Supercuts 2012 Annual Report Download - page 94

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
For purposes of recognizing incentives and minimum rental expenses on a straight-line basis over the terms of the leases, the Company
uses the date that it obtains the legal right to use and control the leased space to begin amortization, which is generally when the Company
enters the space and begins to make improvements in preparation of intended use of the leased space.
Certain leases provide for contingent rents, which are determined as a percentage of revenues in excess of specified levels. The Company
records a contingent rent liability in accrued expenses on the Consolidated Balance Sheet, along with the corresponding rent expense in the
Consolidated Statement of Operations, when specified levels have been achieved or when management determines that achieving the specified
levels during the fiscal year is probable.
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 guest's payment. Revenues from purchases made
with gift cards are also recorded when the guest 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.
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