Sunbeam 2010 Annual Report Download - page 36

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Notes to Consolidated Financial Statements
Jarden Corporation Annual Report 2010 (Dollars in millions, except per share data and unless otherwise indicated)
credit review procedures. Collateral for trade receivables is generally not required. The Company places its interest-bearing cash
equivalents with major financial institutions.
The Company is exposed to credit loss in the event of non-performance by the counterparties to its derivative financial instruments,
all of which are highly rated financial institutions; however, the Company does not anticipate non-performance by such counterparties.
Derivative Financial Instruments
The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company uses 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. Floating rate swaps are used, depending on market conditions, to convert the fixed rates of long-term debt into short-
term variable rates. Fixed rate swaps are used to reduce the Company’s risk of the possibility of increased interest costs. Interest rate
swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision.
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 AOCI 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, 2010 and 2009:
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.
2010
Fair Value Asset (Liability)
(In millions) Level 1 Level 2 Total
Derivatives:
Assets $ — $ 0.1 $ 0.1
Liabilities — (34.5) (34.5)
Available-for-sale securities 19.1 — 19.1
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
34