Supercuts 2010 Annual Report Download - page 101

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. DISCONTINUED OPERATIONS (Continued)
recognized $3.0 million of other income related to warehouse services during the twelve months ended June 30, 2010.
As of June 30, 2010, $31.6 million was due to the Company from the purchaser of Trade Secret, $2.6 million was classified within current
assets and $29.0 million was classified within other assets. During fiscal year 2010, the Company entered into a formal note receivable
agreement with the purchaser of Trade Secret that requires quarterly interest payments of 8.0 percent and quarterly principal payments that
escalate until the final payment in November of 2014. The Company recognized $1.2 million of interest income related to the note receivable
agreement for the twelve months ended June 30, 2010. On July 6, 2010, the purchaser of Trade Secret filed for Chapter 11 bankruptcy.
Collateral for the receivables under the agreement is assets of the purchaser of Trade Secret, the Company believes fully collateralizes the
$31.6 million.
The Company utilized the consolidation of variable interest entities guidance to determine whether or not Trade Secret was a variable
interest entity (VIE), and if so, whether the Company was the primary beneficiary of the Trade Secret. The Company concluded that Trade
Secret is a VIE based on the fact that the equity investment at risk in Trade Secret is insufficient. The Company determined that it is not the
primary beneficiary of Trade Secret based on its exposure to the expected losses of Trade Secret and as it is not the variable interest holder that
is most closely associated within the relationship and the significance of the activities of Trade Secret. The exposure to loss related to the
Company's involvement with Trade Secret is the carrying value of the amount due from the purchaser of Trade Secret and the guarantee of 31
operating leases that the Company has determined the risk of loss to be remote.
The income (loss) from discontinued operations are summarized below:
During the first quarter of fiscal year 2010, the Company recorded a $3.0 million tax benefit in discontinued operations to correct the prior
year calculation of the income tax benefit related to the disposition of the Trade Secret salon concept. The Company does not believe the
adjustment is material to its results of operations for the twelve months ended June 30, 2010 or its financial position or results of operations of
any prior periods.
97
For the Years Ended June 30,
2010 2009 2008
(Dollars in thousands)
Revenues
$
—
$
163,436
$
257,474
Income (loss) from
discontinued operations,
before income taxes
154
(190,433
)
865
Income tax benefit on
discontinued operations
3,007
58,997
438
Income (loss) from
discontinued operations,
net of income taxes
$
3,161
$
(131,436
)
$
1,303