Sunbeam 2007 Annual Report Download - page 60

Download and view the complete annual report

Please find page 60 of the 2007 Sunbeam annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 156

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156

effective hedges and the fair market value gains or losses are included in the results of operations. The fair
market value of these swaps was a liability of $0.5 million at December 31, 2007.
Aside from the contracts acquired in connection with the Pure Fishing acquisition, at December 31, 2007,
the Company had $925 million of notional amount outstanding in swap agreements that exchange variable
interest rates (LIBOR) for fixed interest rates over the terms of the agreements. The Company has designated
these swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments. At
December 31, 2007, the weighted average fixed rate of interest and weighted average remaining term on these
swaps was 5.0% and 1.6 years, respectively. The effective portion of the after tax fair value gains or losses on
these swaps is included as a component of accumulated other comprehensive income. There was no
ineffectiveness recognized at December 31, 2007 or 2006.
Subsequent to December 31, 2007, the Company became a counterparty to a $200 million notional amount
swap agreement that exchanges variable interest rates (LIBOR) for fixed rates of interest over the three-year term
of the agreement. The fixed interest rate of the agreement is approximately 3.7%. The Company has designated
these swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments.
Fair Value Hedges
The Company uses cross-currency swaps to hedge foreign risk to hedge certain U.S. dollar-based debt of
foreign subsidiaries. At December 31, 2007, the Company had $27.9 million notional amount outstanding of
cross-currency swaps that exchange 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 designated as a fair value hedge of certain U.S. dollar-based
debt of a Canadian subsidiary. At December 31, 2007, the fair value of this swap was a liability of $6.0 million.
Forward Foreign Currency Contracts
The Company uses forward foreign currency contracts (“foreign currency contracts”) to mitigate the foreign
currency exchange rate exposure on the cash flows related to forecasted inventory purchases and sales. The
derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted
for as cash flow hedges. The effective portion of the gains or losses on these derivatives is deferred as a
component of accumulated other comprehensive income and is recognized in earnings at the same time that the
hedged item affects earnings and is included in the same caption in the statement of operations as the underlying
hedged item. At December 31, 2007, the Company had approximately $265 million notional amount of foreign
currency contracts outstanding that are designated as cash flow hedges of forecasted inventory purchases. At
December 31, 2007, the fair market value of these contracts was a liability of $4.9 million.
At December 31, 2007, the Company had outstanding approximately $12.1 million notional amount of
foreign currency contracts that were acquired in connection with the acquisitions of K2 and Pure Fishing. These
foreign currency contracts, which are not designated as effective hedges, have maturity dates through 2008. Fair
market value gains or losses are included in the results of operations. The fair market value of these foreign
currency contracts was a liability of $0.7 million at December 31, 2007. Additionally, the Company is a
counterparty to $9.5 million notional amount of foreign currency contracts that are not designated as effective
hedges. These contracts all mature in 2008. At December 31, 2007, the fair value of these contracts was not
significant.
Significant Accounting Policies and Critical Estimates
The Company’s financial statements are prepared in accordance with accounting principles generally
accepted in the United States of America, which require us to make judgments, estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. The following list of critical
48