Rayovac 2013 Annual Report Download - page 114

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SPECTRUM BRANDS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(Amounts in thousands, except per share figures)
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, 2013, the Company had a series of zinc swap contracts
outstanding through December 2014 for 8 tons with a contract value of $16,235. To hedge brass exposures, at
September 30, 2013, the Company had a series of zinc and copper swap contracts outstanding through September
2014 for 1 ton with a contract value of $7,418. At September 30, 2012 the Company had a series of zinc swap
contracts outstanding through September 2014 for 15 tons with a contract value of $29,207. The derivative net
loss on these contracts recorded in AOCI at September 30, 2013 was $4, net of tax benefit of $32. The derivative
net gain on these contracts recorded in AOCI at September 30, 2012 was $1,627, net of tax expense of $320. At
September 30, 2013, the portion of derivative net loss estimated to be reclassified from AOCI into earnings over
the next 12 months is $8, net of tax.
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, Canadian Dollars, Euros or
Australian Dollars. These foreign exchange contracts are fair value 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, 2013 and September 30, 2012, the Company had $108,480 and $172,581, respectively, of
notional value for such foreign exchange derivative contracts outstanding.
The Company periodically enters into commodity swap contracts to economically hedge the risk from
fluctuating prices for raw materials, specifically the pass-through of market prices for silver used in
manufacturing purchased watch batteries. The Company hedges a portion of the risk associated with these
materials through the use of commodity swaps. The swap contracts are designated as economic hedges with the
unrealized gain or loss recorded in earnings and as an asset or liability at each period end. The unrecognized
changes in fair value of the hedge contracts are adjusted through earnings when the realized gains or losses affect
earnings upon settlement of the hedges. The swaps effectively fix the floating price on a specified quantity of
silver through a specified date. At September 30, 2013, the Company had a series of such swap contracts
outstanding through May 2014 for 45 troy ounces with a contract value of $980. At September 30, 2012, the
Company did not have any commodity swap contracts outstanding.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC Topic 820: “Fair Value Measurements and Disclosures” (“ASC 820”), establishes a framework for
measuring fair value and expands related disclosures. Broadly, the ASC 820 framework requires fair value to be
determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants. ASC 820 establishes market or observable inputs as the preferred source of values, followed
by assumptions based on hypothetical transactions in the absence of market inputs. The Company utilizes
valuation techniques that attempt to maximize the use of observable inputs and minimize the use of unobservable
inputs. The determination of the fair values considers various factors, including closing exchange or over-the-
counter market pricing quotations, time value and credit quality factors underlying options and contracts. The fair
value of certain derivative financial instruments is estimated using pricing models based on contracts with similar
104