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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 2012 cash flows is primarily associated with certain forecasted
intercompany transactions.
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 the first quarter of fiscal year 2013 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. During fiscal year 2011, 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 2011 and September 2012. As of June 30, 2012, the remaining aggregate amount of forward foreign currency contracts
related to the Canadian dollar was $1.8 million U.S. dollars .The purpose of the forward contracts is to protect against adverse movements in
the Canadian dollar exchange rate. The contracts were designated and were effective as cash flow hedges as of June 30, 2012. 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. See Note 9 to the Consolidated Financial Statements for further
discussion.
The Company uses freestanding derivative forward contracts to offset the Company's exposure to the change in fair value of certain
foreign currency denominated intercompany assets and liabilities. These derivatives are not designated as hedges and therefore, changes in the
fair value of these forward contracts are recognized currently in earnings thereby offsetting the current earnings effect of the related foreign
currency denominated assets and liabilities.
In June 2012, the Company entered into a freestanding derivative forward contract to sell an aggregate $9.0 million U.S. dollars and buy
Canadian dollars, with a maturation date in July 2012.
The table below provides information about the Company's forecasted transactions in U.S. dollar equivalents. (The information is
presented in U.S. dollars because that is the Company's reporting currency.) The table summarizes information on transactions that are
sensitive to foreign currency exchange rates and the related foreign currency forward exchange agreements. For the foreign currency forward
exchange agreements, the table presents the notional amounts and weighted average exchange rates by expected (contractual) maturity dates.
These notional amounts are used to calculate the contractual payments to be exchanged under the contract.
75
Expected Transaction date June 30,
June 30,
2012 Fair
Value
2013 2014 2015 2016 Total
Forecasted Transactions
(U.S.$ equivalent in thousands)
Intercompany transactions with
Canadian salons (U.S.$)
$
1,804
$
—
$
—
$
—
$
1,804
$
37
Foreign currency denominated
intercompany assets and liabilities
(U.S.$)
9,000
—
—
—
9,000
108
Total contracts
$
10,804
$
—
$
—
$
—
$
10,804
$
145
Average contractual exchange rate
1.0243
1.0243