Rayovac 2011 Annual Report Download - page 51

As a result of our Bankruptcy Filing, we were able to significantly reduce our indebtedness. As a result of
the Merger, we were able to further reduce our outstanding debt leverage ratio. However, we continue to have a
significant amount of indebtedness relative to our competitors and paying down outstanding indebtedness
continues to be a priority for us. The Bankruptcy Filing is discussed in more detail under “Chapter 11
Proceedings.”
Chapter 11 Proceedings and Related Reporting Impacts
As a result of our substantial leverage, we determined that, absent a financial restructuring, we would be
unable to achieve future profitability or positive cash flows on a consolidated basis solely from cash generated
from operating activities or to satisfy certain payment obligations as they became due and could be at risk of not
satisfying the leverage ratios to which we were subject under our then existing senior secured term loan facility,
which ratios became more restrictive in future periods. Accordingly, on February 3, 2009, we announced that we
had reached agreements with certain noteholders, representing, in the aggregate, approximately 70% of the face
value of our then outstanding senior subordinated notes, to pursue a refinancing that, if implemented as proposed,
would significantly reduce our outstanding debt. On the same day, the Debtors filed voluntary petitions under
Chapter 11 of the Bankruptcy Code, in the Bankruptcy Court (the “Bankruptcy Filing”) and filed with the
Bankruptcy Court a proposed plan of reorganization (the “Proposed Plan”) that detailed the Debtors’ proposed
terms for the refinancing. The Chapter 11 cases were jointly administered by the Bankruptcy Court as Case
No. 09-50455 (the “Bankruptcy Cases”). The Bankruptcy Court entered a written order (the “Confirmation
Order”) on July 15, 2009 confirming the Proposed Plan (as so confirmed, the “Plan”).
The Plan became effective on the Effective Date, and the Debtors emerged from Chapter 11 of the
Bankruptcy Code. Pursuant to and by operation of the Plan, on the Effective Date, all of Old Spectrum’s existing
equity securities, including the existing common stock and stock options, were extinguished and deemed
cancelled. Reorganized Spectrum Brands, Inc. filed a certificate of incorporation authorizing new shares of
common stock. Pursuant to and in accordance with the Plan, on the Effective Date, reorganized Spectrum
Brands, Inc. issued a total of 27,030,000 shares of common stock and approximately $218 million in aggregate
principal amount of 12% Senior Subordinated Toggle Notes due 2019 (the “12% Notes”) to holders of allowed
claims with respect to Old Spectrum’s 8
1
⁄ 2 % Senior Subordinated Notes due 2013 (the “8
1
⁄ 2 Notes”), 7
3
⁄ 8 %
Senior Subordinated Notes due 2015 (the “7
3
⁄ 8 Notes”) and Variable Rate Toggle Senior Subordinated Notes due
2013 (the “Variable Rate Notes”) (collectively, the “Senior Subordinated Notes”). For a further discussion of the
12% Notes see “Debt Financing Activities—12% Notes.” Also on the Effective Date, reorganized Spectrum
Brands, Inc. issued a total of 2,970,000 shares of common stock to supplemental and sub-supplemental
debtor-in-possession credit facility participants in respect of the equity fee earned under the Debtors’
debtor-in-possession credit facility.
Accounting for Reorganization
Subsequent to the Petition Date, our financial statements are prepared in accordance with ASC Topic 852:
“Reorganizations,” (“ASC 852”). ASC 852 does not change the application of GAAP in the preparation of our
financial statements. However, ASC 852 does require that financial statements for periods including and
subsequent to the filing of a Chapter 11 petition, distinguish transactions and events that are directly associated
with the reorganization from the ongoing operations of the business. In accordance with ASC 852 we have
distinguished transactions and events that are directly associated with the reorganization from the ongoing
operations of the business in our consolidated Statements of Operations and Cash Flows included in this Annual
Report on Form 10-K., and have applied fresh-start reporting upon emergence from Chapter 11 of the
Bankruptcy Code as further described below.
Fresh-Start Reporting
As required by ASC 852 we adopted fresh-start reporting upon emergence from Chapter 11 of the
Bankruptcy Code. We applied fresh-start reporting as of the close of our monthly period ended August 30, 2009,
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