Supercuts 2011 Annual Report Download - page 6

Table of Contents
Background:
Based in Minneapolis, Minnesota, the Company's primary business is owning, operating and franchising hair and retail product salons. In
addition to the primary hair and retail product salons, the Company owns Hair Club for Men and Women, a provider of hair restoration services.
As of June 30, 2011, the Company owned, franchised or held ownership interests in approximately 12,700 worldwide locations. The Company's
locations consisted of 9,819 company-owned and franchise salons, 96 hair restoration centers, and 2,786 locations in which the Company
maintains an ownership interest of less than 100 percent. Each of the Company's salon concepts offer similar salon products and services and
serve the mass market consumer marketplace. The Company's hair restoration centers offer three hair restoration solutions; hair systems, hair
transplants and hair therapy, which are targeted at the mass market consumer.
The Company is organized to manage its operations based on significant lines of business—salons and hair restoration centers. Salon
operations are managed based on geographical location—
North America and International. The Company's North American salon operations are
comprised of 7,483 company-owned salons and 1,936 franchise salons operating in the United States, Canada and Puerto Rico. The Company's
International operations are comprised of 400 company-owned salons. The Company's worldwide salon locations operate primarily under the
trade names of Regis Salons, MasterCuts, SmartStyle, Supercuts, Cost Cutters, and Sassoon. The Company's hair restoration centers are located
in the United States and Canada. During fiscal year 2011, the number of customer visits at the Company's company-owned salons approximated
91 million. The Company had approximately 55,000 corporate employees worldwide during fiscal year 2011.
On August 1, 2007, the Company contributed 51 of its wholly-owned accredited cosmetology schools to EEG in exchange for a
49.0 percent equity interest in EEG. EEG is the largest beauty school operator in North America with 102 accredited cosmetology schools with
revenues of approximately $193 million annually and is overseen by the Empire Beauty School management team.
In January 2008, the Company's effective ownership interest increased to 55.1 percent related to the buyout of EEG's minority interest
shareholder. The Company accounts for the investment in EEG under the equity method of accounting as Empire Beauty School retains majority
voting interest and has full responsibility for managing EEG. Refer to Note 6 to the Consolidated Financial Statements for additional
information.
On January 31, 2008, the Company merged its continental European franchise salon operations with the operations of the Franck Provost
Salon Group in exchange for a 30.0 percent equity interest in the newly formed entity, Provalliance. The merger with the operations of the
Franck Provost Salon Group which are also located in continental Europe, created Europe's largest salon operator with approximately 2,600
company-owned and franchise salons as of June 30, 2011.
The Company contributed to Provalliance the shares of each of its European operating subsidiaries, other than the Company's operating
subsidiaries in the United Kingdom and Germany. The contributed subsidiaries operate retail hair salons in France, Spain, Switzerland and
several other European countries primarily under the Jean Louis David™ and Saint Algue™ brands. This transaction has created significant
growth opportunities for Europe's salon brands. The Franck Provost Salon Group management structure has a proven platform to build and
acquire company-owned stores as well as a strong franchise operating group that is positioned for expansion. The merger agreement contains a
right (Equity Put) to require the Company to purchase an additional ownership interest in Provalliance between specified dates in 2010 to 2018.
The Company recorded a $25.7 million other than temporary impairment charge in its fourth quarter ended June 30, 2009 on its investment in
Provalliance as a result of increased debt and reduced earnings expectations that reduced the fair value of Provalliance below carrying value as
of June 30, 2009.
4