UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 29, 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
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
----------------------------------------------------
(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 ( )
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( )
The number of shares outstanding of the Registrant's common stock,
$.01 par value, as of April 30, 2003, was 32,461,769.
EXPLANATORY NOTE
This Amendment No. 1 to the Quarterly Report on Form 10-Q (the "Form
10-Q") of Rayovac Corporation (the "Company") for the quarterly period ended
December 29, 2002 is being filed for the purpose of amending and restating
Items 1 and 6. In accordance with Rule 12b-15 under the Securities Exchange
Act of 1934, the complete text of Items 1 and 6, as amended, is set forth
herein. In addition, in connection with the filing of this Amendment No. 1
and pursuant to Rule 12b-15, the Company is including certain currently dated
certifications. The remainder of the Company's Quarterly Report on Form 10-Q
is unchanged and is not reproduced in this Amendment No. 1. This report
speaks as of the original filing date of the Form 10-Q and, except as
indicated, has not been updated to reflect events occurring subsequent to the
original filing date.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, 2002 and September 30, 2002
(Unaudited)
(In thousands)
DECEMBER 29, 2002 SEPTEMBER 30, 2002
----------------- ------------------
-ASSETS-
Current assets:
Cash and cash equivalents $ 22,919 $ 9,881
Receivables 216,944 136,610
Inventories 143,006 84,275
Prepaid expenses and other 47,412 28,556
--------- ---------
Total current assets 430,281 259,322
Property, plant and equipment, net 168,681 102,586
Deferred charges and other, net 69,054 51,900
Intangible assets, net 324,151 119,425
--------- ---------
Total assets $ 992,167 $ 533,233
========= =========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
Current liabilities:
Current maturities of long-term debt $ 17,524 $ 13,400
Accounts payable 134,309 76,155
Accrued liabilities 97,620 29,229
--------- ---------
Total current liabilities 249,453 118,784
Long-term debt, net of current maturities 465,447 188,471
Employee benefit obligations, net of current portion 54,734 24,009
Other 44,687 27,176
--------- ---------
Total liabilities 814,321 358,440
Shareholders' equity:
Common stock, $.01 par value, authorized 150,000 shares; issued
61,986 and 61,594 shares, respectively; outstanding 32,450 and
32,058 shares, respectively 620 616
Additional paid-in capital 185,608 180,823
Retained earnings 148,636 149,221
Accumulated other comprehensive loss (17,052) (19,859)
Notes receivable from officers/shareholders (4,205) (4,205)
--------- ---------
313,607 306,596
Less: Treasury stock, at cost, 29,536 shares (130,070) (130,070)
Less: Unearned restricted stock compensation (5,691) (1,733)
--------- ---------
Total shareholders' equity 177,846 174,793
--------- ---------
Total liabilities and shareholders' equity $ 992,167 $ 533,233
========= =========
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three month periods ended December 29, 2002 and December 30, 2001
(Unaudited)
(In thousands)
THREE MONTHS
------------------------------------
2003 2002
---------- ---------
Net sales $ 260,222 $ 161,883
Cost of goods sold 156,963 99,151
Special charges 9,705 --
--------- ---------
Gross profit 93,554 62,732
Selling 48,526 27,407
General and administrative 24,904 28,567
Research and development 3,896 3,218
Special charges 5,685 --
--------- ---------
Total operating expenses 83,011 59,192
Income from operations 10,543 3,540
Interest expense 10,102 4,169
Non-operating expense 3,072 --
Other income, net (1,687) (782)
--------- ---------
(Loss) income before income taxes (944) 153
Income tax benefit (359) (249)
--------- ---------
Net (loss) income $ (585) $ 402
========= =========
BASIC EARNINGS PER SHARE
Weighted average shares
and equivalents outstanding 31,801 31,780
Net (loss) income $ (0.02) $ 0.01
========= =========
DILUTED EARNINGS PER SHARE
Weighted average shares
and equivalents outstanding 31,801 32,412
Net (loss) income $ (0.02) $ 0.01
========= =========
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three month period ended December 29, 2002 and December 30, 2001
(Unaudited)
(In thousands)
THREE MONTHS
-------------------------------
2003 2002
----------- --------
Cash flows from operating activities:
Net (loss) income $ (585) $ 402
Non-cash adjustments to net income:
Amortization 523 539
Depreciation 8,286 4,832
Other non-cash adjustments 3,791 (4,852)
Net changes in assets and liabilities 12,211 23,245
-------- --------
Net cash provided by operating activities 24,226 24,166
Cash flows from investing activities:
Purchases of property, plant and equipment (3,052) (3,862)
Proceeds from sale of property, plant and equipment 113 --
Payment for acquisitions, net of cash acquired (245,130) --
-------- --------
Net cash used by investing activities (248,069) (3,862)
Cash flows from financing activities:
Reduction of debt (257,803) (72,656)
Proceeds from debt financing 506,771 60,500
Debt issuance costs (12,635) --
Other (606) (334)
-------- --------
Net cash provided (used) by financing activities 235,727 (12,490)
Effect of exchange rate changes on cash and cash
equivalents 1,154 (384)
-------- --------
Net increase in cash and cash equivalents 13,038 7,430
Cash and cash equivalents, beginning of period 9,881 11,358
-------- --------
Cash and cash equivalents, end of period $ 22,919 $ 18,788
======== ========
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 December 29, 2002, results of
operations and cash flows for the three month periods ended December
29, 2002, and December 30, 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, 2002. 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 $12,996 and $6,996 for the three months ended December 29,
2002 and December 30, 2001, respectively, which are included in selling
expense. Shipping and handling costs include costs incurred with
third-party carriers to transport products to customers and salaries
and overhead costs related to activities to prepare the Company's
products for shipment at the Company's distribution facilities.
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 a broad range of customers including many large retail
outlet chains, one of which previously accounted for in excess of 20%
of our sales volume. Due to the impacts of the VARTA acquisition,
see Footnote 9, Acquisitions, this customer represented approximately
3% and 23%, respectively, of receivables as of December 29, 2002 and
September 30, 2002.
After the acquisition of Varta, approximately 59% of the Company's
sales occur outside of North America. 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.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS: 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 adopted
the Statement on October 1, 2002. Adoption did not have a material
effect on the financial statements of the Company.
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 adopted the Statement on October 1, 2002. Adoption did not have
a material effect on the financial statements of the Company.
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
5
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 adopted this Statement on October 1,
2002. As a result, the write-off of unamortized debt issuance costs of
$3,072 associated with the replacement of our previous credit facility
is classified as non-operating expense in the three-month period ending
December 29, 2002.
In November 2002, the FASB issued Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. This Interpretation
addresses, among other things, the disclosure to be made by a guarantor
in its interim and annual financial statements about its obligations
under guarantees. The Interpretation also requires the recognition of a
liability by a guarantor at the inception of certain guarantees. The
Company has adopted the disclosure requirements of the interpretation,
and will apply the recognition and measurement provisions for all
guarantees entered into or modified after December 31, 2002.
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 month period ended December 29, 2002,
$1,078 of pretax derivative losses from such hedges were recorded as an
adjustment to interest expense. At December 29, 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: 4.458%
for a notional principal amount of $70,000 through July 2004, 3.974%
for a notional principal amount of $70,000 from July 2004 through
October 2005, 3.769% for a notional principal amount of $100,000
through August 2004 and 3.799% for a notional principal amount of
$100,000 from August 2004 through November 2005. The derivative net
losses on these contracts recorded in OCI at December 29, 2002 was an
after-tax loss of $4,814.
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, Euros 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 month period ended December 29, 2002, $11 of pretax
derivative losses were recorded as an adjustment to earnings for
forward and swap contracts settled at maturity. At December 29, 2002,
the Company had no foreign exchange derivative contracts outstanding.
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
6
reclassified as an addition to or subtraction from, the carrying value
of the purchased asset. During the three month period ended December
29, 2002, no such foreign exchange derivative activity occurred. At
December 29, 2002, the Company had no such foreign exchange derivative
contracts outstanding.
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. During
the three month period ended December 29, 2002, $218 of pretax
derivative losses were recorded as an adjustment to cost of sales for
swap contracts settled at maturity. At December 29, 2002, the Company
had a series of swap contracts outstanding through December 2003 with a
contract value of $5,913. The derivative net losses on these contracts
recorded in OCI at December 29, 2002 was an after-tax loss of $217.
2 INVENTORIES
Inventories consist of the following:
DECEMBER 29, 2002 SEPTEMBER 30, 2002
----------------- ------------------
Raw material............................... $42,231 $19,893
Work-in-process............................ 22,404 19,004
Finished goods............................. 78,371 45,378
-------- -------
$143,006 $84,275
======== =======
3 ACQUIRED INTANGIBLE ASSETS AND GOODWILL
DECEMBER 29, 2002 SEPTEMBER 30, 2002
----------------- ------------------
GROSS GROSS
CARRYING ACCUMULATED NET CARRYING ACCUMULATED NET
AMOUNT AMORTIZATION INTANGIBLE AMOUNT AMORTIZATION INTANGIBLE
--------- ------------ ---------- -------- ------------ ----------
AMORTIZED INTANGIBLE ASSETS
Non-compete agreement................. $ 700 $ 665 $ 35 $ 700 $ 630 $ 70
Proprietary technology................ 525 316 209 525 308 217
-------- -------- -------- -------- -------- --------
$ 1,225 $ 981 $ 244 $ 1,225 $ 938 $ 287
======== ======== ======== ======== ======== ========
PENSION INTANGIBLES
Under-funded pension.................. $ 2,744 $ -- $ 2,744 $ 3,446 $ -- $ 3,446
======== ======== ======== ======== ======== ========
UNAMORTIZED INTANGIBLE ASSETS
Trade names........................... $240,782 $ 4,875 $235,907 $ 90,000 $ 4,875 $ 85,125
======== ======== ======== ======== ======== ========
NORTH LATIN
GOODWILL AMERICA AMERICA EUROPE/ROW TOTAL
------- ------- ---------- -----
Balance as of October 1, 2002, net............ $1,035 $ 26,884 $2,648 $ 30,567
Goodwill acquired during year................. 653 5,831 46,806 53,290
Effect of translation......................... -- (169) 1,568 1,399
------- -------- ------- -------
Balance as of December 29, 2002, net.......... $ 1,688 $ 32,546 $51,022 $85,256
======= ======== ======= =======
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 Company has deemed that
its trade name intangible assets have indefinite lives because they are
expected to generate cash flows indefinitely. Goodwill and intangible
assets deemed to have indefinite lives are tested for impairment
annually.
The amortization expense for the three months ended December 29, 2002
and December 30, 2001 are as follows:
THREE MONTHS
-----------------------
AMORTIZATION EXPENSE 2003 2002
---- ----
Non-compete and proprietary technology........ $43 $43
=== ===
7
4 OTHER COMPREHENSIVE INCOME
Comprehensive income and the components of other comprehensive income
for the three months ended December 29, 2002 and December 30, 2001
are as follows:
THREE MONTHS
----------------------
2003 2002
---- ----
Net (loss) income............................... $(585) $402
Other comprehensive income:
Foreign currency translation................. 3,373 380
Net unrealized loss on available
for-sale securities.......................... (110) (99)
Reclassification adjustment for losses
included in net (loss) income................ 250 --
Net unrealized (loss) gain on derivative
instruments.................................. (706) 1,297
---- ------
Comprehensive income............................ $2,222 $1,980
====== ======
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
months ended December 29, 2002 was primarily attributable to the impact
of translation of assets and liabilities of our recently acquired
European operations.
5 NET INCOME PER COMMON SHARE
Net income per common share for the three months ended December 29,
2002 and December 30, 2001 is calculated based upon the following
shares:
THREE MONTHS
------------------------
2003 2002
---- ----
Basic............................................... 31,801 31,780
Effect of restricted stock and assumed
conversion of options............................... -- 632
------ ------
Diluted............................................. 31,801 32,412
====== ======
The effect of restricted stock and unexercised stock options
outstanding for the three-month period ending December 29, 2002 were
excluded from the diluted EPS calculation, as their effect was
anti-dilutive.
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 (until 2022). In December 2002, this
agreement was modified such that royalty payments in 2003 through
2022 will be $250.
8
The Company has provided for the estimated costs associated with
environmental remediation activities at some of its current and
former manufacturing sites. The Company believes that any additional
liability in excess of the amounts provided of $1,764, 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.
During 2002, the Company entered into a long-term lease for a
facility being built in Dixon, Illinois (see Footnote 7, Other). The
Company anticipates that construction will be completed and the
lease payments will be fixed for this facility during the second
fiscal quarter of 2003.
The Company has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the
ordinary course of business. Such litigation includes shareholder
lawsuits. 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. The suit filed against the Company by
Eveready Battery Company has been settled, and the impact of such
settlement is included in results of operations for the three months
ended December 29, 2002.
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 $9,100 of employee termination benefits for approximately 570
notified employees, $9,900 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
Change in estimate..................... (1,000) (300) (1,300)
Cash expenditures...................... (3,100) -- (3,100)
Non-cash charges....................... -- (700) (700)
------- ------- -------
Balance September 30, 2002............. $200 $600 $800
Cash expenditures...................... -- (100) (100)
------- ------- -------
Balance December 29, 2002.............. $200 $500 $700
======= ======= =======
9
During Fiscal 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
115 notified employees, and approximately $900 of equipment, inventory
and other asset write-offs, and $300 of other expenses. A summary of
the 2002 restructuring activities follows:
2002 RESTRUCTURING SUMMARY
TERMINATION OTHER
BENEFITS COSTS TOTAL
Expense accrued................. $1,200 $1,400 $2,600
Change in estimate.............. -- (400) (400)
Expense as incurred............. -- 200 200
Cash expenditures............... (1,100) (200) (1,300)
Non-cash charges................ -- (1,000) (1,000)
------- ------- -------
Balance September 30, 2002...... $100 $-- $100
Cash expenditures............... (100) -- (100)
------- ------- -------
Balance December 29, 2002....... $-- $-- $--
======= ======= =======
During the three months ended December 29, 2002, the Company
recorded special charges related to: (i) the closure in October 2002
of the Company's Mexico City, Mexico plant and integration of
production into the Company's Guatemala City, Guatemala
manufacturing location, (ii) the commencement of the closure of
operations at the Company's Madison, Wisconsin packaging facility
and Middleton, Wisconsin distribution center and combination of the
two operations into a new leased complex currently being built in
Dixon, Illinois, and (iii) a series of restructuring initiatives
impacting the Company's sales, marketing, operations and
administrative functions in Europe, North America, and Latin
America. The Company anticipates the move to the new combined
distribution and packaging facility will occur in the third quarter
of Fiscal 2003 and the closure of the Madison, Wisconsin and
Middleton, Wisconsin facilities will be completed during the fourth
quarter of Fiscal 2003. The sales, marketing, operations and
administrative restructuring initiatives are anticipated to be
substantially complete by the end of the fourth quarter of Fiscal
2003.
The amount recorded includes approximately $6,200 of employee
termination benefits for approximately 600 notified employees, and
approximately $7,800 of equipment, inventory and other asset
write-offs primarily reflecting the abandonment of equipment and
inventory associated with the closure of the Mexico plant and
commencement of the closure of the Company's Wisconsin packaging and
distribution locations, and $1,400 of other expenses. A summary of
the 2003 restructuring activities follows:
2003 RESTRUCTURING SUMMARY
TERMINATION OTHER
BENEFITS COSTS TOTAL
Expense accrued..................... $6,200 $9,000 $15,200
Expense as incurred................. -- 200 200
Cash expenditures................... (2,300) (200) (2,500)
Non-cash charges.................... -- (5,600) (5,600)
------ ------ ------
Balance December 29, 2002........... $3,900 $3,400 $7,300
====== ====== ======
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, South America and the
Caribbean; Europe/Rest of World ("Europe/ROW") includes continental
Europe, the United Kingdom, 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
10
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.
Segment information for the three months ended December 29, 2002 and
December 30, 2001 is as follows:
REVENUES FROM EXTERNAL CUSTOMERS THREE MONTHS
----------------------
2003 2002
---- ----
North America................................. $107,145 $122,365
Latin America................................. 34,444 25,989
Europe/ROW.................................... 118,633 13,529
-------- ------
Total segments................................ $260,222 $161,883
======== ========
INTER SEGMENT REVENUES THREE MONTHS
-----------------------
2003 2002
----- ----
North America................................. $7,732 $10,177
Latin America................................. -- 1,777
Europe/ROW.................................... 631 442
------ -------
Total segments................................ $8,363 $12,396
====== =======
SEGMENT PROFIT THREE MONTHS
-----------------------
2003 2002
----- ----
North America................................. $19,705 $7,355
Latin America................................. 3,567 3,642
Europe/ROW.................................... 15,011 1,144
------ -----
Total segments................................ 38,283 12,141
Corporate..................................... 12,350 8,601
Special charges............................... 15,390 --
Interest expense.............................. 10,102 4,169
Non-operating expense......................... 3,072 --
Other income, net............................. (1,687) (782)
------ ----
(Loss) income before income taxes............. $(944) $153
====== ====
SEGMENT ASSETS DECEMBER 29, 2002 DECEMBER 30, 2001
----------------- -----------------
North America........................... $223,655 $249,547
Latin America........................... 207,508 212,265
Europe/ROW.............................. 461,980 30,488
-------- --------
Total segments.......................... $893,143 $492,300
Corporate............................... 99,024 55,927
-------- --------
Total assets at period end.............. $992,167 $548,227
======== ========
11
9 ACQUISITIONS
On October 1, 2002, the Company acquired the consumer battery business
of VARTA AG (VARTA) for approximately $262 million Euro. As a result
of the acquisition, the Company plans to optimize the global
resources of the combined Rayovac and VARTA companies through the
utilization of economies of scale and other initiatives (See 2003
Restructuring Summary within Footnote 7).
The results of VARTA's operations, since the acquisition on October 1,
2002, are included in the condensed consolidated financial statements
for Fiscal 2003. The Company has not yet finalized the purchase price
allocation for the acquisition.
In connection with the acquisition, the Company entered into an Amended
and Restated Credit Agreement ("Third Restated Agreement") which
replaced the previous credit agreement. The Third Restated Agreement
provided for senior bank facilities, including term and revolving
credit facilities in an initial aggregate amount (assuming an exchange
rate of Euro to Dollar of 1 to 1) of approximately $625 million. The
Third Restated Agreement includes a $100 million seven-year revolving
credit facility, a EUR 50 million seven-year revolving facility, a $300
million seven-year amortizing term loan, a EUR 125 million seven-year
amortizing term loan and a EUR 50 million six-year amortizing term
loan. The U.S. Dollar revolving credit facility may be increased, at
the Company's option, by up to $50 million. A non-operating charge of
$3,072 was recorded in the three month period ended December 29, 2002
for the write-off of unamortized debt fees related to the previous debt
agreement.
SUPPLEMENTAL PRO FORMA INFORMATION: The following reflects the
Company's proforma results had the results of the VARTA business been
included in the Fiscal 2002 three months.
THREE MONTHS
------------
2003 2002
---- ----
NET SALES
Reported net sales............................ $260,222 $161,883
Pro forma adjustments......................... -- 110,370
-------- -------
Pro forma net sales........................ $260,222 $272,253
======== ========
NET (LOSS) INCOME
Reported net (loss) income.................... $(585) $402
Pro forma adjustments......................... -- 4,394
-------- ------
Pro forma net (loss) income................ $(585) $4,796
======== ======
BASIC EARNINGS PER SHARE
Reported net (loss) income.................... $(0.02) $0.01
Pro forma adjustments......................... -- 0.14
-------- ------
Pro forma net (loss) income................ $(0.02) $0.15
======== ======
DILUTED EARNINGS PER SHARE
Reported net (loss) income.................... $(0.02) $0.01
Pro forma adjustments......................... -- 0.14
-------- -----
Pro forma net (loss) income................ $(0.02) $0.15
======== =====
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
2.1+++ Joint Venture Agreement dated July 28, 2002, by and among the
Company, VARTA and ROV German Limited GmbH, as amended.
3.1+ Amended and Restated Articles of Incorporation of the Company.
3.2++++ Amended and Restated By-laws of the Company, as amended through
July 24, 2002.
4.1* Specimen certificate representing the Common Stock.
10.1 Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and David A. Jones.
10.2++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Kent J. Hussey.
10.3++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Kenneth V. Biller.
10.4++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Stephen P. Shanesy.
10.5++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Merrell M. Tomlin.
10.6++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Luis A. Cancio.
10.7++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Dr. Paul G. Cheeseman.
10.8++++ Employment Agreement, dated as of August 19, 2002, by and
between the Company and Randall J. Steward.
10.9++++ Registered Director's Agreement, effective as of October 1,
2002, by and between ROV German Holding GmbH and Remy Burel.
10.10** Technology, License and Service Agreement between Battery
Technologies (International) Limited and the Company, dated
June 1, 1991, as amended April 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++++ Build-To-Suit Lease Agreement, dated as of May 2, 2002, by and
among 200 Corporate Drive, L.L.C., as Landlord, the Company, as
Tenant, and Higgins Development Partners, L.L.C., as Developer.
10.14+++++ Real Estate Lease, dated September 1, 2001, by and between
VARTA Geratebatterie GmbH, as Tenant, and Paula
Grundstucksverwaltungsgesellschaft mbH & Co. Vermietungs-KG,
as Landlord, as amended.
10.15+++++ Real Property Leasing Agreement, dated December 21, 2000, by
and between VARTA Geratebatterie GmbH, as Tenant, and ROSATA
Grundstucks-Vermietungsgesellschaft mbH & Co. object
Dischingin KG, as Landlord, as amended.
10.16+++ Third Amended and Restated Credit Agreement, dated October 1,
2002, by and among the Company, VARTA Geratebatterie GmbH, the
lenders party thereto, LaSalle Bank National Association, as
documentation agent, Citicorp North America, Inc., as
syndication agent, and Bank of America, N.A., as administrative
agent.
10.17+++++ Amendment No. 1 to Third Amended and Restated Credit Agreement,
dated October 1, 2002, by and among the Company, VARTA
Geratebatterie GmbH, the lenders party thereto, LaSalle Bank
National Association, as documentation agent, Citicorp North
America, Inc., as syndication agent, and Bank of America, N.A.,
as administrative agent.
10.18*** Rayovac Corporation 1996 Stock Option Plan.
10.19* 1997 Rayovac Incentive Plan.
10.20* Rayovac Profit Sharing and Savings Plan.
10.21+++++ Rayovac Corporation Supplemental Executive Retirement Plan.
13
10.22+++++ Rayovac Corporation Deferred Compensation Plan, as amended.
10.23++ 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.
21+++++ Subsidiaries of the Company.
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer 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.
** 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 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 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 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 October 16, 2002.
++++ Incorporated by reference to the Company's Annual Report on
Form 10-K filed with the Commission on December 16, 2002.
+++++ Incorporated by reference to the Company's Quarterly Report on
Form 10-Q filed with the Commission on February 12, 2003.
(b) REPORTS ON FORM 8-K. The Company filed one report on Form 8-K during the
three-month period ended December 29, 2002. The report on Form 8-K was dated
October 1, 2002, filed on October 16, 2002 and amended on December 16, 2002. The
Form 8-K reported the acquisition of substantially all of the consumer battery
business of VARTA AG ("VARTA") and the amended Form 8-K contained the audited
financial statements of VARTA and certain unaudited pro forma financial
information of the Company.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 2, 2003
RAYOVAC CORPORATION
/s/ Randall J. Steward
--------------------------------------------
Randall J. Steward
Executive Vice President and
and Chief Financial Officer
15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1+++ Joint Venture Agreement dated July 28, 2002, by and among the
Company, VARTA and ROV German Limited GmbH, as amended.
3.1+ Amended and Restated Articles of Incorporation of the Company.
3.2++++ Amended and Restated By-laws of the Company, as amended through
July 24, 2002.
4.1* Specimen certificate representing the Common Stock.
10.1 Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and David A. Jones.
10.2++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Kent J. Hussey.
10.3++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Kenneth V. Biller.
10.4++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Stephen P. Shanesy.
10.5++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Merrell M. Tomlin.
10.6++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Luis A. Cancio.
10.7++++ Amended and Restated Employment Agreement, dated as of October
1, 2002, by and between the Company and Dr. Paul G. Cheeseman.
10.8++++ Employment Agreement, dated as of August 19, 2002, by and
between the Company and Randall J. Steward.
10.9++++ Registered Director's Agreement, effective as of October 1,
2002, by and between ROV German Holding GmbH and Remy Burel.
10.10** Technology, License and Service Agreement between Battery
Technologies (International) Limited and the Company, dated
June 1, 1991, as amended April 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++++ Build-To-Suit Lease Agreement, dated as of May 2, 2002, by and
among 200 Corporate Drive, L.L.C., as Landlord, the Company, as
Tenant, and Higgins Development Partners, L.L.C., as Developer.
10.14+++++ Real Estate Lease, dated September 1, 2001, by and between
VARTA Geratebatterie GmbH, as Tenant, and Paula
Grundstucksverwaltungsgesellschaft mbH & Co. Vermietungs-KG,
as Landlord, as amended.
10.15+++++ Real Property Leasing Agreement, dated December 21, 2000, by
and between VARTA Geratebatterie GmbH, as Tenant, and ROSATA
Grundstucks-Vermietungsgesellschaft mbH & Co. object
Dischingin KG, as Landlord, as amended.
10.16+++ Third Amended and Restated Credit Agreement, dated October 1,
2002, by and among the Company, VARTA Geratebatterie GmbH, the
lenders party thereto, LaSalle Bank National Association, as
documentation agent, Citicorp North America, Inc., as
syndication agent, and Bank of America, N.A., as administrative
agent.
10.17+++++ Amendment No. 1 to Third Amended and Restated Credit Agreement,
dated October 1, 2002, by and among the Company, VARTA
Geratebatterie GmbH, the lenders party thereto, LaSalle Bank
National Association, as documentation agent, Citicorp North
America, Inc., as syndication agent, and Bank of America, N.A.,
as administrative agent.
10.18*** Rayovac Corporation 1996 Stock Option Plan.
10.19* 1997 Rayovac Incentive Plan.
10.20* Rayovac Profit Sharing and Savings Plan.
10.21+++++ Rayovac Corporation Supplemental Executive Retirement Plan.
16
10.22+++++ Rayovac Corporation Deferred Compensation Plan, as amended.
10.23++ 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.
21+++++ Subsidiaries of the Company.
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer 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.
** 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 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 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 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 October 16, 2002.
++++ Incorporated by reference to the Company's Annual Report on
Form 10-K filed with the Commission on December 16, 2002.
+++++ Incorporated by reference to the Company's Quarterly Report on
Form 10-Q filed with the Commission on February 12, 2003.
17
CERTIFICATIONS
I, David A. Jones, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Rayovac
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 2, 2003
/s/ David A. Jones
-----------------------------------
David A. Jones
Chief Executive Officer
18
I, Randall J. Steward, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Rayovac
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 2, 2003
/s/ Randall J. Steward
--------------------------------------
Randall J. Steward
Chief Financial Officer
19