Supercuts 2011 Annual Report Download - page 56

Table of Contents
offsetting the favorable impact of the employment credits was the adverse impact of the pre-tax non-cash goodwill impairment charge of
$74.1 million recorded during the third quarter of fiscal year 2011, which is only partially deductible for tax purposes. Additionally, the foreign
income taxes at other than U.S. rates adversely impacted the annual effective tax rate due to a decrease in foreign income from continuing
operations before income taxes and other foreign non-deductible items.
The basis point improvement in our overall effective income tax rate for the fiscal year ended June 30, 2010 was primarily due to a decrease
in the impact of the non-cash goodwill impairment charge recorded during the year ended June 30, 2010 compared to the impact of the non-cash
goodwill impairment charge recorded during the year ended June 30, 2009 and an increase in the employment credits received. In addition, a
0.9 percent decrease in the tax rate was due to adjustments to the income tax balances, which had a smaller impact than the charge recorded in
the prior year related to the adjustment of prior year deferred income taxes.
The basis point increase in our overall effective income tax rate for the fiscal year ended June 30, 2009 was primarily the result of the pre-
tax non-
cash goodwill impairment charge of $41.7 million recorded during the three months ended December 31, 2008 which caused an increase
in the tax rate of 14.5 percent. The majority of the impairment charge was not deductible for tax purposes. In addition, a 4.8 percent increase in
the tax rate was due to an adjustment of prior year deferred income taxes. Offsetting the unfavorable shifts in the income tax rate was a
7.3 percent decrease in the tax rate due to the release of reserves for unrecognized tax benefits upon the expiration of the statute of limitation in
federal, state and international jurisdictions.
Equity in Income (Loss) of Affiliated Companies, Net of Income Taxes
Equity in income (loss) of affiliates, representing the income or loss generated by our equity investment in Empire Education Group, Inc.,
Provalliance, and other equity method investments was as follows:
Equity in income of affiliated companies, net of taxes for the year ended June 30, 2011 was due to equity in income of $7.8, $5.5 and
$0.6 million recorded for our investments in Provalliance, EEG and Hair Club for Men, Ltd., respectively. In addition, the Company recorded a
$9.0 million impairment loss related to the Company's investment in MY Style. The impairment charge was based on the decline in equity value
of MY Style as a result of changes in projected revenue growth after the natural disasters that occurred in Japan during March 2011. The
Company also recorded a $2.4 million net gain related to the settlement of a portion of the Company's equity put liability and additional
ownership of the Frank Provost Group in Provalliance.
Equity in income of affiliated companies, net of taxes for the year ended June 30, 2010 was due to equity in income of $4.1, $6.4 and
$0.9 million recorded for our investments in Provalliance, EEG and Hair Club for Men, Ltd., respectively.
The increase in losses of affiliated companies, net of taxes for the year ended June 30, 2009 was primarily due to the impairment losses of
$25.7 and $4.8 million, on our investment in Provalliance and investment in and loans to Intelligent Nutrients, LLC, respectively. Primarily the
result of the weakened economy across continental Europe, Provalliance had recorded income at levels much less than
54
(Decrease) Increase
Over Prior Fiscal Year
Equity
Income
(Loss)
Years Ended June 30, Dollar Percentage
(Dollars in thousands)
2011
$
7,228
$
(4,714
)
(39.5
)%
2010
11,942
41,788
140.0
2009
(29,846
)
(30,695
)
(3,615.4
)