Supercuts 2012 Annual Report Download - page 106

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. ACQUISITIONS (Continued)
On July 1, 2011, the Company acquired 31 franchise salon locations through its acquisition of a 60.0 percent ownership interest in
Roosters for $2.3 million. The purchase agreement contains a right, Roosters Equity Put, to require the Company to purchase additional
ownership interest in Roosters between specified dates in 2012 to 2015, and an option, Roosters Equity Call, whereby the Company can
acquire additional ownership interest in Roosters beginning in 2015. The acquisition price is determined based on a multiple of the earnings
before interest, taxes, depreciation and amortization of Roosters for a trailing twelve month period adjusted for certain items as defined in the
agreement which is intended to approximate fair value. The initial estimated fair values as of July 1, 2011 of the Roosters Equity Put and
Roosters Equity Call were $0.2 and $0.1 million, respectively. Any changes in the estimated fair value of the Roosters Equity Put and Roosters
Equity Call are recorded in the Company's Consolidated Statement of Operations.
The Company utilized the consolidation of variable interest entities guidance to determine whether or not its investment in Roosters was a
VIE, and if so, whether the Company was the primary beneficiary of the VIE. The Company concluded that Roosters is a VIE based on the fact
that the holders of the equity investment at risk, as a group, lack the obligation to absorb the expected losses of the entity. The Roosters Equity
Put is based on a formula that may or may not be at market when exercised, therefore, it could prevent the minority interest owners from
absorbing its share of expected losses by transferring such obligation to the Company. Under certain circumstances, including a decline in the
fair value of Roosters, the Roosters Equity Put could be exercised and the minority interest owners could be protected from absorbing the
downside of the equity interest. As the Roosters Equity Put absorbs a large amount of variability this characteristic results in Roosters being a
VIE.
Regis determined that the Company has met the power criterion due to the Company having the authority to direct the activities that most
significantly impact Roosters' economic performance. The Company concluded based on the considerations above that it is the primary
beneficiary of Roosters and therefore the financial positions, results of operations, and cash flows of Roosters are consolidated in the
Company's financial statements from the acquisition date. Total assets, total liabilities and total shareholders' equity of Roosters as of June 30,
2012 were $5.9, $2.0 and $3.9 million, respectively. Net income attributable to the noncontrolling interest in Roosters was $0.1 million for the
twelve months ended June 30, 2012, and was recorded within interest income and other, net in the Consolidated Statement of Operations.
Shareholders' equity attributable to the noncontrolling interest in Roosters was $1.6 million as of June 30, 2012 and was recorded within
retained earnings on the Consolidated Balance Sheet.
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