Rayovac 2014 Annual Report Download - page 110

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SPECTRUM BRANDS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(Amounts in thousands, except per share figures)
flow hedges of fluctuating foreign exchange rates 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, 2014, the Company had a series of foreign exchange derivative contracts outstanding
through September 2015 with a contract value of $226,694. 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.
The derivative net gain on these contracts recorded in AOCI at September 30, 2014 was $8,908, net of tax
expense of $3,413. The derivative loss on these contracts recorded in AOCI at September 30, 2013 was $2,287,
net of tax benefit of $637. At September 30, 2014, the portion of derivative net losses estimated to be reclassified
from AOCI into earnings over the next 12 months is $8,658, 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
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, 2014, the Company had a series of zinc swap contracts
outstanding through September 2015 for 8 tons with a contract value of $17,376. To hedge brass exposures, at
September 30, 2014, the Company had a series of zinc and copper swap contracts outstanding through June 2015
for 1 ton with a contract value of $2,835. 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. The derivative net gain
on these contracts recorded in AOCI at September 30, 2014 was $1,007, net of tax expense of $127. The
derivative net loss on these contracts recorded in AOCI at September 30, 2013 was $4, net of tax benefit of $32.
At September 30, 2014, the portion of derivative net gain estimated to be reclassified from AOCI into earnings
over the next 12 months is $1,007, net of tax.
Derivative Contracts Not Designated As Hedge Accounting
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 economic 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, 2014 and September 30, 2013, the Company had $108,855 and $108,480, 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, 2014, the Company had a series of such swap contracts
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