Rayovac 2003 Annual Report Download - page 41

Download and view the complete annual report

Please find page 41 of the 2003 Rayovac annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 70

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70

The Company enters into forward and swap foreign exchange contracts, to hedge the risk from forecasted settlement in local cur-
rencies of inter-company purchases and sales, trade sales, and trade purchases. These contracts generally require the Company to
exchange foreign currencies for U.S. dollars, Euros or Pounds Sterling. These contracts are designated as cash flow hedges with the
fair value recorded in OCI and as a hedge asset or liability, as applicable. Once the forecasted transaction has been recognized as a
purchase or sale and a related liability or asset recorded in the balance sheet, the gain or loss on the related derivative hedge con-
tract is reclassified from OCI into earnings as an offset to the change in value of the liability or asset. During 2003, $98 of pretax
derivative losses were recorded as an adjustment to earnings for forward and swap contracts settled at maturity. At September 30,
2003, the Company had a series of forward contracts outstanding with a contract value of $14,387. The derivative net losses on these
contracts recorded in OCI at September 30, 2003 was zero.
The Company periodically enters into forward foreign exchange contracts, to hedge the risk from changes in fair value from
unrecognized firm purchase commitments. These firm purchase commitments generally require the Company to exchange U.S.
dollars for foreign currencies. These hedge contracts are designated as fair value hedges with the fair value recorded in earnings
on a pretax basis and as a hedge asset or liability, as applicable. To the extent effective, changes in the value of the forward contracts
recorded in earnings will be offset by changes in the value of the hedged item, also recorded in earnings on a pretax basis and as
an asset or liability, as applicable. Once the firm purchase commitment has been consummated, the firm commitment asset or lia-
bility balance will be reclassified as an addition to or subtraction from, the carrying value of the purchased asset. During 2003, no
such foreign exchange derivative activity occurred. At September 30, 2003, the Company had no such foreign exchange derivative
contracts outstanding.
The Company is exposed to risk from fluctuating prices for zinc used in the manufacturing process. The Company hedges a portion
of this risk through the use of commodity swaps. The swaps are designated as cash flow hedges with the fair value recorded in OCI
and as a hedge asset or liability, as applicable. The fair value of the swaps is reclassified from OCI into earnings when the hedged
purchase of zinc metal-based items also affects earnings. The swaps effectively fix the floating price on a specified quantity of zinc
through a specified date. During 2003, $528 of pretax derivative losses were recorded as an adjustment to cost of sales for swap con-
tracts settled at maturity. At September 30, 2003, the Company had a series of swap contracts outstanding through October 2004
with a contract value of $9,684. The derivative net gains on these contracts recorded in OCI at September 30, 2003 was an after-tax
gain of $336.
(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 market prices.
The carrying value of financial instruments approximate the fair value of those instruments, except for the $350,000 of Senior
Subordinated Notes due September 30, 2013 with interest payable semiannually at 81⁄2% and Series B & D Senior Subordinated
Debentures of $56,010, due May 15, 2006, with interest payable semiannually at 11%. The fair value of the Notes and Debentures at
September 30, 2003 was approximately $360,509 and $57,037, respectively. (See also Derivative Financial Instruments, footnote 2(r),
and Debt, footnote 6.)
(t) Environmental Expenditures Environmental expenditures that relate to current ongoing operations or to conditions caused by
past operations are expensed. The Company determines its liability on a site-by-site basis and records a liability at the time when it
is probable and can be reasonably estimated. The estimated liability is not reduced for possible recoveries from insurance carriers.
(u) Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation.
(v) Comprehensive Income Comprehensive income includes foreign currency translation of assets and liabilities of foreign subsid-
iaries, effects of exchange rates changes on intercompany balances of a long-term nature and transactions designated as a hedge of
net foreign investments, derivative financial instruments designated as cash flow hedges, and additional minimum pension liabilities
associated with the Company’s pension plans.
Notes to Consolidated Financial Statements
Rayovac Corporation and Subsidiaries
(In thousands, except per share amounts)