Rayovac 2013 Annual Report Download - page 70

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 $385 million at September 30, 2012. Of this amount, approximately $350 million relates to U.S.
net deferred tax assets and approximately $35 million relates to foreign net deferred tax assets. Our total
valuation allowance was approximately $374 million at September 30, 2011. Of this amount, approximately $339
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 FURminator, we were able to release $15 million of U.S. valuation
allowance during Fiscal 2012. The release was attributable to $15 million of net deferred tax liabilities recorded
on the FURminator opening balance sheet that offset other U.S. net deferred tax assets. During Fiscal 2011, we
also determined that a valuation allowance is required against deferred tax assets related to net operating losses in
Brazil and thus recorded a $26 million charge.
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, 2012 and September 30, 2011, the total
amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future
periods was $6 million and $9 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.
Liquidity and Capital Resources
Operating Activities. Cash provided by operating activities totaled $257 million during Fiscal 2013
compared to $259 million during Fiscal 2012. The $2 million decrease in cash provided by operating activities
was primarily due to:
• Cash generated from higher adjusted EBITDA of $160 million, primarily due to the post-acquisition
operating results of the HHI Business;
Offset by
• A $104 million use of cash from working capital and other items driven by higher accounts receivable
and changes in deferred income taxes, partially offset by an increase in accounts payable;
• Higher cash payments for interest of $40 million, excluding payments related to the tender of our 9.5%
Notes (See Note 6, “Debt”, of Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K);
• Higher cash payments for income taxes of $11 million; and
• Higher cash acquisition, integration and restructuring related costs of $7 million.
We expect to fund our cash requirements, including capital expenditures, interest and principal payments
due in Fiscal 2014, through a combination of cash on hand, cash flow from operations and funds available for
borrowings under our ABL Revolving Credit Facility. Going forward, our ability to satisfy financial and other
covenants in our senior credit agreements and senior unsecured indenture and to make scheduled payments or
prepayments on our debt and other financial obligations will depend on our future financial and operating
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