Rayovac 2012 Annual Report Download - page 116

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SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(In thousands, except per share amounts)
Credit Risk
The Company is exposed to the risk of default by the counterparties with which it transacts and generally
does not require collateral or other security to support financial instruments subject to credit risk. The Company
monitors counterparty credit risk on an individual basis by periodically assessing each such counterparty’s credit
rating exposure. The maximum loss due to credit risk equals the fair value of the gross asset derivatives which
are primarily concentrated with two foreign financial institution counterparties. The Company considers these
exposures when measuring its credit reserve on its derivative assets, which was $46 and $18, respectively, at
September 30, 2012 and September 30, 2011.
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, the Company is
typically required to post collateral in the normal course of business to offset its liability positions. At
September 30, 2012 and September 30, 2011, the Company had posted cash collateral of $50 and $418,
respectively, related to such liability positions. At September 30, 2012, the Company had no standby letters of
credit, compared to posted letters of credit of $2,000 at September 30, 2011, 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 has used 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, 2012, the Company did not have any interest rate swaps outstanding. At
September 30, 2011, the Company had a portfolio of U.S. dollar-denominated interest rate swaps outstanding
which effectively fixed 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. 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. At September 30, 2012, the Company did not have
any unrecognized gains or losses related to interest rate swaps recorded in AOCI. The derivative net loss on the
U.S. dollar swap contracts recorded in AOCI by the Company at September 30, 2011 was $879, net of tax benefit
of $0. At September 30, 2012, no derivative net losses are estimated to be reclassified from AOCI into earnings
by the Company over the next 12 months.
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
106