Rayovac 2014 Annual Report Download - page 31

contracts, the other parties to the contracts may not be willing to include or may limit the effect of those caps and
could even attempt to impose above market prices in an effort to make up for any below market prices paid by us
prior to the renewal of the agreement. Any failure to timely obtain suitable supplies at competitive prices could
materially adversely affect our business, financial condition and results of operations.
We may not be able to fully utilize our U.S. net operating loss carryforwards.
As of September 30, 2014, we had U.S. federal net operating loss carryforwards (“NOLs”) of approximately
$1,088 million and tax benefits related to state NOLs of $70 million. These net operating loss carryforwards
expire through years ending in 2034. As of September 30, 2014, we determined that it continues to be more
likely than not that the U.S. federal and most of the U.S. state net deferred tax asset, will not be realized in the
future and as such recorded a full valuation allowance to offset the net U.S. federal and most of the U.S. state
deferred tax asset, including Spectrum Brands, Inc.’s NOLs. In addition, Spectrum Brands, Inc. has had changes
of ownership, as defined under Section 382 of the Internal Revenue Code (the “IRC”) of 1986, as amended, that
continue to subject a significant amount of Spectrum Brands, Inc.’s U.S. NOLs and other tax attributes to certain
limitations.
As a consequence of the merger of Salton, Inc. and Applica Incorporated in December 2007 (which created
Russell Hobbs, Inc.), as well as earlier business combinations and issuances of common stock consummated by
both companies, use of the tax benefits of Russell Hobbs, Inc.’s U.S. NOLs is also subject to limitations imposed
by Section 382 of the IRC. We expect that a significant portion of these carryforwards, if any, will not be
available to offset future taxable income. In addition, use of Russell Hobbs, Inc.’s NOLs and tax credit
carryforwards is dependent upon both Russell Hobbs, Inc. and us achieving profitable results in the future.
Russell Hobbs Inc.’s U.S. NOLs were subject to a full valuation allowance at September 30, 2014.
As of September 30, 2014, we estimate that approximately $302 million of the Spectrum Brands, Inc. and
Russell Hobbs, Inc. U.S. federal NOLs and tax benefits of $17 million from Spectrum Brands, Inc. and Russell
Hobbs, Inc. state NOLs would expire unused even if the Company generates sufficient income to otherwise use
all its NOLs, due to the limitation in Section 382 of the IRC.
If we are unable to fully utilize our NOLs, other than those restricted under Section 382 of the IRC, as
discussed above, to offset taxable income generated in the future, our results of operations could be materially
and negatively impacted.
Consolidation of retailers and our dependence on a small number of key customers for a significant
percentage of our sales may negatively affect our business, financial condition and results of operations.
As a result of consolidation of retailers and consumer trends toward national mass merchandisers, a
significant percentage of our sales are attributable to a very limited group of customers. Our largest customer
accounted for approximately 16% of our consolidated net sales for the fiscal year ended September 30, 2014. As
these mass merchandisers and retailers grow larger and become more sophisticated, they may demand lower
pricing, special packaging or impose other requirements on product suppliers. These business demands may
relate to inventory practices, logistics or other aspects of the customer-supplier relationship. Because of the
importance of these key customers, demands for price reductions or promotions, reductions in their purchases,
changes in their financial condition or loss of their accounts could have a material adverse effect on our business,
financial condition and results of operations.
Although we have long-established relationships with many of our customers, we do not have long-term
agreements with them and purchases are generally made through the use of individual purchase orders. Any
significant reduction in purchases, failure to obtain anticipated orders or delays or cancellations of orders by any of
these major customers, or significant pressure to reduce prices from any of these major customers, could have a
material adverse effect on our business, financial condition and results of operations. Additionally, a significant
deterioration in the financial condition of the retail industry in general, the bankruptcy of any of our customers or if
any of our customers were to leave the business, could have a material adverse effect on our sales and profitability.
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