Sunbeam 2002 Annual Report Download - page 17

Jarden Corporation
Management’s Discussion and Analysis (Continued)
Financial Condition, Liquidity and Capital Resources
During 2002, we made the following changes to our capital resources in connection with the financing of
the Acquisition:
앫completed an offering of $150 million of 9
3
⁄ 4 % senior subordinated notes (‘‘Notes’’) to qualified
institutional buyers in a private placement pursuant to Rule 144A under the Securities Act of 1933,
which were later wholly exchanged pursuant to an offering for 9
3
⁄ 4 % senior subordinated notes which
are registered under the Securities Act of 1933, as amended (‘‘New Notes’’);
앫in conjunction with the Notes, entered into a $75 million interest rate swap to receive a fixed rate of
interest and pay a variable rate of interest based upon LIBOR;
앫refinanced our existing indebtedness with a new $100 million five-year senior secured credit facility,
which included a $50 million term loan facility and a $50 million revolving credit facility (‘‘New
Credit Agreement’’); and
앫entered into $15 million of seller debt financing.
The Notes were issued at a discount such that we received approximately $147.7 million in net proceeds.
The Notes will mature on May 1, 2012, however, on or after May 1, 2007, we may redeem all or part of the Notes
at any time at a redemption price ranging from 100% to 104.875% of the principal amount, plus accrued and
unpaid interest and liquidated damages, if any. Prior to May 1, 2005, we may redeem up to 35% of the aggregate
principal amount of the Notes with the net cash proceeds from certain public equity offerings at a redemption
price of 109.75% of the principal amount, plus accrued and unpaid interest and liquidated damages, if any.
Interest on the Notes accrues at the rate of 9.75% per annum and is payable semi-annually in arrears on May
1 and November 1, with the first payment having occurred on November 1, 2002.
During December 2002, the Company completed an offering to the holders of the Notes to exchange the
Notes for the New Notes. The New Notes are substantially similar to the Notes except that certain mandatory
redemption provisions and the transfer restrictions applicable to the Notes are not applicable to the New Notes.
In conjunction with the Notes, on April 24, 2002, we entered into a $75 million interest rate swap (‘‘Initial
Swap’’) to receive a fixed rate of interest and pay a variable rate of interest based upon LIBOR. The Initial Swap
had a maturity date that was the same as the Notes. Interest was payable semi-annually in arrears on May 1 and
November 1, commencing on November 1, 2002. The initial effective rate of interest that we established on this
swap was 6.05%. This contract was considered to be an effective hedge against changes in the fair value of our
fixed-rate debt obligation for both tax and accounting purposes.
Effective September 12, 2002, we entered into an agreement, whereby we unwound the Initial Swap and
contemporaneously entered into a new $75 million interest rate swap (‘‘Replacement Swap’’). The Replacement
Swap has the same terms as the Initial Swap, except that we will pay a variable rate of interest based upon 6
month LIBOR in arrears. The spread on this contract is 470 basis points. Based upon this contract, we paid an
effective interest rate of 6.32% on November 1, 2002. In return for unwinding the Initial Swap, we received $5.4
million in cash proceeds, of which $1 million related to accrued interest that was owed to us. The remaining
$4.4 million of proceeds will be amortized over the remaining life of the Notes as a credit to interest expense
and is included in our consolidated balance sheet as an increase to the value of the long-term debt. Such
amortization amount offsets the increased effective rate of interest that we pay on the Replacement Swap. We
have continued to accrue interest on the Replacement Swap at a 6.32% effective rate for the remainder of 2002.
The Replacement Swap is also considered to be an effective hedge against changes in the fair value of our
fixed-rate debt obligation for both tax and accounting purposes. The fair market value of the interest rate swap
as of December 31, 2002 was approximately $2.4 million and is included as an asset within other assets in the
consolidated balance sheet, with a corresponding offset to long-term debt. We are exposed to credit loss in the
event of non-performance by the other party to the Replacement Swap, a large financial institution, however,
we do not anticipate non-performance by the other party.
PG. 15