Supercuts 2011 Annual Report Download - page 74

Table of Contents
benefit costs; legal claims; risk inherent to international development (including currency fluctuations); the continued ability of the Company
and its franchisees to obtain suitable locations and financing for new salon development and to maintain satisfactory relationships with landlords
and other licensors with respect to existing locations; governmental initiatives such as minimum wage rates, taxes and possible franchise
legislation; the ability of the Company to successfully identify, acquire and integrate salons that support its growth objectives; the ability of the
Company to maintain satisfactory relationships with suppliers; or other factors not listed above. The ability of the Company to meet its expected
revenue target is dependent on salon acquisitions, new salon construction and same-store sales increases, all of which are affected by many of
the aforementioned risks. Additional information concerning potential factors that could affect future financial results is set forth under Item 1A
of this Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and
periodic reports filed or furnished with the SEC on Forms 10-Q and 8-K and Proxy Statements on Schedule 14A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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, changes in the Canadian dollar exchange rate. 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 following details the
Company's policies and use of financial instruments.
Interest Rate Risk:
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
historically maintained a combination of variable and fixed rate debt. Considering the effect of interest rate swaps and including no increases to
long-term debt related to fair value swaps at June 30, 2011 and 2010, 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
72
As of June 30,
2011
2010
(Dollars in thousands)
Fixed rate debt
$
313,411
$
395,029
Variable rate debt
—
45,000
$
313,411
$
440,029