Supercuts 2010 Annual Report Download - page 39

Table of Contents
related salon assets that does not recover the carrying value of the salon assets. When the sum of a salon's undiscounted estimated future cash
flow is zero or negative, impairment is measured as the full carrying value of the related salon's equipment and leasehold improvements. When
the sum of a salon's undiscounted cash flows is greater than zero but less than the carrying value of the related salon's equipment and leasehold
improvements, a discounted cash flow analysis is performed to estimate the fair value of the salon assets and impairment is measured as the
difference between the carrying value of the salon assets and the estimated fair value. The fair value estimate is based on the best information
available, including market data.
Judgments made by management related to the expected useful lives of long-
lived assets and the ability to realize undiscounted cash flows
in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvement of the assets,
changes in economic conditions and changes in operating performance. As the ongoing expected cash flows and carrying amounts of long-
lived assets are assessed, these factors could cause us to realize material impairment charges.
During fiscal years 2010, 2009, and 2008, $6.4, $10.2, and $6.1 million, respectively, of impairment was recorded within depreciation and
amortization in the Consolidated Statement of Operations. In June 2009, we approved a plan to close up to 80 underperforming United
Kingdom company-owned salons in fiscal year 2010 that was in addition to the July 2008 approved plan of closing up to 160 underperforming
company-owned salons in fiscal year 2009. We also evaluated the appropriateness of the remaining useful lives of its affected property and
equipment and whether a change to the depreciation charge was warranted. Impairment charges are included in depreciation related to
company-owned salons in the Consolidated Statement of Operations.
Purchase Price Allocation
We make numerous acquisitions. The purchase prices are allocated to assets acquired, including identifiable intangible assets, and
liabilities assumed based on their estimated fair values at the dates of acquisition. Fair value is estimated based on the amount for which the
asset or liability could be bought or sold in a current transaction between willing parties. For our acquisitions, the majority of the purchase price
that is not allocated to identifiable assets, or liabilities assumed, 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, the value of which is not recorded as an
identifiable intangible asset under current accounting guidance and the limited value of the acquired leased site and customer preference
associated with the acquired hair salon brand. Residual goodwill further represents our opportunity to strategically combine the acquired
business with our existing structure to serve a greater number of customers through our expansion strategies. Identifiable intangible assets
purchased in fiscal year 2010, 2009, and 2008 acquisitions totaled $0.1, $1.3, $16.1 million, respectively. The residual goodwill generated by
fiscal year 2010, 2009, and 2008 acquisitions totaled $2.6, $30.8, $105.3 million, respectively. See Note 4 to the Consolidated Financial
Statements for further information.
Self-insurance Accruals
The Company uses a combination of third party insurance and self-insurance for a number of risks including workers' compensation,
health insurance, employment practice liability and general liability claims. The liability represents an estimate of the undiscounted ultimate
cost of uninsured claims incurred as of the balance sheet date.
The workers' compensation, general liability and employment practices liability analysis includes applying loss development factors to the
Company's historical claims data (total paid and incurred amounts per claim) for all policy years where the Company has not reached its
aggregate limits to
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