Sunbeam 2011 Annual Report Download - page 27

Download and view the complete annual report

Please find page 27 of the 2011 Sunbeam annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 80

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80

25
Management’s Discussion and Analysis
Jarden Corporation Annual Report 2011
rate risk attributable to forecasted variable interest payments and have maturity dates through December 2015. At December 31,
2011, the weighted average fixed rate of interest on these swaps, excluding the forward-starting swap, was approximately 1.6%.
The effective portion of the after-tax fair value gains or losses on these swaps is included as a component of accumulated other
comprehensive income (loss) (“AOCI”).
During 2011, the Company terminated a $250 million notional amount outstanding swap agreement that exchanged a variable rates
of interest (LIBOR) for a fixed interest rate. This fixed rate swap, which was to mature on December 31, 2011, was designated as cash
flow hedge of the interest rate risk attributable to forecasted variable interest.
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 and have maturity dates through September
2013. 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 AOCI and is
recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the statements
of operations as the underlying hedged item. At December 31, 2011, the Company had approximately $477 million notional amount
of foreign currency contracts outstanding that are designated as cash flow hedges of forecasted inventory purchases and sales.
At December 31, 2011, the Company had outstanding approximately $159 million notional amount of foreign currency contracts
that are not designated as effective hedges for accounting purposes and have maturity dates through December 2012. Fair market
value gains or losses are included in the results of operations and are classified in SG&A.
Commodity Contracts
The Company enters into commodity-based derivatives in order to mitigate the risk that the rising price of these commodities
could have on the cost of certain of the Company’s raw materials. These commodity-based derivatives provide the Company with
cost certainty, and in certain instances allow the Company to benefit should the cost of the commodity fall below certain dollar
thresholds. At December 31, 2011, the Company had outstanding approximately $18.8 million notional amount of commodity-based
derivatives that are not designated as effective hedges for accounting purposes and have maturity dates through March 2014. Fair
market value gains or losses are included in the results of operations and are classified in SG&A.
The following table presents the fair value of derivative financial instruments as of December 31, 2011:
December 31, 2011
(In millions) Asset (Liability)
Derivatives designated as effective hedges:
Cash flow hedges:
Interest rate swaps $ (8.4)
Foreign currency contracts 4.1
Subtotal (4.3)
Derivatives not designated as effective hedges:
Foreign currency contracts (0.6)
Commodity contracts 0.7
Subtotal 0.1
Total $ (4.2)
Significant Accounting Policies and Critical Estimates
The Company’s financial statements are prepared in accordance with generally accepted accounting principles in the United
States of America (“GAAP”), which require us to make certain 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”. The following represents a summary of the Company’s critical accounting
policies, defined as those policies that the Company believes are the most important to the portrayal of its financial condition
and results of operations, and/or require management’s significant judgments and/or estimates. In many cases, the accounting
treatment for a particular transaction is specifically directed by GAAP with no need for management’s judgment in their application.