Rayovac 2007 Annual Report Download - page 18

16 SPECTRUM BRANDS | 2007 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Spectrum Brands, Inc.
Net Sales. Net sales for Fiscal 2007 increased to $1,995 million
from $1,895 million in Fiscal 2006, a 5% increase. The following
table details the principal components of the change in net sales
from Fiscal 2006 to Fisca1 2007 (in millions):
Net Sales
Fiscal 2006 Net Sales $1,895
Increase in Global Pet Supplies sales 11
Increase in Global Batteries & Personal Care
Remington branded product sales 37
Decrease in Global Batteries & Personal Care
alkaline battery sales (17)
Foreign currency impact, net 66
Other, net 3
Fiscal 2007 Net Sales $1,995
Consolidated net sales by product line for Fiscal 2007 and
2006 are as follows (in millions):
Fiscal Year
2007 2006
Product Line Net Sales
Consumer batteries $ 882 $ 861
Pet supplies 563 543
Electric shaving and grooming 268 252
Electric personal care 187 151
Portable lighting 95 88
Total net sales to external customers $1,995 $1,895
Global consumer battery sales increased $21 million, or 2%,
primarily driven by a favorable foreign exchange impact of $37 mil-
lion coupled with growth in Latin America due to favorable pric-
ing, volume growth and product mix. This increase was tempered
by declines in alkaline battery sales in North America, as a result
of lost distribution, coupled with declines in alkaline battery
sales in Europe which were driven by (i) the continued shift in
distribution channels from electronic specialty and photo stores
to deep discount and food retail channels and (ii) the continued
shift in product mix due to consumer preferences for lower-
priced private label batteries. Both issues are more fully discussed
in “Segment Results” below. Sales of portable lighting products in
Fiscal 2007 increased $7 million, or 8%, driven by new product
launches. The increase in electric shaving and grooming sales of
$16 million, or 6%, is primarily attributable to distribution expan-
sion in our Latin America and European markets. The strong
increase in electric personal care sales of $37 million, or 25%, was
due to our increased market share. We experienced double digit
percentage growth in electric personal care sales in all geographic
regions. The $20 million, or 4%, increase in pet supplies sales was
primarily due to growth in companion animal sales, driven by our
Dingo brand, coupled with the introduction of companion animal
products to the European market.
Gross Profi t. Gross profi t for Fiscal 2007 was $736 million
versus $707 million for Fiscal 2006. Our gross profi t margin for
Fiscal 2007 decreased to 36.9% from 37.3% in Fiscal 2006.
Higher zinc prices, a key raw material in the production of our
batteries, reduced Fiscal 2007 gross profi t by approximately $13 mil-
lion, net of our hedges, when compared to Fiscal 2006. Included
in Fiscal 2007 and Fiscal 2006 were restructuring and related
charges of approximately $31 million, and $23 million, respec-
tively. These restructuring and related charges were associated
with the various cost cutting initiatives in connection with our
global realignment announced in January 2007, ongoing inte-
gration activities of our Global Pet Supplies, which are substan-
tially complete, and the rationalization of our Global Batteries &
Personal Care European and Latin American manufacturing
organizations. 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 10-K for additional information regarding our
restructuring and related charges. Higher battery pricing in
North America and Latin America contributed positively to gross
profi t margin but was offset by higher commodity costs. We do
not currently anticipate additional restructuring charges.
Operating Expense. Operating expenses for Fiscal 2007
totaled $898 million versus $1,026 million for Fiscal 2006. This
$128 million decrease in operating expenses for Fiscal 2007 ver-
sus Fiscal 2006 was primarily driven by a decrease of $195 mil-
lion in impairment charges. Impairment charges in Fiscal 2007
were $238 million versus $433 million in Fiscal 2006. In both
Fiscal 2007 and Fiscal 2006 the impairment charges were non-
cash charges and related to the write down of the carrying value
of goodwill and indefi nite-lived intangible assets to fair value in
accordance with SFAS 142. See “Goodwill and Intangibles
Impairment” below, as well as Note 2(c), Signifi cant Accounting
Policies and Practices – Intangible Assets, of Notes to Consoli-
dated Financial Statements included 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 marketing campaigns, (ii)
increases in restructuring and related charges of approximately
$48 million, rising to $60 million in Fiscal 2007 from $12 mil-
lion in Fiscal 2006 and (iii) increases resulting from the write
off of professional fees during Fiscal 2007, which totaled
approximately $4 million and are included in general and
administrative expense, in connection with our strategic deci-
sion to dispose of our Home and Garden Business. The restruc-
turing and related charges incurred in Fiscal 2007 were
primarily attributable to various cost reduction initiatives in
connection with our global realignment announced in January
2007, ongoing integration of our Global Pet Supplies and ratio-
nalization of our Global Batteries & Personal Care European
and Latin America manufacturing support, sales and marketing
organizations. The restructuring and related charges incurred in
Fiscal 2006 were primarily attributable to the ongoing integra-
tion of our Global Pet Supplies and rationalization of our Global