Rayovac 2013 Annual Report Download - page 56

Fiscal 2012. The slight decline in gross profit margin was driven by a $31 million increase to cost of goods sold
due to the sale of inventory which was revalued in connection with the acquisition of the HHI Business, which
offset improvements to gross profit resulting from the exit of low margin products in our small appliances
category.
Operating Expenses. Operating expenses for Fiscal 2013 totaled $1,039 million compared to $814 million
for Fiscal 2012. The $225 million increase in operating expenses during Fiscal 2013 is primarily attributable to
the acquisition of the HHI Business which accounted for $190 million in operating expenses and led to a
$17 million increase in Acquisition and integration related charges. Furthermore, we incurred a $14 million
increase in Restructuring and related charges primarily related to the Global Expense Rationalization initiatives
announced in Fiscal 2013 and a $15 million increase in stock compensation expense. These increases were
tempered by $7 million in savings across all segments from our cost reduction initiatives and positive foreign
exchange impacts of $4 million.
See Note 2, “Significant Accounting Policies—Acquisition and Integration Related Charges”, of Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information
regarding our Acquisition and integration charges.
See Note 14, “Restructuring and Related Charges”, of Notes to Consolidated Financial Statements included
in this Annual Report on Form 10-K for additional information regarding our Restructuring and related charges.
Segment Results. As discussed above, we manage our business in four reportable segments: (i) Global
Batteries & Appliances; (ii) Global Pet Supplies; (iii) our Home and Garden Business; and (iv) Hardware &
Home Improvement.
The operating segment profits do not include restructuring and related charges, acquisition and integration
related charges, interest expense, interest income and income tax expense. Corporate expenses primarily include
general and administrative expenses and global long-term incentive compensation plans which are evaluated on a
consolidated basis and not allocated to our operating segments. 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 each cost center.
All capital expenditures are related to operating segments. Variable allocations of assets are not made for
segment reporting.
Financial information pertaining to our reportable segments is contained in Note 11, “Segment
Information”, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) is a metric
used by management and frequently used by the financial community which 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 our debt covenant compliance. Adjusted EBITDA excludes certain
items that are unusual in nature or not comparable from period to period. While we believe that Adjusted
EBITDA is useful supplemental information, such adjusted results are not intended to replace our Generally
Accepted Accounting Principles’ (“GAAP”) financial results and should be read in conjunction with those
GAAP results.
46