Sunbeam 2003 Annual Report Download - page 61

Jarden Corporation
Notes to Consolidated Financial Statements (continued)
15. Executive Loan Program
On January 24, 2002, Messrs. Franklin and Ashken exercised 900,000 and 450,000 non-qualified
stock options, respectively, which had been granted under the Company’s 2001 Stock Option Plan. The
Company issued these shares out of its treasury stock account. The exercises were accomplished via loans
from the Company under its Executive Loan Program. The principal amounts of the loans were $3.3
million and $1.6 million, respectively, and bore interest at 4.125% per annum. The loans were due on
January 23, 2007 and were classified within the stockholders’ equity section. The loans could be repaid
in cash, shares of the Company’s common stock, or a combination thereof. In February 2003, Mr.
Ashken surrendered to the Company shares of the Company’s stock to repay $0.3 million of his loan. On
April 29, 2003, Messrs. Franklin and Ashken each surrendered to the Company shares of the Company’s
common stock to repay in full all remaining principal amounts and accrued interest owed under their
respective loans. The Company will not make any additional loans under the Executive Loan Program.
16. Derivative Financial Instruments
The Company actively manages its fixed and floating rate debt mix using interest rate swaps. The
Company will enter into fixed and floating rate swaps to alter its exposure to the impact of changing
interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate
swaps are used to convert the fixed rates of long-term debt into short-term variable rates to take
advantage of current market conditions. Fixed rate swaps are used to reduce the Company’s risk of the
possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to
separate interest rate risk management from the debt funding decision. At December 31, 2003, the
interest rate on approximately 30% of the Company’s debt obligation, excluding the $2.6 million of
non-debt balances discussed in Note 9, was fixed by either the nature of the obligation or through
interest rate contracts.
Fair Value Hedges
On May 6, 2003, the Company entered into a $30 million interest rate swap (“New Swap”) to receive
a fixed rate of interest and pay a variable rate of interest based upon 6 month LIBOR in arrears, plus a
spread of 523 basis points. The New Swap is a swap against the Notes.
In March 2003, the Company unwound a $75 million interest rate swap (“First Replacement Swap”)
to receive a fixed rate of interest and pay a variable rate of interest and contemporaneously entered into
a new $75 million interest rate swap (“Second Replacement Swap”). Like the swap that it replaced, the
Second Replacement Swap is a swap against the Notes. The variable rate of interest is based on 6 month
LIBOR in arrears, plus a spread of 528 basis points.In return for unwinding the swap, the Company
received $3.2 million of cash proceeds. Of this amount, approximately $1 million of proceeds related to
accrued interest that was owed to the Company at such time. The remaining $2.2 million of proceeds is
being amortized over the remaining life of the Notes as a credit to interest expense and the unamortized
balances are included in the Company’s Consolidated Balance Sheet as an increase to the value of the
long-term debt.
Effective September 12, 2002, the Company entered into an agreement, whereby it unwound a $75
million interest rate swap (“Initial Swap”) and contemporaneously entered into the First Replacement
Swap. The First Replacement Swap had the same terms as the Initial Swap, except that the Company was
required to pay a variable rate of interest based upon 6 month LIBOR in arrears. The spread on this
contract was 470 basis points. In return for unwinding the Initial Swap, we received $5.4 million in cash
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