Rayovac 2009 Annual Report Download - page 70

Table of Contents
Index to Financial Statements
and $362 million in Fiscal 2008 and Fiscal 2007, respectively. The $861 million non−cash pretax impairment charge incurred in Fiscal 2008 reflects $602
million related to the impairment of goodwill and $259 million related to the impairment of trade name intangible assets. Of the $602 million goodwill
impairment; $426 million was associated with our Global Pet Supplies segment, $160 million was associated with the Home and Garden Business and $16
million was associated with our Global Batteries and Personal Care reportable segment. Of the $259 million trade name intangible assets impairment; $98
million was within our Global Pet Supplies reportable segment, $86 million was within our Global Batteries and Personal Care reportable segment and $75
million was within the Home and Garden reportable segment. The $362 million impairment charge incurred in Fiscal 2007 reflects the impairment of
goodwill associated with our U.S. Home and Garden Business and our North America reporting unit, which is now included as part of our Global
Batteries & Personal Care reportable segment, coupled with an impairment of trade name intangible assets primarily associated with our Global Batteries &
Personal Care business segment. Future cash expenditures will not result from these impairment charges. See Note 3(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 2008 decreased to $229 million from $256 million in Fiscal 2007. The decrease in Fiscal 2008 was
primarily due to the non recurrence of the write off of debt issuance costs and prepayment premiums related to our debt refinancing in March 2007. See
“Liquidity and Capital Resources—Debt Financing Activities” below, as well as, Note 8, Debt, of Notes to Consolidated Financial Statements included in
this Annual Report on Form 10−K for additional information regarding our outstanding debt.
Income Taxes. Our effective tax rate on losses from continuing operations is approximately 1.0% for Fiscal 2008. Our effective tax rate on income
from continuing operations was approximately (9.9)% for Fiscal 2007. The primary drivers of the change in our effective tax rate relate to tax expense
recorded for an increase in the valuation allowance associated with our net U.S. deferred tax asset in Fiscal 2008, the tax impact of the impairment charges
recorded in Fiscal 2008 and Fiscal 2007 related to non−deductible goodwill and to changes in the mix of our taxable income between U.S. and foreign
sources.
As of September 30, 2008, we have U.S. federal and state net operating loss carryforwards of approximately $960 and $854 million, respectively,
which will expire between 2009 and 2028, and we have foreign net operating loss carryforwards of approximately $142 million, which will expire
beginning in 2009. Certain of the foreign net operating losses have indefinite carryforward periods. As of September 30, 2007 we had U.S. federal, foreign
and state net operating loss carryforwards of approximately $763, $117 and $1,141 million, respectively, which, at that time, were scheduled to expire
between 2008 and 2027. 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. ASC 740 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 ASC 740, 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 a non−cash deferred income tax charge of approximately $257 million related to a valuation allowance against U.S.
net deferred tax assets during Fiscal 2008. In addition, we recorded a non−cash deferred income tax charge of approximately $3.6 million in the third
quarter of Fiscal 2008 related to an increase in the valuation allowance against our net deferred tax assets in China in connection with the Ningbo Exit Plan.
We also determined that a valuation allowance was no longer required in Brazil and thus recorded a $30.9 million benefit in the third quarter of Fiscal 2008
to reverse the valuation allowance previously established. Our total valuation allowance, established for the tax benefit of
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