Supercuts 2005 Annual Report Download - page 55

Download and view the complete annual report

Please find page 55 of the 2005 Supercuts annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 121

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121

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
elected to maintain a combination of variable and fixed rate debt. Considering the Company’s policy of maintaining variable rate debt
instruments, a one percent change in interest rates may impact the Company’s interest expense by approximately $1.6 million. As of June 30,
2005 and 2004, the Company had the following outstanding debt balances:
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)
The Company had an interest rate swap contract that paid fixed rates of interest and received variable rates of interest (based on the three-
month LIBOR rate) on notional amounts of indebtedness of $11.8 million at June 30, 2004, which was accounted for as a cash flow swap. This
swap contract matured during June 2005 and, therefore, the Company holds no cash flow swaps at the end of fiscal year 2005.
During fiscal year 2003, the $11.8 million interest rate swap was redesignated from a hedge of variable rate operating lease obligations to
hedge of a portion of the interest payments associated with the Company’s long-term financing program. The redesignation was the result of
the Company exercising its right to purchase the property under the variable rate operating lease. See the discussion in Note 5 to the
Consolidated Financial Statements for further explanation.
(Pay variable rates, receive fixed rates)
The Company has interest rate swap contracts that pay variable rates of interest (based on the three-month and six-month LIBOR rates
plus a credit spread) and receive fixed rates of interest on an aggregate $48.5 and $81.0 million notional amount at June 30, 2005 and 2004,
respectively, with maturation dates between July 2005 and 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 swaps.
During the second quarter of fiscal year 2003, the Company terminated a portion of its $40.0 million interest rate swap contract, thereby
lowering the aggregate notional amount by $20.0 million. This remaining notional amount of $20.0 million was terminated during the fourth
quarter of fiscal year 2005. See Note 5 to the Consolidated Financial Statements for further discussion.
54
June 30,
2005
2004
(Dollars in thousands)
Fixed rate debt
$
413,526
$
202,543
Variable rate debt
155,250
98,600
$
568,776
$
301,143