Rayovac 2010 Annual Report Download - page 133

SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
The Company is exposed to risk from fluctuating prices for raw materials, specifically zinc used in its
manufacturing processes. The Company hedges a portion of the risk associated with these materials through the
use of commodity swaps. The hedge contracts are designated as cash flow hedges with the fair value changes
recorded in AOCI and as a hedge asset or liability, as applicable. The unrecognized changes in fair value of the
hedge contracts are reclassified from AOCI into earnings when the hedged purchase of raw materials also affects
earnings. The swaps effectively fix the floating price on a specified quantity of raw materials through a specified
date. At September 30, 2010 the Successor Company had a series of such swap contracts outstanding through
September 2012 for 15 tons with a contract value of $28,897. At September 30, 2009 the Successor Company
had a series of such swap contracts outstanding through September 2011 for 8 tons with a contract value of
$11,830. At September 30, 2008, the Predecessor Company had a series of such swap contracts outstanding
through September 2010 for 13 tons with a contract value of $31,030. The derivative net gain on these contracts
recorded in AOCI by the Successor Company at September 30, 2010 was $2,256, net of tax expense of $1,201.
The derivative net gain on these contracts recorded in AOCI by the Successor Company at September 30, 2009
was $347, net of tax expense of $183. The derivative net (loss) on these contracts recorded in AOCI by the
Successor Company at September 30, 2008 was $(5,396), net of tax benefit of $2,911. At September 30, 2010,
the portion of derivative net gains estimated to be reclassified from AOCI into earnings by the Company over the
next 12 months is $1,251, net of tax.
The Company was also exposed to fluctuating prices of raw materials, specifically urea and di-ammonium
phosphates (“DAP”), used in its manufacturing processes in the growing products portion of the Home and
Garden Business. During the period from October 1, 2008 through August 30, 2009 (Predecessor Company)
$(2,116) of pretax derivative gains (losses) were recorded as an adjustment to Loss from Discontinued
operations, net of tax, for swap or option contracts settled at maturity. During Fiscal 2008, $8,925 of pretax
derivative gains were recorded as an adjustment to Loss from discontinued operations, by the Predecessor
Company for swap or option contracts settled at maturity. The hedges are generally highly effective; however,
during the period from October 1, 2008 through August 30, 2009 and Fiscal 2008, $(12,803) and $(177),
respectively, of pretax derivative gains (losses), were recorded as an adjustment to Loss from discontinued
operations, net of tax, by the Predecessor Company. The amount recorded during the period from October 1,
2008 through August 30, 2009, was due to the shutdown of the growing products portion of the Home and
Garden Business and a determination that the forecasted transactions were probable of not occurring. The
Successor Company had no such swap contracts outstanding as of September 30, 2009 and no related gain (loss)
recorded in AOCI.
Derivative Contracts
The Company periodically enters into forward and swap foreign exchange contracts to economically hedge
the risk from third party and intercompany payments resulting from existing obligations. These obligations
generally require the Company to exchange foreign currencies for U.S. Dollars, Euros or Australian Dollars.
These foreign exchange contracts are economic hedges of a related liability or asset recorded in the
accompanying Consolidated Statements of Financial Position. The gain or loss on the derivative hedge contracts
is recorded in earnings as an offset to the change in value of the related liability or asset at each period end. At
September 30, 2010 and September 30, 2009 the Company had $333,562 and $37,478, respectively, of such
foreign exchange derivative notional value contracts outstanding.
During the Predecessor Company’s eleven month period ended August 30, 2009, as a result of the
Bankruptcy Cases, the Company determined that previously designated cash flow hedge relationships associated
with interest rate swaps became ineffective as of the Company’s Petition Date. Further, the Company’s senior
secured term credit agreement was amended in connection with the implementation of the Plan, and accordingly
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