Hertz 2008 Annual Report Download - page 182

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2008, deferred tax assets of $282.0 million were recorded for U.S. Federal Net
Operating Losses, or ‘‘NOL,’’ carryforwards of $805.7 million. The total Federal NOL carryforwards are
$814.2 million of which $8.5 million relate to excess tax deductions associated with stock option plans
which have yet to reduce taxes payable. Upon the utilization of these carryforwards, the associated tax
benefits of approximately $3.0 million will be recorded to Additional Paid-in Capital. The Federal NOLs
begin to expire in 2025. State NOLs associated with the Federal NOL, exclusive of the effects of the
excess tax deductions, have generated a deferred tax asset of $62.9 million. The state NOLs begin to
expire in 2010.
On January 1, 2009, Bank of America acquired a majority equity interest in Merrill Lynch & Co. For U.S.
income tax purposes the transaction, when combined with other unrelated transactions during the
previous 36 months, may have resulted in a change in control as that term is defined in Section 382 of the
Internal Revenue Code. Consequently, utilization of all pre-2009 U.S. net operating losses may be
subject to an annual limitation. The limitation is not expected to result in a loss of net operating losses or
have a material adverse impact on taxes.
As of December 31, 2008, deferred tax assets of $119.8 million were recorded for foreign NOL
carryforwards of $515.2 million, of which $428.8 million have an indefinite carryforward period. The
remaining foreign NOLs of $86.4 million are subject to expiration and begin to expire in 2015. The
deferred tax assets related to the NOLs subject to expiration amount to $25.6 million. A valuation
allowance of $73.9 million at December 31, 2008 was recorded against a portion of the total deferred tax
assets of $119.8 million because those assets relate to jurisdictions that have historical losses and the
likelihood exists that a portion of the NOL carryforwards may not be utilized in the future.
As of December 31, 2008, deferred tax assets for U.S. Foreign Tax Credit carryforwards were
$20.8 million which relate to credits generated as of December 31, 2007. The carryforwards will begin to
expire in 2015. A valuation allowance of $13.5 million at December 31, 2008 was recorded against a
portion of the U.S. foreign tax credit deferred tax assets in the likelihood that they may not be utilized in
the future. A deferred tax asset was also recorded for various state tax credit carryforwards of
$3.9 million, which will begin to expire in 2027.
As of December 31, 2008, total valuation allowances of $123.2 million were recorded against deferred
tax assets.
The significant items in the reconciliation of the statutory and effective income tax rates consisted of the
following:
Years ended December 31,
2008 2007 2006
Statutory Federal Tax Rate ............................... 35.0% 35.0% 35.0%
Foreign tax differential ................................... (3.3) (5.6) (4.8)
State and local income taxes, net of federal income tax benefit ..... 0.6 2.1 2.3
Effect of impairment charges .............................. (16.6) — —
Increase (decrease) in valuation allowance .................... (1.0) — 4.9
Change in statutory rates ................................ 0.1 (8.0) (5.4)
All other items, net ..................................... (0.6) 3.0 1.9
Effective Tax Rate .................................... 14.2% 26.5% 33.9%
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