Rayovac 2007 Annual Report Download - page 15

SPECTRUM BRANDS | 2007 ANNUAL REPORT 13
SFAS 142 requires companies to test goodwill and indefi nite-
lived intangible assets for impairment annually, or more often if
an event or circumstance indicates that an impairment loss may
have been incurred. In Fiscal 2007 and 2006, we, with the assis-
tance of independent third-party valuation specialists, tested our
goodwill and indefi nite-lived intangible assets and, as a result of
this testing, we recorded non-cash pretax impairment charges of
approximately $238 million and $433 million in Fiscal 2007 and
2006, respectively. 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. See “Critical
Accounting Policies – Valuation of Assets and Asset Impairment”
below as well as Note 2(i), Signifi cant Accounting Policies and
Practices – Intangible Assets, of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for
further details on these impairment charges.
Our fi nancial performance is infl uenced by a number of fac-
tors including: general economic conditions; foreign exchange
fl uctuations; trends in consumer markets; our overall product
line mix, including pricing and gross margin, which vary by
product line and geographic market; pricing of raw materials
and commodities; fuel prices; and our general competitive posi-
tion, especially as impacted by our competitors’ advertising and
promotional activities and pricing strategies.
Cost Reduction Initiatives
We continually seek to improve our operational effi ciency,
match our manufacturing capacity and product costs to market
demand and better utilize our manufacturing resources. We
have undertaken various initiatives to reduce manufacturing
and operating costs.
Fiscal 2007. In connection with our announcement that we
would manage our business in three vertically integrated, product-
focused reporting segments, our costs related to research and
development, manufacturing management, global purchasing,
quality operations and inbound supply chain, which had previ-
ously been included in our corporate reporting segment are now
included in each of the operating segments on a direct-as-incurred
basis. In connection with these changes we undertook a number
of cost reduction initiatives, primarily headcount reductions, at
the corporate and operating segment levels (the “Global Realign-
ment Initiatives”), including a headcount reduction of approxi-
mately 150 employees.
We have also implemented a series of initiatives within our
Global Batteries & Personal Care business segment in Latin
America to reduce operating costs (the “Latin America Initia-
tives”). These initiatives include the reduction of certain manufac-
turing operations in Brazil and the restructuring of management,
sales, marketing and support functions. As a result, we reduced
headcount in Latin America by approximately 100 employees.
Fiscal 2006. As a result of our continued concern regarding
the European economy and the continued shift by consumers
from branded to private label alkaline batteries, we announced a
series of initiatives in the Global Batteries & Personal Care seg-
ment in Europe to reduce operating costs and rationalize our
manufacturing structure (the “European Initiatives”). These ini-
tiatives include the reduction of certain operations at our Ellwan-
gen, Germany packaging center and relocating those operations
to our Dischingen, Germany battery plant, transferring private
label battery production at our Dischingen, Germany battery
plant to our manufacturing facility in China and restructuring
the sales, marketing and support functions. As a result, we have
reduced headcount in Europe by approximately 350 employees,
or 24%.
Fiscal 2005. In connection with the acquisitions of United
and Tetra in 2005, we announced a series of initiatives to opti-
mize the global resources of the combined United and Spectrum
companies. These initiatives included: integrating all of United’s
home and garden business’ administrative services, sales and
customer service functions into our North America headquar-
ters in Madison, Wisconsin; converting all of our information
systems to SAP; consolidating United’s manufacturing and dis-
tribution locations in North America; rationalizing the North
America supply chain; and consolidating United’s pet supply
businesses and Tetra’s administrative, manufacturing and dis-
tribution facilities. In addition, certain corporate fi nance func-
tions were shifted to our global headquarters in Atlanta,
Georgia.
As previously disclosed, effective October 1, 2006, we refl ected
the operations of our Home and Garden Business as discontin-
ued operations. See Note 5, Assets Held for Sale, and Note 11,
Discontinued Operations, of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for
additional information on our assets held for sale and discontin-
ued operations. As a result, as of October 1, 2006, initiatives to
integrate the activities of our Home and Garden Business into
our operations in Madison, Wisconsin have been suspended as
we focus on separating this discontinued business from our
continuing operations.
Our integration activities within Global Pet Supplies are sub-
stantially complete as of September 30, 2007. Global Pet Supplies
integration activities consisted primarily of the rationalization of
manufacturing facilities and the optimization of the distribution
network. As a result of these integration initiatives, two pet sup-
plies facilities were closed in 2005, one in Brea, California, and
the other in Hazleton, Pennsylvania; one pet supply facility was
closed in 2006 in Hauppauge, New York; and one pet supply
facility was closed in Fiscal 2007 in Moorpark, California.
In 2005, we also announced the closure of a zinc carbon
manufacturing facility in France.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Spectrum Brands, Inc.