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Jarden Corporation Annual Report 2014 53
Notes to Consolidated Financial Statements
Jarden Corporation Annual Report 2014 (Dollars in millions, except per share data and unless otherwise indicated)
10. Derivative Financial Instruments
From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and
commodity price uctuations. The Company does not enter into derivative transactions for trading purposes.
Interest Rate Contracts
The Company manages its xed and oating rate debt mix using interest rate swaps. The Company uses xed and oating rate swaps
to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outows for
interest. Floating rate swaps are used, depending on market conditions, to convert the xed 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.
Fair Value Hedges
At December31, 2014, the Company had $650 notional amount of interest rate swaps that exchange a xed rate of interest for variable
rate of interest (LIBOR) plus a weighted average spread of approximately 605 basis points. These oating rate swaps, which were
entered into during June 2014, are designated as fair value hedges against $650 of principal on the Senior Subordinated Notes for the
remaining life of these notes. The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in
the underlying debt.
Cash Flow Hedges
At December31, 2014, the Company had $850 notional amount outstanding in swap agreements, which includes $350 notional amount
of forward-starting swaps that become effective commencing December31, 2015, that exchange a variable rate of interest (LIBOR) for
xed interest rates over the terms of the agreements and are designated as cash ow hedges of the interest rate risk attributable to
forecasted variable interest payments and have maturity dates through June 2020. At December31, 2014, the weighted average xed
rate of interest on these swaps, excluding the forward-starting swaps, was approximately 1.3%. The effective portion of the after-tax fair
value gains or losses on these swaps is included as a component of AOCI.
Foreign Currency Contracts
The Company uses forward foreign currency contracts to mitigate the foreign currency exchange rate exposure on the cash ows
related to forecasted inventory purchases and sales and have maturity dates through June 2016. The derivatives used to hedge these
forecasted transactions that meet the criteria for hedge accounting are accounted for as cash ow 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, 2014, the Company had approximately $467 notional amount outstanding of forward foreign currency contracts that are
designated as cash ow hedges of forecasted inventory purchases and sales.
The Company also uses foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency
exposure of certain other foreign currency transactions. At December31, 2014, the Company had approximately $369 notional amount
outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity
dates through December 2015. Fair market value gains or losses are included in the results of operations and are classied 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 benet should the cost of the commodity fall below certain dollar thresholds.
At December31, 2014, the Company had approximately $24 notional amount outstanding of commodity-based derivatives that are not
designated as effective hedges for accounting purposes and have maturity dates through December 2015. Fair market value gains or
losses are included in the results of operations and are classied in cost of sales.