Sunbeam 2008 Annual Report Download - page 40

Notes to Consolidated Financial Statements
Jarden Corporation Annual Report 2008 (Dollars in millions, except per share data and unless otherwise indicated)
historical claim rate trends. Warranty reserves are included within “Other current liabilities” and “Other non-current liabilities” in the
Company’s Consolidated Balance Sheets.
Sales Incentives and Trade Promotion Allowances
The Company offers sales incentives and promotional programs to its reseller customers from time to time in the normal course of
business. These incentives and promotions typically include arrangements known as slotting fees, cooperative advertising and buydowns,
and the Company accounts for these transactions consistent with the requirements of FASB Emerging Issues Task Force (“EITF”) No. 01-9
“Accounting for Consideration Given by a Vendor to a Customer (including a Reseller of the Vendor’s Products).” The majority of such
arrangements are recorded as a reduction to net sales in the Company’s Consolidated Statements of Income. However, pursuant to the
applicable provisions of EITF No. 01-9, the Company does include consideration granted in certain of these transactions as SG&A expenses
in its Consolidated Statements of Income.
Income Taxes
Deferred taxes are provided for differences between the financial statement and tax basis of assets and liabilities using enacted tax
rates. The Company established a valuation allowance against a portion of the net tax benefit associated with all carryforwards and tempo-
rary differences in a prior year, as it was more likely than not that these would not be fully utilized in the available carryforward period. A
portion of this valuation allowance remained as of December 31, 2008 and 2007 (see Note 12).
Components of “Accumulated other comprehensive income” are presented net of tax at the applicable statutory rates and are
primarily generated domestically.
Disclosures about Fair Value of Financial Instruments and Credit Risk
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair
market values due to the short-term maturities of these instruments. The fair market value of the Company’s 7 1/2% Senior Subordinated
Notes was determined based on quoted market prices (see Note 9). The fair market value of the Company’s other long-term debt was
estimated using interest rates currently available tothe Company for debt with similar terms and maturities (see Note 9).
Unless otherwise disclosed in the notes to the consolidated financial statements, the estimated fair value of financial assets and
liabilities approximates carrying value.
Financial instruments that potentially subject the Company to credit risk consist primarily of trade receivables and interest-bearing
investments.Trade receivable credit risk is limited due to the diversity of the Company’s customers and the Company’s ongoing credit
review procedures. Collateral for trade receivables is generally not required. The Company places its interest-bearing cash equivalents with
major financial institutions.
The Companyis exposed to credit loss in the event of non-performance by the counterparties to its derivative financial instruments,
all of which are highly rated institutions; however, the Company does not anticipate non-performance by such counterparties.
Derivative Financial Instruments
The Company enters into interest rate swaps to manage interest rate risk on its variable rate debt. The Company designates the inter-
est rate swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments. Interest expense is adjusted
to include the payments to be made or received under the swap agreements.
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 areaccounted for as cash flow hedges. The effective portion of the gains or losses on these
derivatives are 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 income as the underlying hedged item.
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 commodityfall belowcertain 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.
Fair Value Measurements
SFAS 157 (defined hereafter in Note 2) defines three levels of inputs that may be used to measure fair value and requires that the
assets or liabilities carried at fair value be disclosed bythe input level under which theywere valued. The input levels defined under SFAS
157 areas follows:
Level 1: Quoted market prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than defined in Level 1, such as quoted prices for similar assets or liabilities; quoted prices in markets
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