As previously announced, on May 30, 2012, the Company completed a refinancing of its senior secured credit facilities, pursuant to which it has incurred $900 million of senior secured term loans to replace its prior $575 million term loan facilities. Following the refinancing, the Company used the available proceeds from the new term loans and cash on hand to fund a special cash dividend to its stockholders of $6.00 per share and to pay related financing fees and expenses. The special dividend, which was paid on June 29, 2012, constituted a declared amount of approximately $408 million in the aggregate of which $404 million was paid in the quarter. In conjunction with this refinancing, an approximate $11.0 million non-recurring charge was recorded during the second quarter of 2012 relating to refinancing costs and other related expenses. As a result of the higher debt levels from the refinancing, interest expense in the second quarter of 2012 increased to $9.9 million compared to $5.9 million in the same period last year.
Net income in the current year quarter includes the impact of a normalized effective income tax rate of 40.5% as compared to a tax rate of 0.6% in the prior-year second quarter. Until the fourth quarter of 2011, a full valuation allowance was recorded on the Company’s net deferred tax assets, resulting in substantially no tax provision. A full valuation allowance is no longer required on the Company’s net deferred tax assets, and therefore, a normalized income tax provision was recorded in the second quarter of 2012. However, the Company’s cash tax obligations are expected to remain nominal given its current tax attributes.
Free cash flow was $17.8 million in the second quarter of 2012 as compared to $13.5 million in the same period last year. Strong operating earnings were partially offset by increased working capital investment driven by seasonal finished goods inventory replenishment and additional raw material safety stock for rapid demand response.