Supercuts 2007 Annual Report Download - page 62

fashion trends; labor and benefit costs; legal claims; risk inherent to international development (including currency fluctuations); the continued
ability of the Company and its franchisees to obtain suitable locations and financing for new salon development; governmental initiatives such
as minimum wage rates, taxes and possible franchise legislation; the ability of the Company to successfully identify, acquire and integrate
salons and beauty schools that support its growth objectives; the ability to integrate the acquired business; the ability of the Company to
maintain satisfactory relationships with suppliers; or other factors not listed above. The ability of the Company to meet its expected revenue
growth is dependent on salon and beauty school acquisitions, new salon construction and same-store sales increases, all of which are affected
by many of the aforementioned risks. Additional information concerning potential factors that could affect future financial results is set forth
under Item 1A of this Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual
and periodic reports filed or furnished with the SEC on Forms 10-Q and 8-K and Proxy Statements on Schedule 14A.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The primary market risk exposure of the Company relates to changes in interest rates in connection with its debt, some of which bears
interest at variable rates based on LIBOR plus an applicable borrowing margin. Additionally, the Company is exposed to foreign currency
translation risk related to its net investments in its foreign subsidiaries and, to a lesser extent, changes in the Canadian dollar exchange rate. The
Company has established policies and procedures that govern the management of these exposures through the use of derivative financial
instrument contracts. By policy, the Company does not enter into such contracts for the purpose of speculation. The following details the
Company’s policies and use of financial instruments.
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. A one percent change in interest rates (including the impact of existing
interest rate swap contracts) could impact the Company’
s interest expense by approximately $2.1 million. Considering the effect of interest rate
swaps and including $0.9 and $1.3 million increases to long-term debt related to fair value swaps at June 30, 2007 and 2006, 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.
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As of June 30,
2007
2006
(Dollars in thousands)
Fixed rate debt
$
496,568
$
471,928
Variable rate debt
212,663
150,341
$
709,231
$
622,269