Hertz 2007 Annual Report Download - page 163

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The principal items of the U.S. and foreign net deferred tax liability at December 31, 2007 and 2006 are as
follows (in thousands of dollars):
2007 2006
Deferred Tax Assets:
Employee benefit plans ................................. $ 155,478 $ 130,966
Net operating loss carryforwards ........................... 490,843 450,655
Foreign tax credit carryforwards ........................... 21,177 14,604
Federal and state tax credit carryforwards .................... 5,379 4,683
Accrued and prepaid expenses ............................ 161,718 89,809
Total Deferred Tax Assets ................................ 834,595 690,717
Less: Valuation Reserves ................................ (69,879) (70,102)
Total Net Deferred Tax Assets ............................. 764,716 620,615
Deferred Tax Liabilities:
Depreciation on tangible assets ............................ (1,414,946) (1,207,796)
Intangible assets ...................................... (1,146,869) (1,213,892)
Total Deferred Tax Liabilities .............................. (2,561,815) (2,421,688)
Net Deferred Tax Liability ............................... $(1,797,099) $(1,801,073)
As of December 31, 2007, deferred tax assets of $316.6 million related to U.S. Federal Net Operating
Loss, or ‘‘NOL,’’ carryforwards of $904.7 million were recorded. The total Federal NOL carryforwards are
$912.9 million which include $8.2 million of excess tax deductions associated with our stock option plans
which have yet to reduce taxes payable. The Federal NOLs begin to expire in 2025. Our state NOLs
associated with the Federal NOL exclusive of the effects of the excess tax deductions, have generated a
deferred tax asset of $91.9 million. The state NOLs begin to expire in 2010.
As of December 31, 2007, deferred tax assets of $82.3 million related to foreign NOL carryforwards were
recorded. Most of our foreign NOLs have an indefinite carryforward period; $44.0 million of the
$316.2 million of foreign NOLs begin to expire in 2016. The NOLs subject to expiration have a deferred
tax asset of $12.6 million. A valuation allowance of $56.2 million at December 31, 2007 was recorded
against a portion of the foreign NOL deferred tax assets as those deferred tax assets relate to
jurisdictions that have historical losses. The valuation allowance relates to the likelihood that a portion of
the NOL carryforwards may not be utilized in the future.
Approximately, $8.2 million of the NOL carryforwards are associated with excess tax deductions
resulting from our stock option plans. Upon the utilization of these carryforwards, the associated tax
benefits of approximately $3.2 million will be recorded to Additional Paid-in Capital.
As of December 31, 2007, we have recorded deferred tax assets for U.S. Foreign Tax Credit
carryforwards of $21.2 million, which will begin to expire in 2015 and various state tax credit
carryforwards of $5.4 million, which will begin to expire in 2027.
As of December 31, 2007, we have recorded valuation allowances of $69.9 million against our deferred
tax assets. Approximately $49.8 million of these valuation allowances, if and when released, will be
credited to goodwill.
During 2006, a third party was engaged to perform a comprehensive analysis of deferred taxes. The
deferred tax analysis resulted in a $159.4 million decrease to our deferred tax liability and a
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