Sally Beauty Supply 2006 Annual Report Download - page 45

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Table of Contents
sales made to retail customers (since such sales are at a higher gross profit margin than those made to salons and salon professionals)
and with an increase in sales of private label products.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses increased $33.3 million, or 4.2%, to $822.7 million for the year ended
September 30, 2006 compared to $789.4 million for the same period in 2005. These expenses, as a percentage of net sales, were
34.7% for the year ended September 30, 2006 compared to 35.0% for the prior year period. The increase in expense is primarily
attributable to selling and administrative costs associated with the growth of the Sally Beauty Supply and BSG businesses, including
$9.0 million of selling and administrative costs from the acquired CosmoProf business and $3.3 million of costs from Salon Success,
along with $5.2 million of stock option expense recognized pursuant to SFAS No. 123 (R) and costs related to our corporate support
facility.
Corporate Charges From Alberto-Culver
Corporate charges from Alberto-Culver, which include charges for administrative services and a sales-based service fee, increased
$1.5 million, or 3.7%, to $42.4 million for the year ended September 30, 2006 compared to $40.9 million for the same period in 2005.
Charges for administrative services were $13.5 million in fiscal year 2006 versus $13.3 million in fiscal year 2005. The sales-based
service fee amounted to $28.9 million and $27.6 million in fiscal years 2006 and 2005, respectively. Following our separation from
Alberto-Culver, the arrangements giving rise to the corporate charges from Alberto-Culver were terminated and the related charges
have ceased.
Other Expenses
Other expenses for the year ended September 30, 2006 include expenses related to the terminated transaction with Regis and the
transactions separating us from Alberto-Culver. In accordance with the terms of the related transaction agreements, Alberto-Culver
allocated to our business $41.5 million in transaction expenses for the year ended September 30, 2006 representing our share of the
termination fee paid to Regis and legal, investment banking and other fees and expenses related to the transactions. Other expenses for
the year ended September 30, 2005 include $4.1 million in non-cash charges related to Alberto-Culver’ s conversion to one class of
common stock. See “—Overview—Other Significant Items—Alberto-Culver’ s Conversion to One Class of Common Stock.”
Operating Earnings
Consolidated operating earnings decreased by $12.4 million, or 6.4%, to $180.2 million for the year ended September 30, 2006
compared to $192.6 for the same period in 2005. Operating earnings, as a percentage of net sales, were 7.6% for the year ended
September 30, 2006 compared to 8.5% for the same period in 2005. The decrease in consolidated operating earnings was primarily
due to the allocation to our business by Alberto-Culver of $41.5 million of expenses related to the terminated Regis transaction and the
transactions described in “—Overview—Our Separation from Alberto-Culver”. We do not allocate these expenses to our operating
segments and these expenses are not reflected in the segment operating profit of Sally Beauty Supply and BSG discussed below.
Sally Beauty Supply. As a result of the foregoing, Sally Beauty Supply’ s segment operating profit increased $20.1 million, or 11.9%,
to $188.8 million for the year ended September 30, 2006 compared to $168.7 million for the same period in 2005. Segment operating
profit, as a percentage of net sales, was 13.3% for the year ended September 30, 2006 compared to 12.4% for the same period in 2005.
Beauty Systems Group. As a result of the foregoing, BSG’ s segment operating profit increased $11.3 million, or 20.3%, to
$66.9 million for the year ended September 30, 2006 compared to $55.6 million for the same period in 2005. Segment operating
profit, as a percentage of net sales, was 7.0% for the year ended September 30, 2006 compared to 6.2% to the same period in 2005.
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