JAH » Topics » 7. Income Taxes

These excerpts taken from the JAH 10-K filed Feb 23, 2009.

Income taxes

The Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.

Additionally, the Company recognizes tax benefits for certain tax positions based upon judgments as to whether it is more likely than not that a tax position will be sustained upon examination. The measurement of tax positions that meet the more-likely-than-not recognition threshold are based in part on estimates and assumptions as to be the probability of an outcome, along with estimated amounts to be realized upon any settlement. While the Company believes the resulting tax balances at December 31, 2008 and 2007 are fairly stated based upon these estimates, the ultimate resolution of these tax positions could result in favorable or unfavorable adjustments to its consolidated financial statements and such adjustments could be material. See Note 12 to the consolidated financial statements for further information regarding taxes.

Income taxes

FACE="Times New Roman" SIZE="2">The Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely than not to be realized. While the Company has considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.

Additionally, the
Company recognizes tax benefits for certain tax positions based upon judgments as to whether it is more likely than not that a tax position will be sustained upon examination. The measurement of tax positions that meet the more-likely-than-not
recognition threshold are based in part on estimates and assumptions as to be the probability of an outcome, along with estimated amounts to be realized upon any settlement. While the Company believes the resulting tax balances at December 31,
2008 and 2007 are fairly stated based upon these estimates, the ultimate resolution of these tax positions could result in favorable or unfavorable adjustments to its consolidated financial statements and such adjustments could be material. See Note
12 to the consolidated financial statements for further information regarding taxes.

Income Taxes

Deferred taxes are provided for differences between the financial statement and tax basis of assets and liabilities using enacted tax rates. The Company established a valuation allowance against a portion of the net tax benefit associated with all carryforwards and temporary differences in a prior year, as it was more likely than not that these would not be fully utilized in the available carryforward period. A portion of this valuation allowance remained as of December 31, 2008 and 2007 (see Note 12).

Components of “Accumulated other comprehensive income” are presented net of tax at the applicable statutory rates and are primarily generated domestically.

These excerpts taken from the JAH 10-K filed Feb 25, 2008.

Income Taxes

Deferred taxes are provided for differences between the financial statement and tax basis of assets and liabilities using enacted tax rates. The Company established a valuation allowance against a portion of the net tax benefit associated with all carryforwards and temporary differences in a prior year, as it was more likely than not that these would not be fully utilized in the available carryforward period. A portion of this valuation allowance remained as of December 31, 2007 and 2006 (see Note 12).

Components of “Accumulated other comprehensive income” are presented net of tax at the applicable statutory rates and are primarily generated domestically.

Income Taxes

FACE="Times New Roman" SIZE="2">Deferred taxes are provided for differences between the financial statement and tax basis of assets and liabilities using enacted tax rates. The Company established a valuation allowance against a portion of the net
tax benefit associated with all carryforwards and temporary differences in a prior year, as it was more likely than not that these would not be fully utilized in the available carryforward period. A portion of this valuation allowance remained as of
December 31, 2007 and 2006 (see Note 12).

Components of “Accumulated other comprehensive income” are presented net of tax
at the applicable statutory rates and are primarily generated domestically.

This excerpt taken from the JAH 10-Q filed Nov 5, 2007.

10. Income Taxes

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 million decrease in retained earnings as of January 1, 2007.

The Company and certain of its subsidiaries file income tax returns in the United States and other foreign jurisdictions. In 2006, the Internal Revenue Service (“IRS”) commenced an examination of the Company’s 2003 and 2004 U.S. income tax returns. In addition, there are ongoing examinations of the federal tax returns for current subsidiaries for years prior to their acquisition by the Company. The Company is also under examination for the income tax filings in various state and foreign jurisdictions. The Company believes it has provided adequate reserves with respect to potential tax assessments (including related penalties and interest) that may arise upon such audits.

The Company’s gross unrecognized tax benefit at the date of adoption of FIN 48 is approximately $68 million. This will differ from the amount which would affect the effective tax rate due to the impact of purchase accounting. The amount of gross unrecognized tax benefits that, if recognized, would affect the effective tax rate are approximately $22 million and the amount of gross unrecognized tax benefits as a result of purchase accounting are approximately $46 million. The amount of gross unrecognized tax benefits recorded at the date of acquisition of K2 and Pure Fishing were approximately $25 million and $2 million, respectively. During 2007, the Company paid federal income tax of approximately $7 million and interest of approximately $3 million attributable to a recently agreed upon IRS audit related to the pre-acquisition period of an acquired business. On September 30, 2007, the amount of the Company’s gross unrecognized tax benefits is approximately $89 million. The amount of gross unrecognized tax benefits that, if recognized, would affect the effective tax rate are approximately $23 million, and the amount of gross unrecognized tax benefits as a result of purchase accounting is approximately $66 million. At September 30, 2007, the Company believes it has no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits may significantly change within twelve months.

The Company classifies all interest and penalties on uncertain tax positions as income tax expense, which is consistent with the classification in prior years. As of September 30, 2007, the Company has recorded approximately $12 million in liabilities for tax related interest on its Consolidated Balance Sheet. For the three and nine months ended September 30, 2007, the total amount of interest recognized in the results of operations was $0.4 million and $0.7 million, respectively.

This excerpt taken from the JAH 8-K filed Oct 19, 2007.

NOTE 2 – Income Taxes

On January 1, 2007, K2 adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes–an interpretation of FASB Statement No. 109” (“FIN 48”). As a result of the adoption of FIN 48, K2 recognized a decrease of approximately $0.7 million to the January 1, 2007 retained earnings balance. Additionally, K2 decreased a deferred tax liability by approximately $1.0 million, reduced goodwill and other non-current intangible assets by approximately $6.5 million, and decreased income tax payable by approximately $4.8 million. As of the adoption date, K2 had approximately $21.8 million of total, gross unrecognized income tax benefits. Of this total, approximately $11.0 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods.

K2’s accounting policy is to recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. This policy did not change as a result of the adoption of FIN 48. K2 had approximately $2.8 million accrued for interest as of January 1, 2007.

 

4


K2 INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

June 30, 2007

 

NOTE 2 – Income Taxes (Continued)

K2 and its subsidiaries are subject to U.S. federal income tax as well as multiple foreign and state tax jurisdictions. The K2 Federal income tax returns for 2001 through 2004 are currently under examination. In addition, K2 has acquired entities which have net operating loss carryovers that originate from tax years prior to 2001 that could be subject to adjustment. K2 has two German subsidiaries which are currently under examination for years ranging from 1999 through 2004. It is reasonably possible that one of the German examinations will conclude in the next twelve months. However, based on the status of this examination and the protocol of finalizing audits, which could include appeals and other proceedings, the final outcome is not yet determinable. Various other foreign and state income tax returns are also under examination by the respective taxing authorities. K2 does not believe that the outcome of any of these examinations will have a material adverse effect on the consolidated results of operations or consolidated financial position.

This excerpt taken from the JAH 10-Q filed Jul 31, 2007.

10. Income Taxes

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 million decrease in retained earnings as of January 1, 2007.

The Company and certain of its subsidiaries file income tax returns in the United States and other foreign jurisdictions. In 2006 the Internal Revenue Service (“IRS”) commenced an examination of the Company’s 2003 and 2004 U.S. income tax returns and an examination of the 2003 tax return for a subsidiary of the Company. The IRS has not proposed any adjustments to date. The Company is also under examination for the income tax filings in various state and foreign jurisdictions. The Company believes it has provided adequate reserves with respect to potential tax assessments that may arise upon audit.

The Company’s gross unrecognized tax benefit at the date of adoption of FIN 48 is approximately $68 million. This will differ from the amount which would affect the effective tax rate due to the impact of purchase accounting. The amount of gross unrecognized tax benefits that, if recognized, would affect the effective tax rate are approximately $22 million and the amount of gross unrecognized tax benefits as a result of purchase accounting are approximately $46 million. During the second quarter of 2007, the Company paid federal income tax of $5.2 million and interest of $2.8 million attributable to a recently agreed upon IRS audit (relating to the pre-acquisition period of a subsidiary). At June 30, 2007, the Company believes it has no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits may significantly change within twelve months.

The Company classifies all interest and penalties on uncertain tax positions as income tax expense, which is consistent with the classification in prior years. As of June 30, 2007, the Company has recorded $ 5.8 million in liabilities for tax related interest on its Consolidated Balance Sheet. For the three and six months ended June 30, 2007, the total amount of interest recognized in the results of operations was $ 0.2 million and $ 0.4 million, respectively.

This excerpt taken from the JAH 10-Q filed Apr 27, 2007.

9. Income Taxes

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 million decrease in retained earnings as of January 1, 2007.

The Company and certain of its subsidiaries file income tax returns in the United States and other foreign jurisdictions. In 2006 the Internal Revenue Service (“IRS”) commenced an examination of the Company’s 2003 and 2004 U.S. income tax returns and an examination of the 2003 tax return for a subsidiary of the Company. The IRS has not proposed any adjustments to date. The Company is also under examination for the income tax filings in various state and foreign jurisdictions. The Company believes it has provided adequate reserves with respect to potential tax assessments that may arise upon audit.

The Company’s gross unrecognized tax benefit at the date of adoption of FIN 48 is approximately $68 million. This will differ from the amount which would affect the effective tax rate due to the impact of purchase accounting. The amount of gross unrecognized tax benefits that, if recognized, would affect the effective tax rate are approximately $22 million and the amount of gross unrecognized tax benefits as a result of purchase accounting are approximately $46 million. At March 31, 2007, the Company believes it has no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits may significantly change within twelve months.

The Company classifies all interest and penalties on uncertain tax positions as income tax expense, which is consistent with the classification in prior years. As of March 31, 2007, the Company has recorded $8.1 million in liabilities for tax related interest on its Consolidated Balance Sheet. For the three months ended March 31, 2007, the total amount of interest recognized in the statement of income was $0.3 million.

This excerpt taken from the JAH 10-K filed Feb 20, 2007.

Income Taxes

Deferred taxes are provided for differences between the financial statement and tax basis of assets and liabilities using enacted tax rates. The Company established a valuation allowance against a portion of the net tax benefit associated with all carryforwards and temporary differences in a prior year, as it was more likely than not that these would not be fully utilized in the available carryforward period. A portion of this valuation allowance remained as of December 31, 2006 and 2005 (see Note 12).

Components of “Accumulated other comprehensive income” are presented net of tax at the applicable statutory rates and are primarily generated domestically.

This excerpt taken from the JAH 10-Q filed Oct 27, 2006.

7. Income Taxes

For the three and nine months ended September 30, 2006, the Company’s tax rate was 28.9% and 46.8%, respectively, which includes a deferred tax provision of $19.1 million recorded in the second quarter of 2006, reduced by a $5.5 million adjustment due to a change in estimate in the third quarter of 2006, resulting from the legal entity reorganization of the Company’s domestic Consumer solutions segment. The Company’s effective tax rate for the three and nine months ended September 30, 2006 was 36.5% excluding the aforementioned adjustments for the legal entity reorganization.

This excerpt taken from the JAH 10-Q filed Jul 28, 2006.

7. Income Taxes

For the three and six months ended June 30, 2006, the Company’s tax rate was 74% and 68%, respectively, primarily due to a deferred tax provision of $19.1 million recorded in the second quarter of 2006 in conjunction with the legal entity reorganization of the Company’s domestic Consumer solutions segment.

This excerpt taken from the JAH 10-K filed Mar 9, 2006.

Income Taxes

Deferred taxes are provided for differences between the financial statement and tax basis of assets and liabilities using enacted tax rates. The Company established a valuation allowance against a portion of the net tax benefit associated with all carryforwards and temporary differences in a prior year, as it was more likely than not that these would not be fully utilized in the available carryforward period. A portion of this valuation allowance remained as of December 31, 2005 and 2004 (see Note 8).

This excerpt taken from the JAH 10-Q filed Nov 9, 2005.

8. Income taxes

 

The Company’s effective tax rate for the first nine months of 2005 is 36.5% compared to an effective tax rate of 38.0% for the first nine months of 2004. The principal reason for the reduction is lower tax rates assessed on foreign earnings, which represent a larger proportion of the Company’s total earnings in 2005 than in 2004.

 

The Company continues its evaluation of the effects, if any, of the impact of the one-time favorable foreign dividend provision recently enacted as part of the American Jobs Creation Act of 2004. Such evaluation is expected to be completed in the fourth quarter of 2005. The Company has not yet completed its estimate of the related range of income tax effects of such dividend repatriation.

 

These excerpts taken from the JAH 8-K filed Sep 29, 2005.

6. INCOME TAXES

 

On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the “Act”). The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. On June 10, 2005, the Board of Directors approved the Company’s Domestic Reinvestment Plan under the Act which details future expenditures in the United States totaling $87.1 million. The Company’s wholly-owned subsidiary, Holmes Products (Far East) Limited, paid an extraordinary cash dividend of $38.0 million to its parent company on June 27, 2005. The Company intends to claim the incentives provided for in the Act with respect to this dividend, and has accrued $2.0 million of income tax expense for the six months ended June 30, 2005 related to this transaction.

 

Income Taxes

 

The Company utilizes the asset and liability method of accounting for income taxes, as set forth in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. FAS 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

 

 

10


The Holmes Group, Inc.

Notes to Consolidated Financial Statements

December 31, 2004, 2003 and 2002

 

This excerpt taken from the JAH 10-Q filed Aug 9, 2005.

8. Income taxes

 

The Company continues its evaluation of the effects, if any, of the impact of the one-time favorable foreign dividend provision recently enacted as part of the American Jobs Creation Act of 2004. The Company expects such evaluation to be completed by September 30, 2005.

 

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