar, which are recorded in our consolidated statement of
operations in ‘‘Selling, general and administrative’’ expenses. On October 1, 2006, we designated our
Senior Euro Notes as an effective net investment hedge of our Euro-denominated net investment in our
foreign operations. As a result of this net investment hedge designation, as of December 31, 2007,
$27.8 million of losses, which are net of tax of $18.3 million, attributable to the translation of our Senior
Euro Notes into the U.S. dollar, are recorded in our consolidated balance sheet in ‘‘Accumulated other
comprehensive income.’’
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