Rayovac 2008 Annual Report Download - page 23

Table of Contents
Index to Financial Statements
Adverse weather conditions during our peak selling season for our lawn and garden and household insecticide and repellent products could have a
material adverse effect on the Home and Garden Business.
Weather conditions in North America have a significant impact on the timing and volume of sales of certain of our lawn and garden and household
insecticide and repellent products. Periods of dry, hot weather can decrease insecticide sales, while periods of cold and wet weather can slow sales of herbicides.
In addition, an abnormally cold spring throughout North America could adversely affect insecticide sales and therefore have a material adverse effect on the
Home and Garden Business. Any such effect on the Home and Garden Business could negatively impact our ability to sell, and the price we are able to obtain in
a sale of the Home and Garden Business.
Our products utilize certain key raw materials; any increase in the price of these raw materials could have a material and adverse effect on our
business, financial condition and profits.
The principal raw materials used to produce our products—including granular urea (until such time as we are able to fully complete the shutdown of the
growing products portion of our Home and Garden Business), zinc powder, electrolytic manganese dioxide powder and steel—are sourced either on a global or
regional basis, and the prices of those raw materials are susceptible to price fluctuations due to supply and demand trends, energy costs, transportation costs,
government regulations, duties and tariffs, changes in currency exchange rates, price controls, general economic conditions and other unforeseen circumstances.
In particular, during 2007 and 2008 we experienced extraordinary price increases for raw materials, particularly as a result of strong demand from China.
We regularly engage in forward purchase and hedging derivative transactions in an attempt to effectively manage and stabilize some of the raw material
costs we expect to incur over the next 12 to 24 months; however, our hedging positions may not be effective or may not anticipate beneficial trends in a particular
raw material market or as a result of changes in our business may no longer be useful for the Company. If these efforts are not effective or expose us to above
average costs for an extended period of time and we are unable to pass our raw materials costs on to our customers, our future profitability may be materially and
adversely affected. Further, with respect to transportation costs, certain modes of delivery are subject to fuel surcharges which are determined based upon the
current cost of diesel fuel in relation to pre-established agreed upon costs. We may be unable to pass these fuel surcharges on to our customers which may have
an adverse effect on our profitability and results of operations.
In addition, we have exclusivity arrangements and minimum purchase requirements with certain of our suppliers for our Home and Garden Business,
which increase our dependence upon and exposure to those suppliers. Some of those agreements include caps on the price we pay for our supplies and in certain
instances, these caps have allowed us to purchase materials at below market prices. When we attempt to renew those 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, 2008, we had U.S. federal and state net operating loss carryforwards of approximately $1,009 and $1,832 million, respectively. These
net operating loss carryforwards expire at various times between 2009 and 2028. As of September 30, 2008, management determined that it was more likely than
not that the net U.S. deferred tax asset, excluding certain indefinite lived intangibles, would not be realized in the future and as such recorded a full valuation
allowance to offset the net U.S. deferred tax asset, including the Company’s net operating loss carryforwards. In addition, the Company has had a change of
ownership, as defined under Internal Revenue Code Section 382, that subjects the Company’s U.S. net operating losses and other tax attributes to certain
limitations. If we are unable to fully utilize our net operating losses to offset taxable income generated in the future, our results of operations could be materially
and negatively impacted.
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Source: Spectrum Brands, Inc, 10-K, December 10, 2008