Derivatives

9 Months Ended

Sep. 30, 2011

Derivatives

Derivatives

4. Derivatives

We recognize all derivative instruments as either assets or liabilities at fair value, and recognize changes in the fair value of the derivative instruments based on the designation of the derivative. For derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. As of September 30, 2011, we do not have any outstanding derivative instruments designated as fair value hedges. The effective portion of the changes in fair value of derivatives that are designated as cash flow hedges is recorded as a component of accumulated other comprehensive income. Amounts included in accumulated other comprehensive income for cash flow hedges are reclassified into earnings in the same period that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of derivatives designated as cash flow hedges is recorded currently in earnings. For derivative instruments that do not qualify for hedge accounting, we recognize gains or losses due to changes in fair value in our condensed consolidated statements of operations during the period in which the changes in fair value occur.

We are exposed to certain risks relating to our ongoing business operations. During the three and nine months ended September 30, 2011, the primary risks we managed using derivative instruments were diesel price risk and foreign currency exchange rate risk. At September 30, 2011, we had outstanding fixed price swap contracts on diesel purchases which were entered into to mitigate the price risk associated with forecasted purchases of diesel. During the nine months ended September 30, 2011, we entered into forward contracts to purchase Canadian dollars to mitigate the foreign currency exchange rate risk associated with certain Canadian dollar denominated intercompany loans. At September 30, 2011, there were no outstanding forward contracts to purchase Canadian dollars. The outstanding forward contracts on diesel purchases were designated and qualify as cash flow hedges and the forward contracts to purchase Canadian dollars, which were all settled as of September 30, 2011, represented derivative instruments not designated as hedging instruments.

Fixed Price Diesel Swaps

The fixed price swap contracts on diesel purchases that were outstanding at September 30, 2011 were designated and qualify as cash flow hedges and the effective portion of the gain or loss on these contracts is reported as a component of accumulated other comprehensive income and is reclassified into earnings in the period during which the hedged transaction affects earnings (i.e., when the hedged gallons of diesel are used). The remaining gain or loss on the fixed price swap contracts in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), is recognized in our condensed consolidated statements of operations during the current period. As of September 30, 2011, we had outstanding fixed price swap contracts covering 5.9 million gallons of diesel which will be purchased throughout 2011 and 2012.

Foreign Currency Forward Contracts

The forward contracts to purchase Canadian dollars, which were all settled as of September 30, 2011, represented derivative instruments not designated as hedging instruments and gains or losses due to changes in the fair value of the forward contracts were recognized in our condensed consolidated statements of operations during the period in which the changes in fair value occurred. During the nine months ended September 30, 2011, forward contracts were used to purchase $221 Canadian dollars, representing the total amount due at maturity for certain Canadian dollar denominated intercompany loans that were settled during the nine months ended September 30, 2011. Upon maturity, the proceeds from the forward contracts were used to pay down the Canadian dollar denominated intercompany loans.

Financial Statement Presentation

As of September 30, 2011 and December 31, 2010, less than $1 was reflected in prepaid expenses and other assets, $2 and $0, respectively, were reflected in accrued expenses and other liabilities, and $1 and less than $1, respectively, were reflected in accumulated other comprehensive income in our condensed consolidated balance sheets associated with the outstanding fixed price swap contracts that were designated and qualify as cash flow hedges.

The effect of our derivative instruments on our condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010 was as follows:

		Three Months Ended September 30, 2011					Three Months Ended September 30, 2010
	Location of  income (expense) recognized  on derivative/hedged item	Amount of  income (expense) recognized on  derivative		Amount of  income (expense) recognized on hedged item			Amount of  income (expense) recognized on  derivative		Amount of  income (expense) recognized on hedged item
Derivatives designated as hedging instruments:
Fixed price diesel swaps	Other income (expense), net (1)	$	*				$	*
	Cost of equipment rentals, excluding depreciation (2), (3)		*	$	(7	)		*	$	(3	)
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other income (expense), net		—		—			5		(5	)

		Nine Months Ended September 30, 2011					Nine Months Ended September 30, 2010
	Location of income (expense) recognized on derivative/hedged item	Amount of  income (expense) recognized on  derivative		Amount of  income (expense) recognized on hedged item			Amount of  income (expense) recognized on  derivative		Amount of  income (expense) recognized on hedged item
Derivatives designated as hedging instruments:
Fixed price diesel swaps	Other income (expense), net (1)	$	*				$	*
	Cost of equipment rentals, excluding depreciation (2), (3)		1	$	(17	)		*	$	(8	)
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other income (expense), net		4		(4	)		12		(12	)

* Amounts are insignificant (less than $1).

(1) Represents the ineffective portion of the fixed price diesel swaps.

(2) Amounts recognized on derivative represent the effective portion of the fixed price diesel swaps.

(3) Amounts recognized on hedged item reflect purchases of 1.7 million and 1.1 million gallons of diesel covered by the fixed price swaps during the three months ended September 30, 2011 and 2010, respectively, and purchases of 4.3 million and 2.7 million gallons of diesel covered by the fixed price swaps during the nine months ended September 30, 2011 and 2010, respectively.