Sunbeam 2011 Annual Report Download - page 43

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Notes to Consolidated Financial Statements
Jarden Corporation Annual Report 2011 (Dollars in millions, except per share data and unless otherwise indicated)
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
temporary 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, 2011 and 2010 (see Note 12).
The Company recognizes tax benefits for certain tax positions based upon judgments as to whether it is more likely than not that a
tax position will be sustained upon examination. The measurement of tax positions that meet the more-likely-than-not recognition
threshold are based in part on estimates and assumptions as to be the probability of an outcome, along with estimated amounts to
be realized upon any settlement.
Components of accumulated other comprehensive income (loss) (“AOCI”) 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 senior notes and
senior subordinated notes are based upon quoted market prices. The fair market value of the Company’s other long-term debt is
estimated using interest rates currently available to the 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 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 operations 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.