GNC 2010 Annual Report Download - page 88

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
the fair value of these contracts as an asset or a liability, as applicable, in the balance sheet, with the offset to accumulated other
comprehensive income (loss), net of tax. The Company measures hedge effectiveness by assessing the changes in the fair value or expected
future cash flows of the hedged item. The ineffective portions, if any, are recorded in interest expense in the current period.
Derivatives designated as hedging instruments have been recorded in the consolidated balance sheet at fair value as follows:
Fair Value
Balance Sheet Location December 31, 2009 December 31, 2008
(in thousands)
Interest Rate Products Other long-term liabilities $ (14,679) $ (18,902)
The Company has interest rate swap agreements outstanding that effectively converted notional amounts of an aggregate $550.0 million
of debt from floating to fixed interest rates. The five outstanding agreements mature between April 2010 and September 2012. During the
second quarter of 2009, the Company entered into a derivative contract that consisted of an interest rate swap with a bought floor that
effectively converted a notional amount of $150.0 million of the senior toggle notes from a floating to a fixed rate, effective September 2009.
The floor is intended to replicate the optionality present in the original debt agreement, providing an equivalent offset in the interest payments.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest
payments are made on the Company's variable-rate debt. During the twelve months ending December 31, 2010, the Company estimates that
an additional $12.0 million will be reclassified as an increase to interest expense.
Components of gains and losses recorded in the consolidated balance sheet and consolidated income statements for the year ended
December 31, 2009, are as follows:
Location of Gain or
Amount of Gain or (Loss) Reclassified from Amount of Gain or (Loss)
Derivatives in Cash (Loss) Recognized in Accumulated OCI into Reclassified from
Flow Hedging OCI on Derivative Income (Effective Accumulated OCI into
Relationships (Effective Portion) Portion) Income (Effective Portion)
(in thousands)
Interest Rate Products $ (9,024) Interest income/ (expense) $ (13,247)
During the year ended December 31, 2009, there was no amount recorded as ineffective from accumulated other comprehensive
income.
Under the Company's agreements with its derivative counterparty, if the Company defaults on any of its indebtedness, including default
where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its
derivative obligations.
As of December 31, 2009, the fair value of derivatives in a net liability position related to these agreements was $18.1 million, including
accrued interest of $3.4 million but excluding adjustments for nonperformance risk. If the Company had breached any of these provisions at
December 31, 2009, it could have been required to settle its obligations under the agreements at their full termination value, which
approximates the fair value of derivatives including accrued interest. 82