Energizer 2009 Annual Report Download - page 44

PAGE 42 ENERGIZER HOLDINGS INC. 2009 ANNUAL REPORT
Notes to Consolidated Financial Statements
(Dollars in millions, except per share and percentage data)
Cash Flow Hedges The Company maintains a number of cash
flow hedging programs, as discussed above, to reduce risks related
to commodity, foreign currency and interest rate risk. Each of these
derivative instruments have a high correlation to the underlying
exposure being hedged and have been deemed highly effective
in offsetting the associated risk.
Derivatives not Designated in Hedging Relationships The
Company holds a share option with a major multinational financial
institution to mitigate the impact of changes in certain of the
Company’s deferred compensation liabilities, which are tied to
the Company’s common stock price. Period activity related to
the share option is classified in the same category in the cash flow
statement as the period activity associated with the Company’s
deferred compensation liability, which was cash flow from operations.
In addition, the Company enters into foreign currency derivative
contracts which are not designated as cash flow hedges for
accounting purposes to hedge existing balance sheet exposures.
Any losses on these contracts would be fully offset by exchange
gains on the underlying exposures, thus they are not subject to
significant market risk.
The following table provides fair values, and amounts of gains and
losses on derivative instruments classified as cash flow hedges as
of and for the twelve months ended September 30, 2009.
At September
30, 2009
For Twelve Months Ended
September 30, 2009
Derivatives designated
as Cash Flow Hedging
Relationships
Fair Value
Asset
(Liability)
(1) (2)
Gain/(Loss)
Recognized
in OCI on
Derivative (3)
Gain/(Loss)
Reclassified From
OCI into Income
(Effective Portion)
(4) (5)
Foreign currency contracts $(15.3) $(16.8) $ (1.5)
Commodity contracts (6) 6.1 2.1 (20.6)
Interest rate contracts 3.4 3.4 –
Total $ (5.8) $(11.3) $(22.1)
(1) All derivative assets are presented in other current assets or other assets.
(2) All derivative liabilities are presented in other current liabilities or other liabilities.
(3) OCI is defined as other comprehensive income.
(4) Gain/(Loss) reclassified to Income was recorded as follows: Foreign currency contracts
in other financing, net, commodity contracts in cost of products sold.
(5) Each of these derivative instruments has a high correlation to the underlying exposure being
hedged and has been deemed highly effective in offsetting the associated risk. The ineffective
portion recognized in income was insignificant to the year ended September 30, 2009.
(6) For the year ended September 30, 2009, $13.8 of losses associated with the Company’s settled
commodity contracts were capitalized to inventory. The charge taken to cost of products sold as a
result of inventory being sold was $20.6 for the year ended September 30, 2009.
The following table provides fair values, and amounts of gains and
losses on derivative instruments not classified as cash flow hedges
as of and for the twelve months ended September 30, 2009.
Derivatives not designated
as Cash Flow Hedging
Relationships
Fair Value
Asset
(Liability)
For Twelve
Months Ended
September 30,
2009
Gain (Loss)
Recognized
in Income
on Derivative
Income Statement
Classification
Share option $2.0 $(3.0) SG&A
Foreign currency
contracts (1.0) (1.5)
other
financing, net
Total $1.0 $(4.5)
Fair Value Hierarchy New accounting guidance on fair value
measurements for certain financial assets and liabilities requires
that assets and liabilities carried at fair value be classified in one
of the following three categories:
Level 1: Quoted market prices in active markets for identical assets
or liabilities.
Level 2: Observable market based inputs or unobservable inputs
that are corroborated by market data.
Level 3: Unobservable inputs reflecting the reporting entity’s own
assumptions or external inputs from inactive markets.
Under the fair value accounting guidance hierarchy, an entity is required
to maximize the use of quoted market prices and minimize the use
of unobservable inputs. The following table sets forth the Company’s
financial assets and liabilities, which are carried at fair value, as of
September 30, 2009 that are measured on a recurring basis during
the period, segregated by level within the fair value hierarchy:
Level 1 Level 2 Level 3 Total
Assets at fair value:
Share Option $ – $ 2.0 $ – $ 2.0
Derivatives – Interest Rate
Swap
– 3.4 – 3.4
Derivatives – Commodity – 6.1 – 6.1
Total Assets at fair value $ – $ 11.5 $ – $ 11.5
Liabilities at fair value:
Derivatives – Foreign
Exchange $ – $ 16.3 $ – $ 16.3
Deferred Compensation – 124.3 – 124.3
Total Liabilities at fair value $ – $140.6 $ – $140.6