Supercuts 2006 Annual Report Download - page 51

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we acquired 42 company-owned and 49 franchise hair restoration centers in conjunction with the initial acquisition of Hair Club for Men and
Women.
Hair Restoration Center Operating Income. Operating income for our hair restoration centers was as follows:
(1)
Represents the basis point change in hair restoration center operating income as a percent of total hair restoration center revenues as
compared to the corresponding period of the prior fiscal year.
(2)
We did not own or operate any hair restoration centers until December 2004.
During fiscal year 2006, we wrote off approximately $0.5 million of software acquired as part of the original Hair Club acquisition, as it
was determined that the software will no longer be used. The remaining 50 basis point fluctuation in hair restoration center operating income as
a percent of hair restoration center revenues was primarily due to our integration of the recently acquired centers.
LIQUIDITY AND CAPITAL RESOURCES
Overview
We continue to maintain a strong balance sheet to support system growth and financial flexibility. Our debt to capitalization ratio,
calculated as total debt as a percentage of total debt and shareholders’ equity at fiscal year end, was as follows:
The improvement in the debt to capitalization ratio during fiscal year 2006 was due to increased equity levels stemming primarily from
fiscal year 2006 earnings. The increase in debt during fiscal year 2005 was driven by the $210 million debt-financed acquisition of Hair Club
for Men and Women during the second quarter of fiscal year 2005, as well as over $100 million for the purchase of salons and beauty schools
during fiscal year 2005. Our principal on-going cash requirements are to finance construction of new stores, remodel certain existing stores,
acquire salons and beauty schools and purchase inventory. Customers pay for salon services and merchandise in cash at the time of sale, which
reduces our working capital requirements.
Total assets at June 30, 2006 and 2005 were as follows:
50
Operating
Operating Income as
Increase (Decrease) Over Prior Fiscal Year
Years Ended June 30,
Income
% of Total Revenues
Dollar
Percentage
Basis Point(1)
(Dollars in thousands)
2006
$
21,573
19.7
%
$
9,309
75.9
%
(100
)
2005(2)
12,264
20.7
N/A
N/A
N/A
Debt to
Basis Point
Improvement
Fiscal Year
Capitalization
(Increase)
2006
41.7
%
130
2005
43.0
(1,240
)
2004
30.6
450
Total
$ Increase Over
% Increase Over
June 30,
Assets
Prior Year
Prior Year
(Dollars in thousands)
2006
$
1,982,064
$
256,088
14.8
%
2005
1,725,976
454,117
35.7