Supercuts 2010 Annual Report Download - page 111

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INVESTMENTS IN AND LOANS TO AFFILIATES (Continued)
the Board of Directors, the Company granted the other shareholder a proxy to vote such number of the Company's shares such that the other
shareholder would have voting control of 51.0 percent of the common stock of EEG. The Company accounts for EEG as an equity investment
under the voting interest model. During fiscal years ended June 30, 2010 and 2009, the Company recorded $6.4 and $2.1 million of equity
earnings related to its investment in EEG.
Investment in Intelligent Nutrients, LLC
Effective December 31, 2009, the Company transferred its ownership interest in Intelligent Nutrients, LLC to the other shareholder. In
consideration for the transfer of the Company's ownership interest, Intelligent Nutrients, the other shareholder, and the individual owner of the
other shareholder will indemnify and hold harmless the Company from all current and future obligations of Intelligent Nutrients. Until
December 31, 2009, the Company held a 49.0 percent interest in Intelligent Nutrients, LLC. The Company's investment was previously
accounted for under the equity method of accounting. During fiscal year 2009, the Company determined that its investment in and loans to
Intelligent Nutrients, LLC were impaired and the fair value was zero due to Intelligent Nutrients, LLC's inability to develop a professional
organic brand of shampoo and conditioner with a price point that would develop broad consumer appeal. The Company also determined that
the loss in value was "other-than-temporary" and recognized a pretax, non-
cash impairment charge of $7.8 million for the full carrying value of
the investment and loans during fiscal year 2009. The Company has no further exposure to loss related to the Company's involvement with
Intelligent Nutrients, LLC.
Investment in MY Style
In April 2007, the Company purchased exchangeable notes issued by Yamano Holding Corporation (Exchangeable Note) and a loan
obligation of a Yamano Holdings subsidiary, MY Style, formally known as Beauty Plaza Co. Ltd., (MY Style Note) for an aggregate amount of
$11.3 million (1.3 billion Yen as of April 2007). The Exchangeable Note contains an option for the Company to exchange a portion of the
Exchangeable Note for shares of common stock of My Style. In connection with the issuance of the Exchangeable Note, the Company paid a
premium of approximately $5.5 million (573,000,000 Yen as of April 2007).
Exchangeable Note. In September 2008, the Company advanced an additional $3.0 million (300,000,000 Yen as of September 2008) to
Yamano Holding Corporation (Yamano). In connection with the 300,000,000 Yen advance, the exchangeable portion of the Exchangeable
Note increased from approximately 14.8 percent to 27.1 percent of the 800 outstanding shares of MY Style for 21,700,000 Yen. This exchange
feature is akin to a deep-in-the-money option permitting the Company to purchase shares of common stock of MY Style. The option is
embedded in the Exchangeable Note and does not meet the criteria for separate accounting under accounting for derivative instruments and
hedging activities.
The Company determined that the September 2008 modifications to the Exchangeable Note were more than minor and the loan
modification should be treated as an extinguishment. The Company recorded a $2.1 million (224,000,000 Yen as of September 2008) gain
related to the modification of the Exchangeable Note. However, based upon the overall fair value of the Exchangeable Note on the date of
modification, the Company recorded an other than temporary impairment loss of $3.4 million (370,000,000 Yen as of September 2008). The
$1.3 million net amount of the gain and other than
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