Rayovac 2007 Annual Report Download - page 60

58 SPECTRUM BRANDS | 2007 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Spectrum Brands, Inc.
prior to consideration of the current year valuation allowance, of
the impairment charges was limited to a deferred tax benefi t of
$29,597 and $43,424 in Fiscal 2007 and 2006, respectively, as
a result of a signifi cant portion of the impaired assets not being
deductible for tax purposes.
(11) Discontinued Operations
In the third quarter of the Company’s fi scal year ended Sep-
tember 30, 2006, the Company engaged advisors to assist in
exploring possible strategic options, including a potential sale of
various assets in order to reduce its outstanding indebtedness.
In connection with this undertaking, during the fi rst quarter of
Fiscal 2007, the Company approved and initiated a plan to sell
the assets related to its Home and Garden Business. (See Note 5,
Assets Held for Sale, where the specifi c assets and liabilities to
be sold are further discussed.)
As a result, effective October 1, 2006, the Company refl ected
the operations of its Home and Garden Business as discontinued
operations. Therefore, the presentation herein of the results of
continuing operations has been changed to exclude the Home
and Garden Business for all periods presented. The following
amounts have been segregated from continuing operations and
are refl ected as discontinued operations for the years ended
September 30, 2007, 2006 and 2005, respectively:
2007 2006 2005
Net sales $ 658,888 $ 657,011 $ 544,975
(Loss) income from
discontinued operations
before income taxes $ (190,752) $ (17,949) $ 17,742
Provision for income tax
(benefit) expense (6,147) (4,940) 6,005
(Loss) income from
discontinued operations,
net of tax $ (184,605) $ (13,009) $ 11,737
SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (SFAS 144), requires that long-lived assets to
be disposed of by sale are recorded at the lower of their carrying
value or fair value less costs to sell. Accordingly, the Fiscal 2007
loss from discontinued operations before income taxes includes a
non-cash pretax charge of $168,520 to reduce the carrying value
of certain assets, principally consisting of goodwill and intangible
assets, related to the Home and Garden Business in order to
refl ect the estimated fair value of this business. Such estimated
fair value was based on a range of estimated sales values, taking
into account current market conditions, provided by indepen-
dent third-party advisors. If and when a sale is consummated,
the actual fair value at that time may vary from the estimated fair
value as refl ected herein. The Home and Garden Business (loss)
income from discontinued operations before income taxes
includes the allocation of interest expense, where such allocation
is based on the amount of the Company’s debt that would be
reduced as a result of any such sale. The income tax benefi t of
$6,147 in Fiscal 2007 includes a $54,154 non-cash deferred
income tax charge related to increasing the valuation allowance
against U.S. deferred tax assets related to the Home and Garden
Business. In addition, an income tax benefi t of $52,699, prior to
consideration of the current year valuation allowance, was
recorded related to the SFAS 144 impairment charge (See Note 5,
Assets Held for Sale, for additional information on this impair-
ment charge).
On September 28, 2007, the Company signed a defi nitive
agreement to sell the Canadian division of its Home and Garden
Business, which operates under the name Nu-Gro, to a new com-
pany formed by RoyCap Merchant Banking Group and Clarke
Inc. The transaction closed November 1, 2007. (See Note 18,
Subsequent Events, for additional information regarding this
divestiture).
On January 25, 2006, the Company sold its fertilizer technol-
ogy and Canadian professional fertilizer products businesses of
Nu-Gro to Agrium Inc. Proceeds from the sale were used to
reduce outstanding debt. Nu-Gro Pro and Tech Fiscal 2005
revenue approximated $80,000 from sales of high-end specialty
controlled-release nitrogen fertilizer and other products to pro-
fessional turf markets and specialty wholesale fertilizer custom-
ers. As part of the transaction, the Company signed strategic
multi-year reciprocal supply agreements with Agrium. Proceeds
from the sale totaled approximately $83,000 after selling
expenses and contractual working capital adjustments which
were fi nalized on October 30, 2006.
Effective October 1, 2005, the Company refl ected the opera-
tions of Nu-Gro Pro and Tech as discontinued operations.
Therefore, the presentation herein of the results of continuing
operations has been changed to exclude Nu-Gro Pro and Tech
for all periods presented. The Company discontinued these
operations as part of the United integration initiatives. (See also
Note 16, Restructuring and Related Charges, for additional dis-
cussion of United integration initiatives). The following amounts
have been segregated from continuing operations and are
refl ected as discontinued operations for the years ended Septem-
ber 30, 2006 and 2005, respectively:
2006(1) 2005
Net sales $ 16,314 $ 52,293
(Loss) income from discontinued
operations before income taxes $ (6,388) $ 8,407
Provision for income tax (benefit) expense (868) 2,938
(Loss) income from discontinued
operations (including loss on disposal
of $3,901 in 2006), net of tax $ (5,520) $ 5,469
(1) Represents results for the discontinued operations for October 2005 through January 2006.