Rayovac 2011 Annual Report Download - page 89

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 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.
Sensitivity Analysis
The analysis below is hypothetical and should not be considered a projection of future risks. Earnings
projections are before tax.
As of September 30, 2011, the potential change in fair value of outstanding interest rate derivative
instruments, assuming a 1 percentage point unfavorable shift in the underlying interest rates would be
immaterial. The net impact on reported earnings, after also including the reduction in one year’s interest expense
on the related debt due to the same shift in interest rates, would be immaterial.
As of September 30, 2011, the potential change in fair value of outstanding foreign exchange derivative
instruments, assuming a 10% unfavorable change in the underlying exchange rates, would be a loss of $45.4
million. The net impact on reported earnings, after also including the effect of the change in the underlying
foreign currency-denominated exposures, would be a net gain of $16.5 million.
As of September 30, 2011, the potential change in fair value of outstanding commodity price derivative
instruments, assuming a 10% unfavorable change in the underlying commodity prices, would be a loss of $1.8
million. The net impact on reported earnings, after also including the reduction in cost of one year’s purchases of
the related commodities due to the same change in commodity prices, would be a net gain of $0.6 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required for this Item is included in this Annual Report on Form 10-K within Item 15,
Exhibits, Financial Statements and Schedules, inclusive and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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