Supercuts 2005 Annual Report Download - page 70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Advertising:
Advertising costs, including salon collateral material, are expensed as incurred. Net advertising costs expensed were $57.8, $46.6 and
$41.3 million in fiscal years 2005, 2004 and 2003, respectively. The Company participates in cooperative advertising programs under which
the vendor reimburses the Company for costs related to advertising for its products. The Company records such reimbursements as a reduction
of advertising expense when the expense is incurred. During fiscal year 2005, 2004 and 2003, no amounts were received in excess of the
Company’s related expense.
Advertising Funds:
Franchisees and certain company-
owned salons are required to contribute a percentage of sales to various advertising funds. The Company
administers the advertising funds at the directive of or subject to input from the franchise community. Accordingly, amounts collected and
spent by the advertising funds are not reflected as revenues and expenditures of the Company. Assets of the advertising funds administered by
the Company, along with an offsetting obligation to spend such assets, are recorded in the Consolidated Balance Sheet.
Preopening Expenses:
Non-capital expenditures such as payroll, training costs and promotion incurred prior to the opening of a new location are expensed as
incurred.
Income Taxes:
Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the
Consolidated Financial Statements or income tax returns. Deferred income tax assets and liabilities are determined based on the differences
between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the
differences are expected to reverse. Realization of deferred tax assets is ultimately dependent upon future taxable income. Inherent in the
measurement of deferred balances are certain judgments and interpretations of tax laws and published guidance with respect to the Company’s
operations. Income tax expense is primarily the current tax payable for the period and the change during the period in certain deferred tax assets
and liabilities.
Net Income Per Share:
Basic earnings per share (EPS) is calculated as net income divided by weighted average common shares outstanding, excluding unvested
outstanding restricted stock shares. The Company’s dilutive securities include shares issuable under the Company’s stock option plan and long-
term incentive plan, as well as shares issuable under contingent stock agreements. Diluted EPS is calculated as net income divided by weighted
average common shares outstanding, increased to include assumed exercise of dilutive securities. Stock options with exercise prices greater
than the average market value of the Company’s common stock are excluded from the computation of diluted EPS.
Comprehensive Income:
Components of comprehensive income for the Company include net income, changes in fair market value of financial instruments
designated as hedges of interest rate or foreign currency exposure and foreign currency translation charged or credited to the cumulative
translation account within shareholders’ equity. These amounts are presented in the Consolidated Statements of Changes in Shareholders’
Equity and Comprehensive Income.
69