SBH » Topics » Liquidity and Capital Resources

These excerpts taken from the SBH 10-K filed Nov 20, 2008.

Liquidity and Capital Resources

We broadly define liquidity as our ability to generate sufficient cash flow from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.

Following the completion of the Separation Transactions, we are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on indebtedness incurred primarily in connection with the Separation Transactions and from funding the costs of operations, working capital and capital expenditures. As a holding company, we depend on our subsidiaries, including Sally Holdings, to distribute funds to us so that we may pay our obligations and expenses. The ability of our subsidiaries to make such

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distributions will be subject to their operating results, cash requirements and financial condition and their compliance with covenants and financial ratios related to their existing or future indebtedness, including covenants restricting Sally Holdings' ability to pay dividends to us. In addition, under Delaware law, the ability of each of Sally Holdings and its subsidiaries to make distributions to us will be limited to the extent: (i) of its surplus, or if there is no surplus, of its net earnings for the fiscal year in which the distribution is declared and/or the preceding fiscal year, if such subsidiary is a corporation; or (ii) the fair value of its assets exceeds its liabilities, in the case of Sally Holdings or such subsidiary that is a limited liability company. If, as a consequence of these limitations, we cannot receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate expenses. Please see "Risk Factors—Risks Relating to Our Business," and "—Risks Relating to Our Substantial Indebtedness."

During the fiscal year ended September 30, 2008, we made scheduled payments on our senior Term Loans in the aggregate amount of $16.7 million.

Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances, funds generated by operations and funds available under the ABL facility will be sufficient to meet our working capital requirements and to finance capital expenditures, excluding acquisitions, over the next 12 months.

There can be no assurance that our business will generate sufficient cash flows from operations, that anticipated net sales growth and operating improvements will be realized or that future borrowings will be available under our ABL facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. In addition, our ability to meet our debt service obligations and liquidity needs are subject to certain risks, which include, but are not limited to, increases in competitive activity, the loss of key suppliers, rising interest rates, the loss of key personnel, the ability to execute our business strategy and general economic conditions. Please see "Risk Factors."

We utilize our ABL facility for the issuance of letters of credit, as well as to manage normal fluctuations in operational cash flow. In that regard, we may from time to time draw funds under the revolving credit facility for general corporate purposes including acquisitions and interest payments due on our indebtedness. The funds drawn on individual occasions during the fiscal year ended September 30, 2008 have varied in amounts of up to $75.0 million, with total amounts outstanding ranging from $2.3 million up to $99.3 million. The amounts drawn are generally outstanding for a short period of time and are generally paid down with cash provided by our operating activities.

Both in the U.S. and in certain European areas in which we operate the economic stress and the dislocation of the financial markets that began in late calendar year 2007 has continued and substantially increased in the recent months. Recently, concerns over inflation, energy costs, the availability and cost of credit, the conditions of the U.S. mortgage market and declining real estate prices in the U.S. have contributed to increased market volatility and diminished expectations about U.S. and the global economies and the financial markets going forward. These factors, combined with the volatility in oil prices, declining business and consumer confidence, and increases in unemployment rates, have precipitated an economic slowdown and fears of a potential recession on a global scale. On September 18, 2008, Sally Holdings borrowed $75.0 million under its existing $400 million ABL facility to increase its cash position in order to preserve its financial flexibility in light of the recent dislocation of the financial markets. We currently intend to repay these funds as economic conditions allow in the next twelve months. As of September 30, 2008, Sally Holdings had $276.4 million available for additional borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.

We may from time to time repurchase or otherwise retire our debt (through our subsidiaries) and take other steps to reduce our debt or otherwise improve our balance sheet. These actions may include open market repurchases of our Notes or other retirements of outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, would be decided upon at the sole discretion of our Board of

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Directors and will depend on market conditions, trading levels of the Company's debt from time to time, the Company's cash position and other considerations.

During the fiscal year ended September 30, 2008, we completed several small acquisitions at an aggregate cost of $53.4 million. Substantially all of the purchase price for these acquisitions was allocated to intangible assets and goodwill. Generally, we funded these acquisitions with cash from operations as well as borrowings under our ABL facility. On May 7, 2008, we acquired Pro-Duo, a 40-store beauty supply chain located in Belgium, France and Spain, for €19.3 million (approximately $29.8 million plus incidental costs capitalized) subject to certain adjustments. This acquisition provided the Sally Beauty Supply segment an expanded geographic footprint in continental Europe and was funded with cash from operations and borrowings on our ABL facility. We also assumed €3.0 million (approximately $4.7 million) of pre-acquisition debt of Pro-Duo in connection with the acquisition.

Liquidity and Capital Resources



We broadly define liquidity as our ability to generate sufficient cash flow from operating activities to meet our obligations and commitments. In
addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial
objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business
objectives and meeting debt service commitments.



Following
the completion of the Separation Transactions, we are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on indebtedness incurred primarily in
connection with the Separation Transactions and from funding the costs of operations, working capital and capital expenditures. As a holding company, we depend on our subsidiaries, including Sally
Holdings, to distribute funds to us so that we may pay our obligations and expenses. The ability of our subsidiaries to make such



61









HREF="#bg79801a_main_toc">Table of Contents






distributions
will be subject to their operating results, cash requirements and financial condition and their compliance with covenants and financial ratios related to their existing or future
indebtedness, including covenants restricting Sally Holdings' ability to pay dividends to us. In addition, under Delaware law, the ability of each of Sally Holdings and its subsidiaries to make
distributions to us will be limited to the extent: (i) of its surplus, or if there is no surplus, of its net earnings for the fiscal year in which the distribution is declared and/or the
preceding fiscal year, if such subsidiary is a corporation; or (ii) the fair value of its assets exceeds its liabilities, in the case of Sally Holdings or such subsidiary that is a limited
liability company. If, as a consequence of these limitations, we cannot receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate
expenses. Please see "Risk Factors—Risks Relating to Our Business," and "—Risks Relating to Our Substantial Indebtedness."



During
the fiscal year ended September 30, 2008, we made scheduled payments on our senior Term Loans in the aggregate amount of $16.7 million.



Based
upon the current level of operations and anticipated growth, we anticipate that existing cash balances, funds generated by operations and funds available under the ABL facility will be
sufficient to meet our working capital requirements and to finance capital expenditures, excluding acquisitions, over the next 12 months.



There
can be no assurance that our business will generate sufficient cash flows from operations, that anticipated net sales growth and operating improvements will be realized or that future borrowings
will be available under our ABL facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. In addition, our ability to meet our debt service
obligations and liquidity needs are subject to certain risks, which include, but are not limited to, increases in competitive activity, the loss of key suppliers, rising interest rates, the loss of
key personnel, the ability to execute our business strategy and general economic conditions. Please see "Risk Factors."



We
utilize our ABL facility for the issuance of letters of credit, as well as to manage normal fluctuations in operational cash flow. In that regard, we may from time to time draw funds under the
revolving credit facility for general corporate purposes including acquisitions and interest payments due on our indebtedness. The funds drawn on individual occasions during the fiscal year ended
September 30, 2008 have varied in amounts of up to $75.0 million, with total amounts outstanding ranging from $2.3 million up to $99.3 million. The amounts drawn are
generally outstanding for a short period of time and are generally paid down with cash provided by our operating activities.



Both
in the U.S. and in certain European areas in which we operate the economic stress and the dislocation of the financial markets that began in late calendar year 2007 has continued and
substantially increased in the recent months. Recently, concerns over inflation, energy costs, the availability and cost of credit, the conditions of the U.S. mortgage market and declining real estate
prices in the U.S. have contributed to increased market volatility and diminished expectations about U.S. and the global economies and the financial markets going forward. These factors, combined with
the volatility in oil prices, declining business and consumer confidence, and increases in unemployment rates, have precipitated an economic slowdown and fears of a potential recession on a global
scale. On September 18, 2008, Sally Holdings borrowed $75.0 million under its existing $400 million ABL facility to increase its cash position in order to preserve its financial
flexibility in light of the recent dislocation of the financial markets. We currently intend to repay these funds as economic conditions allow in the next twelve months. As of September 30,
2008, Sally Holdings had $276.4 million available for additional borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.



We
may from time to time repurchase or otherwise retire our debt (through our subsidiaries) and take other steps to reduce our debt or otherwise improve our balance sheet. These actions may include
open market repurchases of our Notes or other retirements of outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, would be decided upon at the sole discretion of
our Board of



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Directors
and will depend on market conditions, trading levels of the Company's debt from time to time, the Company's cash position and other considerations.



During
the fiscal year ended September 30, 2008, we completed several small acquisitions at an aggregate cost of $53.4 million. Substantially all of the purchase price for these
acquisitions was allocated to intangible assets and goodwill. Generally, we funded these acquisitions with cash from operations as well as borrowings under our ABL facility. On May 7, 2008, we
acquired Pro-Duo, a 40-store beauty supply chain located in Belgium, France and Spain, for €19.3 million (approximately $29.8 million plus
incidental costs capitalized) subject to certain adjustments. This acquisition provided the Sally Beauty Supply segment an expanded geographic footprint in continental Europe and was funded with cash
from operations and borrowings on our ABL facility. We also assumed €3.0 million (approximately $4.7 million) of pre-acquisition debt of Pro-Duo
in connection with the acquisition.



This excerpt taken from the SBH 10-Q filed Feb 7, 2008.

Liquidity and Capital Resources

 

We broadly define liquidity as our ability to generate sufficient cash flow from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.

 

Following the completion of the Separation Transactions, we are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on indebtedness incurred in connection with the Separation Transactions and from funding the costs of operations, working capital and capital expenditures. As a holding company, we depend on our subsidiaries, including Sally Holdings, to distribute funds to us so that we may pay our obligations and expenses. Please see the Company’s Annual Report on Form 10-K for fiscal year ended September 30, 2007 for additional information on liquidity and capital resources.

 

We utilize our revolving (asset-based lending) facility (the “ABL facility”) for the issuance of letters of credit, as well as to manage normal fluctuations in operational cash flow. In that regard, we may from time to time draw funds under the revolving credit facility for general corporate purposes including interest payments due on our indebtedness.  The funds drawn on individual occasions during the three months ended December 31, 2007 have varied in amounts of up to $35.7 million, with total amounts outstanding ranging from $2.2 million up to $86.9 million. The amounts drawn are generally outstanding for a short period of time and are generally paid down as cash is received from our operating activities.

 

Our primary source of cash has been from funds provided by operating activities and borrowings under our ABL facility for the three months ended December 31, 2007. Historically, the primary use of cash was for acquisitions and capital expenditures and, for the three months ended December 31, 2006, for the special cash dividend paid in

connection with the Separation Transactions. The following table shows our sources and uses of funds for the three months ended December 31, 2007 and 2006 (in thousands):

 

 

 

Three Months Ended December 31,

 

 

 

2007

 

2006

 

Net cash (used) provided by operating activities

 

$

(18,165

)

$

58,082

 

Net cash used by investing activities

 

(15,277

)

(14,886

)

Net cash provided (used) by financing activities

 

39,301

 

(119,165

)

Effect of foreign exchange rates

 

(984

)

(221

)

Net increase (decrease) in cash and cash equivalents

 

$

4,875

 

$

(76,190

)

 

29



 

Net Cash (Used) Provided by Operating Activities

 

Net cash (used) provided by operating activities, which excludes the effects of acquisitions, during the three months ended December 31, 2007 decreased by $76.3 million to $18.2 million of net cash used, compared to net cash provided of $58.1 million during the three months ended December 31, 2006. The decrease was primarily due to an increase in cash used to purchase inventory of approximately $48.0 million and to reduce accounts payable and accrued expenses of $22.9 million and income taxes payable of $23.6 million. This decrease was offset, in part, by improved earnings for the three months ended December 31, 2007 of approximately $11.2 million.

 

This excerpt taken from the SBH 10-K filed Nov 29, 2007.

Liquidity and Capital Resources

 We broadly define liquidity as our ability to generate sufficient cash flow from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives. Therefore, liquidity cannot be considered separately from capital resources that

54



consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.

 Following the completion of the Separation Transactions, we are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on indebtedness incurred in connection with the Separation Transactions and from funding the costs of operations, working capital and capital expenditures. As a holding company, we depend on our subsidiaries, including Sally Holdings, to distribute funds to us so that we may pay our obligations and expenses. The ability of our subsidiaries to make such distributions will be subject to their operating results, cash requirements and financial condition and their compliance with covenants and financial ratios related to their existing or future indebtedness, including covenants restricting Sally Holdings' ability to pay dividends to us. In addition, under Delaware law, the ability of each of Sally Holdings and its subsidiaries to make distributions to us will be limited to the extent: (i) of its surplus, or if there is no surplus, of its net earnings for the fiscal year in which the distribution is declared and/or the preceding fiscal year, if such subsidiary is a corporation; or (ii) the fair value of its assets exceeds its liabilities, in the case of Sally Holdings or such subsidiary that is a limited liability company. If, as a consequence of these limitations, we cannot receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate expenses. See "Risk Factors—Risks Relating to Our Business, and—Risks Relating to Our Substantial Indebtedness."

 Our ability to obtain liquidity from the issuance of additional public or private equity is severely limited until at least two years have passed from the completion of the Separation Transactions, or November 2008, because issuance of our common stock may cause the Alberto-Culver share distribution to be taxable to us and our stockholders under Section 355(e) of the Code. See "Risk Factors—Risks Relating to the Tax Treatment of Our Separation from Alberto-Culver and Relating to Our Largest Stockholder."

 Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances, funds generated by operations and funds available under the ABL facility will be sufficient to meet our working capital requirements and to finance capital expenditures, excluding acquisitions, over the next 12 months.

 There can be no assurance that our business will generate sufficient cash flows from operations, that anticipated net sales growth and operating improvements will be realized or that future borrowings will be available under the ABL facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. In addition, our ability to meet our debt service obligations and liquidity needs are subject to certain risks, which include, but are not limited to, restrictions on our ability to issue public or private equity for at least two years after the Separation Transactions, increases in competitive activity, the loss of key suppliers, rising interest rates, the loss of key personnel, the ability to execute our business strategy and general economic conditions. See "Risk Factors."

This excerpt taken from the SBH 10-Q filed Aug 9, 2007.

Liquidity and Capital Resources

We broadly define liquidity as our ability to generate sufficient cash flow from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives.  Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.

Our primary source of cash over the past three years has been from funds provided by operating activities and, for the nine months ended June 30, 2007, from borrowings.  The primary uses of cash during the past three years were for acquisitions and capital expenditures and, for the nine months ended June 30, 2007, for the cash dividend paid in connection with our separation from Alberto-Culver.  The following table shows our sources and uses of cash for the nine months ended June 30, 2007 and 2006 (in thousands):

 

Nine Months Ended June 30,

 

 

 

2007

 

2006

 

Net cash provided by operating activities

 

$

127,550

 

$

110,047

 

Net cash used by investing activities

 

(97,622

)

(43,380

)

Net cash used by financing activities

 

(105,990

)

(27,962

)

Effect of foreign exchange rate changes

 

830

 

(289

)

Net (decrease) increase in cash and cash equivalents

 

$

(75,232

)

$

38,416

 

 

This excerpt taken from the SBH 10-Q filed May 10, 2007.

Liquidity and Capital Resources

We broadly define liquidity as our ability to generate sufficient cash flow from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives.  Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.

Our primary source of cash over the past three years has been from funds provided by operating activities and, for the six months ended March 31, 2007, from borrowings.  The primary uses of cash during the past three years were for acquisitions and capital expenditures and, for the six months ended March 31, 2007, for the cash dividend paid in connection with our separation from Alberto-Culver.  The following table shows our sources and uses of cash for the six months ended March 31, 2007 and 2006 (in thousands):

 

Six Months Ended March 31,

 

 

 

2007

 

2006

 

Net cash provided by operating activities

 

$

96,020

 

$

65,386

 

Net cash used by investing activities

 

(87,942

)

(18,461

)

Net cash used by financing activities

 

(81,739

)

(22,457

)

Effect of foreign exchange rate changes

 

72

 

(261

)

Net (decrease) increase in cash and cash equivalents

 

$

(73,589

)

$

24,207

 

 

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