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Income Taxes | 12 Months Ended
--- | ---
Sep. 30, 2011
Income Taxes [Abstract] |
Income Taxes |
(17) | Income Taxes
Income tax expense (benefit) was calculated based upon the following components of income (loss) from continuing operations before income tax:
|  | Successor |  |  |  | Predecessor |
|  |  |  |  |  |  |  | Period from |  |  |  | Period from |
|  |  |  |  |  |  |  | August 31, 2009 |  |  |  | October 1, 2008 |
|  | Year Ended |  |  | Year Ended |  |  | through |  |  |  | through |
|  | September 30, |  |  | September 30, |  |  | September 30, |  |  |  | August 30, |
|  | 2011 |  |  | 2010 |  |  | 2009 |  |  |  | 2009 |
Pretax income (loss): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | (82,079 | ) |  | $ | (238,179 | ) |  | $ | (28,043 | ) |  |  | $ | 936,379 |
Outside the United States |  |  | 132,749 |  |  |  | 105,867 |  |  |  | 8,043 |  |  |  |  | 186,975 |
Total pretax income (loss) |  | $ | 50,670 |  |  | $ | (132,312 | ) |  | $ | (20,000 | ) |  |  | $ | 1,123,354 |
The components of income tax expense were as follows:
|  | Successor |  |  |  | Predecessor |
|  |  |  |  |  |  |  | Period from |  |  |  | Period from |
|  |  |  |  |  |  |  | August 31, 2009 |  |  |  | October 1, 2008 |
|  | Year Ended |  |  | Year Ended |  |  | through |  |  |  | through |
|  | September 30, |  |  | September 30, |  |  | September 30, |  |  |  | August 30, |
|  | 2011 |  |  | 2010 |  |  | 2009 |  |  |  | 2009 |
Current: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (875 | ) |  | $ | — |  |  | $ | — |  |  |  | $ | — |
Foreign |  |  | 32,649 |  |  |  | 44,481 |  |  |  | 3,111 |  |  |  |  | 24,159 |
State |  |  | 2,336 |  |  |  | 2,913 |  |  |  | 282 |  |  |  |  | (364 | )
Total current |  |  | 34,110 |  |  |  | 47,394 |  |  |  | 3,393 |  |  |  |  | 23,795 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (20,622 | ) |  |  | 22,119 |  |  |  | 49,790 |  |  |  |  | (1,599 | )
Foreign |  |  | 28,054 |  |  |  | (6,514 | ) |  |  | (1,266 | ) |  |  |  | 1,581 |
State |  |  | 9,013 |  |  |  | 196 |  |  |  | (724 | ) |  |  |  | (1,166 | )
Total deferred |  |  | 16,445 |  |  |  | 15,801 |  |  |  | 47,800 |  |  |  |  | (1,184 | )
Income tax expense |  | $ | 50,555 |  |  | $ | 63,195 |  |  | $ | 51,193 |  |  |  | $ | 22,611 |
The differences between income taxes expected at the U.S. Federal statutory income tax rate of 35% and reported income tax expense are summarized as follows:
|  | Successor |  |  |  | Predecessor |
|  |  |  |  |  |  |  | Period from |  |  |  | Period from |
|  |  |  |  |  |  |  | August 31, 2009 |  |  |  | October 1, 2008 |
|  |  |  |  |  |  |  | through |  |  |  | through |
|  |  |  |  |  |  |  | September 30, |  |  |  | August 30, |
|  | 2011 |  |  | 2010 |  |  | 2009 |  |  |  | 2009 |
Expected income tax expense (benefit) at Federal statutory rate |  | $ | 17,735 |  |  | $ | (46,309 | ) |  | $ | (7,000 | ) |  |  | $ | 393,174 |
State and local income taxes, net of Federal income tax benefit |  |  | 1,235 |  |  |  | (4,975 | ) |  |  | (773 | ) |  |  |  | (7,078 | )
Bargain purchase gain |  |  | (52,877 | ) |  |  | — |  |  |  | — |  |  |  |  | — |
Valuation allowance for deferred tax assets |  |  | 77,027 |  |  |  | 92,673 |  |  |  | 1,474 |  |  |  |  | (52,060 | )
Residual tax on foreign earnings |  |  | 14,357 |  |  |  | 9,312 |  |  |  | 56,939 |  |  |  |  | 285 |
Foreign rate differential |  |  | (12,756 | ) |  |  | (10,059 | ) |  |  | (718 | ) |  |  |  | (8,512 | )
Permanent items |  |  | 10,657 |  |  |  | 2,584 |  |  |  | (1,193 | ) |  |  |  | 11,458 |
Preferred stock embedded derivative |  |  | (9,486 | ) |  |  | — |  |  |  | — |  |  |  |  | — |
Deferred tax correction of immaterial prior period error |  |  | 4,873 |  |  |  | 5,900 |  |  |  | — |  |  |  |  | — |
Capitalized transaction costs |  |  | 2,800 |  |  |  | — |  |  |  | — |  |  |  |  | — |
Inflationary adjustments |  |  | (1,472 | ) |  |  | 3,409 |  |  |  | 224 |  |  |  |  | (185 | )
Unrecognized tax benefits |  |  | (2,793 | ) |  |  | 3,234 |  |  |  | 1,864 |  |  |  |  | 310 |
Other |  |  | 1,255 |  |  |  | (1,252 | ) |  |  | 376 |  |  |  |  | 39 |
Reorganization items |  |  | — |  |  |  | 8,678 |  |  |  | — |  |  |  |  | — |
Fresh start reporting valuation adjustment |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  | (380,784 | )
Gain on settlement of liabilities subject to compromise |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  | 50,383 |
Professional fees incurred in connection with bankruptcy filing |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  | 15,581 |
Reported income tax expense |  | $ | 50,555 |  |  | $ | 63,195 |  |  | $ | 51,193 |  |  |  | $ | 22,611 |
Effective tax rate |  |  | 99.8 | % |  |  | (47.8 | )% |  |  | (256.0 | )% |  |  |  | 2.0 | %
For the year ended September 30, 2011, the Company’s effective tax rate of 99.8% was negatively impacted by the net establishment of valuation allowances against losses in the United States and some foreign jurisdictions. In addition, no tax benefits were recognized on the Company’s indefinite lived intangibles, which are amortized for tax purposes. The Company’s effective tax rate was positively impacted by the recognition of a bargain purchase gain from the FGL Acquisition, for which no income tax provision was required. In addition, permanently reinvested income in the foreign jurisdictions in which the Company operates is subject to lower tax rates than the U.S Federal statutory income tax rate. The following table summarizes the components of deferred income tax assets and liabilities:
|  | September 30, |  |  | September 30, |
|  | 2011 |  |  | 2010 |
Current deferred tax assets: |  |  |  |  |  |  |  |
Employee benefits |  | $ | 14,188 |  |  | $ | 21,770 |
Restructuring and purchase accounting |  |  | 10,682 |  |  |  | 6,486 |
Inventories and receivables |  |  | 21,521 |  |  |  | 13,484 |
Marketing and promotional accruals |  |  | 8,911 |  |  |  | 5,783 |
Capitalized transaction costs |  |  | 292 |  |  |  | — |
Unrealized losses on mark-to-market securities |  |  | 9,574 |  |  |  | — |
Net operating loss and credit carryforwards |  |  | 2,116 |  |  |  | — |
Other |  |  | 12,855 |  |  |  | 24,658 |
Valuation allowance |  |  | (37,523 | ) |  |  | (30,248 | )
Total current deferred tax assets |  |  | 42,616 |  |  |  | 41,933 |
Current deferred tax liabilities: |  |  |  |  |  |  |  |
Inventories and receivables |  |  | (5,015 | ) |  |  | (1,947 | )
Tax on unremitted foreign earnings |  |  | (2,118 | ) |  |  | — |
Other |  |  | (5,969 | ) |  |  | (3,885 | )
Total current deferred tax liabilities |  |  | (13,102 | ) |  |  | (5,832 | )
Net current deferred tax assets, included in “Prepaid expenses and other current assets” |  | $ | 29,514 |  |  | $ | 36,101 |
Noncurrent deferred tax assets: |  |  |  |  |  |  |  |
Employee benefits |  | $ | 32,369 |  |  | $ | 19,600 |
Restructuring and purchase accounting |  |  | 2,269 |  |  |  | 20,541 |
Marketing and promotional accruals |  |  | 587 |  |  |  | 1,311 |
Net operating loss, credit and capital loss carryforwards |  |  | 1,026,610 |  |  |  | 518,762 |
Prepaid royalty |  |  | 7,346 |  |  |  | 9,708 |
Properties |  |  | 5,240 |  |  |  | 3,207 |
Capitalized transaction costs |  |  | 4,648 |  |  |  | — |
Unrealized losses on mark-to-market securities |  |  | 18,574 |  |  |  | 4,202 |
Other |  |  | 59,232 |  |  |  | 15,007 |
Deferred acquisition costs |  |  | 74,175 |  |  |  | — |
Insurance reserves and claim related adjustments |  |  | 408,214 |  |  |  | — |
Valuation allowance |  |  | (764,710 | ) |  |  | (309,924 | )
Total noncurrent deferred tax assets |  |  | 874,554 |  |  |  | 282,414 |
|  | September 30, |  |  | September 30, |
|  | 2011 |  |  | 2010 |
Noncurrent deferred tax liabilities: |  |  |  |  |  |  |  |
Properties |  |  | (16,593 | ) |  |  | (13,862 | )
Unrealized gains |  |  | (11,619 | ) |  |  | — |
Intangibles |  |  | (571,454 | ) |  |  | (544,478 | )
Value of business acquired |  |  | (148,876 | ) |  |  | — |
Investments |  |  | (246,632 | ) |  |  | — |
Other |  |  | (6,418 | ) |  |  | (1,917 | )
Total noncurrent deferred tax liabilities |  |  | (1,001,592 | ) |  |  | (560,257 | )
Net noncurrent deferred tax liabilities, included in “Deferred tax assets” (Insurance) and “Deferred tax liabilities” (Consumer Products and Other) |  | $ | (127,038 | ) |  | $ | (277,843 | )
Net current and noncurrent deferred tax liabilities |  | $ | (97,524 | ) |  | $ | (241,742 | )
The Company evaluates the realizability of its deferred tax assets on a quarterly basis. A valuation allowance is established when management concludes that all or a portion of deferred tax assets are not more-likely-than-not realizable. As a result of cumulative losses incurred over the past three years, the Company concluded that certain of its deferred tax assets were not more-likely-than-not realizable. As a result, a valuation allowance was recorded. The realization of the Company’s deferred tax assets is primarily dependent on future earnings. In the future, the net amount of the Company’s deferred tax assets could be further reduced by additional valuation allowances if actual future taxable income is lower than anticipated. The deferred tax assets for which a valuation allowance was recorded resulted from U.S. and foreign tax loss carryforwards, tax credit carryforwards and U.S. capital loss carryforwards. HGI As a result of HGI’s cumulative losses over the past three years, management concluded at September 30, 2011, that a valuation allowance was required for its entire net deferred tax asset balance. HGI’s valuation allowance at September 30, 2011, totaled $53,034. This resulted from the Company’s conclusion that tax benefits on its pretax losses are not more-likely-than-not realizable. HGI has approximately $63,328 of U.S. Federal net operating loss (“NOL”) carryforwards which, if unused, will expire in years 2029 through 2031. The Company also concluded that a valuation allowance was required for HGI’s entire net deferred tax asset balance at September 30, 2010, in the amount of $9,236. Spectrum Brands At September 30, 2011, Spectrum Brands has U.S. Federal and state and local NOL carryforwards of $1,163,012 and $1,197,367, respectively. If unused, they will expire through year 2032. Spectrum Brands has foreign loss carryforwards totaling $140,062 which will expire beginning in 2012. Certain of the foreign net operating losses have indefinite carryforward periods. Spectrum Brands is subject to an annual limitation on use of its NOL carryforwards that arose prior to its emergence from bankruptcy. Spectrum Brands has had multiple changes of ownership, as defined under IRC Section 382, that subject the utilization of Spectrum Brands’ U.S. Federal and state and local NOL carryforwards and other tax attributes to certain limitations. Due to these limitations, Spectrum Brands estimates that $302,465 of its U.S. Federal NOL carryforwards and $385,159 of its state and local NOL carryforwards will expire unused. In addition, separate return year limitations apply to limit Spectrum Brands’ utilization of U.S. Federal and state and local NOL carryforwards acquired from Russell Hobbs. As a result, such carryforwards, which total $326,747, may only be used to offset future income of the Russell Hobbs subgroup. Spectrum Brands estimates that $35,354 of its total foreign loss carryforwards will expire unused. The Company has provided a full valuation allowance against the deferred tax assets recorded for these losses. The Predecessor Company recognized income tax expense of approximately $124,054 related to gains on the settlement of liabilities subject to compromise and the modification of the senior secured credit facility in the period from October 1, 2008 through August 30, 2009. Spectrum Brands has, in accordance with IRC Section 108, reduced its NOL carryforwards for cancellation of indebtedness income that arose from its emergence from Chapter 11 of the Bankruptcy Code, under IRC Section 382(1)(6). As of September 30, 2011 and September 30, 2010, Spectrum Brands’ valuation allowances totaled approximately $373,893 and $330,936, respectively. These valuation allowances were recorded on: (i) U.S. net deferred tax assets totaling $338,538 and $299,524, respectively; and (ii) foreign net deferred tax assets totaling $35,354 and $31,412, respectively. The increase in Spectrum Brands’ valuation allowance during the year ended September 30, 2011 totaled $42,957, of which $39,014 relates to U.S. net deferred tax assets, and $3,942 to foreign net deferred tax assets. In addition, during the year ended September 30, 2011, Spectrum Brands concluded that its deferred tax assets recorded for Brazil NOL carryforwards are not more-likely-than not realizable. As a result, the Company recorded $25,877 of valuation allowance, increasing foreign deferred tax expense. For the years ending September 30, 2011 and 2010, Spectrum Brands recorded residual U.S. and foreign income and withholding taxes on approximately $39,391 and $26,600 of foreign earnings, causing an increase to income tax expense of $771 and $9,312, respectively. These income tax expense accruals were necessary primarily as a result of non-cash deemed distributions under U.S. tax law. During the period from August 31, 2009 through September 30, 2009, the Successor recorded residual U.S. and foreign income and withholding taxes on $165,937 of actual and deemed distributions of foreign earnings, resulting in an increase to income tax expense of approximately $58,295. These distributions reduced the Company’s U.S. tax loss for Fiscal 2009. Remaining undistributed earnings of Spectrum Brands’ foreign operations, which total approximately $451,796 and $302,447 at September 30, 2011 and September 30, 2010, respectively, are permanently reinvested. Accordingly, no residual income taxes have been provided on these earnings at September 30, 2011 and September 30, 2010, respectively. The Company is not able to reasonably estimate the incremental U.S. and foreign income and withholding taxes on its permanently reinvested foreign earnings. Due to the Spectrum Brands’ plans to voluntarily pay down its U.S. debt, repurchase shares, fund U.S. acquisitions and its ongoing U.S. operational cash flow requirements, Spectrum Brands does not plan to permanently reinvest its future foreign subsidiary earnings (i.e., earnings after September 30, 2011) except to the extent: (i) foreign earnings repatriation is precluded by local law; or (ii) such earnings are currently taxable as deemed dividends under U.S. tax law. FGL At September 30, 2011, FGL’s deferred tax assets were primarily the result of U.S. NOL, capital loss and tax credit carryforwards and insurance reserves. Its net deferred tax asset position at September 30, 2011, before consideration of its recorded valuation allowance, totaled $586,947. A valuation allowance of $375,306 was recorded against its gross deferred tax asset balance at September 30, 2011. FGL’s net deferred tax asset position at September 30, 2011 is $211,641, after taking into account the valuation allowance. For the year ended September 30, 2011, $85,709 of deferred tax liabilities were established and recorded through AOCI as a result of unrealized gains on securities that were marked to market. For the year ended September 30, 2011, the Company reversed $30,064 of valuation allowance based on management’s reassessment of the amount of its deferred tax assets that are more-likely-than-not realizable. At September 30, 2011, FGL has NOL carryforwards of $428,005 which, if unused, will expire in years 2023 through 2031. FGL has capital loss carryforwards totaling $717,267 at September 30, 2011, which if unused, will expire in years 2012 through 2016. In addition, FGL has low income housing tax credit carryforwards totaling $68,099, which if unused, will expire in years 2017 through 2031. Alternative minimum tax credits totaling $6,304 may be carried forward indefinitely. Certain tax attributes are subject to an annual limitation as a result of the acquisition of FGL by the Company, which constitutes a change of ownership, as defined under IRC Section 382. Uncertain Tax Positions The total amount of unrecognized tax benefits (“UTBs”) at September 30, 2011, and September 30, 2010, are $9,013 and $13,174, respectively. If recognized in the future, the entire amount of UTBs would impact the effective tax rate. The Company records interest and penalties related to uncertain tax positions in income tax expense. At September 30, 2011 and September 30, 2010, the Company’s accrued balances of interest and penalties on uncertain tax positions totaled $4,682 and $5,860, respectively. For Fiscal 2011, interest and penalties decreased income tax expense by $1,422. For Fiscal 2010, interest and penalties increased income tax expense by $1,527. Interest and penalties recorded by the Predecessor Company for the period August 31, 2009 through September 30, 2009 were not material. In connection with the SB/RH Merger, Spectrum Brands recorded reserves for additional UTBs of approximately $3,299 as part of purchase accounting. At September 30, 2011, filed income tax returns for certain of the Company’s legal entities in various jurisdictions are undergoing income tax audits. The Company cannot predict the ultimate outcome of these examinations. However, it is reasonably possible that during the next 12 months some portion of previously unrecognized tax benefits could be recognized. The Company believes its income tax reserves for uncertain tax positions are adequate, consistent with the principles of ASC Topic 740. The Company regularly assesses the likelihood of additional tax assessments by jurisdiction and, if necessary, adjusts its tax reserves based on new information or developments. The following table summarizes changes to the Company’s UTB reserves, excluding related interest and penalties:
Unrecognized tax benefits at September 30, 2008 (Predecessor) |  | $ | 6,755 |
Gross increase — tax positions in prior period |  |  | 26 |
Gross decrease — tax positions in prior period |  |  | (11 | )
Gross increase — tax positions in current period |  |  | 1,673 |
Lapse of statutes of limitations |  |  | (807 | )
Unrecognized tax benefits at August 30, 2009 (Predecessor) |  |  | 7,636 |
Gross decrease — tax positions in prior period |  |  | (15 | )
Gross increase — tax positions in current period |  |  | 174 |
Lapse of statutes of limitations |  |  | (30 | )
Unrecognized tax benefits at September 30, 2009 (Successor) |  |  | 7,765 |
Russell Hobbs acquired unrecognized tax benefits |  |  | 3,251 |
HGI unrecognized tax benefits as of June 16, 2010 |  |  | 732 |
Gross decrease — tax positions in prior period |  |  | (904 | )
Gross increase — tax positions in current period |  |  | 3,390 |
Lapse of statutes of limitations |  |  | (1,060 | )
Unrecognized tax benefits at September 30, 2010 (Successor) |  |  | 13,174 |
Gross increase — tax positions in prior period |  |  | 1,658 |
Gross decrease — tax positions in prior period |  |  | (823 | )
Gross increase — tax positions in current period |  |  | 596 |
Settlements |  |  | (1,850 | )
Lapse of statutes of limitations |  |  | (3,742 | )
Unrecognized tax benefits at September 30, 2011 (Successor) |  | $ | 9,013 |
HGI files U.S. Federal consolidated and state and local combined and separate income tax returns. HGI’s consolidated and combined returns do not include Spectrum Brands or FGL (life insurance group), each of which files their own consolidated Federal, and combined and separate state and local income tax returns. HGI’s U.S. Federal income tax returns for years prior to 2006 are no longer subject to audit by the taxing authorities. With limited exception, HGI’s state and local income tax returns are no longer subject audit for years prior to 2007. Spectrum Brands files U.S. Federal consolidated and state and local combined and separate income tax returns as well as foreign income tax returns in various jurisdictions. They are subject to ongoing examination by various taxing authorities. Spectrum Brand’s major taxing jurisdictions are the United States, United Kingdom and Germany. U.S. Federal income tax returns of Spectrum Brands and Russell Hobbs are no longer subject to audit for years prior to 2007. However, Federal NOL carryforwards from their fiscal years ended September 30, 2007 and June 30, 2008, respectively, will continue to be subject to Internal Revenue Service examination until the Statute of Limitations expires for the years in which these NOL carryforwards are ultimately utilized. U.S. Federal income tax returns of FGL for years prior to 2007 are no longer subject to examination by the taxing authorities. FGL is no longer subject to state and local income tax audits for years prior to 2007. However, Federal NOL carryforwards from tax years ended June 30, 2006 and December 31, 2006, respectively, continue to be subject to Internal Revenue Service examination until the Statute of Limitations expires for the years in which these NOL carryforwards are ultimately utilized.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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