Sally Beauty Supply 2007 Annual Report Download - page 61

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operating earnings was primarily due to the allocation to our business by Alberto-Culver of $41.5 million of expenses related to the terminated Regis transaction.
We do not allocate these expenses to our operating segments and these expenses are not reflected in the segment operating profit of Sally Beauty Supply and
BSG discussed below.
Sally Beauty Supply. As a result of the foregoing, Sally Beauty Supply's segment operating profit increased $12.7 million, or 5.7%, to $235.4 million for fiscal
year 2006 compared to $222.7 million for the same period in 2005. Segment operating profit, as a percentage of net sales, was 16.6% for fiscal year 2006
compared to 16.4% for the same period in 2005.
Beauty Systems Group. As a result of the foregoing, BSG's segment operating profit increased $17.2 million, or 24.2%, to $88.4 million for fiscal year 2006
compared to $71.2 million for the same period in 2005. Segment operating profit, as a percentage of net sales, was 9.3% for fiscal year 2006 compared to 8.0% to
the same period in 2005.
Net Interest Expense
Interest expense, net of interest income, was $0.1 million and $3.0 million for fiscal years 2006 and 2005, respectively. Interest expense decreased $2.2 million
to $1.9 million for fiscal year 2006 compared to $4.1 million for the same period in 2005. The decrease in interest expense was primarily attributable to the
repayment of all notes payable to affiliated companies in December 2005. These expenses were partially offset by interest income of $1.8 million and
$1.1 million for fiscal years 2006 and 2005, respectively.
Provision for Income Taxes
Provision for income taxes was $69.9 million during fiscal year 2006 compared to $73.1 million for the same period of 2005. The decreased provision for
income taxes for fiscal year 2006 was principally the result of lower earnings before provision for income taxes. The effective tax rate was 38.8% in fiscal year
2006 and 38.6% in fiscal year 2005. 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 decreased $6.3 million, or 5.4%, to $110.2 million for fiscal year 2006 compared to $116.5 million for the
same period in 2005. Net earnings, as a percentage of net sales, were 4.6% for fiscal year 2006 compared to 5.2% for fiscal year 2005. Net earnings for fiscal
year 2006 were impacted by expenses related to the terminated spin/merge transaction with Regis and share-based compensation expense recognized pursuant to
SFAS 123(R). Net earnings for fiscal year 2005 were impacted by the non-cash charge from Alberto-Culver's conversion to one class of common stock and an
adjustment related to lease accounting.
Financial Condition
September 30, 2007 Compared to September 30, 2006
Working capital (current assets less current liabilities) at September 30, 2007 was $354.2 million compared to $479.1 million at September 30, 2006,
representing a decrease of $124.9 million. The resulting ratio of current assets to current liabilities was 1.99 to 1.00 at September 30, 2007 compared to 2.65 to
1.00 at September 30, 2006. The decrease in current assets at September 30, 2007 was primarily impacted by a $69.3 million reduction in cash, which was
primarily attributable to the payment of fees associated with the Separation Transactions, distributions to Alberto-Culver made in connection with the Separation
Transactions and a $5.6 million decline in inventory levels, partially offset by an increase in trade accounts receivable, the prepayment of certain expenses and
deferred income tax assets. The increase in current liabilities at September 30, 2007 was primarily impacted by the addition of the current maturities of
53
Source: Sally Beauty Holding, 10-K, November 29, 2007