Supercuts 2005 Annual Report Download - page 53
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Impact of Changes to Interest Rates and Foreign Currency Exchange Rates
Changes in interest rates will have an impact on our expected results from operations. Currently, we manage the risk related to fluctuations
in interest rates through the use of variable rate debt instruments and other financial instruments. See discussion in Item 7A., “Quantitative and
Qualitative Disclosures about Market Risk,” for additional information.
Changes in foreign currency exchange rates will have an impact on our reported results from operations. The majority of the revenue and
costs associated with the performance of our foreign operations are denominated in local currencies such as the Canadian dollar, Euro and
British pound. Therefore, we do not have significant foreign currency transaction risk; however, the translation at different exchange rates from
period to period may impact the amount of reported income from our international operations. Refer the constant currency discussion within
Management’s Discussion and Analysis in the Item 7 for a detailed analysis.
Impact of Seasonality
Our business is not subject to substantial seasonal variations in demand. However, the timing of Easter may cause a quarterly variation in
the third and fourth quarters. Historically, our revenue and net earnings have generally been realized evenly throughout the fiscal year. The
service and retail product revenues associated with our corporate salons, as well as our franchise revenues, are of a replenishment nature. We
estimate that customer visitation patterns are generally consistent throughout the year.
Product diversion could have a material adverse impact on our product revenues.
The retail products that we sell are meant to be sold exclusively by professional salons. However, incidents of product diversion occur.
Diversion involves the selling of salon-exclusive hair care products to discount retailers, and the diverted product is often old, tainted or
damaged. Diversion could result in adverse publicity that harms the commercial prospects of our products, as well as lower product revenues
should consumers choose to purchase diverted product from discount retailers rather than purchasing from one of our salons.
The results of operations from our hair restoration centers may be adversely affected if we are unable to anticipate and adapt to rapidly
changing technology.
The hair loss industry, including surgical procedures, is characterized by rapidly changing technology. The introduction of new
technologies and products could render our current product and service selection obsolete or unmarketable. We must continually anticipate the
emergence of, and adapt our products and services to, new technologies.
Failure to comply with extensive regulations could have a material adverse effect on our beauty school business and failure of our beauty
school campuses to comply with extensive regulations could result in financial penalties, loss or suspension of federal funding.
A number of our beauty schools’ students pay tuition and other fees with funds received through student assistance financial aid programs
under Title IV of the HEA. To participate in such programs, an institution must obtain and maintain authorization by the appropriate state
agencies, accreditation by an accrediting agency recognized by the ED, and certification by the ED. As a result, our beauty schools are subject
to extensive regulation by these agencies. These regulatory agencies periodically revise their requirements and modify their interpretations of
existing requirements. If one of our beauty schools were to violate any of these regulatory requirements, the regulatory agencies could place
limitations on or terminate our beauty schools’ receipt of federal student financial aid funds, which could have a material adverse effect on our
beauty school business, results of operations or financial condition.
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