Supercuts 2012 Annual Report Download - page 116

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. FAIR VALUE MEASUREMENTS (Continued)
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 assets and liabilities consist of cash flow hedges represented by 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 that are reviewed by the Company. See breakout by type of contract and reconciliation to
the balance sheet line item that each contract is classified within Note 9 of the Consolidated Financial Statements.
Equity put option—Provalliance. 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 (Provalliance Equity Put) and an equity call. The Provalliance Equity Put 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. During fiscal year 2011, a portion of the Provalliance
Equity Put was settled. During the twelve months ended June 30, 2012, the fair value of the Provalliance Equity Put decreased by $20.2 million
to $0.6 million and is classified within other noncurrent liabilities on the Consolidated Balance Sheet. The remaining Provalliance Equity Put
liability as of June 30, 2012 is associated with the probability of the share purchase agreement in which the Company will sell the 46.7 percent
equity interest in Provalliance not closing and the Provalliance Equity Put remaining effective. The sensitivity of the underlying assumptions to
the Provalliance Equity Put is not material to the Consolidated Financial Statements. See Note 6 to the Consolidated Financial Statements for
discussion of the share purchase agreement.
Equity put and call options—Roosters. The purchase agreement for the Company's acquisition of a 60.0 percent ownership interest in
Roosters MGC International LLC (Roosters) on July 1, 2011 contained an equity put (Roosters Equity Put) and an equity call (Roosters Equity
Call). See further discussion within Note 4 to the Consolidated Financial Statements. The Roosters Equity Put and Roosters Equity Call are
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. The sensitivity of the underlying assumptions to the
Roosters Equity put and Roosters Equity Call is not material to the Consolidated financial statements. At June 30, 2012, the fair value of the
Roosters Equity Put and Roosters Equity Call were $0.2 and $0.1 million, respectively, and are classified within noncurrent liabilities and other
assets, respectively, on the Consolidated Balance Sheet.
Preferred Shares. The Company has preferred shares in Yamano Holding Corporation. The preferred shares are classified as Level 3 as
there are no quoted market prices and minimal market participant data for preferred shares of similar rating. The fair value of the preferred
shares is based on the financial health of Yamano Holding Corporation and terms within the preferred share agreement which allow the
Company to convert the subscription amount of the preferred shares into equity of MY Style, a wholly owned subsidiary of Yamano Holding
Corporation. The Company recorded an other than temporary impairment for the full carrying value of the preferred shares during the twelve
months ended June 30, 2011. See further discussion within Note 6 to the Consolidated Financial Statements.
Financial Instruments.
In addition to the financial instruments listed above, the Company's financial instruments also include cash, cash
equivalents, receivables, accounts payable and debt.
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