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Proud Past
Powerful Future
Rayovac Corporation
2003 Annual Report

Table of contents

  • Page 1
    Rayovac Corporation 2003 Annual Report Proud Past Powerful Future

  • Page 2
    Rayovac Corporation 2003 Annual Report Rayovac Corporation is a global consumer products company with a diverse portfolio of world-class brands, including Rayovac, Varta and Remington. With operations on six continents and more than 5,000 employees, Rayovac is one of the largest battery, lighting ...

  • Page 3
    2003 Revenue Distribution 46% 40% 14% $630.9 $616.2 $1.32 $1.32 $1.27 $504.2 $572.7 $922.1 $1.16 $38.4 $38... (in millions) See Table 1 and Table 2 on page 12 for Reconciliation to Generally Accepted Accounting Principles (GAAP). $15.5 '03 REVENUES $29.2 $37.5 $0.83 $1.04 $1.05 $0.90 ...

  • Page 4
    Rayovac Corporation 2003 Annual Report Diverse Product Line RAYOVAC'S GROWING ARRAY OF WORLD-CLASS CONSUMER PRODUCTS ENSURES THAT RAYOVAC WILL CONTINUE TO MEET THE NEEDS OF TODAY'S CONSUMERS. Page 2/3

  • Page 5
    ... by introducing a revolutionary new round-cell rechargeable battery system that secures our position as the industry's technology leader. • Acquired Remington Products Company, a leading designer and distributor of battery-powered electric shavers and accessories, grooming products, and personal...

  • Page 6
    ... by diversifying our product line. Rayovac's history is as a manufacturer and marketer of battery and lighting products. By acquiring Remington Products Company at the close of fiscal 2003, we significantly broadened our product mix. The addition of Remington electric shavers, grooming and other...

  • Page 7
    ... ALLOW RAYOVAC TO SERVE THE NEEDS OF A GROWING SHAVING AND GROOMING MARKET FOR YEARS TO COME. ® MD Revenue Distribution by Region North America 14% 40% 46% 50% 40% Latin America 10% Europe/Rest of World 70% 30% 2003 Rayovac / Varta 2004 Projection Rayovac/Varta/Remington 2003 Remington

  • Page 8
    Rayovac Corporation 2003 Annual Report A Global Industry Player RAYOVAC'S OF ACQUISITION CONSUMER VARTA'S BATTERY BUSINESS HAS TRANSFORMED THE COMPANY INTO A GLOBAL PLAYER IN THE RAPIDLY EXPANDING BATTERY INDUSTRY. Page 6/7

  • Page 9
    ...rst portable charger that charged high-capacity Nickel Metal Hydride (NiMH) batteries in one hour or less. In the summer of 2003, we took speed charging to a higher level with the introduction of the revolutionary new In-Cell Charge Control (I-C 3) rechargeable NiMH battery system of batteries and...

  • Page 10
    ... in PC World, U.S. News and World Report, Popular Photography, The New York Times and others. More importantly, retailers and consumers have embraced the system for its compelling convenience, power and value. Building Our Business with World-Class Brands As a result of our acquisitions, Rayovac has...

  • Page 11
    Power and Value RAYOVAC'S BATTERY AND LIGHTING PRODUCTS DELIVER OUTSTANDING PERFORMANCE FOR CONSUMERS AT ATTRACTIVE VALUE PRICES.

  • Page 12
    Rayovac Corporation 2003 Annual Report A Powerful Team RAYOVAC'S POWERFUL BRANDS PROVIDE NEW OPPORTUNITIES TO DRIVE INCREASED SALES AND EARNINGS, AS WELL AS THE ABILITY TO MARKET AND DISTRIBUTE MORE PRODUCTS TO MORE CUSTOMERS IN MORE PLACES IN THE WORLD THAN EVER BEFORE. Left-David A. Jones ...

  • Page 13
    ... innovation to customer service to marketing to manufacturing. Our greatest strength, however, is in our growing portfolio of world-class brands that pave the way for our further expansion as a technology-focused, market-driven, global consumer products company. Rayovac's powerful brands, combined...

  • Page 14
    ...3. EXECUTIVE OFFICERS 1. David A. Jones Chairman and Chief Executive Officer 2. Kent J. Hussey President and Chief Operating Officer 3. Kenneth V. Biller 4. 5. 6. Executive Vice President - Operations 4. Remy E. Burel President - Europe 5. Luis A. Cancio President - Latin America 6. Stephen...

  • Page 15
    Rayovac Corporation www.rayovac.com

  • Page 16
    ...the realignment of manufacturing capacities, and (iii) restructuring of the Company's administrative functions. In fiscal 2003, the Company recorded retailer 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...

  • Page 17
    ... in this Annual Report. The following selected financial data should be read in conjunction with our consolidated financial statements and notes thereto and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere...

  • Page 18
    ... the launch of our comprehensive new alkaline pricing program 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...

  • Page 19
    ...marketer of alkaline and zinc carbon batteries. We are also the leading worldwide manufacturer and marketer of hearing aid batteries, a leading worldwide designer and marketer of rechargeable batteries and a leading marketer of battery-powered lighting products. With the acquisition of Remington, we...

  • Page 20
    ... Analysis of Financial Condition and Results of Operations Rayovac Corporation and Subsidiaries Also in fiscal 2001, we closed our zinc carbon battery plants in Tegucigalpa, Honduras and rationalized our manufacturing and distribution processes in our Mexico City, Mexico manufacturing facilities...

  • Page 21
    ... innovations. Prior to the Remington acquisition, we announced improvements and new developments in our rechargeable, alkaline, hearing aid, and lighting products product lines. During fiscal 2001, we introduced a one-hour charger for nickel metal hydride (NiMH) batteries, and began selling higher...

  • Page 22
    ...'s Discussion and Analysis of Financial Condition and Results of Operations Rayovac Corporation and Subsidiaries Within North America and Europe, the rechargeable battery business has experienced dramatic changes over the past three years. Primary rechargeable alkaline sales have declined over...

  • Page 23
    ... in alkaline, zinc carbon, and rechargeable product line sales. Alkaline sales decreases of $54.3 million were caused by intense competitive promotional pricing activity in this battery category, a $9.7 million decline in post-bankruptcy sales to a customer, approximately $6.2 million in retailer...

  • Page 24
    ... expenses of approximately $0.5 million, (ii) the closure of operations at our Madison, Wisconsin packaging facility and combination with the Company's Middleton, Wisconsin distribution center into a new leased complex in Dixon, Illinois resulting in charges of approximately $12.4 million, including...

  • Page 25
    ... of our manufacturing facility in Santo Domingo, 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...

  • Page 26
    Management's Discussion and Analysis of Financial Condition and Results of Operations Rayovac Corporation and Subsidiaries Our revenue from external customers decreased $13.2 million, or 2.9%, to $435.6 million in fiscal 2002 from $448.8 million the previous year. Zinc carbon sales decreases of $12...

  • Page 27
    ... of our manufacturing facility in Santo Domingo, 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...

  • Page 28
    ... Discussion and Analysis of Financial Condition and Results of Operations Rayovac Corporation and Subsidiaries During fiscal 2003 we granted approximately 1.2 million options to purchase shares of common stock to various employees of the company. All grants have been at an exercise price equal to...

  • Page 29
    ... is deemed reasonably assured. We are generally not obligated to allow for, and our general policy is not to accept, product returns. We enter into various promotional arrangements, primarily with retail customers, including arrangements entitling such retailers to cash rebates from us based on the...

  • Page 30
    ... Analysis of Financial Condition and Results of Operations Rayovac Corporation and Subsidiaries require collateral. Our credit terms generally range between 30 and 90 days from invoice date, depending upon the evaluation of the customer's financial condition and history. We monitor our customers...

  • Page 31
    ... to, or receivable from, the contract counter parties are included in accounts payable or accounts receivable. Foreign Exchange Risk Commodity Price Risk We are exposed to ï¬,uctuations in market prices for purchases of zinc used in the manufacturing process. We use commodity swaps, calls and...

  • Page 32
    ... the information appearing in this Annual Report is accurate only as of September 30, 2003 or as otherwise specified, as our business, financial condition, results of operations and prospects may have changed since that date. Except as required by applicable law, including the securities laws...

  • Page 33
    Consolidated Balance Sheets Rayovac Corporation and Subsidiaries September 30, (In thousands, except per share amounts) 2002 2003 Assets Current assets: Cash and cash equivalents Receivables: Trade accounts receivable, net of allowance for doubtful receivables of $3,293, and $22,911, ...

  • Page 34
    ... $ 0.90 32,414 $ 2003 $922,122 549,514 21,065 351,543 185,175 80,875 14,364 11,487 291,901 59,642 37,182 3,072 (3,647) 23,035 7,553 $ 15,482 $ 0.49 31,847 0.48 32,556 Net sales Cost of goods sold Restructuring and related charges Gross profit Operating expenses: Selling General and administrative...

  • Page 35
    ...413 (313) - - 1,331 (1,733) - - - - (4,790) 347 - - 3,426 $(2,750) Total Shareholders' Equity $ 80,696 11,534 (3,298) (1,141) (150) (2,929) 4,016 64,179 - (...sale securities Comprehensive income Sale of common stock Issuance of restricted stock Treasury stock acquired Exercise of stock options Notes...

  • Page 36
    ... Prepaid expenses and other assets Accounts payable and accrued liabilities Accrued restructuring charges Net cash provided by operating activities Cash ï¬,ows from investing activities: Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment and investments...

  • Page 37
    ... ("Company") manufacture and market consumer batteries and electric personal care products. Consumer batteries include general (alkaline, rechargeables, heavy duty, lantern and general purpose), button cell and lithium batteries. The Company also markets a variety of battery powered lighting devices...

  • Page 38
    ... employees is good and none of our facilities has experienced a work stoppage in the last ten years. The Company has entered into collective bargaining agreements with expiration dates as follows: Location Guatemala City, Guatemala Washington, UK Fennimore, WI Portage, WI Expiration Date March 2004...

  • Page 39
    ... Financial Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) The costs of temporary displays are capitalized as a prepaid asset and are included in Prepaid expenses and other and are expensed in the period in which they are shipped to customers. Permanent...

  • Page 40
    ... Financial Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) Currency devaluations in Argentina and Venezuela, along with the weakening currency in Mexico had significant negative impacts on OCI in 2002 and 2003. The strengthening of the Euro versus the...

  • Page 41
    ... carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable and short-term debt approximate fair value. The fair values of long-term debt and derivative financial instruments are generally based on quoted market prices. The carrying value of financial instruments...

  • Page 42
    ... provide a reliable single value of its options and may not be representative of the future effects on reported net income or the future stock price of the Company. For purposes of proforma disclosure, the estimated fair value of the options is amortized to expense over the option's vesting...

  • Page 43
    ... for Asset Retirement Obligations. Statement No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted the Statement on October 1, 2002. Adoption did not have...

  • Page 44
    ... of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure provisions of Statement No. 148 as...

  • Page 45
    ...part of the VARTA acquisition. During 2003, the Company closed its manufacturing operations in Mexico City, Mexico and its Madison, Wisconsin and Middleton, Wisconsin packaging and distribution locations. The Company's owned properties in Mexico City, Mexico and Madison, Wisconsin, with an aggregate...

  • Page 46
    ... all of the consumer battery business of VARTA AG and Remington Products Company, L.L.C. The Company recognized intangible assets associated with the acquisitions, including proprietary manufacturing technology, customer lists, and VARTA trade name intangibles. The purchase price allocation for the...

  • Page 47
    Notes to Consolidated Financial Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) The trade name asset and Latin America segment goodwill, prior to the adoption of FASB Statement No. 142, are associated with the 1999 acquisition of ROV Limited and were being ...

  • Page 48
    ... of the revolving facilities. A fee (2.25% to 3.50%) per annum (3.50% at September 30, 2003) is payable on the outstanding letters of credit, of which $6,005 were outstanding at September 30, 2003. The Company also incurs a fee of 0.25% per annum of the average daily maximum amount available to...

  • Page 49
    ... Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) Also in connection with the acquisition of Remington, the Company completed a debt offering of $350,000 of 8.5% Senior Subordinated Notes due in 2013. The terms of the notes permit the holders to require the Company...

  • Page 50
    ... ("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 or a performance...

  • Page 51
    Notes to Consolidated Financial Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) The following table summarizes information about options outstanding and outstanding and exercisable as of September 30, 2003: Options Outstanding Range of Exercise Prices $ 4.39...

  • Page 52
    ...30, 2002 and 2003. The Company, as of September 30, 2003, has state net operating loss carryforwards of approximately $30,033 which will expire between 2008 and 2018. The Company has foreign net operating loss carryforwards, primarily relating to the Company's Mexico operations, of approximately $31...

  • Page 53
    ... the year ended September 30, 2003, the Company has established a valuation allowance for operating loss carryforwards in certain non-U.S. jurisdictions in the amount of $366. As part of the Remington acquisition, the Company acquired foreign subsidiaries with foreign operating loss carryforwards of...

  • Page 54
    Notes to Consolidated Financial Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) Other Benefits The Company provides certain health care and life insurance benefits to eligible retired employees. Participants earn retiree health care benefits after ...

  • Page 55
    ... of Remington, manufactures and markets dry cell batteries including alkaline, zinc carbon, alkaline rechargeable, hearing aid, and other specialty batteries and lighting products throughout the world. These product lines are sold in all geographic areas. Latin America net sales have historically...

  • Page 56
    ... for segment reporting. Net sales from external customers Europe/ROW North America Latin America Total segments Inter segment net sales Europe/ROW North America Latin America Total segments Depreciation and amortization Europe/ROW North America Latin America Total segments Segment profit Europe/ROW...

  • Page 57
    ...amounts) Product line net sales Alkaline Zinc carbon Rechargeables Hearing aid batteries Specialty batteries Lighting products Total revenues from external customers 2001 $302,900 139,100 29,800 65,300 17,800 61,300 $616,200 2002 $295,700 96,500 31,800 67,600 15,300 65,800 $572,700 2003 $454,900...

  • Page 58
    ...the Company's Santo Domingo, Dominican Republic plant and transfer of production to the Company's Guatemala City, Guatemala manufacturing facility, and (ii) outsourcing a portion of the Company's zinc carbon battery production previously manufactured at our Mexico City, Mexico manufacturing facility...

  • Page 59
    ... expenses of approximately $500, (ii) the closure of operations at the Company's Madison, Wisconsin packaging facility and combination with the Company's Middleton, Wisconsin distribution center into a new leased complex in Dixon, Illinois resulting in charges of approximately $12,400, including...

  • Page 60
    ... $11,500 include amounts related to: (i) the closure of operations at the Company's Middleton, Wisconsin distribution center and combination with our Madison, Wisconsin packaging facility into a new leased complex in Dixon, Illinois resulting in charges of approximately $1,400, including termination...

  • Page 61
    ..., Latin America, and Europe/ROW segments in the amounts of approximately $1,400, $11,200, and $62,500, respectively. Of the approximately $75,100 of goodwill, none is expected to be deductible for tax purposes. On September 30, 2003, the Company acquired all of the equity interests of Remington...

  • Page 62
    ... of operation and related pro forma adjustments for the year ending June 30, 2003. 2002 Net Sales Reported net sales VARTA pro forma adjustments Remington pro forma adjustments Pro forma net sales Net Income Reported net income VARTA pro forma adjustments Remington pro forma adjustments Pro forma...

  • Page 63
    ... of the Company, which do not guarantee the payment obligations under the notes, are directly and wholly owned by ROV Holding, Inc. Condensed Consolidating Balance Sheet September 30, 2003 Parent Assets Current assets: Cash and cash equivalents Receivables: Trade accounts receivables, net...

  • Page 64
    ... Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) Condensed Consolidating Statement of Operations Year Ended September 30, 2003 Parent Net sales Cost of goods sold Restructuring and related charges Gross profit Operating expenses: Selling General and...

  • Page 65
    Notes to Consolidated Financial Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) Condensed Consolidating Balance Sheet September 30, 2002 Parent Assets Current assets: Cash and cash equivalents Receivables: Trade accounts receivables, net of allowance for ...

  • Page 66
    ... Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) Condensed Consolidating Statement of Operations Year Ended September 30, 2002 Parent Net sales Cost of goods sold Restructuring and related charges Gross profit Operating expenses: Selling General and...

  • Page 67
    ... Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts) Condensed Consolidating Statement of Operations Year Ended September 30, 2001 Parent Net sales Cost of goods sold Restructuring and related charges Gross profit Operating expenses: Selling General and...

  • Page 68
    ... in conformity with generally accepted accounting principles in the United States applied on a consistent basis except for accounting changes as disclosed and accordingly, include amounts that are estimates and judgments. All historical financial information in this annual report is consistent with...

  • Page 69
    ... of their operations and their cash flows for each of the years in the three-year period ended September 30, 2003 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2(x) to the consolidated financial statements, the Company revised its...

  • Page 70
    ... the symbol "ROV." The Common Stock commenced public trading on November 21, 1997. As of December 1, 2003, there were 244 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...