Supercuts 2008 Annual Report Download - page 64

debt related to fair value swaps at June 30, 2008 and 2007, respectively, the Company had the following outstanding debt balances:
The Company manages its interest rate risk by continually assessing the amount of fixed and variable rate debt. On occasion, the Company
uses interest rate swaps to further mitigate the risk associated with changing interest rates and to maintain its desired balances of fixed and
floating rate debt.
In addition, the Company has entered into the following financial instruments:
Interest Rate Swap Contracts:
The Company manages its interest rate risk by balancing the amount of fixed and variable rate debt. On occasion, the Company uses
interest rate swaps to further mitigate the risk associated with changing interest rates and to maintain its desired balances of fixed and variable
rate debt. Generally, the terms of the interest rate swap agreements contain quarterly settlement dates based on the notional amounts of the swap
contracts.
Pay fixed rates, receive variable rates
During the three months ended December 31, 2005, the Company entered into interest rate swap contracts that pay fixed rates of interest
and receive variable rates of interest (based on the three-month LIBOR rate) on notional amounts of indebtedness of $35.0 and $15.0 million as
of June 30, 2008, and mature in March 2013 and March 2015, respectively. These swaps were designated and are effective as cash flow hedges.
These cash flow hedges were recorded at fair value within other noncurrent liabilities in the Consolidated Balance Sheet, with a corresponding
offset in other comprehensive income within shareholders' equity.
Pay variable rates, receive fixed rates
The Company has interest rate swap contracts under which it pays variable rates of interest (based on the three-month LIBOR rate plus a
credit spread) and receives fixed rates of interest on an aggregate $5.0 and $14.0 million notional amount at June 30, 2008 and 2007,
respectively, with a maturation date of July 2008. These swaps were designated as hedges of a portion of the Company's senior term notes and
are being accounted for as fair value hedges.
During fiscal year 2003, the Company terminated a portion of a $40.0 million interest rate swap contract. The remainder of this swap
contract was terminated during the fourth quarter of fiscal year 2005. The terminations resulted in the Company realizing gains of $1.1 and
$1.5 million during fiscal year 2005 and 2003, respectively, which are deferred in long-term debt in the Consolidated Balance Sheet and are
being amortized against interest expense over the remaining life of the underlying debt that matures in July 2008. Approximately $0.5 million of
the deferred gain was amortized against interest expense during fiscal years 2008, 2007 and 2006, respectively, resulting in a remaining deferred
gain of $0.4 and $0.9 million in long-term debt at June 30, 2008 and 2007, respectively.
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As of June 30,
2008 2007
(Dollars in thousands)
Fixed rate debt
$
525,647
$
461,431
Variable rate debt
239,100
247,800
$
764,747
$
709,231