Sunbeam 2005 Annual Report Download - page 62

Jarden Corporation
Notes to Consolidated Financial Statements (cont’d)
December 31, 2005
Because the interest rates applicable to the term loan under the Senior Credit Facility and the senior
debt under the Second Amended Credit Agreement and the Amended Credit Agreement are based on
floating rates identified by reference to market rates, the fair market value of the senior debt as of
December 31, 2005 and 2004 approximated its carrying value.
During 2005 and 2004, the Company incurred costs in connection with the issuance of the Senior
Credit Facility and related amendments, foreign term loans and the Second Amended Credit Agreement of
approximately $ 21.3 million and $2.3 million, respectively. The Company wrote off all amounts related to
the Second Amended Credit Agreement as part of acquiring the Senior Credit Facility (see discussion
above); remaining amounts are included in “Other assets” on the Consolidated Balance Sheets and are
being amortized over the respective terms of the debt.
Interest paid on the Company’s borrowings during the years ended December 31, 2005, 2004 and 2003
was $81.9 million, $26.1 million and $17.2 million, respectively.
6. 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, 2005, the interest rate on approximately 47% of the Company’s debt obligation,
excluding the $16.6 million of amortizing non-debt balances arising from interest rate swap transactions as
discussed in Note 5, was fixed by either the nature of the obligation or through interest rate swap contracts.
Fair Value Hedges
As described in Note 5, as part of the foreign repatriation transactions, on December 21, 2005, in
connection with Sunbeam Corporation (Canada) Limited (“Sunbeam Canada”) legal reorganization and
IRC §965 dividend, Sunbeam Canada obtained a senior secured term loan facility (“Canadian Term Loan”)
of $43 million U.S. dollars. Sunbeam Canada chose to limit the foreign currency exchange exposure of this
US dollar loan funded by a Canadian dollar based entity by entering into a cross-currency interest rate swap
that fixes the exchange rate of the amortizing loan balance for the life of the loan. The swap instrument
exchanges the variable interest rate bases of the U.S. dollar balance (3-month U.S. LIBOR plus a spread of
175 basis points) and the equivalent Canadian dollar balance (3-month CAD BA plus a spread of 192 basis
points). This swap instrument is designed to achieve hedge accounting treatment under FSAS No. 133
(“SFAS 133”) as a fair value hedge of the underlying term loan. The fair market value of this cross-currency
interest rate swap as of December 31, 2005 was immaterial and is included as a long-term liability in the
Consolidated Balance Sheet, with a corresponding offset to long-term debt.
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 9
3
⁄ 4 Senior Subordinated Notes (the “Notes”).
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