Rayovac 2004 Annual Report Download - page 30

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management’s discussion of the financial results, liquidity, and other key items related to
our performance. This section should be read in conjunction with the “Selected Financial Data” and our
Consolidated Financial Statements and related notes in the Financial Statements section of this Annual Report on
Form 10-K. Certain prior year amounts have been reclassified to conform to current year presentation. All
references to 2004, 2003 and 2002 refer to fiscal year periods ended September 30, 2004, 2003 and 2002,
respectively.
INTRODUCTION
We are a global branded consumer products company with leading market positions in our two major
product categories: consumer batteries and electric personal care products. We are a leading worldwide
manufacturer and marketer of alkaline batteries, zinc carbon batteries, and hearing aid batteries, a leading
worldwide designer and marketer of rechargeable batteries and a leading marketer of battery-powered lighting
products. We are also a leading designer and marketer of electric shavers and accessories, electric grooming
products and hair care appliances.
We sell our products in over 120 countries through a variety of trade channels, including retailers,
wholesalers and distributors, hearing aid professionals, industrial distributors and OEMs. We 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. We have 12 manufacturing and product development facilities located in the
U.S., Europe, China and Latin America. A significant portion of our products are manufactured by third-party
suppliers.
On May 28, 2004, we completed the acquisition of 90.1% of the outstanding capital stock, including all
voting stock, of Microlite, a Brazilian battery company, from VARTA of Germany and Tabriza of Brazil. The
total cash paid was approximately $30 million, including approximately $21 million in purchase price,
approximately $7 million of contingent consideration and approximately $2 million of acquisition related
expenditures, plus approximately $8 million of assumed debt. The contingent consideration will be earned by
Tabriza upon Microlite’s attainment of certain earnings targets through June 30, 2005. Upon the calculation of
the total contingent consideration due to Tabriza, if any, Tabriza will transfer Microlite’s remaining outstanding
capital stock to us. Microlite operates two battery-manufacturing facilities in Recife, Brazil and has several sales
and distribution centers located throughout Brazil. The acquisition of Microlite consolidates our rights to the
Rayovac brand in Latin America. In addition, Microlite’s manufacturing facilities will support our business
throughout the South American region, resulting in more efficient product sourcing with lower unit costs.
Subsequent to the acquisition, the financial results of Microlite are reported as part of our consolidated results in
our Latin America segment. Microlite contributed $12.8 million to our 2004 net sales, and recorded an operating
loss of approximately $1.4 million. Microlite’s operating results reflect a period of transition and do not fully
take into consideration the capital structure changes and other business changes that have occurred since the
acquisition.
On March 31, 2004, we completed the acquisition of an 85 percent equity interest in Ningbo of Ninghai,
China for approximately $17 million in cash, including approximately $1 million of acquisition related
expenditures, plus approximately $14 million of assumed debt. Ningbo, founded in 1995, produces alkaline and
zinc carbon batteries for retail, OEM and private label customers within China. Ningbo also exports its batteries
to customers in North and South America, Europe and Asia. Subsequent to the acquisition, the financial results of
Ningbo are reported as part of our consolidated results in our Europe/ROW segment. Ningbo contributed $8.4
million in net sales to our 2004 results, and recorded an operating loss of approximately $0.4 million.
During fiscal 2003, we completed two major acquisitions: (i) the acquisition of substantially all of the
consumer battery business VARTA on October 1, 2002; and (ii) the acquisition of Remington, on September 30,
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