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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 December 28, 1996
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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
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Rayovac Corporation
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(Exact name of registrant as specified in its charter)
Wisconsin 22-2423556
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
601 Rayovac Drive, Madison, Wisconsin 53711
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(Address of principal executive offices) (Zip Code)
(608) 275-3340
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(Registrant's telephone number, including area code)
(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 ( ) No ( X )
The number of shares outstanding of the Registrant's common stock, $.01
par value, as of March 19, 1997, the most recent practicable date, was
20,470,480.
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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RAYOVAC CORPORATION
Condensed Consolidated Balance Sheets
As of December 28, 1996 and September 30, 1996
(In thousands, except per share amounts)
-ASSETS-
December 28, 1996 September 30, 1996
----------------- ------------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 4,875 $ 4,255
Receivables 80,050 66,476
Inventories 50,488 70,121
Prepaid expenses and other 12,166 14,822
-------- --------
Total current assets 147,579 155,674
Property, plant and equipment, net 68,039 69,397
Deferred charges and other 18,952 20,177
-------- --------
Total assets $234,570 $245,248
======== ========
-LIABILITIES AND SHAREHOLDERS' DEFICIT-
Current liabilities:
Current maturities of long-term debt $ 11,019 $ 8,818
Accounts payable 41,117 46,921
Accrued liabilities:
Wages and benefits and other 34,593 21,798
Recapitalization and other
special charges 11,895 14,942
-------- --------
Total current liabilities 98,624 92,479
Long-term debt, net of current maturities 203,881 224,845
Employee benefit obligations, net of
current portion 12,875 12,138
Other 1,474 1,506
Shareholders' deficit:
Common stock, $.01 par value,
authorized 90,000 shares; issued
50,000 shares; outstanding
20,470 shares 500 500
Additional paid-in capital 15,970 15,970
Foreign currency translation adjustment 2,745 1,689
Note receivable officer/shareholder (500) (500)
Retained earnings 27,523 25,143
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46,238 42,802
Less treasury stock, at cost,
29,530 shares (128,522) (128,522)
-------- --------
Total shareholders' deficit (82,284) (85,720)
-------- --------
Total liabilities and
shareholders' deficit $234,570 $245,248
======== ========
See accompanying notes which are an integral part of these statements.
RAYOVAC CORPORATION
Condensed Consolidated Statements of Operations
For the three-month periods ended December 28, 1996 and December 30, 1995
(Unaudited)
(In thousands, except per share amounts)
1996 1995
---- ----
Net sales $130,004 $129,952
Cost of goods sold 79,019 77,488
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Gross profit 50,985 52,464
Selling 26,762 30,804
General and administrative 7,604 8,680
Research and development 1,910 1,329
Other special charges 2,963 --
-------- --------
Total operating expenses 39,239 40,813
Income from operations 11,746 11,651
Other expense:
Interest expense 7,974 2,166
Other expense 14 228
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7,988 2,394
Income before income taxes 3,758 9,257
Income taxes 1,378 3,198
-------- --------
Net income $ 2,380 $ 6,059
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Net income per share $ 0.12 $ 0.12
======== ========
Average shares outstanding 20,470 49,500
======== ========
See accompanying notes which are an integral part of these statements.
RAYOVAC CORPORATION
Condensed Consolidated Statements of Cash Flows
For the three-month periods ended December 28, 1996 and December 30, 1995
(Unaudited)
(In thousands)
1996 1995
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Cash flows from operating activities:
Net income $ 2,380 $ 6,059
Non-cash adjustments to net income:
Amortization 2,373 17
Depreciation 3,060 3,225
Net changes in other assets and liabilities 12,717 4,899
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Net cash provided by
operating activities 20,530 14,200
Cash flows from investing activities:
Purchases of property, plant and equipment (1,142) (1,730)
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Net cash used in investing
activities (1,142) (1,730)
Cash flows from financing activities:
Reduction of debt (129,412) (38,177)
Proceeds from debt financing 110,768 30,081
Distribution from Rayovac International
Corporation, a domestic international
sales company -- (3,587)
Other (119) (533)
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Net cash used in financing
activities (18,763) (12,216)
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Effect of exchange rate changes on cash and
cash equivalents (5) (10)
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Net increase in cash and
cash equivalents 1,762 1,974
Cash and cash equivalents, beginning of period 4,255 2,431
------- -------
Cash and cash equivalents, end of period $ 4,875 $ 2,675
======= =======
See accompanying notes which are an integral part of these statements.
RAYOVAC CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
1 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: These financial statements have been prepared by
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 Rayovac Corporation at December 28, 1996, results of operations and
cash flows for the three month periods ended December 28, 1996 and
December 30, 1995. 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.
The condensed consolidated balance sheet at September 30, 1996 has been
derived from the annual audited financial statements. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the audited financial statements and notes thereto as
of September 30, 1996.
2 INVENTORIES
Inventories consist of the following (in thousands):
Dec. 28,1996 Sept. 30, 1996
------------ --------------
Raw material $16,055 $21,325
Work-in-process 14,668 19,622
Finished goods 19,765 29,174
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$50,488 $70,121
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3 COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements to purchase certain equipment
and to pay annual royalties. In a December 1991 agreement, the Company
committed to pay annual royalties of $1,500,000 for the first five
years, beginning in 1993, plus $500,000 for each year thereafter, as
long as the related equipment patents are enforceable (2012). In a
March 1994 agreement, the Company committed to pay annual royalties of
$500,000 for five years beginning in 1995. Additionally, the Company
has committed to purchase tooling of $2,345,000 related to this
equipment at an unspecified date in the future and $420,000 of
manganese ore by March 1998.
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 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 $1.8 million, 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.
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operation
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Fiscal Quarter Ended December 28, 1996 Compared to
Fiscal Quarter Ended December 30, 1995
Management's Discussion and Analysis of Financial Condition and Results of
Operations, with the exception of historical matters, contains forward-looking
statements (such as statements including the terms "believe," "expect,"
"anticipate," and similar concepts) which involve risks and uncertainties.
Actual results may differ materially from these statements as a result of
various factors, including those discussed herein.
Net Sales. The net sales of Rayovac Corporation (the "Company") were
$130.0 million in the fiscal quarter ended December 28, 1996 (the "1996 Fiscal
Quarter"), or approximately equal to net sales in the fiscal quarter ended
December 30, 1995 (the "1995 Fiscal Quarter"). Decreases in sales of general
battery products were offset in part by increased sales of battery powered
lighting devices and specialty battery products.
Gross Profit. Gross profit decreased $1.5 million, or 2.9%, to
approximately $51.0 million in the 1996 Fiscal Quarter, from approximately $52.5
million in the 1995 Fiscal Quarter, primarily as a result of higher marginal
manufacturing costs for general battery products caused by decreased sales and
production volumes of such products. Gross profit decreased as a percentage of
net sales to 39.2% in the 1996 Fiscal Quarter from 40.4% in the 1995 Fiscal
Quarter.
Selling Expense. Selling expense decreased $4.0 million, or 13.0%, to
approximately $26.8 million in the 1996 Fiscal Quarter from approximately $30.8
million in the 1995 Fiscal Quarter due primarily to decreased advertising
expense. Selling expense decreased as a percentage of net sales to 20.6% in the
1996 Fiscal Quarter from 23.7% in the 1995 Fiscal Quarter.
General and Administrative Expense. General and administrative expense
decreased $1.1 million, or 12.6%, to approximately $7.6 million in the 1996
Fiscal Quarter from approximately $8.7 million in the 1995 Fiscal Quarter. This
decrease occurred as a result of the settlement of a law suit for which the
Company had accrued $0.8 million in the 1995 Fiscal Quarter.
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Research and Development Expense. Research and development expense
increased $0.6 million, or 46.2%, to approximately $1.9 million in the 1996
Fiscal Quarter from approximately $1.3 million in the 1995 Fiscal Quarter
primarily as a result of the assignment of increased development resources to
the development of an on-the-label battery tester.
Other Special Charges. In the 1996 Fiscal Quarter, the Company recorded
charges of approximately $3.0 million in connection with an organizational
restructuring in the United States and the discontinuation of certain
manufacturing operations in the United Kingdom.
Income From Operations. Income from operations in the 1996 Fiscal
Quarter of $11.7 million was approximately the same as income from operations in
the 1995 Fiscal Quarter. The Company's lower gross profit and higher special
charges in the 1996 Fiscal Quarter were offset by lower operating expenses as
discussed above.
Interest Expense. Interest expense in the 1996 Fiscal Quarter increased
$5.8 million to approximately $8.0 million from approximately $2.2 million in
the 1995 Fiscal Quarter as a result of increased indebtedness incurred in
connection with the recent recapitalization of the Company and a write-off of
$2.0 million of unamortized debt issuance costs related to the senior
subordinated increasing rate notes of the Company issued in September 1996 (the
"Bridge Notes"). Amortization of debt issuance costs in the 1995 Fiscal Quarter
was negligible.
Income Before Income Taxes. Income before income taxes decreased $5.5
million, or 59.1%, to approximately $3.8 million in the 1996 Fiscal Quarter from
approximately $9.3 million in the 1995 Fiscal Quarter primarily as a result of
the increased interest expense and amortization of debt issuance costs discussed
above.
Net Income. Net income decreased $3.7 million, or 60.7%, to
approximately $2.4 million in the 1996 Fiscal Quarter from approximately $6.1
million in the 1995 Fiscal Quarter primarily as a result of the increased
interest expense and amortization of debt issuance costs discussed above. The
Company's effective tax rate for the 1996 Fiscal Quarter increased 2.2
percentage points to 36.7% in the 1996 Fiscal Quarter from 34.5% in the 1995
Fiscal Quarter due primarily to the termination of Rayovac International
Corporation, a domestic international sales corporation.
7
Liquidity and Capital Resources
During the 1996 Fiscal Quarter, net cash provided by operating
activities increased $6.3 million to approximately $20.5 million from
approximately $14.2 million in the 1995 Fiscal Quarter primarily as a result of
increased inventory reductions during the holiday season.
Capital expenditures during the 1996 Fiscal Quarter were $1.1 million,
reflecting maintenance level spending, which allowed the Company to use the
majority of cash provided by operating activities to reduce borrowings under its
revolving credit facility.
On October 22, 1996, the Company issued $100.0 million aggregate
principal amount of its 10-1/4% Senior Subordinated Notes due 2006 (the
"Notes"), the proceeds of which were used to repay the Bridge Notes. On March
11, 1997, the Company consummated an offer to exchange its registered 10-1/4%
Series B Senior Subordinated Notes due 2006 for the Notes.
The Company expects that capital expenditures for the remainder of
fiscal 1997 will be consistent with historical levels. The Company believes that
cash flow from operating activities and periodic borrowings under its existing
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 assurance can be given in this regard. The Company's
current credit facilities include a revolving credit facility of $65.0 million
of which approximately $2.6 million was borrowed at December 28, 1996, and
approximately $.8 million was utilized for outstanding letters of credit.
The Company entered into an interest rate swap agreement with a
notional amount of $62.5 million, effective October 9, 1996. The agreement
terminates on October 12, 1999, and fixes the rate on such notional amount at
6.16%. The floating rate for the initial period was approximately 5.5%. During
the 1996 Fiscal Quarter the Company incurred approximately $.1 million of
interest expense in connection with this agreement.
Impact of Recently Issued Accounting Standards
In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities" (the
"Statement"),
8
effective for fiscal years beginning after December 15, 1996. The
Statement provides additional guidance on the measurement and accounting for the
costs associated with environmental remediation. Adoption of the accounting
standard is not expected to have a material effect on the Company's financial
position.
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS 128 will be
effective for periods ending after December 15, 1997, and specifies the
computation, presentation, and disclosure requirements for earnings per share.
Adoption of this accounting standard is not expected to have a material effect
on the earnings per share computations of the Company assuming the current
capital structure.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
- ------- -----------
3.1 Restated Articles of Incorporation of the Company*
3.2 Restated By-Laws of the Company*
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 Registration Rights Agreement, dated as of October 17, 1996, by and
among the Company, Donaldson, Lufkin & Jenrette Securities Corporation
and BA Securities, Inc.*
4.3 Specimen of the Notes (included as an exhibit to Exhibit 4.1).
4.4 Credit Agreement, dated as of September 12, 1996 by and among the
Company, the lenders party thereto, Bank of America National Trust and
Savings Association ("BofA") and DLJ Capital Funding, Inc. (the "Credit
Agreement").*
9
4.5 Amendment No. 1 to the Credit Agreement dated as of October 23, 1996.*
4.6 The Security Agreement dated as of September 12, 1996 by and among the
Company, ROV Holding, Inc. and BofA.*
4.7 The Company Pledge Agreement dated as of September 12, 1996 by and
between the Company and BofA.*
27 Financial Data Schedule
* Incorporated by reference from Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-17895) filed with
the Securities and Exchange Commission on February 7, 1997.
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the 1996 Fiscal Quarter.
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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: March 19, 1997
RAYOVAC CORPORATION
By /s/ Kent J. Hussey
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Kent J. Hussey
Chief Financial Officer
By /s/ James A. Broderick
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James A. Broderick
Vice President
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