Supercuts 2006 Annual Report Download - page 60

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contracts) may impact the Company’s interest expense by approximately $1.5 million. Considering the effect of interest rate swaps and
including $1.3 and $2.5 million increases to long-term debt related to fair value swaps at June 30, 2006 and 2005, respectively, 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 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
On October 21, 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-month LIBOR rate) on notional amounts of indebtedness of $35.0 and $15.0 million at June 30, 2006, and mature
in March 2013 and March 2015, respectively. These swaps were designated as cash flow hedges.
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 in June 2005 and, therefore, the Company held 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 $36.0 and $48.5 million notional amount at June 30, 2006 and 2005,
respectively, with maturation dates between July 2006 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.
59
June 30,
2006
2005
(Dollars in thousands)
Fixed rate debt
$
471,928
$
413,526
Variable rate debt
150,341
155,250
$
622,269
$
568,776