Note 2 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Significant Accounting Policies [Text Block]

(2)       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(a)       Principles of Consolidation and Basis of Presentation -

Our Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries and companies in which we have a controlling interest, in accordance with U.S. generally accepted accounting principles.  All significant intercompany balances and transactions have been eliminated in consolidation.

We hold variable interests in certain Ideal Image entities.  These entities were set up for regulatory compliance purposes.  We bear the benefits and risks of loss from operating those entities through contractual agreements.  Our consolidated financial statements include the operating results of those entities.  The assets and liabilities of these entities are not material to the consolidated balance sheets.

(b)       Cash and Cash Equivalents -

We consider all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents.  At December 31, 2012 and 2011, cash and cash equivalents included interest-bearing deposits of $13.5 million and $15.5 million, respectively.

We maintain our cash and cash equivalents with reputable major financial institutions.  Deposits with these banks exceed the Federal Deposit Insurance Corporation insurance limits or similar limits in foreign jurisdictions.  While we monitor daily the cash balances in our operating accounts and adjust the balances as appropriate, these balances could be impacted if one or more of the financial institutions with which we deposit funds fails or is subject to other adverse conditions in the financial or credit markets.  To date we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial and credit markets.

(c)  Inventories -

Inventories, consisting principally of beauty products, are stated at the lower of cost (first-in, first-out) or market.  Manufactured finished goods include the cost of raw material, labor and overhead.  Inventories consist of the following (in thousands):

	December 31,
	2012			2011
Finished goods		$	46,711		$	45,061
Raw materials			4,582			7,587
		$	51,293		$	52,648

(d)       Property and Equipment -

Property and equipment are recorded at cost.  Depreciation is provided over the estimated useful lives of the respective assets on a straight-line basis.  Leasehold improvements are amortized on a straight-line basis over the shorter of the terms of the respective leases and the estimated useful lives of the respective assets.  Leasehold improvements generally include renewal periods that may be obtained at our option that are considered significant to the continuation of our operations and to the existence of leasehold improvements the value of which would be impaired if we discontinued use of the leased property.  Repairs and maintenance and any gains or losses on disposition are included in results of operations.

We review long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated future cash flows, that the carrying amount of these assets may not be fully recoverable.  In certain cases, the determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of the assets in question.  As of December 31, 2012, management was not aware of any impairment of long-lived assets.  Unexpected changes in cash flows could result in impairment charges in the future.

(e)       Revenue Recognition -

We recognize revenues earned as services are provided and as products are sold or shipped, as the case may be.  We also provide a reserve for projected product returns based on prior experience.  Revenue from gift certificate sales is recognized upon gift certificate redemption and upon recognition of "breakage" (non-redemption of a gift certificate after a specified period of time).  We do not charge administrative fees on unused gift cards, and our gift cards do not have an expiration date.  Based on historical redemption rates, a relatively stable percentage of gift certificates will never be redeemed.  We use the redemption recognition method for recognizing breakage related to certain gift certificates for which we had sufficient historical information.  Under the redemption recognition method, revenue is recorded in proportion to, and over the time period gift cards are actually redeemed.  Breakage is recognized only if we determine that we do not have a legal obligation to remit the value of unredeemed gift certificates to government agencies under the unclaimed property laws in the relevant jurisdictions.  We determine our gift certificate breakage rate based upon historical redemption patterns.  At least three years of historical data, which is updated annually, is used to determine actual redemption patterns.  Gift certificate breakage income is included in revenue in our consolidated statement of income for the years ended December 31, 2012, 2011 and 2010, respectively.

Tuition revenue and revenue related to certain nonrefundable fees and charges at our massage and beauty schools are recognized monthly on a straight-line basis over the term of the course of study.  At the time a student begins attending a school, a liability (unearned tuition) is recorded for all academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid up front in cash.  Revenue related to sales of program materials, books and supplies are, generally, recognized when the program materials, books and supplies are delivered.  We include the revenue related to sales of program materials, books and supplies in the Services Revenue financial statement caption in our Consolidated Statements of Income.  These amounts were $7.1 million, $6.3 million and $7.0 million in 2012, 2011 and 2010, respectively.  If a student withdraws from one of our schools prior to the completion of the academic term, we refund the portion of the tuition already paid that, pursuant to our refund policy and applicable federal and state law and accrediting agency standards, we are not entitled to retain.

The Company recognizes Ideal Image Center ("Center") sales in relation to treatment packages sold at Company-owned clinic locations.  The packages provide for five initial treatments which occur at up to ten-week intervals and generally allow for up to four additional treatments, as necessary, to obtain the desired results.  Center sales revenue is recognized evenly over the average number of treatments provided.  Remaining revenue, net of related financing fees, relating to unperformed services is included in deferred revenue in the consolidated balance sheets.  The Company also receives royalties from Ideal Image franchisees.  These royalties are recognized in the period earned.

Deferred revenue represents Center contractual treatments of $98.9 million at December 31, 2012, for which payment has been received or a customer financing receivable recorded.  Deferred revenues were net of deferred finance fees totaling $8.5 million and $1.0 million at December 31, 2012 and 2011, respectively.  These fees will be expensed in the same proportion of the related service revenue.

(f)       Intangible Assets -

Intangible assets includes the cost of customer lists, covenants not to compete, unpatented technologies, our rights under Title IV of the Higher Education Act of 1965 ("HEA"), trade names, leases, licenses and logos related to acquisitions.  For definite-lived intangible assets, such costs are amortized on a straight-line basis over their estimated useful lives, which range from three to 20 years.  Certain intangible assets have indefinite lives, and therefore, no amortization occurs, however, they are subject to at least an annual assessment for impairment.  Amortization expense related to intangible assets totaled $1.3 million, $1.0 million and $0.3 million in 2012, 2011 and 2010, respectively.  Amortization expense is estimated to be $1.1 million in 2013, $0.9 million in 2014, $0.9 million in 2015, $0.4 million in 2016 and $0.3 million in 2017.

A detail of intangibles is as follows (in thousands):

	Year Ended December 31,
	2012			2011
Intangible assets (various, principally trade names, leases, licenses and logos) with definite lives:
Gross carrying amount	$	13,509		$	13,509
Less accumulated amortization		(9,060	)		(7,653	)
Amortized intangible assets, net		4,449			5,856
Unamortized intangible assets with indefinite lives:
Trade names		71,549			71,549
Title IV rights		13,514			13,514
Intangible assets with indefinite lives		85,063			85,063
Total intangible assets, net	$	89,512		$	90,919

(g)       Goodwill -

Goodwill represents the excess of cost over the fair market value of identifiable net assets acquired.  Goodwill and other indefinite-lived intangible assets are subject to at least an annual assessment for impairment by applying a fair value based test.  The impairment loss is the amount, if any, by which the implied fair value of goodwill and other indefinite-lived intangible assets are less than the carrying or book value.  Annually each January 1, we performed the required annual impairment test for each reporting unit and determined there was no impairment.  We have six operating segments:  (1) Maritime, (2) Land-based spas, (3) Product Distribution, (4) Training, (5) Schools and (6) Laser Hair Removal.  The Maritime, Land-Based spas, Product Distribution, Schools and Laser Hair Removal operating segments have associated goodwill and each of them has been determined to be a reporting unit.

The change in goodwill during 2012 and 2011 was as follows (in thousands):

	Maritime		Land-Based Spas		Product Distribution		Schools		Laser Hair Removal		Total
Balance at December 31, 2010	$	8,590	$	40,297	$	23,695	$	42,361	$	--	$	114,943
Acquired goodwill		2,114		--		--		16,098		195,076		213,288
Balance at December 31, 2011		10,704		40,297		23,695		58,459		195,076		328,231
Acquired goodwill		--		--		--		--		--		--
Balance at December 31, 2012	$	10,704	$	40,297	$	23,695	$	58,459	$	195,076	$	328,231

(h)       Income Taxes -

We file a consolidated tax return for our U.S. subsidiaries other than those domiciled in U.S. territories which file specific returns.  In addition, our foreign subsidiaries file income tax returns in their respective countries of incorporation, where required.  We utilize the liability method and deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws.  Deferred income tax provisions and benefits are based on the changes to the asset or liability from period to period.  A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized.  The majority of our income is generated outside of the United States.  We believe a large percentage of our shipboard services income is foreign-source income, not effectively connected to a business we conduct in the United States and, therefore, not subject to United States income taxation.

We recognize interest and penalties within the provision for income taxes in the Consolidated Statements of Income.  To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued therefor will be reduced and reflected as a reduction of the overall income tax provision.

The Company recognizes liabilities for uncertain tax positions based on a two-step process.  The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.  The second step is to measure the tax benefit as the largest amount of benefit that, determined on a cumulative probability basis, is more than 50% likely of being realized upon ultimate settlement.

(i)       Deferred Customer Acquisition Costs -

Commission costs directly related to the acquisition of contracts with customers for Ideal Image services are deferred and expensed over the average number of treatments provided in the same manner as the related deferred revenue.  As of December 31, 2012, customer acquisition costs totaling $9.8 million were deferred and are expected to be expensed during the years ending December 31, 2013 and 2014 at $8.4 million and $1.4 million, respectively.

(j)       Translation of ForeignCurrencies -

For currency exchange rate purposes, assets and liabilities of our foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date.  Equity and other items are translated at historical rates and income and expenses are translated at the average rates of exchange prevailing during the year.  The related translation adjustments are reflected in the Accumulated Other Comprehensive Loss caption of our consolidated balance sheets.  Foreign currency gains and losses resulting from transactions, including intercompany transactions, are included in results of operations.  The transaction gains (losses) included in the administrative expenses caption of our consolidated statements of income were $0.4 million, ($1.3) million and ($1.2) million in 2012, 2011 and 2010, respectively.  The transaction gains (losses) included in the Cost of products caption of our Consolidated Statements of Income were ($1.0) million, ($0.1) million and $0.8 million in 2012, 2011 and 2010, respectively.

(k)       Earnings Per Share -

Basic earnings per share is computed by dividing the net income available to our common shareholders by the weighted average number of outstanding common shares.  The calculation of diluted earnings per share is similar to basic earnings per share except that the denominator includes dilutive common share equivalents such as share options and restricted share units.  Reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share data):

	Year Ended December 31,
	2012		2011		2010
Net income	$	53,102	$	50,935	$	44,323
Weighted average shares outstanding used in calculating basic earnings per share		14,878		15,013		14,832
Dilutive common share equivalents		174		204		237
Weighted average common and common equivalent shares used in calculating diluted earnings per share		15,052		15,217		15,069
Income per share:
Basic	$	3.57	$	3.39	$	2.99
Diluted	$	3.53	$	3.35	$	2.94
Options and restricted share units outstanding which are not included in the calculation of diluted earnings per share because their impact is anti-dilutive		34		77		108

(l)       Use of Estimates -

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Significant estimates include the assessment of the realization of accounts receivables and recovery of long-lived assets and goodwill and other intangible assets, the determination of deferred income taxes, including valuation allowances, the useful lives of definite - lived intangible assets and property and equipment, the determination of fair value of assets and liabilities in purchase price allocations, gift certificate breakage revenue, the assumptions related to the determination of stock based compensation and for Center sales, related deferred customer acquisition costs and the determination of the average number of treatments provided.

(m)       Fair Value of Financial Instruments -

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy.  The three levels of inputs used to measure fair value are as follows:

· Level 1 - Quoted prices in active markets for identical assets and liabilities.

· Level 2 - Observable inputs other than quoted prices included in Level 1. This includes dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.

· Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Certain assets and liabilities are required to be recorded at fair value on a recurring basis and nonrecurring basis. We have no assets or liabilities that are adjusted to fair value on a recurring basis.  We did not have any assets or liabilities measured at fair value on a nonrecurring basis during the three years ended December 31, 2012.

Cash and cash equivalents is reflected in the accompanying Consolidated Financial Statements at cost, which approximated fair value estimated, using Level 1 inputs, as they are maintained with various high-quality financial institutions and having original maturities of three months or less. The fair values of our term and revolving loans were estimated using Level 2 inputs based on quoted prices for those or similar instruments. The fair values of the term and revolving loans were determined using applicable interest rates as of December 31, 2012 and 2011 and approximate the carrying value of such debt because the underlying instruments were at variable rates that are repriced frequently.

(n)       Concentrations of Credit Risk -

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.  We maintain cash and cash equivalents with high quality financial institutions.  As of December 31, 2012 and 2011, we had one customer that represented greater than 10% of our accounts receivable.  We do not normally require collateral or other security to support normal credit sales.  We control credit risk through credit approvals, credit limits and monitoring procedures. We extend unsecured credit to our students for tuition and fees and we record a receivable for the tuition and fees earned in excess of the payment received from or on behalf of a student.  Accounts receivable and Accounts receivable – students are stated at amounts due from customers, net of an allowance for doubtful accounts.  We record an allowance for doubtful accounts with respect to accounts receivable using historical collection experience.  We review the historical collection experience and consider other facts and circumstances and adjust the calculation to record an allowance for doubtful accounts as appropriate.  If our current collection trends were to differ significantly from our historic collection experience, however, we would make a corresponding adjustment to our allowance.  Bad debt expense is included within administrative operating expenses in our consolidated statements of income.  We write off amounts due from former students and other customers when we conclude that collection is not probable.  A roll-forward of the allowance for doubtful accounts is as follows (in thousands):

	2012			2011			2010
Balance at beginning of year	$	8,525		$	8,636		$	8,948
Provision		3,198			2,178			921
Write-offs		(810	)		(2,289	)		(1,233	)
Balance at end of year	$	10,913		$	8,525		$	8,636

(o)       Stock-Based Compensation -

We reserved approximately 8,425,000 of our common shares for issuance under our Amended and Restated 1996 Share Option and Incentive Plan (the "1996 Plan"), under our 2004 Equity Incentive Plan (the "2004 Plan") under our 2009 Incentive Plan (the "2009 Plan"), under our 2012 Incentive Plan (the “2012 Plan” and, collectively, with the 1996 Plan, the 2004 Plan and the 2009 Plan, the "Equity Plans") and 185,625 of our common shares for issuance under our Non-Employee Directors' Share Option Plan (the "Directors' Plan," and, collectively, with the, Equity Plans, the "Plans").  Under the 2012 Plan (awards may no longer be made under the other Plans), restricted share units and other awards may be granted.  The terms of each award agreement under the Equity Plans were or are, as the case may be, determined by the Compensation Committee of the Board of Directors.  Terms of the grants under the Directors' Plan are set forth in the Directors' Plan.  The exercise price of share options may not be less than fair market value at the date of grant and their terms may not exceed ten years.  The exercise price of non-qualified share options under the Equity Plans was or is, as the case may be, determined by the Compensation Committee and their terms may not exceed ten years.  Under the Equity Plans, share options and restricted share units outstanding as of December 31, 2012, other than grants to members of the Board of Directors, vest in equal installments over three to five years from the date of grant (i.e., graded vesting), subject to accelerated vesting in certain cases.  There is one grant of restricted share units to an officer that vests in its entirety on the third anniversary date from the date of grant.  Certain of the restricted share units require for vesting the meeting of certain performance criteria.  All share options outstanding under the Directors' Plan as of December 31, 2012 vested one year from the date of grant, subject to accelerated vesting in certain cases.  Upon vesting of share options, we issued new common shares to the award recipient.

The grant date fair value of restricted share units is expensed as stock-based compensation over the vesting term using the straight-line recognition method for service-only awards and the accelerated basis for performance based awards with graded vesting.  In addition, we estimate the amount of expected forfeitures in calculating compensation costs for all outstanding awards.  The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods for any changes to the estimated forfeiture rate from that previously estimated.  For any vesting tranche of an award, the cumulative amount of compensation cost recognized is at least equal to the portion of the grant-date value of the award tranche that is actually vested at that date.

Total stock compensation expense recognized for the years ended December 31, 2012, 2011 and 2010 was $8.7 million, $10.5 million and $8.8 million, respectively, and has been included within salary and payroll taxes in our Consolidated Statements of Income.

Share Options

Share options activity for 2012 is summarized in the following table (in thousands, except share price and years):

Share Option Activity	Number of Options			Weighted-Average Exercise Price		Weighted- Average  Remaining Contractual Term (in years)		Aggregate Intrinsic Value (1)
Outstanding at January 1, 2012		131		$	34.00		3.7	$	1,494
Granted		--			--
Exercised		(22	)	$	25.70
Cancelled		--			--
Outstanding at December 31, 2012		109		$	35.71		2.9	$	1,371
Options exercisable at December 31, 2012		109		$	35.71		2.9	$	1,371

(1)  Represents the amount by which the fair value of shares exceed the option exercise price.

Additional information regarding options outstanding at December 31, 2012 is as follows (in thousands, except share data):

				Options Outstanding						Options Exercisable
Range of Exercisable Prices				Number Outstanding as of 12/31/12		Weighted Average Contractual Life		Weighted Average Exercise Price		Number Exercisable as of 12/31/12		Weighted Average Exercise Price
Low		High
$	14.19	$	14.19		5		0.9	$	14.19		5	$	14.19
$	20.00	$	24.95		3		1.5	$	21.00		3	$	21.00
$	25.00	$	29.95		15		1.9	$	27.24		15	$	27.24
$	30.00	$	34.99		6		2.5	$	34.14		6	$	34.14
$	35.00	$	39.95		55		3.0	$	37.49		55	$	37.49
$	40.00	$	42.97		25		3.9	$	42.97		25	$	42.97
$	14.19	$	42.97		109		2.9	$	35.71		109	$	35.71

No share options were granted during the three years ended December 31, 2012.  The total intrinsic value of share options exercised during the years ended December 31, 2012, 2011 and 2010 was $0.5 million, $1.8 million and $2.2 million, respectively.  As of December 31, 2012, there was no unrecognized compensation cost, net of estimated forfeitures, related to share options granted under the Plans.

Restricted Share Units

Restricted share units become unrestricted common shares upon vesting on a one-for-one basis.  The compensation cost of these awards is determined using the fair value of our common shares on the date of the grant and compensation expense is recognized over the service period for awards expected to vest.  Restricted share activity for 2012 is summarized in the following table (in thousands, except share price):

Restricted Share Unit Activity	Number of Awards			Weighted- Average Grant Date Fair Value
Non-vested shares at January 1, 2010		571		$	27.42
Granted		341		$	41.86
Vested		(311	)	$	26.77
Cancelled		(11	)	$	38.64
Non-vested shares at January 1, 2011		590		$	38.81
Granted		263		$	43.57
Vested		(266	)	$	35.15
Cancelled		(10	)	$	41.09
Non-vested shares at January 1, 2012		577		$	42.63
Granted		223		$	46.10
Vested		(242	)	$	41.82
Cancelled		(148	)	$	43.94
Future vesting of non-vested shares estimated at December 31, 2012		410		$	44.52

As of December 31, 2012, we had $15.2 million of total unrecognized compensation expense, net of estimated forfeitures, related to non-vested restricted share grants, which is recognized over the weighted-average period of 2.2 years after the respective dates of grant.  As of December 31, 2011, we had $20.0 million of total unrecognized compensation expense, net of estimated forfeitures, related to restricted share unit grants, which is recognized over the weighted average period of 2.4 years after the respective dates of grant.

(p)       Recent Accounting Pronouncements –

In February 2013, the FASB issued Accounting Standards Update ("ASU") 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" (ASU 2013-02). ASU 2013-02 adds new disclosure requirements for items reclassified out of accumulated other comprehensive income (AOCI), including (1) disaggregating and separately presenting changes in AOCI balances by component and (2) presenting significant items reclassified out of AOCI either on the face of the statement where net income is presented or as a separate disclosure in the notes to the financial statements. It does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements. The ASU is effective for fiscal years beginning after December 15, 2012 (and interim periods within those years), and will be applied prospectively. We do not currently anticipate that the adoption of this guidance will have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures; however, we will continue to assess through the effective date the future impact, if any, of this new accounting update to our consolidated financial statements.

In July 2012, the Financial Accounting Standards Board ("FASB") issued ASU 2012-02, "Intangibles-Goodwill and Other" (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment" ("ASU 2012-02"). ASU 2012-02 amends the guidance on testing indefinite-lived intangible assets, other than goodwill, for impairment. Under the revised guidance, entities testing an indefinite-lived intangible asset for impairment have the option of performing a qualitative assessment before calculating the fair value of the asset. If entities determine, on the basis of qualitative factors, that the likelihood of the indefinite-lived intangible asset being impaired is below a "more likely than not" threshold (i.e., a likelihood of more than 50 percent), the entity would not need to calculate the fair value of the asset. The ASU does not revise the requirement to test indefinite-lived intangible assets annually for impairment and does not amend the requirement to test these assets for impairment between annual tests if there is a change in events or circumstances. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  We currently do not anticipate that the adoption of this guidance will have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures; however, we will continue to assess through the effective date the future impact, if any, of this guidance on our financial condition.

In September 2011, the FASB issued Accounting Standards Update ("ASU") 2011-08, "Intangibles - Goodwill and Other" (Topic 350), "Testing Goodwill for Impairment" ("ASU 2011-08"). This guidance allows, but does not require, an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for the purpose of determining if detailed quantitative goodwill impairment testing is necessary. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2011.  If an entity determines, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit is below the carrying amount, the two-step impairment test would be required. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures.

In June 2011, FASB issued ASU 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05").  This guidance requires entities to report components of comprehensive income in either a continuous statement of other comprehensive income ("OCI") or two separate, but consecutive, statements. This ASU does not change the items that must be reported in OCI. We adopted ASU 2011-05 as of January 1, 2012. See our Consolidated Statements of Comprehensive Income.

In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS)." ASU 2011-04 provides a definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS and provides clarification about the application of existing fair value measurement and disclosure requirements. The ASU also expands certain other disclosure requirements, particularly pertaining to Level 3 fair value measurements.  The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations cash flows or related disclosures.

(q)        Deferred Financing Costs -

Deferred financing costs primarily relate to the costs of obtaining our former and current credit facilities and consist primarily of loan origination and other direct financing costs.  These costs are amortized using the effective interest method over the term of the related debt balances.  Such amortization is reflected as interest expense in our Consolidated Statements of Income and amounted to $1.4 million, $1.3 million and $1.6 million in 2012, 2011 and 2010, respectively.

(r)        Deferred Rent -

Deferred rent relates to tenant incentives that we have received or will receive in the future from certain lessors in connection with the build-out of our land-based spas, school campuses or Ideal Image centers.  These amounts are being amortized over the terms of the respective leases on a straight-line basis.  Amortization was $1.0 million, $1.1 million and $1.1 million in 2012, 2011 and 2010, respectively, and was included in cost of revenues in our consolidated statements of income.

(s)        Advertising Costs -

Substantially all of our advertising costs are charged to expense as incurred, except costs which result in tangible assets, such as brochures, which are recorded as prepaid expenses and charged to expense as consumed.  Advertising costs were approximately $45.4 million, $21.7 million and $16.4 million in 2012, 2011 and 2010, respectively.  Of these amounts, $36.5 million, $14.5 million and $10.0 million are included in cost of revenues in the accompanying consolidated statements of income in 2012, 2011, and 2010, respectively.  At December 31, 2012 and 2011, the amounts of advertising costs are an immaterial component of prepaid expenses and their current assets.

(t)       Contingent Rents and Scheduled Rent Increases -

Our land-based spas, generally, are required to pay rent based on a percentage of our revenues.  In addition, for certain of our land-based spas, we are required to pay a minimum rental amount regardless of whether such amount would be required to be paid under the percentage rent agreement.  Rent escalations are recorded on a straight-line basis over the terms of the lease agreements.  We record contingent rent at the time it becomes probable it will exceed the minimum rent obligation per the lease agreements.  Previously recognized rental expense is reversed into income at such time that it is not probable that the specified target will be met.

(u)       Seasonality -

A significant portion of our revenues are generated from our cruise ship spa operations.  Certain cruise lines, and, as a result, Steiner Leisure, have experienced varying degrees of seasonality as the demand for cruises is stronger in the Northern Hemisphere during the summer months and during holidays.  Accordingly, generally the third quarter and holiday periods result in the highest revenue yields for us.  Historically, the revenues of Ideal Image were weakest during the third quarter and, if this trend continues, this could offset to some extent the strength of our shipboard operations during the summer months.  Our product sales are strongest in the third and fourth quarters as a result of the December holiday shopping period.  Operating costs do not fluctuate as significantly on a quarterly basis, except for school admissions and advertising expenses, which are typically higher during the second quarter and third quarter in support of seasonally high enrollment.

(v)       Shipping and Handling -

Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through cost of sales as inventories are sold.  Shipping and handling costs associated with the delivery of products is included in selling, general and administrative expenses.  Shipping and handling costs included in selling, general and administrative expenses amounted to $2.8 million, $2.9 million and $2.2 million for the years ended December 31, 2012, 2011 and 2010, respectively.