Sunbeam 2007 Annual Report Download - page 98

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no resulting adjustments by the IRS. The IRS is currently examining two of the Company’s subsidiaries for
periods prior to their acquisition by the Company. The years being audited for pre-acquisition periods include
fiscal tax years ended December 31, 2004 and January 24, 2005 for one subsidiary, and tax years ending
December 31, 2001 through December 31, 2004 for the other subsidiary. The Company and/or its subsidiaries are
also subject to state and foreign income tax audits. The Company believes that adequate amounts have been
reserved for any adjustments that may ultimately result from these examinations.
On October 22, 2004, the American Jobs Creation Act of 2004 (“Act”) was signed into law. The Act created
a special one-time dividends received deduction on the repatriation of certain foreign earnings to a United States
taxpayer, provided certain criteria are met. The Act provides for a special 85% dividends received deduction of
certain foreign earnings that are repatriated (as defined in the Act) prior to December 31, 2005. In December of
2005, the Company distributed cash from its foreign subsidiaries and reported an extraordinary dividend of
approximately $114. The total effect on income tax expense in 2005 for amounts repatriated under the Act is
approximately $1. In addition, the tax effect of such repatriation increased goodwill by approximately $5.6.
Generally, the Company’s intends to indefinitely reinvest undistributed earnings of certain of its foreign
subsidiaries outside the United States. As a result the Company has not provided for U.S. income taxes on
undistributed foreign earnings of approximately $523 at December 31, 2007. The Company intends to
permanently reinvest these earnings in the future growth of its foreign businesses under the guidance provided in
APB Opinion No. 23, “Accounting for Income Taxes—Special Areas”. Determination of the amount of
unrecognized deferred U.S. income liability is not practicable because of the complexities associated with its
hypothetical calculation. In 2007, the Company recorded a $9.7 deferred tax charge related to profits that were
deemed not to be permanently reinvested outside of the United States.
Effective January 1, 2007, the Company adopted the provisions of FIN 48. As a result, the Company now
applies a more-likely-than-not recognition threshold for all tax uncertainties. The Company measures and
recognizes a benefit for tax positions that meet the more-likely-than-not recognition threshold. For tax
uncertainties that have a greater than 50% likelihood of being sustained upon examination, the benefit is
measured based upon the likely amount to be realized upon ultimate settlement. As a result of the adoption of
FIN 48 the Company recognized a $0.6 decrease in retained earnings as of January 1, 2007.
The following table sets forth the details and the activity related to unrecognized tax benefit of and for the
year ended December 31, 2007 (in millions):
2007
Unrecognized tax benefits, January 1, ..................................... $68.0
Increases (decreases from):
Acquisitions ..................................................... 28.9
Tax positions taken during the current period ........................... 2.4
Tax positions taken during a prior period .............................. 5.8
Settlements with taxing authorities ................................... (9.5)
Other ........................................................... 1.1
Unrecognized tax benefits, December 31, .................................. $96.7
The Company’s gross unrecognized tax benefit at the date of adoption of FIN 48 is approximately $68. This
will differ from the amount which would affect the reported tax rate due to the impact of purchase accounting.
The amount of gross unrecognized tax benefits at adoption that, if recognized, would affect the reported tax rate
are approximately $22, and the amount of gross unrecognized tax benefits at adoption as a result of purchase
accounting are approximately $46. The amount of gross unrecognized tax benefits recorded at the date of
acquisition of K2 and Pure Fishing were approximately $26 and $3, respectively. During 2007, the Company
paid federal income tax of approximately $7 and interest of approximately $3 attributable to a recently agreed
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