UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2018
-OR-
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 1-33145
SALLY BEAUTY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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36-2257936 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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3001 Colorado Boulevard |
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Denton, Texas |
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76210 |
(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (940) 898-7500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☒ |
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Accelerated filer |
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☐ |
Non-accelerated filer |
☐ |
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Smaller reporting company |
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☐ |
(Do not check if a smaller reporting company) |
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Emerging growth company |
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☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
As of April 27, 2018, there were 122,093,187 shares of the issuer’s common stock outstanding.
2
In this Quarterly Report, references to “the Company,” “Sally Beauty,” “our company,” “we,” “our,” “ours” and “us” refer to Sally Beauty Holdings, Inc. and its consolidated subsidiaries u nless otherwise indicated or the context otherwise requires.
cautionary notice regarding forward-looking statements
Statements in this Quarterly Report on Form 10-Q and in the documents incorporated by reference herein which are not purely historical facts or which depend upon future events may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or similar expressions may also identify such forward-looking statements.
Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including, but not limited to, risks and uncertainties related to:
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• |
anticipating and effectively responding to changes in consumer and professional stylist preferences and buying trends in a timely manner; |
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• |
the success of our strategic initiatives, including our store refresh program and increased marketing efforts, to enhance the customer experience, attract new customers, drive brand awareness and improve customer loyalty; |
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our ability to successfully implement our long-term strategic and growth initiatives; |
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our ability to efficiently manage and control our costs and the success of our cost control plans, including our recent restructuring plans; |
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our ability to implement and achieve benefits from cost-reduction initiatives and reinvestment plans in multiple jurisdictions; |
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our ability to manage the effects of our cost-reduction plans on our employees and other operations costs; |
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possible changes in the size and components of the expected costs and charges associated with the restructuring plans; |
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our ability to realize the anticipated cost savings from the restructuring and cost-reduction plans within the anticipated time frame, if at all; |
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the highly competitive nature of, and the increasing consolidation of, the beauty products distribution industry; |
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• |
the timing and acceptance of new product introductions; |
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• |
shifts in the mix of products sold during any period; |
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potential fluctuation in our same store sales and quarterly financial performance; |
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our dependence upon manufacturers who may be unwilling or unable to continue to supply products to us; |
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our dependence upon manufacturers who have developed or could develop their own distribution businesses which compete directly with ours; |
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the possibility of material interruptions in the supply of products by our third‑party manufacturers or distributors or increases in the prices of the products we purchase from our third‑party manufacturers or distributors; |
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products sold by us being found to be defective in labeling or content; |
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compliance with current laws and regulations or becoming subject to additional or more stringent laws and regulations; |
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the success of our e-commerce businesses; |
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• |
diversion of professional products sold by Beauty Systems Group to mass retailers or other unauthorized resellers; |
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• |
the operational and financial performance of our Armstrong McCall, L.P. franchise‑based business, which we refer to as Armstrong McCall; |
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successfully identifying acquisition candidates and successfully completing desirable acquisitions; |
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integrating acquired businesses; |
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• |
the success of our initiatives to expand into new geographies; |
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• |
the success of our existing stores, and our ability to increase sales at existing stores; |
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opening and operating new stores profitably; |
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the volume of traffic to our stores; |
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the impact of the general economic conditions upon our business; |
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the challenges of conducting business outside the United States; |
3
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the impact of Britain’s separation from the European Union and related or other disruptive events in the United Kingdom, the European Union or other geographies in which we conduct business; |
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rising labor and rental costs; |
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protecting our intellectual property rights, particularly our trademarks; |
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the risk that our products may infringe on the intellectual property rights of others; |
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successfully updating and integrating our information technology systems; |
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disruption in our information technology systems; |
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a significant data security breach, including misappropriation of our customers’, employees’ or suppliers’ confidential information, and the potential costs related thereto; |
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the negative impact on our reputation and loss of confidence of our customers, suppliers and others arising from a significant data security breach; |
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the costs and diversion of management’s attention required to investigate and remediate a data security breach and to continuously upgrade our information technology security systems to address evolving cyber-security threats; |
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the ultimate determination of the extent or scope of the potential liabilities relating to our past or any future data security incidents; |
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our ability to attract and retain highly skilled management and other personnel; |
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severe weather, natural disasters or acts of violence or terrorism; |
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the preparedness of our accounting and other management systems to meet financial reporting and other requirements and the upgrade of our existing financial reporting system; |
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being a holding company, with no operations of our own, and depending on our subsidiaries for our liquidity needs; |
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our ability to execute and implement our share repurchase program; |
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our substantial indebtedness; |
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the possibility that we may incur substantial additional debt, including secured debt, in the future; |
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restrictions and limitations in the agreements and instruments governing our debt; |
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generating the significant amount of cash needed to service all of our debt and refinancing all or a portion of our indebtedness or obtaining additional financing; |
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changes in interest rates increasing the cost of servicing or refinancing our debt; and |
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the costs and effects of litigation. |
The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements. We assume no obligation to publicly update or revise any forward-looking statements.
4
WHERE YOU CAN FIND MORE INFORMATION
Our quarterly financial results and other important information are available by calling our Investor Relations Department at (940) 297-3877.
We maintain a website at www.sallybeautyholdings.com where investors and other interested parties may obtain, free of charge, press releases and other information as well as gain access to our periodic filings with the Securities and Exchange Commission (“SEC”). The information contained on this website should not be considered to be a part of this or any other report filed with or furnished to the SEC.
5
PART I — FINANCI AL INFORMATION
The following consolidated balance sheets as of March 31, 2018 and September 30, 2017, the consolidated statements of earnings and consolidated statements of comprehensive income for the three and six months ended March 31, 2018 and 2017, and the consolidated statements of cash flows for the six months ended March 31, 2018 and 2017 are those of Sally Beauty Holdings, Inc. and its subsidiaries.
6
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except par value data)
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March 31, 2018 |
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September 30, 2017 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
68,056 |
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$ |
63,759 |
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Trade accounts receivable, net |
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48,991 |
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46,986 |
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Accounts receivable, other |
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49,764 |
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45,255 |
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Inventory |
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935,037 |
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930,855 |
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Other current assets |
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52,313 |
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55,223 |
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Total current assets |
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1,154,161 |
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1,142,078 |
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Property and equipment, net of accumulated depreciation of $580,054 at March 31, 2018 and $546,061 at September 30, 2017 |
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300,132 |
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313,717 |
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Goodwill |
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546,035 |
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537,791 |
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Intangible assets, excluding goodwill, net of accumulated amortization of $128,186 at March 31, 2018 and $121,550 at September 30, 2017 |
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75,943 |
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80,305 |
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Other assets |
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23,879 |
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25,116 |
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Total assets |
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$ |
2,100,150 |
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$ |
2,099,007 |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
86,208 |
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$ |
96,082 |
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Accounts payable |
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289,969 |
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307,752 |
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Accrued liabilities |
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168,074 |
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166,527 |
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Income taxes payable |
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1,577 |
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2,233 |
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Total current liabilities |
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545,828 |
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572,594 |
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Long-term debt |
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1,769,841 |
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1,771,853 |
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Other liabilities |
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33,346 |
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20,140 |
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Deferred income tax liabilities, net |
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66,164 |
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98,036 |
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Total liabilities |
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2,415,179 |
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2,462,623 |
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Stockholders’ deficit: |
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Common stock, $0.01 par value. Authorized 500,000 shares; 123,344 and 129,710 shares issued and 123,002 and 129,585 shares outstanding at March 31, 2018 and September 30, 2017, respectively |
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1,230 |
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1,296 |
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Preferred stock, $0.01 par value. Authorized 50,000 shares; none issued |
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— |
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— |
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Additional paid-in capital |
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— |
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— |
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Accumulated deficit |
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(246,112 |
) |
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|
(283,076 |
) |
Accumulated other comprehensive loss, net of tax |
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(70,147 |
) |
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(81,836 |
) |
Total stockholders’ deficit |
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(315,029 |
) |
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(363,616 |
) |
Total liabilities and stockholders’ deficit |
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$ |
2,100,150 |
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$ |
2,099,007 |
|
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
7
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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March 31, |
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March 31, |
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2018 |
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2017 |
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2018 |
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2017 |
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Net sales |
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$ |
975,321 |
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$ |
966,470 |
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$ |
1,970,286 |
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$ |
1,966,080 |
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Cost of goods sold |
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488,999 |
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478,364 |
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997,335 |
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986,266 |
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Gross profit |
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486,322 |
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488,106 |
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972,951 |
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979,814 |
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Selling, general and administrative expenses |
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368,461 |
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359,857 |
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739,748 |
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|
734,108 |
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Restructuring charges |
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6,759 |
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|
9,211 |
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11,969 |
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9,211 |
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Operating earnings |
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111,102 |
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119,038 |
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221,234 |
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236,495 |
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Interest expense |
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25,262 |
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26,848 |
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49,277 |
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|
53,646 |
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Earnings before provision for income taxes |
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85,840 |
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|
|
92,190 |
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|
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171,957 |
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|
182,849 |
|
Provision for income taxes |
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24,469 |
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35,198 |
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27,322 |
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|
|
70,031 |
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Net earnings |
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$ |
61,371 |
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$ |
56,992 |
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$ |
144,635 |
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$ |
112,818 |
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Earnings per share: |
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|
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Basic |
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$ |
0.49 |
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$ |
0.41 |
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$ |
1.15 |
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$ |
0.79 |
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Diluted |
|
$ |
0.49 |
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$ |
0.40 |
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$ |
1.14 |
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$ |
0.79 |
|
Weighted average shares: |
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|
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|
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|
|
|
|
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Basic |
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124,270 |
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|
|
140,549 |
|
|
|
126,046 |
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|
|
142,107 |
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Diluted |
|
|
125,057 |
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|
|
141,325 |
|
|
|
126,834 |
|
|
|
143,047 |
|
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
8
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
|
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Three Months Ended |
|
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Six Months Ended |
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||||||||||
|
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March 31, |
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March 31, |
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||||||||||
|
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2018 |
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2017 |
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2018 |
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2017 |
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||||
Net earnings |
|
$ |
61,371 |
|
|
$ |
56,992 |
|
|
$ |
144,635 |
|
|
$ |
112,818 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax |
|
|
10,437 |
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|
|
8,026 |
|
|
|
10,182 |
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|
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(10,642 |
) |
Interest rate caps: |
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|
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Changes in fair value |
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3,251 |
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|
|
— |
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2,121 |
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|
|
— |
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Income taxes related to changes in fair value |
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(941 |
) |
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— |
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|
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(614 |
) |
|
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— |
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Other comprehensive income (loss), net of tax |
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|
12,747 |
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|
8,026 |
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|
11,689 |
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(10,642 |
) |
Total comprehensive income |
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$ |
74,118 |
|
|
$ |
65,018 |
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|
$ |
156,324 |
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$ |
102,176 |
|
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
9
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
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Six Months Ended March 31, |
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2018 |
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2017 |
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Cash Flows from Operating Activities: |
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Net earnings |
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$ |
144,635 |
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|
$ |
112,818 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: |
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|
|
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Depreciation and amortization |
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54,009 |
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|
|
54,716 |
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Share-based compensation expense |
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|
5,850 |
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|
|
6,212 |
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Amortization of deferred financing costs |
|
|
1,851 |
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|
|
1,577 |
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Loss on extinguishment of debt |
|
|
876 |
|
|
|
— |
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Deferred income taxes |
|
|
(29,379 |
) |
|
|
4,321 |
|
Changes in (exclusive of effects of acquisitions): |
|
|
|
|
|
|
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Trade accounts receivable |
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(1,506 |
) |
|
|
1,376 |
|
Accounts receivable, other |
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(3,990 |
) |
|
|
2,898 |
|
Inventory |
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|
3,266 |
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|
|
(14,805 |
) |
Other current assets |
|
|
3,508 |
|
|
|
13,262 |
|
Other assets |
|
|
185 |
|
|
|
(427 |
) |
Accounts payable and accrued liabilities |
|
|
(12,175 |
) |
|
|
(21,392 |
) |
Income taxes payable |
|
|
(762 |
) |
|
|
2,503 |
|
Other liabilities |
|
|
13,082 |
|
|
|
(3,652 |
) |
Net cash provided by operating activities |
|
|
179,450 |
|
|
|
159,407 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Payments for property and equipment, net |
|
|
(38,679 |
) |
|
|
(49,320 |
) |
Acquisitions, net of cash acquired |
|
|
(9,175 |
) |
|
|
— |
|
Net cash used by investing activities |
|
|
(47,854 |
) |
|
|
(49,320 |
) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
246,819 |
|
|
|
136,000 |
|
Repayments of long-term debt |
|
|
(260,142 |
) |
|
|
(130,844 |
) |
Debt issuance costs |
|
|
(1,151 |
) |
|
|
— |
|
Payments for common stock repurchased |
|
|
(114,699 |
) |
|
|
(169,144 |
) |
Proceeds from exercises of stock options |
|
|
1,112 |
|
|
|
16,683 |
|
Net cash used by financing activities |
|
|
(128,061 |
) |
|
|
(147,305 |
) |
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
762 |
|
|
|
(285 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
4,297 |
|
|
|
(37,503 |
) |
Cash and cash equivalents, beginning of period |
|
|
63,759 |
|
|
|
86,622 |
|
Cash and cash equivalents, end of period |
|
$ |
68,056 |
|
|
$ |
49,119 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
46,574 |
|
|
$ |
51,987 |
|
Income taxes paid |
|
$ |
45,089 |
|
|
$ |
50,495 |
|
Capital expenditures incurred but not paid |
|
$ |
1,426 |
|
|
$ |
1,301 |
|
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
10
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. Description of Business and Basis of Presentation
Description of Business
Sally Beauty Holdings, Inc. and its consolidated subsidiaries (“Sally Beauty” or “the Company” or “we”) sell professional beauty supplies through its Sally Beauty Supply (“SBS”) retail stores located in the U.S., Puerto Rico, Canada, Mexico, the United Kingdom, Ireland, Belgium, France, Germany, the Netherlands, Spain, Chile and Peru. Additionally, we distribute professional beauty products to salons and licensed salon professionals through our Beauty Systems Group (“BSG”) store operations and a commissioned direct sales force that calls on salons primarily in the U.S. and Canada, and to franchises in the southern and southwestern regions of the U.S. and in Mexico through the operations of our subsidiary Armstrong McCall. A significant number of our products are also available through a number of SBS and BSG-operated websites. Certain beauty products sold by BSG and Armstrong McCall are sold under exclusive territory agreements with the third-party manufacturers.
Basis of Presentation
The condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of March 31, 2018 and September 30, 2017, our consolidated results of operations and consolidated comprehensive income for the three and six months ended March 31, 2018 and 2017, and our consolidated cash flows for the six months ended March 31, 2018 and 2017.
The condensed consolidated interim financial statements included herein have been prepared on a going concern basis of accounting. Each quarter, management evaluates, based on relevant conditions and events, our ability to continue as a going concern for at least one year from the date our financial statements are issued. Based on management’s assessment, we have concluded that substantial doubt about our ability to continue as a going concern does not exist as of the date the condensed consolidated interim financial statements included herein were issued.
Certain amounts for the prior fiscal periods have been reclassified to conform to the current fiscal period presentation, in connection with the retroactive adoption of two new accounting pronouncements in the current fiscal year. See Note 3 below for additional information.
2. Significant Accounting Policies
We adhere to the same accounting policies in the preparation of our condensed consolidated interim financial statements as we do in the preparation of our full-year consolidated financial statements. As permitted under GAAP, interim accounting for certain expenses, including income taxes, is based on full-year assumptions. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates.
3. Accounting Changes and Recent Accounting Pronouncements
Accounting Changes
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Income Taxes , which requires that deferred tax assets, net of related valuation allowances, and deferred tax liabilities be reported as noncurrent in a classified balance sheet. We adopted the new standard retrospectively effective October 1, 2017. Accordingly, the adoption of ASU No. 2015-17 resulted in a decrease in current deferred income tax assets of $28.4 million, a decrease in current deferred income tax liabilities, included in accrued liabilities, of $2.0 million, a net increase in noncurrent deferred income tax assets, included in other assets, of $4.3 million and a net decrease in noncurrent deferred income tax liabilities of $22.1 million in our previously reported consolidated balance sheet as of September 30, 2017.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting , which amended several aspects of how share-based compensation is recorded and reported on the financial statements. For example, the new guidance requires that all the income tax effect related to share-based payments be recorded in income tax expense. We adopted these
11
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
amendments effective October 1, 2017. In connection with this accounting change, as allowed, we have elected to recognize share-based compensation award forfeitures when they occur. Prior to the change, we recognized forfeitures ba sed on the estimated number of awards expected to vest. As allowed, we elected to adopt retrospectively the amendment requiring that excess tax benefits (shortfalls) be reported in cash flows from operating activities in our consolidated statements of cash flows. The adoption of the amendments contained in ASU No. 2016-09 did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers , which will supersede Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition. A core principle of the new guidance is that an entity should measure revenue in connection with its sale of goods and services to a customer based on the consideration to which the entity expects to be entitled in exchange for each of those goods and services. The new standard must be adopted using either the retrospective or cumulative effect transition method. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. In connection with the adoption of ASU No. 2014-09, we expect to change our classification of deferred revenue and product cost in connection with certain sales of salon equipment to customers. We are in the process of designing changes to our processes and controls to ensure the timely identification of new revenue streams that may affect our revenue recognition processes in the future. We are also assessing the disclosure requirements contained in the new standard and anticipate being compliant with the additional disclosures about our revenue recognition practices required by the new standard. We have not yet selected a transition method. We have not yet adopted this accounting pronouncement and we do not believe, based on our assessment, that adoption will have a material effect on our consolidated results of operations and consolidated financial position.
In February 2016, the FASB issued ASU No. 2016-02, Leases , which will require most leases to be reported on the balance sheet as a right-of-use asset and a lease liability. Under the new guidance, the lease liability must be measured initially based on the present value of future lease payments, subject to certain conditions. The right-of-use asset must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense will generally be flat (straight-line) throughout the life of the lease. For finance leases, periodic expense will decline (similar to capital leases under prior rules) over the life of the lease. The new standard must be adopted using a modified retrospective transition method. For public companies, this standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We have not yet adopted this accounting pronouncement. We have completed a preliminary assessment of the potential impact of adopting ASU No. 2016-02 on our consolidated financial statements. At March 31, 2018, adoption of ASU No. 2016-02 would have resulted in recognition of a right-of-use asset in the estimated amount of approximately $600.0 million and a lease liability for a similar amount in our consolidated balance sheet. We do not believe adoption of ASU No. 2016-02 will have a material impact on our consolidated results of operations or consolidated cash flows. The amount of the right-of-use asset and the lease liability we ultimately recognize may materially differ from this preliminary estimate, including as a result of future organic growth in our business, changes in interest rates, and potential acquisitions.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities , which is intended to better align an entity’s risk management activities and its financial reporting for hedging relationships. ASU No. 2017-12 will change both the designation and measurement guidance for a qualifying hedging relationship and the presentation of the impact of the hedging relationship on the entity’s financial statements. In addition, ASU No. 2017-12 contains targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness and eliminates the requirement for an entity to separately measure and report hedge ineffectiveness. For public companies, these amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We have not yet adopted the accounting pronouncement and do not believe, based on our preliminary assessment, that adoption will have a material effect on our consolidated financial statements.
4. Fair Value Measurements
Our financial instruments consist of cash equivalents, if any, trade and other accounts receivable, accounts payable, derivative instruments, including foreign exchange contracts and interest rate caps, and debt. The carrying amounts of cash equivalents, if any, trade and other accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these financial instruments.
We measure on a recurring basis and disclose the fair value of our financial instruments under the provisions of ASC Topic 820, Fair Value Measurement , as amended (“ASC 820”). We define “fair value” as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. ASC 820
12
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
establishes a three-level hierarchy for measuring fair value. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.
Consistent with this hierarchy, we categorize our financial assets and liabilities as follows (in thousands):
|
|
As of March 31, 2018 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
340 |
|
|
$ |
— |
|
|
$ |
340 |
|
|
$ |
— |
|
Interest rate caps |
|
|
7,299 |
|
|
|
— |
|
|
|
7,299 |
|
|
|
— |
|
Total assets |
|
$ |
7,639 |
|
|
$ |
— |
|
|
$ |
7,639 |
|
|
$ |
— |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
1,866,277 |
|
|
$ |
942,600 |
|
|
$ |
923,677 |
|
|
$ |
— |
|
Total liabilities |
|
$ |
1,866,277 |
|
|
$ |
942,600 |
|
|
$ |
923,677 |
|
|
$ |
— |
|
|
|
As of September 30, 2017 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
779 |
|
|
$ |
— |
|
|
$ |
779 |
|
|
$ |
— |
|
Interest rate caps |
|
|
5,178 |
|
|
|
— |
|
|
|
5,178 |
|
|
|
— |
|
Total assets |
|
$ |
5,957 |
|
|
$ |
— |
|
|
$ |
5,957 |
|
|
$ |
— |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
1,919,930 |
|
|
$ |
973,750 |
|
|
$ |
946,180 |
|
|
$ |
— |
|
Foreign exchange contracts |
|
|
207 |
|
|
|
— |
|
|
|
207 |
|
|
|
— |
|
Total liabilities |
|
$ |
1,920,137 |
|
|
$ |
973,750 |
|
|
$ |
946,387 |
|
|
$ |
— |
|
Long-term debt, including current maturities and borrowings under the asset-based senior secured loan facility (the “ABL facility”), if any, is carried in our consolidated financial statements at amortized cost of $1,874.7 million at March 31, 2018 and $1,887.4 million at September 30, 2017, before unamortized debt issuance costs of $18.7 million at March 31, 2018 and $19.4 million at September 30, 2017. Our senior notes are valued for purposes of this disclosure above using unadjusted quoted market prices for such debt securities. Our term loan B is generally valued for purposes of this disclosure above using quoted market prices for similar debt securities in active markets. Other long-term debt (consisting primarily of borrowings under the ABL facility, if any, and capital lease obligations) is generally valued for purposes of this disclosure above using widely accepted valuation techniques, such as discounted cash flow analyses, using observable inputs, such as market interest rates.
5. Accumulated Stockholders’ Deficit
In August 2017, we announced that our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $1.0 billion of its common stock over an approximate four-year period expiring on September 30, 2021 (the “2017 Share Repurchase Program”) and terminated our similar share repurchase program approved by our Board in 2014 (the “2014 Share Repurchase Program”). During the six months ended March 31, 2018 and 2017, we repurchased and subsequently retired approximately 6.7 million and 6.9 million shares of our common stock at an aggregate cost of $114.5 million and $168.9 million, excluding common stock surrendered by grantees to satisfy tax withholding obligations, under the 2017 Share Repurchase Program and the 2014 Share Repurchase Program, respectively. We reduced common stock and additional paid-in capital, in the aggregate, by these amounts. However, as required by GAAP, to the extent that share repurchase amounts exceeded the balance of additional paid-in capital prior to our recording of such repurchases, we recorded the excess in accumulated deficit. We funded these share repurchases with cash from operations and borrowings under the ABL facility.
13
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands):
|
|
Foreign Currency Translation Adjustments |
|
|
Interest Rate Caps |
|
|
Total |
|
|||
Balance at September 30, 2017 |
|
$ |
(80,752 |
) |
|
$ |
(1,084 |
) |
|
$ |
(81,836 |
) |
Other comprehensive income before reclassification, net of tax |
|
|
10,182 |
|
|
|
1,507 |
|
|
|
11,689 |
|
Balance at March 31, 2018 |
|
$ |
(70,570 |
) |
|
$ |
423 |
|
|
$ |
(70,147 |
) |
6. Earnings Per Share
The following table sets forth the computations of basic and diluted earnings per share (in thousands, except per share data):
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Net earnings |
|
$ |
61,371 |
|
|
$ |
56,992 |
|
|
$ |
144,635 |
|
|
$ |
112,818 |
|
Weighted average basic shares |
|
|
124,270 |
|
|
|
140,549 |
|
|
|
126,046 |
|
|
|
142,107 |
|
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and stock award programs |
|
|
787 |
|
|
|
776 |
|
|
|
788 |
|
|
|
940 |
|
Weighted average diluted shares |
|
|
125,057 |
|
|
|
141,325 |
|
|
|
126,834 |
|
|
|
143,047 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.49 |
|
|
$ |
0.41 |
|
|
$ |
1.15 |
|
|
$ |
0.79 |
|
Diluted |
|
$ |
0.49 |
|
|
$ |
0.40 |
|
|
$ |
1.14 |
|
|
$ |
0.79 |
|
For the three and six months ended March 31, 2018, options to purchase 5.4 million shares of our common stock were outstanding but not included in our computations of diluted earnings per share, since these options were anti-dilutive. For the three and six months ended March 31, 2017 and, options to purchase 5.1 million shares and 3.3 million shares, respectively, of our common stock were outstanding but not included in the computations of diluted earnings per share, since these options were anti-dilutive. An anti-dilutive option is an option that is: (a) out-of-the-money (an option with an exercise price which is greater than the average price per share of our common stock during the period), and (b) in-the-money (an option with an exercise price which is less than the average price per share of our common stock during the period) for which the sum of assumed proceeds, including any unrecognized compensation expense related to such option, exceeds the average price per share for the period.
7. Share-Based Payments
Performance-Based Awards
The following table presents a summary of the activity for our performance unit awards assuming 100% payout:
Performance Unit Awards |
|
Number of Shares (in Thousands) |
|
|
Weighted Average Fair Value Per Share |
|
|
Weighted Average Remaining Vesting Term (in Years) |
|
|||
Unvested at September 30, 2017 |
|
|
197 |
|
|
$ |
24.50 |
|
|
|
1.5 |
|
Granted |
|
|
215 |
|
|
|
17.42 |
|
|
|
|
|
Vested |
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeited |
|
|
(37 |
) |
|
|
22.01 |
|
|
|
|
|
Unvested at March 31, 2018 |
|
|
375 |
|
|
$ |
20.70 |
|
|
|
1.8 |
|
14
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
The following table presents a summary of the activity for our stock option awards:
|
|
Number of Outstanding Options (in Thousands) |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term (in Years) |
|
|
Aggregate Intrinsic Value (in Thousands) |
|
||||
Outstanding at September 30, 2017 |
|
|
5,211 |
|
|
$ |
24.12 |
|
|
|
5.6 |
|
|
$ |
3,867 |
|
Granted |
|
|
1,122 |
|
|
|
17.42 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(123 |
) |
|
|
9.02 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(549 |
) |
|
|
24.21 |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2018 |
|
|
5,661 |
|
|
$ |
23.11 |
|
|
|
5.9 |
|
|
$ |
1,635 |
|
Exercisable at March 31, 2018 |
|
|
3,298 |
|
|
$ |
23.97 |
|
|
|
4.4 |
|
|
$ |
1,635 |
|
The following table presents a summary of the activity for our Restricted Stock Awards:
Restricted Stock Awards |
|
Number of Shares (in Thousands) |
|
|
Weighted Average Fair Value Per Share |
|
|
Weighted Average Remaining Vesting Term (in Years) |
|
|||
Unvested at September 30, 2017 |
|
|
125 |
|
|
$ |
26.00 |
|
|
|
1.3 |
|
Granted |
|
|
264 |
|
|
|
17.42 |
|
|
|
|
|
Vested |
|
|
(29 |
) |
|
|
23.78 |
|
|
|
|
|
Forfeited |
|
|
(18 |
) |
|
|
19.71 |
|
|
|
|
|
Unvested at March 31, 2018 |
|
|
342 |
|
|
$ |
19.93 |
|
|
|
2.4 |
|
The following table presents a summary of the activity for our Restricted Stock Units:
Restricted Stock Units |
|
Number of Shares (in Thousands) |
|
|
Weighted Average Fair Value Per Share |
|
|
Weighted Average Remaining Vesting Term (in Years) |
|
|||
Unvested at September 30, 2017 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
Granted |
|
|
72 |
|
|
|
17.42 |
|
|
|
|
|
Vested |
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeited |
|
|
(7 |
) |
|
|
17.42 |
|
|
|
|
|
Unvested at March 31, 2018 |
|
|
65 |
|
|
$ |
17.42 |
|
|
|
0.5 |
|
8. Goodwill and Intangible Assets
During the three months ended March 31, 2018, the Company completed its annual assessment for impairment of goodwill and other intangible assets. No material impairment losses were recognized in the current or prior periods presented in connection with the Company’s goodwill and other intangible assets.
For the three months ended March 31, 2018 and 2017, amortization expense related to other intangible assets was $2.7 million and $3.2 million, respectively, and, for the six months ended March 31, 2018 and 2017, amortization expense was $5.6 million and $6.8 million, respectively.
15
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
9. Short-term Borrowings and Long-term Debt
At March 31, 2018, we had $399.7 million available for borrowing under the ABL facility, including the Canadian sub-facility. At March 31, 2018, we were in compliance with the agreements and instruments governing our debt, including our financial covenants.
On March 27, 2018, we entered into an Amendment No. 1 with respect to our term loan B pursuant to which the interest rate spread on the variable-rate tranche of approximately $548.6 million was reduced by 25 basis points to 2.25%. In connection with this amendment, we incurred and capitalized financing costs of approximately $1.0 million. This amount is reported as a deduction from the term loan B and is being amortized over the term of the term loan B using the effective interest method. Additionally, we recorded a loss on extinguishment of debt in the amount of approximately $0.9 million, including as a result of certain creditors exiting the loan syndication.
10. Derivative Instruments and Hedging Activities
During the six months ended March 31, 2018, we did not purchase or hold any derivative instruments for trading or speculative purposes.
Designated Cash Flow Hedges
In July 2017, we purchased two interest rate caps with an initial aggregate notional amount of $550 million (the “interest rate caps”) to mitigate the exposure to higher interest rates in connection with our term loan B. The interest rate caps expire on June 30, 2023 and are designated as cash flow hedges.
Non-designated Cash Flow Hedges
At March 31, 2018, we held foreign currency forward contracts with an aggregate notional amount of $71.0 million based upon exchange rates at March 31, 2018. These derivative instruments expire at various dates though September 30, 2018.
The table below presents the fair value of our derivative financial instruments as well as their classification on our consolidated balance sheets (in thousands):
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||||||||||
|
|
Classification |
|
March 31, 2018 |
|
|
September 30, 2017 |
|
|
Classification |
|
March 31, 2018 |
|
|
September 30, 2017 |
|
||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps |
|
Other assets |
|
$ |
7,299 |
|
|
$ |
5,178 |
|
|
N/A |
|
$ |
— |
|
|
$ |
— |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Other current assets |
|
|
340 |
|
|
|
779 |
|
|
Accrued liabilities |
|
|
— |
|
|
|
207 |
|
|
|
|
|
$ |
7,639 |
|
|
$ |
5,957 |
|
|
|
|
$ |
— |
|
|
$ |
207 |
|
The effects of our derivative financial instruments on our consolidated statements of earnings were not material for the three and six months ended March 31, 2018 and 2017.
11. Income Taxes
On December 22, 2017, the U.S. enacted comprehensive amendments to the Internal Revenue Code of 1986 (“U.S. Tax Reform”). Among other things, U.S. Tax Reform (a) reduces the federal statutory tax rate for corporate taxpayers, (b) provides for a deemed repatriation of undistributed foreign earnings by U.S. taxpayers and makes other fundamental changes on how foreign earnings will be taxed by the U.S. and (c) otherwise modifies corporate tax rules in significant ways. In accordance with ASC Topic No. 740, Income Taxes , entities must revalue their deferred income taxes considering the new tax rates and recognize any impact of the deemed repatriation of undistributed foreign earnings on their financial statements based on the enacted tax law.
16
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
In December 2017, the SEC provided guidance allowing registrants to record provisional amounts, during a specified measurement period, when the necessary information is not available, prepared or analyzed in reasonable detail to account for the impact of U .S. Tax Reform. Accordingly, we have reported the revaluation of deferred income taxes and the impact of the deemed repatriation on our consolidated interim financial statements based on provisional amounts. Specifically, in the six months ended March 31, 2018, we recognized a provisional income tax benefit of $33.6 million in connection with the revaluation of our deferred income tax assets and liabilities, and a provisional income tax charge of $11.4 million for federal and state income taxes, including $ 10.4 million payable beyond one year, related to accumulated but undistributed earnings of our foreign operations. In the three months ended March 31, 2018, no material changes to the provisional amounts occurred.
For the fiscal year ending September 30, 2018, our U.S. federal statutory tax rate is 24.5% and, for fiscal years after that, 21.0%. Among the factors that could affect the accuracy of our provisional amounts is uncertainty about the statutory tax rate applicable to our deferred income tax assets and liabilities, since the actual rate will be dependent on the timing of realization or settlement of such assets and liabilities. At March 31, 2018, we estimated the dates when such realization or settlement would occur. The actual dates when such realization or settlement occurs may be significantly different from our estimates, which could result in the ultimate revaluation of our deferred income taxes to be different from our provisional amounts. In addition, there is uncertainty about the impact of expected Internal Revenue Service (“IRS”) guidance intended to interpret the most complex provisions of U.S. Tax Reform. Our liability for federal and state income taxes applicable to undistributed earnings of our foreign operations may be materially different from our provisional amount as a result of such future IRS guidance and interpretation and in connection with estimates related to the amount of undistributed foreign earnings and cash balances.
Effective for fiscal years beginning after December 31, 2017, U.S. Tax Reform subjects taxpayers to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. In January 2018, FASB Staff provided guidance that an entity can make an accounting policy election to either recognize deferred taxes related to items giving rise to GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Given the uncertainty about the impact of expected IRS guidance related to the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy.
We are currently assessing the potential additional impact of U.S. Tax Reform on our business and consolidated financial statements, and expect to complete such assessment on or before September 30, 2018.
The difference between our U.S. federal statutory income tax rate and our effective income tax rate is summarized below:
|
Three Months Ended March 31, 2018 |
|
Six Months Ended March 31, 2018 |
||
U.S. federal statutory income tax rate |
24.5 |
% |
|
24.5 |
% |
State income taxes, net of federal tax benefit |
3.0 |
|
|
3.1 |
|
Effect of foreign operations |
1.0 |
|
|
0.9 |
|
Deferred tax revaluation |
— |
|
|
(19.6) |
|
Deemed repatriation tax |
— |
|
|
6.7 |
|
Other, net |
— |
|
|
0.3 |
|
Effective tax rate |
28.5 |
% |
|
15.9 |
% |
12. Business Segments
Our business is organized into two operating and reporting segments: (i) SBS, a domestic and international chain of retail stores and a consumer-facing e-commerce website that offers professional beauty supplies to both salon professionals and retail customers in North America, Puerto Rico, and parts of Europe and South America and (ii) BSG, including its franchise-based business Armstrong McCall, a full service distributor of beauty products and supplies that offers professional beauty products directly to salons and salon professionals through its professional-only stores, e-commerce websites and its own sales force in partially exclusive geographical territories in North America.
The accounting policies of both of our reportable segments are the same as described in the summary of significant accounting policies contained in Note 2 of the “Notes to Consolidated Financial Statements” in “Item 8 - Financial Statements and Supplementary Data” contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. Sales between segments, which are eliminated in consolidation, were not material during the three and six months ended March 31, 2018 and 2017.
17
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Segment data for the three and six months ended March 31, 2018 and 2017 is as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
$ |
580,114 |
|
|
$ |
575,994 |
|
|
$ |
1,165,689 |
|
|
$ |
1,165,853 |
|
BSG |
|
|
395,207 |
|
|
|
390,476 |
|
|
|
804,597 |
|
|
|
800,227 |
|
Total |
|
$ |
975,321 |
|
|
$ |
966,470 |
|
|
$ |
1,970,286 |
|
|
$ |
1,966,080 |
|
Earnings before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
$ |
90,328 |
|
|
$ |
96,839 |
|
|
$ |
176,922 |
|
|
$ |
189,365 |
|
BSG |
|
|
59,949 |
|
|
|
62,703 |
|
|
|
124,514 |
|
|
|
126,303 |
|
Segment operating earnings |
|
|
150,277 |
|
|
|
159,542 |
|
|
|
301,436 |
|
|
|
315,668 |
|
Unallocated expenses |
|
|
(32,416 |
) |
|
|
(31,293 |
) |
|
|
(68,233 |
) |
|
|
(69,962 |
) |
Restructuring charges |
|
|
(6,759 |
) |
|
|
(9,211 |
) |
|
|
(11,969 |
) |
|
|
(9,211 |
) |
Consolidated operating earnings |
|
|
111,102 |
|
|
|
119,038 |
|
|
|
221,234 |
|
|
|
236,495 |
|
Interest expense |
|
|
(25,262 |
) |
|
|
(26,848 |
) |
|
|
(49,277 |
) |
|
|
(53,646 |
) |
Earnings before provision for income taxes |
|
$ |
85,840 |
|
|
$ |
92,190 |
|
|
$ |
171,957 |
|
|
$ |
182,849 |
|
13. Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidating Financial Statements
The following consolidating financial information presents the condensed consolidating balance sheets as of March 31, 2018 and September 30, 2017, the related condensed consolidating statements of earnings and comprehensive income for the three and six months ended March 31, 2018 and 2017, and the condensed consolidating statements of cash flows for the six months ended March 31, 2018 and 2017 of: (i) Sally Beauty Holdings, Inc., or the “Parent;” (ii) Sally Holdings and Sally Capital Inc. (iii) the guarantor subsidiaries; (iv) the non-guarantor subsidiaries; (v) elimination entries necessary for consolidation purposes; and (vi) Sally Beauty on a condensed 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 because we believe the following information is sufficient since the guarantor subsidiaries are 100% indirectly owned by the Parent and all guarantees are full and unconditional.
18
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
March 31, 2018
(In thousands)
|
|
Parent |
|
|
Sally Holdings LLC and Sally Capital Inc. |
|
|
Guarantor Subsidiaries |
|
|
Non- Guarantor Subsidiaries |
|
|
Consolidating Eliminations |
|
|
Sally Beauty Holdings, Inc. and Subsidiaries |
|
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
10 |
|
|
$ |
28,211 |
|
|
$ |
39,835 |
|
|
$ |
— |
|
|
$ |
68,056 |
|
Trade and other accounts receivable, net |
|
|
— |
|
|
|
— |
|
|
|
63,931 |
|
|
|
34,824 |
|
|
|
— |
|
|
|
98,755 |
|
Due from affiliates |
|
|
— |
|
|
|
— |
|
|
|
2,448,961 |
|
|
|
— |
|
|
|
(2,448,961 |
) |
|
|
— |
|
Inventory |
|
|
— |
|
|
|
— |
|
|
|
697,786 |
|
|
|
237,251 |
|
|
|
— |
|
|
|
935,037 |
|
Other current assets |
|
|
7,750 |
|
|
|
505 |
|
|
|
26,711 |
|
|
|
17,347 |
|
|
|
— |
|
|
|
52,313 |
|
Property and equipment, net |
|
|
10 |
|
|
|
— |
|
|
|
219,104 |
|
|
|
81,018 |
|
|
|
— |
|
|
|
300,132 |
|
Investment in subsidiaries |
|
|
1,271,522 |
|
|
|
3,912,786 |
|
|
|
386,703 |
|
|
|
— |
|
|
|
(5,571,011 |
) |
|
|
— |
|
Goodwill and other intangible assets, net |
|
|
— |
|
|
|
— |
|
|
|
463,587 |
|
|
|
158,391 |
|
|
|
— |
|
|
|
621,978 |
|
Other assets |
|
|
1,050 |
|
|
|
10,335 |
|
|
|
(7,859 |
) |
|
|
20,353 |
|
|
|
— |
|
|
|
23,879 |
|
Total assets |
|
$ |
1,280,332 |
|
|
$ |
3,923,636 |
|
|
$ |
4,327,135 |
|
|
$ |
589,019 |
|
|
$ |
(8,019,972 |
) |
|
$ |
2,100,150 |
|
Liabilities and Stockholders’ (Deficit) Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
59 |
|
|
$ |
1 |
|
|
$ |
223,727 |
|
|
$ |
66,182 |
|
|
$ |
— |
|
|
$ |
289,969 |
|
Due to affiliates |
|
|
1,584,758 |
|
|
|
775,062 |
|
|
|
— |
|
|
|
89,141 |
|
|
|
(2,448,961 |
) |
|
|
— |
|
Accrued liabilities |
|
|
279 |
|
|
|
19,431 |
|
|
|
112,026 |
|
|
|
36,338 |
|
|
|
— |
|
|
|
168,074 |
|
Income taxes payable |
|
|
— |
|
|
|
1,764 |
|
|
|
— |
|
|
|
(187 |
) |
|
|
— |
|
|
|
1,577 |
|
Long-term debt |
|
|
— |
|
|
|
1,854,904 |
|
|
|
4 |
|
|
|
1,141 |
|
|
|
— |
|
|
|
1,856,049 |
|
Other liabilities |
|
|
10,371 |
|
|
|
— |
|
|
|
18,571 |
|
|
|
4,404 |
|
|
|
— |
|
|
|
33,346 |
|
Deferred income tax liabilities, net |
|
|
(106 |
) |
|
|
952 |
|
|
|
60,021 |
|
|
|
5,297 |
|
|
|
— |
|
|
|
66,164 |
|
Total liabilities |
|
|
1,595,361 |
|
|
|
2,652,114 |
|
|
|
414,349 |
|
|
|
202,316 |
|
|
|
(2,448,961 |
) |
|
|
2,415,179 |
|
Total stockholders’ (deficit) equity |
|
|
(315,029 |
) |
|
|
1,271,522 |
|
|
|
3,912,786 |
|
|
|
386,703 |
|
|
|
(5,571,011 |
) |
|
|
(315,029 |
) |
Total liabilities and stockholders’ (deficit) equity |
|
$ |
1,280,332 |
|
|
$ |
3,923,636 |
|
|
$ |
4,327,135 |
|
|
$ |
589,019 |
|
|
$ |
(8,019,972 |
) |
|
$ |
2,100,150 |
|
19
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
September 30, 2017
(In thousands)
|
|
Parent |
|
|
Sally Holdings LLC and Sally Capital Inc. |
|
|
Guarantor Subsidiaries |
|
|
Non- Guarantor Subsidiaries |
|
|
Consolidating Eliminations |
|
|
Sally Beauty Holdings, Inc. and Subsidiaries |
|
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
10 |
|
|
$ |
22,090 |
|
|
$ |
41,659 |
|
|
$ |
— |
|
|
$ |
63,759 |
|
Trade and other accounts receivable, net |
|
|
200 |
|
|
|
— |
|
|
|
59,992 |
|
|
|
32,049 |
|
|
|
— |
|
|
|
92,241 |
|
Due from affiliates |
|
|
— |
|
|
|
— |
|
|
|
2,289,371 |
|
|
|
— |
|
|
|
(2,289,371 |
) |
|
|
— |
|
Inventory |
|
|
— |
|
|
|
— |
|
|
|
709,890 |
|
|
|
220,965 |
|
|
|
— |
|
|
|
930,855 |
|
Other current assets |
|
|
11,763 |
|
|
|
813 |
|
|
|
26,144 |
|
|
|
16,503 |
|
|
|
— |
|
|
|
55,223 |
|
Property and equipment, net |
|
|
12 |
|
|
|
— |
|
|
|
230,069 |
|
|
|
83,636 |
|
|
|
— |
|
|
|
313,717 |
|
Investment in subsidiaries |
|
|
1,110,891 |
|
|
|
3,717,999 |
|
|
|
386,681 |
|
|
|
— |
|
|
|
(5,215,571 |
) |
|
|
— |
|
Goodwill and other intangible assets, net |
|
|
— |
|
|
|
— |
|
|
|
468,118 |
|
|
|
149,978 |
|
|
|
— |
|
|
|
618,096 |
|
Other assets |
|
|
1,538 |
|
|
|
8,116 |
|
|
|
(7,837 |
) |
|
|
23,299 |
|
|
|
— |
|
|
|
25,116 |
|
Total assets |
|
$ |
1,124,404 |
|
|
$ |
3,726,938 |
|
|
$ |
4,184,518 |
|
|
$ |
568,089 |
|
|
$ |
(7,504,942 |
) |
|
$ |
2,099,007 |
|
Liabilities and Stockholders’ (Deficit) Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
251 |
|
|
$ |
4 |
|
|
$ |
243,818 |
|
|
$ |
63,679 |
|
|
$ |
— |
|
|
$ |
307,752 |
|
Due to affiliates |
|
|
1,487,484 |
|
|
|
727,856 |
|
|
|
— |
|
|
|
74,031 |
|
|
|
(2,289,371 |
) |
|
|
— |
|
Accrued liabilities |
|
|
285 |
|
|
|
20,108 |
|
|
|
113,628 |
|
|
|
32,506 |
|
|
|
— |
|
|
|
166,527 |
|
Income taxes payable |
|
|
— |
|
|
|
1,624 |
|
|
|
— |
|
|
|
609 |
|
|
|
— |
|
|
|
2,233 |
|
Long-term debt |
|
|
— |
|
|
|
1,866,455 |
|
|
|
1 |
|
|
|
1,479 |
|
|
|
— |
|
|
|
1,867,935 |
|
Other liabilities |
|
|
— |
|
|
|
— |
|
|
|
16,008 |
|
|
|
4,132 |
|
|
|
— |
|
|
|
20,140 |
|
Deferred income tax liabilities, net |
|
|
— |
|
|
|
— |
|
|
|
93,064 |
|
|
|
4,972 |
|
|
|
— |
|
|
|
98,036 |
|
Total liabilities |
|
|
1,488,020 |
|
|
|
2,616,047 |
|
|
|
466,519 |
|
|
|
181,408 |
|
|
|
(2,289,371 |
) |
|
|
2,462,623 |
|
Total stockholders’ (deficit) equity |
|
|
(363,616 |
) |
|
|
1,110,891 |
|
|
|
3,717,999 |
|
|
|
386,681 |
|
|
|
(5,215,571 |
) |
|
|
(363,616 |
) |
Total liabilities and stockholders’ (deficit) equity |
|
$ |
1,124,404 |
|
|
$ |
3,726,938 |
|
|
$ |
4,184,518 |
|
|
$ |
568,089 |
|
|
$ |
(7,504,942 |
) |
|
$ |
2,099,007 |
|
20
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating State ment of Earnings and Comprehensive Income
Three Months Ended March 31, 2018
(In thousands)
|
|
Parent |
|
|
Sally Holdings LLC and Sally Capital Inc. |
|
|
Guarantor Subsidiaries |
|
|
Non- Guarantor Subsidiaries |
|
|
Consolidating Eliminations |
|
|
Sally Beauty Holdings, Inc. and Subsidiaries |
|
||||||
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
786,743 |
|
|
$ |
188,578 |
|
|
$ |
— |
|
|
$ |
975,321 |
|
Related party sales |
|
|
— |
|
|
|
— |
|
|
|
631 |
|
|
|
— |
|
|
|
(631 |
) |
|
|
— |
|
Cost of products sold and distribution expenses |
|
|
— |
|
|
|
— |
|
|
|
390,891 |
|
|
|
98,739 |
|
|
|
(631 |
) |
|
|
488,999 |
|
Gross profit |
|
|
— |
|
|
|
— |
|
|
|
396,483 |
|
|
|
89,839 |
|
|
|
— |
|
|
|
486,322 |
|
Selling, general and administrative expenses |
|
|
2,859 |
|
|
|
602 |
|
|
|
279,435 |
|
|
|
85,565 |
|
|
|
— |
|
|
|
368,461 |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
6,759 |
|
|
|
— |
|
|
|
— |
|
|
|
6,759 |
|
Operating earnings (loss) |
|
|
(2,859 |
) |
|
|
(602 |
) |
|
|
110,289 |
|
|
|
4,274 |
|
|
|
— |
|
|
|
111,102 |
|
Interest expense (income) |
|
|
— |
|
|
|
25,293 |
|
|
|
(3 |
) |
|
|
(28 |
) |
|
|
— |
|
|
|
25,262 |
|
Earnings (loss) before provision for income taxes |
|
|
(2,859 |
) |
|
|
(25,895 |
) |
|
|
110,292 |
|
|
|
4,302 |
|
|
|
— |
|
|
|
85,840 |
|
Provision (benefit) for income taxes |
|
|
(828 |
) |
|
|
(7,499 |
) |
|
|
30,758 |
|
|
|
2,038 |
|
|
|
— |
|
|
|
24,469 |
|
Equity in earnings of subsidiaries, net of tax |
|
|
63,402 |
|
|
|
81,798 |
|
|
|
2,264 |
|
|
|
— |
|
|
|
(147,464 |
) |
|
|
— |
|
Net earnings |
|
|
61,371 |
|
|
|
63,402 |
|
|
|
81,798 |
|
|
|
2,264 |
|
|
|
(147,464 |
) |
|
|
61,371 |
|
Other comprehensive income, net of tax |
|
|
— |
|
|
|
2,310 |
|
|
|
— |
|
|
|
10,437 |
|
|
|
— |
|
|
|
12,747 |
|
Total comprehensive income |
|
$ |
61,371 |
|
|
$ |
65,712 |
|
|
$ |
81,798 |
|
|
$ |
12,701 |
|
|
$ |
(147,464 |
) |
|
$ |
74,118 |
|
21
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Earnings and Comprehensive Income
Three Months Ended March 31, 2017
(In thousands)
|
|
Parent |
|
|
Sally Holdings LLC and Sally Capital Inc. |
|
|
Guarantor Subsidiaries |
|
|
Non- Guarantor Subsidiaries |
|
|
Consolidating Eliminations |
|
|
Sally Beauty Holdings, Inc. and Subsidiaries |
|
||||||
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
798,631 |
|
|
$ |
167,839 |
|
|
$ |
— |
|
|
$ |
966,470 |
|
Related party sales |
|
|
— |
|
|
|
— |
|
|
|
595 |
|
|
|
— |
|
|
|
(595 |
) |
|
|
— |
|
Cost of products sold and distribution expenses |
|
|
— |
|
|
|
— |
|
|
|
391,398 |
|
|
|
87,561 |
|
|
|
(595 |
) |
|
|
478,364 |
|
Gross profit |
|
|
— |
|
|
|
— |
|
|
|
407,828 |
|
|
|
80,278 |
|
|
|
— |
|
|
|
488,106 |
|
Selling, general and administrative expenses |
|
|
2,823 |
|
|
|
194 |
|
|
|
277,634 |
|
|
|
79,206 |
|
|
|
— |
|
|
|
359,857 |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
9,211 |
|
|
|
— |
|
|
|
— |
|
|
|
9,211 |
|
Operating earnings (loss) |
|
|
(2,823 |
) |
|
|
(194 |
) |
|
|
120,983 |
|
|
|
1,072 |
|
|
|
— |
|
|
|
119,038 |
|
Interest expense (income) |
|
|
— |
|
|
|
26,859 |
|
|
|
— |
|
|
|
(11 |
) |
|
|
— |
|
|
|
26,848 |
|
Earnings (loss) before provision for income taxes |
|
|
(2,823 |
) |
|
|
(27,053 |
) |
|
|
120,983 |
|
|
|
1,083 |
|
|
|
— |
|
|
|
92,190 |
|
Provision (benefit) for income taxes |
|
|
(1,097 |
) |
|
|
(10,507 |
) |
|
|
45,799 |
|
|
|
1,003 |
|
|
|
— |
|
|
|
35,198 |
|
Equity in earnings of subsidiaries, net of tax |
|
|
58,718 |
|
|
|
75,264 |
|
|
|
80 |
|
|
|
— |
|
|
|
(134,062 |
) |
|
|
— |
|
Net earnings |
|
|
56,992 |
|
|
|
58,718 |
|
|
|
75,264 |
|
|
|
80 |
|
|
|
(134,062 |
) |
|
|
56,992 |
|
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,026 |
|
|
|
— |
|
|
|
8,026 |
|
Total comprehensive income |
|
$ |
56,992 |
|
|
$ |
58,718 |
|
|
$ |
75,264 |
|
|
$ |
8,106 |
|
|
$ |
(134,062 |
) |
|
$ |
65,018 |
|
22
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Earnings and Comprehensive Income
Six Months Ended March 31, 2018
(In thousands)
|
|
Parent |
|
|
Sally Holdings LLC and Sally Capital Inc. |
|
|
Guarantor Subsidiaries |
|
|
Non- Guarantor Subsidiaries |
|
|
Consolidating Eliminations |
|
|
Sally Beauty Holdings, Inc. and Subsidiaries |
|
||||||
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,583,275 |
|
|
$ |
387,011 |
|
|
$ |
— |
|
|
$ |
1,970,286 |
|
Related party sales |
|
|
— |
|
|
|
— |
|
|
|
1,077 |
|
|
|
— |
|
|
|
(1,077 |
) |
|
|
— |
|
Cost of products sold and distribution expenses |
|
|
— |
|
|
|
— |
|
|
|
794,701 |
|
|
|
203,711 |
|
|
|
(1,077 |
) |
|
|
997,335 |
|
Gross profit |
|
|
— |
|
|
|
— |
|
|
|
789,651 |
|
|
|
183,300 |
|
|
|
— |
|
|
|
972,951 |
|
Selling, general and administrative expenses |
|
|
5,465 |
|
|
|
781 |
|
|
|
563,902 |
|
|
|
169,600 |
|
|
|
— |
|
|
|
739,748 |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
11,969 |
|
|
|
— |
|
|
|
— |
|
|
|
11,969 |
|
Operating earnings (loss) |
|
|
(5,465 |
) |
|
|
(781 |
) |
|
|
213,780 |
|
|
|
13,700 |
|
|
|
— |
|
|
|
221,234 |
|
Interest expense (income) |
|
|
— |
|
|
|
49,307 |
|
|
|
(3 |
) |
|
|
(27 |
) |
|
|
— |
|
|
|
49,277 |
|
Earnings (loss) before provision for income taxes |
|
|
(5,465 |
) |
|
|
(50,088 |
) |
|
|
213,783 |
|
|
|
13,727 |
|
|
|
— |
|
|
|
171,957 |
|
Provision (benefit) for income taxes |
|
|
(1,079 |
) |
|
|
(14,424 |
) |
|
|
22,843 |
|
|
|
19,982 |
|
|
|
— |
|
|
|
27,322 |
|
Equity in earnings of subsidiaries, net of tax |
|
|
149,021 |
|
|
|
184,685 |
|
|
|
(6,255 |
) |
|
|
— |
|
|
|
(327,451 |
) |
|
|
— |
|
Net earnings |
|
|
144,635 |
|
|
|
149,021 |
|
|
|
184,685 |
|
|
|
(6,255 |
) |
|
|
(327,451 |
) |
|
|
144,635 |
|
Other comprehensive income, net of tax |
|
|
— |
|
|
|
1,507 |
|
|
|
— |
|
|
|
10,182 |
|
|
|
— |
|
|
|
11,689 |
|
Total comprehensive income |
|
$ |
144,635 |
|
|
$ |
150,528 |
|
|
$ |
184,685 |
|
|
$ |
3,927 |
|
|
$ |
(327,451 |
) |
|
$ |
156,324 |
|
23
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Stat ement of Earnings and Comprehensive Income
Six Months Ended March 31, 2017
(In thousands)
|
|
Parent |
|
|
Sally Holdings LLC and Sally Capital Inc. |
|
|
Guarantor Subsidiaries |
|
|
Non- Guarantor Subsidiaries |
|
|
Consolidating Eliminations |
|
|
Sally Beauty Holdings, Inc. and Subsidiaries |
|
||||||
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,614,682 |
|
|
$ |
351,398 |
|
|
$ |
— |
|
|
$ |
1,966,080 |
|
Related party sales |
|
|
— |
|
|
|
— |
|
|
|
1,343 |
|
|
|
— |
|
|
|
(1,343 |
) |
|
|
— |
|
Cost of products sold and distribution expenses |
|
|
— |
|
|
|
— |
|
|
|
802,721 |
|
|
|
184,888 |
|
|
|
(1,343 |
) |
|
|
986,266 |
|
Gross profit |
|
|
— |
|
|
|
— |
|
|
|
813,304 |
|
|
|
166,510 |
|
|
|
— |
|
|
|
979,814 |
|
Selling, general and administrative expenses |
|
|
5,372 |
|
|
|
331 |
|
|
|
574,358 |
|
|
|
154,047 |
|
|
|
— |
|
|
|
734,108 |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
9,211 |
|
|
|
— |
|
|
|
— |
|
|
|
9,211 |
|
Operating earnings (loss) |
|
|
(5,372 |
) |
|
|
(331 |
) |
|
|
229,735 |
|
|
|
12,463 |
|
|
|
— |
|
|
|
236,495 |
|
Interest expense (income) |
|
|
— |
|
|
|
53,608 |
|
|
|
(1 |
) |
|
|
39 |
|
|
|
— |
|
|
|
53,646 |
|
Earnings (loss) before provision for income taxes |
|
|
(5,372 |
) |
|
|
(53,939 |
) |
|
|
229,736 |
|
|
|
12,424 |
|
|
|
— |
|
|
|
182,849 |
|
Provision (benefit) for income taxes |
|
|
(2,087 |
) |
|
|
(20,950 |
) |
|
|
87,798 |
|
|
|
5,270 |
|
|
|
— |
|
|
|
70,031 |
|
Equity in earnings of subsidiaries, net of tax |
|
|
116,103 |
|
|
|
149,092 |
|
|
|
7,154 |
|
|
|
— |
|
|
|
(272,349 |
) |
|
|
— |
|
Net earnings |
|
|
112,818 |
|
|
|
116,103 |
|
|
|
149,092 |
|
|
|
7,154 |
|
|
|
(272,349 |
) |
|
|
112,818 |
|
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,642 |
) |
|
|
— |
|
|
|
(10,642 |
) |
Total comprehensive income (loss) |
|
$ |
112,818 |
|
|
$ |
116,103 |
|
|
$ |
149,092 |
|
|
$ |
(3,488 |
) |
|
$ |
(272,349 |
) |
|
$ |
102,176 |
|
24
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statem ent of Cash Flows
Six Months Ended March 31, 2018
(In thousands)
|
|
Parent |
|
|
Sally Holdings LLC and Sally Capital Inc. |
|
|
Guarantor Subsidiaries |
|
|
Non- Guarantor Subsidiaries |
|
|
Consolidating Eliminations |
|
|
Sally Beauty Holdings, Inc. and Subsidiaries |
|
||||||
Net cash provided (used) by operating activities |
|
$ |
16,313 |
|
|
$ |
(33,119 |
) |
|
$ |
197,800 |
|
|
$ |
(1,544 |
) |
|
$ |
— |
|
|
$ |
179,450 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment, net |
|
|
— |
|
|
|
— |
|
|
|
(32,092 |
) |
|
|
(6,587 |
) |
|
|
— |
|
|
|
(38,679 |
) |
Acquisitions, net of cash acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,175 |
) |
|
|
— |
|
|
|
(9,175 |
) |
Due from affiliates |
|
|
— |
|
|
|
— |
|
|
|
(159,590 |
) |
|
|
— |
|
|
|
159,590 |
|
|
|
— |
|
Net cash used by investing activities |
|
|
— |
|
|
|
— |
|
|
|
(191,682 |
) |
|
|
(15,762 |
) |
|
|
159,590 |
|
|
|
(47,854 |
) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
— |
|
|
|
246,814 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
246,819 |
|
Repayments of long-term debt |
|
|
— |
|
|
|
(259,750 |
) |
|
|
(2 |
) |
|
|
(390 |
) |
|
|
— |
|
|
|
(260,142 |
) |
Debt issuance costs |
|
|
— |
|
|
|
(1,151 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,151 |
) |
Repurchases of common stock |
|
|
(114,699 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(114,699 |
) |
Proceeds from exercises of stock options |
|
|
1,112 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,112 |
|
Due to affiliates |
|
|
97,274 |
|
|
|
47,206 |
|
|
|
— |
|
|
|
15,110 |
|
|
|
(159,590 |
) |
|
|
— |
|
Net cash (used) provided by financing activities |
|
|
(16,313 |
) |
|
|
33,119 |
|
|
|
3 |
|
|
|
14,720 |
|
|
|
(159,590 |
) |
|
|
(128,061 |
) |
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
762 |
|
|
|
— |
|
|
|
762 |
|
Net increase in cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
6,121 |
|
|
|
(1,824 |
) |
|
|
— |
|
|
|
4,297 |
|
Cash and cash equivalents, beginning of period |
|
|
— |
|
|
|
10 |
|
|
|
22,090 |
|
|
|
41,659 |
|
|
|
— |
|
|
|
63,759 |
|
Cash and cash equivalents, end of period |
|
$ |
— |
|
|
$ |
10 |
|
|
$ |
28,211 |
|
|
$ |
39,835 |
|
|
$ |
— |
|
|
$ |
68,056 |
|
25
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating State ment of Cash Flows
Six Months Ended March 31, 2017
(In thousands)
|
|
Parent |
|
|
Sally Holdings LLC and Sally Capital Inc. |
|
|
Guarantor Subsidiaries |
|
|
Non- Guarantor Subsidiaries |
|
|
Consolidating Eliminations |
|
|
Sally Beauty Holdings, Inc. and Subsidiaries |
|
||||||
Net cash provided (used) by operating activities |
|
$ |
15,974 |
|
|
$ |
(28,849 |
) |
|
$ |
171,472 |
|
|
$ |
810 |
|
|
$ |
— |
|
|
$ |
159,407 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment, net |
|
|
(8 |
) |
|
|
— |
|
|
|
(37,174 |
) |
|
|
(12,138 |
) |
|
|
— |
|
|
|
(49,320 |
) |
Due from affiliates |
|
|
— |
|
|
|
— |
|
|
|
(143,226 |
) |
|
|
— |
|
|
|
143,226 |
|
|
|
— |
|
Net cash used by investing activities |
|
|
(8 |
) |
|
|
— |
|
|
|
(180,400 |
) |
|
|
(12,138 |
) |
|
|
143,226 |
|
|
|
(49,320 |
) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
— |
|
|
|
136,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
136,000 |
|
Repayments of long-term debt |
|
|
— |
|
|
|
(130,500 |
) |
|
|
(9 |
) |
|
|
(335 |
) |
|
|
— |
|
|
|
(130,844 |
) |
Repurchases of common stock |
|
|
(169,144 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(169,144 |
) |
Proceeds from exercises of stock options |
|
|
16,683 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,683 |
|
Due to affiliates |
|
|
136,495 |
|
|
|
(5,013 |
) |
|
|
— |
|
|
|
11,744 |
|
|
|
(143,226 |
) |
|
|
— |
|
Net cash (used) provided by financing activities |
|
|
(15,966 |
) |
|
|
487 |
|
|
|
(9 |
) |
|
|
11,409 |
|
|
|
(143,226 |
) |
|
|
(147,305 |
) |
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(285 |
) |
|
|
— |
|
|
|
(285 |
) |
Net decrease in cash and cash equivalents |
|
|
— |
|
|
|
(28,362 |
) |
|
|
(8,937 |
) |
|
|
(204 |
) |
|
|
— |
|
|
|
(37,503 |
) |
Cash and cash equivalents, beginning of period |
|
|
— |
|
|
|
28,372 |
|
|
|
22,368 |
|
|
|
35,882 |
|
|
|
— |
|
|
|
86,622 |
|
Cash and cash equivalents, end of period |
|
$ |
— |
|
|
$ |
10 |
|
|
$ |
13,431 |
|
|
$ |
35,678 |
|
|
$ |
— |
|
|
$ |
49,119 |
|
26
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
2017 Restructuring Plan
In January 2017, our Board of Directors approved a comprehensive restructuring plan (the “2017 Restructuring Plan”) for our businesses that included a number of organizational efficiency initiatives and other cost reduction opportunities. The 2017 Restructuring Plan comprised the closure of four administrative offices in the U.S. and Canada, reductions in both salaried and hourly workforce and certain other cost reduction activities. At September 30, 2017, the initiatives contemplated by the 2017 Restructuring Plan were substantially completed.
The liability related to the 2017 Restructuring Plan, which is included in accrued liabilities in our consolidated balance sheets, is as follows (in thousands):
Restructuring Activity |
|
Liability at September 30, 2017 |
|
|
Expenses |
|
|
Expenses Paid or Otherwise Settled |
|
|
Adjustments |
|
|
Liability at March 31, 2018 |
|
|||||
Workforce reductions |
|
$ |
1,860 |
|
|
$ |
— |
|
|
$ |
1,221 |
|
|
$ |
312 |
|
|
$ |
327 |
|
Facility closures |
|
|
1,747 |
|
|
|
— |
|
|
|
844 |
|
|
|
— |
|
|
|
903 |
|
Other |
|
|
235 |
|
|
|
— |
|
|
|
235 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
3,842 |
|
|
$ |
— |
|
|
$ |
2,300 |
|
|
$ |
312 |
|
|
$ |
1,230 |
|
2018 Restructuring Plan
In November 2017, our Board approved a restructuring plan (the “2018 Restructuring Plan”) focused primarily on significantly improving the profitability of our international businesses, with particular focus on our European operations.
The liability related to the 2018 Restructuring Plan, which is included in accrued liabilities in our consolidated balance sheets, is as follows (in thousands):
Restructuring Activity |
|
Liability at September 30, 2017 |
|
|
Expenses |
|
|
Expenses Paid or Otherwise Settled |
|
|
Adjustments |
|
|
Liability at March 31, 2018 |
|
|||||
Workforce reductions |
|
$ |
— |
|
|
$ |
6,272 |
|
|
$ |
6,143 |
|
|
$ |
— |
|
|
$ |
129 |
|
Consulting |
|
|
— |
|
|
|
2,891 |
|
|
|
2,761 |
|
|
|
— |
|
|
|
130 |
|
Other |
|
|
— |
|
|
|
2,806 |
|
|
|
2,752 |
|
|
|
— |
|
|
|
54 |
|
Total |
|
$ |
— |
|
|
$ |
11,969 |
|
|
$ |
11,656 |
|
|
$ |
— |
|
|
$ |
313 |
|
Expenses incurred in the six months ended March 31, 2018 represent costs incurred by SBS ($8.1 million) and corporate ($3.8 million).
In April 2018, we announced an expansion of the 2018 Restructuring Plan that contains cost reduction initiatives designed to help fund important long-term growth initiatives. The expansion to the 2018 Restructuring Plan includes headcount reductions primarily at our corporate headquarters in Denton, Texas. We estimate that we will incur total charges in connection with the expanded 2018 Restructuring Plan of approximately $28 million to $30 million related primarily to employee separation costs and third-party consulting. We anticipate the remaining costs to be incurred in the second half of 2018 and substantially completing the 2018 Restructuring Plan in fiscal year 2018.
15. Commitments and Contingencies
During the fiscal year 2014 and 2015, we disclosed that we had experienced data security incidents (together, the “data security incidents”). The costs that we have incurred to date in connection with these data security incidents include assessments by payment card networks, professional advisory fees and legal fees relating to investigating and remediating the data security incidents. In the fiscal year 2017, we entered into agreements pursuant to which all existing claims and assessments by certain payment card networks were settled. We cannot provide any assurances regarding whether assessments by other payment card networks with which we conduct business will be received.
We expect to incur additional costs and expenses related to the data security incidents in the future. These costs and expenses may result from potential additional liabilities to other payment card networks, governmental or third party investigations, proceedings or litigation, and legal and other fees necessary to defend against any potential liabilities or claims, and further investigatory and remediation costs. While we do not anticipate these additional costs and expenses or liabilities would have a material adverse impact on our business, financial condition and operating results, these additional costs and expenses could be significant.
27
Item 2. Management’s Discussion and Analysis of F inancial Condition and Results of Operations
This section discusses management’s view of the financial condition, results of operations and cash flows of Sally Beauty. This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, including the Risk Factors section, and information contained elsewhere in this Quarterly Report, including the condensed consolidated interim financial statements and condensed notes to those financial statements. This Management’s Discussion and Analysis of Financial Condition and Results of Operations section may contain forward-looking statements. See “Cautionary Notice Regarding Forward-Looking Statements,” included at the beginning of this Quarterly Report for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements that could cause results to differ materially from those reflected in such forward-looking statements.
The results of operations for any interim period may not necessarily be indicative of the results that may be expected for any future interim period or the entire fiscal year.
Highlights for the Three Months Ended March 31, 2018:
|
• |
Consolidated net sales for the three months ended March 31, 2018, increased $8.9 million, or 0.9%, to $975.3 million, compared to the three months ended March 31, 2017; |
|
• |
Consolidated net sales from company-operated stores that have been open for 14 months or longer, which we refer to as same store sales, decreased 1.4% for the three months ended March 31, 2018; |
|
• |
Consolidated gross profit for the three months ended March 31, 2018 decreased $1.8 million, or 0.4%, to $486.3 million compared to the three months ended March 31, 2017. Gross margin decreased 60 basis points to 49.9% for the three months ended March 31, 2018, compared to the three months ended March 31, 2017; |
|
• |
During the three months ended March 31, 2018, we incurred approximately $6.8 million in expenses, including severance and related expenses of $2.0 million, consulting expenses of $2.9 million and other costs of $1.9 million, in connection with the 2018 Restructuring Plan; |
|
• |
Consolidated operating earnings for the three months ended March 31, 2018 decreased $7.9 million, or 6.7%, to $111.1 million compared to the three months ended March 31, 2017. Operating margin decreased 90 basis points to 11.4% for the three months ended March 31, 2018, compared to the three months ended March 31, 2017; |
|
• |
Consolidated net earnings increased $4.4 million, or 7.7%, to $61.4 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. As a percentage of net sales, net earnings increased 40 basis points to 6.3% for the three months ended March 31, 2018, compared to the three months ended March 31, 2017; |
|
• |
Diluted earnings per share for the three months ended March 31, 2018, were $0.49, compared to $0.40 for the three months ended March 31, 2017; |
|
• |
Cash provided by operations was $75.2 million for the three months ended March 31, 2018, compared to $69.6 million for the three months ended March 31, 2017; |
|
• |
During the three months ended March 31, 2018, we repurchased and subsequently retired approximately 2.9 million shares of our common stock at an aggregate cost of approximately $50.1 million; and |
|
• |
On March 27, 2018, we entered into an Amendment No. 1 with respect to our term loan B. Pursuant to that amendment, the interest rate spread on the variable-rate tranche of approximately $548.6 million was reduced by 25 basis points to 2.25%. |
Overview
Description of Business
We operate through two reportable segments: Sally Beauty Supply (“SBS”) and Beauty Systems Group (“BSG”). We believe we are the largest open-line distributor of professional beauty supplies in the U.S. based on store count. As of March 31, 2018, through SBS and BSG, we had 4,993 company-operated stores and supplied 182 franchised stores in North America and select South American and European countries. Within BSG, we also have one of the largest networks of distributor sales consultants for professional beauty products in North America. We offer a wide variety of leading third-party branded and exclusive-label professional beauty supplies, including hair color products, hair care products, styling tools, skin and nail care products and other beauty items. SBS targets retail consumers and salon professionals, while BSG exclusively targets salons and salon professionals. Neither the sales nor the product assortment for SBS or BSG are generally seasonal in nature.
28
During the six months ended March 31, 2018, we recognized restructuring charges of approximately $12.0 million in connection with the 2018 Restructuring Plan, including severance and related expenses of approximately $6.3 million, consulting expenses of $2.9 million and expenses related to other cost-reduction initiatives of $2.8 million. We anticipate substantially completing the 2018 Restructuring Plan in fiscal year 2018. We expect to realize annualized pre-tax benefits in the range of $26 million to $29 million from the 2018 Restructuring Plan, with estimated benefits in the range of $14 million to $15 million to be realized in fiscal year 2018. The Company has noted that a substantial portion of these benefits are expected to be invested in various initiatives to help drive long-term growth. See Note 14 of the Condensed Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.
U.S. Tax Reform
On December 22, 2017, the U.S. enacted comprehensive amendments to the Internal Revenue Code of 1986 (“U.S. Tax Reform”). See Note 11 of the Condensed Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the impact of the U.S. Tax Reform on our financial statements.
Data Security Incidents
As previously disclosed, we experienced data security incidents during fiscal year 2014 and 2015 (together, the “data security incidents”). Prior to fiscal year 2017, we had recognized $22.7 million of expenses in connection with these data security incidents. In the fiscal year 2017, we settled prior assessments by two payment card networks for $9.3 million. We expect to incur additional costs and expenses related to the data security incidents in future periods. These costs and expenses may result from potential additional liabilities to other payment card networks, governmental or third party investigations, proceedings or litigation and legal and other fees necessary to defend against any potential liabilities or claims, and further investigatory and remediation costs. As of March 31, 2018, the scope of these additional costs and expenses, or a range thereof, beyond amounts management has determined to be probable, cannot be reasonably estimated and, while we do not anticipate these additional costs and expenses or liabilities would have a material adverse impact on our business, financial condition and operating results, these additional costs and expenses could be significant.
29
The following table sets forth, for the periods indicated, information concerning key measures we rely on to evaluate our operating performance (dollars in thousands):
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||||||||||||||||||
|
|
2018 |
|
|
2017 |
|
|
Increase (Decrease) |
|
|
2018 |
|
|
2017 |
|
|
Increase (Decrease) |
|
||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
$ |
580,114 |
|
|
$ |
575,994 |
|
|
$ |
4,120 |
|
|
|
0.7 |
% |
|
$ |
1,165,689 |
|
|
$ |
1,165,853 |
|
|
$ |
(164 |
) |
|
|
0.0 |
% |
BSG |
|
|
395,207 |
|
|
|
390,476 |
|
|
|
4,731 |
|
|
|
1.2 |
% |
|
|
804,597 |
|
|
|
800,227 |
|
|
|
4,370 |
|
|
|
0.5 |
% |
Consolidated |
|
$ |
975,321 |
|
|
$ |
966,470 |
|
|
$ |
8,851 |
|
|
|
0.9 |
% |
|
$ |
1,970,286 |
|
|
$ |
1,966,080 |
|
|
$ |
4,206 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
$ |
322,565 |
|
|
$ |
324,438 |
|
|
$ |
(1,873 |
) |
|
|
(0.6 |
)% |
|
$ |
642,351 |
|
|
$ |
648,622 |
|
|
$ |
(6,271 |
) |
|
|
(1.0 |
)% |
BSG |
|
|
163,757 |
|
|
|
163,668 |
|
|
|
89 |
|
|
|
0.1 |
% |
|
|
330,600 |
|
|
|
331,192 |
|
|
|
(592 |
) |
|
|
(0.2 |
)% |
Consolidated |
|
$ |
486,322 |
|
|
$ |
488,106 |
|
|
$ |
(1,784 |
) |
|
|
(0.4 |
)% |
|
$ |
972,951 |
|
|
$ |
979,814 |
|
|
$ |
(6,863 |
) |
|
|
(0.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
|
55.6 |
% |
|
|
56.3 |
% |
|
(70) |
|
|
bps |
|
|
|
55.1 |
% |
|
|
55.6 |
% |
|
(50) |
|
|
bps |
|
||||
BSG |
|
|
41.4 |
% |
|
|
41.9 |
% |
|
(50) |
|
|
bps |
|
|
|
41.1 |
% |
|
|
41.4 |
% |
|
(30) |
|
|
bps |
|
||||
Consolidated |
|
|
49.9 |
% |
|
|
50.5 |
% |
|
(60) |
|
|
bps |
|
|
|
49.4 |
% |
|
|
49.8 |
% |
|
(40) |
|
|
bps |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
$ |
368,461 |
|
|
$ |
359,857 |
|
|
$ |
8,604 |
|
|
|
2.4 |
% |
|
$ |
739,748 |
|
|
$ |
734,108 |
|
|
$ |
5,640 |
|
|
|
0.8 |
% |
Restructuring charges |
|
$ |
6,759 |
|
|
$ |
9,211 |
|
|
$ |
(2,452 |
) |
|
|
(26.6 |
)% |
|
$ |
11,969 |
|
|
$ |
9,211 |
|
|
$ |
2,758 |
|
|
|
29.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
$ |
90,328 |
|
|
$ |
96,839 |
|
|
$ |
(6,511 |
) |
|
|
(6.7 |
)% |
|
$ |
176,922 |
|
|
$ |
189,365 |
|
|
$ |
(12,443 |
) |
|
|
(6.6 |
)% |
BSG |
|
|
59,949 |
|
|
|
62,703 |
|
|
|
(2,754 |
) |
|
|
(4.4 |
)% |
|
|
124,514 |
|
|
|
126,303 |
|
|
|
(1,789 |
) |
|
|
(1.4 |
)% |
Segment operating earnings |
|
|
150,277 |
|
|
|
159,542 |
|
|
|
(9,265 |
) |
|
|
(5.8 |
)% |
|
|
301,436 |
|
|
|
315,668 |
|
|
|
(14,232 |
) |
|
|
(4.5 |
)% |
Unallocated expenses and restructuring charges (a) |
|
|
(39,175 |
) |
|
|
(40,504 |
) |
|
|
(1,329 |
) |
|
|
(3.3 |
)% |
|
|
(80,202 |
) |
|
|
(79,173 |
) |
|
|
1,029 |
|
|
|
1.3 |
% |
Consolidated operating earnings |
|
$ |
111,102 |
|
|
$ |
119,038 |
|
|
$ |
(7,936 |
) |
|
|
(6.7 |
)% |
|
$ |
221,234 |
|
|
$ |
236,495 |
|
|
$ |
(15,261 |
) |
|
|
(6.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
|
15.6 |
% |
|
|
16.8 |
% |
|
(120) |
|
|
bps |
|
|
|
15.2 |
% |
|
|
16.2 |
% |
|
(100) |
|
|
bps |
|
||||
BSG |
|
|
15.2 |
% |
|
|
16.1 |
% |
|
(90) |
|
|
bps |
|
|
|
15.5 |
% |
|
|
15.8 |
% |
|
(30) |
|
|
bps |
|
||||
Consolidated |
|
|
11.4 |
% |
|
|
12.3 |
% |
|
(90) |
|
|
bps |
|
|
|
11.2 |
% |
|
|
12.0 |
% |
|
(80) |
|
|
bps |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores at end-of-period (including franchises): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,782 |
|
|
|
3,838 |
|
|
|
(56 |
) |
|
|
(1.5 |
)% |
BSG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,393 |
|
|
|
1,346 |
|
|
|
47 |
|
|
|
3.5 |
% |
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,175 |
|
|
|
5,184 |
|
|
|
(9 |
) |
|
|
(0.2 |
)% |
Same store sales growth (decline) (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
|
(1.6 |
)% |
|
|
(2.4 |
)% |
|
80 |
|
|
bps |
|
|
|
(2.1 |
)% |
|
|
(1.5 |
)% |
|
(60) |
|
|
bps |
|
||||
BSG |
|
|
(1.2 |
)% |
|
|
(1.2 |
)% |
|
— |
|
|
bps |
|
|
|
(1.2 |
)% |
|
|
0.7 |
% |
|
(190) |
|
|
bps |
|
||||
Consolidated |
|
|
(1.4 |
)% |
|
|
(2.0 |
)% |
|
60 |
|
|
bps |
|
|
|
(1.8 |
)% |
|
|
(0.8 |
)% |
|
(100) |
|
|
bps |
|
(a) |
Unallocated expenses consist of corporate and shared costs and are included in selling, general and administrative expenses in our consolidated statements of earnings. Restructuring charges relate to the 2018 Restructuring Plan and the 2017 Restructuring Plan. |
(b) |
For the purpose of calculating our same store sales metrics, we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year. Our same store sales are calculated in constant dollars and include internet-based sales (which are not material for each of the periods presented) and the effect of store expansions, if applicable, but do not generally include the sales from stores that have been relocated until 14 months after the relocation. The sales from stores acquired are excluded from our same store sales calculation until 14 months after the acquisition. |
30
The Three Months Ended March 31, 2018 compared to the Three Months Ended March 31, 2017
Net Sales
Consolidated . Consolidated net sales increased $8.9 million, or 0.9% for the three months ended March 31, 2018. Consolidated net sales for the three months ended March 31, 2018, include a positive impact from changes in foreign currency exchange rates of $16.7 million, or 1.7% of consolidated net sales.
SBS . Net sales for SBS increased $4.1 million, or 0.7%, for the three months ended March 31, 2018. Net sales for SBS for the three months ended March 31, 2018, were driven by a positive impact from changes in foreign currency exchange rates of approximately $15.2 million, partially offset by a decrease in SBS same store sales of approximately $8.7 million. Net sales from other sales channels, which include sales from new company-operated stores and our non-store channels (which include catalog and internet sales of our Sinelco Group subsidiaries), in the aggregate, decreased approximately $2.4 million.
The increase in SBS’s net sales also reflects a positive impact from an increase in average unit prices, resulting primarily from selective price increases in certain geographical areas of the U.S. and a change in product mix (to higher-priced products) resulting from shifts in customer preferences, offset partially by lower unit volume, including as a result of lower customer traffic primarily in the U.S.
BSG . Net sales for BSG increased $4.7 million, or 1.2%, for the three months ended March 31, 2018. BSG’s net sales for the three months ended March 31, 2018, were driven by incremental sales from businesses acquired in the preceding 12 months of approximately $6.3 million and a positive impact from changes in foreign currency exchange rates of approximately $1.5 million, partially offset by a decrease in BSG same store sales of approximately $3.0 million. Net sales from other sales channels, which include sales from new company-operated stores, sales to our franchisees and sales by our distributor sales consultants, in the aggregate, decreased approximately $0.1 million.
The increase in BSG’s net sales also reflects an increase in average unit prices (resulting primarily from the introduction of certain third-party brands with higher average unit prices in the preceding 12 months), partially offset by a decrease in unit volume (notwithstanding the impact of incremental sales from 46 company-operated stores opened or acquired during the last 12 months).
Gross Profit
Consolidated . Consolidated gross profit decreased $1.8 million, or 0.4%, for the three months ended March 31, 2018 due primarily to lower gross margins in both reportable segments, as more fully described below, partially offset by higher net sales in both reportable segments. Consolidated gross margin decreased 60 basis points to 49.9% for the three months ended March 31, 2018.
SBS . SBS’s gross profit decreased $1.9 million, or 0.6%, for the three months ended March 31, 2018 primarily as a result of a lower gross margin, partially offset by higher net sales. SBS’s gross margin decreased 70 basis points to 55.6% for the three months ended March 31, 2018. This decrease reflects a change in geographic sales mix, as a result of lower-margin non-U.S. sales making up a greater portion of total segment sales, increased promotional activity and coupon redemptions and the net impact of prior year price increases offset by selective price reductions in the three months ended March 31, 2018.
BSG . BSG’s gross profit was essentially flat for the three months ended March 31, 2018 primarily as a result of a lower gross margin, offset by higher net sales. BSG’s gross margin decreased 50 basis points to 41.4% for of the three months ended March 31, 2018 primarily as a result from a shift in product mix (to lower-margin product lines) and lower vendor allowances.
Selling, General and Administrative Expenses
Consolidated . Consolidated selling, general and administrative expenses increased $8.6 million, or 2.4%, for the three months ended March 31, 2018 primarily as a result of higher compensation and compensation-related expenses and higher rent expense, as discussed below. Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 60 bps to 37.8% for the three months ended March 31, 2018.
SBS . SBS’s selling and general and administrative expenses increased $4.6 million, or 2.0%, for the three months ended March 31, 2018. This increase reflects higher compensation and compensation-related expenses of $1.9 million (including the impact of wage increases for sales staff at existing stores), higher rent expense of $1.9 million and higher advertising expense of $1.1 million.
BSG . BSG’s selling and general and administrative expenses increased $2.8 million, or 2.7%, for the three months ended March 31, 2018 primarily as a result of the incremental operating expenses associated with 46 net additional company-operated stores (including 21 stores acquired in December 2017). In addition, the increase reflects higher compensation and compensation-related expenses of $2.1 million (including the impact of wage increases for sales staff at existing stores) and higher rent expense of $1.3 million, including the impact of the net additional company-operated stores.
31
Unallocated Selling, General and Administrative Expenses. Unallocated selling, general and administrative expenses, which represent certain corporate costs (such as payroll, share-based compensation, employee benefits and travel expense for corporate staff, certain professional fees and corporate governance expenses) that have not been charged to our reporting segments, increased $1.1 million, or 3.6%, for the three months ended March 31, 2018. This increase includes higher expenses related to upgrades to our information technology systems of $1.3 million.
Restructuring Charges
Restructuring charges decreased $2.5 million for the three months ended March 31, 2018. During three months ended March 31, 2018, we incurred restructuring charges of approximately $6.8 million in connection with the 2018 Restructuring Plan, including severance and related expenses of $2.0 million, consulting expenses of $2.9 million and other costs of $1.9 million. During three months ended March 31, 2017, we incurred restructuring charges of approximately $9.2 million in connection with the 2017 Restructuring Plan, including severance and related expenses of $8.5 million and other costs of $0.7 million. See Note 14 of the Condensed Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.
Interest Expense
Interest expense decreased $1.6 million to $25.3 million for the three months ended March 31, 2018, compared to the three months ended March 31, 2017, primarily from our redemption of certain senior notes in July 2017 with the proceeds from a new term loan B with lower interest rates. This decrease was partially offset by a loss on extinguishment of debt of approximately $0.9 million resulting from repricing of the variable-rate tranche of the term loan B. See “Liquidity and Capital Resources” below for additional information.
Provision for Income Taxes
The provision for income taxes was $24.5 million and $35.2 million resulting in an effective tax rate of 28.5% and 38.2%, for the three months ended March 31, 2018 and 2017, respectively. The decrease in the effective tax rate was due primarily to the impact of the U.S. Tax Reform. See Note 11 of the Condensed Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the impact of the U.S. Tax Reform on our financial statements.
Net Earnings and Diluted Earnings per Share
As a result of the foregoing, consolidated net earnings increased $4.4 million, or 7.7%, to $61.4 million for the three months ended March 31, 2018. Diluted earnings per share for the three months ended March 31, 2018 were $0.49 compared to $0.40 for the three months ended March 31, 2017.
The Six Months Ended March 31, 2018 compared to the Six Months Ended March 31, 2017
Net Sales
Consolidated . Consolidated net sales increased $4.2 million, or 0.2% for the six months ended March 31, 2018. Consolidated net sales for the six months ended March 31, 2018, include a positive impact from changes in foreign currency exchange rates of $28.5 million, or 1.4% of consolidated net sales.
SBS . Net sales for SBS were essentially flat for the six months ended March 31, 2018, compared to the six months ended March 31, 2017. Net sales for SBS for the six months ended March 31, 2018, reflect a positive impact from changes in foreign currency exchange rates of approximately $25.5 million, partially offset by a decrease in SBS same store sales of approximately $23.5 million. In addition, net sales from other sales channels, which include sales from new company-operated stores and our non-store channels, in the aggregate, decreased approximately $2.2 million.
The decrease in SBS’s net sales also reflects lower unit volume, partially offset by an increase in average unit prices, resulting primarily from selective price increases in certain geographical areas of the U.S. and a change in product mix (to higher-priced products) resulting from shifts in customer preferences.
BSG . Net sales for BSG increased $4.4 million, or 0.5%, for the six months ended March 31, 2018. BSG’s net sales for the six months ended March 31, 2018, were driven by incremental sales from businesses acquired in the preceding 12 months of approximately $8.4 million and a positive impact from changes in foreign currency exchange rates of approximately $3.0 million, partially offset by a decrease in BSG same store sales of approximately $6.6 million. Net sales from other sales channels, which include sales from net company-operated stores, sales to our franchisees and sales by our distributor sales consultants, in the aggregate, decreased approximately $0.4 million.
The increase in BSG’s net sales also reflects an increase in average unit prices (resulting primarily from the introduction of certain third-party brands with higher average unit prices in the preceding 12 months), partially offset by a decrease in unit volume (notwithstanding the impact of incremental sales from 46 company-operated stores opened or acquired during the last 12 months).
32
Consolidated . Consolidated gross profit decreased $6.9 million, or 0.7%, for the six months ended March 31, 2018 due primarily to lower gross margins in both reportable segments, as more fully described below, partially offset by higher net sales in BSG. Consolidated gross margin decreased 40 basis points to 49.4% for the six months ended March 31, 2018.
SBS . SBS’s gross profit decreased $6.3 million, or 1.0%, for the six months ended March 31, 2018 primarily as a result of a lower gross margin. SBS’s gross margin decreased 50 basis points to 55.1% for the six months ended March 31, 2018. This decrease reflects a change in geographic sales mix, as a result of lower-margin non-U.S. sales making up a greater portion of total segment sales, increased promotional activity and the net impact of prior year price increases offset by selective price reductions in the six months ended March 31, 2018.
BSG . BSG’s gross profit decreased $0.6 million, or 0.2%, for the six months ended March 31, 2018 primarily as a result of a lower gross margin, partially offset by higher net sales. BSG’s gross margin decreased 30 basis points to 41.1% for of the six months ended March 31, 2018 primarily as a result of lower vendor allowances.
Selling, General and Administrative Expenses
Consolidated . Consolidated selling, general and administrative expenses increased $5.6 million, or 0.8%, for the six months ended March 31, 2018 primarily as a result of higher compensation and compensation-related expenses and higher rent expense, as discussed below. Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 20 bps to 37.5% for the six months ended March 31, 2018.
SBS . SBS’s selling and general and administrative expenses increased $6.2 million, or 1.3%, for the six months ended March 31, 2018. This increase reflects higher compensation and compensation-related expenses of $4.8 million (including the impact of wage increases for sales staff at existing stores), higher rent expense of $3.3 million and higher depreciation of $1.6 million resulting from capital expenditures, mainly in connection with store refreshes and information technology upgrades made in the prior 12 months. These increases were partially offset by a reduction of estimated casualty losses of $1.7 million in connection with natural disasters that occurred in the fourth quarter of our fiscal year 2017 and lower advertising expense of $0.9 million.
BSG . BSG’s selling and general and administrative expenses increased $1.2 million, or 0.6%, for the six months ended March 31, 2018 primarily as a result of the incremental operating expenses associated with 46 net additional company-operated stores (including 21 stores acquired in December 2017). In addition, the increase reflects higher compensation and compensation-related expenses of $1.7 million (including the impact of wage increases for sales staff at existing stores).
Unallocated Selling, General and Administrative Expenses. Unallocated selling, general and administrative expenses decreased $1.7 million, or 2.5%, for the six months ended March 31, 2018. This decrease reflects lower corporate compensation and compensation-related expenses of $1.7 million.
Restructuring Charges
Restructuring charges increased $2.8 million for the six months ended March 31, 2018. During six months ended March 31, 2018, we incurred restructuring charges of approximately $12.0 million in connection with the 2018 Restructuring Plan, including severance and related expenses of approximately $6.3 million, consulting expenses of $2.9 million and other costs of $2.8 million. During six months ended March 31, 2017, we incurred restructuring charges of approximately $9.2 million in connection with the 2017 Restructuring Plan, including severance and related expenses of $8.5 million and other costs of $0.7 million. See Note 14 of the Condensed Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.
Interest Expense
Interest expense decreased $4.4 million to $49.3 million for the six months ended March 31, 2018 primarily from our redemption of certain senior notes in July 2017 with the proceeds from a new term loan B with lower interest rates. The decrease was offset in part by incremental interest expense of $1.4 million in connection with additional borrowings under the ABL facility and a loss on extinguishment of debt of approximately $0.9 million resulting from repricing of the variable-rate tranche of the term loan B. See “Liquidity and Capital Resources” below for additional information.
Provision for Income Taxes
The provision for income taxes was $27.3 million and $70.0 million, resulting in an effective tax rate of 15.9% and 38.3%, for the six months ended March 31, 2018 and 2017, respectively. The decrease in the effective tax rate was due primarily to the impact of the U.S. Tax Reform. More specifically, we recognized a provisional income tax benefit of $33.6 million resulting from the revaluation of our deferred income tax assets and liabilities and a provisional income tax charge of $11.4 million for federal and state income taxes applicable to accumulated but undistributed earnings of our foreign operations. See Note 11 of the Condensed Notes to Consolidated
33
Financial Statements included in Item 1 of this Quarterly Report for more information about the impact of the U.S. Tax Reform on our f inancial statements.
Net Earnings and Diluted Earnings per Share
As a result of the foregoing, consolidated net earnings increased $31.8 million, or 28.2%, to $144.6 million for the six months ended March 31, 2018. Diluted earnings per share for the six months ended March 31, 2018 were $1.14 compared to $0.79 for the six months ended March 31, 2017.
Liquidity and Capital Resources
We broadly define liquidity as our ability to generate sufficient cash, from internal and external sources, to meet our contractual 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.
We are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on our outstanding indebtedness and from funding the costs of operations, working capital, capital expenditures and share repurchases. Working capital (current assets less current liabilities) increased $38.8 million, to $608.3 million at March 31, 2018, compared to $569.5 million at September 30, 2017, resulting primarily from increases in cash and cash equivalents, accounts receivable and inventory and decreases in accounts payable and current maturities of long-term debt.
The Company may from time to time repurchase or otherwise retire or refinance its debt (through its subsidiaries or otherwise) and take other steps to reduce or refinance its debt. These actions may include open market repurchases of its notes or other retirements of outstanding debt. The amount of debt that may be repurchased, or refinanced or otherwise retired, if any, will be determined in the sole discretion of our Board of 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.
At March 31, 2018, cash and cash equivalents were $68.1 million. Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), funds expected to be generated by operations and funds available under the ABL facility will be sufficient to meet working capital requirements, fund share repurchases and potential acquisitions, and finance anticipated capital expenditures, including information technology upgrades and store openings, over the next 12 months.
We utilize our ABL facility for the issuance of letters of credit, for certain working capital and liquidity needs and to manage normal fluctuations in our operational cash flow. In that regard, we may from time to time draw funds under the ABL facility for general corporate purposes including funding of capital expenditures, acquisitions, interest payments due on our indebtedness and share repurchases. During the six months ended March 31, 2018, total borrowings outstanding have ranged from $74.5 million up to $134.5 million and the average daily balance outstanding was $106.2 million. During the six months ended March 31, 2018, the weighted average interest rate on our borrowings under the ABL facility was 3.1%. The amounts drawn are generally paid down with cash provided by our operating activities. As of March 31, 2018, Sally Holdings had $399.7 million available for borrowings under the ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.
We are a holding company and do not have any material assets or operations other than ownership of equity interests in our subsidiaries. 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 relevant laws, and covenants and financial rations related to their existing or future indebtedness, including restricting Sally Holdings’ ability to pay dividends to us. The agreements and instruments governing the debt of Sally Holdings and its subsidiaries contain material limitations on their ability to pay dividends and other restricted payments to us which, in turn, constitute material limitations on our ability to pay dividends and other payments to our stockholders. 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.
Share Repurchase Programs
During the six months ended March 31, 2018 and 2017, we repurchased and subsequently retired approximately 6.7 million shares and 6.9 million shares of our common stock under Board approved share repurchase programs at an aggregate cost of $114.5 million and $168.9 million, respectively. We funded these share repurchases with existing cash balances, cash from operations and borrowings under the ABL facility. As of March 31, 2018, we had authorization of approximately $885.5 million of additional potential share
34
repurchases remaining under the 2017 Share Rep urchase Program. We expect to continue to fund future share repurchases of our common stock, if any, with existing cash balances, funds generated by operations and funds available under the ABL facility.
Historical Cash Flows
Historically, our primary source of cash has been funds provided by operating activities and, when necessary, borrowings under our ABL facility. The primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions.
Net Cash Provided by Operating Activities
Net cash provided by operating activities during the six months ended March 31, 2018 increased $20.0 million to $179.5 million, compared to the six months ended March 31, 2017, mainly due to net changes in the components of working capital of $4.5 million and a favorable impact of $20.5 million on our provision for income taxes resulting primarily from a lower U.S. federal statutory tax rate, partially offset by a decrease in earnings before provision for income taxes.
Net Cash Used by Investing Activities
Net cash used by investing activities during the six months ended March 31, 2018 decreased $1.5 million to $47.9 million, compared to the six months ended March 31, 2017. This decrease reflects lower capital expenditures of $10.6 million related primarily to fewer SBS store openings and a reduction in investments in information technology upgrades as projects were completed in the six months ended March 31, 2018, compared to the six months ended March 31, 2017, partially offset by cash used for acquisitions in the six months ended March 31, 2018 of $9.2 million.
Net Cash Used by Financing Activities
Net cash used by financing activities during the six months ended March 31, 2018 decreased $19.2 million to $128.1 million, compared to the six months ended March 31, 2017, due primarily to a decrease in cash paid for share repurchases of $54.4 million. This decrease was partially offset by lower net debt proceeds, primarily from repayments on the ABL facility and the term loan B, and by fewer proceeds from exercises of stock options of $15.6 million.
U.S. Tax Reform
On December 22, 2017, U.S. Tax Reform was signed into law. U.S. Tax Reform, among other things, (a) reduces the federal statutory tax rate for corporate taxpayers, (b) provides for a deemed repatriation of undistributed foreign earnings by U.S. taxpayers and makes other fundamental changes on how foreign earnings will be taxed by the U.S. and (c) otherwise modifies corporate tax rules in significant ways. We are currently assessing the potential additional impact of U.S. Tax Reform on our business and liquidity.
Long-Term Debt
At March 31, 2018, we had borrowings of $80.5 million outstanding under our ABL facility. In addition, we had $950.0 million of senior notes outstanding and a term loan B with an outstanding principal balance of $847.3 million. On March 27, 2018, we entered into an Amendment No. 1 with respect to our term loan B. Pursuant to that amendment, the interest rate spread on the variable-rate tranche of approximately $548.6 million was reduced by 25 basis points. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources - Long-term Debt ” and Note 12 of the “Notes to Consolidated Financial Statements” in “Item 8. Financial Statements and Supplementary Data” contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017 for more information about our debt obligations.
We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants. Our ability to comply with these covenants in future periods will depend on our ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, market and competitive factors, many of which are beyond our control. Further, our ability to comply with these covenants in future periods 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.
Capital Requirements
During the six months ended March 31, 2018, capital expenditures were approximately $31.8 million, including $1.4 million incurred but not paid at March 31, 2018.
Contractual Obligations
There have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, 2017.
35
Off-Balance Sheet Financing Arrangements
At March 31, 2018 and September 30, 2017, we had no off-balance sheet financing arrangements other than operating leases incurred in the ordinary course of our business, and outstanding letters of credit related to inventory purchases and self-insurance programs.
Inflation
We do not believe inflation has had a material effect on our results of operations. However, during the past few years, we have experienced and an increase in labor and real estate costs in the U.S. Employee compensation and rent expenses represent our two most significant operating expense categories. A material increase in labor or real estate costs in the future, particularly for an extended period of time, could have a material adverse effect on our results of operations.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the financial statements. Actual results may differ from these estimates. We believe these estimates and assumptions are reasonable. We consider accounting policies to be critical when they require us to make assumptions about matters that are highly uncertain at the time the accounting estimate is made and when different estimates that our management reasonably could have used have a material effect on the presentation of our financial condition, changes in financial condition or results of operations.
Our critical accounting estimates, as described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, include the valuation of inventory, vendor rebates and concessions, retention of risk, income taxes, assessment of long-lived assets and intangible assets for impairment and share-based payments. There have been no material changes to our critical accounting estimates or assumptions since September 30, 2017.
Accounting Changes and Recent Accounting Pronouncements
See Note 3 of the Condensed Notes to Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a multinational corporation, we are subject to certain market risks including foreign currency fluctuations, interest rates and government actions. There have been no material changes to our market risks from September 30, 2017. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017 for more information.
Item 4. Controls and Procedures
Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2018. The controls evaluation was conducted by our Disclosure Committee, comprised of senior representatives from our finance, accounting, internal audit, and legal departments under the supervision of our CEO and CFO.
Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Quarterly Report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.
Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, our implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this Quarterly Report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, was being undertaken if
36
needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, by our legal department and by personnel in our finance organization. The overall goals of these various eva luation activities are to monitor our disclosure controls and procedures on an ongoing basis and to maintain them as dynamic systems that change as conditions warrant.
Conclusions regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of March 31, 2018, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of these matters. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.
We are subject to a number of U.S., federal, state and local laws and regulations, as well as the laws and regulations applicable in each foreign country or jurisdiction in which we do business. These laws and regulations govern, among other things, the composition, packaging, labeling and safety of the products we sell, the methods we use to sell these products and the methods we use to import these products. We believe that we are in material compliance with such laws and regulations, although no assurance can be provided that this will remain true going forward.
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors contained in Item 1A. “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, which could materially affect our business, financial condition or future results. There have been no material changes from the risk factors disclosed in such Annual Report. The risks described in such Annual Report and herein are not the only risks facing our company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable
(b) Not applicable
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information about the Company’s repurchases of shares of its common stock during the three months ended March 31, 2018:
Fiscal Period |
|
Total Number of Shares Purchased (1) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
January 1 through January 31, 2018 |
|
|
965,969 |
|
|
$ |
17.96 |
|
|
|
965,969 |
|
|
$ |
918,171,599 |
|
February 1 through February 28, 2018 |
|
|
1,267,687 |
|
|
|
16.81 |
|
|
|
1,267,687 |
|
|
|
896,856,870 |
|
March 1 through March 31, 2018 |
|
|
665,403 |
|
|
|
17.12 |
|
|
|
665,403 |
|
|
|
885,462,282 |
|
Total this quarter |
|
|
2,899,059 |
|
|
$ |
17.27 |
|
|
|
2,899,059 |
|
|
$ |
885,462,282 |
|
(1) |
The table above does not include 1,699 shares of the Company’s common stock surrendered by grantees during the three months ended March 31, 2018 to satisfy tax withholding obligations due upon the vesting of equity-based awards under the Company’s share-based compensation plans. |
(2) |
In August 2017, we announced that our Board of Directors approved a share repurchase program authorizing us to repurchase up to $1.0 billion of our common stock over an approximate four-year period expiring on September 30, 2021. |
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
(a) Not applicable
(b) Not applicable
38
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Christian A. Brickman* |
|
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Brently G. Baxter* |
|
|
|
32.1 |
|
|
|
|
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32.2 |
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101 |
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The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; and (v) the Condensed Notes to Consolidated Financial Statements. |
* Included herewith
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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SALLY BEAUTY HOLDINGS, INC. |
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(Registrant) |
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Date: May 3, 2018 |
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By: |
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/s/ Brently G. Baxter |
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Brently G. Baxter |
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Group Vice President, Principal Accounting Officer, Controller and Interim Chief Financial Officer |
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For the Registrant and as its Principal Financial Officer |
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Exhibit 10.2
US2950487/28 165606-0003
Execution Version
This AMENDMENT NO. 1 , dated as of March 27, 2018 (this Amendment ) , is made by and among SALLY HOLDINGS LLC , a Delaware limited liability company (the Company ), SALLY CAPITAL INC. , a Delaware corporation ( Sally Capital and, together with the Company, each individually a Borrower and collectively the Borrowers ), each of the LENDERS (as defined below) that is a signatory hereto, and JPMORGAN CHASE BANK, N.A. , as administrative agent (in such capacity, including any successor thereto, the Administrative Agent ).
The Borrowers, Sally Beauty Holdings, Inc. and Sally Investment Holdings LLC, as parent guarantors, the lenders from time to time party thereto (the Lenders ), JPMorgan Chase Bank, N.A. and Citizens Bank, N.A., as joint lead arrangers and joint bookrunners, and the Administrative Agent are party to that certain Credit Agreement, dated as of July 6, 2017 (as amended, supplemented and otherwise modified and in effect immediately prior to the effectiveness of the amendments contemplated hereby, the Credit Agreement ).
The Borrowers have requested that the Lenders agree, and the Lenders party hereto have agreed (each such Lender, a Consenting Lender ), to amend the Credit Agreement to, among other things, reduce the Applicable Rate with respect to the Term B-1 Loans, all on the terms and conditions of this Amendment.
The Borrowers have engaged JPMorgan Chase Bank, N.A. and/or its designated affiliates to act as joint lead arranger and joint bookrunner (in such capacities, the Lead Arranger ) and Citizens Bank, N.A., as joint leader arranger and joint bookrunner, in respect of this Amendment, including with respect to the reallocation of the Term B-1 Loans pursuant to Section 2 of this Amendment.
The Administrative Agent, with the consent of the Required Lenders, is willing, on the terms and subject to the conditions set forth below, to amend the terms of the Credit Agreement as provided for herein.
Accordingly, the parties hereto agree as follows:
1. |
DEFINITIONS |
Terms used but not defined herein shall have the respective meanings ascribed to such terms in the Credit Agreement, as amended hereby. In addition, as used herein, Amendment Effective Date means the first date on which each of the conditions to effectiveness set forth in Section 4 hereof shall have been satisfied (or waived).
2. |
REPLACEMENT OF NON-CONSENTING LENDERS; REALLOCATION AMONG LENDERS |
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(a) |
Pursuant to and in compliance with the terms of Section 2.17(b) of the |
Credit Agreement, the Borrowers hereby require that each Lender that is a Non-Consenting Lender (as defined in the Credit Agreement) with respect
US2950487/26 165606-0003 Page 2
to this Amendment, assign all of its rights and obligations under the Credit Agreement and the Loan Documents, including such Non-Consenting
Lender’s Loans and Commitments, to JPMorgan Chase Bank, N.A.
(b) |
The Lead Arranger has prepared a schedule that sets forth the new
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(c) |
Subject to the satisfaction (or waiver) of the conditions to effectiveness
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(i) |
Each (x) Non-Consenting Lender and (y) Consenting Lender to
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(ii) |
JPMorgan Chase Bank, N.A. (at the direction of the Lead
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Upon the effectiveness of this Section 2, this Amendment shall be deemed to be the execution and delivery by (i) the applicable Non-Consenting Lender, (ii) the Borrowers, (iii) the Administrative Agent and (iv) the applicable Additional Lender or Consenting Lender (as applicable), of an Assignment and Assumption Agreement with respect to each assignment effected under this Section 2, and the terms and conditions of the Assignment and Assumption Agreement set forth in
US2950487/26 165606-0003 Page 3
Exhibit C to the Credit Agreement shall apply to each Assignor Lender and each Assigne e Lender as “Assignor” and “Assignee”, respectively, thereunder.
Subject to the satisfaction (or waiver) of the conditions to effectiveness specified in Section 4 hereof, but with effect on and as of the date hereof, the Credit Agreement is hereby amended as follows:
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(a) |
Section 1.01 of the Credit Agreement is hereby amended by inserting the |
following definitions in the appropriate alphabetical order (and, where applicable, replacing in their entirety the definitions of such terms therein):
Adjusted LIBO Rate means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate; provided that the Adjusted LIBO Rate shall at no time be less than zero.
Alternate Base Rate means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the NYFRB Rate in effect on such day plus 1/2 of 1% and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%, provided that for the purpose of this definition, the Adjusted LIBO Rate for any day shall be based on the LIBO Screen Rate (or if the LIBO Screen Rate is not available for such one month Interest Period, the Interpolated Rate) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 2.11 hereof, then the Alternate Base Rate shall be the greater of clause (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the Alternate Base Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
Applicable Rate means a percentage per annum equal to (a) with respect to any Term B-1 Loan, 2.25% in the case of any Eurodollar Loan and 1.25% in the case of any ABR Loan and (b) with respect to any Term B-2 Loan, 4.50%.
First Amendment means that certain Amendment No. 1 to Credit Agreement dated March 27, 2018 among the Borrowers, the Lenders party thereto and the Administrative Agent.
US2950487/26 165606-0003 Page 4
First Amendment Effective Date has the meaning given to “Amendment Effective Date” in the First Amendment.
(b) |
Section 2.11 of the Credit Agreement is hereby amended and restated in its |
entirety as follows:
Alternate Rate of Interest. (a) If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
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(i) |
the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable (including, without limitation, because the LIBO Screen Rate is not available or published on a current basis), for the applicable currency and such Interest Period; or |
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(ii) |
the Administrative Agent is advised by the Required Lenders (or, in the case of a Eurodollar Loan, the Lender that is required to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period;then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (A) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, (B) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing and (C) any request by the Borrower for a Eurodollar Borrowing shall be ineffective; provided that (x) if the circumstances giving rise to such notice do not affect all the Lenders, then requests by the Borrower for Eurodollar Borrowings may be made to Lenders that are not affected thereby and (y) if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted. |
(b)
If at any time the Administrative Agent determines (which
determination shall be conclusive absent manifest error) that (i) the circumstances set forth in clause (a)(i) have arisen and such circumstances are unlikely to be temporary or (ii) the circumstances set forth in clause
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at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable (but for the avoidance of doubt, such related changes shall not include a reduction of the Applicable Rate). Notwithstanding anything to the contrary in Section 9.06 of the Credit Agreement, such amendment shall become effective without any further action or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five Business Days of the date notice of such alternate rate of interest is provided to the Lenders, a written notice from the Required Lenders stating that such Required Lenders object to such amendment. Until an alternate rate of interest shall be determined in accordance with this clause (b) (but, in the case of the circumstances described in clause (b)(ii), only to the extent the LIBO Screen Rate for the applicable currency and such Interest Period is not available or published at such time on a current basis), any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective. If any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing and any request by the Borrower for a Eurodollar Borrowing shall be ineffective; provided that, if such alternate rate of interest shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
(c) Section 2.12(b) of the Credit Agreement is hereby amended and restated in
its entirety as follows:
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(b) |
If any Repricing Transaction occurs with respect to Term B-1 Loans prior to the date occurring six months after the First Amendment Effective Date, the Borrowers agree to pay to the Administrative Agent, for the ratable account of each Lender with outstanding Term B-1 Loans that are either prepaid, refinanced, substituted, replaced or otherwise subjected to a repricing reduction in connection with such Repricing Transaction (including each Lender that withholds its consent to such Repricing Transaction and is replaced as a Non-Consenting Lender under 2.17), a fee in an amount equal to 1.0% of (x) in the case of a Repricing Transaction of the type described in clause (a) of the definition thereof, the aggregate principal amount of all Term B-1 Loans prepaid, refinanced, substituted or replaced (or |
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converted) in connection with such Repricing Transaction and (y) in the case of a Repricing Transaction described in clause (b) of the definition thereof, the aggregate principal amount of all Term B-1 Loans outstanding on such date that are subject to an effective pricing reduction pursuant to such Repricing Transaction. Such fees shall be due and payable upon the date of the effectiveness of such Repricing Transaction.
4. CONDITIONS TO EFFECTIVENESS
The transactions set forth in Section 2 hereof and the amendments to the Credit Agreement set forth in Section 3 hereof shall be consummated and become effective, as of the date hereof, upon the satisfaction (or waiver) of each of the following conditions to effectiveness:
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(a) |
Amendment No. 1.
The Administrative Agent shall have received this
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(b) |
Conditions to Replacement of Non-Consenting Lenders and the
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(c) |
Fees.
The Administrative Agent (on behalf of itself, and on behalf of the
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Representations and Warranties. Each of the representations and
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(e) |
Confirmation of Guaranty and Security.
The Administrative Agent shall
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5. REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to the Lenders and the Administrative Agent as of the date hereof that:
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(a) |
this Amendment has been duly and validly executed and delivered by each
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(b) |
after giving effect to this Amendment, (i) no Default shall have occurred
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as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date).
It shall be an Event of Default for all purposes of the Credit Agreement, as amended hereby, if any representation, warranty or certification made by the Borrowers in this Amendment shall prove to have been false or misleading as of the time made or furnished in any material respect.
6. ADDITIONAL LENDERS
Each Lender party hereto which is not a Lender under the Credit Agreement prior to giving effect to this Amendment (each, an Additional Lender ) (i) confirms that it has received a copy of the Credit Agreement and the other Loan Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Amendment; (ii) agrees that it will, independently and without reliance upon the Lead Arranger, the Administrative Agent or any other Lender or Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (iv) agrees that it has complied with Section 9.06 of the Credit Agreement and, on the Amendment Effective Date, has bec ome a “Lender” under, and for all purposes of, the Credit Agreement and the other Loan Documents, and shall be subject to and bound by the terms thereof, and shall perform all the obligations of and shall have all rights of a Lender thereunder. The identity of each Additional Lender shall be reasonably satisfactory to the Borrowers.
7. DOCUMENTS OTHERWISE UNCHANGED
Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect, and each reference to the Credit Agreement and words of similar import in the Credit Agreement, as amended by this Amendment, and in the Notes, any other Loan Documents and any other documents to which a Loan Party is a party shall be a reference to the Credit Agreement as amended by this Amendment and as the same may be further amended, supplemented and otherwise modified and in effect from time to time. Each of the Administrative Agent and each Borrower acknowledges and agrees that (i) this Amendment is a Loan Document pursuant to the definition thereof in the Credit Agreement and (ii) after the Amendment Effective Date, each reference in each Loan Document to which it is a party to the Original Credit Agreement shall be deemed to be a reference to the Credit Agreement.
8. COUNTERPARTS
This Amendment may be executed and delivered in counterparts (including by facsimile or any other electronic transmission), each of which shall be identical and all of which,
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when taken together, shall constitute one and the same instrument, and any of the parties hereto may execute this Amendment by signing any such counterpart.
9. BINDING EFFECT
This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
10. GOVERNING LAW
THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND THIS AMENDMENT AND ALL MATTERS ARISING OUT OF OR RELATING IN ANY WAY WHATSOEVER TO THIS AMENDMENT (WHETHER IN CONTRACT, TORT OR OTHERWISE) SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK; PROVIDED , HOWEVER, THAT IF THE LAWS OF ANY JURISDICTION OTHER THAN NEW YORK SHALL GOVERN IN REGARD TO THE VALIDITY, PERFECTION OR EFFECT OF PERFECTION OF ANY LIEN OR IN REGARD TO PROCEDURAL MATTERS AFFECTING ENFORCEMENT OF ANY LIENS IN COLLATERAL, SUCH LAWS OF SUCH OTHER JURISDICTIONS SHALL CONTINUE TO APPLY TO THAT EXTENT.
11. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
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(a) |
EACH PARTY TO THIS AMENDMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY: |
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(i) |
SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
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(ii) |
CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME. |
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(b) EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11(b).
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed as of the day and year first above written.
SALLY HOLDINGS LLC
By: /s/ Donald T. Grimes
Name: Donald T. Grimes
Title: SVP, CFO & COO
[SIGNATURE PAGE TO AMENDMENT NO.1]
By: /s/ Donald T. Grimes
Name: Donald T. Grimes
Title: SVP, CFO & COO
[SIGNATURE PAGE TO AMENDMENT NO.1]
JPMORGAN CHASE BANK, N.A.,
By: /s/ Maria Riaz
Name: Maria Riaz
Title: Vice President
JPMORGAN CHASE BANK, N.A.,
as assignee and assignor lender under Section 2 above
By: /s/ Maria Riaz
Name: Maria Riaz
Title: Vice President
[SIGNATURE PAGE TO AMENDMENT NO.1] 1]1]
Lender signature pages on file with the Administrative Agent
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christian A. Brickman, certify that:
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(1) |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 of Sally Beauty Holdings, Inc.; |
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(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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(4) |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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(5) |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 3, 2018 |
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By: |
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/s/ Christian A. Brickman |
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Christian A. Brickman |
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Chief Executive Officer |
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brently G. Baxter, certify that:
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(1) |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 of Sally Beauty Holdings, Inc.; |
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(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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(4) |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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(5) |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 3, 2018 |
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By: |
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/s/ Brently G. Baxter |
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Brently G. Baxter |
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Group Vice President, Principal Accounting Officer, |
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Controller and Interim Chief Financial Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sally Beauty Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christian A. Brickman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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By: |
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/s/ Christian A. Brickman |
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Christian A. Brickman |
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Chief Executive Officer |
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Date: May 3, 2018 |
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Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sally Beauty Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brently G. Baxter, Group Vice President, Principal Accounting Officer, Controller and Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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By: |
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/s/ Brently G. Baxter |
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Brently G. Baxter |
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Group Vice President, Principal Accounting Officer, |
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Controller and Interim Chief Financial Officer |
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Date: May 3, 2018 |
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