Sally Beauty Supply 2007 Annual Report Download - page 49

same L'Oreal professional products in its stores that it previously had exclusive rights to in its stores and through its sales consultants. Armstrong McCall
retained its exclusive rights to distribute Matrix professional products in its territories.
We plan to mitigate the negative effects resulting from unfavorable changes in our relationships with suppliers, such as L'Oreal, by taking the following steps:
(i) adding new products to replace lines with our distributor sales consultants; (ii) adding new product lines to our BSG stores; (iii) expanding existing product
lines into new territories; and (iv) managing costs to maximize the efficiency of the BSG structure (in fiscal year 2007 we undertook a right-sizing of the BSG
business, including some targeted reductions-in-force). Although we are focused on developing new revenue and cost management initiatives, there can be no
assurance that our efforts will partially or completely offset the loss of these distribution rights. In addition, BSG's loss of distribution rights through its
distributor sales consultants, as well as the loss of exclusive rights to distribute L'Oreal products in its stores, has resulted in margin pressure on BSG's remaining
L'Oreal revenues. See "Risk Factors—We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to
continue to supply products to us."
Regarding other suppliers, BSG continues to expand the P&G Professional Care product lines including Wella, Sebastian and Graham Webb into additional
geographies for BSG stores and distributor sales consultants. Additionally, during fiscal year 2007, our expansion of the BSG segment included the acquisition of
certain assets, and the award of distribution rights, which allow us to distribute Goldwell/KMS products and Paul Mitchell products in various markets, as well as
a number of other brands. We expect to gain certain other distribution rights over time through either further awards, or by acquisitions of existing distributors.
Recent Acquisitions
On February 15, 2007, we entered into and completed an Agreement for the Sale and Purchase of the Entire Issued Share Capital of Chapelton 21 Limited, or the
Agreement, a private company limited by shares and incorporated in Scotland, which we refer to as Salon Services, by and among Ogee Limited, an indirect
subsidiary of ours, and the registered shareholders of Salon Services. This acquisition provided the Sally Beauty Supply segment a strong European presence.
Pursuant to the Agreement, we acquired all of the issued share capital of Salon Services for an aggregate cash purchase price of approximately $57.7 million.
Certain of our subsidiaries financed the purchase price through a draw down of approximately $57.0 million under our ABL facility. In addition, we extinguished
approximately $3.9 million of Salon Services' debt. Salon Services, through its direct and indirect subsidiaries including Salon Services (Hair and Beauty
Supplies) Ltd., supplies professional hair and beauty products primarily to salon and spa operators and independent hair and beauty professionals in the U.K.,
Germany, Ireland, Spain and Norway.
In addition, during June 2006, we acquired Salon Success, a U.K. based distributor of professional beauty products in order to expand BSG's presence in the
U.K. and expand the geographic area served by BSG into other portions of Europe. This acquisition enabled BSG to enter new markets in Europe, including the
U.K., Spain and the Netherlands and to expand its operations in Florida. The total purchase price as of September 30, 2007, was approximately $23.2 million. In
accordance with the purchase agreement, additional consideration of up to $2.1 million, plus interest, may be paid over the three year period following the
closing of the acquisition based on sales to a specific customer. As of September 30, 2007, approximately $1.2 million has been paid pursuant to this agreement.
Our Separation from Alberto-Culver
Our business historically constituted two operating segments within the consolidated financial statements of Alberto-Culver. On November 16, 2006, we
separated from Alberto-Culver, pursuant to the Investment
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Source: Sally Beauty Holding, 10-K, November 29, 2007