Sally Beauty Supply 2011 Annual Report Download - page 108

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Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Fiscal Years ended September 30, 2011, 2010 and 2009
1. Description of Business and Basis of Presentation
Description of Business
Sally Beauty Holdings, Inc. and its consolidated subsidiaries (‘‘Sally Beauty’’ or ‘‘the Company’’) sell
professional beauty supplies, primarily through its Sally Beauty Supply retail stores in the U.S., Puerto
Rico, Canada, Mexico, Chile, the United Kingdom, Ireland, Belgium, France, Germany and Spain.
Additionally, the Company distributes professional beauty products to salons and professional
cosmetologists through its Beauty Systems Group (‘‘BSG’’) store operations and a commissioned direct
sales force that calls on salons primarily in the U.S., Puerto Rico, Canada, the United Kingdom and certain
other countries in Europe, and to franchises in the southern and southwestern regions of the U.S., and in
Mexico through the operations of its subsidiary Armstrong McCall, L.P. (‘‘Armstrong McCall’’). Certain
beauty products sold by BSG and Armstrong McCall are sold under exclusive territory agreements with the
manufacturers of the products.
Sally Beauty Holdings, Inc. was formed in June of 2006 in connection with our November 2006 separation
from the Alberto-Culver Company (‘‘Alberto-Culver’’). In these financial statements and elsewhere in this
Annual Report on Form 10-K, we refer to the transactions related to our separation from Alberto-Culver
as the Separation Transactions. In connection with the Separation Transactions, CDRS Acquisition LLC
(‘‘CDRS’’), a limited liability company organized by Clayton, Dubilier & Rice Fund VII, L.P., invested
$575.0 million in exchange for an equity ownership of approximately 48% of the outstanding common
stock of the Company on an undiluted basis. At September 30, 2011, CDRS owned approximately 47% of
our outstanding common stock on an undiluted basis. In addition, the Company incurred approximately
$1,850.0 million of new long-term debt in connection with the Separation Transactions.
Basis of Presentation
The consolidated financial statements included herein have been prepared in accordance with accounting
principles generally accepted in the United States of America (‘‘GAAP’’). These consolidated financial
statements include the operations of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Certain amounts for prior fiscal years have been reclassified to conform to the current year’s presentation.
All references in these notes to ‘‘management’’ are to the management of Sally Beauty.
2. Significant Accounting Policies
The preparation of financial statements in conformity with GAAP requires us to interpret and apply
accounting standards and to develop and follow accounting policies consistent with such standards. The
following is a summary of the significant accounting policies used in preparing the Company’s consolidated
financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and
disclosures of contingent liabilities in the financial statements. Our most significant estimates relate to: the
valuation of inventory, vendor concessions, retention of risk, income taxes, the assessment of long-lived
assets and intangible assets for impairment, and share-based payments. The level of uncertainty in
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