Sally Beauty Supply 2006 Annual Report Download - page 21

Table of Contents
BSG stores and by its distributor sales consultants to negatively impact our consolidated revenue by approximately $110 million
during the last nine months of our 2007 fiscal year. This number includes anticipated ancillary impact on revenue from other products
that may be indirectly affected by these developments. We cannot assure you that the impact of these developments will not adversely
impact revenue to a greater degree than we currently expect, or that our efforts to mitigate the impact of these developments will be
successful. If the impact of these developments is greater than we expect or our efforts to mitigate the impact of these developments
are not successful, this could have a material adverse effect on our business, financial condition or results of operations.
Manufacturers and fillers of beauty supply products are subject to certain risks that could adversely impact their ability to provide us
with their products on a timely basis, including industrial accidents, environmental events, strikes and other labor disputes, union
organizing activity, disruptions in logistics or information systems, loss or impairment of key manufacturing sites, product quality
control, safety, and licensing requirements and other regulatory issues, as well as natural disasters and other external factors over
which neither they nor we have control. In addition, our operating results depend to some extent on the orderly operation of our
receiving and distribution process, which depends on manufacturers’ adherence to shipping schedules and our effective management
of our distribution facilities and capacity.
If a material interruption of supply occurs, or a significant supplier ceases to supply us or materially decreases its supply to us, we
may not be able to acquire products with similar quality and consumer brand name recognition as the products we currently sell, or
acquire such products in sufficient quantities to meet our customers’ demands or on favorable terms to our business, any of which
could adversely impact our business, financial condition and results of operations.
We do not control the production process for the brand name and private label products we sell. In many cases, we rely on
representations of manufacturers and fillers about the products we purchase for resale regarding whether such products have been
manufactured in accordance with applicable governmental regulations. We may not be able to identify a defect in a product we
purchase from a manufacturer or filler before we offer such product for resale, which could result in fines or other actions by
government regulators, product liability claims, product recalls, harm to our credibility, impairment of customer relationships or a
decrease in the market acceptance of brand names, any of which could adversely affect our business, financial condition and results of
operations.
If products sold by us are found to be defective in labeling or content, our credibility and that of the brands we sell may be
harmed, market acceptance of our products may decrease and we may be exposed to liability in excess of our products liability
insurance coverage and manufacturer indemnities.
Our sale of certain products exposes us to potential product liability claims, recalls or other regulatory or enforcement actions
initiated by federal, state or foreign regulatory authorities or through private causes of action. Such claims, recalls or actions could be
based on allegations that, among other things, the products sold by us are misbranded, contain contaminants, provide inadequate
instructions regarding their use or misuse, or include inadequate warnings concerning flammability or interactions with other
substances. Claims against us could also arise as a result of the misuse by purchasers of such products or as a result of their use in a
manner different than the intended use. We may be required to pay for losses or injuries actually or allegedly caused by the products
we sell and to recall any product we sell that is alleged to be or is found to be defective.
Any actual defects or allegations of defects in products sold by us could result in adverse publicity and harm our credibility, which
could adversely affect our business, financial condition and results of operations. Although we may have indemnification rights
against the manufacturers of many of the products we distribute and rights as an “additional insured” under the manufacturer’ s
insurance policies, it is not certain that any individual manufacturer or insurer will be financially solvent and capable of making
payment to any party suffering loss or injury caused by products sold by us. Further, some types of actions and penalties, including
many actions or penalties imposed by governmental agencies and punitive damages awards, may not be remediable through reliance
on indemnity agreements or insurance. Furthermore, potential product liability claims may exceed the amount of indemnity or
insurance coverage or be excluded under the terms of an indemnity agreement or insurance policy. If we are forced to pay to satisfy
such claims, it could have an adverse effect on our business, financial condition and results of operations.
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