Supercuts 2007 Annual Report Download - page 79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue Recognition and Deferred Revenue:
Company-owned salon revenues and related cost of sales are recognized at the time of sale, as this is when the services have been
provided or, in the case of product revenues, delivery has occurred, and the salon receives the customer’s payment. Revenues from purchases
made with gift cards are also recorded when the customer takes possession of the merchandise. Gift cards issued by the Company are recorded
as a liability (deferred revenue) until they are redeemed. An accrual for estimated returns and credits has been recorded based on historical
customer return data that management believes to be reasonable, and is less than one percent of sales.
Product sales by the Company to its franchisees are included within product revenues on the Consolidated Statement of Operations and
recorded at the time product is shipped to franchise locations. The related cost of product sold to franchisees is included within cost of product
in the Consolidated Statement of Operations.
Beauty school revenues consist primarily of tuition revenue, revenues from services performed by students at the beauty schools and
revenues from product sold to customers and students. Beauty school revenues from services performed by students or product sold to
customers or students are recognized at the time of sale, as this is when the services have been provided or, in the case of product revenues,
delivery has occurred, and the school receives payment. The Company records deferred revenue for tuition prior to the classes taking place.
The earnings process is culminated once the Company performs under the terms of the contract (i.e., holds the classes). Service revenue is
recognized proportionally based on actual or scheduled classroom hours through the reversal of the deferred revenue.
Company-owned hair restoration center revenues stem primarily from servicing hair systems and surgical procedures, as well as through
product and hair system sales. The Company records deferred revenue for contracts related to the servicing of hair systems and recognizes the
revenue ratably over the term of the service contract. Revenues are recognized related to surgical procedures when the procedure is performed.
Product revenues, including sales of hair systems, are recognized at the time of sale, as this is when delivery occurs and payment is probable.
Franchise revenues primarily include royalties, initial franchise fees and net rental income (see Note 6). Royalties are recognized as
revenue in the month in which franchisee services are rendered or products are sold to franchisees. The Company recognizes revenue from
initial franchise fees at the time franchise locations are opened, as this is generally when the Company has performed all initial services
required under the franchise agreement.
Consideration Received from Vendors:
The Company receives consideration for a variety of vendor-sponsored programs. These programs primarily include volume rebates and
promotion and advertising reimbursements. Promotion and advertising reimbursements are discussed under Advertising within this note.
With respect to volume rebates, the Company estimates the amount of rebate it will receive and accrues it as a reduction of the cost of
inventory over the period in which the rebate is earned based upon historical purchasing patterns and the terms of the volume rebate program.
A periodic analysis is performed, at least quarterly, in order to ensure that the estimated rebate accrued is reasonable, and any necessary
adjustments are recorded.
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