Supercuts 2011 Annual Report Download - page 91

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
respectively. The Company updates loss projections twice each year and adjusts its recorded liability to reflect the current projections. The
updated loss projections consider new claims and developments associated with existing claims for each open policy period. As certain claims
can take years to settle, the Company has multiple policy periods open at any point in time.
As the workers' compensation accrual is the majority of the self insurance accrual, below is a rollforward of the activity within the
Company's workers' compensation self insurance accrual:
As of June 30, 2011, the Company had $14.7 and $30.9 million recorded in current liabilities and non-current liabilities, respectively,
related to the Company's self insurance accruals which includes the workers' compensation self insurance accrual. As of June 30, 2010, the
Company had $18.4 and $26.5 million recorded in current liabilities and non-current liabilities, respectively, related to the Company's self
insurance accruals which includes the workers' compensation self insurance accrual.
Goodwill:
Goodwill is tested for impairment annually or at the time of a triggering event. In evaluating whether goodwill is impaired, the Company
compares the carrying value of each reporting unit, including goodwill, to the estimated fair value of the reporting unit. The carrying value of
each reporting unit is based on the assets and liabilities associated with the operations of the reporting unit, including allocation of shared or
corporate balances among reporting units. Allocations are generally based on the number of salons in each reporting unit as a percent of total
company-owned salons.
The Company calculates the estimated fair value of the reporting units based on discounted future cash flows that utilize estimates in annual
revenue, gross margins, fixed expense rates, allocated corporate overhead, and long-term growth for determining terminal value. The Company's
estimated future cash flows also take into consideration acquisition integration and maturation. Where available and as appropriate, comparative
market multiples are used to corroborate the results of the discounted cash flow. The Company considers its various concepts to be reporting
units when testing for goodwill impairment because that is where the Company believes the goodwill resides. The Company periodically
engages third-party valuation consultants to assist in evaluation of the Company's estimated fair value calculations.
In the situations where a reporting unit's carrying value exceeds its estimated fair value, the amount of the impairment loss must be
measured. The measurement of impairment is calculated by determining the implied fair value of a reporting unit's goodwill. In calculating the
implied fair value of goodwill, the fair value of the reporting unit is allocated to all other assets and liabilities of that unit
87
For the Years Ended June 30,
2011
2010
2009
(Dollars in thousands)
Beginning balance
$
30,082
$
31,505
$
35,123
Provision for incurred losses
13,993
14,739
14,676
Prior year actuarial loss
development
2,231
35
(7,715
)
Claim payments
(12,584
)
(14,867
)
(12,145
)
Other, net
(728
)
(1,330
)
1,566
Ending balance
$
32,994
$
30,082
$
31,505