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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

x                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 2013

 

-OR-

 

o                                 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

 

36-2257936

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

3001 Colorado Boulevard

 

 

Denton, Texas

 

76210

(Address of principal executive
offices)

 

(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 x  NO o

 

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 x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

Non-accelerated filer o

 

Smaller reporting company o

 

 

 

 

(Do not check if a smaller
reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  YES o  NO x

 

As of January 31, 2014, there were 162,756,712 shares of the issuer’s common stock outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

Page

 

 

PART I — FINANCIAL INFORMATION

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

5

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

29

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

46

ITEM 4.

CONTROLS AND PROCEDURES

47

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

48

ITEM 1A.

RISK FACTORS

48

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

48

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

48

ITEM 4.

MINE SAFETY DISCLOSURES

48

ITEM 5.

OTHER INFORMATION

48

ITEM 6.

EXHIBITS

49

 

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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 unless 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:

 

·             the highly competitive nature of, and the increasing consolidation of, the beauty products distribution industry;

·             anticipating changes in consumer preferences and buying trends and managing our product lines and inventory;

·             potential fluctuation in our same store sales and quarterly financial performance;

·             our dependence upon manufacturers who may be unwilling or unable to continue to supply products to us;

·             the possibility of material interruptions in the supply of products by our manufacturers or third-party distributors;

·             products sold by us being found to be defective in labeling or content;

·             compliance with laws and regulations or becoming subject to additional or more stringent laws and regulations;

·            the success of our e-commerce businesses;

·             product diversion to mass retailers or other unauthorized resellers;

·             the operational and financial performance of our Armstrong McCall, L.P., which we refer to as Armstrong McCall, franchise-based business;

·             successfully identifying acquisition candidates and successfully completing desirable acquisitions;

·             integrating acquired businesses;

·             opening and operating new stores profitably;

·             the impact of the health of the economy upon our business;

·             the success of our cost control plans;

·             protecting our intellectual property rights, particularly our trademarks;

·             the risk that our products may infringe on the intellectual property rights of others;

·             conducting business outside the United States;

·             disruption in our information technology systems;

·             severe weather, natural disasters or acts of violence or terrorism;

·             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;

·             being a holding company, with no operations of our own, and depending on our subsidiaries for cash;

·             our substantial indebtedness;

·             the possibility that we may incur substantial additional debt, including secured debt, in the future;

·             restrictions and limitations in the agreements and instruments governing our debt;

·             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;

·             changes in interest rates increasing the cost of servicing our debt;

·             the potential impact on us if the financial institutions we deal with become impaired; and

·             the costs and effects of litigation.

 

Additional factors that could cause actual events or results to differ materially from the events or results described in the forward-looking statements can be found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013, as filed with the Securities and Exchange Commission. 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.

 

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WHERE YOU CAN FIND MORE INFORMATION

 

Sally Beauty’s quarterly financial results and other important information are available by calling the Investor Relations Department at (940) 297-3877.

 

Sally Beauty maintains 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 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 Securities and Exchange Commission, or SEC.

 

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PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

The following consolidated balance sheets as of December 31, 2013 and September 30, 2013, and the consolidated statements of earnings, consolidated statements of comprehensive income and consolidated statements of cash flows for the three months ended December 31, 2013 and 2012 are those of Sally Beauty Holdings, Inc. and its consolidated subsidiaries.

 

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SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2013

 

2012

 

Net sales

 

$

940,464

 

$

905,441

 

Cost of products sold and distribution expenses

 

479,938

 

461,073

 

Gross profit 

 

460,526

 

444,368

 

Selling, general and administrative expenses

 

319,478

 

305,689

 

Depreciation and amortization

 

19,255

 

16,808

 

Operating earnings 

 

121,793

 

121,871

 

Interest expense

 

28,489

 

26,725

 

Earnings before provision for income taxes

 

93,304

 

95,146

 

Provision for income taxes

 

35,309

 

36,163

 

Net earnings

 

$

57,995

 

$

58,983

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

 

$

0.35

 

$

0.33

 

Diluted

 

$

0.35

 

$

0.32

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

Basic

 

163,603

 

178,346

 

Diluted

 

167,755

 

183,386

 

 

The accompanying condensed notes, together with the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, are an integral part of these financial statements.

 

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SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2013

 

2012

 

Net earnings

 

$

57,995

 

$

58,983

 

Other comprehensive income:

 

 

 

 

 

Foreign currency translation adjustments

 

2,567

 

2,658

 

Total other comprehensive income, before tax

 

2,567

 

2,658

 

Income taxes related to other comprehensive income

 

 

 

Other comprehensive income, net of tax

 

2,567

 

2,658

 

Total comprehensive income

 

$

60,562

 

$

61,641

 

 

The accompanying condensed notes, together with the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, are an integral part of these financial statements.

 

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SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except par value data)

 

 

 

December 31,
2013

 

September 30,
2013

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

157,924

 

$

47,115

 

Trade accounts receivable, less allowance for doubtful accounts of $2,252 at December 31, 2013 and $2,556 at September 30, 2013

 

52,716

 

57,049

 

Accounts receivable, other

 

40,119

 

39,196

 

Inventory

 

814,174

 

808,313

 

Other current assets

 

29,193

 

31,658

 

Deferred income tax assets, net

 

32,511

 

32,486

 

Total current assets

 

1,126,637

 

1,015,817

 

Property and equipment, net of accumulated depreciation of $387,895 at December 31, 2013 and $375,232 at September 30, 2013

 

228,182

 

229,540

 

Goodwill

 

538,685

 

538,278

 

Intangible assets, excluding goodwill, net of accumulated amortization of $75,307 at December 31, 2013 and $71,759 at September 30, 2013

 

127,353

 

130,097

 

Other assets

 

39,276

 

36,354

 

Total assets

 

$

2,060,133

 

$

1,950,086

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

1,868

 

$

78,018

 

Accounts payable

 

247,890

 

273,456

 

Accrued liabilities

 

154,719

 

184,762

 

Income taxes payable

 

32,682

 

6,417

 

Total current liabilities

 

437,159

 

542,653

 

Long-term debt

 

1,812,397

 

1,612,685

 

Other liabilities

 

27,889

 

24,286

 

Deferred income tax liabilities, net

 

73,867

 

73,941

 

Total liabilities

 

2,351,312

 

2,253,565

 

Stockholders’ deficit:

 

 

 

 

 

Common stock, $0.01 par value. Authorized 500,000 shares; 162,959 and 164,762 shares issued and 162,727 and 164,425 shares outstanding at December 31, 2013 and September 30, 2013, respectively

 

1,627

 

1,644

 

Preferred stock, $0.01 par value. Authorized 50,000 shares; none issued

 

 

 

Additional paid-in capital

 

41,540

 

91,022

 

Accumulated deficit

 

(327,095

)

(385,090

)

Treasury stock, 47 shares at September 30, 2013, at cost

 

 

(1,237

)

Accumulated other comprehensive loss, net of tax

 

(7,251

)

(9,818

)

Total stockholders’ deficit

 

(291,179

)

(303,479

)

Total liabilities and stockholders’ deficit

 

$

2,060,133

 

$

1,950,086

 

 

The accompanying condensed notes, together with the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, are an integral part of these financial statements.

 

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SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
December 31,

 

 

 

2013

 

2012

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net earnings

 

$

57,995

 

$

58,983

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

19,255

 

16,808

 

Share-based compensation expense

 

8,522

 

9,051

 

Amortization of deferred financing costs

 

921

 

900

 

Excess tax benefit from share-based compensation

 

(2,985

)

(3,824

)

Deferred income taxes

 

(563

)

1,749

 

Changes in (exclusive of effects of acquisitions):

 

 

 

 

 

Trade accounts receivable

 

4,537

 

5,994

 

Accounts receivable, other

 

(754

)

(2,040

)

Inventory

 

(4,984

)

(16,324

)

Other current assets

 

2,948

 

25,347

 

Other assets

 

(160

)

(292

)

Accounts payable and accrued liabilities

 

(57,259

)

(58,649

)

Income taxes payable

 

29,057

 

5,932

 

Other liabilities

 

3,574

 

(477

)

Net cash provided by operating activities

 

60,104

 

43,158

 

Cash Flows from Investing Activities:

 

 

 

 

 

Capital expenditures

 

(13,375

)

(22,949

)

Net cash used by investing activities

 

(13,375

)

(22,949

)

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from issuance of long-term debt

 

232,719

 

 

Repayments of long-term debt

 

(109,025

)

(530

)

Repurchases of common stock

 

(66,183

)

(121,933

)

Debt issuance costs

 

(3,888

)

 

Proceeds from exercises of stock options

 

7,319

 

5,996

 

Excess tax benefit from share-based compensation

 

2,985

 

3,824

 

Net cash provided (used) by financing activities

 

63,927

 

(112,643

)

Effect of foreign exchange rate changes on cash and cash equivalents

 

153

 

211

 

Net increase (decrease) in cash and cash equivalents

 

110,809

 

(92,223

)

Cash and cash equivalents, beginning of period

 

47,115

 

240,220

 

Cash and cash equivalents, end of period

 

$

157,924

 

$

147,997

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

Interest paid

 

$

50,807

 

$

52,712

 

Income taxes paid

 

$

4,119

 

$

6,317

 

 

The accompanying condensed notes, together with the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, are an integral part of these financial statements.

 

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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”) sell professional beauty supplies, through its Sally Beauty Supply retail stores primarily in the U.S., Puerto Rico, Canada, Mexico, Chile, the United Kingdom, Ireland, Belgium, France, Germany, the Netherlands and Spain. Additionally, the Company distributes professional beauty products to salons and salon professionals through its Beauty Systems Group (“BSG”) store operations and a commissioned direct sales force that calls on salons primarily in the U.S., Puerto Rico, Canada, the United Kingdom and certain other countries in Europe, and to franchises in the southern and southwestern regions of the U.S., and in Mexico through the operations of its subsidiary Armstrong McCall, L.P. (“Armstrong McCall”). Certain beauty products sold by BSG and Armstrong McCall are sold under exclusive territory agreements with the manufacturers of the products.

 

Basis of Presentation

 

The accompanying consolidated interim financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. In the opinion of management, these consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the Company’s consolidated financial position as of December 31, 2013 and September 30, 2013, and its consolidated results of operations and consolidated cash flows for the three months ended December 31, 2013 and 2012.

 

Certain amounts for prior fiscal periods have been reclassified to conform to the current fiscal period’s presentation.

 

All references in these notes to “management” are to the management of Sally Beauty.

 

2.   Significant Accounting Policies

 

The consolidated interim financial statements included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These consolidated interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013. The Company adheres to the same accounting policies in the preparation of its interim financial statements. As permitted under GAAP, interim accounting for certain expenses, including income taxes, is based on full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates.

 

The results of operations for these interim periods are not necessarily indicative of the results that may be expected for any future interim period or the entire fiscal year.

 

3.   Recent Accounting Pronouncements and Accounting Changes

 

The Company made no accounting changes during the three months ended December 31, 2013.

 

4.   Fair Value Measurements

 

The Company’s financial instruments consist of cash equivalents, trade and other accounts receivable, accounts payable, foreign currency derivative instruments and debt. The carrying amounts of cash equivalents, trade and other accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these financial instruments.

 

The Company measures on a recurring basis and discloses the fair value of its financial instruments under the provisions of ASC Topic 820, Fair Value Measurement, as amended (“ASC 820”). The Company defines “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 establishes a three-level hierarchy for measuring fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when 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. The three levels of that hierarchy are defined as follows:

 

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

 

Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are

 

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Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data; and

 

Level 3 - Unobservable inputs for the asset or liability.

 

Consistent with this hierarchy, the Company categorized certain of its financial assets and liabilities as follows at December 31, 2013 and September 30, 2013 (in thousands):

 

 

 

As of December 31, 2013

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

Cash equivalents (a)

 

$

79,001

 

$

79,001

 

$

 

 

Foreign exchange contracts (b)

 

170

 

 

170

 

 

Total assets

 

$

79,171

 

$

79,001

 

$

170

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Long-term debt (c)

 

$

1,909,367

 

$

1,903,250

 

$

6,117

 

 

Foreign exchange contracts (b)

 

220

 

 

220

 

 

Total liabilities

 

$

1,909,587

 

$

1,903,250

 

$

6,337

 

 

 

 

 

As of September 30, 2013

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

Foreign exchange contracts (b)

 

$

152

 

 

$

152

 

 

Total assets

 

$

152

 

 

$

152

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Long-term debt (c)

 

$

1,753,822

 

$

1,671,500

 

$

82,322

 

 

Foreign exchange contracts (b)

 

36

 

 

36

 

 

Total liabilities

 

$

1,753,858

 

$

1,671,500

 

$

82,358

 

 

 


(a)         Cash equivalents, at December 31, 2013, consist of highly liquid investments which have no maturity and are valued using unadjusted quoted market prices for such securities. The Company may from time to time invest in securities with maturities of three months or less (consisting primarily of investment-grade corporate or government bonds), with the primary investment objective of minimizing the potential risk of loss of principal.

(b)         Foreign exchange contracts (including foreign currency forwards and options) are valued for purposes of this disclosure using widely accepted valuation techniques, such as discounted cash flow analyses, and reasonable estimates, such as market foreign currency exchange rates. Please see Note 9 for more information about the Company’s foreign exchange contracts.

(c)          Long-term debt (including current maturities and borrowings under the ABL facility, if any) is carried in the Company’s consolidated financial statements at amortized cost of $1,814.3 million at December 31, 2013 and $1,690.7 million at September 30, 2013. The Company’s senior notes are valued for purposes of this disclosure using unadjusted quoted market prices for such debt securities. 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 using widely accepted valuation techniques, such as discounted cash flow analyses, and observable inputs such as market interest rates. Please see Note 8 for more information about the Company’s debt.

 

5.   Accumulated Stockholders’ Equity (Deficit)

 

In August 2012, the Company announced that its Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $300.0 million of its common stock (the “2012 Share Repurchase Program”). In addition, on March 5, 2013, the Company announced that its Board of Directors approved a new share repurchase program authorizing the Company to repurchase up to $700.0 million of its common stock over the eight quarters commencing on such date (the “2013 Share Repurchase Program”). In connection with the authorization of the 2013 Share Repurchase Program, the Company’s Board of Directors terminated the 2012 Share Repurchase Program.

 

During the three months ended December 31, 2013, the Company repurchased and subsequently retired 2.4 million shares of its common stock under the 2013 Share Repurchase Program at an aggregate cost of $66.2 million and, during the three months ended December 31, 2012, the Company repurchased and subsequently retired 5.0 million shares of its common stock under the

 

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Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

2012 Share Repurchase Program at an aggregate cost of $121.9 million. The Company reduced common stock and additional paid-in capital, in the aggregate, by these amounts.

 

At December 31, 2013 and September 30, 2013, accumulated other comprehensive loss consists of cumulative foreign currency translation adjustments of $7.3 million and $9.8 million, respectively, and is net of income taxes of $2.9 million at each date. Comprehensive income reflects changes in accumulated stockholders’ equity (deficit) from sources other than transactions with stockholders and, as such, includes net earnings and certain other specified components. Currently, the Company’s only components of comprehensive income, other than net earnings, are foreign currency translation adjustments, net of income tax.

 

6.  Earnings Per Share

 

Basic earnings per share, is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated similarly but includes the potential dilution from the exercise of all outstanding stock options and stock awards, except when the effect would be anti-dilutive.

 

The following table sets forth the computations of basic and diluted earnings per share (in thousands, except per share data):

 

 

 

Three Months Ended
December 31,

 

 

 

2013

 

2012

 

Net earnings

 

$

57,995

 

$

58,983

 

Weighted average basic shares

 

163,603

 

178,346

 

Dilutive securities:

 

 

 

 

 

Stock option and stock award programs

 

4,152

 

5,040

 

Weighted average diluted shares

 

167,755

 

183,386

 

Earnings per share:

 

 

 

 

 

Basic

 

$

0.35

 

$

0.33

 

Diluted

 

$

0.35

 

$

0.32

 

 

At December 31, 2013 and 2012, options to purchase 1,462,543 shares and 1,578,343 shares, respectively, of the Company’s common stock were outstanding but not included in the computation of diluted earnings per share, since these options were anti-dilutive. Anti-dilutive options are: (a) out-of-the-money options (options the exercise price of which is greater than the average price per share of the Company’s common stock during the period), and (b) in-the-money options (options the exercise price of which is less than the average price per share of the Company’s common stock during the period) for which the sum of assumed proceeds, including any unrecognized compensation expense related to such options, exceeds the average price per share for the period.

 

7.   Share-Based Payments

 

The Company measures the cost of services received from employees, directors and consultants in exchange for an award of equity instruments based on the fair value of the award on the date of grant, and recognizes compensation expense on a straight-line basis over the vesting period or over the period ending on the date a participant becomes eligible for retirement, if earlier.

 

The Company granted approximately 1.5 million and 1.6 million stock options and approximately 25,000 and 128,000 restricted share awards to its employees and consultants during the three months ended December 31, 2013 and 2012, respectively. Upon issuance of such grants, the Company recognized accelerated share-based compensation expense of $5.3 million and $5.9 million in the three months ended December 31, 2013 and 2012, respectively, in connection with certain retirement eligible employees who are eligible to continue vesting awards upon retirement under the provisions of the Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan (the “2010 Plan”) and certain predecessor share-based compensation plans such as the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan (the “2007 Plan”). In addition, the Company granted approximately 27,000 and 34,000 restricted stock units to its non-employee directors during the three months ended December 31, 2013 and 2012, respectively.

 

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Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

The following table presents the total compensation cost charged against income and included in selling, general and administrative expenses for all share-based compensation arrangements and the related tax benefits recognized in our consolidated statements of earnings (in thousands):

 

 

 

Three Months Ended
December 31,

 

 

 

2013

 

2012

 

Share-based compensation expense

 

$

8,522

 

$

9,051

 

Income tax benefit related to share-based compensation expense

 

$

3,181

 

$

3,403

 

 

Stock Option Awards

 

Each option has an exercise price equal to the closing market price of the Company’s common stock on the date of grant and generally has a maximum term of 10 years. Options generally vest ratably over a four year period and are generally subject to forfeiture until the vesting period is complete, subject to certain retirement provisions contained in the 2010 Plan and certain predecessor share-based compensation plans such as the 2007 Plan.

 

The following table presents a summary of the activity for the Company’s stock option awards for the three months ended December 31, 2013:

 

 

 

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, 2013

 

10,408

 

$

12.89

 

6.2

 

$

138,139

 

Granted

 

1,465

 

26.30

 

 

 

 

 

Exercised

 

(651

)

11.24

 

 

 

 

 

Forfeited or expired

 

(169

)

19.01

 

 

 

 

 

Outstanding at December 31, 2013

 

11,053

 

$

14.67

 

6.4

 

$

171,993

 

 

 

 

 

 

 

 

 

 

 

Exercisable at December 31, 2013

 

6,941

 

$

10.57

 

5.2

 

$

136,443

 

 

The following table summarizes additional information about stock options outstanding under the Company’s share-based compensation plans:

 

 

 

Options Outstanding

 

Options Exercisable

 

Range of
Exercise Prices

 

Number
Outstanding at
December 31,
2013 (in
Thousands)

 

Weighted
Average
Remaining
Contractual
Term (in
Years)

 

Weighted
Average
Exercise
Price

 

Number
Exercisable at
December 31,
2013 (in
Thousands)

 

Weighted
Average
Exercise
Price

 

$2.00 – 9.66

 

4,495

 

4.2

 

$

7.89

 

4,470

 

$

7.89

 

$11.39–26.30

 

6,558

 

7.9

 

19.31

 

2,471

 

15.43

 

Total

 

11,053

 

6.4

 

$

14.67

 

6,941

 

$

10.57

 

 

The Company uses the Black-Scholes option pricing model to value the Company’s stock options for each stock option award. Using this option pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company’s stock option awards is expensed on a straight-line basis over the vesting period (generally four years) of the stock options or to the date a participant becomes eligible for retirement, if earlier.

 

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Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

The weighted average assumptions relating to the valuation of the Company’s stock options are as follows:

 

 

 

Three Months Ended
December 31,

 

 

 

2013

 

2012

 

Expected life (in years)

 

5.0

 

5.0

 

Expected volatility for the Company’s stock

 

48.4

%

56.3

%

Risk-free interest rate

 

1.3

%

0.8

%

Dividend yield

 

0.0

%

0.0

%

 

The expected life of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience of employees of the Company who have been granted stock options. The risk-free interest rate is based on the zero-coupon U.S. Treasury notes with a comparable term as of the date of the grant. Since the Company does not currently expect to pay dividends, the dividend yield used is 0%.

 

The weighted average fair value of the stock options issued to the Company’s grantees at the date of grant in the three months ended December 31, 2013 and 2012 was $11.32 and $11.29 per option, respectively. The total intrinsic value of options exercised during the three months ended December 31, 2013 was $10.8 million. The cash proceeds from these option exercises were $7.3 million and the tax benefit realized from these option exercises was $3.7 million.

 

At December 31, 2013, approximately $21.8 million of total unrecognized compensation costs related to unvested stock option awards are expected to be recognized over the weighted average period of 2.6 years.

 

Stock Awards

 

Restricted Stock Awards

 

The Company from time to time grants restricted stock awards to employees and consultants under the 2010 Plan. A restricted stock award is an award of shares of the Company’s common stock (which have full voting and dividend rights but are restricted with regard to sale or transfer) the restrictions over which lapse ratably over a specified period of time (generally five years). Restricted stock awards are independent of stock option grants and are generally subject to forfeiture if employment terminates prior to these restrictions lapsing, subject to certain retirement provisions of the 2010 Plan and certain predecessor share-based compensation plans such as the 2007 Plan.

 

The fair value of the Company’s restricted stock awards is expensed on a straight-line basis over the period (generally five years) in which the restrictions on these stock awards lapse (“vesting”) or over the period ending on the date a participant becomes eligible for retirement, if earlier. For these purposes, the fair value of the restricted stock award is determined based on the closing market price of the Company’s common stock on the date of grant.

 

The following table presents a summary of the activity for the Company’s restricted stock awards for the three months ended December 31, 2013:

 

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, 2013

 

337

 

$

16.30

 

3.1

 

Granted

 

25

 

26.30

 

 

 

Vested

 

(108

)

12.95

 

 

 

Forfeited

 

(22

)

17.97

 

 

 

Unvested at December 31, 2013

 

232

 

$

18.79

 

3.2

 

 

At December 31, 2013, approximately $2.3 million of total unrecognized compensation costs related to unvested restricted stock awards are expected to be recognized over the weighted average period of 3.2 years.

 

Restricted Stock Units

 

The Company currently grants Restricted Stock Unit (“RSU” or “RSUs”) awards, which generally vest less than one year from the date of grant, pursuant to the 2010 Plan. To date, the Company has only granted RSU awards to its non-employee directors. RSUs represent an unsecured promise of the Company to issue shares of common stock of the Company. Unless forfeited prior to the vesting date, RSUs are converted into shares of the Company’s common stock generally on the vesting date. An independent director who receives an RSU award may elect, upon receipt of such award, to defer until a later date delivery of

 

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Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

the shares of common stock of the Company that would otherwise be issued to such director on the vesting date. RSUs granted prior to fiscal year 2012, are generally retained by the Company as deferred stock units that are not distributed until six months after the independent director’s service as a director terminates. RSUs are independent of stock option grants and are generally subject to forfeiture if service terminates prior to the vesting of the units. Participants have no voting rights with respect to unvested RSUs. Under the 2010 Plan, the Company may settle the vested deferred stock units with shares of the Company’s common stock or in cash.

 

The Company expenses the cost of the RSUs, which is determined to be the fair value of the RSUs at the date of grant, on a straight-line basis over the vesting period (generally one year). For these purposes, the fair value of the RSU is determined based on the closing market price of the Company’s common stock on the date of grant.

 

The following table presents a summary of the activity for the Company’s RSUs for the three months ended December 31, 2013:

 

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, 2013

 

 

$

 

 

Granted

 

27

 

26.30

 

 

 

Vested

 

 

 

 

 

Forfeited

 

 

 

 

 

Unvested at December 31, 2013

 

27

 

$

26.30

 

0.8

 

 

At December 31, 2013, approximately $0.6 million of total unrecognized compensation costs related to unvested RSUs are expected to be recognized over the weighted average period of 0.8 years.

 

8.   Short-term Borrowings and Long-term Debt

 

Details of long-term debt as of December 31, 2013 and September 30, 2013 are as follows (dollars in thousands):

 

 

 

As of

 

 

 

 

 

December 31,
2013

 

September 30,
2013

 

Interest Rates

 

ABL facility

 

$

 

$

76,000

 

(i)   Prime plus (0.50% to 0.75%) or;

 

 

 

 

 

 

 

(ii)  LIBOR(a) plus (1.50% to 1.75%)

 

Senior notes due Nov. 2019

 

750,000

 

750,000

 

6.875%

 

Senior notes due Jun. 2022(b)

 

858,148

 

858,381

 

5.750%(b)

 

Senior notes due Nov. 2023

 

200,000

 

 

5.50%

 

Other, due 2014-2015(c)

 

1,026

 

1,310

 

4.93% to 5.79%

 

Total

 

$

1,809,174

 

$

1,685,691

 

 

 

 

 

 

 

 

 

 

 

Capital leases and other

 

5,091

 

5,012

 

 

 

Less: current portion

 

1,868

 

78,018

 

 

 

Total long-term debt

 

$

1,812,397

 

$

1,612,685

 

 

 

 


(a)   London Interbank Offered Rate (“LIBOR”).

(b)   Includes unamortized premium of $8.1 million and $8.4 million as of December 31, 2013 and September 30, 2013, respectively, related to notes issued in September 2012 with an aggregate principal amount of $150.0 million. The 5.75% interest rate relates to notes in the aggregate principal amount of $850.0 million.

(c)   Represents pre-acquisition debt of Pro-Duo NV and Sinelco Group BVBA (“Sinelco”).

 

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Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

In November 2006, the Company, through its subsidiaries (Sally Investment Holdings LLC and Sally Holdings LLC, which we refer to as “Sally Investment” and “Sally Holdings,” respectively) incurred $1,850.0 million of indebtedness in connection with the Company’s separation from its former parent, Alberto-Culver. Please see our Annual Report on Form 10-K for the fiscal year ended September 30, 2013 for additional information about the Company’s separation from Alberto-Culver.

 

In the fiscal year ended September 30, 2011, Sally Holdings entered into a $400 million, five-year asset-based senior secured loan facility (the “ABL facility”). The availability of funds under the ABL facility, as amended on June 8, 2012, is subject to a customary borrowing base comprised of: (i) a specified percentage of our eligible credit card and trade accounts receivable (as defined therein) and (ii) a specified percentage of our eligible inventory (as defined therein), and reduced by (iii) certain customary reserves and adjustments and by certain outstanding letters of credit. The ABL facility includes a $25.0 million Canadian sub-facility for our Canadian operations.

 

On July 26, 2013, the Company, Sally Holdings and other parties to the ABL facility entered into a second amendment to the ABL facility which, among other things, increased the maximum availability under the ABL facility to $500.0 million (subject to borrowing base limitations), reduced pricing, relaxed the restrictions regarding the making of Restricted Payments, extended the maturity to July 26, 2018 and improved certain other covenant terms. At December 31, 2013, the Company had $469.9 million available for borrowing under the ABL facility, including the Canadian sub-facility. Borrowings under the ABL facility are secured by substantially all of our assets, those of Sally Investment, those of our domestic subsidiaries, those of our Canadian subsidiaries (in the case of borrowings under the Canadian sub-facility) and a pledge of certain intercompany notes. In addition, the terms of the ABL facility contain a commitment fee of 0.25% on the unused portion of the facility.

 

In the fiscal year ended September 30, 2012, Sally Holdings and Sally Capital Inc. (collectively, the “Issuers”), both indirect wholly-owned subsidiaries of the Company, issued $750.0 million aggregate principal amount of their 6.875% Senior Notes due 2019 (the “senior notes due 2019”) and $850.0 million aggregate principal amount of their 5.75% Senior Notes due 2022 (the “senior notes due 2022”), including notes in the aggregate principal amount of $150.0 million which were issued at par plus a premium. Such premium is being amortized over the term of the notes using the effective interest method. The net proceeds from these debt issuances were used to retire outstanding indebtedness in the aggregate principal amount of approximately $1,391.9 million and for general corporate purposes.

 

On October 29, 2013, the Issuers issued $200.0 million aggregate principal amount of their 5.5% Senior Notes due 2023 (the “senior notes due 2023”). The senior notes due 2023 bear interest at an annual rate of 5.5% and were issued at par. The Company used the net proceeds from this debt issuance, approximately $196.3 million, to repay borrowings outstanding under the ABL facility of $88.5 million and intends to use the remaining amount for general corporate purposes.

 

The senior notes due 2019, the senior notes due 2022 and the senior notes due 2023, which we refer to collectively as “the Notes” or “the senior notes due 2019, 2022 and 2023,” are unsecured obligations of the Issuers and are jointly and severally guaranteed by the Company and Sally Investment, and by each material domestic subsidiary of the Company. Interest on the senior notes due 2019, 2022 and 2023 is payable semi-annually, during the Company’s first and third fiscal quarters. Please see Note 12 for certain condensed financial statement data pertaining to Sally Beauty, the Issuers, the guarantor subsidiaries and the non-guarantor subsidiaries.

 

The senior notes due 2019 carry optional redemption features whereby the Company has the option to redeem the notes, in whole or in part, on or after November 15, 2017 at par, plus accrued and unpaid interest, if any, and on or after November 15, 2015 at par plus a premium declining ratably to par, plus accrued and unpaid interest, if any. Prior to November 15, 2015, the notes may be redeemed, in whole or in part, at a redemption price equal to par plus a make-whole premium as provided in the indenture, plus accrued and unpaid interest, if any. In addition, on or prior to November 15, 2014, the Company has the right to redeem at par plus a specified premium, plus accrued and unpaid interest, if any, up to 35% of the aggregate principal amount of notes originally issued, subject to certain limitations, with the proceeds from certain kinds of equity offerings, as defined in the indenture.

 

The senior notes due 2022 carry optional redemption features whereby the Company has the option to redeem the notes, in whole or in part, on or after June 1, 2020 at par, plus accrued and unpaid interest, if any, and on or after June 1, 2017 at par plus a premium declining ratably to par, plus accrued and unpaid interest, if any. Prior to June 1, 2017, the notes may be redeemed, in whole or in part, at a redemption price equal to par plus a make-whole premium as provided in the indenture, plus accrued and unpaid interest, if any. In addition, on or prior to June 1, 2015, the Company has the right to redeem at par plus a specified premium, plus accrued and unpaid interest, if any, up to 35% of the aggregate principal amount of notes originally issued, subject to certain limitations, with the proceeds from certain kinds of equity offerings, as defined in the indenture.

 

The senior notes due 2023 carry optional redemption features whereby the Company has the option to redeem the notes, in whole or in part, on or after November 1, 2021 at par, plus accrued and unpaid interest, if any, and on or after November 1, 2018

 

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Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

at par plus a premium declining ratably to par, plus accrued and unpaid interest, if any. Prior to November 1, 2018, the notes may be redeemed, in whole or in part, at a redemption price equal to par plus a make-whole premium as provided in the indenture, plus accrued and unpaid interest, if any. In addition, on or prior to November 1, 2016, the Company has the right to redeem at par plus a specified premium, plus accrued and unpaid interest, if any, up to 35% of the aggregate principal amount of notes originally issued, subject to certain limitations, with the proceeds from certain kinds of equity offerings, as defined in the indenture.

 

Maturities of the Company’s long-term debt are as follows as of December 31, 2013 (in thousands):

 

Twelve months ending December 31:

 

 

 

2014

 

$

961

 

2015

 

65

 

2016-2018

 

 

Thereafter

 

1,808,148

 

 

 

$

1,809,174

 

Capital lease obligations

 

5,091

 

Less: current portion

 

1,868

 

Total

 

$

1,812,397

 

 

We are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries. 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.

 

The ABL facility does not contain any restriction against the incurrence of unsecured indebtedness. However, the ABL facility restricts the incurrence of secured indebtedness if, after giving effect to the incurrence of such secured indebtedness, the Company’s Secured Leverage Ratio exceeds 4.0 to 1.0. At December 31, 2013, the Company’s Secured Leverage Ratio was approximately 0.05 to 1.0. Secured Leverage Ratio is defined as the ratio of (i) Secured Funded Indebtedness (as defined in the ABL facility) to (ii) Consolidated EBITDA, as defined in the ABL facility.

 

The ABL facility is pre-payable and the commitments thereunder may be terminated, in whole or in part, at any time without penalty or premium.

 

The indentures governing the senior notes due 2019, 2022 and 2023 contain terms which restrict the ability of Sally Beauty’s subsidiaries to incur additional indebtedness. However, in addition to certain other material exceptions, the Company may incur additional indebtedness under the indentures if its Consolidated Coverage Ratio, after giving pro forma effect to the incurrence of such indebtedness, exceeds 2.0 to 1.0 (“Incurrence Test”). At December 31, 2013, the Company’s Consolidated Coverage Ratio was approximately 5.9 to 1.0. Consolidated Coverage Ratio is defined as the ratio of (i) Consolidated EBITDA, as defined in the indentures, for the period containing the most recent four consecutive fiscal quarters, to (ii) Consolidated Interest Expense, as defined in the indentures, for such period.

 

The indentures governing the senior notes due 2019, 2022 and 2023 restrict Sally Holdings and its subsidiaries from making certain dividends and distributions to equity holders and certain other restricted payments (hereafter, a “Restricted Payment” or “Restricted Payments”) to us. However, the indentures permit the making of such Restricted Payments if, at the time of the making of such Restricted Payment, the Company satisfies the Incurrence Test as described above and the cumulative amount of all Restricted Payments made since the issue date of the applicable senior notes does not exceed the sum of: (i) 50% of Sally Holdings’ and its subsidiaries’ cumulative consolidated net earnings since July 1, 2006, plus (ii) the proceeds from the issuance of certain equity securities or conversions of indebtedness to equity, in each case, since the issue date of the applicable senior notes plus (iii) the net reduction in investments in unrestricted subsidiaries since the issue date of the applicable senior notes plus (iv) the return of capital with respect to any sales or dispositions of certain minority investments since the issue date of the applicable senior notes. Further, in addition to certain other baskets, the indentures permit the Company to make additional Restricted Payments in an unlimited amount if, after giving pro forma effect to the incurrence of any indebtedness to make such Restricted Payment, the Company’s Consolidated Total Leverage Ratio (as defined in the indentures) is less than 3.25 to 1.00. At December 31, 2013, the Company’s Consolidated Total Leverage Ratio was approximately 2.8 to 1.0. Consolidated Total Leverage Ratio is defined as the ratio of (i) Consolidated Total Indebtedness, as defined in the indentures, minus cash and cash equivalents on-hand up to $100.0 million, in each case, as of the end of the most recently-ended fiscal quarter to (ii) Consolidated EBITDA, as defined in the indentures, for the period containing the most recent four consecutive fiscal quarters.

 

The ABL facility also restricts the making of Restricted Payments. More specifically, under the ABL facility, Sally Holdings may make Restricted Payments if availability under the ABL facility equals or exceeds certain thresholds, and no default then exists under the facility. For Restricted Payments up to $30.0 million during each fiscal year, borrowing availability must equal

 

17



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

or exceed the lesser of $75.0 million or 15% of the borrowing base for 45 days prior to such Restricted Payment. For Restricted Payments in excess of that amount, borrowing availability must equal or exceed the lesser of $100.0 million or 20% of the borrowing base for 45 days prior to such Restricted Payment and the Consolidated Fixed Charge Coverage Ratio (as defined below) must equal or exceed 1.1 to 1.0. Further, if borrowing availability equals or exceeds the lesser of $150.0 million or 30% of the borrowing base, Restricted Payments are not limited by the Consolidated Fixed Charge Coverage Ratio test. The Consolidated Fixed Charge Coverage Ratio is defined as the ratio of (i) Consolidated EBITDA (as defined in the ABL facility) during the trailing twelve-month period preceding such proposed Restricted Payment minus certain unfinanced capital expenditures made during such period and income tax payments paid in cash during such period to (ii) fixed charges (as defined in the ABL facility). In addition, during any period that borrowing availability under the ABL facility is less than the greater of $40.0 million or 10% of the borrowing base, the level of the Consolidated Fixed Charge Coverage Ratio that the Company must satisfy is 1.0 to 1.0. As of December 31, 2013, the Consolidated Fixed Charge Coverage Ratio was approximately 4.1 to 1.0.

 

When used in this Quarterly Report, the phrase “Consolidated EBITDA” is intended to have the meaning ascribed to such phrase in the ABL facility or the indentures governing the senior notes due 2019, 2022 and 2023, as appropriate. EBITDA is not a recognized measurement under GAAP and should not be considered a substitute for financial performance and liquidity measures determined in accordance with GAAP, such as net earnings, operating earnings and operating cash flows.

 

The ABL facility and the indentures governing the senior notes due 2019, 2022 and 2023 contain other covenants regarding restrictions on the disposition of assets, the granting of liens and security interests, the prepayment of certain indebtedness, and other matters and customary events of default, including customary cross-default and/or cross-acceleration provisions. As of December 31, 2013, all the net assets of our consolidated subsidiaries were unrestricted from transfer under our credit arrangements.

 

9.    Derivative Instruments and Hedging Activities

 

Risk Management Objectives of Using Derivative Instruments

 

The Company is exposed to a wide variety of risks, including risks arising from changing economic conditions. The Company manages its exposure to certain economic risks (including liquidity, credit risk, and changes in foreign currency exchange rates and in interest rates) primarily: (a) by closely managing its cash flows from operating and investing activities and the amounts and sources of its debt obligations; (b) by assessing periodically the creditworthiness of its business partners; and (c) through the use of derivative instruments from time to time (including, foreign exchange contracts and interest rate swaps) by Sally Holdings.

 

The Company from time to time uses foreign exchange contracts (including foreign currency forwards and options), as part of its overall economic risk management strategy, to fix the amount of certain foreign assets and obligations relative to its functional and reporting currency (the U.S. dollar) or relative to the functional currency of certain of its consolidated subsidiaries, or to add stability to cash flows resulting from its net investments (including intercompany notes not permanently invested) and earnings denominated in foreign currencies. The Company’s foreign currency exposures at times offset each other, sometimes providing a natural hedge against its foreign currency risk. In connection with the remaining foreign currency risk, the Company uses foreign exchange contracts to effectively fix the foreign currency exchange rate applicable to specific anticipated foreign currency-denominated cash flows, thus limiting the potential fluctuations in such cash flows as a result of foreign currency market movements.

 

The Company from time to time has used interest rate swaps, as part of its overall economic risk management strategy, to add stability to the interest payments due in connection with its debt obligations. At December 31, 2013, our exposure to interest rate fluctuations relates to interest payments under the ABL facility, if any, and the Company held no derivatives instruments in connection therewith.

 

As of December 31, 2013, the Company did not purchase or hold any derivative instruments for trading or speculative purposes.

 

Designated Cash Flow Hedges

 

The Company may use from time to time derivative instruments (such as foreign exchange contracts and interest rate swaps) designated as hedges to manage its exposure to interest rate or foreign currency exchange rate movements, as appropriate. The Company did not purchase or hold any such derivatives at December 31, 2013.

 

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Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

Non-designated Cash Flow Hedges

 

The Company may use from time to time derivative instruments (such as foreign exchange contracts and interest rate swaps) not designated as hedges or that do not meet the requirements for hedge accounting to manage its exposure to interest rate or foreign currency exchange rate movements, as appropriate.

 

The Company uses foreign exchange contracts including, at December 31, 2013, foreign currency options with an aggregate notional amount of $9.0 million to manage the exposure to the U.S. dollar resulting from certain of our Sinelco Group subsidiaries’ purchases of merchandise from third-party suppliers. Sinelco’s functional currency is the Euro. These foreign currency options enable Sinelco to buy U.S. dollars at a contractual exchange rate of 1.32, are with a single counterparty and expire ratably through September 15, 2014.

 

The Company also uses foreign exchange contracts to mitigate its exposure to changes in foreign currency exchange rates in connection with certain intercompany balances not permanently invested. As such, at December 31, 2013, we held: (a) a foreign currency forward which enables us to sell approximately €15.2 million ($21.0 million, at the December 31, 2013 exchange rate) at the contractual exchange rate of approximately 1.3744, (b) a foreign currency forward which enables us to sell approximately $3.2 million Canadian dollars ($3.0 million, at the December 31, 2013 exchange rate) at the contractual exchange rate of 1.0641, (c) a foreign currency forward which enables us to buy approximately $10.9 million Canadian dollars ($10.3 million, at the December 31, 2013 exchange rate) at the contractual exchange rate of 1.0738, (d) a foreign currency forward which enables us to sell approximately 25.4 million Mexican pesos ($1.9 million, at the December 31, 2013 exchange rate) at the contractual exchange rate of 13.1275 and (e) foreign currency forwards which enable us to sell approximately £8.4 million ($13.9 million, at the December 31, 2013 exchange rate) at the weighted average contractual exchange rate of 1.6358. The foreign currency forwards discussed in this paragraph are with a single counterparty (not the same party as the counterparty on the options discussed in the preceding paragraph). Of the foreign exchange contracts discussed in this paragraph, foreign currency forwards with an aggregate notional amount of £3.1 million ($5.1 million, at the December 31, 2013 exchange rate) expire ratably through September 10, 2014. The remaining foreign currency forwards discussed in this paragraph expire on or before March 31, 2014.

 

In addition, the Company uses foreign exchange contracts including, at December 31, 2013, foreign currency forwards with an aggregate notional amount of €2.7 million ($3.7 million, at the December 31, 2013 exchange rate) to mitigate the exposure to the British pound sterling resulting from the sale of products and services among certain European subsidiaries of the Company. The foreign currency forwards discussed in this paragraph enable the Company to buy British pound sterling in exchange for Euro currency at the weighted average contractual exchange rate of 0.8428, are with a single counterparty (the same counterparty as that on the foreign currency forwards discussed in the immediately preceding paragraph) and expire ratably through September 30, 2014.

 

The Company’s foreign exchange contracts are not designated as hedges and do not currently meet the requirements for hedge accounting. Accordingly, the changes in the fair value (i.e., marked-to-market adjustments) of these derivative instruments, which are adjusted quarterly, are recorded in selling, general and administrative expenses in our consolidated statements of earnings. During the three months ended December 31, 2013 and 2012, selling, general and administrative expenses include net losses of $0.9 million and $1.0 million, respectively, in connection with all of the Company’s foreign currency derivative instruments, including marked-to-market adjustments.

 

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Company’s consolidated balance sheet as of December 31, 2013 and September 30, 2013 (in thousands):

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Classification

 

December 31,
2013

 

September 30,
2013

 

Classification

 

December 31,
2013

 

September 30,
2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

None

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other current assets

 

$

170

 

$

152

 

Accrued liabilities

 

$

220

 

$

36

 

 

 

 

 

$

170

 

$

152

 

 

 

$

220

 

$

36

 

 

19



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

The table below presents the effect of the Company’s derivative financial instruments on the Company’s consolidated statements of earnings for the three months ended December 31, 2013 and 2012 (in thousands):

 

 

 

Classification of Gain or

 

Amount of Gain or (Loss) Recognized in Income on
Derivatives

 

Derivatives Not Designated as

 

(Loss) Recognized into

 

Three Months Ended December 31,

 

Hedging Instruments

 

Income

 

2013

 

2012

 

Foreign Exchange Contracts

 

Selling, general and administrative expenses

 

$

(858

)

$

(1,020

)

 

Credit-risk-related Contingent Features

 

At December 31, 2013, the aggregate fair value of all foreign exchange contracts held which consisted of derivative instruments in a liability position was $0.2 million. The Company was under no obligation to post and had not posted any collateral related to the agreements in a liability position.

 

The counterparties to all our derivative instruments are deemed by the Company to be of substantial resources and strong creditworthiness. However, these transactions result in exposure to credit risk in the event of default by a counterparty. The financial crisis that has affected the banking systems and financial markets in recent years resulted in many well-known financial institutions becoming less creditworthy or having diminished liquidity which could expose us to an increased level of counterparty credit risk. In the event that a counterparty defaults in its obligation under our derivative instruments, we could incur substantial financial losses. However, at the present time, no such losses are deemed probable.

 

10.   Income Taxes

 

In January 2012, the IRS concluded the field work associated with their examination of the Company’s consolidated federal income tax returns for the fiscal years ended September 30, 2007 and 2008 and issued their examination report. The Company is appealing certain disputed items and it does not anticipate the ultimate resolution of these items to have a material impact on the Company’s financial statements.

 

The IRS is currently conducting an examination of the Company’s consolidated federal income tax returns for the fiscal years ended September 30, 2009, 2010 and 2011. The IRS had previously audited the Company’s consolidated federal income tax returns through the tax year ended September 30, 2006, thus our statute remains open from the year ended September 30, 2007 forward. Our foreign subsidiaries are impacted by various statutes of limitations, which are generally open from 2008 forward. Generally, states’ statutes in the United States are open for tax reviews from 2007 forward.

 

11.   Business Segments

 

The Company’s business is organized into two separate segments: (i) Sally Beauty Supply, a domestic and international chain of cash and carry retail stores which offers professional beauty supplies to both salon professionals and retail customers primarily in North America, Puerto Rico, and parts of South America and Europe and (ii) BSG, including its franchise-based business Armstrong McCall, a full service beauty supply distributor which offers professional brands of beauty products directly to salons and salon professionals through its own sales force and professional-only stores (including franchise stores) in partially exclusive geographical territories in North America, Puerto Rico and parts of Europe.

 

The accounting policies of both of our business 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, 2013. Sales between segments, which were eliminated in consolidation, were not material during the three months ended December 31, 2013 and 2012.

 

20



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

Segment data for the three months ended December 31, 2013 and 2012 is as follows (in thousands):

 

 

 

Three Months Ended
December 31,

 

 

 

2013

 

2012

 

Net sales:

 

 

 

 

 

Sally Beauty Supply

 

$

573,355

 

$

558,816

 

BSG

 

367,109

 

346,625

 

Total

 

$

940,464

 

$

905,441

 

Earnings before provision for income taxes:

 

 

 

 

 

Segment operating profit:

 

 

 

 

 

Sally Beauty Supply

 

$

103,543

 

$

106,087

 

BSG

 

54,834

 

48,753

 

Segment operating profit

 

158,377

 

154,840

 

Unallocated expenses (a)

 

(28,062

)

(23,918

)

Share-based compensation expense

 

(8,522

)

(9,051

)

Interest expense

 

(28,489

)

(26,725

)

Earnings before provision for income taxes

 

$

93,304

 

$

95,146

 

 


(a)       Unallocated expenses consist of corporate and shared costs.

 

21



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

12.   Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements

 

The following consolidating financial information presents the condensed consolidating balance sheets as of December 31, 2013 and September 30, 2013, and the related condensed consolidating statements of earnings and comprehensive income, and condensed consolidating statements of cash flows for the three months ended December 31, 2013 and 2012 of: (i) Sally Beauty Holdings, Inc., or the “Parent;” (ii) Sally Holdings LLC and Sally Capital Inc., or the “Issuers;” (iii) the guarantor subsidiaries; (iv) the non-guarantor subsidiaries; (v) elimination entries necessary for consolidation purposes; and (vi) Sally Beauty on a consolidated basis.

 

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

 

22



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

Condensed Consolidating Balance Sheet

December 31, 2013

(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

 

$

 

$

79,001

 

$

43,125

 

$

35,798

 

$

 

$

157,924

 

Trade and other accounts receivable, less allowance for doubtful accounts

 

 

 

58,459

 

34,376

 

 

92,835

 

Due from affiliates

 

 

 

1,244,002

 

568

 

(1,244,570

)

 

Inventory

 

 

 

605,801

 

208,373

 

 

814,174

 

Other current assets

 

718

 

263

 

13,587

 

14,625

 

 

29,193

 

Deferred income tax assets, net

 

(391

)

(379

)

31,504

 

1,777

 

 

32,511

 

Property and equipment, net

 

2

 

 

149,759

 

78,421

 

 

228,182

 

Investment in subsidiaries

 

299,789

 

2,610,374

 

392,625

 

 

(3,302,788

)

 

Goodwill and other intangible assets, net

 

 

 

480,660

 

185,378

 

 

666,038

 

Other assets

 

 

32,463

 

1,279

 

5,534

 

 

39,276

 

Total assets

 

$

300,118

 

$

2,721,722

 

$

3,020,801

 

$

564,850

 

$

(4,547,358

)

$

2,060,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ (Deficit) Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

2

 

$

 

$

189,705

 

$

58,183

 

$

 

$

247,890

 

Due to affiliates

 

566,095

 

597,769

 

568

 

80,138

 

(1,244,570

)

 

Accrued liabilities

 

359

 

13,060

 

115,486

 

25,814

 

 

154,719

 

Income taxes payable

 

26,405

 

3,367

 

1

 

2,909

 

 

32,682

 

Long-term debt

 

 

1,808,148

 

361

 

5,756

 

 

1,814,265

 

Other liabilities

 

 

 

25,381

 

2,508

 

 

27,889

 

Deferred income tax liabilities, net

 

(1,564

)

(411

)

78,925

 

(3,083

)

 

73,867

 

Total liabilities

 

591,297

 

2,421,933

 

410,427

 

172,225

 

(1,244,570

)

2,351,312

 

Total stockholders’ (deficit) equity

 

(291,179

)

299,789

 

2,610,374

 

392,625

 

(3,302,788

)

(291,179

)

Total liabilities and stockholders’ (deficit) equity

 

$

300,118

 

$

2,721,722

 

$

3,020,801

 

$

564,850

 

$

(4,547,358

)

$

2,060,133

 

 

23



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

Condensed Consolidating Balance Sheet

September 30, 2013

(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

 

$

 

$

 

$

16,337

 

$

30,778

 

$

 

$

47,115

 

Trade and other accounts receivable, less allowance for doubtful accounts

 

137

 

 

56,432

 

39,676

 

 

96,245

 

Due from affiliates

 

 

 

1,215,625

 

813

 

(1,216,438

)

 

Inventory

 

 

 

605,727

 

202,586

 

 

808,313

 

Other current assets

 

3,375

 

380

 

13,253

 

14,650

 

 

31,658

 

Deferred income tax assets, net

 

(391

)

(379

)

31,504

 

1,752

 

 

32,486

 

Property and equipment, net

 

2

 

 

152,982

 

76,556

 

 

229,540

 

Investment in subsidiaries

 

237,696

 

2,530,825

 

388,569

 

 

(3,157,090

)

 

Goodwill and other intangible assets, net

 

 

 

483,583

 

184,792

 

 

668,375

 

Other assets

 

 

29,725

 

1,254

 

5,375

 

 

36,354

 

Total assets

 

$

240,819

 

$

2,560,551

 

$

2,965,266

 

$

556,978

 

$

(4,373,528

)

$

1,950,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ (Deficit) Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

 

$

210,661

 

$

62,795

 

$

 

$

273,456

 

Due to affiliates

 

545,658

 

599,246

 

813

 

70,721

 

(1,216,438

)

 

Accrued liabilities

 

191

 

36,341

 

121,426

 

26,804

 

 

184,762

 

Income taxes payable

 

 

3,319

 

1

 

3,097

 

 

6,417

 

Long-term debt

 

 

1,684,381

 

181

 

6,141

 

 

1,690,703

 

Other liabilities

 

 

 

22,043

 

2,243

 

 

24,286

 

Deferred income tax liabilities, net

 

(1,551

)

(432

)

79,316

 

(3,392

)

 

73,941

 

Total liabilities

 

544,298

 

2,322,855

 

434,441

 

168,409

 

(1,216,438

)

2,253,565

 

Total stockholders’ (deficit) equity

 

(303,479

)

237,696

 

2,530,825

 

388,569

 

(3,157,090

)

(303,479

)

Total liabilities and stockholders’ (deficit) equity

 

$

240,819

 

$

2,560,551

 

$

2,965,266

 

$

556,978

 

$

(4,373,528

)

$

1,950,086

 

 

24



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

Condensed Consolidating Statement of Earnings and Comprehensive Income
Three Months Ended December 31, 2013

(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

 

$

 

$

 

$

743,276

 

$

197,188

 

$

 

$

940,464

 

Related party sales

 

 

 

803

 

 

(803

)

 

Cost of products sold and distribution expenses

 

 

 

374,681

 

106,060

 

(803

)

479,938

 

Gross profit

 

 

 

369,398

 

91,128

 

 

460,526

 

Selling, general and administrative expenses

 

2,463

 

112

 

241,881

 

75,022

 

 

319,478

 

Depreciation and amortization

 

 

 

13,870

 

5,385

 

 

19,255

 

Operating earnings (loss)

 

(2,463

)

(112

)

113,647

 

10,721

 

 

121,793

 

Interest expense

 

 

28,425

 

1

 

63

 

 

28,489

 

Earnings (loss) before provision for income taxes

 

(2,463

)

(28,537

)

113,646

 

10,658

 

 

93,304

 

Provision (benefit) for income taxes

 

(932

)

(11,080

)

43,980

 

3,341

 

 

35,309

 

Equity in earnings of subsidiaries, net of tax

 

59,526

 

76,983

 

7,317

 

 

(143,826

)

 

Net earnings

 

57,995

 

59,526

 

76,983

 

7,317

 

(143,826

)

57,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

2,567

 

 

2,567

 

Total comprehensive income (loss)

 

$

57,995

 

$

59,526

 

$

76,983

 

$

9,884

 

$

(143,826

)

$

60,562

 

 

25



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

Condensed Consolidating Statement of Earnings and Comprehensive Income
Three Months Ended December 31, 2012

(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

 

$

 

$

 

$

718,959

 

$

186,482

 

$

 

$

905,441

 

Related party sales

 

 

 

818

 

 

(818

)

 

Cost of products sold and distribution expenses

 

 

 

360,737

 

101,154

 

(818

)

461,073

 

Gross profit

 

 

 

359,040

 

85,328

 

 

444,368

 

Selling, general and administrative expenses

 

2,476

 

90

 

232,559

 

70,564

 

 

305,689

 

Depreciation and amortization

 

 

 

12,125

 

4,683

 

 

16,808

 

Operating earnings (loss)

 

(2,476

)

(90

)

114,356

 

10,081

 

 

121,871

 

Interest expense

 

 

26,599

 

4

 

122

 

 

26,725

 

Earnings (loss) before provision for income taxes

 

(2,476

)

(26,689

)

114,352

 

9,959

 

 

95,146

 

Provision (benefit) for income taxes

 

(862

)

(10,366

)

44,658

 

2,733

 

 

36,163

 

Equity in earnings of subsidiaries, net of tax

 

60,597

 

76,920

 

7,226

 

 

(144,743

)

 

Net earnings

 

58,983

 

60,597

 

76,920

 

7,226

 

(144,743

)

58,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

2,658

 

 

2,658

 

Total comprehensive income (loss)

 

$

58,983

 

$

60,597

 

$

76,920

 

$

9,884

 

$

(144,743

)

$

61,641

 

 

26



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

Condensed Consolidating Statement of Cash Flows
Three Months Ended December 31, 2013

(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

 

$

58,858

 

$

(41,111

)

$

31,653

 

$

10,704

 

$

 

$

60,104

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of proceeds from sale of property and equipment

 

 

 

(7,766

)

(5,609

)

 

(13,375

)

Net cash used by investing activities

 

 

 

(7,766

)

(5,609

)

 

(13,375

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

232,500

 

219

 

 

 

232,719

 

Repayments of long-term debt

 

 

(108,500

)

(39

)

(486

)

 

(109,025

)

Debt issuance costs

 

 

(3,888

)

 

 

 

(3,888

)

Repurchases of common stock

 

(66,183

)

 

 

 

 

(66,183

)

Proceeds from exercises of stock options

 

7,319

 

 

 

 

 

7,319

 

Excess tax benefit from share-based compensation

 

6

 

 

2,721

 

258

 

 

2,985

 

Net cash (used) provided by financing activities

 

(58,858

)

120,112

 

2,901

 

(228

)

 

63,927

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

 

 

153

 

 

153

 

Net increase in cash and cash equivalents

 

 

79,001

 

26,788

 

5,020

 

 

110,809

 

Cash and cash equivalents, beginning of period

 

 

 

16,337

 

30,778

 

 

47,115

 

Cash and cash equivalents, end of period

 

$

 

$

79,001

 

$

43,125

 

$

35,798

 

$

 

$

157,924

 

 

27



Table of Contents

 

Sally Beauty Holdings, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

Condensed Consolidating Statement of Cash Flows
Three Months Ended December 31, 2012

(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

 

$

115,777

 

$

(77,498

)

$

(6,331

)

$

11,210

 

$

 

$

43,158

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of proceeds from sale of property and equipment

 

 

 

(12,116

)

(10,833

)

 

(22,949

)

Acquisitions, net of cash acquired

 

 

 

 

 

 

 

Net cash used by investing activities

 

 

 

(12,116

)

(10,833

)

 

(22,949

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

 

(21

)

(509

)

 

(530

)

Repurchase of common stock

 

(121,933

)

 

 

 

 

(121,933

)

Proceeds from exercises of stock options

 

5,996

 

 

 

 

 

5,996

 

Excess tax benefit from share-based compensation

 

160

 

 

3,532

 

132

 

 

3,824

 

Net cash (used) provided by financing activities

 

(115,777

)

 

3,511

 

(377

)

 

(112,643

)

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

 

 

211

 

 

211

 

Net (decrease) increase in cash and cash equivalents

 

 

(77,498

)

(14,936

)

211

 

 

(92,223

)

Cash and cash equivalents, beginning of period

 

 

155,000

 

48,582

 

36,638

 

 

240,220

 

Cash and cash equivalents, end of period

 

$

 

$

77,502