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FAIR VALUE MEASUREMENTS | 12 Months Ended
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Jun. 30, 2011
FAIR VALUE MEASUREMENTS |
FAIR VALUE MEASUREMENTS |
7. FAIR VALUE MEASUREMENTS The fair value measurement guidance for financial and nonfinancial assets and liabilities defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by this guidance contains three levels as follows: Level 1—Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date. Level 2—Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets in non-active markets; • Inputs other than quoted prices that are observable for the asset or liability; and • Inputs that are derived principally from or corroborated by other observable market data. Level 3—Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions. 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. The Company's 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 tables sets forth by level within the fair value hierarchy, the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis at June 30, 2011 and June 30, 2010, according to the valuation techniques the Company used to determine their fair values.
|  |  |  | Fair Value Measurements Using Inputs Considered as |
--- | --- | --- | --- | --- | ---
|  | Fair Value at June 30, 2011 |
|  | Level 1 |  | Level 2 |  | Level 3 |
|  |  |  | (Dollars in thousands) |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |
Non-current assets |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivative instruments |  | $ | 212 |  | $ | — |  | $ | 212 |  | $ | — |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivative instruments |  | $ | 599 |  | $ | — |  | $ | 599 |  | $ | — |
Non-current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
| Equity put option |  | $ | 22,700 |  | $ | — |  | $ | — |  | $ | 22,700 |
|  |  |  | Fair Value Measurements Using Inputs Considered as |
--- | --- | --- | --- | --- | ---
|  | Fair Value at June 30, 2010 |
|  | Level 1 |  | Level 2 |  | Level 3 |
|  |  |  | (Dollars in thousands) |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |
Non-current assets |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivative instruments |  | $ | 274 |  | $ | — |  | $ | 274 |  | $ | — |
| Preferred shares |  |  | 3,502 |  |  | — |  |  | — |  |  | 3,502 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivative instruments |  | $ | 401 |  | $ | — |  | $ | 401 |  | $ | — |
Non-current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivative instruments |  | $ | 1,039 |  | $ | — |  | $ | 1,039 |  | $ | — |
| Equity put option |  |  | 22,009 |  |  | — |  |  | — |  |  | 22,009 |
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, 2011 and 2010 in our Level 3 financial instruments that are measured at fair value on a recurring basis.
|  | Changes in Financial Instruments Measured at Level 3 Fair Value Classified as |
--- | --- | --- | ---
|  | Preferred Shares |  | Equity Put Option |
|  | (Dollars in thousands) |
Balance at July 1, 2010 |  | $ | 3,502 |  | $ | 22,009 |
| Total realized and unrealized gains (losses): |  |  |  |  |  |  |
|  | Included in other comprehensive income (loss) |  |  | 433 |  |  | 3,847 |
|  | Included in equity in income (loss) of affiliated companies |  |  | — |  |  | (2,442 | )
|  | Transfer out of Level 3 |  |  | — |  |  | (714 | )
|  | Other than temporary impairment |  |  | (3,935 | ) |  | — |
Balance at June 30, 2011 |  | $ | — |  | $ | 22,700 |
|  | Changes in Financial Instruments Measured at Level 3 Fair Value Classified as |
--- | --- | --- | ---
|  | Preferred Shares |  | Equity Put Option |
|  | (Dollars in thousands) |
Balance at July 1, 2009 |  | $ | — |  | $ | 24,161 |
| Total realized and unrealized gains (losses): |  |  |  |  |  |  |
|  | Additions to Level 3 |  |  | 3,362 |  |  | — |
|  | Included in other comprehensive income (loss) |  |  | 140 |  |  | (2,620 | )
|  | Included in equity in income (loss) of affiliated companies |  |  | — |  |  | 468 |
Balance at June 30, 2010 |  | $ | 3,502 |  | $ | 22,009 |
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 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. 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. In March 2011, a portion of the equity put option was settled. 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, 2011, the fair value of the equity put option was $22.7 million and is classified within other noncurrent liabilities on the 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 preferred shares are classified within investment in and loans to affiliates on the Consolidated Balance Sheet. 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. The fair value of cash and cash equivalents, receivables and accounts payable approximated the carrying values as of June 30, 2011 and 2010. At June 30, 2011, the estimated fair values and carrying amounts of debt were $335.4 and $313.4 million, respectively. At June 30, 2010, the estimated fair values and carrying amounts of debt were $458.6 and $440.0 million, respectively. The estimated fair value of debt was determined based on internal valuation models, which utilize quoted market prices and interest rates for the same or similar instruments. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis We measure certain assets, including the Company's equity method investments, tangible fixed assets and goodwill, at fair value on a nonrecurring basis when they are deemed to be other than temporarily impaired. The fair values of our investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. The following tables present the fair value in our assets measured at fair value on a nonrecurring basis during the twelve months ended June 30, 2011 and 2010, respectively:
|  | June 30, 2011 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total Losses |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | (Dollars in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Goodwill—Promenade(1) |  | $ | 240,910 |  | $ | — |  | $ | — |  | $ | 240,910 |  | $ | (74,100 | )
Total |  | $ | 240,910 |  | $ | — |  | $ | — |  | $ | 240,910 |  | $ | (74,100 | )
(1) Goodwill of the Promenade salon concept with a carrying value of $315.0 million was written down to its implied fair value, resulting in an impairment charge of $74.1 million, which was recorded during fiscal year 2011. The Company recorded $0.3 million of translation rate adjustments during the fourth quarter of fiscal year 2011 on the Promenade salon concept goodwill balance.
|  | June 30, 2010 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total Losses |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | (Dollars in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Goodwill—Regis(1) |  | $ | 102,180 |  | $ | — |  | $ | — |  | $ | 102,180 |  | $ | (35,277 | )
Total |  | $ | 102,180 |  | $ | — |  | $ | — |  | $ | 102,180 |  | $ | (35,277 | )
(1) Goodwill of the Regis salon concept with a carrying value of $136.6 million was written down to its implied fair value, resulting in an impairment charge of $35.3 million, which was recorded during fiscal year 2010. The Company recorded $0.8 million of translation rate adjustments during the fourth quarter of fiscal year 2010 on the Regis salon concept goodwill balance.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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