Rayovac 2007 Annual Report Download - page 19

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Spectrum Brands, Inc.
SPECTRUM BRANDS | 2007 ANNUAL REPORT 17
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 10-K for additional
information regarding our restructuring and related charges.
Operating Loss. An operating loss of approximately $162 mil-
lion was recognized in Fiscal 2007, as compared to an operating
loss in Fiscal 2006 of $319 million. The Fiscal 2007 operating loss
is directly attributable to the impact of the previously discussed
non-cash impairment charge of $238 million, coupled with
restructuring and related charges of $91 million. The Fiscal 2006
operating loss is directly attributable to the previously discussed
non-cash impairment charge of approximately $433 million cou-
pled with restructuring and related charges of $35 million.
Segment Results. As discussed above in Item 1, Business, in Fis-
cal 2007, we manage our business in three reportable segments:
(i) Global Batteries & Personal Care, (ii) Global Pet Supplies; and
(iii) Home and Garden Business. The presentation of all histori-
cal segment reporting herein has been reclassifi ed to conform to
this segment reporting.
However, we do not present results of our Home and Garden
Business in “Segment Results” because we have designated it as
discontinued operations. For additional information about the
results of operations for our Home and Garden Business in Fis-
cal 2007, Fiscal 2006 and Fiscal 2005, please see “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations – Discontinued Operations” and Note 11, Discontin-
ued Operations, of Notes to Consolidated Financial Statements
included in this Annual Report on Form 10-K .
Operating segment profi ts do not include restructuring and
related charges, interest expense, interest income, impairment
charges and income tax expense. In connection with the realign-
ment of our operating segments discussed above, in Fiscal 2007
expenses associated with global operations, consisting of
research and development, manufacturing management, global
purchasing, quality operations and inbound supply chain, which
were previously refl ected in corporate expenses, are now
included in the determination of operating segment profi ts. In
addition, certain general and administrative expenses necessary
to refl ect the operating segments on a standalone basis and
which were previously refl ected as corporate expenses, have been
included in the determination of operating segment profi ts.
Accordingly, corporate expenses include primarily general and
administrative expenses associated with corporate overhead and
global long-term incentive compensation plans. Segment
reporting results for Fiscal 2006 and 2005 have been reclassi-
fi ed to conform to the changes described above.
All depreciation and amortization included in income from
operations is related to operating segments or corporate expense.
Costs are allocated to operating segments or corporate expense
according to the function of each cost center. All capital expendi-
tures are related to operating segments. Variable allocations of
assets are not made for segment reporting.
Global strategic initiatives and fi nancial objectives for each
reportable segment are determined at the corporate level. Each
reportable segment is responsible for implementing defi ned
strategic initiatives and achieving certain fi nancial objectives
and has a general manager responsible for the sales and market-
ing initiatives and fi nancial results for product lines within that
segment. Financial information pertaining to our reportable
segments is contained in Note 13, Segment Information, of
Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K.
Global Batteries & Personal Care
(in millions)
2007 2006
Net sales to external customers $ 1,431 $1,352
Segment profit $ 14 4 $ 117
Segment profit as a % of net sales 10.0% 8.7%
Assets as of September 30, $1,329 $1,549
Segment net sales to external customers in Fiscal 2007
increased $79 million to $1,431 million from $1,352 million dur-
ing Fiscal 2006, representing a 6% increase. Favorable foreign
currency exchange translation impacted net sales in Fiscal 2007
by approximately $58 million. Battery sales for Fiscal 2007 were
up slightly to $881 million when compared to Fiscal 2006 sales
of $861 million, principally due to increases in Latin America of
$24 million, which were driven by favorable pricing, volume
growth and product mix. These increases were tempered by
declines in North America sales of $8 million associated with lost
distribution as well as in Europe of $25 million driven by (i) our
continued exit from low-margin private label battery businesses,
(ii) the continued shift in European distribution channels from
electronic specialty stores and photo stores to discount channels
and (iii) the continued shift in product mix due to consumer
preferences for lower-priced private label batteries. Net sales of
electric shaving and grooming products in Fiscal 2007 increased
by $16 million, or 6%, as the result of the growth in our Latin
America and European markets. Electric personal care sales
increased by $37 million, an increase of 26% over Fiscal 2006,
driven by our expanded global distribution in conjunction with
our investments in brand development. Net sales of portable
lighting products for Fiscal 2007 increased to $95 million as
compared to sales of $88 million for Fiscal 2006. The sales
increase was driven by new product launches and occurred in all
geographic regions.
Segment profi tability in Fiscal 2007 increased to $144 million
from $117 million in Fiscal 2006. Segment profi tability as a
percentage of net sales increased to 10.0% in Fiscal 2007 as
compared with 8.7% in Fiscal 2006. The increase in segment
profi tability for Fiscal 2007 was the result of higher gross profi t,