Sally Beauty Supply 2014 Annual Report Download

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TIMELESS
Sally Beauty Holdings, Inc.
2014 Annual Report

Table of contents

  • Page 1
    TIMELESS Sally Beauty Holdings, Inc. 2014 Annual Report

  • Page 2
    ... Rico. 1999 Beauty Systems Group acquires Heil Beauty Supply. 2000 Beauty Systems Group acquires Davidson Beauty Supply. 2001 Sally Beauty Supply enters Mexico and BSG acquires Armstrong McCall. Alberto-Culver Sally Beauty Sally Beauty acquires Supply reaches HQ moves to Sally Beauty. 25 stores...

  • Page 3
    50 NEVER LOOKED SO FABULOUS.

  • Page 4
    ...beauty supplies with annual revenues of $3.8 billion and net earnings of $246 million. The Company operates primarily through two business units, Sally Beauty Supply and Beauty..., 2014) SALLY BEAUTY SUPPLY An openline and exclusive-label beauty products retailer offering professional beauty products...

  • Page 5
    ... acquires Aerial. 2011 Sally Beauty acquires Netherlands- based Floral Group. 2013 Sally U.K. opens its ï¬,agship store. Sally Beauty Beauty Systems acquires Belgium- Group acquires based Pro-Duo. Schoeneman Beauty Supply. increased volume PROUD HISTORY PROMISING FUTURE 2014 Sally opens first...

  • Page 6
    ... the sales challenges in our largest business segment, Sally Beauty Supply, which were primarily caused by soft retail traffic in the Sally U.S. stores. This year, I would label 2014 as a recovery year for our Sally Beauty Supply business, as sales gradually increased throughout the year. This...

  • Page 7
    ... MARGIN 50% $700 $600 49% GROSS PROFIT MARGIN 15% CONSOLIDATED OPERATING PROFIT MARGIN 14% $500 $400 $300 12% $200 $100 $0 2010 2011 2012 2013 2014 11% 10% 13% (SALES (IN MILLIONS) SALLY FEAUTY HOLDINGS | BEAUTY SYSTEMS GROUP SALLY BEAUTY SUPPLY BEAUTY SYSTEMS GROUP SALLY BEAUTY SUPPLY 3

  • Page 8
    THEN We started in 1964, with just one store in New Orleans. 4 | SALLY FEAUTY HOLDINGS

  • Page 9
    NOW We've grown to more than 4,800 stores in 12 countries, with $3.8 billion in sales. SALLY FEAUTY HOLDINGS | 5

  • Page 10
    ... primarily due to higher investments in new business development and marketing. Sally Beauty Supply ended the fiscal year with 3,563 stores worldwide: 2,793 in ... In summary, our sales performance in FY 2014 marked the recovery of our Sally Beauty business, as same store sales gradually increased ...

  • Page 11
    GLOBAL FOOTPRINT Store Count as of September 30, 2014 SALLY BEAUTY SUPPLY BEAUTY SYSTEMS GROUP TOTAL COMPANY NORTH AMERICA United States Puerto Rico Mexico Canada NORTH AMERICA TOTAL ... 3,563 - 1,265 981 253 58 46 33 39 3 28 8 22 490 4,828 981 SALLY FEAUTY HOLDINGS | 4,828 STORES WORLDWIDE. 7

  • Page 12
    ...,828 0.79 0.78 217,476 2014 2013 2012 2011 2010 $ 3,523,644 $ 1,743,259 49.5 % 499,355 14.2 % 233,064 1.27 1.24 297,582 Net Earnings Per Diluted Share $ Cash Floi From Operations OPERATING HIGHLIGHTS Same Store Sales Groith (1) Sally Beauty Supply Beauty Systems Group CONSOLIDATED SAME STORE SALES...

  • Page 13
    2014 FORM 10-K

  • Page 14

  • Page 15
    ...ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 2014 -OR- អ TRANSITION REPORT...Act: Title of Each Class Name of Each Exchange on Which Registered SALLY BEAUTY HOLDINGS, INC. Common Stock, par value $.01 per share New ...

  • Page 16
    TABLE OF CONTENTS Page ITEM ITEM ITEM ITEM ITEM ITEM 1. 1A. 1B. 2. 3. 4. PART I BUSINESS ...RISK FACTORS ...UNRESOLVED STAFF COMMENTS ...PROPERTIES ...LEGAL PROCEEDINGS ...MINE SAFETY DISCLOSURES ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...

  • Page 17
    ...Sally Beauty Holdings, Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS Statements in this Annual Report...to supply products to us; • the possibility of material interruptions in the supply of ...

  • Page 18
    ... of violence or terrorism; • the preparedness of our accounting and other management systems to meet financial reporting and other requirements and the upgrade of our existing financial reporting system; • being a holding company, with no operations of our own, and depending on our subsidiaries...

  • Page 19
    ... the largest distributor of professional beauty supplies in the U.S. based on store count. At September 30, 2014, we operated primarily through two business units, Sally Beauty Supply and Beauty Systems Group, or BSG. As of September 30, 2014, through Sally Beauty Supply and BSG, we operated a multi...

  • Page 20
    ...beauty supply stores, like BSG and Sally Beauty Supply. We expect that these factors will continue to drive demand for conveniently located professional beauty supply... For example, during the fiscal year ended September 30, 2014 our number of international company-operated stores increased from 789 ...

  • Page 21
    ... and ''We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us.'' Relationships with suppliers. Sally Beauty Supply and BSG, and their respective suppliers are dependent on each other for the distribution of...

  • Page 22
    ...-The beauty products distribution...beauty...as beauty ... such as beauty products and...Sally Beauty Supply...Sally Beauty Supply, an open-line and exclusive-label distributor of professional beauty supplies offering professional beauty supplies... beauty supply distributor...countries. Sally Beauty Supply accounted...

  • Page 23
    ...Data'' contained elsewhere in this Annual Report. Neither the sales nor the product assortment for Sally Beauty Supply or BSG are generally seasonal in nature. Sally Beauty Supply We believe Sally Beauty Supply is the largest open-line distributor of professional beauty supplies in the U.S. based on...

  • Page 24
    ... alternative to higher-priced leading third-party brands. Exclusive-label products accounted for approximately 45% of Sally Beauty Supply's product sales in the U.S. during the fiscal year 2014. Generally, our exclusive-label products have higher gross margins for us than the leading third-party...

  • Page 25
    .... The Sally ''Beauty Club'' is a loyalty program for customers who are not salon professionals. Beauty Club members, after paying a nominal annual fee, ... of Sally Beauty Supply's store count (including franchised stores) during the last three fiscal years: Fiscal Year Ended September 30, 2014 2013 ...

  • Page 26
    ... We believe BSG is the largest full-service distributor of professional beauty supplies in North America, exclusively targeting salons and salon professionals. As of September 30, 2014, BSG had 1,103 companyoperated stores, supplied 162 franchised stores and had a sales force of approximately 981...

  • Page 27
    ... of BSG's sales attributable by product category: Fiscal Year Ended September 30, 2014 2013 2012 Hair care ...Hair color ...Skin and nail care . . Electrical appliances Promotional items(a) Other beauty items . Total ...35.0% 35.8% 36.4% 30.8% 30.0% 29.8% 9.9% 10.2% 10.3% 5.5% 5.3% 4.7% 11.8% 12...

  • Page 28
    ...the last three fiscal years: Fiscal Year Ended September 30, 2014 2013 2012 Stores open at beginning of period Net store ...Beauty Supply Distributor in the U.S. with Multi-Channel Platform We believe that Sally Beauty Supply and BSG together comprise the largest distributor of professional beauty...

  • Page 29
    ... of these products at our stores further differentiates Sally Beauty Supply from its competitors. In addition, as discussed above, Sally Beauty Supply also offers a customer loyalty program, the Beauty Club, whereby for a nominal annual fee members receive discounts on products, earn rewards...

  • Page 30
    ...annual organic store growth between 3% and 4% of our total stores for at least the next few years. Grow Internationally International sales represent approximately 25% of Sally Beauty Supply...September 30, 2014, we had 850 Sally Beauty Supply and BSG company-operated stores and supplied 47 franchise ...

  • Page 31
    ... • In May 2014, we acquired certain assets and business operations of Arctic Beauty, Inc., a professional-only distributor of beauty products operating in...a focus on expanding our exclusive BSG territories and allowing Sally Beauty Supply to enter new geographic areas, principally outside the U.S. ...

  • Page 32
    ... The operations of each store are supervised by a district manager, who reports to a territory manager. A significant number of our store managers and ...As of September 30, 2014, we operated mainly through 18 distribution centers, nine of which serviced Sally Beauty Supply and nine of which serviced...

  • Page 33
    ... several areas (including our Sally Beauty Supply and BSG operations in the...have a material adverse effect on our financial reporting, business, financial condition or results of operations... the Company's employees: Year Ended September 30, 2014 2013 2012 Salaried ...Hourly ...Part-time(a) ...Balance...

  • Page 34
    ..., Executive Officers and Corporate Governance'' in Item 10 of this Annual Report. Regulation We are subject to a wide variety of laws and...stringent laws and regulations.'' As of September 30, 2014, Sally Beauty Supply supplied 19 and BSG supplied 162 franchised stores located in the U.S., Mexico and...

  • Page 35
    ...maintains an internet site that contains our reports, proxy and information statements, and ...Sally Beauty Supply competes with other domestic and international beauty product wholesale and retail outlets, including local and regional open line beauty supply stores, professional-only beauty supply...

  • Page 36
    ... our margins and could further adversely impact our business, financial condition and results of operations. Additionally, approximately 45% of our Sally Beauty Supply product sales come from our exclusive-label brands. The development and promotion of these exclusive-label brands and products often...

  • Page 37
    ...retail traffic into our stores and our Sally Beauty Club and ProCard promotions at an acceptable...quality or who may be unwilling to continue to supply products to us. We do not manufacture any ... of the products we sell. During the fiscal year 2014, our five largest suppliers were Procter & Gamble Co.,...

  • Page 38
    ... other reasons, we may not be able to acquire desired merchandise in sufficient quantities or on acceptable terms in the future. Changes in Sally Beauty Supply's and BSG's relationships with suppliers occur often, and could positively or negatively impact the net sales and operating profits of both...

  • Page 39
    If products sold by us are found to be defective in labeling or content, our credibility and that of the brands we sell may be harmed, marketplace acceptance of our products may decrease, and we may be exposed to liability in excess of our products liability insurance coverage and manufacturer ...

  • Page 40
    ...if successful, may divert sales from our stores. We offer many of our beauty products for sale through our websites in the U.S. (such as www.sallybeauty... or potential internet customers to consider competing distributors of beauty products. In addition, offering products through our internet channels...

  • Page 41
    through unapproved outlets, all of which could diminish the value of the particular brand. In addition, such diversion may result in lower net sales for BSG should consumers choose to purchase diverted products from retailers rather than purchasing from our customers, or choose other products ...

  • Page 42
    ...in international geographies as international growth becomes an increasing driver of our future growth. While the capital requirements to open a Sally Beauty Supply or BSG store, excluding inventory, vary from geography to geography, such capital requirements have historically been relatively low in...

  • Page 43
    ... may be materially affected. The health of the economy in the channels we serve may affect consumer purchases of discretionary items such as beauty products and salon services, which could have a material adverse effect on our business, financial condition and results of operations. Our results of...

  • Page 44
    ... trademark and service mark rights used in connection with our business including, but not limited to, ''Sally,'' ''Sally Beauty,'' ''Sally Beauty Supply,'' ''Sally Beauty Club Card,'' ''BSG,'' ''CosmoProf,'' ''Proclub,'' ''Armstrong McCall,'' ''ion,'' ''Beyond the Zone'' and ''Salon Services.'' We...

  • Page 45
    ..., is being designed to integrate legacy systems and to provide enhanced functionality throughout our enterprise functions, including finance and accounting, supply chain and distribution, merchandising, human resources and payroll. In addition, we are currently implementing new point-of-sale systems...

  • Page 46
    ... on our systems primarily during the period from February 21, 2014 to February 28, 2014. The costs that we have incurred to date in connection with...of an adequate work force, the temporary or long-term disruption in the supply of products (or a substantial increase in the cost of those products)...

  • Page 47
    ... 404 of the Sarbanes-Oxley Act of 2002, which require us to include in our Annual Report on Form 10-K our management's report on, and assessment of, the effectiveness of our internal control over financial reporting. Furthermore, our independent registered public accounting firm must attest to and...

  • Page 48
    ... the future and our ability to react to changes in our business. As of September 30, 2014, certain of our subsidiaries, including Sally Holdings LLC, which we refer to as Sally Holdings, had an aggregate principal amount of approximately $1,811.6 million of outstanding debt, including capital lease...

  • Page 49
    ...prohibit us or our subsidiaries from doing so. As of September 30, 2014, our ABL facility provided us commitments for additional borrowings of up to approximately... ABL facility contains covenants that, among other things, restrict Sally Holdings and its subsidiaries' ability to: • change their line...

  • Page 50
    The indentures governing the Notes also contain restrictive covenants that, among other things, limit our ability and the ability of Sally Holdings and its restricted subsidiaries to: • dispose of assets; • incur additional indebtedness (including guarantees of additional indebtedness); • pay ...

  • Page 51
    ... for a term of five years with customary renewal options. The following table provides the number of stores in the U.S. and globally, as of September 30, 2014: Sally Beauty Supply CompanyOperated Franchise ...2,751 42 243 40 100 39 55 33 28 180 33 751 3,544 - - 4 6 - - 3 - - - 6 19 19...

  • Page 52
    ...and warehouses and corporate headquarters, as of September 30, 2014: Location Company-Owned Properties: Denton, Texas ...Reno, ...Calgary, Alberta, Canada ...Mississauga, Ontario, Canada ...Lincoln, Nebraska ...(1) Sally Beauty Supply (2) BSG ITEM 3. LEGAL PROCEEDINGS We are involved, from time to...

  • Page 53
    ... 2013 ...December 31, 2012 . Holders As of November 7, 2014, there were 999 stockholders of record of our common stock. Dividends We have not declared or paid dividends at any time during the two fiscal years prior to the date of this Annual Report. We currently anticipate that we will retain future...

  • Page 54
    ... in the data: $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 9/09 3/10 9/10 3/11 9/11 3/12 9/12 3/13 9/13 3/14 9/14 Sally Beauty Holdings, Inc. S&P 500 Dow Jones US Specialty Retailers TSM 5NOV201402550716 The Dow Jones U.S. Specialty Retailers Index (NYSE: DJUSRS) is a non-managed index and...

  • Page 55
    ...Programs(1) $ 133,594,624 1,000,000,000 1,000,000,000 $1,000,000,000 Fiscal Period July 1 through July 31, 2014 ...August 1 through August 31, 2014 ...September 1 through September 30, 2014 . . Total this quarter ... Average Price Paid per Share $25.03 25.82 - $25.28 (1) In March 2013, the Company...

  • Page 56
    ...,939 122,214 $ 213,725 $ $ 1.17 1.14 183,020 188,093 2014 Results of operations information: Net sales ...$3,753,498 Cost of products sold and distribution ... ...Operating data: Number of stores (at end of period): Sally Beauty Supply ...Beauty Systems Group ...1,860,172 1,273,513 79,663 506,996 116...

  • Page 57
    ... acquired are excluded from our same store sales calculation until 14 months after the acquisition. (d) Stockholders' deficit for the fiscal years 2014 and 2013 reflects the repurchase and subsequent retirement of 12.6 million shares and 18.9 million shares of our common stock, respectively, under...

  • Page 58
    ...2014, of Sally Beauty. This section should be read in conjunction with the audited consolidated financial statements of Sally Beauty and the related notes included elsewhere in this Annual Report... 30, 2014, compared to 7.2% for the fiscal year ended September 30, 2013; • Sally Beauty Supply and BSG...

  • Page 59
    ...and, if re-elected by the stockholders at the Company's 2015 annual meeting of stockholders, Chairman of the Board, through April 30, ...2014, we operated primarily through two business units, Sally Beauty Supply and Beauty Systems Group, or BSG. As of September 30, 2014, through Sally Beauty Supply...

  • Page 60
    ...September 30, 2014, BSG's net...professional beauty supply ...Annual Report. Significant Recent Acquisitions Essential Salon-On May 31, 2013, the Company acquired certain assets and business operations of Essential Salon Products, Inc. (''Essential Salon''), a professional-only distributor of beauty...

  • Page 61
    ... that it had experienced a data security incident in February 2014. The data security incident involved the unauthorized installation of malicious software (malware) on certain of our information technology systems, including our Sally Beauty Supply unit's point-of-sale systems that, we believe, may...

  • Page 62
    ... rate of 1.1183, (d) a foreign currency forward which enables us to sell approximately 32.6 million Mexican pesos ($2.4 million, at the September 30, 2014 exchange rate) at the contractual exchange rate of 13.4525 and (e) a foreign currency forward which enables us to buy approximately £1.2 million...

  • Page 63
    ...8-''Financial Statements and Supplementary Data'' contained elsewhere in this Annual Report. Interest Rate Swap Agreements We and certain of our ...certain predecessor plans, such as the Sally Beauty Holdings 2007 Omnibus Incentive Plan. For the fiscal years 2014, 2013 and 2012, the total income...

  • Page 64
    Non-recurring Items For the fiscal year ended September 30, 2014, selling, general and administrative expenses reflect a charge of ...business for the fiscal years ended September 30, 2014, 2013 and 2012 (in millions): Fiscal Year Ended September 30, 2014 2013 2012 Net sales ...Cost of products sold...

  • Page 65
    ... and 2012, expressed as a percentage of net sales for the respective periods: Fiscal Year Ended September 30, 2014 2013 2012 Net sales ...Cost of products sold and distribution expenses ...Gross profit ...Total other operating costs and expenses ...Operating earnings ...Interest expense ...Earnings...

  • Page 66
    ... key measures we rely on to gauge our operating performance (dollars in thousands): Fiscal Year Ended September 30, 2014 2013 2012 Net sales: Sally Beauty Supply ...$2,308,743 BSG ...1,444,755 Consolidated ...$3,753,498 Gross profit ...Gross profit margin ...Selling, general and administrative...

  • Page 67
    ... until 14 months after the acquisition. Description of Net Sales and Expenses Net Sales. Our net sales consist primarily of the following: Sally Beauty Supply. Sally Beauty Supply generates net sales primarily by selling products through its stores to both retail customers and salon professionals...

  • Page 68
    ... table below presents net sales, gross profit and gross profit margin data for each reportable segment (dollars in thousands). Fiscal Year Ended September 30, Increase 2014 2013 (Decrease) Net sales: Sally Beauty Supply ...$2,308,743 BSG ...1,444,755 Consolidated net sales ...$3,753,498 Gross profit...

  • Page 69
    ... compared to a 0.6% negative growth rate for the fiscal year ended September 30, 2013. For the fiscal year ended September 30, 2014, the Sally Beauty Supply segment's same store sales growth rate was negatively impacted by lower traffic in the U.S. driven primarily by inclement weather that resulted...

  • Page 70
    ... currency exchange rates did not have a material impact on our consolidated gross profit. Sally Beauty Supply. Sally Beauty Supply's gross profit increased by $42.4 million, or 3.5%, for the fiscal year ended September 30, 2014, compared to the fiscal year ended September 30, 2013, due to higher...

  • Page 71
    ..., information concerning our operating earnings for each reportable segment (dollars in thousands): Fiscal Year Ended September 30, 2014 2013 Increase (Decrease) Operating Earnings: Segment operating profit: Sally Beauty Supply ...BSG ...Segment operating profit ...Unallocated expenses ...Share...

  • Page 72
    ... $0.2 million for each of the fiscal years ended September 30, 2014 and 2013. The increase in interest expense was primarily attributable to the...Financial Statements and Supplementary Data'' contained elsewhere in this Annual Report and ''Liquidity and Capital Resources'' below for additional...

  • Page 73
    ... profit and gross profit margin data for each reportable segment (dollars in thousands). Fiscal Year Ended September 30, 2013 2012 Increase Net sales: Sally Beauty Supply ...BSG ...Consolidated net sales ...Gross profit: Sally Beauty Supply ...BSG ...Consolidated gross profit ...Gross profit margin...

  • Page 74
    ... which include sales through independent distributors in Europe (previously reported in sales from businesses acquired) and sales at trade ...not have a material impact on our consolidated gross profit. Sally Beauty Supply. Sally Beauty Supply's gross profit increased by $24.0 million, or 2.0%, for...

  • Page 75
    ...above, principally the result of our current efforts to further control expenses in light of the softer sales growth experienced in our Sally Beauty Supply segment in the fiscal year ended September 30, 2013, partially offset by the expense increases mentioned earlier in this paragraph. Depreciation...

  • Page 76
    ... indicated, information concerning our operating earnings for each reportable segment (dollars in thousands): Fiscal Year Ended September 30, 2013 2012 Increase Operating Earnings: Segment operating profit: Sally Beauty Supply ...BSG ...Segment operating profit ...Unallocated expenses ...Share-based...

  • Page 77
    ... 14 of the Notes to Consolidated Financial Statements in Item 8-''Financial Statements and Supplementary Data'' contained elsewhere in this Annual Report for additional information about the Company's interest rate swaps and ''Liquidity and Capital Resources'' below for additional information about...

  • Page 78
    ... (160 net additional company-operated stores added during the fiscal year ended September 30, 2014) and the introduction of new third-party brands primarily in the Sally Beauty Supply segment during the fiscal year 2014. Accounts payable decreased by $14.0 million to $259.5 million at September 30...

  • Page 79
    ... our subsidiaries, including Sally Holdings LLC (which we refer to as ''Sally Holdings''), to distribute ... this Annual Report. Please see ''Risk Factors'' in Item 1A of this Annual Report. We...million. During the fiscal year ended September 30, 2014, the weighted average interest rate on our borrowings...

  • Page 80
    As of September 30, 2014, there were no borrowings outstanding under the ABL facility and Sally Holdings had $476.0 million available ...ABL facility and with cash from operations. Historical Cash Flows For the fiscal years 2014, 2013 and 2012, our primary sources of cash have been funds provided by ...

  • Page 81
    ... by investing activities during the fiscal year ended September 30, 2014 decreased by $25.2 million to $81.8 million, compared to $107.0 million during the fiscal year ended September 30, 2013. This decrease reflects, in the Sally Beauty Supply segment, capital expenditures related to our opening of...

  • Page 82
    ... repurchase shares of our common stock in the fiscal year ended September 30, 2014, compared to the fiscal year ended September 30, 2013. In addition, the...as Alberto-Culver. In the fiscal year ended September 30, 2011, Sally Holdings entered into a $400 million, five-year assetbased senior secured ...

  • Page 83
    ...debt (excluding capitalized leases) as of September 30, 2014 are as follows (dollars in thousands): Amount ABL facility...447 . 200,000 . 95 . $1,807,542 (a) When used in this Annual Report, LIBOR means the London Interbank Offered Rate. (b) Includes unamortized premium of $7.4 ...Sally Investment, 65

  • Page 84
    ...due 2019, 2022 and 2023 is payable semi-annually, during the Company's first and third fiscal ... if any. In addition, on or prior to November 15, 2014, the Company has the right to redeem at par plus a specified...which restrict the ability of Sally Beauty's subsidiaries to incur additional indebtedness...

  • Page 85
    ... senior notes does not exceed the sum of: (i) 50% of Sally Holdings' and its subsidiaries' cumulative consolidated net earnings since July 1, ...of September 30, 2014, the Consolidated Fixed Charge Coverage Ratio was approximately 3.6 to 1.0. When used in this Annual Report, the phrase ''Consolidated...

  • Page 86
    ...Substantial Indebtedness.'' Capital Requirements During the fiscal year ended September 30, 2014, we had total capital expenditures of approximately $76.8 million which... elsewhere in this Annual Report for additional information about the Company's operating leases. The amounts reported above, do not...

  • Page 87
    ...Sally Beauty Supply and BSG distribution centers. The use of operating leases allows us to expand our business to new locations without making significant up-front cash outlays for the purchase of land and buildings. Off-Balance Sheet Financing Arrangements At September 30, 2014...the reported amounts ...

  • Page 88
    ...claim payment history, historical trends in claims incurred but not yet reported, and other components such as expected increases in medical costs, projected... basis and adjust our accruals accordingly. As of September 30, 2014 and 2013, our balance sheet included an estimated liability related to...

  • Page 89
    ...period could be significantly affected. For the fiscal years ended September 30, 2014, 2013 and 2012, the effective income tax rates were 37.0%, 36.7% and 35.4%, respectively. The lower fiscal year 2012 annual effective tax rate, compared to our average historical effective tax rate of approximately...

  • Page 90
    ... based on historical employee tenure and option exercise trends. The expected volatility used for awards made during the fiscal year ended September 30, 2014, reflects the average historical volatility for the Company's common stock. The risk-free interest rate is based on the five-year zero-coupon...

  • Page 91
    ... foreign currency exposures at times offset each other, sometimes providing a natural hedge against foreign currency risk. For each of the fiscal years 2014, 2013 and 2012, approximately 19% of our consolidated net sales were made in currencies other than the U.S. dollar. Consolidated net sales for...

  • Page 92
    ... 30, 2014 exchange rate... September 30, 2014 exchange rate) ... September 30, 2014 exchange rate) ...September 30, 2014 exchange rate...2014. In addition, the Company uses foreign exchange contracts including, at September 30, 2014...2014...30, 2014, all...ended September 30, 2014 and 2012, respectively...2014...30, 2014. ...

  • Page 93
    ... effect of the controls and procedures on the information generated for use in this Annual Report. In the course of the evaluation, we sought to identify whether we had ...CEO and CFO have concluded that, as of September 30, 2014, we maintain disclosure controls and procedures that are effective in ...

  • Page 94
    ... timely decisions regarding required disclosure. Management's Annual Report on Internal Control over Financial Reporting. Management of the Company, including the CEO... effectiveness of our internal control over financial reporting as of September 30, 2014 using the criteria set forth by the Committee...

  • Page 95
    ... of Securities'' and ''Equity Compensation Plan Information.'' ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 of this Annual Report on Form 10-K is incorporated herein by reference from our Proxy Statement related to the 2015...

  • Page 96
    ... Report on Form 8-K filed on January 30, 2014 Fifth Amended and Restated Bylaws of Sally Beauty Holdings, Inc., dated January 30, 2014,...Annual Report on Form 10-K filed on November 14, 2013†Amended and Restated Security Agreement by Sally Holdings LLC, Beauty Systems Group LLC, Sally Beauty Supply...

  • Page 97
    ... by reference from Exhibit 4.5 to the Company's Annual Report on Form 10-K filed on November 14, 2013†Joinder to Loan Documents, dated as of December 20, 2011, by and among Sally Holdings LLC, Beauty Systems Group LLC, Sally Beauty Supply LLC, Beauty Systems Group (Canada), Inc., SBH Finance...

  • Page 98
    ... April 27, 2007 2009 Form of Stock Option Agreement for Employees pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.23 to the Company's Annual Report on Form 10-K filed on November 20, 2008 2009 Form of Restricted Stock...

  • Page 99
    ... to the Company's Annual Report on Form 10-K filed November 15, 2012 Form of Sally Beauty Holdings, Inc. 2012 Annual Incentive Plan, which...as of April 25, 2014, which is incorporated herein by reference from Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 1, 2014 10.17 10.18 ...

  • Page 100
    ... Report on Form 8-K filed on November 5, 2012 Separation Agreement, by and between Tobin Anderson and Sally Beauty Supply LLC, dated as of May 16, 2014,...to the Company's Annual Report on Form 10-K filed on November 15, 2012 Sally Beauty Holdings, Inc. Amended and Restated Annual Incentive Plan, which...

  • Page 101
    ... of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 13th day of November, 2014. SALLY BEAUTY HOLDINGS, INC. By: /s/ GARY G. WINTERHALTER Gary G. Winterhalter Chairman of the Board, Chief...

  • Page 102
    ...requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf... 2014 Director November 13, 2014 President of Beauty Systems Group and Director Director November 13, 2014 November 13, 2014 Director November 13, 2014 Director November 13, 2014 ...

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    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Financial Statements Years ended September 30, 2014, 2013 and 2012 INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ...Consolidated Financial Statements: Consolidated Balance Sheets as of September 30, 2014 and ...

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    ... Public Accounting Firm The Board of Directors and Stockholders Sally Beauty Holdings, Inc.: We have audited Sally Beauty Holdings, Inc.'s (the Company) internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control-Integrated Framework...

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    Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Sally Beauty Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Sally Beauty Holdings, Inc. (the Company) and subsidiaries as of September 30, 2014 and 2013, and the related ...

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    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, 2014 and 2013 (In thousands, except par value data) 2014... shares issued and 154,668 and 164,425 shares outstanding at September 30, 2014 and 2013, respectively ...Preferred stock, $0.01 par value. Authorized 50,000...

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    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Earnings Fiscal Years ended September 30, 2014, 2013 and 2012 (In thousands, except per share data) 2014 Net sales ...Cost of products sold and distribution expenses ...Gross profit ...Selling, general and administrative ...

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    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Fiscal Years ended September 30, 2014, 2013 and 2012 (In thousands) 2014 Net earnings ...Other comprehensive (loss) income: Foreign currency translation adjustments ...Deferred gain on interest rate swaps ...

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    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal Years ended September 30, 2014, 2013 and 2012 (In thousands) 2014 Cash Flows from Operating Activities: Net earnings ...Adjustments to reconcile net earnings to net cash provided activities: Depreciation and ...

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    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Deficit) Fiscal Years ended September 30, 2014, 2013 and 2012 (In thousands) Accumulated Other Total Common Stock Additional Paid-in Accumulated Treasury Comprehensive Stockholders' Shares Amount Capital ...

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    ...2014, 2013 and 2012 1. Description of Business and Basis of Presentation Description of Business Sally Beauty Holdings, Inc. and its consolidated subsidiaries (''Sally Beauty'' or ''the Company'') sell professional beauty supplies through its Sally Beauty Supply... affect the reported amounts of assets...

  • Page 113
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, ... management estimates will be collected. Inventory Inventory consists primarily of beauty supplies and related accessories, and salon equipment for sale in the ...

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    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 demand...at substantially all stores and significant distribution centers at least annually, and sooner when management has reason to believe that the...

  • Page 115
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014...Company. The Company maintains an annual stop-loss insurance policy for ...and estimated losses incurred but not yet reported. The Company estimates the ultimate cost...

  • Page 116
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 authorities are recorded on a net basis and are excluded from revenue. The Company also recognizes revenue on merchandise shipped to customers when...

  • Page 117
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012.... Balance sheet accounts are translated into U.S. dollars (the Company's reporting currency) at the rates of exchange in effect at the balance sheet...

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    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 4. Fair Value Measurements The Company's financial instruments consist of cash equivalents, trade and other accounts receivable, accounts payable, ...

  • Page 119
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 As of September 30, 2013 Level 1 Level 2 Level 3 152 152 - - - - - Total Assets Foreign exchange contracts(b) ...Total assets ...Liabilities Long...

  • Page 120
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and ...(the ''CDR Investors'') at a cost of $200.0 million. Please see our Annual Report on Form 10-K for the fiscal year ended September 30, 2012, for more ...

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    ... the 2010 Plan and certain predecessor share-based plans such as the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan (the ''2007 Plan''). During the fiscal year ended September 30, 2014, the accelerated sharebased compensation expense includes $3.5 million related to the executive management...

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    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 The following table presents a summary of the activity for the Company's stock option awards for the fiscal year ended September 30, 2014: Weighted...

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    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and...the date of grant of the stock options issued by the Company during the fiscal years 2014, 2013 and 2012 was $11.08, $11.29 and $9.60, respectively. The ...

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    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 The following table presents a summary of the activity for the Company's restricted stock awards for the fiscal year ended September 30, 2014: ...

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    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 The following table presents a summary of the activity for the Company's RSUs for the fiscal year ended September 30, 2014... 30, 2014 2013 2012...

  • Page 126
    ...operating segment for the fiscal years 2013 and 2014 are as follows (in thousands): Sally Beauty Supply Balance at September 30, 2012 ...Acquisitions ....... The Company completed its annual assessment of goodwill for impairment during the quarter ended March 31, 2014. No impairment losses were ...

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    ... review of its indefinite-lived intangible assets, including the Company's annual assessment of intangible assets for impairment, during the fiscal year ended September 30, 2014, a trade name of the Sally Beauty Supply segment with a gross book value of approximately $5.5 million was determined...

  • Page 128
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Amortization expense totaled $14.5 million, $12.8 million and $13.7 million for the fiscal years ended September 30, 2014, 2013 and 2012, ...

  • Page 129
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 12. Commitments and Contingencies Lease Commitments The Company's principal leases relate to retail stores and warehousing properties. At September...

  • Page 130
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014...current portion ...Total long-term debt ... (a) When used in this Annual Report, LIBOR means the London Interbank Offered Rate. (b) Amounts include unamortized ...

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    ... 2018 and improved certain other covenant terms. At September 30, 2014, there were no borrowings outstanding under the ABL facility and the ...-annually, during the Company's first and third fiscal quarters. Please see Note 19 for certain condensed financial statement data pertaining to Sally Beauty,...

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    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and ... and unpaid interest, if any. In addition, on or prior to November 15, 2014, the Company has the right to redeem at par plus a specified premium, plus ...

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    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Ratio is defined as the ratio of (i) Secured Funded Indebtedness (as defined in the ABL facility) to (ii) Consolidated EBITDA (as defined ...

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    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013... of September 30, 2014, the Consolidated Fixed Charge Coverage Ratio was approximately 3.6 to 1.0. When used in this Annual Report, the phrase ''Consolidated...

  • Page 135
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Designated Cash Flow Hedges In 2008, Sally... agreements expired in May 2012. Amounts previously reported in AOCI which were related to such interest...

  • Page 136
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Euro currency at the weighted average contractual exchange rate of 0.7976 and expire ratably through September 30, 2015. At September 30, 2014, all...

  • Page 137
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Amount of Gain or (Loss) Recognized in Income on Derivatives Fiscal Year Ended September 30, 2014... percentage of their annual compensation to the ...

  • Page 138
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 16. Income Taxes The provision for income taxes for the fiscal years 2014...below: Year Ended September 30, 2014 2013 2012 Statutory tax rate ...State...

  • Page 139
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 ... million, $26.1 million and $26.4 million in the fiscal years 2014, 2013 and 2012, respectively. Tax reserves are evaluated and adjusted as ...

  • Page 140
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 September 30, 2014... through September 30, 2011 and issued their examination reports. The Company is currently seeking relief from double taxation...

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    ... Area Information The Company's business is organized into two separate segments: (i) Sally Beauty Supply, a domestic and international chain of cash and carry retail stores which offers professional beauty supplies to both salon professionals and retail customers primarily in North America, Puerto...

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    ... and 2012 is as follows (in thousands): Year Ended September 30, 2014 2013 2012 Net sales: Sally Beauty Supply ...BSG ...Total ...Earnings before provision for income taxes: Segment operating profit: Sally Beauty Supply(a) ...BSG ...Segment operating profit ...Unallocated expenses(b) ...Share-based...

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    ... of cash flows for each of the three fiscal years in the period ended September 30, 2014 of: (i) Sally Beauty Holdings, Inc., or the ''Parent;'' (ii) Sally Holdings LLC and Sally Capital Inc., or the ''Issuers;'' (iii) the guarantor subsidiaries; (iv) the non-guarantor subsidiaries; (v) elimination...

  • Page 144
    ... Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Condensed Consolidating Balance Sheet September 30, 2014 (In thousands) Sally Holdings Sally Beauty LLC and NonHoldings, Sally Capital Guarantor Guarantor Consolidating Inc. and Inc. Subsidiaries Subsidiaries...

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    ... Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Condensed Consolidating Balance Sheet September 30, 2013 (In thousands) Sally Holdings Sally Beauty LLC and NonHoldings, Sally Capital Guarantor Guarantor Consolidating Inc. and Inc. Subsidiaries Subsidiaries...

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    ... Condensed Consolidating Statement of Earnings and Comprehensive Income Fiscal Year Ended September 30, 2014 (In thousands) Sally Holdings NonSally Beauty LLC and Sally Guarantor Guarantor Consolidating Holdings, Inc. Capital Inc. Subsidiaries Subsidiaries Eliminations and Subsidiaries $ - - - - 474...

  • Page 147
    ... (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Condensed Consolidating Statement of Earnings and Comprehensive Income Fiscal Year Ended September 30, 2013 (In thousands) Sally Holdings NonSally Beauty LLC and Sally Guarantor Guarantor Consolidating Holdings, Inc. Capital Inc...

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    ... (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Condensed Consolidating Statement of Earnings and Comprehensive Income Fiscal Year Ended September 30, 2012 (In thousands) Sally Holdings NonSally Beauty LLC and Sally Guarantor Guarantor Consolidating Holdings, Inc. Capital Inc...

  • Page 149
    ..., 2013 and 2012 Condensed Consolidating Statement of Cash Flows Fiscal Year Ended September 30, 2014 (In thousands) Sally Holdings NonSally Beauty LLC and Sally Guarantor Guarantor Consolidating Holdings, Inc. Capital Inc. Subsidiaries Subsidiaries Eliminations and Subsidiaries $ (93,104) $ 78,699...

  • Page 150
    ... Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Condensed Consolidating Statement of Cash Flows Fiscal Year Ended September 30, 2013 (In thousands) Sally Holdings NonSally Beauty LLC and Sally Guarantor Guarantor Consolidating Holdings, Inc. Capital Inc. Subsidiaries...

  • Page 151
    ... Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 Condensed Consolidating Statement of Cash Flows Fiscal Year Ended September 30, 2012 (In thousands) Sally Holdings NonSally Beauty LLC and Sally Guarantor Guarantor Consolidating Holdings, Inc. Capital Inc. Subsidiaries...

  • Page 152
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2014, 2013 and 2012 20. Quarterly Financial Data (Unaudited) Certain unaudited quarterly consolidated statement of earnings information for the fiscal years ended ...

  • Page 153
    ...that: (1) I have reviewed this Annual Report on Form 10-K of Sally Beauty Holdings, Inc.; (2) Based on my knowledge, this report does not contain any untrue statement ...in the registrant's internal control over financial reporting. Date: November 13, 2014 By: /s/ GARY G. WINTERHALTER Gary G. ...

  • Page 154
    ...that: (1) I have reviewed this Annual Report on Form 10-K of Sally Beauty Holdings, Inc.; (2) Based on my knowledge, this report does not contain any untrue statement... in the registrant's internal control over financial reporting. Date: November 13, 2014 By: /s/ MARK J. FLAHERTY Mark J. Flaherty...

  • Page 155
    ... 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Sally Beauty Holdings, Inc. (the ''Company'') on Form 10-K for the fiscal year ended September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the...

  • Page 156
    ... 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Sally Beauty Holdings, Inc. (the ''Company'') on Form 10-K for the fiscal year ended September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the...

  • Page 157
    ...Stockholders. A copy of the Sally Beauty Holdings, Inc. 2014 Form 10-K, as filed with the Securities and Exchange Commission, is available on the investing section of the Company's website at investor. sallybeautyholdings.com. Investor inquiries or a copy of the Company Annual Report or Form 10-K or...

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