Supercuts 2010 Annual Report Download - page 94

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 years 2010, 2009, and 2008, no amounts were received in excess of the Company's related expense.
Advertising Funds:
The Company has various franchising programs supporting its franchise salon concepts consisting of Supercuts, Cost Cutters, First Choice
Haircutters, Magicuts, Pro Cuts , Beauty Supply Outlet and Hair Club. Most of the concepts maintain advertising funds that provide
comprehensive advertising and sales promotion support.
The Supercuts advertising fund is the Company's largest advertising fund. The Supercuts advertising fund is administered by a council
consisting primarily of franchisee representatives. The council has overall control of all of the fund's expenditures and operates in accordance
with terms of the franchise operating and other agreements.
Each Supercuts salon contributes 5.0 percent of service revenues to the fund (contributions for other concepts range between 1.5 and
5.0 percent). The majority of the advertising funds are spent to support media placement and local marketing activities. The remainder is
allocated for the creation of national advertising campaigns and system wide activities. None of the Supercuts advertising funds collected may
be used by the Company as reimbursement for the cost of administering the advertising fund. Advertising funds can only be used as directed by
the fund's council and are considered to be restricted.
The Company records all advertising funds as assets and liabilities within the Company's Consolidated Balance Sheet. As of June 30,
2010 and 2009, approximately $18.0 and $16.8 million, respectively, of the advertising funds' assets were recorded within total assets in the
Company's Consolidated Balance Sheet. As of June 30, 2010 and 2009, approximately $18.0 and $16.8 million, respectively, of the advertising
funds' liabilities were recorded within total liabilities in the Company's Consolidated Balance Sheet.
The Company records advertising expense in the period the company-owned salon makes contributions to the respective advertising fund.
During fiscal years 2010, 2009, and 2008 total contributions to the franchise brand advertising funds totaled $39.8, $39.4, and $36.2 million,
respectively.
The Company acts as an agent for the franchisees with regard to these contributions to the advertising funds. Thus, in accordance with
guidance for accounting for franchise fee revenue, the Company does not reflect contributions to these advertising funds by its franchisees in its
Consolidated Statement of Operations or Consolidated Statement of Cash Flows but reflects the related assets and liabilities in its 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.
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