Sunbeam 2007 Annual Report Download - page 91

debt of a Canadian subsidiary. The fair market value of this cross-currency interest rate swap is included as a
long-term asset or liability in the Consolidated Balance Sheet, with a corresponding offset to long-term debt.
Cash Flow Hedges
As a result of the Pure Fishing acquisition, the Company became a counterparty to an additional $100
notional amount in swap agreements that exchange variable interest rates (LIBOR) for fixed rates of interest over
the term of the agreements. At December 31, 2007, the weighted average fixed rate of interest of these swaps was
3.95%. These swaps are not designated as effective hedges. Fair market value gains or losses are included in the
results of operations.
Aside from the contracts acquired in connection with the Pure Fishing acquisition, at December 31, 2007,
the Company had $925 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 on these swaps was 5.0%. 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.
At December 31, 2007, unamortized deferred gains resulting from the termination of certain cash flow was
approximately $11.8. These deferred gains are being amortized over the remaining life of the terminated swaps
as a credit to interest expense. Approximately $5.2 of these deferred gains are expected to be amortized to
interest expense for the year ending December 31, 2008.
The interest rate differential received or paid on both the cash flow and fair value hedges is recognized as an
adjustment to interest expense.
Forward Foreign Currency Contracts
The Company uses forward foreign currency contracts (“foreign currency contacts”) 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 are recognized in earnings at the same time that the
hedged item affects earnings and are included in the same caption in the statement of operations as the
underlying hedged item. At December 31, 2007, the Company had approximately $265 notional amount of
foreign currency contracts outstanding that are designated as cash flow hedges of forecasted inventory purchases
and sales. For 2007, 2006 and 2005, deferred net (losses) / gains of ($3.6), ($1.1) and $0.3, respectively, were
reclassified from accumulated other comprehensive income and recognized in earnings. As of December 31,
2007, the deferred net losses of $8.6 within accumulated other comprehensive income are primarily expected to
be reclassified to earnings during 2008.
At December 31, 2007, the Company had outstanding approximately $12.1 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 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.
79