Financial Instruments and Risk Management | Financial Instruments and Risk Management In the ordinary course of business, ParentCo enters into contractual arrangements (derivatives) to reduce its exposure to commodity price and foreign currency risks. The section below outlines the types of derivatives that existed at June 30, 2015 and September 30, 2014, as well as ParentCo’s (and inherently Energizer’s) objectives and strategies for holding these derivative instruments. Commodity Price Risk —Energizer uses raw materials that are subject to price volatility. At times, ParentCo has used, and Energizer may in the future use, hedging instruments to reduce exposure to variability in cash flows associated with future purchases of certain materials and commodities. At June 30, 2015 and September 30, 2014 there were no open derivatives or hedging instruments for future purchases of raw materials or commodities. Foreign Currency Risk —A significant portion of Energizer’s product cost is more closely tied to the U.S. dollar than to the local currencies in which the product is sold. As such, a weakening of currencies relative to the U.S. dollar results in margin declines unless mitigated through pricing actions, which are not always available due to the economic or competitive environment. Conversely, a strengthening in currencies relative to the U.S. dollar can improve margins. Additionally, Energizer’s foreign subsidiaries enter into internal and external transactions that create non-functional currency balance sheet positions at the foreign subsidiary level. These exposures are generally the result of intercompany purchases, intercompany loans and, to a lesser extent, external purchases, and are revalued in the foreign subsidiary’s local currency at the end of each period. Changes in the value of the nonfunctional currency balance sheet positions in relation to the foreign subsidiary’s local currency results in a transaction gain or loss recorded in Other financing items, net on the unaudited Combined Condensed Statements of Earnings and Comprehensive Income. The primary currency to which Energizer’s foreign subsidiaries are exposed is the U.S. dollar. Interest Rate Risk Energizer has interest rate risk with respect to interest expense on variable rate debt. At June 30, 2015, Energizer had variable rate debt outstanding with an original principal balance of $400.0 under the Term Loan. Subsequent to quarter end, Energizer entered into a interest rate swap agreement with one major financial institution that fixed the variable benchmark component (LIBOR) on $200.0 of Energizer's variable rate debt through June 2022 at an interest rate of 2.22% Cash Flow Hedges ParentCo has entered into a series of forward currency contracts to hedge the cash flow uncertainty of forecasted inventory purchases due to short term currency fluctuations. Energizer’s primary foreign affiliates, which are exposed to U.S. dollar purchases, have the Euro, the British pound, the Canadian dollar and the Australian dollar as their local currencies. These foreign currencies represent a significant portion of Energizer's foreign currency exposure. At June 30, 2015 and September 30, 2014, Energizer had a pro-rated share of the unrealized pre-tax gain on these forward currency contracts accounted for as cash flow hedges of $3.6 and $5.4 , respectively, included in Accumulated other comprehensive loss on the unaudited Combined Condensed Balance Sheets. Assuming foreign exchange rates versus the U.S. dollar remain at June 30, 2015 levels, over the next 12 months, $3.6 of the pre-tax gain included in Accumulated other comprehensive loss is expected to be included in earnings. Contract maturities for these hedges extend into fiscal year 2016. Derivatives not Designated in Hedging Relationships ParentCo held a share option with a major financial institution to mitigate the impact of changes in certain of ParentCo’s unfunded deferred compensation liabilities, which are tied to ParentCo’s common stock price. The share option matured in November 2014 and was not subsequently renewed. In addition, ParentCo enters into foreign currency derivative contracts which are not designated as cash flow hedges for accounting purposes, to hedge existing balance sheet exposures. Any gains or losses on these contracts would be offset by corresponding exchange losses or gains on the underlying exposures; and as such are not subject to significant market risk. Energizer has received an allocation of an appropriate share of financial instruments used in the management of foreign currency risks that are inherent to its business operations. The following table provides Energizer’s pro rata share of the estimated fair values as of June 30, 2015 and September 30, 2014, and the pro rata share of the amounts of gains and losses on derivative instruments classified as cash flow hedges as of and for the quarter and nine months ended June 30, 2015 and 2014, respectively. At June 30, 2015 For the Quarter Ended June 30, 2015 For the Nine Months Ended June 30, 2015 Derivatives designated as Cash Flow Hedging Relationships Estimated Fair Value, Asset (Liability) (1) (2) Gain/(Loss) Recognized in OCI (3) Gain/(Loss) Reclassified From OCI into Income(Effective Portion) (4) (5) Gain/(Loss) Recognized in OCI (3) Gain/(Loss) Reclassified From OCI into Income(Effective Portion) (4) (5) Foreign currency contracts $ 3.6 $ (7.9 ) $ 1.4 $ 5.8 $ 7.6 At September 30, 2014 For the Quarter Ended June 30, 2014 For the Nine Months Ended June 30, 2014 Derivatives designated as Cash Flow Hedging Relationships Estimated Fair Value, Asset (Liability) (1) (2) Gain/(Loss) Recognized in OCI (3) Gain/(Loss) Reclassified From OCI into Income(Effective Portion) (4) (5) Gain/(Loss) Recognized in OCI (3) Gain/(Loss) Reclassified From OCI into Income(Effective Portion) (4) (5) Foreign currency contracts $ 5.4 $ (3.7 ) $ (2.0 ) $ (1.4 ) $ (0.6 ) (1) All derivative assets are presented in other current assets or other assets. (2) All derivative liabilities are presented in other current liabilities or other liabilities. (3) OCI is defined as other comprehensive income. (4) Gain/(Loss) reclassified to Income was recorded as follows: Foreign currency contracts in Other financing items, net. (5) Each of these derivative instruments had a high correlation to the underlying exposure being hedged for the periods indicated and had been deemed highly effective in offsetting associated risk. Energizer has received an allocation of an appropriate share of financial instruments used in the management of unfunded deferred compensation liabilities and foreign currency and commodity risks that are inherent to its business operations. The following table provides Energizer’s pro rata share of the estimated fair values as of June 30, 2015 and September 30, 2014, and the pro rata share of the amounts of gains and losses on derivative instruments not classified as cash flow hedges as of the quarter and nine months ended June 30, 2015 and 2014 , respectively. At June 30, 2015 For the Quarter Ended June 30, 2015 For the Nine Months Ended June 30, 2015 Derivatives not designated as Cash Flow Hedging Relationships Estimated Fair Value Asset (Liability) Gain/(Loss) Recognized in Income (1) Gain/(Loss) Recognized in Income (1) Share option (2) $ — $ (0.1 ) $ 0.2 Foreign currency contracts (0.8 ) 0.4 2.9 Total $ (0.8 ) $ 0.3 $ 3.1 At September 30, 2014 For the Quarter Ended June 30, 2014 For the Nine Months Ended June 30, 2014 Derivatives not designated as Cash Flow Hedging Relationships Estimated Fair Value Asset (Liability) Gain/(Loss) Recognized in Income (1) Gain/(Loss) Recognized in Income (1) Share option $ — $ 3.8 $ 6.8 Foreign currency contracts 1.0 (2.5 ) (0.1 ) Total $ 1.0 $ 1.3 $ 6.7 (1) Gain/(Loss) recognized in Income was recorded as follows: Share option in Selling, general and administrative expense and foreign currency contracts in Other financing items, net. (2) ParentCo held a share option with a major financial institution, which matured in November 2014 and was subsequently not renewed. Energizer has the following recognized pro rata share of the financial assets and financial liabilities resulting from those transactions that meet the scope of the disclosure requirements as necessitated by applicable accounting guidance for balance sheet offsetting: Offsetting of derivative assets At June 30, 2015 At September 30, 2014 Description Balance Sheet location Gross amounts of recognized assets Gross amounts offset in the Balance Sheet Net amounts of assets presented in the Balance Sheet Gross amounts of recognized assets Gross amounts offset in the Balance Sheet Net amounts of assets presented in the Balance Sheet Foreign Currency Contracts Other Current Assets, Other Assets $ 4.6 $ (0.8 ) $ 3.8 $ 7.2 $ (0.2 ) $ 7.0 Offsetting of derivative liabilities At June 30, 2015 At September 30, 2014 Description Balance Sheet location Gross amounts of recognized liabilities Gross amounts offset in the Balance Sheet Net amounts of liabilities presented in the Balance Sheet Gross amounts of recognized liabilities Gross amounts offset in the Balance Sheet Net amounts of liabilities presented in the Balance Sheet Foreign Currency Contracts Other Current Liabilities, Other Liabilities $ (1.2 ) $ 0.2 $ (1.0 ) $ (0.8 ) $ 0.2 $ (0.6 ) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the unaudited Combined Condensed Balance Sheet. Fair Value Hierarchy —Energizer has various pro rata share of the financial instruments that are measured at fair value on a recurring basis, including derivatives. ParentCo (and inherently Energizer) also applies the provisions of fair value measurement to various non-reoccurring measurements for Energizer’s non-financial assets and liabilities. ParentCo (and inherently Energizer) measures assets and liabilities using inputs from the following three levels of fair value hierarchy: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets. Energizer’s pro rata share of assets measured at fair value on a nonrecurring basis includes long-lived assets, indefinite-lived intangible assets and goodwill. Energizer reviews the carrying amounts of such assets at least annually or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to be Level 3 measurements. Under the fair value accounting guidance hierarchy, an entity is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The following table sets forth Energizer’s pro rata share of the financial assets and liabilities, which are carried at fair value, as of June 30, 2015 and September 30, 2014 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy: Level 2 June 30, September 30, Assets/(Liabilities) at estimated fair value: Deferred Compensation $ (31.5 ) $ (45.8 ) Derivatives - Foreign Currency Contracts 2.8 6.4 Net Liabilities at estimated fair value $ (28.7 ) $ (39.4 ) Energizer had no Level 3 financial assets or liabilities at June 30, 2015 and September 30, 2014. Due to the nature of cash, carrying amounts on the balance sheets approximate estimated fair value. The estimated fair value of cash has been determined based on Level 1 inputs. At June 30, 2015 , the estimated fair value of foreign currency contracts as described above is the amount that ParentCo would receive or pay to terminate the contracts, considering first, quoted market prices of comparable agreements, or in the absence of quoted market prices, such factors as interest rates, currency exchange rates and remaining maturities. The estimated fair value of ParentCo’s unfunded deferred compensation liability is determined based upon the quoted market prices of ParentCo Common Stock Unit Fund as well as other investment options that are offered under the plan. Energizer has received an allocation of an appropriate share of risks and benefits. At June 30, 2015 , the fair market value of fixed rate long-term debt was $601.0 compared to its carrying value of $600.0 . The estimated fair value of the long-term debt is estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements. The estimated fair value of fixed rate long-term debt has been determined based on level 2 inputs. |