Sally Beauty Supply 2011 Annual Report Download - page 74

Borrowings under the senior term loan facilities may be prepaid at the option of Sally Holdings at any time
without premium or penalty and are subject to mandatory repayment in an amount equal to 50% of excess
cash flow (as defined in the agreement governing the term loan facilities) for any fiscal year unless a
specified leverage ratio is met. Amounts paid pursuant to said provision may be applied, at the option of
Sally Holdings, against minimum loan repayments otherwise required of it over the twelve-month period
following any such payment under the terms of the loan agreement. The Company was not required to
make and did not make mandatory repayments pursuant to such excess cash flow provision in the fiscal
year ended September 30, 2011.
In the fiscal year ended September 30, 2011, the Company made optional prepayments in the aggregate
amount of $147.0 million on its senior term loan B facility. In connection with such optional prepayments,
the Company recorded losses on extinguishment of debt in the aggregate amount of $1.2 million, which are
included in interest expense in the Company’s consolidated statements of earnings.
Based upon the current level of operations and anticipated growth, we anticipate that existing cash
balances, funds expected to be generated by operations, and funds available under the ABL credit facility
will be sufficient to meet our working capital requirements and to finance anticipated capital expenditures
over the next 12 months.
There can be no assurance that our business will generate sufficient cash flows from operations, that
anticipated net sales and operating improvements will be realized, or that future borrowings will be
available under our ABL credit 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, 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. Please see ‘‘Risk Factors.’’
We utilize our ABL credit facility for the issuance of letters of credit, as well as to manage normal
fluctuations in our operational cash flow. In that regard, we may from time to time draw funds under the
revolving credit facility for general corporate purposes including funding of capital expenditures,
acquisitions and interest payments due on our indebtedness. The funds drawn on individual occasions
during the fiscal year ended September 30, 2011 have varied in amounts of up to $78.0 million, with total
amounts outstanding ranging from zero up to $102.5 million. The amounts drawn are generally paid down
with cash provided by our operating activities. During the fiscal year ended September 30, 2011, the
weighted average interest rate on our borrowings under the ABL credit facility was 3.3%.
As of September 30, 2011, Sally Holdings had $366.5 million available for additional borrowings under our
ABL credit facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.
Availability under the ABL credit facility is a function of a customary borrowing base of receivables and
inventory levels. The ABL credit facility has a 5-year maturity and pricing levels at market rates.
We are a holding company and do not have any material assets or operations other than ownership of
equity interests of our subsidiaries. The agreements and instruments governing the debt of Sally Holdings
and its subsidiaries contain material limitations on their ability to pay dividends and other restricted
payments to us which, in turn, constitute material limitations on our ability to pay dividends and other
payments to our stockholders.
Under the agreements and indentures governing the term loan facilities and the notes, Sally Holdings may
not make certain restricted payments to us if a default then exists under the credit agreement or the
indentures or if its consolidated interest coverage ratio is less than 2.0 to 1.0 at the time of the making of
such restricted payment. As of September 30, 2011, its consolidated interest coverage ratio exceeded 2.0 to
1.0. Further, the aggregate amount of restricted payments it is able to make is limited pursuant to various
baskets as calculated pursuant to the credit agreement and indentures.
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