(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 prod- ucts 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 state- ments of Rayovac Corporation and its wholly owned sub- sidiaries 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 effec- tive date until the Company’s fourth quarter of fiscal 2001. The adoption of SAB 101 did not have an impact on the con- solidated financial statements. (c.)Use of Estimates.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 disclo- sure of contingent assets and liabilities at the date of the finan- cial 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 addi- tion, 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. (e.)Concentrations of Credit Risk,Major Customers and Employees.The Company has one customer that repre- sented 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 rela- tionship 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 agree- ments 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 col- lective bargaining agreements. Bargaining agreements that expire in 2002 represent approximately 16% of the total labor force. Negotiations are ongoing to extend the agreement cov- ering approximately 90 employees at our Washington, UK production facility. The existing agreement provides for auto- matic weekly renewals and the Company anticipates an agree- ment will be finalized in the second quarter of fiscal 2002. Notes to Consolidated Financial Statements Rayovac Corporation and Subsidiaries (In thousands, except per share amounts)