Sally Beauty Supply 2011 Annual Report Download - page 56

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maintaining the reliability and integrity of our systems and infrastructure. The expansion of our
systems and infrastructure will require us to commit substantial financial, operational and technical
resources in advance of any increase in the volume of our business, with no assurance that the
volume of business will increase. For example, we are in the process of designing and implementing
a standardized enterprise resource planning (‘‘ERP’’) system internationally, which we anticipate
will be completed over the next few years. In addition, we are currently implementing a
point-of-sale system upgrade program in a number of our divisions (primarily in our Sally Beauty
Supply operations in the U.S.), which we anticipate will provide significant benefits, including
enhanced tracking of customer sales and store inventory activity. These and any other required
upgrades to our information systems and information technology (or new technology), now or in the
future, will require that our management and resources be diverted from our core business to assist
in completion of these projects. Many of our systems are proprietary, and as a result our options are
limited in seeking third-party help with the operation and upgrade of those systems. There can be
no assurance that the time and resources our management will need to devote to these upgrades,
service outages or delays due to the installation of any new or upgraded technology (and customer
issues therewith), or the impact on the reliability of our data from any new or upgraded technology
will not have a material adverse effect on our financial reporting, business, financial condition or
results of operations. Please see ‘‘Risk Factors—We may be adversely affected by any disruption in
our information technology systems.’’
Significant Recent Acquisitions
On November 1, 2011, the Company acquired Kappersservice Floral B.V. and two related companies (the
‘‘Floral Group’’) for approximately A22.5 million (approximately $30.8 million), subject to certain
adjustments. The Floral Group is a 19-store distributor of professional beauty products based in
Eindhoven, the Netherlands. The acquisition will be accounted for using the purchase method of
accounting and, accordingly, the results of operations of the Floral Group will be included in the
Company’s consolidated financial statements subsequent to the acquisition date. The acquisition was
funded with cash from operations and with borrowings on our ABL credit facility in the amount of
approximately $17.0 million.
On October 1, 2010, we acquired Aerial, an 82-store professional-only distributor of beauty products
operating in 11 states in the midwestern United States, for approximately $81.8 million. The acquisition
was accounted for using the purchase method of accounting and the results of operations of Aerial are
included in our consolidated financial statements subsequent to the acquisition date. The assets acquired
and liabilities assumed, including intangible assets subject to amortization of $34.7 million, were recorded
at their respective fair values at the acquisition date and goodwill of $25.3 million (which is expected to be
deductible for tax purposes) was recorded as a result of this acquisition. The acquisition of Aerial was
funded with borrowings in the amount of $78.0 million under the prior ABL credit facility (which have
since been paid in full) and with cash from operations. In addition, during the fiscal year 2011, we
completed several other individually immaterial acquisitions at an aggregate cost of approximately
$5.0 million and recorded additional goodwill in the amount of $4.3 million (the majority of which is
expected to be deductible for tax purposes) in connection with such acquisitions. Generally, we funded
these acquisitions with cash from operations. The valuation of the assets acquired and liabilities assumed in
connection with these acquisitions was based on their fair values at the acquisition date.
During the fiscal year 2010, we acquired Sinelco, a wholesale distributor of professional beauty products
based in Ronse, Belgium, for approximately A25.2 million (approximately $36.6 million). We also assumed
A4.0 million (approximately $5.8 million) of pre-acquisition debt, excluding capital lease obligations, of
Sinelco in connection with the acquisition. Sinelco serves over 1,500 customers through a product catalog
and website and has sales throughout Europe. Goodwill of $5.2 million (which is not expected to be
deductible for tax purposes) was recorded as a result of this acquisition. In addition, during the fiscal year
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