Rayovac 2005 Annual Report Download - page 104

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,
2005 2004
Current deferred tax assets:
Employee benefits
$ 6,487 $ 3,331
Restructuring 6,750 2,010
Inventories and receivables 12,085 7,300
Marketing and promotional accruals 6,280 1,208
Net operating loss carryforwards 5,081 8,337
Other 3,823 252
Valuation allowance – (178)
Total current deferred tax assets 40,506 22,260
Current deferred tax liabilities:
Property, plant and equipment (680) (2,650)
Inventory – (347)
Other (595) (30)
Total current deferred tax liabilities (1,275) (3,027)
Net current deferred tax assets $ 39,231 $19,233
Noncurrent deferred tax assets:
Employee benefits $ 22,803 $ 9,943
Net operating loss and credit carryforwards 162,547 66,803
Marketing and promotional accruals 552 1,660
Other 16,930 4,550
Valuation allowance (37,673) (11,304)
Total noncurrent deferred tax assets 165,159 71,652
Noncurrent deferred tax liabilities:
Property, plant, and equipment (109,340) (13,763)
Currency hedges – (9,111)
Intangibles (257,239) (55,423)
Other (6,831) (627)
Total noncurrent deferred tax liabilities (373,410) (78,924)
Net noncurrent deferred tax liabilities $(208,251) $ (7,272)
Net current and noncurrent deferred tax
(liabilities) assets $(169,020) $11,961
Undistributed earnings of the Company’s foreign
operations amounting to approximately $189,329
and $129,245 at September 30, 2005 and 2004,
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, 2005
and 2004.
The Company, as of September 30, 2005, has
U.S. federal and state net operating loss carryfor-
wards of approximately $339,084 and $314,820,
respectively, which will expire between 2008 and
2024. Annual limitations apply to a portion of these
net operating loss carryforwards. The Company has
foreign net operating loss carryforwards of approxi-
mately $106,757 which will expire between 2005
and 2013. At September 30, 2005, 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,
2005, the Company’s valuation allowance, estab-
lished for the tax benefi t that may not be realized,
totaled $37,673. Of this amount, approximately
$19,684 related to U.S. domestic and foreign net
operating losses, and $17,989 related to foreign
deferred tax assets. Changes in the allowance dur-
ing 2005 were primarily due to the inclusion of
$26,369, of which $1,586 related to the tax benefi t
of net operating loss carryforwards of Rayovac
Argentina and Rayovac Venezuela, $100 related to
the state tax benefi t of net operating loss carryfor-
wards of Spectrum, $24,433 related to the acquired
deferred tax assets of Microlite, and $250 related to
the state tax benefi t of the acquired net operating
loss carryforwards of United Industries Corp. These
acquired assets, if subsequently realized, will reduce
goodwill or other non-current intangible assets of the
acquired entities. In addition, the valuation allow-
ance was reduced by $178 as tax benefi ts of
Rayovac Chile’s net operating loss are expected
to be realized.
During 2004, the Company recognized a deferred
tax liability of $17,000 which was established for
the difference in the book basis and tax basis of the
VARTA trade name. The establishment of this liability
increased the value of goodwill associated with the
VARTA acquisition.
The Company is continuously undergoing exami-
nation by the Internal Revenue Service (“IRS”), as
well as various state and foreign 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 examinations in Germany and the
Netherlands. In addition, in accordance with SFAS
109, “Accounting for Income Taxes,” and SFAS 5,
“Accounting for Contingencies,” the Company estab-
lishes reserves for tax contingencies 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.
2005 Form 10-K Annual Report
Spectrum Brands, Inc.
SPECTRUM BRANDS, INC.84