Rayovac 2008 Annual Report Download - page 50

Table of Contents
Index to Financial Statements
of a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In accordance with SFAS 109, we
periodically assess the likelihood that our deferred tax assets will be realized and determine if adjustments to the valuation allowance are appropriate. As a result
of this assessment, we recorded a non-cash deferred income tax charge of approximately $257 million related to a valuation allowance against U.S. net deferred
tax assets during Fiscal 2008. In addition, we recorded a non-cash deferred income tax charge of approximately $3.6 million in the third quarter of Fiscal 2008
related to an increase in the valuation allowance against our net deferred tax assets in China in connection with the Ningbo Exit Plan. We also determined that a
valuation allowance was no longer required in Brazil and thus recorded a $30.9 million benefit in the third quarter of Fiscal 2008 to reverse the valuation
allowance previously established. Our total valuation allowance, established for the tax benefit of deferred tax assets that may not be realized, is approximately
$496 million at September 30, 2008. Of this amount, approximately $468 million relates to U.S. net deferred tax assets and approximately $28 million relates to
foreign net deferred tax assets.
SFAS 142 requires companies to test goodwill and indefinite-lived assets for impairment annually, or more often if an event or circumstance indicates that
an impairment loss may have been incurred. During Fiscal 2008 and 2007, the Company recorded non-cash pretax impairment charges of approximately $867
million and $362 million, respectively. The tax impact, prior to consideration of the current year valuation allowance, of the impairment charges was a deferred
tax benefit of approximately $145 million and $77 million respectively, because a significant portion of the impaired assets are not deductible for tax purposes .
See “Goodwill and Intangibles Impairment” above, as well as Note 2(c), Significant Accounting Policies and Practices—Intangible Assets, of Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information regarding these non-cash impairment charges.
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 that we recognize in our 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. We adopted the provision of FIN 48 on October 1, 2007. As a result of the adoption of
FIN 48, we recognized no cumulative effect adjustment. As of October 1, 2007 and September 30, 2008 we had approximately $8 million and $7 million of
unrecognized tax benefits, respectively, of which approximately $5 million, for both October 1, 2007 and September 30, 2008, would affect our effective tax rate
if recognized and approximately $3 million and $2 million, 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.
See Note 10, Income Taxes, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information regarding
the settlement of the tax examination in Germany.
Discontinued Operations. On November 1, 2007, we sold the Canadian division of the Home and Garden Business, which operated under the name
Nu-Gro, to a new company formed by RoyCap Merchant Banking Group and Clarke Inc. Cash proceeds received at closing, net of selling expenses, totaled
approximately $15 million and were used to reduce outstanding debt. These proceeds are included in net cash provided by investing activities of discontinued
operations in our Consolidated Statements of Cash Flows included in this Annual Report on Form 10-K. On February 5, 2008, we finalized the contractual
working capital adjustment in connection with this sale which increased our received proceeds by approximately $1 million. As a result of the finalization of the
contractual working capital adjustments we recorded a loss on disposal of approximately $1 million, net of tax benefit.
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Source: Spectrum Brands, Inc, 10-K, December 10, 2008