Sally Beauty Supply 2007 Annual Report Download - page 63

consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.
Following the completion of the Separation Transactions, we are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on
indebtedness incurred in connection with the Separation Transactions and from funding the costs of operations, working capital and capital expenditures. As a
holding company, we depend on our subsidiaries, including Sally Holdings, to distribute funds to us so that we may pay our obligations and expenses. The ability
of our subsidiaries to make such distributions will be subject to their operating results, cash requirements and financial condition and their compliance with
covenants and financial ratios related to their existing or future indebtedness, including covenants restricting Sally Holdings' ability to pay dividends to us. In
addition, under Delaware law, the ability of each of Sally Holdings and its subsidiaries to make distributions to us will be limited to the extent: (i) of its surplus,
or if there is no surplus, of its net earnings for the fiscal year in which the distribution is declared and/or the preceding fiscal year, if such subsidiary is a
corporation; or (ii) the fair value of its assets exceeds its liabilities, in the case of Sally Holdings or such subsidiary that is a limited liability company. If, as a
consequence of these limitations, we cannot receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general
corporate expenses. See "Risk Factors—Risks Relating to Our Business, and—Risks Relating to Our Substantial Indebtedness."
Our ability to obtain liquidity from the issuance of additional public or private equity is severely limited until at least two years have passed from the completion
of the Separation Transactions, or November 2008, because issuance of our common stock may cause the Alberto-Culver share distribution to be taxable to us
and our stockholders under Section 355(e) of the Code. See "Risk Factors—Risks Relating to the Tax Treatment of Our Separation from Alberto-Culver and
Relating to Our Largest Stockholder."
Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances, funds generated by operations and funds available
under the ABL facility will be sufficient to meet our working capital requirements and to finance capital expenditures, excluding acquisitions, over the next
12 months.
There can be no assurance that our business will generate sufficient cash flows from operations, that anticipated net sales growth and operating improvements
will be realized or that future borrowings will be available under the ABL facility in an amount sufficient to enable us to service our indebtedness or to fund our
other liquidity needs. In addition, our ability to meet our debt service obligations and liquidity needs are subject to certain risks, which include, but are not
limited to, restrictions on our ability to issue public or private equity for at least two years after the Separation Transactions, increases in competitive activity, the
loss of key suppliers, rising interest rates, the loss of key personnel, the ability to execute our business strategy and general economic conditions. See "Risk
Factors."
Historical Cash Flow
Our primary source of cash has been from funds provided by operating activities and, for fiscal year 2007, from borrowings. The primary uses of cash during the
past three years were for acquisitions and capital expenditures and, for fiscal year 2007, for the cash dividend paid in connection with the Separation
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Source: Sally Beauty Holding, 10-K, November 29, 2007