Supercuts 2005 Annual Report Download - page 48

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The net borrowing of long-term debt was primarily used to fund acquisitions, and are discussed below and in Note 4 to the Consolidated
Financial Statements. The proceeds from the issuance of common stock were related to the exercise of stock options. In the third quarter of
fiscal year 2004, the quarterly dividend was increased from its historical rate of $0.03 per share to $0.04 per share.
New Financing Arrangements
Fiscal Year 2005
We acquired Hair Club for Men and Women in December 2004 for approximately $210 million. The acquisition was financed with
approximately $110 million of debt under our existing revolving credit facility and $100 million of senior term notes issued under an existing
agreement, with interest rates ranging from 4.0 to 4.9 percent and maturation dates between November 2008 and November 2011.
On April 7, 2005 we entered into an amendment and restatement of our existing revolving credit facility with a syndicate of eight banks.
Among other changes, this amendment and restatement increased the borrowing capacity under the facility from $250.0 million to $350.0
million, extended the facility’s expiration date to April of 2010, reduced the spread charged for certain borrowings under the facility, and
modified certain financial covenants.
As so amended, the credit agreement includes financial covenants and other customary terms and conditions for credit facilities of this
type.
The amended and restated revolving credit agreement contains several affirmative and negative covenants. The most restrictive of these is
a fixed charge coverage ratio test. Under the terms of the agreement, we may not allow our ratio of earnings before interest, taxes, depreciation,
amortization and rent expense (EBITDAR) to fixed charges (which includes rent and interest expenses) to drop below 1.65 on a rolling four
quarter basis. The maturity date for the facility may be accelerated upon the occurrence of various events of default, including breaches of the
credit agreement, certain cross-default situations, certain bankruptcy-related situations, and other customary events of default for a facility of
this type. The interest rates under the facility vary and are based on a bank’s reference rate, the federal funds rate and/or LIBOR, as applicable,
and a leverage ratio determined by a formula tied to our debt and adjusted income.
In addition, on April 7, 2005, we issued $200.0 million of senior unsecured debt to approximately twenty purchasers via a private
placement transaction pursuant to a Master Note Purchase Agreement. The placement was split into four tranches, with $100 million maturing
March 31, 2013 and $100.0 million maturing March 31, 2015. Of the debt maturing in 2013, $30.0 million was issued as fixed rate debt with a
rate of 4.97 percent. The remaining $70.0 million was issued as variable rate debt and is priced at 0.52 percent over LIBOR. As for the $100
million maturing in 2015, $70.0 million was issued at a fixed rate of 5.20 percent, with the remaining $30.0 million issued as variable rate debt,
priced at 0.55 percent over LIBOR. All four tranches are non-amortizing and no principle payments are due until maturity. Interest payments
are due semi-annually.
The Master Note Purchase Agreement includes financial covenants and other customary terms and conditions for debt of this type. The
most restrictive of these is a fixed charge coverage ratio test, as described above. Under the terms of the Note Purchase Agreement, the
company may not allow its ratio of EBITDAR to fixed charges to drop below 1.50 on a rolling four quarter basis . The maturity date for the
debt may be accelerated upon the occurrence of various Events of Default, including breaches of the agreement, certain cross-
default situations,
certain bankruptcy-related situations, and other customary events of default for debt of this type.
In anticipation of our new Master Note Purchase Agreement discussed above, we entered into a First Amendment to Note Purchase
Agreement with respect to an existing Note Purchase Agreement dated as of March 1, 2002. We closed on the amendment on April 7, 2005.
The amendment modified certain financial covenants so that they would be more consistent with the financial covenants in the new Master
Note Purchase Agreement.
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