Sally Beauty Supply 2007 Annual Report Download - page 91

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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the financial statements. The level of uncertainty in estimates and
assumptions increases with the length of time until the underlying transactions are completed. Actual results may differ from these estimates in amounts that may
be material to the financial statements. Management believes the estimates and assumptions are reasonable.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. These investments are stated at
cost, which approximates market value. Also included in cash equivalents are proceeds due from credit and debit card transactions, which generally settle within
five to seven days, and were approximately $10.9 million and $8.2 million at September 30, 2007 and 2006, respectively.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, interest rate swap agreements and borrowings.
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short term nature of these
financial instruments.
The Company utilizes interest rate swap agreements to manage the cash flow risk associated with changing interest rates and accounts for them in accordance
with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, ("SFAS 133"). The Company does not purchase or hold any derivative
instruments for speculative or trading purposes. These derivative instruments are not designated as hedges, and changes in the fair value of these agreements are
recorded as increases (decreases) to interest expense in the consolidated statements of earnings.
The fair value of the Company's long-term borrowings was approximately $1,759.3 million at September 30, 2007. The fair values of the Company's long-term
borrowings are based on quoted market prices where available or, if not available, based on discounted future cash flows using current market interest rates.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash investments and accounts receivable. The
Company places its cash investments with high-credit quality financial institutions. Accounts receivable are generally diversified due to the number of entities
comprising the Company's customer base and their dispersion across many geographical regions. The Company believes no significant concentration of credit
risk exists with respect to these cash investments and accounts receivable.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the value of sales to customers and do not bear interest. Trade accounts receivable are stated net of the allowance for
doubtful accounts. The allowance for doubtful accounts requires management to estimate future amounts of receivables to be collected. Management records
allowances for doubtful accounts based on historical collection data and current customer
F-9
Source: Sally Beauty Holding, 10-K, November 29, 2007