Rayovac 2006 Annual Report Download - page 47

SPECTRUM BRANDS | 2006 ANNUAL REPORT 35
efi t of currency, the trend towards private label battery purchases
negatively impacted our higher margin VARTA branded battery
sales, which were down slightly.
Segment profi tability in fi scal 2005 decreased to $95 million
from $96 million in the previous year. Profi tability as a percent-
age of net sales decreased to 14.4% in fi scal 2005 from 15.5% in
fi scal 2004 due to reduced gross profi t margins, the result of a
sales shift from branded to private label products. Margins on
VARTA branded batteries are approximately twice the margin of
our private label batteries. We estimated that this sales trend neg-
atively impacted our battery margins by approximately 1.5 per-
centage points in 2005 versus 2004. Segment profi tability was
positively impacted by favorable foreign currency movements of
approximately $4 million. Operating expenses as a percentage of
net sales declined from approximately 28% of net sales in 2004
to approximately 27% of net sales in 2005.
As a result of our continued concern regarding the European
economy and the continued shift to private label battery sales,
we announced during fi scal 2006 the European Initiatives to
reduce operating costs and rationalize our operating structure.
When fully realized, we estimate that our annual savings will
total $30 million.
Segment assets at September 30, 2005 decreased to $557 mil-
lion from $596 million at September 30, 2004. The decrease was
primarily attributable to changes in receivables and inventories.
Intangible assets were approximately $272 million and primarily
relate to the VARTA and Ningbo acquisitions. The purchase price
allocation for the Ningbo acquisition was fi nalized in 2005. See
Note 17, Acquisitions, of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for
additional information on the Ningbo acquisition.
Latin America
(in millions) 2005 2004
Net sales to external customers $208 $145
Segment profit $ 19 $ 12
Segment profit as a % of net sales 9.1% 8.3%
Assets as of September 30, $368 $322
Segment net sales to external customers in fi scal 2005
increased to $208 million from $145 million in the previous
year, a 43% increase. The Microlite acquisition, completed on
May 28, 2004, contributed $39 million in net sales for the
eight months not included in the comparable prior fi scal year,
while the favorable impact of foreign currency exchange rates
was approximately $14 million. In addition, sales in our
Andean region, consisting of Colombia and Venezuela, were up
approximately $4 million and sales in the Dominican Republic
were up approximately $3 million. Sales increases in 2005
refl ect the introduction of Remington branded products
throughout the region. Sales of Remington products totaled
approximately $3 million in 2005.
Segment profi tability in fi scal 2005 increased to $19 million
from $12 million in the previous year. The increase was driven by
Microlite, which contributed approximately $5 million. Our
profi t margin in fi scal 2005 increased to 9.1% from 8.3% in fi scal
2004 as we realized higher battery gross margins and incremental
margins due to the Remington product sales, while, as a percent-
age of sales, operating expenses remained constant as compared
to fi scal 2004.
Segment assets at September 30, 2005 increased to $368 million
from $322 million at September 30, 2004. The increase in assets was
primarily attributable to additions to goodwill and the impact of for-
eign currency translation. Intangible assets totaled approximately
$225 million and primarily relate to the ROV LTD acquisition com-
pleted in 1999 and the 2004 Microlite acquisition. The purchase
price allocation for the Microlite acquisition was fi nalized in 2005.
Included in long-term liabilities assumed in connection with
the acquisition of Microlite is a provision for “presumed” cred-
its applied to the Brazilian excise tax on Manufactured Products,
or “IPI taxes.” Although a previous ruling by the Brazilian
Federal Supreme Court has been issued in favor of a specifi c
Brazilian taxpayer with similar tax credits, the legality and con-
stitutionality of the IPI “presumed” credits is currently being
revisited by the Brazilian Federal Supreme Court, and it is not
certain when a fi nal ruling will be issued. At September 30,
2005, these amounts totaled approximately $41.4 million and
are included in other long-term liabilities in the Consolidated
Balance Sheets, however, ultimate resolution of this matter by
the Brazilian Supreme Court could result in a liability less than
or in excess of amounts accrued.
Global Pet
(in millions) 2005
Net sales to external customers $286
Segment profit $ 29
Segment profit as a % of net sales 10.1%
Assets as of September 30, $791
Segment net sales to external customers in the eight months fol-
lowing the acquisition of the United Pet Group were $190 million,
an increase of approximately 8% from 2004 results assuming the
United Pet Group was included in the comparable prior fi scal period.
Our net sales to external customers in the fi ve months following the
acquisition of Tetra were $96 million, essentially fl at versus Tetra’s
2004 results, assuming Tetra was included in the comparable prior
fi scal period. Economic conditions in Europe and an overall slow
down in the aquatics market growth impacted Tetra’s 2005 results.
Segment operating profi tability in fi scal 2005 was $29 million,
and segment profi tability as a percentage of sales for fi scal 2005
was 10.1%. Our profi tability was negatively impacted by approxi-
mately 4.9 percentage points as a result of the previously discussed
inventory valuation charges in fi scal 2005, $14 million of which
related to the Global Pet segment.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.