Supercuts 2006 Annual Report Download - page 63

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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 2006 cash flows primarily includes payments in Canadian
dollars from the Company’s Canadian salon 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 entered into
forward currency contracts during fiscal year 2006 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. Forward currency contracts to sell Canadian dollars and buy $15.8 million U.S. dollars were
outstanding as of June 30, 2006 to hedge forecasted intercompany foreign currency denominated transactions stemming from monthly product
shipments from the U.S. to Canadian salons. These contracts mature at various dates between July 2006 and May 2009. See Note 5 to the
Consolidated Financial Statements for further discussion.
The table below provides information about the Company’s forecasted sales transactions in U.S. dollar equivalents(1). The table
summarizes information on transactions that are sensitive to foreign currency exchange rates and the related foreign currency forward exchange
agreements. For the foreign currency forward exchange agreements, the table presents the notional amounts and weighted average exchange
rates by expected (contractual) maturity dates. These notional amounts generally are used to calculate the contractual payments to be
exchanged under the contract.
(1)
The information is presented in U.S. dollars because that is the registrant’s reporting currency.
62
Expected Transaction date June 30,
June 30, 2006
2007
2008
2009
Total
Fair Value
Forecasted Transactions:
(U.S.$equivalent in thousands)
Inventory Shipments to Canadian Salons (U.S.$)
$
5,353
$
5,474
$
5,018
$
15,845
$
15,824
Foreign Currency Forward Exchange Agreements
(U.S.$equivalent in thousands)
Pay $CND/receive $U.S.:
Contract Amount
$
5,353
$
5,474
$
5,018
$
15,845
$
15,824
Average Contractual Exchange Rate
0.8919
0.9124
0.9124
0.9053