Supercuts 2009 Annual Report Download - page 34

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Table of Contents
Hair Restoration Business
In December 2004, we acquired Hair Club for Men and Women. Hair Club for Men and Women is a provider of hair loss solutions with an
estimated five percent share of the $4 billion domestic market. This industry is comprised of numerous locations domestically and is highly
fragmented. As a result, we believe there is an opportunity to consolidate this industry through acquisition. Expanding the hair loss business
organically and through acquisition would allow us to add incremental revenue which is neither dependent upon, nor dilutive to, our existing
salon businesses.
Our organic growth plans for hair restoration include the construction of a modest number of new locations in untapped markets
domestically and internationally. However, the success of our hair restoration business is not dependent on the same real estate criteria used for
salon expansion. In an effort to provide confidentiality for our customers, hair restoration centers operate primarily in professional or medical
office buildings. Further, the hair restoration business is more marketing intensive. As a result, organic growth at our hair restoration centers will
be dependent on successfully generating new leads and converting them into hair restoration customers. Our growth expectations for our hair
restoration business are not dependent on referral business from, or cross marketing with, our hair salon business, but these concepts continue to
be evaluated closely for additional growth opportunities.
CRITICAL ACCOUNTING POLICIES
The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of
America. In preparing the Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could
have a significant impact on the results reported in the Consolidated Financial Statements. We base these estimates on historical experience and
other assumptions believed to be reasonable under the circumstances. Estimates are considered to be critical if they meet both of the following
criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and
(2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from
period to period. Changes in these estimates could have a material effect on our Consolidated Financial Statements.
Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of this
Form 10-K. We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial
condition and results of operations.
Investment In and Loans to Affiliates
The Company has equity investments in securities of certain privately held entities. The Company accounts for these investments under the
cost method or equity method of accounting, as appropriate. The Company also has loans receivable from certain of these entities. The valuation
of investments accounted for under the cost method considers all available financial information related to the investee. If an unrealized loss for
any investment is considered to be other-than-temporary, the loss will be recognized in the Consolidated Statement of Operations in the period
the determination is made. Investments accounted for under the equity method are recorded at the amount of the Company's investment and
adjusted each period for the Company's share of the investee's income or loss. Investments are reviewed for changes in circumstance or the
occurrence of events that suggest the Company's investment may not be recoverable. During fiscal year 2009, we recorded impairments of
$25.7 million and $7.8 million ($4.8 million net of tax) related to our investment in Provalliance and investment in and loans to Intelligent
Nutrients, LLC, respectively.
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