Rayovac 2006 Annual Report Download - page 36

24 SPECTRUM BRANDS | 2006 ANNUAL REPORT
As previously disclosed, we have engaged advisors to assist with
a sale of various assets in order for us to sharpen our focus on stra-
tegic growth businesses, reduce our outstanding indebtedness and
maximize long-term shareholder value. In connection with this
undertaking, we have entered into discussions to dispose of certain
of our assets. The assets which are the subject of such discussions,
subject to negotiations of a defi nitive sales agreement, consist pri-
marily of: inventory; goodwill and intangible assets; and property
plant and equipment; as well as executory contracts related to the
assets to be disposed. We currently expect that any such sale would
be consummated during the second quarter of fi scal 2007. See
Note 18, Subsequent Events, of Notes to Consolidated Financial
Statements of this Annual Report on Form 10-K for additional
information regarding this divestiture.
SFAS 142 requires companies to test goodwill and indefi nite-
lived intangible assets for impairment annually, or more often if
an event or circumstance indicates that an impairment loss may
have been incurred. In accordance with SFAS 142, we, with the
assistance of independent third party valuation specialists, con-
ducted our annual impairment testing of goodwill and indefi nite-
lived intangible assets. As a result of these analyses we recorded a
non-cash pretax impairment charge of approximately $433 mil-
lion. The impairments will not result in future cash expenditures.
See “Critical Accounting Policies—Valuation of Assets and Asset
Impairment” below as well as Note 2(i), Signifi cant Accounting
Policies—Intangible Assets, of Notes to Consolidated Financial
Statements of this Annual Report on Form 10-K for further
details on the impairment charge.
Our fi nancial performance is infl uenced by a number of fac-
tors including: general economic conditions; foreign exchange
fl uctuations; trends in consumer markets; our overall product
line mix, including pricing and gross margins which vary by
product line and geographic market; pricing of certain raw mate-
rials and commodities; fuel prices; and our general competitive
position, especially as impacted by our competitors’ advertising
and promotional activities and pricing strategies.
Cost Reduction Initiatives
We continually seek to improve our operational effi ciency,
match our manufacturing capacity and product costs to market
demand and better utilize our manufacturing resources. We have
undertaken various initiatives to reduce manufacturing and oper-
ating costs. We believe that we will continue to drive down our
costs with continued focus on cost reduction initiatives.
Fiscal 2006
As a result of our continued concern regarding the European
economy and the continued shift by consumers from branded to
private label alkaline batteries, we announced a series of initia-
tives in Europe to reduce operating costs and rationalize our
manufacturing structure (“European Initiatives”). These initia-
tives include the reduction of certain operations at the Ellwangen,
Germany packaging center and relocating such operations to the
Dischingen, Germany battery plant, transferring private label
battery production at our Dischingen, Germany battery plant to
our manufacturing facility in China and restructuring the sales,
marketing and support functions. As a result, we will reduce
headcount in Europe by approximately 350, or 24%. We incurred
approximately $23 million of pretax restructuring and related
charges during fi scal 2006 in connection with the European
Initiatives. Upon completion of the European Initiatives, which is
expected by June 2007, total annualized savings are projected at
approximately $30 million. Costs associated with these initia-
tives, which primarily represent cash costs, relate primarily to
severance and are projected at $29 million.
Fiscal 2005
During 2005, we completed the fi rst phase of our integration ini-
tiatives related to the United and Tetra acquisitions. As more fully
described below, as of October 1, 2005, the United U.S. Home
& Garden organization was combined with Spectrum’s North
American Legacy Businesses into the North America reporting
segment. Also effective October 1, 2005, the Global Pet business
unit, which includes both United Pet Group and Tetra, began
operating as a separate business segment headquartered in
Cincinnati, Ohio. Accordingly, we now manage operations in
four reportable business segments: North America, Latin
America, Europe/ROW and Global Pet.
As part of this reorganization, Spectrum’s and United’s sales
management, fi eld sales operations and marketing teams (includ-
ing customer teams located in Atlanta, Bentonville and Charlotte)
were merged into a single North American sales and marketing
organization reporting to Spectrum’s North American manage-
ment team located in Madison, Wisconsin. United’s accounting,
information services, customer service and other administrative
functions were combined with existing counterpart organizations
in Madison. Legal and certain corporate fi nance functions were
combined directly into Spectrum’s global headquarters in Atlanta.
Canadian Consumer Product sales and marketing teams have
been merged as well and report to a single country manager.
Purchasing and sourcing have been completely integrated on a
global basis, with an expanded product sourcing offi ce in Asia
serving all parts of the Company. In addition, two pet supplies
facilities in Brea, California and Hazleton, Pennsylvania were
closed in 2005.
Our integration activities related to the United and Tetra acqui-
sitions are ongoing and are expected to continue through fi scal
2008. Costs associated with our integration efforts are expected to
total approximately $85 million, of which approximately $65 mil-
lion will be cash costs and $20 million will be non-cash. In connec-
tion with our integration of United’s lawn and garden and pet
operations, we recorded approximately $17.5 million of pretax
restructuring and related charges in 2005. Cash costs of these inte-
gration initiatives incurred in 2005 were approximately $5.3 mil-
lion. The remaining $12.2 million of costs incurred relate primarily
2006 Form 10-K Annual Report
Spectrum Brands, Inc.