Rayovac 2010 Annual Report Download - page 61

Operating Expense. Operating expenses for Fiscal 2010 totaled $753 million versus $659 million for Fiscal
2009. The $94 million increase in operating expenses for Fiscal 2010 versus Fiscal 2009 was partially driven by
$38 million of Acquisition and integration related charges as a result of our combination with Russell Hobbs
pursuant to the Merger. During Fiscal 2010 we also incurred $36 million of selling expense and $16 million of
general and administrative expense incurred by Russell Hobbs, which is included in the Small Appliances
segment, subsequent to the acquisition on June 16, 2010. Also included in Operating expenses for Fiscal 2010
was additional depreciation and amortization as a result of the revaluation of our long lived assets in connection
with our adoption of fresh-start reporting upon emergence from Chapter 11 of the Bankruptcy Code and
unfavorable foreign exchange translation of $7 million. This increase was partially offset by the non-recurrence
of the non-cash impairment charge to certain long lived intangible assets of $34 million in Fiscal 2009 and lower
Restructuring and related charges of approximately $15 million as $17 million of such charges were incurred in
Fiscal 2010 compared to $32 million in Fiscal 2009. See “Restructuring and Related Charges” below, as well as
Note 14, Restructuring and Related Charges, to our Consolidated Financial Statements included in this Annual
Report on Form 10-K for additional information regarding our restructuring and related charges.
Adjusted EBITDA. Management believes that certain non-GAAP financial measures may be useful in
certain instances to provide additional meaningful comparisons between current results and results in prior
operating periods. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”)
is a metric used by management and frequently used by the financial community. Adjusted EBITDA provides
insight into an organization’s operating trends and facilitates comparisons between peer companies, since
interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing
capital structures and tax strategies. Adjusted EBITDA can also be a useful measure of a company’s ability to
service debt and is one of the measures used for determining the Company’s debt covenant compliance. Adjusted
EBITDA excludes certain items that are unusual in nature or not comparable from period to period. While the
Company’s management believes that non-GAAP measurements are useful supplemental information, such
adjusted results are not intended to replace the Company’s GAAP financial results.
Adjusted EBITDA, which includes the results of Russell Hobbs’ businesses as if it was combined with
Spectrum for all periods presented (see reconciliation of GAAP Net Income (Loss) from Continuing Operations
to Adjusted EBITDA by segment below) was $432 million for Fiscal 2010 compared with $391 million for
Fiscal 2009.
Operating Income. Operating income of approximately $169 million was recognized in Fiscal 2010
compared to Fiscal 2009 operating income of $157 million. The increase in operating income is attributable to
Small Appliances income of $13 million, increased sales in our remaining segments and the non-reoccurrence of
the previously discussed non-cash impairment charge of $34 million in Fiscal 2009. This was partially offset by
$39 million Acquisition and integration related charges incurred in Fiscal 2010 related to the Merger.
Segment Results. As discussed above in Item 1, Business, we manage our business in four reportable
segments: (i) Global Batteries & Personal Care, (ii) Global Pet Supplies; (iii) Home and Garden Business; and
(iv) Small Appliances.
Operating segment profits do not include restructuring and related charges, acquisition and integration
related charges, interest expense, interest income, impairment charges, reorganization items and income tax
expense. Expenses associated with global operations, consisting of research and development, manufacturing
management, global purchasing, quality operations and inbound supply chain are included in the determination
of operating segment profits. In addition, certain general and administrative expenses necessary to reflect the
operating segments on a standalone basis have been included in the determination of operating segment profits.
Corporate expenses include primarily general and administrative expenses associated with corporate overhead
and global long-term incentive compensation plans.
All depreciation and amortization included in income from operations is related to operating segments or
corporate expense. Costs are allocated to operating segments or corporate expense according to the function of
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