Sally Beauty Supply 2011 Annual Report Download - page 109

Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Fiscal Years ended September 30, 2011, 2010 and 2009
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 that the estimates and assumptions used in the preparation of the
Company’s consolidated financial statements are reasonable.
Cash and Cash Equivalents
All highly liquid investments purchased by the Company from time to time which have an original maturity
of three months or less are considered to be cash equivalents. These investments are stated at cost, which
approximates fair value. Also included in cash equivalents are proceeds due from customer credit and
debit card transactions, which generally settle within one to three days, and were $10.3 million and
$8.4 million at September 30, 2011 and 2010, respectively.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily
of investments in cash equivalents, accounts receivable and derivative instruments.
The Company invests from time to time in securities of financial institutions with high credit quality.
Accounts receivable are deemed by the Company to be highly diversified due to the high number of
entities comprising the Company’s customer base and their dispersion across diverse geographical regions.
The counterparties to all our derivative instruments are deemed by the Company to be of substantial
resources and strong creditworthiness. The Company believes that no significant concentration of credit
risk exists with respect to its investments in cash equivalents, its accounts receivable and its derivative
instruments at September 30, 2011 and 2010.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the values invoiced 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 the future collectability of amounts receivable at the balance
sheet date. Management records allowances for doubtful accounts based on historical collection data and
current customer information. Customer account balances are written off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote. In the
Company’s consolidated statements of earnings, bad debt expense is included in selling, general and
administrative expenses. The Company’s exposure to credit risk with respect to trade receivables is
mitigated by the Company’s broad customer base and their dispersion across diverse geographical regions.
Accounts Receivable, Other
Accounts receivable, other, consist primarily of amounts expected to be received from vendors under
various contractual agreements and are recorded at the amount management estimates will be collected.
Inventory
Inventory consists primarily of beauty supplies and related accessories, and salon equipment for sale in the
normal course of our business. Inventory is stated at the lower of cost, determined using the first-in,
first-out (‘‘FIFO’’) method, or market (net realizable value). Inventory cost reflects actual product costs,
the cost of transportation to the Company’s distribution centers, and certain shipping and handling costs,
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