<PAGE>
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 April 2, 2000
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
Rayovac Corporation
--------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Wisconsin 22-2423556
----------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
601 Rayovac Drive, Madison, Wisconsin 53711
-----------------------------------------
(Address of principal executive offices) (Zip Code)
(608) 275-3340
--------------------------------------------
(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 May 12, 2000, was 27,508,276.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
April 2, 2000 and September 30, 1999
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
-ASSETS-
2000 1999
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 11,207 $11,065
Receivables ........................................................ 101,307 141,321
Inventories ........................................................ 98,398 82,418
Prepaid expenses and other ......................................... 25,265 22,849
--------- ---------
Total current assets ........................................ 236,177 257,653
Property, plant and equipment, net ..................................... 109,420 110,778
Deferred charges and other, net ........................................ 34,903 36,420
Intangible assets, net ................................................. 126,543 128,850
========= =========
Total assets ............................................... $ 507,043 $533,701
========= =========
-LIABILITIES AND SHAREHOLDERS' EQUITY -
Current liabilities:
Current maturities of long-term debt ............................... $ 22,465 $22,895
Accounts payable ................................................... 76,232 85,524
Accrued liabilities:
Wages and benefits and other .................................. 32,235 37,556
Recapitalization and other special charges .................... 1,350 7,282
--------- ---------
Total current liabilities ................................... 132,282 153,257
Long-term debt, net of current maturities .............................. 282,471 307,426
Employee benefit obligations, net of current portion ................... 15,066 12,860
Other .................................................................. 14,060 13,698
--------- ---------
Total liabilities ........................................... 443,879 487,241
Shareholders' equity:
Common stock, $.01 par value, authorized 150,000 shares; issued
56,970 and 56,970 shares respectively;
outstanding 27,491 and 27,490 shares, respectively ............... 570 570
Additional paid-in capital ............................................. 103,597 103,577
Retained earnings ...................................................... 87,671 70,100
Accumulated other comprehensive income: ................................ 1,312 2,199
Notes receivable from officers/shareholders ............................ (890) (890)
--------- ---------
192,260 175,556
Less treasury stock, at cost, 29,479 and 29,480
shares, respectively ................................................ (129,096) (129,096)
--------- ---------
Total shareholders' equity .................................. 63,164 46,460
--------- ---------
Total liabilities and shareholders' equity .................. $ 507,043 $533,701
========= =========
</TABLE>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
<PAGE>
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six month periods ended April 2, 2000 and April 4, 1999
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
-------------------------- --------------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales ................................................. $142,596 $110,969 $357,386 $271,511
Cost of goods sold ........................................ 72,732 58,657 183,561 140,516
-------- -------- -------- --------
Gross profit ......................................... 69,864 52,312 173,825 130,995
Selling ................................................... 41,976 32,454 100,544 80,043
General and administrative ................................ 11,921 8,249 25,286 16,721
Research and development .................................. 2,737 2,449 5,292 4,852
Other special charges ..................................... -- 738 -- 1,386
-------- -------- -------- --------
Total operating expenses ............................. 56,634 43,890 131,122 103,002
Income from operations ............................ 13,230 8,422 42,703 27,993
Interest expense ........................................ 7,131 3,484 15,252 7,140
Other expense (income) .................................. 483 155 420 382
-------- -------- -------- --------
Income before income taxes ................................ 5,616 4,783 27,031 20,471
Income tax expense ........................................ 1,965 1,720 9,461 7,416
-------- -------- -------- --------
Net income ........................................ $ 3,651 $ 3,063 $ 17,570 $ 13,055
======== ======== ======== ========
BASIC EARNINGS PER SHARE
Weighted average shares of common stock outstanding ....... 27,491 27,485 27,490 27,484
Net Income ................................................ $ 0.13 $ 0.11 $ 0.64 $ 0.48
DILUTED EARNINGS PER SHARE
Weighted average shares outstanding
and equivalents outstanding ............................. 29,057 29,315 29,082 29,241
Net Income ................................................ $ 0.13 $ 0.10 $ 0.60 $ 0.45
</TABLE>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE>
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six month periods ended April 2, 2000 and April 4, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
2000 1999
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $17,570 $13,055
Non-cash adjustments to net income:
Amortization ..................................................... 3,222 1,294
Depreciation ..................................................... 8,090 5,495
Other non-cash adjustments ....................................... 3,089 (359)
Net changes in assets and liabilities ................................ 7,237 (5,555)
--------- ---------
Net cash provided by operating activities ..................... 39,208 13,930
Cash flows from investing activities:
Purchases of property, plant and equipment ........................... (7,451) (9,025)
Proceeds from sale of property, plant and equipment .................. 386 11
--------- ---------
Net cash used by investing activities ......................... (7,065) (9,014)
Cash flows from financing activities:
Reduction of debt .................................................... (105,330) (9,150)
Proceeds from debt financing ......................................... 80,055 4,263
Cash overdraft and other ............................................. (6,629) (749)
--------- ---------
Net cash provided (used) by financing activities .............. (31,904) (5,636)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents .......................................................... (97) 6
--------- ---------
Net increase in cash and cash equivalents ..................... 142 (714)
Cash and cash equivalents, beginning of period ............................... 11,065 1,594
--------- ---------
Cash and cash equivalents, end of period ..................................... $11,207 $880
========= =========
</TABLE>
4
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
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 (all
of which are normal and recurring in nature) necessary to present
fairly the financial position of the Company at April 2, 2000, results
of operations for the three and six month periods ended April 2, 2000,
and April 4, 1999, and cash flows for the six month periods ended April
2, 2000, and April 4, 1999. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles 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, 1999. Certain prior year amounts have been
reclassified to conform with the current year presentation.
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 net amounts to be paid or received under interest rate
swap agreements designated as hedges 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 counter-parties are included in accrued liabilities or accounts
receivable. The Company has entered into a series of interest rate swap
agreements which effectively fix the interest rate on floating rate
debt at a rate of 6.404% for a notional principal amount of $75,000 for
the period October 1999 through October 2002. The unrealized portion of
the fair value of these contracts at April 2, 2000 was $994.
The Company has entered into a set of foreign exchange put and
call option contracts for the period December 1999 through September
2000 to hedge the risk from settlement of US Dollar-denominated debt
with Mexican Pesos. Buying a Peso put allows the Company to exchange a
specified quantity of Pesos for U.S. Dollars with the seller of the put
at a fixed exchange rate through a specified date. Selling a Peso put
allows the buyer of the put to exchange a specified quantity of Pesos
for U.S. Dollars with the Company at a fixed exchange rate through a
specified date. Selling a Peso call allows the buyer of the call to
exchange a specified quantity of Pesos for U.S. Dollars with the
Company at a fixed exchange rate through a specified date. The set of
contracts effectively fixes the exchange rate for Pesos to Dollars to a
range with a ceiling determined by the strike rate of the call sold,
and a floor determined by the strike rate of the put purchased but
further limited to the strike rate of the put sold. If the actual
market rate of exchange declines past the strike rate of the put sold,
the benefit of the put purchased is gradually offset to zero at which
point the Company is effectively exposed to fluctuation in the
Peso/U.S. Dollar rate as though no hedge contract existed. The cost of
the first put and premiums received from sale of the second put and the
call, are amortized over the life of the contracts and are recorded as
an adjustment to foreign exchange gains or losses to income. The
contracts are marked to market, and the related adjustment is
recognized in other expense (income). The related amounts payable to,
or receivable from, the counter-parties are included in accounts
payable or accounts receivable. The Company has $5,000 of such option
contracts at April 2, 2000. The unrealized portion of the fair value of
these contracts at April 2, 2000 was immaterial.
The Company enters into forward foreign exchange contracts to
mitigate the risk from anticipated settlement in local currencies of
inter-company purchases and sales. These contracts generally require
the Company to exchange foreign currencies for U.S. dollars. The
contracts are marked to market, and the
5
<PAGE>
related adjustment is recognized in other expense (income). The related
amounts payable to, or receivable from, the counter-parties are
included in accounts payable or accounts receivable. The Company has
$6,663 of such forward exchange contracts at April 2, 2000. The
unrealized portion of the fair value of the contracts at April 2, 2000
was immaterial.
The Company enters into forward foreign exchange contracts to
hedge the risk from anticipated settlement in local currencies of trade
sales. These contracts generally require the Company to exchange
foreign currencies for Pounds Sterling. The related amounts receivable
from the trade customers are included in accounts receivable. The
Company has approximately $5,399 of such forward exchange contracts at
April 2, 2000. The unrealized portion of the fair value of the
contracts at April 2, 2000, was $336.
The Company enters into forward foreign exchange contracts to
hedge the risk from anticipated settlement in local currencies of trade
purchases. These contracts generally require the Company to exchange
foreign currencies for U.S. Dollars. The Company has approximately
$13,100 of such forward exchange contracts denominated in Mexican Pesos
at April 2, 2000. The unrealized portion of the fair value of the
contracts at April 2, 2000, was ($788).
The Company is exposed to risk from fluctuating prices for
zinc used in the manufacturing process. The Company hedges some of this
risk through the use of commodity swaps, calls and puts. The swaps
effectively fix the floating price on a specified quantity of a
commodity through a specified date. Buying calls allows the Company to
purchase a specified quantity of a commodity for a fixed price through
a specified date. Selling puts allows the buyer of the put to sell a
specified quantity of a commodity to the Company for a fixed price
through a specific date. The maturity of, and the quantities covered
by, the contracts highly correlate to the Company's anticipated
purchases of the commodities. The cost of the 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. At April 2, 2000, the Company had entered
into a series of swaps for zinc with a contract value of $9,472 for the
period March 2000 through March 2001. While these transactions have no
carrying value, the unrealized portion of the fair value of these
contracts at April 2, 2000, was $103.
2 INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 2, 2000 SEPTEMBER 30, 1999
------------- ------------------
<S> <C> <C>
Raw material........................ $32,014 $29,287
Work-in-process..................... 15,584 16,077
Finished goods...................... 50,800 37,054
------ --------
$98,398 $82,418
======= =======
</TABLE>
3 OTHER COMPREHENSIVE INCOME
Comprehensive income and the components of other comprehensive income
(loss) for the three and six months ended April 2, 2000 and April 4,
1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
------------ ----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income......................................... $3,651 $3,063 $17,570 13,055
Other comprehensive loss:
foreign currency translation..................... (97) (551) (887) (647)
---- ----- ----- -----
Comprehensive income............................... $3,554 $2,512 $16,683 $12,408
====== ====== ======= =======
</TABLE>
6
<PAGE>
4 NET INCOME PER COMMON SHARE
Net income per common share for the three months and six months ended
April 2, 2000 and April 4, 1999 is calculated based upon the following
shares:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
------------ ----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic........................................ 27,491 27,485 27,490 27,484
Effect of assumed conversion options......... 1,566 1,830 1,592 1,757
----- ----- ----- -----
Diluted...................................... 29,057 29,315 29,082 29,241
====== ====== ====== ======
</TABLE>
5 COMMITMENTS AND CONTINGENCIES
In March 1998, the Company entered into an agreement to purchase
certain equipment and to pay annual royalties. In connection with the
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,
up to Year 2022. The Company incurred royalty expenses of $2,000 for
1997, 1998 and 1999. Additionally, the Company has committed to
purchase $439 of tooling at April 2, 2000.
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 at various
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 $2,227, 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, such contingent
liabilities are not likely to have a material adverse effect on the
financial condition, liquidity or cash flow of the Company.
6 OTHER
During 1999, the Company recorded special charges as follows: (i)
$2,528 of employee termination benefits for 43 employees related to
organizational restructuring in the U.S. and Europe, (ii) $1,300 of
charges related to the discontinuation of the manufacturing of
silver-oxide cells at the Company's Portage, Wisconsin, facility, and
(iii) $2,100 of charges related to the termination of non-performing
foreign distributors. The Company also recognized special charges of
$803 related to the investigation of financing options and developing
organizational strategies for the Latin American acquisition.
7
<PAGE>
1999 RESTRUCTURING SUMMARY
<TABLE>
<CAPTION>
TERMINATION OTHER
BENEFITS COSTS TOTAL
<S> <C> <C> <C>
Expense accrued.......................... $2,500 $3,400 $5,900
Cash expenditures........................ (200) -- (200)
----- ------- -----
Balance September 30, 1999................ $2,300 $3,400 $5,700
------ ------ ------
Cash expenditures....................... (1,200) -- (1,200)
Non-cash charges........................ -- (2,800) (2,800)
------- ------- -------
Balance January 2, 2000................... $1,100 $600 $1,700
------ ---- ------
Cash expenditures....................... (500) (100) (600)
Non-cash expenditures................... -- (500) (500)
------ ----- -----
Balance April 2, 2000..................... $600 $ -- $600
====== ===== =====
</TABLE>
During 1998, the Company recorded special charges and credits as follows: (i) a
credit of $1,243 related to the settlement of deferred compensation agreements
with certain former employees, (ii) charges of $5,280 related to (a) the
September 1998 closing of the Company's Newton Aycliffe, United Kingdom,
packaging facility, (b) the phasing out of direct distribution by June 1998 in
the United Kingdom, and (c) the September 1998 closing of one of the Company's
German sales offices, which amounts include $1,771 of employee termination
benefits for 73 employees, $1,457 of lease cancellation costs, and $1,032 of
equipment and intangible asset write-offs, and $1,020 of other costs, (iii)
charges of $2,184 related to the closing of the Company's Appleton, Wisconsin,
manufacturing facility, which amount includes $1,449 of employee termination
benefits for 153 employees, $200 of fixed asset write-offs and $535 of other
costs, (iv) charges of $1,963 related to the exit of certain manufacturing
operations at the Company's Madison, Wisconsin, facility, which amount includes
$295 of employee termination benefits for 29 employees, $1,256 of fixed asset
write-offs, and $412 of other costs, (v) a $2,435 gain on the sale of the
Company's previously closed Kinston, North Carolina, facility, (vi) charges of
$854 related to the secondary offering of the Company's common stock, and (vii)
miscellaneous credits of $420. A summary of the 1998 restructuring activities
follows:
1998 RESTRUCTURING SUMMARY
<TABLE>
<CAPTION>
TERMINATION OTHER
BENEFITS COSTS TOTAL
<S> <C> <C> <C>
Expense accrued.......................... $3,700 $3,800 $7,500
Change in estimate....................... (100) 500 400
Expensed as incurred..................... 200 1,300 1,500
Cash expenditures........................ (1,500) (1,400) (2,900)
Non-cash charges......................... -- (1,600) (1,600)
------ ------- -------
Balance September 30, 1998................. $2,300 $2,600 $4,900
------ ------ ------
Change in estimate....................... (500) -- (500)
Expensed as incurred..................... 300 2,800 3,100
Cash expenditures........................ (2,000) (4,500) (6,500)
Non-cash charges......................... -- (900) (900)
----- ----- -----
Balance September 30, 1999................. $ 100 $ -- $ 100
------ ----- -----
Cash expenditures........................... (100) -- (100)
------ ----- -----
Balance April 2, 2000.................. $ -- $ -- $ --
====== ===== =====
</TABLE>
8
<PAGE>
7 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. These
product lines are sold in all geographic areas.
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. Research and development depreciation and
amortization costs are reflected as corporate expense. All other
depreciation and amortization included in income from operations is
related to reportable segments. Costs are identified to reportable
segments or corporate, according to the function of each cost center.
Variable allocations of revenues and costs are not made for segment
reporting.
The reportable segment assets do not include cash, deferred tax
benefits, investments, long term inter company receivables, most
deferred charges, and miscellaneous assets. All capital expenditures
are related to reportable segments. Variable allocations of assets are
not made for segment reporting.
<TABLE>
<CAPTION>
REVENUES FROM EXTERNAL CUSTOMERS THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
APRIL 2, 2000 APRIL 4, 1999 APRIL 2, 2000 APRIL 4, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
North America......................... $103,841 $94,892 $270,435 $235,998
Latin America......................... 25,155 430 56,023 2,231
Europe/ROW............................ 13,600 15,647 30,928 33,282
-------- ------- ------- --------
Total segments........................ $142,596 $110,969 $357,386 $271,511
======== ======== ======== ========
INTER SEGMENT REVENUES THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
APRIL 2, 2000 APRIL 4, 1999 APRIL 2, 2000 APRIL 4, 1999
------------- ------------- ------------- -------------
North America......................... $5,704 $5,040 $12,644 $10,434
Latin America......................... -- -- -- --
Europe/ROW............................ 154 346 315 542
------- ------- ------- -------
Total segments........................ $5,858 $5,386 $12,959 $ 10,976
====== ====== ======= ========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SEGMENT PROFIT THREE MONTH PERIODS ENDED SIX MONTH PERIOD ENDED
APRIL 2, 2000 APRIL 4, 1999 APRIL 2, 2000 APRIL 4, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
North America.................. $14,555 $12,685 $44,369 $37,660
Latin America.................. 4,497 162 10,163 589
Europe/ROW..................... 2,015 2,525 4,034 4,151
------- ------- ------- ------
Total segments................. 21,067 15,372 58,566 42,400
Corporate...................... 7,837 6,212 15,863 13,021
Special charges................ -- 738 -- 1,386
Interest expense............... 7,131 3,484 15,252 7,140
Other expense net.............. 483 155 420 382
--- --- --- ---
Income before income taxes..... $5,616 $4,783 $27,031 $20,471
====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEGMENT ASSETS APRIL 2, 2000 APRIL 4, 1999
------------- -------------
<S> <C> <C>
North America.............................. $248,082 $218,822
Latin America.............................. 186,150 --
Europe/ROW................................. 30,200 32,077
-------- -------
Total segments............................. $464,432 $250,899
Corporate.................................. 42,611 25,427
-------- -------
Total assets at period end................. $507,043 $276,326
======== ========
</TABLE>
8 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 Subsidiarys' 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. There are no components of other comprehensive
income related to the Guarantor Subsidiaries.
10
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of April 2, 2000
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries
---------- -------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 1,357 $ 43 $ 9,807
Receivables ................................................... 50,943 25,828 39,932
Inventories ................................................... 67,861 -- 30,508
Prepaid expenses and other .................................... 19,337 342 5,586
--------- -------- ---------
Total current assets .......................................... 139,498 26,213 85,833
Property, plant and equipment, net .................................. 76,430 59 32,931
Deferred charges and other, net ..................................... 33,178 50,000 2,584
Intangible assets, net .............................................. 51,465 -- 75,078
Investment in subsidiaries .......................................... 160,287 85,190 --
--------- -------- ---------
Total assets .................................................. $ 460,858 $161,462 $ 196,426
========= ======== =========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
Current liabilities
Current maturities of long-term debt .......................... $ 12,361 $ -- $ 10,202
Accounts payable .............................................. 61,943 -- 28,715
Accrued liabilities:
Wages and benefits and other ............................ 19,889 735 11,721
Recapitalization and other special charges .............. 1,345 -- 5
--------- -------- ---------
Total current liabilities ................................. 95,538 735 50,643
Long-term debt, net of current maturities ........................... 282,604 -- 50,667
Employee benefit obligations, net of current portion ................ 15,066 -- --
Other ............................................................... 3,694 440 9,926
--------- -------- ---------
Total liabilities ............................................. 396,902 1,175 111,236
Shareholders' equity:
Common stock .................................................. 569 1 12,072
Additional paid-in capital .................................... 103,479 107,788 54,897
Retained earnings ............................................. 88,582 50,718 16,441
Accumulated other comprehensive income ........................ 1,312 1,780 1,780
Notes receivable from officers/shareholders ................... (890) -- --
--------- -------- ---------
193,052 160,287 85,190
Less treasury stock, at cost ........................................ (129,096) -- --
--------- -------- ---------
Total shareholders' equity .................................... 63,956 160,287 85,190
--------- -------- ---------
Total liabilities and shareholders' equity .................... $ 460,858 $161,462 $ 196,426
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
Consolidated
Eliminations Total
--------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ -- $ 11,207
Receivables ................................................... (15,396) 101,307
Inventories ................................................... 29 98,398
Prepaid expenses and other .................................... -- 25,265
--------- ---------
Total current assets .......................................... (15,367) 236,177
Property, plant and equipment, net .................................. -- 109,420
Deferred charges and other, net ..................................... (50,859) 34,903
Intangible assets, net .............................................. -- 126,543
Investment in subsidiaries .......................................... (245,477) --
--------- ---------
Total assets .................................................. $(311,703) $ 507,043
========= =========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
Current liabilities
Current maturities of long-term debt .......................... $ (98) $ 22,465
Accounts payable .............................................. (14,426) 76,232
Accrued liabilities:
Wages and benefits and other ............................ (110) 32,235
Recapitalization and other special charges .............. -- 1,350
--------- ---------
Total current liabilities ................................. (14,634) 132,282
Long-term debt, net of current maturities ........................... (50,800) 282,471
Employee benefit obligations, net of current portion ................ -- 15,066
Other ............................................................... -- 14,060
--------- ---------
Total liabilities ............................................. (65,434) 443,879
Shareholders' equity:
Common stock .................................................. (12,072) 570
Additional paid-in capital .................................... (162,567) 103,597
Retained earnings ............................................. (68,070) 87,671
Accumulated other comprehensive income ........................ (3,560) 1,312
Notes receivable from officers/shareholders ................... -- (890)
--------- ---------
(246,269) 192,260
Less treasury stock, at cost ........................................ -- (129,096)
--------- ---------
Total shareholders' equity .................................... (246,269) 63,164
--------- ---------
Total liabilities and shareholders' equity .................... $(311,703) $ 507,043
========= =========
</TABLE>
11
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the three month period ended April 2, 2000
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
-------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales ...................................... $99,427 $8,740 $43,133 $(8,704) $142,596
Cost of goods sold ............................. 49,598 8,478 23,352 (8,696) 72,732
-------- -------- -------- -------- --------
Gross profit ................................ 49,829 262 19,781 (8) 69,864
Selling ........................................ 33,012 161 8,815 (12) 41,976
General and administrative ..................... 13,034 (2,347) 2,336 (1,102) 11,921
Research and development ....................... 2,715 -- 22 -- 2,737
-------- -------- -------- -------- --------
Total operating expenses .................... 48,761 (2,186) 11,173 (1,114) 56,634
Income from operations ...................... 1,068 2,448 8,608 1,106 13,230
Interest expense .......................... 7,155 -- (18) (6) 7,131
Equity in profit of subsidiary ............ (8,074) (4,934) -- 13,008 --
Other expense (income) .................... (308) (4) 789 6 483
-------- -------- -------- -------- --------
Income before income taxes ..................... 2,295 7,386 7,837 (11,902) 5,616
Income tax expense ............................. (250) (688) 2,903 -- 1,965
-------- -------- -------- -------- --------
Net income .................................. $2,545 $8,074 $4,934 $(11,902) $3,651
======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six month period ended April 2, 2000
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
----------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales ................................... $258,322 $21,779 $95,996 $(18,711) $357,386
Cost of goods sold .......................... 127,028 21,126 54,115 (18,708) 183,561
--------- --------- --------- -------- ---------
Gross profit ............................. 131,294 653 41,881 (3) 173,825
Selling ..................................... 81,728 330 18,498 (12) 100,544
General and administrative .................. 25,042 (5,966) 7,330 (1,120) 25,286
Research and development .................... 5,240 -- 52 -- 5,292
--------- --------- --------- -------- ---------
Total operating expenses ................. 112,010 (5,636) 25,880 (1,132) 131,122
Income from operations ................... 19,284 6,289 16,001 1,129 42,703
Interest expense ........................ 15,040 -- 243 (31) 15,252
Equity in profit of subsidiary .......... (16,259) (9,346) -- 25,605 --
Other expense (income) .................. (523) 1 912 30 420
--------- --------- --------- -------- ---------
Income before income taxes .................. 21,026 15,634 14,846 (24,475) 27,031
Income tax expense .......................... 4,586 (625) 5,500 -- 9,461
--------- --------- --------- -------- ---------
Net income ............................... $16,440 $16,259 $9,346 $(24,475) $17,570
========= ========= ========= ======== =========
</TABLE>
13
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six month period ended April 2, 2000
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries
--------- ------------ -------------
<S> <C> <C> <C>
Net cash provided (used) by operating activities .............. $ 39,835 $ (4) $ 2,362
Cash flows from investing activities:
Purchases of property, plant and equipment .................. (5,389) -- (2,062)
Proceeds from sale of property, plant, and equipment ........ 386 -- --
-------- ---- -------
Net cash used by investing activities ......................... (5,003) -- (2,062)
Cash flows from financing activities:
Reduction of debt ........................................... (96,770) -- (8,560)
Proceeds from debt financing ................................ 68,535 -- 8,534
Cash overdraft and other .................................... (6,611) -- (18)
-------- ---- -------
Net cash provided (used) by financing activities .............. (34,846) -- (44)
Effect of exchange rate charges on cash and cash equivalents .. -- -- (97)
-------- ---- -------
Net increase (decrease) in cash and cash equivalents .......... (14) (4) 159
Cash and cash equivalents, beginning of period ................ 1,371 47 9,648
-------- ---- -------
Cash and cash equivalents, end of period ...................... $ 1,357 $ 43 $ 9,807
======== ==== =======
</TABLE>
<TABLE>
<CAPTION>
Consolidated
Eliminations Total
------------- ----------------
<S> <C> <C>
Net cash provided (used) by operating activities .............. $(2,985) $ 39,208
Cash flows from investing activities:
Purchases of property, plant and equipment .................. -- (7,451)
Proceeds from sale of property, plant, and equipment ........ -- 386
------- ---------
Net cash used by investing activities ......................... -- (7,065)
Cash flows from financing activities:
Reduction of debt ........................................... -- (105,330)
Proceeds from debt financing ................................ 2,986 80,055
Cash overdraft and other .................................... -- (6,629)
------- ---------
Net cash provided (used) by financing activities .............. 2,986 (31,904)
Effect of exchange rate charges on cash and cash equivalents .. -- (97)
------- ---------
Net increase (decrease) in cash and cash equivalents .......... 1 142
Cash and cash equivalents, beginning of period ................ (1) 11,065
------- ---------
Cash and cash equivalents, end of period ...................... $ -- $ 11,207
======= =========
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FISCAL QUARTER AND SIX MONTHS ENDED APRIL 2, 2000 COMPARED TO
FISCAL QUARTER AND SIX MONTHS ENDED APRIL 4, 1999
NET SALES. Net sales for the three months ended April 2, 2000 (the
"Fiscal 2000 Quarter") increased $31.6 million, or 28.5%, to $142.6 million from
$111.0 million in the three months ended April 4, 1999 (the "Fiscal 1999
Quarter"). The increase was driven by increased sales of alkaline batteries,
lighting products, plus an additional $25.2 million in sales in Latin America,
which was the result of acquiring the Latin America battery business from ROV
Limited in August, 1999.
Net sales for the six months ended April 2, 2000 (the "Fiscal 2000 Six
Months") increased $85.9 million, or 31.6%, to $357.4 million from $271.5
million in the six months ended April 4, 1999 (the "Fiscal 1999 Six Months").
The increase was driven by increased sales of alkaline batteries and lighting
products plus an additional $56.0 million in sales in Latin America.
NET INCOME. Net income for the Fiscal 2000 Quarter increased $0.6
million, or 19.3%, to $3.7 million from $3.1 million in the Fiscal 1999 Quarter.
The increase reflects the impact of the Latin America acquisition, sales growth
in North America, improved gross profit margins, partially offset by increased
operating expense and interest expense.
Net income for the Fiscal 2000 Six Months increased $4.5 million, or
34.4%, to $17.6 million from $13.1 million in the Fiscal 1999 Six Months. The
increase reflects the impact of the Latin America acquisition, improved gross
profit margins, partially offset by increased operating expense and interest
expense.
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/Rest of World ("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 which
includes corporate purchasing expense, general and administrative expense and
research and development expense.
<TABLE>
<CAPTION>
FISCAL QUARTER SIX MONTHS
NORTH AMERICA 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue from external customers............... $103.8 $94.9 $270.4 $236.0
Profitability................................. 14.6 12.7 44.4 37.7
Profitability as a % of net sales............. 14.1% 13.4% 16.4% 16.0%
Assets........................................ 248.1 218.8 248.1 218.8
</TABLE>
Our sales to external customers increased $8.9 million, or 9.4%, to
$103.8 million in the Fiscal 2000 Quarter from $94.9 million the previous year
due primarily to increased sales of alkaline batteries, rechargeable batteries
and lighting products partially offset by lower sales of hearing aid batteries.
Alkaline sales increases of $7.7 million, or 16.3%, were driven by new customers
and expanded distribution with existing customers. Rechargeable batteries sales
increases of $2.7 million, or 64.6%, were driven by strong promotions with a
major mass merchandiser and the continuing growth in Nickel Metal Hydride (NIMH)
rechargeable batteries. Sales of lighting products increased $1.4 million, or
10.1%, due primarily to new products and new distribution. Sales of hearing aid
batteries decreased $1.3 million, or 10.8%, primarily as a result of planned
inventory reduction at several professional and retail distribution accounts and
a corresponding reduction in promotional programs. We believe hearing aid sales
in future quarters will approximate or slightly exceed prior year levels.
15
<PAGE>
In the Fiscal 2000 Six Months, our sales to external customers
increased $34.4 million, or 14.6%, to $270.4 million from $236.0 million the
previous year due primarily to increased sales of alkaline batteries, lighting
products, heavy duty batteries, rechargeable alkaline batteries, partially
offset by lower sales of hearing aid batteries. Alkaline sales increases of
$29.8 million, or 23.5%, were driven by new customers, expanded distribution
with existing customers, and strong holiday promotional programs. Sales of
lighting products increased $4.7 million, 13.4%, due primarily to the ongoing
introduction of new products combined with expanded distribution with new and
existing accounts. Exclusive distribution to a major mass merchandiser
contributed to the increase in sales of heavy duty batteries of $2.1 million, or
11.1%. Rechargeable alkaline sales increases of $1.6 million, or 12.6%, were
driven by strong promotions with a major mass merchandiser. Sales of hearing aid
batteries decreased $3.5 million, or 14.9%, primarily as a result of planned
inventory reduction at several professional and retail distribution accounts, a
reduction in promotional programs, and softening in the hearing aid device
marketplace.
Our profitability increased $1.9 million, or 15.0%, to $14.6 million in
the Fiscal 2000 Quarter from $12.7 million in the Fiscal 1999 Quarter and $6.7
million, or 17.8%, to $44.4 million in Fiscal 2000 Six Months from $37.7 million
in the Fiscal 1999 Six Months. These increases were primarily attributed to the
sales increase and improved gross profit margins reflecting previously announced
cost rationalization initiatives, increased volume, and a shift in product mix
partially offset by increased distribution and promotional costs.
Our assets increased $29.3 million, or 13.4%, to $248.1 million from
$218.8 million the previous year due primarily to an increase in receivables
reflecting strong sales, higher inventories supporting the sales growth and new
product introductions, and ongoing capital programs.
<TABLE>
<CAPTION>
FISCAL QUARTER SIX MONTHS
LATIN AMERICA 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue from external customers............. $25.2 $0.4 $56.0 $2.2
Profitability............................... 4.5 0.2 10.2 0.6
Profitability as a % of net sales........... 17.9% 50.0% 18.2% 27.3%
Assets...................................... 186.2 -- 186.2 --
</TABLE>
Our increase in assets is attribitable to the acquisition, in August
1999, of the consumer battery business of ROV Limited in Latin America. ROV
Limited was one of our customers prior to the acquisition. Revenues for the
region for the Fiscal 1999 Quarter and Six Months represents sales to ROV
Limited as an external customer.
The Fiscal 2000 Quarter and Fiscal 2000 Six Months sales in the region
are primarily heavy duty batteries. The Fiscal 2000 Quarter and Fiscal 2000 Six
Months sales benefited from price increases in certain countries implemented in
the second quarter, new distribution of alkaline batteries in mass merchandiser
chains, and expansion of distribution into Chile and Argentina in the second
quarter.
For the Fiscal 2000 Quarter, our profitability was $4.5 million, which
was 17.9% of net sales which represents an increase of $4.3 million from the
Fiscal 1999 Quarter. Profitability in the Fiscal 2000 Six Months was $10.2
million, which was 18.2% of net sales, and represents an increase of $9.6
million from the Fiscal 1999 Six Months.
<TABLE>
<CAPTION>
FISCAL QUARTER SIX MONTHS
EUROPE/ROW 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue from external customers........... $13.6 $15.6 $30.9 $33.3
Profitability............................. 2.0 2.5 4.0 4.2
Profitability as a % of net sales......... 14.7% 16.0% 12.9% 12.6%
Assets.................................... 30.2 32.1 30.2 32.1
</TABLE>
Our sales to external customers decreased $2.0 million, or 12.8%, to
$13.6 million in the Fiscal 2000 Quarter from $15.6 million the previous year
and decreased $2.4 million, or 7.2%, to $30.9 million in the Fiscal 2000 Six
16
<PAGE>
Months from $33.3 million the previous year. These decreases in sales were
primarily attributable to the impacts of currency devaluation and a decision to
exit certain private label battery business in Europe.
Our profitability decreased $0.5 million, or 20.0%, in the Fiscal 2000
Quarter and $0.2 million, or 4.8%, in the Fiscal 2000 Six Months reflecting the
impact of currency devaluation, higher operating expenses as a percentage of
sales partially offset by improved gross profit margins reflecting the exit of
certain low margin private label battery business, the benefits of cost
rationalization initiatives, and favorable shift in product mix.
Our assets decreased $1.9 million, or 5.9%, to $30.2 million from $32.1
million the previous year due primarily to a decrease in receivables reflecting
weaker sales in the Fiscal 2000 Quarter.
CORPORATE EXPENSE. Our corporate expense increased $1.6 million, or
25.8%, to $7.8 million in the Fiscal 2000 Quarter from $6.2 million the previous
year and $2.9 million, or 22.3%, to $15.9 million in the Fiscal 2000 Six Months
from $13.0 million the previous year. These increases were primarily due to
increased legal expenses, research and development expenses and depreciation
costs related to the operation of our new computer systems. As a percentage of
total sales, our corporate expense was 5.5% in the Fiscal 2000 Quarter compared
to 5.6% in the previous year and 4.4% in the Fiscal 2000 Six Months compared to
4.8% in the previous year reflecting leveraging fixed costs over greater sales
volume.
SPECIAL CHARGES. We recorded no special charges in the Fiscal 2000
Quarter or Fiscal 2000 Six Months. Special charges of $0.7 million were
recognized in the Fiscal 1999 Quarter and $1.4 million were recognized in the
Fiscal 1999 Six Months related to our closing of our Appleton, Wisconsin,
facility; Newton Aycliffe and United Kingdom facility; and the consolidation of
battery packaging operations at our Madison, Wisconsin, facility.
INCOME FROM OPERATIONS. Our income from operations increased $4.8
million, or 57.1%, to $13.2 million in the Fiscal 2000 Quarter from $8.4 million
the previous year and increased $14.7 million, or 52.5%, to $42.7 million in the
Fiscal 2000 Six Months from $28.0 million the previous year. These increases
were primarily due to increased profitability in North America and Latin
America, which includes the Latin American acquisition, partially offset by
weakness in Europe/ROW and increased corporate expenses.
INTEREST EXPENSE. Interest expense increased $3.6 million, or 102.9%,
to $7.1 million in the Fiscal 2000 Quarter from $3.5 million in the prior year
and $8.2 million, or 115.5%, to $15.3 million in the Fiscal 2000 Six Months from
$7.1 million in the prior year primarily due to higher debt load associated with
the Latin American acquisition, higher working capital requirements to meet
expanding sales growth, and an increase in general market interest rates.
INCOME TAX EXPENSE. Our effective tax rate was 35.0% for the Fiscal
2000 Quarter compared to 36.0% in the Fiscal 1999 Quarter and 35.0% in the
Fiscal 2000 Six Months compared to 36.2% for the Fiscal 1999 Six Months. The
lower rate this year is partially attributable to more foreign income which is
taxed at a lower effective tax rate than in the United States.
LIQUIDITY AND CAPITAL RESOURCES
For the Fiscal 2000 Six Months, operating activities provided $39.2
million in net cash compared with $13.9 million for Fiscal 1999 Six Months.
Operating cash flow before working capital requirements generated $32.0 million
in cash flow compared to $19.5 million in the year ago six months reflecting
improvement in income from operations and higher non-cash expenses. Non-cash
expenses increased $8.0 million to $14.4 million in the Fiscal 2000 Six Months
from $6.4 million in the Fiscal 1999 Six Months. This increase is the result of
amortization of intangible assets that were recognized as part of the Latin
American acquisition, depreciation on the SAP business enterprise system, which
was installed in fiscal year 1999, and the impact of lower deferred tax assets.
Working capital decreases generated cash of $7.2 million in the Fiscal 2000 Six
Months, which was $12.8 million higher than the Fiscal 1999 Six Months. This
reflects a larger decrease in receivables than was experienced in the Fiscal
1999 Six Months primarily reflecting improved receivable collections in North
America partially offset by higher inventories in Latin America and
17
<PAGE>
North America needed to support sales expansion. Cash costs associated with the
restructuring activities announced in Fiscal 1999 have been and are expected to
be funded with cash provided from operations.
Net cash used by investing activities decreased $1.9 million versus the
same period a year ago primarily reflecting lower capital expenditures. Capital
expenditures for the Fiscal 2000 Six Months were approximately $7.5 million, a
decrease of $1.6 million from the Fiscal 1999 Six Months. Expenditures in the
current year were primarily for improvements to alkaline battery manufacturing
and information systems hardware and software. The Company currently expects
capital spending for fiscal 2000 to be approximately $25.0 million due to
alkaline capacity expansion, alkaline vertical integration programs, and
enhancements to our warehouse and distribution systems.
During the Fiscal 2000 Six Months we granted approximately 657,500
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.
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 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 million. As of April 2, 2000,
$67.8 million of the term loan remained outstanding and $160.2 million was
outstanding under the revolving facility with approximately $16.0 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 and
Practices" in Notes to our Condensed 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
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, Euro, German Marks, French Francs, Italian Lira, Spanish
Pesetas, Dutch Guilders, Mexican Pesos, Guatemalan Quetzals, Dominican Pesos,
Venezuelan Bolivars and Honduran Lempira. Foreign currency purchases are made
primarily in Pounds Sterling, German Marks, French Francs, Mexican Pesos,
Dominican Pesos, Guatemalan Quetzals and Honduran Lempira. 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
18
<PAGE>
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 April 2, 2000, 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 $1.5 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 gain of $0.7 million.
As of April 2, 2000, 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 a loss of $3.2 million. 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
April 2, 2000 due to the same change in exchange rates, would be a net loss of
$1.3 million.
As of April 2, 2000, 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 $1.1 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 a net gain of $0.4 million.
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 Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). 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 for
household or hearing aid batteries; (2) the loss of, or a significant reduction
in, sales through a significant retail customer; (3) the introduction of new
product features or new battery technology by a competitor; (4) the enactment of
unexpected environmental regulations negatively impacting consumer demand for
certain of our battery products; (5) difficulties or delays in the integration
of operations of acquired companies; (6) residual Year 2000 problems of the
Company or of our customers or suppliers which may make it difficult or
impossible to fulfill their commitments to us; and (7) currency fluctuations in
significant international markets.
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
the United States or abroad, (3) the
19
<PAGE>
sufficiency of our production capacity to meet future demand for our products,
(4) our ability to keep pace with the technological standards in our industry
(5) our ability to continue to penetrate and develop new distribution channels
for our products. 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 obligation 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, 1999 ("1999 Form 10-K") with one exception. In
our patent infringement lawsuit against Duracell Incorporated and The Gillette
Company (Rayovac Corporation v. Duracell Incorporated and The Gillette Company,
Case No. 99-C-0272C O, United States District Court for the Western District of
Wisconsin) as described in our 1999 Form 10-K, the trial is scheduled to
commence May 17, 2000.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
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 101/4% 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 101/4% 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 101/4% Senior Subordinated Notes due 2006.
4.4** Specimen of the Notes (included as an exhibit to Exhibit 4.1)
4.5**** 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.
4.6+++++ 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 or Administrative
Agent.
4.7** The Security Agreement, dated as of September 12, 1996, by and among the Company, ROV
Holding, Inc. and BofA.
4.8** The Company Pledge Agreement, dated as of September 12, 1996, by and between the Company
and BofA.
4.9*** Shareholders Agreement, dated as of September 12, 1996, by and among the Company and the
shareholders of the Company referred to therein.
4.10*** Amendment No. 1 to Rayovac Shareholders Agreement, dated August 1, 1997, by and among the
Company and the shareholders of the Company referred to therein.
4.11***** Amendment No. 2 to Rayovac Shareholders Agreement, dated as of April 8, 1999, by and among
the Company and the Shareholders of the Company referred to therein.
4.12* Specimen certificate representing the Common Stock.
27 Financial Data Schedule.
- ----------------
* Incorporated by reference to the Company's Registration Statement on Form S-1 (Registration
No. 333-35181) filed with the Commission.
** 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
21
<PAGE>
period ended April 4, 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 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 Current Report on Form 8-K
filed with the Commission on August 24, 1999, as subsequently amended
on October 26, 1999.
(b) Reports on Form 8-K: On October 26, 1999, we filed two current
reports on Form 8-K/A. Amendment number one provided information
required by Item 7 of our Form 8-K originally filed on August 9,
1999 in connection with our Latin American acquisition. Amendment
number two amended and supplemented certain of the exhibits
thereto.
</TABLE>
22
<PAGE>
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: May 12, 2000
RAYOVAC CORPORATION
By:
------------------------------------------
Randall J. Steward
Executive Vice President of Administration
and Chief Financial Officer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED
APRIL 2, 2000
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-02-2000
<CASH> 11,207
<SECURITIES> 0
<RECEIVABLES> 102,699
<ALLOWANCES> 1,392
<INVENTORY> 98,398
<CURRENT-ASSETS> 236,177
<PP&E> 220,860
<DEPRECIATION> 111,440
<TOTAL-ASSETS> 507,043
<CURRENT-LIABILITIES> 132,282
<BONDS> 304,936
0
0
<COMMON> 570
<OTHER-SE> 62,594
<TOTAL-LIABILITY-AND-EQUITY> 507,043
<SALES> 142,596
<TOTAL-REVENUES> 142,596
<CGS> 72,732
<TOTAL-COSTS> 72,732
<OTHER-EXPENSES> 56,905
<LOSS-PROVISION> 212
<INTEREST-EXPENSE> 7,131
<INCOME-PRETAX> 5,616
<INCOME-TAX> 1,965
<INCOME-CONTINUING> 3,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,651
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
