Sunbeam 2004 Annual Report Download - page 71

Jarden Corporation
Notes to Consolidated Financial Statements (cont’d)
December 31, 2004
currently involved in will have a material adverse effect upon the financial condition, results of
operations, cash flows or competitive position of the Company. It is possible, that as additional
information becomes available, the impact on the Company of an adverse determination could have a
different effect.
14. Executive Loan Program
On January 24, 2002, two executive officers of the Company 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, one of the executive officers surrendered to the Company shares of the Company’s stock to repay
$0.3 million of his loan. On April 29, 2003, the two executive officers 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.
15. 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, 2004, the interest rate on approximately 15% of the Company’s debt obligation,
excluding the $3.2 million of non-debt balances discussed in Note 8, was fixed by either the nature of
the obligation or through interest rate swap contracts. In anticipation of the AHI Acquisition debt
financing (see Note 19), the Company entered into two fixed rate swap contracts in December 2004 (see
“Cash Flow Hedges” below), effective January 4, 2005, resulting in a fixed interest ratio percentage of
approximately 77%, based on the debt balance at December 31, 2004.
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 six-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 six-
month LIBOR in arrears, plus a spread of 528 basis points. In return for unwinding the swap, the
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