What changed in this filing

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Item 1. Financial Statements

2021-07-29 compared with 2021-05-06 · 71 added, 47 removed, 271 unchanged (30% of the section changed)

Financial Statements.

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.

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

and its subsidiaries.

11 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 764,875 at

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

June 30, 2021, and $ 694,709 at September 30, 2020

Operating lease assets

Intangible assets, excluding goodwill, net of accumulated amortization of

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

$ 37,847 at June 30, 2021, and $ 63,491 at September 30, 2020

Liabilities and Stockholders’ Equity

15 unchanged sentences

112,824 shares issued and 112,780 and 112,405 shares outstanding at

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

June 30, 2021, and September 30, 2020, respectively

Preferred stock, $ 0.01 par value.

8 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

Condensed Consolidated Statements of Earnings (Loss)

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

3 unchanged sentences

Interest expense

Earnings before provision for income taxes

Provision for income taxes

Earnings per share:

Earnings (loss) before provision for income taxes

Provision (benefit) for income taxes

Net earnings (loss)

Earnings (loss) per share:

Weighted-average shares:

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Net earnings (loss)

Other comprehensive income (loss):

20 unchanged sentences

Balance at March 31, 2021

Comprehensive

Other comprehensive income

Share-based compensation

Stock issued for equity awards

Balance at June 30, 2021

Stockholders’

Equity (Deficit)

Comprehensive

Balance at September 30, 2019

10 unchanged sentences

Balance at March 31, 2020

Other comprehensive income

Share-based compensation

Stock issued for stock options

Balance at June 30, 2020

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

3 unchanged sentences

(In thousands)

Six Months Ended March 31,

Nine Months Ended June 30,

Cash Flows from Operating Activities:

4 unchanged sentences

Loss (gain) on early extinguishment of debt

Loss (gain) on disposal of equipment and other property

Loss on disposal of equipment and other property

Deferred income taxes

15 unchanged sentences

Repayments of long-term debt

Debt issuance costs

Payments for common stock repurchased

17 unchanged sentences

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 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.

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, 2021 and September 30, 2020, and our consolidated results of operations, consolidated comprehensive income, and consolidated statements of stockholders’ equity for the three and nine months ended June 30, 2021 and 2020, our consolidated cash flows for the nine months ended June 30, 2021 and 2020.

Our operating results for the three and nine months ended June 30, 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.

19 unchanged sentences

Revenue recognized from beginning liability

March 31, 2021

June 30, 2021

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

15 unchanged sentences

Other fair value disclosures

March 31, 2021

June 30, 2021

September 30, 2020

8 unchanged sentences

In August 2017, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $ 1.0 billion of its common stock, subject to certain limitations governed by our debt agreements, over an approximate four-year period expiring on September 30, 2021 .

See Note 13, Subsequent Event , for more information on our share repurchase program.

Information related to our shares repurchased and subsequently retired were as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

Number of shares repurchased

9 unchanged sentences

Reclassification to net earnings, net of tax

Balance at March 31, 2021

Balance at June 30, 2021

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

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Weighted-average basic shares

3 unchanged sentences

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

Goodwill and Intangible Assets

2 unchanged sentences

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 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.

For the three months ended June 30, 2021 and 2020, amortization expense related to other intangible assets was $ 1.6 million and $ 2.2 million, respectively, and for the nine months ended June 30, 2021 and 2020, amortization expense was $ 5.0 million and $ 6.8 million, respectively.

Additionally during the nine months ended June 30, 2021, the increase in goodwill was primarily from the effects of foreign currency exchange rates of $ 6.1 million.

Short-term Borrowings and Long-term Debt

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 .

At June 30, 2021, there were no outstanding borrowings under our ABL facility and we had $ 481.7 million available for borrowing, thereunder, including our Canadian sub-facility, subject to the conditions contained therein.

During the three months ended June 30, 2021, we entered into a third amendment to our ABL facility which extended the maturity to May 11, 2026 .

In connection with the amendment, we incurred $ 1.3 million in debt issuance costs that will be amortized over the life of the ABL facility.

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.

On April 1, 2021, we called the entire outstanding balance of $ 197.4 million of 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 the write-off of $ 1.0 million in unamortized deferred financing costs.

On June 30, 2021, we elected to repay $ 8.3 million of aggregate outstanding principal on our term loan B variable tranche.

This optional prepayment did not have any early prepayment penalties.

In connection with the prepayment, we recognized a loss on extinguishment of debt of $ 0.1 million from the write-off of unamortized deferred financing costs.

As of June 30, 2021, we still have $ 414.4 million remaining on our term loan B variable tranche.

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 March 31, 2021, we were in compliance with all debt covenants and all the net assets of our consolidated subsidiaries were unrestricted from transfer.

As of June 30, 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 six months ended March 31, 2021, we did no t purchase or hold any derivative instruments for trading or speculative purposes.

During the nine months ended June 30, 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 March 31, 2021, the notional amount we held through these forwards, based upon exchange rates at March 31, 2021, was as follows (in thousands):

At June 30, 2021, the notional amount we held through these forwards, based upon exchange rates at June 30, 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 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.

For the three and nine months ended June 30, 2021, we recognized a loss of $ 0.3 million and a gain of $ 0.1 million, respectively, into cost of goods sold on our condensed consolidated statements of earnings.

Based on June 30, 2021 valuations and exchange rates, we expect to reclassify losses of approximately $ 1.0 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 $ 1.6 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 and six months ended March 31, 2021.

The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three and nine months ended June 30, 2021.

Business Segments

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

Segment data for the three and nine months ended June 30, 2021 and 2020, is as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

Sally Beauty Supply ("SBS")

Beauty Systems Group ("BSG")

Earnings before provision for income taxes:

Earnings (loss) before provision for income taxes:

Segment operating earnings:

4 unchanged sentences

Interest expense

Earnings before provision for income taxes

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

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, 2021 and 2020.

Disaggregation of net sales by segment

Three Months Ended

Six Months Ended

Nine Months Ended

Skin and nail care

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Skin and nail care

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Company-operated stores

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Company-operated stores

1 unchanged sentence

Franchise stores

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.

For the three months ended June 30, 2021 and 2020, our effective tax rates were 26.7 % and 9.1 %, respectively.

The effective tax rate for the third quarter of the prior year was negatively impacted by foreign losses for which a tax benefit could not be recognized.

For the nine months ended June 30, 2021 and 2020, our effective tax rates were 26.6 % and 37.2 %, respectively.

The decrease in the effective tax rate was primarily due to greater losses in the prior year from foreign subsidiaries for which a tax benefit could not be recognized and the establishment of a valuation allowance in a foreign subsidiary in the prior year.

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

Three Months Ended

Six Months Ended

Nine Months Ended

federal statutory income tax rate

2 unchanged sentences

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 and certain other tax impacting items is opposite the customary relationship due to the loss before the provision for income taxes that was incurred.

A lower effective tax rate is not beneficial in situations where a pre-tax book loss has been incurred.

Subsequent Event

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.

In 2017 the Board of Directors approved a share repurchase program authorizing us to repurchase up to $ 1.0 billion of our common stock through September 30, 2021 .

On July 22, 2021, the Board approved a term extension of the share repurchase program for the four-year period ending September 30, 2025 .

Under the extension we are authorized to purchase our common stock up to the amount remaining under the Board’s 2017 authorization, which is currently $ 726.1 million.

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