Hertz 2008 Annual Report Download - page 202

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
interest rate caps on December 31, 2008 were an asset of $0.3 million and a liability of $0.3 million. The
fair value of these interest rate caps was calculated using a discounted cash flow method and applying
observable market data. Gains and losses resulting from changes in the fair value of these interest rate
caps are included in our results of operations in the periods incurred.
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 options 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, 2008 were approximately $0.5 million and we limit counterparties to financial institutions
that have strong credit ratings. At December 31, 2008, the total notional amount of these foreign
exchange options was $15.1 million, maturing at various dates in 2009 and 2010, and the fair value of all
outstanding foreign exchange options, was approximately $0.5 million. The fair value of the foreign
currency options was calculated using a discounted cash flow method and applying observable market
data. Gains and losses resulting from changes in the fair value of these options are included in our
results of operations.
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, 2008, the total notional amount of
these forwards was $381.7 million, maturing within one month. The total notional amount includes
forwards translated into U.S. dollar equivalent amounts as follows (in millions of dollars):
Buy
New Zealand U.S.
Sell Euro Dollar Dollar
Euro ............................................... $ — $ — $ 57.6
Australian Dollar ....................................... — 10.4 64.0
Canadian Dollar ....................................... 28.4 — 182.0
Brazilian Real ......................................... — — 13.9
Swiss Franc .......................................... — — 25.4
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 international 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
international operations. As a result of this net investment hedge designation, as of December 31, 2008
and December 31, 2007, losses of $15.7 million (net of tax of $12.6 million) and $27.8 million (net of tax of
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