Rayovac 2004 Annual Report Download

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R AYOVA C฀ CO R PO R AT I ON
Corporate฀Headquarters฀
Six฀Concourse฀Parkway,฀Suite฀3300,฀Atlanta,฀GA฀30328฀
THE฀POWER฀BEHIND฀OUR฀BRANDS
Rayovac฀Corporation 2 0 0 4 ฀ A N N U A L ฀ R E P O R T
2 0 0 4 ฀ A N N U A L ฀ R E P O R T
S AL E S฀ O FF I C E S
NORTH฀AMERICA
MADISON,฀WISCONSIN
BENTONVILLE,฀ARK ANSAS
BOCA฀R ATON,฀FLORIDA
CHICAGO,฀ILLINOIS
MISSISSAUGA,฀ONTARIO
EUROPE
WIEN,฀AUSTRIA
CESK A฀LIPA,฀CZECH฀REPUBLIC
STENLOESE,฀DENMARK
ELLWANGEN,฀GERMANY
BUDAPEST,฀HUNGARY
MIL AN,฀ITALY
UTRECHT,฀NETHERL ANDS
WARSAW,฀POLAND
MOSCOW,฀RUSSIA
BARCELONA,฀SPAIN
WINTERTHUR,฀SWITZERL AND
ISTANBUL,฀TURKEY
DUBAI,฀UNITED฀AR AB฀EMIRATES
STAINES,฀UNITED฀KINGDOM
LATIN฀AMERICA
BUENOS฀AIRES,฀ARGENTINA
SÃO฀PAULO,฀BR AZIL
SANTIAGO,฀CHILE
BOGOTA,฀COLOMBIA
SAN฀JOSE,฀COSTA฀RICA
SANTO฀DOMINGO,฀DOMINICAN฀REPUBLIC
SAN฀SALVADOR,฀EL฀SALVADOR
GUATEMAL A฀CIT Y,฀GUATEMAL A
TEGUCIGALPA,฀HONDURAS
MEXICO฀CIT Y,฀MEXICO
MANAGUA ,฀NICARAGUA
GUAYNABO,฀PUERTO฀RICO
VALENCIA,฀VENEZUEL A
ASIA฀PACIFIC
MELBOURNE,฀AUSTR ALIA
SHANGHAI,฀CHINA
SINGAPORE
C O R P O R AT E฀ H E A DQ UA R T E R S
ATL ANTA ,฀GEORGIA
N O R T H฀ A M ER I C A N฀ H E A D Q UA R T E RS฀
G L OB AL฀ O P ER AT I O N S ฀A N D฀ ฀
T E C H N O LO G Y฀ C E N T ER
MADISON,฀WISCONSIN
E U RO P E AN฀ H E A DQ UA R T E R S
SUL ZBACH,฀GERMANY
L AT I N ฀ A M E R I CA N฀ H E A DQ UA R T E R S
BOCA฀R ATON,฀FLORIDA
M A N U FA C T U R I N G฀ F AC I L I T I E S
FENNIMORE,฀WISCONSIN
PORTAGE,฀WISCONSIN
DISCHINGEN,฀GERMANY
BREITENBACH,฀FRANCE
WASHINGTON,฀UNITED฀KINGDOM
GUATEMAL A฀CIT Y,฀GUATEMAL A
MANIZALES,฀COLOMBIA
IPOJUCA,฀BR AZIL
JABOATÃO,฀BR AZIL
NINGHAI,฀CHINA
D I S T R I BU T I O N฀ A N D ฀ ฀
PA C K A G I N G฀ FA C I L I T I ES
NORTH฀AMERICA
DIXON,฀ILLINOIS
FRESNO,฀CALIFORNIA
SMYRNA,฀T ENNESSEE
MISSISSAUGA,฀ONTARIO
EUROPE
ELLWANGEN,฀GERMANY
PR AGUE,฀CZECH฀REPUBLIC
BUDAPEST,฀HUNGARY
SAN฀DANIELE,฀ITALY
WARSAW,฀POLAND
VÄ XJÖ,฀SWEDEN
ISTANBUL,฀TURKEY
MILTON฀KEYNES,฀UNITED฀KINGDOM
LATIN฀AMERICA
BUENOS฀AIRES,฀ARGENTINA
RECIFE,฀BRA ZIL
GUARULHOS,฀BRA ZIL
SANTIAGO฀DE฀CHILE,฀CHILE
BOGOTA,฀COLOMBIA
SAN฀JOSE,฀COSTA฀RICA
SANTO฀DOMINGO,฀DOMINICAN฀REPUBLIC
SAN฀SALVADOR,฀EL฀SALVADOR
GUATEMAL A฀CIT Y,฀GUATEMAL A
TEGUCIGALPA,฀HONDURAS
MEXICO฀CIT Y,฀MEXICO
VALENCIA,฀VENEZUEL A
ASIA฀PACIFIC
MELBOURNE,฀AUSTRALIA
NINGHAI,฀CHINA
AUCKLAND,฀NEW฀ZEAL AND
THE฀POWER฀BEHIND฀OUR฀BRANDS
G r o w t h . ฀ D i s c i p l i n e . ฀ F o c u s . ฀ S t r a t e g y . ฀ I n n o v a t i o n . ฀ E x p e r i e n c e . ฀ G r o w t h . ฀ D i s c i p l i n e . ฀ F o c u s . ฀ S t r a t e g y . ฀ ฀ ฀ ฀ ฀ ฀ I n n o v a t i o n . ฀ E x p e r i e n c e .

Table of contents

  • Page 1
    THE฀POWER฀BEHIND฀OUR฀BRANDS Growth.฀Discipline.฀Focus.฀Strategy.฀Innovation.฀Experience.฀Growth.฀Discipline.฀Focus.฀Strategy.฀฀ 2004฀ANNUAL฀REPORT

  • Page 2
    ....฀ Headquartered฀ in฀ Atlanta,฀ Georgia,฀ Rayovac฀ generates฀ approximately฀ ฀ $1.5฀ billion฀ in฀ annual฀ revenues฀ and฀ has฀ 6,500฀ employees฀ worldwide.฀ The฀ Company's฀ stock฀ trades฀ on฀ the฀ New฀ York฀ Stock฀Exchange฀under฀the฀symbol...

  • Page 3
    ...6% Batteries 67% D I V E R S I F I E D ฀ G E O G R A P H I E S Latin America 10% Europe/Rest of World 44% North America 46% Financial฀Highlights฀ in฀millions,฀except฀per฀share฀amounts Record฀achievement ฀ Net฀sales฀ Pro฀forma฀gross฀profit฀ Pro฀forma฀operating...

  • Page 4
    ...we฀will฀strive฀to ฀ ฀double฀our฀annual฀revenues฀to฀$3฀billion within฀three฀to฀five฀years." Kenneth฀Biller,฀Paul฀Cheeseman,฀Randall฀Steward,฀David฀Jones,฀Kent฀Hussey,฀Luis฀Cancio,฀Rémy฀Burel,฀Lester฀Lee Rayovac฀Corporation page 2.3

  • Page 5
    ...฀ with฀ Rayovac's฀ existing฀ operations,฀ rationalizing฀ the฀ two฀ companies'฀ manufacturing฀ and฀ distribution฀ facilities,฀ and฀ converting฀ ฀ Remington's฀information฀systems฀to฀Rayovac's฀SAP฀platform.฀We฀also฀formed฀a฀global฀product฀

  • Page 6
    ...฀ ฀ in฀China. In฀May,฀we฀acquired฀Microlite,฀a฀low-cost฀battery฀manufacturer฀headquartered฀in฀São฀Paulo,฀ Brazil.฀Microlite฀is฀Brazil's฀leading฀battery฀company฀with฀$53฀million฀in฀net฀sales฀and฀a฀49฀percent฀ market฀share.฀Rayovac...

  • Page 7
    MEN'S฀ELECTRIC฀SHAVERS WOMEN'S฀ELECTRIC฀SHAVERS PERSONAL฀GROOMING฀PRODUCTS PERSONAL฀CARE฀APPLIANCES "We฀expect฀Remington's฀array฀of฀products฀to฀be฀our฀fastest ฀growing฀product฀line฀over฀the฀next฀several฀years."฀ Rayovac฀Corporation page 4.5

  • Page 8
    "฀ We've฀taken฀a฀number฀of฀steps฀to฀become฀a฀larger,฀more฀diversified฀ consumer฀products฀company฀that฀can฀serve฀the฀increasingly฀global฀ demands฀of฀the฀world's฀top฀retailers." Rayovac฀Corporation page 6.7

  • Page 9
    ... and฀ production฀ levels.฀ We฀expect฀to฀complete฀the฀integration฀of฀both฀companies฀by฀fiscal฀year-end฀2005. During฀ the฀ year,฀ we฀ also฀ relocated฀ our฀ corporate฀ headquarters฀ from฀ Madison,฀ Wisconsin฀ to฀ Atlanta,฀Georgia.฀This฀move...

  • Page 10
    ...฀we฀can฀realize฀our฀vision.฀Rayovac's฀products,฀for฀example,฀were฀ offered฀ in฀ Sam฀ Walton's฀ first฀ Wal-Mart฀ and฀ in฀ every฀ Wal-Mart฀ since฀ then.฀ Our฀ resounding฀ success฀in฀supporting฀sophisticated฀retailers฀is฀reflected฀in฀our...

  • Page 11
    ...฀market฀dynamics฀in฀the฀North฀American฀alkaline ฀battery฀business฀support฀our฀conviction฀that฀the฀consumer ฀battery฀industry฀has฀regained฀its฀stability฀and฀health,฀and฀is ฀poised฀for฀solid฀long-term฀growth." Rayovac฀Corporation page 8.9

  • Page 12
    "฀ Since฀1996,฀we฀have฀more฀than฀tripled฀our฀฀ annual฀net฀sales฀and฀transformed฀our฀business฀฀ into฀a฀global฀enterprise฀with฀a฀broad฀portfolio฀of฀฀ products฀and฀a฀worldwide฀customer฀base." Rayovac฀Corporation page 10.11

  • Page 13
    ...฀฀ on฀our฀highly฀effective฀growth฀strategy.฀ executed฀by฀country-based฀teams.฀In฀sum,฀Rayovac฀is฀today฀one฀of฀few฀companies฀of฀our฀size฀ with฀the฀expansive฀manufacturing฀and฀supply฀capabilities฀that฀global฀retailers฀so฀eagerly...

  • Page 14
    ...supplier,฀ we฀ have฀ excellent฀ relationships฀ with฀ major฀ retailers฀ worldwide.฀ We฀ offer฀ products฀that฀consumers฀need฀and฀want,฀our฀market฀shares฀in฀our฀key฀product฀lines฀are฀at฀alltime฀highs,฀and฀we฀have฀a฀robust฀new฀product...

  • Page 15
    ...฀markdown฀costs฀of฀$6.2฀million฀as฀a฀reduction฀to฀net฀sales,฀as฀part฀of฀the฀introduction฀of฀the฀Company's฀new฀alkaline฀product฀ line฀packaging.฀See฀Note฀15฀in฀the฀Notes฀to฀Consolidated฀Financial฀Statements฀and฀the฀Management...

  • Page 16
    ... 3300, Atlanta, Georgia (Address of principal executive offices) 30328 (Zip Code) Registrant's telephone number, including area code: (770) 829-6200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, Par Value...

  • Page 17
    ... 14. ITEM 15. PART III DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ...PRINCIPAL ACCOUNTING FEES AND SERVICES ...PART IV EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K . . INDEX...

  • Page 18
    ... the Rayovac, VARTA and Remington brands, each of which has been in existence for more than 80 years. We have 12 manufacturing and product development facilities located in the U.S., Europe, China and Latin America. A significant portion of our products are manufactured by third-party suppliers. On...

  • Page 19
    ...the Rayovac Maximum Plus brand and the VARTA Universal, High Energy and MaxiTech brands. We also engage in private label manufacturing of alkaline batteries. Our zinc carbon batteries are designed for low- and medium-drain battery-powered devices such as flashlights. Rechargeable Batteries, Chargers...

  • Page 20
    ...our products through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors and OEMs. Our sales to Wal-Mart Stores, Inc. represented approximately 19% of consolidated net sales for fiscal 2004 and no other customer accounted...

  • Page 21
    ... strategy is focused on alkaline, zinc air and NiMH rechargeable battery systems. Our alkaline product development groups in Madison, Wisconsin and Ellwangen, Germany work closely with both our alkaline manufacturing plants in Fennimore, Wisconsin and Dischingen, Germany. Our zinc air product...

  • Page 22
    ... of building retail distribution channels and consumer brands. In the U.S. alkaline battery category, Rayovac is positioned as a value brand while Duracell and Energizer are positioned as premium brands. In Europe, the VARTA brand has premium positioning. In Latin America where lower disposable...

  • Page 23
    ... into account established accruals of $5.3 million for estimated liabilities at September 30, 2004, should not be material to our business or financial condition. Employees We had approximately 6,500 full-time employees worldwide as of September 30, 2004. Available Information Our Annual Report on...

  • Page 24
    ... Report. ITEM 2. PROPERTIES The following table lists our primary owned or leased manufacturing, packaging, and distribution facilities: Facility Function Square Footage North America Fennimore, Wisconsin(1) ...Portage, Wisconsin(1) ... Alkaline Battery Manufacturing Zinc Air Button Cell & Lithium...

  • Page 25
    ..., in a related action, the Cologne District Court granted an injunction in August, 2002 prohibiting the marketing and sale by Rayovac of the Remington rotary shavers, which injunction remains in place, and Rayovac has appealed the maintenance of the injunction in light of the April 2004 decision...

  • Page 26
    ...United States patent numbers 5,711,328 and 5,649,556 allegedly held by Braun (The Gillette Company and Braun GmbH v. Remington Consumer Products Company, LLC., Case No. 03 CV 12428 WGY). The complaint, which seeks injunctive relief and monetary damages, was served on Remington in March 2004. We have...

  • Page 27
    ...the symbol "ROV." The Common Stock commenced public trading on November 21, 1997. As of December 1, 2004, there were 503 holders of record of Common Stock based upon data provided by the transfer agent for the Common Stock. The following table sets forth the reported high and low prices per share of...

  • Page 28
    ... Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion. (2) Fiscal 2003 includes a net sales reduction of $6.2 million related to North American retailer inventory repricing programs associated with the launch of our comprehensive new alkaline...

  • Page 29
    announced in 2003. These programs were launched in response to Duracell's price reduction in the U.S. market on certain AA and AAA batteries. Fiscal 2003 includes restructuring and related charges-cost of goods sold of $21.1 million, and restructuring and related charges-operating expenses of $11.5 ...

  • Page 30
    ... distributors and OEMs. We enjoy strong name recognition in our markets under the Rayovac, VARTA and Remington brands, each of which has been in existence for more than 80 years. We have 12 manufacturing and product development facilities located in the U.S., Europe, China and Latin America...

  • Page 31
    ... into Rayovac's manufacturing facility in Portage, WI. All operations at Remington's United Kingdom and United States Service Centers were discontinued. Rayovac's corporate headquarters were moved to Atlanta, GA. • • • We recorded pretax restructuring and related integration charges...

  • Page 32
    ... zinc carbon manufacturing facility and transferred the majority of the production requirements to our Guatemala manufacturing facility. The consolidation of our zinc carbon capacity within Latin America was consistent with the global market trend away from zinc carbon toward alkaline batteries...

  • Page 33
    ...or zinc carbon batteries in cell sizes of AA, AAA, C, D and 9-volt. Specialty batteries include rechargeable batteries, hearing aid batteries, photo batteries and watch/calculator batteries. Most consumer batteries are marketed under one of the following brands: Rayovac/VARTA, Duracell, Energizer or...

  • Page 34
    ... of the Remington acquisition and lower alkaline promotional spending in North America. Sales of Remington products in fiscal 2004 were at higher gross profit margins than our general battery and lighting products. In addition, our margins benefited from favorable foreign currency exchange rates on...

  • Page 35
    ...to the favorable impact of foreign currency exchange rates. Sales volumes reflected a 14% increase in alkaline sales, as well as growth in hearing aid battery and lighting products sales partially offset by softness in zinc carbon sales. Our profitability in fiscal 2004 increased to $96 million from...

  • Page 36
    ....4% $296 $ 204 Our sales to external customers in fiscal 2004 increased to $145 million from $125 million in the previous year, a 16% increase. Sales increases reflect improvement in our general battery business, driven by the alkaline and zinc carbon battery product lines, coupled with the impact...

  • Page 37
    ...recorded restructuring and related charges in cost of goods sold of approximately $21.1 million including amounts related to: (i) the closure in October 2002 of our Mexico City, Mexico plant and integration of production into our Guatemala City, Guatemala manufacturing location, resulting in charges...

  • Page 38
    ... law both the American Jobs Creation Act of 2004 and the Working Families Tax Relief Act of 2004. This legislation contains numerous corporate tax changes, including eliminating a tax benefit relating to U.S. product exports, a new deduction relating to U.S. manufacturing, a lower U.S. tax rate on...

  • Page 39
    ... associated with our new alkaline pricing program, and our inability to replace $4 million in sales to a discontinued low-margin OEM customer in the prior year. Fiscal 2003 zinc carbon sales decreased $10 million compared to fiscal 2002 due to reduced distribution and general marketplace trends away...

  • Page 40
    ...recorded restructuring and related charges in cost of goods sold of approximately $21.1 million including amounts related to: (i) the closure in October 2002 of our Mexico City, Mexico plant and integration of production into our Guatemala City, Guatemala manufacturing location, resulting in charges...

  • Page 41
    ..., Dominican Republic and transfer of production to our Guatemala City, Guatemala manufacturing facility and the outsourcing of a portion of our zinc carbon battery production previously manufactured at our Mexico City, Mexico manufacturing facility, as more fully described above under the heading...

  • Page 42
    ...Term B loan facility using a combination of cash remaining following the debt offering of the Senior Subordinated Notes and cash generated from operating activities. In ...Facilities, and using market interest rates and foreign exchange rates in effect as of September 30, 2004, we estimate annual...

  • Page 43
    ...excludes other obligations we have reflected on our Consolidated Balance Sheet, such as pension obligations (see Employee Benefit Obligations, Note 11 in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K) (in millions): Contractual Obligations Payments due by...

  • Page 44
    ...factors warrants a review. Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the sales forecast for a product, changes in technology or in the way an asset is being used, a history of operating or cash flow losses, or an adverse change in legal...

  • Page 45
    ... of an arrangement exists; the price to the buyer is fixed or determinable; and collectibility is deemed reasonably assured. We are generally not obligated to allow for, and our general policy is not to accept, product returns for battery sales. We do accept returns related to our shaving, grooming...

  • Page 46
    ... initiatives implemented. We report restructuring and related charges associated with administrative functions in operating expenses, such as initiatives impacting sales, marketing, distribution, or other non-manufacturing related functions. Restructuring and related charges reflected in...

  • Page 47
    ...losses is often dependent upon management's judgment of potential actions by third parties and regulators. It is possible that changes in estimates...Statements. Notes to the Consolidated Financial Statements contain additional information related to our accounting policies and should be read in ...

  • Page 48
    ... and foreign exchange options. The related amounts payable to, or receivable from, the contract counterparties are included in accounts payable or accounts receivable. Commodity Price Risk We are exposed to fluctuations in market prices for purchases of zinc used in the manufacturing process. We...

  • Page 49
    ...competitive promotional activity or spending by competitors or price reductions by competitors; the loss of, or a significant reduction in, sales to a significant retail customer; difficulties or delays in the integration of operations of acquired businesses; the introduction of new product features...

  • Page 50
    ... consolidation, a significant percentage of our sales are attributable to a very limited group of retailer customers. Wal-Mart Stores, Inc. our largest retailer customer, alone accounted for approximately 19% of our consolidated net sales in fiscal 2004. Our sales generally are made through the use...

  • Page 51
    ...; increase our vulnerability to general adverse economic and industry conditions; limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; restrict us from making strategic acquisitions or exploiting business opportunities; place us at...

  • Page 52
    .... If we are unable to improve existing products and develop new, innovative products, our sales and market share may suffer. We believe that our future success in both our battery and electric personal care product markets will depend, in part, upon our ability to continue making innovations...

  • Page 53
    ... costs, terminating employees or distributors and with closing manufacturing facilities. We may face a number of risks related to foreign currencies. Our foreign sales and certain of our expenses are transacted in foreign currencies. With the exception of purchases of Remington products, which are...

  • Page 54
    ... facilities for many of our electric personal care products. A disruption in the supply of our products could have a material adverse effect on our business, financial condition and results of operations. Substantially all of our electric personal care products are manufactured by suppliers located...

  • Page 55
    ...on our business, financial condition and results of operations. Rayovac and certain of its officers and directors have been named in the past, and may be named in the future, as defendants of class action lawsuits. Regardless of their subject matter or the merits, class action lawsuits may result in...

  • Page 56
    ... certain limitations under provisions of Wisconsin law, shareholders may be liable for unpaid wages of our employees up to the par value of their shares. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required for this Item is included in this Annual Report on Form 10-K on pages...

  • Page 57
    ...Foods, Inc., Pentair, Inc. and a privately-held company. Mr. Jones has over 30 years of experience working in the consumer products industry. Mr. Hussey has served as a director of Rayovac since October 1996 and has served as our President and Chief Operating Officer since August 2002 and from April...

  • Page 58
    ... increasing responsibility at VARTA AG as International Marketing Manager, Geographical Area Manager (France, Spain and Portugal), Profit Center Manager (general purpose batteries) and Divisional Board Member. Mr. Burel started his career at Braun GmbH, a subsidiary of the Gillette Company, and held...

  • Page 59
    ... products industry. From August 1996 to April 1998, Mr. Lupo served as Senior Vice President and Chief Operating Officer for the international division of Wal-Mart Stores, Inc. From October 1990 to August 1996, Mr. Lupo served as Senior Vice President-General Merchandise Manager of Wal-Mart Stores...

  • Page 60
    ... employees. The Code of Ethics for Principal Executive Officer and Senior Financial Officers is publicly available on our website at www.rayovac.com under "Investor Relations - Corporate Governance." We intend to disclose substantive amendments to, and, if applicable, waivers of, this code...

  • Page 61
    ... Rayovac Corporation, 6 Concourse Parkway, Suite 3300, Atlanta, Georgia 30328. Number of Shares Number of Shares Subject to Options (1) Names and Address of Beneficial Owner Percent Wachovia Corporation(2) One Wachovia Center Charlotte, NC 28288-0137 ...David A. Jones ...Kent J. Hussey ...Kenneth...

  • Page 62
    ... Incentive Plans may take the form of restricted stock and other stock-based awards specified in the 1997 Rayovac Incentive Plan. If such awards are granted, they will reduce the number of shares available for issuance pursuant to future stock option awards. (2) This amount excludes an aggregate of...

  • Page 63
    ... the Chairman to pre-approve other audit or non-audit services shall be presented to the Audit Committee at its next scheduled meeting. During fiscal 2004, the Audit Committee pre-approved all other audit and non-audit services in accordance with the...

  • Page 64
    ...of this Annual Report on Form 10-K. 2. The financial statement schedule listed in the Index to Consolidated Financial Statements and Financial Statement Schedule, filed as part of this Annual Report on Form 10-K. 3. The exhibits listed in the Exhibit Index filed as part of this Annual Report on Form...

  • Page 65
    RAYOVAC CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements of Shareholders' Equity ...

  • Page 66
    Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Rayovac Corporation: We have audited the accompanying consolidated balance sheets of Rayovac Corporation and subsidiaries as of September 30, 2004 and 2003, and the related consolidated statements of ...

  • Page 67
    RAYOVAC CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets September 30, 2004 and 2003 (In thousands, except per share amounts) 2004 2003 Assets Current assets: Cash and cash equivalents ...Receivables: Trade accounts receivable, net of allowances of $23,071 and $22,911, respectively ...Other...

  • Page 68
    RAYOVAC CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years ended September 30, 2004, 2003 and 2002 (In thousands, except per share amounts) 2004 2003 2002 Net sales ...Cost of goods sold ...Restructuring and related charges ...Gross profit ...Operating expenses: Selling ......

  • Page 69
    RAYOVAC CORPORATION AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Years ended September 30, 2004, 2003 and 2002 (In thousands) Accumulated Notes Other Receivable Comprehensive from Common Stock Additional Paid-In Retained Income (Loss), Officers/ Shares Amount Capital Earnings net...

  • Page 70
    ... ...Accounts payable and accrued liabilities ...Net cash provided by operating activities ...Cash flows from investing activities: Purchases of property, plant and equipment ...Proceeds from sale of property, plant and equipment and investments ...Payments for acquisitions, net of cash acquired...

  • Page 71
    ...(alkaline, rechargeables, heavy duty, lantern and general purpose), button cell and lithium batteries. The Company also markets a variety of battery powered lighting devices such as flashlights and lanterns and designs and markets electric shavers and accessories, electric grooming products and hair...

  • Page 72
    ... exists; the price to the buyer is fixed or determinable; and collectibility is deemed reasonably assured. The Company is not obligated to allow for, and the Company's general policy is not to accept, product returns associated with battery sales. The Company does accept returns related to its...

  • Page 73
    RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) (d) Cash Equivalents For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with original ...

  • Page 74
    RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) The Company...net assets acquired (goodwill) and trade name intangibles are not amortized. Goodwill is tested for impairment at least annually at the reporting unit level...

  • Page 75
    RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) During 2004, the Company changed the annual impairment testing date for goodwill and trade name intangibles from October 1 to August 31 of each year. The August 31 ...

  • Page 76
    ...party carriers to transport products to customers and salaries and overhead costs related to activities to prepare the Company's products for shipment at the Company's distribution facilities. (o) Advertising Costs The Company incurred expenses for advertising of $51,321, $11,458 and $10,317 in 2004...

  • Page 77
    ... 2005 with a contract value of $15,234. The derivative net gain on these contracts recorded in AOCI at September 30, 2004 was $1,109, net of tax expense of $655. (s) Fair Value of Financial Instruments The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable...

  • Page 78
    ...) 541 94 $(954,298) (9,245) 541 94 Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations are expensed or capitalized as appropriate. The Company determines its liability on a site-by-site basis and records a liability at the time when it is...

  • Page 79
    RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) (w) Stock Compensation The Company has elected to apply Accounting Principles Board ("APB") Opinion No. 25 and related Interpretations in accounting for stock-based ...

  • Page 80
    ... and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, or SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. The Company adopted the disclosure provisions of SFAS 132, as revised, as seen in Note 11, Employee Benefit Plans. In December 2003...

  • Page 81
    ... of substantially all of the consumer battery business ("VARTA") of VARTA AG and the acquisition of Remington. The Company recognized intangible assets associated with the VARTA acquisition, including proprietary manufacturing technology, customer lists, and VARTA trade name intangibles. 66

  • Page 82
    ... per share amounts) There was no allocation for the Remington trade name or other intangibles made in the Consolidated Balance Sheet as of September 30, 2003, as valuations relating to Remington had not been completed. During 2004, the Company allocated a portion of the Remington purchase price to...

  • Page 83
    RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) (A) Interest rates on senior credit facilities represent the weighted average rates on balances outstanding. The Company's Senior Credit Facilities include a term ...

  • Page 84
    ...% owned by the Company. As of September 30, 2004, the Company was in compliance with all covenants associated with the Senior Credit Facilities and Senior Subordinated Notes. (7) Shareholders' Equity During 2004, the Company granted approximately 449 shares of restricted stock to certain members of...

  • Page 85
    ... Board of Directors ("Board") approved the Rayovac Corporation 1996 Stock Option Plan ("1996 Plan"). Under the 1996 Plan, stock options to acquire up to 2,318 shares of common stock, in the aggregate, may be granted to select employees and directors of the Company under either or both a time-vesting...

  • Page 86
    RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) A summary of the status of the Company's stock option plans is as follows: 2004 WeightedAverage Exercise Options Price 2003 WeightedAverage Exercise Options Price 2002...

  • Page 87
    ...) (In thousands, except per share amounts) The following reconciles the Federal statutory income tax rate with the Company's effective tax rate: 2004 2003 2002 Statutory federal income tax rate ...Foreign Sales Corporation/Extraterritorial Income Exclusion benefit ...Non U.S. permanent items...

  • Page 88
    ...Discontinued Operations The Company has reflected Remington's United States and United Kingdom Service Centers as discontinued operations. The Company discontinued operations at these Service Centers during 2004 as part of the Remington integration initiatives. See Note 15, Restructuring and Related...

  • Page 89
    ...15 annual installments beginning on a date specified by the employee, subsequent to retirement or disability, or to a designated beneficiary upon death. The Company established a rabbi trust to fund these agreements. Other Benefits The Company provides certain health care and life insurance benefits...

  • Page 90
    RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) 2004 Pension Benefits 2003 2002 Other Benefits 2004 2003 2002 Components of net periodic benefit cost Service cost ...Interest cost ...Actual return on assets ......

  • Page 91
    ... Europe, China, Australia and all other countries in which the Company does business. The Company manufactures and markets dry cell batteries including alkaline, zinc carbon, alkaline rechargeable, hearing aid, other specialty batteries and lighting products throughout the world. These product lines...

  • Page 92
    ... assets. All capital expenditures are related to reportable segments. Variable allocations of assets are not made for segment reporting. Net sales to external customers 2004 2003 2002 North America ...Europe/ROW ...Latin America ...Total segments ...Intersegment net sales $ 653,963 617,967 145...

  • Page 93
    ...North America ...Europe/ROW ...Latin America ...Total segments ...Product line net sales $ 14,607 9,142 3,143 26,892 $ 14,607 9,494 2,024 26,125 $ 13,158 969 1,514 $ 15,641 $ $ 2004 2003 2002 Alkaline ...Zinc carbon ...Rechargeables, chargers and other ...Hearing aid batteries ...Lighting...

  • Page 94
    ... in Europe with respect to trademark or other intellectual property rights, patent infringement claims by the Gillette Company and its subsidiary Braun Gmbh, and a lawsuit alleging misleading advertising filed by Norelco Consumer Products Company against the Company's subsidiary, Remington Products...

  • Page 95
    ...into the Company's North America headquarters in Madison, Wisconsin; moving Remington's Bridgeport, Connecticut manufacturing operations to the Company's Portage, Wisconsin manufacturing location; creation of a global product development group in the Company's technology center in Madison, Wisconsin...

  • Page 96
    ... 2003, Cost of goods sold include restructuring and related charges of approximately $21,100 related to: (i) the closure in October 2002 of the Company's Mexico City, Mexico plant and integration of production into the Company's Guatemala City, Guatemala manufacturing location, resulting in charges...

  • Page 97
    ... Brazil. Microlite manufactures and sells both alkaline and zinc carbon batteries as well as battery-operated lighting products. Microlite has operated as an independent company since 1982. The acquisition of Microlite consolidates the Company's rights to the Rayovac brand name in Latin America...

  • Page 98
    ...percent equity interest in Ningbo. The remaining 15 percent equity interest will continue to be held by Ningbo Baowang Investment Company and the founder/ general manager of Ningbo. Ningbo, founded in 1995, produces alkaline and zinc carbon batteries for retail, OEM, and private label customers. 83

  • Page 99
    ... are reported as part of Europe/ROW segment. Ningbo contributed $8,400 in net sales and recorded an operating loss of $400 in the current year. The total purchase price for Ningbo was approximately $17,000 in cash, which includes acquisition related expenditures of approximately $600, plus...

  • Page 100
    ... trade names which are not subject to amortization. On October 1, 2002, the Company acquired substantially all of the consumer battery business of VARTA AG. The acquisition consisted of the purchase of all of VARTA AG's consumer battery subsidiaries and business outside of Germany, excluding Brazil...

  • Page 101
    ... the results of operations and related pro forma adjustments for the year ended June 30, 2003. 2004 2003 Net sales Reported net sales ...Microlite pro forma adjustments ...Remington pro forma adjustments ...Pro forma net sales ...Income from continuing operations Reported income from continuing...

  • Page 102
    ... be material to investors. On March 29, 2004, Remington Products Company, L.L.C. (previously a guarantor subsidiary) merged with Rayovac Corporation (the parent company). As a result of the merger, the results of operations, cash flows, and balance sheet of Remington Products Company, L.L.C. are now...

  • Page 103
    ... Balance Sheet September 30, 2004 Parent Guarantor Nonguarantor Subsidiaries Subsidiaries Eliminations Consolidated Total ASSETS Current assets: Cash and cash equivalents ...$ 1,994 $ 53 Receivables: Trade accounts receivables, net of allowances ...100,783 - Other ...(45,690) 201,370 Inventories...

  • Page 104
    ... Statement of Operations Year Ended September 30, 2004 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total Net sales ...Cost of goods sold ...Restructuring and related charges ...Gross profit ...Operating expenses: Selling ...General and administrative...

  • Page 105
    ...Year Ended September 30, 2004 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total Net cash provided by operating activities ...Cash flows from investing activities: Purchases of property, plant and equipment ...Proceeds from sale of property, plant, and equipment...

  • Page 106
    ... maturities of long-term debt ...$ 45,209 $ 56,095 $ 9,780 Accounts payable ...89,407 180,484 124,928 Accrued liabilities: Wages and benefits ...9,171 5,190 22,219 Income taxes payable ...2,992 22 17,555 Restructuring and related charges ...4,080 - 1,670 Accrued interest ...3,309 2,270 (685) Other...

  • Page 107
    ... Year Ended September 30, 2003 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total Net sales ...Cost of goods sold ...Restructuring and related charges ...Gross profit ...Operating expenses: Selling ...General and administrative ...Research and development...

  • Page 108
    ... lease obligations . . (Advances related to) proceeds from intercompany transactions ...Payments from officers/shareholders . . Proceeds from exercise of stock options ...Net cash provided by financing activities ...Effect of exchange rate changes on cash and cash equivalents ...Net increase in cash...

  • Page 109
    ... Year Ended September 30, 2002 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total Net sales ...Cost of goods sold ...Restructuring and related charges ...Gross profit ...Operating expenses: Selling ...General and administrative ...Research and development...

  • Page 110
    ... September 30, 2002 Parent Guarantor Subsidiaries Nonguarantor Subsidiaries Eliminations Consolidated Total Net cash provided by operating activities ...Cash flows from investing activities: Purchases of property, plant and equipment ...Proceeds from sale of property, plant, and equipment ...Net...

  • Page 111
    ... balance sheets of Rayovac Corporation and subsidiaries as of September 30, 2004 and 2003, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended September 30, 2004, which are included in the 2004 Annual Report...

  • Page 112
    RAYOVAC CORPORATION AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS For the years ended September 30, 2004, 2003 and 2002 (In thousands) Column A Column B Balance at Beginning of Period Column C Additions Charged to Related to Costs and Acquisitions Expenses Completed Column D Column ...

  • Page 113
    ...behalf by the undersigned thereunto duly authorized. RAYOVAC CORPORATION /s/ DAVID A. JONES David A. Jones Chairman of the Board and Chief Executive Officer DATE: December 14, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 114
    ...) Stock฀Exchange฀Listing Rayovac's฀common฀stock฀is฀listed฀on฀the฀New฀York฀Stock฀Exchange฀under฀the฀symbol฀"ROV."฀The฀ following฀table฀sets฀forth฀the฀reported฀high฀and฀low฀prices฀per฀share฀of฀the฀common฀stock฀as฀reported฀ on...

  • Page 115
    ...,฀FLORIDA MANUFACTURING฀FACILITIES FENNIMORE,฀WISCONSIN PORTAGE,฀WISCONSIN DISCHINGEN,฀GERMANY BREIT ENBACH,฀FR ANCE WASHINGTON,฀UNIT ED฀K INGDOM GUAT EMAL A฀CIT Y,฀GUAT EMAL A MANIZ ALES,฀COLOMBIA IPOJUCA ,฀BR A ZIL JABOATÃO,฀BR A ZIL NINGHAI,฀CHINA DISTRIBUTION฀AND...