Sunbeam 2005 Annual Report Download - page 26

Management’s Discussion and Analysis of Financial Condition and
Results of Operations (cont’d)
Specifically, in December 2004, in anticipation of the additional floating rate debt financing required
to complete the AHI Acquisition, we entered into two interest rate swaps, effective in January 2005, that
converted an aggregate of $300 million of floating rate interest payments under our term loan facility for a
fixed obligation. The first interest rate swap, for $150 million of notional value, carries a fixed interest rate
of 3.625% per annum for a term of three years. The second interest rate swap, also for $150 million of
notional value, carries a fixed interest rate of 4.0675% per annum for a term of five years. The swaps have
interest payment dates that are the same as our term loan facilities. The swaps are considered to be cash
flow hedges and are also considered to be effective hedges against changes in future interest payments of
our floating-rate debt obligations for both tax and accounting purposes. Gains and losses related to the
effective portion of the interest rate swap will be reported as a component of other comprehensive income
and will be reclassified into earnings in the same period that the hedged transaction affects earnings. As of
December 31, 2004, the fair value of these interest rate swaps, which was unfavorable in the amount of
approximately $0.5 million, was included as an unrealized loss in “Accumulated Other Comprehensive
Income” on our Consolidated Balance Sheets.
On June 28, 2004, in connection with the USPC Acquisition, we completed our $116 million Term B
Add-on under the Second Amended Credit Agreement. The proceeds from the Term B Add-on were used
to partially fund the USPC Acquisition. The spread on the Term B Add-on was 2.25% over London
Interbank Offered Rate (“LIBOR”). Additionally, under this Second Amended Credit Agreement, the
spread on our existing Term B loan facility was reduced from 2.75% over LIBOR to 2.25% over LIBOR.
The Second Amended Credit Agreement did not significantly change the restrictions on the conduct
of our business or the financial covenants required in our previous senior credit facility (“Amended Credit
Agreement”) (see “2003 Activity” below). The Second Amended Credit Agreement, which would have
matured on April 24, 2008, also did not change the pricing and principal terms of our $70 million revolving
credit facility.
As of December 31, 2004, we had $302.9 million outstanding under our term loan facilities and no
outstanding amounts under the revolving credit facility of our Second Amended Credit Agreement. As of
December 31, 2004, net availability under the revolving credit facility was approximately $44.2 million,
after deducting $25.8 million of issued letters of credit. The letters of credit outstanding include an amount
of approximately $20 million securing a holdback on the USPC Acquisition (see “Acquisition Activities”
above). We are required to pay commitment fees on the unused balance of the revolving credit facility.
As of December 31, 2004, we also had other debt outstanding in the amount of approximately $1.5
million, which principally consists of bank notes that are payable in equal quarterly installments through
April 2007 with rates of interest at Euro Interbank Offered Rate plus 1.00%.
In August 2004, our board of directors (“Board”) approved the granting of an aggregate of 210,000
restricted shares of our common stock to three of our executive officers. The restrictions on these shares
were to lapse ratably over a three year period commencing January 1, 2005 and would lapse immediately in
the event of a change in control.
Following the signing of the AHI Acquisition during October 2004, our Board amended the terms of
all of the 210,000 restricted shares of common stock issued in August 2004 to lapse immediately. Also in
conjunction with the AHI transaction, in October 2004, our Board accelerated the granting of an aggregate
amount of 1,102,500 restricted shares of common stock under our 2003 Stock Incentive Plan to two of our
executive officers that would otherwise have been granted to these executive officers in 2005-2007
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