Rayovac 2003 Annual Report Download - page 27

Restructuring and Related Charges. In fiscal 2002, we recorded net restructuring and related charges 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 manu-
factured 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 resulted in $1.2
million of employee termination benefits for approximately 115 manufacturing employees, $0.9 million of charges from the aban-
donment 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.
The cost reduction initiatives undertaken in fiscal 2002 and described above are complete as of September 30, 2002. The remaining
accrued termination benefits were paid before December 2002. We believe cost reduction initiatives generated annual savings
approximating the cash costs of the restructuring initiatives.
We recorded restructuring and related charges of $22.3 million in fiscal 2001, reflecting $10.1 million of employee termination bene-
fits for approximately 570 employees, $10.2 million of equipment, inventory, and other asset write-offs and $2.0 million of other
expenses associated with the cost reduction initiatives described above under the heading “Cost Reduction Initiatives—Fiscal 2001,”
including: (i) an organizational restructuring in the U.S., (ii) the closure of the Tegucigalpa, Honduras facility and the rationalization
of our manufacturing and distribution processes in our Tegucigalpa, Honduras and Mexico City, Mexico manufacturing facilities
and in our European operations, (iii) the closure of our Wonewoc, Wisconsin manufacturing facility and (iv) the rationalization of
inefficient manufacturing processes, packaging operations and product lines at our Fennimore, Wisconsin manufacturing facility
and Madison, Wisconsin packaging location. In addition, “Restructuring and Related Charges” also reflected costs associated with
our June 2001 common stock offering.
The cost reduction initiatives undertaken in fiscal 2001 are complete and we do not anticipate any further material charges to result
from such initiatives.
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 of senior subordinated notes in June 2001 using proceeds from
our common stock offering and the repayment of $56.1 million in debt from our strong cash flow from operations.
Non-Operating Expense. In fiscal 2001, we recorded non-operating expense of $8.6 million 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.
Income Tax Expense. Our effective tax rate for fiscal 2002 was 36.0% compared to 34.1% 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.
Liquidity and Capital Resources For fiscal 2003, operating activities provided $76.2 million in net cash, an increase of $9.4
million over the previous year. Within operating cash flow, we recognized lower net income of $13.8 million reflecting the impacts
of the fiscal 2003 restructuring activities partially offset by the impacts of the VARTA acquisition. We also experienced an increase in
other non-cash adjustments primarily reflecting non-cash restructuring charges of $13.6 million, depreciation expense of $12.3 mil-
lion primarily reflecting the impacts of the VARTA acquisition, the write-off of the unamortized debt issuance costs of $3.1 million,
and amortization of unearned restricted stock compensation of $2.1 million partially offset by increases in deferred taxes of $13.8
million. Operating cash flow from changes in working capital was essentially unchanged from the previous year.
Net cash used by investing activities increased to $446.4 million for fiscal 2003, primarily reflecting payments associated with the
VARTA and Remington acquisitions, net of cash acquired, of $420.4 million. Capital expenditures of $26.1 million were primarily
for improvements to alkaline battery manufacturing and leasehold improvements on the Dixon, Illinois leased packaging and dis-
tribution center. Capital expenditures for fiscal 2004 are expected to be approximately $25.0 million, which are expected to include
spending for continued investment in our alkaline and hearing aid manufacturing operations, continued technology investments,
and spending associated with our recent Remington acquisition.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Rayovac Corporation and Subsidiaries