Rayovac 2009 Annual Report Download - page 188

Table of Contents
Index to Financial Statements SPECTRUM BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
the Company’s foreign operations amounting to approximately $156,270 and $357,933 at September 30, 2009 (Successor Company) and September 2008
(Predecessor Company), respectively, are intended to remain permanently invested. Accordingly, no residual income taxes have been provided on those
earnings at September 30, 2009 and 2008. If at some future date, these earnings cease to be permanently invested the Company may be subject to United
States income taxes and foreign withholding and other taxes on such amounts. If such earnings were not considered permanently reinvested, a deferred tax
liability of approximately $58,000 would be required.
The Successor Company, as of September 30, 2009, has U.S. federal and state net operating loss carryforwards of approximately $597,595 and
$642,640, respectively which will expire between 2010 and 2029. The Company has foreign net operating loss carryforwards of approximately $137,852
which will expire beginning in 2010. Certain of the foreign net operating losses have indefinite carryforward periods. The Predecessor Company, as of
September 30, 2008 has U.S. federal, state and foreign net operating loss carryforwards of approximately $960,554, $854,264 and $141,653 respectively.
The Company is subject to an annual limitation on the use of its net operating losses that arose prior to its emergence from bankruptcy. The Company has
had multiple changes of ownership, as defined under IRC Section 382, that subject the Company’s US federal and state net operating losses and other tax
attributes to certain limitations. The annual limitation is based on a number of factors including the value of the Company’s stock (as defined for tax
purposes) on the date of the ownership change, its net unrealized built in gain position on that date, the occurrence of realized built in gains in years
subsequent to the ownership change, and the effects of subsequent ownership changes (as defined for tax purposes) if any. Based on these factors, the
Company projects that $148,784 of the total U.S. federal and $311,385 of the state net operating loss carryforwards will expire unused. The Company has
provided a full valuation allowance against the deferred tax asset.
The Predecessor Company recognized income tax expense of approximately $124,054 related to the gain on the settlement of liabilities subject to
compromise and the modification of the senior secured credit facility in the eleven month period ended August 30, 2009. The Company, intends, in
accordance with the IRC Section 108 to reduce its net operating loss carryforwards for any cancellation of debt income that arises from it’s emergence from
Chapter 11 of the Bankruptcy Code, under IRC Section 382(1)(6).
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 of the Company to generate sufficient taxable income of the appropriate character in the future
and in the appropriate taxing jurisdictions. As of September 30, 2009 (Successor Company) and September 30, 2008 (Predecessor Company), the
Company’s valuation allowance, established for the tax benefit that may not be realized, totaled approximately $132,688 and $495,970, respectively. As of
September 30, 2009 (Successor Company) and September 30, 2008 (Predecessor Company), approximately $108,493 and $467,546, respectively related to
U.S. net deferred tax assets, and approximately $24,195 and $28,424, respectively related to foreign net deferred tax assets. The decrease in the allowance
during Fiscal 2009 totaled approximately $363,282, of which approximately $359,053 related to a decrease in the valuation allowance against U.S. net
deferred tax assets, and approximately $4,229 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 the U.S. deferred tax assets, approximately $47,443 was recorded as a reduction to goodwill. Beginning
October 1, 2009, pursuant to ASC Topic 805: “Business Combinations,” formerly SFAS No. 141(R), “Business Combinations,” any reduction to the
valuation allowance will be reflected through continued operations.
The Company adopted ASC 740 on October 1, 2007 to evaluate its uncertain tax positions. The total amount of unrecognized tax benefits on the
Predecessor Company’s Consolidated Statements of Financial Position at September 30, 2008 and August 30, 2009 and the Successor Company at
September 30, 2009 are $6,755, $7,636,
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