Sally Beauty Supply 2006 Annual Report Download - page 25

Table of Contents
The occurrence of one or more natural disasters or acts of terrorism could adversely affect our operations and financial
performance.
The occurrence of one or more natural disasters or acts of terrorism could result in physical damage to one or more of our properties,
the temporary closure of stores or distribution centers, the temporary lack of an adequate work force in a market, the temporary or
long term disruption in the supply of products from some local suppliers, the temporary disruption in the delivery of goods to our
distribution centers, the temporary reduction in the availability of products in our stores and/or the temporary reduction in visits to
stores by customers.
If one or more natural disasters or acts of terrorism were to impact our business, we could, among other things, incur significantly
higher costs and longer lead times associated with distributing products to stores. Furthermore, insurance costs associated with our
business may rise significantly in the event of a large scale natural disaster or act of terrorism.
Risks Relating to Our Substantial Indebtedness
We have substantial debt and may incur substantial additional debt, which could adversely affect our financial health and our
ability to obtain financing in the future and our ability to react to changes in our business.
In connection with our separation from Alberto-Culver, certain of our subsidiaries, including Sally Holdings LLC, which we refer to
as Sally Holdings and which was, prior to our separation from Alberto-Culver, a wholly-owned subsidiary of Alberto-Culver, incurred
approximately $1.85 billion in debt. As of September 30, 2006, on a pro forma basis, we would have had an aggregate principal
amount of approximately $1.85 billion of outstanding debt and a total debt to equity ratio of 1.84:1.00.
Our substantial debt could have important consequences to you. For example, it could:
• make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and
acceleration of such indebtedness;
• limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt
service requirements, acquisitions or general corporate purposes;
• require us to dedicate a substantial portion of our cash flow from operations to the payment of principal and
interest on our indebtedness, thereby reducing the availability of such cash flows to fund working capital,
capital expenditures and other general corporate purposes;
• 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
p
revent 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.
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