Sally Beauty Supply 2006 Annual Report Download - page 48

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Table of Contents
Net Interest Expense
Interest expense, net of interest income, was $3.0 million and $2.3 million for the years ended September 30, 2005 and 2004,
respectively. Interest expense increased $0.7 million to $4.1 million for the year ended September 30, 2005 compared to $3.4 million
for the same period in 2004. Interest expense is primarily related to notes payable to affiliated companies which were obtained to
finance acquisitions and international operations. The increase in interest expense was primarily due to higher outstanding balances of
notes payable to affiliated companies during fiscal year 2005. These expenses were partially offset by interest income of $1.1 million
and $1.2 million for the years ended September 30, 2005 and 2004, respectively.
Provision for Income Taxes
Provision for income taxes was $73.2 million during the year ended September 30, 2005 compared to $62.1 million for the same
period of 2004. The increased provision for income taxes for the year ended September 30, 2005 was principally the result of higher
earnings before provision for income taxes in fiscal year 2005. The effective tax rate was 38.6% in fiscal 2005 and 37.1% in fiscal
2004. The increase in the effective tax rate was primarily related to a change in the mix of earnings from foreign operations and higher
state income taxes.
Net Earnings
As a result of the foregoing, consolidated net earnings increased $11.2 million, or 10.6%, to $116.5 million for the year ended
September 30, 2005 compared to $105.3 million for the same period in 2004. Net earnings, as a percentage of net sales, were 5.2% for
the year ended September 30, 2005 compared to 5.0% for the year ended September 30, 2004. The non-cash charge from Alberto-
Culver’ s conversion to one class of common stock reduced net earnings by $2.6 million in fiscal 2005 and $17.6 million in fiscal
2004. See “—Overview—Other Significant Items—Alberto-Culver’ s Conversion to One Class of Common Stock.” Net earnings in
fiscal 2005 were also reduced by $1.2 million related to the lease accounting adjustment. See “—Overview—Other Significant
Items—Lease Accounting.”
Comparison of the Years Ended September 30, 2004 and 2003
Net Sales
Consolidated net sales increased $273.7 million, or 15.0%, to $2,097.7 million for the year ended September 30, 2004 compared to
$1,824.0 million for the same period in 2003. This increase was primarily due to acquisitions, which accounted for 8.7% of the
revenue growth, comparable store sales growth of 4.6% and the opening of new stores, including 109 net new stores opened during the
period. In addition, the effect of changes in foreign exchange rates increased net sales for the year ended September 30, 2004 by 1.2%.
Sally Beauty Supply. Net sales for Sally Beauty Supply increased $88.2 million, or 7.3%, to $1,296.1 million for the year ended
September 30, 2004 compared to $1,207.9 million for the same period in 2003. The higher net sales in fiscal year 2004 were
attributable to a 3.2% increase resulting from the opening of new stores, including 83 net new stores opened during the period,
comparable store sales growth of 3.8% and a 1.1% positive effect of foreign exchange rates.
Beauty Systems Group. Net sales for BSG increased $185.5 million, or 30.1%, to $801.6 million for the year ended September 30,
2004 compared to $616.1 million for the same period in 2003. This improvement in net sales resulted primarily from the acquisition of
West Coast in the first quarter of fiscal year 2004 which increased net sales by 25.6%. In addition, net sales increased 1.5% as the
result of the opening of new stores, including 26 net new stores opened during the period, comparable store sales growth was 8.5%
and changes in foreign exchange rates increased net sales by 1.2%. These increases for fiscal year 2004 were partially offset by lower
sales by BSG’ s professional distributor sales consultants as salon professionals shifted some of their purchases from sales consultants
to BSG stores.
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