Rayovac 2007 Annual Report Download - page 25

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Spectrum Brands, Inc.
SPECTRUM BRANDS | 2007 ANNUAL REPORT 23
other operating expenses as a percentage of net sales in Fiscal
2006 were in line with Fiscal 2005 percentages.
Segment Results. As discussed above in Item 1, Business, as of
January 1, 2007, we began managing our business in three
reportable segments: (i) Global Batteries & Personal Care, (ii)
Global Pet Supplies; and (iii) the Home and Garden Business.
The presentation of all historical segment reporting herein has
been changed to conform to this segment reporting. However,
we will not present results of our Home and Garden Business in
“Segment Results” because it has been designated as discontin-
ued operations. For additional information about the results of
operations for our Home and Garden Business please see “Man-
agement’s Discussion and Analysis of Financial Condition and
Results of Operations – Discontinued Operations” and Note 11,
Discontinued Operations, of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K.
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 stra-
tegic initiatives and achieving certain fi nancial objectives and has
a general manager responsible for the sales and marketing initia-
tives and fi nancial results for product lines within that segment.
See Note 13, Segment Information, of Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-
K for additional information relating to our business segments.
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.
Global Batteries & Personal Care
(in millions) 2006 2005
Net sales to external customers $ 1,352 $ 1,477
Segment profit $ 117 $ 176
Segment profit as a % of net sales 8.7% 11.9%
Assets as of September 30, $ 1,549 $ 1,504
Segment net sales to external customers in Fiscal 2006
decreased to $1,352 million from $1,477 million during Fiscal
2005. Unfavorable foreign currency exchange translation
impacted net sales in Fiscal 2006 by approximately $9 million.
Consumer battery sales for Fiscal 2006 were down to $861 mil-
lion when compared to Fiscal 2005 sales of $968 million. The
decline in consolidated consumer battery sales was due primar-
ily to an $89 million decline in Europe/ROW battery sales and
an $18 million decline in North America alkaline battery sales.
The entire $89 million decline in Europe/ROW battery sales
occurred in continental Europe as a 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. The decline in our North America alkaline battery
sales was driven by a number of factors, primarily a reduction of
inventory levels at certain retailers in North America, lost distri-
bution and the completion of our transition to a new alkaline
marketing strategy in North America centered around an
improved value position, as described above, which took longer
than anticipated.
Consolidated electric shaving and grooming sales were also
down in Fiscal 2006 as compared to Fiscal 2005. The sales
decline was primarily attributable to a $28 million decline in
North America sales, which was driven by lower than expected
sales of Remington men’s shaving products, primarily during
the 2006 Father’s Day holiday and 2005 Christmas holiday.
European sales of our Remington branded shaving, grooming
and personal care products increased by approximately 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 remainder of the
Europe/ROW segment increased 26% in Fiscal 2006, as com-
pared to Fiscal 2005 as we continued to expand distribution across
continental Europe, driven by our investments in brand develop-
ment. In the United Kingdom, net sales decreased $22 million
during the year, as result of our inability to sustain increased
sales levels which resulted from the successful 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 profi tability in Fiscal 2006 decreased to $117 million
from $176 million in Fiscal 2005. Segment profi tability as a per-
centage of net sales decreased to 8.7% in Fiscal 2006 as compared
with 11.9% in Fiscal 2005. The decrease in segment profi tability
for Fiscal 2006 was the result of increased commodity costs and
reduced utilization of our manufacturing facilities due to sales
volume declines, which reduced our gross profi t and gross profi t