Supercuts 2010 Annual Report Download - page 109

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INVESTMENTS IN AND LOANS TO AFFILIATES (Continued)
The table below presents the summarized financial information of the equity method investees as of June 30, 2010 and 2009. The financial
information of the equity investees was based on results as of June 30, 2010 and for the twelve months ended June 30, 2010.
Investment in Provalliance
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 Provalliance 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 2,500 company-owned and franchise salons as of June 30, 2010.
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 acquisition price is determined based on a multiple of the earnings before interest, taxes,
depreciation and amortization of Provalliance for a trailing twelve month period adjusted for certain items as defined in the agreement which is
intended to approximate fair value. The initial estimated fair value of the Equity Put as of January 31, 2008, approximately $24.8 million, has
been included as a component of the Company's investment in Provalliance. A corresponding liability for the same amount as the Equity Put
was recorded in other noncurrent liabilities. Any changes in the estimated fair value of the Equity Put are recorded in the Company's
consolidated statement of operations. The Company recorded a $0.5 million increase in the fair value of the Equity Put during fiscal year 2010,
see further discussion within Note 7 to the Consolidated Financial Statements. The Company recorded a $2.1 million increase in the fair value
of the Equity Put during fiscal year 2009. Any changes related to foreign currency translation are recorded in accumulated other comprehensive
income. The Company recorded a $2.6 million decrease in the Equity Put related to foreign currency translation during fiscal year 2010, see
further discussion within Note 7 to the Consolidated Financial Statements. If the Equity Put is exercised, and the Company fails to complete the
purchase, the parties exercising the Equity Put will be entitled to exercise various remedies against the Company, including the right to
purchase the Company's interest in Provalliance for a purchase price determined based on a discounted multiple of the earnings before interest
and taxes of Provalliance for a trailing twelve month period. The merger agreement also contains an option (Equity Call) whereby the
Company can acquire additional
105
Equity Method
Investee Greater
Than 50 Percent
Owned
Equity Method
Investees Less
Than 50 Percent
Owned
2010 2009 2010 2009
(Dollars in thousands)
Summarized Balance Sheet Information:
Current assets
$
35,070
$
34,990
$
74,040
$
109,700
Noncurrent assets
105,469
99,858
263,472
313,763
Current liabilities
27,458
25,583
91,077
137,169
Noncurrent liabilities
32,017
39,661
93,055
115,067
Summarized Statement of Operations
Information:
Gross revenue
$
176,535
$
153,693
$
299,188
$
290,978
Gross profit
64,661
48,173
123,210
124,361
Operating income
19,752
7,656
21,227
19,047
Net income
11,082
3,611
14,763
13,295