Rayovac 2005 Annual Report Download - page 45

expenses associated with purchasing, corporate
general and administrative areas and research
and development.
North America
(in millions)
2005 2004
Net sales to external customers $611 $654
Segment profit $113 $131
Segment profit as a % of net sales 18.5% 20.0%
Assets as of September 30, $689 $685
Our alkaline battery sales in North America
declined by $35 million, driven by the transition to a
new marketing strategy which has taken longer than
anticipated and has been more costly. Markdown
dollars were required and shipments were impacted
by high retail inventories of the previous product
while retailers continue to focus on reducing
their inventory.
Our profi tability in fi scal 2005 decreased to
$113 million from $131 million the previous year.
The decrease in profi tability primarily refl ects the
impact of lost margin as a result of reduced battery
sales and lower margins on Remington branded
products, partially offset by lower marketing and
advertising costs during the year. Our profi tability
margin decreased to 18.5% from 20.0% last year,
primarily due to the negative impact of lower gross
margins partially offset by reductions to operating
expenses. Operating expenses as a percentage of
net sales declined from approximately 23% of net
sales in 2004 to approximately 20% of net sales
in 2005.
Our assets at September 30, 2005 increased to
$689 million from $685 million at September 30,
2004. The increase in assets is primarily attribut-
able to higher debt issue costs associated with the
debt issued in connection with our United and Tetra
acquisitions as well as an increase in cash on hand
at the end of 2005 to allow us to make an interest
payment due in early 2006. Intangible assets are
approximately $293 million and primarily relate to
the Remington acquisition. The purchase price allo-
cation for the Remington acquisition was fi nalized in
September 2004.
Europe/ROW
(in millions)
2005 2004
Net sales to external customers $658 $618
Segment profit $ 95 $ 96
Segment profit as a % of net sales 14.4% 15.5%
Assets as of September 30, $603 $619
Our net sales to external customers in fi scal
2005 increased to $658 million from $618 million
the previous year, a 6% increase. The Ningbo acqui-
sition contributed approximately $11 million to the
sales increase for the six months not included in
the comparable prior fi scal year, with the remaining
increase primarily attributable to the favorable
impact from foreign currency exchange rates of
approximately $30 million. The battery business in
continental Europe, and in our largest European
market, Germany, has been negatively impacted by
a stagnant economy and a continuing shift from
branded product sales to private label sales. From
2004 to 2005, we estimate that unit volume in the
overall alkaline European market was fl at, while
sales dollars declined in the mid single digits as unit
sales shifted to private label batteries. While our
overall battery sales are fl at excluding the benefi t of
currency, this trend towards private label has nega-
tively impacted our higher margin VARTA branded
battery sales, which are down slightly in Europe.
Our profi tability in fi scal 2005 decreased to
$95 million from $96 million the previous year.
Profi tability as a percentage 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.
Our margins on VARTA branded batteries are approxi-
mately twice the margin of our private label batter-
ies. We estimate this sales trend negatively impacted
our battery margins by approximately 150 basis
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, we announced a series of actions in
Europe to reduce operating costs and rationalize our
operating structure. When fully realized, we estimate
our annual savings as a result of these initiatives
will total approximately
€ 10 million ($12 million).
The total cost related primarily to severance related
costs, is expected to total approximately € 4 million
($5 million).
Our assets at September 30, 2005 decreased
to $603 million from $619 million at September 30,
2004. The decrease is primarily attributable to
changes in receivables and inventories. Intangible
2005 Form 10-K Annual Report
Spectrum Brands, Inc.
2005 ANNUAL REPORT 25