Rayovac 2007 Annual Report Download - page 9

SPECTRUM BRANDS | 2007 ANNUAL REPORT 7
What is the trade-off between selling an asset
with growth potential versus improving your
capital structure?
The decision to sell a strategic asset is always a diffi cult
one. Each of our businesses is attractive and each has
solid growth prospects. However, the reality is that
Spectrum has a highly leveraged capital structure. It
is simply not prudent or fair to our businesses to rely
on a strategy of “growing our way out” of this highly
leveraged position. If capital constraints prevent
us from investing in our businesses to realize their
inherent value, then keeping them all is self-defeating.
Asset divestiture is a tough choice, but we believe it will
prove to be the right strategic choice for Spectrum.
While you work to complete a divestiture, does the
Company have the resources necessary to operate?
We do not view liquidity as an issue for the Company.
At year-end we had $70 million in cash and an undrawn
$225 million asset-based revolver facility. In combi-
nation with cash generated from operations, we believe
we have the resources to operate all of Spectrum’s
businesses for the foreseeable future without an asset
sale. The real issue is long-term growth and fiscal
responsibility. We would prefer to invest in growth
rather than debt service. And, because markets are
inevitably cyclical, we believe a more stable capital
structure positions the Company to better weather
challenging economic conditions.
What does it mean to operate Home & Garden
as a discontinued operation? Does it receive
less support than your other businesses?
Discontinued operation is a designation made for
accounting purposes only. Since we continue to market
Home & Garden in an effort to sell this business, it must
be accounted for as such. From a business perspective,
however, Home & Garden has been a great turnaround
story for us. An entirely new management team was
put in place in 2007, and did a terrific job working
out integration issues that plagued the business in 2006.
On-time and customer fi ll rates, for instance, have
returned to 95 percent or better. By every operational
measure, Home & Garden is performing at industry-
standard levels today. Unfortunately, we cannot
control the weather, which hampered fi nancial
performance this past season. The investments have
been made, however, to position Home & Garden as
a formidable competitor when conditions improve.
Going forward, which metrics will investors fi nd
most helpful to measure Spectrum’s progress?
Our view is that investors should pay less attention
to top-line growth and more attention to segment
profi tability and adjusted EBITDA. Many of the
restructuring initiatives undertaken in the past
two years will continue to show benefi ts in 2008.
We also have made investments in growing our
businesses that should begin to accrue to the bottom
line. Remington, for instance, has spent signifi cantly
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 benefi t the bottom line. Our number
one operating goal is to make Spectrum Brands more
profi table, and we are in a great position to make this
a reality in 2008.
Q.
A.
Q.
A.
Q.
A.
Q.
A.