Sally Beauty Supply 2013 Annual Report Download - page 69

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September 30, 2012. The increase in Sally Beauty Supply’s segment operating earnings was primarily a
result of increased sales volume and improved gross profit margin. This increase was partially offset by the
incremental costs related to approximately 119 additional company-operated stores (stores opened or
acquired during the past twelve months) operating during the fiscal year ended September 30, 2013, as well
as higher advertising costs of $3.9 million and incremental depreciation expense (approximately
$6.3 million) associated with capital expenditures (mainly in connection with store openings and with
ongoing information technology upgrades) made in the preceding 12 months. For the fiscal year ended
September 30, 2012, Sally Beauty Supply’s operating profit reflects a $10.2 million charge resulting from a
loss contingency settled in November 2012 without a comparable expense in the current fiscal year.
Segment operating earnings, as a percentage of net sales, increased to 19.6% for the fiscal year ended
September 30, 2013, compared to 19.5% for the fiscal year ended September 30, 2012. This increase
reflects the increase in the segment’s gross profit margin described above, partially offset by an increase in
the segment’s operating expenses as a percentage of the segment’s net sales. The increase in the segment’s
operating expenses as a percentage of the segment’s net sales, was principally as a result of softer segment
sales growth as discussed above.
Beauty Systems Group. BSG’s segment operating earnings increased by $17.8 million, or 9.7%, to
$200.5 million for the fiscal year ended September 30, 2013, compared to the fiscal year ended
September 30, 2012, primarily as a result of increased sales volume and improved gross profit margin.
Segment operating earnings, as a percentage of net sales, increased to 14.4% for the fiscal year ended
September 30, 2013, compared to 13.8% for the fiscal year ended September 30, 2012. This increase
reflects the increase in the segment’s gross profit margin described above, as well as a reduction in the
segment’s operating expenses as a percentage of the segment’s net sales.
Unallocated expenses. Unallocated expenses, which represent corporate costs (such as payroll, employee
benefits and travel expenses for corporate staff, certain professional fees, certain new business
development expenses and corporate governance expenses) that have not been charged to our operating
segments, increased by $1.9 million, or 2.0%, to $97.9 million for the fiscal year ended September 30, 2013,
compared to the fiscal year ended September 30, 2012. This increase was primarily due to corporate
expenses, including depreciation and other expenses related to on-going upgrades to our information
technology systems ($4.8 million) and to certain new business development activities, partially offset by
lower employee compensation-related expenses of approximately $3.6 million.
Share-based Compensation Expense. Total compensation costs charged against income for share-based
compensation arrangements increased by $2.3 million, to $19.2 million for the fiscal year ended
September 30, 2013, compared to the fiscal year ended September 30, 2012. This increase was due to the
incremental expenses related to, as well as the higher fair value at the grant date of, share-based awards
during the fiscal year ended September 30, 2013, compared to share-based awards during the fiscal year
ended September 30, 2012, partially offset by the impact of share-based awards that became fully vested
during the fiscal year ended September 30, 2013.
Interest Expense
Interest expense decreased by $30.7 million, to $107.7 million for the fiscal year ended September 30, 2013,
compared to the fiscal year ended September 30, 2012. Interest expense is net of interest income of
$0.2 million for each of the fiscal years ended September 30, 2013 and 2012. The decrease in interest
expense was primarily attributable to losses on extinguishment of debt in the aggregate amount of
$37.8 million in connection with our redemption of outstanding notes and our repayment in full of the
borrowings under the senior term loan B in the fiscal year ended September 30, 2012. This amount
includes a call premium of approximately $24.4 million and unamortized deferred financing costs of
approximately $13.4 million expensed in connection with such redemption and loan repayment. This
decrease was partially offset by the effect of higher principal balances on our debt outstanding during the
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