Rayovac 2002 Annual Report Download - page 35

On October 1, 2002, the Company entered into an Amended and Restated Agreement (“Third Restated Agreement”) to finance the acquisition of the
consumer battery business of VARTA AG. The Third Restated Agreement includes a $100 million seven-year revolving credit facility, a EUR 50 million
seven-year revolving credit facility, a $300 million seven-year amortizing term loan, a EUR 125 million seven-year amortizing term loan and a EUR 50
million six-year amortizing term loan. The term facilities provide for quarterly amortization totaling (assuming an exchange rate of the Euro to the
Dollar of 1 to 1) of approximately $9.3 million in 2003 and 2004, $14.3 million in 2005, 2006, and 2007, $61.3 million in 2008 and $352.5 million
in 2009. 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 amor-
tization is reduced prorata for the effect of prepayments made as a result of Excess Cash Flow. The fees associated with these facilities will be capitalized
and amortized over the term of the facilities. Unamortized fees associated with the replaced facilities will be written off as a charge to earnings in the
quarter ended December 29, 2002. Indebtedness under these amended facilities is secured, is guaranteed by certain of our subsidiaries and the Euro-
denominated revolving facility is subject to a borrowing base (“Borrowing Base”) of certain European assets.
Impact of Recently Issued Accounting Standards
See discussion in Note 2(w) to the Consolidated Financial Statements.
Critical Accounting Policies
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and fairly
present the financial position and results of operations of the Company. We believe the following accounting policies are critical to an understanding of
our financial statements. The application of these policies requires management judgment and estimates in areas that are inherently uncertain.
Valuation of Assets and Asset Impairment
We evaluate certain long-lived assets, such as property, plant and equipment, and certain intangibles for impairment based on the expected future cash
flows or earnings projections. An asset’s value is deemed impaired if the discounted cash flows or earnings projections generated do not substantiate the
carrying value of the asset. The estimation of such amounts requires significant management judgment with respect to revenue and expense growth rates,
changes in working capital, and selection of an appropriate discount rate, as applicable. The use of different assumptions would increase or decrease dis-
counted future operating cash flows or earnings projections and could, therefore, change impairment determination.
We adopted Financial Accounting Standards Statement No. 142, Goodwill and Other Intangible Assets, effective October 1, 2001. Statement No. 142
requires goodwill and other intangible assets with indefinite useful lives not be amortized, and that impairment of such assets be evaluated as discussed
above at least annually.
We evaluate deferred tax assets based on future earnings projections. An asset’s value is deemed impaired if the earnings projections do not substantiate
the carrying value of the asset. The estimation of such amounts requires significant management judgment with respect to revenue and expense growth
rates, changes in working capital, and other assumptions, as applicable. The use of different assumptions would increase or decrease future earnings pro-
jections and could, therefore, change the determination of whether the asset is realizable.
See Notes 2(c), 2(h), 2(i), 2(v), 4, 5 and 9 to the Consolidated Financial Statements for more information about these assets.
Revenue Recognition and Concentration of Credit Risk
We recognize revenue from product sales at the point at which all risks and rewards of ownership have passed to the customer. The Company is not
obligated to allow for product returns.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Rayovac Corporation and Subsidiaries