Rayovac 2014 Annual Report Download - page 109

SPECTRUM BRANDS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(Amounts in thousands, except per share figures)
As a result of borrowings and payments under the ABL Facility, at September 30, 2014, the Company had
aggregate borrowing availability of approximately $266,853, net of lender reserves of $6,398 and outstanding
letters of credit of $51,032.
(7) DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the Company principally in the management of its interest rate,
foreign currency exchange rate and raw material price exposures. The Company does not hold or issue derivative
financial instruments for trading purposes. Derivative instruments are reported at fair value in the Consolidated
Statements of Financial Position. When hedge accounting is elected at inception, the Company formally
designates the financial instrument as a hedge of a specific underlying exposure and documents both the risk
management objectives and strategies for undertaking the hedge. The Company formally assesses both at the
inception and at least quarterly thereafter, whether the financial instruments that are used in hedging transactions
are effective at offsetting changes in the forecasted cash flows of the related underlying exposure. Because of the
high degree of effectiveness between the hedging instrument and the underlying exposure being hedged,
fluctuations in the value of the derivative instruments are generally offset by changes in the forecasted cash flows
of the underlying exposures being hedged. Any ineffective portion of a financial instrument’s change in fair
value is recognized in earnings. For derivatives that are not designated as cash flow hedges, or do not qualify for
hedge accounting treatment, the change in the fair value is also recognized in earnings.
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, 2014, the Company had a series of U.S. dollar denominated interest rate swaps outstanding which
effectively fix the interest on floating rate debt, exclusive of lender spreads, at 1.36% for a notional principal
amount of $300,000 through April 2017. At September 30, 2013, the Company did not have any interest rate
swaps outstanding. The derivative net loss on these contracts recorded in AOCI by the Company at
September 30, 2014 was $704, net of tax benefit of $0. At September 30, 2014, the portion of derivative net
losses estimated to be reclassified from AOCI into earnings by the Company over the next 12 months is $1,335,
net of tax.
The Company’s interest rate swap derivative financial instruments at September 30, 2014 and
September 30, 2013 are summarized as follows:
2014 2013
Notional
Amount
Remaining
Years
Notional
Amount
Remaining
Years
Interest rate swaps—fixed ................................ $300,000 2.5 $— —
The Company periodically enters into forward foreign exchange contracts to hedge the risk from forecasted
foreign currency denominated third party and intercompany sales or payments. These obligations generally
require the Company to exchange foreign currencies for U.S. Dollars, Euros, Pounds Sterling, Australian Dollars,
Brazilian Reals, Mexican Pesos, Canadian Dollars or Japanese Yen. These foreign exchange contracts are cash
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