Supercuts 2010 Annual Report Download - page 115

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. FAIR VALUE MEASUREMENTS (Continued)
Changes in Financial Instruments Measured at Level 3 Fair Value on a Recurring Basis
The following tables present the changes during the twelve ended June 30, 2010 and 2009 in our Level 3 financial instruments that are
measured at fair value on a recurring basis.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Derivative instruments. The Company's derivative instrument liabilities consist of cash flow hedges represented by interest rate swaps
and forward foreign currency contracts. The instruments are classified as Level 2 as the fair value is obtained using observable inputs available
for similar liabilities in active markets at the measurement date, as provided by sources independent from the Company. See breakout by type
of contract and reconciliation to the balance sheet line item that each contract is classified within Note 9 to the Consolidated Financial
Statements.
Equity put option. The Company's merger of the European franchise salon operations with the operations of the Franck Provost Salon
Group on January 31, 2008 contained an equity put and an equity call. See further discussion within Note 6 to the Consolidated Financial
Statements. The equity put option is valued using binomial lattice models that incorporate assumptions including the business enterprise value
at that date and future estimates of volatility and earnings before interest, taxes, and depreciation and amortization multiples. At June 30, 2010,
the fair value of the equity put option was $22.0 million and is classified within other noncurrent liabilities on the balance sheet.
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Changes in Financial Instruments
Measured at Level 3 Fair Value
Classified as
Preferred Shares Equity Put
Option Total
(Dollars in thousands)
Balance at July 1, 2009
$
—
$
24,161
$
24,161
Total realized and unrealized gains (losses):
Additions to Level 3
3,362
—
3,362
Included in other comprehensive income
140
(2,620
)
(2,480
)
Included in equity in income of affiliated companies
—
468
468
Balance at June 30, 2010
$
3,502
$
22,009
$
25,511
Changes in Financial
Instruments Measured at
Level 3 Fair Value
Classified as
Equity Put Option Total
(Dollars in thousands)
Balance at July 1, 2008
$
24,803
$
24,803
Total realized and unrealized gains (losses):
Included in other comprehensive income
(2,790
)
(2,790
)
Included in equity in income of affiliated companies
2,148
2,148
Balance at June 30, 2009
$
24,161
$
24,161