Rayovac 2006 Annual Report Download - page 22

10 SPECTRUM BRANDS | 2006 ANNUAL REPORT
We cannot assure you that we will be able to comply
with our fi nancial covenants and other provisions of
our debt instruments in future periods.
On December 12, 2006, we agreed with our senior lenders to
amend the minimum consolidated interest coverage ratio and the
maximum consolidated leverage ratio covenants under our Senior
Credit Facilities for the upcoming fi rst and second fi scal quarters
(ending December 31, 2006 and April 1, 2007 respectively).
During the quarter ended July 2, 2006, we agreed with our senior
lenders to amend the maximum consolidated leverage ratio and
minimum consolidated interest coverage ratio covenants under our
Senior Credit Facilities effective for the period ended April 2, 2006
and subsequent periods. Under the amendments, the limits
imposed by such ratios become more restrictive over time. The
more restrictive fi nancial covenants and other provisions of our
amended Senior Credit Facilities increase the possibility that we
could be unable to comply with such covenants and provisions in
the future. Failure to comply with the fi nancial covenants and other
provisions could materially and adversely affect our ability to
fi nance our future operations or capital needs and could create a
default under such instrument and cause all amounts borrowed to
become due and payable immediately. In the event of default under
our Senior Credit Facilities, the amounts outstanding under our
Senior Subordinated Notes would also be subject to acceleration.
We cannot assure you that we will not violate the minimum
consolidated interest coverage ratio and maximum consolidated
leverage ratio covenants or other covenants under our Senior
Credit Facilities in the future. Failure to comply with the terms
of the agreement governing our Senior Credit Facilities could
also require us to renegotiate or amend our Senior Credit
Facilities on even less favorable terms. Our ability to comply with
our future debt covenants will depend on our ability to divest
certain assets on favorable contractual terms.
We have engaged a fi nancial advisor to assist us in eval-
uating sales of certain assets and have engaged in dis-
cussions with various parties as to the potential sale of
certain assets; however, we cannot assure you that we
will be able to successfully consummate any such sale at
all, or whether we would be able to do so on a timely
basis or on terms acceptable to us.
We have engaged in discussions with potential buyers to
divest certain assets to sharpen our focus on strategic growth
businesses, maximize long-term shareholder value and reduce
our outstanding debt balances. There can be no assurance that we
will be able to successfully divest any such assets or that we will
be able to do so on terms and conditions and in a timeframe
favorable to the Company.
We may not be able to generate sufficient future tax-
able income to fully utilize our income tax operating
loss and credit carryforwards.
As of September 30, 2006, we had federal net operating loss
carryforwards of approximately $464 million. These net operating
loss carryforwards expire at various times between 2008 and 2025.
We expect to utilize certain of our U.S. federal net operating loss
carryforwards, which totaled approximately $370 million at
September 30, 2006, upon divestiture of certain assets on
favorable contractual terms. While we expect to fully utilize
the remaining $94 million within the carryforward period to
reduce our income tax liabilities, future taxable income may not
be suffi cient for full utilization of the carryforwards.
We participate in very competitive markets, and we may
not be able to compete successfully.
The markets in which we participate are very competitive. In
the consumer battery market, our primary competitors are
Duracell (a brand of Procter & Gamble and its Gillette subsid-
iary), Energizer and Panasonic (a brand of Matsushita). In the
lawn and garden and household insect control markets, our prin-
cipal national competitors are The Scotts Company, Central
Garden & Pet Company and S.C. Johnson. In the electric shaving
and grooming and electric personal care product markets, our
primary competitors are Braun (a brand of Procter & Gamble),
Norelco (a brand of Philips), Vidal Sassoon, Revlon and Helen of
Troy. In the pet supplies market, our primary competitors are
The Hartz Mountain Corporation and Central Garden & Pet
Company. In each of our markets, we also compete with numer-
ous other competitors.
We and our competitors compete for consumer acceptance
and limited shelf space based upon brand name recognition, per-
ceived quality, price, performance, product packaging and design
innovation, as well as creative marketing, promotion and distri-
bution strategies. Our ability to compete in these consumer
product markets may be adversely affected by a number of fac-
tors, including, but not limited to, the following:
• We compete against many well-established companies that
may have substantially greater fi nancial and other resources,
including personnel and research and development
resources, greater overall market share and fewer regulatory
burdens than we do.
• In some key product lines, our competitors may have lower
production costs and higher profi t margins than we do,
which may enable them to compete more aggressively in
offering retail discounts and other promotional incentives.
• Product improvements or effective advertising campaigns
by competitors may weaken consumer demand for our
products.
• Consumer purchasing behavior may shift to distribution
channels where we do not have a strong presence.
• Consumer preferences may change to lower margin prod-
ucts or products other than those we market.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.