Rayovac 2003 Annual Report Download - page 20

Also in fiscal 2001, we closed our zinc carbon battery plants in Tegucigalpa, Honduras and rationalized our manufacturing and
distribution processes in our Mexico City, Mexico manufacturing facilities and in our European operations by discontinuing or
outsourcing uneconomic product lines or production processes, including the outsourcing of zinc carbon rod manufacturing, and
by changing uneconomical modes of distribution.
Finally, in fiscal 2001, we engaged in an organizational restructuring in North America and Latin America. As part of this initiative,
sales and marketing functions were eliminated and/or consolidated. These cost reduction initiatives reduced our global workforce
by approximately 570 employees.
Fiscal 2002. In fiscal 2002, we closed our Santo Domingo, Dominican Republic manufacturing facility and transferred production
of zinc carbon batteries to our Guatemala City, Guatemala manufacturing facility. We also outsourced a portion of our zinc carbon
battery production previously manufactured at our Mexico City, Mexico facility.
The impact of the fiscal 2001 and fiscal 2002 cost reduction initiatives on our operations is described below under the heading “Fiscal
Year Ended September 30, 2002 Compared to Fiscal Year Ended September 30, 2001—Restructuring and Related Charges.”
Fiscal 2003. In October 2002, in conjunction with the acquisition of the VARTA consumer battery business described above, we
announced a series of initiatives designed to position our consumer battery business for future growth opportunities and to opti-
mize the combined global resources of Rayovac and VARTA. These initiatives, which are expected to provide significant benefits to
the combined organization, include the renegotiation of certain sourcing arrangements, the elimination of duplicate costs in our
consumer battery business and the consolidation of sales and marketing functions.
In October 2002, we closed our Mexico City, Mexico manufacturing facility. With the closure of the Mexico City, Mexico plant,
the plants in Guatemala City, Guatemala, Breitenbach, France, and Manizales, Colombia became our remaining zinc carbon manu-
facturing plants. The consolidation of our zinc carbon capacity within Latin America is consistent with the global market trend
away from zinc carbon toward alkaline batteries, and is intended to allow us to more closely match our manufacturing capacity
to anticipated market demands.
We also announced the closure of operations at our Madison, Wisconsin packaging center and Middleton, Wisconsin distribution
center in October 2002. These facilities were closed during fiscal 2003 and their operations were combined into a new leased complex
in Dixon, Illinois. Transition to the new facility was completed in June 2003. We anticipate that the relocation to the new leased
packaging and distribution center will result in operational changes that are intended to reduce freight and inventory handling costs.
We expect that all geographies will benefit from decreased costs and expenses resulting from the VARTA initiatives. These initiatives
are anticipated to create long-term opportunities for procurement savings resulting from renegotiated raw material and finished
good sourcing arrangements and lower operating costs as duplicative administrative support and sales and marketing functions are
consolidated and overlapping functions are eliminated.
The benefits of the VARTA initiatives are expected to positively impact future gross profit and operating margins, but were partially
offset during fiscal 2003 and in the near-term by exit and integration costs, including employee termination benefits and asset impair-
ments associated with the elimination of duplicative functions, an increase in interest expense associated with the acquisition, and
increased exposure to foreign currency movements reflecting our expanded global presence. In addition, the acquisition of the
VARTA consumer battery business is expected to negatively impact our effective tax rate, as we estimate a larger percentage of our
income will be generated in higher tax jurisdictions.
Annual savings associated with the VARTA initiatives are projected to be in the range of $40–45 million when fully realized by
the end of fiscal 2005. Costs associated with certain cost reduction initiatives are discussed in Note 15, Restructuring and Related
Charges, to our Notes to Consolidated Financial Statements.
The impact of the fiscal 2003 cost reduction initiatives on our operations is described below under the heading “Fiscal Year Ended
September 30, 2003 Compared to Fiscal Year Ended September 30, 2002—Restructuring and Related Charges.”
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Rayovac Corporation and Subsidiaries
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