Sally Beauty Supply 2011 Annual Report Download - page 137

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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
The table below presents the effect of the Company’s derivative financial instruments on the consolidated
statements of earnings for the fiscal year ended September 30, 2009 (in thousands):
Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings
for the Fiscal Year Ended September 30, 2009
Amount of Gain
or (Loss)
Amount of Amount of Location of Gain or Recognized in
Gain or Gain or (Loss) (Loss) Recognized Income on
(Loss) Reclassified in Income on Derivative
Recognized from Derivative (Ineffective
in OCI on Location of Gain or Accumulated (Ineffective Portion Portion and
Derivatives in Derivative (Loss) Reclassified OCI into and Amount Amount
Cash Flow (Effective from Accumulated Income Excluded from Excluded from
Hedging Portion), OCI into Income (Effective Effectiveness Effectiveness
Relationships net of tax (Effective Portion) Portion) Testing) Testing)
Interest Rate
Swaps ..... $(10,196) Interest expense $(7,935) Interest expense $—
Amount of
Location of Gain or Gain or (Loss)
(Loss) Recognized Recognized in
Derivatives Not Designated in Income on Income on
as Hedging Instruments Derivative Derivative
Interest Rate Swaps ..... Interest expense $(7,488)
Credit-risk-related Contingent Features
The agreements governing the Company’s interest rate swaps contain provisions pursuant to which the
Company could be declared in default on its interest rate swap obligations in the event the Company
defaulted under certain terms of the loan documents governing the Company’s ABL credit facility. As of
September 30, 2011, the fair value of our interest rate swaps in a liability position related to these
agreements was $6.5 million and the Company was under no obligation to post and had not posted any
collateral related to these agreements. If the Company breached any of these provisions, it would be
required to settle its obligations under the swap agreements at their termination value of $6.5 million, as of
September 30, 2011, including accrued interest and other termination costs.
At September 30, 2011, the aggregate fair value of all foreign currency option, collar and forward
agreements held was a net asset of $0.6 million, consisting of derivative instruments in an asset position of
$1.1 million and derivative instruments in a liability position of $0.5 million. The Company was under no
obligation to post and had not posted any collateral related to the agreements in a liability position.
The counterparties to all our derivative instruments are deemed by the Company to be of substantial
resources and strong creditworthiness. However, these transactions result in exposure to credit risk in the
event of default by a counterparty. The financial crisis affecting the world financial markets in recent years
has resulted in many well-known financial institutions becoming less creditworthy or having diminished
liquidity, which could expose us to an increased level of counterparty risk. In the event that a counterparty
defaults in its obligation under our interest rate swaps and/or foreign currency derivative instruments, we
could incur substantial financial losses. However, at the present time, no such losses are deemed probable.
F-37