Supercuts 2007 Annual Report Download - page 96

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. As of June 30, 2007 and 2006, the Company had the following outstanding
debt balances:
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. To reduce the volatility associated with interest rate movements, the Company has entered into the
following financial instruments:
Cash Flow Hedges
Interest Rate Swaps
During the three months ended December 31, 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 as
of June 30, 2007, and mature in March 2013 and March 2015, respectively. These swaps were designated and are effective as cash flow hedges.
These cash flow hedges were recorded at fair value within other noncurrent liabilities in the Consolidated Balance Sheet, with a corresponding
offset in other comprehensive income within shareholders’ equity.
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 a notional amount of indebtedness of $11.8 million at June 30, 2004. Consistent with the cash flow hedges discussed
above, this cash flow hedge was recorded at fair value within other noncurrent liabilities in the Consolidated Balance Sheet, with a
corresponding offset in other comprehensive income within shareholders’ equity. During the fourth quarter of fiscal year 2005, this cash flow
swap and the underlying hedged debt matured.
Forward Foreign Currency Contracts
On May 29, 2007, the Company entered into several forward foreign currency contracts to sell Canadian dollars and buy an aggregate
$16.9 million U.S. dollars, with maturation dates between June 2007 and May 2010. On February 1, 2006, the Company entered into several
forward foreign currency contracts to sell Canadian dollars and buy an aggregate $15.8 million U.S. dollars, with maturation dates between
July 2006 and May 2009. The purpose of the forward contracts is to protect against adverse movements in the Canadian dollar exchange rate.
The contracts were designated and are effective as cash flow hedges of Canadian dollar denominated forecasted intercompany transactions
related to monthly product shipments from the U.S. to Canadian salons. These cash flow hedges were recorded at fair value within other assets
in the Consolidated Balance Sheet, with a corresponding offset in other comprehensive income within shareholders’ equity.
95
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