Rayovac 2002 Annual Report Download - page 31

In spite of the sales decline, the segment remained profitable, with profit of $5.3 million in fiscal 2002. However, this was a decrease of $11.6 million,
or 68.6%, from the previous year. This decrease was primarily attributable to the impact of the sales decline, partially offset by lower advertising expenses
and a reduction in other operating expenses in the region. As of October 1, 2001, the Company adopted Financial Accounting Standards Board
Statement No. 142 which resulted in a reduction of amortization expense of $3.0 million for the year. Segment profit margins decreased primarily due
to an unfavorable customer mix compounded by relatively fixed operating expenses spread over lower sales.
Europe/ROW
2001 2002
Revenue from external customers $48.7 $52.5
Segment profit 4.1 5.1
Segment profit as a % of net sales 8.4% 9.7%
Our revenue from external customers increased $3.8 million, or 7.8%, to $52.5 million in fiscal 2002 from $48.7 million the previous year, primarily
reflecting increased sales of alkaline and hearing aid batteries, and favorable impacts of foreign currency movements.
Our profitability increased $1.0 million, or 24.4%, due primarily to sales gains and a reduction in operating expenses due to cost containment programs
and the adoption of Statement No. 142, which resulted in lower amortization expense.
Corporate Expenses. Our corporate expenses increased $6.6 million, or 26.3%, to $31.7 million in fiscal 2002 from $25.1 million the previous year.
The increase was primarily due to higher legal expenses, technology spending, and management incentives.
Special Charges. In 2002, we recorded net special charges of $1.2 million related to: (i) the closure of our manufacturing facility in Santo Domingo,
Dominican Republic, (ii) certain rationalization efforts in our Mexico City, Mexico manufacturing facility, and (iii) the reversal of $1.3 million of
expenses related to the December 2000 restructuring announcement which were not realized. Special charges of $22.3 million were recorded in 2001.
Income from Operations. Our income from operations increased $8.6 million, or 15.8%, to $63.0 million in fiscal 2002 from $54.4 million the previ-
ous year. This increase was primarily due to reduction in special charges of $21.1 million offset by a $12.0 million bad debt reserve, net of recoveries,
resulting from the bankruptcy filing of a key customer.
Interest Expense. Interest expense decreased $11.2 million, or 41.2%, to $16.0 million in fiscal 2002 from $27.2 million in the previous year primarily
due to the retirement of $65.0 million in Senior Subordinated Notes in June 2001 using proceeds from our primary offering and the repayment of
$56.1 million in debt from our strong cash flow from operations.
Income Tax Expense. Our effective tax rate for fiscal 2002 was 36.0% compared to 35.4% for fiscal 2001. The higher rate for fiscal 2002 primarily
reflects a change in geographic profitability away from lower tax jurisdictions, primarily within Latin America, and proportionately higher income in the
United States.
Extraordinary Item. In fiscal 2001, we recorded extraordinary expense of $5.4 million, net of tax, resulting from the premium on the repurchase of
$65.0 million of Senior Subordinated Notes and the related write-off of unamortized debt issuance costs.
16
17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Rayovac Corporation and Subsidiaries