Supercuts 2007 Annual Report Download - page 45

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related to the fourth quarter closure of 64 salons. We decided to close these company-owned salon locations in order to refocus efforts on
improving the sales and operations of nearby salons.
The basis point deterioration in D&A as a percent of consolidated revenues during fiscal year 2005 was primarily due to amortization of
intangible assets that we acquired in the acquisition of the hair restoration centers during the three months ended December 31, 2004.
Interest
Interest expense was as follows:
(1)
Represents the basis point change in interest expense as a percent of consolidated revenues as compared to the corresponding period of
the prior fiscal year.
The basis point deterioration in interest expense as a percent of consolidated revenues during fiscal year 2007 was primarily due to
increased debt levels due to the Company’s repurchase of $79.7 million of our outstanding common stock, acquisitions and the timing of
income tax payments during the fiscal year. During fiscal year 2008, we expect interest expense to decrease to approximately $37 million.
The basis point deterioration in interest expense as a percent of consolidated revenues during fiscal years 2006 and 2005 was primarily
due to an increase in our debt level stemming from fiscal years 2006 and 2005 acquisition activity, including additional beauty schools and the
fiscal year 2005 acquisition of the hair restoration centers. Additionally, increased borrowing rates contributed to the fiscal year 2006 increase
in interest expense as a percent of consolidated revenues.
Income Taxes
Our reported effective tax rate was as follows:
The basis point improvement in our overall effective income tax rate for the fiscal year ended June 30, 2007 was primarily due to the tax
benefit received during the three months ended December 31, 2006 related to the retroactive reinstatement to January 1, 2006 of the Work
Opportunity and Welfare-to-Work Tax Credits. The basis point improvement was also due to increases in international income subject to tax in
lower tax foreign jurisdictions, partially offset by the pre-tax, non-cash goodwill impairment charge of $23.0 million ($19.6 million net of tax)
recorded during the three months ended March 31, 2007. The majority of the impairment charge was not deductible for tax purposes.
The basis point improvement in our overall effective income tax rate for the fiscal year ended June 30, 2006 was related to the 2005
goodwill impairment charge in the international salon segment, which is non-deductible for tax purposes. The goodwill impairment caused an
11.0 percent increase in the fiscal year
44
Expense as %
of Consolidated
Increase Over Prior Fiscal Year
Years Ended June 30,
Interest
Revenues
Dollar
Percentage
Basis Point
(1)
(Dollars in thousands)
2007
$
41,770
1.6
%
$
6,781
19.4
%
20
2006
34,989
1.4
10,604
43.5
30
2005
24,385
1.1
7,321
42.9
20
Years Ended June 30,
Effective
Rate
Basis Point
Improvement
(Deterioration)
2007
35.0
%
60
2006
35.6
890
2005
44.5
(850
)