Supercuts 2011 Annual Report Download - page 88

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Receivables and Allowance for Doubtful Accounts:
The receivable balance on the Company's Consolidated Balance Sheet primarily include accounts and notes receivable from franchisees and
credit card receivables. The balance is presented net of an allowance for expected losses (i.e., doubtful accounts), primarily related to the
receivables from the Company's franchisees. The Company monitors the financial condition of its franchisees and records provisions for
estimated losses on receivables when it believes its franchisees are unable to make their required payments based on factors such as
delinquencies and aging trends. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses
related to existing accounts and notes receivables.
The following table summarizes the activity in the allowance for doubtful accounts:
Note Receivables, Net:
The note receivable balances within the Company's Consolidated Balance Sheet primarily include a note receivable with the purchaser of
Trade Secret and a note receivable related to the Company's investment in MY Style. The balances are presented net of a valuation reserve for
expected losses. The Company monitors the financial condition of its counterparties with an outstanding note receivable and records provisions
for estimated losses on receivables when it believes the counterparties are unable to make their required payments. The valuation reserve is the
Company's best estimate of the amount of probable credit losses related to existing notes receivable. See discussion of the note receivable with
the purchaser of Trade Secret and the note receivable related to the Company's investment in MY Style within Notes 2 and 6, respectively, to the
Consolidated Financial Statements.
Inventories:
Inventories consist principally of hair care products for retail product sales. A portion of inventories are also used for salon services
consisting of hair color, hair care products including shampoo and conditioner and hair care treatments including permanents, neutralizers and
relaxers. Inventories are stated at the lower of cost or market, with cost determined on a weighted average cost basis.
Physical inventory counts are performed semi-annually. Product and service inventories are adjusted based on the results of the physical
inventory counts. Between the physical inventory counts, cost of retail product sold to salon customers is determined based on the weighted
average cost of product sold, adjusted for an estimated shrinkage factor, and the cost of product used in salon services
84
For the Years Ended June 30,
2011 2010 2009
(Dollars in thousands)
Beginning balance
$
3,170
$
2,382
$
1,515
Bad debt expense
853
1,040
1,089
Write
-
offs
(2,549
)
(252
)
(225
)
Other (primarily the impact of
foreign currency fluctuations)
8
—
3
Ending balance
$
1,482
$
3,170
$
2,382