Hertz 2009 Annual Report Download - page 175

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) Represents the amortization of amounts in ‘‘Accumulated other comprehensive loss’’ associated with the de-designation of
the previous cash flow hedging relationship as described below.
Amount of Gain or (Loss)
Location of Gain or (Loss) Recognized in Income
Recognized on Derivative on Derivative
Years ended December 31,
2009 2008
Derivatives Not Designated as Hedging
Instruments under ASC 815:
Gasoline swaps ................ Direct operating $7.4 $ —
Interest rate caps ............... Selling, general and administrative (2.6) —
Foreign exchange options ......... Selling, general and administrative 0.2 —
HIL swaptions ................. Selling, general and administrative — (2.2)
Total ...................... $5.0 $(2.2)
In connection with the Acquisition and the issuance of $3,550.0 million of floating rate U.S. Fleet Debt,
our subsidiary HVF entered into certain interest rate swap agreements, or the ‘‘HVF Swaps,’’ effective
December 21, 2005, which qualify as cash flow hedging instruments in accordance with GAAP. These
agreements mature at various terms, in connection with the scheduled maturity of the associated debt
obligations, through November 2010. Under these agreements, until February 2009, HVF was paying
monthly interest at a fixed rate of 4.5% per annum in exchange for monthly interest at one-month LIBOR,
effectively transforming the floating rate U.S. Fleet Debt to fixed rate obligations. In March 2009, HVF
made a cash payment to have the fixed rate on these swaps reset to the then current market rates of
0.872% and 1.25% for the swaps maturing in February 2010 and November 2010, respectively.
$80.4 million of this payment was made to an affiliate of MLGPE which is a counterparty to the HVF
Swaps. Concurrently with this payment, the hedging relationship was de-designated and the amount
remaining in ‘‘Accumulated other comprehensive loss’’ associated with this cash flow hedging
relationship was frozen and will be amortized into ‘‘Interest expense’’ over the respective terms of the
associated debt in accordance with GAAP. We expect to amortize approximately $68.8 million from
‘‘Accumulated other comprehensive loss’’ into ‘‘Interest expense’’ over the next twelve months.
Additionally, a new hedging relationship was designated between the HVF Swaps and the remaining
$2,825.0 million of floating rate U.S. Fleet Debt, which also qualifies for cash flow hedge accounting in
accordance with GAAP. Both at the inception of the hedge and on an ongoing basis, we measure
ineffectiveness by comparing the fair value of the HVF Swaps and the fair value of hypothetical swaps,
with similar terms, using the Hypothetical Method in accordance with GAAP. The hypothetical swaps
represent a perfect hedge of the variability in interest payments associated with the U.S. Fleet Debt.
Subsequent to the resetting of the swaps at current market rates, we anticipate that there will be no
ineffectiveness in the hedging relationship because the critical terms of the HVF Swaps match the terms
of the hypothetical swaps.
For the year ended December 31, 2009, we recorded an expense of $74.6 million in our consolidated
statement of operations, in ‘‘Interest expense,’’ associated with the amortization of the amount
remaining in ‘‘Accumulated other comprehensive loss’’ associated with the de-designation of the cash
flow hedging relationship described above. For the year ended December 31, 2008, we recorded an
expense of $11.8 million in our consolidated statement of operations, in ‘‘Interest expense,’’ associated
with the ineffectiveness of the HVF Swaps. The ineffectiveness in 2008 resulted from a decline in the
value of the HVF Swaps due to a decrease in forward interest rates along with a decrease in the time
value component as we approached the maturity dates of the HVF Swaps. The effective portion of the
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