Hertz 2009 Annual Report Download - page 177

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
on June 4, 2008, HIL purchased two new swaptions for e8.6 million, to protect itself from interest rate
increases associated with the International ABS Fleet Financing Facility, which closed on July 24, 2008.
These swaptions were based on an underlying transaction with a notional amount of e600 million at an
interest rate of 4.25%. During the year ended December 31, 2008, the fair value adjustments related to
these swaptions were an unrealized loss of $12.0 million and a realized gain of $9.8 million, respectively,
which were recorded in our consolidated statement of operations in ‘‘Selling, general and
administrative’’ expenses. On October 10, 2008, the outstanding swaptions were terminated and Hertz
received a e1.9 million payment from counterparties.
We purchase unleaded gasoline and diesel fuel at prevailing market rates. In January 2009, we began a
program to manage our exposure to changes in prices through the use of derivative commodity
instruments. We currently have in place swaps to cover a portion of our exposure through December
2010. We presently hedge a portion of our overall unleaded gasoline and diesel fuel purchases with
commodity swaps and have contracts in place that settle on a monthly basis. As of December 31, 2009,
our outstanding commodity instruments for unleaded gasoline and diesel fuel totaled approximately
10.5 million gallons and 2.9 million gallons, respectively. The fair value of these commodity instruments
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 commodity instruments are included in our
results of operations in the periods incurred.
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, 2009, were approximately $0.1 million and we limit counterparties to financial institutions
that have strong credit ratings. As of December 31, 2009 and 2008, the total notional amount of these
foreign exchange options was $0.3 million and $15.1 million, respectively, maturing through February
2010, and the fair value of all outstanding foreign exchange options, was approximately $0.0 million and
$0.5 million, respectively, which was recorded in our consolidated balance sheet in ‘‘Prepaid expenses
and other assets.’’ The fair value of the foreign exchange 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 in the periods incurred.
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 which are
intended to offset the impact of foreign currency movements on the underlying intercompany loan
obligations. As a result, the forward contracts have no material impact on our results of operations. As of
December 31, 2009, the total notional amount of these forward contracts was $1,040.7 million, maturing
within two months.
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, 2009 and 2008, losses of $19.2 million (net of tax of
$17.8 million) and $15.7 million (net of tax of $12.6 million), respectively, 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 loss.’’
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