Supercuts 2005 Annual Report Download - page 79

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Refer to the discussion related to the acquisition of Hair Club for Men and Women below.
The value and related weighted average amortization periods for the intangibles acquired during fiscal year 2005 business acquisitions, in
total and by major intangible asset class, are as follows
Approximately $0.8, $0.1 and $1.1 million of employee termination and other exit costs were incurred in connection with acquisitions in
fiscal years 2005, 2004 and 2003, respectively. These costs consisted primarily of employee termination costs and were treated as a liability
assumed at the acquisition date.
Based upon the actual and preliminary purchase price allocations, the change in the carrying amount of the goodwill for the years ended
June 30, 2005 and 2004 is as follows:
*
Relates to the finalization of the allocation of goodwill to the related reporting units for fiscal year 2004 and the resolution of an income
tax contingency related to prior acquisitions for fiscal year 2005.
The majority of the purchase price in salon acquisitions is accounted for as residual goodwill rather than identifiable intangible assets.
This stems from the value associated with the walk-in customer base of the acquired salons, which is not recorded as an identifiable intangible
asset under current accounting guidance, as well as the limited value and customer preference associated with the acquired hair salon brand.
Key factors considered by consumers of hair salon services include personal relationships with individual stylists (driven by word-of-mouth
referrals), service quality and price point competitiveness. These attributes represent the “going concern” value of the salon. While the value of
the acquired customer base is the primary driver of any potential acquisition’s cash flows (which determines the
78
Weighted Average
Purchase Price
Amortization Period
Allocation
(in years)
Amortized intangible assets:
Trade names
$
72,611
40
Customer list
46,800
10
Franchise agreements
7,505
20
School
-
related licenses
5,120
40
Other
4,128
11
Total
$
136,164
28
Salons
Beauty
Hair
Restoration
North America
International
Schools
Centers
Consolidated
(Dollars in thousands)
Balance at June 30, 2003
$
297,943
$
70,523
$
4,152
$
—
$
372,618
Goodwill acquired
63,329
2,470
13,713
—
79,512
Finalization of purchase accounting*
8,882
(8,314
)
—
—
568
Translation rate adjustments
193
4,002
247
—
4,442
Balance at June 30, 2004
370,347
68,681
18,112
—
457,140
Goodwill acquired
79,544
1,432
11,206
127,506
219,688
Finalization of purchase accounting*
—
3,767
—
—
3,767
Impairment
—
(
38,319
)
—
—
(
38,319
)
Translation rate adjustments
2,805
1,471
(42
)
—
4,234
Balance at June 30, 2005
$
452,696
$
37,032
$
29,276
$
127,506
$
646,510