Rayovac 2004 Annual Report Download - page 51

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• require us to dedicate a large portion of our cash flow to pay principal and interest on our indebtedness,
which will reduce the availability of our cash flow to fund working capital, capital expenditures,
research and development expenditures and other business activities;
• increase our vulnerability to general adverse economic and industry conditions;
• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we
operate;
• restrict us from making strategic acquisitions or exploiting business opportunities;
• place us at a competitive disadvantage compared to our competitors that have less debt; and
• limit our ability to borrow additional funds (even when necessary to maintain adequate liquidity) or
dispose of assets.
In addition, a portion of our debt bears interest at variable rates. If market interest rates increase,
variable-rate debt will create higher debt service requirements, which would adversely affect our cash flow.
While we may enter into agreements limiting our exposure to higher debt service requirements, any such
agreements may not offer complete protection from this risk.
Although the terms governing our senior credit facility and the indenture governing our outstanding senior
subordinated notes contain restrictions on the incurrence of additional indebtedness, new debt incurred in
compliance with these restrictions could be substantial. If new indebtedness is added to our and our subsidiaries’
current indebtedness levels, the related risks that we face would be magnified.
The terms of our indebtedness impose restrictions on us that may affect our ability to successfully operate
our business.
The agreement governing our senior credit facilities and the indenture governing our outstanding senior
subordinated notes each contain covenants that, among other things, limit our ability to:
• borrow money or sell preferred stock;
• create liens;
• pay dividends on or redeem or repurchase stock;
• make certain types of investments;
• sell stock in our restricted subsidiaries;
• restrict dividends or other payments from restricted subsidiaries;
• enter into transactions with affiliates;
• issue guarantees of debt; and
• sell assets or merge with other companies.
Our senior credit facilities also require us to comply with specified financial ratios and tests, including, but
not limited to, minimum interest coverage ratio, maximum leverage ratio and minimum fixed charge coverage
ratio.
These covenants could materially and adversely affect our ability to finance our future operations or capital
needs and to engage in other business activities that may be in our best interest. These covenants may also restrict
our ability to expand or pursue our business strategies. Our ability to generate cash flow to make payments on
and to refinance our debt, and to comply with these covenants may be affected by events beyond our control,
36