Sally Beauty Supply 2011 Annual Report Download - page 133

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Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Fiscal Years ended September 30, 2011, 2010 and 2009
September 30, 2012, the entire amount reported in OCI ($6.5 million, before income tax) will be
reclassified into interest expense.
Non-designated Cash Flow Hedges
The Company may use from time to time derivative instruments (such as interest rate swaps, and foreign
currency options, collars and forwards) not designated as hedges or that do not meet the requirements for
hedge accounting, to manage its exposure to interest rate or foreign currency exchange rate movements.
In November 2006, Sally Holdings entered into certain interest rate swap agreements with an aggregate
notional amount of $500 million. These interest rate swap agreements expired on or before November
2009 and were not designated as hedges and, accordingly, the changes in fair value of these interest rate
swap agreements (which were adjusted quarterly) were recorded in interest expense in our consolidated
statements of earnings. In the fiscal year 2009, interest expense, including marked-to-market adjustments,
resulting from these interest rate swap agreements was $7.5 million. In the fiscal year 2010, interest
expense, including marked-to-market adjustments, resulting from these interest rate swap agreements was
less than $0.1 million.
The Company uses foreign currency options and collars, including, at September 30, 2011, collars with an
aggregate notional amount of $12.5 million to manage the exposure to the U.S. dollar resulting from our
Sinelco Group subsidiaries’ purchases of merchandise from third-party suppliers. Sinelco’s functional
currency is the Euro. The foreign currency collar agreements held by the Company at September 30, 2011
have contractual Euro to U.S. dollar exchange rates between 1.4000 and 1.4612 and expire in varying
amounts monthly through September 2012.
In addition, the Company uses foreign currency forwards to mitigate its exposure to changes in foreign
currency exchange rates in connection with certain intercompany balances not permanently invested. At
September 30, 2011, we held a foreign currency forward which enabled us to sell approximately
A19.9 million ($26.7 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of
1.3610, a foreign currency forward which enabled us to buy approximately $18.3 million Canadian dollars
($17.5 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.01855 and a
foreign currency forward which enabled us to buy approximately £5.6 million ($8.7 million, at the
September 30, 2011 exchange rate) at the contractual exchange rate of 1.5630. All the foreign currency
forwards held by the Company at September 30, 2011 expired in October 2011.
The Company’s foreign currency option, collar and forward agreements are not designated as hedges and
do not currently meet the requirements for hedge accounting. Accordingly, the changes in the fair value
(i.e., marked-to-market adjustments) of these derivative instruments (which are adjusted quarterly) are
recorded in selling, general and administrative expenses in our consolidated statements of earnings. During
each of the fiscal years ended September 30, 2011 and 2010, selling general and administrative expenses
included $0.2 million in net gains, including marked-to-market adjustments, from all of the Company’s
foreign currency option, collar and forward agreements.
F-33