Rayovac 2010 Annual Report Download - page 131

SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
(A) Amount represents portion of certain future payments related to interest rate contracts that were
de-designated as cash flow hedges during the pendency of the Bankruptcy Cases.
During Fiscal 2008 the Predecessor Company recognized the following respective gains (losses) on
derivative contracts:
Amount of Gain (Loss)
Recognized in
Income on Derivatives
Location of Gain or (Loss)
Recognized in
Income on Derivatives
Foreign exchange contracts .......................... (9,361) Other (income) expense, net
Total ........................................ $(9,361)
Credit Risk
The Company is exposed to the default risk of the counterparties with which the Company transacts. The
Company monitors counterparty credit risk on an individual basis by periodically assessing each such
counterparty’s credit rating exposure. The maximum loss due to credit risk equals the fair value of the gross asset
derivatives which are primarily concentrated with a foreign financial institution counterparty. The Company
considers these exposures when measuring its credit reserve on its derivative assets, which was $75 and $32,
respectively, at September 30, 2010 and September 30, 2009. Additionally, the Company does not require
collateral or other security to support financial instruments subject to credit risk.
The Company’s standard contracts do not contain credit risk related contingencies whereby the Company
would be required to post additional cash collateral as a result of a credit event. However, as a result of the
Company’s current credit profile, the Company is typically required to post collateral in the normal course of
business to offset its liability positions. At September 30, 2010 and September 30, 2009, the Company had posted
cash collateral of $2,363 and $1,943, respectively, related to such liability positions. In addition, at
September 30, 2010 and September 30, 2009, the Successor Company had posted standby letters of credit of
$4,000 and $0, respectively, related to such liability positions. The cash collateral is included in Receivables—
Other within the accompanying Consolidated Statements of Financial Position.
Derivative Financial Instruments
Cash Flow Hedges
The Company uses interest rate swaps to manage its interest rate risk. The swaps are designated as cash flow
hedges with the changes in fair value recorded in AOCI and as a derivative hedge asset or liability, as applicable.
The swaps settle periodically in arrears with the related amounts for the current settlement period payable to, or
receivable from, the counter-parties included in accrued liabilities or receivables, respectively, and recognized in
earnings as an adjustment to interest expense from the underlying debt to which the swap is designated. At
September 30, 2010, the Company had a portfolio of U.S. dollar-denominated interest rate swaps outstanding
which effectively fixes the interest on floating rate debt, exclusive of lender spreads as follows: 2.25% for a
notional principal amount of $300,000 through December 2011 and 2.29% for a notional principal amount of
$300,000 through January 2012 (the “U.S. dollar swaps”). During Fiscal 2010, in connection with the refinancing
of its senior credit facilities, the Company terminated a portfolio of Euro-denominated interest rate swaps at a
cash loss of $3,499 which was recognized as an adjustment to interest expense. The derivative net (loss) on the
U.S. dollar swaps contracts recorded in AOCI by the Company at September 30, 2010 was $(2,675), net of tax
benefit of $1,640.
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