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Derivative Financial Instruments | 9 Months Ended
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Jun. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | (8) Derivative Financial Instruments Cash Flow Hedges Interest Rate Swaps. Spectrum Brands 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 Accumulated Other Comprehensive Income (“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 counterparties included in accrued liabilities or receivables, respectively, and recognized in earnings as an adjustment to interest from the underlying debt to which the swap is designated. At June 30, 2017, Spectrum Brands had a series of U.S. dollar denominated interest rate swaps outstanding which effectively fix the interest on floating rate debt, exclusive of lender spreads, at 1.76% for a notional principal amount of $300.0 through May 2020. The derivative net losses estimated to be reclassified from AOCI into earnings over the next 12 months is $0.6, net of tax. The Company’s interest rate swap financial instruments at June 30, 2017 and September 30, 2016 were as follows:
|  | June 30, 2017 |  | September 30, 2016
|  | Notional Amount |  | Remaining Years |  | Notional Amount |  | Remaining Years
Interest Rate Swaps - fixed |  | $ | 300.0 |  |  | 2.8 |  | $ | 300.0 |  |  | 0.5
Commodity swaps. Spectrum Brands is exposed to risk from fluctuating prices for raw materials, specifically zinc and brass used in its manufacturing processes. Spectrum Brands 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 June 30, 2017, Spectrum Brands had a series of zinc and brass swap contracts outstanding through December 2018. The derivative net gains estimated to be reclassified from AOCI into earnings over the next 12 months is $0.8, net of tax. Spectrum Brands had the following commodity swap contracts outstanding as of June 30, 2017 and September 30, 2016:
|  | June 30, 2017 |  | September 30, 2016
|  | Notional |  | Contract Value |  | Notional |  | Contract Value
Zinc swap contracts |  | 7.4 Tons |  | $ | 18.2 |  |  | 6.7 Tons |  | $ | 12.8 |
Brass swap contracts |  | 1.3 Tons |  | 5.9 |  |  | 1.0 Tons |  | 4.0 |
Foreign exchange contracts. Spectrum Brands periodically enters into forward foreign exchange contracts to hedge a portion of the risk from forecasted foreign currency denominated third party and intercompany sales or payments. These obligations generally require Spectrum Brands to exchange foreign currencies for U.S. Dollars, Euros, Pounds Sterling, Australian Dollars, Canadian Dollars (“CAD”) 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 “Cost of goods sold”, respectively, in the accompanying Condensed Consolidated Statements of Operations. At June 30, 2017, Spectrum Brands had a series of foreign exchange derivative contracts outstanding through December 2018. The derivative net loss estimated to be reclassified from AOCI into earnings over the next 12 months is $3.2, net of tax. At June 30, 2017 and September 30, 2016, Spectrum Brands had foreign exchange derivative contracts designated as cash flow hedges with a notional value of $283.5 and $224.8, respectively. Net Investment Hedges On September 20, 2016, Spectrum Brands, Inc., a subsidiary of Spectrum Brands, issued €425.0 aggregate principal amount of 4.00% Notes at par value, due October 1, 2026 (“4.00% Notes”). Spectrum Brands’ 4.00% Notes are denominated in Euros and were designated as a net investment hedge of the translation of Spectrum Brands’ net investments in Euro denominated subsidiaries at the time of issuance. As a result, the translation of the Euro denominated debt is recognized in AOCI with any ineffective portion recognized as foreign currency translation gains or losses in the accompanying Condensed Consolidated Statements of Operations when the aggregate principal exceeds the net investment in its Euro denominated subsidiaries. Net gains or losses from the net investment hedge are reclassified from AOCI into earnings upon a liquidation event or deconsolidation of Euro denominated subsidiaries. As of June 30, 2017, the hedge was fully effective and no ineffective portion was recognized in earnings. Derivative Contracts Not Designated as Hedges for Accounting Purposes Foreign exchange contracts. Spectrum Brands periodically enters into forward and swap foreign exchange contracts to economically hedge a portion of the risk from third party and intercompany payments resulting from existing obligations. These obligations generally require Spectrum Brands to exchange foreign currencies for U.S. Dollars, CAD, Euros, Pounds Sterling, Taiwanese Dollars, Hong Kong Dollars or Australian Dollars. These foreign exchange contracts are economic hedges of a related liability or asset recorded in the accompanying Condensed Consolidated Balance Sheets. 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 June 30, 2017, Spectrum Brands had a series of forward exchange contracts outstanding through July 2017. At June 30, 2017 and September 30, 2016, Spectrum Brands had $204.2 and $131.4, respectively, of notional value for such foreign exchange derivative contracts outstanding. Commodity Swaps. Spectrum Brands 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. Spectrum Brands hedges a portion of the risk associated with these materials through the use of commodity swaps. The commodity 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 the fair value of the commodity swap contracts are adjusted through earnings when the realized gains or losses affect earnings upon settlement of the commodity swap contracts. The commodity swap contracts effectively fix the floating price on a specified quantity of silver through a specified date. At June 30, 2017, Spectrum Brands had a series of commodity swaps outstanding through November 2018. Spectrum Brands had the following commodity swaps outstanding as of June 30, 2017 and September 30, 2016:
|  | June 30, 2017 |  | September 30, 2016
|  | Notional |  | Contract Value |  | Notional |  | Contract Value
Silver (troy oz.) |  | 27.0 |  | $ | 0.5 |  |  | 31.0 |  | $ | 0.6 |
Fair Value of Derivative Instruments The fair value of outstanding derivatives recorded in the accompanying Condensed Consolidated Balance Sheets were as follows:
Asset Derivatives |  | Classification |  | June 30, 2017 |  | September 30, 2016
Derivatives designated as hedging instruments: |  |  |  |  |  |
Commodity swaps |  | Receivables, net |  | $ | 2.1 |  |  | $ | 2.9 |
Foreign exchange contracts |  | Receivables, net |  | 0.1 |  |  | 5.5 |
Interest rate swaps |  | Other assets |  | 0.2 |  |  | — |
Commodity swaps |  | Other assets |  | 0.2 |  |  | — |
Foreign exchange contracts |  | Other assets |  | — |  |  | 0.1 |
Total asset derivatives designated as hedging instruments |  |  |  | 2.6 |  |  | 8.5 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |
Foreign exchange contracts |  | Other assets |  | 0.3 |  |  | 0.2 |
Total asset derivatives |  |  |  | $ | 2.9 |  |  | $ | 8.7 |
Liability Derivatives |  | Classification |  | June 30, 2017 |  | September 30, 2016
Derivatives designated as hedging instruments: |  |  |  |  |  |
Foreign exchange contracts |  | Accounts payable and other current liabilities |  | $ | 7.6 |  |  | $ | 1.7 |
Foreign exchange contracts |  | Other liabilities |  | 1.1 |  |  | 0.1 |
Interest rate swaps |  | Other liabilities |  | 1.0 |  |  | 0.4 |
Commodity swaps |  | Accounts payable and other current liabilities |  | 0.1 |  |  | 0.1 |
Interest rate swaps |  | Accounts payable and other current liabilities |  | — |  |  | 0.7 |
Total liability derivatives designated as hedging instruments |  |  |  | 9.8 |  |  | 3.0 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |
Foreign exchange contracts |  | Accounts payable and other current liabilities |  | 1.0 |  |  | 0.2 |
Total liability derivatives |  |  |  | $ | 10.8 |  |  | $ | 3.2 |
Spectrum Brands is exposed to the risk of default by the counterparties with which Spectrum Brands transacts and generally does not require collateral or other security to support financial instruments subject to credit risk. Spectrum Brands monitors counterparty credit risk on an individual basis by periodically assessing each 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. Spectrum Brands considers these exposures when measuring its credit reserve on its derivative assets, which was insignificant as of June 30, 2017 and September 30, 2016. Spectrum Brands’ standard contracts do not contain credit risk related contingent features whereby Spectrum Brands would be required to post additional cash collateral as a result of a credit event. However, Spectrum Brands is typically required to post collateral in the normal course of business to offset its liability positions. As of June 30, 2017 and September 30, 2016, there was no cash collateral outstanding. In addition, as of June 30, 2017 and September 30, 2016, Spectrum Brands had no posted standby letters of credit related to such liability positions. For derivative instruments that are used to economically hedge the fair value of Spectrum Brands’ third party and intercompany foreign currency payments, commodity purchases and interest rate payments, the gain (loss) associated with the derivative contract is recognized in earnings in the period of change. The Company recognizes all derivative instruments as assets or liabilities in the accompanying Condensed Consolidated Balance Sheets at fair value. The following tables summarize the impact of the effective portion of designated hedges and the gain (loss) recognized in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2017 and 2016:
|  |  |  | Three months ended June 30,
|  |  |  | 2017 |  | 2016
|  | Classification |  | Gain (Loss) in AOCI |  | Gain (Loss) reclassified to Earnings |  | Gain (Loss) in AOCI |  | Gain (Loss) reclassified to Earnings
Interest rate swaps |  | Interest expense |  | $ | (0.7 | ) |  | $ | — |  |  | $ | (0.2 | ) |  | $ | (0.4 | )
Commodity swaps |  | Cost of goods sold |  | (0.5 | ) |  | 1.3 |  |  | 2.1 |  |  | (0.8 | )
Net investment hedge |  | Other (expense) income, net |  | (32.6 | ) |  | — |  |  | — |  |  | — |
Foreign exchange contracts |  | Net sales |  | 0.2 |  |  | — |  |  | (0.3 | ) |  | — |
Foreign exchange contracts |  | Cost of goods sold |  | (10.3 | ) |  | 1.3 |  |  | 8.0 |  |  | 0.1 |
|  |  |  | $ | (43.9 | ) |  | $ | 2.6 |  |  | $ | 9.6 |  |  | $ | (1.1 | )
|  |  |  | Nine months ended June 30,
|  |  |  | 2017 |  | 2016
|  | Classification |  | Gain (Loss) in AOCI |  | Gain (Loss) reclassified to Earnings |  | Gain (Loss) in AOCI |  | Gain (Loss) reclassified to Earnings
Interest rate swaps |  | Interest expense |  | $ | (1.0 | ) |  | $ | (1.0 | ) |  | $ | (0.5 | ) |  | $ | (1.4 | )
Commodity swaps |  | Cost of goods sold |  | 3.3 |  |  | 3.8 |  |  | 2.9 |  |  | (3.8 | )
Net investment hedge |  | Other (expense) income, net |  | (9.3 | ) |  | — |  |  | — |  |  | — |
Foreign exchange contracts |  | Net sales |  | 0.3 |  |  | — |  |  | (0.4 | ) |  | — |
Foreign exchange contracts |  | Cost of goods sold |  | (4.4 | ) |  | 8.4 |  |  | 6.8 |  |  | 5.0 |
|  |  |  | $ | (11.1 | ) |  | $ | 11.2 |  |  | $ | 8.8 |  |  | $ | (0.2 | )
During the three and nine months ended June 30, 2017 and 2016, the Company recognized the following gains and losses on its derivatives:
|  |  |  | Three months ended June 30, |  | Nine months ended June 30,
|  | Classification |  | 2017 |  | 2016 |  | 2017 |  | 2016
Commodity swaps |  | Cost of goods sold |  | $ | — |  |  | $ | — |  |  | $ | 0.1 |  |  | $ | — |
Foreign exchange contracts |  | Other (expense) income, net |  | (1.0 | ) |  | 0.8 |  |  | (2.4 | ) |  | 1.6 |

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