Energizer 2008 Annual Report Download - page 35

ENERGIZER HOLDINGS, INC. 2008 Annual Report 33
In 2007 and 2006, $4.3 and $5.7, respectively, of tax benefits related
to prior years’ losses were recorded. These benefits related to foreign
countries where our subsidiary subsequently began to generate earn-
ings and could reasonably expect future profitability sufficient to utilize
tax loss carryforwards prior to expiration. Improved profitability in Mexico
in 2007 and 2006 account for the bulk of the benefits recognized.
Adjustments were recorded in each of the three years to revise
previously recorded tax accruals to reflect refinement of tax attribute
estimates to amounts in filed returns, settlement of tax audits and
changes in estimates related to uncertain tax positions in a number
of jurisdictions. Such adjustments increased the income tax provision
by $1.1 in 2008 and decreased the income tax provision by $7.9 and
$10.9 in 2007 and 2006, respectively. Also, legislation enacted in Ger-
many reduced the tax rate applicable to the Company’s subsidiaries in
Germany for fiscal 2008 and beyond. Thus, an adjustment of $9.7 was
made to reduce deferred tax liabilities in fiscal 2007.
The deferred tax assets and deferred tax liabilities recorded on the bal-
ance sheet as of September 30 for the years indicated are as follows
and include current and noncurrent amounts:
2008 2007
Deferred tax liabilities:
Depreciation and property differences $(108.1) $ (71.0)
Intangible assets (528.4) (39.4)
Pension plans (11.3) (33.8)
Other tax liabilities (16.3) (9.8)
Gross deferred tax liabilities (664.1) (154.0)
Deferred tax assets:
Accrued liabilities 119.0 73.3
Deferred and stock-related compensation 89.2 92.3
Tax loss carryforwards and tax credits 15.2 21.2
Intangible assets 32.4 35.3
Postretirement benefits other than pensions 5.4 10.6
Inventory differences 23.7 19.4
Other tax assets 18.1 19.0
Gross deferred tax assets 303.0 271.1
Valuation allowance (9.1) (4.9)
Net deferred tax (liabilities)/assets $(370.2) $112.2
There were no material tax loss carryforwards that expired in 2008.
Future expirations of tax loss carryforwards and tax credits, if not
utilized, are as follows: 2009, $0; 2010, $0.2; 2011, $0.2; 2012,
$1.3; thereafter or no expiration, $13.5. The valuation allowance
is attributed to tax loss carryforwards and tax credits outside the U.S.
The valuation allowance increased $4.2 in 2008 due primarily to the
Playtex acquisition.
At September 30, 2008, approximately $650 of foreign subsidiary
retained earnings was considered indefinitely invested in those busi-
nesses. U.S. income taxes have not been provided for such earnings.
It is not practicable to determine the amount of unrecognized deferred
tax liabilities associated with such earnings.
The Company adopted the provisions of FIN 48 on October 1, 2007.
At the date of adoption of FIN 48, the Company had $34.5 of unrecog-
nized tax benefits in the financial statements, excluding the unrecognized
tax benefit from the Playtex acquisition. Of this amount, the impact of
the cumulative change in accounting principle at adoption of FIN 48
was immaterial.
Unrecognized tax benefits activity for the year ended September 30,
2008 is summarized below:
2008
Unrecognized tax benefits, beginning of year $34.5
Additions based on current year tax positions and acquisitions 14.3
Reductions for prior year tax positions (1.8)
Unrecognized tax benefits, end of year $47.0
Included in the unrecognized tax benefits noted above are $43.5 of
uncertain tax positions that would affect the Company’s effective tax
rate, if recognized. The Company does not expect any significant
increases or decreases to their unrecognized tax benefits within twelve
months of this reporting date. In the Consolidated Balance Sheets,
unrecognized tax benefits are classified as other liabilities (non-current)
to the extent that payment is not anticipated within one year.
Prior to the adoption of FIN 48, only interest expense on underpay-
ments of income taxes was included in the income tax provision.
Penalties were classified as an operating expense in arriving at pre-tax
income. Upon adoption of FIN 48, the Company elected a new
accounting policy, as permitted by FIN 48, to also classify accrued
penalties related to unrecognized tax benefits in the income tax provi-
sion. The Company has accrued approximately $5.8 of interest and
$0.7 of penalties in the income tax provision. Interest was computed
on the difference between the tax position recognized in accordance
with FIN 48 and the amount previously taken or expected to be taken
in the Company’s tax returns.
The Company files income tax returns in the U.S. federal jurisdiction,
various city, state, and more than 40 foreign jurisdictions where the
Company has operations. U.S. federal income tax returns for tax years
ended September 30, 2003 and after remain subject to examination
by the Internal Revenue Service. With few exceptions, the Company is
no longer subject to state and local income tax examinations for years
before September 30, 2002. The status of international income tax
examinations varies by jurisdiction. The Company does not anticipate
any material adjustments to its financial statements resulting from tax
examinations currently in progress.
6. RESTRUCTURING AND RELATED CHARGES
The Company continually reviews its Household Products and Per-
sonal Care business models to identify potential improvements and
cost savings. A project commenced in 2006 to improve effectiveness
and reduce costs of European packaging, warehouse and distribution
activities, including the closing of the Company’s battery packaging
facility in Caudebec, France, as well as consolidation of warehouse
and distribution activities. The Company also commenced a project to
integrate Household Products and Personal Care commercial manage-
ment, sales and administrative functions in certain European countries.
In 2008, 2007 and 2006, total pre-tax charges related to these projects
were $3.2, $18.2 and $37.4, respectively. Virtually all of the costs in
2008 and 2007 were reflected in SG&A expense. Total pre-tax charges
related to the projects were $37.4 in fiscal 2006, and include exit costs