Supercuts 2009 Annual Report Download - page 85

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Receivables and Allowance for Doubtful Accounts:
The receivable balance on the Company's Consolidated Balance Sheet primarily includes accounts and notes receivable from franchisees. In
addition, as of June 30, 2009, the Company has a $19.1 million outstanding receivable with the buyer of Trade Secret. The balance is presented
net of an allowance for expected losses (i.e., doubtful accounts), primarily related to receivables from the Company's franchisees. The Company
monitors the financial condition of its franchisees and records provisions for estimated losses on receivables when it believes that its franchisees
are unable to make their required payments based on factors such as delinquencies and aging trends. The allowance for doubtful accounts is the
Company's best estimate of the amount of probable credit losses related to existing accounts and notes receivable.
The following table summarizes the activity in the allowance for doubtful accounts:
Inventories:
Inventories consist principally of hair care products for retail product sales. A portion of inventories are also used for salon services
consisting of hair color, hair care products including shampoo and conditioner and hair care treatments including permanents, neutralizers and
relaxers. Inventories are stated at the lower of cost or market, with cost determined on a weighted average cost basis.
Physical inventory counts are performed semi-annually. Product and service inventories are adjusted based on the results of the physical
inventory counts. Between the physical inventory counts, cost of retail product sold to salon customers is determined based on the weighted
average cost of product sold, adjusted for an estimated shrinkage factor, and the cost of product used in salon services is determined by applying
estimated gross profit margins to service revenues. The estimated gross profit margins related to service inventories are updated semi-annually
based on the results of the physical inventory counts and other factors that could impact the Company's margin rate estimates such as mix of
service sales, discounting and special promotions. Actual results for the estimated gross margin percentage as compared to the semi-annual
estimates have not historically resulted in material adjustments to our statement of operations.
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, 10 years for improvements
and three to ten years for equipment, furniture and software). Depreciation expense was $105.1, $108.7, and
83
For the Years Ended June 30,
2009 2008 2007
(Dollars in thousands)
Beginning balance
$
1,515
$
6,399
$
6,205
Bad debt expense
1,089
3,900
7,347
Write
-
offs
(225
)
(8,784
)
(7,345
)
Other (primarily the impact of foreign currency fluctuations)
3
—
192
Ending balance
$
2,382
$
1,515
$
6,399