Sally Beauty Supply 2007 Annual Report Download - page 56

Description of Sales and Expenses
Net Sales. Our net sales consist primarily of the following:
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Sally Beauty Supply. Sally Beauty Supply generates net sales primarily by selling products through its stores to both professional and retail
customers. Sally Beauty Supply sells hair care, hair color, skin and nail care products, electrical appliances and other beauty related
accessories. Because approximately 40% of our U.S. Sally Beauty Supply product sales come from exclusive or control label brands, most
of these same products are generally not sold in most other retail stores and are not sold in our BSG business. Various factors influence
Sally Beauty Supply's net sales including local competition, product assortment and availability, price, hours of operation and marketing
and promotional activity. Sally Beauty Supply's product assortment and sales are generally not seasonal in nature.
•
Beauty Systems Group. BSG generates net sales by selling products to salon professionals and independent stylists through company-owned
and franchised stores as well as through its network of professional distributor sales consultants. BSG sells hair care, hair color products,
skin and nail care products, electrical appliances and other beauty related accessories. These products are not sold directly to the general
public and are generally not the same products as those sold in our Sally Beauty Supply stores. Various factors influence BSG's net sales,
including product breadth and availability, competitive activity, relationships with suppliers, new product introductions and price. BSG's
product assortment and sales are generally not seasonal in nature.
Cost of Products Sold and Distribution Expenses. Cost of products sold and distribution expenses consist of the cost to purchase merchandise from suppliers,
less rebates and allowances, and certain overhead expenses including purchasing costs, freight from distribution centers to stores and handling costs in the
distribution centers. Cost of products sold and distribution expenses are also affected by store inventory shrinkage, which represents products that are lost, stolen
or damaged at the store level.
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of personnel costs, commissions paid to
professional distributor sales consultants, benefits, utilities, property maintenance, advertising, rent, insurance, freight and distribution expenses for delivery to
customers, administrative costs and costs associated with our corporate support center.
Sales-based Service Fee. Prior to the Separation Transactions, we were charged a sales-based service fee under the consulting, business development and
advisory services agreement between certain of our subsidiaries and Alberto-Culver. In conjunction with the Separation Transactions, the arrangements giving
rise to this fee from Alberto-Culver were terminated and the related charges have ceased. We believe that had we been a stand-alone company, we would have
not incurred a comparable expense.
Transaction Expenses. For fiscal year 2007, transaction expenses are costs associated with the Separation Transactions and are primarily payments to
Alberto-Culver as defined in the separation agreements. In addition, we recognized severance costs for two executives and certain professional fees related to the
Separation Transactions. For fiscal year 2006, transaction expenses are related to the termination of the agreement with Regis that called for us to merge with a
subsidiary of Regis in a tax-free transaction. This proposed transaction was terminated in April 2006 and we expensed approximately $41.5 million
($27.2 million after taxes) in fees associated with the termination.
Net Interest Expense. Net interest expense includes the amortization of deferred debt issuance costs, and is stated net of interest income. For the fiscal year
2007, net interest expense is primarily associated with debt incurred in connection with the Separation Transactions. Prior to the Separation Transactions, net
interest expense was primarily attributable to notes with affiliates.
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Source: Sally Beauty Holding, 10-K, November 29, 2007