Hertz 2013 Annual Report Download - page 123

Table of Contents
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million will be recorded to Additional paid-in capital. The Federal NOLs begin to expire in 2025. State NOLs exclusive of the effects of the
excess tax deductions, have generated a deferred tax asset of $142.2 million. The state NOLs expire over various years beginning in 2014
depending upon particular jurisdiction.
As of December 31, 2013, deferred tax assets of $233.4 million were recorded for foreign NOL carry forwards of $994.2 million. A valuation
allowance of $201.0 million at December 31, 2013 was recorded against these deferred tax assets because those assets relate to jurisdictions
that have historical losses and the likelihood exists that a portion of the NOL carry forwards may not be utilized in the future.
The foreign NOL carry forwards of $994.2 million include $722.5 million which have an indefinite carry forward period and associated
deferred tax assets of $155.4 million. The remaining foreign NOLs of $271.7 million are subject to expiration beginning in 2015 and have
associated deferred tax assets of $78.0 million.
As of December 31, 2013, deferred tax assets for U.S. Foreign Tax Credit carry forwards were $20.8 million which relate to credits generated
as of December 31, 2007. The carry forwards will begin to expire in 2015. A valuation allowance of $13.5 million at December 31, 2013 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 carry forwards of $3.0 million, which will begin to expire in 2027.
In determining the valuation allowance, an assessment of positive and negative evidence was performed regarding realization of the net
deferred tax assets in accordance with ASC 740-10, “Accounting for Income Taxes,” or “ASC 740-10.” This assessment included the
evaluation of scheduled reversals of deferred tax liabilities, the availability of carry forwards and estimates of projected future taxable income.
Based on the assessment, as of December 31, 2013, total valuation allowances of $279.4 million were recorded against deferred tax assets.
Although realization is not assured, we have concluded that it is more likely than not the remaining deferred tax assets of $2,069.2 million
will be realized and as such no valuation allowance has been provided on these assets.
The significant items in the reconciliation of the statutory and effective income tax rates consisted of the following:
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Statutory Federal Tax Rate
35.0 %
35.0 %
35.0 %
Foreign tax differential
(2.4)
(3.2)
(3.5)
State and local income taxes, net of federal income tax benefit
4.5
2.9
4.0
Change in state statutory rates, net of federal income tax benefit
(0.1)
(1.0)
0.6
Federal and foreign permanent differences
4.9
2.3
0.5
Withholding taxes
1.7
1.7
2.1
Uncertain tax positions
(0.5)
(0.6)
(0.9)
Change in valuation allowance
5.1
8.0
0.6
All other items, net
(1.5)
—
0.2
Effective Tax Rate
46.7 %
45.1 %
38.6 %
The effective tax rate for the year ended December 31, 2013 was 46.7% as compared to 45.1% in the year ended December 31, 2012. The
provision for taxes on income increased $122.8 million, primarily due to higher income before income taxes, changes in geographic
earnings mix, increased state and local tax expense, increase in deductible interest limitations in various countries and other permanent
differences; offset by a decrease in valuation allowance relating to losses in certain non-U.S. jurisdictions for which tax benefits are not
realized. See Note 9 to the Notes to our consolidated financial statements included in this Annual Report under the caption "Item 8
—Financial Statements and Supplementary Data."
As of December 31, 2013, our foreign subsidiaries have $475.0 million of undistributed earnings which could be subject to taxation if
repatriated. Deferred tax liabilities have not been recorded for such earnings because it is management’s current intention to permanently
reinvest such undistributed earnings offshore. Due to the uncertainty caused by the
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Source: HERTZ CORP, 10-K, March 31, 2014 Powered by Morningstar® Document Research℠
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