Rayovac 2013 Annual Report Download - page 113

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SPECTRUM BRANDS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(Amounts in thousands, except per share figures)
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 that are
concentrated with certain domestic and foreign financial institution counterparties. The Company considers these
exposures when measuring its credit reserve on its derivative assets, which was $5 and $46 at September 30,
2013 and September 30, 2012, respectively.
The Company’s standard contracts do not contain credit risk related contingent features 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, 2013 and September 30, 2012, the Company had posted cash collateral of $450 and $50,
respectively, related to such liability positions. In addition, at September 30, 2013 and September 30, 2012, the
Company had no posted standby letters of credit related to such liability positions. The cash collateral is included
in Current Assets—Receivables-Other within the accompanying Consolidated Statements of Financial Position.
Derivative Financial Instruments
Cash Flow Hedges
When appropriate, 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, 2013 and September 30, 2012, the Company did not have any interest
rate swaps outstanding.
The Company periodically enters into forward foreign exchange contracts to hedge the risk from forecasted
foreign currency denominated third party and intercompany sales or payments. These obligations generally
require the Company to exchange foreign currencies for U.S. Dollars, Euros, Pounds Sterling, Australian Dollars,
Brazilian Reals, Mexican Pesos, Canadian Dollars or Japanese Yen. These foreign exchange contracts are cash
flow hedges of fluctuating foreign exchange related to sales of product or raw material purchases. Until the sale
or purchase is recognized, the fair value of the related hedge is recorded in AOCI and as a derivative hedge asset
or liability, as applicable. At the time the sale or purchase is recognized, the fair value of the related hedge is
reclassified as an adjustment to Net sales or purchase price variance in Cost of goods sold.
At September 30, 2013, the Company had a series of foreign exchange derivative contracts outstanding
through September 2014 with a contract value of $255,909. At September 30, 2012 the Company had a series of
foreign exchange derivative contracts outstanding through September 2013 with a contract value of $202,453.
The derivative net loss on these contracts recorded in AOCI at September 30, 2013 was $2,287, net of tax benefit
of $637. The derivative loss on these contracts recorded in AOCI at September 30, 2012 was $1,409, net of tax
benefit of $565. At September 30, 2013, the portion of derivative net loss estimated to be reclassified from AOCI
into earnings over the next 12 months is $2,248, net of tax.
The Company is exposed to risk from fluctuating prices for raw materials, specifically zinc and brass used
in its manufacturing processes. The Company hedges a portion of the risk associated with the purchase of these
materials through the use of commodity swaps. The hedge contracts are designated as cash flow hedges with the
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