Rayovac 2015 Annual Report Download - page 148

SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
reinvested, except in jurisdictions where repatriation is either precluded or restricted by law. The Company
annually estimates the available earnings, permanent reinvestment classification and the availability of and
management’s intent to use alternative mechanisms for repatriation for each jurisdiction in which the Company
does business. Accordingly, the Company is providing residual U.S. and foreign deferred taxes on these earnings
to the extent they cannot be repatriated in a tax-free manner. The Company has provided residual taxes on
$37.5 million of distributions from foreign earnings for the year ended September 30, 2015 with no earnings not
yet taxed in the U.S. resulting in a decrease in income tax expense of $0.3 million. The Company has provided
residual taxes on $190.5 million of distributions from foreign earnings for the year ended September 30, 2014
with $3.1 million of earnings not yet taxed in the U.S. resulting in an increase in income tax expense of
$0.1 million. For the year ended September 30, 2014, $178.7 million of the distributions related to one-time
internal restructuring and external debt refinancing activities. Remaining undistributed earnings of the
Company’s foreign operations are $183.8 million at September 30, 2015, and are intended to remain permanently
invested. Accordingly, no residual income taxes have been provided on those earnings. If at some future date
these earnings cease to be permanently invested, the Company may be subject to U.S. income taxes and foreign
withholding and other taxes on such amounts, which cannot be reasonably estimated at this time.
As of September 30, 2015, the Company has U.S. federal net operating loss carryforwards (“NOLs”) of
$894.5 million with a federal tax benefit of $313.1 million and tax benefits related to state NOLs of $68.7 million
and capital loss carryforwards of $14.2 million with a federal and state tax benefit of $5.4 million. The Company
has an additional $59.6 million of federal and state NOLs for which benefits will be recorded to Additional Paid-
in Capital when these carryforwards are used. These NOLs expire through years ending in 2035. As of
September 30, 2015, the Company has foreign NOLs of $127.6 million which will expire beginning in the
Company’s fiscal year ending September 30, 2016. Certain of the foreign NOLs have indefinite carryforward
periods. The Company is subject to an annual limitation on the use of its NOLs that arose prior to its emergence
from bankruptcy in the fiscal year ended September 30, 2009. The Company has had multiple changes of
ownership, as defined under Section 382 of the Internal Revenue Code of 1986, as amended, that subject the
Company’s U.S. federal and state NOLs and other tax attributes to certain limitations. The annual limitation is
based on a number of factors including the value of the Company’s stock (as defined for tax purposes) on the
date of the ownership change, its net unrealized gain position on that date, the occurrence of realized gains in
years subsequent to the ownership change and the effects of subsequent ownership changes (as defined for tax
purposes), if any. Due to these limitations, the Company estimates, as of September 30, 2015, that $272.9 million
of the total U.S. federal NOLs with a federal tax benefit of $95.5 million and $16.7 million of the tax benefit
related to state NOLs will expire unused even if the Company generates sufficient income to otherwise use all of
its NOLs. In addition, separate return year limitations apply to limit the Company’s utilization of the acquired
Russell Hobbs U.S. federal and state NOLs to future income of the Russell Hobbs subgroup. The Company also
projects, as of September 30, 2015, that $29.4 million of foreign NOLs will not be used. The Company has
provided a full valuation allowance against these deferred tax assets.
A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability of the
Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate
taxing jurisdictions. As of September 30, 2015, the valuation allowance was $305.4 million, of which
$268.7 million is related to U.S. net deferred tax assets and $36.7 million is related to foreign net deferred tax
assets. As of September 30, 2014, the valuation allowance was $333.1 million, of which $299.1 million related to
U.S. net deferred tax assets and $34.0 million related to foreign net deferred tax assets. During the year ended
September 30, 2015, the Company decreased its valuation allowance for deferred tax assets by $27.7 million, of
which $30.4 million related to a decrease in valuation allowance against U.S. net deferred tax asset and
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