Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Dec. 31, 2015 | Jan. 29, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | Sally Beauty Holdings, Inc. | |
Entity Central Index Key | 1,368,458 | |
Document Type | 10-Q | |
Document Period End Date | Dec. 31, 2015 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 146,178,472 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q1 |
Consolidated Statements of Earn
Consolidated Statements of Earnings - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Consolidated Statements of Earnings | ||
Net sales | $ 998,032 | $ 964,468 |
Cost of products sold and distribution expenses | 503,983 | 490,699 |
Gross profit | 494,049 | 473,769 |
Selling, general and administrative expenses | 339,728 | 336,954 |
Depreciation and amortization | 23,386 | 20,579 |
Operating earnings | 130,935 | 116,236 |
Interest expense | 63,943 | 29,241 |
Earnings before provision for income taxes | 66,992 | 86,995 |
Provision for income taxes | 24,749 | 32,086 |
Net earnings | $ 42,243 | $ 54,909 |
Earnings Per Share: | ||
Basic (in dollars per share) | $ 0.28 | $ 0.35 |
Diluted (in dollars per share) | $ 0.28 | $ 0.35 |
Weighted average shares: | ||
Basic (in shares) | 150,786 | 156,104 |
Diluted (in shares) | 152,426 | 158,545 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Consolidated Statements of Comprehensive Income | ||
Net earnings | $ 42,243 | $ 54,909 |
Other comprehensive (loss) income: | ||
Foreign currency translation adjustments | (10,221) | (17,301) |
Total other comprehensive loss, before tax | (10,221) | (17,301) |
Other comprehensive loss, net of tax | (10,221) | (17,301) |
Total comprehensive income | $ 32,022 | $ 37,608 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Dec. 31, 2015 | Sep. 30, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 67,447 | $ 140,038 |
Trade accounts receivable, less allowance for doubtful accounts of $1,386 at December 31, 2015 and $1,162 at September 30, 2015 | 44,376 | 48,602 |
Accounts receivable, other | 36,559 | 42,490 |
Inventory | 912,419 | 885,214 |
Other current assets | 35,603 | 37,049 |
Deferred income tax assets, net | 33,578 | 33,709 |
Total current assets | 1,129,982 | 1,187,102 |
Property and equipment, net of accumulated depreciation of $440,650 at December 31, 2015 and $428,501 at September 30, 2015 | 281,278 | 270,847 |
Goodwill | 520,148 | 524,369 |
Intangible assets, excluding goodwill, net of accumulated amortization of $100,887 at December 31, 2015 and $97,897 at September 30, 2015 | 97,496 | 98,848 |
Other assets | 14,222 | 13,185 |
Total assets | 2,043,126 | 2,094,351 |
Current liabilities: | ||
Current maturities of long-term debt | 727 | 755 |
Accounts payable | 280,140 | 275,917 |
Accrued liabilities | 163,892 | 208,717 |
Income taxes payable | 10,278 | 6,310 |
Total current liabilities | 455,037 | 491,699 |
Long-term debt | 1,782,105 | 1,786,839 |
Other liabilities | 28,722 | 27,734 |
Deferred income tax liabilities, net | 98,928 | 85,900 |
Total liabilities | 2,364,792 | 2,392,172 |
Stockholders' deficit: | ||
Common stock, $0.01 par value. Authorized 500,000 shares; 149,564 and 151,898 shares issued and 149,155 and 151,452 shares outstanding at December 31, 2015 and September 30, 2015, respectively | $ 1,492 | $ 1,515 |
Preferred stock, $0.01 par value. Authorized 50,000 shares; none issued | ||
Accumulated deficit | $ (235,232) | $ (218,670) |
Treasury Stock, 121 shares, at cost | (2,961) | |
Accumulated other comprehensive loss, net of tax | (87,926) | (77,705) |
Total stockholders' deficit | (321,666) | (297,821) |
Total liabilities and stockholders' deficit | $ 2,043,126 | $ 2,094,351 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Thousands, $ in Thousands | Dec. 31, 2015 | Sep. 30, 2015 |
Consolidated Balance Sheets | ||
Trade accounts receivable, allowance for doubtful accounts (in dollars) | $ 1,386 | $ 1,162 |
Property and equipment, accumulated depreciation (in dollars) | 440,650 | 428,501 |
Intangible assets, excluding goodwill, accumulated amortization (in dollars) | $ 100,887 | $ 97,897 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, Authorized shares | 500,000 | 500,000 |
Common stock, shares issued | 149,564 | 151,898 |
Common stock, shares outstanding | 149,155 | 151,452 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, Authorized shares | 50,000 | 50,000 |
Preferred stock, shares issued | 0 | 0 |
Treasury stock shares, at cost | 121 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 3 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | ||
Cash Flows from Operating Activities: | |||
Net earnings | $ 42,243 | $ 54,909 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||
Depreciation and amortization | 23,386 | 20,579 | |
Share-based compensation expense | 4,188 | 7,760 | |
Amortization of deferred financing costs | 907 | 950 | |
Excess tax benefit from share-based compensation | (95) | (17,043) | |
Loss on extinguishment of debt | 33,296 | ||
Deferred income taxes | 11,991 | 8,341 | |
Changes in (exclusive of effects of acquisitions): | |||
Trade accounts receivable | 3,676 | 3,944 | |
Accounts receivable, other | 5,710 | 5,532 | |
Inventory | (31,818) | (17,616) | |
Other current assets | 1,111 | 19,943 | |
Other assets | (455) | (572) | |
Accounts payable and accrued liabilities | (30,343) | (30,363) | |
Income taxes payable | 4,265 | (497) | |
Other liabilities | 1,067 | 1,169 | |
Net cash provided by operating activities | 69,129 | 57,036 | |
Cash Flows from Investing Activities: | |||
Capital expenditures | (40,575) | (18,800) | |
Acquisitions, net of cash acquired | (2,250) | ||
Net cash used by investing activities | (42,825) | (18,800) | |
Cash Flows from Financing Activities: | |||
Proceeds from issuances of long-term debt | 800,000 | ||
Repayments of long-term debt | (825,971) | (258) | |
Repurchases of common stock | (62,367) | (7,253) | |
Debt issuance costs | (12,709) | ||
Proceeds from exercises of stock options | 2,716 | 37,156 | |
Excess tax benefit from share-based compensation | 95 | 17,043 | |
Net cash (used) provided by financing activities | (98,236) | 46,688 | |
Effect of foreign exchange rate changes on cash and cash equivalents | (659) | (818) | |
Net (decrease) increase in cash and cash equivalents | (72,591) | 84,106 | |
Cash and cash equivalents, beginning of period | 140,038 | 106,575 | |
Cash and cash equivalents, end of period | 67,447 | 190,681 | |
Supplemental Cash Flow Information: | |||
Interest paid | [1] | 86,633 | 56,138 |
Income taxes paid | $ 4,833 | $ 4,835 | |
[1] | For the three months ended December 31, 2015, interest paid includes $25.8 million in call premiums paid in connection with the Company’s December 2015 redemption in full of its senior notes due 2019. |
Consolidated Statements of Cas7
Consolidated Statements of Cash Flows (Parenthetical) $ in Millions | 3 Months Ended |
Dec. 31, 2015USD ($) | |
Senior notes due Nov. 2019 | |
Call premiums paid upon the redemption of certain notes | $ 25.8 |
Description of Business and Bas
Description of Business and Basis of Presentation | 3 Months Ended |
Dec. 31, 2015 | |
Description of Business and Basis of Presentation | |
Description of Business and Basis of Presentation | 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 located in the U.S., Puerto Rico, Canada, Mexico, Chile, Colombia, Peru, 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., 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”). A significant number of the Company’s products are also available through a number of Sally Beauty Supply and BSG-operated websites. 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, 2015 and September 30, 2015, and its consolidated results of operations and consolidated cash flows for the three months ended December 31, 2015 and 2014. All references in these notes to “management” are to the management of Sally Beauty. |
Significant Accounting Policies
Significant Accounting Policies | 3 Months Ended |
Dec. 31, 2015 | |
Significant Accounting Policies | |
Significant Accounting Policies | 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, 2015. 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 the interim periods reported upon herein are not necessarily indicative of the results that may be expected for any future interim period or the entire fiscal year. |
Recent Accounting Pronouncement
Recent Accounting Pronouncements | 3 Months Ended |
Dec. 31, 2015 | |
Recent Accounting Pronouncements | |
Recent Accounting Pronouncements | 3. Recent Accounting Pronouncements The Company has not yet adopted and is currently assessing the potential effect of the following pronouncements on our consolidated financial statements: In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”) which will eliminate the current requirement to recognize measurement-period adjustments to provisional amounts retrospectively. Instead, ASU 2015-16 requires the acquirer to recognize measurement-period adjustments, as well as the impact on earnings of changes in depreciation, amortization and similar items (if any) resulting from the change to the provisional amounts, in the period when the amount of each measurement-period adjustment is determined. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Income Taxes (“ASU 2015-17”) which aims to simplify the classification of deferred taxes on the balance sheet. More specifically, ASU 2015-17 will require that all deferred tax assets and liabilities, and any related valuation allowance, be reported as noncurrent in a classified balance sheet. The new guidance will replace the existing practice of reporting deferred taxes for each tax jurisdiction (or taxing component of a jurisdiction) as (a) a net current asset or liability and (b) a net noncurrent asset or liability. The new guidance does not change the existing requirement that only permits offsetting assets and liabilities within the same jurisdiction. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. In addition, the Company has not yet adopted the following recent accounting pronouncements and does not believe their adoption will have a material effect on its consolidated financial statements: 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 . In August 2015, the FASB deferred the effective date of this new standard by one year. 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 an amount that depicts the consideration to which the entity expects to be entitled in exchange for each of those goods and services. For a contract that involves more than one performance obligation, the entity must (a) determine or, if necessary, estimate the standalone selling price at inception of the contract for the distinct goods or services underlying each performance obligation and (b) allocate the transaction price to each performance obligation on the basis of the relative standalone selling prices. In addition, under the new guidance, an entity should recognize revenue when (or as) it satisfies each performance obligation under the contract by transferring the promised good or service to the customer. A good or service is deemed transferred when (or as) the customer obtains control of that good or service. The new standard permits the use of either the retrospective or cumulative effect transition method. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early application is permitted, but no earlier than December 16, 2016. The Company has not yet selected a transition method. In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in Cloud Computing Arrangement . This pronouncement provides guidance to determine whether a cloud-based computing arrangement includes a software license. If a cloud-based computing arrangement includes a software license, the customer must account for the software element of the arrangement consistent with the acquisition of other software licenses. Otherwise, the customer must account for the arrangement as a service contract. The new standard permits the use of either the prospective or retrospective transition method. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. |
Fair Value Measurements
Fair Value Measurements | 3 Months Ended |
Dec. 31, 2015 | |
Fair Value Measurements | |
Fair Value Measurements | 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 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, 2015 and September 30, 2015 (in thousands): As of December 31, 2015 Total Level 1 Level 2 Level 3 Assets Foreign exchange contracts (b) $ $ — $ — Total assets $ $ — $ — Liabilities Long-term debt (c) $ $ $ — Foreign exchange contracts (b) — — Total liabilities $ $ $ — As of September 30, 2015 Total Level 1 Level 2 Level 3 Assets Cash equivalents (a) $ $ $ — — Foreign exchange contracts (b) — — Total assets $ $ $ — Liabilities Long-term debt (c) $ $ $ — Foreign exchange contracts (b) — — Total liabilities $ $ $ — (a) Cash equivalents 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 and 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 observable inputs, such as market foreign currency exchange rates. Please see Note 10 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 $1,808.9 million at December 31, 2015 and $1,809.4 million at September 30, 2015, less unamortized debt issuance costs of $26.1 million and $21.8 million at December 31, 2015 and September 30, 2015, respectively. 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 9 for more information about the Company’s debt. |
Accumulated Stockholders' Equit
Accumulated Stockholders' Equity (Deficit) | 3 Months Ended |
Dec. 31, 2015 | |
Accumulated Stockholders' Equity (Deficit) | |
Accumulated Stockholders' Equity (Deficit) | 5. Accumulated Stockholders’ Equity (Deficit) In August 2014, we announced that our Board of Directors approved a share repurchase program authorizing us to repurchase up to $1.0 billion of our common stock over a period of approximately three years (the “2014 Share Repurchase Program”). The 2014 Share Repurchase Program expires on September 30, 2017. During the three months ended December 31, 2015 and 2014, the Company repurchased and subsequently retired approximately 2.4 million and 0.2 million shares, respectively, of its common stock under the 2014 Share Repurchase Program at an aggregate cost of $62.4 million and $7.3 million, respectively. We funded these share repurchases with existing cash balances, cash from operations and borrowings under the ABL facility. The Company 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 us recording such repurchases, we recorded the excess in accumulated deficit. At December 31, 2015 and September 30, 2015, accumulated other comprehensive loss consists of cumulative foreign currency translation adjustments of $87.9 million and $77.7 million, respectively, net of income taxes of $2.3 million at both dates. Comprehensive income (loss) 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 component of comprehensive income, other than net earnings, is foreign currency translation adjustments, net of income tax. |
Earnings Per Share
Earnings Per Share | 3 Months Ended |
Dec. 31, 2015 | |
Earnings Per Share | |
Earnings Per Share | 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, 2015 2014 Net earnings $ $ Weighted average basic shares Dilutive securities: Stock option and stock award programs Weighted average diluted shares Earnings per share: Basic $ $ Diluted $ $ At December 31, 2015 and 2014, options to purchase 3,878,836 shares and 1,259,204 shares, respectively, of the Company’s common stock were outstanding but not included in the computations 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. |
Share-Based Payments
Share-Based Payments | 3 Months Ended |
Dec. 31, 2015 | |
Share-Based Payments | |
Share-Based Payments | 7. Share-Based Payments 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, 2015 2014 Share-based compensation expense $ $ Income tax benefit related to share-based compensation expense $ $ Performance-Based Unit Awards The Company from time to time grants Performance-Based Unit (“Performance Units”) awards subject to three-year cliff-vesting provisions, pursuant to the Sally Beauty Holdings, Inc. Amended and Restated 2010 Omnibus Incentive Plan (the “2010 Plan”). The Company’s Performance Units represent unsecured obligations of the Company to issue shares of its common stock. The number of shares, if any, which will be issued in connection with these awards, is contingent upon both (a) employee service conditions and (b) the achievement of specified Company performance targets. The Company measures the cost of services received from officers and employees in exchange for an award of Performance Units based on the fair value of the award on the date of grant and it recognizes expense over the requisite service period (generally three years). The fair value of a Performance Unit is determined based on the closing market price of the Company’s common stock on the date of grant. During the three months ended December 31, 2015, the Company granted approximately 152,000 Performance Units (“target shares”) to its officers and employees. Under the terms of these awards, a grantee may earn from 0% to 200% of his or her target shares, with the ultimate settlement (and expense recognized) dependent on the Company achieving certain specified cumulative performance targets during the three-year period ending on September 30, 2018 (the “Performance Period”) and satisfaction of the employee service condition. Periodic expense for Performance Unit awards, which is estimated quarterly, is based on the Company’s projected performance during the Performance Period compared to the performance targets contained in the award. To date, the Company has only granted Performance Units subject to the Company’s achievement of two performance targets: consolidated sales growth (as defined in the award documents) and return on invested capital (as defined in the award documents), in addition to service conditions. For the awards issued during the three months ended December 31, 2015, 40% of the award is contingent on achieving the consolidated sales growth target and 60% is contingent on achieving the return on invested capital target. The following table presents a summary of the activity for the Company’s Performance Unit awards for the three months ended December 31, 2015: 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, 2015 — $ — — Granted Vested — — Forfeited — — Unvested at December 31, 2015 $ At December 31, 2015, unrecognized compensation costs related to unvested performance unit awards are approximately $3.2 million and are expected to be recognized over the weighted average period of 2.7 years. Service-Based Awards The Company measures the cost of services received from employees, directors and consultants, if any, in exchange for a service-based 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 1.4 million and 1.1 million service-based stock options and approximately 23,000 and 214,000 service-based restricted share awards to its employees during the three months ended December 31, 2015 and 2014, respectively. Upon issuance of such grants, the Company recognized accelerated share-based compensation expense of $1.3 million and $4.8 million in the three months ended December 31, 2015 and 2014, respectively, in connection with certain retirement eligible employees who are eligible to continue vesting awards upon retirement under the provisions of the 2010 Plan. In addition, the Company granted approximately 26,000 and 20,000 service-based restricted stock units to its non-employee directors during the three months ended December 31, 2015 and 2014, respectively. 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 three or 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 Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan. The following table presents a summary of the activity for the Company’s service-based stock option awards for the three months ended December 31, 2015: 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, 2015 $ $ Granted Exercised ) Forfeited or expired ) Outstanding at December 31, 2015 $ $ Exercisable at December 31, 2015 $ $ The following table summarizes additional information about service-based stock options outstanding at December 31, 2015 under the Company’s share-based compensation plans: Options Outstanding Options Exercisable Range of Exercise Prices Number of Options Outstanding (in Thousands) Weighted Average Remaining Contractual Term (in Years) Weighted Average Exercise Price Number of Options Exercisable (in Thousands) Weighted Average Exercise Price $5.24 – 19.99 4.3 $ $ $20.00 – 30.07 8.1 Total 7.1 $ $ 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 three or four years) of the stock options or to the date a participant becomes eligible for retirement, if earlier. The weighted average assumptions relating to the valuation of the Company’s stock options are as follows: Three months ended December 31, 2015 2014 Expected life (in years) Expected volatility for the Company’s common stock % % Risk-free interest rate % % Dividend yield % % 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 at the date of grant of the stock options issued by the Company in the three months ended December 31, 2015 and 2014 was $6.27 and $8.77 per option, respectively. The total intrinsic value of options exercised during the three months ended December 31, 2015 was $1.2 million. The cash proceeds from these option exercises were $2.7 million and the tax benefit realized from these option exercises was $0.4 million. At December 31, 2015, unrecognized compensation costs related to unvested stock option awards are approximately $15.7 million and are expected to be recognized over the weighted average period of 2.3 years. Restricted Stock Awards The Company from time to time grants service-based restricted stock awards to employees and consultants, if any, 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 three to 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. The fair value of the Company’s restricted stock awards is expensed on a straight-line basis over the period (generally three to 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. The fair value of a service-based 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 service-based restricted stock awards for the three months ended December 31, 2015: 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, 2015 $ Granted Vested ) Forfeited — — Unvested at December 31, 2015 $ At December 31, 2015, unrecognized compensation costs related to unvested restricted stock awards are approximately $4.6 million and are expected to be recognized over the weighted average period of 2.5 years. Restricted Stock Units The Company also grants service-based RSU awards, which generally vest within one year from the date of grant, pursuant to the 2010 Plan. To date, the Company has only granted service-based RSU awards to its non-employee directors. RSUs represent an unsecured promise of the Company to issue shares of the Company’s common stock. 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 the shares of common stock of the Company that would otherwise be issued to such director on the vesting date. RSUs granted prior to the 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 a service-based RSU, which is determined to be the fair value of the RSU 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 service-based RSUs for the three months ended December 31, 2015: 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, 2015 — $ — — Granted Vested — — Forfeited — — Unvested at December 31, 2015 $ At December 31, 2015, unrecognized compensation costs related to unvested RSUs are approximately $0.5 million and are expected to be recognized over the weighted average period of 0.7 years. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Dec. 31, 2015 | |
Commitments and Contingencies | |
Commitments and Contingencies | 8. Commitments and Contingencies In the fiscal year ended September 30, 2014, the Company disclosed that it had experienced a data security incident (the “2014 data security incident”). In May 2015, the Company disclosed that it had experienced a second illegal intrusion into its payment card systems (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 illegally accessed and removed a portion of the payment card data (track 2) for some transactions. The costs that the Company has incurred to date in connection with the data security incidents primarily include professional advisory fees and legal costs and expenses relating to investigating and remediating the data security incidents. The Company expects to incur additional costs and expenses related to the data security incidents in the future. These costs may result from potential liabilities to payment card networks, governmental or third party investigations, proceedings or litigation and legal and other fees necessary to defend against any potential liabilities or claims, and further investigatory and remediation costs. For the three months ended December 31, 2015 and 2014, selling, general and administrative expenses reflect expenses of $0.5 million and $0.2 million, respectively, relating to the data security incidents. In addition, at December 31, 2015 the Company had an accrued liability of approximately $2.9 million related to loss contingencies associated with the 2014 data security incident. As of December 31, 2015, the scope of these additional costs, or a range thereof, cannot be reasonably estimated and we do not anticipate these additional costs or liabilities would have a material adverse impact on our business, financial condition and operating results. |
Short-term Borrowings and Long-
Short-term Borrowings and Long-term Debt | 3 Months Ended |
Dec. 31, 2015 | |
Short-term Borrowings and Long-term Debt | |
Short-term Borrowings and Long-term Debt | 9. Short-term Borrowings and Long-term Debt Details of long-term debt as of December 31, 2015 and September 30, 2015 are as follows (dollars in thousands): December 31, 2015 September 30, 2015 Interest Rates(a) ABL facility(b) (i) Prime plus (0.50% to 0.75%) or; $ — $ — (ii) LIBOR(b) plus (1.50% to 1.75%) Senior notes due Nov. 2019 — 6.875% Senior notes due Jun. 2022 5.750% Senior notes due Nov. 2023 5.500% Senior notes due Dec. 2025 — 5.625% Total $ $ Plus: capital lease obligations Less: unamortized debt issuance costs and premium, net(c) Total debt $ $ Less: current maturities Total long-term debt $ $ (a) Interest rates shown represent the coupon or contractual rate or rates related to each debt instrument listed. (b) When used in this Quarterly Report, LIBOR means the London Interbank Offered Rate. At December 31, 2015 and September 30, 2015, unamortized debt issuance costs of $2.2 million and $2.4 million, respectively, related to the ABL facility are reported in other assets in the Company’s consolidated balance sheets. (c) Amounts are net of unamortized premium of $6.3 million and $6.5 million as of December 31, 2015 and September 30, 2015, respectively, related to certain notes with an aggregate principal amount of $150.0 million. 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, The Alberto-Culver Company, which we refer to as “Alberto-Culver.” In the fiscal year 2011, Sally Holdings entered into a five-year asset-based senior secured loan facility (the “ABL facility”). The availability of funds under the ABL facility 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. In the fiscal year 2013, the Company, Sally Holdings and other parties to the ABL facility entered into an 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 2018 and improved certain other covenant terms. At December 31, 2015, there were no borrowings outstanding under the ABL facility and the Company had $478.5 million available for borrowing under the ABL facility, including the Canadian sub-facility. Borrowings under the ABL facility are secured by the accounts, inventory and credit card receivables of our domestic subsidiaries and Canadian subsidiaries (in the case of borrowings under the Canadian sub-facility), together with general intangibles and certain other personal property of our domestic subsidiaries and Canadian subsidiaries (in the case of borrowings under the Canadian sub-facility) relating to the accounts and inventory, as well as deposit accounts of our domestic subsidiaries and Canadian subsidiaries (in the case of borrowings under the Canadian sub-facility) and, solely with respect to borrowings by SBH Finance B.V., intercompany notes owed to SBH Finance B.V. by our foreign subsidiaries. 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 2012, Sally Holdings and Sally Capital Inc. (collectively, the “Issuers”), both indirectly 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 $150.0 million of the aggregate principal amount of the senior notes due 2022 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 (substantially all of which was incurred in 2006 in connection with our separation from Alberto-Culver) and for general corporate purposes. As further discussed below, in December 2015, the Company redeemed in full the senior notes due 2019 at a redemption premium equal to 103.438% primarily with the net proceeds from the issuance of the 5.625% Senior Notes due 2025 (the “senior notes due 2025”). In the fiscal year 2014, the Issuers issued $200.0 million aggregate principal amount of their 5.5% Senior Notes due 2023 (the “senior notes due 2023”) 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 (which borrowings were primarily used to fund share repurchases) and for general corporate purposes, including share repurchases. On December 3, 2015, the Issuers issued $750.0 million aggregate principal amount of their senior notes due 2025 at par. The Company used the net proceeds from this debt issuance (approximately $737.3 million) as well as cash from operations and borrowings under the ABL facility, to redeem in full the senior notes due 2019 at a total redemption cost of $775.8 million, including the redemption premium but excluding accrued interest paid upon redemption of such notes. In connection with our redemption of the senior notes due 2019, we recorded a loss on extinguishment of debt in the amount of approximately $33.3 million, including a redemption premium in the amount of approximately $25.8 million and unamortized deferred financing costs of approximately $7.5 million. In connection with the issuance of the senior notes due 2025, the Company incurred and capitalized financing costs of approximately $12.7 million. This amount is reported as a deduction from the senior notes due 2025 on the Company’s consolidated balance sheets and is being amortized over the term of the senior notes due 2025 using the effective interest method. The senior notes due 2022, the senior notes due 2023 and the senior notes due 2025, which we refer to collectively as “the Senior Notes” or “the senior notes due 2022, 2023 and 2025,” 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 2022, 2023 and 2025 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 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. 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 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. The senior notes due 2025 carry optional redemption features whereby the Company has the option to redeem the notes, in whole or in part, on or after December 1, 2023 at par, plus accrued and unpaid interest, if any, and on or after December 1, 2020 at par plus a premium declining ratably to par, plus accrued and unpaid interest, if any. Prior to December 1, 2020, 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 December 1, 2018, 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, 2015 (in thousands): Twelve months ending December 31: 2016-2020 $ — Thereafter $ Plus: capital lease obligations Less: unamortized debt issuance costs and premium, net Less: current maturities Total long-term debt $ 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, 2015, the Company’s Secured Leverage Ratio was less than 0.1 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) for the most recently completed twelve fiscal months. 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 2022, 2023 and 2025 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, 2015, the Company’s Consolidated Coverage Ratio was approximately 6.1 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 2022, 2023 and 2025 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 (for the senior notes due 2022 the senior notes due and 2023) or since October 1, 2015 (for the senior notes due 2025), 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 plus (v) $350 million (for the senior notes due 2025). 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, 2015, the Company’s Consolidated Total Leverage Ratio was approximately 2.7 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 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, 2015, the Consolidated Fixed Charge Coverage Ratio was approximately 3.3 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 2022, 2023 and 2025, 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 2022, 2023 and 2025 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, 2015, all the net assets of our consolidated subsidiaries were unrestricted from transfer under our credit arrangements. |
Derivative Instruments and Hedg
Derivative Instruments and Hedging Activities | 3 Months Ended |
Dec. 31, 2015 | |
Derivative Instruments and Hedging Activities | |
Derivative Instruments and Hedging Activities | 10. 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, 2015, our exposure to interest rate fluctuations relates to interest payments under the ABL facility, if any, and the Company held no derivative instruments in connection therewith. As of December 31, 2015, 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 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, 2015. 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 to manage the exposure to the U.S. dollar resulting from certain of its Sinelco Group subsidiaries’ purchases of merchandise from third-party suppliers. Sinelco’s functional currency is the Euro. As such, at December 31, 2015, we hold foreign currency forwards which enable us to sell approximately €9.6 million ($10.4 million, at the December 31, 2015 exchange rate) at the weighted average contractual exchange rate of 1.1260. The foreign currency forwards discussed in this paragraph are with a single counterparty and expire ratably through September 15, 2016. 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, 2015, we hold: (a) a foreign currency forward which enables us to sell approximately €22.5 million ($24.5 million, at the December 31, 2015 exchange rate) at the contractual exchange rate of 1.0963, (b) a foreign currency forward which enables us to sell approximately $6.5 million Canadian dollars ($4.7 million, at the December 31, 2015 exchange rate) at the contractual exchange rate of 1.3838, (c) a foreign currency forward which enables us to buy approximately $6.5 million Canadian dollars ($4.7 million, at the December 31, 2015 exchange rate) at the contractual exchange rate of 1.3814, (d) a foreign currency forward which enables us to sell approximately 27.8 million Mexican pesos ($1.6 million, at the December 31, 2015 exchange rate) at the contractual exchange rate of 17.2485 and (e) foreign currency forwards which enable us to buy approximately £9.6 million ($14.2 million, at the December 31, 2015 exchange rate) at the weighted average contractual exchange rate of 1.4831. All the foreign currency forwards discussed in this paragraph are with a single counterparty (not the same counterparty as that on the forwards discussed in the preceding paragraph) and expire on or before March 31, 2016. 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, 2015 and 2014, selling, general and administrative expenses include net gains of $1.0 million and $1.5 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 sheets as of December 31, 2015 and September 30, 2015 (in thousands): Asset Derivatives Liability Derivatives Classification December 31, 2015 September 30, 2015 Classification December 31, 2015 September 30, 2015 Derivatives designated as hedging instruments: None Derivatives not designated as hedging instruments: Foreign exchange contracts Other current assets $ $ Accrued liabilities $ $ $ $ $ $ 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, 2015 and 2014 (in thousands): Derivatives Designated as Hedging Instruments Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) None 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 2015 2014 Foreign exchange contracts Selling, general and administrative expenses $ $ Credit-risk-related Contingent Features At December 31, 2015, the aggregate fair value of all foreign exchange contracts held which consisted of derivative instruments in a liability position was less than $0.1 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 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. |
Business Segments
Business Segments | 3 Months Ended |
Dec. 31, 2015 | |
Business Segments | |
Business Segments | 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 Europe and South America 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 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, 2015. Sales between segments, which were eliminated in consolidation, were not material during the three months ended December 31, 2015 and 2014. Segment data for the three months ended December 31, 2015 and 2014 is as follows (in thousands): Three Months Ended December 31, 2015 2014 Net sales: Sally Beauty Supply $ $ BSG Total $ $ Earnings before provision for income taxes: Segment operating profit: Sally Beauty Supply $ $ BSG Segment operating profit Unallocated expenses (a) ) ) Share-based compensation expense ) ) Interest expense (b) ) ) Earnings before provision for income taxes $ $ (a) Unallocated expenses consist of corporate and shared costs. (b) For the three months ended December 31, 2015, interest expense includes a loss on extinguishment of debt of $33.3 million in connection with the Company’s December 2015 redemption of its senior notes due 2019. |
Parent, Issuers, Guarantor and
Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements | 3 Months Ended |
Dec. 31, 2015 | |
Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements | |
Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements | 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, 2015 and September 30, 2015, and the related condensed consolidating statements of earnings, condensed consolidating statements of comprehensive income and condensed consolidating statements of cash flows for the three months ended December 31, 2015 and 2014: (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, the accounts, inventory, credit card receivables, deposit accounts, certain intercompany notes and certain other personal property of the guarantor subsidiaries relating to the inventory and accounts are pledged under the ABL facility and consequently may not be available to satisfy the claims of general creditors. Condensed Consolidating Balance Sheet December 31, 2015 (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 $ — $ — $ $ $ — $ Trade and other accounts receivable, less allowance for doubtful accounts — — — Due from affiliates — — ) — Inventory — — — Other current assets — Deferred income tax assets — — Property and equipment, net — — Investment in subsidiaries — ) — Goodwill and other intangible assets, net — — — Other assets ) — Total assets $ $ $ $ $ ) $ Liabilities and Stockholders’ (Deficit) Equity Accounts payable $ $ — $ $ $ — $ Due to affiliates ) — Accrued liabilities — Income taxes payable — — Long-term debt — — Other liabilities — — — Deferred income tax liabilities — — Total liabilities ) Total stockholders’ (deficit) equity ) ) ) Total liabilities and stockholders’ (deficit) equity $ $ $ $ $ ) $ Condensed Consolidating Balance Sheet September 30, 2015 (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 $ — $ $ $ $ — $ Trade and other accounts receivable, less allowance for doubtful accounts — — — Due from affiliates — — ) — Inventory — — — Other current assets — Deferred income tax assets — — Property and equipment, net — — Investment in subsidiaries — ) — Goodwill and other intangible assets, net — — — Other assets ) — Total assets $ $ $ $ $ ) $ Liabilities and Stockholders’ (Deficit) Equity Accounts payable $ — $ — $ $ $ — $ Due to affiliates ) — Accrued liabilities — Income taxes payable — — Long-term debt — — Other liabilities — — — Deferred income tax liabilities — — Total liabilities ) Total stockholders’ (deficit) equity ) ) ) Total liabilities and stockholders’ (deficit) equity $ $ $ $ $ ) $ Condensed Consolidating Statement of Earnings and Comprehensive Income Three Months Ended December 31, 2015 (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 $ — $ — $ $ $ — $ Related party sales — — — ) — Cost of products sold and distribution expenses — — ) Gross profit — — — Selling, general and administrative expenses — Depreciation and amortization — — — Operating earnings (loss) ) ) — Interest expense — — Earnings (loss) before provision for income taxes ) ) — Provision (benefit) for income taxes ) ) — Equity in earnings of subsidiaries, net of tax — ) — Net earnings ) Other comprehensive income (loss), net of tax — — — ) — ) Total comprehensive income (loss) $ $ $ $ ) $ ) $ Condensed Consolidating Statement of Earnings and Comprehensive Income Three Months Ended December 31, 2014 (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 $ — $ — $ $ $ — $ Related party sales — — — ) — Cost of products sold and distribution expenses — — ) Gross profit — — — Selling, general and administrative expenses — Depreciation and amortization — — — Operating earnings (loss) ) ) — Interest expense — — Earnings (loss) before provision for income taxes ) ) — Provision (benefit) for income taxes ) ) — Equity in earnings of subsidiaries, net of tax — ) — Net earnings ) Other comprehensive income (loss), net of tax — — — ) — ) Total comprehensive income (loss) $ $ $ $ ) $ ) $ Condensed Consolidating Statement of Cash Flows Three months ended December 31, 2015 (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 $ $ ) $ $ $ — $ Cash Flows from Investing Activities: Capital expenditures, net of proceeds from sale of property and equipment — — ) ) — ) Acquisitions, net of cash acquired — — ) — — ) Net cash used by investing activities — — ) ) — ) Cash Flows from Financing Activities: Proceeds from issuance of long-term debt — — — — Repayments of long-term debt — ) ) ) — ) Repurchases of common stock ) — — — — ) Debt issuance costs — ) — — — ) Proceeds from exercises of stock options — — — — Excess tax benefit from share-based compensation — — — — Net cash used by financing activities ) ) ) ) — ) Effect of foreign exchange rate changes on cash and cash equivalents — — — ) — ) Net (decrease) increase in cash and cash equivalents — ) ) — ) Cash and cash equivalents, beginning of period — — Cash and cash equivalents, end of period $ — $ — $ $ $ — $ Condensed Consolidating Statement of Cash Flows Three Months Ended December 31, 2014 (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 (used) provided by operating activities $ ) $ $ $ $ — $ Cash Flows from Investing Activities: Capital expenditures, net of proceeds from sale of property and equipment — — ) ) — ) Net cash used by investing activities — — ) ) — ) Cash Flows from Financing Activities: Repayments of long-term debt — — ) ) — ) Repurchases of common stock ) — — — — ) Proceeds from exercises of stock options — — — — Excess tax benefit from share-based compensation — — — — Net cash provided (used) by financing activities — ) ) — Effect of foreign exchange rate changes on cash and cash equivalents — — — ) — ) Net increase in cash and cash equivalents — — Cash and cash equivalents, beginning of period — — Cash and cash equivalents, end of period $ — $ $ $ $ — $ |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 3 Months Ended |
Dec. 31, 2015 | |
Fair Value Measurements | |
Schedule of financial assets and liabilities by fair value hierarchy | As of December 31, 2015 Total Level 1 Level 2 Level 3 Assets Foreign exchange contracts (b) $ $ — $ — Total assets $ $ — $ — Liabilities Long-term debt (c) $ $ $ — Foreign exchange contracts (b) — — Total liabilities $ $ $ — As of September 30, 2015 Total Level 1 Level 2 Level 3 Assets Cash equivalents (a) $ $ $ — — Foreign exchange contracts (b) — — Total assets $ $ $ — Liabilities Long-term debt (c) $ $ $ — Foreign exchange contracts (b) — — Total liabilities $ $ $ — (a) Cash equivalents 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 and 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 observable inputs, such as market foreign currency exchange rates. Please see Note 10 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 $1,808.9 million at December 31, 2015 and $1,809.4 million at September 30, 2015, less unamortized debt issuance costs of $26.1 million and $21.8 million at December 31, 2015 and September 30, 2015, respectively. 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 9 for more information about the Company’s debt. |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 3 Months Ended |
Dec. 31, 2015 | |
Earnings Per Share | |
Schedule of computations of basic and diluted earnings per share | Three Months Ended December 31, 2015 2014 Net earnings $ $ Weighted average basic shares Dilutive securities: Stock option and stock award programs Weighted average diluted shares Earnings per share: Basic $ $ Diluted $ $ |
Share-Based Payments (Tables)
Share-Based Payments (Tables) | 3 Months Ended |
Dec. 31, 2015 | |
Share-Based Payments | |
Schedule of total compensation cost charged against income | Three Months Ended December 31, 2015 2014 Share-based compensation expense $ $ Income tax benefit related to share-based compensation expense $ $ |
Summary of activity for performance based unit awards | 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, 2015 — $ — — Granted Vested — — Forfeited — — Unvested at December 31, 2015 $ |
Summary of activity for 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, 2015 $ $ Granted Exercised ) Forfeited or expired ) Outstanding at December 31, 2015 $ $ Exercisable at December 31, 2015 $ $ |
Summary of stock options by range of exercise prices | The following table summarizes additional information about service-based stock options outstanding at December 31, 2015 under the Company’s share-based compensation plans: Options Outstanding Options Exercisable Range of Exercise Prices Number of Options Outstanding (in Thousands) Weighted Average Remaining Contractual Term (in Years) Weighted Average Exercise Price Number of Options Exercisable (in Thousands) Weighted Average Exercise Price $5.24 – 19.99 4.3 $ $ $20.00 – 30.07 8.1 Total 7.1 $ $ |
Schedule of weighted average assumptions for valuation of stock options | Three months ended December 31, 2015 2014 Expected life (in years) Expected volatility for the Company’s common stock % % Risk-free interest rate % % Dividend yield % % |
Restricted Stock Awards | |
Share-Based Payments | |
Summary of the activity for restricted stock awards/units | 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, 2015 $ Granted Vested ) Forfeited — — Unvested at December 31, 2015 $ |
Restricted Stock Units | |
Share-Based Payments | |
Summary of the activity for restricted stock awards/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, 2015 — $ — — Granted Vested — — Forfeited — — Unvested at December 31, 2015 $ |
Short-term Borrowings and Lon23
Short-term Borrowings and Long-term Debt (Tables) | 3 Months Ended |
Dec. 31, 2015 | |
Short-term Borrowings and Long-term Debt | |
Summary of long-term debt | December 31, 2015 September 30, 2015 Interest Rates(a) ABL facility(b) (i) Prime plus (0.50% to 0.75%) or; $ — $ — (ii) LIBOR(b) plus (1.50% to 1.75%) Senior notes due Nov. 2019 — 6.875% Senior notes due Jun. 2022 5.750% Senior notes due Nov. 2023 5.500% Senior notes due Dec. 2025 — 5.625% Total $ $ Plus: capital lease obligations Less: unamortized debt issuance costs and premium, net(c) Total debt $ $ Less: current maturities Total long-term debt $ $ (a) Interest rates shown represent the coupon or contractual rate or rates related to each debt instrument listed. (b) When used in this Quarterly Report, LIBOR means the London Interbank Offered Rate. At December 31, 2015 and September 30, 2015, unamortized debt issuance costs of $2.2 million and $2.4 million, respectively, related to the ABL facility are reported in other assets in the Company’s consolidated balance sheets. (c) Amounts are net of unamortized premium of $6.3 million and $6.5 million as of December 31, 2015 and September 30, 2015, respectively, related to certain notes with an aggregate principal amount of $150.0 million. |
Schedule of maturities of long-term debt | Twelve months ending December 31: 2016-2020 $ — Thereafter $ Plus: capital lease obligations Less: unamortized debt issuance costs and premium, net Less: current maturities Total long-term debt $ |
Derivative Instruments and He24
Derivative Instruments and Hedging Activities (Tables) | 3 Months Ended |
Dec. 31, 2015 | |
Derivative Instruments and Hedging Activities | |
Tabular disclosure of fair values of derivative instruments | Asset Derivatives Liability Derivatives Classification December 31, 2015 September 30, 2015 Classification December 31, 2015 September 30, 2015 Derivatives designated as hedging instruments: None Derivatives not designated as hedging instruments: Foreign exchange contracts Other current assets $ $ Accrued liabilities $ $ $ $ $ $ |
Tabular disclosure of the effect of derivative instruments on the statement of earnings | Derivatives Designated as Hedging Instruments Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) None 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 2015 2014 Foreign exchange contracts Selling, general and administrative expenses $ $ |
Business Segments (Tables)
Business Segments (Tables) | 3 Months Ended |
Dec. 31, 2015 | |
Business Segments | |
Schedule of segment data | Three Months Ended December 31, 2015 2014 Net sales: Sally Beauty Supply $ $ BSG Total $ $ Earnings before provision for income taxes: Segment operating profit: Sally Beauty Supply $ $ BSG Segment operating profit Unallocated expenses (a) ) ) Share-based compensation expense ) ) Interest expense (b) ) ) Earnings before provision for income taxes $ $ (a) Unallocated expenses consist of corporate and shared costs. (b) For the three months ended December 31, 2015, interest expense includes a loss on extinguishment of debt of $33.3 million in connection with the Company’s December 2015 redemption of its senior notes due 2019. |
Parent, Issuers, Guarantor an26
Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements (Tables) | 3 Months Ended |
Dec. 31, 2015 | |
Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements | |
Schedule of Condensed Consolidating Balance Sheet | Condensed Consolidating Balance Sheet December 31, 2015 (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 $ — $ — $ $ $ — $ Trade and other accounts receivable, less allowance for doubtful accounts — — — Due from affiliates — — ) — Inventory — — — Other current assets — Deferred income tax assets — — Property and equipment, net — — Investment in subsidiaries — ) — Goodwill and other intangible assets, net — — — Other assets ) — Total assets $ $ $ $ $ ) $ Liabilities and Stockholders’ (Deficit) Equity Accounts payable $ $ — $ $ $ — $ Due to affiliates ) — Accrued liabilities — Income taxes payable — — Long-term debt — — Other liabilities — — — Deferred income tax liabilities — — Total liabilities ) Total stockholders’ (deficit) equity ) ) ) Total liabilities and stockholders’ (deficit) equity $ $ $ $ $ ) $ Condensed Consolidating Balance Sheet September 30, 2015 (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 $ — $ $ $ $ — $ Trade and other accounts receivable, less allowance for doubtful accounts — — — Due from affiliates — — ) — Inventory — — — Other current assets — Deferred income tax assets — — Property and equipment, net — — Investment in subsidiaries — ) — Goodwill and other intangible assets, net — — — Other assets ) — Total assets $ $ $ $ $ ) $ Liabilities and Stockholders’ (Deficit) Equity Accounts payable $ — $ — $ $ $ — $ Due to affiliates ) — Accrued liabilities — Income taxes payable — — Long-term debt — — Other liabilities — — — Deferred income tax liabilities — — Total liabilities ) Total stockholders’ (deficit) equity ) ) ) Total liabilities and stockholders’ (deficit) equity $ $ $ $ $ ) $ |
Schedule of Condensed Consolidating Statement of Earnings and Comprehensive Income | Condensed Consolidating Statement of Earnings and Comprehensive Income Three Months Ended December 31, 2015 (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 $ — $ — $ $ $ — $ Related party sales — — — ) — Cost of products sold and distribution expenses — — ) Gross profit — — — Selling, general and administrative expenses — Depreciation and amortization — — — Operating earnings (loss) ) ) — Interest expense — — Earnings (loss) before provision for income taxes ) ) — Provision (benefit) for income taxes ) ) — Equity in earnings of subsidiaries, net of tax — ) — Net earnings ) Other comprehensive income (loss), net of tax — — — ) — ) Total comprehensive income (loss) $ $ $ $ ) $ ) $ Condensed Consolidating Statement of Earnings and Comprehensive Income Three Months Ended December 31, 2014 (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 $ — $ — $ $ $ — $ Related party sales — — — ) — Cost of products sold and distribution expenses — — ) Gross profit — — — Selling, general and administrative expenses — Depreciation and amortization — — — Operating earnings (loss) ) ) — Interest expense — — Earnings (loss) before provision for income taxes ) ) — Provision (benefit) for income taxes ) ) — Equity in earnings of subsidiaries, net of tax — ) — Net earnings ) Other comprehensive income (loss), net of tax — — — ) — ) Total comprehensive income (loss) $ $ $ $ ) $ ) $ |
Schedule of Condensed Consolidating Statement of Cash Flows | Condensed Consolidating Statement of Cash Flows Three months ended December 31, 2015 (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 $ $ ) $ $ $ — $ Cash Flows from Investing Activities: Capital expenditures, net of proceeds from sale of property and equipment — — ) ) — ) Acquisitions, net of cash acquired — — ) — — ) Net cash used by investing activities — — ) ) — ) Cash Flows from Financing Activities: Proceeds from issuance of long-term debt — — — — Repayments of long-term debt — ) ) ) — ) Repurchases of common stock ) — — — — ) Debt issuance costs — ) — — — ) Proceeds from exercises of stock options — — — — Excess tax benefit from share-based compensation — — — — Net cash used by financing activities ) ) ) ) — ) Effect of foreign exchange rate changes on cash and cash equivalents — — — ) — ) Net (decrease) increase in cash and cash equivalents — ) ) — ) Cash and cash equivalents, beginning of period — — Cash and cash equivalents, end of period $ — $ — $ $ $ — $ Condensed Consolidating Statement of Cash Flows Three Months Ended December 31, 2014 (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 (used) provided by operating activities $ ) $ $ $ $ — $ Cash Flows from Investing Activities: Capital expenditures, net of proceeds from sale of property and equipment — — ) ) — ) Net cash used by investing activities — — ) ) — ) Cash Flows from Financing Activities: Repayments of long-term debt — — ) ) — ) Repurchases of common stock ) — — — — ) Proceeds from exercises of stock options — — — — Excess tax benefit from share-based compensation — — — — Net cash provided (used) by financing activities — ) ) — Effect of foreign exchange rate changes on cash and cash equivalents — — — ) — ) Net increase in cash and cash equivalents — — Cash and cash equivalents, beginning of period — — Cash and cash equivalents, end of period $ — $ $ $ $ — $ |
Fair Value Measurements (Detail
Fair Value Measurements (Details) - USD ($) $ in Thousands | Dec. 31, 2015 | Sep. 30, 2015 |
Liabilities | ||
Long-term debt | $ 1,782,105 | $ 1,786,839 |
Fair value measurement on recurring basis | Total | ||
Assets | ||
Cash equivalents (a) | 46,003 | |
Total assets | 433 | 46,325 |
Liabilities | ||
Long-term debt (c) | 1,844,362 | 1,873,620 |
Total liabilities | 1,844,456 | 1,873,678 |
Fair value measurement on recurring basis | Foreign exchange contracts | Total | ||
Assets | ||
Foreign exchange contracts (b) | 433 | 322 |
Liabilities | ||
Foreign exchange contracts (b) | 94 | 58 |
Fair value measurement on recurring basis | Level 1 | ||
Assets | ||
Cash equivalents (a) | 46,003 | |
Total assets | 46,003 | |
Liabilities | ||
Long-term debt (c) | 1,841,750 | 1,870,750 |
Total liabilities | 1,841,750 | 1,870,750 |
Fair value measurement on recurring basis | Level 2 | ||
Assets | ||
Total assets | 433 | 322 |
Liabilities | ||
Long-term debt (c) | 2,612 | 2,870 |
Total liabilities | 2,706 | 2,928 |
Fair value measurement on recurring basis | Level 2 | Foreign exchange contracts | ||
Assets | ||
Foreign exchange contracts (b) | 433 | 322 |
Liabilities | ||
Foreign exchange contracts (b) | 94 | 58 |
ABL facility | ||
Liabilities | ||
Long-term debt | 1,808,900 | 1,809,400 |
Unamortized debt issuance costs | $ 26,100 | $ 21,800 |
Accumulated Stockholders' Equ28
Accumulated Stockholders' Equity (Deficit) (Details) - 2014 Share Repurchase Program - USD ($) shares in Millions, $ in Millions | 1 Months Ended | 3 Months Ended | |
Aug. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | |
Share repurchase program | |||
Amount of shares authorized to be repurchased | $ 1,000 | ||
Term of share repurchase program | 3 years | ||
Common stock shares repurchased and retired (in shares) | 2.4 | 0.2 | |
Cost of repurchase and retirement of common stock | $ 62.4 | $ 7.3 |
Accumulated Stockholders' Equ29
Accumulated Stockholders' Equity (Deficit) (Details 2) - USD ($) $ in Thousands | Dec. 31, 2015 | Sep. 30, 2015 |
Accumulated Stockholders' Equity (Deficit) | ||
Accumulated other comprehensive loss | $ 87,926 | $ 77,705 |
Foreign currency translation adjustments | ||
Accumulated Stockholders' Equity (Deficit) | ||
Accumulated other comprehensive loss | 87,900 | 77,700 |
Income taxes on accumulated other comprehensive loss | $ 2,300 | $ 2,300 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Earnings Per Share Reconciliation: | ||
Net earnings | $ 42,243 | $ 54,909 |
Weighted average basic shares | 150,786,000 | 156,104,000 |
Dilutive securities: | ||
Stock option and stock award programs (in shares) | 1,640,000 | 2,441,000 |
Weighted average diluted shares | 152,426,000 | 158,545,000 |
Earnings per share: | ||
Basic (in dollars per share) | $ 0.28 | $ 0.35 |
Diluted (in dollars per share) | $ 0.28 | $ 0.35 |
Common stock potentially outstanding but not included in the computation of diluted earnings per share | ||
Options to purchase shares not included in the computation of diluted earnings per share since the options were anti-dilutive (in shares) | 3,878,836 | 1,259,204 |
Share-Based Payments (Details)
Share-Based Payments (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Share-Based Payments | ||
Share-based compensation expense (in dollars) | $ 4,188 | $ 7,760 |
Income tax benefit related to share-based compensation expense | $ 1,588 | $ 2,918 |
Share-Based Payments (Details 2
Share-Based Payments (Details 2) - Performance Shares $ / shares in Units, shares in Thousands, $ in Millions | 3 Months Ended |
Dec. 31, 2015USD ($)item$ / sharesshares | |
Share-Based Payments | |
Vesting period | 3 years |
Expected life (in years) | 3 years |
Number of performance targets | item | 2 |
Performance-Based Unit Awards (in shares) | |
Granted (in shares) | shares | 152 |
Unvested at the end of the period (in shares) | shares | 152 |
Performance-Based Unit Awards (in dollars per share) | |
Granted (in dollars per share) | $ / shares | $ 23.45 |
Unvested at the end of the period (in dollars per share) | $ / shares | $ 23.45 |
Performance-Based Unit Awards (in years) | |
Weighted average remaining vested term | 2 years 8 months 12 days |
Total unrecognized compensation costs related to unvested stock option awards | $ | $ 3.2 |
Weighted average period for recognition of unvested awards | 2 years 8 months 12 days |
Consolidated sales growth | |
Share-Based Payments | |
Vesting Percentage | 40.00% |
Return on invested capital target | |
Share-Based Payments | |
Vesting Percentage | 60.00% |
Minimum | |
Share-Based Payments | |
Percentage of target shares | 0.00% |
Maximum | |
Share-Based Payments | |
Percentage of target shares | 200.00% |
Share-Based Payments (Details 3
Share-Based Payments (Details 3) - USD ($) $ in Millions | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Share-Based Payments | ||
Accelerated expense related to certain retirement eligible employees (in dollars) | $ 1.3 | $ 4.8 |
Service Based Stock Options Member | ||
Share-Based Payments | ||
Granted (in shares) | 1,400,000 | 1,100,000 |
Service Based Restricted Share Awards Member | ||
Share-Based Payments | ||
Granted (in shares) | 23,000 | 214,000 |
Service Based Restricted Stock Units Member | ||
Share-Based Payments | ||
Granted (in shares) | 26,000 | 20,000 |
Share-Based Payments (Details 4
Share-Based Payments (Details 4) - Stock Option Awards - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 12 Months Ended |
Dec. 31, 2015 | Sep. 30, 2015 | |
Stock Options, Number of Outstanding Options | ||
Outstanding at the beginning of the period (in shares) | 5,316 | |
Granted (in shares) | 1,420 | |
Exercised (in shares) | (160) | |
Forfeited or expired (in shares) | (17) | |
Outstanding at the end of the period (in shares) | 6,559 | 5,316 |
Exercisable at the end of the period (in shares) | 3,258 | |
Stock Options, Weighted Average Exercise Price | ||
Outstanding at the beginning of the period (in dollars per share) | $ 21.89 | |
Granted (in dollars per share) | 23.45 | |
Exercised (in dollars per share) | 16.97 | |
Forfeited or expired (in dollars per share) | 27.49 | |
Outstanding at the end of the period (in dollars per share) | 22.34 | $ 21.89 |
Exercisable at the end of the period (in dollars per share) | $ 19.14 | |
Stock Options, Weighted Average Remaining Contractual Term | ||
Outstanding at the beginning of the period | 7 years 1 month 6 days | 6 years 9 months 18 days |
Outstanding at the end of the period | 7 years 1 month 6 days | 6 years 9 months 18 days |
Exercisable at the end of the period | 5 years 7 months 6 days | |
Stock Options, Aggregate Intrinsic Value | ||
Outstanding at the beginning of the period (in dollars) | $ 19,255 | |
Outstanding at the end of the period (in dollars) | 37,876 | $ 19,255 |
Exercisable at the end of the period (in dollars) | $ 28,858 | |
Minimum | ||
Share-Based Payments | ||
Vesting period | 3 years | |
Maximum | ||
Share-Based Payments | ||
Term of stock options | 10 years | |
Vesting period | 4 years |
Share-Based Payments (Details 5
Share-Based Payments (Details 5) shares in Thousands | 3 Months Ended |
Dec. 31, 2015$ / sharesshares | |
Options Outstanding | |
Range of Exercise Prices, Number Outstanding (in shares) | shares | 6,559 |
Range of Exercise Prices, Weighted Average Remaining Contractual Term | 7 years 1 month 6 days |
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share) | $ 22.34 |
Options Exercisable | |
Range of Exercise Prices, Number Exercisable (in shares) | shares | 3,258 |
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share) | $ 19.14 |
Range of Exercise Prices $5.24 - 19.99 | |
Information about stock options under option plans | |
Lower Range of Exercise Prices (in dollars per share) | 5.24 |
Upper Range of Exercise Prices (in dollars per share) | $ 19.99 |
Options Outstanding | |
Range of Exercise Prices, Number Outstanding (in shares) | shares | 1,694 |
Range of Exercise Prices, Weighted Average Remaining Contractual Term | 4 years 3 months 18 days |
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share) | $ 13.18 |
Options Exercisable | |
Range of Exercise Prices, Number Exercisable (in shares) | shares | 1,694 |
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share) | $ 13.18 |
Range of Exercise Prices $20.00 - 30.07 | |
Information about stock options under option plans | |
Lower Range of Exercise Prices (in dollars per share) | 20 |
Upper Range of Exercise Prices (in dollars per share) | $ 30.07 |
Options Outstanding | |
Range of Exercise Prices, Number Outstanding (in shares) | shares | 4,865 |
Range of Exercise Prices, Weighted Average Remaining Contractual Term | 8 years 1 month 6 days |
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share) | $ 25.52 |
Options Exercisable | |
Range of Exercise Prices, Number Exercisable (in shares) | shares | 1,564 |
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share) | $ 25.59 |
Share-Based Payments (Details 6
Share-Based Payments (Details 6) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Stock option disclosures | ||
Proceeds from exercises of stock options | $ 2,716 | $ 37,156 |
Stock Option Awards | ||
Weighted average assumptions relating to the valuation of stock options | ||
Expected life (in years) | 5 years | 5 years |
Expected volatility (as a percent) | 27.20% | 31.00% |
Risk-free interest rate (as a percent) | 1.50% | 1.60% |
Dividend yield (as a percent) | 0.00% | 0.00% |
Stock option disclosures | ||
Weighted average fair value of the stock options issued (in dollars per share) | $ 6.27 | $ 8.77 |
Aggregate intrinsic value of options exercised | $ 1,200 | |
Proceeds from exercises of stock options | 2,700 | |
Tax benefit realized for the tax deductions of stock option exercises | 400 | |
Total unrecognized compensation costs related to unvested stock option awards | $ 15,700 | |
Weighted average period for recognition of unvested awards | 2 years 3 months 18 days |
Share-Based Payments (Details 7
Share-Based Payments (Details 7) - Restricted Stock Awards - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 12 Months Ended |
Dec. 31, 2015 | Sep. 30, 2015 | |
Restricted stock (in shares) | ||
Unvested at the beginning of the period (in shares) | 446,000 | |
Granted (in shares) | 23,000 | |
Vested (in shares) | (60,000) | |
Unvested at the end of the period (in shares) | 409,000 | 446,000 |
Restricted Stock (in dollars per share) | ||
Unvested at the beginning of the period (in dollars per share) | $ 25.82 | |
Granted (in dollars per share) | 23.45 | |
Vested (in dollars per share) | 16.69 | |
Unvested at the end of the period (in dollars per share) | $ 27.03 | $ 25.82 |
Restricted stock (in years) | ||
Weighted average remaining vested term | 2 years 6 months | 2 years 9 months 18 days |
Total unrecognized compensation costs | $ 4.6 | |
Weighted average period for recognition of unvested restricted awards | 2 years 6 months | |
Minimum | ||
Restricted stock (in years) | ||
Vesting period | 3 years | |
Maximum | ||
Restricted stock (in years) | ||
Vesting period | 5 years |
Share-Based Payments (Details 8
Share-Based Payments (Details 8) - Restricted Stock Units $ / shares in Units, $ in Millions | 3 Months Ended |
Dec. 31, 2015USD ($)$ / sharesshares | |
Restricted stock (in shares) | |
Granted (in shares) | shares | 26,000 |
Unvested at the end of the period (in shares) | shares | 26,000 |
Restricted Stock (in dollars per share) | |
Granted (in dollars per share) | $ / shares | $ 23.45 |
Unvested at the end of the period (in dollars per share) | $ / shares | $ 23.45 |
Restricted stock (in years) | |
Weighted average remaining vested term | 8 months 12 days |
Vesting period | 1 year |
Restricted stock units, retention period | 6 months |
Total unrecognized compensation costs | $ | $ 0.5 |
Weighted average period for recognition of unvested awards | 8 months 12 days |
Maximum | |
Restricted stock (in years) | |
Vesting period | 1 year |
Commitments and Contingencies (
Commitments and Contingencies (Details ) - Data Security Incidents - USD ($) $ in Millions | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
2014 Data Security Incident Member | ||
Commitments and contingencies | ||
Accrued liability related to loss contingency | $ 2.9 | |
Selling, general and administrative expenses | ||
Commitments and contingencies | ||
Data security incident expenses | $ 0.5 | $ 0.2 |
Short-term Borrowings and Lon40
Short-term Borrowings and Long-Term Debt (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Dec. 31, 2015 | Dec. 03, 2015 | Sep. 30, 2015 | |
Debt Instruments | |||
Total | $ 1,800,000 | $ 1,800,000 | |
Plus: capital lease obligations | 2,612 | 2,870 | |
Less: unamortized debt issuance costs and premium, net | 19,780 | 15,276 | |
Total debt | $ 1,782,832 | 1,787,594 | |
ABL facility | Prime | Minimum | |||
Debt Instruments | |||
Percentage points added to the reference rate | 0.50% | ||
ABL facility | Prime | Maximum | |||
Debt Instruments | |||
Percentage points added to the reference rate | 0.75% | ||
ABL facility | LIBOR | Minimum | |||
Debt Instruments | |||
Percentage points added to the reference rate | 1.50% | ||
ABL facility | LIBOR | Maximum | |||
Debt Instruments | |||
Percentage points added to the reference rate | 1.75% | ||
Senior notes due Nov. 2019 | |||
Debt Instruments | |||
Total | 750,000 | ||
Less: unamortized debt issuance costs and premium, net | $ 7,500 | ||
Senior notes due Jun. 2022 | |||
Debt Instruments | |||
Total | $ 850,000 | 850,000 | |
Senior notes due Nov. 2023 | |||
Debt Instruments | |||
Total | 200,000 | $ 200,000 | |
Senior notes due Dec. 2025 | |||
Debt Instruments | |||
Total | $ 750,000 |
Short-term Borrowings and Lon41
Short-term Borrowings and Long-Term Debt (Details 2) - USD ($) $ in Thousands | Dec. 31, 2015 | Sep. 30, 2015 |
Short-term Borrowings and Long-term Debt | ||
Total debt | $ 1,782,832 | $ 1,787,594 |
Less: current maturities | 727 | 755 |
Total long-term debt | $ 1,782,105 | $ 1,786,839 |
Short-term Borrowings and Lon42
Short-term Borrowings and Long-Term Debt (Details 3) - USD ($) $ in Thousands | Dec. 31, 2015 | Sep. 30, 2015 |
Debt Instruments | ||
Unamortized deferred financing costs | $ 19,780 | $ 15,276 |
Unamortized premium related to certain notes | 6,300 | 6,500 |
Aggregate principal amount related to certain notes | 150,000 | 150,000 |
ABL facility | Other assets | ||
Debt Instruments | ||
Unamortized deferred financing costs | $ 2,200 | $ 2,400 |
Short-term Borrowings and Lon43
Short-term Borrowings and Long-Term Debt (Details 4) - USD ($) $ in Thousands | Dec. 03, 2015 | Dec. 31, 2015 | Dec. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Sep. 30, 2012 | Sep. 30, 2011 | Sep. 30, 2015 | Sep. 30, 2013 | Nov. 30, 2006 |
Debt Instruments | ||||||||||
Aggregate principal amount of debt retired | $ 1,391,900 | |||||||||
Borrowings repaid | $ 825,971 | $ 258 | ||||||||
Loss on extinguishment of debt | 33,296 | |||||||||
Unamortized deferred financing costs | $ 19,780 | 19,780 | $ 15,276 | |||||||
Sally Investment Holdings LLC and Sally Holdings, LLC | ||||||||||
Debt Instruments | ||||||||||
Debt instrument, face amount | $ 1,850,000 | |||||||||
ABL facility | ||||||||||
Debt Instruments | ||||||||||
Revolving credit facility | $ 500,000 | |||||||||
Outstanding borrowings | 0 | 0 | ||||||||
Remaining credit facility available | 478,500 | $ 478,500 | ||||||||
Commitment fee for line of credit facility (as a percent) | 0.25% | |||||||||
Borrowings repaid | $ 88,500 | |||||||||
ABL facility | Sally Holdings, LLC | ||||||||||
Debt Instruments | ||||||||||
Debt Instrument, Term | 5 years | |||||||||
ABL facility | Restricted payments in excess of $30.0 million | ||||||||||
Debt Instruments | ||||||||||
Revolving credit facility | $ 150,000 | $ 150,000 | ||||||||
Canadian sub-facility | ||||||||||
Debt Instruments | ||||||||||
Revolving credit facility | $ 25,000 | |||||||||
Senior notes due Nov. 2019 | ||||||||||
Debt Instruments | ||||||||||
Debt instrument, face amount | $ 750,000 | |||||||||
Interest rate (as a percent) | 6.875% | 6.875% | 6.875% | |||||||
Redemption premium (as a percent) | 103.438% | |||||||||
Total redemption cost | $ 775,800 | |||||||||
Loss on extinguishment of debt | $ 33,300 | |||||||||
Redemption premium of debt | 25,800 | |||||||||
Unamortized deferred financing costs | 7,500 | |||||||||
Senior notes due Jun. 2022 | ||||||||||
Debt Instruments | ||||||||||
Debt instrument, face amount | $ 850,000 | |||||||||
Interest rate (as a percent) | 5.75% | 5.75% | 5.75% | |||||||
Senior notes due Nov. 2023 | ||||||||||
Debt Instruments | ||||||||||
Debt instrument, face amount | $ 200,000 | |||||||||
Interest rate (as a percent) | 5.50% | 5.50% | 5.50% | |||||||
Proceeds used to repay borrowings | $ 196,300 | |||||||||
Maximum percentage of original principal amount that can be redeemed from specified proceeds | 35.00% | |||||||||
Senior notes due Dec. 2025 | ||||||||||
Debt Instruments | ||||||||||
Debt instrument, face amount | $ 750,000 | |||||||||
Interest rate (as a percent) | 5.625% | 5.625% | 5.625% | |||||||
Proceeds used to repay borrowings | $ 737,300 | |||||||||
Finance cost capitalized | $ 12,700 | |||||||||
Maximum percentage of original principal amount that can be redeemed from specified proceeds | 35.00% | |||||||||
Senior notes due 2022 issued for $150 million | ||||||||||
Debt Instruments | ||||||||||
Debt instrument, face amount | $ 150,000 |
Short-term Borrowings and Lon44
Short-term Borrowings and Long-Term Debt (Details 5) - USD ($) $ in Thousands | Dec. 31, 2015 | Sep. 30, 2015 |
Fiscal Year | ||
Thereafter | $ 1,800,000 | |
Total | 1,800,000 | $ 1,800,000 |
Plus: capital lease obligations | 2,612 | 2,870 |
Less: unamortized debt issuance costs and premium, net | 19,780 | 15,276 |
Less: current maturities | 727 | 755 |
Total long-term debt | $ 1,782,105 | $ 1,786,839 |
Short-term Borrowings and Lon45
Short-term Borrowings and Long-Term Debt (Details 6) $ in Thousands | 3 Months Ended | ||||
Dec. 31, 2015USD ($)item | Sep. 30, 2015USD ($) | Dec. 31, 2014USD ($) | Sep. 30, 2014USD ($) | Sep. 30, 2013USD ($) | |
Debt Instruments | |||||
Cash and cash equivalents | $ 67,447 | $ 140,038 | $ 190,681 | $ 106,575 | |
ABL facility | |||||
Debt Instruments | |||||
Secured Leverage Ratio, threshold | 4 | ||||
Minimum borrowing availability | $ 40,000 | ||||
Percentage of borrowing base | 10.00% | ||||
Revolving credit facility | $ 500,000 | ||||
Consolidated Fixed-Charge Coverage Ratio, threshold | 1 | ||||
Consolidated Fixed-Charge Coverage Ratio | 3.3 | ||||
ABL facility | Maximum | |||||
Debt Instruments | |||||
Secured Leverage Ratio | 0.1 | ||||
ABL facility | Restricted payments up to $30.0 million | |||||
Debt Instruments | |||||
Restricted payments | $ 30,000 | ||||
Minimum borrowing availability | $ 75,000 | ||||
Percentage of borrowing base | 15.00% | ||||
Period prior to payments of dividends and other equity distributions up to certain thresholds under the terms of the credit facility must be met | 45 days | ||||
ABL facility | Restricted payments in excess of $30.0 million | |||||
Debt Instruments | |||||
Minimum borrowing availability | $ 100,000 | ||||
Percentage of borrowing base | 20.00% | ||||
Revolving credit facility | $ 150,000 | ||||
Period prior to payments of dividends and other equity distributions up to certain thresholds under the terms of the credit facility must be met | 45 days | ||||
Consolidated Fixed-Charge Coverage Ratio, threshold | 1.1 | ||||
Percentage of lesser of $150.0 million or borrowing base, considered for applicability of Consolidated Fixed Charge Coverage Ratio | 30 | ||||
Trailing period preceding proposed Restricted Payment | 12 months | ||||
Senior notes due 2019, 2022 and 2023 | |||||
Debt Instruments | |||||
Consolidated Coverage Ratio, threshold | 2 | ||||
Consolidated Coverage Ratio | 6.1 | ||||
Number of consecutive fiscal quarters | item | 4 | ||||
Percentage of Sally Holdings and its subsidiaries cumulative consolidated net earnings | 50.00% | ||||
Consolidated Total Leverage Ratio, threshold | 3.25 | ||||
Consolidated Total Leverage Ratio | 2.7 | ||||
Senior notes due 2019, 2022 and 2023 | Maximum | |||||
Debt Instruments | |||||
Cash and cash equivalents | $ 100,000 | ||||
Senior notes due Dec. 2025 | |||||
Debt Instruments | |||||
Maximum conditional amount of debt for restricted payments | $ 350,000 |
Derivative Instruments and He46
Derivative Instruments and Hedging Activities (Details) - Dec. 31, 2015 € in Millions, £ in Millions, MXN in Millions, CAD in Millions, $ in Millions | GBP (£)derivative | MXNderivative | EUR (€)derivative | USD ($)derivative | CADderivative |
Designated Cash Flow Hedges | |||||
Number of derivative instruments held | 0 | 0 | 0 | 0 | 0 |
USD:EUR | Foreign exchange contracts | Sale | Derivatives not designated as hedging instruments | Cash flow hedges to manage exposure of international subsidiaries purchases | |||||
Derivative Instruments | |||||
Notional amount | € 9.6 | $ 10.4 | |||
Non-designated Cash Flow Hedges | |||||
Weighted average contractual exchange rate (as a percent) | 1.1260 | 1.1260 | 1.1260 | 1.1260 | 1.1260 |
USD:EUR | Foreign exchange contracts | Sale | Derivatives not designated as hedging instruments | Cash flow hedges in connection with intercompany balances | |||||
Derivative Instruments | |||||
Notional amount | € 22.5 | $ 24.5 | |||
Non-designated Cash Flow Hedges | |||||
Contractual exchange rate (as a percent) | 1.0963 | 1.0963 | 1.0963 | 1.0963 | 1.0963 |
USD:CAD | Foreign exchange contracts | Sale | Derivatives not designated as hedging instruments | Cash flow hedges in connection with intercompany balances | |||||
Derivative Instruments | |||||
Notional amount | $ 4.7 | CAD 6.5 | |||
Non-designated Cash Flow Hedges | |||||
Contractual exchange rate (as a percent) | 1.3838 | 1.3838 | 1.3838 | 1.3838 | 1.3838 |
CAD:USD | Foreign exchange contracts | Purchase | Derivatives not designated as hedging instruments | Cash flow hedges in connection with intercompany balances | |||||
Derivative Instruments | |||||
Notional amount | $ 4.7 | CAD 6.5 | |||
Non-designated Cash Flow Hedges | |||||
Contractual exchange rate (as a percent) | 1.3814 | 1.3814 | 1.3814 | 1.3814 | 1.3814 |
USD:MXN | Foreign exchange contracts | Sale | Derivatives not designated as hedging instruments | Cash flow hedges in connection with intercompany balances | |||||
Derivative Instruments | |||||
Notional amount | MXN 27.8 | $ 1.6 | |||
Non-designated Cash Flow Hedges | |||||
Contractual exchange rate (as a percent) | 17.2485 | 17.2485 | 17.2485 | 17.2485 | 17.2485 |
UKPounds:USD | Foreign exchange contracts | Purchase | Derivatives not designated as hedging instruments | Cash flow hedges in connection with intercompany balances | |||||
Derivative Instruments | |||||
Notional amount | £ 9.6 | $ 14.2 | |||
Non-designated Cash Flow Hedges | |||||
Weighted average contractual exchange rate (as a percent) | 1.4831 | 1.4831 | 1.4831 | 1.4831 | 1.4831 |
Derivative Instruments and He47
Derivative Instruments and Hedging Activities (Details 2) - USD ($) $ in Thousands | Dec. 31, 2015 | Sep. 30, 2015 |
Derivatives Not Designated as Hedging Instruments | ||
Total derivatives not designated as hedging instruments, Asset | $ 433 | $ 322 |
Total derivatives not designated as hedging instruments, Liability | 94 | 58 |
Other current assets | ||
Derivatives Not Designated as Hedging Instruments | ||
Foreign Exchange Contracts, Asset | 433 | 322 |
Accrued liabilities | ||
Credit-risk-related Contingent Features | ||
Foreign Exchange Contracts, Liability | $ 94 | $ 58 |
Derivative Instruments and He48
Derivative Instruments and Hedging Activities (Details 3) - USD ($) $ in Thousands | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Derivatives Designated as Hedging Instruments | ||
Probable loss on counterparty defaults | $ 0 | |
Foreign exchange contracts | ||
Credit-risk-related Contingent Features | ||
Aggregate fair value of all foreign exchange contracts held in a liability position | 100 | |
Foreign exchange contracts | Selling, general and administrative expenses | ||
Derivatives Designated as Hedging Instruments | ||
Amount of Gain or (Loss) Recognized in Income on Derivatives, Foreign Exchange Contracts | $ 1,041 | $ 1,504 |
Business Segments (Details)
Business Segments (Details) $ in Thousands | 3 Months Ended | ||
Dec. 31, 2015USD ($)segment | Dec. 31, 2014USD ($) | ||
Segments | |||
Number of operating segments | segment | 2 | ||
Net sales: | |||
Total net sales | $ 998,032 | $ 964,468 | |
Segment operating profit: | |||
Total segment operating profit | 130,935 | 116,236 | |
Share-based compensation expense | (4,188) | (7,760) | |
Interest expense | [1] | (63,943) | (29,241) |
Earnings before provision for income taxes | 66,992 | 86,995 | |
Loss on extinguishment of debt | 33,296 | ||
Senior notes due Nov. 2019 | |||
Segment operating profit: | |||
Loss on extinguishment of debt | 33,300 | ||
Operating segments | |||
Segment operating profit: | |||
Total segment operating profit | 171,957 | 157,768 | |
Corporate | |||
Segment operating profit: | |||
Unallocated expenses (a) | [2] | (36,834) | (33,772) |
Sally Beauty Supply | |||
Net sales: | |||
Total net sales | 595,966 | 586,519 | |
Sally Beauty Supply | Operating segments | |||
Segment operating profit: | |||
Total segment operating profit | 106,077 | 101,179 | |
Beauty Systems Group | |||
Net sales: | |||
Total net sales | 402,066 | 377,949 | |
Beauty Systems Group | Operating segments | |||
Segment operating profit: | |||
Total segment operating profit | $ 65,880 | $ 56,589 | |
[1] | For the three months ended December 31, 2015, interest expense includes a loss on extinguishment of debt of $33.3 million in connection with the Company’s December 2015 redemption of its senior notes due 2019 | ||
[2] | Unallocated expenses consist of corporate and shared costs. |
Parent, Issuers, Guarantor an50
Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements (Details) - USD ($) $ in Thousands | Dec. 31, 2015 | Sep. 30, 2015 | Dec. 31, 2014 | Sep. 30, 2014 |
Condensed Consolidating Balance Sheet | ||||
Percentage of guarantor subsidiaries owned by parent | 100.00% | |||
Assets | ||||
Cash and cash equivalents | $ 67,447 | $ 140,038 | $ 190,681 | $ 106,575 |
Trade and other accounts receivable, less allowance for doubtful accounts | 80,935 | 91,092 | ||
Inventory | 912,419 | 885,214 | ||
Other current assets | 35,603 | 37,049 | ||
Deferred income tax assets, net | 33,578 | 33,709 | ||
Property and equipment, net | 281,278 | 270,847 | ||
Goodwill and other intangible assets, net | 617,644 | 623,217 | ||
Other assets | 14,222 | 13,185 | ||
Total assets | 2,043,126 | 2,094,351 | ||
Liabilities and Stockholders' (Deficit) Equity | ||||
Accounts payable | 280,140 | 275,917 | ||
Accrued liabilities | 163,892 | 208,717 | ||
Income taxes payable | 10,278 | 6,310 | ||
Long-term debt | 1,782,832 | 1,787,594 | ||
Other liabilities | 28,722 | 27,734 | ||
Deferred income tax liabilities, net | 98,928 | 85,900 | ||
Total liabilities | 2,364,792 | 2,392,172 | ||
Total stockholders' (deficit) equity | (321,666) | (297,821) | ||
Total liabilities and stockholders' deficit | 2,043,126 | 2,094,351 | ||
Reportable Legal Entities | Parent | ||||
Assets | ||||
Other current assets | 735 | 2,308 | ||
Property and equipment, net | 1 | 2 | ||
Investment in subsidiaries | 696,735 | 663,045 | ||
Other assets | 1,404 | 1,384 | ||
Total assets | 698,875 | 666,739 | ||
Liabilities and Stockholders' (Deficit) Equity | ||||
Accounts payable | 63 | |||
Due to affiliates | 1,010,982 | 962,264 | ||
Accrued liabilities | 854 | 771 | ||
Income taxes payable | 8,642 | 1,525 | ||
Total liabilities | 1,020,541 | 964,560 | ||
Total stockholders' (deficit) equity | (321,666) | (297,821) | ||
Total liabilities and stockholders' deficit | 698,875 | 666,739 | ||
Reportable Legal Entities | Sally Holdings LLC and Sally Capital Inc. | ||||
Assets | ||||
Cash and cash equivalents | 46,003 | 107,501 | 27,000 | |
Other current assets | 240 | 27 | ||
Deferred income tax assets, net | 11 | 11 | ||
Investment in subsidiaries | 3,171,965 | 3,099,141 | ||
Other assets | 2,693 | 2,894 | ||
Total assets | 3,174,909 | 3,148,076 | ||
Liabilities and Stockholders' (Deficit) Equity | ||||
Due to affiliates | 686,853 | 658,106 | ||
Accrued liabilities | 9,624 | 40,768 | ||
Income taxes payable | 1,374 | 1,337 | ||
Long-term debt | 1,780,220 | 1,784,724 | ||
Deferred income tax liabilities, net | 103 | 96 | ||
Total liabilities | 2,478,174 | 2,485,031 | ||
Total stockholders' (deficit) equity | 696,735 | 663,045 | ||
Total liabilities and stockholders' deficit | 3,174,909 | 3,148,076 | ||
Reportable Legal Entities | Guarantor Subsidiaries | ||||
Assets | ||||
Cash and cash equivalents | 27,469 | 58,851 | 40,440 | 40,042 |
Trade and other accounts receivable, less allowance for doubtful accounts | 54,934 | 60,744 | ||
Due from affiliates | 1,771,094 | 1,687,325 | ||
Inventory | 714,329 | 687,884 | ||
Other current assets | 17,286 | 17,803 | ||
Deferred income tax assets, net | 30,566 | 30,565 | ||
Property and equipment, net | 206,644 | 195,271 | ||
Investment in subsidiaries | 354,446 | 360,416 | ||
Goodwill and other intangible assets, net | 467,514 | 468,342 | ||
Other assets | (6,312) | (6,949) | ||
Total assets | 3,637,970 | 3,560,252 | ||
Liabilities and Stockholders' (Deficit) Equity | ||||
Accounts payable | 217,704 | 217,964 | ||
Due to affiliates | 14 | 35 | ||
Accrued liabilities | 127,506 | 136,688 | ||
Long-term debt | 86 | 109 | ||
Other liabilities | 25,725 | 24,686 | ||
Deferred income tax liabilities, net | 94,970 | 81,629 | ||
Total liabilities | 466,005 | 461,111 | ||
Total stockholders' (deficit) equity | 3,171,965 | 3,099,141 | ||
Total liabilities and stockholders' deficit | 3,637,970 | 3,560,252 | ||
Reportable Legal Entities | Non-Guarantor Subsidiaries | ||||
Assets | ||||
Cash and cash equivalents | 39,978 | 35,184 | $ 42,740 | $ 39,533 |
Trade and other accounts receivable, less allowance for doubtful accounts | 26,001 | 30,348 | ||
Due from affiliates | 14 | 35 | ||
Inventory | 198,090 | 197,330 | ||
Other current assets | 17,342 | 16,911 | ||
Deferred income tax assets, net | 3,001 | 3,133 | ||
Property and equipment, net | 74,633 | 75,574 | ||
Goodwill and other intangible assets, net | 150,130 | 154,875 | ||
Other assets | 16,437 | 15,856 | ||
Total assets | 525,626 | 529,246 | ||
Liabilities and Stockholders' (Deficit) Equity | ||||
Accounts payable | 62,373 | 57,953 | ||
Due to affiliates | 73,259 | 66,955 | ||
Accrued liabilities | 25,908 | 30,490 | ||
Income taxes payable | 262 | 3,448 | ||
Long-term debt | 2,526 | 2,761 | ||
Other liabilities | 2,997 | 3,048 | ||
Deferred income tax liabilities, net | 3,855 | 4,175 | ||
Total liabilities | 171,180 | 168,830 | ||
Total stockholders' (deficit) equity | 354,446 | 360,416 | ||
Total liabilities and stockholders' deficit | 525,626 | 529,246 | ||
Consolidating Eliminations | ||||
Assets | ||||
Due from affiliates | (1,771,108) | (1,687,360) | ||
Investment in subsidiaries | (4,223,146) | (4,122,602) | ||
Total assets | (5,994,254) | (5,809,962) | ||
Liabilities and Stockholders' (Deficit) Equity | ||||
Due to affiliates | (1,771,108) | (1,687,360) | ||
Total liabilities | (1,771,108) | (1,687,360) | ||
Total stockholders' (deficit) equity | (4,223,146) | (4,122,602) | ||
Total liabilities and stockholders' deficit | $ (5,994,254) | $ (5,809,962) |
Parent, Issuers, Guarantor an51
Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements (Details 2) - USD ($) $ in Thousands | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Condensed Consolidating Statement of Earnings and Comprehensive Income | ||
Net sales | $ 998,032 | $ 964,468 |
Cost of products sold and distribution expenses | 503,983 | 490,699 |
Gross profit | 494,049 | 473,769 |
Selling, general and administrative expenses | 339,728 | 336,954 |
Depreciation and amortization | 23,386 | 20,579 |
Operating earnings | 130,935 | 116,236 |
Interest expense | 63,943 | 29,241 |
Earnings before provision for income taxes | 66,992 | 86,995 |
Provision (benefit) for income taxes | 24,749 | 32,086 |
Net earnings | 42,243 | 54,909 |
Other comprehensive income (loss), net of tax | (10,221) | (17,301) |
Total comprehensive income | 32,022 | 37,608 |
Reportable Legal Entities | Parent | ||
Condensed Consolidating Statement of Earnings and Comprehensive Income | ||
Selling, general and administrative expenses | 2,727 | 2,376 |
Operating earnings | (2,727) | (2,376) |
Earnings before provision for income taxes | (2,727) | (2,376) |
Provision (benefit) for income taxes | (1,059) | (724) |
Equity in earnings of subsidiaries, net of tax | 43,911 | 56,561 |
Net earnings | 42,243 | 54,909 |
Total comprehensive income | 42,243 | 54,909 |
Reportable Legal Entities | Sally Holdings LLC and Sally Capital Inc. | ||
Condensed Consolidating Statement of Earnings and Comprehensive Income | ||
Selling, general and administrative expenses | 67 | 104 |
Operating earnings | (67) | (104) |
Interest expense | 63,919 | 29,193 |
Earnings before provision for income taxes | (63,986) | (29,297) |
Provision (benefit) for income taxes | (24,853) | (11,379) |
Equity in earnings of subsidiaries, net of tax | 83,044 | 74,479 |
Net earnings | 43,911 | 56,561 |
Total comprehensive income | 43,911 | 56,561 |
Reportable Legal Entities | Guarantor Subsidiaries | ||
Condensed Consolidating Statement of Earnings and Comprehensive Income | ||
Net sales | 806,193 | 767,923 |
Related party sales | 767 | 767 |
Cost of products sold and distribution expenses | 400,442 | 386,816 |
Gross profit | 406,518 | 381,874 |
Selling, general and administrative expenses | 267,187 | 257,786 |
Depreciation and amortization | 17,648 | 14,854 |
Operating earnings | 121,683 | 109,234 |
Interest expense | 2 | 2 |
Earnings before provision for income taxes | 121,681 | 109,232 |
Provision (benefit) for income taxes | 46,764 | 40,872 |
Equity in earnings of subsidiaries, net of tax | 8,127 | 6,119 |
Net earnings | 83,044 | 74,479 |
Total comprehensive income | 83,044 | 74,479 |
Reportable Legal Entities | Non-Guarantor Subsidiaries | ||
Condensed Consolidating Statement of Earnings and Comprehensive Income | ||
Net sales | 191,839 | 196,545 |
Cost of products sold and distribution expenses | 104,308 | 104,650 |
Gross profit | 87,531 | 91,895 |
Selling, general and administrative expenses | 69,747 | 76,688 |
Depreciation and amortization | 5,738 | 5,725 |
Operating earnings | 12,046 | 9,482 |
Interest expense | 22 | 46 |
Earnings before provision for income taxes | 12,024 | 9,436 |
Provision (benefit) for income taxes | 3,897 | 3,317 |
Net earnings | 8,127 | 6,119 |
Other comprehensive income (loss), net of tax | (10,221) | (17,301) |
Total comprehensive income | (2,094) | (11,182) |
Consolidating Eliminations | ||
Condensed Consolidating Statement of Earnings and Comprehensive Income | ||
Related party sales | (767) | (767) |
Cost of products sold and distribution expenses | (767) | (767) |
Equity in earnings of subsidiaries, net of tax | (135,082) | (137,159) |
Net earnings | (135,082) | (137,159) |
Total comprehensive income | $ (135,082) | $ (137,159) |
Parent, Issuers, Guarantor an52
Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements (Details 3) - USD ($) $ in Thousands | 3 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Condensed Consolidating Statement of Cash Flows | ||
Net cash provided by operating activities | $ 69,129 | $ 57,036 |
Cash Flows from Investing Activities: | ||
Capital expenditures, net of proceeds from sale of property and equipment | (40,575) | (18,800) |
Acquisitions, net of cash acquired | (2,250) | |
Net cash used by investing activities | (42,825) | (18,800) |
Cash Flows from Financing Activities: | ||
Proceeds from issuance of long-term debt | 800,000 | |
Repayments of long-term debt | (825,971) | (258) |
Repurchases of common stock | (62,367) | (7,253) |
Debt issuance costs | (12,709) | |
Proceeds from exercises of stock options | 2,716 | 37,156 |
Excess tax benefit from share-based compensation | 95 | 17,043 |
Net cash (used) provided by financing activities | (98,236) | 46,688 |
Effect of foreign exchange rate changes on cash and cash equivalents | (659) | (818) |
Net (decrease) increase in cash and cash equivalents | (72,591) | 84,106 |
Cash and cash equivalents, beginning of period | 140,038 | 106,575 |
Cash and cash equivalents, end of period | 67,447 | 190,681 |
Reportable Legal Entities | Parent | ||
Condensed Consolidating Statement of Cash Flows | ||
Net cash provided by operating activities | 59,556 | (46,946) |
Cash Flows from Financing Activities: | ||
Repurchases of common stock | (62,367) | (7,253) |
Proceeds from exercises of stock options | 2,716 | 37,156 |
Excess tax benefit from share-based compensation | 95 | 17,043 |
Net cash (used) provided by financing activities | (59,556) | 46,946 |
Reportable Legal Entities | Sally Holdings LLC and Sally Capital Inc. | ||
Condensed Consolidating Statement of Cash Flows | ||
Net cash provided by operating activities | (7,509) | 80,501 |
Cash Flows from Financing Activities: | ||
Proceeds from issuance of long-term debt | 800,000 | |
Repayments of long-term debt | (825,785) | |
Debt issuance costs | (12,709) | |
Net cash (used) provided by financing activities | (38,494) | |
Net (decrease) increase in cash and cash equivalents | (46,003) | 80,501 |
Cash and cash equivalents, beginning of period | 46,003 | 27,000 |
Cash and cash equivalents, end of period | 107,501 | |
Reportable Legal Entities | Guarantor Subsidiaries | ||
Condensed Consolidating Statement of Cash Flows | ||
Net cash provided by operating activities | 5,195 | 12,356 |
Cash Flows from Investing Activities: | ||
Capital expenditures, net of proceeds from sale of property and equipment | (34,304) | (11,915) |
Acquisitions, net of cash acquired | (2,250) | |
Net cash used by investing activities | (36,554) | (11,915) |
Cash Flows from Financing Activities: | ||
Repayments of long-term debt | (23) | (43) |
Net cash (used) provided by financing activities | (23) | (43) |
Net (decrease) increase in cash and cash equivalents | (31,382) | 398 |
Cash and cash equivalents, beginning of period | 58,851 | 40,042 |
Cash and cash equivalents, end of period | 27,469 | 40,440 |
Reportable Legal Entities | Non-Guarantor Subsidiaries | ||
Condensed Consolidating Statement of Cash Flows | ||
Net cash provided by operating activities | 11,887 | 11,125 |
Cash Flows from Investing Activities: | ||
Capital expenditures, net of proceeds from sale of property and equipment | (6,271) | (6,885) |
Net cash used by investing activities | (6,271) | (6,885) |
Cash Flows from Financing Activities: | ||
Repayments of long-term debt | (163) | (215) |
Net cash (used) provided by financing activities | (163) | (215) |
Effect of foreign exchange rate changes on cash and cash equivalents | (659) | (818) |
Net (decrease) increase in cash and cash equivalents | 4,794 | 3,207 |
Cash and cash equivalents, beginning of period | 35,184 | 39,533 |
Cash and cash equivalents, end of period | $ 39,978 | $ 42,740 |