Rayovac 2011 Annual Report Download - page 76

with our refinancing, a non-cash charge; (ii) $9 million related to bridge commitment fees we paid while we were
refinancing our debt; (iii) $6 million representing the write-off of the unamortized debt issuance costs related to
debt that was paid off, a non-cash charge; (iv) $4 million related to a prepayment premium; and (v) $3 million
related to the termination of a Euro-denominated interest rate swap.
Reorganization Items. During Fiscal 2010, we, in connection with our reorganization under Chapter 11 of
the Bankruptcy Code, recorded Reorganization items expense (income), net of approximately $4 million, which
primarily consisted of legal and professional fees. During Fiscal 2009 Old Spectrum recorded Reorganization
items expense (income), net, which represents a gain of approximately $(1,143) million. Reorganization items
expense (income), net included the following: (i) gain on cancellation of debt of $(147) million; (ii) gains in
connection with fresh-start reporting adjustments of $(1,088) million; (iii) legal and professional fees of $75
million; (iv) write off deferred financing costs related to the Senior Subordinated Notes of $11 million; and (v) a
provision for rejected leases of $6 million. During Fiscal 2009, New Spectrum recorded Reorganization items
expense (income), net which represents expense of $4 million related to professional fees. See Note 2(x)
Significant Accounting Policies and Practices—Reorganization items, of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for more information related to our reorganization
under Chapter 11 of the Bankruptcy Code.
Income Taxes. In Fiscal 2010, we recorded income tax expense of $63 million on a pretax loss from
continuing operations of $124 million, and in Fiscal 2009, New Spectrum recorded income tax expense of $51
million on a pretax loss from continuing operations of $20 million for the period from August 31, 2009 through
September 30, 2009, and Old Spectrum recorded income tax expense of $23 million on pretax income from
continuing operations of $1,123 million for the period from October 1, 2008 through August 30, 2009. Our
effective tax rate on our loss from continuing operations was approximately (50.9)% for Fiscal 2010. Our
effective tax rate on our income (loss) from continuing operations was approximately 2.0% for Old Spectrum and
(256)% for New Spectrum during Fiscal 2009. The primary drivers of the effective rate as compared to the U.S.
statutory rate of 35% for Fiscal 2010 include tax expense recorded for an increase in the valuation allowance
associated with our net U.S. deferred tax asset and the tax consequences of the reorganization items that we
recognized in connection with our emergence from Chapter 11 of the Bankruptcy Code. In addition, our income
tax provision for the year ended September 30, 2010 reflects the correction of a prior period error which
increases our income tax provision by approximately $6 million.
As of September 30, 2010, we had U.S. federal and state net operating loss carryforwards of approximately
$1,087 million and $936 million, respectively. These net operating loss carryforwards expire through years
ending in 2031. We also have foreign loss carryforwards of approximately $195 million, which will expire
beginning in 2011. Certain of the foreign net operating losses have indefinite carryforward periods. We are
subject to an annual limitation on the use of our U.S. net operating losses that arose prior to our emergence from
bankruptcy. We have had multiple changes of ownership, as defined under Internal Revenue Code (“IRC”)
Section 382, that subject our U.S. federal and state net operating losses and other tax attributes to certain
limitations. The annual limitation on our use of these carryforwards is based on a number of factors including the
value of our stock (as defined for tax purposes) on the date of the ownership change, our net unrealized built in
gain position on that date, the occurrence of realized built in gains in years subsequent to the ownership change,
and the effects of subsequent ownership changes (as defined for tax purposes) if any. In addition, separate return
year limitations apply to limit our utilization of the acquired Russell Hobbs U.S. federal and state net operating
losses to future income of the Russell Hobbs subgroup. Based on these factors, we project that $296 million of
the total U.S. federal and $463 million of the state net operating loss will expire unused. In addition, we project
that $38 million of the total foreign net operating loss carryforwards will expire unused. We have provided a full
valuation allowance against these deferred tax assets.
We recognized income tax expense of approximately $124 million related to the gain on the settlement of
liabilities subject to compromise and the modification of the senior secured credit facility in the period from
October 1, 2008 through August 30, 2009. This adjustment, net of a change in valuation allowance, is embedded
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