Sally Beauty Holdings, Inc. 10-Q

Item 1. Financial Statements. 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. 5 SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except par value data) June 30, 2021 September 30, 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 270,317 $ 514,151 Trade accounts receivable, net 44,660 35,590 Accounts receivable, other 31,779 20,839 Inventory 935,427 814,503 Other current assets 46,928 48,014 Total current assets 1,329,111 1,433,097 Property and equipment, net of accumulated depreciation of $ 764,875 at June 30, 2021, and $ 694,709 at September 30, 2020 283,033 315,029 Operating lease assets 540,480 525,634 Goodwill 546,284 540,038 Intangible assets, excluding goodwill, net of accumulated amortization of $ 37,847 at June 30, 2021, and $ 63,491 at September 30, 2020 55,651 58,283 Other assets 23,623 23,066 Total assets $ 2,778,182 $ 2,895,147 Liabilities and Stockholders’ Equity Current liabilities: Current maturities of long-term debt $ 181 $ 180 Accounts payable 268,868 236,333 Accrued liabilities 213,099 170,665 Current operating lease liabilities 159,094 153,267 Income taxes payable 8,963 2,917 Total current liabilities 650,205 563,362 Long-term debt 1,383,145 1,796,897 Long-term operating lease liabilities 401,706 394,375 Other liabilities 30,008 32,976 Deferred income tax liabilities, net 90,848 92,094 Total liabilities 2,555,912 2,879,704 Stockholders’ equity: Common stock, $ 0.01 par value. Authorized 500,000 shares; 113,033 and 112,824 shares issued and 112,780 and 112,405 shares outstanding at June 30, 2021, and September 30, 2020, respectively 1,128 1,124 Preferred stock, $ 0.01 par value. Authorized 50,000 shares; none issued — — Additional paid-in capital 13,858 1,913 Accumulated earnings 288,818 117,109 Accumulated other comprehensive loss, net of tax ( 81,534 ) ( 104,703 ) Total stockholders’ equity 222,270 15,443 Total liabilities and stockholders’ equity $ 2,778,182 $ 2,895,147 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Loss) (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended June 30, June 30, 2021 2020 2021 2020 Net sales $ 1,022,387 $ 705,287 $ 2,884,737 $ 2,556,518 Cost of goods sold 507,981 383,441 1,432,378 1,330,067 Gross profit 514,406 321,846 1,452,359 1,226,451 Selling, general and administrative expenses 386,481 314,599 1,143,738 1,075,827 Restructuring 508 5,816 1,371 11,541 Operating earnings 127,417 1,431 307,250 139,083 Interest expense 23,452 27,298 73,313 70,483 Earnings (loss) before provision for income taxes 103,965 ( 25,867 ) 233,937 68,600 Provision (benefit) for income taxes 27,759 ( 2,341 ) 62,228 25,543 Net earnings (loss) $ 76,206 $ ( 23,526 ) $ 171,709 $ 43,057 Earnings (loss) per share: Basic $ 0.68 $ ( 0.21 ) $ 1.52 $ 0.38 Diluted $ 0.66 $ ( 0.21 ) $ 1.50 $ 0.37 Weighted-average shares: Basic 112,739 112,271 112,605 114,413 Diluted 114,927 112,271 114,274 115,370 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Loss) (In thousands) (Unaudited) Three Months Ended Nine Months Ended June 30, June 30, 2021 2020 2021 2020 Net earnings (loss) $ 76,206 $ ( 23,526 ) $ 171,709 $ 43,057 Other comprehensive income (loss): Foreign currency translation adjustments 6,617 5,116 23,734 ( 3,707 ) Interest rate caps, net of tax 471 245 646 274 Foreign exchange contracts, net of tax ( 191 ) ( 286 ) ( 1,211 ) 1,552 Other comprehensive income (loss), net of tax 6,897 5,075 23,169 ( 1,881 ) Total comprehensive income (loss) $ 83,103 $ ( 18,451 ) $ 194,878 $ 41,176 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (In thousands) (Unaudited) Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Capital Earnings Loss Equity Balance at September 30, 2020 112,405 $ 1,124 $ 1,913 $ 117,109 $ ( 104,703 ) $ 15,443 Net earnings — — — 57,191 — 57,191 Other comprehensive income — — — — 23,588 23,588 Share-based compensation — — 2,893 — — 2,893 Stock issued for equity awards 133 1 ( 250 ) — — ( 249 ) Balance at December 31, 2020 112,538 $ 1,125 $ 4,556 $ 174,300 $ ( 81,115 ) $ 98,866 Net earnings — — — 38,312 — 38,312 Other comprehensive loss — — — — ( 7,316 ) ( 7,316 ) Share-based compensation — — 2,648 — — 2,648 Stock issued for equity awards 141 2 2,321 — — 2,323 Balance at March 31, 2021 112,679 $ 1,127 $ 9,525 $ 212,612 $ ( 88,431 ) $ 134,833 Net earnings — — — 76,206 — 76,206 Other comprehensive income — — — — 6,897 6,897 Share-based compensation — — 2,617 — — 2,617 Stock issued for equity awards 101 1 1,716 — — 1,717 Balance at June 30, 2021 112,780 $ 1,128 $ 13,858 $ 288,818 $ ( 81,534 ) $ 222,270 Accumulated Total Additional Other Stockholders’ Common Stock Paid-in Accumulated Comprehensive Equity Shares Amount Capital Earnings Loss (Deficit) Balance at September 30, 2019 116,725 $ 1,167 $ — $ 55,797 $ ( 117,287 ) $ ( 60,323 ) Cumulative effect of ASC 842 adoption — — — ( 445 ) — ( 445 ) Net earnings — — — 53,215 — 53,215 Other comprehensive income — — — — 14,870 14,870 Repurchases and cancellations of common stock ( 766 ) ( 7 ) ( 6,237 ) ( 5,113 ) — ( 11,357 ) Share-based compensation — — 3,473 — — 3,473 Stock issued for equity awards 206 2 2,764 — — 2,766 Balance at December 31, 2019 116,165 $ 1,162 $ — $ 103,454 $ ( 102,417 ) $ 2,199 Net earnings — — — 13,368 — 13,368 Other comprehensive loss — — — — ( 21,826 ) ( 21,826 ) Repurchases and cancellations of common stock ( 3,936 ) ( 39 ) ( 3,064 ) ( 46,897 ) — ( 50,000 ) Share-based compensation — — 3,059 — — 3,059 Stock issued for equity awards 35 — 5 — — 5 Balance at March 31, 2020 112,264 $ 1,123 $ — $ 69,925 $ ( 124,243 ) $ ( 53,195 ) Net loss — — — ( 23,526 ) — ( 23,526 ) Other comprehensive income — — — — 5,075 5,075 Share-based compensation — — 2,562 — — 2,562 Stock issued for stock options 16 — ( 49 ) — — ( 49 ) Balance at June 30, 2020 112,280 $ 1,123 $ 2,513 $ 46,399 $ ( 119,168 ) $ ( 69,133 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 9 SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended June 30, 2021 2020 Cash Flows from Operating Activities: Net earnings $ 171,709 $ 43,057 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 78,090 80,829 Share-based compensation expense 8,158 9,094 Amortization of deferred financing costs 3,280 2,965 Loss (gain) on early extinguishment of debt 2,449 ( 357 ) Loss on disposal of equipment and other property 1,638 2,910 Deferred income taxes ( 998 ) 600 Changes in (exclusive of effects of acquisitions): Trade accounts receivable ( 8,612 ) 495 Accounts receivable, other ( 10,363 ) 45,888 Inventory ( 108,317 ) 134,824 Other current assets ( 931 ) ( 15,840 ) Other assets 1,578 ( 691 ) Operating leases, net ( 1,595 ) — Accounts payable and accrued liabilities 78,250 ( 35,572 ) Income taxes payable 6,372 ( 7,154 ) Other liabilities ( 2,980 ) 13,336 Net cash provided by operating activities 217,728 274,384 Cash Flows from Investing Activities: Payments for property and equipment, net of proceeds ( 44,888 ) ( 89,702 ) Acquisitions, net of cash acquired ( 2,351 ) ( 1,944 ) Net cash used by investing activities ( 47,239 ) ( 91,646 ) Cash Flows from Financing Activities: Proceeds from issuance of long-term debt — 1,087,504 Repayments of long-term debt ( 418,986 ) ( 437,391 ) Debt issuance costs ( 1,300 ) ( 6,257 ) Payments for common stock repurchased — ( 61,357 ) Proceeds from equity awards 3,790 2,722 Net cash (used) provided by financing activities ( 416,496 ) 585,221 Effect of foreign exchange rate changes on cash and cash equivalents 2,173 ( 643 ) Net (decrease) increase in cash and cash equivalents ( 243,834 ) 767,316 Cash and cash equivalents, beginning of period 514,151 71,495 Cash and cash equivalents, end of period $ 270,317 $ 838,811 Supplemental Cash Flow Information: Interest paid $ 86,293 $ 74,046 Income taxes paid $ 53,764 $ 45,292 Capital expenditures incurred but not paid $ 2,098 $ 4,469 The accompanying notes are an integral part of these condensed consolidated financial statements. 10 Sally Beauty Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation 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 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 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. 2. 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. 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. 3. Recent Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12 which simplifies the accounting for income taxes by removing an exception related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period with year to date losses and the recognition of deferred tax liabilities for outside basis differences. 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. Early adoption is permitted, but all amendments must be adopted at once. 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 that adoption of this update will have a material impact on our results of operations or financial position. 4. Revenue Recognition Substantially all of our revenue is derived through the sale of merchandise at the point-of-sale. Revenue is recognized net of estimated sales returns and sales taxes. We estimate sales returns based on historical data. Changes to our contract liabilities for the period were as follows (in thousands): September 30, 2020 $ 13,947 Loyalty points and gift cards issued but not redeemed, net of estimated breakage 11,950 Revenue recognized from beginning liability ( 9,391 ) June 30, 2021 $ 16,506 See Note 11, Business Segments , for additional information regarding the disaggregation of our sales revenue. 11 5. Fair Value Measurements Fair value on recurring basis Consistent with the three-level hierarchy defined in ASC Topic 820, Fair Value Measurement , as amended, we categorize our financial assets and liabilities as follows (in thousands): Classification Fair Value Hierarchy Level June 30, 2021 September 30, 2020 Financial Assets: Cash equivalents Cash and cash equivalents Level 1 $ — $ 194,612 Foreign exchange contracts Other current assets Level 2 1 — Interest rate caps Other assets Level 2 54 27 Total assets $ 55 $ 194,639 . Financial Liabilities: Foreign exchange contracts Accrued liabilities Level 2 $ 535 $ — Other fair value disclosures June 30, 2021 September 30, 2020 Fair Value Hierarchy Level Carrying Value Fair Value Carrying Value Fair Value Long-term debt, excluding capital leases Senior notes Level 1 $ 979,961 $ 1,029,810 $ 1,177,380 $ 1,217,707 Term loan B Level 2 414,375 413,339 635,788 619,397 Total long-term debt $ 1,394,336 $ 1,443,149 $ 1,813,168 $ 1,837,104 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. 6. Stockholders’ Equity Share Repurchases 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 June 30, Nine Months Ended June 30, 2021 2020 2021 2020 Number of shares repurchased — — — 4,702 Total cost of share repurchased $ — $ — $ — $ 61,357 Accumulated Other Comprehensive Loss The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands): Foreign Currency Translation Adjustments Interest Rate Caps Foreign Exchange Contracts Total Balance at September 30, 2020 $ ( 102,111 ) $ ( 3,003 ) $ 411 $ ( 104,703 ) Other comprehensive income (loss) before reclassification, net of tax 23,734 ( 196 ) ( 1,072 ) 22,466 Reclassification to net earnings, net of tax — 842 ( 139 ) 703 Balance at June 30, 2021 $ ( 78,377 ) $ ( 2,357 ) $ ( 800 ) $ ( 81,534 ) The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings was not material. 12 7. Weighted-Average Shares The following table sets forth the reconciliation of basic and diluted weighted-average shares (in thousands): Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 Weighted-average basic shares 112,739 112,271 112,605 114,413 Dilutive securities: Stock option and stock award programs 2,188 — 1,669 957 Weighted-average diluted shares 114,927 112,271 114,274 115,370 Anti-dilutive options excluded from our computation of diluted shares 2,188 4,976 1,670 4,887 Potentially dilutive stock option and stock award programs excluded from our computation of diluted shares — 941 — — 8. Goodwill and Intangible Assets 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 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. 9. Short-term Borrowings and Long-term Debt 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 . 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. Covenants 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, 2021, we were in compliance with all debt covenants, and all the net assets of our consolidated subsidiaries were unrestricted from transfer. 13 10. Derivative Instruments and Hedging Activities 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. Designated Cash Flow Hedges Foreign Currency Forwards We regularly enter into foreign currency forwards to mitigate our exposure to exchange rate changes on inventory purchases in U.S. dollars by our foreign subsidiaries. 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 Notional Amount Euro $ 4,558 Mexican Peso 3,698 Canadian Dollar 1,393 Total $ 9,649 We record quarterly, net of income tax, the changes in fair value related to the foreign currency forwards into AOCL. As the forwards are exercised, the realized value is recognized into cost of goods sold based on inventory turns. 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 In July 2017, we purchased two interest rate caps with an initial aggregate notional amount of $ 550 million (the “interest rate caps”) to mitigate the exposure to higher interest rates in connection with our term loan B. The interest rate caps are comprised of individual caplets that expire ratably through June 30, 2023 , and are designated as cash flow hedges. Accordingly, changes in fair value of the interest rate caps are recorded quarterly, net of income tax, and are included in AOCL. 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 nine months ended June 30, 2021. 11. Business Segments Segment data for the three and nine months ended June 30, 2021 and 2020, is as follows (in thousands): Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 Net sales: Sally Beauty Supply ("SBS") $ 602,681 $ 415,468 $ 1,693,015 $ 1,504,125 Beauty Systems Group ("BSG") 419,706 289,819 1,191,722 1,052,393 Total $ 1,022,387 $ 705,287 $ 2,884,737 $ 2,556,518 Earnings (loss) before provision for income taxes: Segment operating earnings: SBS $ 116,784 $ 3,087 $ 311,975 $ 133,684 BSG 55,265 40,084 151,680 143,557 Segment operating earnings 172,049 43,171 463,655 277,241 Unallocated expenses 44,124 35,924 155,034 126,617 Restructuring 508 5,816 1,371 11,541 Consolidated operating earnings 127,417 1,431 307,250 139,083 Interest expense 23,452 27,298 73,313 70,483 Earnings (loss) before provision for income taxes $ 103,965 $ ( 25,867 ) $ 233,937 $ 68,600 Sales between segments, which are eliminated in consolidation, were not material during the three and nine months ended June 30, 2021 and 2020. 14 Disaggregation of net sales by segment Three Months Ended June 30, Nine Months Ended June 30, SBS 2021 2020 2021 2020 Hair color 35.6 % 36.6 % 35.3 % 33.8 % Hair care 18.9 % 16.3 % 18.8 % 19.0 % Skin and nail care 14.6 % 13.3 % 12.2 % 13.8 % Styling tools 11.6 % 13.6 % 14.3 % 13.0 % Salon supplies and accessories 7.6 % 9.1 % 7.7 % 7.5 % Textured hair products 5.8 % 4.7 % 5.9 % 5.1 % Other beauty items 5.9 % 6.4 % 5.8 % 7.8 % Total 100.0 % 100.0 % 100.0 % 100.0 % Three Months Ended June 30, Nine Months Ended June 30, BSG 2021 2020 2021 2020 Hair color 45.1 % 42.2 % 43.2 % 39.7 % Hair care 36.6 % 32.5 % 36.5 % 34.2 % Skin and nail care 6.8 % 8.2 % 7.3 % 8.2 % Styling tools 6.3 % 6.2 % 6.5 % 6.4 % Other beauty items 2.6 % 7.0 % 2.5 % 3.9 % Promotional items 2.6 % 3.9 % 4.0 % 7.6 % Total 100.0 % 100.0 % 100.0 % 100.0 % The following tables disaggregate our segment revenue by sales channels: Three Months Ended June 30, Nine Months Ended June 30, SBS 2021 2020 2021 2020 Company-operated stores 94.2 % 79.1 % 93.7 % 90.9 % E-commerce 5.7 % 20.8 % 6.2 % 8.9 % Franchise stores 0.1 % 0.1 % 0.1 % 0.2 % Total 100.0 % 100.0 % 100.0 % 100.0 % Three Months Ended June 30, Nine Months Ended June 30, BSG 2021 2020 2021 2020 Company-operated stores 69.2 % 63.9 % 69.7 % 68.2 % Distributor sales consultants 14.1 % 10.8 % 14.0 % 15.5 % E-commerce 8.8 % 17.4 % 8.8 % 8.9 % Franchise stores 7.9 % 7.9 % 7.5 % 7.4 % Total 100.0 % 100.0 % 100.0 % 100.0 % 12. Income Tax 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. 15 Refer to the following rate reconciliation for more details relating to the period over period differences in the effective tax rate: Three Months Ended Nine Months Ended June 30, June 30, 2021 2020 2021 2020 U.S. federal statutory income tax rate 21.0 % 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit 3.2 2.9 3.3 3.9 Effect of foreign operations 1.1 4.6 0.9 ( 0.5 ) Foreign valuation allowances (1) 0.5 ( 13.0 ) 0.3 10.2 Deemed repatriation tax (1) — ( 1.1 ) — 0.4 Other, net (1) 0.9 ( 5.3 ) 1.1 2.2 Effective tax rate 26.7 % 9.1 % 26.6 % 37.2 % (1) 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. 13. Subsequent Event 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. 16