FAIR VALUE MEASUREMENTS

12 Months Ended

Jun. 30, 2012

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, 2012 and June 30, 2011, 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, 2012
			Level 1		Level 2		Level 3
			(Dollars in thousands)
ASSETS
Current assets
Derivative instruments	$	145	$	—	$	145	$	—
Noncurrent assets
Equity call option—Roosters		117		—		—		117
LIABILITIES
Noncurrent liabilities
Equity put option—Provalliance	$	633	$	—	$	—	$	633
Equity put option—Roosters		161		—		—		161

			Fair Value Measurements Using Inputs Considered as
	Fair Value at June 30, 2011
			Level 1		Level 2		Level 3
			(Dollars in thousands)
ASSETS
Current assets
Derivative instruments	$	212	$	—	$	212	$	—
LIABILITIES
Current liabilities
Derivative instruments	$	599	$	—	$	599	$	—
Noncurrent liabilities
Equity put option—Provalliance	$	22,700	$	—	$	—	$	22,700

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, 2012 and 2011 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
	Roosters Equity Call Option		Roosters Equity Put Option		Provalliance Equity Put Option
	(Dollars in thousands)
Balance at July 1, 2011	$	—	$	—	$	22,700
Total realized and unrealized gains (losses):
Included in other comprehensive (loss) income		—		—		(1,845	)
Issuances		—		161		—
Purchases		117		—		—
Included in equity in (loss) income of affiliated companies		—		—		(20,222	)
Balance at June 30, 2012	$	117	$	161	$	633

	Changes in Financial Instruments Measured at Level 3 Fair Value Classified as
	Preferred Shares			Provalliance 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 (loss) income of affiliated companies		—			(2,442	)
Transfer out of Level 3		—			(714	)
Other than temporary impairment		(3,935	)		—
Balance at June 30, 2011	$	—		$	22,700

        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.

        The fair value of cash and cash equivalents, receivables and accounts payable approximated the carrying values as of June 30, 2012 and 2011. At June 30, 2012, the estimated fair values and carrying amounts of debt were $307.5 and $287.7 million, respectively. At June 30, 2011, the estimated fair values and carrying amounts of debt were $335.4 and $313.4 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 (Level 2).

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, 2012 and 2011, respectively:

	June 30, 2012		Level 1		Level 2		Level 3		Total Losses
	(Dollars in thousands)
Assets
Goodwill—Regis(1)	$	35,083	$	—	$	—	$	35,083	$	(67,684	)
Goodwill—Hair Restoration Centers(2)		74,376		—		—		74,376		(78,426	)
Investment in affiliates—EEG(3)		59,683		—		—		59,683		(19,426	)
Investment in affiliates—Provalliance(4)		101,304		—		—		101,304		(37,383	)
Total	$	270,446	$	—	$	—	$	270,446	$	(202,919	)

(1)

Goodwill of the Regis salon concept with a carrying value of $102.8 million was written down to its implied fair value, resulting in an impairment charge of $67.7 million, which was recorded during fiscal year 2012. See Note 1 to the Consolidated Financial Statements for further information.

(2)

Goodwill of the Hair Restoration Centers reporting unit with a carrying value of $152.8 million was written down to its implied fair value of $74.4 million, resulting in an impairment charge of $78.4 million. See Note 1 to the Consolidated Financial Statements for further information.

(3)

The Company's investment in EEG with a carrying value of $79.1 million was written down to its implied fair value of $59.7 million, resulting in an impairment charge of $19.4 million. See Note 6 to the Consolidated Financial Statements for further information.

(4)

The Company's investment in Provalliance was written down to its implied fair value, resulting in an impairment charge of $37.4 million. See Note 6 to the Consolidated Financial Statements for further information.

	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.