UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-13615
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Rayovac Corporation
--------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 22-2423556
----------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
601 Rayovac Drive, Madison, Wisconsin 53711
-----------------------------------------
(Address of principal executive offices) (Zip Code)
(608) 275-3340
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(Registrant's telephone number, including area code)
Not Applicable
--------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares outstanding of the Registrant's common stock, $.01 par
value, as of August 9, 2002, was 32,033,509.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2002 and September 30, 2001
(Unaudited)
(In thousands)
JUNE 30, SEPTEMBER 30,
2002 2001
---------- -------------
-ASSETS-
Current assets:
Cash and cash equivalents $ 9,109 $ 11,358
Receivables 121,269 168,745
Inventories 78,294 91,311
Prepaid expenses and other 26,378 31,674
--------- ---------
Total current assets 235,050 303,088
Property, plant and equipment, net 103,480 107,257
Deferred charges and other, net 44,902 37,080
Intangible assets, net 119,034 119,074
--------- ---------
Total assets $ 502,466 $ 566,499
========= =========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
Current liabilities:
Current maturities of long-term debt $ 19,740 $ 24,436
Accounts payable 52,401 81,990
Accrued liabilities:
Wages and benefits and other 28,437 32,232
Other special charges 3,954 5,883
--------- ---------
Total current liabilities 104,532 144,541
Long-term debt, net of current maturities 193,779 233,541
Employee benefit obligations, net of current portion 20,936 19,648
Other 15,720 11,184
--------- ---------
Total liabilities 334,967 408,914
Shareholders' equity:
Common stock, $.01 par value, authorized 150,000 shares;
issued 61,570 and 61,579 shares, respectively;
outstanding 32,034 and 32,043 shares, respectively 616 616
Additional paid-in capital 180,510 180,752
Retained earnings 136,080 119,984
Accumulated other comprehensive loss (13,651) (6,868)
Notes receivable from officers/shareholders (4,180) (3,665)
--------- ---------
299,375 290,819
Less: Treasury stock, at cost, 29,536 shares (130,070) (130,070)
Less: Unearned restricted stock compensation (1,806) (3,164)
--------- ---------
Total shareholders' equity 167,499 157,585
--------- ---------
Total liabilities and shareholders' equity $ 502,466 $ 566,499
========= =========
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine month periods ended June 30, 2002 and July 1, 2001
(Unaudited)
(In thousands)
THREE MONTHS NINE MONTHS
------------------------- -----------------------
2002 2001 2002 2001
Net sales $ 135,412 $ 146,969 $ 418,448 $ 445,955
Cost of goods sold 78,392 85,586 248,746 260,379
Special charges 2,619 2,279 2,635 18,539
--------- --------- --------- ---------
Gross profit 54,401 59,104 167,067 167,037
Selling 24,759 27,473 76,778 85,839
General and administrative 5,351 9,379 42,985 32,489
Research and development 3,206 2,990 9,836 9,010
Special charges -- 300 -- 300
--------- --------- --------- ---------
Total operating expenses 33,316 40,142 129,599 127,638
Income from operations 21,085 18,962 37,468 39,399
Interest expense 3,974 7,017 12,200 22,391
Other expense (income), net 503 (180) 118 953
--------- --------- --------- ---------
Income before income taxes 16,608 12,125 25,150 16,055
Income tax expense 6,294 4,053 9,054 5,624
--------- --------- --------- ---------
Income before extraordinary item 10,314 8,072 16,096 10,431
Extraordinary item, loss on early extinguishment of
debt, net of income tax benefit of $3,279 -- 5,350 -- 5,350
--------- --------- --------- ---------
Net income $ 10,314 $ 2,722 $ 16,096 $ 5,081
========= ========= ========= =========
BASIC EARNINGS PER SHARE
Weighted average shares
and equivalents outstanding 31,776 28,080 31,774 27,743
Income before extraordinary item $ 0.32 $ 0.29 $ 0.51 $ 0.38
Extraordinary item -- (0.19) -- (0.20)
--------- --------- --------- ---------
Net income $ 0.32 $ 0.10 $ 0.51 $ 0.18
========= ========= ========= =========
DILUTED EARNINGS PER SHARE
Weighted average shares
and equivalents outstanding 32,554 29,128 32,437 28,776
Income before extraordinary item $ 0.32 $ 0.28 $ 0.50 $ 0.36
Extraordinary item -- (0.19) -- (0.18)
--------- --------- --------- ---------
Net income $ 0.32 $ 0.09 $ 0.50 $ 0.18
========= ========= ========= =========
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine month periods ended June 30, 2002 and July 1, 2001
(Unaudited)
(In thousands)
NINE MONTHS
-----------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net income $ 16,096 $ 5,081
Non-cash adjustments to net income:
Extraordinary item, loss on early retirement of debt -- 8,628
Amortization 1,412 4,329
Depreciation 14,325 12,849
Other non-cash adjustments 1,723 4,685
Net changes in assets and liabilities 19,991 (7,956)
--------- ---------
Net cash provided by operating activities 53,547 27,616
Cash flows from investing activities:
Purchases of property, plant and equipment (11,922) (15,215)
Proceeds from sale of property, plant and equipment 21 509
Purchases of and proceeds from sale of investments -- 562
--------- ---------
Net cash used by investing activities (11,901) (14,144)
Cash flows from financing activities:
Reduction of debt (168,589) (320,619)
Early retirement of debt -- (69,693)
Proceeds from debt financing 124,500 310,601
Issuance of common stock 171 67,781
Other (1,246) (1,246)
--------- ---------
Net cash used by financing activities (45,164) (13,176)
Effect of exchange rate changes on cash and cash
equivalents 1,269 207
--------- ---------
Net (decrease) increase in cash and cash equivalents (2,249) 503
Cash and cash equivalents, beginning of period 11,358 9,757
--------- ---------
Cash and cash equivalents, end of period $ 9,109 $ 10,260
========= =========
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
RAYOVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share amounts)
1 SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: These financial statements have been prepared by
Rayovac Corporation (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the
"SEC") and, in the opinion of the Company, include all adjustments
(which are normal and recurring in nature) necessary to present fairly
the financial position of the Company at June 30, 2002, results of
operations and cash flows for the three and nine month periods ended
June 30, 2002, and July 1, 2001. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to such SEC
rules and regulations. These condensed consolidated financial
statements should be read in conjunction with the audited financial
statements and notes thereto as of September 30, 2001. Certain prior
year amounts have been reclassified to conform with the current year
presentation.
SHIPPING AND HANDLING COSTS: The Company incurred shipping and handling
costs of $5,419 and $6,934 and $17,809 and $20,865 for the three and
nine months ended June 30, 2002 and July 1, 2001, respectively, which
are included in selling expense.
CONCENTRATION OF CREDIT RISK: Trade receivables potentially subject the
Company to credit risk. The Company extends credit to its customers
based upon an evaluation of the customer's financial condition and
credit history and generally does not require collateral. The Company
monitors its customer's credit and financial conditions based on
changing economic conditions and will make adjustments to credit
policies as required. The Company has historically incurred minimal
credit losses but in the nine months ending June 30, 2002 experienced a
significant loss resulting from the bankruptcy filing of a major
retailer in the United States.
The Company has a broad range of customers including many large retail
outlet chains, one of which accounts for a significant percentage of
our sales volume. This major customer represented approximately 23% and
20%, respectively, of receivables as of June 30, 2002 and September 30,
2001.
Approximately 25% of the Company's sales occur outside of North
America, and these sales and related receivables are subject to varying
degrees of credit, currency, political and economic risk. The Company
monitors these risks and makes appropriate provisions for
collectability based on an assessment of the risks present. The
Argentine Peso and Venezuelan Bolivars devaluation did not have a
significant impact on the Company's estimate of collectability.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS: In May 2000, the Emerging
Issues Task Force (EITF) reached a consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives". This Issue addresses the
recognition, measurement, and income statement classification for
various types of sales incentives including discounts, coupons, rebates
and free products. In April 2001, the EITF reached a consensus on Issue
No. 00-25, "Vendor Income Statement Characterization of Consideration
Paid to a Reseller of the Vendor's Products or Services". This Issue
addresses when consideration from a vendor to a retailer or distributor
in connection with the purchase of the vendor's products to promote
sales of the vendor's products should be classified in the vendor's
income statement as a reduction of revenue or expense. The Company
adopted EITF 00-14 and EITF 00-25 in the second fiscal quarter of 2002.
The adoption resulted in the following reclassifications for the three
and nine month periods ended June 30, 2002 and July 1, 2001 in the
Company's results of operations. For the three months ended June 30,
2002 and July 1, 2001, net sales were reduced by $9,215 and $12,163,
respectively; cost of sales were increased by $3,849 and $3,259,
respectively; and selling expenses were reduced by $13,064 and $15,422,
respectively. For the nine months ended June 30, 2002 and July 1, 2001,
net sales were reduced by $38,505 and $41,928, respectively; cost
5
of sales were increased by $11,796 and $10,228, respectively; and
selling expenses were reduced by $50,301 and $52,156, respectively.
Concurrent with the adoption of EITF 00-25, the Company reclassified
certain accrued trade incentives as a contra receivable versus the
Company's previous presentation as a component of accounts payable.
Historically, customers offset earned trade incentives when making
payments on account. Therefore, the Company believes the
reclassification of these accrued trade incentives as a contra
receivable better reflects the underlying economics of the Company's
net receivable due from trade customers.
The reclassification results in a reduction in accounts receivable and
accounts payable in our Consolidated Balance Sheets of $20,793 and
$21,383 at June 30, 2002 and September 30, 2001, respectively.
Effective October 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) 141, BUSINESS COMBINATIONS, and SFAS 142,
GOODWILL AND OTHER INTANGIBLE ASSETS.
Statement 141 requires that the purchase method of accounting be used
for all business combinations initiated or completed after June 30,
2001. Statement 141 also specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be
recognized and reported apart from goodwill. Statement 142 requires
that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. Statement
142 also requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance
with Statement 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Upon the transition to
Statement 142, no goodwill was deemed to be impaired.
The impacts to date of adopting Statement 142 for the three and nine
months ended June 30, 2002 and July 1, 2001 are as follows:
THREE MONTHS NINE MONTHS
------------- -----------
2002 2001 2002 2001
---- ---- ---- ----
Reported net income............................ $10,314 $2,722 $16,096 $5,081
Add back: Goodwill amortization, net of tax
of $0........................................ -- 254 -- 790
Add back: Trade name amortization, net of
tax of $214 and $641, respectively........... -- 349 -- 1,047
------- ------ ------- ------
Adjusted net income............................ $10,314 $3,325 $16,096 $6,918
======= ====== ======= ======
BASIC EARNINGS PER SHARE:
Reported net income............................ $0.32 $0.10 $0.51 $0.18
Goodwill amortization.......................... -- 0.01 -- 0.03
Trade name amortization........................ -- 0.01 -- 0.04
------- ------ ------- ------
Adjusted net income............................ $0.32 $0.12 $0.51 $0.25
======= ====== ======= ======
DILUTED EARNINGS PER SHARE:
Reported net income............................ $0.32 $0.09 $0.50 $0.18
Goodwill amortization.......................... -- 0.01 -- 0.03
Trade name amortization........................ -- 0.01 -- 0.03
------- ------ ------- ------
Adjusted net income............................ $0.32 $0.11 $0.50 $0.24
======= ====== ======= ======
6
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are used by the Company principally in
the management of its interest rate, foreign currency and raw material
price exposures. The Company does not hold or issue derivative
financial instruments for trading purposes.
The Company uses interest rate swaps to manage its interest rate risk.
The swaps are designated as cash flow hedges with the fair value
recorded in Other Comprehensive Income ("OCI") and as a hedge asset or
liability, as applicable. The swaps settle periodically in arrears with
the related amounts for the current settlement period payable to, or
receivable from, the counter-parties included in accrued liabilities or
accounts receivable and recognized in earnings as an adjustment to
interest expense from the underlying debt to which the swap is
designated. During the three and nine month periods ended June 30,
2002, $1,319 and $3,667, respectively, of pretax derivative losses from
such hedges were recorded as an adjustment to interest expense. At June
30, 2002, the Company had a portfolio of interest rate swaps
outstanding which effectively fixes the interest rates on floating rate
debt at rates as follows: 6.404% for a notional principal amount of
$75,000 through October 2002, 4.458% for a notional principal amount of
$70,000 from October 2002 through July 2004 and 3.769% for a notional
principal amount of $100,000 through August 2004. The derivative net
losses on these contracts recorded in OCI at June 30, 2002 was an
after-tax loss of $1,992.
The Company enters into forward and swap foreign exchange contracts, to
hedge the risk from forecasted settlement in local currencies of
inter-company purchases and sales, trade sales, and trade purchases.
These contracts generally require the Company to exchange foreign
currencies for U.S. dollars or Pounds Sterling. These contracts are
designated as cash flow hedges with the fair value recorded in OCI and
as a hedge asset or liability, as applicable. Once the forecasted
transaction has been recognized as a purchase or sale and a related
liability or asset recorded in the balance sheet, the gain or loss on
the related derivative hedge contract is reclassified from OCI into
earnings as an offset to the change in value of the liability or asset.
During the three and nine month periods ended June 30, 2002, $0 and
$17, respectively, of pretax derivative losses were recorded as an
adjustment to earnings for cash flow hedges related to an asset or
liability. During the three and nine month periods ended June 30, 2002,
$0 and $66, respectively, of pretax derivative gains were recorded as
an adjustment to earnings for forward and swap contracts settled at
maturity. At June 30, 2002, the Company had a series of swap contracts
outstanding with a contract value of $493. The derivative net loss on
these contracts at June 30, 2002 was immaterial.
The Company periodically enters into forward foreign exchange
contracts, to hedge the risk from changes in fair value from
unrecognized firm purchase commitments. These firm purchase commitments
generally require the Company to exchange U.S. dollars for foreign
currencies. These hedge contracts are designated as fair value hedges
with the fair value recorded in earnings on a pretax basis and as a
hedge asset or liability, as applicable. To the extent effective,
changes in the value of the forward contracts recorded in earnings will
be offset by changes in the value of the hedged item, also recorded in
earnings on a pretax basis and as an asset or liability, as applicable.
Once the firm purchase commitment has been consummated, the firm
commitment asset or liability balance will be reclassified as an
addition to or subtraction from, the carrying value of the purchased
asset. The Company previously entered into a series of forward
contracts through October 2001 to hedge the exposure from a firm
commitment to purchase certain battery manufacturing equipment
denominated in Japanese Yen. During the three and nine month periods
ended June 30, 2002, $0 and $63, respectively, of pretax derivative
gains were recorded as an adjustment to earnings for fair value hedges
of this firm purchase commitment and $0 and $63, respectively, of
pretax losses were recorded as an adjustment to earnings for changes in
fair value of this firm purchase commitment. During the three and nine
month periods ended June 30, 2002, $0 and $78, respectively, of pretax
derivative losses were recorded as an adjustment to earnings for fair
value hedges of this firm purchase commitment that were settled at
maturity and $0 and $78, respectively, of pretax gains were recorded as
an adjustment to earnings for payments made against this firm purchase
commitment.
The Company is exposed to risk from fluctuating prices for zinc used in
the manufacturing process. The Company hedges a portion of this risk
through the use of commodity swaps. The swaps are designated as cash
flow hedges with the fair value recorded in OCI and as a hedge asset or
liability, as applicable. The fair value of the swaps is reclassified
from OCI into earnings when the hedged purchase of zinc metal-based
items also affects earnings. The swaps effectively fix the floating
price on a specified quantity of zinc through a specified date.
7
During the three and nine month periods ended June 30, 2002, $498 and
$2,074, respectively, of pretax derivative losses were recorded as an
adjustment to cost of sales for swap contracts settled at maturity. At
June 30, 2002, the Company had a series of swap contracts outstanding
through August 2003 with a contract value of $8,826. The derivative net
losses on these contracts recorded in OCI at June 30, 2002 was an
after-tax loss of $259.
2 INVENTORIES
Inventories consist of the following:
JUNE 30, 2002 SEPTEMBER 30, 2001
------------- ------------------
Raw material........................................ $19,153 $24,271
Work-in-process..................................... 20,061 14,015
Finished goods...................................... 39,080 53,025
------- -------
$78,294 $91,311
======= =======
3 ACQUIRED INTANGIBLE ASSETS AND GOODWILL
JUNE 30, 2002 SEPTEMBER 30, 2001
--------------------------------------- --------------------------------------
GROSS GROSS
CARRYING ACCUMULATED NET CARRYING ACCUMULATED NET
AMOUNT AMORTIZATION INTANGIBLE AMOUNT AMORTIZATION INTANGIBLE
------ ------------ ---------- ------ ------------ ----------
AMORTIZED INTANGIBLE ASSETS
Non-compete agreement......... $ 700 $ 595 $ 105 $ 700 $ 490 $ 210
Proprietary technology........ 525 300 225 525 275 250
------- ------ ------- ------- ------ -------
$ 1,225 $ 895 $ 330 $ 1,225 $ 765 $ 460
======= ====== ======= ======= ====== =======
PENSION INTANGIBLES
Under-funded pension.......... $ 3,081 $ -- $ 3,081 $ 3,081 $ -- $ 3,081
======= ====== ======= ======= ====== =======
UNAMORTIZED INTANGIBLE ASSETS
Trade name.................... $90,000 $4,875 $85,125 $90,000 $4,875 $85,125
======= ====== ======= ======= ====== =======
NORTH LATIN
AMERICA AMERICA EUROPE/ROW TOTAL
------- ------- ---------- -----
GOODWILL
Balance as of October 1, 2001, net............ $1,035 $26,884 $2,489 $30,408
Effect of translation......................... -- -- 89 89
------ ------- ------ -------
Balance as of June 30, 2002, net.............. $1,035 $26,884 $2,578 $30,497
====== ======= ====== =======
The non-compete agreement is being amortized on a straight-line basis
over 5 years. The proprietary technology assets are being amortized on
a straight-line basis over 15 to 17 years.
The trade name and Latin America segment goodwill are associated with
the 1999 acquisition of ROV Limited and were being amortized on a
straight-line basis over 40 years. The North America segment goodwill
is associated with the 1998 acquisition of Best Labs and was being
amortized on a straight-line basis over 15 years. The Europe/ROW
segment goodwill is associated with the 1998 acquisition of Brisco GmbH
in Germany and was being amortized on a straight-line basis over 15
years.
Pursuant to Statement 142, the Company ceased amortizing goodwill
on October 1, 2001. Upon initial application of Statement 142, the
Company reassessed the useful lives of its intangible assets and
deemed only the trade name asset to have an indefinite useful life
because it is expected to generate cash flows indefinitely. Based on
this, the Company ceased amortizing the trade name on October 1, 2001.
8
The amortization expense for the three and nine months ended June 30,
2002 and July 1, 2001 are as follows:
THREE MONTHS NINE MONTHS
---------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
AMORTIZATION EXPENSE
Goodwill amortization.......................... $ -- $ 254 $ -- $ 790
Trade name amortization........................ -- 563 -- 1,688
Non-compete and proprietary technology......... 43 43 130 130
------ ------ ------ ------
$ 43 $ 860 $ 130 $2,608
====== ====== ====== ======
4 OTHER COMPREHENSIVE INCOME
Comprehensive income and the components of other comprehensive income
for the three and nine months ended June 30, 2002 and July 1, 2001 are
as follows:
THREE MONTHS NINE MONTHS
------------------------- --------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income...................................... $10,314 $2,722 $16,096 $ 5,081
Other comprehensive income (loss):
Foreign currency translation................. (3,302) 44 (7,511) (312)
Net unrealized (loss) gain on available
for-sale securities.......................... (7) 105 (112) 105
Cumulative effect of change in accounting
principle.................................... -- -- -- (150)
Net unrealized (loss) gain on derivative
instruments.................................. (2,031) (490) 840 (2,182)
------- ------ ------- -------
Comprehensive income............................ $ 4,974 $2,381 $ 9,313 $ 2,542
======= ====== ======= =======
Net exchange gains or losses resulting from the translation of assets
and liabilities of foreign subsidiaries are accumulated in a separate
section of shareholders' equity. Also included are the effects of
exchange rate changes on intercompany balances of a long-term nature
and transactions designated as hedges of net foreign investments. The
changes in accumulated foreign currency translation for the three and
nine months ended June 30, 2002 were primarily attributable to currency
devaluation in Argentina, $247 and $2,630, respectively, and in
Venezuela, $2,357 and $4,075, respectively and the weakening currency
in Mexico, $376 and $644, respectively.
5 NET INCOME PER COMMON SHARE
Net income per common share for the three and nine months ended June
30, 2002 and July 1, 2001 is calculated based upon the following
shares:
THREE MONTHS NINE MONTHS
----------------------- ----------------------
2002 2001 2002 2001
---- ---- ---- ----
Basic............................................... 31,776 28,080 31,774 27,743
Effect of restricted stock and assumed
conversion of options............................... 778 1,048 663 1,033
------- ------- ------- -------
Diluted............................................. 32,554 29,128 32,437 28,776
======= ======= ======= =======
9
6 COMMITMENTS AND CONTINGENCIES
In March 1998, the Company entered into an agreement to purchase
certain equipment and to pay annual royalties. In connection with this
1998 agreement, which supersedes previous agreements dated December
1991, and March 1994, the Company committed to pay royalties of $2,000
in 1998 and 1999, $3,000 in 2000 through 2002, and $500 in each year
thereafter, as long as the related equipment patents are enforceable
(2022). The Company incurred royalty expenses of $2,000 for 1999,
$2,250 for 2000 and $3,000 for 2001. At June 30, 2002, the Company had
commitments of approximately $400 for the acquisition of manufacturing
equipment and inventory, all of which are expected to be incurred in
calendar 2002.
The Company has provided for the estimated costs associated with
environmental remediation activities at some of its current and former
manufacturing sites. In addition, the Company, together with other
parties, has been designated a potentially responsible party of various
third-party sites on the United States EPA National Priorities List
(Superfund). The Company provides for the estimated costs of
investigation and remediation of these sites when such losses are
probable and the amounts can be reasonably estimated. The actual cost
incurred may vary from these estimates due to the inherent
uncertainties involved. The Company believes that any additional
liability in excess of the amounts provided of $1,629, which may result
from resolution of these matters, will not have a material adverse
effect on the financial condition, liquidity, or cash flow of the
Company.
The Company has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary
course of business. In the opinion of management, it is either not
likely or premature to determine whether such contingent liabilities
will have a material adverse effect on the financial condition,
liquidity or cash flow of the Company.
7 OTHER
During Fiscal 2001, the Company recorded special charges related to:
(i) an organizational restructuring in the U.S, (ii) manufacturing and
distribution cost rationalization initiatives in the Company's
Tegucigalpa, Honduras and Mexico City, Mexico manufacturing facilities
and in the Company's European operations, (iii) the closure of the
Company's Wonewoc, Wisconsin, manufacturing facility, (iv) the
rationalization of uneconomic manufacturing processes at the Company's
Fennimore, Wisconsin, manufacturing facility, and rationalization of
packaging operations and product lines, and (v) costs associated with
the Company's June 2001 secondary offering. The amount recorded
includes $10,100 of employee termination benefits for approximately 570
notified employees, $10,200 of equipment, inventory, and other asset
write-offs, and $2,000 of other expenses. A summary of the 2001
restructuring activities follows:
2001 RESTRUCTURING SUMMARY
TERMINATION OTHER
BENEFITS COSTS TOTAL
-------- ----- -----
Expense accrued............................................... $ 5,000 $11,000 $16,000
Change in estimate............................................ 4,400 100 4,500
Expense as incurred........................................... 700 1,100 1,800
Cash expenditures............................................. (5,800) (1,300) (7,100)
Non-cash charges.............................................. -- (9,300) (9,300)
------- ------- -------
Balance September 30, 2001.................................... $4,300 $ 1,600 $ 5,900
Cash expenditures............................................. (1,300) (100) (1,400)
Non-cash charges.............................................. -- (100) (100)
------- ------- -------
Balance December 30, 2001..................................... $3,000 $ 1,400 $ 4,400
Cash expenditures............................................. (1,500) (100) (1,600)
Non-cash charges.............................................. -- (200) (200)
------- ------- -------
Balance March 31, 2002........................................ $1,500 $ 1,100 $ 2,600
Cash expenditures................................................. (100) -- (100)
Non-cash charges.................................................. -- (100) (100)
------- ------- -------
Balance June 30, 2002............................................ $ 1,400 $ 1,000 $ 2,400
======= ======= =======
10
During the three months ended June 30, 2002, the Company recorded
special charges related to: (i) the closure of the Company's Santo
Domingo, Dominican Republic plant, and (ii) manufacturing cost
rationalization initiatives in the Company's Mexico City, Mexico
facility. The amount recorded includes approximately $1,200 of
employee termination benefits for approximately 110 notified
employees, and approximately $1,400 of equipment, inventory and
other asset write-offs. A summary of the 2002 restructuring
activities follows:
2002 RESTRUCTURING SUMMARY
TERMINATION OTHER
BENEFITS COSTS TOTAL
-------- ----- -----
Expense accrued............................ $1,200 $1,400 $2,600
------ ------ ------
Balance June 30, 2002...................... $1,200 $1,400 $2,600
====== ====== ======
8 SEGMENT INFORMATION
The Company manages operations in three reportable segments based upon
geographic area. North America includes the United States and Canada;
Latin America includes Mexico, Central America, and South America;
Europe/Rest of World ("Europe/ROW") includes the United Kingdom, Europe
and all other countries in which the Company does business.
The Company manufactures and markets dry cell batteries including
alkaline, zinc carbon, alkaline rechargeable, hearing aid, and other
specialty batteries and lighting products throughout the world.
Net sales and cost of sales to other segments have been eliminated. The
gross contribution of inter segment sales is included in the segment
selling the product to the external customer. Segment revenues are
based upon the geographic area in which the product is sold.
The reportable segment profits do not include interest expense,
interest income, and income tax expense. Also, not included in the
reportable segments, are corporate expenses including corporate
purchasing expense, general and administrative expense and research and
development expense. All depreciation and amortization included in
income from operations is related to corporate or reportable segments.
Costs are identified to reportable segments or corporate, according to
the function of each cost center.
The reportable segment assets do not include cash, deferred tax
benefits, investments, long-term intercompany receivables, most
deferred charges, and miscellaneous assets. Capital expenditures are
related to reportable segments or corporate. Variable allocations of
assets are not made for segment reporting.
11
Segment information for the three and nine months ended June 30, 2002
and July 1, 2001 is as follows:
REVENUES FROM EXTERNAL CUSTOMERS THREE MONTHS NINE MONTHS
------------- -----------
2002 2001 2002 2001
---- ---- ---- ----
North America................................. $100,867 $106,396 $312,984 $322,151
Latin America................................. 22,710 28,869 67,077 88,886
Europe/ROW.................................... 11,835 11,704 38,387 34,918
-------- -------- -------- --------
Total segments................................ $135,412 $146,969 $418,448 $445,955
======== ======== ======== ========
INTER SEGMENT REVENUES THREE MONTHS NINE MONTHS
------------- -----------
2002 2001 2002 2001
---- ---- ---- ----
North America................................. $7,352 $6,724 $25,224 $23,664
Latin America................................. 1,481 2,711 5,230 7,167
Europe/ROW.................................... 534 574 1,706 1,755
------ ------- ------- -------
Total segments................................ $9,367 $10,009 $32,160 $32,586
====== ======= ======= =======
SEGMENT PROFIT THREE MONTHS NINE MONTHS
------------- -----------
2002 2001 2002 2001
---- ---- ---- ----
North America................................. $27,375 $21,771 $52,481 $59,390
Latin America................................. 2,353 3,532 6,500 14,951
Europe/ROW.................................... 845 1,582 3,097 2,875
------- ------- ------- -------
Total segments................................ 30,573 26,885 62,078 77,216
Corporate..................................... 6,869 5,344 21,975 18,978
Special charges............................... 2,619 2,579 2,635 18,839
Interest expense.............................. 3,974 7,017 12,200 22,391
Other expense (income), net................... 503 (180) 118 953
------- ------- ------- -------
Income before income taxes.................... $16,608 $12,125 $25,150 $16,055
======= ======= ======= =======
SEGMENT ASSETS JUNE 30, 2002 JULY 1, 2001
------------- ------------
North America................................. $234,184 $266,280
Latin America................................. 194,566 207,287
Europe/ROW.................................... 30,947 26,640
-------- --------
Total segments................................ $459,697 $500,207
Corporate..................................... 42,769 43,131
-------- --------
Total assets at period end.................... $502,466 $543,338
======== ========
12
9 SUBSEQUENT EVENTS
ACQUISITION AGREEMENT: In July 2002, the Company entered into
agreements to acquire the consumer business of Varta Geratebbatterie
Gmbh (Varta) for approximately $262 million Euros ($262 million U.S.
dollars at current exchange rates). The Company will acquire all of the
Varta consumer subsidiaries located outside of Germany and will become
the majority owner of a new joint venture entity that will conduct all
consumer battery business within Germany. The transaction does not
include Varta's Brazilian joint venture, its automotive or micro-power
business.
Varta is a leading global battery manufacturer and marketer in consumer
battery markets with calendar 2001 sales of approximately $398 million
Euros ($398 million U.S. dollars at current exchange rates). On
closing of acquisition, Rayovac will control the Varta consumer battery
products brand rights worldwide. The acquisition is expected to be
completed during early fiscal 2003.
The Company currently expects to finance this acquisition entirely with
new senior credit facilities. The Company currently intends to replace
its existing senior credit facilities with a $200 million six-year
multicurrency revolving credit facility, a $100 million six-year
amortizing term loan facility denominated in Euros and a $375 million
seven-year amortizing term loan facility. In addition to financing the
acquisition of the consumer business of Varta, the Company plans to use
the proceeds of these new senior credit facilities to refinance the
Company's outstanding senior indebtedness, to finance future
acquisitions and for working capital and general corporate purposes.
Indebtedness under these amended senior credit facilities will be
secured.
SERVICE PROVIDER BANKRUPTCY: On July 19, 2002, the Company's freight
payment service provider (the provider) filed for bankruptcy protection
under Chapter 11. Subsequent to the Chapter 11 bankruptcy filing, on
July 31, 2002, the provider filed for bankruptcy protection under
Chapter 7. At this time, the Company estimates the amount of loss
resulting from payments made to the provider not subsequently paid,
per binding contract, to the Company's freight carriers is at least
$900. This amount has been recognized as a loss in the results of
operations for the three and nine month periods ended June 30, 2002,
and is reflected in General and administrative expenses. The resulting
liability is classified as a current other accrued liability on the
consolidated balance sheets as of June 30, 2002.
10 GUARANTOR SUBSIDIARIES (ROV HOLDING, INC. AND ROVCAL, INC.)
The following condensed consolidating financial data illustrate the
composition of the consolidated financial statements. Investments in
subsidiaries are accounted for by the Company and the Guarantor
Subsidiaries using the equity method for purposes of the consolidating
presentation. Earnings of subsidiaries are therefore reflected in the
Company's and Guarantor Subsidiaries' investment accounts and earnings.
The principal elimination entries eliminate investments in subsidiaries
and inter-company balances and transactions. Separate financial
statements of the Guarantor Subsidiaries are not presented because
management has determined that such financial statements would not be
material to investors.
13
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2002
(Unaudited)
(In thousands)
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-ASSETS-
Current assets:
Cash and cash equivalents $ 2,462 $ 43 $ 6,604 $ -- $ 9,109
Receivables 26,052 57,709 57,587 (20,079) 121,269
Inventories 53,781 -- 25,912 (1,399) 78,294
Prepaid expenses and other 18,052 342 7,984 -- 26,378
--------- --------- --------- --------- ---------
Total current assets 100,347 58,094 98,087 (21,478) 235,050
Property, plant and equipment, net 76,471 22 26,987 -- 103,480
Deferred charges and other, net 68,203 631 6,278 (30,210) 44,902
Intangible assets, net 89,759 -- 29,463 (188) 119,034
Investments in subsidiaries 147,846 89,723 -- (237,569) --
--------- --------- --------- --------- ---------
Total assets $ 482,626 $ 148,470 $ 160,815 $(289,445) $ 502,466
========= ========= ========= ========= =========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
Current liabilities:
Current maturities of long-term debt $ 23,124 $ -- $ 4,055 $ (7,439) $ 19,740
Accounts payable 42,507 -- 21,717 (11,823) 52,401
Accrued liabilities:
Wages and benefits and other 23,082 383 4,972 -- 28,437
Other special charges 3,683 -- 271 -- 3,954
--------- --------- --------- --------- ---------
Total current liabilities 92,396 383 31,015 (19,262) 104,532
Long term debt, net of current maturities 193,768 -- 30,241 (30,230) 193,779
Employee benefit obligations, net of current portion 20,378 -- 558 -- 20,936
Other 5,950 241 9,529 -- 15,720
--------- --------- --------- --------- ---------
Total liabilities 312,492 624 71,343 (49,492) 334,967
Shareholders' equity:
Common stock 615 1 12,072 (12,072) 616
Additional paid-in capital 180,391 62,788 54,157 (116,826) 180,510
Retained earnings 138,869 93,539 31,422 (127,750) 136,080
Accumulated other comprehensive loss (13,685) (8,482) (8,179) 16,695 (13,651)
Notes receivable from officers/shareholders (4,180) -- -- -- (4,180)
--------- --------- --------- --------- ---------
302,010 147,846 89,472 (239,953) 299,375
Less: Treasury stock, at cost (130,070) -- -- -- (130,070)
Less: Unearned restricted stock compensation (1,806) -- -- -- (1,806)
--------- --------- --------- --------- ---------
Total shareholders' equity 170,134 147,846 89,472 (239,953) 167,499
--------- --------- --------- --------- ---------
Total liabilities & shareholders' equity $ 482,626 $ 148,470 $ 160,815 $(289,445) $ 502,466
========= ========= ========= ========= =========
14
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the three month period ended June 30, 2002
(Unaudited)
(In thousands)
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ -------------
Net sales $ 97,715 $ 10,141 $ 40,343 $(12,787) $135,412
Cost of goods sold 54,149 9,837 27,528 (13,122) 78,392
Special charges 2,625 -- (6) -- 2,619
-------- -------- -------- -------- --------
Gross profit 40,941 304 12,821 335 54,401
Selling expense 16,528 187 8,131 (87) 24,759
General and administrative 4,383 (2,586) 3,554 -- 5,351
Research and development 3,206 -- -- -- 3,206
-------- -------- -------- -------- --------
Total operating expenses 24,117 (2,399) 11,685 (87) 33,316
Income from operations 16,824 2,703 1,136 422 21,085
Interest expense 3,799 -- 445 (270) 3,974
Equity (income) loss (2,684) 17 -- 2,667 --
Other (income) expense, net (397) (130) 760 270 503
-------- -------- -------- -------- --------
Income (loss) before income taxes 16,106 2,816 (69) (2,245) 16,608
Income tax expense (benefit) 6,214 132 (52) -- 6,294
-------- -------- -------- -------- --------
Net income (loss) $ 9,892 $ 2,684 $ (17) $ (2,245) $ 10,314
======== ======== ======== ======== ========
15
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the nine month period ended June 30, 2002
(Unaudited)
(In thousands)
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
Net sales $ 306,442 $ 29,681 $ 123,588 $ (41,263) $ 418,448
Cost of goods sold 176,640 28,790 83,788 (40,472) 248,746
Special charges 2,556 -- 79 -- 2,635
--------- --------- --------- --------- ---------
Gross profit 127,246 891 39,721 (791) 167,067
Selling expense 52,114 544 24,410 (290) 76,778
General and administrative 40,346 (8,241) 10,880 -- 42,985
Research and development 9,836 -- -- -- 9,836
--------- --------- --------- --------- ---------
Total operating expenses 102,296 (7,697) 35,290 (290) 129,599
Income from operations 24,950 8,588 4,431 (501) 37,468
Interest expense 11,639 -- 1,754 (1,193) 12,200
Equity (income) (9,386) (583) -- 9,969 --
Other (income) expense, net (1,700) (598) 973 1,443 118
--------- --------- --------- --------- ---------
Income before income taxes 24,397 9,769 1,704 (10,720) 25,150
Income tax expense 7,550 383 1,121 -- 9,054
--------- --------- --------- --------- ---------
Net income $ 16,847 $ 9,386 $ 583 $ (10,720) $ 16,096
========= ========= ========= ========= =========
16
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the nine month period ended June 30, 2002
(Unaudited)
(In thousands)
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ ------------ ------------ ------------
Net cash provided by operating activities... $ 50,030 $ 1 $ 5,808 $ (2,292) $ 53,547
Cash flows from investing activities:
Purchases of property, plant and
equipment......................... (10,612) -- (1,310) -- (11,922)
Proceeds from sale of property,
plant, and equipment.............. 20 -- 1 -- 21
--------- --------- --------- --------- ---------
Net cash used by investing activities....... (10,592) -- (1,309) -- (11,901)
Cash flows from financing activities:
Reduction of debt................... (163,407) -- (5,182) -- (168,589)
Proceeds from debt financing........ 124,500 -- -- -- 124,500
Issuance of stock................... 171 -- -- -- 171
Other............................... (1,089) -- (408) 251 (1,246)
--------- --------- --------- --------- ---------
Net cash used by financing activities....... (39,825) -- (5,590) 251 (45,164)
Effect of exchange rate changes on cash
and cash equivalents................... -- -- (772) 2,041 1,269
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and cash
equivalents............................ (387) 1 (1,863) -- (2,249)
Cash and cash equivalents, beginning
of period.............................. 2,849 46 8,463 -- 11,358
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period.... $ 2,462 $ 47 $ 6,600 $ -- $ 9,109
========= ========= ========= ========= =========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL QUARTER AND NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO
FISCAL QUARTER AND NINE MONTHS ENDED JULY 1, 2001
NET SALES. Net sales for the three months ended June 30, 2002 (the
"Fiscal 2002 Quarter") decreased $11.6 million, or 7.9%, to $135.4 million from
$147.0 million in the three months ended July 1, 2001 (the "Fiscal 2001
Quarter"). The sales decline reflects continued economic weakness in Latin
America, and continued category promotional activity and a cautious retail
inventory environment in North America compounded by lower sales to a major
customer in bankruptcy.
Net sales for the nine months ended June 30, 2002 (the "Fiscal 2002
Nine Months") decreased $27.6 million, or 6.2%, to $418.4 million from $446.0
million in the nine months ended July 1, 2001 (the "Fiscal 2001 Nine Months").
The sales decline primarily reflects continued economic weakness in the Latin
America region and continued category promotional activity and a cautious retail
inventory environment in North America partially offset by increased volume in
Europe/ROW.
NET INCOME. Net income for the Fiscal 2002 Quarter increased $7.6
million to $10.3 million from $2.7 million in the Fiscal 2001 Quarter. The
Fiscal 2002 Quarter includes a $4.1 million bad debt recovery resulting from the
sale of a majority portion of the receivable written-off in the quarter ended
December 30, 2001, a $3.0 million reduction in interest expense versus the prior
year, offset by a decline in operating income in Latin America and Europe/ROW.
Additionally, the Fiscal 2001 quarter included $5.4 million extraordinary loss,
net of tax, related to the early retirement of debt.
Net income for the Fiscal 2002 Nine Months increased $11.0 million to
$16.1 million from $5.1 million in the Fiscal 2001 Nine Months. The increase
reflects a $10.2 reduction in interest expense, a $16.2 reduction in special
charges, and improved profitability in North America compared to the Fiscal 2001
Nine Months, excluding bad debt impacts. These improvements were offset by a bad
debt reserve, net of recovery, of $12.0 million related to the bankruptcy filing
of a major customer, and declines in profitability in the Latin America segment.
The Fiscal 2001 Nine Months included a $5.4 million extraordinary loss, net of
tax, attributable to the early retirement of debt.
SEGMENT RESULTS. The Company manages operations in three reportable
segments based upon geographic area. North America includes the United States
and Canada; Latin America includes Mexico, Central America, and South America;
Europe/ROW includes the United Kingdom, Europe and all other countries in which
the company does business. We evaluate segment profitability based on income
from operations before corporate expense. Corporate expense includes corporate
purchasing expense, general and administrative expense, and research and
development expense.
FISCAL QUARTER NINE MONTHS
------------------- -------------------
NORTH AMERICA 2002 2001 2002 2001
---- ---- ---- ----
Revenue from external customers....... $100.9 $106.4 $312.9 $322.2
Profitability......................... 27.4 21.8 52.5 59.4
Profitability as a % of net sales..... 27.2% 20.5% 16.8% 18.4%
Assets................................ $234.2 $266.3 $234.2 $266.3
Our sales to external customers decreased $5.5 million, or 5.2%, to
$100.9 million in the Fiscal 2002 Quarter from $106.4 million the previous year
due primarily to weakness in alkaline and heavy duty batteries partially offset
by strong sales in rechargeable and specialty batteries and lighting products.
Alkaline sales decreases were primarily attributable to the decline in sales to
a major customer in bankruptcy, a cautious retail inventory environment and
continued promotional activity, and our inability to anniversary sales to an OEM
customer in the prior year. Heavy duty sales decreases reflect reduced
distribution and general industry trends. Rechargeable battery and lighting
18
product sales growth was primarily attributable to the success of new products.
Specialty battery sales growth resulted from higher sales of lithium batteries
to the OEM channel.
In the Fiscal 2002 Nine Months, our sales to external customers
decreased $9.3 million, or 2.9%, to $312.9 million in the Fiscal 2002 Nine
Months from $322.2 million the previous year as a result of growth in overall
sales of alkaline batteries, rechargeable batteries and lighting products offset
by weakness in heavy duty and specialty batteries. Alkaline sales increases were
primarily attributable to new distribution offset by the decline in sales to a
major customer in bankruptcy, and a cautious retail inventory environment and
continued promotional activity. Rechargeable batteries and lighting products
increases were primarily attributable to product line extension and the
introduction of new products. Heavy duty sales decreases reflect the industry
trend toward alkaline in place of heavy duty and reduced distribution. Specialty
batteries sales decreases versus last year primarily reflect a decline in
camcorder battery sales due to the transition to a product licensing
agreement.
Our profitability increased $5.6 million, or 25.7%, to $27.4 million in
the Fiscal 2002 Quarter from $21.8 million in the Fiscal 2001 Quarter. The
increase in profitability in the Fiscal 2002 Quarter was primarily attributable
to a $4.1 million recovery of bad debt resulting from the sale of a majority
portion of the receivables of a bankrupt customer in addition to lower operating
expenses, partially offset by a reduction in gross profit due to the sales
decrease. Excluding the impacts of the bad debt recovery, our profitability
margins increased 260 basis points to 23.1% from 20.5% in the same quarter last
year.
In the Fiscal 2002 Nine Months, our profitability decreased $6.9
million, or 11.6%, to $52.5 million in the Fiscal 2002 Nine Months from $59.4
million in the Fiscal 2001 Nine Months. The decrease in profitability in the
Fiscal 2002 Nine Months was primarily attributable to a $12.0 million bad debt
reserve, net of recovery, attributable to the bankruptcy filing of a major
customer. Excluding the impact of this reserve, profitability increased $5.1
million, or 8.6%, versus the same period last year due to lower operating
expenses. Our profitability margins, excluding the net bad debt reserve impacts,
increased 220 basis points to 20.6% from 18.4% in the previous year. The
increase primarily reflects lower operating expenses as a percentage of sales
partially offset by a reduction in gross profit margins reflecting a shift in
customer mix and increased promotional activity.
Our assets decreased $32.1 million, or 12.1%, to $234.2 million in the
Fiscal 2002 Quarter from $266.3 million the previous year. The decrease was
primarily attributable to a decrease in receivables and inventory.
FISCAL QUARTER NINE MONTHS
------------------- -------------------
LATIN AMERICA 2002 2001 2002 2001
---- ---- ---- ----
Revenue from external customers........................... $ 22.7 $ 28.9 $ 67.1 $ 88.9
Profitability............................................. 2.4 3.5 6.5 14.9
Profitability as a % of net sales......................... 10.6% 12.1% 9.7% 16.8%
Assets.................................................... $194.6 $207.3 $194.6 $207.3
Our sales to external customers decreased $6.2 million, or 21.5% to
$22.7 million in the Fiscal 2002 Quarter from $28.9 million in the same period
last year, and decreased $21.8 million, or 24.5%, to $67.1 million in the Fiscal
2002 Nine Months from $88.9 million the same period last year due primarily to
decreased sales of zinc carbon and alkaline batteries. Net sales were impacted
by unfavorable economic conditions, continued curtailment of shipments to
certain distributors and wholesalers who were delinquent in payments, political
uncertainties in Argentina and Venezuela, and the unfavorable impact of currency
devaluation which contributed approximately 10.7% and 6.4%, respectively, to the
sales decline versus the prior year periods.
Profitability in the Latin America segment was $2.4 million and $6.5
million in the Fiscal 2002 Quarter and Nine Months, respectively. The decrease
in profitability versus the same period last year was primarily attributable to
the sales and gross profit margin decline and the unfavorable impact of currency
devaluation, partially offset by a reduction in operating expenses primarily
reflecting a reduction in advertising expense and the adoption of SFAS 142 which
resulted in a reduction of amortization expense. Profitability margins in the
Fiscal 2002 Quarter and Fiscal
19
2002 Nine Months decreased primarily due to our relatively fixed operating
expenses spread over lower sales compounded by an unfavorable product line mix.
Our assets decreased $12.7 million, or 6.1%, to $194.6 million in the
Fiscal 2002 Quarter from $207.3 million the previous year due to decreases in
accounts receivable, inventory, and prepaid advertising and other assets.
FISCAL QUARTER NINE MONTHS
----------------- -----------------
EUROPE/ROW 2002 2001 2002 2001
---- ---- ---- ----
Revenue from external customers......... $11.8 $11.7 $38.4 $34.9
Profitability........................... 0.8 1.6 3.1 2.9
Profitability as a % of net sales....... 6.8% 13.7% 8.1% 8.3%
Assets.................................. $30.9 $26.6 $30.9 $26.6
Our sales to external customers increased $0.1 million, or 0.9%, to
$11.8 million in the Fiscal 2002 Quarter from $11.7 million the same period last
year and increased $3.5 million, or 10.0%, to $38.4 million in the Fiscal 2002
Nine Months from $34.9 million the same period last year primarily reflecting
strong sales of alkaline and hearing aid batteries attributable to distribution
gains and the favorable impact of foreign exchange rates.
Our profitability decreased $0.8 million in the Fiscal 2002 Quarter and
increased $0.2 million in the Fiscal 2002 Nine Months. Profitability in the
Fiscal 2002 Quarter was impacted by increased operating expenses and unfavorable
gross profit margins due to an unfavorable product line mix. The increase in
profitability in the Fiscal 2002 Nine Months primarily reflects the benefits of
volume gains and favorable foreign exchange rates partially offset by increased
operating expenses. Our profitability margin decreased, as a percentage of
sales, in the Fiscal 2002 Quarter, primarily due to higher operating expenses.
Our assets increased $4.3 million, or 16.2%, to $30.9 million from
$26.6 million the previous year due to an increase in inventory and receivables
reflecting the sales growth and due to foreign exchange rate impacts.
CORPORATE EXPENSE. Our corporate expense increased $1.6 million, or
30.2%, to $6.9 million in the Fiscal 2002 Quarter from $5.3 million in the
Fiscal 2001 Quarter and increased $3.1 million, or 16.4%, to $22.0 million in
the Fiscal 2002 Nine Months from $18.9 million the same period last year. The
increase in the Fiscal 2002 Quarter primarily reflects higher technology
spending, legal expenses, and the loss recorded related to the bankruptcy of
the Company's freight payment service provider, offset by lower management
incentives compared to the prior year.
The increased expense in the Fiscal 2002 Nine Months was
attributable to increased technology spending, and the loss recorded relating
to the bankruptcy of the Company's freight payment service provider. The
Fiscal 2001 Quarter and Nine Months reflected a gain on the sale of an
investment which was not repeated in the current year periods. As a
percentage of total sales, our corporate expense was 5.1% and 3.6% in the
Fiscal 2002 and Fiscal 2001 Quarters, respectively, and 5.3% and 4.2% in the
Fiscal 2002 and Fiscal 2001 Nine Months, respectively.
SPECIAL CHARGES. The Fiscal 2002 Quarter and Nine Months reflects $2.6
million of special charges related to the closure of the Santo Domingo,
Dominican Republic manufacturing facility and other cost rationalizations in our
Mexico City, Mexico manufacturing facility. The Fiscal 2001 Quarter and Nine
Months reflects $2.6 million and $18.8 million, respectively, in special charges
primarily associated with the closure of our Wonewoc, Wisconsin, manufacturing
facility and restructuring initiatives in Latin America and North America.
INCOME FROM OPERATIONS. Our income from operations increased $2.1
million, or 11.1%, to $21.1 million in the Fiscal 2002 Quarter from $19.0
million the same period last year. The increase was primarily attributable to
increased profitability in North America due to the bad debt recovery, improved
gross margins, and lower operating expenses, partially offset by the
profitability decline in Latin America and Europe/ROW, and higher corporate
expenses.
In the Fiscal 2002 Nine Months, our income from operations decreased
$1.9 million, or 4.8%, to $37.5 million from $39.4 million the previous year.
The decrease was primarily attributable to the profitability decline in Latin
America. A bad debt reserve and related recovery associated with the bankruptcy
filing of a major customer was recognized in the Fiscal 2002 Nine Months, while
the Fiscal 2001 Nine Months reflects the special charge reserve.
20
INTEREST EXPENSE. Interest expense decreased $3.0 million to $4.0
million in the Fiscal 2002 Quarter and decreased $10.2 million to $12.2 million
in the Fiscal 2002 Nine Months due to the retirement of $65.0 million in Senior
Subordinated Notes following the June 2001 stock offering combined with lower
effective interest rates and better global working capital management.
OTHER EXPENSE (INCOME). Other expense increased $0.7 million to a $0.5
million net expense in the Fiscal 2002 Quarter. The increase in the Fiscal 2002
Quarter was attributable to foreign exchange losses reflecting the unfavorable
impacts of currency devaluations in Argentina and Venezuela.
Other expense decreased $0.8 million to $0.1 million in the Fiscal 2002
Nine Months. The decrease in the Fiscal 2002 Nine Months was attributable to the
unfavorable impacts of currency devaluations in Venezuela and Argentina,
partially offset by foreign exchange gains versus foreign exchange losses in the
same period last year, primarily in Mexico.
INCOME TAX EXPENSE. Our effective tax rate was 37.9% and 33.4% for the
Fiscal 2002 Quarter and the Fiscal 2001 Quarter, respectively. Our effective tax
rate was 36.0% for the Fiscal 2002 Nine Months compared to 35.0% for the Fiscal
2001 Nine Months. The effective tax rate for the prior year reflects a larger
percentage of our income being derived from foreign jurisdictions.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective October 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) 141, BUSINESS COMBINATIONS, and SFAS 142, GOODWILL
AND OTHER INTANGIBLE ASSETS. Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated or completed after
June 30, 2001. Statement 141 also specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill. Statement 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 also requires that intangible assets
with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with Statement 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
The adoption of Statement 142 resulted in an increase to pre-tax income
of $0.8 million ($0.6 million after-tax) versus the previous year's quarter and
$2.5 million ($1.8 million after-tax) versus the Fiscal 2001 Nine Months. The
increase is attributable to the discontinuation of amortization of the trade
name and Latin America, North America, and Europe/ROW segment goodwill. These
assets were being amortized on a straight-line basis over 15 to 40 years. Upon
initial application of Statement 142, the Company reassessed the useful lives of
its intangible assets and deemed only the trade name to have an indefinite
useful life because it is expected to generate cash flows indefinitely. The
unamortized book value of these assets is $115.6 million. Upon the transition to
Statement 142, no goodwill was deemed to be impaired.
Effective January 1, 2002, the Company adopted Emerging Issues Task
Force (EITF) Issue No. 00-14, "Accounting for Certain Sales Incentives" and
Issue No. 00-25, "Vendor Income Statement Characterization of Consideration
Paid to a Reseller of the Vendor's Products or Services". These Issues
address the recognition, measurement, and income statement classification for
various types of sales incentives including discounts, coupons, rebates and
free products and when consideration from a vendor to a retailer or
distributor in connection with the purchase of the vendor's products to
promote sales of the vendor's products should be classified in the vendor's
income statement as a reduction of revenue or expense.
The adoption of these EITF's resulted in the following
reclassifications in the Company's results of operations. For the Fiscal 2002
and 2001 Quarters, net sales were reduced by $9.2 and $12.1 million,
respectively; cost of sales were increased by $3.8 and $3.3 million,
respectively; and selling expenses were reduced by $13.0 and $15.4 million,
respectively. For the For the Fiscal 2002 and 2001 Nine Months, net sales were
reduced by $38.5 and $41.9 million, respectively; cost of sales were increased
by $11.8 and $10.2 million, respectively; and selling expenses were reduced by
$50.3 and $52.1 million, respectively.
21
Concurrent with the adoption of EITF 00-25, the Company reclassified
certain accrued trade incentives as a contra receivable versus the Company's
previous presentation as a component of accounts payable. Historically,
customers offset earned trade incentives when making payments on account.
Therefore, the Company believes the reclassification of these accrued trade
incentives as a contra receivable better reflects the underlying economics of
the Company's net receivable due from out trade customers.
The reclassification results in a reduction in accounts receivable and
accounts payable in our Consolidated Balance Sheets of $20.8 million and $21.4
million at June 30, 2002 and September 30, 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
For the Fiscal 2002 Nine Months, operating activities provided $53.5
million in net cash compared with $27.6 million the previous year. Operating
cash flow increases versus the previous year primarily reflect the reduction of
interest payments due to the retirement of $65.0 million in Senior Subordinated
Notes as well as a lower investment in working capital reflecting lower
investment in receivables.
Net cash used by investing activities decreased $2.2 million versus the
same period a year ago reflecting a decrease in capital expenditures.
Expenditures in the Fiscal 2002 Nine Months were primarily for improvements to
alkaline battery manufacturing. Capital expenditures for fiscal 2002 are
expected to be approximately $20.0 million which will include continued
performance upgrades to our alkaline and zinc air manufacturing and packaging
operations and continued investment in technology.
During the Fiscal 2002 Nine Months we granted approximately 1.0 million
options to purchase shares of common stock to various employees of the company.
All grants have been at an exercise price equal to the market price of the
common stock on the date of the grant.
As a result of the bad debt reserve for Kmart receivables in the
quarter ended December 30, 2001, the Company was out of compliance with the
leverage ratio covenant of its senior bank credit agreement ("Second Amended
Restated Credit Agreement"). On February 12, 2002, the Company amended the
Second Amended Restated Credit Agreement ("Fourth Amendment") which placed it in
compliance with an amended leverage ratio based on an amended definition of
EBITDA (see Exhibit 4.11). The Company recorded $0.3 million of fees paid as a
result of the amendment as a debt issuance cost which will be amortized over the
remaining life of the agreement.
The Company believes that cash flow from operating activities and
periodic borrowings under its amended credit facilities will be adequate to
meet the Company's short-term and long-term operating liquidity requirements
prior to the maturity of those credit facilities, although no guarantee can
be given in this regard. The Company's current credit facilities include a
revolving credit facility of $250.0 million and term loan of $75.0 million.
As of June 30, 2002, $25.7 million of the term loan remained outstanding and
$183.2 million was outstanding under the revolving facility with
approximately $6.0 million of the remaining availability utilized for
outstanding letters of credit.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK FACTORS
We have market risk exposure from changes in interest rates, foreign
currency exchange rates and commodity prices. We use derivative financial
instruments for purposes other than trading to mitigate the risk from such
exposures.
A discussion of our accounting policies for derivative financial
instruments is included in Note 1 "Significant Accounting Policies" in Notes to
our consolidated financial statements.
INTEREST RATE RISK
We have bank lines of credit at variable interest rates. The general
level of U.S. interest rates, LIBOR, IBOR, and to a lesser extent European Base
rates, primarily affects interest expense. We use interest rate swaps to manage
22
such risk. The net amounts to be paid or received under interest rate swap
agreements are accrued as interest rates change, and are recognized over the
life of the swap agreements, as an adjustment to interest expense from the
underlying debt to which the swap is designated. The related amounts payable to,
or receivable from, the contract counter-parties are included in accrued
liabilities or accounts receivable.
FOREIGN EXCHANGE RISK
We are subject to risk from sales and loans to our subsidiaries as well
as sales to, purchases from and bank lines of credit with, third-party
customers, suppliers and creditors, respectively, denominated in foreign
currencies. Foreign currency sales are made primarily in Pounds Sterling,
Canadian Dollars, Euros, Mexican Pesos, Guatemalan Quetzals, Dominican Pesos,
Venezuelan Bolivars, Argentine Pesos, Chilean Pesos and Honduran Lempira.
Foreign currency purchases are made primarily in Pounds Sterling, Euros, Mexican
Pesos, Dominican Pesos, and Guatemalan Quetzals. We manage our foreign exchange
exposure from anticipated sales, accounts receivable, intercompany loans, firm
purchase commitments and credit obligations through the use of naturally
occurring offsetting positions (borrowing in local currency), forward foreign
exchange contracts, foreign exchange rate swaps and foreign exchange options.
The related amounts payable to, or receivable from, the contract counter parties
are included in accounts payable or accounts receivable.
COMMODITY PRICE RISK
We are exposed to fluctuation in market prices for purchases of zinc
used in the manufacturing process. We use commodity swaps, calls and puts to
manage such risk. The maturity of, and the quantities covered by, the contracts
are closely correlated to our anticipated purchases of the commodities. The cost
of calls, and the premiums received from the puts, are amortized over the life
of the contracts and are recorded in cost of goods sold, along with the effects
of the swap, put and call contracts. The related amounts payable to, or
receivable from, the counterparties are included in accounts payable or accounts
receivable.
SENSITIVITY ANALYSIS
The analysis below is hypothetical and should not be considered a
projection of future risks. Earnings projections are before tax.
As of June 30, 2002, the potential change in fair value of outstanding
interest rate derivative instruments, assuming a 1% unfavorable shift in the
underlying interest rates would be a loss of $3.9 million. The net impact on
reported earnings, after also including the reduction in one year's interest
expense on the related debt due to the same shift in interest rates, would be a
net loss of $1.5 million.
As of June 30, 2002, the potential change in fair value of outstanding
foreign exchange rate derivative instruments, assuming a 10% unfavorable change
in the underlying foreign exchange rates would be immaterial. The net impact on
future cash flows, after also including the gain in value on the related
accounts receivable and contractual payment obligations outstanding at June 30,
2002 due to the same change in exchange rates, would be a net gain of $0.6
million.
As of June 30, 2002, the potential change in fair value of outstanding
commodity price derivative instruments, assuming a 10% unfavorable change in the
underlying commodity prices would be a loss of $0.8 million. The net impact on
reported earnings, after also including the reduction in cost of one year's
purchases of the related commodities due to the same change in commodity prices,
would be immaterial.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the FASB issued Statement No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS. Statement No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company is required to
adopt no later than its fiscal year beginning October 1, 2002. Management is
currently evaluating the impact of adoption on the consolidated financial
statements.
23
In October 2001, the FASB issued Statement No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. This statement supersedes FASB
Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and reporting provisions
of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS - REPORTING THE
EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND
INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, for the disposal of a segment of
a business. The Company is required to adopt no later than its fiscal year
beginning October 1, 2002. Management is currently evaluating the impact of
adoption on the consolidated financial statements.
In April 2002, the FASB issued Statement No. 145, RESCISSION OF FASB
STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS. The Statement addresses, among other things, the income statement
treatment of gains and losses related to debt extinguishments, requiring such
expenses to no longer be treated as extraordinary items, unless the items meet
the definition of extraordinary per APB Opinion No. 30, REPORTING THE RESULTS OF
OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS. The
Company is required to adopt no later than its fiscal year beginning October 1,
2002. Management is currently evaluating the impact of adoption on the
consolidated financial statements.
In July 2002, the FASB issued Statement No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. The Statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
The Statement replaces EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." The Company is required to apply
this Statement prospectively to exit or disposal activities initiated after
December 31, 2002. Management is currently evaluating the impact of adoption on
the consolidated financial statements.
FORWARD LOOKING STATEMENTS
Certain of the information contained in this Form 10-Q, including
without limitation statements made under Part I, Item 1, "Financial Statements"
and Part I, Item 2, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Part I, Item 3, "Quantitative and Qualitative
Disclosures about Market Risk" which are not historical facts, may include
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act, as amended. In reviewing such information, you should
note that our actual results may differ materially from those set forth in such
forward-looking statements.
Important factors that could cause our actual results to differ
materially from those included in the forward-looking statements made herein
include, without limitation, (1) significant changes in consumer demand and
buying practices for household batteries, hearing aid batteries or other
products we manufacture or sell in North America, Latin America or Europe/ROW;
(2) the loss of, or a significant reduction in, sales through a significant
retail customer; (3) the successful introduction or expansion of competitive
brands into the marketplace, including private label offerings; (4) the
introduction of new product features or new battery technologies by a
competitor; (5) promotional campaigns and spending by a competitor; (6)
difficulties or delays in the integration of operations of acquired companies;
(7) our ability to successfully implement manufacturing and distribution cost
efficiencies and improvements; (8) delays in manufacturing or distribution due
to work stoppages, problems with suppliers, natural causes or other factors; (9)
the enactment or imposition of unexpected environmental regulations negatively
impacting consumer demand for certain of our battery products or increasing our
cost of manufacture or distribution; (10) the costs and effects of unanticipated
legal, tax or regulatory proceedings; (11) the effects of competitors' patents
or other intellectual property rights; (12) interest rate, exchange rate and raw
material price fluctuations; (13) impact of unusual items resulting from
evaluation of business strategies, acquisitions and divestitures and
organizational structure; (14) changes in accounting standards applicable to our
business; and (15) the effects of changes in trade, monetary or fiscal policies
and regulations by governments in countries where we do business.
Additional factors and assumptions that could generally cause our
actual results to differ materially from those included in the forward-looking
statements made herein include, without limitation, (1) our ability to develop
and introduce new products; (2) the effects of general economic conditions in
North America, Europe, Latin America or other countries where we do business,
including inflation, labor costs and stock market volatility; (3) the effects of
political or economic
24
conditions, unrest or volatility in Latin America and other international
markets; (4) the sufficiency of our production and distribution capacity to meet
future demand for our products; (5) our ability to keep pace with the product
and manufacturing technological standards in our industry; (6) our ability to
continue to penetrate and develop new distribution channels for our products;
and (7) various other factors, including those discussed herein and those set
forth in our most recent Annual Report on Form 10-K and the prospectus
supplement for our most recent public offering of common stock. Other factors
and assumptions not identified above were also involved in the derivation of the
forward-looking statements contained in this Form 10-Q and the failure of such
other assumptions to be realized, as well as other factors, may also cause
actual results to differ materially from those projected. We assume no
obligations to update these forward-looking statements to reflect actual results
or changes in factors or assumptions affecting such forward-looking statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no significant changes in the status of Rayovac's legal
proceedings since the filing of Rayovac's Annual Report on Form 10-K for its
fiscal year ended September 30, 2001, other than the item mentioned below.
On May 31, 2002, a plaintiff represented by the law firm of Milberg
Weiss Bershad Hynes & Lerach filed a class action lawsuit in the United
States District Court for the Western District of Wisconsin against
defendants Rayovac Corporation and several of its current and former
executive officers and directors alleging that the defendants violated
Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder (ELI FRIEDMAN V. RAYOVAC CORPORATION, KENNETH V. BILLER, KENT J.
HUSSEY, DAVID A. JONES, SCOTT A. SCHOEN, STEPHEN P. SHANESY, THOMAS R.
SHEPARD, RANDALL J. STEWARD, WARREN C. SMITH, JR., AND MERRELL TOMLIN, CASE
NO. 02 C 0308 C, UNITED STATES DISTRICT COURT, WESTERN DISTRICT OF
WISCONSIN). The complaint alleges that defendants made various false and
misleading statements which had the alleged effect of artifically inflating
the price of Rayovac stock during the period from April 26, 2001 until
September 19, 2001. Substantially similar lawsuits were subsequently filed on
June 11, 2002 (RICHARD SLATTEN V. RAYOVAC CORPORATION, KENNETH V. BILLER,
KENT J. HUSSEY, DAVID A. JONES, SCOTT A. SCHOEN, STEPHEN P. SHANESY, THOMAS
R. SHEPARD, RANDALL J. STEWARD, WARREN C. SMITH, JR., AND MERRELL TOMLIN,
CASE NO. 02 C 0325 C, UNITED STATES DISTRICT COURT, WESTERN DISTRICT OF
WISCONSIN) and on June 28, 2002 (DAVID HAYES V. RAYOVAC CORPORATION, KENNETH
V. BILLER, KENT J. HUSSEY, DAVID A. JONES, SCOTT A. SCHOEN, STEPHEN P.
SHANESY, THOMAS R. SHEPARD, RANDALL J. STEWARD, WARREN C. SMITH, JR., MERRELL
TOMLIN, AND LUIS CANCIO CASE NO. 02 C 0370 C, UNITED STATES DISTRICT COURT,
WESTERN DISTRICT OF WISCONSIN). Rayovac and the individual defendants have
not yet answered these complaints, but they intend to deny all material
allegations and vigorously defend themselves in these actions.
25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
2.1++++ Share Purchase Agreement made as of June 11, 1999, by and
among the Company, Vidor Battery Company, Rayovac Latin
America, Ltd., the shareholders of ROV Limited, ROV
Limited, ESB ROV Ltd., Duranmas, S.A., certain
second-tier subsidiaries of ROV Limited, Ray-O-Vac
Overseas Corporation, and Alfredo J. Diez and Richard T.
Doyle, Jr., as selling group representatives.
2.2++++ Form of Stock Purchase Agreement entered into on or
around June 11, 1999, by and among the Company, Rayovac
Latin America, Ltd. and certain persons who hold minority
interests in certain of the operating subsidiaries of
Ray-O-Vac Overseas Corporation.
3.1+ Amended and Restated Articles of Incorporation of the
Company.
3.2****** Amended and Restated By-laws of the Company, as amended
through May 17, 1999.
4.1** Indenture, dated as of October 22, 1996, by and among the
Company, ROV Holding, Inc. and Marine Midland Bank, as
trustee, relating to the Company's 10 1/4% Senior
Subordinated Notes due 2006.
4.2****** First Supplemental Indenture, dated as of February 26,
1999, by and among the Company, ROV Holding, Inc. and
HSBC Bank USA (formerly known as Marine Midland Bank) as
trustee, relating to the Company's 10 1/4% Senior
Subordinated Notes due 2006.
4.3++++ Second Supplemental Indenture, dated as of August 6,
1999, by and among the Company, ROV Holding, Inc. and
HSBC Bank USA (formerly known as Marine Midland Bank) as
trustee, relating to the Company's 10 1/4% Senior
Subordinated Notes due 2006.
4.4******* Third Supplemental Indenture, dated as of June 13, 2001,
by and among the Company, ROV Holding, Inc., ROVCAL, Inc.
and HSBC Bank USA (formerly known as Marine Midland Bank)
as trustee, relating to the Company's 101/4% Senior
Subordinated Notes due 2006.
4.5** Specimen of the Notes (included as an exhibit to Exhibit
4.1)
4.6**** Amended and Restated Credit Agreement, dated as of
December 30, 1997, by and among the Company, the lenders
party thereto and Bank of America National Trust and
Savings Association ("BofA"), as Administrative Agent.
4.7++++ Second Amended and Restated Credit Agreement, dated as of
August 9, 1999, by and among the Company, the lenders
party thereto and Bank of America, NA as Administrative
Agent.
4.8+++++ The First Amendment dated as of July 28, 2000 to the
Second Amended and Restated Credit Agreement, dated as of
August 9, 1999, by and among the Company, the lenders
party thereto and Bank of America, NA as Administrative
Agent.
4.9+++++++ The Second Amendment dated as of December 31, 2000 to the
Second Amended and Restated Credit Agreement, dated as of
August 9, 1999, by and among the Company, various
financial institutions, and Bank of America, NA as
Administrative Agent.
4.10++++++++ The Third Amendment dated as of June 11, 2001, to the
Second Amended and Restated Credit Agreement, dated as of
August 9, 1999, by and among the Company, various
financial institutions, and Bank of America, NA as
Administrative Agent.
4.11+++++++++ The Fourth Amendment dated as of February 12, 2002, to
the Second Amended and Restated Credit Agreement, dated
as of August 9, 1999, by and among the Company, various
financial institutions, and Bank of America, NA as
Administrative Agent.
4.12** The Security Agreement, dated as of September 12, 1996,
by and among the Company, ROV Holding, Inc. and Bank of
America, NA.
26
4.13** The Company Pledge Agreement, dated as of September 12,
1996, by and between the Company and Bank of America, NA.
4.14 Amended and Restated Shareholders Agreement, dated as
of July 31, 2002, by and among the Company and the
shareholders of the Company referred to therein.
4.15* Specimen certificate representing the Common Stock.
10.1** Management Agreement, dated as of September 12, 1996, by
and between the Company and Thomas H. Lee Company.
10.2** Confidentiality, Non-Competition and No-Hire Agreement,
dated as of September 12, 1996, by and between the
Company and Thomas F. Pyle.
10.3+++++ Amended and Restated Employment Agreement, dated as of
October 1, 2000, by and between the Company and David A.
Jones.
10.4+++++ Amended and Restated Employment Agreement, dated as of
October 1, 2000, by and between the Company and Kent J.
Hussey.
10.5+++++ Employment Agreement, dated as of October 1, 2000, by and
between the Company and Kenneth V. Biller.
10.6+++++ Employment Agreement, dated as of October 1, 2000, by and
between the Company and Stephen P. Shanesy.
10.7+++++ Employment Agreement, dated as of October 1, 2000, by and
between the Company and Merrell M. Tomlin.
10.8+++++ Employment Agreement, dated as of October 1, 2000, by and
between the Company and Luis A. Cancio.
10.9 Employment Agreement, dated as of November 1, 2001, by and
between the Company and Dr. Paul G. Cheeseman.
10.10** Technology, License and Service Agreement between Battery
Technologies (International) Limited and the Company,
dated June 1, 1991, as amended July 19, 1993, and
December 31, 1995.
10.11** Building Lease between the Company and SPG Partners dated
May 14, 1985, as amended June 24, 1986, and June 10,
1987.
10.12***** Amendment, dated December 31, 1998, between the Company
and SPG Partners, to the Building Lease, between the
Company and SPG Partners, dated May 14, 1985.
10.13*** Rayovac Corporation 1996 Stock Option Plan.
10.14* 1997 Rayovac Incentive Plan.
10.15* Rayovac Profit Sharing and Savings Plan.
10.16+++ Technical Collaboration, Sale and Supply Agreement, dated
as of March 5, 1998, by and among the Company. Matsushita
Battery Industrial Co., Ltd. and Matsushita Electric
Industrial Co., Ltd.
99 Certification of CEO and CFO Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
--------------
* Incorporated by reference to the Company's Registration
Statement on Form S-1 (Registration No. 333-35181) filed
with the Commission.
27
** Incorporated by reference to the Company's Registration
Statement on Form S-1 (Registration No. 333-17895) filed
with the Commission.
*** Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June
29, 1997, filed with the Commission on August 13, 1997.
**** Incorporated by reference to the Company's Registration
Statement on Form S-3 (Registration No. 333-49281) filed
with the Commission.
***** Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
January 3, 1999, filed with the Commission on February
17, 1999.
****** Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended April
4, 1999, filed with the Commission on May 17, 1999.
******* Incorporated by reference to the Company's Report on Form
8-K filed with the Commission on June 19, 2001.
+ Incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 23, 1997.
++ Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the Quarterly period ended June
27, 1998, filed with the Commission on August 4, 1998.
+++ Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March
28, 1998, filed with the Commission on May 5, 1998.
++++ Incorporated by reference to the Company's Current Report
on Form 8-K filed with the Commission on August 24, 1999,
as subsequently amended on October 26, 1999.
+++++ Incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30,
2000, filed with the Commission on December 19, 2000.
+++++++ Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June
30, 2001, filed with the Commission on May 14, 2001.
++++++++ Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended July
1, 2001, filed with the Commission on August 9, 2001.
+++++++++ Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
December 30, 2001, filed with the Commission on February
13, 2002.
(b) Reports on Form 8-K. The Company has not filed any reports on Form 8-K
during the three month period ended June 30, 2002.
28
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: August 14, 2002
RAYOVAC CORPORATION
By: /s/ Kent J. Hussey
-------------------------------------
Kent J. Hussey
President and Chief Financial Officer
29