Supercuts 2007 Annual Report Download - page 46

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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 (see Note 8 to the Consolidated Financial Statements).
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 year ended June 30, 2007, foreign currency translation had a favorable impact on consolidated revenues due to the
strengthening of the Canadian dollar, British pound and Euro, as compared to the fiscal year ended June 30, 2006.
During the fiscal year ended June 30, 2006, foreign currency translation had a negative impact on consolidated revenues due to the
weakening of the British pound and Euro against the United States dollar, partially offset by the strengthening of the Canadian dollar.
45
Favorable (Unfavorable) Impact of Foreign
Currency Exchange Rate Fluctuations
Impact on Revenues
Impact on Income
Before Income Taxes
Currency
Fiscal 2007
Fiscal 2006
Fiscal 2007
Fiscal 2006
(Dollars in thousands)
Canadian dollar
$
3,606
$
7,274
$
608
$
1,060
British pound
15,167
(6,753
)
616
(341
)
Euro
4,388
(2,472
)
782
(292
)
Total
$
23,161
$
(1,951
)
$
2,006
$
427