Sally Beauty Supply 2007 Annual Report Download - page 62

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long-term debt, which was incurred in connection with the Separation Transactions, of approximately $17.1 million, and accrued interest thereon of
$34.5 million. In addition, we had an increase in accrued operating expenses and income taxes. A reduction in working capital is part of our business strategy to
minimize the amount of capital employed in the business while maximizing the related operating profits.
Net property and equipment increased $11.4 million to $154.1 million at September 30, 2007, compared to $142.7 million at September 30, 2006. Of this
increase, approximately $4.2 million was attributable to acquisitions, with the remainder due primarily to the opening of new stores and remodeling of existing
facilities.
Goodwill increased $41.9 million to $406.6 million at September 30, 2007, compared to $364.7 million at September 30, 2006, primarily due to the acquisition
of Salon Services and the effects of changes in foreign exchange rates.
Intangible assets increased $17.3 million to $70.5 million at September 30, 2007, compared to $53.2 million at September 30, 2006, primarily due to the
acquisition of Salon Services.
Other assets increased $53.2 million to $61.1 million at September 30, 2007, compared to $7.9 million at September 30, 2006, primarily due to the costs
associated with the issuance of debt, which will be amortized as interest expense over the term of the debt.
Accrued expenses increased $39.7 million to $153.8 million at September 30, 2007, compared to $114.1 million at September 30, 2006. This increase was
primarily a result of $34.5 million of interest expense related to the new debt incurred in connection with the Separation Transactions, and an increase in
operating expenses and legal and other professional fees.
Deferred income tax liabilities increased $8.6 million to $30.2 million at September 30, 2007, compared to $21.6 million at September 30, 2006. This increase
was primarily due to differences between depreciation included for tax returns versus depreciation included in our statements of earnings, and purchase
accounting adjustments.
Stock options subject to redemption declined to $6.5 million at September 30, 2007, compared to $7.5 million as of September 30, 2006, primarily due to
exercises of these options.
Total stockholders' equity decreased as a result of the special dividend payment of approximately $2,342.1 million called for under the separation agreement
from Alberto-Culver. The proceeds from the equity contribution of $575.0 million from CDRS and the proceeds from the debt were used to issue this dividend.
In addition, retained earnings decreased by $44.4 million as a result of settlement of the inter-company agreement with Alberto-Culver, treated as a dividend.
Additional paid-in capital increased as a result of the equity contribution made by Clayton, Dubilier & Rice, Inc. in connection with the Separation Transactions,
partially offset by costs of approximately $42.4 million associated with the raising of such equity.
Accumulated other comprehensive income—foreign currency translation increased $18.2 million to $34.5 million at September 30, 2007, compared to
$16.3 million at September 30, 2006. The increase was primarily due to the weakening of the U.S. dollar versus certain foreign currencies, primarily the British
pound and Canadian dollar.
Liquidity and Capital Resources
We broadly define liquidity as our ability to generate sufficient cash flow from operating activities to meet our obligations and commitments. In addition,
liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing
strategic and financial objectives. Therefore, liquidity cannot be considered separately from capital resources that
54
Source: Sally Beauty Holding, 10-K, November 29, 2007