Sally Beauty Supply 2006 Annual Report Download - page 70

Table of Contents
Sally Holdings, Inc. and Subsidiaries
(A Wholly-Owned Subsidiary of Alberto-Culver Company)
Notes to Consolidated Financial Statements
(n) Vendor Allowances
The Company accounts for cash consideration received from vendors under Emerging Issues Task Force (EITF) 02 16, Accounting
by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor. EITF 02 16 states that cash consideration
received by a customer is presumed to be a reduction of the cost
of sales unless it is for an asset or service or a reimbursement of a specific, incremental, identifiable cost incurred by the customer in
selling the vendor’ s products. The majority of cash consideration received by the Company is considered to be a reduction of the cost
of sales and is allocated to cost of products sold and distribution expenses as the related inventory is sold.
(o) Income Taxes
The Company is included in the U.S. federal income tax return of Alberto-Culver; however, income taxes are provided in the
accompanying consolidated financial statements as if the Company was filing a separate return. In accordance with SFAS 109,
Accounting for Income Taxes , deferred income taxes are recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary
differences are estimated to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in the
consolidated statements of earnings in the period of enactment.
(p) Foreign Currency
The functional currency of the Company’ s foreign operations is the applicable local currency. Balance sheet accounts are translated
into U.S. dollars at the rates of exchange in effect at the balance sheet date, while the results of operations are translated using the
average exchange rates during the period. The resulting translation adjustments are recorded as a component of accumulated other
comprehensive income (loss) within stockholders’ equity. Foreign currency transaction gains or losses are included in the consolidated
statements of earnings and were not significant in any period presented.
(q) Revenue Recognition
The Company recognizes revenue when a customer consummates a point of sale transaction in a store. The Company also recognizes
revenue on merchandise shipped to customers when title and risk of loss pass to the customer. Appropriate provisions for sales returns
and cash discounts are made at the time the sales are recorded. Sales returns and allowances were approximately 2% of net sales in
each of fiscal years 2006, 2005 and 2004.
(r) Shipping and Handling
Shipping and handling costs related to freight to stores and distribution expenses for delivery directly to customers are included in
selling, general and administrative expenses in the consolidated statements of earnings and amounted to $41.9 million, $41.1 million
and $37.7 million for the fiscal years ended September 30, 2006, 2005 and 2004, respectively. All other shipping and handling costs
are included in cost of products sold and distribution expenses.
(s) Stock Option and Restricted Stock Plans
The Company accounts for stock option and restricted stock plans in accordance with SFAS 123 (Revised 2004), Share-Based
Payment “SFAS 123(R)”. Accordingly, the Company measures the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award.
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