Supercuts 2009 Annual Report Download - page 75

Download and view the complete annual report

Please find page 75 of the 2009 Supercuts annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 160

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160

Table of Contents
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 2009 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 2007 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 $4.7 million U.S. dollars were outstanding as of
June 30, 2009 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 2009 and May 2010. See Note 9 to the Consolidated Financial
Statements for further discussion.
On May 29, 2007, the Company entered into several forward foreign currency contracts to sell Canadian dollars and buy an aggregate
$16.9 million U.S. dollars, with maturation dates between June 2007 and May 2010. The purpose of the forward contracts is to protect against
adverse movements in the Canadian dollar exchange rate. The contracts were designated and are effective as cash flow hedges of Canadian
dollar denominated forecasted intercompany transactions related to monthly product shipments from the U.S. to Canadian salons. These cash
flow hedges were recorded at fair value within accrued expenses in the Consolidated Balance Sheet, with a corresponding offset in other
comprehensive income within shareholders' equity.
On February 1, 2006, the Company entered into several forward foreign currency contracts to sell Canadian dollars and buy an aggregate
$15.8 million U.S. dollars, with maturation dates between July 2006 and May 2009. The contracts were designated and were effective as cash
flow hedges of Canadian dollar denominated forecasted intercompany transactions. These cash flow hedges were recorded at fair value within
accrued expenses in the Consolidated Balance Sheet, with a corresponding offset in other comprehensive income within shareholders' equity.
On January 3, 2007, the Company terminated its remaining Canadian forward foreign currency contracts entered into on February 1, 2006
having a $14.5 million notional amount. The termination resulted in a deferred gain of $0.4 million which was recorded in AOCI in the
Consolidated Balance Sheet. The deferred gain was recorded into income through May 31, 2009 as the forecasted foreign currency transactions
was recognized in earnings. Approximately $0.1 million and $0.2 million of the deferred gain was amortized against cost of sales during fiscal
years 2009 and 2008, respectively, resulting in deferred gain of being fully amortized at June 30, 2009.
In September 2007, the Company entered into several forward foreign currency contracts to hedge the U.S. Dollar value of future Chinese
Yuan denominated payments to Chinese vendors. The foreign currency contracts totaled approximately 6.0 million Chinese Yuan or $0.8 million
U.S. dollars and have maturation dates between April 2008 and September 2008. The purpose of the forward contracts is to protect against
adverse movements in the Chinese Yuan exchange rate. The contracts were designated and are effective as cash flow hedges of Chinese Yuan
denominated foreign currency firm commitments. These cash flow hedges were recorded at fair value within other current assets in the
Condensed Consolidated Balance Sheet, with a corresponding offset in other comprehensive income within shareholders' equity.
In December 2008, the Company entered into forward foreign currency contracts to hedge the U.S. Dollar value of future Euro denominated
payments for business travel to Italy. The foreign currency contracts totaled approximately 0.4 million Euro or $0.6 million U.S. dollars and
have
73