Sally Beauty Supply 2011 Annual Report Download - page 111

Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Fiscal Years ended September 30, 2011, 2010 and 2009
years. Such amortization periods are based on the estimated useful lives of the assets and take into account
the terms of any underlying agreements, but do not generally reflect all renewal terms contractually
available to the Company.
Goodwill and Intangible Assets with Indefinite Lives
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a
business combination. Intangible assets with indefinite lives include trade names and certain distribution
rights acquired in a business combination. Goodwill and intangible assets with indefinite lives are not
amortized; rather, they are reviewed for impairment at least annually, during our second fiscal quarter, and
whenever events or changes in circumstances indicate it is more likely than not that the value of the asset
may be impaired. When assessing goodwill and intangible assets with indefinite lives for potential
impairment, management compares the carrying amount of the asset to its fair value. In addition,
management considers whether there has been an impairment to the value of the asset by evaluating if
various factors (including current operating results, anticipated future results and cash flows, and relevant
market and economic conditions) indicate a possible impairment. Based on the reviews performed, after
taking into account the economic downturn experienced during the past couple of years in certain
geographic areas in which we operate, there was no impairment of goodwill or intangible assets with
indefinite lives recognized in our financial statements in the current or prior fiscal years presented.
Deferred Financing Costs
Certain costs incurred in connection with the issuance of debt are capitalized when incurred and are
amortized over the estimated term of the related debt agreements generally using the effective interest
method. Such capitalized costs are included in other assets in our consolidated balance sheets.
Unamortized deferred financing costs are expensed proportionally when certain debt is prepaid.
Insurance/Self-Insurance Programs
The Company retains a substantial portion of the risk related to certain of its workers’ compensation,
general and auto liability and property damage insurable loss exposure. Predetermined loss limits have
been arranged with insurance companies to limit the Company’s exposure per occurrence and aggregate
cash outlay. Certain of our employees and their dependents are also covered by a self-insurance program
for healthcare benefit purposes. Currently these self-insurance costs, less amounts recovered through
payroll deductions and certain out-of-pocket amounts incurred in connection with the employee healthcare
program, are funded by the Company. The Company maintains an annual stop-loss insurance policy for
the healthcare benefits plan.
The Company records an estimated liability for the ultimate cost of claims incurred and unpaid as of the
balance sheet date, which includes both claims filed and estimated losses incurred but not yet reported.
The Company estimates the ultimate cost based on an analysis of historical data and actuarial estimates.
Workers’ compensation, general and auto liability and property damage insurable loss liabilities are
recorded at the estimate of their net present value, while healthcare plan liabilities are not discounted.
These estimates are reviewed on a regular basis to ensure that the recorded liability is adequate. The
Company believes the amounts accrued at September 30, 2011 and 2010 are adequate.
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