Hertz 2011 Annual Report Download - page 169

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 locally. 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, 2011, were
approximately $0.3 million. We limit counterparties to the transactions to financial institutions that have
strong credit ratings. As of December 31, 2011 and 2010, the total notional amount of these foreign
exchange options was $9.1 million and $3.5 million, respectively. As of December 31, 2011, these
foreign exchange options mature through April 2013. The fair value of the foreign exchange options was
calculated using a discounted cash flow method and applying observable market data (i.e. foreign
currency exchange rates). 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 of December 31, 2011, the total notional amount of these forward contracts was
$743.9 million, maturing within four months. The fair value of these foreign currency forward contracts
was calculated based on foreign currency forward exchange rates.
On October 1, 2006, we designated our 7.875% Senior Notes due 2014 as an effective net investment
hedge of our Euro-denominated net investment in our international operations. Effective November 1,
2011, we dedesignated the net investment hedge, and as such, incurred unrealized gains of
$26.6 million for the year ended December 31, 2011, resulting from the translation of these
Euro-denominated notes into the U.S. dollar. As a result of the previous net investment hedge
designation, as of December 31, 2011 and 2010, losses of $19.4 million (net of tax of $13.2 million) and
$6.8 million (net of tax of $5.1 million), respectively, attributable to the translation of our 7.875% Senior
Notes due 2014 into the U.S. dollar are recorded in our consolidated balance sheet in ‘‘Accumulated
other comprehensive income (loss).’’
Note 14—Related Party Transactions
Relationship with Hertz Investors, Inc. and the Sponsors
Stockholders Agreement
In connection with the Acquisition, we entered into a stockholders agreement (as amended, the
‘‘Stockholders Agreement’’) with investment funds associated with or designated by the Sponsors. The
Stockholders Agreement contains agreements that entitle investment funds associated with or
designated by the Sponsors to nominate two nominees of an investment fund associated with CD&R
(one of whom shall serve as the chairman or, if the chief executive officer is the chairman, the lead
director), one nominee of investment funds associated with Carlyle, and one nominee of an investment
fund associated with BAMLCP. The Stockholders Agreement also provides that our chief executive
officer shall be designated as a director, unless otherwise approved by a majority of the Sponsor
Designees. In addition, the Stockholders Agreement provides that one of the nominees of an investment
fund associated with CD&R shall serve as the chairman of the executive and governance committee and,
unless otherwise agreed by this fund, as Chairman of our Board of Directors or lead director. In order to
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