What changed in this filing

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Item 1. Financial Statements

2021-02-04 compared with 2020-07-31 · 91 added, 429 removed, 223 unchanged (70% of the section changed)

Financial Statements.

The following condensed consolidated balance sheets as of June 30, 2020, and September 30, 2019, the condensed consolidated statements of earnings (loss), condensed consolidated statements of comprehensive income (loss) and the condensed statements of stockholders’ deficit for the three and nine months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the nine months ended June 30, 2020 and 2019, are those of Sally Beauty Holdings, Inc.

The following condensed consolidated balance sheets as of December 31, 2020, and September 30, 2020, the condensed consolidated statements of earnings, condensed consolidated statements of comprehensive income, the condensed consolidated statements of stockholders’ equity and the condensed consolidated statements of cash flows for the three months ended December 31, 2020 and 2019, are those of Sally Beauty Holdings, Inc.

and its subsidiaries.

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Property and equipment, net of accumulated depreciation of $ 725,437 at

June 30, 2020, and $ 659,285 at September 30, 2019

December 31, 2020, and $ 694,709 at September 30, 2020

Operating lease assets

Intangible assets, excluding goodwill, net of accumulated amortization of

$ 65,791 at June 30, 2020, and $ 64,615 at September 30, 2019

Liabilities and Stockholders’ Deficit

$ 68,590 at December 31, 2020, and $ 63,491 at September 30, 2020

Liabilities and Stockholders’ Equity

Current liabilities:

10 unchanged sentences

Total liabilities

Stockholders’ deficit:

Stockholders’ equity:

Common stock, $ 0.01 par value.

1 unchanged sentence

112,824 shares issued and 112,538 and 112,405 shares outstanding at

June 30, 2020, and September 30, 2019, respectively

December 31, 2020, and September 30, 2020, respectively

Preferred stock, $ 0.01 par value.

3 unchanged sentences

Accumulated other comprehensive loss, net of tax

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings (Loss)

Condensed Consolidated Statements of Earnings

(In thousands, except per share data)

Three Months Ended

Nine Months Ended

Cost of goods sold

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Interest expense

Earnings (loss) before provision for income taxes

Provision (benefit) for income taxes

Net earnings (loss)

Earnings (loss) per share:

Earnings before provision for income taxes

Provision for income taxes

Earnings per share:

Weighted-average shares:

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AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended

Nine Months Ended

Net earnings (loss)

Other comprehensive income (loss):

Other comprehensive income:

Foreign currency translation adjustments

1 unchanged sentence

Foreign exchange contracts, net of tax

Other comprehensive income (loss), net of tax

Total comprehensive income (loss)

Other comprehensive income, net of tax

Total comprehensive income

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

Comprehensive

Stockholders’

Balance at September 30, 2020

Other comprehensive income

Share-based compensation

Stock issued for equity awards

Balance at December 31, 2020

Comprehensive

Stockholders’

Equity (Deficit)

Balance at September 30, 2019

Cumulative effect of ASC 842 adoption

Other comprehensive income

Repurchases and cancellations of

Share-based compensation

Stock issued for equity awards

Balance at December 31, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

SALLY BEAUTY HOLDINGS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

Nine Months Ended June 30,

Three Months Ended December 31,

Cash Flows from Operating Activities:

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Amortization of deferred financing costs

Loss (gain) on early extinguishment of debt

Loss (gain) on disposal of equipment and other property

Gain on early extinguishment of debt

Loss on disposal of equipment and other property

Deferred income taxes

3 unchanged sentences

Other current assets

Operating leases, net

Accounts payable and accrued liabilities

3 unchanged sentences

Cash Flows from Investing Activities:

Payments for property and equipment

Proceeds from sale of property and equipment

Payments for property and equipment, net of proceeds

Acquisitions, net of cash acquired

3 unchanged sentences

Repayments of long-term debt

Debt issuance costs

Payments for common stock repurchased

Proceeds from exercises of stock options

Net cash provided (used) by financing activities

Proceeds from equity awards

Employee withholding taxes paid related to net share settlement of equity awards

Net cash used by financing activities

Effect of foreign exchange rate changes on cash and cash equivalents

9 unchanged sentences

and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(In thousands)

Comprehensive

Stockholders’

Equity (Deficit)

Balance at September 30, 2019

Cumulative effect of ASC 842 adoption

Other comprehensive income

Repurchases and cancellations of

Share-based compensation

Stock issued for stock options

Balance at December 31, 2019

Other comprehensive loss

Repurchases and cancellations of

Share-based compensation

Stock issued for stock options

Balance at March 31, 2020

Other comprehensive income

Share-based compensation

Stock issued for stock options

Balance at June 30, 2020

Comprehensive

Stockholders’

Balance at September 30, 2018

Other comprehensive loss

Share-based compensation

Stock issued for stock options

Balance at December 31, 2018

Other comprehensive income

Share-based compensation

Stock issued for stock options

Balance at March 31, 2019

Other comprehensive income

Share-based compensation

Stock issued for stock options

Balance at June 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

Sally Beauty Holdings, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of June 30, 2020, and September 30, 2019, our consolidated results of operations, consolidated comprehensive income (loss), and consolidated statements of stockholders’ deficit for the three and nine months ended June 30, 2020 and 2019, and our consolidated cash flows for the nine months ended June 30, 2020 and 2019.

Our operating results for the three months ended June 30, 2020, may not be indicative of the results that may be expected for the full fiscal year ending September 30, 2020, in particular as a result of the effects of the COVID-19 pandemic.

As a result of COVID-19, we temporarily shut down virtually all global customer-facing store operations at the end of our second fiscal quarter and the start of our third fiscal quarter, followed by a rapid re-opening process over the course of the third quarter, although there is no certainty that we will not have to reclose certain, even a significant number, of our stores in the future.

As of June 30, 2020, we have re-opened substantially all of our customer-facing store operations, except for parts of our operations in Mexico and South America.

Due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the material adverse impact of this pandemic will likely continue for the remainder of our fiscal year 2020, and may continue into our fiscal year 2021 and possibly beyond.

In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of December 31, 2020 and September 30, 2020, and our consolidated results of operations, consolidated comprehensive income, and consolidated statements of stockholders’ equity and our consolidated cash flows for the three months ended December 31, 2020 and 2019.

Our operating results for the three months ended December 31, 2020, may not be indicative of the results that may be expected for the full fiscal year ending September 30, 2021, in particular as a result of the uncertainty around the continuing effects of the COVID-19 pandemic on future periods.

Due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the adverse impact of the pandemic may continue further into our fiscal year 2021 and possibly beyond, and it may be material.

Significant Accounting Policies

We adhere to the same accounting policies in the preparation of our condensed consolidated interim financial statements as we do in the preparation of our full-year consolidated financial statements.

See Note 3 for more information about the adoption of the new lease accounting standard.

As permitted under GAAP, interim accounting for certain expenses, including income taxes, is based on full-year assumptions.

For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates.

Accounting Changes and Recent Accounting Pronouncements

Accounting Change

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (“ASU No.

2016-02”), which requires most operating leases to be reported on the balance sheet as a right-of-use asset and a lease liability.

On October 1, 2019, we adopted ASU No.

2016-02 using a modified retrospective transition method without restating comparative periods.

We have elected the package of practical expedients permitted within the transition guidance under the new standard relating to the identification, classification and initial direct costs of leases commencing before the effective date of Topic 842.

In addition, we have elected to not recognize a right-of-use asset or lease obligation for short-term leases with an initial term of 12 months or less.

Additionally, the adoption of ASU No.

2016-02, as amended, resulted in the recognition of an operating lease asset of $ 513.9 million and an operating lease liability of $ 523.5 million.

Existing straight-line rent liability, prepaid rent and accrued rent were reclassified from certain other assets and liabilities into the operating lease asset.

Furthermore, the cumulative effect of the adoption of ASU No.

2016-02 resulted in a $ 0.4 million adjustment to accumulated earnings resulting from the impairment of certain operating lease assets.

The impact on our condensed consolidated results of operations or condensed consolidated cash flows was not material.

See Note 8 for additional information in connection with ASU No.

Recent Accounting Pronouncements

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Additionally, the update clarifies and simplifies other areas of ASC 740, Income Taxes .

For public companies, the amendments in the update are effective for fiscal years, and interim

periods within those fiscal years, beginning after December 15, 2020.

For public companies, the amendments in the update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted, but all amendments must be adopted at once.

The amendm ents in this update have different adoption methods including prospective basis, retrospective basis, and a modified retrospective basis dependent on the specific change.

We are currently evaluating the impact of this update.

The amendments in this update have different adoption methods including prospective basis, retrospective basis, and a modified retrospective basis dependent on the specific change.

We are currently evaluating the impact of this update, but based on our preliminary assessment we do not believe this will have a material impact to our results of operations or financial position.

Revenue Recognition

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Revenue recognized from beginning liability

June 30, 2020

Private Label Credit Card - In September 2019, we signed a multi-year agreement with a third-party bank to launch a private label credit card (the “Program”).

As of June 30, 2020, Program operations had not yet commenced.

See Note 13 for additional information regarding the disaggregation of our sales revenue.

December 31, 2020

See Note 11, Business Segments , for additional information regarding the disaggregation of our sales revenue.

Fair Value Measurements

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Financial Assets:

Foreign exchange contracts

Other current assets

Cash equivalents

Cash and cash equivalents

Interest rate caps

Financial Liabilities:

Foreign exchange contracts

Accrued liabilities

Other fair value disclosures

June 30, 2020

December 31, 2020

September 30, 2020

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Total long-term debt

The table above excludes amounts related to our ABL facility as the balance approximates fair value due to the short-term nature of our borrowings.

Stockholders’ Equity (Deficit)

The table above excludes amounts, if any, related to our ABL facility as the balance approximates fair value due to the short-term nature of our borrowings.

Stockholders’ Equity

Share Repurchases

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Three Months Ended

Nine Months Ended

Number of shares repurchased

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Balance at September 30, 2020

Other comprehensive loss (income) before

Other comprehensive income (loss) before

reclassification, net of tax

Reclassification to net earnings (loss), net of tax

Balance at June 30, 2020

The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings (loss) were not material.

Reclassification to net earnings, net of tax

Balance at December 31, 2020

The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings were not material.

Weighted-Average Shares

1 unchanged sentence

Three Months Ended

Nine Months Ended

Weighted-average basic shares

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Anti-dilutive options excluded from our computation of diluted shares

Potentially dilutive stock option and stock award programs excluded from our computation of diluted shares

Substantially all of our leases are operating leases and relate primarily to retail stores and warehousing properties with lease terms of five to ten years .

Some of our leases include options to extend the agreement by a certain number of years, typically five years .

At the lease commencement date, an operating lease liability and related operating lease asset are recognized and include the extended terms to the extent we are reasonably certain that we will exercise the option.

The operating lease liabilities are calculated using the present value of lease payments.

The discount rate used is either the rate implicit in the lease, when known, or our estimated incremental borrowing rate.

Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

Because we do not generally borrow on a collateralized basis, we derive an appropriate incremental borrowing rate using the interest rate we pay on our non-collateralized borrowings, adjusted for the amount of the lease payments, the lease term and the effect of designating specific collateral with a value equal to the unpaid lease payments for that lease.

We apply the incremental borrowing rate on a portfolio basis given the impact of applying it on a lease by lease basis would be immaterial.

Operating lease assets are valued based on the initial operating lease liabilities plus any prepaid rent and direct costs from executing the leases, reduced by tenant improvement allowances and any rent abatement.

Operating lease assets are tested for impairment in the same manner as our long-lived assets.

During the three months ended June 30, 2020, we recognized impairment on our certain operating lease asset and immaterial amounts for lease hold improvements of $ 0.9 million within selling, general and administrative expenses.

See Note 15 for additional information related to impairments in connection with our restructuring activity.

Our operating and finance leases consisted of the following (in thousands):

Balance Sheet Classification

June 30, 2020

Operating lease

Operating lease assets

Finance lease

Property and equipment, net

Total lease assets

Operating lease

Current operating lease liabilities

Finance lease

Current maturities of long-term debt

Operating lease

Long-term operating lease liabilities

Finance lease

Long-term debt

Total lease liabilities

Our lease costs, net of immaterial sublease income, consisted of the following (in thousands):

Statement of Earnings (Loss) Classification

Three Months Ended

June 30, 2020

Nine Months Ended

June 30, 2020

Operating lease costs (a)

Cost of goods sold and

selling, general and administrative expenses (b)

Finance lease costs:

Amortization of leased assets

Selling, general and administrative expenses

Interest on lease liabilities

Interest expense

Variable lease costs (c)

Selling, general and administrative expenses

Total lease costs

Includes costs related to short-term leases, which are immaterial.

Certain supply chain-related amounts are included in cost of goods sold.

Includes common area maintenance, real estate taxes and insurance related to leases.

In response to COVID-19, the FASB issued interpretive guidance that provides an option for entities to make a policy election for lease concessions as a result of COVID-19, provided that the modified contracts result in total cash flows that are substantially the same or less than the original contracts.

This policy election allows for lease concessions to be treated as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contracts).

We have elected to apply this policy election and have included rent abatements related to COVID-19 into variable lease costs.

For the three and nine months ended June 30, 2020, we have recognized a benefit of $ 8.1 million for rent abatements.

As of June 30, 2020, the approximate future lease payments under our leases are as follows (in thousands):

Operating leases

Finance leases

Remainder of 2020

Total undiscounted lease payments

imputed interest

Present value of lease liabilities

The table above does not include operating leases we have entered into of approximately $ 11.6 million that have not commenced, primarily related to future retail stores.

As of September 30, 2019, our future minimum lease payments under non-cancelable operating leases as reported under the previous accounting standard were as follows (in thousands):

Other lease information is as follows (dollars in thousands):

Nine Months Ended

June 30, 2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows – operating leases

Operating cash flows – finance leases

Financing cash flows – finance leases

Supplemental non-cash information on lease liabilities:

Lease assets obtained in exchange for new operating lease liabilities

Lease assets obtained in exchange for new finance lease liabilities

June 30, 2020

Weighted-average remaining lease term (in years):

Operating leases

Finance leases

Weighted-average discount rate:

Operating leases

Finance leases

Goodwill and Intangible Assets

We performed our annual assessment for impairment of goodwill and other intangible assets during our fiscal second quarter prior to the impacts of COVID-19.

As a result of COVID-19, we performed an interim assessment for impairment of goodwill and other intangibles as of March 31, 2020, which updated our assumptions around the growth, timing and discount rate applied to future cash flows in connection with our business restart.

Due to the uncertainty around COVID-19, our projected future cash flows may differ materially from actual results.

Furthermore, we considered potential triggering events and determined there were none during the three months ended June 30, 2020, as our assumptions relative to future cash flows had improved during the quarter, and our market capitalization had increased significantly since March 31, 2020.

We considered potential triggering events and determined there were none during the three months ended December 31, 2020.

No material impairment losses were recognized in the current or prior periods presented in connection with our goodwill and other intangible assets.

For the three months ended June 30, 2020 and 2019, amortization expense related to other intangible assets was $ 2.2 million and $ 2.8 million, respectively, and, for the nine months ended June 30, 2020 and 2019, amortization expense was $ 6.8 million and $ 8.5 million, respectively.

During the nine months ended June 30, 2020, we recorded approximately $ 1.4 million in other intangible assets related to immaterial acquisitions.

Additionally, goodwill was negatively impacted by approximately $ 0.1 million from changes in foreign currency exchange rates during the nine months ended June 30, 2020.

For the three months ended December 31, 2020 and 2019, amortization expense related to other intangible assets was $ 1.7 million and $ 2.4 million, respectively.

Additionally, goodwill increased primarily from the effects of foreign currency exchange rates of $ 6.1 million during the three months ended December 31, 2020.

Short-term Borrowings and Long-term Debt

During the nine months ended June 30, 2020, we preemptively drew on our ABL facility as a result of COVID-19.

At June 30, 2020, we had $ 395.5 million outstanding, including the FILO (first-in, last-out) tranche, and $ 81.0 million available for borrowing under our ABL facility, including the Canadian sub-facility, subject to the conditions contained therein.

At December 31, 2020, there were no outstanding borrowings and we had $ 461.0 million available for borrowing under our ABL facility, including the Canadian sub-facility, subject to the conditions contained therein.

Our ABL facility matures on July 6, 2022 .

During the three months ended December 31, 2019, we paid down $ 14.8 million aggregate principal amount of our term loan B fixed tranche at a weighted-average price of 97.875 % of face value, excluding accrued interest.

Additionally, during the three months ended March 31, 2020, we paid down $ 22.0 million aggregate principal amount of our term loan B fixed tranche at a weighted-average price of 99.0 % of face value, excluding accrued interest.

In connection with the debt repayment, for the nine months ended June 30, 2020, we recognized a $ 0.4 million gain on the extinguishment of debt, including a gain of approximately $ 0.4 million from the discount paid under the face value and the write-off of $ 0.1 million in unamortized deferred financing costs.

During the three months ended March, 31, 2020, we paid down $ 7.9 million aggregate principal amount of our senior notes due 2025 at a weighted-average price of 98.7 % of face value, excluding accrued interest.

On April 15, 2020, we entered into an amendment to our ABL facility to, among other things, increased the revolving commitment thereunder from $ 500.0 million to $ 600.0 million, established a FILO (first-in, last-out) tranche of indebtedness in the amount of $ 20.0 million, increased pricing on the revolving loans and modified certain covenant and reporting terms.

The ABL facility continues to be secured by a first-priority lien in and upon the accounts and inventory (and the proceeds thereof) of the Company and its guarantor subsidiaries.

The ABL facility is also secured by a second-priority lien in and upon the remaining assets of the Company and its guarantor subsidiaries.

On April 24, 2020, we completed a private offering of $ 300.0 million aggregate principal amount of senior secured second lien notes due 2025 (the “Senior Secured Notes”) and received $ 295.5 million in net proceeds from the Senior Secured Notes offering.

The Notes bear interest at a rate of 8.75 % and were issued at par.

The Senior Secured Notes are guaranteed on a senior secured basis by the guarantors who have guaranteed obligations under our senior secured credit facilities and our existing notes.

We currently intend to hold the net proceeds from this offering to maintain cash reserves on our balance sheet.

If necessary, we will use the cash for working capital and general corporate purposes.

Please see Note 13, Subsequent Event , for further information about our debt.

The agreements governing our ABL facility, term loan B and the senior notes contain a customary covenant package that places restrictions on the disposition of assets, the granting of liens and security interests, the prepayment of certain indebtedness, and other matters with customary events of default, including customary cross-default and/or cross-acceleration provisions.

As of June 30, 2020, we were in compliance with all debt covenants and all the net assets of our consolidated subsidiaries were unrestricted from transfer.

As of December 31, 2020, we were in compliance with all debt covenants and all the net assets of our consolidated subsidiaries were unrestricted from transfer.

Derivative Instruments and Hedging Activities

During the nine months ended June 30, 2020, we did no t purchase or hold any derivative instruments for trading or speculative purposes.

See Note 5 for the classification and fair value of our derivative instruments.

During the three months ended December 31, 2020, we did no t purchase or hold any derivative instruments for trading or speculative purposes.

See Note 5, Fair Value Measurements , for the classification and fair value of our derivative instruments.

Designated Cash Flow Hedges

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dollars by our foreign subsidiaries.

At June 30, 2020, the notional amount we held through these forwards, based upon exchange rates at June 30, 2020, was as follows (in thousands):

At December 31, 2020, the notional amount we held through these forwards, based upon exchange rates at December 31, 2020, was as follows (in thousands):

Notional Currency

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As the forwards are exercised, the realized value is recognized into cost of goods sold based on inventory turns.

For the nine months ended June 30, 2020, we recognized $ 1.4 million into cost of goods sold on our condensed consolidated statements of earnings (loss).

Based on June 30, 2020, valuations and exchange rates, we expect to reclassify gains of approximately $ 1.8 million into cost of goods sold over the next 12 months.

Additionally during the nine months ended June 30, 2020, we de-designated certain foreign currency forwards as it became probable that the forecasted transaction would not occur as a result of the recent COVID-19 pandemic.

As a result, we reclassified $ 1.3 million in gains from AOCL into selling, general and administration expenses.

These contracts expired ratably through June 30, 2020 .

For the three months ended December

31, 2020, we recognized a $ 0.4 million gain into cost of goods sold on our condensed consolidated statements of earnings.

Based on December 31, 2020 , valuations and exchange rates, we expect to reclassify losses of approximately $ 1.3 million into cost of goods sold over the next 12 months .

Interest Rate Caps

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Over the next 12 months, we expect to reclassify approximately $ 1.3 million into interest expense, which represents the original value of the expiring caplets.

The effects of our interest rate caps on our condensed consolidated statements of earnings (loss) were not material for the nine months ended June 30, 2020.

The effective tax rates were 9.1 % and 24.6 %, for the three months ended June 30, 2020 and 2019, respectively.

The effective tax rate for the third quarter of the current year was negatively impacted by foreign losses which cannot be tax benefitted.

The effective tax rates were 37.2 % and 24.5 %, for the nine months ended June 30, 2020 and 2019, respectively.

The increase in the effective tax rate was primarily driven by the establishment of a valuation allowance in a foreign subsidiary and increased foreign losses, as compared to the prior period, the tax benefit of which cannot be recognized.

Additionally, for the nine months ended June 30, 2019, the provision for income taxes included an income tax benefit due to an adjustment to our previously recorded transition tax on unrepatriated foreign earnings as a result of the Tax Cuts and Jobs Act.

The difference between the U.S.

statutory federal income tax rate and the effective income tax rate is summarized below:

Three Months Ended

Nine Months Ended

federal statutory income tax rate

State income taxes, net of federal tax benefit

Effect of foreign operations (1)

Foreign valuation allowances (1)

Deemed repatriation tax (1)

Other, net (1)

Effective tax rate

For the three months ended June 30, 2020, the impact of these items is opposite the customary relationship due to the loss before the provision for income taxes that was incurred.

In response to the global pandemic related to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020.

The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, temporary suspension of certain payment requirements for the employer portion of social security taxes, and the creation of certain refundable employee retention credits.

There was not a material impact on our income tax expense for the three or nine months ended June 30, 2020.

We will continue to monitor legislative developments related to COVID-19 and will record the associated income tax impacts in the periods that guidance is finalized or when we are able to reasonably estimate an impact.

The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three months ended December 31, 2020.

Business Segments

Segment data for the three and nine months ended June 30, 2020 and 2019, is as follows (in thousands):

Segment data for the three months ended December 31, 2020 and 2019, is as follows (in thousands):

Three Months Ended

Nine Months Ended

Sally Beauty Supply ("SBS")

Beauty Systems Group ("BSG")

Earnings (loss) before provision for income taxes:

Earnings before provision for income taxes:

Segment operating earnings:

4 unchanged sentences

Interest expense

Earnings (loss) before provision for income taxes

Sales between segments, which are eliminated in consolidation, were not material during the three and nine months ended June 30, 2020 and 2019.

Earnings before provision for income taxes

Sales between segments, which are eliminated in consolidation, were not material during the three months ended December 31, 2020 and 2019.

Disaggregation of net sales by segment

Three Months Ended

Nine Months Ended

Styling tools

Skin and nail care

Styling tools

Salon supplies and accessories

2 unchanged sentences

Three Months Ended

Nine Months Ended

Skin and nail care

4 unchanged sentences

Three Months Ended

Nine Months Ended

Company-operated stores

1 unchanged sentence

Three Months Ended

Nine Months Ended

Company-operated stores

1 unchanged sentence

Franchise stores

Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidating Financial Statements

Certain 100 % wholly owned domestic subsidiaries (“guarantor subsidiaries”), as defined in our credit agreements, of Sally Beauty serve as guarantors to the ABL facility, term loan B and senior notes due 2023 and 2025 .

The guarantees related to these debt instruments are full and unconditional, joint and several and have certain restrictions on the ability to pay restricted payments to Sally Beauty Holdings, Inc.

Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors (“non-guarantor subsidiaries”).

The following condensed consolidating financial information represents financial information for (i) parent, (ii) Sally Holdings LLC and Sally Capital Inc., (iii) the guarantor subsidiaries;

(iv) the non-guarantor subsidiaries, (v) elimination entries necessary for consolidation purposes, and (vi) Sally Beauty on a consolidated basis.

Condensed Consolidating Balance Sheet

June 30, 2020

(In thousands)

Consolidating

Cash and cash equivalents

Trade and other accounts receivable, net

Due from affiliates

Other current assets

Property and equipment, net

Operating lease assets

Investment in subsidiaries

Goodwill and other intangible assets, net

Liabilities and Stockholders’ Equity (Deficit)

Accounts payable

Due to affiliates

Accrued liabilities

Income taxes payable

Long-term debt

Long-term operating lease liabilities

Other liabilities

Deferred income tax liabilities, net

Total liabilities

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

Condensed Consolidating Balance Sheet

September 30, 2019

(In thousands)

Consolidating

Cash and cash equivalents

Trade and other accounts receivable, net

Due from affiliates

Other current assets

Property and equipment, net

Investment in subsidiaries

Goodwill and other intangible assets, net

Liabilities and Stockholders’ Equity (Deficit)

Accounts payable

Due to affiliates

Accrued liabilities

Income taxes payable

Long-term debt

Other liabilities

Deferred income tax liabilities, net

Total liabilities

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

Condensed Consolidating Statement of Earnings (Loss) and Comprehensive Income

Three Months Ended June 30, 2020

(In thousands)

Consolidating

Holdings, Inc.

and Subsidiaries

Related party sales

Cost of goods sold

Selling, general and administrative expenses

Restructuring

Operating earnings (loss)

Interest expense (income)

Earnings (loss) before provision for income taxes

Provision (benefit) for income taxes

Equity in earnings (loss) of subsidiaries, net of tax

Net earnings (loss)

Other comprehensive income, net of tax

Total comprehensive loss

Condensed Consolidating Sta tement of Earnings and Comprehensive Income

Three Months Ended June 30, 2019

(In thousands)

Consolidating

Holdings, Inc.

and Subsidiaries

Related party sales

Cost of goods sold

Selling, general and administrative expenses

Restructuring

Operating earnings (loss)

Interest expense (income)

Earnings (loss) before provision for income taxes

Provision (benefit) for income taxes

Equity in earnings of subsidiaries, net of tax

Other comprehensive income, net of tax

Total comprehensive income

Condensed Consolidating State ment of Earnings and Comprehensive Income

Nine Months Ended June 30, 2020

(In thousands)

Consolidating

Holdings, Inc.

and Subsidiaries

Related party sales

Cost of goods sold

Selling, general and administrative expenses

Restructuring

Operating earnings (loss)

Interest expense (income)

Earnings (loss) before provision for income taxes

Provision (benefit) for income taxes

Equity in earnings (loss) of subsidiaries, net of tax

Net earnings (loss)

Other comprehensive income (loss), net of tax

Total comprehensive income (loss)

Condensed Consolidating Statement of Earnings and Comprehensive Income

Nine Months Ended June 30, 2019

(In thousands)

Consolidating

Holdings, Inc.

and Subsidiaries

Related party sales

Cost of goods sold

Selling, general and administrative expenses

Restructuring

Operating earnings (loss)

Interest expense (income)

Earnings (loss) before provision for income taxes

Provision (benefit) for income taxes

Equity in earnings of subsidiaries, net of tax

Other comprehensive loss, net of tax

Total comprehensive income

Condensed Consolidating Statement of Cash Flows

Nine Months Ended June 30, 2020

(In thousands)

Consolidating

Holdings, Inc.

and Subsidiaries

Net cash (used) provided by operating activities

Cash Flows from Investing Activities:

Payments for property and equipment

Proceeds from sale of property and equipment

Acquisitions, net of cash acquired

Due from affiliates

Net cash (used) provided by investing activities

Cash Flows from Financing Activities:

Proceeds from issuance of long-term debt

Repayments of long-term debt

Debt issuance costs

Repurchases of common stock

Proceeds from exercises of stock options

Due to affiliates

Net cash provided 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

Condensed Consolidating Statement of Cash Flows

Nine Months Ended June 30, 2019

(In thousands)

Consolidating

Holdings, Inc.

and Subsidiaries

Net cash (used) provided by operating activities

Cash Flows from Investing Activities:

Payments for property and equipment

Proceeds from sale of property and equipment

Acquisitions, net of cash acquired

Due from affiliates

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

Proceeds from exercises of stock options

Due to affiliates

Net cash (used) provided by financing activities

Effect of foreign exchange rate changes on cash and

cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Restructuring

Restructuring expense for the three and nine months ended June 30, 2020 and 2019, are as follows (in thousands):

Restructuring expense for the three months ended December 31, 2020 and 2019, are as follows (in thousands):

Three Months Ended

Nine Months Ended

Project Surge

9 unchanged sentences

Workforce reductions

Expenses incurred during the nine months ended June 30, 2020, represent costs incurred by SBS of $ 1.3 million and corporate of $ 0.1 million.

Expenses incurred during the three months ended December 31, 2020, represent costs incurred by SBS of $ 0.2 million.

Transformation Plan

8 unchanged sentences

Workforce reductions

Expenses incurred during the nine months ended June 30, 2020, represent costs incurred by SBS of $ 5.1 million, BSG of $ 1.8 million and corporate of $ 3.2 million.

Additionally, other expenses in the table above includes a non-cash asset impairment of $ 1.8 million related to the re-measurement of certain long-lived assets and operating lease assets.

These assets had a carrying value of $ 5.4 million and were adjusted down to their estimated fair values.

The fair value measurements for these purposes were based on unobservable inputs (Level 3).

Expenses incurred during the three months ended December 31, 2020, represent costs incurred by SBS of $ 0.1 million.

Subsequent Event

On January 5, 2021, we announced that we fully repaid the outstanding balance of $ 213.2 million on our term loan B fixed portion.

The repayment was funded with excess cash and reflects our continued progress toward deleveraging the balance sheet.

In connection with this repayment, we recognized an approximately $ 1 million loss on the extinguishment of debt from the write-off of unamortized deferred financing costs.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements