Guarantor and Non-Guarantor Condensed Consolidated Financial Statements

9 Months Ended

Jun. 30, 2011

Guarantor and Non-Guarantor Condensed Consolidated Financial Statements

Guarantor and Non-Guarantor Condensed Consolidated Financial Statements

14. Guarantor and Non-Guarantor Condensed Consolidated Financial Statements

The following condensed consolidating financial information presents the Condensed Consolidated Balance Sheets as of June 30, 2011 and September 30, 2010, the Condensed Consolidated Statements of Earnings for the three and nine months ended June 30, 2011 and 2010, and the Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2011 and 2010 of: (i) Sally Holdings, or the “Parent;” (ii) the guarantor subsidiaries; (iii) the non-guarantor subsidiaries; (iv) elimination entries necessary to consolidate the Parent with the guarantor and non-guarantor subsidiaries; and (v) the Parent on a consolidated basis.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been provided as management believes the following information is sufficient, as guarantor subsidiaries are 100 percent indirectly owned by the Parent and all guarantees are full and unconditional. Additionally, substantially all of the assets of the guarantor subsidiaries are pledged under the term loan facilities and the ABL facility and consequently may not be available to satisfy the claims of general creditors.

SALLY HOLDINGS LLC AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

June 30, 2011

(In thousands)

	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Sally Holdings LLC & Subsidiaries
Assets
Cash and cash equivalents	$	—		$	20,898	$	31,819		$	—		$	52,717
Trade accounts and other receivables, less allowance for doubtful accounts	—			62,020		33,254			—			95,274
Due from affiliates	127			700,151		6,447			(706,725		)	—
Inventory	—			506,836		158,130			—			664,966
Prepaid expenses	106			10,627		13,937			—			24,670
Deferred income tax assets, net	—			25,666		(2,318		)	—			23,348
Property and equipment, net	—			126,301		56,597			—			182,898
Investment in subsidiaries	1,813,206			343,382		—			(2,156,588		)	—
Goodwill and other intangible assets, net	—			476,560		170,216			—			646,776
Other assets	22,572			5,629		5,235			—			33,436
Total assets	$	1,836,011		$	2,278,070	$	473,317		$	(2,863,313	)	$	1,724,085

Liabilities and Member’s (Deficit) Equity
Accounts payable	$	—		$	189,934	$	49,364		$	—		$	239,298
Due to affiliates	661,279			6,447		38,999			(706,725		)	—
Accrued liabilities	18,657			128,024		27,101			—			173,782
Income taxes payable	4,323			3,287		320			—			7,930
Due to Sally Beauty	—			61,109		—			—			61,109
Long-term debt	1,471,856			369		12,371			—			1,484,596
Other liabilities	—			24,554		1,128			—			25,682
Deferred income tax liabilities, net	(4,530		)	51,140		652			—			47,262
Total liabilities	2,151,585			464,864		129,935			(706,725		)	2,039,659
Stock options subject to redemption	362			—		—			—			362
Total member’s (deficit) equity	(315,936		)	1,813,206		343,382			(2,156,588		)	(315,936		)
Total liabilities and member’s (deficit) equity	$	1,836,011		$	2,278,070	$	473,317		$	(2,863,313	)	$	1,724,085

SALLY HOLDINGS LLC AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

September 30, 2010

(In thousands)

	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Sally Holdings LLC & Subsidiaries
Assets
Cash and cash equivalents	$	20		$	32,975	$	26,499		$	—		$	59,494
Trade accounts and other receivables, less allowance for doubtful accounts	—			51,860		32,639			—			84,499
Due from affiliates	—			547,722		6,763			(554,485		)	—
Inventory	—			458,837		145,520			—			604,357
Prepaid expenses	114			10,958		11,449			—			22,521
Deferred income tax assets, net	—			25,666		(2,397		)	—			23,269
Property and equipment, net	—			117,053		51,064			—			168,117
Investment in subsidiaries	1,583,202			318,533		—			(1,901,735		)	—
Goodwill and other intangible assets, net	—			425,106		162,486			—			587,592
Other assets	24,666			8,854		5,394			—			38,914
Total assets	$	1,608,002		$	1,997,564	$	439,417		$	(2,456,220	)	$	1,588,763

Liabilities and Member’s (Deficit) Equity
Accounts payable	$	—		$	170,663	$	54,268		$	—		$	224,931
Due to affiliates	520,404			6,763		27,318			(554,485		)	—
Accrued liabilities	26,477			115,572		25,210			—			167,259
Income taxes payable	4,232			3,419		(839		)	—			6,812
Due to Sally Beauty	—			40,500		—			—			40,500
Long-term debt	1,548,856			77		13,703			—			1,562,636
Other liabilities	15,530			24,090		1,072			—			40,692
Deferred income tax liabilities, net	(10,555		)	53,278		152			—			42,875
Total liabilities	2,104,944			414,362		120,884			(554,485		)	2,085,705
Stock options subject to redemption	946			—		—			—			946
Total member’s (deficit) equity	(497,888		)	1,583,202		318,533			(1,901,735		)	(497,888		)
Total liabilities and member’s (deficit) equity	$	1,608,002		$	1,997,564	$	439,417		$	(2,456,220	)	$	1,588,763

SALLY HOLDINGS LLC AND SUBSIDIARIES

Condensed Consolidating Statement of Earnings
Three months ended June 30, 2011

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Sally Holdings LLC & Subsidiaries

Net sales	$	—		$	674,057		$	162,519		$	—		$	836,576
Related party sales	—			716			—			(716		)	—
Cost of products sold and distribution expenses	—			338,136			88,625			(716		)	426,045
Gross profit	—			336,637			73,894			—			410,531
Selling, general and administrative expenses	124			197,517			59,599			—			257,240
Depreciation and amortization	—			10,848			4,425			—			15,273
Operating earnings (loss)	(124		)	128,272			9,870			—			138,018
Interest income	—			(15		)	(56		)	—			(71		)
Interest expense	27,576			18			218			—			27,812
Earnings (loss) before provision (benefit) for income taxes	(27,700		)	128,269			9,708			—			110,277
Provision (benefit) for income taxes	(10,743		)	48,685			2,091			—			40,033
Equity in earnings of subsidiaries, net of tax	87,201			7,617			—			(94,818		)	—
Net earnings	$	70,244		$	87,201		$	7,617		$	(94,818	)	$	70,244

SALLY HOLDINGS LLC AND SUBSIDIARIES

Condensed Consolidating Statement of Earnings
Three months ended June 30, 2010

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Sally Holdings LLC & Subsidiaries

Net sales	$	—		$	605,792		$	137,183		$	—		$	742,975
Related party sales	—			698			—			(698		)	—
Cost of products sold and distribution expenses	—			306,367			76,447			(698		)	382,116
Gross profit	—			300,123			60,736			—			360,859
Selling, general and administrative expenses	129			199,961			53,640			—			253,730
Depreciation and amortization	—			9,233			3,433			—			12,666
Operating earnings (loss)	(129		)	90,929			3,663			—			94,463
Interest income	—			(26		)	(22		)	—			(48		)
Interest expense	28,090			19			194			—			28,303
Earnings (loss) before provision (benefit) for income taxes	(28,219		)	90,936			3,491			—			66,208
Provision (benefit) for income taxes	(10,624		)	34,201			354			—			23,931
Equity in earnings of subsidiaries, net of tax	59,872			3,137			—			(63,009		)	—
Net earnings	$	42,277		$	59,872		$	3,137		$	(63,009	)	$	42,277

SALLY HOLDINGS LLC AND SUBSIDIARIES

Condensed Consolidating Statement of Earnings
Nine months ended June 30, 2011

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Sally Holdings LLC & Subsidiaries

Net sales	$	—		$	1,969,387		$	462,558		$	—		$	2,431,945
Related party sales	—			2,196			—			(2,196		)	—
Cost of products sold and distribution expenses	—			999,869			252,535			(2,196		)	1,250,208
Gross profit	—			971,714			210,023			—			1,181,737
Selling, general and administrative expenses	437			624,607			172,555			—			797,599
Depreciation and amortization	—			31,880			12,280			—			44,160
Operating earnings (loss)	(437		)	315,227			25,188			—			339,978
Interest income	—			(72		)	(157		)	—			(229		)
Interest expense	84,589			50			648			—			85,287
Earnings (loss) before provision (benefit) for income taxes	(85,026		)	315,249			24,697			—			254,920
Provision (benefit) for income taxes	(32,976		)	120,185			4,789			—			91,998
Equity in earnings of subsidiaries, net of tax	214,972			19,908			—			(234,880		)	—
Net earnings	$	162,922		$	214,972		$	19,908		$	(234,880	)	$	162,922

SALLY HOLDINGS LLC AND SUBSIDIARIES

Condensed Consolidating Statement of Earnings
Nine months ended June 30, 2010

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Sally Holdings LLC & Subsidiaries

Net sales	$	—		$	1,765,152		$	403,141		$	—		$	2,168,293
Related party sales	—			2,172			—			(2,172		)	—
Cost of products sold and distribution expenses	—			908,404			223,704			(2,172		)	1,129,936
Gross profit	—			858,920			179,437			—			1,038,357
Selling, general and administrative expenses	458			587,457			160,041			—			747,956
Depreciation and amortization	—			27,134			9,851			—			36,985
Operating earnings (loss)	(458		)	244,329			9,545			—			253,416
Interest income	—			(59		)	(64		)	—			(123		)
Interest expense	84,575			80			588			—			85,243
Earnings (loss) before provision (benefit) for income taxes	(85,033		)	244,308			9,021			—			168,296
Provision (benefit) for income taxes	(32,015		)	92,516			2,291			—			62,792
Equity in earnings of subsidiaries, net of tax	158,522			6,730			—			(165,252		)	—
Net earnings	$	105,504		$	158,522		$	6,730		$	(165,252	)	$	105,504

SALLY HOLDINGS LLC AND SUBSIDIARIES

Condensed Consolidating Statement of Cash Flows
Nine months ended June 30, 2011

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Sally Holdings LLC & Subsidiaries
Net cash provided by operating activities	$	82,366		$	96,174		$	23,278		$	—	$	201,818

Cash Flows from Investing Activities:
Capital expenditures, net of proceeds from sale of property and equipment	—			(29,062		)	(13,907		)	—		(42,969		)
Acquisitions, net of cash acquired	—			(81,435		)	(2,487		)	—		(83,922		)
Net cash used by investing activities	—			(110,497		)	(16,394		)	—		(126,891		)

Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	372,200			404			6,901			—		379,505
Repayments of long-term debt	(449,200		)	(112		)	(8,938		)	—		(458,250		)
Debt issuance costs	(5,386		)	—			—			—		(5,386		)
Excess tax benefit (shortfall) from share-based compensation	—			1,954			—			—		1,954
Net cash (used) provided by financing activities	(82,386		)	2,246			(2,037		)	—		(82,177		)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			473			—		473
Net (decrease) increase in cash and cash equivalents	(20		)	(12,077		)	5,320			—		(6,777		)
Cash and cash equivalents, beginning of period	20			32,975			26,499			—		59,494

Cash and cash equivalents, end of period	$	—		$	20,898		$	31,819		$	—	$	52,717

SALLY HOLDINGS LLC AND SUBSIDIARIES

Condensed Consolidated Statement of Cash Flows
Nine months ended June 30, 2010

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Sally Holdings LLC & Subsidiaries
Net cash provided (used) by operating	$	100,000		$	(1,145	)	$	49,127		$	—	$	147,982

Cash Flows from Investing Activities:
Capital expenditures, net of proceeds from sale of property and equipment	—			(23,701		)	(12,200		)	—		(35,901		)
Acquisitions, net of cash acquired	—			(3,876		)	(30,569		)	—		(34,445		)
Net cash used by investing activities	—			(27,577		)	(42,769		)	—		(70,346		)

Cash Flows from Financing Activities:
Change in book cash overdraft	—			—			—			—		—
Proceeds from issuance of long-term debt	232,000			—			—			—		232,000
Repayments of long-term debt	(332,000		)	(93		)	(1,932		)	—		(334,025		)
Excess tax benefit (shortfall) from share-based compensation	—			59			—			—		59
Net cash used by financing activities	(100,000		)	(34		)	(1,932		)	—		(101,966		)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			(1,814		)	—		(1,814		)
Net (decrease) increase in cash and cash equivalents	—			(28,756		)	2,612			—		(26,144		)
Cash and cash equivalents, beginning of period	20			37,593			16,834			—		54,447
Cash and cash equivalents, end of period	$	20		$	8,837		$	19,446		$	—	$	28,303

SALLY HOLDINGS LLC 10-Q