Supercuts 2005 Annual Report Download - page 51

In certain salon franchise area development agreements, a buyback program was included allowing the franchisee to require us to
purchase all of their salon assets within a specified market for 90 percent of their original cost within two years from the date of the franchisee
opening their first salon. As of June 30, 2005, 15 existing franchise salons were covered by such agreements and the related maximum potential
amount of undiscounted future payments was estimated to be approximately $1.0 million. This potential obligation is not included in the table
above as the opportunity or the timing of the potential expenditures cannot be reasonably estimated. We have not and do not expect to incur
material expenditures under the buyback program as the program has been discontinued with respect to any new franchise area development
agreements and most franchisees who were offered the program in the past choose to continue operating the salons themselves. Further, in the
case of a franchisee initiating the buyback program, we anticipate finding another franchisee to purchase the salons directly rather than
purchasing them ourselves.
We have interest rate swap contracts, as well as a cross-currency swap to hedge a portion of our net investment in foreign operations. See
Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” for a detailed discussion of our derivative instruments.
We do not have other unconditional purchase obligations, or significant other commercial commitments such as commitments under lines
of credit and standby repurchase obligations or other commercial commitments. We have a standby letter of credit of $29.1 million related to
our self-insurance program. Therefore, $29.1 million of our committed line of credit under our revolving credit facility is restricted.
We are in compliance with all covenants and other requirements of our credit agreements and senior notes. Additionally, the credit
agreements do not include rating triggers or subjective clauses that would accelerate maturity dates.
As a part of our salon development program, we continue to negotiate and enter into leases and commitments for the acquisition of
equipment and leasehold improvements related to future salon locations, and continue to enter into transactions to acquire established hair care
salons and businesses.
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet financial
arrangements or other contractually narrow or limited purposes at June 30, 2005. As such, we are not materially exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such relationships.
Financing
Financing activities are discussed on pages 47-48 and in Note 4 to the Consolidated Financial Statements, and derivative activities are
discussed in Note 5 to the Consolidated Financial Statements and Item 7A., “Quantitative and Qualitative Disclosures about Market Risk.”
Management believes that cash generated from operations and amounts available under existing debt facilities will be sufficient to fund its
anticipated capital expenditures, acquisitions and required debt repayments for the foreseeable future. As of June 30, 2005, we have available
an unused committed line of credit amount of $314.2 million under our existing revolving credit facility. This amount excludes $29.1 million
related to a standby letter of credit stemming from our self-insurance program.
Dividends
We paid dividends of $0.16 per share during fiscal year 2005, $0.14 per share during fiscal year 2004 and $0.12 per share during fiscal
year 2003. On August 24, 2005, the Board of Directors of the Company declared a $0.04 per share quarterly dividend payable September 21,
2005 to shareholders of record on September 7, 2005.
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