Supercuts 2008 Annual Report Download - page 97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. FINANCING ARRANGEMENTS (Continued)
Equipment and Leasehold Notes Payable
The equipment and leasehold notes payable are primarily comprised of capital lease obligations which are payable in monthly installments
through fiscal year 2011. The capital lease obligations are collateralized by the assets purchased under the agreement.
Other Notes Payable
Within other notes payable are mortgage notes for $4.9 and $7.2 million at June 30, 2008 and 2007, respectively, related to the Company's
distribution centers in Chattanooga, Tennessee and Salt Lake City, Utah. The note for the Salt Lake City distribution center is secured by that
distribution center and the note for the Chattanooga distribution center is unsecured. Additionally, the Company had $4.1 and $2.8 million in
unsecured outstanding notes at June 30, 2008 and 2007, respectively, related to debt assumed in acquisitions.
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 and, to a lesser extent, foreign currency denominated transactions. 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, 2008 and 2007, the Company had the following outstanding debt
balances:
A one percent change in interest rates (including the impact of existing interest rate swap contracts) could impact the Company's interest
expense by approximately $1.9 million. To reduce the volatility associated with interest rate movements, the Company has entered into certain
financial instruments discussed below:
Cash Flow Hedges:
Interest Rate Swaps
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-
95
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