Supercuts 2009 Annual Report Download - page 61

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Table of Contents
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)
As of June 30, Debt to
Capitalization
Basis Point
Increase(1)
2009
44.1
%
20
2008
43.9
20
2007
43.7
200
Represents the basis point change in debt to capitalization as compared to prior fiscal year end (June 30).
The basis point increase in the debt to capitalization ratio as of June 30, 2009 compared to June 30, 2008 was primarily due to a decrease in
shareholders' equity from the non-cash goodwill impairment within the United Kingdom salon division, the loss from discontinued operations
related to the sale of Trade Secret, the non-cash impairment of our investment in Provalliance and foreign currency due to the strengthening of
the United States dollar against the Canadian dollar, Euro and British Pound. The impact of the decrease in shareholders' equity on the debt to
capitalization ratio was partially offset by a decrease in debt from June 30, 2008 to June 30, 2009. As of June 30, 2009 and 2008, approximately
$55.5 and $230.2 million, respectively, of our debt outstanding is classified as a current liability. As of June 30, 2009 and 2008 we had
borrowings on our revolving credit facility of $5.0 and $139.1 million, respectively. 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. As a result of the convertible senior notes and common
stock issuances subsequent to the fiscal year ended June 30, 2009, there was a significant reduction in debt to capitalization.
The basis point increase in the debt to capitalization ratio as of June 30, 2008 compared to June 30, 2007 and 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 2008 and 2007. As of June 30, 2008 and 2007, approximately $230.2 and $223.4 million, respectively, of our
debt outstanding was 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, 2008 and 2007 we had borrowings on our revolving credit facility of $139.1 and
$147.8 million, respectively. 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.
59