Supercuts 2008 Annual Report Download - page 48

2005, respectively. On May 26, 2007, President Bush signed into law the Small Business and Work Opportunity Tax Act of 2007. Whereas
under the Tax Relief and Health Care Act of 2006 the Work Opportunity and Welfare-to-Work Tax Credits were to expire on December 31,
2007, this Act enhances and extends the credits to September 1, 2011.
The basis point improvement in our overall effective income tax rate for the fiscal year ended June 30, 2006 was related to the 2005
goodwill impairment charge in the international salon segment, which is non-deductible for tax purposes. The goodwill impairment caused an
11.0 percent increase in the fiscal year 2005 tax rate. Excluding the impact of the goodwill impairment, the increase in the fiscal year 2006 tax
rate over the prior year was primarily due to the elimination of the Work Opportunity and Welfare-to-Work Tax Credits, which expired on
December 31, 2005. During fiscal year 2005, excluding the impact of the goodwill impairment, the improvement in the effective tax rate over
fiscal year 2004 was primarily due to the successful settlement of our federal audit and the retroactive reinstatement of the Work Opportunity
and Welfare-to-Work Tax Credits during fiscal year 2005.
Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in Note 1 to the Consolidated Financial Statements.
Effects of Inflation
We compensate some of our salon employees with percentage commissions based on sales they generate, thereby enabling salon payroll
expense as a percent of company-owned salon revenues to remain relatively constant. Accordingly, this provides us certain protection against
inflationary increases, as payroll expense and related benefits (our major expense components) are variable costs of sales. In addition, we may
increase pricing in our salons to offset any significant increases in wages. Therefore, we do not believe inflation has had a significant impact on
the results of our operations.
Constant Currency Presentation
The presentation below demonstrates the effect of foreign currency exchange rate fluctuations from year to year. To present this
information, current period results for entities reporting in currencies other than United States dollars are converted into United States dollars at
the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in
effect during the current fiscal year. Therefore, the foreign currency impact is equal to current year results in local currencies multiplied by the
change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.
During the fiscal years ended June 30, 2008 and 2007, foreign currency translation had a favorable impact on consolidated revenues due to
the strengthening of the Canadian dollar, British pound, and Euro against the United States dollar.
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