LensCrafters 2011 Annual Report Download - page 209

| 133 >CONSOLIDATED FINANCIAL STATEMENTS - NOTES
In the case of a failure to comply with the abovementioned ratios, the Group may be called
upon to pay the outstanding debt if it does not correct such default within a period of 15
business days from the date of reporting such default.
Compliance with these covenants is monitored by the Group at the end of each quarter
and, as of December 31, 2011, the Group was fully in compliance with these covenants. The
Group also analyzes the trend of these covenants in order to monitor its compliance and,
as of today, the analysis indicates that the ratios of the Group are below the thresholds
which would result in default.
(g) Fair value
In order to determine the fair value of financial instruments, the Group utilizes valuation
techniques which are based on observable market prices (Mark to Model). These
techniques therefore fall within Level 2 of the hierarchy of Fair Values identified by IFRS 7.
In order to select the appropriate valuation techniques to utilize, the Group complies with
the following hierarchy:
a) utilization of quoted prices in an active market for identical assets or liabilities
(Comparable Approach);
b) utilization of valuation techniques that are primarily based on observable market
prices; and
c) utilization of valuation techniques that are primarily based on non-observable market
prices.
The Group determined the fair value of the derivatives existing on December 31, 2011
through valuation techniques which are commonly used for instruments similar to those
traded by the Group. The models applied to value the instruments are based on a
calculation obtained from the Bloomberg information service. The input data used in these
models are based on observable market prices (the Euro and US$ interest rate curves as
well as official exchange rates on the date of valuation) obtained from Bloomberg.
As of January 1, 2009, the Group had adopted the amendments to IFRS 7 for financial
instruments which are valued at fair value. The amendments to IFRS 7 refer to valuation
hierarchy techniques which are based on three levels:
• Level 1: Inputs are quoted prices in an active market for identical assets or liabilities;
• Level 2: Inputs used in the valuations, other than the prices listed in Level 1, are
observable for each financial asset or liability, both directly (prices) and indirectly
(derived from prices); and
• Level 3: Unobservable inputs used when observable inputs are not available in
situations where there is little, if any, market activity for the asset or liability.