Rayovac 2014 Annual Report Download - page 61

Fiscal 2013. These savings were partially offset by $11 million in costs related to the refinancing of our Term
Loan in Fiscal 2014, consisting of the write off of unamortized deferred financing fees and original issue
discount, and the inclusion of a full year of interest related to the HHI Business financing in Fiscal 2014 versus a
partial period in Fiscal 2013. See Note 6, “Debt,” of Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K.
Income Taxes. In Fiscal 2014, we recorded income tax expense of $59 million on pretax income from
continuing operations of $274 million, and in Fiscal 2013, we recorded income tax expense of $27 million on a
pretax loss from continuing operations of $28 million. Our effective tax rate on income from continuing
operations was approximately 22% for Fiscal 2014. Our effective tax rate on our loss from continuing operations
was approximately (98)% for Fiscal 2013. During Fiscal 2014, our effective tax rate differs from the U.S. federal
statutory rate of 35% principally due to income earned outside the U.S. that is subject to statutory rates lower
than 35%. During Fiscal 2013, our effective tax rate differed from the U.S. federal statutory rate of 35%
principally due to: (i) losses in the U.S. and certain foreign jurisdictions for which no tax benefit can be
recognized due to full valuation allowances that have been provided on our net operating loss carryforward tax
benefits and other deferred tax assets; (ii) deferred income tax expense related to the change in book versus tax
basis of indefinite lived intangibles, which are amortized for tax purposes but not for book purposes and (iii) the
reversal of U.S. valuation allowances of $50 million on deferred tax assets as a result of the acquisition of the
HHI Business. Additionally, in Fiscal 2013, the consolidated pretax income was close to break even, resulting in
a higher effective tax rate as this rate is calculated by dividing tax expense into pretax income (loss) from
continuing operations.
As of September 30, 2014, we have provided residual taxes on approximately $3 million of earnings not yet
taxed in the U.S. Due to the valuation allowance recorded against U.S. net deferred tax assets, including net
operating loss carryforwards (“NOLs”), we do not recognize any incremental U.S. tax expense on the expected
future repatriation of foreign earnings. Should the U.S. valuation allowance be released at some future date, the
U.S. tax on future foreign earnings not considered to be permanently reinvested might have a material effect on
our effective tax rate. As of September 30, 2014, we project approximately $2 million of additional tax expense
from non-U.S. withholding and other taxes expected to be incurred on repatriation of foreign earnings.
As of September 30, 2014, we have U.S. federal NOLs of approximately $1,088 million, with a federal tax
benefit of $381 million and future tax benefits related to state NOLs of $70 million. We also have foreign NOLs
of approximately $106 million. During Fiscal 2014, we used approximately $300 million of U.S. NOLs,
including $179 million from one-time internal restructuring and external debt refinancing activities.
The realization of our deferred tax assets depends on our ability to generate sufficient taxable income of the
appropriate character in future periods 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 $333 million at September 30, 2014. Of this amount, approximately $299 million relates to U.S.
net deferred tax assets and approximately $34 million relates to foreign net deferred tax assets.
For Fiscal 2014, we generated domestic pretax profits of $81 million. Should we continue to generate
domestic pretax profits in subsequent periods, there is a reasonable possibility that some or most of the domestic
valuation allowance of $299 million could be released at some future date, which could result in a material tax
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