Sally Beauty Supply 2011 Annual Report Download - page 71

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Unallocated expenses. Unallocated expenses, which represent corporate costs (such as payroll, employee
benefits and travel expenses for corporate staff, certain professional fees and corporate governance
expenses) that have not been charged to our operating segments, increased by $9.2 million, or 13.1%, to
$79.2 million for the fiscal year ended September 30, 2010, compared to the fiscal year ended
September 30, 2009. This increase was due primarily to higher employee compensation and compensation-
related expenses of approximately $3.7 million, an unfavorable change in foreign currency transactions of
approximately $2.3 million resulting principally from intercompany loans not permanently invested, other
corporate expenses of approximately $2.5 million related primarily to recent upgrades to our information
technology and communication systems, and acquisition—related expenses of approximately $0.7 million
(representing legal fees and expenses, professional fees and other expenses).
Share-based Compensation Expense. Total compensation cost charged against income for share-based
compensation arrangements increased by $4.2 million to $12.8 million for the fiscal year ended
September 30, 2010, compared to the fiscal year ended September 30, 2009. This increase was due to the
higher fair value at the grant date of stock option awards during the fiscal year ended September 30, 2010,
compared to stock option awards during the fiscal year ended September 30, 2009, and the incremental
annual expenses resulting from such fiscal year 2010 stock option awards.
Interest Expense
Interest expense decreased by $19.0 million, to $113.0 million for the fiscal year ended September 30, 2010,
compared to the fiscal year ended September 30, 2009. Interest expense is net of interest income of
$0.2 million and $0.3 million for the fiscal year ended September 30, 2010 and 2009, respectively. The
decrease in interest expense was primarily attributable to lower outstanding principal balances on our ABL
credit facility and senior term loans and to lower prevailing LIBOR interest rates, partially offset by a
$2.9 million net unfavorable change in the fair value of certain interest rate swaps (Please see Note 16 of
the Notes to Consolidated Financial Statements in Item 8—‘‘Financial Statements and Supplementary
Data’’ contained elsewhere in this Annual Report for additional information about the Company’s interest
rate swap agreements).
Provision for Income Taxes
Provision for income taxes was $84.1 million during the fiscal year ended September 30, 2010, compared to
$65.7 million for the fiscal year ended September 30, 2009. The effective tax rate is 36.9% for fiscal year
2010, compared to 39.9% for fiscal year 2009. The decrease in the annual effective tax rate primarily
relates to an increase in earnings in certain low tax jurisdictions, the release of certain valuation allowances
and a reduction in unfavorable permanent items.
Net Earnings
As a result of the foregoing, consolidated net earnings increased by $44.7 million, or 45.1%, to
$143.8 million for the fiscal year ended September 30, 2010, compared to $99.1 million for the fiscal year
ended September 30, 2009. Net earnings, as a percentage of net sales, were 4.9% for the fiscal year ended
September 30, 2010, compared to 3.8% for the fiscal year ended September 30, 2009.
Financial Condition
September 30, 2011 Compared to September 30, 2010
Working capital (current assets less current liabilities) increased by $32.0 million to $419.1 million at
September 30, 2011, compared to $387.1 million at September 30, 2010. The ratio of current assets to
current liabilities was 1.91 to 1.00 at September 30, 2011, compared to 1.95 to 1.00 at September 30, 2010.
The increase in working capital reflects an increase of $84.4 million in current assets and an increase of
$52.4 million in current liabilities. The increase in current assets as of September 30, 2011 includes an
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