SEC Comment Letter Examples Income Taxes. November 2014

Transcription

1 SEC Cmment Letter Examples Incme Taxes Nvember 2014

2 Cntents Intrductin 1 SEC Staff Remarks at Previus AICPA Cnferences 2 Examples f SEC Cmments 4 Business Cmbinatins 4 Disclsures 4 Freign Tax Rate and Other Reprting Issues 5 Intraperid Tax Allcatin 6 Tax Credits 6 Tax Hliday 6 Rate Recnciliatin 6 Uncertain Tax Psitins 7 Undistributed Earnings f Freign Subsidiaries 7 Valuatin Allwance 8 Appendix A: SEC Staff Review Prcess 12 Appendix B: Leading Practices fr Managing Unreslved SEC Cmment Letters 13 Appendix C: Tips fr Searching the SEC s Database fr Cmment Letters 14 Appendix D: Glssary f Standards and Other Literature 19 Appendix E: Abbreviatins 20 ii

3 Intrductin Under the Sarbanes-Oxley Act f 2002, the SEC must review every registrant s peridic filings at least nce every three years. The SEC staff s cmments n the disclsures in thse filings and registrants respnses t them are psted n the SEC s Web site and prvide valuable insight int the SEC staff s cmment themes. Registrants can incrprate a review f the cmments int their financial reprting prcess t help imprve their financial statements and disclsures. Accunting fr incme taxes cntinues t be ne f the SEC s tp areas f fcus in its reviews f registrants peridic filings. This editin f SEC Cmment Letter Examples Incme Taxes cntains extracts f SEC staff cmments n tpics including a registrant s assessment f the realizability f deferred tax assets (DTAs), undistributed earnings f freign subsidiaries, freign tax rate, uncertain tax psitins, and disclsures. The extracts in this publicatin have been reprduced frm cmments published n the SEC s Web site that were issued between July 1, 2013, and June 30, Dllar amunts and infrmatin identifying registrants r their businesses have been redacted frm the cmments. The cmments are rganized by tpic, as fllws: Tpic Example Cmments Tpic Example Cmments Business Cmbinatins 4 Tax Hliday 3 Disclsures 6 Rate Recnciliatin 9 Freign Tax Rate and Other Reprting Issues 6 Uncertain Tax Psitins 5 Intraperid Tax Allcatin 1 Undistributed Earnings f Freign Subsidiaries 10 Tax Credits 4 Valuatin Allwance 15 Fr a discussin f SEC cmment letters n additinal tpics, see the fllwing Delitte publicatins: SEC Cmment Letters Including Industry Insights: A Recap f Recent Trends, Eighth Editin (Nvember 2014). SEC Cmment Letters n Freign Private Issuers Using IFRSs A Clser Lk, Third Editin (March 2012). Fr examples f SEC incme tax cmments frm 2012 and earlier in 2013, see SEC Cmment Letter Examples Incme Taxes (January 2014). Appendix A describes the SEC staff s review and cmment letter prcess, Appendix B utlines leading practices fr managing unreslved SEC cmment letters, and Appendix C prvides helpful tips n searching the SEC s database fr cmment letters. We hpe that yu find this publicatin a valuable tl fr imprving yur disclsures. We welcme yur feedback. Please send us yur thughts and suggestins. 1

4 SEC Staff Remarks at Previus AICPA Cnferences When reprting n incme tax matters, registrants may want t cnsider the remarks discussed belw, which were made by SEC staff members at recent AICPA Cnferences. 1 Frequent Areas f Cmment Incme Taxes At the 2013 AICPA Cnference, the SEC staff discussed registrants incme tax disclsures, primarily disclsures abut (1) the recnciliatin f statutry tax rates t effective tax rates (the tax rate recnciliatin ), (2) valuatin allwances, and (3) registrants assertins that freign earnings are indefinitely reinvested. The SEC staff nted the fllwing issues with registrants tax rate recnciliatin disclsures: Labels related t recnciling items were unclear and disclsures abut material recnciling items did nt adequately describe the underlying nature f these items. Fr material recnciling items related t freign tax jurisdictins, registrants did nt disclse in MD&A (1) each material freign jurisdictin and its tax rate and (2) hw each jurisdictin affects the amunt in the tax rate recnciliatin. Registrants have inapprpriately aggregated material recnciling items. The SEC staff reminded registrants that Regulatin S-X requires separate-line-item disclsure fr recnciling items whse amunt is greater than 5 percent f the amunt calculated by multiplying the pretax incme by the statutry tax rate. Amunts reflected in the tax rate recnciliatin were incnsistent with related amunts disclsed elsewhere in a registrant s filing. Crrectins f errrs were inapprpriately reflected as changes in estimates. In remarks related t registrants disclsures abut valuatin allwances n DTAs, the SEC staff discuraged registrants frm prviding bilerplate disclsures in the critical accunting estimates sectin f MD&A and instead recmmended that they discuss registrant-specific factrs (e.g., limitatins n their ability t use net perating lsses and freign tax credits). The SEC staff als stated that it has asked registrants t disclse the impact f each surce f taxable incme n their ability t realize a DTA, including the relative magnitude f each surce f taxable incme. In additin, the staff recmmended that registrants cnsider disclsing the material negative evidence they evaluated, since such disclsures culd prvide investrs with infrmatin abut uncertainties related t a registrant s ability t recver a DTA. The SEC staff als reminded cnference participants abut the disclsures a registrant is required t prvide when it asserts that freign earnings are indefinitely reinvested. These disclsures include either (1) the amunt f the unrecgnized deferred tax liability r (2) a statement that estimating an unrecgnized tax liability is nt practicable. The disclsures als include the amunts and descriptins f the related temprary differences and the events that will cause thse differences t becme taxable. In additin, the staff indicated that it evaluates such an assertin by taking int accunt registrants ptential liquidity needs and the availability f funds in U.S. and freign jurisdictins. At the 2012 AICPA Cnference, Mark Shannn, assciate chief accuntant in the SEC s Divisin f Crpratin Finance, reiterated remarks made by the SEC staff at the 2011 AICPA Cnference abut assessing the realizability f DTAs. The SEC staff had nted that it wuld have difficulty agreeing with a registrant s assertin that lsses incurred during the ecnmic dwnturn are aberratins but that it wuld base its cnclusins n a registrant s specific facts and circumstances. Mr. Shannn als reminded registrants that in assessing the realizability f DTAs, they shuld cnsider cumulative lsses in recent years t be significant negative evidence and that t avid recgnizing a valuatin allwance, they wuld need t vercme such evidence with significant bjective and verifiable psitive evidence. He explained that althugh under U.S. GAAP it is theretically pssible t d s, vercming negative evidence presented by cumulative lsses is difficult. 1 At the annual AICPA Cnference n Current SEC and PCAOB Develpments (the AICPA Cnference ) each December, regulatrs and standard setters give preparers updates n recent accunting, auditing, and SEC rules as well as a lk inside their areas f fcus fr the reprting seasn ahead. Each year, Delitte prepares a cmprehensive Heads Up newsletter cvering remarks made at the cnference. 2

5 Mr. Shannn als nted that because many registrants have begun returning t prfitability, they are cnsidering whether they shuld reverse a previusly recgnized valuatin allwance. He indicated that factrs fr registrants t cnsider in making this determinatin wuld include: The magnitude and duratin f past lsses. The magnitude and duratin f current prfitability. Changes in the abve tw factrs that drve lsses in the past and thse currently driving prfitability. He als indicated that registrants shuld bear in mind that the gal f the assessment is t determine whether sufficient psitive evidence utweighs existing negative evidence. He emphasized the imprtance f evidence that is bjectively verifiable and nted that it carries mre weight than evidence that is nt. At the 2012 AICPA Cnference, Nili Shah, deputy chief accuntant in the SEC s Divisin f Crpratin Finance, explained that in perfrming their analysis, registrants shuld (1) assess the sustainability f prfits in the current ecnmic envirnment and (2) cnsider their track recrd f accurately frecasting future financial results. She nted that any dubt abut sustainability f prfitability in a perid f ecnmic uncertainty may give rise t evidence that is less bjectively verifiable. Likewise, an entity s pr track recrd f accurately frecasting future results wuld als result in future prfit prjectins that are less bjectively verifiable. Thus, such evidence wuld carry less weight in a valuatin allwance assessment. Ms. Shah als pinted ut that registrants disclsures shuld include a discussin f the factrs r reasns that led t a reversal f a valuatin allwance that effectively answers the questin why nw. Such disclsures wuld include a cmprehensive analysis f all available psitive and negative evidence and hw the entity weighed each piece f evidence in its assessment. She als reminded registrants that the same disclsures wuld be expected when there is significant negative evidence and a registrant cncludes that a valuatin allwance is necessary. Cmment Letter Themes Freign Private Issuers At past AICPA cnferences, Jill Davis, assciate chief accuntant in the SEC s Divisin f Crpratin Finance, discussed cmments frequently made by the staff in its reviews f the financial statements f freign private issuers. She nted that the staff s cmments were similar t thse fr dmestic registrants and cntinued t be based n the ecnmics f transactins rather than the underlying U.S. GAAP. Cmments abut incme taxes fcused mainly n rate recnciliatins and the nature f items disclsed as well as n the cmpleteness and adequacy f disclsures required by IAS 12 2 particularly regarding the amunt f unrecgnized DTAs. 2 See Appendix D fr the titles f citatins used in this publicatin. 3

6 Examples f SEC Cmments Business Cmbinatins We nte that yu received a tax assessment frm [Cuntry A] in [XX] f 2012 and, as a result, yu recrded a reserve in the amunt f $[X] in cnsideratin f this matter. We als nte that $[X] f this amunt was recrded as an increase t gdwill with respect t yur [XX] f 2012 acquisitin f [Cmpany A]. Please tell us why yu believe a liability related t this tax assessment existed as f the acquisitin date, and that an adjustment t the allcatin f the purchase price is the crrect treatment fr this lss cntingency. In yur respnse, specifically address the existence and yur knwledge f this actin by [Cuntry A] n the acquisitin date f [XX], Further, please tell us hw yu determined and when yu clsed the measurement perid fr this acquisitin. Refer t FASB ASC thrugh 18. Yu disclse in yur business acquisitin ftnte n page [X] that yu expect the mrtgage servicing rights and gdwill t be treated as intangible assets acquired in cnnectin with the purchase f a trade r business t be amrtized ver 15 years fr tax purpses. Hwever, yu d nt appear t disclse any deferred tax liabilities related t tax-deductible gdwill in yur purchase price allcatins. Please tell us why [yu] have nt recgnized any deferred tax liabilities related t tax-deductible gdwill fr any f yur acquisitins. We nte that yu recgnized the tax-basis amrtizatin benefit f yur [Subsidiary A] indefinite-lived tradename as a $[X] reductin f the tradename s carrying value during fiscal We als nte that future tax-basis amrtizatin benefits will cntinue t be recrded as reductins f the intangible s carrying value. Please tell us the specific guidance yu relied upn in determining yur accunting treatment. We nte n page [X] that in 2010 yu acquired [X%] f the ttal capital f [Cmpany A] thrugh yur whlly wned subsidiary, [Cmpany B], and that in 2011 and 2012 yu cncluded several subsequent transactins which resulted in the cmpany wning [X%] f [Cmpany A]. We further nte that in June 2012 yu legally merged [Cmpany B] and [Cmpany A], which caused the carrying amunts f the [Cmpany A] acquired assets and liabilities in [Cmpany B s] cnslidated financial statements t becme their tax basis. As a result, there were n lnger any differences between the tax basis and carrying amunts f the net assets acquired in 2010; and cnsequently there was n lnger a deferred tax liability t be recgnized, and the utstanding balance f the initially recgnized deferred tax liability was recycled thrugh the December 31, 2012 incme statement and recrded as a gain f US $[X]. Please address the fllwing: Disclsures Describe in detail the substance f June 2012 legal merger between [Cmpany B] and [Cmpany A] and tell hw yu accunted fr the legal merger, including whether this transactin represents a rerganizatin f entities under cmmn cntrl under ASC r a transactin with nncntrlling sharehlders. Further explain t us what the riginal deferred tax liability that was recrded in the 2010 acquisitin f [Cmpany A] represents (e.g. inside basis difference r utside basis difference), and why the June 2012 legal merger caused the reversal f this deferred tax liability. Tell us the generally accepted accunting literature that yu fllwed t supprt yur recycling f the deferred tax liability thrugh the incme statement as a result f the legal merger, and tell us hw yu cnsidered the guidance in ASC (g) (changes in tax bases) and, by analgy, paragraphs f FAS 109. Please add a discussin f capital [lss] carryfrward and any limitatins n the ability t use the capital lsses. T [the] extent necessary t understanding the changes in yur effective incme tax benefit/expense fr each perid presented, please als prvide revised MD&A disclsure, as applicable, t be included in future peridic reprts. It is nt clear hw the amunts presented fr prvisin fr incme taxes and nn-cntrlling interest fr each pr frma perid presented are cnsistent with the crrespnding rate r percentages indicated in the respective ftntes supprting these amunts. Please revise t expand the crrespnding ftntes as apprpriate t specifically disclse the details f hw the adjustments presented were derived. In regard t the prvisin fr incme taxes, separately present the effect f each f federal, state, lcal and freign taxes, and hw each cntributed t the effective tax rate indicated. 4

7 Cnsidering the significance f yur ther categry t ttal deferred tax assets and liabilities as presented n the table n page [X], please revise future filings t disclse the nature f the items included in this categry and discuss any gegraphic cncentratins f the amunts. Please prvide us with yur prpsed disclsure. Please tell us the ttal amunt f legacy litigatin expenses and nn-cash incme tax prvisins included in Nn-GAAP cre perating incme fr all perids presented in yur Frm 10-K fr the year ended December 31, 2012 and yur mst recently filed Frm 10-Q. In additin, please clarify fr us whether these charges have been incurred during the past tw years. T the extent they have, we remain unclear hw yur disclsure cmplies with Item 10(e)(ii)(B) f Regulatin S-K. We nte yur disclsure f yur effective incme tax rates excluding the effects f gdwill and trademark impairments n page [X], which appears t represent a nn-gaap measure. Please revise t prvide the disclsures required by Item 10(e) f Regulatin S-K in future filings and shw us a draft f yur prpsed revisins. Freign Tax Rate and Other Reprting Issues Please revise t separately disclse the cmpnents f incme/(lss) befre incme tax expense as dmestic and freign peratins. We refer yu t Rule 4-08(h) f Regulatin S-X. We nte the significance f the benefit frm freign incme taxed at ther than U.S. rates as disclsed in the incme tax rate recnciliatin n page [X]. We als nte the significant difference between the U.S. statutry rate and yur freign effective tax rate. In light f the significant impact f lwer taxes n freign earnings t yur perating results, in future filings please explain the relatinship between freign pre-tax incme and the freign effective tax rate in greater detail. In that regard, please disclse the freign effective tax rate, with accmpanying descriptin f the primary jurisdictins where yur freign incme is earned fr tax purpses and the statutry rates and incentives in thse jurisdictins. It appears that separately discussing the freign effective incme tax rate is imprtant infrmatin material t an understanding f yur results f peratins. Refer t Item 303(a)(3)(i) f Regulatin S-K and Sectin III.B f SEC Release Please tell us the significant cmpnents f the [X]% adjustment t the statutry federal incme tax rate due t freign rate differences. We see that the differential significantly increased frm prir perids. Yu indicate that yur year t date effective tax rate fr 2012 was [X]% as cmpared t [X]% in Please expand yur discussin f incme taxes t better discuss yur effective tax rate fr each perid with reference t yur recnciliatin f the U.S. statutry incme tax rate t the effective tax rate in yur financial statements. Please als address the underlying material reasns fr the change in yur effective tax rate frm perid t perid. Yu als disclsed that the lwer effective tax rate was due t a higher prprtin f pretax incme being generated by yur freign peratins where incme tax rates are lwer than in the U.S. Please discuss which freign jurisdictins had the mst significant impact n yur effective tax rate, as applicable. We nte frm yur recnciliatin between the actual effective tax rate and the statutry U.S. federal incme tax rate f [X]%, that the impact f the [Cmpany A] transactin reduced the tax rate by [X]%. Please revise Nte [X] t disclse why this transactin had such a significant effect n the incme tax rate. Als, we nte that the effect f freign peratins significantly reduced yur effective tax rate fr the year ended June 30, In light f the fact that it appears frm Nte [X] that a significant amunt f yur incme befre incme tax fr 2013 was attributable t freign jurisdictins, please identify fr us and in Nte [X] the cuntries in which yu have generated prfits, but which have resulted in a reductin t yur effective tax rate. We think this disclsure is imprtant t ntify investrs if yu are generating significant prfits in cuntries that have very lw tax rates. Please advise and revise accrdingly. Yu disclse yur tax rate fr 2012 was lwer than the expected dmestic federal and state rate f apprximately [X]% primarily due t the tax benefits attributable t nn-u.s. subsidiary earnings in lwer tax rate jurisdictins. T the extent material pre-tax incme is attributed t a cuntry r cuntries with a significantly lw tax rate, we believe that fact shuld be disclsed in accrdance with Item 303(a)(3)(i) f Regulatin S-K. Yu shuld als discuss the relatinship between dmestic and freign effective tax rates in greater detail. It appears that separately discussing freign effective incme tax rates may be material t an understanding f yur business. Please prvide us with a draft f the disclsures yu intend t prvide in future filings. 5

8 Intraperid Tax Allcatin Please expand yur critical accunting plicy r Nte [X] Summary f Significant Accunting Plicies t address ASC 740 s intraperid tax allcatin guidance and hw this accunting mdel impacted hw yu allcated incme taxes amng cntinuing peratins and the ther cmpnents f yur financial statements. Tax Credits [W]e refer yu [t] page [X], please explain and clarify the nature f the significant tax incentive, and if it is an investment tax credit, please disclse the methd f accunting fr investment tax credits (deferral methd r flw-thrugh methd) and related amunt used in the determinatin f incme tax expense. We nte yur disclsure that yu are entitled t a refundable tax credit n qualified expenditures incurred in the prvince f [Cuntry A]. Please clarify which expenditures qualify as refundable and yur recgnitin plicy t recrd the credits. Please als tell us why yu believe the credit t prperty, plant and equipment is apprpriate, including reference t any authritative guidance yu have used t base yur cnclusin. Please prvide draft disclsure t be included in future filings. Revise t disclse the expiratin dates f and tax credit carry frwards per ASC In additin t disclsing the expiratin dates f yur tax credit carry frwards, please als disclse the amunt f yur tax credit carry frward. Tax Hliday Please tell us, and revise future filings, as applicable, t describe in greater detail the certain cnditins that apply t yur [Cuntry A] tax hliday. T the extent thse cnditins impse any material risks t yur peratinal flexibility, please include apprpriate risk factr disclsure. Please tell us why yu have nt als cnsidered the effect f the adjustment fr the prir year tax benefit, relating t the tax hliday granted t [Cmpany A], in yur disclsure f the aggregate dllar effect f yur tax hlidays n incme tax benefit/expense recgnized fr the perid, and the crrespnding impact n earnings per share. We nte that certain f yur subsidiaries have tax hlidays in [Cuntry A] which resulted in lwer incme tax expense during the perids presented. Please tell us what cnsideratin was given t disclsing the per share effects and the expiratin dates f the tax hlidays. Refer t SAB Tpic 11.C. Rate Recnciliatin Please prvide a recnciliatin f the effective tax rate t the statutry tax rate as required by FASB ASC Please prvide us a prpsed revised rate recnciliatin table and assciated clarifying disclsure t be included in future peridic reprts that separately describes each recnciling item ver [X]% f the expected incme tax benefit r expense. We reference the disclsure n page [X] that the impact f the 2013 charges relating t litigatin matters and a pensin settlement reduced the effective tax rate in 2013 by [X] basis pints. Please tell us where the impact f the litigatin and pensin matters are reflected in the rate recnciliatin table n page [X]. Please explain t us hw the full utilizatin f net perating lss carryback pprtunity in the prir year resulted in a lwer Federal statutry rate. Althugh yur disclsures identify general recnciling items that resulted in a difference between yur U.S. federal statutry incme tax rate and yur effective tax rate, it is nt clear which nes are significant as they are nt quantified. Please revise yur disclsure t discuss the significant recnciling items between yur statutry rate and yur effective tax rate that are specific fr each perid presented. Fr example, we nte in yur table n page [X], that the lss n change in fair value f warrants is ne f the largest recnciling items fr the year ended December 31, 2012, but this recnciling item is nt discussed n page [X]. 6

9 Please disclse the reasn fr the variance in the effective tax rate between the interim perids presented as well as between annual perids in the respective sectins f the filing where presented. Given the disparity in the effective tax rate in the perids presented in the filing, please disclse yur expectatins in regard t the effective tax rate fr fiscal 2014 and the basis fr such. Refer t the incme tax expense recnciliatin n page [X]. We nte yur recnciling item Effect f nn-[dmestic] entities nt subject t incme tax. Please tell us and disclse the nature f this apparent permanent difference. Als explain t us hw this nn-taxable line item triggers an increase in yur incme tax expense. Please explain t us why state incme taxes had such a significant impact n yur statutry rate recnciliatin fr fiscal Please prvide us prpsed disclsure t be included in future peridic reprts that addresses the fllwing issues related t disclsure in yur incme tax rate recnciliatin table n page [X]: Please explain the significant prir year adjustments relative t expected tax benefit/expense in 2012 and Please separately tell us why these adjustments were recrded in the perids they were and why they are nt indicative f errrs in yur previus perid financial statements. Please separately disclse each f the recnciling items that represent greater than [X]% f yur expected incme tax benefit/expense as required by Item 4-08(h)(2) f Regulatin S-X. In this regard, the abslute value f yur ther recnciling item is apprximately [X]% f the expected tax benefit in Uncertain Tax Psitins The uncertainty f the unrecgnized tax benefits related t the timing f the deductin f certain acquired assets was reslved in the perid ended June 30, 2013 as the Internal Revenue Service cmpleted the audit f tax years 2010 and Yu expect t pay apprximately $[X]. Please expand yur disclsures t clarify the financial statement impact f this reslutin during the six mnths ended June 30, Please tell us yur cnsideratin f the guidance in ASU regarding the ptential impact n yur accunting fr unrecgnized tax benefits and yur net perating lss and research and develpment credit carryfrwards deferred tax assets. T the extent apprpriate, please revise yur disclsure f recently issued accunting prnuncements t include this prnuncement. Yu disclse n page [X] that the additin f unrecgnized tax benefits in 2012 f $[X] was primarily attributable t U.S. tax psitins taken in the current year. Please explain in detail what these tax psitins relate t by categry and amunt, including the facts and timing f the circumstances specific t these psitins in the current year as cmpared t prir years. See FASB ASC It is unclear hw yu determined that the impact f changes in the liability fr uncertain psitins is nt significant t results f peratins fr each f the three year perids presented. Please [prvide] us with the tabular recnciliatin f the liability fr uncertain tax psitins and explain hw yu assessed the materiality f the changes. Als tell us the amunt f interest and penalties recrded in each perid. Reference is made t the discussin n page [X] regarding the [State A] audits f yur tax returns and the related assessments. Please tell us yur cnsideratin f disclsing an estimate f the range f reasnably pssible change in yur unrecgnized tax benefits r a statement that an estimate f the range cannt be made. Refer t ASC d.3. In additin, please tell us yur cnsideratin f expanding yur critical accunting plicy disclsure related t uncertain tax psitins n page [X] t quantify the extent t which yur estimate is sensitive t change. Undistributed Earnings f Freign Subsidiaries Please revise yur disclsures n page [X] t state the amunt f undistributed earnings frm yur freign subsidiaries as f June 30, 2013 that are nt subject t a U.S. tax prvisin because it is yur intentin t permanently reinvest such undistributed earnings utside f the U.S. We refer yu t ASC Please tell [us] whether yu have any undistributed earnings frm freign subsidiaries and if s, please disclse the amunt f the undistributed earnings and the unrecgnized deferred tax liability related t the undistributed earnings. We refer yu t ASC

10 We nte that yu have significant freign peratins which resulted in tax bligatins. In this regard, please tell us whether yu hld significant cash amunts in freign jurisdictins with favrable tax rates. If s, please tell us the impact that repatriating such amunts wuld have n yur incme taxes and results f peratins, r clearly indicate that such amunts are permanently reinvested. In additin, please tell us whether yu previusly repatriated funds as well as whether yu can meet yur bligatins, including dividend payments, with available funds, withut repatriating such amunts. If meeting such bligatins is nt pssible withut the repatriating amunts held in jurisdictins with favrable tax rates, please revise t include apprpriate disclsure in yur dividend plicy sectin, n page [X], as well as in yur liquidity and capital resurces discussin within MD&A. Discuss the fact that if the freign cash and shrt-term investments are needed fr yur peratins in the U.S., yu wuld be required t accrue and pay U.S. taxes t repatriate these funds but yur intent is t permanently reinvest these freign amunts utside the U.S. and yur current plans d nt demnstrate a need t repatriate the freign amunts t fund yur U.S. peratins. We see frm pages [X] and [X] that [X%] f yur revenue is generated frm custmers lcated utside f the United States and that deferred tax liabilities have nt been recgnized fr $[X] f undistributed earnings f freign subsidiaries due t yur intentin t permanently reinvest such earnings. Please revise future filings t disclse the amunt f cash and cash equivalents as well as liquid investments held by yur freign subsidiaries at year end and quantify any amunts that wuld nt be available fr use in the U.S. withut incurring U.S taxes. In future filings, please disclse as f each balance sheet date the cumulative amunt f undistributed earnings f freign subsidiaries that yu intend t permanently reinvest and have nt currently prvided fr in yur U.S. incme taxes. Please prvide us with yur prpsed revised disclsures. Refer t ASC Based n yur disclsure n page [X] it des nt appear that yu repatriated any freign earnings during fiscal 2013, thugh we nte the relatively small impact therefrm in the tax rate recnciliatin n page [X]. Hwever, yu indicated that yu repatriated $[X] at year end in the CFO s prepared remarks f the earnings call transcript. Please clarify r recncile. We nte frm yur disclsure n page [X] that if yu are required t pay the arbitratin award, the award wuld be paid frm ne f yur freign subsidiaries using cash that is currently intended t be indefinitely reinvested. Please tell us whether yu have accrued U.S. incme tax n the funds that will be repatriated t pay the arbitratin award. If yu have, please clarify yur disclsures in future filings. If yu have nt accrued taxes, please tell us why yu d nt believe it is necessary t d s cnsidering that yu believe it is prbable that the award will be paid. See ASC Given yur significant freign peratins, please enhance yur liquidity disclsures t address the fllwing: Disclse the amunt f cash and shrt-term investments held by freign subsidiaries as cmpared t yur ttal amunt f cash and shrt-term investments as f December 31, 2012; Disclse whether r nt yu wuld need t accrue and pay taxes if these amunts are repatriated; Disclse, if true, that yu d nt intend t repatriate these amunts; and Disclse the nature and extent f any legal r ecnmic restrictins n the ability f yur subsidiaries t transfer funds t yu in the frm f cash dividends, lans r advances and the impact such restrictins have had r are expected t have n yur ability t meet cash bligatins. Refer t Item 303(a)(1) f Regulatin S-K, SEC Release Sectin IV and Financial Reprting Cdificatin a. In light f the fact that yur freign subsidiary has paid significant dividends t the parent cmpany in each f the last three years it is unclear hw yu have determined that all f the undistributed earnings f freign subsidiaries are cnsidered permanently reinvested. Please tell us and prvide prpsed disclsure detailing what sufficient evidence yu have t supprt yur assertin per ASC Valuatin Allwance Please revise future filings t discuss why yu recrded a deferred tax asset valuatin allwance related t state lwincme husing tax credits. Als disclse the facts and circumstances that wuld allw yu t realize the benefit frm these deferred tax assets. Please prvide us with yur prpsed disclsure. 8

11 We nte the disclsure n page [X] f freign net perating lss carry-frwards and their related valuatin allwances fr certain jurisdictins. We als nte the disclsure n page [X] f the significant freign incme befre incme taxes. Please tell us hw the valuatin allwances recrded against freign net perating lss carry-frwards were determined in light f the levels f freign incme in each f the three fiscal years ended June 29, In future filings please prvide the disclsures abut undistributed earnings f freign subsidiaries required by FASB ASC We nte the increases in yur deferred tax asset during 2011 and Please explain t us, and disclse in future filings, the significant assumptins regarding yur ability t fully utilize yur deferred tax asset. We nte n page [X] that yu recrded a $[X] valuatin allwance fr deferred tax assets due t a peridic evaluatin f the future realizatin f deferred tax assets. Please expand the discussin in future filings t explain the reasn fr the amunt f the valuatin allwance recrded in greater detail. We nte yu have recrded a partial allwance fr yur deferred tax assets. Please explain yur basis fr cncluding that nly a partial allwance is needed. Specifically tell us the facts and circumstances yu used t determine whether each significant deferred tax asset was mre likely than nt t be realized. Tell us and revise t disclse the nature f the psitive and negative evidence yu cnsidered in yur determinatin, hw that evidence was weighted, and hw that evidence led yu t determine it was nt apprpriate t recrd a valuatin allwance n the remaining deferred tax assets. We nte yu have nly recrded a small deferred tax valuatin allwance at December 31, 2012 related t the OTTI lss at the hlding cmpany. We als nte that yu have recrded lsses in recent years and that yur determinatin that it is mre likely than nt that yu will realize the net deferred tax asset is based n frecasted earnings and is supprted by a strng earnings histry exclusive f the lan lsses that ccurred during 2008, 2009, 2010, 2011 and 2012 which created the future deductible amunt. Management believes the magnitude f lan lsses ccurred because f the current ecnmic dwnturn and the situatin is unusual and infrequent and an aberratin rather than a cntinuing cnditin. In determining the need fr a deferred tax asset valuatin allwance and cnsidering the guidance in paragraphs f ASC , frming a cnclusin that a valuatin allwance is nt needed is difficult when there is negative evidence such as cumulative lsses in recent years, which is cnsidered a significant piece f negative evidence that is difficult t vercme. The weight given t the ptential effect f negative and psitive evidence shuld be cmmensurate with the extent t which it can be bjectively verified. Please prvide us an accunting analysis that details the specific psitive and negative evidence yu cnsidered in determining that yur deferred tax assets will mre likely than nt be realized at December 31, Please tell us hw [Cmpany A] determined the fair value f the deferred tax asset fr the purchase price allcatin in the pr frma financial infrmatin. We nte that yu reduced yur valuatin allwance fr deferred tax assets during fiscal years 2012 and 2011 by $[X] and $[X], respectively. Cnsidering the materiality f the tax benefit t incme frm cntinuing peratins, please include a discussin and analysis f the specific deferred tax assets the change in valuatin allwance relates, and the specific psitive and negative evidence cnsidered fr each deferred tax asset. We further nte that yu cntinue t maintain a valuatin allwance f $[X] as f December 31, Please disclse the specific deferred tax assets that the valuatin allwance relates and the specific psitive and negative evidence cnsidered when cncluding that realizability f these deferred tax assets remains nt mre likely than nt. Please prvide us with the disclsures yu wuld have included in yur 2012 Frm 10-K in respnse t this cmment. We nte that if yu are able t realize [y]ur deferred tax assets in excess f [y]ur net recrded amunt, an adjustment t the valuatin allwance wuld increase incme in the perid such determinatin was made. We further nte frm disclsure in Nte [X] that yu have a valuatin allwance f $[X] against deferred tax assets f $[X] as f December 31, Please tell us and revise future filings t disclse the specific deferred tax assets t which yur valuatin allwance relates and the ptential circumstances that may cause yu t adjust yur valuatin allwance in future perids. T the extent yur estimates and assumptins are reasnably likely t change in the future, fr example if additinal taxable incme in an upcming quarterly perid wuld cause yu t release f all r a prtin f yur valuatin allwance, yu shuld address this in yur disclsures. Refer t Sectin V f SEC Release

12 We nte yur respnse t cmment [X] in ur letter dated [XXXXX], Please prvide us with the fllwing specific detailed infrmatin t supprt the realizability f the net deferred tax asset at December 31, 2012, June 30, 2013 and any future quarterly perids (September 30, 2013): Detailed tax effects f temprary differences related t the deferred tax asset as f June 30, 2013 and any future quarterly perid (September 30, 2013), similar t the infrmatin presented in yur respnse and in the S-1 n page [X] as f December 31, 2012 and 2011; Prvide us with yur frecasted 2013 prjectins, including all assumptins cnsidered; Detailed infrmatin cmparing actual vs. frecasted results fr the fiscal year ended December 31, 2012 and fr the six mnth perid ending June 30, 2013 and any future quarterly perid (September 30, 2013). In regard t any prjectins and assumptins utilized, prvide us with specific evidence t supprt the assumptins, such as the number f years in the prjectins, estimated grwth rates, net interest margins cnsidered, estimated lan lss prvisin rates, efficiency rati as well as revenue and expense grwth rates utilized. Given the significant amunt f yur deferred tax assets as well as yur material lss frm peratins fr the year ended June 30, 2012 and the nine mnths ended March 31, [2013], please disclse hw yu have determined that as f March 31, [2013,] it is mre likely than nt that yu will realize these assets. Prvide a detailed descriptin f the factrs cnsidered in assessing the realizability f these assets. Fr example, if yu are relying n the recgnitin f future pre-tax incme, please disclse the amunt f pre-tax incme that yu need t generate t realize the deferred tax assets. If yu are relying n tax planning strategies, please disclse the nature f yur tax planning strategies, hw each strategy supprts the realizatin f deferred tax assets, the amunt f the shrtfall that each strategy cvers, and any uncertainties, risks, r assumptins related t these tax-planning strategies. Refer t paragraphs f ASC and Sectin f the Financial Reprting Cdificatin fr guidance. We nte yur disclsure n page [X] regarding the deferred incme tax benefit f $[X] recgnized fr the fiscal year ended December 31, Please tell us and revise future filings t explain the fllwing: Hw yu determined that a valuatin allwance was n lnger necessary fr deferred tax assets related t cnversin f [Cmpany A] t a limited liability partnership. Explain in further detail hw yu cnsidered the fact that [Cmpany A] is in a three-year cumulative lss psitin as f December 31, 2012 and September 30, 2013 in reaching yur cnclusin that a full deferred tax asset valuatin allwance is nt required. We nte yur statement that due t a lack f significant psitive evidence yu established a valuatin allwance n all U.S federal and certain U.S. state and freign deferred tax assets. Please explain in greater detail here, and in yur Critical Accunting Plicies, the negative evidence yu evaluated leading yu t cnclude that an allwance was needed n all U.S. and certain U.S. state and freign deferred tax assets. Furthermre prvide disclsures n hw yu arrived at the estimate, including the assumptins and estimates used t determine the valuatin allwance. We nte yu released a significant prtin f yur U.S. deferred tax valuatin allwance during In future filings, please revise yur disclsure t prvide a mre detailed explanatin as t hw yu determined it is mre likely than nt that yu will realize ttal deferred tax assets. Please ensure yur disclsure address each f the fllwing pints, as apprpriate: Disclse the amunt f pre-tax incme that needs t be generated t realize the deferred tax assets t the extent yu are relying n future incme. Include an explanatin f the anticipated future trends included in yur prjectins f future taxable incme. Cnfirm t us that the anticipated future trends included in yur assessment f the realizability f yur deferred tax assets are the same anticipated future trends used in estimating the fair value f yur reprting units fr purpses f testing gdwill fr impairment and any ther assessment f yur tangible and intangible assets fr impairment. Disclse that the deferred tax liabilities yu are relying n in yur assessment f the realizability f yur deferred tax assets will reverse in the same perid and jurisdictin and is f the same character as the temprary differences giving rise t the deferred tax assets t the extent yu are relying n deferred tax liabilities. 10

13 If yu are als relying n tax-planning strategies, please disclse the nature f yur tax planning strategies, hw each strategy supprts the realizatin f deferred tax assets, the amunt f the shrtfall that each strategy cvers, and any uncertainties, risks, r assumptins related t these tax-planning strategies. We nte that yu maintain a significant valuatin allwance and yu appear t be reducing it ver time. Please tell us the factrs yu cnsidered when determining that a valuatin allwance was necessary in light f yur histrical pretax incme. If yu are changing the valuatin allwance fr nly the amunt f the NOL used during the perid, please tell us the basis fr determining that this change in the valuatin allwance is apprpriate and hw yu determined that it was mre likely than nt that yur NOLs and ther deferred tax assets will nt be realized. See ASC fr guidance. As part f yur respnse, please tell us hw yu cnsidered disclsing, here and in yur discussin f perating results n page [X] and [X], the circumstances that led t the valuatin allwance reversals. We nte yur disclsure stating that after cnsidering all available psitive and negative evidence, yu reversed $[X] f the remaining valuatin allwance n yur [Cuntry A] and [Cuntry B] deferred tax assets as f February 29, 2012, as yu determined that it was mre likely than nt that these benefits wuld be realized. Given the impact f the reversal f the valuatin allwance n yur 2012 net incme, please prvide draft disclsure t be included in future filings that expands discussin n the material psitive and negative evidence yu cnsidered, alng with hw it was weighted, in determining that it is mre likely than nt that yur deferred tax assets will be realized. Yur respnse shuld prvide a detailed analysis regarding hw yu determined that the realizatin f the [Cuntry A] deferred tax asset. Specifically address the psitive and negative evidence cnsidered fr yur [Cuntry B] subsidiary, including yur cnsideratin f the restructuring activities in Refer t the guidance in ASC thrugh We nte yu have recrded a partial allwance fr yur deferred tax asset at December 31, 2012 and June 30, 2013 and have released a prtin f the valuatin allwance during fiscal 2012 and in the interim perid f June 30, Please prvide us with specific detailed infrmatin t supprt the realizability f the net deferred tax asset, and yur accunting, at December 31, 2012 and June 30, Please make sure t address the fllwing in yur respnse: We nte that yu have recgnized significant cumulative lsses frm cntinuing peratins during the fiscal perids, and nly minr incme frm taxes during 2012 and the 6-mnths ended June 30, In determining the need fr a valuatin allwance, frming a cnclusin that a valuatin allwance is nt necessary is difficult when there is negative evidence such as cumulative lsses frm cntinuing peratins, which is cnsidered a significant piece f negative evidence that is difficult t vercme (refer t paragraphs f ASC ). Furthermre the weight given t the ptential effect f negative and psitive evidence shuld be cmmensurate with the extent t which it can be bjectively verified, specifically cncerning frecasts f future taxable incme. Please prvide us with specific evidence t supprt the realizability f the net deferred tax asset at June 30, 2013 and December 31,

14 Appendix A: SEC Staff Review Prcess The SEC s Divisin f Crpratin Finance (the Divisin ) selectively reviews filings made under the Securities Act f 1933 and the Securities Exchange Act f In January 2009, the SEC staff issued an verview that explains its filing review and cmment letter prcess. 1 The verview aims t increase transparency in the review prcess and expresses the staff s willingness t discuss issues with registrants. Fr example, the verview indicates that the [staff] views the cmment prcess as a dialgue with a cmpany abut its disclsure and that a cmpany shuld nt hesitate t request that the staff recnsider a cmment it has issued r recnsider a staff member s view f the cmpany s respnse t a cmment at any pint in the filing review prcess. The verview is divided int tw main sectins: The Filing Review Prcess This sectin explains that the Divisin cmprises 12 ffices staffed by experts in specialized industries, accunting, and disclsures. The sectin includes backgrund n the different types (required and selective) and levels f review and cvers the cmment prcess, indicating that [m]uch f the [staff s] review [prcess] invlves reviewing the disclsure frm a ptential investr s perspective and asking questins that an investr might ask when reading the dcument. The sectin als addresses hw t respnd t staff cmments and clse a filing review. The Recnsideratin Prcess This sectin emphasizes that staff members, at all levels, are available t discuss disclsure and financial statement presentatin matters with a cmpany and its legal, accunting, and ther advisrs. In addressing a registrant s ptential request fr the SEC staff t recnsider a staff member s cmment r view n a registrant s respnse, the staff emphasizes that registrants d nt have t fllw a frmal prtcl. Hwever, the staff explains where registrants shuld start and the steps invlved in the nrmal curse f the recnsideratin prcess. The staff als specifies cntact infrmatin fr each ffice fr bth accunting and financial disclsure matters and legal and textual disclsure matters. Registrants may invlve the SEC s Office f the Chief Accuntant (OCA) during any stage f the review prcess. Unlike the Divisin s rle, which is t address matters related t the age, frm, and cntent f registrants financial statements that are required t be filed, the OCA s rle is t address questins cncerning a registrant s applicatin f GAAP. Guidance n cnsulting with the OCA is available n the SEC s Web site. A registrant that receives an SEC cmment letter shuld generally respnd within the time frame indicated in the letter. See Appendix B fr mre infrmatin abut respnding t SEC cmment letters. The registrant shuld cntinue t respnd t any requests fr mre infrmatin until it receives a letter frm the Divisin stating that the Divisin has n further cmments. A registrant that des nt receive a cmpletin letter within a reasnable amunt f time after submitting a respnse letter shuld call its SEC staff reviewer (named in the letter) t ask abut the status f the review. If the review is cmplete, the registrant shuld request a cmpletin letter. T increase the transparency f the Divisin s review prcess, cmment letters are made public, via the SEC s Web site, n mre than 20 days after the review is cmpleted. See Appendix C fr tips n searching the SEC s cmment letter database. 1 An verview f the legal, regulatry, and capital markets ffices is als available n the SEC s Web site. 12

15 Appendix B: Leading Practices fr Managing Unreslved SEC Cmment Letters The leading practices belw are intended t help registrants reslve any staff cmment letters in a timely manner. Unreslved cmments may affect a registrant s ability t issue financial statements and an auditr s ability t issue the current-year audit reprt. In additin, when respnding t staff cmment letters, registrants shuld be mindful f their respnses because all respnses t staff cmment letters are made publicly available and becme part f a registrant s ttal mix f infrmatin and disclsure recrds (i.e., investrs may read such respnses similarly t hw they interpret a registrant s ther filings and publicly available infrmatin). 1 A registrant shuld d the fllwing: Cnsider the impact the cmment letter may have n its ability t issue the financial statements. Cnsult with its SEC legal cunsel abut the impact the cmment letter may have n the certificatins cntained in its Frm 10-K. Cnsult with its auditrs t discuss the impact the cmment letter may have n their ability t issue the current-year audit reprt. Review the cmment letter immediately and respnd t the SEC staff reviewer (named in the letter) within the time indicated in the cmment letter (usually 10 business days). If pssible, the registrant shuld nt request an extensin, since this may delay reslutin f the cmment letter. Hwever, in certain circumstances, the registrant shuld cnsider requesting an extensin t prvide a mre thrugh and cmplete respnse that addresses all f the staff s cmments. If the registrant des nt fully understand any specific cmment, the registrant shuld cntact its SEC staff reviewer quickly fr clarificatin s that it can prvide an apprpriate respnse. Include in the respnse a discussin f supprting authritative accunting literature and references t the specific paragraph(s) frm the standard(s). Because sme cmments may request disclsure in future filings, the registrant shuld cnsider including such disclsure in the respnse letter t ptentially eliminate additinal requests frm its SEC staff reviewer. If an immaterial disclsure is requested, the registrant shuld cnsider explaining why the disclsure is immaterial instead f including the immaterial disclsure in future filings. Maintain cntact with its SEC staff reviewer and make the reviewer aware f the registrant s required timing (n the basis f its current-year filing deadlines). If the registrant has nt received a fllw-up letter r been cntacted within tw weeks f filing the initial respnse letter, the registrant shuld cntact its SEC staff reviewer t determine the status f the cmments. The registrant shuld prmptly address any fllw-up questins. If the registrant is uncertain abut whether its review has been cmpleted withut further cmments, it shuld ask the SEC staff reviewer abut the status f the review. If the review is cmplete, the registrant shuld ask the reviewer fr a cmpletin letter. Oral Cmments In limited circumstances, the SEC staff may prvide ral cmments t a registrant instead f a written cmment letter. The registrant shuld ask the SEC staff reviewer hw he r she wuld like t receive the registrant s respnse t the ral cmments. If the reviewer requests a respnse via EDGAR, a registrant shuld respnd with a written letter. If the reviewer requests an ral respnse r identifies n preference, a registrant shuld still, althugh it is nt required t d s, cnsider respnding t the staff s cmments with a letter t frmally dcument the registrant s understanding f the staff s cmments and the discussins held as well as the registrant s respnse. Disclsure Requirements Under the Securities Offering Refrm, large accelerated filers, accelerated filers, and well-knwn seasned issuers must disclse in their Frms 10-K the substance f any material unreslved SEC staff cmments that were issued 180 r mre days befre the end f the current fiscal year. 1 The SEC staff discussed this tpic at the 2012 AICPA Cnference. Refer t Delitte s December 11, 2012, Heads Up fr mre infrmatin. 13

16 Appendix C: Tips fr Searching the SEC s Database fr Cmment Letters The SEC adds cmment letters (and respnses frm registrants) t its EDGAR database n earlier than 20 days after its review f a filing is cmplete. Registrants can refer t such cmments as part f their financial statement review prcess and t imprve their wn accunting and verall disclsure. Althugh the SEC has recently updated the EDGAR search engine t simplify searches f crprate filings, users may still wish t use the full-text search feature t find the text f specific cmment letters psted within the last fur years and t generally narrw their search results. The prcess f perfrming a full-text search is discussed belw. Full-Text Searching T perfrm a full-text search, first g t the SEC s hme page ( and click the Search EDGAR fr Cmpany Filings image: 14

17 Then, click the Full Text link in the left sidebar n the EDGAR l Cmpany Filings page: On the Full-Text Search page, select Advanced Search Page : 15

18 This brings up the fllwing frm: In the frm, limit the search results t SEC cmment letters by using the drp-dwn menu next t In Frm Type and chsing UPLOAD (r select CORRESP t include registrant respnses as well). Then, enter search terms in the Search fr Text field. The dcuments fund will cntain at least ne f the wrds entered as well as variatins f the key wrd(s). T search fr specific phrases, enclse the phrase in qutatin marks (e.g., management s discussin and analysis ). Results will include dcuments that cntain the quted phrase as well as cnceptually related phrases, such as managerial discussin & analysis. Enhancing Search Results Searches can be further refined by using Blean peratrs such as AND, OR, and NOT (capitalizatin f these terms is required). Fr an peratr t wrk effectively, a key wrd r phrase generally must be included befre and after it (e.g., investments AND temprary). Searches in which peratrs are used will prduce results as fllws: AND Dcuments will cntain all terms cnnected (but nt necessarily in the same sentence r paragraph) by the AND peratr. The terms can appear in any rder in the dcument. OR Dcuments will cntain any terms cnnected by the OR peratr. NOT Dcuments will cntain ne term but nt anther term. Using wildcards r the nearness feature can als enhance search results: Wildcards While certain variatins f key wrds are autmatically included in search results, using an asterisk (*) can ensure that all variatins are included. Fr example, the wildcard impair* can be used t find dcuments that cntain the wrds impair, impaired, impairing, impairment, r impairs. Nearness Key wrds r phrases within a certain distance f each ther can be searched by stipulating a range. The range is determined by using the term NEARn, with n representing the maximum number f wrds in the range (e.g., impairment NEAR5 test wuld find dcuments with impairment and test within five wrds f each ther). 16

19 Advanced search features can frequently be cmbined. Fr example, qutatins used t find a specified phrase can be cmbined with Blean peratrs (e.g., investments AND temprary decline ). Nte that numbers are ignred in searches. Thus, a search fr Final Rule 108 will nly lcate dcuments that cntain the terms Final and Rule. Searches can, hwever, be srted by ther criteria, such as dates, as discussed belw. Srting by Dates and Other Specific Criteria On the full-text search frm, selectins can als be made t limit results t a specified: Cmpany name. Central index key (CIK). 1 Standard industrial classificatin (SIC) cde. 2 Date range. Nte that clicking the SIC cde in the list f search results will display a list f additinal cmpanies that have the same SIC cde: Cntrlling and Displaying Search Results The Results Per Page drp-dwn list can be used t limit the number f search results that display. T pen a cmment letter, click n the underlined title f the frm t the right f the date. The cmment letters will include any attachments r exhibits. Example f the Benefits f Using Full-Text Search Features Assume that a user is interested in SEC cmments issued ver the past tw years that are related t results f peratins in the htel industry. By searching fr the wrds results and peratins with All Frms selected and n dates specified, the user wuld btain ver 8,000 results, many f which are nt relevant. Hwever, if the user narrwed his r her search by (1) selecting the frm type UPLOAD, (2) entering the search term results f peratins in qutatin marks, (3) entering the industry cde fr the htel/mtel industry (SIC 7011), and (4) prviding a date range spanning the last tw years, the number f results will be mre relevant and manageable. 1 Accrding t the SEC s Web site, a CIK is the unique number that the SEC s cmputer system assigns t individuals and crpratins wh file disclsure dcuments with the SEC. All new electrnic and paper filers, freign and dmestic, receive a CIK number. 2 A SIC cde is an industry designatin. Nte that sme f the SIC cde descriptins are similar, s narrwing results by SIC cde may nt include certain issuers that are in a similar industry yet have a different assigned SIC cde. 17

20 Additinal Infrmatin Fr mre infrmatin abut full-text searching, click the FAQ link n in the search frm: 18