Supercuts 2009 Annual Report Download - page 36

Table of Contents
assets and liabilities is the implied fair value of goodwill. The goodwill impairment is measured as the excess of the carrying value of goodwill
over its implied fair value.
Based on the Company's annual impairment analysis of goodwill performed during the third quarter of fiscal year 2009, no impairment of
goodwill was recorded. The estimated fair value of the Regis salon concept exceeded its carrying value by approximately 4.0 percent or
$8.0 million and the estimated fair value of Hair Restoration Centers exceeded carrying value by approximately 12.0 percent or $30.0 million.
The respective fair values of the Company's remaining reporting units exceeded fair value by a much larger percentage. While the Company has
determined the estimated fair values of the Regis salon concept and Hair Restoration Centers to be appropriate based on the historical level of
revenue growth, operating income and cash flows, it is reasonably likely these reportable segments may become impaired in future periods. The
term "reasonably likely" refers to an occurrence that is more than remote but less than probable in the judgment of the Company. Because some
of the inherent assumptions and estimates used in determining the fair value of this reportable segment are outside the control of management,
changes in these underlying assumptions can adversely impact fair value. The amount of impairment is dependent on factors which cannot be
predicted with certainty, and can result in impairment of a portion or all of the carrying values of the Regis salon concept and Hair Restoration
Centers' goodwill.
As a result of the higher likelihood of impairment of the Regis salon concept and Hair Restoration Centers' goodwill and sensitivity of the
Company's critical assumptions in estimating fair value of these reporting units, the Company has provided additional information related to
these two reporting units.
The following table summarizes the approximate impact that a change in certain critical assumptions would have on the estimated fair value
of our Regis goodwill balance (the approximate impact of the change in the critical assumptions assumes all other assumptions and factors
remain constant, in thousands, except percentages):
The following table summarizes the approximate impact that a change in certain critical assumptions would have on the estimated fair value
of our Hair Restoration Centers' goodwill balance (the approximate impact of the change in the critical assumptions assumes all other
assumptions and factors remain constant, in thousands, except percentages):
As part of our annual impairment testing as of March 31, 2009, our estimated fair value as determined by the sum of our reporting units
based upon discounted cash flow calculations reconciled to within a reasonable range of our market capitalization which included an assumed
control premium. Subsequent to June 30, 2009, the fair value of our stock continues to fluctuate and regularly trades below our book value per
share. Adverse changes in expected operating results, an extended period of our stock trading significantly below book value per share, and
unfavorable changes in other economic factors may result in further impairment of goodwill. The Company concluded there were no triggering
events between the annual impairment testing and June 30, 2009.
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Critical Assumptions
Change
Approximate
Impact on
Fair Value
(in thousands)
Discount Rate
1.0
%
$
5,900
Same
-
Store Sales
1.0
%
19,000
Critical Assumptions
Change
Approximate
Impact on
Fair Value
(in thousands)
Discount Rate
1.0
%
$
20,300
Same
-
Store Sales
1.0
%
17,800