Sunbeam 2008 Annual Report Download - page 51

Weighed
Net Fair Average
Notional Value Asset Maturity
December 31, 2007 Amount (Liability) (years)
Cash flow hedges:
Interest rate swaps $ 925.0 $ (16.0) 1.6
Forward foreign exchange rate contracts 265.0 (4.9) 0.6
Fair value hedges:
Cross-currency swaps 27.9 (6.0) 4.1
Derivatives not designated as effective hedges:
Interest rate swaps 100.0 (0.5) 1.2
Forward foreign exchange rate contracts 21.6 (0.7) 0.3
The Company actively manages its fixed and floating rate debt mix using interest rate swaps. The Company will enter into fixed and
floating rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash
outflows for interest. Fixed rate swaps are used to reduce the Company’s risk of increasing interest costs. Although there were no floating
rate swaps outstanding at December 31, 2008 and 2007, the Company may use floating rate swaps, depending on market conditions, to
convertthe fixed rates of long-term debt into short-term variable rates. Interest rate swap contracts are therefore used by the Company to
separate interest rate risk management from the debt funding decision.
At December 31, 2008, the interest rateon approximately 67% of the Company’s debt was fixed by either the nature of the obligation
or through interest rate swap contracts.
The Company’s derivative activities do not create additional risk because gains and losses on derivative contracts offset gains and
losses on the liabilities and transactions being hedged. As derivative contracts are initiated, the Company designates the instruments
individually as either a fair value hedge or a cash flow hedge. Management reviews the correlation and effectiveness of its derivatives on
aperiodic basis.
Fair Value Hedges
The Company uses cross-currency swaps to hedge foreign risk to hedge certain U.S. dollar-based debt of foreign subsidiaries. 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 termloan of a Canadian subsidiary. Fair market value gains or losses on this cross-currency swap are included in long-term
assets or liabilities in the Consolidated Balance Sheet with a corresponding offset to long-term debt.
Cash Flow Hedges
At December 31, 2008, the Company had approximately $1.1 billion of notional amount outstanding in swap agreements that
exchange variable interest rates (LIBOR) for fixed interest rates over the terms of the agreements and are designated as cash flow hedges of
the interest rate risk attributable to forecasted variable interest payments. At December 31, 2008, the weighted average fixed rate of interest
on these swaps was 4.8%. The effective portion of the after tax fair value gains or losses on these swaps is included as a component of accu-
mulated other comprehensive income. There was no ineffectiveness recognized at December 31, 2008 or 2007.
At December 31, 2008, the Company had outstanding a $40 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 purposes
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%.
At December 31, 2008, unamortized deferred gains resulting from the termination of certain cash flow hedges was approximately
$6.6. These deferred gains are being amortized over the remaining life of the terminated swaps as a credit to interest expense.
Approximately $4.7 of these deferred gains are expected to be amortized to interest expense for the year ending December 31, 2009.
The interest rate differential received or paid on both the cash flow and fair value hedges is recognized as an adjustment to
interest expense.
Foreign Currency Contracts
The Companyuses forward foreign currency contracts (“foreign currency contracts”) to mitigate the foreign currency exchange rate
exposureon 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
Notes to Consolidated Financial Statements
Jarden Corporation Annual Report 2008 (Dollars in millions, except per share data and unless otherwise indicated)
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