Sally Beauty Supply 2007 Annual Report Download - page 58

compensation expense, compared to $5.2 million for fiscal year 2006. Share-based compensation expense for fiscal year 2007 includes $2.6 million of
accelerated expenses related to certain retirement eligible employees who are eligible to continue vesting awards upon retirement under the terms of the 2007
Omnibus Incentive Plan, and $5.3 million of expenses related to early vesting of equity awards as a result of the Separation Transactions.
Depreciation and Amortization
Consolidated depreciation and amortization increased $4.6 million, or 12.1%, to $42.6 million for fiscal year 2007 compared to $38.0 million for the same
period in 2006, primarily due to the addition of assets associated with acquisitions and the unit growth of the Sally Beauty Supply and BSG businesses.
Sales-based Service Fee Charged by Alberto-Culver
The sales-based service fee charged to us by Alberto-Culver declined to $3.8 million for fiscal year 2007 from $28.9 million for fiscal year 2006 due to the
cancellation of the consulting, business development and advisory services agreement between certain of our subsidiaries and Alberto-Culver in connection with
the Separation Transactions.
Other Expenses
During fiscal year 2007 we recorded $21.5 million in expenses related to the Separation Transactions. These expenses were for fees allocated to us by
Alberto-Culver and for the severance payments to Mr. Renzulli, former Chairman of Sally Holdings, Inc, as called for in the separation agreement from
Alberto-Culver, of approximately $20.0 million, as well as severance payments to Mr. Robinson, our former Chief Financial Officer and Treasurer, prior to his
retirement, of approximately $0.9 million, and for other professional fees. During fiscal year 2006, we recorded $41.5 million in expenses related to the
terminated transaction with Regis.
Operating Earnings
Consolidated operating earnings increased by $48.4 million, or 26.9%, to $228.6 million for fiscal year 2007 compared to $180.2 million for the same period in
2006. Operating earnings, as a percentage of net sales, were 9.1% for fiscal year 2007 compared to 7.6% for the same period in 2006. The increase in
consolidated operating earnings was primarily due to the cancellation of the consulting, business development and advisory services agreement between certain
of our subsidiaries and Alberto-Culver in connection with the Separation Transactions, and the expenses incurred as a result of the Separation Transactions being
less than the expenses we recognized in 2006 related to the proposed but terminated Regis transaction. We do not allocate these expenses to our operating
segments and these expenses are not reflected in the segment operating earnings of Sally Beauty Supply and BSG discussed below.
Sally Beauty Supply. Sally Beauty Supply's segment operating earnings increased $38.0 million, or 16.1%, to $273.4 million for fiscal year 2007 compared to
$235.4 million for the same period in 2006. Segment operating earnings, as a percentage of net sales, was 17.4% for fiscal year 2007 compared to 16.6% for the
same period in 2006. Sally Beauty Supply operating earnings were positively impacted by additional earnings from the Salon Services acquisition, growth in the
number of stores, same store sales increases along with sales growth in certain merchandise categories, operating expense controls, as well as a gross margin
improvement. Operating earnings margins improvements at our Sally Beauty Supply U.S. based business were partially offset by a greater weighing of
international based earnings that typically carry lower operating earnings margins.
Beauty Systems Group. BSG's segment operating earnings decreased $23.8 million, or 26.9%, to $64.6 million for fiscal year 2007 compared to $88.4 million
for the same period in 2006, in part, due to an increase of approximately $8.6 million in selling, general and administrative expenses related to the closure
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Source: Sally Beauty Holding, 10-K, November 29, 2007