Sunbeam 2009 Annual Report Download - page 48

Notes to Consolidated Financial Statements
Jarden Corporation Annual Report 2009 (Dollars in millions, except per share data and unless otherwise indicated)
Derivative Financial Instruments
The Company enters into interest rate swaps to manage interest rate risk on its variable rate debt. The Company designates the
interest rate swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments. Floating rate swaps are
also used, depending on market conditions, to convert the fixed rates of long-term debt into short-term variable rates. Interest expense is
adjusted to include the payments to be made or received under the swap agreements (see Note 10).
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 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.
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 materials. 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.
Fair Value Measurements
GAAP 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 by the input level under which they were valued. The input levels are defined as 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
that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3: Unobservable inputs that are not corroborated by observable market data.
The following table summarizes assets and liabilities that are measured at fair value on a recurring basis at December 31, 2009 and
2008:
December 31, 2009
Fair Value Asset (Liability)
(In millions) Level 1 Level 2 Total
Derivatives:
Assets $ — $ 0.1 $ 0.1
Liabilities — (40.1) (40.1)
Available-for-sale securities 18.9 — 18.9
December 31, 2008
Fair Value Asset (Liability)
(In millions) Level 1 Level 2 Total
Derivatives:
Assets $ — $ 7.8 $ 7.8
Liabilities — (33.8) (33.8)
Available-for-sale securities 14.8 — 14.8
Derivative assets and liabilities relate to interest rate swaps, foreign currency contracts and commodity contracts. Fair values are
determined by the Company using market prices obtained from independent brokers or determined using valuation models that use as
their basis readily observable market data that is actively quoted and can be validated through external sources, including independent
pricing services, brokers and market transactions. Available-for-sale securities are valued based on quoted market prices in actively
traded markets.
46