Sunbeam 2003 Annual Report Download - page 32

Jarden Corporation
Quantitative and Qualitative Disclosures About Market Risk
In general, business enterprises can be exposed to market risks including fluctuations in commodity
prices, foreign currency values, and interest rates that can affect the cost of operating, investing, and
financing. The Company’s exposures to these risks are low. The Company’s plastic consumables business
purchases resin from regular commercial sources of supply and, in most cases, multiple sources. The
supply and demand for plastic resins is subject to cyclical and other market factors. With many of our
external customers, we have the ability to pass through price increases with an increase in our selling
price and certain of our external customers purchase the resin used in products we manufacture for
them. This pass-through pricing is not applicable to plastic cutlery, which we supply to our branded
consumables segment. Plastic cutlery is principally made of polystyrene and for each $0.01 change in the
price of polystyrene the material cost in our plastics consumables segment will change by approximately
$0.5 million per annum. The Company’s zinc business has sales arrangements with a majority of its
customers such that sales are priced either based upon supply contracts that provide for fluctuations in
the price of zinc to be passed on to the customer or are conducted on a tolling basis whereby customers
supply zinc to the Company for processing. Such arrangements as well as the zinc business utilizing
forward buy contracts reduce the exposure of this business to changes in the price of zinc.
The Company, from time to time, invests in short-term financial instruments with original
maturities usually less than fifty days.
The Company is exposed to short-term interest rate variations with respect to Eurodollar or Base
Rate on certain of its term and revolving debt obligations and six month LIBOR in arrears on certain of
its interest rate swaps. The spreads on the interest rate swaps range from 523 to 528 basis points.
Settlements on the interest rate swaps are made on May 1 and November 1. The Company is exposed to
credit loss in the event of non-performance by the other party to its current existing swaps, a large
financial institution. However, the Company does not anticipate non-performance by the other party.
Changes in Eurodollar or LIBOR interest rates would affect the earnings of the Company either
positively or negatively depending on the direction of the change. Assuming that Eurodollar and LIBOR
rates each increased 100 basis points over period end rates on the outstanding term debt and interest
rate swaps, the Company’s interest expense would have increased by approximately $2.0 million, $0.8
million and $0.5 million for 2003, 2002 and 2001, respectively. The amount was determined by
considering the impact of the hypothetical interest rates on the Company’s borrowing cost, short-term
investment rates, interest rate swaps and estimated cash flow. Actual changes in rates may differ from the
assumptions used in computing this exposure.
The Company does not invest or trade in any derivative financial or commodity instruments, nor
does it invest in any foreign financial instruments.
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