Rayovac 2013 Annual Report Download - page 61

Restructuring and Related Charges. See Note 14, “Restructuring and Related Charges”, to our
Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding our
restructuring and related charges.
Interest Expense. Interest expense in Fiscal 2013 was $376 million compared to $192 million in Fiscal
2012. The increase in interest expense in Fiscal 2013 of $184 million is primarily due to costs and expenses
related to the extinguishment of our 9.5% Notes and the financing of the acquisition of the HHI Business coupled
with higher ongoing interest expense related to the debt issued in connection with that acquisition, partially offset
by the non-recurrence of costs and expenses related to the extinguishment of our 12% Notes in Fiscal 2012. We
incurred $122 million of costs related to the extinguishment of our 9.5% Notes including cash tender, consent
and redemption premium costs totaling $111 million and non-cash costs for the write off of unamortized deferred
financing fees less unamortized original issue premium totaling $11 million. We incurred $29 million in costs
and expenses related to the acquisition financing for the HHI Business including cash costs of $24 million for
bridge financing fees, interest incurred prior to closing and transaction costs, along with non-cash costs of $5
million related to the write-off of debt issuance costs and original issue discount on the former term loan facility.
In addition, we incurred $69 million of ongoing cash interest expense related to the debt incurred for the
acquisition of the HHI Business. The higher expense incurred in Fiscal 2013 was partially offset by the
non-recurrence of $25 million of cash and $2 million of non-cash costs incurred in connection with the
extinguishment of our 12% Notes, savings related to the extinguishments of the 12% Notes and the 9.5% Notes
coupled with other items netting to reduced interest of $9 million. See Note 6, “Debt”, of Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K.
Income Taxes. In Fiscal 2013, we recorded income tax expense of $27 million on a pretax loss from
continuing operations of $28 million, and in Fiscal 2012, we recorded income tax expense of $60 million on
pretax income from continuing operations of $109 million. Our effective tax rate on our loss from continuing
operations was approximately (98)% for Fiscal 2013. Our effective tax rate on income from continuing
operations was approximately 55% for Fiscal 2012. Our effective tax rates differ from the U.S. federal statutory
rate of 35% principally due to: (i) losses in the U.S. and certain foreign jurisdictions for which no tax benefit can
be recognized due to full valuation allowances that have been provided on our net operating loss carryforward tax
benefits and other deferred tax assets; (ii) deferred income tax expense related to the change in book versus tax
basis of indefinite lived intangibles, which are amortized for tax purposes but not for book purposes, and (iii) the
reversal in Fiscal 2013 of U.S. valuation allowances of $50 million on deferred tax assets as a result of the
acquisition of the HHI Business and the reversal in Fiscal 2012 of U.S. valuation allowances of $15 million on
deferred tax assets as a result of the FURminator acquisition. Additionally, in Fiscal 2013, the consolidated
pretax income was close to break even, resulting in a higher effective tax rate as this rate is calculated by
dividing tax expense into pretax income (loss).
In light of our plans to voluntarily pay down our U.S. debt, fund distributions to shareholders, fund U.S.
acquisitions, and our ongoing U.S. operational cash flow requirements, in Fiscal 2012 we began recording
residual U.S. and foreign taxes on current foreign earnings, which we do not consider to be permanently
reinvested, except for locations precluded by local legal restrictions from repatriating earnings. We evaluate
annually the available earnings, permanent reinvestment classification, and availability and intent to use
alternative mechanisms for repatriation for each jurisdiction in which we do business. As of September 30, 2013,
we have provided residual taxes on approximately $46 million of earnings not yet taxed in the U.S. Due to the
valuation allowance recorded against U.S. net deferred tax assets, including net operating loss carryforwards, we
do not recognize any incremental U.S. tax expense on the expected future repatriation of these foreign earnings.
Should the U.S. valuation allowance be released at some future date, the U.S. tax on foreign earnings not
considered to be permanently reinvested might have a material effect on our effective tax rate. For Fiscal 2013,
we project approximately $3 million of additional tax expense from non-U.S. withholding and other taxes
expected to be incurred on repatriation of current earnings.
As of September 30, 2013, we have U.S. federal and state net operating loss carryforwards of approximately
$1,515 million and $1,551 million, respectively. These net operating loss carryforwards expire through years
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