Supercuts 2010 Annual Report Download - page 75

Table of Contents
Foreign Currency Exchange Risk:
The majority of the Company's revenue, expense and capital purchasing activities are transacted in United States dollars. However,
because a portion of the Company's operations consists of activities outside of the United States, the Company has transactions in other
currencies, primarily the Canadian dollar, British pound and Euro. In preparing the Consolidated Financial Statements, the Company is
required to translate the financial statements of its foreign subsidiaries from the currency in which they keep their accounting records, generally
the local currency, into United States dollars. Different exchange rates from period to period impact the amounts of reported income and the
amount of foreign currency translation recorded in accumulated other comprehensive income. As part of its risk management strategy, the
Company frequently evaluates its foreign currency exchange risk by monitoring market data and external factors that may influence exchange
rate fluctuations. As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and
purchases denominated in foreign currencies. As of June 30, 2010, the Company has entered into the following financial instruments to manage
its foreign currency exchange risk:
Hedge of the Net Investment in Foreign Subsidiaries:
The Company has numerous investments in foreign subsidiaries, and the net assets of these subsidiaries are exposed to exchange rate
volatility. The Company frequently evaluates its foreign currency exchange risk by monitoring market data and external factors that may
influence exchange rate fluctuations. As a result, the Company may engage in transactions involving various derivative instruments to hedge
assets, liabilities and purchases denominated in foreign currencies.
During September 2006, the Company's cross-currency swap (which had a notional amount of $21.3 million and hedged a portion of the
Company's net investment in its foreign operations) was settled, resulting in a cash outlay of $8.9 million. This cash outlay was recorded within
investing activities within the Consolidated Statement of Cash Flows. The related cumulative tax-
effected net loss of $7.9 million was recorded
in accumulated other comprehensive income (AOCI) in fiscal year 2007. This amount will remain deferred within AOCI indefinitely, as the
event which would trigger its release from AOCI and recognition in earnings is the sale or liquidation of the Company's international
operations that the cross-currency swap hedged. The Company currently has no intent to sell or liquidate this portion of its business operations.
Forward Foreign Currency Contracts:
The Company's exposure to foreign exchange risk includes risks related to fluctuations in the Canadian dollar relative to the U.S. dollar.
The exposure to Canadian dollar exchange rates on the Company's fiscal year 2010 cash flows primarily includes payments in Canadian dollars
from the Company's operations for retail inventory exported from the United States.
The Company seeks to manage exposure to changes in the value of the Canadian dollar. In order to do so, the Company has entered into
forward currency contracts from fiscal year 2007 to fiscal year 2010 in order to reduce the risk of significant negative impact on its U.S. dollar
cash flows or income. The Company does not hedge foreign currency exposure in a manner that would entirely eliminate the effect of changes
in foreign currency exchange rates on net income and cash flows. On March 12, 2010 and June 30, 2010, the Company entered into several
forward foreign currency contracts to sell Canadian dollars and buy an aggregate of $8.7 million U.S. dollars, respectively, with maturation
dates between July 30, 2010 and September 30, 2011. The purpose of the forward contracts was to protect against adverse movements in the
Canadian dollar exchange rate. The contracts were designated and were effective as cash flow hedges. They were recorded at fair value within
other noncurrent liabilities or other current assets in the Consolidated Balance Sheet, with corresponding offsets primarily recorded in other
comprehensive income (loss), net of tax. Forward currency contracts to sell Canadian
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