Rayovac 2012 Annual Report Download - page 123

SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(In thousands, except per share amounts)
September 30, 2011, to support management’s plans to voluntarily accelerate pay down of U.S. debt, fund
distributions to shareholders, fund U.S. acquisitions, and satisfy ongoing U.S. operational cash flow
requirements. As a result, earnings of the Company’s non-U.S. subsidiaries after September 30, 2011 are not
considered to be permanently reinvested, except in jurisdiction where repatriation is either precluded or restricted
by law. Accordingly, the Company is providing residual U.S. and foreign deferred taxes to these earnings to the
extent they cannot be repatriated in a tax-free manner. Accordingly during Fiscal 2012, the Company has
provided residual taxes on approximately $97,638 of foreign earnings resulting in an increase in tax expense, net
of a corresponding adjustment to the Company’s domestic valuation allowance, of approximately $3,278,
including $2,465 of expected tax on $76,475 of earnings not yet taxed in the U.S. During Fiscal 2011, the
Company recorded residual U.S. and foreign taxes on approximately $39,391 of distributions of foreign earnings
resulting in an increase in tax expense, net of a corresponding adjustment to the Company’s domestic valuation
allowance, of approximately $771. The Fiscal 2011 distributions were primarily non-cash deemed distributions
under U.S. tax law. During Fiscal 2010, the Company recorded residual U.S. and foreign taxes on approximately
$26,600 of actual and deemed distributions of foreign earnings resulting in an increase in tax expense, net of a
corresponding adjustment to the Company’s domestic valuation allowance, of approximately $0. The Fiscal 2010
distributions were primarily non-cash deemed distributions under U.S. tax law.
Remaining undistributed earnings of the Company’s foreign operations are approximately $415,713 at
September 30, 2012, and are intended to remain permanently invested. Accordingly, no residual income taxes
have been provided on those earnings at September 30, 2012. 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.
The Company, as of September 30, 2012, has U.S. federal and state net operating loss carryforwards of
approximately $1,304,763 and $1,340,761, respectively. These net operating loss carryforwards expire through
years ending in 2032. The Company has foreign loss carryforwards of approximately $119,100 which will expire
beginning in 2016. Certain of the foreign net operating losses have indefinite carryforward periods. The
Company is subject to an annual limitation on the use of its net operating losses that arose prior to its emergence
from bankruptcy. 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 net operating
losses 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 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. Due
to these limitations, the Company estimates that $301,202 of the total U.S. federal and $385,159 of the state net
operating loss would expire unused even if the Company generates sufficient income to otherwise use all 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 net operating losses to future income of the Russell Hobbs subgroup. The
Company also projects that $110,794 of the total foreign loss carryforwards will expire unused. 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, 2012 and September 30, 2011, the Company’s valuation allowance,
established for the tax benefit that may not be realized, totaled approximately $384,800 and $373,893,
respectively. As of September 30, 2012 and September 30, 2011, approximately $349,316 and $338,538,
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