What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2021-02-04 · 70 added, 66 removed, 248 unchanged (35% of the section changed)

Financial Statements.

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.

The following condensed consolidated balance sheets as of March 31, 2021, and September 30, 2020, the condensed consolidated statements of earnings, condensed consolidated statements of comprehensive income (loss) and the condensed consolidated statements of stockholders’ equity (deficit) for the three and six months ended March 31, 2021 and 2020, and the condensed consolidated statements of cash flows for the six months ended March 31, 2021 and 2020, are those of Sally Beauty Holdings, Inc.

and its subsidiaries.

11 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 741,083 at

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

March 31, 2021, and $ 694,709 at September 30, 2020

Operating lease assets

Intangible assets, excluding goodwill, net of accumulated amortization of

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

$ 69,511 at March 31, 2021, and $ 63,491 at September 30, 2020

Liabilities and Stockholders’ Equity

15 unchanged sentences

112,824 shares issued and 112,679 and 112,405 shares outstanding at

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

March 31, 2021, and September 30, 2020, respectively

Preferred stock, $ 0.01 par value.

11 unchanged sentences

Three Months Ended

Six Months Ended

Cost of goods sold

10 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

Three Months Ended

Other comprehensive income:

Six Months Ended

Other comprehensive income (loss):

Foreign currency translation adjustments

1 unchanged sentence

Foreign exchange contracts, net of tax

Other comprehensive income, net of tax

Total comprehensive income

Other comprehensive income (loss), net of tax

Total comprehensive income (loss)

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

1 unchanged sentence

AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands)

6 unchanged sentences

Balance at December 31, 2020

Other comprehensive loss

Share-based compensation

Stock issued for equity awards

Balance at March 31, 2021

Comprehensive

2 unchanged sentences

Balance at September 30, 2019

Cumulative effect of ASC 842 adoption

Cumulative effect of ASC 842

Other comprehensive income

3 unchanged sentences

Balance at December 31, 2019

Other comprehensive loss

Repurchases and cancellations of

Share-based compensation

Stock issued for equity awards

Balance at March 31, 2020

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

3 unchanged sentences

(In thousands)

Three Months Ended December 31,

Six Months Ended March 31,

Cash Flows from Operating Activities:

3 unchanged sentences

Amortization of deferred financing costs

Gain on early extinguishment of debt

Loss on disposal of equipment and other property

Loss (gain) on early extinguishment of debt

Loss (gain) on disposal of equipment and other property

Deferred income taxes

17 unchanged sentences

Proceeds from equity awards

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

Net cash used by financing activities

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

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

10 unchanged sentences

The condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC.

Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures are adequate to make the information not misleading.

Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures included herein are adequate to make the information not misleading.

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

In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of March 31, 2021 and September 30, 2020, and our consolidated results of operations, consolidated comprehensive income, and consolidated statements of stockholders’ equity for the three and six months ended March 31, 2021 and 2020, our consolidated cash flows for the six months ended March 31, 2021 and 2020.

Our operating results for the three and six months ended March 31, 2021, 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.

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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.

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

Revenue Recognition

6 unchanged sentences

Revenue recognized from beginning liability

December 31, 2020

March 31, 2021

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

8 unchanged sentences

Cash and cash equivalents

Foreign exchange contracts

Other current assets

Interest rate caps

3 unchanged sentences

Other fair value disclosures

December 31, 2020

March 31, 2021

September 30, 2020

10 unchanged sentences

Three Months Ended

Six Months Ended

Number of shares repurchased

9 unchanged sentences

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.

Balance at March 31, 2021

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

Weighted-Average Shares

1 unchanged sentence

Three Months Ended

Six Months Ended

Weighted-average basic shares

4 unchanged sentences

Goodwill and Intangible Assets

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

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

During the three months ended March 31, 2021, we completed our annual assessment for impairment of goodwill and other intangible assets.

For goodwill, we used a qualitative analysis and our actual and forecasted results are exceeding the estimates from the last quantitative test .

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 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.

For the three months ended March 31, 2021 and 2020, amortization expense related to other intangible assets was $ 1.6 million and $ 2.2 million, respectively, and for the six months ended March 31, 2021 and 2020, amortization expense was $ 3.3 million and $ 4.6 million, respectively.

Additionally during the six months ended March 31, 2021, goodwill increased $ 4.6 million primarily from the effects of foreign currency exchange rates.

Short-term Borrowings and Long-term Debt

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.

At March 31, 2021, there were no outstanding borrowings and we had $ 496.9 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 March 31, 2021, we paid the remaining $ 213.2 million of aggregate outstanding principal on our term loan B fixed tranche at par, excluding accrued interest.

In connection with the debt repayment, we recognized a $ 1.4 million loss on the extinguishment of debt from the write-off of unamortized deferred financing costs .

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

As of March 31, 2021, 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 three months ended December 31, 2020, we did no t purchase or hold any derivative instruments for trading or speculative purposes.

During the six months ended March 31, 2021, 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.

3 unchanged sentences

dollars by our foreign subsidiaries.

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):

At March 31, 2021, the notional amount we held through these forwards, based upon exchange rates at March 31, 2021, was as follows (in thousands):

Notional Currency

3 unchanged sentences

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

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 .

For the three and six months ended March 31, 2021, we recognized gains of $ 0.1 million and $ 0.4 million, respectively, into cost of goods sold on our condensed consolidated statements of earnings.

Based on March 31, 2021, valuations and exchange rates, we expect to reclassify losses of approximately $ 0.7 million into cost of goods sold over the next 12 months.

Interest Rate Caps

3 unchanged sentences

Over the next 12 months, we expect to reclassify approximately $ 1.5 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 were not material for the three months ended December 31, 2020.

The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three and six months ended March 31, 2021.

Business Segments

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

Segment data for the three and six months ended March 31, 2021 and 2020, is as follows (in thousands):

Three Months Ended

Six Months Ended

Sally Beauty Supply ("SBS")

8 unchanged sentences

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.

Sales between segments, which are eliminated in consolidation, were not material during the three and six months ended March 31, 2021 and 2020.

Disaggregation of net sales by segment

Three Months Ended

Six Months Ended

Skin and nail care

4 unchanged sentences

Three Months Ended

Six Months Ended

Skin and nail care

4 unchanged sentences

Three Months Ended

Six Months Ended

Company-operated stores

1 unchanged sentence

Three Months Ended

Six Months Ended

Company-operated stores

1 unchanged sentence

Franchise stores

Restructuring

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

For the three months ended March 31, 2021 and 2020, our effective tax rates were 25.8 % and 38.2 %, respectively, and for the six months ended March 31, 2021 and 2020, our effective tax rates were 26.5 % and 29.5 %, respectively.

The decrease in the effective tax rates was primarily a result of the establishment of a valuation allowance in a foreign subsidiary in the prior year.

Additionally, we had greater losses in the prior year from foreign subsidiaries for which a tax benefit could not be recognized.

Refer to the following rate reconciliation for more details relating to the period over period differences in the effective tax rate:

Three Months Ended

Project Surge

Transformation Plan

Total expense

Project Surge

In November 2019, we announced that we were launching Project Surge, which takes the successful elements of the North American Sally Beauty transformation and integrates them into our European operations, with the support and participation of several key leaders from the corporate headquarters.

As part of this plan, we are focusing on several operating elements, including a review of our talent and operating structure.

The liability related to Project Surge, which is included in accrued liabilities on our condensed consolidated balance sheets, is as follows (in thousands):

Project Surge

September 30,

Expenses Paid or Otherwise Settled

Workforce reductions

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

Transformation Plan

We previously disclosed a plan to focus on certain core business strategies.

In addition to optimizing our supply chain network with changes to our transportation model and network of nodes, we are improving our marketing and digital commerce capabilities, and advancing our merchandising transformation efforts.

In addition, we expanded our plan and announced a reduction in workforce within our field and headquarters.

All these together, make up our Transformation Plan.

The liability related to the Transformation Plan, which is included in accrued liabilities on our condensed consolidated balance sheets, is as follows (in thousands):

Transformation Plan

September 30,

Expenses Paid or Otherwise Settled

Workforce reductions

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

Six Months Ended

federal statutory income tax rate

State income taxes, net of federal tax benefit

Effect of foreign operations

Foreign valuation allowances

Effective tax rate

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.

On April 1, 2021, we called the entire outstanding balance of $ 197.4 million on our 5.50 % senior notes due 2023 at par plus a premium.

In connection with the repayment, we recognized losses on extinguishment of debt in the aggregate amount of $ 2.8 million, which included a $ 1.8 million call premium and $ 1.0 million from the write-off of unamortized debt issuance 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