Supercuts 2012 Annual Report Download - page 38

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Table of Contents
A summary of the critical assumptions utilized during the fiscal year 2012 annual impairment test 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 2.0 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 11.0 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 reporting unit (the approximate impact of the change in the critical assumptions assumes all other assumptions
and factors remain constant):
As of our fiscal year 2012 annual impairment test, the estimated fair value of the Hair Restoration Centers reporting unit exceeded its
respective carrying value by approximately 18.0 percent. As previously disclosed, the Company has agreed to sell the Hair Restoration Centers
reporting unit in the first half of fiscal year 2013; however, until this reporting unit is sold it is reasonably likely that there could be impairment
of the Hair Restoration Centers reporting unit's goodwill in future periods. 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 fiscal year 2012 interim impairment test of the Hair Restoration Centers
reporting unit are outlined below:
Annual revenue growth. Annual revenue growth is primarily driven by assumed same-
store sales rates of approximately positive
1.0 to positive 3.0 percent. Other considerations include anticipated economic conditions and moderate acquisition growth.
Gross margin. Adjusted for anticipated center closures, new center construction and acquisitions. In addition, estimated future
gross margins were adjusted for increasing supply costs.
36
Critical Assumptions Increase
(Decrease)
Approximate
Decrease in
Fair Value
(In thousands)
Discount Rate
1.0
%
$
7,000
Same
-
Store Sales
(1.0
)
500