Rayovac 2013 Annual Report Download - page 62

ending in 2033. We also have foreign loss carryforwards of approximately $111 million, which will expire
beginning in 2014. Certain of the foreign net operating losses have indefinite carryforward periods. We have had
multiple changes of ownership, as defined under Internal Revenue Code (“IRC”) Section 382, that subject our
U.S. federal and state net operating losses and other tax attributes to certain limitations. The annual limitation on
our use of these carryforwards 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. In addition, separate return year limitations apply to
limit our utilization of the acquired Russell Hobbs U.S. federal and state net operating losses to future income of
the Russell Hobbs subgroup. Based on these factors, we estimate that $301 million of the total U.S. federal and
$358 million of the state net operating loss would expire unused even if the Company generates sufficient
income to otherwise use all its NOLs. In addition, we project that $103 million of the total foreign net operating
loss carryforwards will expire unused. We have provided a full valuation allowance against these deferred tax
assets as well.
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. Accounting Standards Codification (“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 is
approximately $455 million at September 30, 2013. Of this amount, approximately $422 million relates to U.S.
net deferred tax assets and approximately $33 million relates to foreign net deferred tax assets. Our total
valuation allowance was approximately $385 million at September 30, 2012. Of this amount, approximately
$350 million related to U.S. net deferred tax assets and approximately $35 million related to foreign net deferred
tax assets. As a result of the purchase of the HHI Business, we reversed $50 million of U.S. valuation allowance
during Fiscal 2013. As a result of the purchase of FURminator, we released $15 million of U.S. valuation
allowance during Fiscal 2012. These releases were attributable to the net deferred tax liabilities recorded on the
opening balance sheets of the acquired companies in purchase accounting, which offset other U.S. 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 to be sustained on audit
based on the technical merits of the position. As of September 30, 2013 and September 30, 2012, the total
amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future
periods was $14 million and $6 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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