Hertz 2013 Annual Report Download - page 68

Table of Contents
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For more information on these exposures, see Note 15 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.”
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
Note 15 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 5 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 assessed our exposure to changes in interest rates by analyzing the sensitivity to our earnings assuming various changes in
market interest rates. Assuming a hypothetical increase of one percentage point in interest rates on our debt portfolio as of December 31,
2013, our net income would decrease by an estimated $32.8 million over a twelve-month period.
Consistent with the terms of the agreements governing the respective debt obligations, we may hedge a portion of the floating rate interest
exposure under the various debt facilities to provide protection in respect of such exposure.
Foreign Currency Risk
We have foreign currency exposure to exchange rate fluctuations worldwide and primarily with respect to the Euro, Canadian dollar,
Australian dollar and British pound.
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.
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.
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 de-designated the net investment hedge.
For the years ended December 31, 2013, 2012 and 2011, our consolidated statement of operations contained realized and unrealized losses
relating to the effects of foreign currency of $9.4 million, $10.6 million and $6.7 million, respectively.
See Note 15 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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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 fuel prices through the use of derivative commodity instruments. For the years ended December 31, 2013, 2012 and 2011, we
recognized gains of $2.2 million, $0.7 million and $2.6 million, respectively, in “Direct operating” on our consolidated statement of
operations relating to our gasoline swaps. See Note 15 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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Source: HERTZ CORP, 10-K, March 31, 2014 Powered by Morningstar® Document Research℠
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