Supercuts 2005 Annual Report Download - page 83

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The debt agreements contain covenants, including limitations on incurrence of debt, granting of liens, investments, merger or
consolidation, and transactions with affiliates. In addition, the Company must adhere to specified fixed charge coverage and leverage ratios, as
well as minimum net worth levels.
As a result of the fair value hedging activities discussed in Note 5, an adjustment of approximately $2.5 and $3.5 million was made to
increase the carrying value of the Company’s long-term fixed rate debt at June 30, 2005 and 2004, respectively. Therefore, at June 30, 2005
and 2004, approximately 12 and 30 percent of the Company’s fixed rate debt has been marked to market, respectively.
Aggregate maturities of long-term debt, including associated fair value hedge obligations of $2.5 million and capital lease obligations of
$19.5 million at June 30, 2005, are as follows:
5. DERIVATIVE FINANCIAL INSTRUMENTS:
The primary market risk exposure of the Company relates to changes in interest rates in connection with its debt, some of which bears
interest at variable rates based on LIBOR plus an applicable borrowing margin. Additionally, the Company is exposed to foreign currency
translation risk related to its net investments in its foreign subsidiaries. The Company has established policies and procedures that govern the
management of these exposures through the use of derivative financial instrument contracts. By policy, the Company does not enter into such
contracts for the purpose of speculation.
The Company has established an interest rate management policy that attempts to minimize its overall cost of debt, while taking into
consideration the earnings implications associated with the volatility of short-term interest rates. As part of this policy, the Company has
elected to maintain a combination of variable and fixed rate debt. As of June 30, 2005 and 2004, the Company had the following outstanding
debt balances:
Considering the Company’s policy of maintaining variable rate debt instruments, a one percent change in interest rates (including the
impact of existing interest rate swap contracts) may impact the Company’s interest expense by approximately $1.6 million. To reduce the
volatility associated with interest rate movements, the Company has entered into the following financial instruments:
82
Fiscal year
(Dollars in thousands)
2006
$
19,747
2007
33,980
2008
66,813
2009
80,862
2010
50,216
Thereafter
317,158
$
568,776
June 30,
2005
2004
(Dollars in thousands)
Fixed rate debt
$
413,526
$
202,543
Variable rate debt
155,250
98,600
$
568,776
$
301,143