Edgar Filing: RAYOVAC CORP

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15( ) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( ) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 001-13615
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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 53711-2497
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (608) 275-3340

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, Par Value $.01 New York Stock Exchange, Inc.

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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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 / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

On December 17, 2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $434,780,654. As of December 17, 2001,
there were outstanding 32,042,858 shares of the registrant's Common Stock, $0.01
par value.

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TABLE OF CONTENTS

PAGE
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PART I
ITEM 1. BUSINESS.................................................... 2
ITEM 2. PROPERTIES.................................................. 13
ITEM 3. LEGAL PROCEEDINGS........................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 16

PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 17
ITEM 6. SELECTED FINANCIAL DATA..................................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 31
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 31

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 32
ITEM 11. EXECUTIVE COMPENSATION...................................... 35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 40

PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K......................................................... 42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE.......................................... F-1
SIGNATURES.................................................. II-3

PART 1

ITEM 1. BUSINESS

GENERAL

We are the leading value brand battery manufacturer and the fastest-growing
manufacturer of general batteries in the U.S. We are also the leading worldwide
manufacturer of hearing aid batteries and the leading manufacturer of zinc
carbon household batteries marketed in North America and Latin America. In
addition, we are a leading marketer of rechargeable batteries and
battery-powered lighting products in the U.S.

RAYOVAC is a well-recognized brand name in the battery industry that was
first used as a trademark for batteries in 1921. We attribute the longevity and
strength of the RAYOVAC brand name to our high quality products and to the
success of our marketing and merchandising initiatives. We market all of our
branded products under the RAYOVAC name and selected products under sub-brand
names, including MAXIMUM-Registered Trademark-, RENEWAL-Registered Trademark-,
LOUD'N CLEAR-Registered Trademark-, PROLINE-Registered Trademark- and RAYOVAC
ULTRA-Registered Trademark-.

We have established our position as the leading value brand in the North
American general alkaline battery market by focusing on mass merchandisers. We
believe we have enhanced our industry position by:

- offering consumers batteries with quality and performance characteristics
that are competitive with those offered by other principal manufacturers,
but at lower prices;

- partnering with our customers and providing category management support
with innovative in-store merchandising, promotions and packaging; and

- offering retailers increased profit potential through lower inventory
costs, attractive margins and more rapid product turnover.

Over the last several years, we have further penetrated the mass
merchandiser channel while broadening our business in other distribution
channels to include home centers; warehouse clubs; food, drug and convenience
stores; electronics specialty stores and department stores; hardware and
automotive centers; specialty retailers; hearing aid professionals; industrial
distributors; government agencies; and original equipment manufacturers.

OPERATING SEGMENTS

Our business is organized according to three geographic regions: (1) North
America, which includes the U.S. and Canada, (2) Latin America, which includes
Mexico, Central America and South America and (3) Europe/Rest of World (which we
refer to as Europe/ROW), which includes the United Kingdom, Europe and all other
countries in which we do business. Global and geographic strategic initiatives
and financial objectives are determined at the corporate level. Each operating
segment is responsible for implementing the defined strategic initiatives and
achieving the financial objectives. Each geographic region has a manager
responsible for all the sales and marketing initiatives for all product lines
within that region.

OUR BUSINESS STRATEGY

Our business strategy focuses on continuing to:

- increase consumer awareness of the RAYOVAC brand name and the quality,
performance and value of our products through focused marketing and
advertising;

- grow our market share by expanding distribution into new channels,
increasing sales to under-penetrated channels and customers, launching new
products and selectively pursuing acquisitions and alliances;

- reduce costs by rationalizing manufacturing and distribution, optimizing
existing plant capacity, outsourcing products where appropriate,
decreasing working capital and reducing corporate overhead; and

- concentrate research and development resources on our key products, while
developing new technologies.

The success of our business strategy is evidenced by our consistent
improvement in operating results over the past five years. From the year ended
September 30, 1997 through the year September 30, 2001, we have grown net sales
and income from operations before non-recurring charges from $427.2 million to
$675.5 million and $37.5 million to $76.7 million, respectively. This growth
represents a 12.1% compound annual growth rate in net sales and a 19.6% compound
growth rate in income from operations before non-recurring charges,
respectively. In addition, income from operations before non-recurring charge
margins have improved by 260 basis points, from 8.8% for the year ended
September 30, 1997 to 11.4% for the year ended September 30, 2001.

Our growth reflects, in part, our successful efforts to expand into new
distribution channels and further penetrate existing channels. We have
implemented this business strategy by aligning our marketing department, sales
organization, supply chain and support functions into channel focused teams to
better serve our diverse customer needs, utilizing channel-specific marketing
strategies, sales promotions and customer service initiatives. We are focusing
our advertising on the improved performance of our products and expanding our
packaging designs that enhance customer convenience.

Our increasing profitability is, in part, the result of our success in
rationalizing our costs and selectively outsourcing the manufacture or packaging
of certain products. We have restructured our operations to improve our
production and capacity efficiencies, reduce costs, upgrade technology and
equipment and improve customer service. This year we completed the closure of
our Wonewoc, Wisconsin and Tegucigalpa, Honduras facilities, which reduced the
number of our manufacturing facilities to two in North America, to three in
Latin America and to one in Europe. We also have consolidated our North American
packaging operations to one location at our Madison, Wisconsin plant. We have
discontinued the manufacture of certain products which we can more
cost-effectively outsource to third-party manufacturers, allowing us to better
maintain flexibility to meet changes in customer demand. We also have
implemented additional restructuring programs designed to reduce costs and
improve efficiency in general administrative functions. We believe that these
restructuring programs have substantially reduced our manufacturing and
administrative costs.

OUR GROWTH STRATEGY

We have developed strategies to increase our sales, profits and market
share. To implement our growth strategy, we intend to:

CONTINUE TO STRENGTHEN THE RAYOVAC BRAND NAME. We are committed to further
strengthening the RAYOVAC brand name. Our marketing and advertising initiatives
are designed to increase consumer awareness of the RAYOVAC brand and to increase
our retail sales by heightening customers' perceptions of the quality,
performance and value of our products.

EXPAND RETAIL DISTRIBUTION. We believe that our value brand positioning and
innovative merchandising programs make us an attractive supplier to all trade
channels. Accordingly, we have expanded our traditional focus on mass
merchandisers to include other retail channels, including hardware/home centers,
warehouse clubs and food, drug and convenience stores. While we have

successfully increased the number of our customer relationships in other retail
channels, these channels continue to represent important and under-penetrated
opportunities for us.

ADDRESS THE VARIED PERFORMANCE AND PRICING NEEDS OF BATTERY CONSUMERS AND
RETAILERS. The general battery market is becoming increasingly segmented as
premium batteries are introduced to target high-drain devices, standard alkaline
batteries continue to address consumers' everyday needs and lower performance
products are aimed at dollar stores and discount retailers. We offer consumers a
variety of battery solutions across these segments, including our RAYOVAC ULTRA
rechargeable nickel metal hydride batteries, our MAXIMUM alkaline batteries and
our heavy duty batteries. We have focused and positioned our full range of
offerings to appeal to the large segment of the population that desires value
priced products that are similar in quality and performance to the products of
our competitors. We also offer consumers innovative packaging solutions and
provide retailers an attractive overall value proposition. Our customer
solutions have allowed some of our retailers to grow their battery business
faster than the industry category as a whole over the last year.

FURTHER CAPITALIZE ON OUR WORLDWIDE LEADERSHIP IN HEARING AID BATTERIES. We
strive to increase our worldwide market share in the hearing aid battery
category by leveraging our existing strength in the segment, maintaining our
dedicated sales and marketing organization and capitalizing on our leading
technology. In fiscal 2000, we launched the new RAYOVAC ULTRA zinc air hearing
aid battery, which is currently the world's longest-lasting hearing aid battery
in the most commonly-used battery sizes. These new product continues our history
of innovation in the hearing aid industry.

INCREASE OUR PRESENCE IN LATIN AMERICA AND EUROPE We have a strong presence
in Latin America and have made sizable distribution gains in the region over the
last two years, adding approximately 1,000 retail accounts that represent more
than 4,100 stores. We plan to continue our growth in Latin America by continuing
our geographic expansion, increasing alkaline penetration, introducing lighting
and specialty products and continuing to offer a full range of battery
solutions.

In Europe, we continue to increase our presence by implementing retailer and
consumer initiatives similar to those used in North America. We intend to
increase our battery business in Europe by leveraging our strong relationships
with global retailers, supporting our customers with innovative packaging and
merchandising programs and selectively pursuing strategic acquisition
opportunities.

ENTER NEW MARKETS. We intend to continue to expand our business into new
markets for batteries and related products both domestically and internationally
by developing new products internally or through selective acquisitions and by
pursuing joint ventures or other strategic marketing opportunities. Our
acquisitions may include expansion into new technologies, product lines or
geographic markets and may be of significant size.

PRODUCTS

We develop, manufacture and/or market a wide variety of batteries and
battery-powered lighting devices. Our broad line of products includes:

- general batteries, including alkaline, heavy duty, rechargeable alkaline
and nickel metal hydride batteries, and chargers for rechargeable
batteries;

- hearing aid batteries;

- specialty batteries, including watch, photo, keyless entry, personal
computer clock and memory back-up batteries and rechargeable batteries for
cordless telephones; and

- lighting products and lantern batteries.

Our general batteries (D, C, AA, AAA and 9-volt sizes) are used in devices
such as personal digital assistants, digital cameras, pocket televisions,
radios, remote controls, personal radios, pagers,

portable compact disc players, electronic and video games and battery-powered
toys, as well as a variety of battery-powered industrial applications. Our
button cell specialty batteries are used in smaller devices, such as hearing
aids and watches. Our lithium coin cells are used in cameras, calculators,
communication equipment, medical instrumentation and personal computer clocks
and memory back-up systems. Our lantern batteries are used almost exclusively in
battery-powered lanterns. Our lighting products include flashlights, lanterns
and similar portable products.

Net sales data for our products as a percentage of net sales for fiscal
1999, fiscal 2000 and fiscal 2001 are set forth below.

PERCENTAGE OF COMPANY
NET SALES
FISCAL YEAR ENDED
SEPTEMBER 30,
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PRODUCT TYPE 1999 2000 2001
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Battery Products:
Alkaline............................................... 50.2% 47.6% 51.5%
Heavy Duty............................................. 10.0 20.7 21.0
Rechargeables.......................................... 4.5 4.6 4.9
Hearing Aid............................................ 13.0 9.4 10.4
Specialty Batteries.................................... 8.6 6.2 2.8
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Total.............................................. 86.3 88.5 90.6
Lighting Products and Lantern Batteries................ 13.7 11.5 9.4
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Total.............................................. 100.0% 100.0% 100.0%
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A description of our major battery products including their typical uses is
set forth below.

HEARING
AID LANTERN
GENERAL BATTERIES BATTERIES SPECIALTY BATTERIES BATTERIES

Technology: Alkaline Zinc Nickel Metal Zinc Air Lithium Silver Nickel Metal Zinc
Hydride Hydride
Types/ --Disposable Heavy Duty Rechargeable -- -- -- Rechargeable Lantern
Common --Rechargeable (Zinc (Alkaline,
Name: Chloride Zinc
and Zinc Chloride
Carbon) and Zinc
Carbon)
Brand; RAYOVAC; RAYOVAC RAYOVAC, RAYOVAC; RAYOVAC RAYOVAC RAYOVAC RAYOVAC
Sub-brand MAXIMUM, RAYOVAC LOUD "N ULTRA
Names: RENEWAL ULTRA CLEAR, Rechargeable
Rechargeable PROLINE,
EXTRA,
RAYOVAC
ULTRA,
AIR
4000,
XCELL
and
AIRPOWER
Sizes: D, C, AA, AAA, 9-volt for Alkaline, Zinc and 5 Sizes 5 primary 10 primary Packs Standard
Nickel Metal Hydride sizes sizes lantern
Typical All standard household applications including Hearing Personal Watches Cordless Beam
Uses: electronic toys, pagers, CD and cassette players, aids computer phones lanterns,
remote controls, digital cameras and a wide clocks and camping
variety of industrial applications memory lanterns
back-up

ALKALINE BATTERIES. We market a full line of alkaline batteries, including
D, C, AA, AAA and 9-volt size batteries for both consumer and industrial
customers. Our alkaline batteries are marketed and sold primarily under the
MAXIMUM brand, although we also engage in limited private label manufacture of
alkaline batteries. AA and AAA size batteries are often used with smaller
electronic devices such as remote controls, photography equipment, pagers,
portable compact disc players and electronic and video games. C and D size
batteries are generally used in devices such as flashlights, lanterns, radios,
cassette players and battery-powered toys. 9-volt size batteries are generally
used in fire alarms, smoke detectors and communication devices.

HEAVY DUTY BATTERIES. Heavy duty batteries include zinc chloride and zinc
carbon batteries designed for low and medium-drain battery-powered devices such
as lanterns, flashlights, radios and remote controls.

RECHARGEABLE BATTERIES. During fiscal 2001, we introduced a new,
longer-lasting 1600 mAh rechargeable nickel metal hydride battery capable of
being recharged 500 to 1,000 times. We believe that this new product lasts up to
twice as long as alkaline products in selected high-drain devices and offers
consumers a high quality product at an exceptional value. Also during fiscal
2001, we introduced the first one-hour nickel metal hydride battery charger for
these 1600 mAh batteries. We also offer our RENEWAL rechargeable battery, which
is the leading rechargeable alkaline battery in the U.S. market. RENEWAL
batteries offer a value proposition to consumers because they can be recharged
up to 100 times, providing many times the life of disposable alkaline batteries
at a somewhat higher retail price. We market our rechargeable alkaline batteries
based primarily on their money-saving benefits.

HEARING AID BATTERIES. We are currently the largest worldwide seller of
hearing aid batteries. Our strong market position is the result of the advanced
technological capabilities and consistent product performance of our hearing aid
battery products and our strong distribution system and extensive marketing
program for these products. Hearing aid batteries are produced in several sizes
and are designed for use with various types and sizes of hearing aids. We
produce five sizes of zinc air button cells for use in hearing aids. Zinc air is
a highly reliable, high energy density, lightweight battery system. Our RAYOVAC
ULTRA zinc air hearing aid battery is the world's longest-lasting hearing aid
battery in the most commonly-used battery sizes. We also sell these batteries
under the LOUD'N CLEAR, PROLINE, EXTRA, XCELL, AIR 4000 and AIRPOWER brand names
and under several private labels, including Beltone, Miracle Ear, Siemens and
Starkey. We were the pioneer and currently are the leading manufacturer of the
smallest (5A and 10A size) hearing aid batteries.

SPECIALTY BATTERIES. Our specialty battery products include non-hearing aid
button cells, lithium coin cells, photo batteries and keyless entry batteries.
We market button and coin cells for use in watches, cameras, calculators,
communications equipment and medical instrumentation. We market our lithium coin
cells, which are high-quality lithium batteries with certain performance
advantages over other lithium battery systems, for use in calculators and
personal computer clocks and memory back-up systems.

LIGHTING PRODUCTS AND LANTERN BATTERIES. We are a leading marketer of
battery-powered lighting products, including flashlights, lanterns and similar
portable devices for the retail and industrial markets.

MERCHANDISING AND ADVERTISING

Key elements of our merchandising and advertising strategies include:

- building the awareness and image of the RAYOVAC brand name;

- focusing on our latest MAXIMUM alkaline product improvements;

- improving consumer perceptions of the quality and performance of our
products;

- upgrading and unifying product packaging and extending our innovative new
reclosable packaging features throughout our product line;

- expanding on our position as the value brand; and

- regularly introducing new products, especially rechargeable batteries and
lighting products.

We position our products to appeal to the large segment of the population
that desires value brand products which are of quality and performance similar
to the products of our major competitors in the general battery market, but
which are offered at a lower price. One pricing strategy we use to demonstrate
our value positioning is offering more batteries than our brand name competitors
for the same price. We also work with individual retail channel participants to
develop unique merchandising programs and promotions and to provide retailers
with attractive profit margins to encourage retailer brand support.

NORTH AMERICA. For the last five years we have focused our advertising
efforts on our MAXIMUM alkaline products. This campaign has increased awareness
of the RAYOVAC brand and heightened consumers' perceptions of the quality,
performance and value of our products. We conduct annual advertising tracking
studies which have demonstrated that we are significantly improving consumer
perceptions on each of these measures, as well as overall awareness of the
Rayovac brand.

To market our hearing aid battery products, we continue to use a campaign
featuring Arnold Palmer, a binaural hearing aid wearer and user of RAYOVAC
hearing aid batteries, as our spokesman. Mr. Palmer has been extremely effective
in promoting the use of hearing aids, expanding the market and communicating the
specific product benefits of our hearing aid batteries. To reach the largest
potential market for hearing aid batteries, we have also developed a corporate
print advertising campaign to be used in selected publications. We pioneered the
use of multi-packs for hearing aid batteries and intend to further expand
multi-pack distribution in additional professional and retail channels. We
believe that we have developed strong relationships with hearing aid
manufacturers and audiologists, the primary sellers of hearing aids, and will
continue to seek opportunities to further penetrate the professional market for
hearing aid products.

We have redesigned our product graphics and packaging of other specialty
battery products to achieve a uniform brand appearance with our other products
and to generate greater brand awareness and loyalty. In addition, we plan to
continue to develop relationships with manufacturers of communications equipment
and other products in an effort to expand our share of the non-hearing aid
button cell market. We also believe there is significant opportunity for growth
in the photo and keyless entry battery markets and we seek to further penetrate
the replacement market for these products.

We have established our position in the lighting products market based on
innovative product features, consistent product quality and creative product
packaging. In addition, we endeavor to regularly introduce new products to
stimulate consumer demand and promote impulse purchases.

LATIN AMERICA. We have accomplished a successful integration of the Latin
America battery business that we acquired from ROV Limited in August 1999. We
have followed our strategy employed in North America of product positioning,
pricing and advertising and promotion programs in Latin America. Over the past
two years, we have made distribution gains, adding approximately 1,000 retail
accounts that represent more than 4,100 stores.

We believe that we can capitalize on significant growth opportunities in
Latin America by offering additional Rayovac products through existing
distribution channels and through geographic expansion. In addition, we have a
manufacturing base in Latin America which allows us to produce batteries and
service retailers in this region.

Currently less than 15% of our Latin America sales are from alkaline
products. We believe approximately 30% of all batteries sold in Latin America
are alkaline products, providing us with an

opportunity to expand alkaline sales. We also believe there are growth
opportunities within current distribution channels to sell additional products.

EUROPE/ROW. Our marketing strategy in Europe is to capitalize on our
strength in hearing aid products, maintain our momentum in the northern European
market and partner with our large global customers to expand distribution as
they expand. We continue to evaluate initiatives that would allow us to expand
our current distribution in other foreign markets via strategic alliances.

We continue to support our leading hearing aid battery position in Europe
using our corporate advertising campaign featuring Arnold Palmer and our strong
relationship with manufacturers of hearing aids. Our momentum in parts of Europe
has been achieved through innovative packaging and merchandising solutions,
including our unique alkaline reclosable packaging design, which we will use to
further expand distribution.

SALES AND DISTRIBUTION

NORTH AMERICA. We align our sales force by distribution channel. We
maintain separate sales forces primarily to service:

- our retail sales and distribution channels, and

- our hearing aid professionals, industrial distributor and original
equipment manufacturer sales and distribution channel.

In addition, we use a network of independent brokers to service participants in
selected distribution channels.

Wal-Mart Stores, our largest customer, represented 20%, 21% and 26% of our
consolidated net sales in fiscal 1999, 2000 and 2001, respectively. Our sales to
Wal-Mart Stores primarily occur in North America.

LATIN AMERICA. We align our sales force by distribution channel. We
maintain two separate sales groups: one group that directly services large
retailers and food and drug chains located mainly in urban areas and a second
group that services through distributors and wholesalers, secondary channels,
such as photo, grocery, hardware, stationary, industrial and other retailers
located in both urban and rural areas. This sales structure enables us to focus
on the rapid expansion of the alkaline category while consolidating our
leadership position in the heavy duty category.

EUROPE/ROW. We maintain a separate sales force in Europe to promote the
sale of all of our products. We have adopted the successful strategies,
programs, unique products and category management expertise utilized in our
North American business in our European business.

MANUFACTURING AND RAW MATERIALS

We manufacture batteries in the U.S., Latin America and the United Kingdom.
Over the last five years, we have closed our Appleton, Wisconsin; Kinston, North
Carolina; Newton Aycliffe, United Kingdom; Tegucigalpa, Honduras; Valencia,
Venezuela; and Wonewoc, Wisconsin facilities and shifted their manufacturing
operations to our other facilities. We have also converted our Madison,
Wisconsin, manufacturing facility to a packaging operation and outsourced the
manufacture of certain battery and lighting products. These efforts have
increased our plant capacity utilization and eliminated some of our underused
manufacturing capacity.

During the past five years, we have expended significant resources on
capital improvements, including the modernization of many of our manufacturing
lines and manufacturing processes. These manufacturing improvements have enabled
us to increase the quality and service life of our alkaline and zinc air
batteries and to increase our manufacturing capacity. In May 2001, we installed
a new

high-speed alkaline battery production line at our Fennimore, Wisconsin plant.
This line increased our production capacity for AA-size batteries and upgraded
our product technology. Since fiscal 1997, our investment in new manufacturing
technology, modernization and production capacity at our Fennimore plant has
exceeded $29 million.

Zinc powder, electrolytic manganese dioxide powder and steel are the most
significant raw materials we use to manufacture batteries. There are a number of
worldwide sources for all necessary raw materials that we use to manufacture
batteries. We believe that we will continue to have access to adequate
quantities of these materials at competitive prices. Based on our anticipated
production requirements of zinc powder, we regularly engage in forward purchases
and hedging transactions to effectively manage raw material costs and inventory
relative to anticipated production requirements. See "Quantitative and
Qualitative Disclosures about Market Risk."

RESEARCH AND DEVELOPMENT

Our research and development strategy is to focus on alkaline and zinc air
performance improvements and product development. In fiscal 2001, we also
increased our emphasis on nickel metal hydride battery technology and related
battery chargers, which resulted in our introduction of the first one-hour
charger for 1600 mAh nickel metal hydride batteries.

We enhance our internal research and development efforts by purchasing or
licensing state-of-the-art manufacturing technology from third parties. Our
alkaline technology agreement with Matsushita Battery Industrial Co., Ltd. has
resulted in significant performance improvements in addition to improvements and
cost reductions generated by our own engineers and scientists. We also recently
signed a license agreement with AER Energy Resources to license zinc air battery
technology as well as to obtain design and development services. Our research
contracts with the U.S. government to develop new battery technology provide us
with additional development opportunities.

Our research and development group includes approximately 100 employees.
Some of our research and development expenditures are funded by U.S. government
contracts. In fiscal 2001, 2000 and 1999 we invested $12.2 million,
$10.8 million and $9.8 million, respectively, in research and development. We
believe that these investments will allow us to continue to develop innovative
battery solutions capable of providing consumers with greater power and longer
battery life.

INFORMATION SYSTEMS

Our information technology strategy commits our Information Services (IS)
group to being an internal business partner providing value-added to support our
corporate initiatives. We align the IS activities with business teams and the
strategic business plan to leverage the cost of information technology ownership
and focus the resources where we can achieve the highest benefit.

SAP is our core business information system for North America. We use the
Microsoft Office suite of office automation products on our desktop computers.
Our information systems are in position to provide for a highly reliable, highly
available computing environment. This infrastructure has been engineered with
the capability to grow as the business grows, and to do so in a cost effective
way.

PATENTS, TRADEMARKS AND LICENSES

Our success and ability to compete depends, in part, upon our technology. We
rely upon a combination of patent, trademark and trade secret laws, together
with licenses, confidentiality agreements and other contractual covenants, to
establish and protect our technology and other intellectual property rights.

We own or license from third parties a considerable number of patents and
patent applications throughout the world, primarily for battery product
improvements, additional features and

manufacturing equipment. In March 1998, we announced the extension of our
existing alkaline battery technology agreement with Matsushita. Under this
agreement, we license Matsushita's highly advanced designs, technology and
manufacturing equipment, including any related updates or innovations, through
March 2003. After that time, we are entitled to license the designs, technology
and manufacturing equipment as it exists at that date through March 2022.

We also use a number of trademarks in our business, including RAYOVAC,
MAXIMUM, RENEWAL, LOUD 'N CLEAR, PROLINE, RAYOVAC ULTRA, WORKHORSE, ROUGHNECK,
SPORTSMAN, AIR 4000, XCELL, EXTRA and AIRPOWER. We rely on both registered and
common law trademarks in the U.S. to protect our trademark rights. The RAYOVAC
mark is also registered in countries outside the U.S., including Europe, Latin
America and Asia. We do not, however, have any right to the trademark RAYOVAC in
Brazil, where the mark is owned by an independent third-party battery
manufacturer.

We also have obtained a non-exclusive license to use certain technology
underlying our rechargeable alkaline battery line to manufacture rechargeable
alkaline batteries in the U.S., Puerto Rico and Mexico and to sell and
distribute batteries worldwide based on this licensed technology. This license
terminates in 2015 with the expiration of the last-expiring patent covering the
licensed technology.

COMPETITION

We believe that the markets for our products are highly competitive.
Duracell and Energizer are our primary battery industry competitors in the U.S.
Both Duracell and Energizer have substantially greater market share and
financial and other resources than we do. Because of their greater market size,
they have advantages in distribution and in negotiating leverage with retailers.
Private label offerings by major retailers, by which the retailers purchase
batteries from existing manufacturers and sell them under their own brands at
non-premium prices, may also be a source of competition.

Duracell and Energizer have introduced lines of premium-priced alkaline
batteries positioned as providing increased performance over their respective
regular branded products in certain high-drain battery-powered devices,
including digital cameras and palm-sized computers. In this regard, Duracell
introduced its Duracell Ultra product in May 1998, and Energizer introduced its
Energizer e2 product in 2000. These products are priced at a significant premium
to standard alkaline products, as well as to Duracell's and Energizer's regular
battery brands. To date, Duracell's initiative does not appear to have increased
the total Duracell brand market share as Duracell Ultra gains appear to have
been offset by declines in the regular Duracell line, and Energizer's e2 product
has captured a very small share of the U.S. alkaline battery market.

We compete in this premium battery segment with our rechargeable nickel
metal hydride batteries. As these batteries can provide twice the performance of
premium-priced alkaline batteries in selected high-drain devices, such as
digital cameras, many manufacturers of these high-drain devices recommend nickel
metal hydride batteries over alkaline. This has led to growth for the nickel
metal hydride segment and for our batteries in particular.

Energizer has also increased efforts to obtain distribution behind a price
brand marketed as Eveready Alkaline, which competes primarily on price. This
initiative has been in place in Canada for a number of years with limited
success, and the current effort to expand in the U.S. has gained only limited
distribution and market share.

Internationally, the general battery market is as highly competitive as, and
has a greater number of competitors than, the U.S. market. Competition is
centered around pricing, product performance, promotion and distribution
strategies.

Despite this competitive market, our unit and dollar general battery market
share in the U.S. has increased over the 52-week period ended September 22,
2001, both in the mass merchant and total market. We also continue to upgrade
and invest in our alkaline technology to remain competitive. We expect to
continue to invest in new upgrades for our alkaline product line over the next
several years to improve product performance and expand manufacturing capacity.

ENVIRONMENTAL COMPLIANCE

Due to the nature of the operations we conduct, our facilities are subject
to a broad range of federal, state, local and foreign legal and regulatory
provisions relating to the environment, including those regulating the discharge
of materials into the environment, the handling and disposal of solid and
hazardous substances and wastes and the remediation of contamination associated
with releases of hazardous substances at our facilities and off-site disposal
locations. Except as discussed in Item 3, "Legal Proceedings," we believe that
compliance with the federal, state, local and foreign regulations to which we
are subject will not have a material effect upon our capital expenditures,
earnings and competitive position. See Item 3 hereof for certain additional
information regarding environmental matters involving us included in the
description of legal proceedings.

EMPLOYEES

As of September 30, 2001, we had approximately 2,750 full-time employees. A
significant number of our factory employees are represented by eight labor
unions. We believe our relationship with our employees is good. There has not
been a work stoppage at a domestic facility since 1981 and since 1991 in the
United Kingdom. See Note 2(e) of the Notes to Consolidated Financial Statements
filed herewith and incorporated by reference into Item 8 hereof.

SEASONALITY

Sales of our products are seasonal, with the highest sales typically
occurring in the fiscal quarter ending on or about December 31, during the
holiday season. During the past three completed fiscal years, our sales for the
quarter ending on or about December 31 have represented an average of 29% of our
annual net sales. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."

FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS

Financial information pertaining to our business segments is set forth in
Note 12 of Notes to Consolidated Financial Statements filed herewith and
incorporated by reference into Item 8 hereof.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS

Financial information pertaining to our foreign and domestic operations is
set forth in Note 12 of Notes to Consolidated Financial Statements filed
herewith and incorporated by reference into Item 8 hereof.

FORWARD LOOKING STATEMENTS

Certain of the information contained in this Annual Report on Form 10-K or
otherwise made from time to time by Rayovac, including without limitation those
statements made under this Part I, Item 1, "Business" and Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 7A, "Quantitative and Qualitative Disclosures about Market
Risk" which are not historical facts, may include "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements may be identified by such forward-looking language as
"expects," "anticipates," "intends," "believes," "will," "estimate," "should,"
"may," or other similar terms. In reviewing such information, you should note
that our actual results may differ materially from those set forth in such
forward-looking statements.

Important factors that could cause our actual results to differ materially
from those included in the forward-looking statements made herein include,
without limitation, (1) significant changes in consumer demand and buying
practices for household batteries, hearing aid batteries or other products we
manufacture or sell in North America, Latin America or Europe/ROW; (2) the loss
of, or a significant reduction in, sales through a significant retail customer;
(3) the successful introduction or expansion of competitive brands into the
marketplace, including private label offerings; (4) the introduction of new
product features or new battery technologies by a competitor; (5) promotional
campaigns and spending by a competitor; (6) difficulties or delays in the
integration of operations of acquired companies; (7) our ability to successfully
implement manufacturing and distribution cost efficiencies and improvements;
(8) delays in manufacturing or distribution due to work stoppages, problems with
suppliers, natural causes or other factors; (9) the enactment or imposition of
unexpected environmental regulations negatively impacting consumer demand for
certain of our battery products or increasing our cost of manufacture or
distribution; (10) the costs and effects of unanticipated legal, tax or
regulatory proceedings; (11) the effects of competitors' patents or other
intellectual property rights; (12) interest rate, exchange rate and raw material
price fluctuations; (13) impact of unusual items resulting from evaluation of
business strategies, acquisitions and divestitures and organizational structure;
(14) changes in accounting standards applicable to our business; and (15) the
effects of changes in trade, monetary or fiscal policies and regulations by
governments in countries where we do business.

Additional factors and assumptions that could generally cause our actual
results to differ materially from those included in the forward-looking
statements made herein include, without limitation, (1) our ability to develop
and introduce new products; (2) the effects of general economic conditions in
North America, Europe, Latin America or other countries where we do business,
including inflation, labor costs and stock market volatility; (3) the effects of
political or economic conditions, unrest or volatility in Latin America and
other international markets; (4) the sufficiency of our production and
distribution capacity to meet future demand for our products; (5) our ability to
keep pace with the product and manufacturing technological standards in our
industry; and (6) our ability to continue to penetrate and develop new
distribution channels for our products. Other factors and assumptions not
identified above were also involved in the derivation of the forward-looking
statements contained in this Annual Report on Form 10-K and the failure of such
other assumptions to be realized, as well as other factors, may

also cause actual results to differ materially from those projected. We assume
no obligations to update these forward-looking statements to reflect actual
results or changes in factors or assumptions affecting such forward-looking
statements.

ITEM 2. PROPERTIES

The following table sets forth information regarding our manufacturing
sites:

LOCATION PRODUCT MANUFACTURED OWNED/LEASED SQUARE FEET
-------- -------------------- ------------ -----------

NORTH AMERICA:
Fennimore, WI.................... Alkaline batteries and RENEWAL
rechargeable batteries Owned 176,000
Portage, WI...................... Zinc air button cells; Lithium
coin cells and alkaline computer
batteries Owned 101,000
Wonewoc, WI(1)................... Battery-powered lighting products
and lantern batteries Leased 90,000

LATIN AMERICA:
Mexico City, Mexico.............. Zinc carbon batteries Owned 103,000
Guatemala City, Guatemala........ Zinc carbon batteries Owned 105,000
Santo Domingo,
Dominican Republic............. Zinc carbon batteries Owned 57,000
Tegucigalpa, Honduras(2)......... Zinc carbon batteries Owned 32,000

EUROPE/ROW:
Washington, UK................... Zinc air button cells Leased 63,000

------------------------

(1) In January 2001, we announced that we would be closing our lantern battery
and flashlight assembly plant in Wonewoc, Wisconsin. This plant shutdown was
completed in July 2001.

(2) In January 2001, we announced we would be closing our zinc carbon
manufacturing plant in Tegucigalpa, Honduras. This plant shutdown was
completed in March 2001 and the facility was sold in September 2001.

We also lease approximately 250,000 square feet of space in Madison,
Wisconsin for our corporate headquarters and technology center.

From fiscal 1997 through fiscal 2001 we have invested in improvements to our
major battery facilities. During this period, we invested over $29 million for
new technology, modernization and capacity expansion at our Fennimore,
Wisconsin, plant. In addition, in late 1999 and 2001 we installed new AA high
speed manufacturing lines in our Fennimore, Wisconsin, manufacturing plant.
Additional investments in zinc air battery production have helped us to increase
output and precision of assembly as well as to increase the capacity of critical
component manufacturing. Our investments in lithium battery production have been
used to build capacity for certain lithium coin cells. As part of our 1998
restructuring plans, our Madison, Wisconsin, plant phased out the manufacture of
heavy duty batteries, which are now sourced instead from Rayovac Latin American
manufacturing facilities and outside suppliers. During fiscal 1999, we closed
our Appleton, Wisconsin, plant and moved the operations to Portage, Wisconsin.
The Appleton facilities were sold during fiscal 2000 and fiscal 2001. In
November 1999 we discontinued the manufacturing operations at our Valencia,
Venezuela, facility and transferred the production to our Mexico facility. The
Valencia, Venezuela, plant facility is currently held for sale. In March 2001 we
discontinued the manufacturing operations at our Tegucigalpa, Honduras
manufacturing facility and sold the property in September 2001. During fiscal
2001, we discontinued lantern battery and flashlight assembly at our Wonewoc,
Wisconsin, facility.

The following table sets forth information regarding Rayovac's packaging and
distribution sites by segment:

LOCATION OWNED/LEASED SQUARE FEET
-------- ------------ -----------

NORTH AMERICA:
Madison, WI................................................. Owned 158,000
Middleton, WI............................................... Leased 220,000
Lavergne, TN................................................ Leased 65,000
Hayward, CA................................................. Leased 38,000
Mississiauga, Ontario, Canada............................... Leased 32,000

LATIN AMERICA:
Chiquimula, Guatemala....................................... Leased 6,000
Guatemala City, Guatemala................................... Leased 30,000
Quetzaltenango, Guatemala................................... Leased 5,000
San Jose, Costa Rica........................................ Leased 11,000
San Miguel, El Salvador..................................... Leased 10,000
San Pedro Sula, Honduras.................................... Leased 13,000
Santa Tecia, El Salvador.................................... Leased 15,000
Tegucigalpa, Honduras....................................... Leased 14,000

EUROPE/ROW:
Billinghausen, Germany...................................... Owned 5,000

We believe that our facilities, in general, are adequate for our present and
currently foreseeable needs.

ITEM 3. LEGAL PROCEEDINGS

We are subject to litigation from time to time in the ordinary course of
business. Although the amount of any liability with respect to such litigation
cannot currently be determined, other than the matters set forth below, we are
not party to any pending legal proceedings which, in the opinion of management,
are material to our business or financial condition.

Our facilities are subject to a broad range of federal, state, local and
foreign laws and regulations relating to the environment, including those
governing discharges to the air and water and land, the handling and disposal of
solid and hazardous substances and wastes, and the remediation of contamination
associated with releases of hazardous substances at our facilities and at
off-site disposal locations. We have a proactive environmental management
program that includes the use of periodic environmental audits to detect and
correct practices that may violate environmental laws or that are inconsistent
with best management practices. Based on information currently available to our
management, we believe that we are substantially in compliance with applicable
environmental regulations at our facilities. There are no pending proceedings
against us alleging that we are or have been in violation of environmental laws,
and we are not aware of any such proceedings contemplated by governmental
authorities. We are, however, subject to certain proceedings under CERCLA or
analogous state laws, as described below.

We have from time to time been required to address the effect of historic
activities on the environmental condition of our properties, including without
limitation, the effect of releases from underground storage tanks. Several of
our facilities have been in operation for decades and are constructed on fill
that includes, among other materials, used batteries containing various heavy
metals. We have accepted a deed restriction on one such property in lieu of
conducting remedial activities, and may consider similar actions at other
properties, if appropriate. Although we are currently engaged in

investigative or remedial projects at a few of our facilities, we do not expect
that such projects will cause us to incur material expenditures.

Our former manganese processing facility in Covington, Tennessee was
accepted into TDEC's Voluntary Cleanup, Oversight and Assistance Program in
February 1999. Under Tennessee's voluntary cleanup program, we negotiated a
Consent Order and Agreement with the TDEC, dated February 12, 1999, covering
investigation, and if necessary, remediation of the facility. Groundwater
monitoring conducted pursuant to the post-closure maintenance of solid waste at
the facility, and recent groundwater testing beneath former process areas of the
facility, indicated elevated levels of certain inorganic contaminants,
particularly (but not exclusively) manganese, in the groundwater underneath the
facility. We have completed closure of lagoons on the property and have
completed the remediation of a stream that borders the facility.

Upon successful completion of the requirements of the Consent Order and
Agreement, we expect that no further action will be required at the facility.
While remediation costs are uncertain at this time, we do not expect the matter
to have a material adverse financial impact on us.

In addition, on February 9, 2001, the Wisconsin Department of Natural
Resources approved our request to proceed under Wisconsin's Voluntary Party
Liability Exemption program to investigate and, if necessary, remediate
environmental matters at our Wonewoc, Wisconsin, manufacturing facility.
Investigative work to date suggests there may be battery materials containing
various heavy metals in fill on the property. However, we do not expect this
matter to result in material expenditures.

We are also subject to proceedings related to our disposal of industrial and
hazardous waste at off-site disposal locations, under CERCLA or analogous state
laws that hold persons who "arranged for" the disposal or treatment of such
substances strictly liable for the costs incurred in responding to the release
or threatened release of hazardous substances from such sites. Current and
former owners and operators of such sites, and transporters of waste who
participated in the selection of such sites, are also strictly liable for such
costs. Liability under CERCLA is "joint and several," so that a responsible
party under CERCLA theoretically may be held liable for all of the costs
incurred at a particular site. However, as a practical matter, liability at such
sites generally is allocated among all of the viable responsible parties. Some
of the most significant factors for allocating liabilities to persons that
disposed of wastes at Superfund sites are the relative volume of waste such
persons sent to the site and the toxicity of such waste. We do not believe that
any of our pending proceedings under CERCLA or analogous state laws will have a
material impact on our operations, financial condition or liquidity, and we are
not aware of any such matters contemplated by governmental agencies that will
have such an impact.

As of September 30, 2001, we have reserved approximately $2.0 million for
known on-site and off-site environmental liabilities. We believe these reserves
are adequate, although there can be no assurance that this amount will
ultimately be adequate to cover such environmental liabilities. We may also be
named as a potentially responsible party at additional sites in the future, and
the costs associated with such additional or existing sites may be material. In
addition, certain of our facilities have been in operation for decades and, over
such time, we and other prior operators of such facilities have generated and
disposed of wastes utilized in the battery manufacturing process which are or
may be considered hazardous, such as cadmium and mercury.

On April 11, 2001, Eveready Battery Company, Inc. filed a complaint against
us in U.S. District Court for the Northern District of Ohio, Eastern Division,
alleging that we have infringed on a patent held by Eveready relating to
alkaline batteries that are substantially free of mercury. We were served with
the complaint in August 2001. Eveready is seeking injunctive relief as well as
treble damages and other costs and expenses. We have answered the complaint and
have denied all material allegations as we believe we have meritorious defenses.
The case is in its early stages with trial scheduled in

February 2003, and we intend to vigorously defend our position. We cannot
estimate at this time the effect, if any, that this claim may have on our
business or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Shareholders of the Company was held on July 31, 2001.
The directors standing for election were elected in an uncontested election. The
directors elected were John S. Lupo and Thomas R. Shepherd. Mr. Lupo received
24,285,270 votes in favor of his election and 604,761 votes were withheld.
Mr. Shepherd received 24,258,227 votes in favor of his election and 631,804
votes were withheld. In addition to the election of directors, the Company
submitted the ratification of the appointment of KPMG LLP as our independent
auditors to a vote of the shareholders. The vote in favor of ratification was:
For: 24,834,763; Against: 52,583; Abstained; 2,685. Finally, the Company
submitted for approval the 1997 Rayovac Incentive Plan, as amended. The vote in
favor of approval was: For: 16,754,583; Against: 6,467,158; Abstained 5,993.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Our common stock, $0.01 par value per share (the "Common Stock"), is traded
on the New York Stock Exchange (the "NYSE") under the symbol "ROV". The Common
Stock commenced public trading on November 21, 1997. As of November 30, 2001,
there were approximately 259 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 the Common Stock as reported
on the New York Stock Exchange Composite Transaction Tape for the fiscal periods
indicated:

HIGH LOW
-------- --------

FISCAL 2001
Quarter ended December 31, 2000............................. $18.81 $11.69
Quarter ended April 1, 2001................................. $20.78 $13.63
Quarter ended July 1, 2001.................................. $25.25 $16.93
Quarter ended September 30, 2001............................ $23.50 $12.60
FISCAL 2000
Quarter ended January 2, 2000............................... $26.75 $16.88
Quarter ended April 2, 2000................................. $26.00 $17.25
Quarter ended July 2, 2000.................................. $24.50 $16.88
Quarter ended September 30, 2000............................ $29.13 $16.88

We have not declared or paid and do not anticipate paying cash dividends in
the foreseeable future, but intend to retain any future earnings for
reinvestment in our business. In addition, the Amended Credit Agreement
restricts our ability to pay dividends to our shareholders. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon our financial condition, results of
operations, capital requirements, contractual restrictions and such other
factors as the Board of Directors deems relevant.

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical financial data is derived from our audited
consolidated financial statements. Only the most recent three fiscal years
audited statements are included elsewhere in this Annual Report on Form 10-K.
The following selected financial data should be read in conjunction with our
consolidated financial statements and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.

FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $427.2 $487.4 $ 555.1 $693.3 $675.5
Cost of goods sold(1).............................. 235.0 258.3 295.2 358.2 368.1
------ ------ ------- ------ ------
Gross profit....................................... 192.2 229.1 259.9 335.1 307.4
Selling expense.................................... 116.7 140.6 151.0 184.5 192.3
General and administrative expense................. 28.6 32.4 37.4 50.5 48.3
Research and development expense................... 9.4 9.4 9.8 10.8 12.2
Recapitalization and other special
charges(2)(3)(4)(5).............................. 3.0 6.2 8.1 -- 0.2
------ ------ ------- ------ ------
Income from operations(6).......................... 34.5 40.5 53.6 89.3 54.4
Interest expense................................... 24.5 15.7 16.3 30.6 27.2
Other expense (income), net........................ 0.4 (0.2) (0.3) 0.7 1.1
------ ------ ------- ------ ------
Income before income taxes and extraordinary
item............................................. 9.6 25.0 37.6 58.0 26.1
Income tax expense................................. 3.4 8.6 13.5 19.6 9.2
------ ------ ------- ------ ------
Income before extraordinary item................... 6.2 16.4 24.1 38.4 16.9
Extraordinary item(7).............................. -- (2.0) -- -- (5.4)
------ ------ ------- ------ ------
Net income......................................... $ 6.2 $ 14.4 $ 24.1 $ 38.4 $ 11.5
====== ====== ======= ====== ======
Basic net income per common share before
extraordinary item............................... $ 0.30 $ 0.62 $ 0.88 $ 1.39 $ 0.59
====== ====== ======= ====== ======
Diluted net income per common share before
extraordinary item............................... $ 0.30 $ 0.58 $ 0.83 $ 1.32 $ 0.57
====== ====== ======= ====== ======
Basic net income per common share.................. $ 0.30 $ 0.54 $ 0.88 $ 1.39 $ 0.40
====== ====== ======= ====== ======
Diluted net income per common share................ $ 0.30 $ 0.51 $ 0.83 $ 1.32 $ 0.39
====== ====== ======= ====== ======
Weighted average common shares..................... 20.5 26.5 27.5 27.5 28.7
Weighted average common and common equivalent
shares........................................... 20.6 28.1 29.2 29.1 29.7
OTHER FINANCIAL DATA:
Depreciation....................................... $ 11.3 $ 10.9 $ 11.9 $ 16.0 $ 17.7
Capital expenditures............................... 10.9 15.9 24.1 19.0 19.7
Cash flows from operating activities............... 35.9 (1.9) 13.3 32.8 18.0
Cash flows from investing activities............... (10.8) (23.4) (169.2) (17.9) (18.3)
Cash flows from financing activities............... (28.2) 25.8 165.3 (16.0) 1.7
EBITDA(8).......................................... 45.5 53.0 67.4 108.6 74.5

FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(IN MILLIONS)

BALANCE SHEET DATA:
Working capital..................................... $ 33.8 $ 81.6 $104.4 $104.7 $158.5
Total assets........................................ 236.3 283.9 532.9 569.0 587.9
Total debt.......................................... 207.3 152.3 330.3 317.6 258.0
Shareholders' (deficit) equity...................... (80.6) 21.9 46.5 80.7 157.6

------------------------

(1) In the fiscal year ended September 30, 1999, the Company recorded
$1.3 million in special charges in cost of goods sold related to the
discontinuation of silver cell manufacturing at the Company's

Portage, Wisconsin facility. In the fiscal year ended September 30, 2001,
the Company recorded $22.1 million in special charges in cost of goods sold
related to (i) an organizational restructuring in the U.S,
(ii) manufacturing and distribution cost rationalization initiatives in the
Company's Tegucigalpa, Honduras and Mexico City, Mexico manufacturing
facilities and in our European operations, (iii) the closure of the
Company's Wonewoc, Wisconsin, manufacturing facility, (iv) and the
rationalization of uneconomic manufacturing processes at the Company's
Fennimore, Wisconsin, manufacturing facility, and rationalization of
packaging operations and product lines. The amount recorded includes
$10.1 million of employee termination benefits for approximately 570
employees, $10.2 million of equipment, inventory, and other asset
write-offs, and $1.8 million of other expenses.

(2) In the fiscal year ended September 30, 1997, the Company recorded other
special charges of $5.9 million offset by a special credit of $2.9 million
which was related to the curtailment of the Company's defined benefit
pension plan covering all domestic non-union employees. The special charges
related to organizational restructuring in the United States, the
discontinuation of certain manufacturing operations at the Company's Newton
Aycliffe, United Kingdom facility and the discontinuation of operations at
the Company's facility in Kinston, North Carolina.

(3) In the fiscal year ended September 30, 1998, the Company recorded net
special charges of $6.2 million including (i) $2.0 million associated with
consolidating domestic battery packaging operations and outsourcing the
manufacture of heavy duty batteries, (ii) $2.2 million associated with
closing the Company's Appleton, Wisconsin manufacturing plant and
consolidating it into its Portage, Wisconsin manufacturing plant,
(iii) $5.3 million associated with closing the Company's Newton Aycliffe,
United Kingdom facility, phasing out direct distribution in the United
Kingdom and closing one of the Company's German sales offices, (iv) a
$2.4 million gain on the sale of the Company's previously closed Kinston,
North Carolina facility, (v) income of $1.2 million in connection with the
settlement of deferred compensation agreements with certain former
employees, (vi) $0.8 million associated with the secondary offering of
Common Stock (the "Secondary Offering") which was completed in June 1998,
and (vii) miscellaneous credits of $0.4 million.

(4) In the fiscal year ended September 30, 1999, the Company recorded special
charges of $8.1 million including (i) $2.5 million of employee termination
benefits related to organizational restructuring, (ii) $2.1 million of
charges associated with the termination of non-performing foreign
distributors and exiting the respective territory, (iii) $1.9 million of
costs related to the previously announced closing of the Appleton, Wisconsin
facility, (iv) $0.8 million related to the closing of the Newton Aycliffe,
United Kingdom facility, and (v) $0.8 million of one-time expenses
associated with the Latin American acquisition.

(5) In the fiscal year ended September 30, 2001, the Company recorded special
charges of $0.2 million attributable to our secondary offering of Common
Stock in June 2001.

(6) Income from operations includes expenses related to other special charges in
the fiscal years ended September 30, 1997, 1998, 1999 and 2001. Income from
operations before these non-recurring charges was as follows:

FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(IN MILLIONS)

Income from operations........................... $34.5 $40.5 $53.6 $89.3 $54.4
Other special charge portion of cost of goods
sold........................................... -- -- 1.3 -- 22.1
Recapitalization and other special charges....... 3.0 6.2 8.1 -- 0.2
----- ----- ----- ----- -----
Income from operations before non-recurring
charges........................................ $37.5 $46.7 $63.0 $89.3 $76.7
===== ===== ===== ===== =====

(7) In the fiscal year ended September 30, 1998, 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 Company's initial public offering ("IPO") completed in November 1997. In
the fiscal year ended September 30, 2001, the Company recorded extraordinary

expense of $5.4 million, net of income taxes, for the premium on the
repurchase of $64.8 million Senior B Subordinated Notes and related
write-off of unamortized debt issuance costs.

(8) EBITDA represents income from operations plus other (income) expense, net
plus depreciation and amortization (excluding amortization of debt issuance
costs). The Company believes that EBITDA and related measures are commonly
used by certain investors and analysts to analyze and compare, and provide
useful information regarding, the Company's ability to service its
indebtedness. However, the following factors should be considered in
evaluating such measures: EBITDA and related measures (i) should not be
considered in isolation, (ii) are not measures of performance calculated in
accordance with generally accepted accounting principles ("GAAP"),
(iii) should not be construed as alternatives or substitutes for income from
operations, net income or cash flows from operating activities in analyzing
the Company's operating performance, financial position or cash flows (in
each case, as determined in accordance with GAAP) and (iv) should not be
used as indicators of the Company's operating performance or measures of its
liquidity. Additionally, because all companies do not calculate EBITDA and
related measures in a uniform fashion, the calculations presented herein may
not be comparable to other similarly titled measures of other companies.

EBITDA includes expenses related to other special charges in the fiscal
years ended September 30, 1997, 1998, 1999 and 2001. EBITDA before these
non-recurring charges was as follows:

FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(IN MILLIONS)

EBITDA.................................. $45.5 $53.0 $67.4 $108.6 $74.5
Other special charges portion of cost of
goods sold............................ -- -- 1.3 -- 22.1
Recapitalization and other special
charges............................... 3.0 6.2 8.1 -- 0.2
----- ----- ----- ------ -----
EBITDA before non-recurring charges..... $48.5 $59.2 $76.8 $108.6 $96.8
===== ===== ===== ====== =====

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

You should read the following discussion in conjunction with the "Selected
Financial Data" and our consolidated financial statements and the related notes
thereto in the "Financial Statements" section of this report. Certain prior year
amounts have been reclassified to conform to current year presentation.

INTRODUCTION

Our operating performance depends upon a number of factors. The most
important of these factors are:

- general economic conditions, specifically how it may impact the consumer
product category;

- general retailing trends, especially in the mass merchandiser segment of
the retail market;

- our overall product mix among various specialty and general household
batteries and battery-powered lighting devices, which sell at different
price points and profit margins;

- our overall competitive position, which is affected by both our and our
competitors' introduction of new products and promotions and our relative
pricing and battery performance; and

- changes in operating expenses.

We manage our business according to the following geographic areas:
(1) North America, which includes the United States and Canada (2) Latin
America, which includes Mexico, Central America,

South America and the Caribbean and (3) Europe/Rest of World ("Europe/ROW"),
which includes the United Kingdom, Europe, and all other countries in which we
do business.

Set forth below are specific developments that have affected and may
continue to affect our performance.

INVESTMENT IN FUTURE GROWTH OPPORTUNITIES. Since our 1996 recapitalization,
we have undertaken significant measures to pursue growth opportunities and
increase market share for our products worldwide. These measures include
(1) acquiring the consumer battery operations of ROV Limited in Latin America
and the Rayovac brand rights for battery products worldwide, with the exception
of Brazil, (2) developing new markets for our hearing aid battery products
through the acquisitions of Brisco and the battery distribution business of Best
Labs in 1998, (3) expanding distribution by gaining new customers and increasing
products sold to existing customers.

RESTRUCTURING OPERATIONS AND OTHER COST RATIONALIZATION INITIATIVES. In
December 2000, we announced a series of initiatives to improve operational
efficiencies, match manufacturing capacity to market demands, and better utilize
the Company's resources. These initiatives included (1) the closure of our
lantern battery and flashlight assembly plant in Wonewoc, Wisconsin, (2) the
outsourcing of certain manufacturing operations at the Company's Fennimore,
Wisconsin plant to accommodate the installation of a new high speed AA size
alkaline battery line, (3) rationalization of certain packaging operations and
product lines, (4) the closure of our zinc carbon manufacturing operations in
Tegucigalpa, Honduras, (5) restructuring of our Mexico and European
manufacturing and distribution operations and (6) the implementation of an
administrative realignment, primarily in the U.S. and Latin America.

EXPANSION OF PRODUCTION CAPACITY. In fiscal 1999 and 2001, we installed new
high speed manufacturing lines to increase our capacity for alkaline AA size
batteries at a cost of approximately $21.0 million. In fiscal 1999, we also
completed a 39,000 square foot expansion of our Portage, Wisconsin facility and
consolidated our Appleton, Wisconsin manufacturing operations into it. We
continue to compare our global production requirements against our global
manufacturing capacity to improve the efficiency of our operations.

COMPETITIVE POSITION. Duracell and Energizer have introduced new lines of
premium-priced alkaline batteries positioned as providing increased performance
over their respective regular branded products in certain high-drain
battery-powered devices, including digital cameras and palm-sized computers. In
this regard, Duracell introduced its Duracell Ultra product in 1998 and
Energizer introduced its Energizer e2 product in 2000. These products are priced
at a significant premium to standard alkaline products, as well as to Duracell's
and Energizer's regular battery brands. To date, Duracell's initiative does not
appear to have increased total Duracell market share as Duracell Ultra gains
appear to have been offset by losses in the regular Duracell line, and
Energizer's e2 product has captured a very small share of the U.S. alkaline
battery market.

Internationally, the general battery market is as highly competitive as, and
has a greater number of competitors than the U.S. market. Competition is
centered around pricing, product performance, and promotion and distribution
strategies.

SEASONAL PRODUCT SALES

Our sales are seasonal. Our highest sales typically occur in the fiscal
quarter ending on or about December 31 during the holiday season. In the quarter
ending September 30, 1999, our sales, for the first time, included approximately
$15.8 million of sales from the consumer battery business we acquired from ROV
Limited. Our lowest sales occur in the fiscal quarter ending on or about
March 31. During the past three completed fiscal years, our sales in the quarter
ended on or about December 31 have represented an average of 29% of annual net
sales. As a result of this seasonality, our working capital requirements and
revolving credit borrowings are typically higher in the third and fourth
calendar quarters of each year. The following table sets forth our net sales for
each of the periods presented.

FISCAL YEAR
(IN MILLIONS)
------------------------------
FISCAL QUARTER ENDED 1999 2000 2001
-------------------- -------- -------- --------

December............................................ $157.5 $211.4 $183.6
March............................................... 108.9 140.1 145.2
June................................................ 118.8 150.3 159.1
September........................................... 169.9 191.5 187.6

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship of certain items
in our statement of operations to net sales for the periods presented:

FISCAL YEAR ENDED
SEPTEMBER 30
------------------------------
1999 2000 2001
-------- -------- --------

Net Sales.............................................. 100.0% 100.0% 100.0%
Cost of goods sold..................................... 53.0 51.7 51.2
Special charges........................................ 0.2 -- 3.3
Gross profit........................................... 46.8 48.3 45.5
Selling expenses....................................... 27.2 26.6 28.5
General and administrative expense..................... 6.7 7.3 7.1
Research and development expenses...................... 1.8 1.5 1.8
Special charges........................................ 1.4 -- --
Income from operations................................. 9.7% 12.9% 8.1%

FISCAL YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 2000

HIGHLIGHTS OF CONSOLIDATED OPERATING RESULTS

NET SALES. Our net sales decreased $17.8 million, or 2.6%, to
$675.5 million in fiscal 2001 from $693.3 million the prior year. Increases in
alkaline and hearing aid battery sales were offset by decreased specialty
battery sales and lighting products sales.

NET INCOME. Our net income for fiscal 2001 decreased $26.9 million, or
70.0%, to $11.5 million from $38.4 million the previous year. The decrease
reflects the impact of a $22.3 million pretax restructuring charge, a
$5.4 million extraordinary loss, net of tax, and sales softness in North America
and Europe/ROW.

SEGMENT RESULTS. We evaluate segment profitability based on income from
operations before special charges and corporate expense, which includes
corporate purchasing expense, general and administrative expense and research
and development expense. All depreciation and amortization included in income
from operations is related to a segment. Total segment assets are set forth in
Note 12 of Notes to Consolidated Financial Statements filed herewith.

NORTH AMERICA

2000 2001
-------- --------

Revenue from external customers............................. $528.3 $505.0
Profitability............................................... 95.3 83.1
Profitability as a % of net sales........................... 18.0% 16.5%

Our revenue from external customers decreased $23.3 million, or 4.4%, to
$505.0 million in fiscal 2001 from $528.3 million the previous year due
primarily to increased sales of alkaline batteries and hearing aid batteries
offset by decreased sales of lighting products and specialty batteries.

Alkaline sales increases of $9.8 million, or 3.2% were driven by
distribution gains, product line expansion, and strong sales in the mass
merchandiser and OEM trade channels partially offset by the impacts of Y2K on
sales volumes and lower promotional activity at certain food retailers this
year. Hearing aid battery sales increases of $5.6 million, or 13.8%, were driven
by strength in the professional channel and expanded retail distribution in
fiscal 2001. Lighting product sales decreases of $16.1 million, or 21.5%, were
driven by weakness in the lights and lantern battery category reflecting the
lingering impact of the Y2K phenomenon and a quiet hurricane season compared to
the previous year. Specialty battery sales decreases versus last year primarily
reflect softness in camcorder and lithium battery sales reflecting general
softness in lithium battery demand from OEM customers in the PC,
telecommunications, and electronics industries and the transition to the
camcorder battery licensing agreement.

Our profitability decreased $12.2 million, or 12.8%, to $83.1 million in
fiscal 2001 from $95.3 million the previous year. This decrease was primarily
attributable to sales volume decreases and operating expense increases partially
offset by improved gross profit margins. The operating expense increases were
primarily driven by increased distribution costs reflecting fuel surcharges,
higher shipping and handling costs and bad debt write-offs due to customer
bankruptcies. The improvement in gross profit margins was primarily the result
of previously announced cost rationalization initiatives and a favorable shift
in product mix away from lower margin lithium, camcorder, and lighting products
to more profitable alkaline and hearing aid batteries.

LATIN AMERICA

2000 2001
-------- --------

Revenue from external customers............................. $112.2 $119.7
Profitability............................................... 20.3 16.9
Profitability as a % of net sales........................... 18.1% 14.1%

Our revenue from external customers increased $7.5 million, or 6.7%, to
$119.7 million in fiscal 2001 from $112.2 million the previous year due
primarily to increased sales of alkaline batteries partially offset by lower
sales of zinc carbon batteries and unfavorable impacts of currency devaluation
of $1.7 million.

The alkaline sales growth in Latin America primarily reflects new
distribution in mass merchandiser chains compounded by the expansion into the
Southern region of South America. Heavy duty sales were affected by a slowing
economic environment and the impact of currency devaluation.

Our profitability decreased $3.4 million, or 16.8%, to $16.9 million in
fiscal 2001 from $20.3 million the previous year. This decrease was primarily
attributable to operating expense increases partially offset by improved gross
profit margins. The operating expense increases were primarily driven by
increased promotional and marketing support associated with new distribution
initiatives in the Southern region and higher operating expenses associated with
our expansion at larger mass merchandiser chains in Mexico.

EUROPE/ROW

2000 2001
-------- --------

Revenue from external customers............................. $52.8 $50.8
Profitability............................................... 6.1 4.1
Profitability as a % of net sales........................... 11.6% 8.1%

Our revenue from external customers decreased $2.0 million, or 3.8%, to
$50.8 million in fiscal 2001 from $52.8 million the previous year, due primarily
to the unfavorable impacts of currency devaluation of $3.4 million. Excluding
the negative impact of currency devaluation net sales increased 2.7% reflecting
sales increases in hearing aid and alkaline batteries. Alkaline battery sales
increases were driven primarily by new distribution.

Our profitability decreased $2.0 million, or 32.8%, due primarily to lower
gross profit margins attributable to an unfavorable product mix and increased
operating expenses attributable to our new distribution.

CORPORATE EXPENSE. Our corporate expense decreased $5.0 million, or 15.4%,
to $27.4 million in fiscal 2001 from $32.4 million the prior year. As a
percentage of total sales, our corporate expense was 4.0% compared to 4.8% in
the previous year. These decreases were primarily due to lower management
incentives and legal expenses partially offset by higher research and
development expenses reflecting an increase in technology spending.

SPECIAL CHARGES. We recorded special charges related to: (i) an
organizational restructuring in the U.S, (ii) manufacturing and distribution
cost rationalization initiatives in the Company's Tegucigalpa, Honduras and
Mexico City, Mexico manufacturing facilities and in our European operations,
(iii) the closure of the Company's Wonewoc, Wisconsin, manufacturing facility,
(iv) the rationalization of uneconomic manufacturing processes at the Company's
Fennimore, Wisconsin, manufacturing facility, and rationalization of packaging
operations and product lines, (v) and costs associated with our public stock
offering in June 2001. The amount recorded includes $10.1 million of employee
termination benefits for approximately 570 employees, $10.2 million of
equipment, inventory, and other asset write-offs, and $2.0 million of other
expenses

INCOME FROM OPERATIONS. Our income from operations decreased
$34.9 million, or 39.1%, to $54.4 million in fiscal 2001 from $89.3 million the
previous year. This decrease was primarily due to special charges of
$22.3 million and decreased profitability attributable to sales volume
decreases.

INTEREST EXPENSE. Interest expense decreased $3.4 million, or 11.1%, to
$27.2 million in fiscal 2001 from $30.6 million in the prior year primarily due
to lower effective interest rates and the redemption of the majority of our
subordinated debt in June 2001.

INCOME TAX EXPENSE. Our effective tax rate for fiscal 2001 was 35.4%
compared to 33.8% for fiscal 2000. The higher rate for fiscal 2001 primarily
reflects a higher foreign tax rate attributable to increased tax rates in
certain Latin America countries and startup losses in the Southern region of
South America not fully benefited.

EXTRAORDINARY ITEM. We recorded extraordinary expense of $5.4 million, net
of tax, resulting from the premium on the repurchase of $64.8 million of Senior
B Subordinated Notes and the related write-off of unamortized debt issuance
costs.

FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1999

HIGHLIGHTS OF CONSOLIDATED OPERATING RESULTS

NET SALES. Our net sales increased $138.2 million, or 24.9%, to
$693.3 million in fiscal 2000 from $555.1 million in the prior year. Significant
sales gains reflected the full year impact of the ROV Limited acquisition and
strong sales increases in alkaline and rechargeable batteries in North America
partially offset by decreased sales of hearing aid batteries.

NET INCOME. Our net income for fiscal 2000 increased $14.3 million, or
59.3%, to $38.4 million from $24.1 million the previous year. This increase is
due primarily to the impact of increased sales, primarily reflecting the full
year impact of the ROV Limited acquisition, improved gross profit margins, lower
operating expenses as a percentage of net sales partially offset by higher
interest expense and unfavorable foreign exchange. The improvement in gross
profit margins is primarily attributed to previously announced cost
rationalization initiatives, a favorable shift in product mix, and absence of
special charges in fiscal 2000.

NORTH AMERICA

1999 2000
-------- --------

Revenue from external customers............................. $471.6 $528.3
Profitability............................................... 77.8 95.3
Profitability as a % of net sales........................... 16.5% 18.0%

Our revenue from external customers increased $56.7 million, or 12.0%, to
$528.3 million in fiscal 2000 from $471.6 million the previous year due
primarily to increased sales of alkaline, rechargeable, and heavy duty batteries
partially offset by softness in hearing aid battery sales. Alkaline sales
increases of $50.5 million, or 19.8%, were driven by strong promotional
programs, new customers, expanded distribution with existing customers, and the
favorable impact of price increases. Rechargeable sales increases of
$6.9 million, or 30.2%, were primarily driven by the introduction of nickel
metal hydride (NiMh) rechargeable batteries at a major mass merchandiser. Heavy
duty sales increases of $3.1 million, or 8.7%, reflect the full year impact of
gaining exclusivity at a major mass merchandiser. Sales of hearing aid batteries
decreased $3.3 million, or 7.6%, primarily as the result of planned inventory
reduction at several professional and retail distribution accounts, a reduction
in promotional programs, and softness in the hearing aid device market.

Our profitability increased $17.5 million, or 22.5%, to $95.3 million in
fiscal 2000 from $77.8 million the previous year. This increase was primarily
attributed to sales volume increases, improved gross profit margins and
operating expenses that decreased as a percentage of sales. The improvement in
gross profit margins was primarily the result of previously announced cost
rationalization initiatives and a shift in product mix. Operating expenses
decreased as a percentage of sales primarily reflecting a gain recognized on the
sale of certain camcorder battery assets and corresponding license to utilize
the "Rayovac" trade name offset by higher promotional and distribution expenses.

LATIN AMERICA

1999 2000
-------- --------

Revenue from external customers............................. $19.3 $112.2
Profitability............................................... 3.5 20.3
Profitability as a % of net sales........................... 18.1% 18.1%

In August 1999, we acquired the consumer battery business of ROV Limited in
Latin America. ROV Limited was our customer before the acquisition. Total
revenue for the region for fiscal 1999 includes two months of sales for the
Latin American business and ten months of sales to ROV Limited as an external
customer. The fiscal 1999 and fiscal 2000 sales in the region are predominantly
heavy duty batteries.

The sales growth in Latin America primarily reflects the full year impact of
the Latin America business, new distribution in Mexico, Central America, and the
southern region of South America, price increases in certain countries
implemented in the second quarter, and distribution of alkaline batteries and
lighting products in mass merchandiser chains.

Our profitability was $20.3 million, which was 18.1% of net sales for fiscal
2000. Our operating expense in Latin America was lower, as a percent of sales,
than in North America. This difference is attributed primarily to spending less
in marketing and advertising as a result of selling less alkaline and more heavy
duty batteries.

EUROPE/ROW

1999 2000
-------- --------

Revenue from external customers............................. $64.2 $52.8
Profitability............................................... 9.9 6.1
Profitability as a % of net sales........................... 15.4% 11.6%

Our revenue from external customers decreased $11.4 million, or 17.8%, to
$52.8 million in fiscal 2000 from $64.2 million the previous year due primarily
to the impacts of currency devaluation, the exit of certain private label
alkaline battery business in Europe, the termination of certain non-performing
foreign distributors, and sales volume softness in Europe negatively impacting
our hearing aid and watch battery business.

Our profitability decreased $3.8 million, or 38.4%, to $6.1 million
reflecting the impact of currency devaluation and higher operating expenses as a
percentage of sales partially offset by a favorable shift in product mix away
from our lower margin private label alkaline battery business.

CORPORATE EXPENSE. Our corporate expense increased $4.2 million, or 14.9%,
to $32.4 million in fiscal 2000 from $28.2 million the prior year. These
increases were primarily due to increased travel expense, higher legal fees
primarily attributable to our patent infringement lawsuit, higher professional
expenses, and increased research and development expenses. As a percentage of
total sales, our corporate expense was 4.7% compared to 5.1% in the previous
year.

SPECIAL CHARGES. In fiscal 2000 we recorded no special charges.

In fiscal 1999, we recorded special charges of $8.1 million in addition to
the $1.3 million recorded in cost of sales. The $8.1 million includes
(1) $2.5 million associated with restructuring the organization to streamline
and better serve global markets and operating efficiencies, (2) $2.1 million
associated with the termination of non-performing foreign distributors and
exiting the respective territory, (3) $1.9 million of cost associated with the
previously announced closing of our Appleton, Wisconsin plant and its
consolidation into our Portage, Wisconsin facility, (4) $0.8 million of cost
associated with

the closing of our Newton Aycliffe, United Kingdom, facility, and
(5) $0.8 million of one-time expenses associated with the Latin American
acquisition.

INCOME FROM OPERATIONS. Our income from operations increased
$35.7 million, or 66.6%, to $89.3 million in fiscal 2000 from $53.6 million the
previous year. This increase was primarily due to increased sales primarily
reflecting the Latin America acquisition and a strong North America business,
increased gross profit, and lower special charges partially offset by increased
operating expenses.

INTEREST EXPENSE. Interest expense increased $14.2 million, or 86.6%, to
$30.6 million in fiscal 2000 from $16.4 million in the prior year primarily due
to financing costs associated with the Latin America acquisition and higher
general market interest rates.

INCOME TAX EXPENSE. Our effective tax rate for fiscal 2000 was 33.8%
compared to 35.8% for fiscal 1999. The rate in the current year was impacted by
a lower foreign tax rate primarily reflecting the impact of the Latin America
business.

LIQUIDITY AND CAPITAL RESOURCES

For fiscal 2001, our operating activities generated $18.0 million of cash,
compared to $32.8 million in fiscal 2000, a decrease of $14.8 million. Operating
cash flow before working capital requirements decreased $7.2 million, or 11.5%,
to $55.7 million from $62.9 million in the prior year primarily reflecting the
sales volume shortfall and cash restructuring costs. Working capital increases
in fiscal 2001 were $7.6 million more than in the previous year primarily
reflecting higher receivables attributable to Latin America and North America
partially offset by lower inventory investment attributable to a reduction in
production attributable to sales volume shortfalls. Cash costs associated with
our previously announced restructuring activities have been, and are expected to
be, funded with cash provided from operating activities.

Capital expenditures for fiscal 2001 were $19.7 million, an increase of
$0.7 million from fiscal 2000. Capital expenditures for fiscal 2001 primarily
reflect spending for a new alkaline line installed in fiscal 2001. Capital
expenditures for fiscal 2002 are expected to be approximately $20.0 million
which will include continued performance upgrades to our alkaline and zinc air
manufacturing and packaging operations and continued investment in technology.

The amended credit facilities we obtained in August 1999 replaced our
existing credit facilities with a $250.0 million five-year revolving credit
facility and a $75.0 million five-year amortizing term loan. The term facility
provides for quarterly amortization totaling $10.0 million in 2000,
$15.0 million in 2001, 2002, and 2003, and $20.0 million in 2004. The term
facility also provides for annual prepayments, over and above the normal
amortization. Such payments would be a portion of "Excess Cash Flow" (EBITDA, as
defined in the amended Second Amended and Restated Credit Agreement ("Third
Amendment"), less certain operating expenditures including scheduled principal
payments of long-term debt). The quarterly amortization is reduced prorata for
the effect of prepayments made as a result of Excess Cash Flow. The fees
associated with these amended facilities have been capitalized along with the
fees for the existing facility and are being amortized over the term of the
amended facilities. Indebtedness under these amended facilities is secured and
is guaranteed by certain of our subsidiaries.

During fiscal 2001, our board of directors granted 857,250 options to
purchase shares of our common stock to various members of management under the
1997 Rayovac Incentive Plan. All grants were at an exercise price equal to the
market price of our common stock on the date of grant with prices ranging from
$14.06 to $21.90 per share. We also granted approximately 277,000 shares of
restricted stock on October 1, 2000, from the 1997 Rayovac Incentive Plan, to
certain members of management. Restrictions as to approximately 210,000 of these
shares will lapse on September 30, 2003 provided the recipient is still employed
by us. The restrictions on the remaining shares lapse one third

each September 30 of 2001, 2002, and 2003. The total market value of the
restricted shares on date of grant totaled approximately $4.7 million and has
been recorded as unearned compensation as a separate component of shareholders'
equity. Unearned compensation is being amortized to expense over the three-year
vesting period.

We believe our cash flow from operating activities and periodic borrowings
under our amended credit facilities will be adequate to meet the short-term and
long-term liquidity requirements of our existing business prior to the
expiration of those credit facilities, although no assurance can be given in
this regard. Our current facilities include a revolving credit facility of
$250.0 million and a $75.0 million term loan. As of September 30, 2001, $34.4 of
the term loan was outstanding and $213.2 million was outstanding under the
revolving facility, with approximately $11.1 million of the remaining
availability utilized for outstanding letters of credit.

We are subject to various federal, state, local and foreign environmental
laws and regulations in the jurisdictions in which we operate, including laws
and regulations relating to discharges to air, water and land, the handling and
disposal of solid and hazardous waste and the cleanup of properties affected by
hazardous substances. We do not currently anticipate any material adverse effect
on our operations or financial condition or any material capital expenditure as
a result of our efforts to comply with environmental laws. As of September 30,
2001, we had reserved $2.0 million for known on-site and off-site environmental
liabilities. Some risk of environmental liability is inherent in our business;
however, we cannot assure you that material environmental costs will not arise
in the future. See "Legal Proceedings".

We engage in hedging transactions in the ordinary course of our business.
See Note 2(r) to our consolidated financial statements.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2000, the Financial Accounting Standards Board (FASB) Emerging Issues
Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting for
Certain Sales Incentives". This Issue addresses the recognition, measurement,
and income statement classification for various types of sales incentives
including discounts, coupons, rebates and free products. In July 2001, the EITF
delayed the implementation of EITF 00-14 until no later than quarters beginning
after December 15, 2001. We are required to adopt this consensus in the second
fiscal quarter of 2002. The impact of this consensus on our consolidated
financial statements is still being evaluated. We do not currently believe its
adoption will have a material impact on the consolidated financial statements
other than the reclassification of certain selling expenses to cost of sales or
a reduction of revenue.

In April 2001, the EITF reached a consensus on Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products". This Issue addresses when consideration from a vendor to a
retailer or distributor in connection with the purchase of the vendor's products
to promote sales of the vendor's products should be classified in the vendor's
income statement as a reduction of revenue or expense. We are required to adopt
this consensus in the second fiscal quarter of 2002. We do not currently believe
its adoption will have a material impact on the consolidated financial
statements, other than the reclassification of certain selling expenses to cost
of sales or a reduction in revenue.

In July 2001, the FASB issued Statement of Financial Accounting Standards
(Statement) 141, BUSINESS COMBINATIONS, and Statement 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. Statement 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001, as well as
all purchase method business combinations completed after June 30, 2001.
Statement 141 also specifies criteria that intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill. Statement 142 requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for

impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with FASB Statement
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF.

We are required to adopt the provisions of Statement 141 immediately, and
will adopt Statement 142 effective October 1, 2001. Statement 141 requires that
we evaluate our existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill.

Adoption of Statement 142 requires us to reassess the useful lives and
residual values of all intangible assets acquired, and make any necessary
amortization period adjustments by December 31, 2001. In addition, to the extent
an intangible asset is identified as having an indefinite useful life, we will
be required to test the intangible asset for impairment in accordance with the
provisions of Statement 142.

As of October 1, 2001, we have unamortized goodwill in the amount of
approximately $30.4 million and unamortized identifiable intangible assets in
the amount of approximately $88.7 million, all of which is subject to the
transition provisions of Statements 141 and 142. Amortization expense related to
goodwill was approximately $1.0, $1.6, and $0.8 million for fiscal 2001, 2000,
and 1999, respectively. Amortization expense related to tradenames was
approximately $2.3, $2.3, and $0.4 million for fiscal 2001, 2000, and 1999,
respectively. Management is currently evaluating the impact of adoption on the
consolidated financial statements.

In August 2001, FASB issued Statement No. 143, ACCOUNTING 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. We are required to adopt no
later than our fiscal year beginning October 1, 2002. We are currently
evaluating the impact of adoption on the consolidated financial statements.

In October 2001, the FASB Issued Statement No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. This statement supersedes FASB
Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and reporting provisions
of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS--REPORTING THE
EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND
INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, for the disposal of a segment of
a business. We are required to adopt no later than our fiscal year beginning
October 1, 2002. We are currently evaluating the impact of adoption on the
consolidated financial statements

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK FACTORS

We have market risk exposure from changes in interest rates, foreign
currency exchange rates and commodity prices. We use derivative financial
instruments for purposes other than trading to mitigate the risk from such
exposures.

A discussion of our accounting policies for derivative financial instruments
is included in Note 2 "Significant Accounting Policies and Practices" in Notes
to our consolidated financial statements.

INTEREST RATE RISK

We have bank lines of credit at variable interest rates. The general level
of U.S. interest rates, LIBOR, IBOR, and to a lesser extent European Base rates,
primarily affects interest expense. We use interest rate swaps to manage such
risk. The net amounts to be paid or received under interest rate swap agreements
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 contract counter-parties are included in accrued liabilities or
accounts receivable.

FOREIGN EXCHANGE RISK

We are subject to risk from sales and loans to our subsidiaries as well as
sales to, purchases from and bank lines of credit with, third-party customers,
suppliers and creditors, respectively, denominated in foreign currencies.
Foreign currency sales are made primarily in Pounds Sterling, Canadian Dollars,
Euro, German Marks, French Francs, Italian Lira, Spanish Pesetas, Dutch
Guilders, Mexican Pesos, Guatemalan Quetzals, Dominican Pesos, Venezuelan
Bolivars, Argentine Pesos, Chilean Pesos and Honduran Lempira. Foreign currency
purchases are made primarily in Pounds Sterling, German Marks, French Francs,
Mexican Pesos, Dominican Pesos, Guatemalan Quetzals and Honduran Lempira. We
manage our foreign exchange exposure from anticipated sales, accounts
receivable, intercompany loans, firm purchase commitments and credit obligations
through the use of naturally occurring offsetting positions (borrowing in local
currency), forward foreign exchange contracts, foreign exchange rate swaps and
foreign exchange options. The related amounts payable to, or receivable from,
the contract counter parties are included in accounts payable or accounts
receivable.

COMMODITY PRICE RISK

We are exposed to fluctuation in market prices for purchases of zinc used in
the manufacturing process. We use commodity swaps, calls and puts to manage such
risk. The maturity of, and the quantities covered by, the contracts are closely
correlated to our anticipated purchases of the commodities. The cost of calls,
and the premiums received from the puts, are amortized over the life of the
contracts and are recorded in cost of goods sold, along with the effects of the
swap, put and call contracts. The related amounts payable to, or receivable
from, the counterparties are included in accounts payable or accounts
receivable.

SENSITIVITY ANALYSIS

The analysis below is hypothetical and should not be considered a projection
of future risks. Earnings projections are before tax.

As of September 30, 2001, the potential change in fair value of outstanding
interest rate derivative instruments, assuming a 1% unfavorable shift in the
underlying interest rates would be a loss of $0.8 million. The net impact on
reported earnings, after also including the reduction in one year's interest
expense on the related debt due to the same shift in interest rates, would be a
net gain of $1.7 million.

As of September 30, 2001, the potential change in fair value of outstanding
foreign exchange rate derivative instruments, assuming a 10% unfavorable change
in the underlying foreign exchange rates would be a loss of $0.2 million. The
net impact on future cash flows, after also including the gain in value on the
related accounts receivable and contractual payment obligations outstanding at
September 30, 2001 due to the same change in exchange rates, would be a net gain
of $1.1 million.

As of September 30, 2001, the potential change in fair value of outstanding
commodity price derivative instruments, assuming a 10% unfavorable change in the
underlying commodity prices would

be a loss of $0.7 million. The net impact on reported earnings, after also
including the reduction in cost of one year's purchases of the related
commodities due to the same change in commodity prices, would be a net gain of
$0.1 million.

ITEM 8. INANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required for this Item is included in this Annual Report on
Form 10-K on pages F-1 through F-41, inclusive and is incorporated herein by
reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information, as of December 1, 2001, regarding
each of our directors and executive officers.

NAME AGE POSITION AND OFFICE(S)
---- -------- ----------------------

David A. Jones 52 Chairman of the Board and Chief Executive Officer
Kent J. Hussey 55 President and Chief Financial Officer and Director
Stephen P. Shanesy 45 Executive Vice President of Global Brand Management
Merrell M. Tomlin 49 Executive Vice President of Sales
Randall J. Steward* 47 Executive Vice President of Administration and Chief
Financial Officer
Kenneth V. Biller 53 Executive Vice President of Operations
Luis A. Cancio 61 Executive Vice President--Latin America
Paul G. Cheeseman 43 Senior Vice President--Technology
John S. Lupo 55 Director
Scott A. Schoen 43 Director
Thomas R. Shepherd 71 Director
Warren C. Smith, Jr. 45 Director
Philip F. Pellegrino 61 Director

Mr. Jones has served as Chairman of our Board of Directors and our Chief
Executive Officer since September 12, 1996. From September 1996 to April 1998,
Mr. Jones also served as our President. Between February 1995 and March 1996,
Mr. Jones was Chief Operating Officer, Chief Executive Officer and Chairman of
the Board of Directors of Thermoscan, Inc., a manufacturer and marketer of
infrared ear thermometers for consumer and professional use. From 1989 to
September 1994, he served as President and Chief Executive Officer of The Regina
Company, a manufacturer of vacuum cleaners and other floor care equipment. In
addition, Mr. Jones serves as a director of United Industries Corp., Tyson
Foods, Inc. and SCI Systems, Inc. Mr. Jones has over 30 years of experience
working in the consumer products industry.

Mr. Hussey is a director of Rayovac and has served as our President and
Chief Financial Officer since December 1, 2001. From April 1998 until
November 30, 2001, Mr. Hussey served as President and Chief Operating Officer.
Prior to April 1998 and since joining us in October 1996, Mr. Hussey was our
Executive Vice President of Finance and Administration, our Chief Financial
Officer and a director. From 1994 to 1996, Mr. Hussey was Vice President and
Chief Financial Officer of ECC International, a producer of industrial minerals
and specialty chemicals and from 1991 to July 1994 he served as Vice President
and Chief Financial Officer of The Regina Company. Mr. Hussey also serves as a
director of American Woodmark Corporation.

Mr. Shanesy has been our Executive Vice President of Global Brand Management
since April 1998. Prior to that time and from December 1997, Mr. Shanesy served
as our Senior Vice President of Marketing and the General Manager of General
Batteries and Lights. From December 1996 to December 1997, Mr. Shanesy was the
Senior Vice President of Marketing and the General Manager of General Batteries
of the Company. Prior to joining us, from 1993 to 1996, Mr. Shanesy was Vice
President of Marketing of Oscar Mayer.

Mr. Tomlin has been our Executive Vice President of Sales since
October 1998. Mr. Tomlin joined Rayovac in October 1996 as Senior Vice President
of Sales. From March 1996 to September 1996, Mr. Tomlin served as Vice President
of Sales of Braun of North America/Thermoscan and from August 1995 to
March 1996, he served as Vice President Sales of Thermoscan, Inc. Prior to that
time, Mr. Tomlin was Vice President of Sales of various divisions of Casio
Electronics.

*Mr. Steward resigned as Executive Vice President of Administration and
Chief Financial Officer effective November 30, 2001. Mr. Steward was named our
Executive Vice President of Administration and Chief Financial Officer in
October 1999. Mr. Steward joined us in March of 1998 as our Senior Vice
President of Corporate Development and was named Senior Vice President of
Finance and Chief Financial Officer in April 1998, a position he held until
October 1999. From October 1997 to March 1998, Mr. Steward worked as an
independent consultant, primarily with Thermoscan, Inc. and Braun AG, assisting
with financial and operational issues. From March 1996 to September 1997,
Mr. Steward served as President and General Manager of Thermoscan, Inc. From
January 1992 to March 1996, he served as Executive Vice President of Finance and
Administration and Chief Financial Officer of Thermoscan, Inc.

Mr. Biller was named our Executive Vice President of Operations in
October 1999. From August 1998 to October 1999, he was our Senior Vice President
of Operations and from January to August 1998, he was our Senior Vice President
of Manufacturing/Supply Chain. Prior to that time and since 1996, Mr. Biller was
our Senior Vice President and General Manager of Lighting Products & Industrial
and, since 1995, was our Vice President and General Manager of Lighting
Products & Industrial. Mr. Biller joined us in 1972 and has held numerous
positions with us, including Director of Technology/Battery Products and Vice
President of Manufacturing.

Mr. Cancio was named our Executive Vice President-Latin America on
October 2000. He joined Rayovac in August 1999 as our Senior Vice President and
General Manager of Latin America and served in that position until
October 2000. In April 1997, Mr. Cancio became a founding principal of XCELL
Group LLC, a private investment firm, and remains a director of that firm. From
1980 to 1996, he held positions of increasing responsibility at Duracell
International Inc., beginning as Vice President in Latin America and ending his
tenure as Senior Vice President in other international markets.

Dr. Cheeseman was named our Senior Vice President-Technology on
November 15, 2001. He joined Rayovac in June 1998 as our Vice
President-Technology and has led all major technology initiatives at Rayovac
since that time. Dr. Cheeseman came to Rayovac from Duracell, Inc., a division
of Gillette, where he held various positions of increasing responsibility
including Director of Operations from 1992 to 1995 and Director of Technology
from 1995 to June, 1998.

Mr. Lupo has been a director of Rayovac since July 1998 and is a principal
in the consulting firm Renaissance Partners, LLC, which he joined in
February 2000. From October 1998 until November 1999, he served as Executive
Vice President for Sales and Marketing for Bassett Furniture Industries, Inc.
From April 1998 to October 1998, Mr. Lupo served as a consultant in the consumer
products industry. Prior to that time and since August 1996, 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, Inc.

Mr. Schoen has been a director of Rayovac since our September 1996
recapitalization. He is a Managing Director of Thomas H. Lee Partners, L.P.,
which he joined in 1986. In addition, Mr. Schoen is a Vice President of Thomas
H. Lee Advisors I and Thomas H. Lee Advisors II. Mr. Schoen is also a Trustee of
THL Equity Trust III, the general partner of THL Equity Advisors Limited
Partnership III, which is the general partner of Thomas H. Lee Equity Fund III
L.P. He is also a Managing Director and Member of THL Equity Advisors IV, LLC,
which is the general partner of Thomas H. Lee Equity Fund IV, L.P. Mr. Schoen is
also a director of Syratech Corporation, TransWestern Communications Corp.,
United Industries Corp., Wyndham International Inc. and several private
corporations.

Mr. Shepherd has been a director of Rayovac since our September 1996
recapitalization. Mr. Shepherd is Chairman of TSG Equity Partners, LLC and is
also a director of The Vermont Teddy Bear Company Inc. and various private
corporations. He currently serves as a Special Partner of

Thomas H. Lee Partners, L.P. and has been engaged as a consultant to Thomas H.
Lee Co. since 1986. From 1986 through 1998, Mr. Shepherd served as a Managing
Director of Thomas H. Lee Company. In addition, Mr. Shepherd is an officer of
various other affiliates of Thomas H. Lee Company.

Mr. Smith has been a director of Rayovac since our September 1996
recapitalization. He is a managing Director of Thomas H. Lee Partners, L.P.,
which he joined in 1990. Mr. Smith also serves as a Managing Director of TH
Lee.Putnam Internet Fund Advisors, LLC, the general partner of TH Lee.Putnam
Internet Fund Advisors, L.P., the general partner of TH Lee.Putnam Internet
Partners, L.P. In addition, Mr. Smith is a Managing Director of TH Lee Global
Internet Advisors, LLC, the general partner of TH Lee Global Internet Managers,
L.P., which in turn serves as manager to TH Lee.Putnam Internet Partners, L.P.
In addition, Mr. Smith is a Vice President of Thomas H. Lee Advisor I and T.H.
Lee Mezzanine II. Mr. Smith is also a Managing Director and Member of THL Equity
Advisors Limited Partnership III, which is the general partner of Thomas H. Lee
Equity Fund III L.P. and a Managing Director and Member of THL Equity Advisors
IV, LLC, which is the general partner of Thomas H. Lee Equity Fund IV, L.P. He
is also a director of Finlay Enterprises, Inc., Finlay Fine Jewelry Corporation,
Eye Care Centers of America, Inc. and various private corporations.

Mr. Pellegrino has served as a director since November 2000. He currently
serves as Senior Vice President and President of Sales for Kraft Foods Inc, and
has held that position since September 2000. From 1995 to September 2000, he
served as Senior Vice President of Sales and Customer Service for Kraft Foods.
He has been employed by Kraft Foods or its subsidiary, Oscar Mayer, since 1964
in various management and executive positions.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors, officers
and persons who own more than 10% of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Based solely upon review of Forms 3, 4 and 5
(and amendments thereto) furnished to us during or in respect of the fiscal year
ended September 30, 2001, we are not aware of any director or executive officer
who has not timely filed reports required by Section 16(a) of the Exchange Act
during or in respect of such fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth compensation paid to our Chief Executive
Officer and the other four most highly compensated executive officers during
fiscal 2001, fiscal 2000 and fiscal 1999 (the "Named Executive Officers") for
services rendered in all capacities to us. Certain prior year amounts have been
reclassified to conform with current year presentation.

OTHER RESTRICTED SECURITIES
FISCAL ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($) AWARDS($)(1) OPTIONS(#)
--------------------------- -------- ----------- ---------- ------------------ -------------- ------------

David A. Jones, 2001 $550,000 $400,000 $361,200 (2) $1,180,000 50,000
Chairman of the Board and 2000 500,000 250,000 278,700 (4)
Chief Executive Officer............. 1999 500,000 272,800 (5)

Kent J. Hussey, 2001 385,000 412,500 125,200 (7) 826,000 50,000
President and Chief Operating 2000 350,000 56,500 (8) 40,000
Officer............................. 1999 325,000

Luis A. Cancio, 2001 293,000 80,000 (9) 537,500 50,000
Executive Vice President-Latin 2000 286,000 33,200(10) 50,000
America............................. 1999 47,700 100,000

Stephen P. Shanesy, 2001 290,000 100,000 84,700(12) 567,500 50,000
Executive Vice President of 2000 265,000 35,000
Global Brand Management............. 1999 250,000 25,000

Merrell M. Tomlin, 2001 290,000 114,000 70,800(12) 560,000 50,000
Executive Vice President of 2000 250,000 32,500(14) 35,000
Sales............................... 1999 230,000 25,000

ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION($)
--------------------------- ------------------

David A. Jones, $5,741,400 (3)
Chairman of the Board and 4,700 (6)
Chief Executive Officer.............
Kent J. Hussey, 1,418,500 (3)
President and Chief Operating 4,700 (6)
Officer.............................
Luis A. Cancio, 10,000(11)
Executive Vice President-Latin
America.............................
Stephen P. Shanesy, 796,200(13)
Executive Vice President of 1,800 (6)
Global Brand Management.............
Merrell M. Tomlin, 924,600 (3)
Executive Vice President of 143,100(15)
Sales...............................

--------------------------

(1) At September 30, 2001 an aggregate of 277,137 restricted shares were
outstanding valued at $4,226,355. Vesting is scheduled for September 30,
2003 on 210,423 shares. The remaining 66,714 shares are scheduled to vest
one third each year beginning September 30, 2001. The Company has the
discretion to pay or defer dividends, if declared, until the expiration of
restrictions.

(2) Includes approximately $104,000 related to a supplemental executive
retirement program, $80,000 related to personal use of the Company aircraft,
$70,000 related to interest on the Executive Note (as defined herein) and
$60,000 related to a Company provided residence.

(3) Represents compensation from the exercise of stock options.

(4) Includes approximately $70,000 related to a Company provided residence,
$70,000 related to interest on the Executive Note (as defined herein) and
$90,000 related to personal use of the Company aircraft.

(5) Includes approximately $120,000 related to a Company provided residence,
$70,000 related to interest on the Executive Note (as defined herein) and
$50,000 related to personal use of the Company aircraft.

(6) Represents pension plan termination benefits.

(7) Includes approximately $70,000 related to a supplemental executive
retirement program.

(8) Includes approximately $20,000 related to personal use of the Company
aircraft and $20,000 related to personal use of a Company provided vehicle.

(9) Includes approximately $50,000 related to a supplemental executive
retirement program.

(10) Represents personal use of a Company provided vehicle and contributions to
401K plan.

(11) Represents relocation payments.

(12) Includes approximately $55,000 related to a supplemental executive
retirement program.

(13) Represents compensation from the exercise of stock options and the purchase
of a company vehicle.

(14) Includes approximately $20,000 related to personal use a company provided
vehicle.

(15) Represents pension plan termination benefits and approximately $140,000 of
relocation payments.

OPTION GRANTS AND EXERCISES

In connection with the 1996 recapitalization, the Board adopted the Rayovac
Corporation 1996 Stock Option Plan (the "1996 Plan"). Pursuant to the 1996 Plan,
options may be granted with respect to an aggregate of 2,318,127 shares of
Common Stock. At September 30, 2001 an aggregate of 1,287,867 options to
purchase shares of Common Stock at a weighted average exercise price of $7.42
per share, 508,181 of which relate to the 911,577 granted to David A. Jones in
accordance with the terms of his employment agreement, were outstanding. See
"Employment Agreement". In September 1997, the Board adopted the 1997 Rayovac
Incentive Plan ("Incentive Plan"). Pursuant to the Incentive Plan, we may grant
stock-based awards, including options and restricted stock, to purchase up to
5,000,000 shares of Common Stock. At September 30, 2001 an aggregate of
1,978,413 options at a weighted average exercise price of $18.48 were
outstanding under the Incentive Plan.

The following table discloses the grants of stock options during fiscal 2001
to the Named Executive Officers.

OPTION GRANTS IN FISCAL 2001

INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES IN PRICE -----------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% ($) 10% ($)
---- ----------- ---------------- --------- --------------- --------- -----------

David A. Jones................ 50,000 5.8 $14.50 9/30/2010 $455,950 $1,155,450
Kent J. Hussey................ 50,000 5.8 $14.50 9/30/2010 $455,950 $1,155,450
Luis A. Cancio................ 50,000 5.8 $14.50 9/30/2010 $455,950 $1,155,450
Stephen P. Shanesy............ 50,000 5.8 $14.50 9/30/2010 $455,950 $1,155,450
Merrell M. Tomlin............. 50,000 5.8 $14.50 9/30/2010 $455,950 $1,155,450

The following table sets forth information concerning options to purchase
Common Stock held by the Named Executive Officers.

AGGREGATED OPTION EXERCISES IN FISCAL 2001 AND FISCAL YEAR-END OPTION VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED VALUE FISCAL YEAR END (#) FISCAL YEAR END ($)(1)
NAME ON EXERCISE REALIZED $ (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
---- ----------- ---------- --------------------------- ---------------------------

David A. Jones............ 403,396 $5,722,200 325,865/232,316 $3,538,894/$2,017,452
Kent J. Hussey............ 100,000 $1,418,500 106,747/149,112 523,181/532,477
Luis A. Cancio............ -- -- 53,125/146,875 0/37,500
Stephen P. Shanesy........ 55,355 $ 785,200 53,553/115,039 388,821/284,989
Merrell M. Tomlin......... 65,184 $ 924,600 43,724/115,039 282,078/284,989

------------------------

(1) These values are calculated using the $15.25 per share closing price of the
Common Stock as quoted on the NYSE on September 30, 2001.

PENSION PLAN

In fiscal 1997 we contributed to a defined benefit pension plan covering all
domestic non-union employees (the "Pension Plan"). On August 1, 1997 the Pension
Plan accruals were frozen and the Pension Plan was officially terminated on
October 1, 1997. We made no contributions to the Pension Plan during fiscal
1999, 2000 or 2001. Distribution of benefits due to participating employees
under the Pension Plan was made during fiscal 1999. In fiscal 1999, 2000 and
2001, we contributed to a defined contribution 401(k) plan covering domestic
non-union employees (the "401(k) Plan"). We made contributions allocated on the
basis of compensation and age as identified in the summary compensation table.

DIRECTOR COMPENSATION

Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors of the Company are
reimbursed for their out-of-pocket expenses in attending meetings of the Board
of Directors. Messrs. Lupo and Pellegrino received $5,000 per quarterly meeting
in their capacities as directors for fiscal year 2001, plus $1,000 for each of
the four Board of Director meetings they attended. In addition, each received
$500 for each Board Committee meetings he attended. Commencing July 2001,
Mr. Shepherd began receiving the same compensation as Messrs. Lupo and
Pellegrino for attending Board of Director and Board Committee meetings.
Messrs. Schoen and Smith receive no fees in their capacities as directors.
However, as described in "Certain Relationships and Related Transactions",
Thomas H. Lee Company, an affiliate of Thomas H. Lee Partners, L.P., of which
Messrs. Schoen and Smith are managing directors and Mr. Shepherd is formerly a
managing director and currently a special partner, receives fees from us for
consulting and management advisory services.

EMPLOYMENT AGREEMENTS

We have an employment agreement with each of the Named Executive Officers.
On October 1, 2000, we entered into amended and restated employment agreements
with David A. Jones (the "Jones Employment Agreement") and Kent J. Hussey (the
"Hussey Employment Agreement"), as well as employment agreements with each of
Luis A. Cancio, Stephen P. Shanesy and Merrell M. Tomlin (together with the
Jones Employment Agreement and the Hussey Employment Agreement, the "Executive
Employment Agreements").

Each of the Executive Employment Agreements:

- has a term of three years, expiring on September 30, 2003, and, except for
the Jones Employment Agreement, provides for automatic renewal for
successive one-year periods unless terminated earlier upon 90-days'
written notice by either the respective Named Executive Officer or us;

- provides that the Named Executive Officer has the right to resign and
terminate his respective Executive Employment Agreement at any time upon
60-days' notice. Upon such resignation, we must pay any unpaid base salary
through the date of termination to the resigning Named Executive Officer;

- except in the case of the Jones Employment Agreement, provides that upon
termination of the Named Executive Officer's employment without cause or
for death or disability, we will pay to the terminated Named Executive
Officer, or such Named Executive Officer's estate, two times the Named
Executive Officer's base salary and annual bonus, to be paid out over the
following twelve months. In addition, each Named Executive Officer shall
be entitled to receive insurance and other benefits for the greater of
24 months or the remainder of the term;

- provides us with the right to terminate the Named Executive Officer's
employment for "cause" (as defined therein), in which event we shall be
obligated to pay to the terminated Named Executive Officer any unpaid base
salary accrued through the date of termination; and

- provides that, during the term of the agreement or the period of time
served as an employee or director, and for one year thereafter, the Named
Executive Officer shall not engage in or have any business which is
involved in the industries in which we are engaged.

Under their respective employment agreements, Mr. Jones is entitled to a
base salary of $550,000 per annum, Mr. Hussey is entitled to a base salary of
$385,000 per annum, Mr. Shanesy and Mr. Tomlin are each entitled to a base
salary of $290,000 per annum and Mr. Cancio is entitled to a base salary of
$275,000 per annum (such base salaries may be increased from time to time at the
discretion of the Board of Directors) and each Named Executive Officer is
entitled to an annual bonus based upon our achieving certain annual performance
goals established by the Board of Directors.

In addition, pursuant to the Jones Employment Agreement, Mr. Jones was paid
a bonus of $400,000 in October 2000 as compensation for past services and will
be paid an additional bonus of $400,000 on September 30, 2003. In addition, the
Jones Employment Agreement provides that Mr. Jones will be granted the option to
purchase his Rayovac-owned home for a nominal amount on April 30, 2003. In the
event of a "sale" of Rayovac (as defined in the Jones Employment Agreement),
Mr. Jones' right to receive the September 30, 2003 bonus and his right to
acquire his Rayovac-owned home shall accelerate to the date of the "sale".
Pursuant to the Jones Employment Agreement, Mr. Jones purchased 227,895 shares
of Common Stock at approximately $4.39 per share in connection with our 1996
recapitalization. One-half of the purchase price for those shares was paid in
cash and one-half was paid with a promissory note from Mr. Jones will receive
additional salary at an initial rate of $35,000 annually as long as the Jones
Equity Note remains outstanding.

The Jones Employment Agreement further provides that, upon termination of
Mr. Jones' employment due to death or disability, we will pay him or his estate
his base salary for the next 24 months following termination and we will
continue to pay him or his estate two times the pro rata portion of his annual
bonus. In addition, we will continue to pay him his additional salary at an
initial rate of $35,000 annually, as long as the Jones Equity Note is
outstanding, for the duration of the term of his agreement, and he shall be
entitled to insurance and other specified benefits for the greater of 24 months
or the remainder of the term. In the event Mr. Jones is terminated "without
cause" (as defined in the Jones Employment Agreement), he shall continue to be
paid his annual bonus for the greater of 24 months or the remainder of the term.
Mr. Jones shall also be entitled to receive additional salary at an initial rate
of $35,000 annually, as long as the Jones Equity Note is outstanding, and
insurance and other benefits for the greater of 24 months or the remainder of
the term.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 2001, the Compensation Committee of the Board of Directors was
comprised of Scott A. Schoen, Thomas R. Shepherd and Warren C. Smith, Jr. No
member of our Compensation Committee is currently or has been, at any time since
our formation, one of our officers or employees. No member of our Compensation
Committee serves a member of the board of directors or compensation committee of
any entity that has one of more executive officers serving as a member of our
Board of Directors or Compensation Committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of our Common Stock as of October 31, 2001 by:

- each person who is known by us to beneficially own more than five percent
of the outstanding shares of our Common Stock;

- each of our directors and each named executive officer (as defined
herein); and

- all of our current directors and executive officers as a group.

This information is based upon information received from or on behalf of the
individuals named herein.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as otherwise indicated, we believe
that each person or entity named in the table has sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
them, subject to applicable community property laws. The percentage of
beneficial ownership set forth below is based upon 32,042,446 shares of Common
Stock outstanding as of the close of business on October 31, 2001. In computing
the number of shares of Common Stock beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock that are subject to
options held by that person that are currently exercisable or exercisable within
60 days of October 31, 2001, are deemed outstanding. These shares are not,
however, deemed outstanding for the purpose of computing the percentage
ownership of any other person.

NUMBER OF
NUMBER SHARES SUBJECT
NAMES AND ADDRESS OF BENEFICIAL OWNER OF SHARES TO OPTIONS(1) PERCENT
------------------------------------- ---------- -------------- --------

Thomas H. Lee Equity Fund III, L.P.(2)
75 State Street, Ste. 2600
Boston, MA 02109........................................ 6,350,259 -- 19.8%
Thomas H. Lee Foreign Fund III, L.P.(2)
75 State Street, Ste. 2600
Boston, MA 02109........................................ 393,383 -- 1.2
THL-CCI Limited Partnership(3)
75 State Street, Suite 2600
Boston, MA 02109........................................ 666,717 -- 2.1
David A. Jones............................................ 74,997 (4) 516,431 1.8
Kent J. Hussey............................................ 82,091 (5) 165,075 *
Stephen P. Shanesy........................................ 33,138 (6) 90,967 *
Merrell M. Tomlin......................................... 32,700 (7) 81,138 *
Luis A. Cancio............................................ 35,424 (8) 61,375 *
Scott A. Schoen(2)(9)..................................... 33,271 -- *
Thomas R. Shepherd(2)(9).................................. 16,750 5,000 *
Warren C. Smith, Jr.(2)(9)................................ 27,942 -- *
John S. Lupo.............................................. 2,500 10,000 *
Philip F. Pellegrino...................................... 2,000 7,000 *
All directors and executive officers of the Company as a
group (13 persons)...................................... 422,931(10) 1,191,537 4.9

------------------------

* Indicates less than 1% of the total number of outstanding shares of Common
Stock.

(1) Reflects the number of shares issuable upon the exercise of options
exercisable within 60 days of October 31, 2001.

(2) THL Equity Advisors III Limited Partnership ("Advisors"), the general
partner of the THL Fund and Thomas H. Lee Foreign Fund III, L.P., THL Equity
Trust III ("Equity Trust"), the general partner of Advisors, Thomas H. Lee,
Scott A. Schoen, Warren C. Smith, Jr. and other managing directors of Thomas
H. Lee Co., as Trustees of Equity Trust, and Thomas H. Lee as sole
shareholder of Equity Trust, may be deemed to be beneficial owners of the
shares of Common Stock held by such Funds. Each of these persons disclaims
beneficial ownership of all shares.

(3) THL Investment Management Corp., the general partner of THL-CCI Limited
Partnership, and Thomas H. Lee, as director and sole shareholder of THL
Investment Management Corp., may also be deemed to be beneficial owners of
the shares of Common Stock held by THL-CCI Limited Partnership. THL
Investment Management Corp. disclaims beneficial ownership of such shares.
Thomas H. Lee disclaims beneficial ownership of such shares except to the
extent of his direct pecuniary interest.

(4) Includes 68,904 restricted shares of which restrictions have lapsed on 5,839
shares as of October 31, 2001 and 4,102 shares held in the Company's 401(k)
plan. It also includes 1,891 shares representing Mr. Jones' proportional
interest in the THL Fund, shares of which Mr. Jones disclaims beneficial
ownership.

(5) Includes 48,234 restricted shares of which restrictions have lapsed on 4,088
shares as of October 31, 2001 and 914 shares held in the Company's 401(k)
plan.

(6) Represents restricted shares of which restrictions have lapsed on 2,579
shares as of October 31, 2001.

(7) Represents restricted shares of which restrictions have lapsed on 2,433
shares as of October 31, 2001.

(8) Includes 31,387 restricted shares of which restrictions have lapsed on 2,433
shares as of October 31, 2001 and 1,137 shares held in the Company 401(k)
plan.

(9) Represents the proportional interest of such individual in THL-CCI Limited
Partnership. In the case of Mr. Smith, share amounts also include 6,258
shares which Mr. Smith may be deemed to beneficially own as a result of
Mr. Smith's childrens' proportional beneficial interest in THL-CCI Limited
Partnership.

(10) Includes 277,137 restricted shares of which restrictions have lapsed on
22,238 shares as of October 31, 2001 and 11,097 shares held in the Company's
401(k) plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with our recapitalization in 1996, we entered into a
Management Agreement with Thomas H. Lee Company (which, together with its
affiliates, owns approximately 23.1% of the outstanding Common Stock as of
October 31, 2001) pursuant to which Thomas H. Lee Company provides consulting
and management advisory services to us for an initial period of five years
through September 12, 2001 with the term renewable on a year to year basis
thereafter. In consideration of the consulting and management advisory services
provided under the Management Agreement, we pay Thomas H. Lee Company a
management fee. We believe that the Management Agreement is on terms no less
favorable to us than could have been obtained from an independent third party.

In addition to the Jones Equity Note, we hold various promissory notes
described below (together with the Jones Equity Note, the "Executive Notes")
from each of the Named Executive Officers.

In connection with their purchase of shares of Common Stock upon joining
Rayovac, Messrs. Tomlin and Shanesy executed five-year promissory notes dated
March 17, 1997 in principal amounts of $60,000 and $80,000, respectively, with
interest payable at 8% per annum. In connection with the exercise of options to
purchase shares of our Common Stock, Messrs. Tomlin and Shanesy executed
five-year promissory notes dated July 31 and August 1, 1997, respectively, in
principal amounts of $50,000, and $20,000, respectively, with interest payable
at 8% per annum. In connection with the exercise of options to purchase shares
of our Common Stock Mr. Shanesy executed a five-year promissory note dated
September 16, 1997 in the principal amount of $30,002, with interest payable at
8% per annum.

On July 20, 2000, the Board of Directors authorized additional loans to
Messrs. Jones, Hussey, Shanesy, Tomlin and Cancio of up to the aggregate
principal amounts of $1,950,000, $800,000, $200,000, $500,000 and $200,000,
respectively. As of September 30, 2001, Messrs. Jones, Hussey and Cancio had
each executed a promissory note and had drawn aggregate principal amounts of
$1,700,000, $500,000 and $200,000, respectively, under the authorized loan
program. Interest on these promissory notes is to be adjusted annually to the
Internal Revenue Service minimum rate for 3-5 year maturities. Each of these
promissory notes is secured by a security interest in shares of our Common Stock
(including vested options) owned by the respective borrower.

The largest aggregate amount of indebtedness outstanding at any time during
fiscal 2001 for each of the Named Executive Officers was as follows: Mr. Jones,
$2,200,000; Mr. Hussey, $700,000; Mr. Shanesy, $130,002; Mr. Tomlin, $110,000;
and Mr. Cancio, $200,000. The aggregate amount of indebtedness outstanding as of
September 30, 2001, for each of the Named Executive Officers is as follows:
Mr. Jones, $2,200,000; Mr. Hussey, $500,000; Mr. Shanesy, $130,002; Mr. Tomlin,
$110,000; and Mr. Cancio, $200,000.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of or are included in this
Annual Report on Form 10-K:

1. The financial statements listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule, filed as part
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 10-K.

(b) Reports on Form 8-K: The Company has filed the following reports on
Form 8-K during the fiscal year ended September 30, 2001:

1. On June 14, 2001, the Company filed with the Commission a Report on
Form 8-K to report issuance of a press release regarding the
expiration of its consent solicitation and receipt of consents
sufficient to amend the indenture relating to the Company's 10 1/4%
Series B Senior Subordinated Notes due 2006.

2. On June 19, 2001, the Company filed with the Commission a Report on
Form 8-K to report that a supplemental indenture incorporating the
amendments to the indenture referenced in the Company's June 14,
2001, Form 8-K was executed on June 17, 2001, and will become
operative when the tendered notes are accepted for payment.

3. On June 20, 2001, the Company filed with the Commission a Report on
Form 8-K for the purpose of filing the Purchase Agreement dated
June 20, 2001, by and among the Company, certain shareholders
identified in the Purchase Agreement ("Selling Shareholders") and
Salomon Smith Barney Inc., and certain other underwriters identified
in the Purchase Agreement ("Underwriters") as an exhibit to the
Company's shelf registration statement on Form S-3 (Registration
No. 333-59086).

4. On June 25, 2001, the Company filed with the Commission a Report on
Form 8-K to report issuance of a press release announcing the pricing
terms for the tender offer for all of its outstanding $65 million
principal amount of 10 1/4% Series B Senior Subordinated Notes due
2006.

5. On June 28, 2001, the Company filed with the Commission a Report on
Form 8-K to report issuance of a press release announcing the closing
of the offer to purchase for cash and consent solicitation with
respect to its outstanding $65 million principal amount of 10 1/4%
Series B Senior Subordinated Notes due 2006.

RAYOVAC CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

PAGE
--------

Independent Auditors' Report................................ F-2

Consolidated Balance Sheets................................. F-3

Consolidated Statements of Operations....................... F-4

Consolidated Statements of Comprehensive Income............. F-5

Consolidated Statements of Shareholders' Equity............. F-6

Consolidated Statements of Cash Flows....................... F-7

Notes to Consolidated Financial Statements.................. F-8

Independent Auditors' Report................................ II-1

Schedule II Valuation and Qualifying Accounts............... II-2

F-1

INDEPENDENT AUDITORS' REPORT

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, 2000 and 2001, and the related
consolidated statements of operations, comprehensive income, shareholders'
equity, and cash flows for each of the years in the three-year period ended
September 30, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rayovac
Corporation and subsidiaries as of September 30, 2000 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 2001 in conformity with accounting principles
generally accepted in the United States of America.

/s/ KPMG LLP
KPMG LLP

Milwaukee, Wisconsin
November 2, 2001

F-2

RAYOVAC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2000 AND 2001

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2000 2001
--------- ---------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,757 $ 11,358
Receivables:
Trade accounts receivable, net of allowance for doubtful
receivables of $1,020 and $2,139, respectively.......... 147,767 182,326
Other..................................................... 5,900 7,802
Inventories............................................... 100,676 91,311
Deferred income taxes..................................... 6,074 9,831
Prepaid expenses and other................................ 20,996 21,843
--------- ---------
Total current assets.................................. 291,170 324,471
--------- ---------
Property, plant and equipment, net.......................... 111,897 107,257
Deferred charges and other.................................. 33,781 32,617
Intangible assets........................................... 122,114 119,074
Debt issuance costs......................................... 10,054 4,463
--------- ---------
Total assets.............................................. $ 569,016 $ 587,882
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 44,815 24,436
Accounts payable.......................................... 97,857 103,373
Accrued liabilities:
Wages and benefits.................................... 12,012 7,178
Accrued interest...................................... 5,790 1,930
Other special charges................................. 978 5,883
Other................................................. 25,028 23,124
--------- ---------
Total current liabilities........................... 186,480 165,924
Long-term debt, net of current maturities................... 272,815 233,541
Employee benefit obligations, net of current portion........ 15,365 19,648
Deferred income taxes....................................... 8,242 7,428
Other....................................................... 5,418 3,756
--------- ---------
Total liabilities..................................... 488,320 430,297
--------- ---------
Shareholders' equity:
Common stock, $.01 par value, authorized 150,000 shares;
issued 57,101 and 61,579 shares, respectively;
outstanding 27,570 and 32,043 shares, respectively...... 571 616
Additional paid-in capital................................ 104,197 180,752
Retained earnings......................................... 108,450 119,984
Accumulated other comprehensive income (loss)............. 650 (6,868)
Notes receivable from officers/shareholders............... (3,190) (3,665)
--------- ---------
210,678 290,819
Less treasury stock, at cost, 29,531 and 29,536 shares,
respectively.............................................. (129,982) (130,070)
Less unearned restricted stock compensation................. -- (3,164)
--------- ---------
Total shareholders' equity............................ 80,696 157,585
--------- ---------
Total liabilities and shareholders' equity............ $ 569,016 $ 587,882
========= =========

See accompanying notes to consolidated financial statements.

F-3

RAYOVAC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED SEPTEMBER 30, 1999, 2000 AND 2001

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1999 2000 2001
-------- -------- --------

Net sales................................................... $555,064 $693,339 $675,492
Cost of goods sold.......................................... 293,858 358,226 346,010
Special charges............................................. 1,300 -- 22,103
-------- -------- --------
Gross profit................................................ 259,906 335,113 307,379
Operating expenses:
Selling................................................... 150,985 184,473 192,264
General and administrative................................ 37,366 50,546 48,351
Research and development.................................. 9,785 10,763 12,191
Special charges........................................... 8,132 -- 204
-------- -------- --------
206,268 245,782 253,010
-------- -------- --------
Income from operations...................................... 53,638 89,331 54,369
Interest expense............................................ 16,354 30,626 27,189
Other (income) expense, net................................. (314) 753 1,094
-------- -------- --------
Income before income taxes and extraordinary item........... 37,598 57,952 26,086
Income tax expense.......................................... 13,462 19,602 9,225
-------- -------- --------
Income before extraordinary item............................ 24,136 38,350 16,861
Extraordinary item, loss on early extinguishment of debt,
net of income tax benefit of $3,260....................... -- -- (5,327)
-------- -------- --------
Net income.................................................. $ 24,136 $ 38,350 $ 11,534
======== ======== ========
Basic net income per common share:
Income before extraordinary item.......................... $ 0.88 $ 1.39 $ 0.59
Extraordinary item........................................ -- -- (0.19)
-------- -------- --------
Net income.................................................. $ 0.88 $ 1.39 $ 0.40
======== ======== ========
Weighted average shares of common stock outstanding......... 27,486 27,504 28,746
-------- -------- --------
Diluted net income per common share:
Income before extraordinary item.......................... $ 0.83 $ 1.32 $ 0.57
Extraordinary item........................................ -- -- (0.18)
-------- -------- --------
Net income.................................................. $ 0.83 $ 1.32 $ 0.39
======== ======== ========
Weighted average shares of common stock and equivalents
outstanding............................................... 29,233 29,069 29,702
-------- -------- --------

See accompanying notes to consolidated financial statements.

F-4

RAYOVAC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED SEPTEMBER 30, 1999, 2000 AND 2001

(IN THOUSANDS)

1999 2000 2001
-------- -------- --------

Net income.................................................. $24,136 $38,350 $11,534
Other comprehensive income:
Foreign currency translation adjustment................... 166 (1,964) (1,141)
Cumulative effect of accounting change, net of tax effect
of ($167)............................................... -- -- (150)
Loss on derivative instruments and available for sale
securities, net of tax effect of ($1,973)............... -- -- (2,929)
Minimum pension liability adjustment, net of tax effect of
$120, $223, and ($1,776), respectively.................. 222 415 (3,298)
------- ------- -------
Comprehensive income, net of tax............................ $24,524 $36,801 $ 4,016
======= ======= =======

See accompanying notes to consolidated financial statements.

F-5

RAYOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1999, 2000 AND 2001
(IN THOUSANDS)

ACCUMULATED OTHER COMPREHENSIVACCUMULATED
---------------------------------------------
UNRECOGNIZED
FOREIGN LOSS ON DERIVATIVE MINIMUM
COMMON STOCK ADDITIONAL CURRENCY INSTRUMENTS AND PENSION
------------------- PAID-IN RETAINED TRANSLATION AVAILABLE FOR SALE LIABILITY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SECURITIES ADJUSTMENT
-------- -------- ---------- -------- ----------- ------------------ ----------

Balances at September 30, 1998........ 27,471 $569 $103,304 $ 45,964 $2,500 $ -- $ (689)
--
Net income............................ -- -- -- 24,136 -- -- --
Sale of common stock by trust......... -- -- -- -- -- -- --
Treasury stock acquired............... (20) -- -- -- -- -- --
Exercise of stock options............. 39 1 273 -- -- -- --
Adjustment of additional minimum
pension liability................... -- -- -- -- -- -- 222
Translation adjustment................ -- -- -- -- 166 -- --
Unrealized (gain)/loss on stock held
in trust............................ -- -- -- -- -- -- --
------ ---- -------- -------- ------ ------- -------
Balances at September 30, 1999........ 27,490 570 103,577 70,100 2,666 -- (467)
--
Net income............................ -- -- -- 38,350 -- -- --
Treasury stock acquired............... (51) -- -- -- -- -- --
Exercise of stock options............. 131 1 620 -- -- -- --
Notes receivable from officers/
shareholders........................ -- -- -- -- -- -- --
Adjustment of additional minimum
pension liability................... -- -- -- -- -- -- 415
Translation adjustment................ -- -- -- -- (1,964) -- --
------ ---- -------- -------- ------ ------- -------
Balances at September 30, 2000........ 27,570 571 104,197 108,450 702 -- (52)
--
Net income............................ -- -- -- 11,534 -- -- --
Sale of common stock.................. 3,500 35 64,144 -- -- -- --
Issuance of restricted stock.......... 277 3 4,743 -- -- -- --
Treasury stock acquired............... (5) -- -- -- -- -- --
Exercise of stock options............. 701 7 7,668 -- -- -- --
Notes receivable from officers/
shareholders........................ -- -- -- -- -- -- --
Amortization of unearned
compensation........................ -- -- -- -- -- -- --
Adjustment of additional minimum
pension liability................... -- -- -- -- -- -- (3,298)
Translation adjustment................ -- -- -- -- (1,141) -- --
Cumulative effect of accounting
change.............................. -- -- -- -- -- (150) --
Net loss on derivative instruments and
available for sale securities....... -- -- -- -- -- (2,929) --
------ ---- -------- -------- ------ ------- -------
Balances at September 30, 2001........ 32,043 $616 $180,752 $119,984 $ (439) $(3,079) $(3,350)
====== ==== ======== ======== ====== ======= =======

ACCUMULATED OTHER COMPREHENSIVE INCOME
-----------------------
NOTES
MINIMUM RECEIVABLE
PENSION FROM STOCK
LIABILITY OFFICERS/ HELD IN UNEARNED
ADJUSTMENT TOTAL SHAREHOLDERS TRUST COMPENSATION
---------- -------- ------------ -------- ------------

Balances at September 30, 1998........ $ 1,811 $ (890) $(412) $ --
--
Net income............................ -- -- -- --
Sale of common stock by trust......... -- -- 394 --
Treasury stock acquired............... -- -- -- --
Exercise of stock options............. -- -- -- --
Adjustment of additional minimum
pension liability................... 222 -- -- --
Translation adjustment................ 166 -- -- --
Unrealized (gain)/loss on stock held
in trust............................ -- -- 18 --
------- ------- ----- -------
Balances at September 30, 1999........ 2,199 (890) -- --
--
Net income............................ -- -- -- --
Treasury stock acquired............... -- -- -- --
Exercise of stock options............. -- -- -- --
Notes receivable from officers/
shareholders........................ -- (2,300) -- --
Adjustment of additional minimum
pension liability................... 415 -- -- --
Translation adjustment................ (1,964) -- -- --
------- ------- ----- -------
Balances at September 30, 2000........ 650 (3,190) -- --
--
Net income............................ -- -- -- --
Sale of common stock.................. -- -- -- --
Issuance of restricted stock.......... -- -- -- (4,746)
Treasury stock acquired............... -- -- -- --
Exercise of stock options............. -- -- -- --
Notes receivable from officers/
shareholders........................ -- (475) -- --
Amortization of unearned
compensation........................ -- -- -- 1,582
Adjustment of additional minimum
pension liability................... (3,298) -- -- --
Translation adjustment................ (1,141) -- -- --
Cumulative effect of accounting
change.............................. (150) -- -- --
Net loss on derivative instruments and
available for sale securities....... (2,929) -- -- --
------- ------- ----- -------
Balances at September 30, 2001........ $(6,868) $(3,665) $ -- $(3,164)
======= ======= ===== =======

TOTAL
TREASURY SHAREHOLDERS'
STOCK EQUITY
--------- -------------

Balances at September 30, 1998........ $(128,472) $ 21,874

Net income............................ -- 24,136
Sale of common stock by trust......... -- 394
Treasury stock acquired............... (624) (624)
Exercise of stock options............. -- 274
Adjustment of additional minimum
pension liability................... -- 222
Translation adjustment................ -- 166
Unrealized (gain)/loss on stock held
in trust............................ -- 18
--------- --------
Balances at September 30, 1999........ (129,096) 46,460

Net income............................ -- 38,350
Treasury stock acquired............... (886) (886)
Exercise of stock options............. -- 621
Notes receivable from officers/
shareholders........................ -- (2,300)
Adjustment of additional minimum
pension liability................... -- 415
Translation adjustment................ -- (1,964)
--------- --------
Balances at September 30, 2000........ (129,982) 80,696

Net income............................ -- 11,534
Sale of common stock.................. -- 64,179
Issuance of restricted stock.......... -- --
Treasury stock acquired............... (88) (88)
Exercise of stock options............. -- 7,675
Notes receivable from officers/
shareholders........................ -- (475)
Amortization of unearned
compensation........................ -- 1,582
Adjustment of additional minimum
pension liability................... -- (3,298)
Translation adjustment................ -- (1,141)
Cumulative effect of accounting
change.............................. -- (150)
Net loss on derivative instruments and
available for sale securities....... -- (2,929)
--------- --------
Balances at September 30, 2001........ $(130,070) $157,585
========= ========

See accompanying notes to consolidated financial statements.

F-6

RAYOVAC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED SEPTEMBER 30, 1999, 2000 AND 2001

(IN THOUSANDS)

1999 2000 2001
--------- --------- ---------

Cash flows from operating activities:
Net income................................................ $ 24,136 $ 38,350 $ 11,534
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Extraordinary item, loss on early retirement of debt...... -- -- 8,587
Amortization.............................................. 3,079 6,309 5,608
Depreciation.............................................. 11,890 16,024 17,667
Deferred income taxes..................................... 1,038 2,905 (3,751)
Non-cash restructuring charges............................ -- -- 9,958
Stock option income tax benefit........................... 171 625 4,348
Amortization of unearned restricted stock compensation.... -- -- 1,582
Loss (gain) on disposal of fixed assets................... 162 (1,297) 187
Changes in assets and liabilities, net of businesses
acquired:
Accounts receivable....................................... (29,267) (15,697) (37,814)
Inventories............................................... (4,667) (20,344) 5,168
Prepaid expenses and other assets......................... (9,075) (5,416) (1,657)
Accounts payable and accrued liabilities.................. 14,816 16,530 (8,253)
Accrued special charges................................... 999 (5,147) 4,883
--------- --------- ---------
Net cash provided by operating activities................... 13,282 32,842 18,047
--------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment................ (24,113) (18,996) (19,693)
Investments in available for sale securities.............. -- -- (797)
Proceeds from sale of property, plant and equipment....... 26 1,051 863
Proceeds from sale of investments......................... -- -- 1,354
Payment for acquisitions, net of cash acquired............ (145,076) -- --
--------- --------- ---------
Net cash used by investing activities....................... (169,163) (17,945) (18,273)
--------- --------- ---------
Cash flows from financing activities:
Reduction of debt......................................... (102,974) (215,394) (416,699)
Proceeds from debt financing.............................. 275,125 203,189 421,914
Debt issuance costs....................................... (5,904) -- --
Proceeds from direct financing lease...................... 200 -- --
Loans of notes receivable from officers/shareholders...... -- (2,300) (475)
Issuance of stock......................................... -- -- 64,179
Acquisition of treasury stock............................. (390) (886) (88)
Exercise of stock options................................. 40 621 3,327
Extinguishment of debt.................................... -- -- (69,652)
Payments on capital lease obligation...................... (794) (1,233) (837)
--------- --------- ---------
Net cash provided (used) by financing activities.......... 165,303 (16,003) 1,669
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... 49 (202) 158
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 9,471 (1,308) 1,601
Cash and cash equivalents, beginning of period.............. 1,594 11,065 9,757
--------- --------- ---------
Cash and cash equivalents, end of period.................... $ 11,065 $ 9,757 $ 11,358
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 12,837 $ 27,691 $ 28,938
Cash paid for income taxes................................ 11,114 14,318 8,166

See accompanying notes to consolidated financial statements.

F-7

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(1) DESCRIPTION OF BUSINESS

Rayovac Corporation and its wholly owned subsidiaries (Company) manufacture
and market batteries. Products include general (alkaline, rechargeables, heavy
duty, lantern and general purpose), button cell and lithium batteries. The
Company also produces a variety of battery powered lighting devices such as
flashlights and lanterns. The Company's products are sold primarily to retailers
in the United States, Canada, Latin America, Europe, and the Far East.

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

(A) PRINCIPLES OF CONSOLIDATION AND FISCAL YEAR END

The consolidated financial statements include the financial statements
of Rayovac Corporation and its wholly owned subsidiaries and are
prepared in accordance with accounting principles generally accepted in
the United States of America. All intercompany transactions have been
eliminated. The Company's fiscal year ends September 30. References
herein to 1999, 2000 and 2001 refer to the fiscal years ended
September 30, 1999, 2000 and 2001.

(B) REVENUE RECOGNITION

The Company recognizes revenue from product sales upon shipment to the
customer which is the point at which all risks and rewards of ownership
of the product is passed. The Company is not obligated to allow for
returns.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition". An amendment in
June 2000 delayed the effective date until the Company's fourth quarter
of fiscal 2001. The adoption of SAB 101 did not have an impact on the
consolidated financial statements.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

At the beginning of 2000, the Company made certain changes in accounting
estimates including a change in the estimated useful life of permanent
fixtures provided to retail outlets which will now be amortized over an
estimated useful life of one to two years rather than expensed when
shipped. In addition, the Company began expensing maintenance materials
when used rather than when purchased. These changes in estimates
increased 2000 and 2001 net income by $2,500 and $3,200 versus 1999,
respectively.

(D) CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with original maturities of
three months or less to be cash equivalents.

F-8

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(E) CONCENTRATIONS OF CREDIT RISK, MAJOR CUSTOMERS AND EMPLOYEES

The Company has one customer that represented over 10% of its net sales.
The Company derived 20%, 21% and 26% of its net sales from this customer
during 1999, 2000 and 2001, respectively.

A significant number of the Company's factory employees are represented
by labor unions. The Company believes its relationship with its employees
is good and there have been no work stoppages involving Company employees
since 1981 in North America and since 1991 in the United Kingdom.

The Company has entered into collective bargaining agreements with
expiration dates as follows:

LOCATION EXPIRATION DATE
-------- ---------------

Washington, UK Production................................... November 2001
Mexico City, Mexico......................................... February 2002
Portage, WI................................................. July 2002
Hayward, CA................................................. June 2002
Madison, WI................................................. August 2003
Guatemala City, Guatemala................................... March 2004
Fennimore, WI............................................... March 2005

Approximately 45% of the total labor force is covered by collective
bargaining agreements. Bargaining agreements that expire in 2002
represent approximately 16% of the total labor force. Negotiations are
ongoing to extend the agreement covering approximately 90 employees at
our Washington, UK production facility. The existing agreement provides
for automatic weekly renewals and the Company anticipates an agreement
will be finalized in the second quarter of fiscal 2002.

(F) DISPLAYS AND FIXTURES

The costs of temporary displays are capitalized and recorded as a
prepaid asset and charged to expense when shipped to a customer
location. Permanent fixtures are capitalized as deferred charges and
amortized over an estimated useful life of one to two years.

(G) INVENTORIES

Inventories are stated at lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method for approximately 78% and
83% of the inventories at September 30, 2000 and 2001, respectively.
Costs for other inventories have been determined primarily using the
average cost method.

F-9

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(H) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation on plant
and equipment is calculated on the straight-line method over the
estimated useful lives of the assets. Depreciable lives by major
classification are as follows:

Building and improvements................................... 20-30 years
Machinery, equipment and other.............................. 2-15 years

The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company evaluates recoverability of assets to
be held and used by comparing the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.

(I) INTANGIBLE ASSETS

Intangible assets are recorded at cost and are amortized, using the
straight-line method, over their estimated useful lives. Excess cost
over fair value of net assets acquired (goodwill) is amortized over 15
to 40 years. The trade name is being amortized over 40 years. Other
intangibles are amortized over 3 to 17 years. The Company assesses the
recoverability of its intangible assets by determining whether the
amortization of the remaining balance over its remaining life can be
recovered through projected undiscounted future cash flows. If projected
future cash flows indicate that the unamortized carrying value of
intangible assets will not be recovered, an adjustment would be made to
reduce the carrying value to an amount equal to projected future cash
flows discounted at the Company's incremental borrowing rate. Cash flow
projections are based on trends of historical performance and
management's estimate of future performance, giving consideration to
existing and anticipated competitive and economic conditions.

(J) DEBT ISSUANCE COSTS

Debt issuance costs are capitalized and amortized to interest expense
over the lives of the related debt agreements.

(K) ACCOUNTS PAYABLE

Included in accounts payable at September 30, 2000 and 2001, is
approximately $2,546 and $16,464, respectively, of book overdrafts on
disbursement accounts which were replenished when checks were presented
for payment.

(L) INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between

F-10

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.

(M) FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's foreign subsidiaries are
translated at the rate of exchange existing at year-end, with revenues,
expenses, and cash flows translated at the average of the monthly
exchange rates. Adjustments resulting from translation of the financial
statements are recorded as a component of accumulated other
comprehensive income. Exchange losses on foreign currency transactions
aggregating $708, $1,334 and $2,091 for 1999, 2000 and 2001,
respectively, are included in other (income) expense, net, in the
Consolidated Statements of Operations.

(N) SHIPPING AND HANDLING COSTS

The Company incurred shipping and handling costs of $20,455, $27,040 and
$30,054 in 1999, 2000 and 2001, respectively, which are included in
selling expense.

(O) ADVERTISING COSTS

The Company incurred expenses for advertising of $33,292, $34,011 and
$33,416 in 1999, 2000 and 2001, respectively. The Company expenses
advertising production costs the first time the advertising takes place.

(P) RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to expense in the year they
are incurred.

(Q) NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income
available to common shareholders by the weighted-average number of
common shares outstanding for the period. Basic net income per common
share does not consider common stock equivalents. Diluted net income per
common share reflects the dilution that would occur if convertible debt
securities and employee stock options were exercised or converted into
common shares or resulted in the issuance of common shares that then
shared in the net income of the entity. The computation of diluted net
income per common share uses the "if converted" and "treasury stock"
methods to reflect dilution. The difference between the numbers of
shares used in the two calculations is due to assumed conversion of
employee stock options where the exercise price is less than the market
price of the underlying stock.

F-11

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Net income per common share is calculated based upon the following
shares:

1999 2000 2001
-------- -------- --------

Basic............................................... 27,486 27,504 28,746
Effect of restricted stock and assumed conversion of
stock options..................................... 1,747 1,565 956
------ ------ ------
Diluted............................................. 29,233 29,069 29,702
====== ====== ======

(R) 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 does not hold or issue derivative financial
instruments for trading purposes.

The Company uses interest rate swaps to manage its interest rate risk.
The swaps are designated as cash flow hedges with the fair value recorded
in Other Comprehensive Income ("OCI") and as a hedge asset or liability,
as applicable. The swaps settle periodically in arrears with the related
amounts for the current settlement period payable to, or receivable from,
the counter-parties included in accrued liabilities or accounts
receivable and recognized in earnings as an adjustment to interest
expense from the underlying debt to which the swap is designated. During
the twelve month period ended September 30, 2001, $925 of pretax
derivative losses from such hedges were recorded as an adjustment to
interest expense. At September 30, 2001, the Company had a series of
interest rate swap agreements outstanding which effectively fix the
interest rate on floating rate debt at a rate of 6.404% for a notional
principal amount of $75,000 through October 2002 and a series of interest
rate swap agreements outstanding which effectively fix the interest rate
on floating rate debt at a rate of 4.99% for a notional principal amount
of $25,000 through December 2001. The derivative net losses on these
contracts recorded in OCI at September 30, 2001 was an after-tax loss of
$1,780.

The Company enters into forward and swap foreign exchange contracts, to
hedge the risk from forecasted settlement in local currencies of
intercompany purchases and sales, trade sales, and trade purchases. These
contracts generally require the Company to exchange foreign currencies
for U.S. dollars or Pounds Sterling. These contracts are designated as
cash flow hedges with the fair value recorded in OCI and as a hedge asset
or liability, as applicable. Once the forecasted transaction has been
recognized as a purchase or sale and a related liability or asset
recorded in the balance sheet, the gain or loss on the related derivate
hedge contract is reclassified from OCI into earnings as an offset to the
change in value of the liability or asset. During the twelve month period
ended September 30, 2001, $17 of pretax derivative gains were recorded as
an adjustment to earnings for cash flow hedges related to an asset or
liability. During the twelve month period ended September 30, 2001, $994
of pretax derivative losses were recorded as an adjustment to earnings
for forward and swap contracts settled at maturity. At September 30,
2001, the Company had a series of forward and swap contracts outstanding
with a contract value of $2,236. The derivative net gain on these
contracts recorded in OCI at September 30, 2001 was an after-tax gain of
$40.

F-12

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
The Company periodically enters into forward foreign exchange contracts,
to hedge the risk from changes in fair value from unrecognized firm
purchase commitments. These firm purchase commitments generally require
the Company to exchange U.S. dollars for foreign currencies. These hedge
contracts are designated as fair value hedges with the fair value
recorded in earnings on a pretax basis and as a hedge asset or liability,
as applicable. To the extent effective, changes in the value of the
forward contracts recorded in earnings will be offset by changes in the
value of the hedged item, also recorded in earnings on a pretax basis and
as an asset or liability, as applicable. Once the firm purchase
commitment has been consummated, the firm commitment asset or liability
balance will be reclassified as an addition to or subtraction from, the
carrying value of the purchased asset. The Company has entered into a
series of forward contracts through October 2001 to hedge the exposure
from a firm commitment to purchase certain battery manufacturing
equipment denominated in Japanese Yen. During the twelve month period
ended September 30, 2001, $63 of pretax derivative losses were recorded
as an adjustment to earnings for fair value hedges of this firm purchase
commitment and $63 of pretax gains were recorded as an adjustment to
earnings for changes in fair value of this firm purchase commitment.
During the twelve month period ended September 30, 2001 $505 of pretax
derivative losses were recorded as an adjustment to earnings for fair
value hedges of this firm purchase commitment that were settled at
maturity and $505 of pretax gains were recorded as an adjustment to
earnings for payments made against this firm purchase commitment. At
September 30, 2001, the outstanding forward contract for this firm
purchase commitment had a contract value of $1,065.

The Company is exposed to risk from fluctuating prices for zinc used in
the manufacturing process. The Company hedges a portion of this risk
through the use of commodity swaps. The swaps are designated as cash flow
hedges with the fair value recorded in OCI and as a hedge asset or
liability, as applicable. The fair value of the swaps is reclassified
from OCI into earnings when the hedged purchase of zinc metal-based items
also affects earnings. The swaps effectively fix the floating price on a
specified quantity of a commodity through a specified date. During the
twelve month period ended September 30, 2001, $1,399 of pretax derivative
losses were recorded as an adjustment to cost of sales for swap contracts
settled at maturity. At September 30, 2001, the Company had a series of
swap contracts outstanding through September 2002 with a contract value
of $10,870. The derivative net losses on these contracts recorded in OCI
at September 30, 2001 was an after-tax loss of $1,352.

(S) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments approximate the fair value
of those instruments due to their nature.

(T) ENVIRONMENTAL EXPENDITURES

Environmental expenditures which relate to current ongoing operations or
to conditions caused by past operations are expensed. The Company
determines its liability on a site-by-site basis and records a liability
at the time when it is probable and can be reasonably estimated. The
estimated liability is not reduced for possible recoveries from
insurance carriers.

F-13

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(U) RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform with the
current year presentation.

(V) ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

Effective October 1, 2000, the Company adopted Financial Accounting
Standards Board Statement (FASB) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. All derivatives, whether designated in hedging relationships
or not, are required to be recorded on the balance sheet at fair value.
If the derivative is designated as a fair value hedge, the change in the
fair value of the derivative and of the hedged item attributable to the
hedged risk are recognized in earnings. If the derivative is designated
as a cash flow hedge, the effective portions of changes in the fair
value of the derivative are recorded in other comprehensive income (OCI)
and are recognized in the income statement when the hedged item affects
earnings. Ineffective portions of changes in the fair value of cash flow
hedges are recognized in earnings.

The adoption of Statement No. 133 resulted in a pre-tax reduction to OCI
of $317 ($150 after tax). The reduction to OCI is primarily attributable
to losses of approximately $500 for foreign exchange forward cash flow
hedges partially offset by gains of approximately $200 on interest rate
swap cash flow hedges. (See also footnote 2(r)).

In January 2001, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on Issue 3 of EITF 00-22, "Accounting for "Points" and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for
Free Products or Services to Be Delivered in the Future". Issue 3
addresses the recognition, measurement, and income statement
classification for offers to a customer to rebate or refund a specified
amount of cash that may be redeemed if the customer completes a specified
volume of transactions. The consensus was effective for quarters ending
after February 15, 2001. The Company adopted the consensus reached on
Issue 3, in the second fiscal quarter of 2001. The adoption and
subsequent restatement of the 1999 and 2000 periods resulted in the
reclassification of certain selling expenses as a reduction in revenue of
$9,238 and $10,594, respectively. The reclassifications had no impact on
pre-tax income, net income, or earnings per share.

In September 2000, the EITF reached a consensus on Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs". The Company
adopted this consensus in the fourth quarter of Fiscal 2001. The adoption
of EITF Issue No. 00-10 did not have a material impact on the
consolidated financial statements. (See also footnote 2(n)).

(W) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2000, the EITF reached a consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives". This Issue addresses the
recognition, measurement, and income statement classification for
various types of sales incentives including discounts, coupons, rebates
and

F-14

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
free products. In July 2001, the EITF delayed the implementation of EITF
00-14 until no later than quarters beginning after December 15, 2001.
The Company is required to adopt this consensus in the second fiscal
quarter of 2002. The impact of this consensus on the Company's
consolidated financial statements is still being evaluated. The Company
does not currently believe its adoption will have a material impact on
the consolidated financial statements other than the reclassification of
certain selling expenses to cost of sales or a reduction of revenue.

In April 2001, the EITF reached a consensus on Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products". This Issue addresses when consideration from a
vendor to a retailer or distributor in connection with the purchase of
the vendor's products to promote sales of the vendor's products should be
classified in the vendor's income statement as a reduction of revenue or
expense. The Company is required to adopt this consensus in the second
fiscal quarter of 2002. The Company does not currently believe its
adoption will have a material impact on the consolidated financial
statements, other than the reclassification of certain selling expenses
to cost of sales or a reduction in revenue.

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (Statement) 141, BUSINESS
COMBINATIONS, and Statement 142, GOODWILL AND OTHER INTANGIBLE ASSETS.
Statement 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001, as well as all
purchase method business combinations completed after June 30, 2001.
Statement 141 also specifies criteria that intangible assets acquired in
a purchase method business combination must meet to be recognized and
reported apart from goodwill. Statement 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized,
but instead tested for impairment at least annually in accordance with
the provisions of Statement 142. Statement 142 also requires that
intangible assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with FASB Statement 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF.

The Company is required to adopt the provisions of Statement 141
immediately, and will adopt Statement 142 effective October 1, 2001.
Statement 141 requires that the Company evaluate its existing intangible
assets and goodwill that were acquired in a prior purchase business
combination, and to make any necessary reclassifications in order to
conform with the new criteria in Statement 141 for recognition apart from
goodwill. Adoption of Statement 142 requires the Company to reassess the
useful lives and residual values of all intangible assets acquired, and
make any necessary amortization period adjustments by December 31, 2001.
In addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of
Statement 142.

As of October 1, 2001, the Company has unamortized goodwill of
approximately $30,400 million and unamortized identifiable intangible
assets of approximately $88,700 million, all of which is subject to the
transition provisions of Statements 141 and 142. Amortization expense
related to goodwill was approximately $1,000, $1,600, and $800 for fiscal

F-15

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
2001, 2000, and 1999, respectively. Amortization expense related to
tradenames was approximately $2,300, $2,300, and $400 for fiscal 2001,
2000, and 1999, respectively. Management is currently evaluating the
impact of adoption on the consolidated financial statements.

In August 2001, FASB issued Statement No. 143, ACCOUNTING 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
is required to adopt no later than its fiscal year beginning October 1,
2002. Management is currently evaluating the impact of adoption on the
consolidated financial statements.

In October 2001, the FASB Issued Statement No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. This statement supersedes
FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting
and reporting provisions of APB Opinion No. 30, REPORTING THE RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS,
AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND
TRANSACTIONS, for the disposal of a segment of a business. The Company is
required to adopt no later than its fiscal year beginning October 1,
2002. Management is currently evaluating the impact of adoption on the
consolidated financial statements.

(3) INVENTORIES

Inventories consist of the following:

SEPTEMBER 30,
-------------------
2000 2001
-------- --------

Raw material................................................ $ 31,355 $24,271
Work-in-process............................................. 11,650 14,015
Finished goods.............................................. 57,671 53,025
-------- -------
$100,676 $91,311
======== =======

(4) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

SEPTEMBER 30,
-------------------
2000 2001
-------- --------

Land, building and improvements............................. $ 37,638 $ 34,350
Machinery, equipment and other.............................. 168,068 175,724
Construction in process..................................... 23,159 11,271
-------- --------
228,865 221,345
Less accumulated depreciation............................... 116,968 114,088
-------- --------
$111,897 $107,257
======== ========

Machinery, equipment and other includes capitalized leases, net of
amortization, totaling $1,283 and $1,242 at September 30, 2000 and 2001,
respectively.

F-16

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(5) INTANGIBLE ASSETS

Intangible assets consist of the following:

SEPTEMBER 30,
-------------------
2000 2001
-------- --------

Excess cost over fair value of assets acquired (goodwill)... $ 33,878 $ 33,878
Trade name.................................................. 90,000 90,000
Non-competition agreement................................... 730 700
Underfunded pension......................................... 2,660 3,081
Proprietary technology...................................... 525 525
-------- --------
127,793 128,184
Less: Accumulated amortization.............................. 5,679 9,110
-------- --------
$122,114 $119,074
======== ========

(6) DEBT

Debt consists of the following:

SEPTEMBER 30,
-------------------
2000 2001
-------- --------

Revolving credit facility................................... $175,700 $213,200
Term loan facility.......................................... 62,830 34,365
Series B Senior Subordinated Notes, due November 1, 2006,
with interest at 10 1/4% payable semi-annually............ 65,000 239
Capitalized lease obligations............................... 1,019 1,098
Notes and obligations, weighted average interest rate of
4.90% at September 30, 2001............................... 13,081 9,075
-------- --------
317,630 257,977
Less current maturities..................................... 44,815 24,436
-------- --------
Long-term debt.............................................. $272,815 $233,541
======== ========

In 1999, the Company entered into an Amended and Restated Credit Agreement
("Second Restated Agreement"). The Second Restated Agreement provides for senior
bank facilities, including term and revolving credit facilities in an aggregate
amount of $325,000. Interest on borrowings is computed, at the Company's option,
based on the base rate, as defined ("Base Rate"), or the Interbank Offering Rate
("IBOR"). The Company recorded $3,700 of fees paid as a result of the amendments
as a debt issuance cost which is being amortized over the remaining life of the
Second Restated Agreement.

The term facility included in the Second Restated Agreement initially
totaled $75,000. The facility provides for quarterly amortization totaling
$10,000 in 2000, $15,000 in 2001, 2002 and 2003, and $20,000 in 2004. The term
facility also provides for annual prepayments, over and above the normal
amortization. Such payments would be a portion of "Excess Cash Flow" (EBITDA
less certain operating expenditures including scheduled principal payments of
long-term debt). The quarterly

F-17

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(6) DEBT (CONTINUED)
amortization is reduced prorata for the effect of prepayments made as a result
of Excess Cash Flow. The revolving credit facility provides for aggregate
working capital loans up to $250,000 reduced by outstanding letters of credit
(initially limited to $20,000) and other existing credit facilities and
outstanding obligations.

On July 28, 2000, the Company amended the Second Restated Agreement ("First
Amendment"). This First Amendment provides for letters of credit of up to
$40,000, loans to employees in the ordinary course of business of up to $10,000
and capital expenditures of up to $40,000 in fiscal years 2001, 2002 and 2003.
The Company recorded $25 of fees paid as a result of the amendment as a debt
issuance cost which is being amortized over the remaining life of the Second
Restated Agreement.

On December 31, 2000, the Company amended the Second Restated Agreement
("Second Amendment"). This Second Amendment authorizes the Company's
majority-owned foreign subsidiaries to invest in other Company majority-owned
foreign subsidiaries. No fees were paid as a result of the amendment.

On June 11, 2001, the Company amended the Second Restated Agreement ("Third
Amendment"). This Third Amendment authorizes the Company to apply the net
proceeds of an equity offering to redemption of its Senior Subordinated Notes,
provides for investments by the Company and its domestic subsidiaries in its
majority-owned foreign subsidiaries of up to $40,000 and amends the definition
of EBITDA for the twelve month periods ended July 1, and September 30, 2001
respectively, to include, non-cash charges related to write-off of un-amortized
debt issuance costs associated with issuance of the Senior Subordinated Notes
and up to $15,000 and $12,000 respectively of non-cash charges associated with
restructuring charges recorded in the previous twelve month periods. The Company
recorded $50 of fees paid as a result of the amendment as a debt issuance cost
which is being amortized over the remaining life of the Second Restated
Agreement.

Interest on these borrowings is at the Base Rate plus a margin (0.00% to
0.75%) per annum (6.25% at September 30, 2001) or IBOR plus a margin (0.75% to
1.75%) per annum (4.90% at September 30, 2001). The Company had outstanding
letters of credit of approximately $11,080 at September 30, 2001. A fee (0.75%
to 1.75%) per annum (1.25% at September 30, 2001) is payable on the outstanding
letters of credit. The Company also incurs a fee of 0.25% per annum of the
average daily maximum amount available to be drawn on each letter of credit
issued.

The Second Restated Agreement contains financial covenants with respect to
borrowings which include maintaining minimum interest coverage and maximum
leverage ratios. In accordance with the Agreement, the limits imposed by such
ratios became more restrictive following the June, 2001 equity offering. In
addition, the Second Restated Agreement restricts the Company's ability to incur
additional indebtedness, create liens, make investments or specified payments,
give guarantees, pay dividends, make capital expenditures, and merge or acquire
or sell assets. The Company is in compliance with the restrictive covenants of
the Second Restated Agreement. The Company is required to pay a commitment fee
(0.25% to 0.50%) per annum (0.375% at September 30, 2001) on the average daily-
unused portion of the facilities. The facilities' margin and commitment fee may
be adjusted if the Company's leverage ratio, as defined, increases or decreases.
Borrowings under the Second Restated Agreement are collateralized by
substantially all of the assets of the Company.

F-18

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(6) DEBT (CONTINUED)
The Series B Senior Subordinated Notes ("Notes") were scheduled to mature on
November 1, 2006. In connection with the Company's initial public offering of
common stock, $35,000 of the outstanding Notes were redeemed in December 1997.
The remaining Notes were redeemable at the option of the Company, in whole or in
part, at prescribed redemption prices plus accrued and unpaid interest on or
after November 1, 2001.

In connection with the acquisition of the consumer battery business of ROV
Limited ("Acquisition"), the Company obtained the consent of the holders of the
Notes to certain amendments to the Indenture governing these Notes. The First
Supplemental Indenture expired in April 1999 without becoming effective. A
Second Supplemental Indenture became effective on August 9, 1999. The Company
recorded $2,200 of fees paid as a result of the amendments as a debt issuance
cost which was amortized over the remaining life of the Notes.

On June 13, 2001, the Company entered into a Third Supplemental Indenture
("Third Supplemental Indenture") in connection with the Company's offer to
redeem all of the $65,000 of remaining outstanding Notes prior to their
scheduled redemption dates. As a result of the Third Supplemental Indenture, the
Company received consents to eliminate or modify substantially all of the
covenants and certain events of default in the indenture. $64,761 of the Notes
were redeemed in June 2001. In connection with the early redemption the Company
recorded, as an extraordinary item, $4,891 for the premium and related expenses
paid or incurred and $3,696 for the write-off of un-amortized debt issuance
costs. As of September 30, 2001, the Company has given notice to the holders of
the $239 of remaining Notes of its intention to redeem them on November 1, 2001.
Payment obligations under the Notes are fully and unconditionally guaranteed on
a joint and several basis by the Company's directly and wholly owned
subsidiaries, ROV Holding, Inc., Rovcal, and Vidor Battery Company, each a
guarantor. Vidor Battery Company was dissolved and transferred to the Company on
September 2, 1999. The foreign subsidiaries of the Company currently do no
guarantee the payment obligations under the Notes (Nongurantor Subsidiaries),
and are wholly owned directly or indirectly by ROV Holding, Inc. (See note 18).

The aggregate scheduled maturities of debt are as follows:

2002........................................................ $ 24,436
2003........................................................ 10,902
2004........................................................ 222,639
--------
$257,977
========

In 2001, the Company entered into capital leases with an aggregate
obligation of $939. Aggregate capitalized lease obligations are payable in
installments of $618 in 2002, $357 in 2003 and $123 in 2004.

(7) SHAREHOLDERS' EQUITY

In January 1997, the Company established a trust to fund future payments
under a deferred compensation plan. Certain employees eligible to participate in
the plan assigned stock options to the plan. The trust exercised the options and
purchased 160 shares of the Company's common stock. In

F-19

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(7) SHAREHOLDERS' EQUITY (CONTINUED)
June 1998, the trust sold 136 shares in connection with a secondary offering of
common stock. The remaining 24 shares held by the trust at September 30, 1998,
valued at $412, were sold during 1999.

On October 1, 2000, the Company granted approximately 277 shares of
restricted stock to certain members of management. Approximately 210 of these
shares will vest on September 30, 2003 provided the recipient is still employed
by the Company. The remainder vests one third each year for the next three
years. The total market value of the restricted shares on date of grant was
approximately $4,746 and has been recorded as unearned compensation as a
separate component of shareholders' equity. Unearned compensation is being
amortized to expense over the three-year vesting period.

On June 22, 2001, the Company completed a primary offering of 3,500 shares
of Common Stock. The net proceeds of approximately $64,200 after deducting the
underwriting discounts and offering expenses, were used to repurchase
approximately $64,800 principal amount of 10 1/4% Series B Senior Subordinated
Notes.

Concurrently, the Thomas H. Lee Group and its affiliates sold approximately
4,200 shares and certain Rayovac officers and employees sold approximately 900
shares in a secondary offering of common stock. The Company did not receive any
proceeds from the sales of the secondary offering shares but incurred expenses
for the offering of approximately $200 which are included in Special Charges.

(8) STOCK OPTION PLANS

In 1996, the Company's 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 or a performance-vesting formula at an exercise price equal to the
market price of the common stock on the date of grant. The time-vesting options
become exercisable primarily in equal 20% increments over a five-year period.
The performance-vesting options become exercisable at the end of ten years with
accelerated vesting over each of the first five years if the Company achieves
certain performance goals. Accelerated vesting may occur upon sale of the
Company, as defined in the 1996 Plan. As of September 30, 2001, there were
options with respect to 1,288, shares of common stock outstanding under the 1996
Plan.

In 1997, the Board adopted the 1997 Rayovac Incentive Plan ("Incentive
Plan"). The Incentive Plan replaces the 1996 Plan and no further awards will be
granted under the 1996 Plan other than awards of options for shares up to an
amount equal to the number of shares covered by options that terminate or expire
prior to being exercised. Under the Incentive Plan, the Company may grant to
employees and non-employee directors stock options, stock appreciation rights
("SARs"), restricted stock, and other stock-based awards, as well as cash-based
annual and long-term incentive awards. Accelerated vesting will occur in the
event of a change in control, as defined in the Incentive Plan. Up to 5,000
shares of common stock may be issued under the Incentive Plan. The Incentive
Plan expires in August 2007. As of September 30, 2001, there were options with
respect to 1,978, shares of common stock outstanding under the Incentive Plan.

F-20

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(8) STOCK OPTION PLANS (CONTINUED)
A summary of the status of the Company's plans is as follows:

1999 2000 2001
------------------------- ------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
-------- -------------- -------- -------------- -------- --------------

Outstanding, beginning of
period....................... 2,561 $7.17 2,832 $ 9.14 3,276 $12.15
Granted........................ 452 18.72 729 21.62 857 14.83
Exercised...................... (39) 4.39 (132) 4.71 (701) 4.75
Forfeited...................... (142) 5.18 (153) 8.39 (166) 18.43
----- ----- ----- ------ ----- ------
Outstanding, end of period..... 2,832 $9.16 3,276 $12.15 3,266 $14.12
===== ===== ===== ====== ===== ======
Options exercisable, end of
period....................... 876 $6.05 1,325 $ 7.67 1,304 $11.81
===== ===== ===== ====== ===== ======

The Company also granted approximately 277 shares of restricted stock during
2001 under the Incentive Plan. The restrictions lapse over the next three years.
As of September 30, 2001, the restrictions had lapsed on 22 of these shares.

The following table summarizes information about options outstanding and
outstanding and exercisable as of September 30, 2001:

OPTIONS OUTSTANDING
OPTIONS OUTSTANDING AND EXERCISABLE
--------------------------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
--------------- --------- ---------------- -------------- --------- --------------

$4.39 1,018 5 years $ 4.39 696 $ 4.39
$14.06 - $20.935 1,376 8.3 16.13 274 17.86
$21.25 - $29.50 872 7.6 22.25 334 22.32

The Company has adopted the provisions of SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, and continues to apply Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its stock plans.
Accordingly, the Company recognized $1,582 of compensation cost related to
restricted stock and no compensation cost related to options for the stock
plans. If the Company had elected to recognize compensation cost for all of the
plans based upon the fair value at the grant dates for awards under those plans,
consistent with the method prescribed by SFAS No. 123, net income per common
share would have been reduced to the pro forma amounts indicated below:

1999 2000 2001
-------- -------- --------

Net income reported...................................... $24,136 $38,350 $11,534
Pro forma net income..................................... $22,697 $35,887 $ 7,932
Pro forma basic net income per common share.............. $ 0.83 $ 1.30 $ 0.28
Pro forma diluted net income per common share............ $ 0.78 $ 1.23 $ 0.27

F-21

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(8) STOCK OPTION PLANS (CONTINUED)

The fair value of the Company's stock options used to compute pro forma net
income and diluted net income per common share disclosures is the estimated fair
value at grant date using the Black-Scholes option-pricing model with the
following weighted-average assumptions:

1999 2000 2001
-------- -------- --------

Assumptions used:
Volatility.............................................. 28.0% 28.6% 34.7%
Risk-free interest rate................................. 6.22% 6.17% 4.48%
Expected life........................................... 8 years 8 years 8 years
Dividend yield.......................................... -- -- --
Weighted-average grant-date fair value of options
granted during period................................. $9.15 $10.49 $7.27

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in the opinion of management, the existing
models do not necessarily 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
period.

(9) INCOME TAXES

Pretax income (income before income taxes and extraordinary item) and income
tax expense consist of the following:

1999 2000 2001
-------- -------- --------

Pretax income:
United States.................................. $26,929 $30,383 $13,660
Outside the United States...................... 10,669 27,569 12,426
------- ------- -------
Total pretax income.............................. $37,598 $57,952 $26,086
======= ======= =======

Income tax expense (benefit):
Current:
Federal...................................... $ 7,908 $ 7,850 $ 6,617
Foreign...................................... 3,988 8,142 6,217
State........................................ 528 705 142
------- ------- -------
Total current.................................... 12,424 16,697 12,976
------- ------- -------
Deferred:
Federal...................................... 784 2,032 (1,977)
Foreign...................................... 55 731 (1,638)
State........................................ 199 142 (136)
------- ------- -------
Total deferred................................... 1,038 2,905 (3,751)
------- ------- -------
$13,462 $19,602 $ 9,225
======= ======= =======

F-22

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(9) INCOME TAXES (CONTINUED)
In 2001, a tax benefit of $3,260 was recorded in conjunction with the loss
on early extinguishment of debt.

The following reconciles the Federal statutory income tax rate with the
Company's effective tax rate:

1999 2000 2001
-------- -------- --------

Statutory Federal income tax rate.................... 35.0% 35.0% 35.0%
Foreign Sales Corporation benefit.................... (0.7) (0.6) (1.4)
Effect of foreign items and rate differentials....... 1.6 (0.9) 0.8
State income taxes and other......................... 1.2 1.0 1.3
Adjustment of prior year taxes....................... (2.0) (1.3) (1.4)
Other................................................ 0.7 0.6 1.1
---- ---- ----
35.8% 33.8% 35.4%
==== ==== ====

The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:

SEPTEMBER 30,
-------------------
2000 2001
-------- --------

Current deferred tax assets:
Restructuring and asset impairments................... $ 1,898 $ 3,151
Inventories and receivables........................... 2,815 3,019
Marketing and promotional accruals.................... 3,492 2,113
Tax loss carry forwards............................... -- 2,348
Currency hedges....................................... -- 1,731
Other................................................. 1,572 1,856
-------- --------
Total current deferred tax assets....................... 9,777 14,218
-------- --------
Current deferred tax liabilities:
Inventories........................................... (4,395) (2,494)
Other................................................. (670) (1,389)
-------- --------
Total current deferred tax liabilities.................. (5,065) (3,883)
-------- --------
Net current deferred tax assets......................... $ 4,712 $ 10,335
======== ========
Noncurrent deferred tax assets:
Employee benefits..................................... 2,725 3,462
Operating loss and credit carry forwards.............. 1,096 1,328
Property, plant and equipment......................... -- 477
Other................................................. 2,344 3,626
-------- --------
Total noncurrent deferred tax assets.................... 6,165 8,893
-------- --------
Noncurrent deferred tax liabilities:
Property, plant, and equipment........................ (11,548) (12,178)
Intangibles........................................... -- (2,240)
Other................................................. (1,111) (903)
-------- --------
Total noncurrent deferred tax liabilities............... (12,659) (15,321)
-------- --------
Net noncurrent deferred tax liabilities................. $ (6,494) $ (6,428)
======== ========

F-23

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(9) INCOME TAXES (CONTINUED)
At September 30, 2001, net noncurrent deferred tax assets of $1,505 are
included in Deferred charges and other and net current deferred tax liabilities
of $1 are included in Other accrued liabilities on the Consolidated Balance
Sheets. At September 30, 2000, net noncurrent deferred tax assets of $1,748 are
included in Deferred charges and other and net current deferred tax liabilities
of $1,362 are included in other accrued liabilities on the Consolidated Balance
Sheets.

The Company believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
deferred tax assets.

Provision has not been made for United States income taxes on a portion of
the undistributed earnings of the Company's foreign subsidiaries (approximately
$25,115 and $33,366 at September 30, 2000 and 2001, respectively), either
because any taxes on dividends would be offset substantially by foreign tax
credits or because the Company intends to reinvest those earnings. Such earnings
would become taxable upon the sale or liquidation of these foreign subsidiaries
or upon remittance of dividends. It is not practicable to estimate the amount of
the deferred tax liability on such earnings.

(10) LEASES

Future minimum rental commitments under non-cancelable operating leases,
principally pertaining to land, buildings and equipment, are as follows:

2002........................................................ $ 6,433
2003........................................................ 5,610
2004........................................................ 4,408
2005........................................................ 4,315
2006........................................................ 3,624
Thereafter.................................................. 17,525
-------
$41,915
=======

The leases on the properties require annual lease payments of $3,084 subject
to annual inflationary increases. All of the leases expire during the years 2002
through 2014.

Total rental expenses were $6,902, $6,924 and $7,137 for 1999, 2000, and
2001 respectively.

(11) EMPLOYEE BENEFIT PLANS

PENSION BENEFITS

The Company has various defined benefit pension plans covering substantially
all of its domestic hourly employees and union members. Plans generally provide
benefits of stated amounts for each year of service. The Company's practice is
to fund pension costs at amounts within the acceptable ranges established by the
Employee Retirement Income Security Act of 1974, as amended.

The Company also has various nonqualified deferred compensation agreements
with certain of its employees. Under certain agreements, the Company has agreed
to pay certain amounts annually for the first 15 years subsequent to retirement
or to a designated beneficiary upon death. It is management's intent that life
insurance contracts owned by the Company will fund these agreements. Under the
other

F-24

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
agreements the Company has agreed to pay such deferral amounts in up to 15
annual installments beginning on a date specified by the employee, subsequent to
retirement or disability, or to 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 to
eligible retired employees. Participants earn retiree health care benefits after
reaching age 45 over the next 10 succeeding years of service and remain eligible
until reaching age 65. The plan is contributory; retiree contributions have been
established as a flat dollar amount with contribution rates expected to increase
at the active medical trend rate. The plan is unfunded. The Company is
amortizing the transition obligation over a 20-year period.

PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................ $16,838 $17,731 $ 2,878 2,925
Service cost........................................... 506 616 335 343
Interest cost.......................................... 1,239 1,415 209 213
Amendments............................................. 860 371 (94) --
Actuarial (gain) loss.................................. (1,039) 1,180 (230) (701)
Benefits paid.......................................... (673) (694) (173) (103)
------- ------- ------- -------
Benefit obligation at end of year...................... $17,731 $20,619 $ 2,925 $ 2,677
======= ======= ======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year......... $ 9,955 11,258 $ -- $ --
Actual return on plan assets........................... 604 (1,252) -- --
Employer contribution.................................. 1,493 3,114 173 103
Benefits paid.......................................... (673) (694) (173) (103)
Plan expenses paid..................................... (121) (110) -- --
------- ------- ------- -------
Fair value of plan assets at end of year............... $11,258 $12,316 $ -- $ --
======= ======= ======= =======
Funded status............................................ $(6,473) $(8,303) $(2,925) $(2,677)
Unrecognized net transition obligation................. 257 213 375 343
Unrecognized prior service cost........................ 2,861 2,917 -- --
Unrecognized net actuarial (gain) loss................. (410) 3,297 609 (121)
Adjustment for minimum liability....................... (2,712) (6,431) -- --
------- ------- ------- -------
Accrued benefit cost................................... $(6,477) $(8,307) $(1,941) $(2,455)
======= ======= ======= =======

F-25

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(11) EMPLOYEE BENEFIT PLANS (CONTINUED)

PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------

Weighted-average assumptions:
Discount rate.......................................... 8.0% 7.5% 7.5% 7.5%
Expected return on plan assets......................... 8.5% 8.5% N.A. N.A.

PENSION BENEFITS OTHER BENEFITS
------------------------------ ------------------------------
1999 2000 2001 1999 2000 2001
-------- -------- -------- -------- -------- --------

COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost.................................. $ 495 $ 506 $ 616 $236 $335 $343
Interest cost................................. 1,431 1,239 1,415 156 209 213
Actual return on assets....................... (735) (604) 1,252 -- -- --
Amortization of prior service cost............ 233 234 311 -- -- --
Recognized net actuarial (gain) loss.......... (347) (272) (2,368) 63 96 61
------ ------ ------- ---- ---- ----
Net periodic benefit cost..................... $1,077 $1,103 $ 1,226 $455 $640 $617
====== ====== ======= ==== ==== ====

Pension plan assets and obligations are measured at June 30 each year. The
contributions to the pension plans between July 1 and September 30 were $2,338
and $495 in 2000 and 2001, respectively.

The Company has recorded an additional minimum pension liability of $2,712
and $6,431 at September 30, 2000 and 2001, respectively, to recognize the under
funded position of certain of its benefit plans. An intangible asset of $2,660
and $3,081 at September 30, 2000 and 2001, respectively, equal to the
unrecognized prior service cost of these plans, has also been recorded. The
excess of the additional minimum liability over the unrecognized prior service
cost of $52 at September 30, 2000 and $3,350 at September 30, 2001, has been
recorded as a component of accumulated other comprehensive income.

The Company sponsors a defined contribution pension plan for its domestic
salaried employees, which allows participants to make contributions by salary
reduction pursuant to Section 401(k) of the Internal Revenue Code. The Company
contributes annually from 3% to 6% of participants' compensation based on age,
and may make additional discretionary contributions. The Company also sponsors
defined contribution pension plans for employees of certain foreign
subsidiaries. Company contributions charged to operations, including
discretionary amounts, for 1999, 2000 and 2001, were $2,013, $2,171 and $2,147,
respectively.

For measurement purposes, annual rates of increase of 8.0% in the per capita
costs of covered health care benefits were assumed for 1999, 2000 and 2001,
respectively, gradually decreasing to 5.5%. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
September 30, 2001, by $170 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
September 30, 2001, by $59. Decreasing the assumed health care cost trend rates
by one percentage point in each year would decrease the accumulated
postretirement benefit

F-26

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
obligation as of September 30, 2001, by $156 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for the
year ended September 30, 2001, by $52.

(12) SEGMENT INFORMATION

The Company manages operations in three reportable segments based upon
geographic area. North America includes the United States and Canada; Latin
America includes Mexico, Central America, and South America; Europe/Rest of
World ("Europe/ROW") includes the United Kingdom, Europe 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, and other specialty batteries
and lighting products throughout the world. These product lines are sold in all
geographic areas except Latin America where revenues have historically been
derived primarily from zinc carbon and some alkaline batteries.

Net sales and cost of sales to other segments have been eliminated. The
gross contribution of inter segment sales is included in the segment selling the
product to the external customer. Segment revenues are based upon the geographic
area in which the product is sold.

The reportable segment profits do not include interest expense, interest
income, and income tax expense. Also, not included in the reportable segments,
are corporate expenses including corporate purchasing expense, general and
administrative expense and research and development expense. All depreciation
and amortization included in income from operations is related to reportable
segments. Costs are identified to reportable segments or corporate, according to
the function of each cost center.

The reportable segment assets do not include cash, deferred tax benefits,
investments, long-term intercompany receivables, most deferred charges, and
miscellaneous assets. All capital expenditures are related to reportable
segments. Variable allocations of assets are not made for segment reporting.

Wal-Mart Store, Inc., the Company's largest mass merchandiser customer,
represented 20%, 21% and 26% of its net sales during 1999, 2000, and 2001,
respectively, primarily in North America.

REVENUES FROM EXTERNAL CUSTOMERS

1999 2000 2001
-------- -------- --------

North America................................. $471,566 $528,298 $504,981
Latin America................................. 19,273 112,179 119,670
Europe/ROW.................................... 64,225 52,862 50,841
-------- -------- --------
Total segments................................ $555,064 $693,339 $675,492
======== ======== ========

F-27

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(12) SEGMENT INFORMATION (CONTINUED)

INTER SEGMENT REVENUES

1999 2000 2001
-------- -------- --------

North America.................................... $17,162 $23,563 $30,634
Latin America.................................... -- 1,293 9,518
Europe/ROW....................................... 1,096 1,058 2,593
------- ------- -------
Total segments................................... $18,258 $25,914 $42,745
======= ======= =======

DEPRECIATION AND AMORTIZATION

1999 2000 2001
-------- -------- --------

North America.................................... $11,430 $13,266 $14,253
Latin America.................................... 703 5,253 5,393
Europe/ROW....................................... 1,324 1,504 1,573
------- ------- -------
Total segments................................... $13,457 $20,023 $21,219
======= ======= =======

SEGMENT PROFIT

1999 2000 2001
-------- -------- --------

North America.................................... $77,785 $95,351 $83,066
Latin America.................................... 3,535 20,273 16,913
Europe/ROW....................................... 9,942 6,085 4,061
------- ------- -------
Total segments................................... 91,262 121,709 104,040
Corporate expenses............................... 28,192 32,378 27,364
Special charges.................................. 9,432 -- 22,307
Interest expense................................. 16,354 30,626 27,189
Other (income) expense net....................... (314) 753 1,094
------- ------- -------
Income before income taxes and extraordinary
items.......................................... $37,598 $57,952 $26,086
======= ======= =======

SEGMENT ASSETS

SEPTEMBER 30,
------------------------------
1999 2000 2001
-------- -------- --------

North America................................. $280,394 $294,210 $309,411
Latin America................................. 177,135 199,865 207,120
Europe/ROW.................................... 33,790 31,233 31,692
-------- -------- --------
Total segments................................ 491,319 525,308 548,223
Corporate..................................... 41,582 43,708 39,659
-------- -------- --------
Total assets at year end...................... $532,901 $569,016 $587,882
======== ======== ========

F-28

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(12) SEGMENT INFORMATION (CONTINUED)
EXPENDITURES FOR SEGMENT ASSETS

1999 2000 2001
-------- -------- --------

North America.................................... $22,678 $14,668 $17,521
Latin America.................................... 622 3,448 1,761
Europe/ROW....................................... 813 880 411
------- ------- -------
Total segments................................... $24,113 $18,996 $19,693
======= ======= =======

PRODUCT LINE REVENUES

1999 2000 2001
-------- -------- --------

Alkaline...................................... $278,500 $329,900 $348,000
Heavy Duty.................................... 55,300 143,700 141,800
Rechargeables................................. 25,200 31,800 33,000
Hearing Aid batteries......................... 72,300 65,300 69,900
Specialty batteries........................... 47,900 43,100 19,100
Lighting products and Lantern batteries....... 75,900 79,500 63,700
-------- -------- --------
Total revenues from external customers........ $555,100 $693,300 $675,500
======== ======== ========

(13) COMMITMENTS AND CONTINGENCIES

In March 1998, the Company entered into an agreement to purchase certain
equipment and to pay annual royalties. In connection with this 1998 agreement
the Company committed to pay royalties of $2,000 in 1999, $3,000 in 2000 through
2002, and $500 in each year thereafter, as long as the related equipment patents
are enforceable (2022). The Company incurred royalty expenses of $2,000 for
1999, $2,250 for 2000 and $3,000 for 2001. Additionally, the Company has
commitments of approximately $1,065 for the acquisition of manufacturing
equipment, all of which is expected to be incurred in calendar 2001.

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 $1,971, which may result from resolution of these matters,
will not have a material adverse effect on the financial condition, liquidity,
or cash flow of the Company.

The Company has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary course of
business. In the opinion of management, such contingent liabilities are not
likely to have a material adverse effect on the financial condition, liquidity
or cash flow of the Company.

F-29

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(14) RELATED PARTY TRANSACTIONS

The Company and Thomas H. Lee Company (THL Co.) are parties to a Management
Agreement pursuant to which the Company engaged THL Co. to provide consulting
and management advisory services for an initial period of five years through
September 2001. The agreement has been renewed for another year. In
consideration of ongoing consulting and management advisory services, the
Company will pay THL Co. an aggregate annual fee of $360 plus expenses. The
Company paid THL Co. aggregate fees and expenses of $437, $458 and $473 for
1999, 2000 and 2001, respectively.

The Company has notes receivable from officers in the amount of $3,190 and
$3,665 at September 30, 2000 and 2001, respectively, generally payable in FY2002
through FY2005, which bear interest at 6.6% to 8.0%. Since the officers utilized
the proceeds of the notes to purchase common stock of the Company, directly or
through the exercise of stock options, the notes have been recorded as a
reduction of shareholders' equity.

(15) SPECIAL CHARGES

During 1998, the Company recorded special charges and credits as follows:
(i) a credit of $1,243 related to the settlement of deferred compensation
agreements with certain former employees, (ii) charges of $5,280 related to
(a) the September 1998 closing of the Company's Newton Aycliffe, United Kingdom,
packaging facility, (b) the phasing out of direct distribution through
June 1998 in the United Kingdom, and (c) the September 1998 closing of one of
the Company's German sales offices, which amounts include $1,771 of employee
termination benefits for 73 employees, $1,457 of lease cancellation costs, and
$1,032 of equipment and intangible asset write-offs, and $1,020 of other costs,
(iii) charges of $2,184 related to the closing of the Company's Appleton,
Wisconsin, manufacturing facility, which amount includes $1,449 of employee
termination benefits for 153 employees, $200 of fixed asset write-offs and $535
of other costs, (iv) charges of $1,963 related to the exit of certain
manufacturing operations at the Company's Madison, Wisconsin, facility, which
amount includes $295 of employee termination benefits for 29 employees, $1,256
of fixed asset write-offs, and $412 of other costs, (v) a $2,435 gain on the
sale of the Company's previously closed Kinston, North Carolina, facility,

F-30

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(15) SPECIAL CHARGES (CONTINUED)
(vi) charges of $854 related to the secondary offering of the Company's common
stock, and (vii) miscellaneous credits of $420. A summary of the 1998
restructuring activities follows:

1998 RESTRUCTURING SUMMARY

TERMINATION OTHER
BENEFITS COSTS TOTAL
----------- -------- --------

Expense accrued.................................. $3,700 $3,800 $7,500
Change in estimate............................... (100) 500 400
Expensed as incurred............................. 200 1,300 1,500
Cash expenditures................................ (1,500) (1,400) (2,900)
Non-cash charges................................. -- (1,600) (1,600)
------ ------ ------
Balance September 30, 1998....................... $2,300 $2,600 $4,900
Change in estimate............................... (500) -- (500)
Expensed as incurred............................. 300 2,800 3,100
Cash expenditures................................ (2,000) (4,500) (6,500)
Non-cash charges................................. -- (900) (900)
------ ------ ------
Balance September 30, 1999....................... $ 100 $ -- $ 100
Cash expenditures................................ (100) -- (100)
------ ------ ------
Balance September 30, 2000....................... $ -- $ -- $ --
====== ====== ======

During 1999, the Company recorded special charges as follows: (i) $2,528 of
employee termination benefits for 43 employees related to organizational
restructuring in the U.S. and Europe, (ii) $1,300 of charges related to the
discontinuation of the manufacturing of silver-oxide cells at the Company's
Portage, Wisconsin, facility, and (iii) $2,100 of charges related to the
termination of non-performing foreign distributors. The Company also recognized
special charges of $803 related to the investigation of financing options and
developing organizational strategies for the Latin American acquisition. A
summary of the 1999 restructuring activities follows:

1999 RESTRUCTURING SUMMARY

TERMINATION OTHER
BENEFITS COSTS TOTAL
----------- -------- --------

Expense accrued.................................. $2,500 $3,400 $5,900
Cash expenditures................................ (200) -- (200)
------ ------ ------
Balance September 30, 1999....................... $2,300 $3,400 $5,700
Change in estimate............................... -- 100 100
Cash expenditures................................ (2,200) -- (2,200)
Non cash charges................................. -- (3,300) (3,300)
------ ------ ------
Balance September 30, 2000....................... $ 100 $ 200 $ 300
Cash expenditures................................ (100) -- (100)
Non cash charges................................. -- (200) (200)
------ ------ ------
Balance September 30, 2001....................... $ -- $ -- $ --
====== ====== ======

F-31

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(15) SPECIAL CHARGES (CONTINUED)
During Fiscal 2001, the Company recorded special charges related to: (i) an
organizational restructuring in the U.S, (ii) manufacturing and distribution
cost rationalization initiatives in the Company's Tegucigalpa, Honduras and
Mexico City, Mexico manufacturing facilities and in our European operations,
(iii) the closure of the Company's Wonewoc, Wisconsin, manufacturing facility,
(iv) the rationalization of uneconomic manufacturing processes at the Company's
Fennimore, Wisconsin, manufacturing facility, and rationalization of packaging
operations and product lines, and (v) costs associated with our June 2001
secondary offering. The amount recorded includes $10,100 of employee termination
benefits for approximately 570 employees, $10,200 of equipment, inventory, and
other asset write-offs, and $2,000 of other expenses. A summary of the 2001
restructuring activities follows:

2001 RESTRUCTURING SUMMARY

TERMINATION OTHER
BENEFITS COSTS TOTAL
----------- -------- --------

Expense accrued................................ $5,000 $11,000 $16,000
Change in estimate............................. 4,400 100 4,500
Expense as incurred............................ 700 1,100 1,800
Cash expenditures.............................. (5,800) (1,300) (7,100)
Non cash charges............................... -- (9,300) (9,300)
------ ------- -------
Balance September 30, 2001..................... $4,300 $ 1,600 $ 5,900
====== ======= =======

(16) ACQUISITIONS AND DIVESTITURES

On August 9, 1999, the Company acquired the consumer battery business of ROV
Limited for approximately $145,100, net of cash. These operations market and
manufacture a line of general batteries under the Rayovac name in many Latin
American countries. They also market and distribute batteries to other countries
in South America, the Middle East, Africa and selected Asian countries. These
operations had calendar 1998 sales of $97,000. This acquisition provides Rayovac
with control of the Rayovac brand rights for battery products worldwide, except
for Brazil. The acquisition has been accounted for by the purchase method and,
accordingly, the results of operations of the acquired business for the period
from August 9, 1999 through September 30, 1999 have been included in Rayovac
Corporation's consolidated financial statements. The trade name, valued at
$90,000, was recorded as an intangible asset. The excess of the purchase price
over the fair value of the net identifiable assets acquired of $28,424 has been
recorded as goodwill. The trade name and goodwill are being amortized on a
straight-line basis over the estimated useful life of 40 years.

In September 2000, the Company entered into an asset purchase agreement and
a license agreement with a Hong Kong company to sell certain inventory and for
the exclusive right to use the Rayovac trade name for the manufacture, sale and
distribution of the Company's camcorder battery product line. In exchange for
the license, the Company received a $6,000 promissory note, payable over five
years, and will receive a royalty on future sales of camcorder batteries. The
Company will receive a minimum royalty of $100 over the balance of the license
arrangement and will receive a variable royalty on sales of camcorder batteries.
The company has no substantive future obligation relative to this agreement. As
a result of this transaction, the Company recognized a pre-tax gain on the sale
of the trade name licensing rights of $1,997, net of write-off of related
tangible and intangible assets.

F-32

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(17) QUARTERLY RESULTS (UNAUDITED)

QUARTER ENDED
--------------------------------------------------
DECEMBER 31, APRIL 1, JULY 1, SEPTEMBER 30,
2000 2001 2001 2001
------------ -------- -------- -------------

Net sales....................................... $183,559 $145,192 $159,132 $187,609
Gross profit.................................... 76,023 69,159 74,902 87,295
(Loss) income before extraordinary item......... (1,766) 4,125 8,072 6,430
Net (loss) income............................... (1,766) 4,125 2,722 6,453
Basic net income per common share............... (0.06) 0.15 0.10 0.20
Diluted net income per common share............. (0.06) 0.14 0.09 0.20

QUARTER ENDED
------------------------------------------------
JANUARY 2, APRIL 2, JULY 2, SEPTEMBER 30,
2000 2000 2000 2000
---------- -------- -------- -------------

Net sales......................................... $211,370 $140,118 $150,351 $191,500
Gross profit...................................... 100,541 67,386 73,049 94,137
Net income........................................ 13,919 3,651 8,078 12,702
Basic net income per common share................. 0.51 0.13 0.29 0.46
Diluted net income per common share............... 0.48 0.13 0.28 0.44

(18) CONSOLIDATING FINANCIAL STATEMENTS

The following condensed consolidating financial data illustrates the
composition of the consolidated financial statements. Investments in
subsidiaries are accounted for using the equity method for purposes of the
consolidating presentation. Earnings of subsidiaries are therefore reflected in
the Company's and Guarantor Subsidiaries' investment accounts and earnings. The
principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions. Separate financial statements of the
Guarantor Subsidiaries are not presented because management has determined that
such financial statements would not be material to investors.

F-33

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(18) CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2001

GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------

ASSETS
Current assets:
Cash and cash equivalents............. $ 2,849 $ 46 $ 8,463 $ -- $ 11,358
Receivables:
Trade accounts receivables, net of
allowance for doubtful accounts..... 75,107 40,150 67,069 -- 182,326
Other................................. 17,965 7,637 2,579 (20,379) 7,802
Inventories........................... 68,094 -- 24,619 (1,402) 91,311
Deferred income taxes................. 7,748 342 1,741 -- 9,831
Prepaid expenses and other............ 14,177 -- 7,666 -- 21,843
--------- -------- -------- --------- ---------
Total current assets.................. 185,940 48,175 112,137 (21,781) 324,471
Property, plant and equipment, net...... 78,436 33 28,788 -- 107,257
Deferred charges and other.............. 49,575 631 2,717 (20,306) 32,617
Intangible assets....................... 89,889 -- 29,373 (188) 119,074
Debt issuance costs..................... 4,463 -- -- -- 4,463
Investments in subsidiaries............. 145,872 97,299 -- (243,171) --
--------- -------- -------- --------- ---------
Total assets........................ $ 554,175 $146,138 $173,015 $(285,446) $ 587,882
========= ======== ======== ========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt................................ $ 22,412 $ -- $ 9,223 $ (7,199) $ 24,436
Accounts payable...................... 90,451 26 27,459 (14,563) 103,373
Accrued liabilities:
Wages and benefits.................... 4,812 -- 2,366 -- 7,178
Accrued interest.................... 1,801 -- 129 -- 1,930
Other special charges............... 4,938 -- 945 -- 5,883
Other............................... 13,413 -- 9,711 -- 23,124
--------- -------- -------- --------- ---------
Total current liabilities........... 137,827 26 49,833 (21,762) 165,924
Long-term debt, net of current
maturities............................ 234,271 -- 17,900 (18,630) 233,541
Employee benefit obligations, net of
current portion....................... 19,086 -- 562 -- 19,648
Deferred income taxes................... 1,694 240 5,494 -- 7,428
Other................................... 1,829 -- 1,927 -- 3,756
--------- -------- -------- --------- ---------
Total liabilities................... 394,707 266 75,716 (40,392) 430,297
Shareholders' equity:
Common stock.......................... 615 1 12,072 (12,072) 616
Additional paid-in capital............ 180,634 62,788 54,904 (117,574) 180,752
Retained earnings..................... 122,022 84,151 31,089 (117,278) 119,984
Accumulated other comprehensive
loss................................ (6,904) (1,068) (766) 1,870 (6,868)
Notes receivable from officers/
shareholders........................ (3,665) -- -- -- (3,665)
--------- -------- -------- --------- ---------
292,702 145,872 97,299 (245,054) 290,819
Less treasury stock, at cost.......... (130,070) -- -- -- (130,070)
Less unearned restricted stock
compensation........................ (3,164) -- -- -- (3,164)
--------- -------- -------- --------- ---------
Total shareholders' equity............ 159,468 145,872 97,299 (245,054) 157,585
--------- -------- -------- --------- ---------
Total liabilities and shareholders'
equity.............................. $ 554,175 $146,138 $173,015 $(285,446) $ 587,882
========= ======== ======== ========= =========

F-34

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(18) CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2001

GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------

Net sales........................... $486,766 $ 45,223 $198,313 $(54,810) $675,492
Cost of goods sold.................. 237,591 43,866 118,365 (53,812) 346,010
Special charges..................... 17,399 -- 4,704 -- 22,103
-------- -------- -------- -------- --------
Gross profit...................... 231,776 1,357 75,244 (998) 307,379
Operating expenses:
Selling........................... 147,584 681 44,278 (279) 192,264
General and administrative........ 45,209 (11,640) 14,782 -- 48,351
Research and development.......... 12,191 -- -- -- 12,191
Special charges................... 204 -- -- -- 204
-------- -------- -------- -------- --------
205,188 (10,959) 59,060 (279) 253,010

Income from operations............ 26,588 12,316 16,184 (719) 54,369
Interest expense.................... 25,860 -- 3,033 (1,704) 27,189
Equity income....................... (20,008) (6,640) -- 26,648 --
Other (income) expense, net......... (1,491) (584) 1,465 1,704 1,094
-------- -------- -------- -------- --------
Income before income taxes and
extraordinary item................ 22,227 19,540 11,686 (27,367) 26,086
Income tax expense (benefit)........ 4,647 (468) 5,046 -- 9,225
-------- -------- -------- -------- --------
Income before extraordinary item.... 17,580 20,008 6,640 (27,367) 16,861
Extraordinary item, loss on early
extinguishment of debt, net of
income tax benefit of $3,260...... (5,327) -- -- -- (5,327)
-------- -------- -------- -------- --------
Net income.......................... $ 12,253 $ 20,008 $ 6,640 $(27,367) $ 11,534
======== ======== ======== ======== ========

F-35

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(18) CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 2001

GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------

Net cash provided by operating
activities....................... $ 12,293 $ 2 $ 5,752 $ -- $ 18,047
Cash flows from investing
activities:
Purchases of property, plant and
equipment...................... (17,475) -- (2,218) -- (19,693)
Purchases of investments......... (500) -- (297) -- (797)
Proceeds from sale of
investments.................... -- -- 1,354 -- 1,354
Proceeds from sale of property,
plant, and equipment........... 78 -- 785 -- 863
--------- --- ------- --------- ---------
Net cash used by investing
activities....................... (17,897) -- (376) -- (18,273)
Cash flows from financing
activities:
Reduction of debt................ (412,815) -- (3,884) -- (416,699)
Extinguishment of debt........... (69,652) -- -- -- (69,652)
Proceeds from debt financing..... 421,914 -- -- -- 421,914
Issuance of stock and exercise of
stock options.................. 67,506 -- -- -- 67,506
Other............................ (1,191) -- (209) -- (1,400)
--------- --- ------- --------- ---------
Net cash provided (used) by
financing activities............. 5,762 -- (4,093) -- 1,669
Effect of exchange rate changes on
cash and cash equivalents........ -- -- 158 -- 158
--------- --- ------- --------- ---------
Net increase in cash and cash
equivalents...................... 158 2 1,441 -- 1,601
Cash and cash equivalents,
beginning of period.............. 2,691 44 7,022 -- 9,757
--------- --- ------- --------- ---------
Cash and cash equivalents, end of
period........................... $ 2,849 $46 $ 8,463 $ -- $ 11,358
========= === ======= ========= =========

F-36

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(18) CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2000

GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------

ASSETS
Current assets:
Cash and cash equivalents.............. $ 2,691 $ 44 $ 7,022 $ -- $ 9,757
Receivables:
Trade accounts receivable, net of
allowance for doubtful receivables... 91,053 36,131 46,662 (26,079) 147,767
Other.................................. 4,368 -- 1,532 -- 5,900
Inventories............................ 67,447 -- 33,354 (125) 100,676
Deferred income taxes.................. 4,544 342 1,188 -- 6,074
Prepaid expenses and other............. 14,509 -- 6,487 -- 20,996
-------- -------- -------- --------- ---------
Total current assets................... 184,612 36,517 96,245 (26,204) 291,170
Property, plant and equipment, net....... 79,348 48 32,501 -- 111,897
Deferred charges and other............... 29,997 274 4,367 (857) 33,781
Intangible assets........................ 91,981 -- 30,321 (188) 122,114
Debt issuance costs...................... 10,054 -- -- -- 10,054
Investment in subsidiaries............... 127,635 92,121 -- (219,756) --
-------- -------- -------- --------- ---------
Total assets........................... $523,627 $128,960 $163,434 $(247,005) $ 569,016
======== ======== ======== ========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt... $ 31,588 $ -- $ 13,362 $ (135) $ 44,815
Accounts payable..................... 88,560 -- 34,450 (25,153) 97,857
Accrued liabilities:
Wages and benefits................... 9,556 -- 2,456 -- 12,012
Accrued Interest..................... 5,703 -- 87 -- 5,790
Recapitalization and other special
charges............................ 978 -- -- -- 978
Other................................ 12,710 1,325 10,953 40 25,028
-------- -------- -------- --------- ---------
Total current liabilities.............. 149,095 1,325 61,308 (25,248) 186,480
Long-term debt, net of current
maturities............................. 273,445 -- 171 (801) 272,815
Employee benefit obligations, net of
current portion........................ 15,365 -- -- -- 15,365
Deferred income taxes.................... 2,558 -- 5,684 -- 8,242
Other.................................... 1,268 -- 4,150 -- 5,418
-------- -------- -------- --------- ---------
Total liabilities...................... 441,731 1,325 71,313 (26,049) 488,320
Shareholders' equity:
Common stock........................... 570 1 12,072 (12,072) 571
Additional paid-in capital............. 104,079 62,788 54,898 (117,568) 104,197
Retained earnings...................... 109,769 64,144 24,449 (89,912) 108,450
Accumulated other comprehensive
income............................... 650 702 702 (1,404) 650
Notes receivable from
officers/shareholders................ (3,190) -- -- -- (3,190)
-------- -------- -------- --------- ---------
211,878 127,635 92,121 (220,956) 210,678
Less treasury stock, at cost........... (129,982) -- -- -- (129,982)
-------- -------- -------- --------- ---------
Total shareholders' equity............. 81,896 127,635 92,121 (220,956) 80,696
-------- -------- -------- --------- ---------
Total liabilities and shareholders'
equity............................... $523,627 $128,960 $163,434 $(247,005) $ 569,016
======== ======== ======== ========= =========

F-37

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(18) CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2000

GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------

Net sales........................... $502,990 $43,479 $183,590 $(36,720) $693,339
Cost of goods sold.................. 248,581 42,175 103,962 (36,492) 358,226
-------- ------- -------- -------- --------
Gross profit...................... 254,409 1,304 79,628 (228) 335,113
Operating expenses:
Selling........................... 149,559 662 34,413 (161) 184,473
General and administrative........ 46,517 (11,791) 16,753 (933) 50,546
Research and development.......... 10,646 -- 117 -- 10,763
Special charges................... (250) -- 250 -- --
-------- ------- -------- -------- --------
206,472 (11,129) 51,533 (1,094) 245,782
-------- ------- -------- -------- --------
Income from operations............ 47,937 12,433 28,095 866 89,331
Interest expense.................... 30,109 -- 548 (31) 30,626
Equity in profit of subsidiary...... (29,685) (17,354) -- 47,039 --
Other (income) expense, net......... (844) (134) 1,556 175 753
-------- ------- -------- -------- --------
Income before income taxes.......... 48,357 29,921 25,991 (46,317) 57,952
Income tax expense.................. 10,729 236 8,637 -- 19,602
-------- ------- -------- -------- --------
Net income........................ $ 37,628 $29,685 $ 17,354 $(46,317) $ 38,350
======== ======= ======== ======== ========

F-38

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(18) CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 2000

GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------

Net cash provided (used) by
operating activities............. $ 41,211 $ (3) $ 4,453 $(7,848) $ 37,813
Cash flows from investing
activities:
Purchases of property, plant and
equipment...................... (14,668) -- (4,328) -- (18,996)
Proceeds from sale of property,
plant, and equipment........... 1,051 -- -- -- 1,051
--------- ---- -------- ------- ---------
Net cash used by investing
activities....................... (13,617) -- (4,328) -- (17,945)
Cash flows from financing
activities:
Reduction of debt................ (199,970) -- (15,424) -- (215,394)
Proceeds from debt financing..... 182,274 -- 12,966 7,949 203,189
Cash overdraft and other......... (8,578) -- (91) (100) (8,769)
--------- ---- -------- ------- ---------
Net cash used by financing
activities....................... (26,274) -- (2,549) 7,849 (20,974)
Effect of exchange rate changes on
cash and cash equivalents........ -- -- (202) -- (202)
--------- ---- -------- ------- ---------
Net increase (decrease) in cash and
cash equivalents................. 1,320 (3) (2,626) 1 (1,308)
Cash and cash equivalents,
beginning of year................ 1,371 47 9,648 (1) 11,065
--------- ---- -------- ------- ---------
Cash and cash equivalents, end of
year............................. $ 2,691 $ 44 $ 7,022 $ -- $ 9,757
========= ==== ======== ======= =========

F-39

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(18) CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999

GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------

Net sales........................... $454,168 $37,848 $91,561 $(28,513) $555,064
Cost of goods sold.................. 231,818 36,712 53,531 (28,203) 293,858
Special charges..................... 1,300 -- -- -- 1,300
-------- ------- ------- -------- --------
Gross profit...................... 221,050 1,136 38,030 (310) 259,906
Operating expenses:
Selling........................... 133,121 646 17,218 -- 150,985
General and administrative........ 39,747 (10,879) 8,570 (72) 37,366
Research and development.......... 9,765 -- 20 -- 9,785
Special charges................... 7,344 -- 788 -- 8,132
-------- ------- ------- -------- --------
.................................... 189,977 (10,233) 26,596 (72) 206,268
-------- ------- ------- -------- --------
Income from operations............ 31,073 11,369 11,434 (238) 53,638
Interest expense.................... 15,727 -- 996 (369) 16,354
Equity in profit of subsidiary...... (16,797) (5,693) -- 22,490 --
Other (income) expense, net......... (1,126) (347) 790 369 (314)
-------- ------- ------- -------- --------
Income before income taxes.......... 33,269 17,409 9,648 (22,728) 37,598
Income tax expense.................. 8,895 612 3,955 -- 13,462
-------- ------- ------- -------- --------
Net income........................ $ 24,374 $16,797 $ 5,693 $(22,728) $ 24,136
======== ======= ======= ======== ========

F-40

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(18) CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1999

GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------

Net cash provided by operating
activities....................... $ 4,230 $ 2 $ 7,542 $ (1,237) $ 10,537
Cash flows from investing
activities:
Purchases of property, plant and
equipment...................... (22,671) -- (1,442) -- (24,113)
Proceeds from sale of property,
plant, and equipment........... 26 -- -- -- 26
Payment for acquisitions, net of
cash acquired.................. (149,145) -- (100,076) 104,145 (145,076)
--------- --- --------- --------- ---------
Net cash used by investing
activities....................... (171,790) -- (101,518) 104,145 (169,163)
Cash flows from financing
activities:
Reduction of debt................ (96,310) -- (7,900) 1,236 (102,974)
Proceeds from debt financing..... 267,673 -- 111,597 (104,145) 275,125
Other............................ (3,786) -- (317) -- (4,103)
--------- --- --------- --------- ---------
Net cash provided by financing
activities....................... 167,577 -- 103,380 (102,909) 168,048
Effect of exchange rate changes on
cash and cash equivalents........ -- -- 49 -- 49
--------- --- --------- --------- ---------
Net increase in cash and cash
equivalents...................... 17 2 9,453 (1) 9,471
Cash and cash equivalents,
beginning of year................ 1,354 45 195 -- 1,594
--------- --- --------- --------- ---------
Cash and cash equivalents, end of
year............................. $ 1,371 $47 $ 9,648 $ (1) $ 11,065
========= === ========= ========= =========

F-41

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Rayovac Corporation:

On November 2, 2001, we reported on the consolidated balance sheets of
Rayovac Corporation and subsidiaries as of September 30, 2000 and 2001, and the
related consolidated statements of operations, comprehensive income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 2001, which are included in the 2001 Annual Report on
Form 10-K. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedule
as listed in Item 14(a)2. The financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP
KPMG LLP

Milwaukee, Wisconsin
November 2, 2001

II-1

RAYOVAC CORPORATION AND SUBSIDIARIES

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999

(IN THOUSANDS)

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ---------- ---------- --------
ADDITIONS BALANCE
BALANCE AT CHARGED TO AT
BEGINNING COSTS AND END OF
DESCRIPTIONS OF PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- ---------- --------

September 30, 2001:
Allowance for doubtful accounts................... $1,020 $5,149 $4,030 $2,139

September 30, 2000:
Allowance for doubtful accounts................... $1,253 $ 583 $ 816 $1,020

September 30, 1999:
Allowance for doubtful accounts................... $1,356 $ 750 $ 853 $1,253

See accompanying Independent Auditors' Report

II-2

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: December 19, 2001

SIGNATURE TITLE
--------- -----

/s/ DAVID A. JONES
-------------------------------------- Chairman of the Board and Chief Executive Officer
David A. Jones (PRINCIPAL EXECUTIVE OFFICER)

/s/ KENT J. HUSSEY
-------------------------------------- President and Chief Financial Officer and Director
Kent J. Hussey (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

/s/ JOHN S. LUPO
-------------------------------------- Director
John S. Lupo

/s/ PHILIP F. PELLEGRINO
-------------------------------------- Director
Philip F. Pellegrino

/s/ SCOTT A. SCHOEN
-------------------------------------- Director
Scott A. Schoen

/s/ THOMAS R. SHEPHERD
-------------------------------------- Director
Thomas R. Shepherd

/s/ WARREN C. SMITH JR.
-------------------------------------- Director
Warren C. Smith, Jr.

II-3

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------

2.1++++ Share Purchase Agreement made as of June 11, 1999, by and
among the Company, Vidor Battery Company, Rayovac Latin
America, Ltd., the shareholders of ROV Limited, ROV Limited,
ESB ROV Ltd., Duranmas, S.A., certain second-tier
subsidiaries of ROV Limited, Ray-O-Vac Overseas Corporation,
and Alfredo J. Diez and Richard T. Doyle, Jr., as selling
group representatives.
2.2++++ Form of Stock Purchase Agreement entered into on or around
June 11, 1999, by and among the Company, Rayovac Latin
America, Ltd. and certain persons who hold minority
interests in certain of the operating subsidiaries of
Ray-O-Vac Overseas Corporation.
3.1+ Amended and Restated Articles of Incorporation of the
Company.
3.2****** Amended and Restated By-laws of the Company, as amended
through May 17, 1999.
4.1** Indenture, dated as of October 22, 1996, by and among the
Company, ROV Holding, Inc. and Marine Midland Bank, as
trustee, relating to the Company's 10 1/4% Senior
Subordinated Notes due 2006.
4.2****** First Supplemental Indenture, dated as of February 26, 1999,
by and among the Company, ROV Holding, Inc. and HSBC Bank
USA (formerly known as Marine Midland Bank) as trustee,
relating to the Company's 10 1/4% Senior Subordinated Notes
due 2006.
4.3++++ Second Supplemental Indenture, dated as of August 6, 1999,
by and among the Company, ROV Holding, Inc. and HSBC Bank
USA (formerly known as Marine Midland Bank) as trustee,
relating to the Company's 10 1/4% Senior Subordinated Notes
due 2006.
4.4******* Third Supplemental Indenture, dated as of June 13, 2001, by
and among the Company, ROV Holding, Inc., ROVCAL, Inc. and
HSBC Bank USA (formerly known as Marine Midland Bank) as
trustee, relating to the Company's 10 1/4% Senior
Subordinated Notes due 2006.
4.5** Specimen of the Notes (included as an exhibit to
Exhibit 4.1)
4.6**** Amended and Restated Credit Agreement, dated as of
December 30, 1997, by and among the Company, the lenders
party thereto and Bank of America National Trust and Savings
Association ("BofA"), as Administrative Agent.
4.7++++ Second Amended and Restated Credit Agreement, dated as of
August 9, 1999, by and among the Company, the lenders party
thereto and Bank of America, NA as Administrative Agent.
4.8+++++ The First Amendment dated as of July 28, 2000 to the Second
Amended and Restated Credit Agreement, dated as of
August 9, 1999, by and among the Company, the lenders party
thereto and Bank of America, NA as Administrative Agent.
4.9+++++++ The Second Amendment dated as of December 31, 2000 to the
Second Amended and Restated Credit Agreement, dated as of
August 9, 1999, by and among the Company, various financial
institutions, and Bank of America, N.A. as Administrative
Agent.

II-4

EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------

4.10++++++++ The Third Amendment dated as of June 11, 2001, to the Second
Amended and Restated Credit Agreement, dated as of
August 9, 1999, by and among the Company, various financial
institutions, and Bank of America, NA as Administrative
Agent.
4.11** The Security Agreement, dated as of September 12, 1996, by
and among the Company, ROV Holding, Inc. and Bank of
America, NA.
4.12** The Company Pledge Agreement, dated as of September 12,
1996, by and between the Company and Bank of America, NA.
4.13*** Shareholders Agreement, dated as of September 12, 1996, by
and among the Company and the shareholders of the Company
referred to therein.
4.14*** Amendment No. 1 to Rayovac Shareholders Agreement dated
August 1, 1997, by and among the Company and the
shareholders of the Company referred to therein.
4.15***** Amendment No. 2 to Rayovac Shareholders Agreement, dated as
of January 8, 1999, by and among the Company and the
Shareholders of the Company referred to therein.
4.16++++++ Amendment No. 3 to Rayovac Shareholders Agreement dated
January 1, 2001, by and among the Company and the
shareholders of the Company referred to therein.
4.17* Specimen certificate representing the Common Stock.
10.1** Management Agreement, dated as of September 12, 1996, by and
between the Company and Thomas H. Lee Company.
10.2** Confidentiality, Non-Competition and No-Hire Agreement,
dated as of September 12, 1996, by and between the Company
and Thomas F. Pyle.
10.3+++++ Amended and Restated Employment Agreement, dated as of
October 1, 2000, by and between the Company and David A.
Jones.
10.4+++++ Amended and Restated Employment Agreement, dated as of
October 1, 2000, by and between the Company and Kent J.
Hussey.
10.5+++++ Employment Agreement, dated as of October 1, 2000, by and
between the Company and Kenneth V. Biller.
10.6+++++ Employment Agreement, dated as of October 1, 2000, by and
between the Company and Stephen P. Shanesy.
10.7+++++ Employment Agreement, dated as of October 1, 2000, by and
between the Company and Merrell M. Tomlin.
10.8+++++ Employment Agreement, dated as of October 1, 2000, by and
between the Company and Luis A. Cancio.
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***** Amendment, dated December 31, 1998, between the Company and
SPG Partners, to the Building Lease, between the Company and
SPG Partners, dated May 14, 1985.
10.12*** Rayovac Corporation 1996 Stock Option Plan.
10.13* 1997 Rayovac Incentive Plan.
10.14* Rayovac Profit Sharing and Savings Plan.

II-5

EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------

10.15+++ Technical Collaboration, Sale and Supply Agreement, dated as
of March 5, 1998, by and among the Company. Matsushita
Battery Industrial Co., Ltd. and Matsushita Electric
Industrial Co., Ltd.
21 Subsidiaries of the Company.
23 Consent of KPMG LLP.

------------------------

* Incorporated by reference to the Company's Registration
Statement on Form S-1 (Registration No. 333-35181) filed
with the Commission.

** Incorporated by reference to the Company's Registration
Statement on Form S-1 (Registration No. 333-17895) filed
with the Commission.

*** Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 29, 1997,
filed with the Commission on August 13, 1997.

**** Incorporated by reference to the Company's Registration
Statement on Form S-3 (Registration No. 333-49281) filed
with the Commission.

***** Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended January 3, 1999,
filed with the Commission on February 17, 1999.

****** Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended April 4, 1999,
filed with the Commission on May 17, 1999.

******* Incorporated by reference to the Company's Report on
Form 8-K filed with the Commission on June 19, 2001.

+ Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997,
filed with the Commission on December 23, 1997.

++ Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the Quarterly period ended June 27, 1998,
filed with the Commission on August 4, 1998.

+++ Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 28, 1998,
filed with the Commission on May 5, 1998.

++++ Incorporated by reference to the Company's Current Report on
Form 8-K filed with the Commission on August 24, 1999, as
subsequently amended on October 26, 1999.

+++++ Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 2000,
filed with the Commission on December 19, 2000.

++++++ Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 31,
2000, filed with the Commission on February 14, 2001.

+++++++ Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2001,
filed with the Commission on May 14, 2001.

++++++++ Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended July 1, 2001,
filed with the Commission on August 9, 2001.

II-6