Hertz 2011 Annual Report Download - page 106

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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, 2011 and 2010, the aggregate amounts accrued for environmental liabilities,
including liability for environmental indemnities, reflected in our consolidated balance sheets in ‘‘Other
accrued liabilities’’ were $1.5 million and $1.6 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’’ in this Annual
Report.
Market Risks
We are exposed to a variety of market risks, including the effects of changes in interest rates (including
credit spreads), foreign currency exchange rates and fluctuations in gasoline prices. 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 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 and/or interest rate cap agreements
to manage interest rate risk. See Notes 4 and 13 to the Notes to our audited annual consolidated
financial statements included in this Annual Report under the caption ‘‘Item 8—Financial Statements and
Supplementary Data.’’
We have a significant amount of debt with variable rates of interest based generally on LIBOR, Euro
inter-bank offered rate, or ‘‘EURIBOR,’’ or their equivalents for local currencies or bank conduit
commercial paper rates plus an applicable margin. Increases in interest rates could therefore
significantly increase the associated interest payments that we are required to make on this debt. See
Note 4 to the Notes to our audited annual consolidated financial statements included in this Annual
Report under the caption ‘‘Item 8—Financial Statements and Supplementary Data.’’
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