Sunbeam 2009 Annual Report Download - page 27

the continued deterioration of macroeconomic conditions has on such cash flows.
Net interest expense increased by $29.0 million for 2008 versus 2007. This increase was principally due to higher levels of outstanding
debt versus the prior year as a result of the acquisitions of K2 and Pure Fishing. The weighted average interest rate for 2008 decreased to
6.4% from 7.0% in 2007.
The Company’s effective tax rate for the years ended December 31, 2008 and 2007 was (80.7%) and 57.7%, respectively. The differ-
ence from the statutory tax rate to the effective rate for 2008 results principally from the tax charge related to the impairment of goodwill
($33.4 million) and from U.S. tax expense ($8.0 million) recognized on undistributed foreign income. The 2007 increase from the statutory tax
rate to the reported rate results principally from the settlement of 2003 and 2004 Internal Revenue Service audits ($4.7 million), the tax effect
of non-deductible compensation expense ($4.4 million), and the tax effect of foreign earnings that will not be permanently reinvested. The
Company believes that its long-term tax rate will be approximately 36.0%.
Net income (loss) in 2008 decreased $87.0 million to a net loss of $58.9 million, versus 2007. For the 2008 and 2007 diluted earnings
(loss) per share were ($0.78) and $0.38, respectively. The decrease in net income (loss) was primarily due to the charge recorded in 2008 for
the impairment of goodwill and intangibles of $283 million, offset by incremental earnings resulting from volume increases and margin
expansion due to acquisitions and the charge recorded during 2007 related to the purchase accounting adjustment for the elimination of
manufacturer’s profit in inventory related to the K2 and Pure Fishing acquisitions ($119 million).
Venezuela Operations
Effective January 1, 2010, the Company’s subsidiaries operating in Venezuela will be considered under GAAP to be operating in a
highly inflationary economy based on the use of the blended National Consumer Price Index (a blend of the National Consumer Price Index
subsequent to January 1, 2008 and the Consumer Price Index for Caracas and Maracaibo prior to January 1, 2008) in Venezuela, as the
Venezuela economy exceeded the three year cumulative inflation rate of 100%. If a subsidiary is considered to be in a highly inflationary
economy, the financial statements of the subsidiary must be remeasured into the Company’s reporting currency (U.S. dollar) and future
exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings, rather than
exclusively in equity, until such time as the economy is no longer considered highly inflationary. The financial statements of the Company’s
subsidiaries operating in Venezuela will be remeasured as if their functional currency is the U.S. dollar. As such, gains and losses resulting
from the remeasurement of monetary assets and liabilities will be reflected in current earnings.
On January 8, 2010, the Venezuelan government announced its intention to devalue its currency (Bolivar) relative to the U.S. dollar.
The official exchange rate for imported goods classified as essential, such as food and medicine, changed from 2.15 to 2.60, while payments
for other non-essential goods moved to an official exchange rate of 4.30. As a result of the change in the official exchange rate to 4.30, we
anticipate we will record a one-time, pre-tax loss of approximately $22 million in the first quarter of 2010, primarily reflecting the write-down
of monetary assets and deferred tax benefits. The 2010 financial statements of our subsidiaries in Venezuela will be remeasured at and will
be reflected in the Company’s consolidated financial statements at the official exchange rate of 4.30, which is the Company’s expected
settlement rate. The higher official exchange rate will negatively impact the ongoing revenue and operating profit for our Venezuela
operations. Translating the results of operations for the Venezuela subsidiaries in 2009 using the 4.30 official exchange rate versus the actual
official exchange rate in effect during 2009 of 2.15, would have reduced the Company’s 2009 consolidated net sales by approximately 1.5%.
In order to partially mitigate unfavorable movements in the parallel exchange rate, which was 5.95 at December 31, 2009 and is
the currency exchange rate negotiated with local financial intermediaries, and a potential devaluation, during the fourth quarter of 2009,
the Company converted Bolivars into U.S. dollars totaling $32.0 million. Prior to this conversion, the Bolivars were converted at the more
favorable official exchange rate of 2.15. At December 31, 2009, the Company’s subsidiaries in Venezuela have approximately $32 million in
cash denominated in U.S. dollars and cash of approximately $25 million held in Bolivars converted at the official exchange rate of 2.15.
The transfers of funds out of Venezuela are subject to restrictions, whereby payments for certain imported goods and services being
required to be transacted by exchanging Bolivars for U.S. dollars through securities transactions in the more unfavorable parallel market
rather than at the more favorable official exchange rate. If in the future the Company’s Venezuelan subsidiaries are required to convert the
Bolivar cash balances into U.S. dollars using the more unfavorable parallel exchange rate, it could result in currency exchange losses that
may be material to the Company’s results of operations.
Financial Condition, Liquidity and Capital Resources
LIQUIDITY
The Company believes that its cash and cash equivalents, cash generated from operations and the availability under its senior credit
facility and the credit facilities of certain foreign subsidiaries as of December 31, 2009, provide sufficient liquidity to support working capital
requirements, planned capital expenditures, completion of current and future reorganization and acquisition-related integration programs,
Management’s Discussion and Analysis
Jarden Corporation Annual Report 2009
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