Rayovac 2008 Annual Report Download - page 143

Table of Contents
Index to Financial Statements
SPECTRUM BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
At September 30, 2008, 2007 and 2006, respectively, the Company had $144,776, $157,520 and $97,932 of such foreign exchange derivative contracts
outstanding. The derivative net gain on these contracts recorded in AOCI at September 30, 2008 was $3,591, net of tax expense of $1,482. The derivative net loss
on these contracts recorded in AOCI at September 30, 2007 was $6,010, net of tax benefit of $3,318. The derivative net gain on these contracts recorded in AOCI
at September 30, 2006 was $647, net of tax expense of $326. At September 30, 2008, the portion of derivative net gains estimated to be reclassified from AOCI
into earnings over the next 12 months is $2,734, net of tax.
The Company is exposed to risk from fluctuating prices for raw materials, including zinc, urea and di-ammonium phosphates used in its manufacturing
processes. The Company hedges a portion of the risk associated with these materials through the use of commodity call options and swaps. The hedge contracts
are designated as cash flow hedges with the fair value changes recorded in AOCI and as a hedge asset or liability, as applicable. The unrecognized changes in fair
value of the hedge contracts are reclassified from AOCI into earnings when the hedged purchase of raw materials also affects earnings. The call options
effectively cap the floating price on a specified quantity of raw materials through a specified date. The swaps effectively fix the floating price on a specified
quantity of raw materials through a specified date. During Fiscal 2008, 2007 and 2006, $1,596 of pretax derivative losses and $14,012 and $2,290, respectively,
of pretax derivative gains were recorded as an adjustment to Cost of goods sold for swap or option contracts settled at maturity. The hedges are generally highly
effective, however, during Fiscal 2008, 2007 and 2006, $610, $583 and $24 of pretax derivative losses, respectively, were recorded as an adjustment to Cost of
goods sold for ineffectiveness. At September 30, 2008 the Company had a series of such swap contracts outstanding through September 2010 with a contract
value of $60,204. At September 30, 2007 $64,043 of such commodity contracts were outstanding. At September 30, 2006 $43,614 of such commodity contracts
were outstanding. The derivative net loss on these contracts recorded in AOCI at September 30, 2008 was $7,282, net of tax benefit of $4,038. The derivative net
loss on these contracts recorded in AOCI at September 30, 2007 was $1,107, net of tax benefit of $529. The derivative net gain on these contracts recorded in
AOCI at September 30, 2006 was $3,495, net of tax expense of $1,852. At September 30, 2008, the portion of derivative net losses estimated to be reclassified
from AOCI into earnings over the next 12 months is $6,384, net of tax.
The Company periodically enters into forward and swap foreign exchange contracts to hedge the risk from third party and intercompany payments
resulting from existing obligations. These obligations generally require the Company to exchange foreign currencies for U.S. Dollars, Euros, Canadian Dollars,
Brazilian Reals, Colombian Pesos or Turkish Lira. These foreign exchange contracts are fair value hedges of a related liability or asset recorded in the
Consolidated Balance Sheet. The gain or loss on the derivative hedge contracts is recorded in earnings as an offset to the change in value of the related liability or
asset at each period end. During Fiscal 2008, 2007 and 2006, $9,361 and $16,485 of pretax derivative losses and $2,128 of pretax derivative gains, respectively,
from such hedges were recorded as an adjustment to earnings in Other income, net. At September 30, 2008, 2007 and 2006, $110,174, $125,771 and $129,663,
respectively, of such foreign exchange derivative contracts were outstanding.
(s) Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable and short-term debt approximate fair value. The fair values of
long-term debt and derivative financial instruments are generally based on quoted or observed market prices.
The carrying value of financial instruments approximate the fair value of those instruments due to the applicable interest rates being substantially at market
(“floating”), except for a $976,458 senior secured
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Source: Spectrum Brands, Inc, 10-K, December 10, 2008