Rayovac 2002 Annual Report Download - page 34

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Rayovac Corporation and Subsidiaries
Interest Expense. Interest expense decreased $3.4 million, or 11.1%, to $27.2 million in fiscal 2001 from $30.6 million in the previous 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 $65.0 million of
Senior Subordinated Notes and the related write-off of unamortized debt issuance costs.
Liquidity and Capital Resources
During fiscal 2002, our operating activities generated $66.8 million of cash, compared to $18.0 million in fiscal 2001, an increase of $48.8 million.
Operating cash flows from changes in working capital accounted for $48.1 million of the increase which were primarily driven by lower investments in
receivables and inventory, slightly offset by higher prepaid and other assets and lower accrued special charges reflecting the completion of the December
2000 restructuring initiatives.
Capital expenditures for fiscal 2002 were $15.6 million, a decrease of $4.1 million from fiscal 2001. Capital expenditures in 2002 were funded by cash
flow from operations. Capital expenditures for fiscal 2003 are expected to be approximately $28.0 million which will include spending for leasehold
improvements on our new North American packaging and distribution center, spending required by newly acquired VARTA entities, and continued
technology investments as well as continued investment in our manufacturing operations.
As of September 30, 2002, our current credit facilities include a revolving credit facility of $250.0 million and a $75.0 million five-year amortizing term
loan. As of September 30, 2002, $174.5 million and $23.1 million, respectively, of the revolver and the term loan were outstanding. In addition,
approximately $5.8 million of the remaining availability under the revolver was utilized for outstanding letters of credit. 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, 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 facilities have been capitalized and are being amortized over the term
of the facilities. Indebtedness under these amended facilities is secured and is guaranteed by certain of our subsidiaries.
During fiscal 2002, our board of directors granted 1,057,190 options to purchase shares of our Common stock to various employees of the Company
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 $13.00 to $16.00 per share. We also granted approximately 24,000 shares of restricted stock on August 16, 2002, from the 1997
Rayovac Incentive Plan to a member of management; the restrictions on these shares will lapse on September 30, 2003. The total market value of the
restricted shares on the date of grant totaled approximately $0.3 million and has been recorded as unearned compensation as a separate component of
shareholders’ equity. Unearned compensation is being amortized to expense over the vesting period.
We believe our cash flow from operating activities and periodic borrowings under our credit facilities will be adequate to meet the short-term and long-
term liquidity requirements of our existing business previous to the expiration of those credit facilities, although no assurance can be given in this regard.
We engage in hedging transactions in the ordinary course of our business. See Note 2(r) to the Consolidated Financial Statements.