Rayovac 2007 Annual Report Download - page 59

SPECTRUM BRANDS | 2007 ANNUAL REPORT 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Spectrum Brands, Inc.
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,
2007 2006
Current deferred tax assets:
Employee benefits $ 2,774 $ 4,270
Restructuring 9,847 18,606
Inventories and receivables 16,870 17,503
Marketing and promotional accruals 3,776 3,192
Net operating loss and capital loss
carryforwards – 1,710
Other 14,689 9,455
Valuation allowance (24,315) (1,163)
Total current deferred tax assets 23,641 53,573
Current deferred tax liabilities:
Inventory (1,433) (1,839)
Other 0 (1,333)
Total current deferred tax liabilities (1,433) (3,172)
Net current deferred tax assets $ 22,208 $ 50,401
Noncurrent deferred tax assets:
Employee benefits $ 18,920 $ 21,533
Net operating loss and
credit carryforwards 354,506 237,922
Other 41,363 31,482
Valuation allowance (283,062) (65,692)
Total noncurrent deferred tax assets 131,727 225,245
Noncurrent deferred tax liabilities:
Property, plant, and equipment (30,080) (20,809)
Unrealized (gains)/losses (4,631) (7,966)
Intangibles (169,704) (299,428)
Other (96,400) (53,620)
Total noncurrent deferred tax liabilities (300,815) (381,823)
Net noncurrent deferred tax liabilities $ (169,088) $ (156,578)
Net current and noncurrent
deferred tax (liabilities) assets $ (146,880) $ (106,177)
Undistributed earnings of the Company’s foreign operations
amounting to approximately $329,952 and $272,072 at Septem-
ber 30, 2007 and 2006, respectively, are intended to remain per-
manently invested. Accordingly, no U.S. income taxes have been
provided on those earnings at September 30, 2007 and 2006. The
tax liability that would result from the distribution of these earn-
ings via a dividend distribution is not practicable to determine.
The Company, as of September 30, 2007, has U.S. federal and
state net operating loss carryforwards of approximately $763,308
and $1,141,205, respectively, which will expire between 2008
and 2027. The Company has foreign net operating loss carryfor-
wards of approximately $117,116 which will expire beginning in
2008. Certain of the foreign net operating losses have indefi nite
carryforward periods. As of September 30, 2006, the Company
has U.S. federal and state net operating loss carryforwards of
approximately $463,644 and $851,621, respectively. The Com-
pany has had a change of ownership, as defi ned 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 suffi cient taxable income of the
appropriate character in the future and in the appropriate taxing
jurisdictions. As of September 30, 2007 and September 30,
2006, the Company’s valuation allowance, established for the tax
benefi t that may not be realized, totaled approximately $307,376
and $66,855, respectively. As of September 30, 2007 and Sep-
tember 30, 2006, approximately $235,181 and $20,413, respec-
tively, related to U.S. net deferred tax assets, and approximately
$72,195 and $46,442, respectively, related to foreign net deferred
tax assets. The increase in the allowance during 2007 totaled
approximately $240,521, of which approximately $214,768
related to an increase in the valuation allowance against U.S. net
deferred tax assets, and approximately $25,753 related to an
increase 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 $4,600
was recorded as a reduction in other identifi ed intangible assets.
As of September 30, 2007, the remaining portion of the Brazil
valuation allowance that, upon reversal, would reduce other
identifi ed intangible assets was approximately $16,200.
The Company is continuously undergoing examination by vari-
ous 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 No. 109, “Accounting for Income Taxes,” and SFAS No. 5,
“Accounting for Contingencies,” the Company establishes 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. As of Septem-
ber 30, 2007 and 2006 the Company has recorded tax contin-
gency reserves of approximately $8,786 and $10,927, respectively.
The decrease of approximately $2,141 was primarily due to the
closure of the IRS examination for the periods ended Septem-
ber 30, 2001 through September 30, 2004 in the fourth quarter
of Fiscal 2007 and settlement of certain foreign examinations.
SFAS No. 142, “Goodwill and Other Intangible Assets” (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 2007 and 2006, the Company, as a
result of its testing, recorded non-cash pretax impairment
charges of $238,439 and $432,978, respectively. The tax impact,