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8-K - FORM 8-K - Spectrum Brands Holdings, Inc. | y88640e8vk.htm |
EX-99.7 - EX-99.7 - Spectrum Brands Holdings, Inc. | y88640exv99w7.htm |
EX-99.4 - EX-99.4 - Spectrum Brands Holdings, Inc. | y88640exv99w4.htm |
EX-16.1 - EX-16.1 - Spectrum Brands Holdings, Inc. | y88640exv16w1.htm |
EX-99.2 - EX-99.2 - Spectrum Brands Holdings, Inc. | y88640exv99w2.htm |
EX-99.6 - EX-99.6 - Spectrum Brands Holdings, Inc. | y88640exv99w6.htm |
EX-99.5 - EX-99.5 - Spectrum Brands Holdings, Inc. | y88640exv99w5.htm |
EX-99.3 - EX-99.3 - Spectrum Brands Holdings, Inc. | y88640exv99w3.htm |
EX-99.8 - EX-99.8 - Spectrum Brands Holdings, Inc. | y88640exv99w8.htm |
EX-99.9 - EX-99.9 - Spectrum Brands Holdings, Inc. | y88640exv99w9.htm |
Exhibit 99.1
The
following is an excerpt from the SB Holdings Form 10-K (included
therein as Item 1)
DESCRIPTION OF THE BUSINESS OF SPECTRUM BRANDS HOLDINGS, INC.
General
Spectrum Brands Holdings, Inc., a Delaware corporation (SB Holdings), is a global branded
consumer products company and was created in connection with the combination of Spectrum Brands,
Inc. (Spectrum Brands), a global branded consumer products company and Russell Hobbs, Inc.
(Russell Hobbs), a small appliance brand company, to form a new combined company (the Merger).
The Merger was consummated on June 16, 2010. As a result of the Merger, both Spectrum Brands and
Russell Hobbs are wholly-owned subsidiaries of SB Holdings and Russell Hobbs is a wholly-owned
subsidiary of Spectrum Brands. SB Holdings common stock trades on the New York Stock Exchange (the
NYSE) under the symbol SPB.
Unless the context indicates otherwise, the terms the Company, Spectrum, we, our or
us are used to refer to SB Holdings and its subsidiaries subsequent to the Merger and Spectrum
Brands prior to the Merger, as well as both before and on and after the Effective Date, as defined
below. The term Old Spectrum, refers only to Spectrum Brands, our Wisconsin predecessor, and its
subsidiaries prior to the Effective Date.
In connection with the Merger, we refinanced Spectrum Brands existing senior debt, except for
Spectrum Brands 12% Senior Subordinated Toggle Notes due 2019 (the 12% Notes), which remain
outstanding, and a portion of Russell Hobbs existing senior debt through a combination of a new
$750 million Term Loan due June 16, 2016 (the Term Loan), new $750 million 9.5% Senior Secured
Notes maturing June 15, 2018 (the 9.5% Notes) and a new $300 million ABL revolving facility due
June 16, 2014 (the ABL Revolving Credit Facility and together with the Term Loan, the Senior
Credit Facilities and the Senior Credit Facilities together with the 9.5% Notes, the Senior
Secured Facilities).
As further described below, on February 3, 2009, we and our wholly owned United States
(U.S.) subsidiaries (collectively, the Debtors) filed voluntary petitions under Chapter 11 of
the U.S. Bankruptcy Code (the Bankruptcy Code), in the U.S. Bankruptcy Court for the Western
District of Texas (the Bankruptcy Court). On August 28, 2009 (the Effective Date), the Debtors
emerged from Chapter 11 of the Bankruptcy Code. Effective as of the Effective Date and pursuant to
the Debtors confirmed plan of reorganization, Spectrum Brands converted from a Wisconsin
corporation to a Delaware corporation.
Financial information included in our financial statements prepared after August 30, 2009 will
not be comparable to financial information from prior periods. See Item 1A. Risk Factors Risks
Related To Our Emergence From Bankruptcy of our Annual Report on Form 10-K for the fiscal year
ended September 30, 2010 for more information.
We are a global branded consumer products company with positions in seven major product
categories: consumer batteries; small appliances; pet supplies; electric shaving and grooming;
electric personal care; portable lighting; and home and garden control products.
We manage our business in four reportable segments: (i) Global Batteries & Personal Care,
which consists of our worldwide battery, shaving and grooming, personal care and portable lighting
business (Global Batteries & Personal Care); (ii) Global Pet Supplies, which consists of our
worldwide pet supplies business (Global Pet Supplies); (iii) the Home and Garden Business, which
consists of our home and garden control product offerings, including household insecticides,
repellants and herbicides (the Home and Garden Business); and (iv) Small Appliances, which
consists of small electrical appliances primarily in the kitchen and home product categories
(Small Appliances).
We manufacture and market alkaline, zinc carbon and hearing aid batteries, herbicides,
insecticides and repellants and specialty pet supplies. We design, market and distribute
rechargeable batteries, battery-powered lighting products, electric shavers and accessories,
grooming products, hair care appliances, small household appliances and personal care products. Our
manufacturing and product development facilities are located in the U.S., Europe, Latin America and
Asia. Substantially all of our rechargeable batteries and chargers, shaving and grooming products,
small household appliances, personal care products and portable lighting products are manufactured
by third-party suppliers, primarily located in Asia.
We sell our products in approximately 120 countries through a variety of trade channels,
including retailers, wholesalers and distributors, hearing aid professionals, industrial
distributors and original equipment manufacturers (OEMs) and enjoy strong name recognition in our
markets under the Rayovac, VARTA and Remington brands, each of which has been in existence for more
than 80 years, and under the Tetra, 8-in-1, Spectracide, Cutter, Black & Decker, George Foreman,
Russell Hobbs, Farberware and various other brands.
Global and geographic strategic initiatives and financial objectives are determined at the
corporate level. Each business segment is responsible for implementing defined strategic
initiatives and achieving certain financial objectives and has a general manager responsible for
sales and marketing initiatives and the financial results for all product lines within that
business segment.
Our operating performance is influenced by a number of factors including: general economic
conditions; foreign exchange fluctuations; trends in consumer markets; consumer confidence and
preferences; our overall product line mix, including pricing and
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gross margin, which vary by product line and geographic market; pricing of certain raw
materials and commodities; energy and fuel prices; and our general competitive position, especially
as impacted by our competitors advertising and promotional activities and pricing strategies.
In November 2008, our board of directors committed to the shutdown of the growing products
portion of the Home and Garden Business, which includes the manufacturing and marketing of
fertilizers, enriched soils, mulch and grass seed, following an evaluation of the historical lack
of profitability and the projected input costs and significant working capital demands for the
growing products portion of the Home and Garden Business for our fiscal year ended September 30,
2009 (Fiscal 2009). We believe the shutdown was consistent with what we have done in other areas
of our business to eliminate unprofitable products from our portfolio. As of March 29, 2009, we
completed the shutdown of the growing products portion of the Home and Garden Business.
Accordingly, the presentation herein of the results of continuing operations excludes the growing
products portion of the Home and Garden Business for all periods presented. See Note 9,
Discontinued Operations, to our Consolidated Financial Statements included in this Annual Report on
Form 10-K for further details on the disposal of the growing products portion of the Home and
Garden Business.
On December 15, 2008, prior to our Bankruptcy Filing, as defined below, Old Spectrum was
advised that its common stock would be suspended from trading on the NYSE prior to the opening of
the market on December 22, 2008. It was advised that the decision to suspend its common stock was
reached in view of the fact that it had recently fallen below the NYSEs continued listing standard
regarding average global market capitalization over a consecutive 30 trading day period of not less
than $25 million, the minimum threshold for listing on the NYSE. Old Spectrums common stock was
delisted from the NYSE effective January 23, 2009.
On March 18, 2010, the common stock of Spectrum Brands was listed on the NYSE. In connection
with the consummation of the Merger, on June 16, 2010 the common stock of Spectrum Brands was
delisted from the NYSE and the common stock of SB Holdings succeeded to its listing status under
the symbol SPB.
As a result of our Bankruptcy Filing, we were able to significantly reduce our indebtedness.
As a result of the Merger, we were able to further reduce our outstanding debt leverage ratio.
However, we continue to have a significant amount of indebtedness relative to our competitors and
paying down outstanding indebtedness continues to be a priority for us. The Bankruptcy Filing is
discussed in more detail under Chapter 11 Proceedings.
Chapter 11 Proceedings
On February 2, 2009, the Company did not make a $25.8 million interest payment due February 2,
2009 on the Companys
73/8% Senior Subordinated
Notes due 2015 (the 73/8 Notes), triggering a default with respect to the notes. On February 3, 2009, we announced that
we had reached agreements with certain noteholders, representing, in the aggregate, approximately
70% of the face value of our then outstanding senior subordinated notes, to pursue a refinancing
that, if implemented as proposed, would significantly reduce our outstanding debt. As a result of
its substantial leverage, the Company determined that, absent a financial restructuring, it would
be unable to achieve future profitability or positive cash flows on a consolidated basis solely
from cash generated from operating activities or to satisfy certain of its payment obligations as
the same may become due and be at risk of not satisfying the leverage ratios to which it was
subject under its then existing senior secured term loan facility, which ratios became more
restrictive in future periods. Accordingly, the Debtors filed voluntary petitions under Chapter 11
of the Bankruptcy Code, in the Bankruptcy Court (the Bankruptcy Filing) and filed with the
Bankruptcy Court a proposed plan of reorganization (the Proposed Plan) that detailed the Debtors
proposed terms for the refinancing. The Chapter 11 cases were jointly administered by the
Bankruptcy Court as Case No. 09-50455 (the Bankruptcy Cases). The Bankruptcy Court entered a
written order (the Confirmation Order) on July 15, 2009 confirming the Proposed Plan (as so
confirmed, the Plan).
On the Effective Date the Plan became effective, and the Debtors emerged from Chapter 11 of
the Bankruptcy Code. Pursuant to and by operation of the Plan, on the Effective Date, all of Old
Spectrums existing equity securities, including the existing common stock and stock options, were
extinguished and deemed cancelled. Reorganized Spectrum Brands, Inc. filed a certificate of
incorporation authorizing new shares of common stock. Pursuant to and in accordance with the Plan,
on the Effective Date, reorganized Spectrum Brands, Inc. issued a total of 27,030,000 shares of
common stock and approximately $218 million in aggregate principal amount of the 12% Notes to
holders of allowed claims with respect to Old Spectrums
81/2% Senior Subordinated
Notes due 2013 (the 81/2 Notes), the
73/8% Notes and Variable
Rate Toggle Senior Subordinated Notes due 2013 (the Variable Rate Notes) (collectively, the
Senior Subordinated Notes). For a further discussion of the 12% Notes see Debt Financing
Activities12% Notes. Also on the Effective Date, reorganized Spectrum Brands, Inc. issued a
total of 2,970,000 shares of common stock to supplemental and sub-supplemental debtor-in-possession
credit facility participants in respect of the equity fee earned under the Debtors
debtor-in-possession credit facility.
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Our Products
We compete in seven major product categories: consumer batteries; pet supplies; electric
shaving and grooming; electric personal care products; home and garden control products; small
appliances and portable lighting. Our broad line of products includes:
| consumer batteries, including alkaline and zinc carbon batteries, rechargeable batteries and chargers and hearing aid batteries and other specialty batteries; | ||
| pet supplies, including aquatic equipment and supplies, dog and cat treats, small animal foods, clean up and training aids, health and grooming products and bedding; | ||
| home and garden control products including household insect controls, insect repellents and herbicides; | ||
| electric shaving and grooming devices; | ||
| small appliances, including small kitchen appliances and home product appliances; | ||
| electric personal care and styling devices; and | ||
| portable lighting. |
Net sales of each product category sold, as a percentage of net sales of our consolidated
operations, is set forth below.
Percentage of Total Company | ||||||||||||
Net Sales for the Fiscal Year Ended | ||||||||||||
September 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Consumer batteries |
34 | % | 37 | % | 38 | % | ||||||
Pet supplies |
22 | 26 | 25 | |||||||||
Home and garden control products |
13 | 14 | 14 | |||||||||
Electric shaving and grooming |
10 | 10 | 10 | |||||||||
Small appliances |
9 | | | |||||||||
Electric personal care products |
8 | 9 | 9 | |||||||||
Portable lighting |
4 | 4 | 4 | |||||||||
100 | % | 100 | % | 100 | % | |||||||
Consumer Batteries
We market and sell a full line of alkaline batteries (AA, AAA, C, D and 9-volt sizes) to both
retail and industrial customers. Our alkaline batteries are marketed and sold primarily under the
Rayovac and VARTA brands. We also manufacture alkaline batteries for third parties who sell the
batteries under their own private labels. Our zinc carbon batteries are also marketed and sold
primarily under the Rayovac and VARTA brands and are designed for low- and medium-drain
battery-powered devices.
We believe that we are currently the largest worldwide marketer and distributor of hearing aid
batteries. We sell our hearing aid batteries through retail trade channels and directly to
professional audiologists under several brand names and private labels, including Beltone, Miracle
Ear and Starkey.
We also sell Nickel Metal Hydride (NiMH) rechargeable batteries and a variety of battery
chargers under the Rayovac and VARTA brands.
Our other specialty battery products include camera batteries, lithium batteries, silver oxide
batteries, keyless entry batteries and coin cells for use in watches, cameras, calculators,
communications equipment and medical instruments.
Pet Supplies
In the pet supplies product category we market and sell a variety of leading branded pet
supplies for fish, dogs, cats, birds and other small domestic animals. We have a broad line of
consumer and commercial aquatics products, including integrated aquarium kits, standalone tanks and
stands, filtration systems, heaters, pumps, and other equipment, fish food and water treatment
products. Our largest aquatics brands are Tetra, Marineland, Whisper, Jungle and Instant Ocean. We
also sell a variety of specialty pet products, including dog and cat treats, small animal food and
treats, clean up and training aid products, health and grooming aids, and bedding products. Our
largest specialty pet brands include 8-in-1, Dingo, Firstrax, Natures Miracle and Wild Harvest.
Home and Garden Control Products
In the home and garden control products category we currently sell and market several leading
home and garden care products, including household insecticides, insect repellent, herbicides,
garden and indoor plant foods and plant care treatments. We offer a
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broad array of household insecticides such as spider, roach and ant killer, flying insect
killer, insect foggers, wasp and hornet killer, flea and tick control products and roach and ant
baits. We also manufacture and market a complete line of insect repellent products that provide
protection from insects, especially mosquitoes. These products include both personal repellents,
such as aerosols, pump sprays and wipes as well as area repellents, such as yard sprays, citronella
candles and torches. Our largest brands in the insect control category include Hot Shot, Cutter and
Repel. Our herbicides, garden and indoor plant foods and plant care treatment brands include
Spectracide, Real-Kill and Garden Safe. We have positioned ourselves as the value alternative for
consumers who want products that are comparable to, but sold at lower prices than, premium-priced
brands.
Electric Shaving and Grooming
We market and sell a broad line of electric shaving and grooming products under the Remington
brand name, including mens rotary and foil shavers, beard and mustache trimmers, body trimmers and
nose and ear trimmers, womens shavers and haircut kits.
Small Appliances
In the small appliances category, we market and sell a broad range of products in three major
product categories: branded small household appliances, pet and pest products, and personal care
products. We market a broad line of small kitchen appliances under the George Foreman, Black
&Decker, Russell Hobbs, Farberware, Juiceman, Breadman and Toastmaster brands, including grills,
bread makers, sandwich makers, kettles, toaster ovens, toasters, blenders, juicers, can openers,
coffee grinders, coffeemakers, electric knives, deep fryers, food choppers, food processors, hand
mixers, rice cookers and steamers. We also market small home product appliances, including
hand-held irons, vacuum cleaners, air purifiers, clothes shavers and heaters, primarily under the
Black & Decker and Russell Hobbs brands. Pet products include cat litter boxes sold under the
LitterMaid brand. The consumable accessories including privacy tents, litter carpets, crystal
litter cartridges, charcoal filters, corn-based litter and replaceable waste receptacles. The pest
control products include pest control and repelling devices that use ultra-sonic sound waves to
control insects and rodents, primarily in homes. Russell Hobbs personal care products in the small
appliances category include hand-held dryers, curling irons, straightening irons, brush irons, air
brushes, hair setters, facial brushes, skin appliances and electric toothbrushes, which are
primarily marketed under the Russell Hobbs, Carmen and Andrew Collinge brands.
Electric Personal Care Products
Our electric personal care products, marketed and sold under the Remington brand name, include
hair dryers, straightening irons, styling irons and hair setters.
Portable Lighting
We offer a broad line of battery-powered, portable lighting products, including flashlights
and lanterns for both retail and industrial markets. We sell our portable lighting products under
the Rayovac and VARTA brand names, under other proprietary brand names and pursuant to licensing
arrangements with third parties.
Sales and Distribution
We sell our products through a variety of trade channels, including retailers, wholesalers and
distributors, hearing aid professionals, industrial distributors and OEMs. Our sales generally are
made through the use of individual purchase orders, consistent with industry practice. Retail sales
of the consumer products we market have been increasingly consolidated into a small number of
regional and national mass merchandisers. This trend towards consolidation is occurring on a
worldwide basis. As a result of this consolidation, a significant percentage of our sales are
attributable to a very limited group of retailer customers, including, Wal-Mart, The Home Depot,
Carrefour, Target, Lowes, PetSmart, Canadian Tire, PetCo and Gigante. Our sales to Wal-Mart
represented approximately 22% of our consolidated net sales for the fiscal year ended September 30,
2010. No other customer accounted for more than 10% of our consolidated net sales in the fiscal
year ended September 30, 2010.
Segment information as to revenues, profit and total assets as well as information concerning
our revenues and long-lived assets by geographic location for the last three fiscal years is set
forth in Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations and Note 11, Segment Results, in Notes to Consolidated Financial Statements included in
our Annual Report on Form 10-K for the fiscal year ended September 30, 2010.
Sales and distribution practices in each of our reportable segments are as set forth below.
Global Batteries & Personal Care
We manage our Global Batteries & Personal Care sales force by geographic region and product
group. Our sales team is divided into three major geographic territories, North America, Latin
America and Europe and the rest of the world (Europe/ROW). Within each major geographic
territory, we have additional subdivisions designed to meet our customers needs.
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We manage our sales force in North America by distribution channel. We maintain separate sales
groups to service (i) our retail
sales and distribution channel, (ii) our hearing aid professionals channel and (iii) our
industrial distributors and OEM sales and distribution channel. In addition, we utilize a network
of independent brokers to service participants in selected distribution channels.
We manage our sales force in Latin America by distribution channel and geographic territory.
We sell primarily to large retailers, wholesalers, distributors, food and drug chains and retail
outlets. In countries where we do not maintain a sales force, we sell to distributors who market
our products through all channels in the market.
The sales force serving our customers in Europe/ROW is supplemented by an international
network of distributors to promote the sale of our products. Our sales operations throughout
Europe/ROW are organized by geographic territory and the following sales channels: (i) food/retail,
which includes mass merchandisers, discounters and drug and food stores; (ii) specialty trade,
which includes clubs, consumer electronics stores, department stores, photography stores and
wholesalers/distributors; and (iii) industrial, government, hearing aid professionals and OEMs.
Global Pet Supplies
Our Global Pet Supplies sales force is aligned by customer, geographic region and product
group. We sell pet supply products to mass merchandisers, grocery and drug chains, pet superstores,
independent pet stores and other retailers.
Home and Garden Business
The sales force of the Home and Garden Business is aligned by customer. We sell primarily to
home improvement centers, mass merchandisers, hardware stores, lawn and garden distributors, and
food and drug retailers in the U.S.
Small Appliances
In the small appliances category, Russell Hobbs products are sold principally by internal
sales staff located in North America, Latin America, Europe, Australia and New Zealand. Russell
Hobbs also uses independent sales representatives, primarily in Central America and the Caribbean.
Russell Hobbs distributes most of its small appliance products to retailers, including mass
merchandisers, department stores, home improvement stores, warehouse clubs, drug chains, catalog
stores and discount and variety stores. In addition to directing its marketing efforts toward
retailers, Russell Hobbs sells certain of its products directly to consumers through infomercials
and its Internet websites.
Manufacturing, Raw Materials and Suppliers
The principal raw materials used in manufacturing our productszinc powder, electrolytic
manganese dioxide powder and steelare sourced either on a global or regional basis. The prices of
these raw materials are susceptible to price fluctuations due to supply and demand trends, energy
costs, transportation costs, government regulations and tariffs, changes in currency exchange
rates, price controls, general economic conditions and other unforeseen circumstances. We have
regularly engaged in forward purchase and hedging derivative transactions in an attempt to
effectively manage the raw material costs we expect to incur over the next 12 to 24 months.
Substantially all of our rechargeable batteries and chargers, portable lighting products, hair
care and other personal care products and our electric shaving and grooming products and small
appliances are manufactured by third party suppliers that are primarily located in the Asia/Pacific
region. We maintain ownership of most of the tooling and molds used by our suppliers.
We continually evaluate our manufacturing facilities capacity and related utilization. As a
result of such analyses, we have closed a number of manufacturing facilities during the past five
years. In general, we believe our existing facilities are adequate for our present and foreseeable
needs.
Research and Development
Our research and development strategy is focused on new product development and performance
enhancements of our existing products. We plan to continue to use our strong brand names,
established customer relationships and significant research and development efforts to introduce
innovative products that offer enhanced value to consumers through new designs and improved
functionality.
In our fiscal years ended September 30, 2010, 2009 and 2008, we invested $31.0 million, $24.4
million and $25.3 million, respectively, in product research and development.
Patents and Trademarks
We own or license from third parties a significant number of patents and patent applications
throughout the world relating to products we sell and manufacturing equipment we use. We hold a
license that expires in March 2022 for certain alkaline battery designs, technology and
manufacturing equipment from Matsushita Electrical Industrial Co., Ltd. (Matsushita), to whom we
pay a royalty.
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We also use and maintain a number of trademarks in our business, including DINGO, JUNGLETALK,
MARINELAND, RAYOVAC, REMINGTON, TETRA, VARTA, 8IN1, CUTTER, HOT SHOT, GARDEN SAFE, NATURES
MIRACLE, REPEL, SPECTRACIDE, SPECTRACIDE TERMINATE, GEORGE FOREMAN, RUSSELL HOBBS and BLACK &
DECKER. We seek trademark protection in the U.S. and in foreign countries by all available means,
including registration.
As a result of the October 2002 sale by VARTA AG of substantially all of its consumer battery
business to us and VARTA AGs subsequent sale of its automotive battery business to Johnson
Controls, Inc. (Johnson Controls), we acquired rights to the VARTA trademark in the consumer
battery category and Johnson Controls acquired rights to the trademark in the automotive battery
category. VARTA AG continues to have rights to use the trademark with travel guides and industrial
batteries and VARTA Microbattery GmbH has the right to use the trade mark with micro batteries. We
are party to a Trademark and Domain Names Protection and Delimitation Agreement that governs
ownership and usage rights and obligations of the parties relative to the VARTA trademark.
As a result of the common origins of the Remington Products, L.L.C. (Remington Products),
business we acquired in September 2003 and the Remington Arms Company, Inc. (Remington Arms), the
REMINGTON trademark is owned by us and by Remington Arms each with respect to its principal
products as well as associated products. Accordingly, we own the rights to use the REMINGTON
trademark for electric shavers, shaver accessories, grooming products and personal care products,
while Remington Arms owns the rights to use the trademark for firearms, sporting goods and products
for industrial use, including industrial hand tools. In addition, the terms of a 1986 agreement
between Remington Products and Remington Arms provides for the shared rights to use the REMINGTON
trademark on products which are not considered principal products of interest for either company.
We retain the REMINGTON trademark for nearly all products which we believe can benefit from the use
of the brand name in our distribution channels.
We license the Black & Decker brand in North America, Latin America (excluding Brazil) and the
Caribbean for four core categories of household appliances: beverage products, food preparation
products, garment care products and cooking products. Russell Hobbs has licensed the Black & Decker
brand since 1998 for use in marketing various household small appliances. In December 2007, Russell
Hobbs and The Black & Decker Corporation (BDC) extended the trademark license agreement for a
third time through December 2012, with an automatic extension through December 2014 if certain
milestones are met regarding sales volume and product return. Under the agreement as extended,
Russell Hobbs agreed to pay BDC royalties based on a percentage of sales, with minimum annual
royalty payments as follows:
| Calendar year 2010: $14.5 million | ||
| Calendar year 2011: $15.0 million | ||
| Calendar year 2012: $15.0 million |
The agreement also requires us to comply with maximum annual return rates for products.
If BDC does not agree to renew the license agreement, we have 18 months to transition out of
the brand name. No minimum royalty payments will be due during such transition period. BDC has
agreed not to compete in the four core product categories for a period of five years after the
termination of the license agreement. Upon request, BDC may elect to extend the license to use the
Black & Decker brand to certain additional product categories. BDC has approved several extensions
of the license to additional categories and geographies.
Competition
In our retail markets, we compete for limited shelf space and consumer acceptance. Factors
influencing product sales include brand name recognition, perceived quality, price, performance,
product packaging, design innovation, and consumer confidence and preferences as well as creative
marketing, promotion and distribution strategies.
The battery product category is highly competitive. Most consumer batteries manufactured
throughout the world are sold by one of four global companies: Spectrum Brands (manufacturer/seller
of Rayovac and VARTA brands); Energizer Holdings, Inc. (Energizer) (manufacturer/seller of the
Energizer brand); The Procter & Gamble Company (Procter & Gamble) (manufacturer/seller of the
Duracell brand); and Matsushita (manufacturer/seller of the Panasonic brand). We also face
competition from the private label brands of major retailers, particularly in Europe. The offering
of private-label batteries by retailers may create pricing pressure in the consumer battery market.
Typically, private-label brands are not supported by advertising or promotion, and retailers sell
these private label offerings at prices below competing name-brands. The main barriers to entry for
new competitors are investment in technology research, cost of building manufacturing capacity and
the expense of building retail distribution channels and consumer brands.
In the U.S. alkaline battery category, the Rayovac brand is positioned as a value brand, which
is typically defined as a product that offers comparable performance at a lower price. In Europe,
the VARTA brand is competitively priced with other premium brands. In Latin America, where zinc
carbon batteries outsell alkaline batteries, the Rayovac brand is competitively priced.
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The pet supply product category is highly fragmented with over 500 manufacturers in the U.S.
alone, consisting primarily of small companies with limited product lines. Our largest competitors
in this product category are Mars Corporation (Mars), The Hartz Mountain Corporation (Hartz)
and Central Garden & Pet Company (Central Garden & Pet). Both Hartz and Central Garden & Pet sell
a comprehensive line of pet supplies and compete with a majority of the products we offer. Mars
sells primarily aquatics products.
Products we sell in the lawn and garden product category through the Home and Garden Business
face competition from The Scotts Miracle-Gro Company (Scotts Company), which markets lawn and
garden products under the Scotts, Ortho, Roundup and Miracle-Gro brand names; Central Garden & Pet,
which markets garden products under the AMDRO and Sevin brand names; and Bayer A.G., which markets
lawn and garden products under the Bayer Advanced brand name.
Products we sell in the household insect control product category through the Home and Garden
Business, face competition from S.C. Johnson & Son, Inc. (S.C. Johnson), which markets
insecticide and repellent products under the Raid and OFF! brands; Scotts Company, which markets
household insect control products under the Ortho brand; and Henkel KGaA, which markets insect
control products under the Combat brand.
Our primary competitors in the electric shaving and grooming product category are Norelco, a
division of Koninklijke Philips Electronics NV (Philips), which sells and markets rotary shavers,
and Braun, a division of Procter & Gamble, which sells and markets foil shavers. Through our
Remington brand, we sell both foil and rotary shavers.
Primary competitive brands in the small appliance category include Hamilton Beach, Proctor
Silex, Sunbeam, Mr. Coffee, Oster, General Electric, Rowenta, DeLonghi, Kitchen Aid, Cuisinart,
Krups, Braun, Rival, Europro, Kenwood, Philips, Morphy Richards, Breville and Tefal. The key
competitors of Russell Hobbs in this market in the U.S. and Canada include Jarden Corporation,
DeLonghi America, Euro-Pro Operating LLC, Metro Thebe, Inc., d/b/a HWI Breville, NACCO Industries,
Inc. (Hamilton Beach) and SEB S.A. In addition, Russell Hobbs competes with retailers who use their
own private label brands for household appliances (for example, Wal-Mart).
Our major competitors in the electric personal care product category are Conair Corporation,
Wahl Clipper Corporation and Helen of Troy Limited (Helen of Troy).
Our primary competitors in the portable lighting product category are Energizer and Mag
Instrument, Inc.
Some of our major competitors have greater resources and greater overall market share than we
do. They have committed significant resources to protect their market shares or to capture market
share from us and may continue to do so in the future. In some key product lines, our competitors
may have lower production costs and higher profit margins than we do, which may enable them to
compete more aggressively in advertising and in offering retail discounts and other promotional
incentives to retailers, distributors, wholesalers and, ultimately, consumers.
Seasonality
On a consolidated basis our financial results are approximately equally weighted between
quarters, however, sales of certain product categories tend to be seasonal. Sales in the consumer
battery, electric shaving and grooming and electric personal care product categories, particularly
in North America, tend to be concentrated in the December holiday season (Spectrums first fiscal
quarter). Demand for pet supplies products remains fairly constant throughout the year. Demand for
home and garden control products sold though the Home and Garden Business typically peaks during
the first six months of the calendar year (Spectrums second and third fiscal quarters). Small
Appliances peaks from July through December primarily due to the increased demand by customers in
the late summer for back-to-school sales and in the fall for the holiday season. For a more
detailed discussion of the seasonality of our product sales, see Item 7. Managements Discussion
and Analysis of Financial Condition and Results of OperationsSeasonal Product Sales of our
Annual Report on Form 10-K for the fiscal year ended September 30, 2010.
Governmental Regulations and Environmental Matters
Due to the nature of our operations, our facilities are subject to a broad range of federal,
state, local and foreign legal and regulatory provisions relating to the environment, including
those regulating the discharge of materials into the environment, the handling and disposal of
solid and hazardous substances and wastes and the remediation of contamination associated with the
releases of hazardous substances at our facilities. We believe that compliance with the federal,
state, local and foreign laws and regulations to which we are subject will not have a material
effect upon our capital expenditures, financial condition, earnings or competitive position.
From time to time, we have been required to address the effect of historic activities on the
environmental condition of our properties. We have not conducted invasive testing at all facilities
to identify all potential environmental liability risks. Given the age of our facilities and the
nature of our operations, it is possible that material liabilities may arise in the future in
connection with our current or former facilities. If previously unknown contamination of property
underlying or in the vicinity of our manufacturing
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facilities is discovered, we could incur material unforeseen expenses, which could have a
material adverse effect on our financial condition, capital expenditures, earnings and competitive
position. Although we are currently engaged in investigative or remedial projects at some of our
facilities, we do not expect that such projects, taking into account established accruals, will
cause us to incur expenditures that are material to our business, financial condition or results of
operations; however, it is possible that our future liability could be material.
We have been, and in the future may be, subject to proceedings related to our disposal of
industrial and hazardous material at off-site disposal locations or similar disposals made by other
parties for which we are held responsible as a result of our relationships with such other parties.
In the U.S., these proceedings are under the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) or similar state laws that hold persons who
arranged for the disposal or treatment of such substances strictly liable for costs incurred in
responding to the release or threatened release of hazardous substances from such sites, regardless
of fault or the lawfulness of the original disposal. Liability under CERCLA is typically joint and
several, meaning that a liable party may be responsible for all costs incurred in investigating and
remediating contamination at a site. As a practical matter, liability at CERCLA sites is shared by
all of the viable responsible parties. We occasionally are identified by federal or state
governmental agencies as being a potentially responsible party for response actions contemplated at
an off-site facility. At the existing sites where we have been notified of our status as a
potentially responsible party, it is either premature to determine whether our potential liability,
if any, will be material or we do not believe that our liability, if any, will be material. We may
be named as a potentially responsible party under CERCLA or similar state laws for other sites not
currently known to us, and the costs and liabilities associated with these sites may be material.
It is difficult to quantify with certainty the potential financial impact of actions regarding
expenditures for environmental matters, particularly remediation, and future capital expenditures
for environmental control equipment. Nevertheless, based upon the information currently available,
we believe that our ultimate liability arising from such environmental matters, taking into account
established accruals of $9.6 million for estimated liabilities at September 30, 2010 should not be
material to our business or financial condition.
Electronic and electrical products that we sell in Europe, particularly products sold under
the Remington brand name, VARTA battery chargers, certain portable lighting and all of our
batteries, are subject to regulation in European Union (EU) markets under three key EU
directives. The first directive is the Restriction of the Use of Hazardous Substances in Electrical
and Electronic Equipment (RoHS) which took effect in EU member states beginning July 1, 2006.
RoHS prohibits companies from selling products which contain certain specified hazardous materials
in EU member states. We believe that compliance with RoHS will not have a material effect on our
capital expenditures, financial condition, earnings or competitive position. The second directive
is entitled the Waste of Electrical and Electronic Equipment (WEEE). WEEE makes producers or
importers of particular classes of electrical goods financially responsible for specified
collection, recycling, treatment and disposal of past and future covered products. WEEE assigns
levels of responsibility to companies doing business in EU markets based on their relative market
share. WEEE calls on each EU member state to enact enabling legislation to implement the directive.
To comply with WEEE requirements, we have partnered with other companies to create a comprehensive
collection, treatment, disposal and recycling program. As EU member states pass enabling
legislation we currently expect our compliance system to be sufficient to meet such requirements.
Our current estimated costs associated with compliance with WEEE are not significant based on our
current market share. However, we continue to evaluate the impact of the WEEE legislation as EU
member states implement guidance and as our market share changes, and, as a result, actual costs to
our company could differ from our current estimates and may be material to our business, financial
condition or results of operations. The third directive is the Directive on Batteries and
Accumulators and Waste Batteries, which was adopted in September 2006 and went into effect in
September 2008 (the Battery Directive). The Battery Directive bans heavy metals in batteries by
establishing maximum quantities of those heavy metals in batteries and mandates waste management of
batteries, including collection, recycling and disposal systems. The Battery Directive places the
costs of such waste management systems on producers and importers of batteries. The Battery
Directive calls on each EU member state to enact enabling legislation to implement the directive.
We currently believe that compliance with the Battery Directive will not have a material effect on
our capital expenditures, financial condition, earnings or competitive position. However, until
such time as the EU member states adopt enabling legislation, a full evaluation of these costs
cannot be completed. We will continue to evaluate the impact of the Battery Directive and its
enabling legislation as EU member states implement guidance.
Certain of our products and facilities in each of our business segments are regulated by the
United States Environmental Protection Agency (the EPA) and the United States Food and Drug
Administration (the FDA) or other federal consumer protection and product safety agencies and are
subject to the regulations such agencies enforce, as well as by similar state, foreign and
multinational agencies and regulations. For example, in the U.S., all products containing
pesticides must be registered with the EPA and, in many cases, similar state and foreign agencies
before they can be manufactured or sold. Our inability to obtain or the cancellation of any
registration could have an adverse effect on our business, financial condition and results of
operations. The severity of the effect would depend on which products were involved, whether
another product could be substituted and whether our competitors were similarly affected. We
attempt to anticipate regulatory developments and maintain registrations of, and access to,
substitute chemicals and other ingredients. We may not always be able to avoid or minimize these
risks.
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The Food Quality Protection Act (FQPA) established a standard for food-use pesticides, which
is that a reasonable certainty of
no harm will result from the cumulative effect of pesticide exposures. Under the FQPA, the EPA
is evaluating the cumulative effects from dietary and non-dietary exposures to pesticides. The
pesticides in certain of our products continue to be evaluated by the EPA as part of this program.
It is possible that the EPA or a third party active ingredient registrant may decide that a
pesticide we use in our products will be limited or made unavailable to us. We cannot predict the
outcome or the severity of the effect of the EPAs continuing evaluations of active ingredients
used in our products.
Certain of our products and packaging materials are subject to regulations administered by the
FDA. Among other things, the FDA enforces statutory prohibitions against misbranded and adulterated
products, establishes ingredients and manufacturing procedures for certain products, establishes
standards of identity for certain products, determines the safety of products and establishes
labeling standards and requirements. In addition, various states regulate these products by
enforcing federal and state standards of identity for selected products, grading products,
inspecting production facilities and imposing their own labeling requirements.
Employees
We had approximately 6,100 full-time employees worldwide as of September 30, 2010.
Approximately 20% of our total labor force is covered by collective bargaining agreements. There is
one collective bargaining agreement that will expire during our fiscal year ending September 30,
2011, which covers approximately 12% of the labor force under collective bargaining agreements, or
approximately 2% of our total labor force. We believe that our overall relationship with our
employees is good.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of
1934, as amended (the Exchange Act), are made available free of charge on or through our website
at www.spectrumbrands.com as soon as reasonably practicable after such reports are filed with, or
furnished to, the United States Securities and Exchange Commission (the SEC). You may read and
copy any materials we file with the SEC at the SECs Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains our
reports, proxy statements and other information at www.sec.gov . In addition, copies of our (i)
Corporate Governance Guidelines, (ii) charters for the Audit Committee, Compensation Committee and
Nominating and Corporate Governance Committee, (iii) Code of Business Conduct and Ethics and (iv)
Code of Ethics for the Principal Executive Officer and Senior Financial Officers are available at
our Internet site at www.spectrumbrands.com under Investor RelationsCorporate Governance.
Copies will also be provided to any stockholder upon written request to the Vice President,
Investor Relations & Corporate Communications, Spectrum Brands Holdings, Inc. at 601 Rayovac Drive,
Madison, Wisconsin 53711 or via electronic mail at investorrelations@spectrumbrands.com , or by
contacting the Vice President, Investor Relations & Corporate Communications by telephone at (608)
275-3340.
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