Sally Beauty Supply 2013 Annual Report Download - page 89

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quantitative impairment test for indefinite-lived intangible assets otherwise required under ASC 350. In
effect, the amendment eliminates the need to calculate the fair value of an indefinite-lived intangible asset
in connection with the impairment test unless the entity determines, based on the qualitative assessment,
that it is more likely than not that the asset is impaired. As permitted, the Company adopted the provisions
of ASU No. 2012-02 effective January 1, 2013 and its adoption did not have a material effect on the
Company’s consolidated financial position, results of operations or cash flows.
In June 2011, the FASB issued ASU No. 2011-05 which amended ASC Topic 220, Comprehensive Income
(‘‘ASC 220’’). This amendment, which must be applied retrospectively, allows an entity the option to
present the components of net income, as well as total comprehensive income and the components of
other comprehensive income, either in a single continuous statement of comprehensive income or in two
separate consecutive statements. This amendment also eliminates the option to present the components of
other comprehensive income in the statement of stockholders’ equity but does not change the items that
must be reported. As permitted, the Company adopted the provisions of ASU No. 2011-05 effective
January 1, 2013 and its adoption did not have a material effect on the Company’s consolidated financial
position, results of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a multinational corporation, we are subject to certain market risks including foreign currency
fluctuations, interest rates and government actions. We consider a variety of practices to manage these
market risks, including, when deemed appropriate, the occasional use of derivative financial instruments.
Currently, we do not purchase or hold any derivative instruments for speculative or trading purposes.
Foreign currency exchange rate risk
We are exposed to potential gains or losses from foreign currency fluctuations affecting net investments
and earnings denominated in foreign currencies. Our primary exposures are to changes in exchange rates
for the U.S. dollar versus the Euro, the British pound sterling, the Canadian dollar, the Chilean peso, and
the Mexican peso. In addition, we currently have exposure to several currencies of countries located in
South America. Our various foreign currency exposures at times offset each other, sometimes providing a
natural hedge against foreign currency risk. For each of the fiscal years 2013, 2012 and 2011, approximately
19% of our consolidated net sales were made in currencies other than the U.S. dollar. Consolidated net
sales for the fiscal year ended September 30, 2013, are inclusive of an approximately $1.3 million positive
impact from changes in foreign currency exchange rates and other comprehensive income reflects
$0.8 million in foreign currency translation adjustments. For the fiscal years 2013, 2012 and 2011,
fluctuations in the U.S. dollar exchange rates did not otherwise have a material effect on our consolidated
financial condition and consolidated results of operations.
A 10% increase or decrease in the exchange rates for the U.S. dollar versus the foreign currencies to which
we have exposure, would have impacted our consolidated net sales by approximately 1.9% in the fiscal year
2013, and would have impacted our consolidated net assets by approximately 2.7% at September 30, 2013.
The Company uses foreign exchange contracts including, at September 30, 2013, foreign currency options
with an aggregate notional amount of $12.0 million to manage the exposure to the U.S. dollar resulting
from certain of our Sinelco Group subsidiaries’ purchases of merchandise from third-party suppliers.
Sinelco’s functional currency is the Euro. These foreign currency options enable Sinelco to buy U.S. dollars
at a contractual exchange rate of 1.32, are with a single counterparty and expire ratably through September
2014.
The Company also uses foreign exchange contracts to mitigate its exposure to changes in foreign currency
exchange rates in connection with certain intercompany balances not permanently invested. As such, at
September 30, 2013, we held: (a) a foreign currency forward which enables us to sell approximately
A13.9 million ($18.9 million, at the September 30, 2013 exchange rate) at the contractual exchange rate of
72