Supercuts 2011 Annual Report Download - page 39

Table of Contents
goodwill balance (the approximate impact of the change in the critical assumptions assumes all other assumptions and factors remain constant, in
thousands, except percentages):
As of our fiscal year 2011 annual impairment test, the estimated fair value of the Regis salon concept exceeded its respective carrying value
by approximately 18.0 percent. As it is reasonably likely that there could be impairment of the Regis salon concept's goodwill in future periods
along with the sensitivity of the Company's critical assumptions in estimating fair value of this reporting unit, the Company has provided
additional information related to this reporting unit.
A summary of the critical assumptions utilized during the annual impairment tests of the Regis salon concept are outlined below:
Annual revenue growth. Annual revenue growth is primarily driven by assumed same-store sales rates of approximately negative
1.0 to positive 3.0 percent. Other considerations include anticipated economic conditions and moderate acquisition growth.
Gross margin. Adjusted for anticipated salon closures, new salon construction and acquisitions estimated future gross margins
were held constant.
Fixed expense rates. Fixed expense rate increases of approximately 1.0 to 2.0 percent based on anticipated inflation. Fixed
expenses consisted of rent, site operating, and allocated general and administrative corporate overhead.
Allocated corporate overhead. Corporate overhead incurred by the home office based on the number of Regis salons as a percent
of total company-owned salons.
Long-term growth. A long-term growth rate of 2.5 percent was applied to terminal cash flow based on anticipated economic
conditions.
Discount rate. A discount rate of 12.0 percent based on the weighted average cost of capital that equals the rate of return on debt
capital and equity capital weighted in proportion to the capital structure common to the industry.
The following table summarizes the approximate impact that a change in certain critical assumptions would have on the estimated fair value
of our Regis salon concept goodwill balance (the approximate impact of the change in the critical assumptions assumes all other assumptions and
factors remain constant, in thousands, except percentages):
The respective fair values of the Company's remaining reporting units exceeded fair value by greater than 20.0 percent. While the Company
has determined the estimated fair values of the Promenade, Regis, and Hair Restoration Centers reporting units to be appropriate based on the
projected level of revenue growth, operating income and cash flows, it is reasonably likely that the Promenade, Regis, and Hair Restoration
Centers reporting units may become impaired in future
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Critical Assumptions
Increase
(Decrease)
Approximate
Impact on
Fair Value
(In thousands)
Discount Rate
1.0
%
$
21,000
Same
-
Store Sales
(1.0
)
5,000
Critical Assumptions
Increase
(Decrease)
Approximate
Impact on
Fair Value
(In thousands)
Discount Rate
1.0
%
$
13,000
Same
-
Store Sales
(1.0
)
10,000