Supercuts 2011 Annual Report Download - page 114

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INVESTMENTS IN AND LOANS TO AFFILIATES (Continued)
temporary impairment was recorded within equity in loss of affiliates within the Consolidated Statement of Operations during the fourth quarter
of fiscal year 2009.
On March 28, 2010, the Company entered into an amendment agreement with Yamano in connection with the Exchangeable Note. The
amendment revised the redemptions schedule for the 100,000,000 Yen and 211,131,284 Yen payments due September 30, 2013 and 2014,
respectively, to March 28, 2010. The amendment was entered into in connection with a preferred share subscription agreement dated March 29,
2010 between the Company and Yamano. Under the preferred share subscription agreement, Yamano issued and the Company purchased one
share of Yamano Class A Preferred Stock with a subscription amount of $1.1 million (100,000,000 Yen) and one share of Yamano Class B
Preferred Stock with a subscription amount of $2.3 million (211,131,284 Yen), collectively the "Preferred Shares". The portions of the
Exchangeable Note that became due as of March 28, 2010 were contributed in-kind as payment for the Preferred Shares. The Preferred Shares
have the same terms and rights, yield a 5.0 percent dividend that accrues if not paid and have no voting rights.
The Company determined that the March 2010 modifications were minor and the loan modification should not be treated as an
extinguishment. The preferred shares will be accounted for as an available for sale debt security.
Due to the natural disasters in Japan that occurred in March 2011, the Company was required to assess the preferred shares and premium for
other than temporary impairment. The fair value of the collateral which is the equity value of MY Style, declined due to changes in projected
revenue growth rates after the natural disasters. As MY Style is highly leveraged, any change in growth rates has a significant impact on fair
value. The estimated fair value was negligible as of March 31, 2011. The Company recorded an other than temporary impairment during the
third quarter of fiscal year 2011 for the carrying value of the preferred shares and premium of $3.9 million (326,700,000 Yen) and $5.3 million
(435,000,000 Yen), respectively.
As of June 30, 2011, the principal amount outstanding under the Exchangeable Note is $2.5 million (200,000,000 Yen). Principal payments
of 100,000,000 Yen are due annually on September 30 through September 30, 2012. The Company reviews the Exchangeable Note with
Yamano for changes in circumstances or the occurrence of events that suggest the Company's note may not be recoverable. The $2.5 million
outstanding Exchangeable Note with Yamano as of June 30, 2011 is in good standing with no associated valuation allowance. The Company has
determined the future cash flows of Yamano support the ability to make payments on the Exchangeable Note. The Exchangeable Note accrues
interest at 1.845 percent and interest is payable on September 30, 2012 with the final principal payment. The Company recorded approximately
$0.1 million in interest income related to the Exchangeable Note during fiscal years 2011, 2010, and 2009.
MY Style Note. As of June 30, 2011, the principal amount outstanding under the MY Style Note is $1.3 million (104,328,000 Yen).
Principal payments of 52,164,000 Yen along with accrued interest are due annually on May 31 through May 31, 2013. The Company reviews the
outstanding note with MY Style for changes in circumstances or the occurrence of events that suggest the Company's note may not be
recoverable. The $1.3 million outstanding note with MY Style as of June 30, 2011 is in good standing with no associated valuation allowance.
The Company has determined the future cash flows of MY Style support the ability to make payments on the outstanding note. The MY Style
Note accrues interest at 3.0 percent. The Company recorded less than $0.1 million in interest income related to the MY Style Note during fiscal
years 2011, 2010, and 2009.
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