Rayovac 2004 Annual Report Download - page 41

Download and view the complete annual report

Please find page 41 of the 2004 Rayovac annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 115

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115

resulting in charges of approximately $1.4 million, including termination costs of approximately $0.3 million,
fixed asset impairments of approximately $0.3 million, and relocation expenses and other shutdown related
expenses of approximately $0.8 million, and (ii) a series of restructuring initiatives impacting our sales,
marketing, and administrative functions in Europe, North America, and Latin America resulting in charges of
approximately $10.1 million, including termination costs of approximately $7.1 million, distributor termination
costs of approximately $0.9 million, research and development contract termination costs of approximately $0.5
million, fixed asset impairments of $0.3 million, and legal and other expenses of approximately $1.3 million. The
carrying value of assets held for sale under restructuring plans is approximately $8.3 million, and is included in
Prepaid expense and other in our Consolidated Balance Sheets.
In fiscal 2002, we recorded net restructuring and related charges in cost of goods sold of $1.2 million related
to: (i) the closure of our manufacturing facility in Santo Domingo, Dominican Republic and transfer of
production to our Guatemala City, Guatemala manufacturing facility and the outsourcing of a portion of our zinc
carbon battery production previously manufactured at our Mexico City, Mexico manufacturing facility, as more
fully described above under the heading “Cost Reduction Initiatives—Fiscal 2002” and (ii) the reversal of $1.3
million of expenses related to the December 2000 restructuring announcement which were not realized, primarily
reflecting a change in estimated termination benefits of $1.0 million, due to lower estimates of outplacement
costs and costs attributable to fringe benefits, and the retention of selected employees.
The closure of the Dominican Republic manufacturing facility and outsourcing of Mexico zinc carbon
production, in fiscal 2002, resulted in $1.2 million of employee termination benefits for approximately 115
manufacturing employees, $0.9 million of charges from the abandonment of equipment and inventory, net of a
change in estimate of $0.4 million, associated with the closing of the manufacturing facility and $0.3 million of
other expenses. The change in estimate reflected our ability to utilize more inventory and manufacturing
equipment at our Guatemala City, Guatemala manufacturing location than originally anticipated.
Interest Expense. Interest expense increased to $37 million in fiscal 2003 versus $16 million in fiscal 2002. The
increase in interest expense was due to higher debt levels to finance the VARTA acquisition.
Non-Operating expense. In fiscal 2003, we recorded non-operating expense of $3 million relating to the write-off
of unamortized debt fees associated with our previous credit facility, replaced in conjunction with the VARTA
acquisition. There was no non-operating expense in fiscal 2002.
Other (Income) Expense. Other (income) expense, net, improved $5 million to income of $4 million in fiscal
2003, primarily attributable to foreign exchange transaction gains.
Income Tax Expense. Our effective tax rate was 32.8% for fiscal 2003, a decrease from 36.0% during the
previous year. The decrease in the effective tax rate from the prior year primarily reflects the net impact of
certain tax credits realized during fiscal 2003, favorable adjustments to prior year deferred taxes, and adjustments
to prior year tax reserves reflecting the expiration of certain statute of limitations, partially offset by non-
deductible interest expense associated with our acquisition of VARTA.
Liquidity and Capital Resources
For fiscal 2004, operating activities provided approximately $105 million in net cash, an increase of $29
million over the previous year. This increase was largely due to an increase in net income of $40 million. We
also experienced an increase in other non-cash adjustments including an increase in deferred income taxes of
approximately $16 million and the tax benefit of option exercises totaling approximately $9 million. These
increases were partially offset by lower non-cash charges and the negative impact of changes in working capital
of approximately $28 million in fiscal 2004 compared to fiscal 2003.
Net cash used by investing activities decreased to $69 million for fiscal 2004 from $446 million in fiscal
2003. The change is primarily due to payments totaling approximately $420 million made in 2003 associated
26