Sally Beauty Supply 2006 Annual Report Download - page 55

Table of Contents
our debt service obligations and other capital requirements, including capital expenditures, will depend upon our future performance
which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many
of which are beyond our control.
There can be no assurance that our business will generate sufficient cash flows from operations, that anticipated net sales growth and
operating improvements will be realized or that future borrowings will be available under the ABL facility in an amount sufficient to
enable us to service our indebtedness or to fund our other liquidity needs. In addition, our ability to meet our debt service obligations
and liquidity needs are subject to certain risks, which include, but are not limited to, restrictions on our ability to issue public or
private equity for at least two years after our separation from Alberto-Culver, increases in competitive activity, the loss of key
suppliers, rising interest rates, the loss of key personnel, the ability to execute our business strategy and general economic conditions.
As a holding company, we will depend on our subsidiaries, including Sally Holdings, to distribute funds to us so that we may pay our
obligations and expenses. The ability of our subsidiaries to make such distributions will be subject to their operating results, cash
requirements and financial condition and their compliance with covenants and financial ratios related to their existing or future
indebtedness, including covenants restricting Sally Holdings’ ability to pay dividends to us. In addition, under Delaware law, the
ability of each of Sally Holdings and its subsidiaries to make distributions to us will be limited to the extent (a) of its surplus, or if
there is no surplus, of its net profits for the fiscal year in which the distribution is declared and/or the preceding fiscal year, if such
subsidiary is a corporation, or (b) the fair value of its assets exceeds its liabilities, in the case of Sally Holdings or such subsidiary that
is a limited liability company. If, as a consequence of these limitations, we cannot receive sufficient distributions from our
subsidiaries, we may not be able to meet our obligations to fund general corporate expenses or pay cash dividends to our stockholders.
See “Risk Factors—Risks Relating to Our Substantial Indebtedness.”
Contractual Obligations
Our primary contractual cash obligations have historically been operating leases, notes payable to affiliated companies and purchase
obligations. The majority of our operating leases are for Sally Beauty Supply and BSG stores, which typically are located in strip
shopping centers. The use of operating leases allows us to expand our business to new locations without making significant up-front
cash outlays for the purchase of land and buildings.
The following table is a summary of our contractual cash obligations and commitments outstanding by future payment dates at
September 30, 2006 (dollars in thousands):
Payments Due by Period
Less than
1
More than
5
year 1-3 years 3-5 years years Total
Long-term debt, including interest
obligations(1) $ 544 $ 572 $ 79 $
—
$ 1,195
Operating leases(2) 103,624 153,778 80,556 59,490 397,448
Purchase obligations(3) 16,003 32,006 32,006 14,670 94,685
Other long-term obligations(4) 13,386 5,908 2,934
—
22,228
Total $ 133,557 $ 192,264 $ 115,575 $ 74,160 $ 515,556
(1)
Long-term debt includes amounts owed to affiliated companies and capital leases.
(2)
In accordance with GAAP, these obligations are not reflected in the accompanying consolidated balance sheets.
(3)
Purchase obligations reflect legally binding agreements entered into by us to purchase goods that specify minimum quantities to be
purchased with variable price provisions. In accordance with GAAP, these obligations are not reflected in the accompanying consolidated
balance sheets.
(4)
Other long-term obligations principally represent commitments under various acquisition-related agreements including non-compete,
consulting and severance agreements and deferred compensation arrangements. These obligations are included in accrued expenses and
other liabilities in the accompanying consolidated balance sheets.
Our contractual cash obligations will be substantially changed as a result of the transaction separating us from Alberto-Culver. Under
the terms of the investment agreement, through our subsidiaries we incurred approximately $1.85 billion of new debt. Our subsidiaries
have material contractual cash obligations related to the principal and
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