Sally Beauty Supply 2011 Annual Report Download - page 75

Under its ABL credit facility, Sally Holdings may pay dividends and make other equity distributions to us if
availability under the facility exceeds certain thresholds. For dividends and distributions up to $30.0 million
during each fiscal year, borrowing availability must exceed the lesser of $80.0 million or 20% of the
borrowing base for 45 days prior to such dividend and distribution. For dividends in excess of that amount,
Sally Holdings must maintain that same availability and its fixed-charge coverage ratio must exceed 1.10 to
1.00. The fixed-charge coverage ratio is defined as the ratio of (A) EBITDA (as defined in the agreement
underlying the ABL credit facility, or Credit Agreement EBITDA) less unfinanced capital expenditures to
(B) fixed charges (as included in the definition of the fixed-charge coverage ratio in the agreement
governing the ABL credit facility). As of September 30, 2011, Sally Holdings met all of these conditions. As
of September 30, 2011, the net assets of our consolidated subsidiaries that were unrestricted from transfer
under our credit arrangements totaled $483.2 million, subject to certain adjustments. The ABL credit
facility and the senior term loan facilities, as well as the Company’s 9.25% Senior Notes indenture and its
10.5% Senior Subordinated Notes indenture contain customary cross-default and/or cross-acceleration
provisions.
During the fiscal year 2011, we completed several acquisitions at an aggregate cost of $86.8 million. In
general, we funded these acquisitions with cash from operations and borrowings under the ABL credit
facility. For example, on October 1, 2010, we acquired Aerial, an 82-store professional-only distributor of
beauty products operating in 11 states in the midwestern United States, for approximately $81.8 million. In
connection with the Aerial acquisition we borrowed $78.0 million under our ABL credit facility (which we
have since paid in full). In addition, during the fiscal year 2010, we completed several acquisitions at an
aggregate cost of $45.6 million. In general, we funded these acquisitions with cash from operations and
borrowings under the ABL credit facility. For example, on December 16, 2009, we acquired Sinelco, a
wholesale distributor of professional beauty products based in Ronse, Belgium, for approximately
A25.2 million (approximately $36.6 million). We also assumed A4.0 million (approximately $5.8 million) of
pre-acquisition debt of Sinelco in connection with the acquisition.
Historical Cash Flows
For the fiscal years 2011, 2010 and 2009, our primary source of cash has been funds provided by operating
activities and, when necessary, short-term borrowings. The primary uses of cash during the past three years
were for repayments of long-term debt, acquisitions and capital expenditures.
The following table shows our sources and uses of funds for the fiscal years ended September 30, 2011,
2010 and 2009 (in thousands):
Fiscal Year Ended September 30,
2011 2010 Change 2010 2009 Change
Cash provided by
operating activities . . . $ 291,841 $ 217,246 $ 74,595 $ 217,246 $ 223,333 $(6,087)
Cash used by investing
activities .......... (146,735) (85,022) (61,713) (85,022) (118,562) 33,540
Cash used by financing
activities .......... (140,049) (126,511) (13,538) (126,511) (149,262) 22,751
Effect of foreign
currency exchange
rate changes on cash
and cash equivalents . (1,070) (666) (404) (666) (850) 184
Net increase (decrease)
in cash and cash
equivalents ........ $ 3,987 $ 5,047 $ (1,060) $ 5,047 $ (45,341) $50,388
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