Sunbeam 2004 Annual Report Download - page 28

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(cont’d)
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%.
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 (“First Replacement Swap”).
The First Replacement Swap had the same terms as the Initial Swap, except that we were required to pay
a variable rate of interest based upon 6 month LIBOR in arrears. The spread on this contract was 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 is being
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 Second Replacement Swap. The First
Replacement Swap was superseded by the Second Replacement Swap, as discussed above.
All of our swaps have been and, where applicable, are considered to be effective hedges against
changes in the fair value of our fixed-rate debt obligation for both tax and accounting purposes.
During 2002, we issued an aggregate of 210,000 shares of restricted stock to two of our executive
officers under our 1998 Long-Term Equity Incentive Plan, as amended and restated, and out of our
treasury stock account. During 2003, the restricted stock issuances were amended to provide that the
restrictions would lapse upon the same terms as the 2003 restricted stock issuances discussed in “2003
Activity” above. Also, as discussed in “2003 Activity” above, during the fourth quarter of 2003 all such
restrictions lapsed and we recorded a restricted stock charge.
During 2002, shares of our common stock in the aggregate amount of 45,009 were issued to certain
of our other officers under our 1998 Performance Share Plan. In connection with these stock issuances,
we recorded a non-cash compensation expense charge of approximately $0.6 million.
During 2002, we also issued 5,250 of shares of our restricted stock to certain of our other officers
and employees. The restrictions on these shares will lapse ratably over five years of employment with us.
During 2002, we incurred costs in connection with the issuance of the Notes and the Old Credit
Agreement of approximately $7.4 million.
Working Capital
Working capital (defined as current assets less current liabilities) decreased to approximately $181.4
million at December 31, 2004, from approximately $242.0 million at December 31, 2003, due primarily to:
‰the use of cash on hand to finance our 2004 acquisitions; and
‰the increase in our Deferred Consideration for Acquisitions balance on our Consolidated
Balance Sheet principally due to the contractual terms of our USPC Acquisition (see
“Acquisition Activities – 2004 Activity” above) and the recording of a contingent earn-out for our
Tilia Acquisition (see “Acquisition Activities – 2002 Activity” above); partially offset by
‰the addition of the working capital of our 2004 acquired businesses; and
‰higher inventory balances (see “Cash Flows from Operations” below).
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