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SALLY BEAUTY HOLDINGS, INC. | 2015 ANNUAL REPORT
Fresh
Outlooks

Table of contents

  • Page 1
    Fresh Outlooks SALLY BEAUTY HOLDINGS, INC. | 2015 ANNUAL REPORT

  • Page 2
    We're Ready for Our Closeup

  • Page 3
    Beauty is more than the finished look, it's the care in creating it

  • Page 4
    ...beauty supplies with annual revenues of $3.8 billion and net earnings of $235 million. The Company operates primarily through two business units, Sally Beauty Supply and Beauty...30, 2015) BEAUTY SYSTEMS GROUP A leading full-service beauty products distributor offering professional beauty products ...

  • Page 5
    TA B L E O F CO N T E N T S 2 9 10 LETTER TO SHAREHOLDERS FISCAL HIGHLIGHTS FINANCIAL HIGHLIGHTS

  • Page 6
    ...will drive growth and long-term value for our shareholders. HIGHLIGHTS OF FISCAL YEAR 2015 + Invested in our growth through the addition of 139 stores + Strong performance in our Beauty Systems Group business + Sally Beauty entered the Colombian marketplace + Developed new retailing capabilities in...

  • Page 7
    SALLY BEAUTY HOLDINGS | 03

  • Page 8
    04 | SALLY BEAUTY HOLDINGS Great Business is Always in Style

  • Page 9
    SALLY BEAUTY HOLDINGS | 05

  • Page 10
    06 | SALLY BEAUTY HOLDINGS

  • Page 11
    ...958 at year-end. BUSINESS SEGMENT FINANCIAL RESULTS SALLY BEAUTY SUPPLY Net sales at our Sally Beauty Supply segment reached $2.3 billion, an increase of 0.9... fiscal 2015 were designed to take us one step closer towards our aspiration of becoming the premier choice for salon-quality beauty products ...

  • Page 12
    ... MARGIN 49% $3.0 SALES (IN MILLIONS) GROSS PROFIT MARGIN 14% $500 $400 $300 $200 11% $100 $0 10% 13% $2.5 $2.0 $1.5 $1.0 48% 47% 12% 46% $0.5 $0.0 2011 2012 2013 2014 2015 45% 2011 2012 2013 2014 2015 BEAUTY SYSTEMS GROUP SALLY BEAUTY SUPPLY BEAUTY SYSTEMS GROUP SALLY BEAUTY SUPPLY

  • Page 13
    ... United Kingdom Belgium Chile Colombia Peru Ireland France Germany Netherlands Spain INTERNATIONAL TOTAL (Store Count as of September 30, 2015) SALLY BEAUTY SUPPLY 2,827 41 112 196 3,176 BEAUTY SYSTEMS GROUP 1,165 2 99 28 1,294 TOTAL COMPANY 3,993 42 211 224 4,470 251 49 40 2 8 9 65 18 30...

  • Page 14
    ... HIGHLIGHTS DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS Fiscal Year Ended September 30 FINANCIAL HIGHLIGHTS 2015 2014 2013 2012 2011 Net sales Sally Beauty Supply Beauty Systems Group TOTAL COMPANY SALES Consolidated gross profit Gross profit margin Operating earnings Operating earnings...

  • Page 15
    2015 10-K

  • Page 16
    ...ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 2015 -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 17
    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 18
    ...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 19
    ... 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 20
    ... the largest distributor of professional beauty supplies in the U.S. based on store count. At September 30, 2015, we operated primarily through two business units, Sally Beauty Supply and Beauty Systems Group, or BSG. As of September 30, 2015, through Sally Beauty Supply and BSG, we operated a multi...

  • Page 21
    ...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, 2015, our number of international company-operated stores increased from 850...

  • Page 22
    ... 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 23
    ... becomes an increasing driver of our future growth and the U.S. marketplace becomes more saturated. 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 the...

  • Page 24
    ... and Supplementary 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 As of September 30, 2015, Sally Beauty Supply operated 3,655 company-operated retail stores, 2,868...

  • Page 25
    ... older stores. At September 30, 2015, we have completed installing the ''nail studio'' in all Sally Beauty Supply stores in the U.S., have refreshed approximately...Results of Operations'' contained elsewhere in this Annual Report. Sally Beauty Supply's pricing strategy is differentiated by customer ...

  • Page 26
    ...-priced products, further strengthening our value proposition. Exclusive-label products accounted for approximately 47% of Sally Beauty Supply's product sales in the U.S. during the fiscal year 2015. Generally, our exclusive-label products have higher gross margins for us than the leading third...

  • Page 27
    ... 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, 2015 2014 ...

  • Page 28
    ...territory. Professional Distributor Sales Consultants As of September 30, 2015, BSG had a network of approximately 958 professional distributor sales...best to serve salon professionals. In addition to selling professional beauty products, our sales consultants offer in-salon training for professionals...

  • Page 29
    ...in this Annual Report. The ...following table sets forth the approximate percentage of BSG's sales attributable by product category: Fiscal Year Ended September 30, 2015 2014 2013 Hair care ...Hair color ...Skin and nail care . . Electrical appliances Promotional items(a) Other beauty...

  • Page 30
    ...during the last three fiscal years: Fiscal Year Ended September 30, 2015 2014 2013 Stores open at beginning of period ...Net store openings...a typical Sally Beauty Supply store) to 15,000 SKUs (at a BSG website, excluding Loxa Beauty) of professional beauty products through Sally Beauty Supply and BSG...

  • Page 31
    ... 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 32
    ...annual organic store growth at approximately 3.0% of our total stores for at least the next few years. Grow Internationally International sales represent approximately 24% of Sally Beauty Supply... 30, 2015, we had 886 Sally Beauty Supply and BSG company-operated stores and supplied 41 franchise...

  • Page 33
    ... In fiscal year 2015, we acquired certain assets and the business of a former exclusive distributor of John Paul Mitchell Systems beauty products with sales...a focus on expanding our exclusive BSG territories and allowing Sally Beauty Supply to enter new geographic areas, principally outside the U.S. ...

  • Page 34
    ...Sally Beauty Supply recruits individuals with retail experience because we believe their general retail knowledge can be leveraged in the beauty supply... and the addition or loss of product lines). For example, in July 2015, Coty, Inc., a leading supplier of fragrances, color cosmetics, and skin...

  • Page 35
    ... of September 30, 2015, we operated mainly through 17 distribution centers, eight of which serviced Sally Beauty Supply and nine of which... upgraded technology will not have a material adverse effect on our financial reporting, business, financial condition or results of operations. Please see ''Risk ...

  • Page 36
    ..., 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, 2015, Sally Beauty Supply supplied 18 and BSG supplied 157 franchised stores located in the U.S., Mexico and...

  • Page 37
    ... types of products and services we sell. 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 stores, salons, mass merchandisers, on-line retailers...

  • Page 38
    ... our margins and could further adversely impact our business, financial condition and results of operations. Additionally, approximately 47% 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 39
    ... attract new customers and improve the sales productivity of our stores. In fiscal year 2015, we began the implementation of a number of strategic initiatives designed to improve the customer experience at Sally Beauty Supply and BSG in an effort to attract new customers to our stores, improve sales...

  • Page 40
    ... traffic into our stores and our Sally Beauty Club and ProCard promotions at an acceptable... or who may be unwilling to continue to supply products to us. We do not manufacture any... and hair color divisions of P&G. For the fiscal year 2015, P&G was our largest supplier. There can be no assurances...

  • Page 41
    ... 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 42
    Fluctuations in the price, availability and quality of inventory may result in higher cost of goods, which we may not be able to pass on to the customers. Our suppliers are increasingly passing on higher production costs, which may impact our ability to maintain or grow our margins. The price and ...

  • Page 43
    ... of operations. Our e-commerce businesses may be unsuccessful or, 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.com, www.cosmoprofbeauty.com, www.cosmoprofequipment.com, www.ebobdirect.com...

  • Page 44
    Product diversion could have an adverse impact on our revenues. The majority of the products that BSG sells, including those sold by our Armstrong McCall franchisees, are meant to be used exclusively by salons and individual salon professionals or sold exclusively to their retail consumers. However,...

  • Page 45
    ...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 46
    ...may be materially affected. The health of the economy in the geographies 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 47
    ... 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 48
    ... from unexpected increases in our volume of business, outages or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Our systems might be damaged or interrupted by natural or man...

  • Page 49
    ... data security incidents. In March 2014, we disclosed that we had experienced a data security incident (the ''2014 data security incident''). In May 2015, we disclosed that we had experienced a second illegal intrusion into our payment card systems (together with the 2014 data security incident, the...

  • Page 50
    ...Mr. Brickman succeeded Mr. Gary G. Winterhalter as the Company's CEO. In July 2015, we announced the resignation of Mr. John R. Golliher as a member of our... 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 51
    ... the future and our ability to react to changes in our business. As of September 30, 2015, certain of our subsidiaries, including Sally Holdings LLC, which we refer to as Sally Holdings, had an aggregate principal amount of approximately $1,787.6 million of outstanding debt, including capital lease...

  • Page 52
    ...prohibit us or our subsidiaries from doing so. As of September 30, 2015, 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 53
    ... 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 54
    borrow under the ABL facility and may not be able to repay the amounts due under the Notes. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent. Our ability to generate the significant amount of cash needed to ...

  • Page 55
    ... 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, 2015: Sally Beauty Supply CompanyOperated Franchise ...2,827 41 247 196 112 62 43 40 30 25 32 787 3,655 - - 4 - - 3 6 - - - 5 18 18...

  • Page 56
    ITEM 3. LEGAL PROCEEDINGS We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances ...

  • Page 57
    ... 2014 ...December 31, 2013 . Holders As of November 6, 2015, there were 926 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 58
    ... year included in the data: $350 $300 $250 $200 $150 $100 $50 $0 9/10 3/11 9/11 3/12 9/12 3/13 9/13 3/14 9/14 3/15 9/15 Sally Beauty Holdings, Inc. S&P 500 Dow Jones US Specialty Retailers TSM 3NOV201518225762 The Dow Jones U.S. Specialty Retailers Index (NYSE: DJUSRS) is a non-managed index and...

  • Page 59
    ... table above does not include 19,909 shares of the Company's common stock surrendered by grantees during the three months ended September 30, 2015 to satisfy tax withholding obligations due upon the vesting of equity-based awards under the Company's share-based compensation plans. (2) In August 2014...

  • Page 60
    ...,879 $ 233,064 $ $ 1.27 1.24 183,420 188,610 2015 Results of operations information: Net sales ...Cost of products sold and distribution expenses... diluted ...Operating data: Number of stores (at end of period): Sally Beauty Supply ...Beauty Systems Group ...$3,834,343 1,936,492 1,897,851 1,313,134...

  • Page 61
    ...the relocation. The sales from stores acquired are excluded from our same store sales calculation until 14 months after the acquisition. (d) At September 30, 2015, 2014, 2013, 2012 and 2011, long-term debt is net of unamortized debt issuance costs of $21.8 million, $25.7 million, $25.6 million, $29...

  • Page 62
    ...2015, 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, 2015, compared to 6.6% for the fiscal year ended September 30, 2014; • Sally Beauty Supply and BSG...

  • Page 63
    ..., our consolidated net sales and operating earnings were $3,834.3 million and $495.3 million, respectively. As of September 30, 2015, Sally Beauty Supply operated 3,655 company-operated retail stores, 2,868 of which are located in the U.S., with the remaining 787 company-operated stores located in...

  • Page 64
    ...beauty supply industry. We believe that a number of key industry and business trends and characteristics will influence our business and our financial results going forward. These key trends and characteristics are discussed elsewhere in this Annual Report...ended September 30, 2015, we repurchased and...

  • Page 65
    ...the potential liabilities relating to these data security incidents.'' Cost Rationalization Initiatives In June 2015, the Board approved an initiative to restructure our Sally Beauty Supply operations in Germany (the ''Germany restructuring''), which included the closing of 15 underperforming retail...

  • Page 66
    ... counterparty (not the same counterparty as that on the forwards discussed in the preceding paragraph) and expire on or before December 31, 2015. The Company's foreign exchange contracts are not designated as hedges and do not currently meet the requirements for hedge accounting. Accordingly, the...

  • Page 67
    ... Data'' contained elsewhere in this Annual Report. Share-Based Compensation Awards For the fiscal years 2015, 2014 and 2013, total share... the terms of the Sally Beauty Holdings, Inc. Amended and Restated 2010 Omnibus Incentive Plan (the ''2010 Plan''). For the fiscal years 2015, 2014 and 2013, ...

  • Page 68
    ... table shows the condensed results of operations of our business for the fiscal years ended September 30, 2015, 2014 and 2013 (in millions): Fiscal Year Ended September 30, 2015 2014 2013 Net sales ...Cost of products sold and distribution expenses ...Gross profit ...Total other operating costs...

  • Page 69
    ...sales growth (decline)(d) Sally Beauty Supply ...BSG ...Consolidated ... (a) For the fiscal year 2015, Sally Beauty Supply's operating profit reflects $5.3 million in expenses related to the restructuring of its operations in Germany. This amount includes $1.4 million in expenses reported in cost of...

  • Page 70
    ... 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 71
    ... each reportable segment (dollars in thousands). Fiscal Year Ended September 30, Increase 2015 2014 (Decrease) Net sales: Sally Beauty Supply ...BSG ...Consolidated net sales ...Gross profit: Sally Beauty Supply ...BSG ...Consolidated gross profit ...Gross profit margin: Sally Beauty Supply ...BSG...

  • Page 72
    ...sales growth rate of 1.7% compared to 1.3% for the fiscal year ended September 30, 2014. For the fiscal year ended September 30, 2015, the Sally Beauty Supply segment's same store sales growth rate was positively impacted by higher average sales transaction amounts at our U.S. stores compared to the...

  • Page 73
    ... impact from changes in foreign currency exchange rates of approximately $40.6 million. Sally Beauty Supply. Sally Beauty Supply's gross profit increased by $10.7 million, or 0.8%, for the fiscal year ended September 30, 2015, compared to the fiscal year ended September 30, 2014, primarily due to...

  • Page 74
    ..., information concerning our operating earnings for each reportable segment (dollars in thousands): Fiscal Year Ended September 30, Increase 2015 2014 (Decrease) Operating Earnings: Segment operating profit: Sally Beauty Supply ...BSG ...Segment operating profit ...Unallocated expenses ...Share...

  • Page 75
    Beauty Systems Group. BSG's segment operating earnings increased by $14.2 million, or 6.5%, for the fiscal year ended September 30, 2015, compared to the... Statements and Supplementary Data'' contained elsewhere in this Annual Report and ''Liquidity and Capital Resources'' below for additional information...

  • Page 76
    ... each reportable segment (dollars in thousands). Fiscal Year Ended September 30, Increase 2014 2013 (Decrease) Net sales: Sally Beauty Supply ...BSG ...Consolidated net sales ...Gross profit: Sally Beauty Supply ...BSG ...Consolidated gross profit ...Gross profit margin: Sally Beauty Supply ...BSG...

  • Page 77
    ... in product mix), including the impact on average unit prices of third-party brands introduced recently at our Sally Beauty Supply segment. Sally Beauty Supply. Net sales for Sally Beauty Supply increased by $78.7 million, or 3.5%, for the fiscal year ended September 30, 2014, compared to the fiscal...

  • Page 78
    ...ended September 30, 2014, changes in foreign 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...

  • Page 79
    ..., information concerning our operating earnings for each reportable segment (dollars in thousands): Fiscal Year Ended September 30, Increase 2014 2013 (Decrease) Operating Earnings: Segment operating profit: Sally Beauty Supply ...BSG ...Segment operating profit ...Unallocated expenses ...Share...

  • Page 80
    ...as a result of the expense increases mentioned earlier in this paragraph. Beauty Systems Group. BSG's segment operating earnings increased by $16.5 million, ... Statements and Supplementary Data'' contained elsewhere in this Annual Report and ''Liquidity and Capital Resources'' below for additional...

  • Page 81
    ...million at September 30, 2014 primarily due to the effect of stores opened (145 net additional Sally Beauty Supply and BSG company-operated stores added during the fiscal year ended September 30, 2015), the addition of new product lines in both operating segments and the expansion of our BSG segment...

  • Page 82
    ... depend on our subsidiaries, including Sally Holdings LLC (which we refer to as ''Sally Holdings''), to distribute funds to ... cash position and other considerations. At September 30, 2015, cash and cash equivalents were $140.0 million. ...Annual Report. Please see ''Risk Factors'' in Item 1A of this...

  • Page 83
    ... no funds drawn or borrowings outstanding during the fiscal year ended September 30, 2015 under the ABL facility. As of September 30, 2015, there were no borrowings outstanding under the ABL facility and Sally Holdings had $476.9 million available for borrowings under the ABL facility, subject to...

  • Page 84
    ... openings and to ongoing information technology upgrades in both business segments, and to store remodels in the Sally Beauty Supply segment in the U.S. during the fiscal year ended September 30, 2015, as well as an increase in cash used for acquisitions (net of cash acquired) of $1.3 million during...

  • Page 85
    ..., 2014 with no comparable amount in the fiscal year ended September 30, 2015, partially offset by a decrease in net borrowings under our long-term debt...as Alberto-Culver. In the fiscal year ended September 30, 2011, Sally Holdings entered into a $400 million, five-year assetbased senior secured loan...

  • Page 86
    ...of long-term debt (excluding capitalized leases) as of September 30, 2015 is as follows (dollars in thousands): Principal Amount(c) Maturity Dates ABL.... (b) When used in this Annual Report, LIBOR means the London Interbank Offered Rate. (c) Amounts reported above do not reflect unamortized premium...

  • Page 87
    ...are jointly and severally guaranteed by the Company and Sally Investment, and by each material domestic subsidiary of...due 2019, 2022 and 2023 is payable semi-annually, during the Company's first and third fiscal ... exceeds 4.0 to 1.0. At September 30, 2015, the Company's Secured Leverage Ratio was less...

  • Page 88
    ...and 2023 contain terms which restrict the ability of Sally Beauty's subsidiaries to incur additional indebtedness. However, in ...As of September 30, 2015, the Consolidated Fixed Charge Coverage Ratio was approximately 3.5 to 1.0. When used in this Annual Report, the phrase ''Consolidated EBITDA...

  • Page 89
    ...interest payments on senior notes outstanding as of September 30, 2015. The amounts shown above do not include unamortized premium and ... 8-''Financial Statements and Supplementary Data'' contained elsewhere in this Annual Report for additional information about the Company's operating leases. The ...

  • Page 90
    ...reported herein. In addition, other future events could cause actual payments to differ materially from these amounts. The majority of our operating leases are for Sally Beauty Supply... three fiscal years in the period ended September 30, 2015. However, we have recently experienced an upswing in labor...

  • Page 91
    ...claim payment history, historical trends in claims incurred but not yet reported, and other components such as expected increases in medical costs, ...regular basis and adjust our accruals accordingly. As of September 30, 2015 and 2014, we accrued an estimated liability relating to employee health ...

  • Page 92
    .... The increase in the effective income tax rate for the fiscal year 2015, compared to the fiscal year 2014, is primarily due to increased foreign...a comparable tax benefit in the fiscal year 2015. For the fiscal year ending September 30, 2016, the annual effective tax rate is expected to be in...

  • Page 93
    ...are not amortized; rather, they are reviewed for impairment at least annually, and whenever events or changes in circumstances indicate it is more ...with the Germany restructuring in the fiscal year ended September 30, 2015. Share-Based Payments We recognize compensation expense on a straight-line...

  • Page 94
    ... (''ASU'') No. 2014-09, Revenue from Contracts with Customers which will supersede Accounting Standards Codification (''ASC'') Topic 605, Revenue Recognition. In August 2015, the FASB deferred the effective date of this new standard by one year. A core principle of the new guidance is that an entity...

  • Page 95
    ...-Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (''ASU 2015-15'') which permits an entity to report deferred debt issuance costs associated with a line-of-credit arrangement as an asset and to amortize such costs...

  • Page 96
    ...and would have impacted our consolidated net assets by approximately 2.3% at September 30, 2015. As more fully discussed elsewhere in this Annual Report, the Company uses from time to time foreign exchange contracts to mitigate its exposure to changes in foreign currency exchange rates. At September...

  • Page 97
    ... 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, 2015, we maintain disclosure controls and procedures that are effective in ...

  • Page 98
    ... 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, 2015 using the criteria set forth by the Committee...

  • Page 99
    ... 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 2016...

  • Page 100
    ... is incorporated herein by reference from Exhibit 4.3 to the Company's 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 LLC, as the domestic borrowers and the other domestic borrowers...

  • Page 101
    ... 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 102
    ... of May 28, 2015, by and among Loxa Beauty LLC , Sally Beauty Military Supply LLC, Sally Holdings LLC, Sally Capital Inc., each ... 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...

  • Page 103
    .... 2010 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.25 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 is incorporated herein by reference from Exhibit 10.34 to the Company...

  • Page 104
    ...to the Company's Current Report on Form 8-K filed on May 1, 2014 Separation Agreement, by and between Tobin Anderson and Sally Beauty Supply LLC, dated as of... the Company's Annual Report on Form 10-K filed on November 15, 2012 Sally Beauty Holdings, Inc. Amended and Restated Annual Incentive Plan, ...

  • Page 105
    101 The following financial information from our Annual Report on Form 10-K for the fiscal year ended September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements ...

  • Page 106
    ...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 12th day of November, 2015. SALLY BEAUTY HOLDINGS, INC. By: /s/ CHRISTIAN A. BRICKMAN Christian A. Brickman President, Chief Executive Officer...

  • Page 107
    ... requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...W. Rabin Director November 12, 2015 Director November 12, 2015 Director November 12, 2015 Director November 12, 2015 Director November 12, 2015 Title Executive Chairman of the ...

  • Page 108
    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Financial Statements Years ended September 30, 2015, 2014 and 2013 INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ...Consolidated Financial Statements: Consolidated Balance Sheets as of September 30, 2015 and ...

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  • Page 110
    ... 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, 2015, 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, 2015 and 2014, and the related ...

  • Page 112
    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, 2015 and 2014 (In thousands, except par value data) 2015... shares issued and 151,452 and 154,668 shares outstanding at September 30, 2015 and 2014, respectively ...Preferred stock, $0.01 par value. Authorized 50,000...

  • Page 113
    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Earnings Fiscal Years ended September 30, 2015, 2014 and 2013 (In thousands, except per share data) 2015 Net sales ...Cost of products sold and distribution expenses ...Gross profit ...Selling, general and administrative ...

  • Page 114
    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Fiscal Years ended September 30, 2015, 2014 and 2013 (In thousands) 2015 Net earnings ...Other comprehensive (loss) income: Foreign currency translation adjustments ...Income taxes related to other ...

  • Page 115
    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal Years ended September 30, 2015, 2014 and 2013 (In thousands) 2015 Cash Flows from Operating Activities: Net earnings ...Adjustments to reconcile net earnings to net cash provided by operating activities: ...

  • Page 116
    SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Deficit) Fiscal Years ended September 30, 2015, 2014 and 2013 (In thousands) Accumulated Other Total Common Stock Additional Paid-in Accumulated Treasury Comprehensive Stockholders' Shares Amount Capital ...

  • Page 117
    ...2015, 2014 and 2013 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...that affect the reported amounts of ...

  • Page 118
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014... estimates will be collected. Inventory Inventory consists primarily of beauty supplies and related accessories, and salon equipment for sale in the...

  • Page 119
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and ...performed at substantially all stores and significant distribution centers at least annually, and sooner when management has reason to believe that the ...

  • Page 120
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015...at September 30, 2015 and 2014, respectively, continue to be reported in other assets... Company. The Company maintains an annual stop-loss insurance policy for the...

  • Page 121
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 Company estimates the ultimate cost based on an analysis of its historical data and actuarial estimates. Workers' compensation, general and auto ...

  • Page 122
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 ...currency. 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...

  • Page 123
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 performance obligation on the basis of the relative standalone selling prices. In addition, under the new guidance, an entity should recognize ...

  • Page 124
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 (LIFO...Associated with Line-of-Credit Arrangements (''ASU 2015-15'') which permits an entity to report deferred debt issuance costs associated with a...

  • Page 125
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 Consistent with this hierarchy, the Company categorized certain of its financial assets and liabilities as follows at September 30, 2015 and 2014 (...

  • Page 126
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 5. Accumulated Stockholders' Equity (Deficit) The Company is authorized to issue up to 500.0 million shares of common stock with a par value of $0....

  • Page 127
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 The following table sets forth the computations of basic and diluted earnings per share (in thousands, except per share data): Year ended ...

  • Page 128
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 retirement eligible employees who continue vesting awards upon retirement, pursuant to provisions contained in the 2010 Plan, including, for the ...

  • Page 129
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 The weighted average assumptions relating to the valuation of the Company's stock options are as follows: Year Ended September 30, 2015 2014 2013 ...

  • Page 130
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 The following table presents a summary of the activity for the Company's restricted stock awards for the fiscal year ended September 30, 2015... 2015,...

  • Page 131
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 The following table presents a summary of the activity for the Company's RSUs for the fiscal year ended September 30, 2015: Weighted Average Fair ...

  • Page 132
    ... during the fiscal years 2014 and 2015 are as follows (in thousands): Sally Beauty Supply Balance at September 30, 2013 ......2015. No material impairment losses were recognized in the current or prior periods presented in connection with the Company's goodwill. The Company also completed its annual...

  • Page 133
    ... and accumulated amortization for intangible assets subject to amortization by operating segment at September 30, 2015 and 2014 (in thousands): Sally Beauty Supply Balance at September 30, 2015: Intangible assets with indefinite lives: Trade names ...Intangible assets subject to amortization: Gross...

  • Page 134
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 11. Accrued Liabilities Accrued liabilities consist of the following (in thousands): September 30, 2015 2014 Compensation and benefits . Interest ...

  • Page 135
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 Other Contingencies In March 2014, the Company disclosed that it had experienced a data security incident (the ''2014 data security incident''). In...

  • Page 136
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 13. Short-term Borrowings and Long-Term Debt Details of long-term debt (which is reported at amortized cost) are as follows at September 30, 2015 ...

  • Page 137
    ...2018 and improved certain other covenant terms. At September 30, 2015, there were no borrowings outstanding under the ABL facility and the...semi-annually, during the Company's first and third fiscal quarters. Please see Note 19 for certain condensed financial statement data pertaining to Sally Beauty,...

  • Page 138
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 The... 2022 and 2023 contain terms which restrict the ability of Sally Beauty's subsidiaries to incur additional indebtedness. However, in addition to...

  • Page 139
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, ...As of September 30, 2015, the Consolidated Fixed Charge Coverage Ratio was approximately 3.5 to 1.0. When used in this Annual Report, the phrase ''Consolidated...

  • Page 140
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, ... amount of certain foreign assets and obligations relative to its functional and reporting currency (the U.S. dollar) or relative to the functional currency of ...

  • Page 141
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 The Company uses foreign exchange contracts to manage the exposure to the U.S. dollar resulting from certain of its Sinelco Group subsidiaries' ...

  • Page 142
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 ... the terms of the 401k Plan, employees may contribute a percentage of their annual compensation to the 401k Plan up to certain maximums, as defined by the ...

  • Page 143
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 $6.8 million, $6.4 million and $6.7 million in the fiscal years ended September 30, 2015, 2014 and 2013, respectively, related to such employer ...

  • Page 144
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 ... million, $28.9 million and $26.1 million in the fiscal years 2015, 2014 and 2013, respectively. Tax reserves are evaluated and adjusted as ...

  • Page 145
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 September 30, 2015... through September 30, 2011 and issued their examination reports. The Company is currently seeking relief from double taxation...

  • Page 146
    ...connection with these individually immaterial acquisitions completed in the fiscal year 2015, 2014 and 2013, respectively. We funded these acquisitions primarily ...(i) Sally Beauty Supply, a domestic and international chain of cash and carry retail stores which offers professional beauty supplies to ...

  • Page 147
    ... ... Depreciation and amortization: Sally Beauty Supply ...BSG ...Corporate ...Total ...Capital expenditures:(d) Sally Beauty Supply . . BSG ...Corporate ...Total ... $ $ $ $ $ $ 65,983 16,755 23,794 $ 106,532 $ $ (a) For the fiscal year 2015, Sally Beauty Supply's operating profit reflects...

  • Page 148
    ... of cash flows for each of the three fiscal years in the period ended September 30, 2015 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 149
    ... Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 Condensed Consolidating Balance Sheet September 30, 2015 (In thousands) Sally Holdings Sally Beauty LLC and NonHoldings, Sally Capital Guarantor Guarantor Consolidating Inc. and Inc. Subsidiaries Subsidiaries...

  • Page 150
    ... Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 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...

  • Page 151
    ... Condensed Consolidating Statement of Earnings and Comprehensive Income Fiscal Year Ended September 30, 2015 (In thousands) Sally Holdings NonSally Beauty LLC and Sally Guarantor Guarantor Consolidating Holdings, Inc. Capital Inc. Subsidiaries Subsidiaries Eliminations and Subsidiaries $ - - - - 475...

  • Page 152
    ... (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 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...

  • Page 153
    ... (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 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...

  • Page 154
    ..., 2014 and 2013 Condensed Consolidating Statement of Cash Flows Fiscal Year Ended September 30, 2015 (In thousands) Sally Holdings NonSally Beauty LLC and Sally Guarantor Guarantor Consolidating Holdings, Inc. Capital Inc. Subsidiaries Subsidiaries Eliminations and Subsidiaries $19,003 $104,239 $ 26...

  • Page 155
    ... Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 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...

  • Page 156
    ... Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 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 157
    Sally Beauty Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Fiscal Years ended September 30, 2015, 2014 and 2013 20. Quarterly Financial Data (Unaudited) Certain unaudited quarterly consolidated statement of earnings information for the fiscal years ended ...

  • Page 158
    ...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... the registrant's internal control over financial reporting. Date: November 12, 2015 By: /s/ CHRISTIAN A. BRICKMAN Christian A....

  • Page 159
    ...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...role in the registrant's internal control over financial reporting. Date: November 12, 2015 By: /s/ MARK J. FLAHERTY Mark J. Flaherty...

  • Page 160
    ... 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, 2015 as filed with the Securities and Exchange Commission on the date hereof (the...

  • Page 161
    ... 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, 2015 as filed with the Securities and Exchange Commission on the date hereof (the...

  • Page 162
    ... Stockholders. A copy of the Sally Beauty Holdings, Inc. 2015 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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