Rayovac 2010 Annual Report Download - page 82

operating loss carryforwards of approximately $138 million, which will expire beginning in 2010. Certain of the
foreign net operating losses have indefinite carryforward periods. As of September 30, 2008 we had U.S. federal,
foreign and state net operating loss carryforwards of approximately $960, $854 and $142 million, respectively,
which, at that time, were scheduled to expire between 2009 and 2028. Certain of the foreign net operating losses
have indefinite carryforward periods. We are subject to an annual limitation on the use of our net operating losses
that arose prior to its emergence from bankruptcy. We have had multiple changes of ownership, as defined under
Internal Revenue Code (“IRC”) Section 382, that subject us to U.S. 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 our stock (as defined for tax purposes) on the date of the ownership change, our 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, we
project that $149 million of the total U.S. federal and $311 million of the state net operating loss will expire
unused. We have provided a full valuation allowance against the deferred tax asset.
We recognized income tax expense of approximately $124 million related to the gain on the settlement of
liabilities subject to compromise and the modification of the senior secured credit facility in the period from
October 1, 2008 through August 30, 2009. This adjustment, net of a change in valuation allowance is embedded
in Reorganization items expense (income), net. We intend to reduce our net operating loss carryforwards for any
cancellation of debt income in accordance with IRC Section 108 that arises from our emergence from Chapter 11
of the Bankruptcy Code under IRC Section 382 (1)(6).
The ultimate realization of our deferred tax assets depends on our ability to generate sufficient taxable
income of the appropriate character in the future and in the appropriate taxing jurisdictions. We establish
valuation allowances for deferred tax assets when we estimate it is more likely than not that the tax assets will
not be realized. We base these estimates on projections of future income, including tax planning strategies, in
certain jurisdictions. Changes in industry conditions and other economic conditions may impact our ability to
project future income. ASC 740 requires the establishment 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 ASC 740, we
periodically assess the likelihood that our deferred tax assets will be realized and determine if adjustments to the
valuation allowance are appropriate. In 2009, Old Spectrum recorded a reduction in the valuation allowance
against the U.S. net deferred tax asset exclusive of indefinite lived intangible assets primarily as a result of
utilizing net operating losses to offset the gain on settlement of liabilities subject to compromise and the impact
of the fresh start reporting adjustments. New Spectrum recorded a reduction in the domestic valuation allowance
of $47 million as a reduction to goodwill as a result of the recognition of pre-fresh start deferred tax assets to
offset New Spectrum income. Our total valuation allowance established for the tax benefit of deferred tax assets
that may not be realized was approximately $133 million at September 30, 2009. Of this amount, approximately
$109 million relates to U.S. net deferred tax assets and approximately $24 million related to foreign net deferred
tax assets. 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. Included in the total is a non-cash
deferred income tax charge of approximately $4 million 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 $31 million benefit 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, was approximately $496 million at September 30, 2008. Of this amount,
approximately $468 million related to U.S. net deferred tax assets and approximately $28 million related to
foreign net deferred tax assets.
ASC 350 requires companies to test goodwill and indefinite-lived intangible assets for impairment annually,
or more often if an event or circumstance indicates that an impairment loss may have been incurred. During
Fiscal 2009 and Fiscal 2008, we recorded non- cash pretax impairment charges of approximately $34 million and
$861 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 $13 million and $143 million, respectively. See
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