Supercuts 2008 Annual Report Download - page 99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
respectively. The following table depicts the hedging activity in other comprehensive income related to the cash flow hedges for the years ended
June 30, 2008, 2007 and 2006.
As of June 30, 2008, the Company estimates, based on current interest rates, that less than $0.6 million of tax-effected charges will be
recorded in the Consolidated Statement of Operations during the next twelve months related to interest rate hedges. Additionally, based on
current forward exchange rates, the Company estimates that approximately $0.1 million of tax-effected charges will be recorded in the
Consolidated Statement of Operations in the next twelve months related to foreign currency hedges.
Fair Value Hedges:
The Company has interest rate swap contracts under which it pays variable rates of interest (based on the three-month LIBOR rate plus a
credit spread) and receives fixed rates of interest on an aggregate $5.0 and $14.0 million notional amount at June 30, 2008 and 2007, respectively
with a maturation date of July 2008. These swaps were designated as hedges of a portion of the Company's senior term notes and are being
accounted for as fair value hedges.
During fiscal year 2003, the Company terminated a portion of a $40.0 million notional interest rate swap contract. The remainder of this
swap contract was terminated during the fourth quarter of fiscal year 2005. The terminations resulted in the Company realizing gains of $1.1 and
$1.5 million during fiscal years 2005 and 2003, respectively, which are deferred in long-term debt in the Consolidated Balance Sheet and are
being amortized against interest expense over the remaining life of the underlying debt that matures in July 2008. Approximately $0.5 million of
the deferred gain was amortized against interest expense during fiscal years 2008, 2007 and 2006, respectively, resulting in a remaining deferred
gain of $0.4 and $0.9 million in long-term debt at June 30, 2008 and 2007, respectively.
The Company's outstanding fair value hedges are recorded at fair value within either other assets or other noncurrent liabilities (depending
on whether the fair value adjustment is favorable or unfavorable) in the Consolidated Balance Sheet, with a corresponding cumulative
adjustment to the underlying senior term note within long-term debt. This adjustment resulted in a decrease to the debt balance of less than
$0.1 million for the years ended June 30, 2008, 2007, and 2006. No hedge ineffectiveness occurred during fiscal years 2008, 2007 or 2006. As a
result, the fair value hedges did not have a net impact on earnings.
97
2008
2007
2006
(Dollars in thousands)
Tax
-
effected gain (loss) on cash flow hedges recorded in other comprehensive income:
Realized net (loss) gain transferred from other comprehensive income to earnings
$
(157
)
$
(190
)
$
50
Unrealized net (loss) gain from changes in fair value of cash flow hedges
(2,400
)
(1,030
)
1,416
$
(2,557
)
$
(1,220
)
$
1,466