Rayovac 2010 Annual Report Download - page 74

an increase in such inventory balances of $49 million. As a result of the inventory revaluation, New Spectrum
recognized $16 million in additional cost of goods sold in Fiscal 2009. The remaining $33 million of the
inventory revaluation was recorded during the first quarter of Fiscal 2010. These inventory revaluation
adjustments are non-cash charges. In addition, in connection with our adoption of fresh-start reporting, and in
accordance with ASC 852, we revalued our property, plant and equipment as of August 30, 2009 which resulted
in an increase to such assets of $34 million. As a result of the revaluation of property, plant and equipment,
during Fiscal 2009 we incurred an additional $2 million of depreciation charges within cost of goods sold. We
anticipate higher cost of goods sold in future years as a result of the revaluation of our property, plant and
equipment. Furthermore, as a result of emergence from Chapter 11 of the Bankruptcy Code, we anticipate lower
interest costs in future years which should enable us to invest more in capital expenditures into our business and,
as a result, such higher future capital spending would also increase our depreciation expense in future years. See
Note 2, Voluntary Reorganization Under Chapter 11, of Notes to Consolidated Financial Statements included in
this Annual Report on Form 10-K for more information related to our reorganization under Chapter 11 of the
Bankruptcy Code and fresh-start reporting. Offsetting the unfavorable impacts to our gross margin, we incurred
$13 million of Restructuring and related charges, within Costs of goods sold, during Fiscal 2009, compared to
$16 million in Fiscal 2008. The $13 million in Fiscal 2009 primarily related to the 2009 Cost Reduction
Initiatives and the Ningbo Exit Plan, while the Fiscal 2008 charges were primarily related to the Ningbo Exit
Plan. See “Restructuring and Related Charges” below, as well as Note 15, Restructuring and Related Charges, of
Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional
information regarding our restructuring and related charges.
Operating Expense. Operating expenses for Fiscal 2009 totaled $659 million versus $1,605 million for
Fiscal 2008. This $946 million decrease in operating expenses for Fiscal 2009 versus Fiscal 2008 was primarily
driven by lower impairment charges recorded in Fiscal 2009 versus Fiscal 2008. During Fiscal 2009 we recorded
non-cash impairment charges of $34 million versus $861 million of non-cash impairment charges recorded in
Fiscal 2008. The Fiscal 2009 impairment charges related to the write down of the carrying value of indefinite-
lived intangible assets to fair value while the Fiscal 2008 impairment charges related to the write down of the
carrying value of goodwill and indefinite-lived intangible assets to fair value. These impairment charges were
recorded in accordance with both ASC Topic 350: “Intangibles-Goodwill and Other,” (“ASC 350”) and ASC
Topic 360: “Property, Plant and Equipment,” (“ASC 360”). See “Goodwill and Intangibles Impairment” below,
as well as Note 3(c), Significant Accounting Policies and Practices—Intangible Assets, of Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K for additional information regarding these
non-cash impairment charges. The decrease in operating expenses in Fiscal 2009 versus Fiscal 2008 is also
attributable to the positive impact related to foreign exchange of $37 million in Fiscal 2009 coupled with the
non-recurrence of a charge in Fiscal 2008 of $18 million associated with the depreciation and amortization
related to the assets of the Home and Garden Business incurred as a result of our reclassification of the Home and
Garden Business from discontinued operations to continuing. See “Introduction” above and “Segment Results—
Home and Garden” below, as well as Note 1, Description of Business, of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for additional information regarding the reclassification
of the Home and Garden Business. Tempering the decrease in operating expenses from Fiscal 2008 to Fiscal
2009 was an increase in restructuring and related charges. Restructuring and related charges included in
operating expenses were $32 million in Fiscal 2009 and $23 million in Fiscal 2008. The Fiscal 2009
Restructuring and related charges are primarily attributable to the 2009 Cost Reduction Initiatives, while the
Fiscal 2008 charges are primarily attributable to various cost reduction initiatives in connection with our global
realignment announced in January 2007. See “Restructuring and Related Charges” below, as well as Note 15,
Restructuring and Related Charges, of Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K for additional information regarding our restructuring and related charges.
Operating Income (Loss). Operating income of approximately $157 million was recognized in Fiscal 2009
compared to an operating loss in Fiscal 2008 of $685 million. The change in operating income (loss) is directly
attributable to the impact of the previously discussed non-cash impairment charge of $34 million in Fiscal 2009
compared to the non-cash impairment charge of $861 million during Fiscal 2008.
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