Supercuts 2011 Annual Report Download - page 92

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
based on the relative fair values under the assumption of a taxable transaction. The excess of the fair value of the reporting unit over the amount
assigned to its 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.
As a result of the Company's annual impairment testing of goodwill during the third quarter of fiscal year 2011, a $74.1 million impairment
charge was recorded within continuing operations for the excess of the carrying value of goodwill over the implied fair value of the goodwill for
the Promenade salon concept. The Promenade salon concept reported same-store sales results of negative 3.3 percent for the three months ended
March 31, 2011, which was unfavorable compared to the Company's budgeted same-store sales. As visitation patterns have not been rebounding
as quickly as the Company had originally projected for fiscal year 2011, the Company reduced the budgeted financial projections for fiscal year
2012. The projections assume that the Promenade salon concept remains a strong viable business but will have a slow recovery. As a result of
the lowered projections, the estimated fair value of the Promenade salon concept decreased to a level below the Promenade salon concept's
carrying value.
The estimated fair values of the Hair Restoration Centers reporting unit and Regis salon concept exceeded the respective carrying values by
approximately 9.0 and 18.0 percent, respectively. The respective fair values of the Company's remaining reporting units exceeded fair value by
greater than 20.0 percent. While the Company has determined the estimated fair values of Promenade, Hair Restoration Centers, and Regis to be
appropriate based on the historical level of revenue growth, operating income and cash flows, it is reasonably likely that Promenade, Hair
Restoration Centers, and Regis 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 the reportable segment are outside the control of management, changes in these underlying assumptions can adversely impact fair
value. Potential impairment of a portion or all of the carrying value of the Promenade and Regis salon concepts and Hair Restoration Centers
goodwill is dependent on many factors and cannot be predicted with certainty.
Historically, goodwill was tested annually for impairment during the third quarter, as of February 28, of each fiscal year. Effective in the
fourth quarter of fiscal year 2011, the Company adopted a new accounting policy whereby the annual impairment review of goodwill will be
performed during the fourth quarter, as of April 30 instead of the third quarter of each fiscal year. The change in the annual goodwill impairment
testing date was made to better align the annual goodwill impairment test with the timing of the Company's annual budgeting process. The
change in accounting principle does not delay, accelerate or avoid an impairment charge. Accordingly, the Company believes that the accounting
change described above is preferable under the circumstances. As a result of the Company's annual impairment testing of goodwill during the
fourth quarter of fiscal year 2011, no impairment charges were recorded.
As of June 30, 2011, the Company's estimated fair value, as determined by the sum of our reporting units' fair value reconciled to within a
reasonable range of our market capitalization which included an assumed control premium.
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