Rayovac 2006 Annual Report Download - page 42

30 SPECTRUM BRANDS | 2006 ANNUAL REPORT
Segment net sales to external customers in fi scal 2006 decreased
to $560 million from $658 million during fi scal 2005, a 15%
decrease. Unfavorable foreign currency exchange translation
accounted for $19 million of the decline. Battery and lighting sales
across Europe declined by approximately 12% excluding the
impact of currency. The battery business in continental Europe
declined by $89 million from the prior year. This decline was the
result of: (i) our decision to exit certain low margin private label
alkaline battery businesses; (ii) a shift in European distribution
channels from electronic specialty stores and photo stores where
we enjoy strong market shares, to deep discount and food retail
channels where we have not established as strong a presence; and
(iii) a shift in product mix due to consumer preferences for lower-
priced private label batteries. Sales of our Remington branded
shaving, grooming and personal care products increased by approx-
imately 1%, excluding the impact of currency. Excluding
Remington branded sales in the United Kingdom and the impact of
currency, net sales of Remington branded products in the remain-
der of the Europe/ROW segment increased 26% in fi scal 2006 as
compared to fi scal 2005 as we continued to expand distribution
across continental Europe, driven by our investments in brand
development. In the United Kingdom, net sales decreased $22 mil-
lion during the year, as a result of our inability to anniversary the
successful launch of a line of personal care products in fi scal 2005.
Segment operating profi tability in fi scal 2006 decreased to
$55 million from $95 million in fi scal 2005. Segment profi tabil-
ity as a percentage of net sales declined to 9.8% in fi scal 2006 as
compared with 14.4% in the comparable period last year. The
decline in segment profi tability was primarily driven by lost gross
profi t as a result of the sales decline, unfavorable product mix
changes and increased raw material costs. Operating expenses as
a percentage of net sales increased slightly to approximately
28.0% of net sales in fi scal 2006 from approximately 27.2% of
net sales in fi scal 2005.
As a result of our ongoing concern regarding the European
battery market, we announced a series of initiatives in 2006 in
Europe to reduce operating costs and rationalize our operating
structure. Upon completion of all initiatives, which we expect to
complete 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 to total approximately $29 million.
Segment assets at September 30, 2006 decreased to $551 mil-
lion from $557 million at September 30, 2005. The decrease is pri-
marily attributable to the impairment of certain trade name
intangible assets in fi scal 2006. See Note 2(i), Signifi cant Accounting
Policies—Intangible Assets, of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for addi-
tional information on the impairment. Goodwill and intangible
assets totaled approximately $278 million at September 30, 2006
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)
2006 2005
Net sales to external customers $236 $208
Segment profit $ 23 $ 19
Segment profit as a % of net sales 9.8% 9.1%
Assets as of September 30, $240 $368
Segment net sales to external customers in fi scal 2006 increased
to $236 million from $208 million in fi scal 2005, a 13% increase.
Favorable foreign currency exchange translation accounted for
$10 million of this increase, primarily the result of a strong
Brazilian Real. Additionally, the introduction of Remington
branded products throughout the region and growth in our gen-
eral battery business, driven primarily by price increases, con-
tributed to the sales increase for fi scal 2006. Sales of Remington
branded products in fi scal 2006 were $17 million as compared to
$3 million in fi scal 2005.
Segment profi tability increased to $23 million in fi scal 2006
from $19 million in fi scal 2005. Segment profi tability was
impacted during the year by higher raw material costs, mostly
driven by an increase in the cost of zinc. This increase was par-
tially offset by price increases. Operating expenses as a percent-
age of net sales decreased to approximately 29.4% in fi scal 2006
from 30.3% in fi scal 2005. This decrease in operating expenses
was partially due to expiring penalties associated with our provi-
sion for presumed credits applied to the Brazilian excise tax on
Manufactured Products, or “IPI taxes.” This IPI benefi t offset our
increased investment in marketing and selling expenses incurred
as a result of our efforts to introduce Remington products into
the region.
Segment assets at September 30, 2006 decreased to $240 mil-
lion from $368 million at September 30, 2005. The decrease in
assets is attributable to the impairment of goodwill and certain
trade name intangible assets. See Note 2(i), Signifi cant Accounting
Policies—Intangible Assets, of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for
additional information on the impairment. Intangible assets
totaled approximately $82 million at September 30, 2006 and
primarily relate to the ROV Ltd. acquisition completed in fi scal
1999 and the fi scal 2004 Microlite acquisition. The purchase
price allocation for the Microlite acquisition was fi nalized in fi scal
2005. See Note 17, Acquisitions, of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for addi-
tional information on the Microlite acquisition.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.