Supercuts 2006 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2006 Supercuts annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 126

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126

international operations. Refer to the constant currency discussion within Management’s Discussion and Analysis in the Item 7 for a detailed
analysis.
Impact of Seasonality
Our business is not subject to substantial seasonal variations in demand. However, the timing of Easter may cause a quarterly variation in
the third and fourth quarters. Historically, our revenue and net earnings have generally been realized evenly throughout the fiscal year. The
service and retail product revenues associated with our company-owned salons, as well as our franchise revenues, are of a replenishment
nature. We estimate that customer visitation patterns are generally consistent throughout the year.
Product diversion could have a material adverse impact on our product revenues.
The retail products that we sell are meant to be sold exclusively by professional salons. However, incidents of product diversion occur.
Diversion involves the selling of salon exclusive hair care products to discount retailers, and the diverted product is often old, tainted or
damaged. Diversion could result in adverse publicity that harms the commercial prospects of our products, as well as lower product revenues
should consumers choose to purchase diverted product from discount retailers rather than purchasing from one of our salons.
The results of operations from our hair restoration centers may be adversely affected if we are unable to anticipate and adapt to rapidly
changing technology.
The hair loss industry, including surgical procedures, is characterized by rapidly changing technology. The introduction of new
technologies and products could render our current product and service selection obsolete or unmarketable. We must continually anticipate the
emergence of, and adapt our products and services to, new technologies.
Failure to comply with extensive regulations could have a material adverse effect on our beauty school business and failure of our beauty
school campuses to comply with extensive regulations could result in financial penalties, loss or suspension of federal funding.
A number of our beauty schools’ students pay tuition and other fees with funds received through student assistance financial aid programs
under Title IV of The Higher Education Act (HEA). To participate in such programs, an institution must obtain and maintain authorization by
the appropriate state agencies, accreditation by an accrediting agency recognized by the ED, and certification by the ED. As a result, our beauty
schools are subject to extensive regulation by these agencies. These regulatory agencies periodically revise their requirements and modify their
interpretations of existing requirements. If one or more of our beauty schools were to violate any of these regulatory requirements, the
regulatory agencies could place limitations on or terminate such beauty schools’
receipt of federal student financial aid funds, which could have
a material adverse effect on our beauty school business, results of operations or financial condition.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
The Company’s corporate offices are headquartered in a 170,000 square foot, three building complex in Edina, Minnesota owned by the
Company. On May 2, 2005, the Company entered into a ten year operating lease agreement for a 102,448 square foot building, also located in
Edina. The Company began
27