Rayovac 2011 Annual Report Download - page 77

in Reorganization items expense (income), net. We have, in accordance with the IRC Section 108, reduced our
net operating loss carryforwards for cancellation of debt income that arose 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 Topic 740: “Income Taxes” (“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 required.
Our total valuation allowance for the tax benefit of deferred tax assets that may not be realized was
approximately $331 million at September 30, 2010. Of this amount, approximately $300 million relates to U.S.
net deferred tax assets and approximately $31 million relates to foreign net deferred tax assets. In connection
with the Merger, we established an additional valuation allowance of approximately $104 million related to
acquired net deferred tax assets as part of acquisition accounting. 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 New Spectrum income. Our
total valuation allowance established for the tax benefit of deferred tax assets that may not be realized is
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 relates to foreign net deferred tax assets.
ASC 740, which clarifies the accounting for uncertainty in tax positions, 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. As of September 30, 2010 and September 30, 2009, the total
amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future
periods was $13 million and $8 million, respectively. See Note 9, Income Taxes, of Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K for additional information.
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