UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 27, 1997
-----------------
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
--------------------------
(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)
(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 per share, as of May 20, 1998 was 27,432,238.
Form 10Q for the quarter ended December 27, 1997, previously filed, is
amended as set forth herein.
Part I. Item 1., Financial Statements. The Financial Statements are hereby
amended to delete Note 5 and replace it with the following:
5 OTHER
During the 1998 Fiscal First Quarter, the Company recorded a pre-tax credit
of $1.2 million related to the buyout of deferred compensation agreements
with certain former employees.
On November 28, 1997 the Company acquired Brisco G.M.B.H. in Germany and
Brisco B.V. in Holland, a distributor of hearing aid batteries for $4.9
million. Brisco recorded calendar 1996 sales of $4.5 million.
During the year ended September 30, 1997, the Company recorded special
charges as follows: (i) $2.5 million of charges related to the exit by
early fiscal 1998 of certain manufacturing and distribution operations at
the Company's Kinston, North Carolina facility, which amount includes $1.1
million of employee termination benefits for 137 employees, (ii) $1.4
million 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 expects to complete in fiscal 1998, (iii) $2.0
million of charges for employee termination benefits for 77 employees
related to organizational restructuring in the United States which the
Company expects to complete 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 $2.9 million gain
related to the curtailment of the Company's defined benefit pension plan
covering all domestic non-union employees. A summary of the restructuring
activities follows.
1997 Restructuring Summary
Termination Other
Benefits Costs Total
----------- ----- -----
Expenses accrued $4.0 $0.6 $4.6
Changes in estimate 0.5 0.6 1.1
Expensed as incurred -- 0.2 0.2
Expenditures (3.3) (0.7) (4.0)
---- ---- ----
Balance 9/30/97 $1.2 $0.7 $1.9
==== ==== ====
Additional expense -- -- --
Change in estimate -- -- --
Expenditures (0.7) -- (0.7)
---- ---- ----
Balance 12/27/97 $0.5 $0.7 $1.2
==== ==== ====
Part I. Item 2., Management's Discussion and Analysis of Financial
Condition and Results of Operations. Management's Discussion and Analysis of
Financial Condition and Results of Operations is hereby amended by deleting the
first paragraph under the caption Liquidity and Capital Resources and inserting
in lieu thereof the following:
For the three months ended December 27, 1997, approximately $1.7 million of
net cash was provided by income from operations partially offset by a seasonal
increase in receivables. This compares to $20.5 million of net cash provided by
operating activities in the 1997 Fiscal Quarter which was due primarily to
inventory reductions. Costs associated with the 1997 restructuring initiatives
were funded from cash provided from operating activities.
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
- ------- --------------------
RAYOVAC CORPORATION
Condensed Consolidated Balance Sheets
As of December 27, 1997 and September 30, 1997
(In thousands, except per share amounts)
-ASSETS-
December 27, 1997 September 30, 1997
----------------- ------------------
(Unaudited)
Current assets:
Cash and cash equivalents $16,906 $1,133
Receivables 102,249 79,669
Inventories 49,326 58,551
Prepaid expenses and other 14,873 15,027
---------- ----------
Total current assets 183,354 154,380
Property, plant and equipment, net 65,050 65,511
Deferred charges and other 19,295 16,990
---------- ----------
Total assets $267,699 $236,881
========== ==========
-LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)-
Current liabilities:
Current maturities of long-term debt $2,906 $23,880
Accounts payable 60,028 57,259
Accrued liabilities:
Wages and benefits and other 37,303 34,812
Recapitalization and other special charges 6,608 4,612
---------- ----------
Total current liabilities 106,845 120,563
Long-term debt, net of current maturities 135,852 183,441
Employee benefit obligations, net of current portion 6,573 11,291
Other 4,127 2,181
---------- ----------
Total liabilities 253,397 317,476
Shareholders' equity (deficit):
Common stock, $.01 par value, authorized 150,000 and 90,000
shares respectively; issued 56,873 and 50,000 shares
respectively; outstanding 27,432 and 20,581 shares, respectively 569 500
Additional paid-in capital 103,592 15,974
Foreign currency translation adjustments 2,876 2,270
Notes receivable from officers/shareholders (1,261) (1,658)
Retained earnings 37,880 31,321
---------- ----------
143,656 48,407
Less stock held in trust for deferred compensation
plan, 160 shares (962) (962)
Less treasury stock, at cost, 29,440 and 29,419
shares, respectively (128,392) (128,040)
Total shareholders' equity (deficit) 14,302 (80,595)
---------- ----------
Total liabilities and shareholders' equity (deficit) $267,699 $236,881
========== ==========
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 27, 1997 and December 28, 1996
(Unaudited)
(In thousands, except per share amounts)
1997 1996
---- ----
Net sales $149,995 $141,922
Cost of goods sold 77,355 79,019
-------- --------
Gross profit 72,640 62,903
Selling 45,472 38,680
General and administrative 8,261 7,604
Research and development 1,525 1,910
Other special charges (income) (1,219) 2,963
-------- --------
Total operating expenses 54,039 51,157
Income from operations 18,601 11,746
Other expense (income):
Interest expense 5,024 7,974
Other expense (income) (233) 14
-------- --------
4,791 7,988
Income before income taxes and extraordinary item 13,810 3,758
Income tax expense 5,276 1,378
-------- --------
Income before extraordinary item 8,534 2,380
Extraordinary item, loss on early extinguishment of debt,
net of income tax benefit of $1,263 1,975 -
-------- --------
Net income $6,559 $2,380
======== ========
Basic earnings per share
Average shares outstanding 23,453 20,470
Income before extraordinary item $0.36 $0.12
Extraordinary item (0.08) -
-------- --------
Net income $0.28 $0.12
======== ========
Diluted earnings per share
Average shares and common stock equivalents 25,091 22,071
Income before extraordinary item $0.34 $0.11
Extraordinary item (0.08) -
-------- --------
Net income $0.26 $0.11
======== ========
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 27, 1997 and December 28, 1996
(Unaudited)
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $6,559 $2,380
Non-cash adjustments to net income:
Amortization 483 2,373
Depreciation 2,834 3,060
Net changes in other assets and liabilities,
net of effects from acquisition (8,155) 12,717
------- --------
Net cash provided by operating activities 1,721 20,530
Cash flows from investing activities:
Purchases of property, plant and equipment (1,832) (1,142)
Payment for acquisition (4,853) -
------- --------
Net cash used by investing activities (6,685) (1,142)
Cash flows from financing activities:
Reduction of debt (69,922) (129,412)
Proceeds from debt financing 2,333 110,768
Proceeds from issuance of common stock 88,299 -
Other 45 (119)
------- --------
Net cash provided (used) by financing activities 20,755 (18,763)
------- --------
Effect of exchange rate changes on cash and cash
equivalents (18) (5)
---------
Net increase in cash and cash equivalents 15,773 620
Cash and cash equivalents, beginning of period 1,133 4,255
-------- ---------
Cash and cash equivalents, end of period $16,906 $4,875
======== =========
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
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 December 27, 1997, results of operations for the
three month periods ended December 27, 1997 and December 28, 1996, and cash
flows for the three month periods ended December 27, 1997 and December 28,
1996. 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, 1997.
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 counter-parties are
included in accrued liabilities or accounts receivable. The Company has
entered into an interest rate swap agreement which effectively fixes the
interest rate on floating rate debt at a rate of 6.16% for a notional
principal amount of $62,500 through October 1999. The fair value of this
contract at December 27, 1997 is ($371).
The Company has entered into a cross currency interest rate swap agreement
related to financing the Brisco acquisition. 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
notional principal amount is approximately $5,000. The fair value at
December 27, 1997 approximated the contract value.
The Company enters into forward foreign exchange contracts relating to the
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 counter-parties are included in
accounts payable, or accounts receivable. The Company has approximately
$5,300 of forward exchange contracts at December 27, 1997. The fair value
at December 27, 1997, approximated the contract value.
The Company is exposed to risk from fluctuating prices for commodities used
in the manufacturing process. The Company hedges some of this risk through
the use of commodity swaps, calls and puts. The Company has entered into
commodity swap agreements which effectively fix the floating price on a
specified quantity of zinc through a specified date. The Company is buying
calls, which allow the Company to purchase a specified quantity of zinc
through a specified date for a fixed price, and writing puts, which allow
the buyer to sell to the Company a specified quantity of zinc through a
specified date at a fixed price. The maturity of, and the quantities
covered by, the contracts highly correlate to the Company's anticipated
purchases of the commodity. The cost of the calls, and the premiums
received from the puts, are amortized over the life of the agreements and
are recorded in cost of goods sold, along with the effect of the swap, put
and call agreements. At December 27, 1997, the Company had entered into a
series of swap agreements with a contract value of approximately $3,600 for
the period from January through December of 1998. At December 27, 1997, the
Company had purchased a series of calls with a contract value of
approximately $4,300 and sold a series of puts with a contract value of
approximately $3,900 for the period from January through September of 1998
designed to set a ceiling and floor price. While these transactions have no
carrying value, the fair value of these contracts was approximately ($633)
at December 27, 1997.
2 INVENTORIES
Inventories consist of the following (in thousands):
December 27,1997 Sept. 30, 1997
---------------- --------------
Raw material $19,809 $23,291
Work-in-process 11,602 15,286
Finished goods 17,915 19,974
-------- --------
$49,326 $58,551
======= =======
3 EARNINGS PER SHARE DISCLOSURE
Earnings per share is calculated based upon the following:
Three Months Ended December 27, 1997 Three Months Ended December 28, 1996
------------------------------------- -----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Income before extraordinary
item $8,534 $2,380
Basic EPS
Income available to common
shareholders $8,534 23,453 $0.36 $2,380 20,470 $0.12
===== =====
Effect of Dilutive
Securities
Stock Options 1,638 1,601
----- -----
Diluted EPS
Income available to common
shareholders plus assumed
conversion $8,534 25,091 $0.34 $2,380 22,071 $0.11
====== ====== ===== ====== ====== =====
4 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 $1.5 million for the first five years,
beginning in 1993, plus $0.5 million for each year thereafter, as long as
the related equipment patents are enforceable (2012). In a March 1994
agreement, the Company committed to pay $0.5 million in 1994 and annual
royalties of $0.5 million for five years beginning in 1995. Additionally,
the Company has committed to purchase tooling of $0.8 million related to
this equipment.
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 $1.8
million, which may result from resolution of these matters, will not have a
material adverse effect on the financial condition, liquidity, or cash
flows of the Company.
5 OTHER
During the 1998 Fiscal First Quarter, the Company recorded a pre-tax credit
of $1.2 million related to the buyout of deferred compensation agreements
with certain former employees.
On November 28, 1997 the Company acquired Brisco G.M.B.H. in Germany and
Brisco B.V. in Holland, a distributor of hearing aid batteries for $4.9
million. Brisco recorded calendar 1996 sales of $4.5 million.
During the year ended September 30, 1997, the Company recorded special
charges as follows: (i) $2.5 million of charges related to the exit by
early fiscal 1998 of certain manufacturing and distribution operations at
the Company's Kinston, North Carolina facility, which amount includes $1.1
million of employee termination benefits for 137 employees, (ii) $1.4
million 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 expects to complete in fiscal 1998, (iii) $2.0
million of charges for employee termination benefits for 77 employees
related to organizational restructuring in the United States which the
Company expects to complete 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 $2.9 million gain
related to the curtailment of the Company's defined benefit pension plan
covering all domestic non-union employees. A summary of the restructuring
activities follows.
1997 Restructuring Summary
Termination Other
Benefits Costs Total
----------- ----- -----
Expenses accrued $4.0 $0.6 $4.6
Changes in estimate 0.5 0.6 1.1
Expensed as incurred -- 0.2 0.2
Expenditures (3.3) (0.7) (4.0)
---- ---- ----
Balance 9/30/97 $1.2 $0.7 $1.9
==== ==== ====
Additional expense -- -- --
Change in estimate -- -- --
Expenditures (0.7) -- (0.7)
---- ---- ----
Balance 12/27/97 $0.5 $0.7 $1.2
==== ==== ====
6 GUARANTOR SUBSIDIARY
The following condensed consolidating financial data illustrates 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.
RAYOVAC CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
As of December 27, 1997
(In thousands)
-ASSETS-
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
---------- ---------- ------------ ------------ -------------
Current assets:
Cash and cash equivalents $15,748 $44 $1,114 $- $16,906
Receivables $88,643 ($43) 23,190 (9,541) 102,249
Inventories 36,589 - 12,829 (92) 49,326
Prepaid expenses and other 12,977 342 1,554 - 14,873
--------- -------- -------- --------- ---------
Total current assets 153,957 343 38,687 (9,633) 183,354
Property, plant and equipment, net 59,669 - 5,381 - 65,050
Deferred charges and other 19,931 - 4,599 (5,235) 19,295
Investment in subsidiaries 16,899 16,372 - (33,271) -
---------- -------- -------- --------- ----------
Total assets $250,456 $16,715 $48,667 $(48,139) $267,699
========== ======== ======== ========= ==========
-LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)-
Current liabilities:
Current maturities of long-term debt $500 $- $3,385 $(979) $2,906
Accounts payable 51,414 (390) 17,271 (8,267) 60,028
Accrued liabilities:
Wages and benefits and other 30,415 (24) 6,912 - 37,303
Recapitalization and other special charges 6,305 - 303 - 6,608
---------- -------- -------- --------- ----------
Total current liabilities 88,634 (414) 27,871 (9,246) 106,845
Long-term debt, net of current maturities 135,500 - 4,266 (3,914) 135,852
Employee benefit obligations, net of current portion 6,573 - - - 6,573
Other 3,731 230 166 - 4,127
---------- -------- -------- --------- ----------
Total liabilities 234,438 (184) 32,303 (13,160) 253,397
Shareholders' equity (deficit):
Common stock 569 - 12,072 (12,072) 569
Additional paid-in capital 103,592 3,525 750 (4,275) 103,592
Foreign currency translation adjustment 2,876 2,876 2,876 (5,752) 2,876
Notes receivable from officers/shareholders (1,261) - - - (1,261)
Retained earnings 39,596 10,498 666 (12,880) 37,880
---------- -------- -------- --------- ----------
145,372 16,899 16,364 (34,979) 143,656
Less stock held in trust for deferred compensation (962) - - - (962)
Less treasury stock (128,392) - - - (128,392)
---------- -------- -------- --------- ----------
Total shareholders' equity (deficit) 16,018 16,899 16,364 (34,979) 14,302
---------- -------- -------- --------- ----------
Total liabilities and shareholders' equity (deficit) $250,456 $16,715 $48,667 $(48,139) $267,699
========== ======== ======== ========= ==========
0 0 0 0 0
RAYOVAC CORPORATION
Condensed Consolidating Statements of Operations
For the three-month period ended December 27, 1997
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
------ ---------- ------------ ------------ -----
Net sales $132,907 $ - $24,799 $(7,711) $149,995
Cost of goods sold 68,911 - 16,160 (7,716) 77,355
-------- ----- ------- -------- ---------
Gross profit 63,996 - 8,639 5 72,640
Selling 39,431 - 6,041 - 45,472
General and administrative 6,258 (231) 2,252 (18) 8,261
Research and development 1,525 - - - 1,525
Other special charges (1,219) - - - (1,219)
-------- ----- ------- -------- ---------
Total operating expenses 45,995 (231) 8,293 (18) 54,039
Income from operations 18,001 231 346 23 18,601
Other expense (income):
Interest expense 4,864 - 157 3 5,024
Equity in profit of subsidiary (182) (139) - 321 0
Other expense (income) (196) (10) (24) (3) (233)
-------- ----- ------- -------- ---------
4,486 (149) 133 321 4,791
Income before income taxes
and extraordinary item 13,515 380 213 (298) 13,810
Income taxes 5,004 198 74 - 5,276
-------- ----- ------- -------- ---------
Income (loss) before
extraordinary item 8,511 182 139 (298) 8,534
Extraordinary item 1,975 - - - 1,975
-------- ----- ------- -------- ---------
Net income $6,536 $182 $139 $(298) $6,559
======== ===== ======= ======== =========
RAYOVAC CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Cash
Flows For the three-month period ended December 27, 1997
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
Net cash provided (used) by operating activities $(4,055) $(2) $886 $4,892 $1,721
Cash flows from investing activities:
Purchases of property, plant and equipment (1,320) - (512) - (1,832)
Payment for acquisition - - (4,853) - (4,853)
Net cash used by investing activities (1,320) - (5,365) - (6,685)
Cash flows from financing activities:
Reduction of debt (69,000) - (922) - (69,922)
Proceeds from debt financing 1,041 - 6,184 (4,892) 2,333
Proceeds from issuance of common stock 88,299 - - - 88,299
Other 150 - (105) - 45
------- --- ------ ------ -------
Net cash provided (used) by financing activities 20,490 - 5,157 (4,892) 20,755
Effect of exchange rate changes on cash and cash
equivalents - - (18) - (18)
------- --- ------ ------ -------
Net increase (decrease) in cash and cash equivalents 15,115 (2) 660 - 15,773
Cash and cash equivalents, beginning of period 633 46 454 - 1,133
------- --- ------ ------ -------
Cash and cash equivalents, end of period $15,748 $44 $1,114 $- $16,906
======= === ====== ====== =======
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
------------------------------------------------------------------------
Three Months Ended December 27, 1997 Compared to
Three Months Ended December 28, 1996
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 $150.0
million in the three months ended December 27, 1997, (the "1998 Fiscal
Quarter"), an increase of $8.1 million, or 5.7%, from approximately $141.9
million in the three months ended December 28, 1996 (the "1997 Fiscal Quarter"),
primarily due to increased sales of general battery products somewhat offset by
decreased sales of lighting products. During the 1998 Fiscal Quarter, the
Company's net sales included $0.7 million of hearing aid battery sales related
to the November, 1997, acquisition of Brisco, a distributor in Germany and
Holland.
Within general batteries, alkaline battery dollar sales exceeded the 1997
Fiscal Quarter by approximately 19% due primarily to strong promotional programs
during the Christmas season, a price increase implemented last summer, and sales
to new customers. This was partially offset by decreased sales of heavy duty
batteries attributed to reduced promotional activity and the continuing decline
in the domestic market.
Sales of lighting products were unfavorably impacted as several seasonal
promotions in the prior year were not repeated in 1997.
Gross Profit. Gross profit increased $9.7 million, or 15.4%, to
approximately $72.6 million in the 1998 Fiscal Quarter, from approximately $62.9
million in the 1997 Fiscal Quarter, primarily as a result of increased sales of
alkaline batteries. Gross profit increased as a percentage of net sales to 48.4%
in the 1998 Fiscal Quarter from 44.3% in the 1997 Fiscal Quarter which is due
primarily to a shift toward higher margin alkaline sales. Margins also benefited
from the price increase implemented in mid-1997.
Selling Expense. Selling expense increased $6.8 million, or 17.6%, to
approximately $45.5 million in the 1998 Fiscal Quarter from approximately $38.7
million in the 1997 Fiscal Quarter. Selling expense increased as a percentage of
net sales to 30.3% in the 1998 Fiscal Quarter from 27.3% in the 1997 Fiscal
Quarter primarily as a result of increased advertising and promotional spending.
General and Administrative Expense. General and administrative expense
increased $0.7 million, or 9.2%, to approximately $8.3 million in the 1998
Fiscal Quarter from approximately $7.6 million in the 1997 Fiscal Quarter,
primarily due to higher costs associated with information system improvements
worldwide.
Research and Development Expense. Research and development expense
decreased $0.4 million to approximately $1.5 million in the 1998 Fiscal Quarter
from approximately $1.9 million in the 1997 Fiscal Quarter. This decrease was
primarily a result of the increased resources assigned in the 1997 Fiscal
Quarter to the development of an on-the-label battery tester which management
decided not to implement in production.
Other Special Charges and Income. In the 1998 Fiscal Quarter, the Company
recorded additional income of approximately $1.2 million in connection with the
buyout of deferred compensation agreements with certain former employees. In the
1997 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 increased $6.9 million or
59.0% to approximately $18.6 million in the 1998 Fiscal Quarter from
approximately $11.7 million in the 1997 Fiscal Quarter due primarily to
increased gross profit on the increased net sales discussed above which was
partially offset by increased operating expenses in the areas of advertising and
promotion expense.
Interest Expense. Interest expense in the 1998 Fiscal Quarter decreased
$3.0 million, or 37.5%, to approximately $5.0 million from approximately $8.0
million in the 1997 Fiscal Quarter primarily as a result of decreased
indebtedness due to the application of the proceeds of the Company's initial
public offering of common stock completed in November 1997 (the "IPO"), and the
write-off, in the 1997 Fiscal Quarter, of $2.0 million of unamortized debt
issuance costs.
Extraordinary Item. In the 1998 Fiscal Quarter the Company recorded
extraordinary expense of $2.0 million net of income taxes for the premium on the
repurchase or redemption of the senior term notes in connection with the IPO.
Net Income. Net income for the 1998 Fiscal Quarter increased $4.2 million,
or 175.0%, to approximately $6.6 million from approximately $2.4 million in the
1997 Fiscal Quarter as discussed above. Diluted earnings per share for the 1998
Fiscal Quarter increased 15 cents per share to 26 cents per share. The Company's
effective tax rate for the 1998 Fiscal Quarter was 38.2% compared to 36.7% for
the 1997 Fiscal Quarter due primarily to increased foreign taxes for the 1998
Fiscal Quarter that are subject to foreign tax credit limitations.
Liquidity and Capital Resources
For the three months ended December 27, 1997, approximately $1.7 million of
net cash was provided by income from operations partially offset by a seasonal
increase in receivables. This compares to $20.5 million of net cash provided by
operating activities in the 1997 Fiscal Quarter which was due primarily to
inventory reductions. Costs associated with the 1997 restructuring initiatives
were funded from cash provided from operating activities.
Capital expenditures during the three months ended December 27, 1997, were
approximately $1.8 million, an increase of $0.7 million from approximately $1.1
million in the 1997 Fiscal Quarter reflecting maintenance level spending.
The Company currently expects an increase in capital expenditures to
approximately $18.0 million in fiscal 1998 due to alkaline capacity expansion,
alkaline vertical integration programs, and continued spending on new computer
information systems. 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 credit facilities include a revolving credit
facility of $65.0 million of which no amounts were borrowed at December 27,
1997, and approximately $0.6 million of which was utilized for outstanding
letters of credit.
Subsequent Event - Amended Credit Agreement
On December 30, 1997, the Credit Agreement dated September 12, 1996, was
amended. The Amended Credit Agreement provides for more favorable borrowing
costs and covenants consistent with the Company's improved credit position
resulting from the paydown of debt with the net proceeds of the IPO. The Amended
Credit Agreement includes a five-year reducing Revolver Facility of $90.0
million and a five-year amortizing Acquisition Facility of $70.0 million. The
Revolver Facility is reduced by $10.0, $15.0, and $15.0 million respectively on
December 31, 1999, 2000 and 2001 and expires on December 31, 2002. The
Acquisition Facility provides up to $70.0 million in loans for qualifying
acquisitions during a one-year commitment period expiring December 31, 1998.
Debt obtained under the Acquisition Facility is subject to quarterly
amortization commencing March 31, 1999 through December 31, 2002. As of December
30, 1997, all of the Company's senior subordinated term debt was replaced by
revolver debt under the Revolver Facility.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's 1997 Annual Meeting of Shareholders was held on
October 22, 1997.
(b) The following directors were elected at the meeting, and no other
directors' terms of office continued after the meeting; David A. Jones, Trygve
Lonnebotn, Scott A. Schoen, Roger F. Warren, Thomas R. Shepherd, Kent J. Hussey
and Warren C. Smith, Jr.
(c) The first matter voted upon at the meeting was a proposal to amend and
restate the Restated Articles of Incorporation of the Company. Upon motion duly
made and seconded, such proposal was approved. The votes were reported as
follows:
Approval of Amended and Restated Articles of Incorporation:
For 19,432,419
Against: None
Abstain: None
Non-Votes: None
The second matter voted upon at the meeting was a proposal to approve the
1997 Rayovac Incentive Plan (the "Incentive Plan"). Upon motion duly made and
seconded, such proposal was approved. The votes were reported as follows:
Approval of the Incentive Plan:
For: 19,432,419
Against: None
Abstain: None
Non-Votes: None
The third matter voted upon at the meeting was the election of Directors.
Upon motion duly made and seconded, each of the nominees to Class I of the Board
of Directors was elected as a director to serve until the Company's 1999 Annual
Meeting and until his successor is duly elected and qualified, each of the
nominees to Class II of the Board of Directors was elected as a director to
serve until the Company's 2000 Annual Meeting and until his successor is duly
elected and qualified and each of the nominees to Class III of the Board of
Directors was elected as a director to serve until the Company's 2001 Annual
Meeting and until his successor is duly elected and qualified. The votes for
each of the nominees were reported as follows:
Class I Nominees
- ----------------
David A. Jones For: 19,432,419
Against: None
Abstain: None
Non-Votes: None
Trygve Lonnebotn For: 19,432,419
Against: None
Abstain: None
Non-Votes: None
Scott A. Schoen For: 19,432,419
Against: None
Abstain: None
Non-Votes: None
Class II Nominees
- -----------------
Roger F. Warren For: 19,432,419
Against: None
Abstain: None
Non-Votes: None
Thomas R. Shepherd For: 19,432,419
Against: None
Abstain: None
Non-Votes: None
Class III Nominees
- ------------------
Kent J. Hussey For: 19,432,419
Against: None
Abstain: None
Non-Votes: None
Warren C. Smith, Jr. For: 19,432,419
Against: None
Abstain: None
Non-Votes: None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
------- -----------
3.1* Amended and Restated Articles of Incorporation of the Company.
3.2* Amended and 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** Specimen of the Notes (included as an exhibit to Exhibit 4.1).
4.3** 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").
4.4** Amendment No. 1 to the Credit Agreement dated as of October
23, 1996.
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.
4.8*** Amendment to Rayovac Shareholders Agreement dated August 1,
1997 by and among the Company and the shareholders of the
Company referred to therein.
4.9+ 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** Employment Agreement, dated as of September 12, 1996, by and
between the Company and David A. Jones, including the Full
Recourse Promissory Note, dated September 12, 1996 by David A.
Jones in favor of the Company.
10.4** Severance Agreement by and between the Company and Trygve
Lonnebotn.
10.5** Severance Agreement by and between the Company and Kent J.
Hussey.
10.6** Severance Agreement by and between the Company and Roger F.
Warren.
10.7*** Severance Agreement by and between the Company and Stephen P.
Shanesy.
10.8*** Severance Agreement by and between the Company and Merrell M.
Tomlin.
10.9** 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.
10.10** Building Lease between the Company and SPG Partners, dated
May 14, 1985, as amended June 24, 1986 and June 10, 1987.
10.11*** Rayovac Corporation 1996 Stock Option Plan.
10.12*** Rayovac Corporation 1997 Stock Option Plan.
10.13+ 1997 Rayovac Incentive Plan.
10.14+ Rayovac Profit Sharing and Savings Plan.
27. Financial Data Schedule.
________________
* 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 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-1 (Registration No. 333-35181) filed with the Commission.
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the 1998 Fiscal Quarter.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: May 22, 1998
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
5
3-MOS
Dec-27-1997
Dec-27-1997
$16,906
0
103,353
1,104
49,326
183,354
145,026
79,976
267,699
106,845
138,758
0
0
569
13,733
267,699
149,995
149,995
0
77,355
53,719
87
5,024
13,810
5,276
8,534
0
1,975
0
$6,559
0.28
0.26
