You should read the following discussion in conjunction with the “Financial and Operating Highlights” and our consolidated financial statements and the related notes thereto in the “Financial Statements” section of this report. Certain prior year amounts have been reclassified to conform to current year presentation. Introduction Our operating performance depends upon a number of fac- tors. The most important of these factors are: •general economic conditions, specifically how it may impact the consumer product category; •general retailing trends, especially in the mass merchan- diser segment of the retail market; •our overall product mix among various specialty and general household batteries and battery-powered lighting devices, which sell at different price points and profit margins; •our overall competitive position, which is affected by both our and our competitors’ introduction of new products and promotions and our relative pricing and battery per- formance; and •changes in operating expenses. We manage our business according to the following geo- graphic areas: (1) North America, which includes the United States and Canada, (2) Latin America, which includes Mexico, Central America, South America and the Caribbean, and (3) Europe/Rest of World (“Europe/ROW”), which includes the United Kingdom, Europe, and all other countries in which we do business. Set forth below are specific developments that have affected and may continue to affect our performance. Investment in Future Growth Opportunities.Since our 1996 recapitalization, we have undertaken significant meas- ures to pursue growth opportunities and increase market share for our products worldwide. These measures include (1) acquiring the consumer battery operations of ROV Limited in Latin America and the Rayovac brand rights for battery products worldwide, with the exception of Brazil, (2) developing new markets for our hearing aid battery products through the acquisitions of Brisco and the battery distribution business of Best Labs in 1998, (3) expanding distribution by gaining new customers and increasing products sold to existing customers. Restructuring Operations and Other Cost Rationalization Initiatives.In December 2000, we announced a series of ini- tiatives to improve operational efficiencies, match manufac- turing capacity to market demands, and better utilize the Company’s resources. These initiatives included (1) the clo- sure of our lantern battery and flashlight assembly plant in Wonewoc, Wisconsin, (2) the outsourcing of certain manufac- turing operations at the Company’s Fennimore, Wisconsin plant to accommodate the installation of a new high speed AA size alkaline battery line, (3) rationalization of certain packaging operations and product lines, (4) the closure of our zinc carbon manufacturing operations in Tegucigalpa, Honduras, (5) restructuring of our Mexico and European man- ufacturing and distribution operations and (6) the implementa- tion of an administrative realignment, primarily in the U.S. and Latin America. Expansion of Production Capacity.In fiscal 1999 and 2001, we installed new high speed manufacturing lines to increase our capacity for alkaline AA size batteries at a cost of approx- imately $21.0 million. In fiscal 1999, we also completed a 39,000 square foot expansion of our Portage, Wisconsin facility and consolidated our Appleton, Wisconsin manufactur- ing operations into it. We continue to compare our global production requirements against our global manufacturing capacity to improve the efficiency of our operations. Competitive Position.Duracell and Energizer have intro- duced new lines of premium-priced alkaline batteries posi- tioned as providing increased performance over their respective regular branded products in certain high-drain battery-powered devices, including digital cameras and palm- sized computers. In this regard, Duracell introduced its Duracell Ultra product in 1998 and Energizer introduced its Energizer e2 product in 2000. These products are priced at a significant premium to standard alkaline products, as well as to Duracell’s and Energizer’s regular battery brands. To date, Duracell’s initiative does not appear to have increased total Duracell market share as Duracell Ultra gains appear to have been offset by losses in the regular Duracell line, and Energizer’s e2 product has captured a very small share of the U.S. alkaline battery market. Management’s Discussion and Analysis of Financial Condition and Results of Operations Rayovac Corporation and Subsidiaries