Supercuts 2003 Annual Report Download - page 55

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
51
Foreign Currency Translation:
Financial position, results of operations and cash flows of the Company’s international subsidiaries are measured using local currency as
the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates in effect at each fiscal year end.
Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other
comprehensive income (loss) within shareholders’ equity. Statement of Operations accounts are translated at the average rates of
exchange prevailing during the year. The different exchange rates from period to period impact the amount of reported income from the
Company
’
s international operations.
Inventories:
Inventories consist principally of hair care products held either for use in salon services or for sale. Inventories are stated at the lower of
cost or market with cost determined on a weighted average basis.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization of property
and equipment are computed on the straight-line method over estimated useful asset lives (30 to 39 years for buildings and improvements
and five to ten years for equipment, furniture, software and leasehold improvements).
The Company capitalizes both internal and external costs of developing or obtaining computer software for internal use. Costs incurred to
develop internal-use software during the application development stage are capitalized, while data conversion, training and maintenance
costs associated with internal-use software are expensed as incurred. As of June 30, 2003 and 2002, the net book value of capitalized
software costs was $21.6 and $23.2 million, respectively. Amortization expense related to capitalized software was $5.8, $5.5 and
$4.8 million in fiscal years 2003, 2002 and 2001, respectively, which has been determined based on an estimated useful life of five or
seven years.
Expenditures for maintenance and repairs and minor renewals and betterments which do not improve or extend the life of the respective
assets are expensed. All other expenditures for renewals and betterments are capitalized. The assets and related depreciation/amortization
accounts are adjusted for property retirements and disposals with the resulting gain or loss included in operations. Fully
depreciated/amortized assets remain in the accounts until retired from service.
Goodwill:
Prior to July 1, 2001, goodwill recorded in connection with the fiscal year 1989 purchase of the publicly held minority interest in the
Company, and acquisitions of business operations in which the Company had not previously been involved, was amortized on a straight-
line basis over 40 years. Goodwill recorded in connection with acquisitions which expanded the Company’s existing business activities
(acquisitions of salon sites) was amortized on a straight-line basis, generally over 20 years. Effective July 1, 2001, the Company ceased
all amortization of goodwill balances. See discussion under
“
Recent Accounting Pronouncements.
”