Supercuts 2008 Annual Report Download - page 47

Interest as a percent of consolidated revenues during the twelve months ended June 30, 2008 was consistent with the twelve months ended
June 30, 2007. During fiscal year 2009, we expect interest expense to decrease to approximately $41 million.
The basis point increase in interest expense as a percent of consolidated revenues during fiscal year 2007 was primarily due to increased
debt levels due to the Company's repurchase of $79.7 million of our outstanding common stock, acquisitions and the timing of income tax
payments during the fiscal year.
The basis point increase in interest expense as a percent of consolidated revenues during fiscal year 2006 was primarily due to an increase
in our debt level stemming from fiscal year 2006 acquisition activity. Additionally, increased borrowing rates contributed to the fiscal year 2006
increase in interest expense as a percent of consolidated revenues.
Income Taxes
Our reported effective tax rate was as follows:
The basis point increase in our overall effective income tax rate for the fiscal year ended June 30, 2008 is primarily the result of the shift in
income from low to high tax jurisdictions as a result of the merger of European franchise salon operations with the Franck Provost Salon Group.
As a result of the merger with the Franck Provost Salon Group, the Company repatriated approximately $30 million cash previously considered
to be indefinitely reinvested outside of the United States. In addition, certain costs related to the transaction were not deductible for tax purposes.
The combined effect of these items caused an increase in the tax rate of 2.1%. In addition, Texas and other states introduced new taxes or
restrictive rules. The combined effect of these new taxes, together with other adjustments, caused an increase in the tax rate of 1.9%. During
fiscal year 2009, we are forecasting the effective tax rate to be approximately 37.8 percent.
The basis point improvement in our overall effective income tax rate for the fiscal year ended June 30, 2007 was primarily due to the tax
benefit received during the three months ended December 31, 2006 related to the retroactive reinstatement to January 1, 2006 of the Work
Opportunity and Welfare-to-Work Tax Credits. The basis point improvement was also due to increases in international income subject to tax in
lower tax foreign jurisdictions, partially offset by the pre-tax, non-cash goodwill impairment charge of $23.0 million ($19.6 million net of tax)
recorded during the three months ended March 31, 2007. The majority of the impairment charge was not deductible for tax purposes.
In December 2006, President Bush signed the Tax Relief and Health Care Act of 2006 into law. This Act retroactively reinstated the Work
Opportunity and Welfare-to-Work Tax Credits for a two year period beginning January 1, 2006. In accordance with generally accepted
accounting principles, the financial impact of the tax credits earned during the entire calendar year was required to be reflected in the Company's
tax rate for the quarter in which the Act was signed into law, which was the Company's quarter ended December 31, 2006. The fiscal year 2007
tax rate reflects $4.1 million related to Work Opportunity and Welfare-to-Work Tax Credits, a portion of which was earned during fiscal year
2006, but not reflected in the related financial statements due to the expiration of the prior statute. Under the prior law which was retroactive to
January 1, 2004 and expired on December 31, 2005, the Company earned employment credits of $0.8 and $1.8 million during fiscal years 2006
and
45
Years Ended June 30,
Effective
Rate
Basis Point
Increase
(Decrease)
2008
38.9
%
390
2007
35.0
(60
)
2006
35.6
(890
)