Supercuts 2011 Annual Report Download - page 95

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 or services are provided. Gift cards issued by the Company are recorded as a liability (deferred revenue) until they are
redeemed.
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.
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 application, as this is when delivery occurs and payment is
probable.
Franchise revenues primarily include royalties, initial franchise fees and net rental income (see Note 10). Royalties are recognized as
revenue in the month in which franchisee services are rendered. 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.
Shipping and Handling Costs:
Shipping and handling costs are incurred to store, move and ship product from the Company's distribution centers to company-owned and
franchise locations, and include an allocation of internal overhead. Such shipping and handling costs related to product shipped to company-
owned locations are included in site operating expenses in the Consolidated Statement of Operations. Shipping and handling costs related to
shipping product to franchise locations totaled $3.5, $2.9, and $2.7 million during fiscal years 2011, 2010, and 2009, respectively, and are
included within general and administrative expenses. Any amounts billed to the franchisee for shipping and handling are included in product
revenues within the Consolidated Statement of Operations.
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