Hertz 2014 Annual Report Download - page 94

Table of Contents
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 

For a discussion of recent accounting pronouncements, see Note 3, "Summary of Critical and Significant Accounting Policies — Recent
Accounting Pronouncements," to the Notes to our consolidated financial statements included in this Annual Report under the caption Item 8,
"Financial Statements and Supplementary Data.”


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.
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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 fuel 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.

We have a significant amount of debt with a mix of fixed and variable rates of interest. Floating rate debt carries 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 6, "Debt" to the Notes to our 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, 2014, our pre-
tax earnings would decrease by an estimated $75 million over a twelve-month period.
From time to time, we may enter into interest rate swap agreements and/or interest rate cap agreements to manage interest rate risk and our mix
of fixed and floating rate debt. See Note 16, "Financial Instruments" to the Notes to our consolidated financial statements included in this Annual
Report under the caption Item 8, "Financial Statements and Supplementary Data.”
Consistent with the terms of certain agreements governing the respective debt obligations, we may be required to hedge a portion of the floating
rate interest exposure under the various debt facilities to provide protection in respect of such exposure.

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 cross currency marketing programs. 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.
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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