Sally Beauty Supply 2013 Annual Report Download - page 46

will also depend substantially on the pricing of our products, our success at implementing cost reduction
initiatives and our ability to successfully implement our overall business strategy.
The indentures governing the Notes also contain restrictive covenants that, among other things, limit our
ability and the ability of Sally Holdings and its restricted subsidiaries to:
• dispose of assets;
• incur additional indebtedness (including guarantees of additional indebtedness);
• pay dividends, repurchase stock or make other distributions;
• prepay subordinated debt;
• create liens on assets;
• make investments (including joint ventures);
• engage in mergers, consolidations or sales of all or substantially all of Sally Holdings’ assets;
• engage in certain transactions with affiliates; and
• permit restrictions on Sally Holdings’ subsidiaries’ ability to pay dividends.
The restrictions in the indentures governing our Notes and the terms of our senior credit facility may
prevent us from taking actions that we believe would be in the best interest of our business and may make
it difficult for us to successfully execute our business strategy or effectively compete with companies that
are not similarly restricted. We may also incur future debt obligations that might subject us to additional
restrictive covenants that could affect our financial and operational flexibility. We cannot assure you that
our subsidiaries, which are borrowers under these agreements, will be granted waivers or amendments to
these agreements if they are unable to comply with these agreements, or that we will be able to refinance
our debt on terms acceptable to us, or at all.
Our ability to comply with the covenants and restrictions contained in the senior credit facility and the
indentures for the Notes may be affected by economic, financial and industry conditions beyond our
control. The breach of any of these covenants and restrictions could result in a default under either the
senior credit facility or the indentures that would permit the applicable lenders or note holders, as the case
may be, to declare all amounts outstanding thereunder to be due and payable, together with accrued and
unpaid interest. If we are unable to repay debt, lenders having secured obligations, such as the lenders
under the ABL facility, could proceed against the collateral securing the debt. In any such case, our
subsidiaries may be unable to borrow under the ABL facility and may not be able to repay the amounts due
under the Notes. This could have serious consequences to our financial condition and results of operations
and could cause us to become bankrupt or insolvent.
Our ability to generate the significant amount of cash needed to service all of our debt and our ability to refinance all
or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
Our ability to make scheduled payments on, or to refinance our obligations under, our debt will depend on
our financial and operating performance, which, in turn, will be subject to prevailing economic and
competitive conditions and to the financial and business factors, many of which may be beyond our control,
described under ‘‘—Risks Relating to Our Business’’ above.
If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be
forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or
restructure our debt. In the future, our cash flow and capital resources may not be sufficient for payments
of interest on and principal of our debt, and such alternative measures may not be successful and may not
permit us to meet our scheduled debt service obligations.
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