Sally Beauty Supply 2013 Annual Report Download - page 112

Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Fiscal Years ended September 30, 2013, 2012 and 2011
least annually, and sooner when management has reason to believe that the risk of inventory shrinkage at a
particular location is heightened. Upon completion of physical inventory counts, the Company’s
consolidated financial statements are adjusted to reflect actual quantities on hand. The Company has
policies and processes in place that are intended to minimize inventory shrinkage. Inventory shrinkage
expense has averaged approximately 1% of our consolidated net sales during each of the past three fiscal
years.
Lease Accounting
The Company’s lease agreements for office space, company-operated stores and warehouse/distribution
facilities are generally accounted for as operating leases, consistent with applicable GAAP. Rent expense
(including any rent abatements or escalation charges) is recognized on a straight-line basis from the date
the Company takes possession of the property to begin preparation of the site for occupancy to the end of
the lease term, including renewal options determined to be reasonably assured. Certain lease agreements
to which the Company is a party provide for contingent rents that are determined as a percentage of
revenues in excess of specified levels. The Company records a contingent rent liability, along with the
corresponding rent expense, when specified levels have been achieved or when management determines
that achieving the specified levels during the fiscal year is probable.
Certain lease agreements to which the Company is a party provide for tenant improvement allowances.
Such allowances are recorded as deferred lease credits, included in accrued liabilities and other liabilities,
as appropriate, on our consolidated balance sheets, and amortized on a straight-line basis over the lease
term (including renewal options determined to be reasonably assured) as a reduction of rent expense. The
amortization period used for deferred lease credits is generally consistent with the amortization period
used for the constructed leasehold improvement asset for a given location.
Valuation of Long-Lived Assets and Intangible Assets with Definite Lives
Long-lived assets, such as property and equipment, including store equipment, and purchased intangibles
subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. The recoverability of long-lived assets
and intangible assets subject to amortization is assessed by comparing the net carrying amount of each
asset to its total estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its undiscounted future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the
asset. There were no significant impairment losses recognized in our consolidated financial statements in
the current or prior fiscal years presented in connection with long-lived assets and intangible assets subject
to amortization.
Intangible assets subject to amortization include customer relationships, certain distribution rights and
non-competition agreements, and are amortized, on a straight-line basis, over periods of one to twelve
years. Such amortization periods are based on the estimated useful lives of the assets and take into account
the terms of any underlying agreements, but do not generally reflect all renewal terms contractually
available to the Company.
Goodwill and Intangible Assets with Indefinite Lives
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a
business combination. Intangible assets with indefinite lives consist of trade names acquired in business
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