Spectrum Brands Reports Second Quarter 2008 Financial Results

Business Wire,  May 6, 2008  

Tags: Company, Spectrum Brands Inc.

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Segment profitability for Global Batteries & Personal Care was $24.7 million for the quarter, up 11.8 percent over last year's $22.1 million. The profit improvement was primarily due to the cost savings generated from 2007's global realignment initiatives as well as a 40 basis point improvement in gross margin related to cost savings generated from more efficient operation of the Company's manufacturing facilities.

Global Pet Supplies net sales were $148.4 million, a 4.1 percent increase compared with the prior year. Companion animal product net sales grew 10.3 percent, while global aquatics net sales increased 1.5 percent from the prior year. North American aquatic sales declined 8 percent, continuing the trend experienced over the past year. Sales in Europe and the Pacific Rim were up 19.5 percent and 18.7 percent, respectively, as a result of new product rollouts, new marketing programs and favorable currency.

Segment profitability for Global Pet Supplies for the quarter was $15.3 million compared to $16.4 million last year, down 6.7 percent due to increased input costs and foreign exchange effects. The Company has implemented price increases, which should benefit results in the second half of fiscal 2008.

Spectrum's Home & Garden segment's net sales from continuing operations were $191.1 million, a 1.9 percent decline for the quarter. The Company experienced stringent inventory controls by certain retailers and a potential projected shift of some revenues to the third quarter due to a late breaking lawn and garden season. Weather conditions improved in April, leading to a double digit point of sale improvement over last year, improving the outlook for Home & Garden for the balance of fiscal 2008.

Due to the cumulative depreciation and amortization catch-up of $17.1 million plus normal depreciation and amortization of $3.4 million recorded this quarter which were not included in last year's results, the Home & Garden segment generated a loss of $500 thousand as compared with profits of $14.8 million last year.

Corporate expenses were $9.2 million for the quarter as compared with $17.9 million last year. 2007 corporate expenses included a non-recurring $4 million charge related to the write-off in the second quarter of 2007 of professional fees incurred in connection with the attempt to sell the Home & Garden business. The remainder of the variance is due to lower executive compensation expense and other corporate overhead expense reductions.

Interest expense was $58.3 million compared to $85.2 million in the same period last year. 2007 interest expense included a prepayment premium of $11.6 million associated with the refinancing of the Company's senior credit facility and the write-off of debt issuance costs of $24.6 million, accounting for the variance from this quarter's interest expense.

Tax expense recorded during the quarter was $66.3 million versus a tax benefit of $45.9 million in the same period last year. Included in this is a $51.9 million expense related to increasing the Company's valuation allowance against the net deferred tax asset of its Home & Garden segment necessitated as a result of the reclassification of the segment from discontinued operations to continuing operations. In addition, similar to the first quarter of 2008, the Company recorded an expense in the quarter to increase its valuation allowance against its U.S. federal net deferred tax asset of its remaining business segments to reserve for the possibility that the deferred tax assets will not be realized. As a result, fiscal 2008 operating losses in the U.S. no longer create U.S. tax benefits. This accounting treatment is not expected to have any impact on the Company's ability to utilize net operating losses if and when the Company recognizes future taxable income within the U.S. The result of not recording a tax benefit in the U.S. combined with recording a tax provision on taxable income generated by foreign subsidiaries results in an effective tax rate significantly higher than that experienced in prior years. This increased tax rate has no cash impact on the Company.