Sally Beauty Supply 2007 Annual Report Download - page 95

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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 2.4% of net sales over the past three fiscal years.
Shipping and Handling
Shipping and handling costs related to freight 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 $38.3 million, $41.9 million and $41.1 million for the fiscal years 2007, 2006 and 2005,
respectively. All other shipping and handling costs, such as freight from distribution centers to stores and handling costs in the distribution centers, are included
in cost of products sold and distribution expenses.
Share-Based Compensation
The Company accounts for stock option and stock award, which include share-based payment 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 and recognizes compensation expense on a straight-line basis over the vesting period or to the date a participant becomes
eligible for retirement, if earlier.
Effective October 1, 2005, the Company adopted SFAS 123(R) using the modified prospective method. Under this method, compensation expense related to
stock options granted to the Company employees was recognized for new stock option grants beginning in fiscal year 2006 and for the unvested portion of
outstanding stock options that were granted prior to the adoption of SFAS 123(R). In accordance with the modified prospective method, the financial statements
for fiscal year 2005 have not been restated.
Prior to fiscal year 2006, the Company measured stock-based compensation expense using the intrinsic value method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees, and provided the required pro forma disclosures required by SFAS 123,Accounting for Stock-Based Compensation,
and, accordingly, no compensation expense related to stock options was recognized in the consolidated statements of earnings, except for a non-cash charge
related to Alberto-Culver's conversion to one class of common stock.
Had total compensation expense been determined based upon the fair value of stock options and stock awards on the dates of grant and recognized over the
vesting period consistent with SFAS No. 123(R), the Company's pro forma net earnings for fiscal year 2005 would have been as follows (in thousands):
Reported net earnings: $ 116,461
Add: Stock-based compensation expense included in reported net earnings, net of
related income tax effects 2,985
Less: Stock-based compensation expense determined under the fair value based method
for all awards, net of related income tax effects (3,289)
Pro-forma net earnings $ 116,157
The $3.0 million addition to reported net earnings in fiscal year 2005 for share-based compensation expense includes $2.6 million of after-tax non-cash charges
related to Alberto-Culver's conversion to a single class of common stock.
F-13
Source: Sally Beauty Holding, 10-K, November 29, 2007