Sunbeam 2008 Annual Report Download - page 24

Management’s Discussion and Analysis
Jarden Corporation Annual Report 2008
At December 31, 2008, the Company had outstanding a $40 million notional amount swap agreement that exchanges a variable
interest rate (LIBOR) for fixed rate of interest over the term of the agreement that is not designated as an effective hedge for accounting pur-
poses and the fair market value gains or losses are included in the results of operations. This swap matures June 30, 2010 and has a fixed rate
of interest of 4.79%. The fair market value of this swap was a liability of $2.1 million at December 31, 2008.
Fair Value Hedges
The Company uses cross-currency swaps to hedge foreign currency risk on certain U.S. dollar-based debt of foreign subsidiaries. At
December 31, 2008, the Company had a $27.6 million notional amount cross-currency swap outstanding that exchanges Canadian dollars
for U.S. dollars. This swap 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 is designated as fair value
hedge on a U.S dollar based term loan of a Canadian subsidiary. The fair market value of this cross-currency swap at December 31, 2008, was
an asset of $0.8 million, with a corresponding offset to long-term debt.
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, 2008, the Company had approximately $274 million notional amount of foreign currency contracts outstanding that are
designated as cash flow hedges of forecasted inventory purchases and sales. At December 31, 2008, the fair market value of these contracts
was a net asset of $11.4 million.
At December 31, 2008, the Company had outstanding approximately $151 million notional amount of foreign currency contracts
that are not designated as effective hedges for accounting purposes and have maturity dates through 2010. Fair market value gains or losses
are included in the results of operations. The fair market value of these foreign currency contracts was a net liability of $0.6 million at
December 31, 2008.
Commodity Contracts
During 2008, the Company initiated a risk management plan whereby, from time to time the Company enters into commodity-based
derivatives in order to mitigate the impact that the rising price of these commodities has on the cost of certain of the Company’s raw mate-
rials. These derivatives provide the Company with maximum cost certainty, and in certain instances allow the Company to benefit should
the cost of the commodity fall below certain dollar levels. These derivatives are not designated as effective hedges for accounting purposes.
Fair market value gains or losses are included in the results of operations and as of December 31, 2008 their aggregate fair market value was
aliabilityof $6.3 million.
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 accounting policies is not intended to be a comprehensive list of all its accounting
policies. The Company’s significant accounting policies are more fully described in Note 1—Business and Significant Accounting Policies to
Item 8.—Financial Statements and Supplementary Data. The following represents a summary of its critical accounting policies, defined as
those policies that the Companybelieves arethe most important to the portrayal of its financial condition and results of operations, and/or
requiremanagement’s significant judgments and estimates.
Revenue recognition and allowance for product returns
The Company recognizes revenues at the time of product shipment or delivery, depending upon when title passes, to unaffiliated
customers, and when all of the following have occurred: a firm sales agreement is in place, pricing is fixed or determinable, and collection
is reasonably assured. Revenue is recognized as the net amount estimated to be received after deducting estimated amounts for product
returns, discounts and allowances. The Company estimates future product returns based upon historical return rates and its reasonable
judgment.
Allowance for accounts receivable
The Company maintains an allowance for doubtful accounts for estimated losses that may result from the inability of its customers to
make required payments.That estimate is based on historical collection experience, current economic and market conditions, and a review
of the current status of each customer’strade accounts receivable. If the financial condition of its customers were to deteriorate or its judg-
ment regarding their financial condition was to change negatively, additional allowances may be required resulting in a charge to income in
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