Rayovac 2010 Annual Report Download - page 65

In addition, on January 8, 2010, the Venezuelan government announced its intention to devalue its currency,
the Bolivar fuerte, relative to the U.S. dollar. The official exchange rate for imported goods classified as
essential, such as food and medicine, changed from 2.15 to 2.6 to the U.S. dollar, while payments for other
non-essential goods moved to an exchange rate of 4.3 to the U.S. dollar. Some of our imported products fall into
the essential classification and qualify for the 2.6 rate; however, our overall results in Venezuela were reflected at
the 4.3 rate expected to be applicable to dividend repatriations beginning in the second quarter of Fiscal 2010. As
a result, we remeasured the local statement of financial position of our Venezuela entity during the second
quarter of Fiscal 2010 to reflect the impact of the devaluation. Based on actual exchange activity, we determined
on September 30, 2010 that the most likely method of exchanging its Bolivar fuertes for U.S. dollars will be to
formally apply with the Venezuelan government to exchange through commercial banks at the SITME rate
specified by the Central Bank of Venezuela. The SITME rate as of September 30, 2010 was quoted at 5.3 Bolivar
fuerte per U.S. dollar. Therefore, we changed the rate used to remeasure Bolivar fuerte denominated transactions
as of September 30, 2010 from the official non-essentials exchange rate to the 5.3 SITME rate in accordance with
ASC 830, “Foreign Currency Matters” as it is the expected rate that exchanges of Bolivar fuerte to U.S. dollars
will be settled. There is also an immaterial ongoing impact related to measuring our Venezuelan statement of
operations at the new exchange rate of 5.3 to the U.S. dollar.
The designation of our Venezuela entity as a highly inflationary economy and the devaluation of the Bolivar
fuerte resulted in a $1 million reduction to our operating income during Fiscal 2010. We also reported a foreign
exchange loss in Other expense (income), net, of $10 million during Fiscal 2010.
Global Pet Supplies
2010 2009
(in millions)
Net sales to external customers ..................................................... $561 $ 574
Segment profit .................................................................. $ 56 $ 65
Segment profit as a % of net sales ................................................... 9.9% 11.3%
Segment Adjusted EBITDA ........................................................ $ 98 $ 93
Assets as of September 30, ......................................................... $826 $ 867
Segment net sales to external customers in Fiscal 2010 decreased to $561 million from $574 million in
Fiscal 2009, representing a decrease of $13 million or 2%. The $13 million decrease was attributable to lower
aquatics sales of $11 million, lower specialty pet product sales of $6 million and favorable foreign exchange
impacts of $3 million. The decrease in aquatics sales was primarily due to general softness in this category. The
decrease in specialty pet product sales was driven by a distribution loss at a major retailer of certain dog shampoo
products and the impact of a product recall.
Segment profitability in Fiscal 2010 decreased to $56 million from $65 million in Fiscal 2009. Segment
profitability as a percentage of sales in Fiscal 2010 also decreased to 9.9% from 11.3% during Fiscal 2009. This
decrease in segment profitability and profitability margin was primarily attributable to an increase in cost of
goods sold due to the revaluation of inventory and the increase in intangible asset amortization in accordance
with SFAS 141, as was required when we adopted fresh-start reporting upon our emergence from Chapter 11 of
the Bankruptcy Code. The decrease in Fiscal 2010 segment profitability was tempered by improved pricing and
lower manufacturing and operating costs as a result of our global cost reduction initiatives announced in Fiscal
2009. See “Restructuring and Related Charges” below, as well as Note 14, Restructuring and Related Charges,
to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional
information regarding our restructuring and related charges.
Segment Adjusted EBITDA in Fiscal 2010 was $98 million compared to $93 million in Fiscal 2009. Despite
decreased net sales during Fiscal 2010 of $13 million, our successful efforts to create a lower cost structure
including the closure and consolidation of some of our pet facilities, and improved product mix, resulted in
55