Rayovac 2013 Annual Report Download - page 119

SPECTRUM BRANDS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(Amounts in thousands, except per share figures)
available earnings, permanent reinvestment classification, and availability and 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. As of September 30, 2013, the Company has provided residual taxes on
approximately $12,506 of Fiscal 2013 distributions of foreign earnings, and $45,735 of earnings not yet taxed in
the U.S. resulting in a Fiscal 2013 increase in tax expense, net of a corresponding adjustment to the Company’s
domestic valuation allowance, of approximately $109. As of September 30, 2012, the Company recorded residual
U.S. and foreign taxes on approximately $21,163 of Fiscal 2012 distributions and $76,475 of earnings not yet
taxed in the U.S., resulting in a Fiscal 2012 increase in tax expense, net of a corresponding adjustment to the
Company’s domestic valuation allowance, of approximately $3,278. As of September 30, 2011, the Company
recorded residual U.S. and foreign taxes on approximately $39,391 of actual and deemed distributions of foreign
earnings resulting in a Fiscal 2011 increase in tax expense, net of a corresponding adjustment to the Company’s
domestic valuation allowance, of approximately $771. Fiscal 2013, 2012 and 2011 distributions were primarily
non-cash deemed distributions under U.S. tax law.
Remaining undistributed earnings of the Company’s foreign operations are approximately $409,589 at
September 30, 2013, and are intended to remain permanently invested. Accordingly, no residual income taxes
have been provided on those earnings at September 30, 2013. 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, 2013, the Company has U.S. federal and state net operating loss carryforwards of
approximately $1,515,344 and $1,551,341, respectively. These net operating loss carryforwards expire through
years ending in 2033. As of September 30, 2013 the Company has foreign loss carryforwards of approximately
$111,186 which will expire beginning in the Company’s fiscal year ending 2014. 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, as of
September 30, 2013, that $301,202 of the total U.S. federal and $357,938 of the state net operating loss 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 net operating losses to future income of the Russell Hobbs subgroup. The Company also
projects, as of September 30, 2013, that $102,576 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, 2013 and September 30, 2012, the Company’s valuation allowance,
established for the tax benefit that may not be realized, totaled approximately $454,586 and $384,800,
respectively. As of September 30, 2013 and September 30, 2012, approximately $421,743 and $349,316,
respectively, related to U.S. net deferred tax assets, and approximately $32,843 and $35,484, respectively, related
to foreign net deferred tax assets. The net increase in the valuation allowance for deferred tax assets during Fiscal
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