Sally Beauty Supply 2011 Annual Report Download - page 40

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• increase our vulnerability to general adverse economic and industry conditions, including interest
rate fluctuations (because a portion of our borrowings are at variable rates of interest), including
borrowings under our senior secured term loan facilities and our asset-backed senior secured loan
facility, which we refer to collectively as the senior secured credit facilities;
• place us at a competitive disadvantage compared to our competitors with proportionately less debt
or comparable debt at more favorable interest rates and that, as a result, may be better positioned
to withstand economic downturns;
• limit our ability to refinance indebtedness or cause the associated costs of such refinancing to
increase; and
• limit our flexibility to adjust to changing market conditions and ability to withstand competitive
pressures, or prevent us from carrying out capital spending that is necessary or important to our
growth strategy and efforts to improve operating margins or our business.
Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our
business, financial condition and results of operations.
Despite our current indebtedness levels, we and our subsidiaries may be able to incur substantially more debt,
including secured debt, which could further exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may incur substantial additional indebtedness in the future. The terms of the
instruments governing our indebtedness do not fully prohibit us or our subsidiaries from doing so. As of
September 30, 2011, our senior credit facilities provided us commitments for additional borrowings of up
to approximately $366.5 million under the asset-backed senior secured loan (or ABL) facility, subject to
borrowing base limitations. If new debt is added to our current debt levels, the related risks that we face
would increase, and we may not be able to meet all our debt obligations. In addition, the agreements
governing our senior credit facilities as well as the indentures governing our senior notes and senior
subordinated notes, which we refer to collectively as the Notes, do not prevent us from incurring
obligations that do not constitute indebtedness.
The agreements and instruments governing our debt contain restrictions and limitations that could significantly
impact our ability to operate our business.
The senior secured term loan facilities, which we refer to as the Term Loans, contain covenants that,
among other things, restrict Sally Holdings and its subsidiaries’ ability to:
• dispose of assets;
• incur additional indebtedness (including guarantees of additional indebtedness);
• pay dividends, repurchase stock or make other distributions;
• make voluntary prepayments on the Notes or make amendments to the terms thereof;
• prepay certain other debt or amend specific debt agreements;
• create liens on assets;
• make investments (including joint ventures);
• make acquisitions of all of the business or assets of, or stock representing beneficial ownership of,
any person;
• engage in mergers, consolidations or sales of all or substantially all of Sally Holdings’ assets;
• engage in certain transactions with affiliates; and
• permit restrictions on Sally Holdings subsidiaries’ ability to pay dividends to Sally Holdings.
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