Hertz 2007 Annual Report Download - page 165

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of the adoption date, we had total unrecognized tax benefits of $20.3 million. As of December 31,
2007, we had total unrecognized tax benefits of $35.5 million, of which $8.2 million, if recognized, would
favorably impact the effective tax rate in future periods. The $27.3 million remaining balance of our
unrecognized tax benefits relates to pre-Acquisition items of $19.0 million and temporary difference
items of $8.3 million. To the extent that these items reverse, in the future, the pre-Acquisition items will
affect goodwill and the temporary items will affect current and deferred income tax expense in continuing
operations but will not have any effective rate impact.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
thousands of dollars):
2007
Balance at January 1, 2007 ............................................. $20,281
Increase attributable to tax positions taken during prior periods ................... 6,465
Increase attributable to tax positions taken during the current year ................. 9,496
Decrease attributable to settlements with taxing authorities ....................... (693)
Balance at December 31, 2007 ........................................... $35,549
We conduct business globally and, as a result, file one or more income tax returns in the U.S. federal
jurisdiction and various state and non-U.S. jurisdictions. In the normal course of business we are subject
to examination by taxing authorities throughout the world, including such major jurisdictions as
Australia, the Netherlands, Brazil, Canada, France, Germany, Italy, Spain, Ireland, the United Kingdom
and the United States. The open tax years for these jurisdictions span from 1997 to 2007. A tax
indemnification agreement entered into with Ford on the Closing Date indemnifies Hertz from U.S.
federal and unitary state, and certain combined non-U.S. income tax liabilities for all periods prior to
December 21, 2005.
In many cases our uncertain tax positions are related to tax years that remain subject to examination by
the relevant taxing authorities. We are not currently under audit by the Internal Revenue Service but are
under audit in several non-U.S. jurisdictions. It is reasonably possible that approximately $19.0 million of
unrecognized tax benefits may reverse within the next twelve months due to their settlement with the
relevant taxing authorities and/or the filing of amended income tax returns.
Net, after-tax interest and penalties related to the liabilities for unrecognized tax benefits are classified as
a component of ‘‘Provision for taxes on income’’ in our consolidated statement of operations. During
2007, we recognized approximately $2.2 million in net, after-tax interest and penalties. We had
approximately $12.0 million of net, after-tax interest and penalties accrued in our consolidated balance
sheet at December 31, 2007.
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