Sally Beauty Supply 2013 Annual Report Download - page 45

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• place us at a competitive disadvantage compared to our competitors with proportionately less debt
or comparable debt at more favorable interest rates and that, as a result, may be better positioned
to withstand economic downturns;
• limit our ability to refinance indebtedness or cause the associated costs of such refinancing to
increase; and
• limit our flexibility to adjust to changing market conditions and ability to withstand competitive
pressures, or prevent us from carrying out capital spending that is necessary or important to our
growth strategy and efforts to improve operating margins or our business.
Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our
business, financial condition and results of operations.
Despite our current indebtedness levels, we and our subsidiaries may be able to incur substantially more debt,
including secured debt, which could further exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may incur substantial additional indebtedness in the future. The terms of the
instruments governing our indebtedness do not fully prohibit us or our subsidiaries from doing so. As of
September 30, 2013, our senior credit facility provided us commitments for additional borrowings of up to
approximately $382.3 million under the asset-based senior secured loan (or ABL) facility, subject to
borrowing base limitations. If new debt is added to our current debt levels, the related risks that we face
would increase, and we may not be able to meet all our debt obligations. In addition, the agreements
governing our asset-based senior secured loan (or ABL) facility (the ‘‘ABL facility’’) as well as the
indentures governing our senior notes due 2019, senior notes due 2022 and senior notes due 2023, which
we refer to collectively as ‘‘the Notes’’ or ‘‘the senior notes due 2019-2023’’, do not prevent us from
incurring obligations that do not constitute indebtedness.
The agreements and instruments governing our debt contain restrictions and limitations that could significantly
impact our ability to operate our business.
The ABL facility contains covenants that, among other things, restrict Sally Holdings and its subsidiaries’
ability to:
• change their line of business;
• engage in certain mergers, consolidations and transfers of all or substantially all of their assets;
• make certain dividends, stock repurchases and other distributions;
• make acquisitions of all of the business or assets of, or stock representing beneficial ownership of,
any person;
• dispose of certain assets;
• make voluntary prepayments on the Notes or make amendments to the terms thereof;
• prepay certain other debt or amend specific debt agreements;
• change the fiscal year of Sally Holdings or its direct parent; and
• create or incur negative pledges.
In addition, if Sally Holdings fails to maintain a specified minimum level of borrowing capacity under the
ABL facility, it will then be obligated to maintain a specified fixed-charge coverage ratio. Our ability to
comply with these covenants in future periods will depend on our ongoing financial and operating
performance, which in turn will be subject to economic conditions and to financial, market and competitive
factors, many of which are beyond our control. Our ability to comply with these covenants in future periods
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