Supercuts 2009 Annual Report Download - page 113

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. FAIR VALUE MEASUREMENTS (Continued)
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair
value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is
significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in
its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following table sets forth by level within
the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis at June 30, 2009, according
to the valuation techniques the Company used to determine their fair values.
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 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 assets and liabilities in active markets at the measurement date, as provided by sources independent from the Company.
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 of the Condensed Consolidated
Financial Statements. The 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,
2008, the fair value of the Equity Put was $24.8 million. There was a $2.7 million decrease in the fair value of the equity put option since
June 30, 2008 related to foreign currency translation and has been recorded in accumulated other comprehensive income in the June 30, 2009
Condensed Consolidated Balance Sheet. In addition, there was a $2.1 million increase in the fair value of the equity put option as of June 30,
2009 recorded within the equity in affiliates line item on the Consolidated Statement of Operations related to updated assumptions utilized in the
binomial lattice model. The Company determined the Equity Call to have no value at June 30, 2009 and 2008.
111
Fair Value Measurements
Using Inputs Considered as
Fair Value at
June 30, 2009
Level 1
Level 2
Level 3
(Dollars in thousands)
ASSETS
Noncurrent assets
Derivative instruments
$
1,543
$
—
$
1,543
$
—
LIABILITIES
Long
-
term liabilities
Derivative instruments
$
5,802
$
—
$
5,802
$
—
Equity put option
24,161
—
—
24,161