Hertz 2008 Annual Report Download - page 132

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
each of the Sponsors and certain other claims and liabilities, including liabilities arising out of financing
arrangements or securities offerings. We also entered into indemnification agreements with each of our
directors in connection with the initial public offering of our common stock in November 2006. We do not
believe that these indemnifications are reasonably likely to have a material impact on us.
Environmental
We have indemnified various parties for the costs associated with remediating numerous hazardous
substance storage, recycling or disposal sites in many states and, in some instances, for natural
resource damages. The amount of any such expenses or related natural resource damages for which we
may be held responsible could be substantial. The probable expenses that we expect to incur for such
matters have been accrued, and those expenses are reflected in our consolidated financial statements.
As of December 31, 2008 and 2007, the aggregate amounts accrued for environmental liabilities,
including liability for environmental indemnities, reflected in our consolidated balance sheet in ‘‘Other
accrued liabilities’’ were $2.2 million and $2.7 million, respectively. The accrual generally represents the
estimated cost to study potential environmental issues at sites deemed to require investigation or
clean-up activities, and the estimated cost to implement remediation actions, including on-going
maintenance, as required. Cost estimates are developed by site. Initial cost estimates are based on
historical experience at similar sites and are refined over time on the basis of in-depth studies of the sites.
For many sites, the remediation costs and other damages for which we ultimately may be responsible
cannot be reasonably estimated because of uncertainties with respect to factors such as our connection
to the site, the materials there, the involvement of other potentially responsible parties, the application of
laws and other standards or regulations, site conditions, and the nature and scope of investigations,
studies, and remediation to be undertaken (including the technologies to be required and the extent,
duration, and success of remediation).
Risk Management
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.’’
Market Risks
We are exposed to a variety of market risks, including the effects of changes in interest rates and foreign
currency exchange rates. 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 historically 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. For more information on these exposures, see
Note 13 to the Notes to our consolidated financial statements included in this Annual Report under the
caption ‘‘Item 8—Financial Statements and Supplementary Data.’’
Interest Rate Risk
From time to time, we may enter into interest rate swap agreements to manage interest rate risk. In
connection with the Acquisition and the issuance of $3,550.0 million of floating rate U.S. Fleet Debt, HVF
entered into the HVF Swaps effective December 21, 2005, which qualify as cash flow hedging
instruments in accordance with SFAS No. 133. These agreements mature at various terms, in
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