Rayovac 2003 Annual Report Download - page 25

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In fiscal 2002, we recorded net restructuring and related charges in cost of goods sold of $1.2 million related to: (i) the closure of
our manufacturing facility in Santo Domingo, Dominican Republic and transfer of production to our Guatemala City, Guatemala
manufacturing facility and the outsourcing of a portion of our zinc carbon battery production previously manufactured at our
Mexico City, Mexico manufacturing facility, as more fully described above under the heading “Cost Reduction Initiatives—Fiscal
2002” and (ii) the reversal of $1.3 million of expenses related to the December 2000 restructuring announcement which were not
realized, primarily reflecting a change in estimated termination benefits of $1.0 million, due to lower estimates of outplacement
costs and costs attributable to fringe benefits, and the retention of selected employees.
The closure of the Dominican Republic manufacturing facility and outsourcing of Mexico zinc carbon production, in fiscal 2002,
resulted in $1.2 million of employee termination benefits for approximately 115 manufacturing employees, $0.9 million of charges
from the abandonment of equipment and inventory, net of a change in estimate of $0.4 million, associated with the closing of the
manufacturing facility and $0.3 million of other expenses. The change in estimate reflected our ability to utilize more inventory and
manufacturing equipment at our Guatemala City, Guatemala manufacturing location than originally anticipated.
Interest Expense. Interest expense increased $21.1 million to $37.2 million in fiscal 2003 due to the increase in debt to finance the
VARTA acquisition.
Non-Operating Expense. In fiscal 2003, we recorded non-operating expense of $3.1 million relating to the write-off of unamor-
tized debt fees associated with our previous credit facility, replaced in conjunction with the VARTA acquisition. There was no
non-operating expense in fiscal 2002.
Other (Income) Expense. Other (income) expense, net, improved $4.9 million to income of $3.6 million in fiscal 2003, primarily
attributable to foreign exchange transaction gains.
Income Tax Expense. Our effective tax rate was 32.8% for fiscal 2003, a decrease from 36.0% during the previous year. The decrease
in the effective tax rate from the prior year primarily reflects the net impact of certain tax credits realized during fiscal 2003, favor-
able adjustments to prior year deferred taxes, adjustments to prior year tax reserves reflecting the expiration of certain statute of
limitations, partially offset by non-deductible interest expense associated with our acquisition of VARTA.
Fiscal Year Ended September 30, 2002 Compared to Fiscal Year Ended September 30, 2001
Highlights of consolidated operating results
Net Sales. Our net sales decreased $43.5 million, or 7.1%, to $572.7 million in fiscal 2002 from $616.2 million the previous year.
Increases in hearing aid battery and lighting product sales were unable to offset declines in zinc carbon and alkaline sales.
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 previous year. This increase was primarily due to reduction in restructuring 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.
Net Income. Our net income for fiscal 2002 increased $17.7 million, or 153.9%, to $29.2 million from $11.5 million the previous year.
The increase reflects a reduction in interest expense attributable to the retirement of $65.0 million of senior subordinated notes
following our June 2001 common stock offering, plus a $56.1 million reduction in debt during fiscal 2002 due to strong cash flow
from operations. In addition, fiscal 2001 results reflect a $22.3 million pretax restructuring charge and an $8.6 million pretax non-
operating expense. These improvements were partially offset by a bad debt reserve of $7.5 million, net of tax, recognized in fiscal
2002 related to the bankruptcy filing of a key customer.
North America 2001 2002
Net sales from external customers $448.8 $435.6
Segment profit 80.8 85.5
Segment profit as a % of net sales 18.0% 19.6%
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Rayovac Corporation and Subsidiaries