SBH » Topics » September 30, 2006 Compared to September 30, 2005

This excerpt taken from the SBH 10-K filed Dec 22, 2006.
September 30, 2006 Compared to September 30, 2005
 
Working capital (current assets less current liabilities) at September 30, 2006 was $479.1 million compared to $382.5 million at September 30, 2005, representing an increase of $96.6 million. The resulting ratio of current assets to current liabilities was 2.65 to 1.00 at September 30, 2006 compared to 2.42 to 1.00 at September 30, 2005. The increase in working capital was primarily due to working capital generated from operations, partially offset by capital expenditures, the net repayment of notes with affiliated companies and the acquisition of Salon Success in June 2006.
 
Cash and cash equivalents at September 30, 2006 was $107.6 million compared to $38.6 million at September 30, 2005, representing an increase of $69.0 million. The increase primarily resulted from cash generated by operations, partially offset by capital expenditures, the net repayment of notes with affiliated companies and the acquisition of Salon Success in June 2006. Trade accounts receivable increased $5.2 million to $45.5 million for the fiscal year 2006 primarily due to the acquisition of Salon Success and the timing of collections from increased sales.
 
Inventories increased $49.9 million to $575.0 million at September 30, 2006 compared to $525.1 at September 30, 2005. The increase was primarily due to an increase in the number of Sally Beauty Supply stores, the introduction of new lines for fragrances, hair color and electrical products, as well as strategic inventory purchases related to favorable pricing from vendors, the acquisition of Salon Success and the effects of changes in foreign exchange rates.
 
Net property and equipment was $142.7 million at September 30, 2006 compared to $149.4 million at September 30, 2005 resulting in a decrease of $6.7 million. While approximately $22.0 million was invested in new stores and remodels, the decrease from September 30, 2005 was primarily a result of declining overall capital expenditures with the conclusion of the construction of the new corporate facility along with the customary depreciation and retirements, primarily in the stores.
 
Goodwill increased $11.2 million to $364.7 million at September 30, 2006 compared to $353.5 million at September 30, 2005. The increase was due to the acquisition of Salon Success and the effects of changes in foreign exchange rates.
 
Intangible assets increased $4.9 million to $53.2 million at September 30, 2006 compared to $48.3 at September 30, 2005 as a result of the acquisition of Salon Success.
 
Notes receivable from affiliated companies and notes payable to affiliated companies, which totaled $15.2 million and $31.8 million, respectively, at September 30, 2005, were fully repaid during the first quarter of fiscal year 2006.


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Table of Contents

The amount due from Alberto-Culver was $0.5 million at September 30, 2006 compared to an amount due from Alberto-Culver of $11.3 million at September 30, 2005. This change was primarily a result of the transaction expenses paid by Alberto-Culver and allocated to us in connection with the terminated spin/merge transaction with Regis and the transaction separating us from Alberto-Culver.
 
Accounts payable increased by $25.5 million to $176.6 million at September 30, 2006 from $151.1 million at September 30, 2005 due to the timing of payments and outstanding payables resulting from increased inventory levels.
 
Accrued expenses increased by $10.1 million to $114.1 million at September 30, 2006 compared to $104.0 at September 30, 2005. This increase was a result of the classification from long-term liabilities of certain deferred compensation that will be paid as a result of the transaction separating us from Alberto-Culver, rent related accruals, and the Salon Success acquisition. Other liabilities at September 30, 2006 were $12.0 million compared to $21.3 million at September 30, 2005, representing a decrease of $9.3 million. The decrease was mainly due to an escrow payment by BSG to the former owners of West Coast.
 
Stock options subject to redemption of $7.5 million as of September 30, 2006 represent the intrinsic value as of November 5, 2003 of currently outstanding Alberto-Culver stock options held by our employees which were modified on that date as a result of Alberto-Culver’s conversion to one class of common stock. This amount was reclassified from additional paid-in capital because Alberto-Culver’s stock option plans, through which certain of our employees have been granted stock options, contain a contingent cash settlement provision upon the occurrence of certain change in control events which are not solely in our control. While we believe the possibility of occurrence of any such change in control event is remote, the reclassification was required because neither we nor Alberto-Culver has sole control over such events. Our separation from Alberto-Culver, which was treated as a change in control for other employee related agreements, does not constitute a change in control under the provisions of the stock option agreements.
 
Additional paid-in capital decreased $1.7 million to $62.2 million at September 30, 2006 compared to September 30, 2005, primarily due to the reclassification to stock options subject to redemption discussed in the preceding paragraph, partially offset by paid-in capital recorded for stock option expense.
 
Accumulated other comprehensive income—foreign currency translation increased $2.9 million to $16.3 million at September 30, 2006 compared to $13.4 million at September 30, 2005. The increase was primarily due to the weakening of the U.S. dollar versus certain foreign currencies, primarily the British pound and Canadian dollar.
 
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