Rayovac 2008 Annual Report Download - page 71

Table of Contents
Index to Financial Statements
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”), an amendment of
Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” which changes the accounting and reporting for minority interests. Under SFAS 160,
minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and
purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to
the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as
any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. We do not believe that adopting SFAS 160 will have a material impact on our financial position, results of operations or cash flows.
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 use derivative financial
instruments for purposes other than trading to mitigate the risk from such exposures.
A discussion of our accounting policies for derivative financial instruments is included in Note 2(r), Significant Accounting Policies and
Practices-Derivative Financial Instruments, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Interest Rate Risk
We have bank lines of credit at variable interest rates. The general level of U.S. interest rates, LIBOR and Euro LIBOR affect interest expense. We 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.
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, respectively, denominated in foreign currencies. Foreign currency sales and purchases are made primarily in Euro, Pounds
Sterling, 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.
Commodity Price Risk
We are exposed to fluctuations in market prices for purchases of zinc, urea and di-ammonium phosphates used in the manufacturing process. We use
commodity swaps and calls to manage such risk. The maturity of, and the quantities covered by, the contracts are closely correlated to our anticipated purchases
of the commodities. The cost of calls are amortized over the life of the contracts and are recorded in cost of goods sold, along with the effects of the swap and
call contracts. The related amounts payable to, or receivable from, the counter-parties are included in accounts payable or accounts receivable.
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Source: Spectrum Brands, Inc, 10-K, December 10, 2008