Rayovac 2011 Annual Report Download - page 125

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SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(In thousands, except per share amounts)
rating exposure. The maximum loss due to credit risk equals the fair value of the gross asset derivatives which
are primarily concentrated with a foreign financial institution counterparty. The Company considers these
exposures when measuring its credit reserve on its derivative assets, which was $18 and $75, respectively, at
September 30, 2011 and September 30, 2010.
The Company’s standard contracts do not contain credit risk related contingencies whereby the Company
would be required to post additional cash collateral as a result of a credit event. However, as a result of the
Company’s current credit profile, the Company is typically required to post collateral in the normal course of
business to offset its liability positions. At September 30, 2011 and September 30, 2010, the Company had posted
cash collateral of $418 and $2,363, respectively, related to such liability positions. In addition, at September 30,
2011 and September 30, 2010, the Company had posted standby letters of credit of $2,000 and $4,000,
respectively, related to such liability positions. The cash collateral is included in Receivables—Other within the
accompanying Consolidated Statements of Financial Position.
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, 2011, the Company had a portfolio of U.S. dollar-denominated interest rate swaps outstanding
which effectively fixes the interest on floating rate debt, exclusive of lender spreads as follows: 2.25% for a
notional principal amount of $200,000 through December 2011 and 2.29% for a notional principal amount of
$300,000 through January 2012 (the “U.S. dollar swaps”). During Fiscal 2010, in connection with the refinancing
of its senior credit facilities, the Company terminated a portfolio of Euro-denominated interest rate swaps at a
cash loss of $3,499 which was recognized as an adjustment to interest expense. The derivative net loss on the
U.S. dollar swaps contracts recorded in AOCI by the Company at September 30, 2011 was $545, net of tax
benefit of $334. The derivative net loss on the U.S. dollar swaps contracts recorded in AOCI by the Company at
September 30, 2010 was $2,675, net of tax benefit of $1,640. The derivative net gain or loss on these contracts
recorded in AOCI by the Company at September 30, 2009 was $0. At September 30, 2011, the portion of
derivative net losses estimated to be reclassified from AOCI into earnings by the Successor Company over the
next 12 months is $545, net of tax.
In connection with the Company’s merger with Russell Hobbs and the refinancing of the Company’s
existing senior credit facilities associated with the closing of the Merger, the Company assessed the prospective
effectiveness of its interest rate cash flow hedges during Fiscal 2010. As a result, during Fiscal 2010, the
Company ceased hedge accounting and recorded a loss of $1,451 as an adjustment to interest expense for the
change in fair value of its U.S. dollar swaps from the date of de-designation until the U.S. dollar swaps were
re-designated. The Company also evaluated whether the amounts recorded in AOCI associated with the
forecasted U.S. dollar swap transactions were probable of not occurring and determined that occurrence of the
transactions was still reasonably possible. Upon the refinancing of the existing senior credit facility associated
with the closing of the Merger, the Company re-designated the U.S. dollar swaps as cash flow hedges of certain
scheduled interest rate payments on the new $750,000 U.S. Dollar Term Loan expiring June 17, 2016. At
September 30, 2011, the Company believes that all forecasted interest rate swap transactions designated as cash
flow hedges are probable of occurring.
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