Rayovac 2013 Annual Report Download - page 64

Sales of home and garden control products during Fiscal 2012 versus Fiscal 2011 increased $33 million, or
9%, driven by increased household insect controls sales of $30 million resulting from the Black Flag acquisition
and strong retail distribution gains with existing customers. Lawn and garden controls sales increased $3 million
in Fiscal 2012 compared to Fiscal 2011 due to increased distribution with existing customers.
Electric shaving and grooming product sales during Fiscal 2012 increased $5 million, or 2%, compared to
Fiscal 2011 led by a $14 million increase in European sales and a $4 million increase in Latin American sales.
These gains were tempered by a $6 million decline in North American sales and negative foreign exchange
impacts of $7 million. European sales gains were driven by successful promotions for new product launches,
while the increase in Latin American sales was due to distribution and customer gains. North American declines
resulted from the elimination of lower margin promotions as well as distribution declines.
Electric personal care product sales in Fiscal 2012 increased $2 million compared to Fiscal 2011 driven by
gains in North America and Latin America of $11 million and $7 million, respectively, which were tempered by
a $8 million decline in European sales and negative foreign exchange impacts of $8 million. The gains in North
America and Latin America were attributable to the continued success in new product categories and distribution
gains in Latin America, whereas the decrease in European sales was a result of declining women’s hair
straightener sales due to a shift in fashion trends combined with decreased promotions in the fourth quarter of
Fiscal 2012.
Gross Profit. Gross profit for Fiscal 2012 was $1,116 million versus $1,129 million during Fiscal 2011,
representing a $13 million decrease. Our gross profit margin for Fiscal 2012 decreased to 34.3% from 35.4% in
Fiscal 2011. The decrease in gross profit and gross profit margin was driven by $36 million of negative foreign
exchange impacts, a $17 million increase in commodity prices and higher costs for sourced goods, primarily
from Asia, a $12 million increase in costs due to changes in product mix and a $2 million increase in
Restructuring and related charges. These factors contributing to the decline in gross profit were tempered by
increased organic sales which contributed $31 million of gross profit and Fiscal 2012 acquisitions which
contributed $23 million of gross profit.
Operating Expense. Operating expenses for Fiscal 2012 totaled $814 million versus $901 million during
Fiscal 2011. The $87 million decrease in operating expenses for Fiscal 2012 versus Fiscal 2011 was driven by
synergies recognized subsequent to the Merger of $25 million, decreased asset impairment charges of
$32 million, decreased Acquisition and integration charges of $6 million, positive foreign exchange impacts of
$20 million and savings from our cost reduction initiatives. 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.
Operating Income. Operating income was approximately $302 million in Fiscal 2012 compared to
$228 million recognized in Fiscal 2011, representing an increase of $74 million. The increase is primarily
attributable to the decreased operating expenses discussed above, which were slightly offset by the decline in
gross profit as detailed above.
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 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 our debt
covenant compliance. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable
from period to period. While management believes that non-GAAP measurements are useful supplemental
information, such adjusted results are not intended to replace our GAAP financial results.
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