Rayovac 2008 Annual Report Download - page 159

Table of Contents
Index to Financial Statements
SPECTRUM BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
has foreign net operating loss carryforwards of approximately $141,653 which will expire beginning in 2009. Certain of the foreign net operating losses have
indefinite carryforward periods. As of September 30, 2007 the Company has U.S. federal, state and foreign net operating loss carryforwards of approximately
$763,308, $1,141,205 and $117,116, respectfully. The Company has had a change of ownership, as defined under Internal Revenue Code Section 382, that
subjects the Company’s U.S. net operating losses to certain limitations. These limitations include an overall annual limitation and a limitation related to gains
generated upon the divestiture of certain assets.
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 sufficient taxable income of the appropriate character in the future and in the appropriate
taxing jurisdictions. As of September 30, 2008 and September 30, 2007, the Company’s valuation allowance, established for the tax benefit that may not be
realized, totaled approximately $495,970 and $307,376, respectively. As of September 30, 2008 and September 30, 2007, approximately $467,546 and $235,181,
respectively related to U.S. net deferred tax assets, and approximately $28,424 and $72,195, respectively related to foreign net deferred tax assets. The increase
in the allowance during 2008 totaled approximately $188,594, of which approximately $232,365 related to an increase in the valuation allowance against U.S. net
deferred tax assets, and approximately $43,771 related to a decrease in the valuation allowance against foreign net deferred tax assets. Included in the total
change in the valuation allowance related to foreign net deferred tax assets, approximately $23,781 was recorded as a reduction in other identified intangible
assets.
The Company is continuously undergoing examination by various taxing authorities. The IRS and other state and foreign taxing authorities routinely
challenge certain deductions and credits reported by the Company on its income tax returns. In accordance with SFAS 109, “Accounting for Income Taxes,” the
Company establishes reserves for tax contingencies that reflect 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. In 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN
48”), which clarifies the accounting for uncertainty in tax positions. FIN 48 requires the Company to recognize in its financial statements the impact of a tax
position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company adopted the provisions of
FIN 48 on October 1, 2007. As a result of the adoption of FIN 48, the Company recognized no cumulative effect adjustment. As of October 1, 2007 and
September 30, 2008, the Company had approximately $7,933 and $7,479 of unrecognized tax benefits, respectively, of which approximately $4,630 and $4,860,
respectively, would affect the Company’s effective tax rate if recognized and approximately $2,629 and $1,945, respectively, of which would result in a
reduction in goodwill if recognized. The change from October 1, 2007 to September 30, 2008 is primarily a result of the accrual of additional interest and
penalties and the settlement of a tax examination in Germany as further discussed below.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of October 1, 2007 and September 30, 2008,
the Company had approximately $1,525 and $1,806, respectively, of accrued interest and penalties related to uncertain tax positions.
The Company does not expect any significant increases in the unrecognized tax benefits within twelve months of the reporting date of this Annual Report
on Form 10-K.
The Company files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions and is subject to ongoing
examination by the various taxing authorities. The Company’s major taxing jurisdictions are the U.S. and Germany. In the U.S., federal tax filings for years prior
to and including the
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Source: Spectrum Brands, Inc, 10-K, December 10, 2008