Rayovac 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 Rayovac annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 84

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84

2007 Annual Report
Hard at Work

Table of contents

  • Page 1
    2007 Annual Report Hard at Work

  • Page 2
    ...around the world. Headquartered in Atlanta, we have approximately 7,100 employees worldwide. Spectrum Brands' shares trade on the New York Stock Exchange under the symbol SPC. Seated (left to right): Tony Genito, Executive Vice President and Chief Financial Officer; Kent Hussey, Chief Executive Of...

  • Page 3
    ... 2007. As a result, a more accountable, agile and competitive Spectrum has emerged with our businesses better positioned to generate pro... some time. Though market conditions change constantly, our brand fundamentals - from manufacturing and distribution to product development and market position -...

  • Page 4
    ... perspective from within the Company, I can assure you that Spectrum's portfolio of brands is better aligned with its customer base, competing from a stronger position and operating in a more productive way than at any time in recent history. Kent J. Hussey Chief Executive Officer structure...

  • Page 5
    ... products generated year-over-year sales growth of 13 percent in 2007, largely fueled by strong sales across Europe and Latin America. We also launched a limited lineup of companion animal pet supply products across our international Tetra customer base, mirroring our successful Remington strategy...

  • Page 6
    ... a great foundation upon which to build a successful future that will reward our shareholders. We appreciate your support and look forward to sharing this future with you as our hard work continues to pay off. Sincerely, Kent J. Hussey Chief Executive Officer 4 S P E C T RU M B R A N D S | 200...

  • Page 7
    ...wide variety of consumer batteries including alkaline, zinc carbon, hearing aid, rechargeable batteries and chargers. In addition, Rayovac and VARTA market a line of portable lighting products such as ï¬,ashlights and lanterns. Personal Care Innovating new products Our Remington brand is one of the...

  • Page 8
    ...on profitability and bottom-line performance, not just top-line growth. In terms of management philosophy, I am team oriented and place a lot of emphasis on hiring the right people and trusting them to do their job. My goal is to build a more transparent organization with open internal and external...

  • Page 9
    ... significantly to build distribution in Europe and Latin America. In fact, Remington's sales outside of North America have nearly doubled since we bought the brand in 2003. Over the coming year, we should see more of this investment benefit the bottom line. Our number one operating goal is to make...

  • Page 10
    ...Miller Brewing Company (Member of the audit committee and the nominating and corporate governance committee) Executive Officers Kent J. Hussey Chief Executive Officer Anthony L. Genito Executive Vice President and Chief Financial Officer David R. Lumley President, Global Batteries & Personal Care...

  • Page 11
    Spectrum Brands 2007 Financial Review Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Income (...

  • Page 12
    ... ended September 30, 2007, 2006 and 2005 are included elsewhere in this Annual Report on Form 10-K. As of October 1, 2005, we began reporting the results of operations of Nu-Gro Pro and Tech as discontinued operations. Additionally, we began reporting the results of operations of our Home and Garden...

  • Page 13
    ... Statements included in this Annual Report on Form 10-K for further discussion. (3) Fiscal 2005 selected financial data was impacted by two significant acquisitions completed during the fiscal year. The United acquisition was completed on February 7, 2005 and the Tetra acquisition was completed on...

  • Page 14
    ... the worldwide manufacturing and marketing of alkaline, zinc carbon and hearing aid batteries, as well as aquariums and aquatic supplies, and the designing and marketing of rechargeable batteries, batterypowered lighting products, electric shavers and accessories, grooming products and hair care...

  • Page 15
    ...companies. These initiatives included: integrating all of United's home and garden business' administrative services, sales and customer service functions into our North America headquarters in Madison, Wisconsin; converting all of our information systems to SAP; consolidating United's manufacturing...

  • Page 16
    ... alkaline or zinc carbon batteries in cell sizes of AA, AAA, C, D and 9-volt, and specialty batteries, which include rechargeable batteries, hearing aid batteries, photo batteries and watch/calculator batteries. Most consumer batteries are marketed under one of the following brands: Rayovac/VARTA...

  • Page 17
    ...120 countries through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors and OEMs. • Innovative New Products, Packaging and Technologies. We have a long history of product and packaging innovations in each of our seven...

  • Page 18
    ...in this Annual Report on Form 10-K for additional information regarding these non-cash impairment charges. Offsetting the decrease in impairment charges were (i) increases in advertising and marketing expenses in Fiscal 2007 of approximately $8 million to support our new Remington, Rayovac and VARTA...

  • Page 19
    ... Brands, Inc. Batteries & Personal Care European manufacturing, support, sales and marketing organization. See "Restructuring and Related Charges" below, as well as Note 16, Restructuring and Related Charges, of Notes to Consolidated Financial Statements included in this Annual Report on Form...

  • Page 20
    ... taxpayers. At September 30, 2007, these amounts totaled approximately $33 million and are included in Other long-term liabilities in the Consolidated Balance Sheets included in this Annual Report on Form 10-K. Global Pet Supplies (in millions) currency exchange translation impacted net sales in...

  • Page 21
    ... impaired trade name intangible assets of which $35 million is associated with our Global Pet Supplies business segment and $45 million is associated with our Latin America and Europe/ ROW reporting units, both of which are included as part of our Global Batteries & Personal Care reportable segment...

  • Page 22
    ...million on the sale of our Bridgeport, Connecticut manufacturing facility, which was acquired as part of the Remington Products acquisition, and subsequently closed in our fiscal year ended September 30, 2004, and our Madison, Wisconsin packaging facility, which was closed in our fiscal year ended...

  • Page 23
    ... line for Fiscal 2006 and Fiscal 2005 are as follows (in millions): Fiscal Year 2006 2005 Product Line Net Sales Consumer batteries Pet supplies Electric shaving and grooming Electric personal care Portable lighting Total net sales to external customers $ 861 543 252 151 88 $1,895 $ 968 286...

  • Page 24
    ...of our product to the customer while our current alkaline marketing strategy, "Same Performance, Better Price," introduced in Fiscal 2006, was designed to highlight the fact that battery performance tests show that our alkaline batteries perform as well as the leading alkaline battery brands and are...

  • Page 25
    ... launch of a line of personal care products in Fiscal 2005. In Latin America, sales of Remington branded products increased by approximately $14 million as we continued the introduction of Remington branded products throughout that region. Segment profitability in Fiscal 2006 decreased to $117...

  • Page 26
    ... 29, 2005. The purchase price allocations for the United and Tetra acquisitions were finalized in Fiscal 2006. See Note 17, Acquisitions, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on these acquisitions. Corporate Expense...

  • Page 27
    ... closed in Fiscal 2004, and our Madison, Wisconsin packaging facility, which was closed in Fiscal 2003. Prior to these sales, these assets were included in assets held for sale in our Consolidated Balance Sheets included in this Annual Report on Form 10-K. Fiscal 2005 other income, net of $1 million...

  • Page 28
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Spectrum Brands, Inc. due to an increase during Fiscal 2007, in accounts receivable coupled with a decrease in accounts payable. ABL Facility and upon meeting certain criteria specified in the ABL Credit ...

  • Page 29
    ... be payable semi-annually in arrears on October 2 and April 2. We made the first interest payment in cash on October 2, 2007. At such time as the Fixed Charge Coverage Ratio test under the Indenture governing the New Notes is above 2:1, we are required to pay interest of 1% over the scheduled rates...

  • Page 30
    ... total market value of the restricted shares on the date of grant was approximately $12.8 million which has been recorded as unearned restricted stock compensation. Unearned compensation is amortized to expense over the appropriate vesting period. During Fiscal 2007, we also issued a minimal number...

  • Page 31
    ...with our Latin America and Europe/ ROW reporting units, both of which are part of our Global Batteries & Personal Care reportable segment. Future cash expenditures will not result from these impairment charges. There were no impairment charges recognized in Fiscal 2005 as a result of our testing. We...

  • Page 32
    ...30 and 90 days from invoice date, depending upon the evaluation of the customer's financial condition and history. We monitor our customers' credit and financial conditions in order to assess whether the economic conditions have changed and adjust our credit policies with respect to any individual...

  • Page 33
    ... and Practices - Use of Estimates; and Note 2(e), Significant Accounting Policies and Practices - Concentrations of Credit Risk and Major Customers and Employees, of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for more information about our revenue recognition and...

  • Page 34
    ... or employees 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 16, Restructuring and Related Charges, of Notes to the Consolidated Financial Statements included in this Annual Report on...

  • Page 35
    ... the counterparties are included in accounts payable or accounts receivable. Quantitative And Qualitative Disclosures About Market Risk Market Risk Factors We have market risk exposure from changes in interest rates, foreign currency exchange rates and commodity prices. We use derivative financial...

  • Page 36
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Spectrum Brands, Inc. resulted in a loss of $13.6 million in the fair value of outstanding interest rate derivative instruments, and the net impact on reported earnings, after also including the reduction in one ...

  • Page 37
    CONSOLIDATED BALANCE SHEETS Spectrum Brands, Inc. September 30, 2007 and 2006 (In thousands, except per share amounts) 2007 2006 Assets Current assets: Cash and cash equivalents Receivables: Trade accounts receivable, net of allowances of $16,891 and $21,394, respectively Other Inventories ...

  • Page 38
    ...Brands, Inc. Years Ended September 30, 2007, 2006 and 2005 (In thousands, except per share amounts) 2007 2006 2005 Net sales Cost of goods sold Restructuring and related charges Gross pro...shares of common stock and equivalents outstanding See accompanying notes to consolidated financial... (319,083...

  • Page 39
    ... Brands, Inc. Years Ended September 30, 2007, 2006 and 2005 Additional Paid-In Capital Retained Earnings, (Accumulated Deficit) Accumulated Other Comprehensive Income, Net of tax Notes Receivable from Officers/ Shareholders Total Shareholders' Equity (Deficit) (In thousands) Common Stock Shares...

  • Page 40
    ... interest Cash paid for income taxes, net Issuance of Treasury shares for the United acquisition Sale of Mexican manufacturing facility: Reduction in deferred proceeds Reduction in assets held for sale See accompanying notes to consolidated financial statements. $ (412,108) 42,365 13,846 11,855 21...

  • Page 41
    ... Company's continuing operations include the worldwide manufacturing and marketing of alkaline, zinc carbon and hearing aid batteries, as well as aquariums and aquatic supplies and the design and marketing of rechargeable batteries, battery-powered lighting products, electric shavers and accessories...

  • Page 42
    ... of the Company's customer-related promotional (c) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets...

  • Page 43
    ... tested for impairment annually, or more often if an event or circumstance indicates that an impairment loss may have been incurred. For Fiscal 2007, 2006 and 2005, the Company's goodwill and trade name intangibles were tested for impairment as of the Company's August financial period end, the date...

  • Page 44
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Spectrum Brands, Inc. amount and, accordingly, further testing of goodwill was required to determine the impairment charge required by SFAS 142. In Fiscal 2006, this first step indicated that the fair value of the Latin America reporting unit, which is ...

  • Page 45
    .... 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: 2007 2006 2005 (m) Foreign Currency Translation Assets and...

  • Page 46
    ... recognized, the fair value of the related hedge is reclassified as an adjustment to Net sales or purchase price variance in Cost of goods sold. During Fiscal 2007, 2006 and 2005, $319, $51 and $0, respectively, of pretax derivative gains from such hedges were recorded as an adjustment to Net sales...

  • Page 47
    ...1, 2015 with interest payable semiannually at 7.375%. The total fair value of these Notes at September 30, 2007 was approximately $845,733. (See also Note 2(r), Significant Accounting Policies - Derivative Financial Instruments, and Note 7, Debt). The carrying amounts and fair values of the Company...

  • Page 48
    ... FINANCIAL STATEMENTS Spectrum Brands, Inc. (u) Reclassifications In Fiscal 2007, the Company began managing its business in three reportable segments: (i) Global Batteries & Personal Care, which consists of the Company's worldwide battery, shaving and grooming, personal care and portable lighting...

  • Page 49
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Spectrum Brands, Inc. Restricted stock shares granted in Fiscal 2007 generally have vesting periods which can range from one to five years. Approximately 89% of the shares granted are purely performance-based and vest only upon the achievement of certain ...

  • Page 50
    ... per share pro forma Diluted earnings per share as reported Diluted earnings per share pro forma $46,832 5,801 (7,562) $ 45,071 $ $ $ $ 1.07 1.03 1.03 0.99 The following table summarizes the stock option transactions: 2007 WeightedAverage Exercise Price 2006 WeightedAverage Exercise Price 2005...

  • Page 51
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Spectrum Brands, Inc. (x) Restructuring and Related Charges The costs of plans to (i) exit an activity of an acquired company, (ii) involuntarily terminate employees of an acquired company, or (iii) relocate employees of an acquired company are measured ...

  • Page 52
    ...nitive agreement to sell the Canadian division of the Home and Garden Business, which operates under the name Nu-Gro, to a new company formed by RoyCap Merchant Banking Group and Clarke Inc. The transaction closed on November 1, 2007. (See also Note 18, Subsequent Events for additional information...

  • Page 53
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Spectrum Brands, Inc. The remaining balance in Assets held for sale in the Consolidated Balance Sheets as of September 30, 2007 and 2006 consists primarily of a distribution facility in the Dominican Republic and a manufacturing facility in France. During ...

  • Page 54
    ...for shutdown reserve costs at certain facilities, acquired as part of the United acquisition, offset by deferred tax liability adjustments. The purchase price allocation decrease to Global Batteries & Personal Care trade names not subject to amortization during Fiscal 2007 relates to the reversal of...

  • Page 55
    ... with a portion of the cash on hand resulting from the refinancing in Fiscal 2007. References to "Senior Credit Facilities" in this Annual Report on Form 10-K, refer to the new senior credit facilities discussed above as modified by the replacement of the U.S. Dollar Term B II Loan with the ABL...

  • Page 56
    ... Term Loan Facilities are subject to repayment according to a scheduled amortization, with the final payment of all amounts outstanding, plus accrued interest, due on March 30, 2013. Beginning with the fiscal year ended September 30, 2007, the Senior Credit Agreement provides for annual mandatory...

  • Page 57
    ... performance targets are not met, the performance component of a restricted stock award will automatically vest one year after the originally scheduled vesting date, effectively making the award time-based. The remaining 160 shares vest at specific dates throughout 2008 and 2009. The total market...

  • Page 58
    ... time-vesting or a performance-vesting formula at an exercise price equal to the market price of the common stock on the date of grant. As of September 30, 2007, there were options with respect to 209 shares of common stock outstanding under the 1996 Plan. The 1996 Plan expired on September 12, 2006...

  • Page 59
    ...621, respectively. The Company has had a change of ownership, as defined under Internal Revenue Code Section 382, that subjects the Company's U.S. net operating losses to certain limitations. These limitations include an overall annual limitation and a limitation related to gains generated upon the...

  • Page 60
    ... debt. Nu-Gro Pro and Tech Fiscal 2005 revenue approximated $80,000 from sales of high-end specialty controlled-release nitrogen fertilizer and other products to professional turf markets and specialty wholesale fertilizer customers. As part of the transaction, the Company signed strategic multi...

  • Page 61
    ... to Adopting SFAS 158 Effect of Adopting SFAS 158 As Reported at Sept 30, 2007 Other Benefits Under the Rayovac postretirement plan the Company provides certain health care and life insurance benefits to eligible retired employees. Participants earn retiree health care benefits after reaching age...

  • Page 62
    ...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 63
    ... used for the Company's domestic plans was approximately 8.0% and approximately 5.5% for its international plans. Other Benefits 2007 2006 2005 Pension and Deferred Compensation Benefits 2007 2006 2005 Components of net periodic benefit cost Service cost Interest cost Expected return on assets...

  • Page 64
    .... Variable allocations of assets are not made for segment reporting. Segment information for Fiscal 2007, 2006 and 2005 is as follows: Net Sales to External Customers 2007 2006 2005 Prior to the adoption of SFAS No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement...

  • Page 65
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Spectrum Brands, Inc. Depreciation and Amortization 2007 2006 2005 Segment Long-lived Assets September 30, 2007 2006 Global Batteries & Personal Care Global Pet Supplies Total segments Corporate Total Depreciation and amortization $ 33,660 22,269 55,929...

  • Page 66
    ...among the Company, Lindbergh Corporation and United dated as of January 3, 2005 filed as an exhibit to the Current Report on Form 8-K filed by the Company on January 4, 2005. Pursuant to the terms of the Merger Agreement, Lindbergh Corporation merged with and into United, with United continuing as...

  • Page 67
    ... initiatives implemented. The following table summarizes restructuring and related charges incurred by segment: 2007 2006 2005 Cost of goods sold: Global Batteries & Personal Care Global Pet Supplies Corporate Total restructuring and related charges in cost of goods sold $ 18,126 13,154 35 31,315...

  • Page 68
    ... FINANCIAL STATEMENTS Spectrum Brands, Inc. The following table summarizes restructuring and related charges incurred by type of charge: 2007 2006 2005 Costs included in cost of goods sold: Breitenbach, France facility closure: Termination benefits $ 18 Other associated costs 468 United & Tetra...

  • Page 69
    ... of United's home and garden administrative services, sales and customer service functions into the Company's operations in Madison, Wisconsin; converting all information systems to SAP; consolidating United's home and garden manufacturing and distribution locations in North America; rationalizing...

  • Page 70
    ...products for fish and reptiles, along with accessories for home aquariums and ponds. Tetra operates in over 90 countries and holds leading market positions in Europe, North America and Japan. The financial results of Tetra are included in the Global Pet Supplies business segment within the Company...

  • Page 71
    ... the number of shares used to calculate earnings per share have also been made to present shares as if the 13,750 treasury shares issued in connection with the United acquisition were outstanding on October 1, 2004. 2007 2006 2005 Net sales Reported net sales United pro forma adjustments Tetra pro...

  • Page 72
    ...FINANCIAL STATEMENTS Spectrum Brands, Inc. (18) Subsequent Events On September 28, 2007, the Company signed a definitive agreement to sell the Canadian division of its discontinued Home and Garden Business, which operates under the name Nu-Gro, to a new company formed by RoyCap Merchant Bank Group...

  • Page 73
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Spectrum Brands, Inc. Consolidating Balance Sheet September 30, 2007 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total ASSETS Current assets: Cash and cash equivalents Receivables: Trade accounts receivables, net of ...

  • Page 74
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Spectrum Brands, Inc. Consolidating Statement of Operations Year Ended September 30, 2007 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total Net sales Cost of goods sold Restructuring and related charges Gross profit ...

  • Page 75
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Spectrum Brands, Inc. Consolidating Balance Sheet September 30, 2006 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total ASSETS Current assets: Cash and cash equivalents Receivables: Trade accounts receivables, net of ...

  • Page 76
    ... from exercise of stock options 365 Stock option income tax benefit 80 Treasury stock purchases (2,263) Proceeds from (advances related to) intercompany transactions 857,996 Net cash provided (used) by financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease...

  • Page 77
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 ...

  • Page 78
    ... with the 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, 2007, based on criteria established in Internal Control - Integrated Framework issued by...

  • Page 79
    ...reporting as of September 30, 2007, based on criteria established in Internal Control - Integrated Framework issued by the COSO. 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...

  • Page 80
    ... as of September 30, 2007, and the effectiveness of internal control over financial reporting as of September 30, 2007, which reports appear in the annual report on Form 10-K of Spectrum Brands, Inc. Our report refers to the Company's adoption of Statement of Financial Accounting Standards No. 158...

  • Page 81
    ...cant role in the registrant's internal control over financial reporting. Date: December 14, 2007 /s/ Kent J. Hussey Kent J. Hussey Chief Executive Officer I, Anthony L. Genito, Chief Financial Officer, certify that: 1. I have reviewed this annual report on Form 10-K of Spectrum Brands, Inc. (the...

  • Page 82
    ... respects, the financial condition and results of operations of the Company. /s/ Kent J. Hussey Name: Title: Date: December 14, 2007 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of...

  • Page 83
    ... Shareowner Services 480 Washington Blvd. Jersey City, NJ 07310 (800) 777-3694 www.bnymellon.com/shareowner 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...

  • Page 84
    Six Concourse Parkway Suite 3300 Atlanta, GA 30328