Supercuts 2008 Annual Report Download - page 78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
$23.0 million ($19.6 million net of tax) impairment charge was recorded during fiscal year 2007 related to its beauty school business. No
impairment charges were recorded during fiscal years 2008 and 2006.
Long-Lived Asset Impairment Assessments, Excluding Goodwill:
The Company reviews long-lived assets for impairment at the salon level annually or if events or circumstances indicate that the carrying
value of such assets may not be fully recoverable. Impairment is evaluated based on the sum of undiscounted estimated future cash flows
expected to result from use of the assets compared to its carrying value. If an impairment is recognized, the carrying value of the impaired asset
is reduced to its fair value, based on discounted estimated future cash flows.
During fiscal year 2008, the Company tested its long-lived assets for impairment and recognized impairment charges related primarily to
the carrying value of certain salons' property and equipment of $10.5 million, related to the Company approved plan in July of 2008 to close up
to 160 underperforming Company owned salons in fiscal year 2009. Of the $10.5 million in total impairment charges recognized in fiscal year
2008, $9.4 million and $1.1 million related to North America and United Kingdom salons, respectively. During fiscal year 2007, the Company
tested its long-lived assets for impairment and recognized impairment charges related primarily to the carrying value of certain salons' property
and equipment of $6.8 million, including $6.5 million located in North America and $0.3 million located in the United Kingdom. During fiscal
year 2006, the Company recognized similar impairment charges for certain salons' property and equipment of $8.4 million, including
$7.4 million located in North America and $1.0 million located in the United Kingdom. None of the impaired salon assets were held for sale.
The Company also evaluated the appropriateness of the remaining useful lives of its affected property and equipment and whether a change to
the depreciation charge was warranted. Impairment charges are included in depreciation related to company-owned salons in the Consolidated
Statement of Operations.
Deferred Rent and Rent Expense:
The Company leases most salon and hair restoration center locations under operating leases. Accounting principles generally accepted in
the United States of America require rent expense to be recognized on a straight-line basis over the lease term. Tenant improvement allowances
funded by landlord incentives, rent holidays, and rent escalation clauses which provide for scheduled rent increases during the lease term or for
rental payments commencing at a date other than the date of initial occupancy are recorded in the Consolidated Statements of Operations on a
straight-line basis over the lease term (including one renewal option period if renewal is reasonably assured based on the imposition of an
economic penalty for failure to exercise the renewal option). The difference between the rent due under the stated periods of the lease compared
to that of the straight-line basis is recorded as deferred rent within other noncurrent liabilities in the Consolidated Balance Sheet.
For purposes of recognizing incentives and minimum rental expenses on a straight-
line basis over the terms of the leases, the Company uses
the date that it obtains the legal right to use and control the leased space to begin amortization, which is generally when the Company enters the
space and begins to make improvements in preparation of intended use of the leased space.
Certain leases provide for contingent rents, which are determined as a percentage of revenues in excess of specified levels. The Company
records a contingent rent liability in accrued expenses on the Consolidated Balance Sheet, along with the corresponding rent expense in the
Consolidated Statement
76