Supercuts 2012 Annual Report Download - page 27

Table of Contents
If our joint ventures are unsuccessful our financial results may be affected.
We have entered into joint venture arrangements with other companies in the hair salon and beauty school businesses in order to maintain
and expand our operations in the United States, Asia and continental Europe. If our joint venture partners are unwilling or unable to devote
their financial resources or marketing and operational capabilities to our joint venture businesses, or if any of our joint ventures are terminated,
we may not be able to realize anticipated revenues and profits in the countries where our joint ventures operate and our business could be
materially adversely affected. If our joint venture arrangements are not successful, we may have a limited ability to terminate or modify these
arrangements. If any of our joint ventures are terminated, there can be no assurance that we will be able to attract new joint venture partners to
continue the activities of the terminated joint venture or to operate independently in the countries in which the terminated joint venture
conducted business.
On April 9, 2012, the Company entered into the Agreement to sell the Company's 46.7 percent equity interest in Provalliance to the
Provost family for a purchase price of €80 million. The transaction is expected to close no later than September 30, 2012 and is subject to the
Provost family securing financing for the purchase price. The purchase price was negotiated independently of the equity put and the equity put
and equity call will automatically terminate upon closing. If the closing does not occur by September 30, 2012, the Provost family will not be
entitled to exercise their equity put rights until September 30, 2014.
In connection with executing the Agreement, the Company recorded a $37.4 million other than temporary impairment charge during the
twelve months ended June 30, 2012 related to the difference between the purchase price and carrying value of its investment in Provalliance.
During fiscal year 2012, we recorded an impairment of $19.4 million related to our investment in EEG. During fiscal year 2011, we
recorded an impairment of $9.2 million related to our investment in MY Style. 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. Due to economic and other factors, we may be required to take additional impairment charges related to our
investments and such impairments could be material to our consolidated balance sheet and results of operations. In addition, our joint venture
partners may be required to take impairment charges related to long-lived assets and goodwill, and our share of such impairment charges could
be material to our consolidated balance sheet and results of operations. Specific to EEG, the for-profit post secondary educational market has
experienced further and substantial declines in late July and August of 2012. Should this continue or not reverse, an additional impairment
would be more likely than not during fiscal year 2013. For example, during fiscal year 2012 we recorded $8.7 million for our share of an
intangible asset impairment recorded by EEG. Our share of our investment's goodwill balances as of June 30, 2012 is approximately
$95 million. Upon completion of the sale of Provalliance our share of our investment's goodwill balances will decrease to approximately
$16 million.
We are subject to default risk on our accounts and notes receivable.
We have outstanding accounts and notes receivable subject to collectability. If the counterparties are unable to repay the amounts due or if
payment becomes unlikely our results of operations would be adversely affected. For example, in fiscal year 2011 the Company recorded a
$31.2 million valuation reserve on the note receivable from the purchaser of Trade Secret to reflect the net realizable value.
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.
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