Supercuts 2007 Annual Report Download - page 53

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The basis point deterioration in hair restoration operating income as a percent of hair restoration revenues during fiscal year 2006 was due
to the write-off of approximately $0.5 million of software acquired as part of the original Hair Club acquisition, as it was determined that the
software would 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:
(1)
Represents the basis point change in debt to capitalization as compared to prior fiscal year end (June 30).
The basis point deterioration in the debt to capitalization ratio as of June 30, 2007 compared to June 30, 2006 was primarily due to
increased debt levels stemming from share repurchases, acquisitions and timing of customary income tax payments made during fiscal year
2007. Approximately $223.4 million of our debt outstanding is classified as a current liability. We have a revolving credit facility which
provides for possible acceleration of the maturity date based on provisions that are not objectively determinable and we have therefore included
the outstanding borrowings under our revolving credit facility in our current portion of debt. As of June 30, 2007 we had borrowings on our
revolving credit facility of $147.8 million. Our principal on-going cash requirements are to finance construction of new stores, remodel certain
existing stores, acquire salons and purchase inventory. Customers pay for salon services and merchandise in cash at the time of sale, which
reduces our working capital requirements.
The basis point improvement in the debt to capitalization ratio as of June 30, 2006 as compared to June 30, 2005 was due to increased
equity levels stemming primarily from fiscal year 2006 earnings.
The basis point deterioration in the debt to capitalization ratio as of June 30, 2005 as compared to June 30, 2004 was due to the $210.0
million debt-financed acquisition of Hair Club for Men and Women during the three months ended December 31, 2004, as well as over $100
million for the purchase of salons and beauty schools during fiscal year 2005.
Total assets at June 30, 2007 and 2006 were as follows:
Acquisitions and new salon construction (a component of organic growth) were the primary drivers of the increase in total assets as of
June 30, 2007 compared to June 30, 2006. Cash increases in our international segment accounted for $11.1 million of the $49.4 million
increase in consolidated cash for the twelve months ended June 30, 2007.
52
Debt to
Basis Point
(Deterioration)
As of June 30,
Capitalization
Improvement
(1)
2007
43.7
%
(200
)
2006
41.7
130
2005
43.0
(1,240
)
Total
Increase Over Prior Fiscal Year
As of June 30,
Assets
Dollar
Percentage
(Dollars in thousands)
2007
$
2,132,114
$
146,790
7.4
%
2006
1,985,324
259,348
15.0