Rayovac 2012 Annual Report Download - page 64

Operating Expense. Operating expenses for Fiscal 2011 totaled $901 million versus $753 million during
Fiscal 2010. The $148 million increase in operating expenses for Fiscal 2011 versus Fiscal 2010 was driven by
the Merger, which accounted for $111 million of the increase, coupled with the Fiscal 2011 impairment charge of
$32 million and increased stock compensation expense of $13 million. These increases were tempered by savings
from our integration and global cost reduction initiatives. See “Restructuring and Related Charges” below, as
well as Note 14, Restructuring and Related Charges, of Notes to Consolidated Financial Statements included in
this Annual Report on Form 10-K for additional information regarding our restructuring and related charges.
Operating Income. Operating income of approximately $228 million was recognized in Fiscal 2011
compared to $169 million recognized in Fiscal 2010, representing an increase of $59 million. The Merger
accounted for a $41 million increase in operating income. Additionally, savings from our integration efforts, our
global cost reduction initiatives and favorable foreign exchange translation impacted operating income by
$17 million, $16 million and $11 million, respectively. These profit improvements were partially offset by a
$32 million impairment charge, $14 million increase in stock compensation expense and increased commodity
costs during Fiscal 2011.
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 earnings before interest, taxes, depreciation and amortization (“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 the Company’s GAAP financial results.
Adjusted EBITDA, which includes the results of Russell Hobbs’ businesses as if it was combined with
Spectrum for all periods presented (see reconciliation of GAAP Net Income (Loss) from Continuing Operations
to Adjusted EBIT and to Adjusted EBITDA by .segment below) was $457 million for Fiscal 2011 compared with
$432 million for Fiscal 2010.
Segment Results. As discussed under “Business Overview” above we manage our business in three
reportable segments: (i) Global Batteries & Appliances, (ii) Global Pet Supplies; and (iii) Home and Garden
Business.
Operating segment profits do not include restructuring and related charges, acquisition and integration
related charges, interest expense, interest income, impairment charges, reorganization items and income tax
expense. Expenses associated with global operations, consisting of research and development, manufacturing
management, global purchasing, quality operations and inbound supply chain are included in the determination
of operating segment profits. In connection with the realignment of reportable segments discussed above,
expenses associated with certain general and administrative functions necessary to reflect the operating segments
on a standalone basis, have been excluded in the determination of reportable segment profits. The costs
associated with these functions were previously reflected in operating segment profits. Corporate expenses
primarily include general and administrative expenses and the costs of global long-term incentive compensation
plans which are evaluated on a consolidated basis and not allocated to our operating segments.
All depreciation and amortization included in income from operations is related to operating segments or
corporate expense. Costs are allocated to operating segments or corporate expense according to the function of
each cost center. All capital expenditures are related to operating segments. Variable allocations of assets are not
made for segment reporting.
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