The following condensed consolidated balance sheets as of June 30, 2018 and September 30, 2017, the condensed consolidated statements of earnings and condensed consolidated statements of comprehensive income for the three and nine months ended June 30, 2018 and 2017, and the condensed consolidated statements of cash flows for the nine months ended June 30, 2018 and 2017 are those of Sally Beauty Holdings, Inc. and its subsidiaries.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. 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 Sally Beauty Holdings, Inc. and its consolidated subsidiaries’ (“Sally Beauty” or the “Company” or “we”) 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 June 30, 2018 and September 30, 2017, our consolidated results of operations and consolidated comprehensive income for the three and nine months ended June 30, 2018 and 2017, and our consolidated cash flows for the nine months ended June 30, 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 there does not exist substantial doubt about our ability to continue as a going concern 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.
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. 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 anticipate electing the modified retrospective transition method upon adoption at October 1, 2018. 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.
11
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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 liabilit
y. 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 certa
in 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 ef
fective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We will adopted this pronouncement on October 1, 2019. We have completed a preliminary assessment of the potential impact of adopting ASU No. 2016-0
2 on our consolidated financial statements. At June 30, 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 c
onsolidated 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. 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
Fair value on recurring basis
Consistent with the three-level hierarchy defined in ASC Topic 820,
Fair Value Measurement
, as amended, we categorize our financial assets and liabilities as follows (in thousands):
|
|
|
|
As of June 30, 2018
|
|
|
As of September 30, 2017
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Level 2
|
|
$
|
183
|
|
|
$
|
779
|
|
Interest rate caps
|
|
Level 2
|
|
|
7,734
|
|
|
|
5,178
|
|
Total assets
|
|
|
|
$
|
7,917
|
|
|
$
|
5,957
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Level 2
|
|
$
|
—
|
|
|
$
|
207
|
|
Other fair value disclosures
|
|
|
|
As of June 30, 2018
|
|
|
As of September 30, 2017
|
|
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes
|
|
Level 1
|
|
$
|
950,000
|
|
|
$
|
889,115
|
|
|
$
|
950,000
|
|
|
$
|
973,750
|
|
Other long-term debt
|
|
Level 2
|
|
|
910,265
|
|
|
|
894,924
|
|
|
|
941,480
|
|
|
|
946,180
|
|
Total debt
|
|
|
|
$
|
1,860,265
|
|
|
$
|
1,784,039
|
|
|
$
|
1,891,480
|
|
|
$
|
1,919,930
|
|
12
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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 nine months ended June 30, 2018 and 2017, we repurchased and subsequently retired approximately 9.9 million and 13.1 million shares of our common stock at an aggregate cost of $164.6 million and $286.5 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.
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 (loss) income before reclassification, net of tax
|
|
|
(11,986
|
)
|
|
|
1,815
|
|
|
|
(10,171
|
)
|
Balance at June 30, 2018
|
|
$
|
(92,738
|
)
|
|
$
|
731
|
|
|
$
|
(92,007
|
)
|
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
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net earnings
|
|
$
|
58,226
|
|
|
$
|
66,539
|
|
|
$
|
202,861
|
|
|
$
|
179,357
|
|
Weighted average basic shares
|
|
|
120,901
|
|
|
|
135,450
|
|
|
|
124,331
|
|
|
|
139,888
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and stock award programs
|
|
|
772
|
|
|
|
709
|
|
|
|
780
|
|
|
|
746
|
|
Weighted average diluted shares
|
|
|
121,673
|
|
|
|
136,159
|
|
|
|
125,111
|
|
|
|
140,634
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.48
|
|
|
$
|
0.49
|
|
|
$
|
1.63
|
|
|
$
|
1.28
|
|
Diluted
|
|
$
|
0.48
|
|
|
$
|
0.49
|
|
|
$
|
1.62
|
|
|
$
|
1.28
|
|
For the three and nine months ended June 30, 2018, options to purchase 5.2 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 nine months ended June 30, 2017, options to purchase 4.8 million shares of our common stock were outstanding but not included in the computations of diluted earnings per share, since these options were anti-dilutive.
13
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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
|
|
|
(61
|
)
|
|
|
20.60
|
|
|
|
|
|
Unvested at June 30, 2018
|
|
|
351
|
|
|
$
|
20.86
|
|
|
|
1.5
|
|
Service-Based Awards
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
|
|
|
1,220
|
|
|
|
17.23
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(144
|
)
|
|
|
9.14
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(819
|
)
|
|
|
23.78
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
5,468
|
|
|
$
|
23.03
|
|
|
|
5.7
|
|
|
$
|
1,487
|
|
Exercisable at June 30, 2018
|
|
|
3,202
|
|
|
$
|
24.06
|
|
|
|
4.0
|
|
|
$
|
1,395
|
|
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
|
|
|
326
|
|
|
|
16.98
|
|
|
|
|
|
Vested
|
|
|
(50
|
)
|
|
|
24.44
|
|
|
|
|
|
Forfeited
|
|
|
(56
|
)
|
|
|
19.79
|
|
|
|
|
|
Unvested at June 30, 2018
|
|
|
345
|
|
|
$
|
18.74
|
|
|
|
2.4
|
|
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 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
|
|
|
74
|
|
|
|
17.34
|
|
|
|
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Forfeited
|
|
|
(7
|
)
|
|
|
17.42
|
|
|
|
|
|
Unvested at June 30, 2018
|
|
|
67
|
|
|
$
|
17.34
|
|
|
|
0.2
|
|
8. Goodwill and Intangible Assets
In December 2017,
we acquired certain assets and business operations of H. Chalut Ltee (“Chalut”), a 21-store professional-only distributor of beauty supplies operating in Quebec, Canada, for $8.8 million, of which $5.5 million was allocated to goodwill. During the three months ended June 30, 2018, we finalized our valuation of the Chalut acquisition and recognized a decrease in goodwill with a corresponding increase in intangible assets of $4.7 million.
During the three months ended March 31, 2018, we completed our 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 goodwill and other intangible assets.
For the three months ended June 30, 2018 and 2017, amortization expense related to other intangible assets was $3.2 million, and, for the nine months ended June 30, 2018 and 2017, amortization expense was $8.8 million and $9.9 million, respectively.
9. Short-term Borrowings and Long-term Debt
At June 30, 2018, we had $417.8 million available for borrowing under the ABL facility, including the Canadian sub-facility. At June 30, 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 cost resulting from certain creditors exiting the loan syndication.
10. Derivative Instruments and Hedging Activities
During the nine months ended June 30, 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 June 30, 2018, we held foreign currency forward contracts with an aggregate notional amount of $50.2 million based upon exchange rates at June 30, 2018. These derivative instruments expire at various dates through September 30, 2018.
15
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
The table
below presents the fair value of our derivative financial instruments (in thousands):
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Classification
|
|
June 30,
2018
|
|
|
September 30,
2017
|
|
|
Classification
|
|
June 30,
2018
|
|
|
September 30,
2017
|
|
Derivatives designated as hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
Other assets
|
|
$
|
7,734
|
|
|
$
|
5,178
|
|
|
N/A
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives not designated as hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current
assets
|
|
|
183
|
|
|
|
779
|
|
|
Accrued
liabilities
|
|
|
—
|
|
|
|
207
|
|
|
|
|
|
$
|
7,917
|
|
|
$
|
5,957
|
|
|
|
|
$
|
—
|
|
|
$
|
207
|
|
The effects of our derivative financial instruments on our condensed consolidated statements of earnings were not material for the three and nine months ended June 30, 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 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.
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 nine months ended June 30, 2018, we recognized a provisional income tax benefit of $36.4 million in connection with the revaluation and income tax accounting method changes related to 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 June 30, 2018, we recognized a deferred income tax benefit of $2.7 million primarily in connection with income tax accounting method changes adopted for our federal income tax return for the fiscal year ended September 30, 2017.
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 June 30, 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.
16
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Th
e difference between our U.S. federal statutory income tax rate and our effective income tax rate is summarized below:
|
Three Months Ended
June 30, 2018
|
|
Nine Months Ended
June 30, 2018
|
U.S. federal statutory income tax rate
|
24.5
|
%
|
|
24.5
|
%
|
State income taxes, net of federal tax benefit
|
2.9
|
|
|
3.1
|
|
Effect of foreign operations
|
1.0
|
|
|
1.0
|
|
Deferred tax revaluation, including adoption
of income tax method changes
|
(3.5)
|
|
|
(14.6)
|
|
Deemed repatriation tax
|
—
|
|
|
4.6
|
|
Other, net
|
0.2
|
|
|
0.2
|
|
Effective tax rate
|
25.1
|
%
|
|
18.8
|
%
|
12. Business Segments
Segment data for the three and nine months ended June 30, 2018 and 2017 is as follows (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sally Beauty Supply ("SBS")
|
|
$
|
591,583
|
|
|
$
|
594,880
|
|
|
$
|
1,757,272
|
|
|
$
|
1,760,732
|
|
Beauty Systems Group ("BSG")
|
|
|
404,700
|
|
|
|
403,163
|
|
|
|
1,209,296
|
|
|
|
1,203,390
|
|
Total
|
|
$
|
996,283
|
|
|
$
|
998,043
|
|
|
$
|
2,966,568
|
|
|
$
|
2,964,122
|
|
Earnings before provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS
|
|
$
|
94,912
|
|
|
$
|
104,880
|
|
|
$
|
271,834
|
|
|
$
|
294,245
|
|
BSG
|
|
|
62,039
|
|
|
|
67,327
|
|
|
|
186,553
|
|
|
|
193,630
|
|
Segment operating earnings
|
|
|
156,951
|
|
|
|
172,207
|
|
|
|
458,387
|
|
|
|
487,875
|
|
Unallocated expenses
|
|
|
(42,179
|
)
|
|
|
(36,815
|
)
|
|
|
(110,411
|
)
|
|
|
(106,777
|
)
|
Restructuring charges
|
|
|
(12,544
|
)
|
|
|
(5,054
|
)
|
|
|
(24,513
|
)
|
|
|
(14,265
|
)
|
Consolidated operating earnings
|
|
|
102,228
|
|
|
|
130,338
|
|
|
|
323,463
|
|
|
|
366,833
|
|
Interest expense
|
|
|
(24,501
|
)
|
|
|
(26,969
|
)
|
|
|
(73,779
|
)
|
|
|
(80,616
|
)
|
Earnings before provision for income taxes
|
|
$
|
77,727
|
|
|
$
|
103,369
|
|
|
$
|
249,684
|
|
|
$
|
286,217
|
|
Sales between segments, which are eliminated in consolidation, were not material during the three and nine months ended June 30, 2018 and 2017.
17
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
13. Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidating Financial Statements
Condensed Consolidating Balance Sheet
June 30, 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
|
|
|
$
|
27,386
|
|
|
$
|
49,459
|
|
|
$
|
—
|
|
|
$
|
76,855
|
|
Trade and other accounts receivable, net
|
|
|
—
|
|
|
|
—
|
|
|
|
59,773
|
|
|
|
34,812
|
|
|
|
—
|
|
|
|
94,585
|
|
Due from affiliates
|
|
|
—
|
|
|
|
—
|
|
|
|
2,542,180
|
|
|
|
—
|
|
|
|
(2,542,180
|
)
|
|
|
—
|
|
Inventory
|
|
|
—
|
|
|
|
—
|
|
|
|
720,360
|
|
|
|
230,618
|
|
|
|
—
|
|
|
|
950,978
|
|
Other current assets
|
|
|
2,755
|
|
|
|
267
|
|
|
|
24,741
|
|
|
|
14,326
|
|
|
|
—
|
|
|
|
42,089
|
|
Property and equipment, net
|
|
|
9
|
|
|
|
—
|
|
|
|
221,685
|
|
|
|
74,920
|
|
|
|
—
|
|
|
|
296,614
|
|
Investment in subsidiaries
|
|
|
1,309,860
|
|
|
|
3,968,488
|
|
|
|
371,610
|
|
|
|
—
|
|
|
|
(5,649,958
|
)
|
|
|
—
|
|
Goodwill and other intangible assets, net
|
|
|
—
|
|
|
|
—
|
|
|
|
461,468
|
|
|
|
150,381
|
|
|
|
—
|
|
|
|
611,849
|
|
Other assets
|
|
|
1,050
|
|
|
|
10,683
|
|
|
|
(7,850
|
)
|
|
|
18,859
|
|
|
|
—
|
|
|
|
22,742
|
|
Total assets
|
|
$
|
1,313,674
|
|
|
$
|
3,979,448
|
|
|
$
|
4,421,353
|
|
|
$
|
573,375
|
|
|
$
|
(8,192,138
|
)
|
|
$
|
2,095,712
|
|
Liabilities and Stockholders’ (Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
85
|
|
|
$
|
—
|
|
|
$
|
242,602
|
|
|
$
|
67,801
|
|
|
$
|
—
|
|
|
$
|
310,488
|
|
Due to affiliates
|
|
|
1,627,792
|
|
|
|
823,046
|
|
|
|
—
|
|
|
|
91,342
|
|
|
|
(2,542,180
|
)
|
|
|
—
|
|
Accrued liabilities
|
|
|
256
|
|
|
|
6,188
|
|
|
|
126,664
|
|
|
|
33,397
|
|
|
|
—
|
|
|
|
166,505
|
|
Income taxes payable
|
|
|
1,578
|
|
|
|
1,850
|
|
|
|
—
|
|
|
|
(280
|
)
|
|
|
—
|
|
|
|
3,148
|
|
Long-term debt
|
|
|
—
|
|
|
|
1,837,416
|
|
|
|
2
|
|
|
|
888
|
|
|
|
—
|
|
|
|
1,838,306
|
|
Other liabilities
|
|
|
10,371
|
|
|
|
—
|
|
|
|
19,347
|
|
|
|
4,056
|
|
|
|
—
|
|
|
|
33,774
|
|
Deferred income tax liabilities, net
|
|
|
(199
|
)
|
|
|
1,088
|
|
|
|
64,250
|
|
|
|
4,561
|
|
|
|
—
|
|
|
|
69,700
|
|
Total liabilities
|
|
|
1,639,883
|
|
|
|
2,669,588
|
|
|
|
452,865
|
|
|
|
201,765
|
|
|
|
(2,542,180
|
)
|
|
|
2,421,921
|
|
Total stockholders’ (deficit) equity
|
|
|
(326,209
|
)
|
|
|
1,309,860
|
|
|
|
3,968,488
|
|
|
|
371,610
|
|
|
|
(5,649,958
|
)
|
|
|
(326,209
|
)
|
Total liabilities and stockholders’ (deficit) equity
|
|
$
|
1,313,674
|
|
|
$
|
3,979,448
|
|
|
$
|
4,421,353
|
|
|
$
|
573,375
|
|
|
$
|
(8,192,138
|
)
|
|
$
|
2,095,712
|
|
18
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
|
|
19
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 June 30, 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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
798,185
|
|
|
$
|
198,098
|
|
|
$
|
—
|
|
|
$
|
996,283
|
|
Related party sales
|
|
|
—
|
|
|
|
—
|
|
|
|
639
|
|
|
|
—
|
|
|
|
(639
|
)
|
|
|
—
|
|
Cost of products sold and distribution expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
399,482
|
|
|
|
104,070
|
|
|
|
(639
|
)
|
|
|
502,913
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
399,342
|
|
|
|
94,028
|
|
|
|
—
|
|
|
|
493,370
|
|
Selling, general and administrative expenses
|
|
|
2,777
|
|
|
|
367
|
|
|
|
292,178
|
|
|
|
83,276
|
|
|
|
—
|
|
|
|
378,598
|
|
Restructuring charges
|
|
|
—
|
|
|
|
—
|
|
|
|
12,544
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,544
|
|
Operating earnings (loss)
|
|
|
(2,777
|
)
|
|
|
(367
|
)
|
|
|
94,620
|
|
|
|
10,752
|
|
|
|
—
|
|
|
|
102,228
|
|
Interest expense (income)
|
|
|
—
|
|
|
|
24,510
|
|
|
|
2
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
24,501
|
|
Earnings (loss) before provision for income taxes
|
|
|
(2,777
|
)
|
|
|
(24,877
|
)
|
|
|
94,618
|
|
|
|
10,763
|
|
|
|
—
|
|
|
|
77,727
|
|
Provision (benefit) for income taxes
|
|
|
(804
|
)
|
|
|
(7,206
|
)
|
|
|
23,823
|
|
|
|
3,688
|
|
|
|
—
|
|
|
|
19,501
|
|
Equity in earnings of subsidiaries, net of tax
|
|
|
60,199
|
|
|
|
77,870
|
|
|
|
7,075
|
|
|
|
—
|
|
|
|
(145,144
|
)
|
|
|
—
|
|
Net earnings
|
|
|
58,226
|
|
|
|
60,199
|
|
|
|
77,870
|
|
|
|
7,075
|
|
|
|
(145,144
|
)
|
|
|
58,226
|
|
Other comprehensive income (loss), net of tax
|
|
|
—
|
|
|
|
308
|
|
|
|
—
|
|
|
|
(22,168
|
)
|
|
|
—
|
|
|
|
(21,860
|
)
|
Total comprehensive income (loss)
|
|
$
|
58,226
|
|
|
$
|
60,507
|
|
|
$
|
77,870
|
|
|
$
|
(15,093
|
)
|
|
$
|
(145,144
|
)
|
|
$
|
36,366
|
|
20
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating
Statement of Earnings and Comprehensive Income
Three Months Ended June 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
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
814,423
|
|
|
$
|
183,620
|
|
|
$
|
—
|
|
|
$
|
998,043
|
|
Related party sales
|
|
|
—
|
|
|
|
—
|
|
|
|
648
|
|
|
|
|
|
|
|
(648
|
)
|
|
|
—
|
|
Cost of products sold and distribution expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
398,707
|
|
|
|
97,345
|
|
|
|
(648
|
)
|
|
|
495,404
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
416,364
|
|
|
|
86,275
|
|
|
|
—
|
|
|
|
502,639
|
|
Selling, general and administrative expenses
|
|
|
2,726
|
|
|
|
81
|
|
|
|
285,433
|
|
|
|
79,007
|
|
|
|
—
|
|
|
|
367,247
|
|
Restructuring charges
|
|
|
—
|
|
|
|
—
|
|
|
|
5,054
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,054
|
|
Operating earnings (loss)
|
|
|
(2,726
|
)
|
|
|
(81
|
)
|
|
|
125,877
|
|
|
|
7,268
|
|
|
|
—
|
|
|
|
130,338
|
|
Interest expense (income)
|
|
|
—
|
|
|
|
26,952
|
|
|
|
(1
|
)
|
|
|
18
|
|
|
|
—
|
|
|
|
26,969
|
|
Earnings (loss) before provision for income taxes
|
|
|
(2,726
|
)
|
|
|
(27,033
|
)
|
|
|
125,878
|
|
|
|
7,250
|
|
|
|
—
|
|
|
|
103,369
|
|
Provision (benefit) for income taxes
|
|
|
(1,058
|
)
|
|
|
(10,500
|
)
|
|
|
44,929
|
|
|
|
3,459
|
|
|
|
|
|
|
|
36,830
|
|
Equity in earnings of subsidiaries, net of tax
|
|
|
68,207
|
|
|
|
84,740
|
|
|
|
3,791
|
|
|
|
—
|
|
|
|
(156,738
|
)
|
|
|
—
|
|
Net earnings
|
|
|
66,539
|
|
|
|
68,207
|
|
|
|
84,740
|
|
|
|
3,791
|
|
|
|
(156,738
|
)
|
|
|
66,539
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,686
|
|
|
|
|
|
|
|
17,686
|
|
Total comprehensive income
|
|
$
|
66,539
|
|
|
$
|
68,207
|
|
|
$
|
84,740
|
|
|
$
|
21,477
|
|
|
$
|
(156,738
|
)
|
|
$
|
84,225
|
|
21
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed
Consolidating Statement of Earnings and Comprehensive Income
Nine Months Ended June 30, 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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,381,460
|
|
|
$
|
585,108
|
|
|
$
|
—
|
|
|
$
|
2,966,568
|
|
Related party sales
|
|
|
—
|
|
|
|
—
|
|
|
|
1,716
|
|
|
|
—
|
|
|
|
(1,716
|
)
|
|
|
—
|
|
Cost of products sold and distribution expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
1,194,183
|
|
|
|
307,780
|
|
|
|
(1,716
|
)
|
|
|
1,500,247
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
1,188,993
|
|
|
|
277,328
|
|
|
|
—
|
|
|
|
1,466,321
|
|
Selling, general and administrative expenses
|
|
|
8,242
|
|
|
|
1,148
|
|
|
|
856,080
|
|
|
|
252,875
|
|
|
|
—
|
|
|
|
1,118,345
|
|
Restructuring charges
|
|
|
—
|
|
|
|
—
|
|
|
|
24,513
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,513
|
|
Operating earnings (loss)
|
|
|
(8,242
|
)
|
|
|
(1,148
|
)
|
|
|
308,400
|
|
|
|
24,453
|
|
|
|
—
|
|
|
|
323,463
|
|
Interest expense (income)
|
|
|
—
|
|
|
|
73,817
|
|
|
|
(1
|
)
|
|
|
(37
|
)
|
|
|
—
|
|
|
|
73,779
|
|
Earnings (loss) before provision for income taxes
|
|
|
(8,242
|
)
|
|
|
(74,965
|
)
|
|
|
308,401
|
|
|
|
24,490
|
|
|
|
—
|
|
|
|
249,684
|
|
Provision (benefit) for income taxes
|
|
|
(1,883
|
)
|
|
|
(21,630
|
)
|
|
|
46,666
|
|
|
|
23,670
|
|
|
|
—
|
|
|
|
46,823
|
|
Equity in earnings of subsidiaries, net of tax
|
|
|
209,220
|
|
|
|
262,555
|
|
|
|
820
|
|
|
|
—
|
|
|
|
(472,595
|
)
|
|
|
—
|
|
Net earnings
|
|
|
202,861
|
|
|
|
209,220
|
|
|
|
262,555
|
|
|
|
820
|
|
|
|
(472,595
|
)
|
|
|
202,861
|
|
Other comprehensive income (loss), net of tax
|
|
|
—
|
|
|
|
1,815
|
|
|
|
—
|
|
|
|
(11,986
|
)
|
|
|
—
|
|
|
|
(10,171
|
)
|
Total comprehensive income (loss)
|
|
$
|
202,861
|
|
|
$
|
211,035
|
|
|
$
|
262,555
|
|
|
$
|
(11,166
|
)
|
|
$
|
(472,595
|
)
|
|
$
|
192,690
|
|
22
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Stat
ement of Earnings and Comprehensive Income
Nine Months Ended June 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
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,429,104
|
|
|
$
|
535,018
|
|
|
$
|
—
|
|
|
$
|
2,964,122
|
|
Related party sales
|
|
|
—
|
|
|
|
—
|
|
|
|
1,991
|
|
|
|
|
|
|
|
(1,991
|
)
|
|
|
—
|
|
Cost of products sold and distribution expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
1,201,427
|
|
|
|
282,233
|
|
|
|
(1,991
|
)
|
|
|
1,481,669
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
1,229,668
|
|
|
|
252,785
|
|
|
|
—
|
|
|
|
1,482,453
|
|
Selling, general and administrative expenses
|
|
|
8,098
|
|
|
|
412
|
|
|
|
859,791
|
|
|
|
233,054
|
|
|
|
—
|
|
|
|
1,101,355
|
|
Restructuring charges
|
|
|
—
|
|
|
|
—
|
|
|
|
14,265
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,265
|
|
Operating earnings (loss)
|
|
|
(8,098
|
)
|
|
|
(412
|
)
|
|
|
355,612
|
|
|
|
19,731
|
|
|
|
—
|
|
|
|
366,833
|
|
Interest expense (income)
|
|
|
—
|
|
|
|
80,560
|
|
|
|
(1
|
)
|
|
|
57
|
|
|
|
—
|
|
|
|
80,616
|
|
Earnings (loss) before provision for income taxes
|
|
|
(8,098
|
)
|
|
|
(80,972
|
)
|
|
|
355,613
|
|
|
|
19,674
|
|
|
|
—
|
|
|
|
286,217
|
|
Provision (benefit) for income taxes
|
|
|
(3,145
|
)
|
|
|
(31,451
|
)
|
|
|
132,727
|
|
|
|
8,729
|
|
|
|
|
|
|
|
106,860
|
|
Equity in earnings of subsidiaries, net of tax
|
|
|
184,310
|
|
|
|
233,831
|
|
|
|
10,945
|
|
|
|
—
|
|
|
|
(429,086
|
)
|
|
|
—
|
|
Net earnings
|
|
|
179,357
|
|
|
|
184,310
|
|
|
|
233,831
|
|
|
|
10,945
|
|
|
|
(429,086
|
)
|
|
|
179,357
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,044
|
|
|
|
—
|
|
|
|
7,044
|
|
Total comprehensive income
|
|
$
|
179,357
|
|
|
$
|
184,310
|
|
|
$
|
233,831
|
|
|
$
|
17,989
|
|
|
$
|
(429,086
|
)
|
|
$
|
186,401
|
|
23
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statem
ent of Cash Flows
Nine Months Ended June 30, 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
|
|
$
|
23,213
|
|
|
$
|
(62,729
|
)
|
|
$
|
309,242
|
|
|
$
|
12,204
|
|
|
$
|
—
|
|
|
$
|
281,930
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment, net
|
|
|
—
|
|
|
|
—
|
|
|
|
(51,138
|
)
|
|
|
(11,033
|
)
|
|
|
—
|
|
|
|
(62,171
|
)
|
Acquisitions, net of cash acquired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,175
|
)
|
|
|
—
|
|
|
|
(9,175
|
)
|
Due from affiliates
|
|
|
—
|
|
|
|
—
|
|
|
|
(252,809
|
)
|
|
|
—
|
|
|
|
252,809
|
|
|
|
—
|
|
Net cash used by investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
(303,947
|
)
|
|
|
(20,208
|
)
|
|
|
252,809
|
|
|
|
(71,346
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
—
|
|
|
|
369,314
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
369,319
|
|
Repayments of long-term debt
|
|
|
—
|
|
|
|
(400,624
|
)
|
|
|
(4
|
)
|
|
|
(594
|
)
|
|
|
—
|
|
|
|
(401,222
|
)
|
Debt issuance costs
|
|
|
—
|
|
|
|
(1,151
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,151
|
)
|
Repurchases of common stock
|
|
|
(164,838
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(164,838
|
)
|
Proceeds from exercises of stock options
|
|
|
1,317
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,317
|
|
Due to affiliates
|
|
|
140,308
|
|
|
|
95,190
|
|
|
|
—
|
|
|
|
17,311
|
|
|
|
(252,809
|
)
|
|
|
—
|
|
Net cash (used) provided by financing activities
|
|
|
(23,213
|
)
|
|
|
62,729
|
|
|
|
1
|
|
|
|
16,717
|
|
|
|
(252,809
|
)
|
|
|
(196,575
|
)
|
Effect of foreign exchange rate changes on cash and
cash equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(913
|
)
|
|
|
—
|
|
|
|
(913
|
)
|
Net increase in cash and cash equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
5,296
|
|
|
|
7,800
|
|
|
|
—
|
|
|
|
13,096
|
|
Cash and cash equivalents, beginning of period
|
|
|
—
|
|
|
|
10
|
|
|
|
22,090
|
|
|
|
41,659
|
|
|
|
—
|
|
|
|
63,759
|
|
Cash and cash equivalents, end of period
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
27,386
|
|
|
$
|
49,459
|
|
|
$
|
—
|
|
|
$
|
76,855
|
|
24
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating State
ment of Cash Flows
Nine Months Ended June 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
|
|
Net cash provided (used) by operating activities
|
|
$
|
11,920
|
|
|
$
|
(71,305
|
)
|
|
$
|
275,021
|
|
|
$
|
7,211
|
|
|
$
|
—
|
|
|
$
|
222,847
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment, net
|
|
|
—
|
|
|
|
—
|
|
|
|
(50,099
|
)
|
|
|
(16,430
|
)
|
|
|
—
|
|
|
|
(66,529
|
)
|
Due from affiliates
|
|
|
—
|
|
|
|
—
|
|
|
|
(231,591
|
)
|
|
|
—
|
|
|
|
231,591
|
|
|
|
—
|
|
Net cash used by investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
(281,690
|
)
|
|
|
(16,430
|
)
|
|
|
231,591
|
|
|
|
(66,529
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
—
|
|
|
|
296,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
296,500
|
|
Repayments of long-term debt
|
|
|
—
|
|
|
|
(215,000
|
)
|
|
|
(15
|
)
|
|
|
(504
|
)
|
|
|
—
|
|
|
|
(215,519
|
)
|
Repurchases of common stock
|
|
|
(286,995
|
)
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(286,995
|
)
|
Proceeds from exercises of stock options
|
|
|
16,941
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,941
|
|
Due to affiliates
|
|
|
258,134
|
|
|
|
(38,557
|
)
|
|
|
—
|
|
|
|
12,014
|
|
|
|
(231,591
|
)
|
|
|
—
|
|
Net cash (used) provided by financing activities
|
|
|
(11,920
|
)
|
|
|
42,943
|
|
|
|
(15
|
)
|
|
|
11,510
|
|
|
|
(231,591
|
)
|
|
|
(189,073
|
)
|
Effect of foreign exchange rate changes on cash and
cash equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
233
|
|
|
|
—
|
|
|
|
233
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
—
|
|
|
|
(28,362
|
)
|
|
|
(6,684
|
)
|
|
|
2,524
|
|
|
|
—
|
|
|
|
(32,522
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
—
|
|
|
|
28,372
|
|
|
|
22,368
|
|
|
|
35,882
|
|
|
|
—
|
|
|
|
86,622
|
|
Cash and cash equivalents, end of period
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
15,684
|
|
|
$
|
38,406
|
|
|
$
|
—
|
|
|
$
|
54,100
|
|
25
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
14. Restructuring Plans
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
June 30,
2018
|
|
Workforce reductions
|
|
$
|
1,860
|
|
|
$
|
—
|
|
|
$
|
1,346
|
|
|
$
|
325
|
|
|
$
|
189
|
|
Facility closures
|
|
|
1,747
|
|
|
|
—
|
|
|
|
1,060
|
|
|
|
194
|
|
|
|
493
|
|
Other
|
|
|
235
|
|
|
|
—
|
|
|
|
235
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
3,842
|
|
|
$
|
—
|
|
|
$
|
2,641
|
|
|
$
|
519
|
|
|
$
|
682
|
|
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.
In April 2018, we announced an expansion of the 2018 Restructuring Plan that contained cost reduction initiatives designed to help fund important long-term growth initiatives. The expansion to the 2018 Restructuring Plan included 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 fiscal year 2018 and that we will substantially complete the 2018 Restructuring Plan in fiscal year 2018.
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
June 30,
2018
|
|
Workforce reductions
|
|
$
|
—
|
|
|
$
|
13,784
|
|
|
$
|
11,955
|
|
|
$
|
—
|
|
|
$
|
1,829
|
|
Consulting
|
|
|
—
|
|
|
|
6,430
|
|
|
|
4,889
|
|
|
|
—
|
|
|
|
1,541
|
|
Other
|
|
|
—
|
|
|
|
4,299
|
|
|
|
3,824
|
|
|
|
—
|
|
|
|
475
|
|
Total
|
|
$
|
—
|
|
|
$
|
24,513
|
|
|
$
|
20,668
|
|
|
$
|
—
|
|
|
$
|
3,845
|
|
Expenses incurred in the nine months ended June 30, 2018 represent costs incurred by SBS ($11.0 million), BSG ($2.2 million) and corporate ($11.3 million).
15. Commitments and Contingencies
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.
Data Security Incidents
In the fiscal year ended September 30, 2014, we disclosed that we had experienced a data security incident (the “2014 data security incident”). In the fiscal year ended September 30, 2015, we disclosed that we had experienced a second data security incident (the “2015 data security incident” and, together with the 2014 data security incident, the “data security incidents”). The data security incidents involved the unauthorized installation of malicious software (malware) on our information technology systems, including our point-of-sale systems that, we believe, may have placed at risk certain payment card data for some transactions. The costs that the
26
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
Company has incurred to date in connection with the data security incidents include professional advisory fees and legal costs and expenses relating to investigating and remediating the data security incidents and the
settlement of prior assessments by payment card networks.
During the three months ended June 30, 2018, we received an assessment from a payment card network in connection with the 2015 data security incident and recognized $7.9 million of expenses. The assessment is based on the network’s claims against the Company’s acquiring banks for costs that it asserts its issuing banks incurred in connection with the 2015 data security incident, including incremental counterfeit fraud losses and non-ordinary course operating expenses, such as card reissuance costs. The Company’s estimated probable loss related to the claims made by payment card networks in connection with the data security incidents are based on currently available information. The Company disputes the validity of the payment card network’s claims and intends to contest them vigorously.
The Company may incur additional costs and expenses related to the data security incidents in future periods. These costs and expenses may result from liabilities related to (i) claims by payment card networks, (ii) governmental or third party investigations, proceedings or litigation, (iii) legal and other fees necessary to defend against any potential liabilities or claims, and (iv) further investigatory and remediation costs. As of June 30, 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 that 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