Financial Instruments

Gasoline Swap Contracts

We purchase unleaded gasoline and diesel fuel at prevailing market rates and maintain a program to manage our exposure to changes in fuel prices through the use of derivative commodity instruments. We currently have in place swaps to cover a portion of our fuel price exposure through July 2014. We presently hedge a portion of our overall unleaded gasoline and diesel fuel purchases with commodity swaps and have contracts in place that settle on a monthly basis. Gains and losses resulting from changes in the fair value of these commodity instruments are included in our results of operations in the periods incurred.

Interest Rate Cap Contracts

Hertz is exposed to market risks, such as changes in interest rates, and has purchased and sold interest rate cap agreements to manage that risk. Consequently, we manage the financial exposure as part of our risk management program by striving to reduce the potentially adverse effects that the volatility of the financial markets may have on our operating results. Gains and losses resulting from changes in the fair value of these interest rate caps are included in our results of operations in the periods incurred.

Foreign Currency Forward Contracts

We 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.

Foreign Exchange Options

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 for working capital needs. 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.

The following table summarizes the estimated fair value of derivatives (in millions of dollars):



	Fair Value of Derivative Instruments⁽¹⁾
	Asset Derivatives⁽²⁾				Liability Derivatives⁽²⁾
	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Derivatives not designated as hedging
instruments under ASC 815:
Gasoline swaps	$	1.6	$	—	$	—	$	0.1
Interest rate caps	0.8		0.9		0.8		0.9
Foreign exchange forward contracts	2.7		3.4		4.4		4.5
Foreign exchange options	0.1		0.2		—		—
Total derivatives not designated as hedging
instruments under ASC 815	$	5.2	$	4.5	$	5.2	$	5.5

_______________________________________________________________________________


(1)	All fair value measurements were primarily based upon significant observable (Level 2) inputs.


(2)	All asset derivatives are recorded in "Prepaid expenses and other assets" and all liability derivatives are recorded in "Accrued liabilities" on our condensed consolidated balance sheets.

The following table summarizes the gains and (losses) of derivatives (in millions of dollars):



	Location of Gain or (Loss) Recognized on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives
		Three Months Ended March 31,
		2013			2012
Derivatives not designated as hedging
instruments under ASC 815:
Gasoline swaps	Direct operating	$	1.7		$	1.8
Interest rate caps	Selling, general and administrative	0.1			—
Foreign exchange forward contracts	Selling, general and administrative	4.1			(5.4		)
Foreign exchange options	Selling, general and administrative	(0.1		)	—
Total		$	5.8		$	(3.6	)

While our fuel derivatives, interest rate caps, foreign currency forward contracts and foreign exchange options are subject to enforceable master netting agreements with their counterparties, we do not offset the derivative assets and liabilities in our Condensed Consolidated Balance Sheets. The impact of offsetting derivative instruments is depicted below (in millions of dollars):



As of March 31, 2013:							Gross assets not offset in Balance Sheet
	Gross assets		Gross assets offset in Balance Sheet		Net recognized assets in Balance Sheet		Financial Instruments		Cash Collateral		Net Amount
Gasoline swap	$	1.6	$	—	$	1.6	$	—	$	—	$	1.6
Interest rate caps	0.8		—		0.8		—		—		0.8
Foreign exchange forward contracts	2.7		—		2.7		—		—		2.7
Foreign exchange options	0.1		—		0.1		—		—		0.1
Total	$	5.2	$	—	$	5.2	$	—	$	—	$	5.2



							Gross liabilities not offset in Balance Sheet
	Gross liabilities		Gross liabilities offset in Balance Sheet		Net recognized liabilities in Balance Sheet		Financial Instruments		Cash Collateral		Net Amount
Interest rate caps	$	0.8	$	—	$	0.8	$	—	$	—	$	0.8
Foreign exchange forward contracts	4.4		—		4.4		—		—		4.4
Total	$	5.2	$	—	$	5.2	$	—	$	—	$	5.2



As of December 31, 2012:							Gross assets not offset in Balance Sheet
	Gross assets		Gross assets offset in Balance Sheet		Net recognized assets in Balance Sheet		Financial Instruments		Cash Collateral		Net Amount
Interest rate caps	$	0.9	$	—	$	0.9	$	—	$	—	$	0.9
Foreign exchange forward contracts	3.4		—		3.4		—		—		3.4
Foreign exchange options	0.2		—		0.2		—		—		0.2
Total	$	4.5	$	—	$	4.5	$	—	$	—	$	4.5



							Gross liabilities not offset in Balance Sheet
	Gross liabilities		Gross liabilities offset in Balance Sheet		Net recognized liabilities in Balance Sheet		Financial Instruments		Cash Collateral		Net Amount
Gasoline swaps	$	0.1	$	—	$	0.1	$	—	$	—	$	0.1
Interest rate caps	0.9		—		0.9		—		—		0.9
Foreign exchange forward contracts	4.5		—		4.5		—		—		4.5
Total	$	5.5	$	—	$	5.5	$	—	$	—	$	5.5

Fair value measures

Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and we consider assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

The accounting guidance for fair value measurements also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The inputs are prioritized into three levels that may be used to measure fair value:

Level 1: Inputs that reflect quoted prices for identical assets or liabilities in active markets that are observable.

Level 2: Inputs that reflect quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3: Inputs that are unobservable to the extent that observable inputs are not available for the asset or liability at the measurement date.

Asset and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 were as follows (in millions):



	March 31, 2013
	Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Prepaid Expenses and Other Current Assets:
Gasoline swaps	$	1.6	$	—	$	1.6	$	—
Interest rate caps	0.8		—		0.8		—
Foreign currency forward contracts	2.7		—		2.7		—
Foreign exchange options	0.1		—		0.1		—
Total	$	5.2	$	—	$	5.2	$	—

Other Current Liabilities:
Interest rate caps	$	0.8	$	—	$	0.8	$	—
Foreign currency forward contracts	4.4		—		4.4		—
Total	$	5.2	$	—	$	5.2	$	—



	December 31, 2012
	Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Prepaid Expenses and Other Current Assets:
Interest rate caps	$	0.9	$	—	$	0.9	$	—
Foreign currency forward contracts	3.4		—		3.4		—
Foreign exchange options	0.2		—		0.2		—
Total	$	4.5	$	—	$	4.5	$	—

Other Current Liabilities:
Gasoline swaps	$	0.1	$	—	$	0.1	$	—
Interest rate caps	0.9		—		0.9		—
Foreign currency forward contracts	4.5		—		4.5		—
Total	$	5.5	$	—	$	5.5	$	—

Gasoline swaps

Gasoline swaps classified as Level 2 assets and liabilities are priced using quoted market prices for similar assets or liabilities in active markets.

Interest rate caps

Interest rate caps classified as Level 2 assets and liabilities are priced using quoted market prices for similar assets or liabilities in active markets.

Foreign currency forward contracts

Foreign currency forward contracts classified as Level 2 assets and liabilities are priced using quoted market prices for similar assets or liabilities in active markets.

Foreign exchange options

Foreign currency forward contracts classified as Level 2 assets and liabilities are priced using quoted market prices for similar assets or liabilities in active markets.

Fair Value of Financial Instruments

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the extent the underlying liability will be settled in cash, approximate carrying values because of the short-term nature of these instruments.

For borrowings with an initial maturity of 90 days or less, fair value approximates carrying value because of the short-term nature of these instruments. For all other debt, fair value is estimated based on quoted market rates as well as borrowing rates currently available to us for loans with similar terms and average maturities (Level 2 inputs). The aggregate fair value of all debt at March 31, 2013 was $17,700.5 million, compared to its aggregate unpaid principal balance of $16,337.0 million. The aggregate fair value of all debt at December 31, 2012 was $16,493.1 million, compared to its aggregate unpaid principal balance of $15,473.8 million.