Supercuts 2010 Annual Report Download - page 28

Table of Contents
Changes in manufacturers' choice of distribution channels may negatively affect our revenues.
The retail products that we sell are licensed to be carried exclusively by professional salons. The products we purchase for sale in our
salons are purchased pursuant to purchase orders, as opposed to long-term contracts and generally can be terminated by the producer without
much advance notice. Should the various product manufacturers decide to utilize other distribution channels, such as large discount retailers, it
could negatively impact the revenue earned from product sales.
Changes to interest rates and foreign currency exchange rates may impact our results from operations.
Changes in interest rates will have an impact on our expected results from operations. Currently, we manage the risk related to fluctuations
in interest rates through the use of variable rate debt instruments and other financial instruments.
If we fail to protect the security of personal information about our customers, we could be subject to costly government enforcement actions or
private litigation and our reputation could suffer.
The nature of our business involves processing, transmission and storage of personal information about our customers. If we experience a
data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our customers could lose
confidence in our ability to protect their personal information, which could cause them to stop visiting our salons altogether. Such events could
lead to lost future sales and adversely affect our results of operations.
Certain of the terms and provisions of the convertible notes we issued in July 2009 may adversely affect our financial condition and operating
results and impose other risks.
In July 2009, we issued $172.5 million aggregate principal amount of our 5.0 percent convertible senior notes due 2014 in a public
offering. Certain terms of the notes we issued may adversely affect our financial condition and operating results or impose other risks, such as
the following:
• Holders of notes may convert their notes into shares of our common stock, which may dilute the ownership interest of our
shareholders,
• If we elect to settle all or a portion of the conversion obligation exercised by holders of the notes through the payment of cash, it
could adversely affect our liquidity,
• Holders of notes may require us to purchase their notes upon certain fundamental changes, and any failure by us to purchase the
notes in such event would result in an event of default with respect to the notes,
• The fundamental change provisions contained in the notes may delay or prevent a takeover attempt of the Company that might
otherwise be beneficial to our investors,
•
Recent changes in the accounting method for convertible debt securities that may be settled in cash require us to include both the
current period's amortization of the debt discount and the instrument's coupon interest as interest expense, which will decrease
our financial results,
• Our ability to pay principal and interest on the notes depends on our future operating performance and any failure by us to make
scheduled payments could allow the note holders to declare all outstanding principal and interest to be due and payable, result in
termination of other debt commitments and foreclosure proceedings by other lenders, or force us into bankruptcy or liquidation,
and
• The debt obligations represented by the notes may limit our ability to obtain additional financing, require us to dedicate a
substantial portion of our cash flow from operations to pay our debt, limit our ability to adjust rapidly to changing market
conditions and increase our vulnerability to downtowns in general economic conditions in our business.
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