Rayovac 2008 Annual Report Download - page 59

Table of Contents
Index to Financial Statements
The $433 million non-cash pretax impairment charge incurred in Fiscal 2006 reflects impaired goodwill of $353 million of which $235 million relates to our
Global Pet Supplies business segment and $118 million relates to our Latin America reporting unit, which is included as part of our Global Batteries & Personal
Care reportable segment. The remaining charge of $80 million relates to impaired trade name intangible assets of which $35 million is associated with our Global
Pet Supplies business segment and $45 million is associated with our Latin America and Europe/ROW reporting units, both of which are included as part of our
Global Batteries & Personal Care reportable segment. Future cash expenditures will not result from these impairment charges. See Note 2(i), Significant
Accounting Policies and Practices—Intangible Assets, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further
details on these impairment charges.
Interest Expense. Interest expense in Fiscal 2007 increased to $256 million from $176 million in Fiscal 2006. The increase was partly due to the write-off
of debt issuance costs of $25 million and prepayment penalties of $12 million. These charges were incurred in connection with the refinancing of our previously
existing senior credit facilities and the exchange of our 8 1/2% Senior Subordinated Notes due 2013 for the New Notes, pursuant to the terms of an exchange
offer, both of which occurred on March 30, 2007 described below in “Debt Financing Activities.” In addition, interest expense in Fiscal 2007 was higher due to
higher interest rates and higher average debt balances. See Note 7, Debt, of Notes to Consolidated Financial Statements included in this Annual Report on Form
10-K for additional information regarding the refinancing and the Exchange Offer.
Other Income, net. Other income, net for Fiscal 2007 includes foreign exchange loss of $5 million off-set by interest income of $3 million and other
miscellaneous income. Fiscal 2006 other income, net includes the benefit of two asset sales. We recognized a net gain of approximately $8 million on the sale of
our Bridgeport, CT manufacturing facility, which was acquired as part of the Remington Products acquisition, and subsequently closed in our fiscal year ended
September 30, 2004, and our Madison, WI packaging facility, which was closed in our fiscal year ended September 30, 2003. Prior to these sales, these assets
were included in assets held for sale in our Consolidated Balance Sheets included in this Annual Report on Form 10-K.
Income Taxes. Our effective tax rate on losses from continuing operations is approximately (11.1%) for Fiscal 2007. Our effective tax rate on income
from continuing operations was approximately 6% for Fiscal 2006. The primary drivers of the change in our effective tax rate consist of additional tax expense
recorded related to an increase in the valuation allowance associated with our U.S. deferred tax assets and the tax impact of the impairment charges recorded in
Fiscal 2007 for certain non-deductible goodwill.
As of September 30, 2007, we have U.S. federal and state net operating loss carryforwards of approximately $763 and $1,141 million, respectively, which
will expire between 2008 and 2027, and we have foreign net operating loss carryforwards of approximately $117 million, which will expire beginning in 2008.
Certain of the foreign net operating losses have indefinite carryforward periods. As of September 30, 2006 we had U.S. federal, foreign and state net operating
loss carryforwards of approximately $464, $110 and $852 million, respectively, which, at that time, were scheduled to expire between 2008 and 2026. Certain of
the foreign net operating losses have indefinite carryforward periods. Limitations apply to a portion of these net operating loss carryforwards in accordance with
Internal Revenue Code Section 382.
The ultimate realization of our deferred tax assets depends on our ability to generate sufficient taxable income of the appropriate character in the future and
in the appropriate taxing jurisdictions. We establish valuation allowances for deferred tax assets when we estimate it is more likely than not that the tax assets
will not be realized. We base these estimates on projections of future income, including tax planning strategies, in certain jurisdictions. Changes in industry
conditions and other economic conditions may impact our ability to project future income. SFAS 109 requires the establishment of a valuation allowance when it
is more likely than not that some portion or all of the deferred tax assets will not be realized. In accordance with SFAS 109, we periodically assess the likelihood
that our deferred tax assets will be realized and determine if adjustments to the valuation allowance are appropriate. As a result of this assessment, we recorded
an approximately $157 million non-cash deferred income tax charge related to a valuation allowance against U.S. net deferred tax assets during
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Source: Spectrum Brands, Inc, 10-K, December 10, 2008