Rayovac 2005 Annual Report Download

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A Brand New
100-Year-Old Company
2005 ANNUAL REPORT

Table of contents

  • Page 1
    A Brand New 100-Year-Old Company 2005 ANNUAL REPORT

  • Page 2
    ... products can be found in more than 120 countries and 1.5 million stores, including those of the world's top 25 retailers. Spectrum Brands generates approximately $2.8 billion in annualized revenues and employs 9,800 employees worldwide. Headquartered in Atlanta, Georgia, the company's stock trades...

  • Page 3
    2005 ANNUAL REPORT 1

  • Page 4
    ... E LV E S Spectrum Brands Executive Committee members celebrate the company's new name and ticker symbol by ringing the opening bell at the New York Stock Exchange on May 2, 2005. From left to right, John Heil, Luis Cancio, Ken Biller, Kent Hussey, President and Chief Operating Officer, Dave Jones...

  • Page 5
    ...in 2005, we acquired one such company: St. Louis, Missouri-based United Industries, a premier U.S. manufacturer and marketer of consumer products for lawn F in a n c ia l H igh ligh ts in millions, except per share amounts 2005 Net sales Pro forma gross profit Pro forma operating income Pro forma...

  • Page 6
    ... into our existing business. Our management team has successfully integrated acquisitions, including Varta in Europe, Remington in North America and the United Kingdom, Ningbo Baowang Battery Company in China and Microlite in Brazil, achieving planned synergies on schedule without disruption to our...

  • Page 7
    ... manufacturing and purchasing activities, regionally centralizing distribution, and migrating all of our information technology systems to our SAP platform. We are driving these David A. Jones Chairman and Chief Executive Officer Kent J. Hussey President and Chief Operating Officer 2005 ANNUAL...

  • Page 8
    ... manufacturer and marketer of batteries in Latin America, with a number one market share position and annual revenues of approximately $100 million. 2002 VARTA The company's global position was expanded with the acquisition of Varta, Europe's largest independent battery company. Varta held a number...

  • Page 9
    ...'s diversification strategy, the company acquired Remington Products LLP, a leading manufacturer and marketer of electric shaving and grooming and personal care products in North America and the United Kingdom, with annual revenues of $350 million. 2005 UNITED INDUSTRIES Rayovac transforms itself...

  • Page 10
    ... alkaline, zinc carbon, hearing aid, rechargeable batteries and chargers, and other specialty batteries, along with a variety of ï¬,ashlights, lanterns and other lighting products GEOGRAPHIC MARKETS Over 120 countries around the world MARKET POSITION*     #3 brand in North America...

  • Page 11
    ... INDUSTRY GROWTH TRENDS Mid-single-digit growth MAJOR BRANDS 2005 OPERATING HIGHLIGHTS Spectrum Brands products performed well in 2005, gaining share through new product introductions; weather-related weakness in category caused overall sales to decline 3 percent. COMPETITIVE STRENGTHS Premium brand...

  • Page 12
    ...percent annually. We hold a strong number two position in this segment, with an estimated 23 percent market share. Spectrum Brands is the "value" alternative in the category, and we expect to draw on our significant sales and marketing expertise as a "value" competitor to maximize our opportunities...

  • Page 13
    ...our 2003 acquisition of Remington Products Company. Our Remington product lines have shown good growth in the two years since our acquisition. In fiscal 2005, we set out to introduce Remington-branded products to our extensive customer base in Western Europe and Latin America and were successful in...

  • Page 14
    ... want and need. Global retailers also seek suppliers who can provide them with products precisely when they need them. As a diversified global consumer products enterprise, with global manufacturing, sales, marketing and distribution capabilities, our company has the size and scale to efficiently...

  • Page 15
    ..., Carrefour, Costco, Intermarche, Kroger, Metro, Sears, Target, Tesco, Wal-Mart and others. Many of our largest customers are growing quickly - Wal-Mart, The Home Depot, Lowe's, PetSmart and PETCO, for example, expect to open more than 1,300 new stores before the end of 2006. 2005 ANNUAL REPORT 13

  • Page 16
    ... and integrating finance, information services, customer service, and legal and corporate accounting functions. As part of our three year plan to rationalize facilities in North America, we consolidated a number of manufacturing and distribution locations. We also created a new Global Pet Group...

  • Page 17
    ... corporate functions • Implement Spectrum Brands' SAP enterprise resource planning technology platform throughout all divisions • Rationalize manufacturing facilities • Consolidate distribution centers • Centralize purchasing activities • Expand Asian sourcing organization 2005 ANNUAL...

  • Page 18
    ...Luis A. Cancio President, Latin America Robert L. Caulk President and Chief Executive Officer, North America John A. Heil President, United Pet Group Phillip F. Pellegrino Executive Vice President, Global Sales Paul G. Cheeseman Senior Vice President, Product Development 16 SPECTRUM BRANDS, INC.

  • Page 19
    ...and Analysis and Note 5 in the Notes to Consolidated Financial Statements. (2) The Company recorded Restructuring and related charges within gross profit and operating expenses during fiscal 2005, 2004, 2003, 2002 and 2001 reï¬,ecting: (i) the rationalization of uneconomic manufacturing, packaging...

  • Page 20
    ...).* As of December 1, 2005, there were outstanding 50,788,009 shares of the registrant's Common Stock, $0.01 par value. *For purposes of this calculation only, Spectrum Brands, Inc. common stock held by directors, executive officers, the Thomas H. Lee Funds and Ameriprise Financial, Inc. has been...

  • Page 21
    ...SELECTED FINANCIAL DATA ...MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...18 ITEM 7A. ITEM 8. ITEM 9. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON...

  • Page 22
    ..., Cutter, Tetra, 8-in-1 and various other brands. We have manufacturing and product development facilities located in the United States, Europe, China and Latin America. We manufacture alkaline and zinc carbon batteries, zinc air hearing aid batteries, lawn fertilizers, herbicides, pet supplies and...

  • Page 23
    ...; and portable lighting. Our broad line of products includes: • general batteries, including alkaline and zinc carbon; • rechargeable batteries and chargers; • hearing aid batteries; • other specialty batteries; • fertilizer, herbicides and other lawn and garden products; • pet supplies...

  • Page 24
    ... line of alkaline batteries (AA, AAA, C, D and 9-volt sizes) for both consumers and industrial customers. Our alkaline batteries are marketed and sold primarily under the Rayovac Maximum Plus brand and the VARTA Longlife, High Energy and MaxiTech brands. We also engage in private label manufacturing...

  • Page 25
    ... hair crimpers and straighteners and hot air brushes. Portable Lighting We offer a broad line of battery-powered lighting products, including ï¬,ashlights, lanterns and similar portable devices, for the retail and industrial markets. We sell our portable lighting products under the Rayovac and VARTA...

  • Page 26
    ..." for either company. We retain the Remington trademark for nearly all products which we believe can benefit from the use of the brand name in our distribution channels. On February 12, 2004, United executed a licensing, manufacturing and supply agreement with its largest customer at the time...

  • Page 27
    ...of The Procter & Gamble Company (which sells and markets foil shavers). Only Remington sells both foil and rotary shavers. The pet supply industry is highly fragmented with over 500 manufacturers in the U.S., consisting primarily of small companies with limited product lines. Our largest competitors...

  • Page 28
    ... liabilities at September 30, 2005, should not be material to our business or financial condition. Electronic and Electrical Products that we sell in Europe, particularly products sold under the Remington brand name, VARTA battery chargers and certain portable lighting, are subject to regulation...

  • Page 29
    ... our employees is good and there have been no work stoppages involving our employees since 1981 in North America and since 1991 in the United Kingdom. Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed...

  • Page 30
    ... lists our principal owned or leased manufacturing, packaging, and distribution facilities at September 30, 2005: Facility North America Fennimore, Wisconsin(1) Portage, Wisconsin(1) Dixon, Illinois(2) Nashville, Tennessee(2) Function Alkaline Battery Manufacturing Zinc Air Button Cell & Lithium...

  • Page 31
    ...nancial condition. On September 26, 2005, we, along with our Chairman and Chief Executive Officer David A. Jones, and Executive Vice President and Chief Financial Officer Randall J. Steward, were named as defendants in a purported class action lawsuit captioned Jain v. Spectrum Brands Inc., David...

  • Page 32
    ... for the Northern District of Georgia) were filed by other purported class representatives. In addition, a further action captioned Hunkapiller v. Spectrum Brands Inc., David A. Jones and Randall J. Steward, Civil Action No. 05-2911-WSD was filed November 14, 2005 in the U.S. District Court for...

  • Page 33
    ...'s "Smart Cleaner" automatic cleaning device on Remington's Titanium Smart System shaving product infringes United States patent numbers 5,711,328 and 5,649,556 allegedly held by Braun (The Gillette Company and Braun GmbH v. Remington Consumer Products Company, LLC., Case No. 03 CV 12428 WGY...

  • Page 34
    ... of December 1, 2005, there were approximately 550 holders of record of Common Stock based upon data provided by the transfer agent for the Common Stock. The following table sets forth the reported high and low prices per share of the Common Stock as reported on the New York Stock Exchange Composite...

  • Page 35
    ...Spectrum Brands, Inc. Issuer Purchases of Equity Securities Total Number of Shares Purchased Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs Period Average Price Paid Per Share Quarter...

  • Page 36
    ...'s Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. Fiscal Year Ended September 30, (In millions, except per share data) 2005 (1) 2004(2) 2003(3) 2002(4) 2001(5) Statement of Operations Data: Net sales(6) Gross profit(6) Operating income...

  • Page 37
    ...-operating expense of $3.1 million discussed in (8) below. See Note 15, Restructuring and Related Charges, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion. (4) Fiscal 2002 includes restructuring and related charges - cost of goods...

  • Page 38
    ..., Tetra, 8-in-1 and various other brands. We have manufacturing and product development facilities located in the United States, Europe, China and Latin America. We manufacture alkaline and zinc carbon batteries, zinc air hearing aid batteries, lawn fertilizers, herbicides, 18 SPECTRUM BRANDS...

  • Page 39
    ...in Note 6, Debt, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K). Headquartered in Melle, Germany, Tetra manufactures, distributes and markets a comprehensive line of foods, equipment and care products for fish and reptiles, along with accessories for home...

  • Page 40
    ... were consolidated into Spectrum's manufacturing facility in Portage, WI. • All operations at Remington's United Kingdom and United States Service Centers were discontinued. • Spectrum's corporate headquarters was moved to Atlanta, GA. We recorded pretax restructuring and related charges of $11...

  • Page 41
    ... portable lighting. The consumer battery industry has two major segments: general and specialty. General batteries consist of non-rechargeable alkaline or zinc carbon batteries in cell sizes of AA, AAA, C, D and 9-volt. Specialty batteries include rechargeable batteries, hearing aid batteries, photo...

  • Page 42
    ... t Spectrum Brands, Inc. Within North America and Europe, the rechargeable battery business has grown significantly over the past three years. Ongoing industry innovation in battery design and performance technology is expected to continue to expand the size of the market. Within the hearing aid...

  • Page 43
    ...Sales Fiscal 2004 Reported Net Sales Impact of United acquisition Impact of Tetra acquisition Microlite acquisition from October 2004 - May 2005 Ningbo acquisition from October 2004 - March 2005 Foreign currency benefit Decline in North America alkaline battery sales Other, net Fiscal 2005 Reported...

  • Page 44
    ... Rayovac's "50% More" battery marketing strategy in the North American battery business, and higher raw material and transportation costs. In addition, 160 basis points of the decline is driven by charges recognized in cost of goods sold related to inventory acquired as part of the Tetra and United...

  • Page 45
    ... digits as unit sales shifted to private label batteries. While our overall battery sales are ï¬,at excluding the benefit of currency, this trend towards private label has negatively impacted our higher margin VARTA branded battery sales, which are down slightly in Europe. Our profitability in...

  • Page 46
    ...of our integration initiatives related to the United and Tetra acquisitions. Effective October 1, 2005, the United Industries U.S. Home & Garden organization has been combined with the legacy Spectrum North American business segment and will be reported together as part of our North America business...

  • Page 47
    ...and Spectrum companies. These initiatives include: integrating all of United's Home and Garden administrative services, sales, and customer service functions into our North America headquarters in Madison, Wisconsin; converting all information systems to SAP; consolidating United's manufacturing and...

  • Page 48
    ... services, customer service and other administrative functions were combined with existing counterpart organizations in Madison. Legal and certain corporate accounting functions were combined directly into Spectrum's global headquarters in Atlanta. Canadian Consumer Product sales and marketing...

  • Page 49
    ... of our Remington Service Centers. Net sales from discontinued operations were approximately $21 million for the current year. Service Centers in the United States and United Kingdom were closed during fiscal 2004. North America (in millions) 2004 2003 Net sales from external customers Segment...

  • Page 50
    ...the favorable impact of foreign currency exchange rates. Sales volumes reï¬,ected a 14% increase in alkaline battery sales, as well as growth in hearing aid battery and lighting products sales, partially offset by softness in zinc carbon battery sales. Our profitability in fiscal 2004 increased to...

  • Page 51
    ...recorded restructuring and related charges in cost of goods sold of approximately $21.1 million including amounts related to: (i) the closure in October 2002 of our Mexico City, Mexico plant and integration of production into our Guatemala City, Guatemala manufacturing location, resulting in charges...

  • Page 52
    ... such as proceeds from the exercise of stock options, net of the change in our cash balances. On November 23, 2005, we entered into an agreement with Agrium Inc. pursuant to which we will sell our fertilizer technology and Canadian professional fertilizer products business to Agrium for $86 million...

  • Page 53
    ...million shares of restricted stock with a market value at the date of grant of approximately $42 million. Of these grants, approximately 0.5 million shares will vest over a three-year period, with fifty percent of the shares vesting on a pro rata basis over the three-year period 2005 ANNUAL REPORT...

  • Page 54
    ... Balance Sheet, such as pension obligations (see Note 11, Employee Benefit Obligations, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K) (in millions): Contractual Obligations Payments due by Fiscal Year 2006 2007 2008 2009 2010 Thereafter Total Debt...

  • Page 55
    ..., Europe/ROW, and Latin America business segments. In accordance with the requirements of SFAS 142, we also tested the goodwill associated with the United consumer home and garden business to be retained after the sale of the Nu-Gro fertilizer technology and Canadian professional fertilizer products...

  • Page 56
    ... and Note 9, Income Taxes, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information about these assets. Revenue Recognition and Concentration of Credit Risk We recognize revenue from product sales generally upon delivery to the customer or...

  • Page 57
    ... sales, marketing, distribution, or other non-manufacturing related functions. Restructuring and related charges reï¬,ected in operating expenses include, but are not limited to, termination and related costs, any asset impairments relating to the functional area described 2005 ANNUAL REPORT...

  • Page 58
    ... of the acquired company that do not meet the conditions prescribed in EITF 95-3 are treated as restructuring and related charges and expensed as incurred. See Note 15, Restructuring and Related Charges, of the Notes to the Consolidated Financial Statements included in this Annual Report on Form...

  • Page 59
    ...- K An n u a l R e p o r t Spectrum Brands, Inc. In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154 replaces APB Opinion No. 20, "Accounting Changes," ("APB 20") and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements." The...

  • Page 60
    ... included in this Annual Report on Form 10-K. options. The related amounts payable to, or receivable from, the contract counter-parties are included in accounts payable or accounts receivable. Commodity Price Risk We are exposed to ï¬,uctuations in market prices for purchases of zinc, urea and di...

  • Page 61
    ..., product liability claims, litigation and other claims; • changes in accounting policies applicable to our business; • interest rate, exchange rate and raw materials price ï¬,uctuations; • government regulations; • the seasonal nature of sales of our products; • weather conditions...

  • Page 62
    ... limited group of retailer customers, including Wal-Mart, The Home Depot, Carrefour, Target, Lowe's, PetSmart, Canadian Tire, PetCo and Gigante. Wal-Mart Stores, Inc., our largest retailer customer, accounted for approximately 18% of our net consolidated sales in fiscal 2005. Our sales generally...

  • Page 63
    ... vulnerability to general adverse economic and industry conditions; • limiting our ï¬,exibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restricting us from making strategic acquisitions or exploiting business opportunities; • placing us...

  • Page 64
    ..., including the operations of United Pet Group and Nu-Gro, and Tetra, we may experience material adverse consequences to our business, financial condition and results of operations. The integration of separately-managed companies operating in distinctly different markets involves a number of risks...

  • Page 65
    ... value of the U.S. dollar in relation to foreign currencies could have a material adverse effect on our business, financial condition and results of operations. Changes in currency exchange rates may also affect our sales to, purchases from and loans to our subsidiaries as 2005 ANNUAL REPORT 45

  • Page 66
    ... claiming technology also invented by us, or a trademark application claiming a trademark, service mark, or trade dress also used by us, in order to protect our rights, we may have to participate in an expensive and time consuming interference proceeding before the United States Patent and Trademark...

  • Page 67
    ... applicable supplier to make up for any below market prices it had received from us prior to the renewal of the agreement. Any failure to timely obtain suitable supplies at competitive prices could materially adversely affect our business, financial condition and results of operations. 2005 ANNUAL...

  • Page 68
    ...to attract and retain qualified replacements. Class action lawsuits and other investigations, regardless of their merits, could have an adverse effect on our business, financial condition and results of operations. Spectrum and certain of its officers and directors have been named in the past, are...

  • Page 69
    ...products under the name Dursbanâ„¢. This had a material adverse effect on United's operations resulting in a charge of $8.0 million in 2001. We cannot predict the outcome or the severity of the effect of the EPA's continuing evaluations of active ingredients used in our products. 2005 ANNUAL REPORT...

  • Page 70
    ... our products are not safe, whether justified or not, could impair our reputation, damage our brand names and have a material adverse effect on our business, financial condition and results of operations. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...

  • Page 71
    ... on management's assessment of the Company's internal control over financial reporting, which is included herein. Spectrum Brands, Inc. acquired United Industries Corporation, Tetra Holding GmbH, and Jungle Laboratories Corporation during fiscal 2005, and management excluded these acquisitions...

  • Page 72
    ... por t Spectrum Brands, Inc. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the name, age and position with the Company of each of our executive officers and directors as of December 1, 2005: Name David A. Jones Kent J. Hussey Randall J. Steward...

  • Page 73
    ...VARTA as International Marketing Manager, Geographical Area Manager (France, Spain and Portugal), Profit Center Manager (general purpose batteries) and Divisional Board Member. Mr. Burel started his career at Gillette/Braun and held six different positions in controlling and marketing in the United...

  • Page 74
    ... products industry. From August 1996 to April 1998, Mr. Lupo served as Senior Vice President and Chief Operating Officer for the international division of Wal-Mart Stores, Inc. From October 1990 to August 1996, Mr. Lupo served as Senior Vice President/ General Merchandise Manager of Wal-Mart Stores...

  • Page 75
    ...Senior Financial Officers is publicly available on our website at www. spectrumbrands.com under "Investor Relations - Corporate Governance." We intend to disclose substantive amendments to, and, if applicable, waivers of, this code of ethics on that website. We have also adopted the Spectrum Brands...

  • Page 76
    ... the purpose of computing the percentage ownership of any other person. Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Spectrum Brands, Inc., 6 Concourse Parkway, Suite 3300, Atlanta, Georgia 30328. Name and Address of Beneficial Owner Number of Shares...

  • Page 77
    ...o r t Spectrum Brands, Inc. This amount also reï¬,ects a grant of 3,646 shares of restricted stock given to Mr. Shepherd as reported in a Form 4 filed with the SEC on October 5, 2005. Mr. Shepherd is the direct owner of these additional shares and a member of the THL Funds reporting group. As such...

  • Page 78
    ... to us for each of the last two fiscal years (in millions): Audit Audit-Related Fees Fees Tax Fees All Other Fees Pre-Approval of Independent Auditor Services and Fees The Audit Committee pre-approved the fiscal 2005 audit services engagement performed by KPMG LLP . In accordance with the Audit...

  • Page 79
    ...Index filed as part of this Annual Report on Form 10-K. SPECTRUM BRANDS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations...

  • Page 80
    ...standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Spectrum Brands, Inc. and subsidiaries' internal control over financial reporting as of September 30, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee...

  • Page 81
    ... Company acquired United Industries Corporation, Tetra Holding GmbH, and Jungle Laboratories Corporation (the Acquired Companies) during fiscal 2005, and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of September 30, 2005...

  • Page 82
    ... reporting of the Acquired Companies. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Spectrum Brands, Inc. and subsidiaries as of September 30, 2005 and 2004, and the related consolidated...

  • Page 83
    ... 1 0 - K An n u a l R e p o r t Spectrum Brands, Inc. SPECTRUM BRANDS, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, 2005 and 2004 (in thousands, except per share amounts) 2005 2004 Assets Current assets: Cash and cash equivalents Receivables: Trade accounts receivable, net of...

  • Page 84
    ...) 23,035 7,553 15,482 - $ 15,482 Net sales Cost of goods sold Restructuring and related charges Gross profit Operating expenses: Selling General and administrative Research and development Restructuring and related charges Operating income Interest expense Other income, net Income from continuing...

  • Page 85
    ... Spectrum Brands, Inc. SPECTRUM BRANDS, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Years ended September 30, 2005, 2004 and 2003 Common Stock (in thousands) Shares Amount...,069) $842,730 See accompanying notes to consolidated financial statements. 2005 ANNUAL REPORT 65

  • Page 86
    ... other assets Accounts payable and accrued liabilities Net cash provided by operating activities Cash ï¬,ows from investing activities: Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment and investments Payments for acquisitions, net of cash acquired Net...

  • Page 87
    ...; and portable lighting. The Company is a leading worldwide manufacturer and marketer of alkaline, zinc carbon and hearing aid batteries, as well as aquariums and aquatic health supplies, a leading worldwide designer and marketer of rechargeable batteries and battery-powered lighting products and...

  • Page 88
    ... 31, 2004 date of acquisition. (See also Note 16, Acquisitions, for additional information on the Jungle Labs, Tetra, United, Microlite and Ningbo acquisitions). (b) Revenue Recognition The Company recognizes revenue from product sales generally upon delivery to the customer or the shipping point in...

  • Page 89
    ...r t Spectrum Brands, Inc. (d) Cash Equivalents For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. (e) Concentrations of Credit Risk and Major Customers...

  • Page 90
    ...Europe/ROW"), and Latin America segments. In accordance with the requirements of SFAS 142, the Company also tested the goodwill associated with the United consumer home fertilizer and garden business to be retained after the sale of the Nu-Gro fertilizer technology and Canadian professional products...

  • Page 91
    ... in the business or external factors warrants a review. Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the sales forecast for a product, changes in technology or in the way an asset is being used, a history of operating or cash ï¬,ow losses...

  • Page 92
    ...to reï¬,ect dilution. The difference between the basic and diluted number of shares is due to the effects of restricted stock and assumed conversion of employee stock options awards. Net income per common share is calculated based upon the following shares: 2005 2004 2003 Basic Effect of restricted...

  • Page 93
    ... At September 30, 2005 and September 30, 2004 $0 and $480, respectively, of such foreign exchange derivative contracts were outstanding. The Company is exposed to risk from ï¬,uctuating prices for raw materials, including zinc, urea and di-ammonium phosphates used in its manufacturing processes. The...

  • Page 94
    ... a straight-line method. For stock options granted, no employee compensation cost is reï¬,ected in the Company's results of operations as all options granted under the plans have an exercise price equal to the market value of the underlying common stock at the grant date. 74 SPECTRUM BRANDS, INC.

  • Page 95
    ... the Company's stock options used to compute pro forma net income and basic and diluted net income per common share disclosures is the estimated fair value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions: 2005 Grants 2004 Grants 2003 Grants...

  • Page 96
    ... of operations, or cash ï¬,ow of the Company. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154 replaces APB Opinion No. 20, "Accounting Changes," ("APB 20") and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements...

  • Page 97
    ..., net Other current assets Total assets held for sale Accounts payable Accrued liabilities and other Deferred income taxes Total liabilities held for sale Total Nu-Gro net assets held for sale $13,555 17,810 18,862 29,228 21,499 531 101,485 8,678 6,130 7,486 22,294 $79,191 2005 ANNUAL REPORT 77

  • Page 98
    ...the former Madison, Wisconsin manufacturing facility, the former Remington facility in Bridgeport, Connecticut and a distribution facility in the Dominican Republic. (5) Intangible Assets Intangible assets consist of the following: North America Europe/ROW Latin America United Tetra Total Goodwill...

  • Page 99
    ... Future allocations of the Tetra and United purchase prices may impact the amount and segment allocation of goodwill. The amortization expense for 2005, 2004 and 2003 is as follows: 2005 2004 2003 Proprietary technology amortization Customer list amortization Trade names amortization $ 2,449 9,693...

  • Page 100
    ... denominations, interest and fees per annum are calculated on the basis of a 360-day year. The interest rates per annum applicable to the Senior Credit Facility are the Eurocurrency Rate plus the Applicable Margin, or at the Company's option in the case of advances made in U.S. Dollars, the Base...

  • Page 101
    ... value of these shares was calculated at a share price of $31.94. The share price of $31.94 was based on a five-day average beginning on December 30, 2004. During 2004, the Company granted approximately 449 shares of restricted stock to certain members of management. The total market value of the...

  • Page 102
    ... por t Spectrum Brands, Inc. (8) Stock Option Plans In 1996, the Company's Board of Directors ("Board") approved the Rayovac Corporation 1996 Stock Option Plan ("1996 Plan"). Under the 1996 Plan, stock options to acquire up to 2,318 shares of common stock, in the aggregate, may be granted to select...

  • Page 103
    ... t Spectrum Brands, Inc. A summary of the status of the Company's stock option plans is as follows: 2005 Weighted Average Exercise Price 2004 Weighted Average Exercise Price 2003 Weighted Average Exercise Price Options Options Options Outstanding, beginning of period Granted Exercised Forfeited...

  • Page 104
    ... and Rayovac Venezuela, $100 related to the state tax benefit of net operating loss carryforwards of Spectrum, $24,433 related to the acquired deferred tax assets of Microlite, and $250 related to the state tax benefit of the acquired net operating loss carryforwards of United Industries Corp...

  • Page 105
    ... Operations The Company has reï¬,ected Remington's United States and United Kingdom Service Centers as discontinued operations. The Company discontinued operations at these Service Centers during 2004 as part of the Remington integration initiatives. See Note 15, Restructuring and Related...

  • Page 106
    ...Participant contributions Benefits paid Foreign currency exchange rate changes Benefit obligation, end of year Change in plan assets Fair value of plan assets, beginning of year Assets acquired with acquisitions Actual return on plan assets Employer contributions Employee contributions Benefits paid...

  • Page 107
    ... bonds of the respective countries as well as current market conditions. Below is a summary allocation of all pension plan assets along with expected long-term rates of return by asset category as of the measurement date. Weighted Average Allocation Target 2006 2005 Actual 2004 Weighted Average...

  • Page 108
    ... of Tetra Holding GmbH. North America includes the legacy business (battery, shaving and grooming, personal care and portable lighting) in the United States and Canada; Latin America includes the legacy business in Mexico, Central America, South America and the Caribbean; Europe/ROW includes...

  • Page 109
    20 0 5 Fo r m 1 0 - K An n u a l R e p o r t Spectrum Brands, Inc. Net sales to external customers 2005 2004 2003 Segment total assets September 30, 2005 2004 North America Europe/ROW Latin America United Tetra Total segments $ 610,808 657,651 208,077 787,042 95,869 $2,359,447 $ 653,963 617,967...

  • Page 110
    ... such right in exchange for the Company paying him the fair market value of the property, $993, plus an amount equal to 50% of leasehold improvements to the property of $38. On February 7, 2005, the Company acquired all of the equity interests of United Industries Corporation ("United") pursuant to...

  • Page 111
    ... K An n u a l R e p o r t Spectrum Brands, Inc. as the surviving corporation (the "Merger"). The purchase price for the acquisition, excluding fees and expenses, consisted of $70,000 in cash, 13,750 shares of Rayovac Common Stock and the assumption of outstanding United indebtedness, which was $911...

  • Page 112
    ... administrative services, sales, and customer service functions into the Company's North America headquarters in Madison, Wisconsin; converting all information systems to SAP; consolidating United's manufacturing and distribution locations in North America; rationalizing the North America supply...

  • Page 113
    ... services, customer service and other administrative functions were combined with existing counterpart organizations in Madison. Legal and certain corporate accounting functions were combined directly into Spectrum's global headquarters in Atlanta. Canadian Consumer Product sales and marketing...

  • Page 114
    ..., marketing, sales, and customer service functions into the Company's North America headquarters in Madison, Wisconsin; moving Remington's Bridgeport, Connecticut manufacturing operations to the Company's Portage, Wisconsin manufacturing location; creation of a global product development group in...

  • Page 115
    ..., Tetra manufactures, distributes and markets a comprehensive line of foods, equipment and care products for fish and reptiles, along with accessories for home aquariums and ponds. This acquisition provides the Company with a global brand and distribution to extend its North American pet supplies...

  • Page 116
    ... leading supplier of quality products to the pet supply industry in the United States. At the time of the acquisition, United had approximately 2,800 employees throughout North America and was organized under three operating divisions: U.S. Home & Garden, Nu-Gro Corporation and United Pet Group. The...

  • Page 117
    ... $2,900. Ningbo, founded in 1995, produces alkaline and zinc carbon batteries for retail, OEM, and private label customers. The financial results of the Ningbo acquisition are reported as part of the Europe/ROW business segment. The aggregate purchase price for the 85% interest in Ningbo was...

  • Page 118
    ... fiscal 2005 revenue of approximately $80,000 from sales of high-end specialty controlledrelease nitrogen fertilizer and other products to professional turf markets and specialty wholesale fertilizer customers. Net sales Reported net sales United pro forma adjustments Tetra pro forma adjustments...

  • Page 119
    ... (previously a guarantor subsidiary) merged with Spectrum Brands, Inc. (the parent company). As a result of the merger, the results of operations, cash ï¬,ows, and balance sheet of Remington Products Company, L.L.C. are included with Spectrum Brands, Inc. for fiscal 2004. 2005 ANNUAL REPORT 99

  • Page 120
    ... of long-term debt Accounts payable Accrued liabilities: Wages and benefits Income taxes payable Restructuring and related charges Accrued interest Liabilities held for sale Other Total current liabilities Long-term debt, net of current maturities Employee benefit obligations, net of current...

  • Page 121
    ... r t Spectrum Brands, Inc. Consolidating Statement of Operations Year Ended September 30, 2005 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total Net sales Cost of goods sold Restructuring and related charges Gross profit Operating expenses: Selling General and...

  • Page 122
    2 0 0 5 Fo r m 1 0 - K An n u a l R e por t Spectrum Brands, Inc. Consolidating Balance Sheet September 30, 2004 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total ASSETS Current assets: Cash and cash equivalents Receivables: Trade accounts receivables, net of ...

  • Page 123
    ... r t Spectrum Brands, Inc. Consolidating Statement of Operations Year Ended September 30, 2004 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total Net sales Cost of goods sold Restructuring and related charges Gross profit Operating expenses: Selling General and...

  • Page 124
    ... t Spectrum Brands, Inc. Consolidating Statement of Operations Year Ended September 30, 2003 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total Net sales Cost of goods sold Restructuring and related charges Gross profit Operating expenses: Selling General and...

  • Page 125
    ... Spectrum Brands, Inc. SPECTRUM BRANDS, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS For the years ended September 30, 2005, 2004 and 2003 (in thousands) Column A Column B Balance at Beginning of Period Column C Additions Charged to Costs and Expenses Related to Acquisitions...

  • Page 126
    ... by the undersigned thereunto duly authorized. SPECTRUM BRANDS, INC. /s/ David A. Jones David A. Jones Chairman of the Board and Chief Executive Officer DATE: December 14, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 127
    ... Lane Atlanta, Georgia 30350 Exhibit 21.1 Subsidiary ROVCAL, Inc. ROV Holding, Inc. Rayovac (UK) Limited Spectrum Brands Lux S.A.R.L Tetra Holding GmbH Rayovac Europe GmbH VARTA Consumer Batteries GmbH & Co. KGaA United Industries Corporation United Pet Group, Inc. Jurisdiction USA (California) USA...

  • Page 128
    ... that Spectrum Brands, Inc. acquired the United Industries Corporation, Tetra Holdings GmbH, and Jungle Laboratories Corporation (the Acquired Companies) during 2005. Management excluded from its assessment of the effectiveness of Spectrum Brands, Inc.'s internal control over financial reporting as...

  • Page 129
    ...Inc. EXHIBIT 31.1 CERTIFICATIONS I, David A. Jones, Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 10-K of Spectrum Brands, Inc. (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state...

  • Page 130
    ...; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 14, 2005 /s/ Randall J. Steward Randall J. Steward Chief Financial Officer 110 SPECTRUM BRANDS, INC.

  • Page 131
    ...-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Spectrum Brands, Inc. (the "Company") for the Annual Period ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David A. Jones, as Chief Executive Officer of the...

  • Page 132
    ... with the Annual Report on Form 10-K of Spectrum Brands, Inc. (the "Company") for the Annual period ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Randall J. Steward, as Chief Financial Officer of the Company, hereby certify...

  • Page 133
    ....com. Stock Exchange Listing Spectrum Brands' common stock is listed on the New York Stock Exchange under the symbol "SPC." The following table sets forth the reported high and low prices per share of the common stock as reported on the New York Stock Exchange composite transactions reporting system...

  • Page 134
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