Sally Beauty Supply 2011 Annual Report Download - page 126

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Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Fiscal Years ended September 30, 2011, 2010 and 2009
Contingencies
Legal Proceedings
There were no material legal proceedings pending against the Company or its subsidiaries, as of
September 30, 2011. The Company is involved in various claims and lawsuits incidental to the conduct of
its business in the ordinary course. The Company does not believe that the ultimate resolution of these
matters will have a material adverse impact on its consolidated financial position, statements of earnings or
cash flows.
On June 2, 2011, we disclosed in a Current Report on Form 8-K that the Company’s BSG and Armstrong
McCall subsidiaries, certain franchisees of Armstrong McCall, certain other individual defendants and
L’Oreal USA S/D, Inc. (along with L’Oreal’s subsidiary Maly’s West) (‘‘L’Oreal’’), executed an agreement
(the ‘‘Settlement Agreement’’) settling the litigation initially brought by L’Oreal on February 21, 2008
against certain Armstrong McCall franchisees alleging breach of contract and other claims related to the
distribution agreement between Armstrong McCall and L’Oreal concerning Matrix branded products.
Armstrong McCall and Michael Voticky were added as defendants by L’Oreal on July 27, 2009.
Pursuant to the Settlement Agreement, the Company and L’Oreal have agreed a) to terminate their
existing agreement to distribute Matrix branded products through Armstrong McCall and its franchisees;
b) to enter into a new five-year agreement to distribute Matrix branded products through Armstrong
McCall and its franchisees; and c) to an exchange of financial and other consideration. In connection with
the settlement, the litigation was dismissed with prejudice and the parties entered into a mutual release of
all claims asserted in the litigation.
Other Contingencies
The Company provides healthcare benefits to most of its full-time employees. The Company is largely
self-funded for the cost of the healthcare plan (including healthcare claims), other than certain fees and
out-of-pocket amounts paid by the employees. In addition, the Company retains a substantial portion of
the risk related to certain workers’ compensation, general liability, and automobile and property insurance.
The Company records an estimated liability for the ultimate cost of claims incurred and unpaid as of the
balance sheet date. The estimated liability is included in accrued liabilities (current portion) and other
liabilities (long-term portion) in our consolidated balance sheets. The Company carries insurance coverage
in such amounts in excess of its self-insured retention which management believes to be reasonable.
Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, penalties and other
sources are recorded when it is probable that a liability has been incurred and the amount of the
assessment can be reasonably estimated. The Company has no significant liabilities for loss contingencies
at September 30, 2011 and 2010.
F-26