Rayovac 2013 Annual Report Download - page 78

matters and pending or potential examinations by various taxing authorities are examples of situations evaluated
as loss contingencies. Estimating the probability and magnitude of losses is often dependent upon management’s
judgment of potential actions by third parties and regulators. It is possible that changes in estimates or an
increased probability of an unfavorable outcome could materially affect our business, financial condition or
results of operations.
See further discussion in Item 3, Legal Proceedings, and Note 12, “Commitments and Contingencies,” of
Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Other Significant Accounting Policies
Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed
above, are also critical to understanding the Consolidated Financial Statements included in this Annual Report on
Form 10-K. The Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K
contain additional information related to our accounting policies, including recent accounting pronouncements,
and should be read in conjunction with this discussion.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Factors
We have market risk exposure from changes in interest rates, foreign currency exchange rates and
commodity prices. We, when appropriate, use derivative financial instruments to mitigate the risk from such
exposures.
A discussion of our accounting policies for derivative financial instruments is included in Note 7,
“Derivative Financial Instruments”, to our Consolidated Financial Statements included in this Annual Report on
Form 10-K.
Interest Rate Risk
A substantial portion of our debt bears interest at variable rates. If market interest rates increase, the interest
rate on our variable rate debt will increase and will create higher debt service requirements, which would
adversely affect our cash flow and could adversely impact our results of operations. We also have bank lines of
credit at variable interest rates. The general level of U.S. and Canadian interest rates, LIBOR, CDOR and Euro
LIBOR affect interest expense. We periodically use interest rate swaps to manage such risk. The net amounts to
be paid or received under interest rate swap agreements are accrued as interest rates change, and are recognized
over the life of the swap agreements as an adjustment to interest expense from the underlying debt to which the
swap is designated. The related amounts payable to, or receivable from, the contract counter-parties are included
in accrued liabilities or accounts receivable. At September 30, 2013, there were no outstanding interest rate
derivative instruments.
Foreign Exchange Risk
We are subject to risk from sales and loans to and from our subsidiaries as well as sales to, purchases from
and bank lines of credit with third-party customers, suppliers and creditors denominated in foreign currencies.
Foreign currency sales and purchases are made primarily in Euro, Pounds Sterling, Mexican Pesos, Canadian
Dollars, Australian Dollars and Brazilian Reals. We manage our foreign exchange exposure from anticipated
sales, accounts receivable, intercompany loans, firm purchase commitments, accounts payable and credit
obligations through the use of naturally occurring offsetting positions (borrowing in local currency), forward
foreign exchange contracts, foreign exchange rate swaps and foreign exchange options. The related amounts
payable to, or receivable from, the contract counter-parties are included in accounts payable or accounts
receivable.
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