Sally Beauty Supply 2006 Annual Report Download - page 72

Table of Contents
Sally Holdings, Inc. and Subsidiaries
(A Wholly-Owned Subsidiary of Alberto-Culver Company)
Notes to Consolidated Financial Statements
Statements of Redeemable Preferred Stocks, to stock options with contingent cash settlement provisions. ASR 268 requires securities
with contingent cash settlement provisions, which are not solely in the control of the issuer, without regard to probability of
occurrence, to be classified outside of stockholders’ equity. The Alberto-Culver stock option plan under which stock options are
granted to the Company employees has a contingent cash settlement provision upon the occurrence of certain change in control events.
While the Company and Alberto-Culver believe the possibility of occurrence of any such change in control event is remote, the
contingent cash settlement of the stock options as a result of such event would not be solely in the control of the Company or Alberto-
Culver. In accordance with ASR 268, the Company has reclassified $7.5 million from additional paid-in capital to “stock options
subject to redemption” outside of stockholders’ equity on its consolidated balance sheet as of September 30, 2006. This amount
represents the intrinsic value as of November 5, 2003 of currently outstanding stock options held by employees of the Company,
which were modified on that date as a result of Alberto-Culver’ s conversion to one class of common stock. This amount will be
reclassified back into additional paid-in capital in future periods as the related stock options are exercised or canceled.
(t) Recent Accounting Pronouncements
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for the uncertainty in income taxes recognized by prescribing a
recognition threshold that a tax position is required to meet before being recognized in the financial statements. It also provides
guidance on derecognition, classification, interest and penalties, interim period accounting and disclosure. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Company is currently assessing the effect of this pronouncement on the
Company’ s consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.
SFAS 157 is effective in fiscal years beginning after November 15, 2007. The Company is currently assessing the effect of this
pronouncement on the Company’ s consolidated financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”) which provides interpretive guidance on how the
effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement.
SAB 108 is effective for fiscal years ending after November 15, 2006. The Company is currently assessing the effect of this
pronouncement on the Company’ s consolidated financial statements.
3. Allowance for Doubtful Accounts and Inventory Allowance
The change in the allowance for doubtful accounts for the fiscal years ended September 30, 2006, 2005 and 2004 was as follows (in
thousands):
2006 2005 2004
Balance at beginning of period $ 2,073 $ 2,500 $ 2,686
Bad debt expense 2,403 1,754 2,274
Uncollected accounts written off, net of recoveries (2,252 ) (2,292 ) (2,583 )
Allowance for doubtful accounts of acquired companies 22 111 123
Balance at end of period $ 2,246 $ 2,073 $ 2,500
65