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 July 4, 1999
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 333-17895
---------
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 ( )
The number of shares outstanding of the Registrant's common stock, $.01
par value, as of August 4, 1999, was 27,490,052.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of July 4, 1999 and September 30, 1998
(In thousands, except per share amounts)
-ASSETS-
July 4, 1999 September 30, 1998
---------------- -------------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,384 $ 1,594
Receivables 90,391 101,853
Inventories 66,053 62,762
Prepaid expenses and other 20,046 14,729
----------------- --------------------
Total current assets 177,874 180,938
Property, plant and equipment, net 79,202 71,367
Deferred charges and other 42,481 31,554
----------------- --------------------
Total assets $ 299,557 $ 283,859
----------------- --------------------
----------------- --------------------
-LIABILITIES AND SHAREHOLDERS' EQUITY -
Current liabilities:
Current maturities of long-term debt $ 7,485 $ 3,590
Accounts payable 56,967 62,778
Accrued liabilities:
Wages and benefits and other 24,273 26,124
Recapitalization and other special charges 2,384 6,789
----------------- --------------------
Total current liabilities 91,109 99,281
Long-term debt, net of current maturities 151,660 148,686
Employee benefit obligations, net of current portion 12,279 10,433
Other 3,975 3,585
----------------- --------------------
Total liabilities 259,023 261,985
Shareholders' equity:
Common stock, $.01 par value, authorized 150,000 shares;
issued 56,969 and 56,907 shares respectively;
outstanding 27,490 and 27,471 shares, respectively 570 569
Additional paid-in capital 103,577 103,304
Notes receivable from officers/shareholders (890) (890)
Retained earnings 64,940 45,735
----------------- --------------------
168,197 148,718
Less stock held in trust for deferred compensation
plan, 24 shares - (412)
Less treasury stock, at cost, 29,479 and 29,436
shares, respectively (129,096) (128,472)
Accumulated other comprehensive income (expense):
Foreign currency translation adjustment 1,893 2,500
Minimum pension liability adjustment (460) (460)
----------------- --------------------
Total shareholders' equity 40,534 21,874
----------------- --------------------
Total liabilities and shareholders' equity $ 299,557 $ 283,859
----------------- --------------------
----------------- --------------------
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
1
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three month and nine month periods ended July 4, 1999 and June 27, 1998
(Unaudited)
(In thousands, except per share amounts)
THREE MONTHS NINE MONTHS
------------------------------- -------------------------------
Fiscal 1999 Fiscal 1998 Fiscal 1999 Fiscal 1998
------------ ------------ ------------- ------------
Net sales $ 120,440 $ 111,054 $ 391,951 $ 357,130
Cost of goods sold 63,367 57,894 203,883 185,857
-------------- ------------- -------------- -------------
Gross profit 57,073 53,160 188,068 171,273
Selling 33,105 31,835 113,148 105,511
General and administrative 8,663 8,563 25,971 24,792
Research and development 2,143 2,089 6,408 6,194
Other special charges 834 985 2,220 5,002
-------------- ------------- -------------- -------------
Total operating expenses 44,745 43,472 147,747 141,499
Income from operations 12,328 9,688 40,321 29,774
Other expense (income):
Interest expense 3,638 3,501 10,778 11,816
Other expense (income) (834) 24 (452) (335)
-------------- ------------- -------------- -------------
2,804 3,525 10,326 11,481
Income before income taxes and extraordinary item 9,524 6,163 29,995 18,293
Income tax expense 3,373 2,314 10,789 6,892
-------------- ------------- -------------- -------------
Income before extraordinary item 6,151 3,849 19,206 11,401
Extraordinary item, loss on early extinguishment of debt,
net of income tax benefit of $1,263 - - - 1,975
-------------- ------------- -------------- -------------
Net income $ 6,151 $ 3,849 $ 19,206 $ 9,426
-------------- ------------- -------------- -------------
-------------- ------------- -------------- -------------
Basic earnings per share
Average shares outstanding 27,488 27,435 27,485 26,136
Income before extraordinary item $ 0.22 $ 0.14 $ 0.70 $ 0.44
Extraordinary item - - - (0.08)
-------------- ------------- -------------- -------------
Net income $ 0.22 $ 0.14 $ 0.70 $ 0.36
-------------- ------------- -------------- -------------
-------------- ------------- -------------- -------------
Diluted earnings per share
Average shares outstanding and common stock equivalents 29,305 29,226 29,262 27,743
Income before extraordinary item $ 0.21 $ 0.13 $ 0.66 $ 0.41
Extraordinary item - - - (0.07)
-------------- ------------- -------------- -------------
Net income $ 0.21 $ 0.13 $ 0.66 $ 0.34
-------------- ------------- -------------- -------------
-------------- ------------- -------------- -------------
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine month periods
ended July 4, 1999 and June 27, 1998
(Unaudited)
(In thousands)
FISCAL 1999 FISCAL 1998
------------- --------------
Cash flows from operating activities:
Net income $ 19,206 $ 9,426
Non-cash adjustments to net income:
Amortization 1,938 2,331
Depreciation 8,506 8,513
Other non-cash adjustments (220) (2,190)
Net changes in other assets and liabilities,
net of effects from acquisition (18,828) (24,967)
------------- --------------
Net cash provided (used) by operating activities 10,602 (6,887)
Cash flows from investing activities:
Purchases of property, plant and equipment (16,370) (11,666)
Proceeds from sale of property, plant and equipment 26 3,327
Payment for acquisition - (9,224)
------------- --------------
Net cash used by investing activities (16,344) (17,563)
Cash flows from financing activities:
Reduction of debt (5,515) (139,644)
Proceeds from debt financing 11,234 73,959
Proceeds from issuance of common stock - 90,024
Other (200) 625
------------- --------------
Net cash provided by financing activities 5,519 24,964
------------- --------------
Effect of exchange rate changes on cash and cash
equivalents 13 (23)
------------- --------------
Net increase (decrease) in cash and cash equivalents (210) 491
Cash and cash equivalents, beginning of period 1,594 1,133
------------- --------------
Cash and cash equivalents, end of period $ 1,384 $ 1,624
------------- --------------
------------- --------------
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
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 July 4, 1999, results
of operations for the three and nine month periods ended July 4, 1999,
and June 27, 1998, and cash flows for the three and nine month periods
ended July 4, 1999, and June 27, 1998. 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, 1998.
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 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 counterparties 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 6.16% for a notional principal amount of $62,500
through October 1999 and at a rate of 6.405% for a notional principal
amount of $25,000 for the period October 1999 through October 2002. The
fair value of the unrealized portion of these contracts at July 4, 1999
was ($192).
The Company has entered into an amortizing cross currency interest rate
swap agreement related to financing the acquisition of Brisco. The
agreement effectively fixes the interest and foreign exchange on
floating rate debt denominated in U.S. Dollars at a rate of 5.34%
denominated in German Marks. The unamortized notional principal amount
at July 4, 1999 is $3,454. The fair value of the unrealized portion at
July 4, 1999 was ($89).
The Company enters into forward foreign exchange contracts to mitigate
the risk from anticipated settlement in local currencies of
intercompany 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 related adjustment is recognized in other
expense (income). The related amounts payable to, or receivable from,
the counterparties are included in accounts payable or accounts
receivable. The Company has $5,591 of forward exchange contracts at
July 4, 1999. The fair value of the unrealized portion of the contracts
at July 4, 1999 was immaterial.
The Company also 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 $4,724 of such forward exchange contracts at
July 4, 1999. The fair value of the unrealized portion of the contracts
at July 4, 1999, was $258.
The Company enters into forward foreign exchange contracts to hedge the
risk from settlement in local currencies of trade purchases. These
contracts generally require the Company to exchange foreign currencies
for U.S. Dollars and Pounds Sterling. The Company has entered into
foreign exchange contracts
4
to hedge payment obligations denominated in Japanese Yen under a
commitment to purchase certain production equipment from Matsushita.
The Company has $2,529 of such forward exchange contracts
outstanding at July 4, 1999. See related purchase commitment
discussed in the commitments and contingencies note. The fair value
at July 4, 1999 was immaterial.
The Company is exposed to risk from fluctuating prices for zinc and
silver commodities 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 July 4, 1999, the Company had entered into a series of swaps for
zinc with a contract value of $6,489 for the period June 1999 through
September 2000. While the transactions have no carrying value, the fair
value of the unrealized portion of these contracts at July 4, 1999,
approximated the carrying value.
RECLASSIFICATION: Certain prior year amounts have been reclassified to
conform with the current year presentation.
2 INVENTORIES
Inventories consist of the following:
July 4, 1999 September 30, 1998
------------ ------------------
Raw material $22,703 $22,311
Work-in-process 13,248 16,230
Finished goods 30,102 24,221
------- -------
$66,053 $62,762
------- -------
------- -------
3 OTHER COMPREHENSIVE INCOME
Effective October 1, 1998 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
Comprehensive income (loss) and the components of other comprehensive
income (loss) for the three and nine month periods ended July 4, 1999
and June 27, 1998 are as follows:
5
Three month periods ended
July 4, 1999 and June 27, 1998
---------------------------------------------------
Fiscal 1999 Fiscal 1998
----------- -----------
Net income $6,151 $3,849
Other comprehensive income (loss)
foreign currency translation 40 (69)
------ ------
Comprehensive income $6,191 $3,780
------ ------
------ ------
Nine month periods ended
July 4, 1999 and June 27,1998
---------------------------------------------------
Fiscal 1999 Fiscal 1998
----------- -----------
Net income $19,206 $9,426
Other comprehensive income (loss)
foreign currency translation (607) (32)
------ ------
Comprehensive income $18,599 $9,394
------ ------
------ ------
4 EARNINGS PER SHARE DISCLOSURE
Earnings per share is calculated based upon the following:
Three month period ended July 4, 1999 Three month period ended June 27, 1998
----------------------------------------------- ----------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Income before extraordinary
item $6,151 $3,849
Basic EPS
Income available to common
shareholders $6,151 27,488 $0.22 $3,849 27,435 $0.14
----- -----
----- -----
Effect of Dilutive Securities
Stock Options 1,817 1,791
----- -----
Diluted EPS
Income available to common
shareholders plus assumed
conversion $6,151 29,305 $0.21 $3,849 29,226 $0.13
------ ------ ----- ------ ------ -----
------ ------ ----- ------ ------ -----
Nine month period ended July 4, 1999 Nine month period ended June 27, 1998
----------------------------------------------- ----------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Income before extraordinary
item $19,206 $11,401
Basic EPS
Income available to common
shareholders $19,206 27,485 $0.70 $11,401 26,136 $0.44
----- -----
----- -----
Effect of Dilutive Securities
Stock Options 1,777 1,607
----- -----
Diluted EPS
Income available to common
shareholders plus assumed
conversion $19,206 29,262 $0.66 $11,401 27,743 $0.41
------- ------ ----- ------- ------ -----
------- ------ ----- ------- ------ -----
6
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 the Company committed to pay royalties of $2,000 in 1998
and 1999, $3,000 in 2000 through 2003, and $500 in each year
thereafter, as long as the related equipment patents are enforceable
(2023). Additionally, the Company committed to purchase $7,500 of
production equipment of which $2,200 remains to be paid in calendar
year 1999. Also there are commitments to purchase $230 of production
tooling.
The Company has provided for the estimated costs associated with
environmental remediation activities at some of its current and former
manufacturing sites. In addition, the Company, together with other
parties, has been designated a potentially responsible party of various
third-party sites on the United States EPA National Priorities List
(Superfund). The Company provides for the estimated costs of
investigation and remediation of these sites when such losses are
probable and the amounts can be reasonably estimated. The actual cost
incurred may vary from these estimates due to the inherent
uncertainties involved. The Company believes that any additional
liability in excess of the amounts provided of $1,481, 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 the year ended September 30, 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 included $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 by April 1999
of the Company's Appleton, Wisconsin, manufacturing facility, which
amount included $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 by March 1999 of certain
manufacturing operations at the Company's Madison, Wisconsin,
facility, which amount included $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:
7
1998 RESTRUCTURING SUMMARY
Termination Other
benefits costs Total
-------- ----- -----
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 9/30/98 $2,300 $2,600 $4,900
------ ------- -------
------ ------- -------
Change in estimate (500) -- (500)
Expensed as incurred 300 800 1,100
Cash expenditures (900) (2,100) (3,000)
Non-cash charges -- (100) (100)
------ ------- -------
Balance 1/03/99 $1,200 $1,200 $2,400
------ ------- -------
------ ------- -------
Expensed as incurred -- 600 600
Cash expenditures (300) (700) (1,000)
Non-cash charges -- (200) (200)
------ ------- -------
Balance 4/04/99 $900 $900 $1,800
------ ------- -------
------ ------- -------
Expensed as incurred -- 100 100
Cash expenditures (400) (300) (700)
Non-cash charges -- (300) (300)
------ ------- -------
Balance 7/04/99 $500 $400 $900
------ ------- -------
------ ------- -------
During the year ended September 30, 1997, the Company recorded special
charges as follows: (i) $2,500 of charges related to the exit of certain
manufacturing and distribution operations at the Company's Kinston,
North Carolina facility in early fiscal 1998, which included $1,100 of
employee termination benefits for 137 employees, (ii) $1,400 of employee
termination benefits for 71 employees related to organizational
restructuring in Europe and the exit of certain manufacturing operations
in the Company's Newton Aycliffe, United Kingdom facility which the
Company completed in fiscal 1998, (iii) $2,000 of charges for employee
termination benefits for 77 employees related to organizational
restructuring in the United States which the Company completed in fiscal
1998. The number of employees anticipated to be terminated was
approximately equal to the actual numbers referenced above. The charges
were partially offset by a $2,900 million gain related to the
curtailment of the Company's defined benefit pension plan covering all
domestic non-union employees. A summary of the 1997 restructuring
activities follows:
8
1997 RESTRUCTURING SUMMARY
Termination Other
benefits costs Total
-------- ----- -----
Expenses accrued $4,000 $600 $4,600
Change in estimate 500 600 1,100
Expensed as incurred -- 200 200
Expenditures (3,300) (700) (4,000)
------- ----- -------
Balance 9/30/97 $1,200 $700 $1,900
------- ----- -------
------- ----- -------
Expenditures (700) -- (700)
------- ----- -------
Balance 12/27/97 $500 $700 $1,200
------- ----- -------
------- ----- -------
Change in estimate (100) (400) (500)
Expenditures (200) (200) (400)
------- ----- -------
Balance 3/28/98 $200 $100 $300
------- ----- -------
------- ----- -------
Expenditures -- (100) (100)
------- ----- -------
Balance 6/27/98 $200 $ -- $200
------- ----- -------
------- ----- -------
Change in estimate (100) -- (100)
Expenditures (100) -- (100)
------- ----- -------
Balance 9/30/98 $ -- $ -- $ --
------- ----- -------
------- ----- -------
7 SUBSEQUENT EVENTS
In June 1999, the Company entered into agreements to acquire the
consumer battery business of ROV Limited for approximately $155
million. Privately held, ROV Limited is a leading battery manufacturer
and marketer in Latin America with C1998 sales of $97 million. On
closing of this acquisition, Rayovac will control the Rayovac brand
rights for battery products worldwide, with the exception of Brazil.
The acquisition is expected to be completed by the end of fiscal 1999.
The Company currently expects to finance this acquisition entirely with
additional borrowings under amended senior credit facilities. The
Company currently intends to amend and replace its existing senior
credit facilities with a $250 million five-year revolving credit
facility and a $75 million five-year amortizing term loan. In addition
to financing the acquisition of ROV Limited's operations, the Company
plans to use the proceeds of these planned amended senior credit
facilities to refinance the Company's outstanding senior indebtedness,
to finance future acquisitions and for working capital and general
corporate purposes. Indebtedness under these amended senior credit
facilities will be secured.
8 GUARANTOR SUBSIDIARY (ROV Holding, 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
Subsidiary using the equity method for purposes of the consolidating
presentation. Earnings of subsidiaries are therefore reflected in the
Company's and Guarantor Subsidiary's investment accounts and earnings.
The principal elimination entries eliminate investments in subsidiaries
and inter-company balances and transactions. Separate financial
statements of the Guarantor Subsidiary are not presented because
management has determined that such financial statements would not be
material to investors.
9
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of July 4, 1999
(Unaudited)
(In thousands)
-ASSETS-
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
------------- ---------------- -------------- ------------------ --------------
Current assets:
Cash and cash equivalents $ 1,131 $ 43 $ 210 $ - $ 1,384
Receivables 76,745 650 17,317 (4,321) 90,391
Inventories 55,691 - 10,428 (66) 66,053
Prepaid expenses and other 17,746 342 1,958 - 20,046
------------- ---------------- ---------------- ------------------ --------------
Total current assets 151,313 1,035 29,913 (4,387) 177,874
Property, plant and equipment, net 74,762 - 4,440 - 79,202
Deferred charges and other 41,983 - 4,917 (4,419) 42,481
Investment in subsidiaries 19,789 18,929 - (38,718) -
------------- ---------------- ---------------- ------------------ --------------
Total assets $ 287,847 $ 19,964 $ 39,270 $ (47,524) $ 299,557
------------- ---------------- ---------------- ------------------ --------------
------------- ---------------- ---------------- ------------------ --------------
-LIABILITIES AND SHAREHOLDERS' EQUITY-
Current liabilities:
Current maturities of
long-term debt $ 2,930 $ - $ 5,460 $ (905) $ 7,485
Accounts payable 51,569 - 8,510 (3,112) 56,967
Accrued liabilities:
Wages and benefits
and other 20,420 (55) 3,897 11 24,273
Recapitalization and
other special charges 2,384 - - - 2,384
------------- ---------------- ---------------- ------------------ --------------
Total current liabilities 77,303 (55) 17,867 (4,006) 91,109
Long-term debt, net of current
maturities 152,460 - 2,263 (3,063) 151,660
Employee benefit obligations,
net of current portion 12,279 - - - 12,279
Other 3,534 230 211 - 3,975
------------- ---------------- ---------------- ------------------ --------------
Total liabilities 245,576 175 20,341 (7,069) 259,023
Shareholders' equity :
Common stock 570 - 12,072 (12,072) 570
Additional paid-in capital 103,577 3,525 752 (4,277) 103,577
Notes receivable from
officers/shareholders (890) - - - (890)
Retained earnings 66,677 14,371 4,212 (20,320) 64,940
------------- ---------------- ---------------- ------------------ --------------
169,934 17,896 17,036 (36,669) 168,197
Less treasury stock, at cost (129,096) - - - (129,096)
Accumulated other comprehensive
income (expense):
Foreign currency translation
adjustment 1,893 1,893 1,893 (3,786) 1,893
Minimum pension liability
adjustment (460) - - - (460)
------------- ---------------- ---------------- ------------------ --------------
Total shareholders' equity 42,271 19,789 18,929 (40,455) 40,534
------------- ---------------- ---------------- ------------------ --------------
Total liabilities and
shareholders' equity $ 287,847 $ 19,964 $ 39,270 $ (47,524) $ 299,557
------------- ---------------- ---------------- ------------------ --------------
------------- ---------------- ---------------- ------------------ --------------
10
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the three month period ended July 4, 1999
(Unaudited)
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
---------------- ---------------- ------------------ ----------------- -------------------
Net sales $ 108,493 $ - $ 16,433 $ (4,486) $ 120,440
Cost of goods sold 59,115 - 8,742 (4,490) 63,367
---------------- ---------------- ------------------ ----------------- -------------------
Gross profit 49,378 - 7,691 4 57,073
Selling 29,342 - 3,763 - 33,105
General and administrative 7,532 (222) 1,371 (18) 8,663
Research and development 2,143 - - - 2,143
Other special charges 675 - 159 - 834
---------------- ---------------- ------------------ ----------------- -------------------
Total operating expenses 39,692 (222) 5,293 (18) 44,745
Income from operations 9,686 222 2,398 22 12,328
Other expense (income):
Interest expense 3,421 - 217 - 3,638
Equity in profit of subsidiary (1,374) (1,245) - 2,619 -
Other expense (income) (880) 8 12 26 (834)
---------------- ---------------- ------------------ ----------------- -------------------
Income before income taxes
and extraordinary item 8,519 1,459 2,169 (2,623) 9,524
Income tax expense 2,364 85 924 - 3,373
---------------- ---------------- ------------------ ----------------- -------------------
Income before
extraordinary item 6,155 1,374 1,245 (2,623) 6,151
Extraordinary item - - - - -
---------------- ---------------- ------------------ ----------------- -------------------
Net income $ 6,155 $ 1,374 $ 1,245 $ (2,623) $ 6,151
---------------- ---------------- ------------------ ----------------- -------------------
---------------- ---------------- ------------------ ----------------- -------------------
11
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the nine month period ended July 4, 1999
(Unaudited)
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
---------------- ---------------- ------------------ ---------------- -----------------
Net sales $ 356,990 $ - $ 55,503 $ (20,542) $ 391,951
Cost of goods sold 193,256 - 31,182 (20,555) 203,883
---------------- ---------------- ------------------ ---------------- -----------------
Gross profit 163,734 - 24,321 13 188,068
Selling 100,343 - 12,805 - 113,148
General and administrative 21,650 (644) 5,019 (54) 25,971
Research and development 6,408 - - - 6,408
Other special charges 1,385 - 835 - 2,220
---------------- ---------------- ------------------ ---------------- -----------------
Total operating expenses 129,786 (644) 18,659 (54) 147,747
Income from operations 33,948 644 5,662 67 40,321
Other expense (income):
Interest expense 10,279 - 499 - 10,778
Equity in profit of subsidiary (3,167) (2,810) - 5,977 -
Other expense (income) (1,072) 34 586 - (452)
---------------- ---------------- ------------------ ---------------- -----------------
6,040 (2,776) 1,085 5,977 10,326
Income before income taxes
and extraordinary item 27,908 3,420 4,577 (5,910) 29,995
Income tax expense 8,769 253 1,767 - 10,789
---------------- ---------------- ------------------ ---------------- -----------------
Income before
extraordinary item 19,139 3,167 2,810 (5,910) 19,206
Extraordinary item - - - - -
---------------- ---------------- ------------------ ---------------- -----------------
Net income $ 19,139 $ 3,167 $ 2,810 $ (5,910) $ 19,206
---------------- ---------------- ------------------ ---------------- -----------------
---------------- ---------------- ------------------ ---------------- -----------------
12
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine month period ended July 4, 1999
(Unaudited)
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
-------------- ---------------- ---------------- --------------- -----------------
Net cash provided (used) by operating activities $ 13,986 $ (1) $ (2,231) $ (1,152) $ 10,602
Cash flows from investing activities:
Purchases of property, plant and equipment (15,947) - (423) - (16,370)
Proceeds from sale of property, plant, and
equip. 26 - - - 26
Payment for acquisitions - - - - -
-------------- ---------------- ---------------- --------------- -----------------
Net cash used by investing activities (15,921) - (423) - (16,344)
Cash flows from financing activities:
Reduction of debt (2,289) - (4,378) 1,152 (5,515)
Proceeds from debt financing 4,200 - 7,034 - 11,234
Other (200) - - - (200)
-------------- ---------------- ---------------- --------------- -----------------
Net cash provided by financing activities 1,711 - 2,656 1,152 5,519
Effect of exchange rate changes on cash and
cash equivalents - - 13 - 13
-------------- ---------------- ---------------- --------------- -----------------
Net increase (decrease) in cash and cash
equivalents (224) (1) 15 - (210)
Cash and cash equivalents, beginning of period 1,355 44 195 - 1,594
-------------- ---------------- ---------------- --------------- -----------------
Cash and cash equivalents, end of period $ 1,131 $ 43 $ 210 $ - $ 1,384
-------------- ---------------- ---------------- --------------- -----------------
-------------- ---------------- ---------------- --------------- -----------------
13
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL QUARTER AND NINE MONTHS ENDED JULY 4, 1999 COMPARED TO
FISCAL QUARTER AND NINE MONTHS ENDED JUNE 27, 1998
RESULTS OF OPERATIONS
NET SALES. Net sales for the three months ended July 4, 1999 (the
"Fiscal 1999 Quarter") increased $9.3 million, or 8.4%, to $120.4 million from
$111.1 million for the three months ended June 27, 1998 (the "Fiscal 1998
Quarter"). The increase was driven by increased sales of alkaline batteries,
lighting products and heavy duty batteries partially offset by a decrease in
hearing aid battery sales.
Alkaline sales increased $10.7 million, or 22%, to $59.4 million from
$48.7 million in the same period a year ago. The growth in alkaline was due
primarily to expanded distribution and strong promotional programs in North
America partially offset by a decision to exit certain private label battery
business in the United Kingdom.
Hearing aid battery sales decreased $1.6 million, or 8.2%, compared to
the same period a year ago. Sales were impacted by high retail inventory levels
and a large initial shipment into a major U.S. retailer a year ago. Also, in
the UK, our exclusivity with the government has ended.
Heavy duty sales increased $0.5 million, or 6.5%, compared to the same
period a year ago due primarily to exclusive distribution with a major U.S.
retailer partially offset by a decision to exit certain private label battery
business in the United Kingdom.
Sales of lighting products increased $3.5 million, or 23.5%, to
$18.4 million from $14.9 million in the same period a year ago due primarily to
new product introductions and continued growth in our economy flashlight line.
For the nine months ended July 4, 1999 (the "1999 Nine Months"), sales
increased $34.9 million, or 9.8%, to $392.0 million from $357.1 million for the
nine months ended June 27, 1998 (the "1998 Nine Months"). The increase was
mainly driven by increased sales of alkaline, hearing aid, specialty, and
lighting products partially offset by a decrease in other micropower battery
sales.
Alkaline sales increased $25.1 million, or 14.6%, to $197.4 million
from $172.3 million in the same period a year ago. The growth in alkaline was
due primarily to expanded distribution and strong promotional programs in North
America partially offset by a decision to exit certain private label battery
business in the United Kingdom.
Hearing aid battery sales increased $2.1 million, or 3.9%, compared to
the same period a year ago. A significant portion of the gain was in North
America, reflecting improved retail channel distribution and the impact of the
Best Labs acquisition completed during Fiscal 1998.
14
Specialty battery sales increased $4.1 million to $10.6 million
reflecting the impact of the Direct Power Plus acquisition completed during
Fiscal 1998 and the introduction of cordless and cellular phone batteries.
Lighting product sales increased $6.0 million, or 12.3%, to $54.6
million due primarily to new product launches and expanded distribution in the
Company's industrial lantern battery business.
GROSS PROFIT. Gross profit for the Fiscal 1999 Quarter increased
$3.9 million, or 7.3%, to $57.1 million from $53.2 million in the Fiscal 1998
Quarter. Gross profit margin decreased to 47.4% from 47.9% in the same period
a year ago primarily reflecting the impact of a change to "net pricing" with
a major U.S. retailer.
For the 1999 Nine Months, gross profit increased $16.8 million, or
9.8%, to $188.1 million from $171.3 million in the same period a year ago.
Gross profit margin was flat at 48.0%. Improvements from reduced
manufacturing costs as a result of cost rationalization initiatives were
tempered by the strong volume increases in lower margin specialty and
lighting products and the impact of changing to "net pricing" with a major
U.S. retailer.
SELLING EXPENSE. Selling expense increased $1.3 million, or 4.1%, to
$33.1 million in the Fiscal 1999 Quarter from $31.8 million in the Fiscal
1998 Quarter. As a percentage of sales, selling expense decreased to 27.5%
from 28.6% in the same period a year ago. For the 1999 Nine Months, selling
expense increased $7.6 million, or 7.2%, to $113.1 million from $105.5
million in the same period a year ago. As a percentage of sales, selling
expense decreased to 28.9% from 29.5%. The increase in dollars is due
primarily to increased direct selling and promotional spending in support of
increased sales and expanded distribution. The decrease in selling expense as
a percentage of sales is primarily attributable to net sales growing faster
than selling expenses and reduced expense resulting from the change to "net
pricing" with a major U.S. retailer.
GENERAL AND ADMINSTRATIVE EXPENSE. General and administrative expense
was $8.7 million in the Fiscal 1999 Quarter approximately equal to the Fiscal
1998 Quarter. For the 1999 Nine Months, general and administrative expenses
increased $1.2 million, or 4.8%, to $26.0 million from $24.8 million in the same
period a year ago. The increase was due primarily to information system
improvements and increased expenses and amortization related to acquisitions.
As a percentage of sales, general and administrative expense decreased from 6.9%
to 6.6% for the 1999 Nine Months.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was
$2.1 million for the Fiscal 1999 Quarter approximately equal to the Fiscal 1998
Quarter. For the 1999 Nine Months, research and development increased $0.2
million, or 3.2%, to $6.4 million from $6.2 million in the same period a year
ago, reflecting increased spending on alkaline and hearing aid battery
technology.
SPECIAL CHARGES. Special charges of $0.8 million in the Fiscal 1999
Quarter were $0.2 million lower than the Fiscal 1998 Quarter. Special charges in
the Fiscal 1999 Quarter primarily reflect costs associated with the closing of
the Appleton, Wisconsin facility. The Company recorded $1.0 million of special
charges during the 1998 Fiscal Quarter which included $0.8
15
million related to the expenses in connection with a secondary offering of the
Company's stock and $0.2 million of costs related to previously announced
restructuring activities.
For the 1999 Nine Months, special charges decreased $2.8 million to
$2.2 million from $5.0 million in the same period a year ago. Special charges
for the 1999 Nine Months principally reflect costs associated with the closing
of the Appleton, Wisconsin and Newton Aycliffe, United Kingdom facilities.
Special charges for the 1998 Nine Months reflect the restructuring of the
Company's domestic and international operations partially offset by a gain on
the sale of its previously closed North Carolina facility and a gain on the
buy-out of deferred compensation agreements with certain former employees.
INCOME FROM OPERATIONS. For the 1999 Fiscal Quarter, income from
operations increased $2.6 million to $12.3 million from $9.7 million in the
Fiscal 1998 Quarter. For the 1999 Nine Months, income from operations increased
$10.5 million, or 35.2%, to $40.3 million from $29.8 million in the 1998 Nine
Months. These increases were primarily attributable to increased sales, gross
profit improvements and lower special charges partially offset by increased
operating expenses.
INTEREST EXPENSE. Interest expense increased $0.1 million, or 2.9%, to
$3.6 million from $3.5 million in the Fiscal 1998 Quarter. The increase was
primarily a result of increased indebtedness due to higher working capital
investment to support growth in the business.
For the 1999 Nine Months, interest expense decreased $1.0 million, or
8.5%, to $10.8 million from $11.8 million in the same period a year ago. The
decrease was primarily a result of decreased indebtedness due to the application
of proceeds of the Company's initial public offering of common stock completed
in November 1997.
OTHER EXPENSE (INCOME). Interest income of $0.5 million primarily
from settlement of a prior year tax return and foreign exchange gains of $0.3
million across several currencies resulted in other income of $0.8 million in
the Fiscal 1999 Quarter. In the Fiscal 1998 Quarter, interest income of $0.2
million offset foreign exchange losses of the same amount.
For the 1999 Nine Months, interest income was partially offset by
foreign exchange losses and resulted in income of $0.5 million. In the 1998 Nine
Months, interest income was partially offset by foreign exchange losses and
resulted in income of $0.3 million.
INCOME TAX EXPENSE. The Company's effective tax rate for the Fiscal
1999 Quarter was 35.4% compared to 37.5% for the Fiscal 1998 Quarter. The change
in effective rate is caused primarily by Fiscal 1998 Quarter non-deductible
expenses related to the Company's secondary offering offset by a favorable
adjustment based on the finalization of the Company's 1997 tax return.
For the 1999 Nine Months, the Company's effective tax rate was 36.0%
compared to 37.7% for the same period a year ago. The improved effective rate is
impacted by a lower foreign tax rate as compared to the Company's statutory
rate.
EXTRAORDINARY ITEM. The 1998 Nine Months include an extraordinary
expense of $2.0 million, net of income tax, for the premium payment on the
redemption of a portion of the Company's Series B Senior Subordinated Notes.
16
NET INCOME. Net income for the Fiscal 1999 Quarter increased $2.4
million to $6.2 million from $3.8 million in the Fiscal 1998 Quarter. The
increase reflects the impact of sales growth, improved gross profit, lower
special charges, and the absence of the extraordinary item. For the 1999 Nine
Months, net income increased $9.8 million, or 104.3%, to $19.2 million from $9.4
million in the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
For the 1999 Nine Months, net cash provided by operating activities
increased $17.5 million to $10.6 million from ($6.9) million for the 1998 Nine
Months. This increase is mainly due to increased income from operations and
improvements in working capital. Cash costs associated with the restructuring
activities announced in Fiscal 1998 have been and are expected to be funded with
cash provided by operations.
Net cash used in investing activities decreased $1.3 million versus the
prior year period. Capital expenditures for the 1999 Nine Months were
approximately $16.4 million, an increase of $4.7 million from the 1998 Nine
Months reflecting continued spending on the new SAP business enterprise system,
the building expansion at the Company's Portage, Wisconsin manufacturing
facility, and expanded capacity of alkaline AA battery lines. The increase in
capital spending was offset by the absence in 1999 of proceeds from the
disposition of the Company's previously closed North Carolina facility and
acquisition investments. In the 1998 Nine Months, the Company acquired Brisco,
Best Labs and DPP.
The Company continues to expect capital spending for fiscal 1999 for
its current operations to be approximately $24 million. Alkaline capacity
expansion, building expansion at the Company's Portage, Wisconsin facility and
the SAP computer system are the major projects underway in addition to normal
maintenance level spending.
On June 11, 1999, the Company entered into a Share Purchase
Agreement under which it agreed to acquire, for an aggregate purchase price of
$140 million, subject to adjustment, (1) all of the outstanding capital stock of
Ray-O-Vac Overseas Corporation, the wholly-owned subsidiary of ROV Limited which
carries on directly and through its subsidiaries the business of marketing and
manufacturing a line of batteries, including general purpose and heavy duty
batteries, in certain Latin American countries, and (2) the license currently
held by ROV Limited to use the "Rayovac" trade name and trademark in India and
Pakistan, countries in Latin America (other than Brazil), Africa and the Middle
East and selected countries in the Far East. Concurrently, the Company also
entered into agreements to acquire, for an aggregate purchase price of $15
million, the outstanding minority interests in certain of the operating
subsidiaries of Ray-O-Vac Overseas Corporation. The acquisitions described in
this paragraph are collectively referred to as the "ROV Acquisition". The
Company's consummation of the ROV acquisition is subject to the satisfaction or
waiver of certain conditions. While the Company has definitive agreements for
the ROV acquisition and expects to consummate the ROV acquisition by the end of
fiscal 1999, there can be no assurance that the Company will successfully
consummate the ROV acquisition.
The Company currently expects to finance its entire ROV
Acquisition with additional borrowings under amended senior credit facilities.
The Company currently intends to
17
amend and replace its existing credit facilities with a $250 million five-year
revolving credit facility and a $75 million five-year amortizing term loan.
In addition to financing the ROV Acquisition, the Company intends to use the
proceeds of these amended senior credit facilities to refinance the Company's
outstanding senior indebtedness, to finance future acquisitions and for working
capital and general corporate purposes. Indebtedness under these facilities will
be secured.
The Company's current credit facilities include a revolving
credit facility of $90.0 million of which approximately $82.2 million of
senior debt was outstanding at July 4, 1999, with approximately $7.6 million
utilized for outstanding letters of credit. The Company also has $7.0 million
outstanding on its acquisition facility as of July 4, 1999. The Company's
ability to borrow is limited by the terms of its senior credit facilities and
outstanding 10 1/4% Series B Senior Subordinated Notes due 2006. The Company
currently is seeking the consent of the holders of these notes to certain
provisions of the Indenture governing these notes to allow the Company
greater flexibility to operate, grow and expand it business, including to
allow the Company to finance its planned ROV Acquisition entirely with senior
secured debt. The Indenture amendments for which the Company is currently
soliciting consent are substantially similar to the Indenture amendments set
forth in the First Supplemental Indenture dated as of February 26, 1999,
among the Company, the Guarantor, and the Trustee, which amendments did not
become effective within the time period stipulated in the First Supplemental
Indenture.
The Company believes that cash flow from operating activities and
periodic borrowings under its planned amended senior 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.
18
Year 2000
The following should be read in conjunction with Item 7. MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in the
Form 10-K as of September 30, 1998.
STATE OF READINESS. The Company's Year 2000 Project is continuing on
schedule. North American core business systems are now operating on compliant
hardware and software (SAP) that replaced legacy systems. European core business
systems are now operating on legacy software that has been remediated. Certain
other leased hardware and systems remain to be replaced or remediated by
September 1999 as originally scheduled.
COSTS TO ADDRESS YEAR 2000 ISSUES. Expenditures directly related to
identification, evaluation and remediation of Year 2000 exposures are currently
projected to be $0.8 million for fiscal 1999.
Capital expenditures for projects undertaken for other reasons but
which address Year 2000 issues (primarily SAP) are currently projected to be
$5.5 million for fiscal 1999. Other expenditures associated with these capital
expenditures are currently projected to be $1.3 million for fiscal 1999.
As of July 4, 1999 the Company has spent approximately $6.2 million
of the $7.6 million projected fiscal 1999 cost discussed above.
Forward Looking Statements
Certain statements contained in this Form 10-Q are forward-looking
statements which involve risks and uncertainties. Actual results may differ
materially from those set forth in such forward-looking statements. Important
factors that could cause the Company's actual results to differ materially are
set forth in the Company's most recent Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK FACTORS
The Company has market risk exposure from changes in interest rates,
foreign currency exchange rates and commodity prices. Derivative financial
instruments are used by the Company, for purposes other than trading purposes,
to mitigate the risk from such exposures.
A discussion of the Company's accounting policies for derivative
financial instruments is included in Note 1 "Significant Accounting Policies" in
Notes to Condensed Consolidated Financial Statements.
SENSITIVITY ANALYSIS
The analysis below is hypothetical and should not be considered a
projection of future risks. Earnings projections are before tax.
19
As of July 4, 1999, 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 $0.8 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 $0.1 million.
As of July 4, 1999, 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 $1.7 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
July 4, 1999 due to the same change in exchange rates, would be a net loss of
$0.7 million.
As of July 4, 1999, the potential change in fair value of outstanding
commodity price derivative instruments, assuming a 10% unfavorable change in the
underlying commodity prices would be a loss of $0.6 million. The net impact on
reported earnings, after also including the reduction in cost of one year's
purchases of the related commodities due to the same change in commodity prices,
would be immaterial.
20
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On May 3, 1999, the Company filed an action against Duracell
Incorporated and The Gillette Company (collectively, "Gillette") (RAYOVAC
CORPORATION V. DURACELL INCORPORATED AND THE GILLETTE COMPANY, Case No.
99-C-0272C - United States District Court for the Western District of
Wisconsin) alleging that Gillette has infringed and is infringing two of the
Company's patents. The Company's Complaint, filed on April 26, 1999, seeks an
injunction prohibiting further sales by Gillette of infringing products,
damages as a result of the Gillette's infringement, enhanced damages pursuant
to 35 U.S.C. Section 284, and attorneys' fees and costs. Gillette filed an
Answer on May 28, 1999 denying all material allegations of the Complaint and
seeking a declaration that the two patents are invalid and of
non-infringement by Gillette. On June 15, 1999, the Company made a motion for
leave to file an Amended Complaint to add an additional count of patent
infringement by Gillette with respect to another of the Company's patents.
The Court has not yet ruled on the Company's motion. This action is at a
preliminary discovery stage, with the trial date scheduled for April 3, 2000.
On July 21, 1999, Gillette filed a Complaint against the Company
(THE GILLETTE COMPANY V. RAYOVAC CORPORATION, Case 99-ov-11555-PBS - United
States District Court for the District of Massachusetts) alleging patent
infringement by the Company. In the Complaint, Gillette seeks an injunction
prohibiting further sales by the Company of allegedly infringing products,
damages as a result of the alleged infringement, enhanced damages pursuant to
35 U.S.C. Section 284 and attorneys' fees and costs. Gillette has not yet
served the Company with a copy of this Complaint. If so served, the Company
intends to vigorously defend itself against all claims in this action.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of Shareholders was held on July 22, 1999.
The directors standing for election were elected in an uncontested
election. The directors elected were David A. Jones, Scott A. Schoen, John S.
Lupo, and Joseph W. Deering. The votes for each director standing for election
were: For: 25,699,801; Withheld: 43,800. The terms of the following directors
continued after the meeting: Roger F. Warren, Thomas R. Shepherd, Kent J.
Hussey, and Warren C. Smith, Jr.
In addition to the election of directors, the Company submitted the
ratification of the appointment of KPMG LLP as the Company's independent
auditors to the vote of the shareholders. The vote in favor of ratification was:
For: 25,733,300; Against: 5,241; Withheld: 5,060.
21
The Company currently is seeking the consent of the holders of its 10
1/4% Series B Senior Subordinated Notes due 2006 to certain provisions of the
Indenture governing these notes to allow the Company greater flexibility to
operate, grow and expand its business, including to allow the Company to finance
its planned ROV Acquisition entirely with senior secured debt. The Indenture
amendments for which the Company is currently soliciting consent are
substantially similar to the Indenture amendments set forth in the First
Supplemental Indenture dated as of February 26, 1999, among the Company, the
Guarantor, and the Trustee, which amendments did not become effective within the
time period stipulated in the First Supplemental Indenture.
22
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
2.1 Share Purchase Agreement made as of June 11,
1999, by and among the Company, Vidor Battery
Company, Rayovac Latin America, Ltd., the
shareholders of ROV Limited, ROV Limited, ESB ROV
Ltd., Duranmas, S.A., certain second-tier
subsidiaries of ROV Limited, Ray-O-Vac Overseas
Corporation, and Alfredo J. Diez and Richard T.
Doyle, Jr., as selling group representatives.
2.2 Form of Stock Purchase Agreement entered into on
or around June 11, 1999 by and among the Company,
Rayovac Latin America, Ltd. and certain persons who
hold minority interests in certain of the operating
subsidiaries of Ray-O-Vac Overseas Corporation.
3.1+ Amended and Restated Articles of Incorporation
of the Company.
3.2****** Amended and Restated By-laws of the
Company, as amended through May 17, 1999.
4.1** Indenture, dated as of October 22, 1996, by
and among the Company, ROV Holding, Inc. and Marine
Midland Bank, as trustee, relating to the Company's
10 1/4% Senior Subordinated Notes due 2006.
4.2****** First Supplemental Indenture, dated as of
February 26, 1999, by and among the Company, ROV
Holding, Inc. and HSBC Bank USA (formerly known as
Marine Midland Bank) as trustee, relating to the
Company's 10 1/4% Senior Subordinated Notes due
2006.
4.3** Specimen of the Notes (included as an exhibit
to Exhibit 4.1)
4.4**** 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.
4.5** The Security Agreement, dated as of September
12, 1996, by and among the Company, ROV Holding,
Inc. and BofA.
4.6** The Company Pledge Agreement, dated as of
September 12, 1996, by and between the Company and
BofA.
4.7*** Shareholders Agreement, dated as of September
12, 1996, by and among the Company and the
shareholders of the Company referred to therein.
23
4.8*** 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.
4.9***** Amendment No. 2 to Rayovac Shareholders Agreement,
dated as of January 8, 1999, by and among the
Company and the Shareholders of the Company
referred to therein.
4.10* Specimen certificate representing the Common Stock.
10.1** Management Agreement, dated as of September 12,
1996, by and between the Company and Thomas H. Lee
Company.
10.2** Confidentiality, Non-Competition and No-Hire
Agreement, dated as of September 12, 1996, by and
between the Company and Thomas F. Pyle.
10.3++ Amended and Restated Employment Agreement, dated
as of April 27, 1998, by and between the Company
and David A. Jones.
10.4++ Employment Agreement, dated as of April 27, 1998,
by and between the Company and Kent J. Hussey.
10.5++++ Amendment to Employment Agreement, dated as of
October 1, 1998, by and between the Company and
Kent J. Hussey.
10.6++++ Severance Agreement by and between the Company
and Randall J. Steward.
10.7++++ Severance Agreement by and between the Company and
Roger F. Warren.
10.8++++ Severance Agreement by and between the Company and
Stephen P. Shanesy.
10.9++++ Severance Agreement by and between the Company and
Merrell M. Tomlin.
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*** Rayovac Corporation 1996 Stock Option Plan.
24
10.14* 1997 Rayovac Incentive Plan.
10.15* Rayovac Profit Sharing and Savings Plan.
10.16+++ Technical Collaboration, Sale and Supply
Agreement, dated as of March 5, 1998, by and among
the Company. Matsushita Battery Industrial Co., Ltd.
and Matsushita Electric Industrial Co., Ltd.
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 period ended January 3, 1999 filed with the Commission on
February 17, 1999.
****** Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended April 4, 1999 filed with the Commission on
May 17, 1999.
+ Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997 filed with the Commission on
December 23, 1997.
++ Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the Quarterly period ended June 27, 1998 filed with the Commission on
August 4, 1998.
+++ Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 28, 1998 filed with the Commission on
May 5, 1998.
++++ Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1998 filed with the Commission on
December 24, 1998.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K
during the Company's quarterly period ended July 4, 1999.
25
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: August 4, 1999
RAYOVAC CORPORATION
By: /s/ Randall J. Steward
---------------------------------------------
Randall J. Steward
Senior Vice President of Finance
and Chief Financial Officer
By: /s/ James A. Broderick
---------------------------------------------
James A. Broderick
Vice President, General Counsel and Secretary
26