Rayovac 2006 Annual Report Download - page 96

84 SPECTRUM BRANDS | 2006 ANNUAL REPORT
The tax effects of temporary differences, which give rise to
signifi cant portions of the deferred tax assets and deferred tax
liabilities, are as follows:
September 30,
2006 2005
Current deferred tax assets:
Employee benefits $ 4,270 $ 6,487
Restructuring 18,606 6,750
Inventories and receivables 17,503 12,085
Marketing and promotional accruals 3,192 6,280
Net operating loss and capital
loss carryforwards 1,710 5,081
Other 9,455 3,823
Valuation allowance (1,163) –
Total current deferred tax assets 53,573 40,506
Current deferred tax liabilities:
Property, plant and equipment (680)
Inventory (1,839) –
Other (1,333) (595)
Total current deferred tax liabilities (3,172) (1,275)
Net current deferred tax assets $ 50,401 $ 39,231
Noncurrent deferred tax assets:
Employee benefits $ 21,533 $ 22,803
Net operating loss and credit
carryforwards 237,922 162,547
Marketing and promotional accruals 1,993 552
Other 29,489 16,930
Valuation allowance (65,692) (37,673)
Total noncurrent deferred tax assets 225,245 165,159
Noncurrent deferred tax liabilities:
Property, plant, and equipment (20,809) (109,340)
Currency hedges (7,966) –
Intangibles (299,428) (257,239)
Other (53,620) (6,831)
Total noncurrent deferred tax liabilities (381,823) (373,410)
Net noncurrent deferred tax liabilities $(156,578) $(208,251)
Net current and noncurrent
deferred tax (liabilities) assets $(106,177) $(169,020)
Undistributed earnings of the Company’s foreign opera-
tions amounting to approximately $272,072 and $189,329 at
September 30, 2006 and 2005, respectively, are intended to
remain permanently invested to fi nance future growth and
expansion. Accordingly, no U.S. income taxes have been pro-
vided on those earnings at September 30, 2006 and 2005.
The Company, as of September 30, 2006 and 2005, respec-
tively, has U.S. federal and state net operating loss carryforwards
of approximately $463,644 and $339,084 which will expire
between 2008 and 2025. Annual limitations apply to a portion of
these net operating loss carryforwards. The Company has foreign
net operating loss carryforwards of approximately $110,220
which will expire between 2007 and 2013. At September 30,
2006, the Company has recorded a deferred tax asset for the
benefi t of these losses.
A valuation allowance is recorded when it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of the deferred tax assets
depends on the ability to generate suffi cient taxable income of
the appropriate character in the future and in the appropriate
taxing jurisdictions. As of September 30, 2006, the Company’s
valuation allowance, established for the tax benefi t that may not
be realized, totaled $66,855. Of this amount, approximately
$38,560 related to U.S. domestic net operating losses, and
$28,295 related to foreign deferred tax assets. Changes in the
allowance during 2006 were primarily due to the inclusion of
$29,182, of which $1,527 related to the tax benefi t of net oper-
ating loss carryforwards of Rayovac Argentina, Microlite and
Rayovac Chile, $18,876 related to the state tax benefi t of net
operating loss carryforwards of Spectrum, and $8,779 related to
the SFAS 142 impairment charge in Brazil. It is the Company’s
expectation that its ability to utilize certain of its U.S. federal net
operating loss carryforwards, which totaled approximately
$370,000 at September 30, 2006, will be realized upon its dives-
titure of certain assets on favorable contractual terms. The
Company expects such sale to be consummated during the sec-
ond quarter of fi scal 2007.
The Company is continuously undergoing examination by the
Internal Revenue Service (“IRS”), as well as various state and for-
eign jurisdictions. The IRS and other taxing authorities routinely
challenge certain deductions and credits reported by the
Company on its income tax returns. During 2005, the Company
accrued $849 in connection with the settlement of tax examina-
tions in Germany and the Netherlands. In addition, in accordance
with SFAS 109, “Accounting for Income Taxes,” and SFAS 5, “Accounting
for Contingencies,” the Company establishes reserves for tax con-
tingencies that refl ect its best estimate of the deductions and
credits that it may be unable to sustain, or that it could be willing
to concede as part of a broader tax settlement. As of September
30, 2006 and 2005, the Company has recorded tax contingency
reserves of approximately $7,733 and $5,600, respectively. The
increase of $2,133 was due to additional years remaining open
under statute as the IRS examination for the periods ending
September 30, 2001 through September 30, 2004 remain open
at year-end. In addition, the Company recorded an additional
$1,314 related to tax contingencies associated with certain for-
eign entities.
SFAS 142 requires companies to test goodwill and indefi nite-
lived intangible assets for impairment annually, or more often if an
event or circumstance indicates that an impairment loss may have
been incurred. During 2006, the Company recorded a SFAS 142
impairment of $432,978. The tax impact of the impairment charge
was limited to a deferred tax benefi t of $43,424 as a result of a
signifi cant portion of the impaired assets not being deductible for
tax purposes.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.