13. Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidated Financial Statements

The following consolidating financial information presents the condensed consolidating balance sheets as of March 31, 2015 and September 30, 2014, and the related condensed consolidating statements of earnings and condensed consolidating statements of comprehensive income for the three and six months ended March 31, 2015 and 2014, and condensed consolidating statements of cash flows for the six months ended March 31, 2015 and 2014: (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 entries necessary for consolidation purposes; and (vi) Sally Beauty on a consolidated basis.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect to the guarantor subsidiaries have not been provided as management believes the following information is sufficient, as guarantor subsidiaries are 100% indirectly owned by the Parent and all guarantees are full and unconditional. Additionally, the accounts, inventory, credit card receivables, deposit accounts, certain intercompany notes and certain other personal property of the guarantor subsidiaries relating to the inventory and accounts are pledged under the ABL facility and consequently may not be available to satisfy the claims of general creditors.

Condensed Consolidating Balance Sheet

March 31, 2015

(In thousands)

	Parent			Sally Holdings LLC and Sally Capital Inc.			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Consolidating Eliminations			Sally Beauty Holdings, Inc. and Subsidiaries
Assets
Cash and cash equivalents	$	—		$	148,503		$	66,948	$	30,576		$	—		$	246,027
Trade and other accounts receivable, less allowance for doubtful accounts	173			—			54,718		26,434			—			81,325
Due from affiliates	—			—			1,615,125		27			(1,615,152		)	—
Inventory	—			—			642,721		195,396			—			838,117
Other current assets	11,084			2,114			12,553		18,412			—			44,163
Deferred income tax assets, net	(213		)	1			30,527		1,456			—			31,771
Property and equipment, net	2			—			161,029		72,730			—			233,761
Investment in subsidiaries	543,491			2,943,764			352,435		—			(3,839,690		)	—
Goodwill and other intangible assets, net	—			—			471,788		154,230			—			626,018
Other assets	—			26,570			1,569		5,532			—			33,671
Total assets	$	554,537		$	3,120,952		$	3,409,413	$	504,793		$	(5,454,842	)	$	2,134,853

Liabilities and Stockholders’ (Deficit) Equity
Accounts payable	$	6		$	—		$	225,838	$	54,906		$	—		$	280,750
Due to affiliates	816,588			728,827			27		69,710			(1,615,152		)	—
Accrued liabilities	433			40,730			125,292		23,031			—			189,486
Income taxes payable	—			1,217			—		2,278			—			3,495
Long-term debt	—			1,806,978			192		2,986			—			1,810,156
Other liabilities	—			—			25,203		2,768			—			27,971
Deferred income tax liabilities, net	(1,486		)	(291		)	89,097		(3,321		)	—			83,999
Total liabilities	815,541			2,577,461			465,649		152,358			(1,615,152		)	2,395,857
Total stockholders’ (deficit) equity	(261,004		)	543,491			2,943,764		352,435			(3,839,690		)	(261,004		)
Total liabilities and stockholders’ (deficit) equity	$	554,537		$	3,120,952		$	3,409,413	$	504,793		$	(5,454,842	)	$	2,134,853

Condensed Consolidating Balance Sheet

September 30, 2014

(In thousands)

	Parent			Sally Holdings LLC and Sally Capital Inc.			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Consolidating Eliminations			Sally Beauty Holdings, Inc. and Subsidiaries
Assets
Cash and cash equivalents	$	—		$	27,000		$	40,042	$	39,533		$	—		$	106,575
Trade and other accounts receivable, less allowance for doubtful accounts	2			—			63,009		35,489			—			98,500
Due from affiliates	—			—			1,464,752		27			(1,464,779		)	—
Inventory	—			—			631,786		196,643			—			828,429
Other current assets	7,935			452			15,016		15,592			—			38,995
Deferred income tax assets, net	(213		)	1			30,527		1,335			—			31,650
Property and equipment, net	1			—			158,402		79,708			—			238,111
Investment in subsidiaries	471,320			2,835,722			392,270		—			(3,699,312		)	—
Goodwill and other intangible assets, net	—			—			476,113		174,972			—			651,085
Other assets	—			28,931			1,625		6,072			—			36,628
Total assets	$	479,045		$	2,892,106		$	3,273,542	$	549,371		$	(5,164,091	)	$	2,029,973

Liabilities and Stockholders’ (Deficit) Equity
Accounts payable	$	—		$	—		$	202,743	$	56,720		$	—		$	259,463
Due to affiliates	826,819			571,847			27		66,086			(1,464,779		)	—
Accrued liabilities	691			40,751			129,791		27,536			—			198,769
Income taxes payable	—			1,051			1		3,279			—			4,331
Long-term debt	—			1,807,447			267		3,927			—			1,811,641
Other liabilities	—			—			25,020		2,828			—			27,848
Deferred income tax liabilities, net	(1,412		)	(310		)	79,971		(3,275		)	—			74,974
Total liabilities	826,098			2,420,786			437,820		157,101			(1,464,779		)	2,377,026
Total stockholders’ (deficit) equity	(347,053		)	471,320			2,835,722		392,270			(3,699,312		)	(347,053		)
Total liabilities and stockholders’ (deficit) equity	$	479,045		$	2,892,106		$	3,273,542	$	549,371		$	(5,164,091	)	$	2,029,973

Condensed Consolidating Statement of Earnings and Comprehensive Income
Three Months Ended March 31, 2015

(In thousands)

	Parent			Sally Holdings LLC and Sally Capital Inc.			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Consolidating Eliminations			Sally Beauty Holdings, Inc. and Subsidiaries

Net sales	$	—		$	—		$	772,833	$	164,922		$	—		$	937,755
Related party sales	—			—			634		—			(634		)	—
Cost of products sold and distribution expenses	—			—			383,916		87,021			(634		)	470,303
Gross profit	—			—			389,551		77,901			—			467,452
Selling, general and administrative expenses	2,344			89			246,441		68,582			—			317,456
Depreciation and amortization	—			—			15,300		5,689			—			20,989
Operating earnings (loss)	(2,344		)	(89		)	127,810		3,630			—			129,007
Interest expense	—			29,185			1		42			—			29,228
Earnings (loss) before provision for income taxes	(2,344		)	(29,274		)	127,809		3,588			—			99,779
Provision (benefit) for income taxes	(1,109		)	(11,321		)	48,592		2,082			—			38,244
Equity in earnings of subsidiaries, net of tax	62,770			80,723			1,506		—			(144,999		)	—
Net earnings	61,535			62,770			80,723		1,506			(144,999		)	61,535

Other comprehensive income (loss), net of tax	—			—			—		(29,858		)	—			(29,858		)
Total comprehensive income (loss)	$	61,535		$	62,770		$	80,723	$	(28,352	)	$	(144,999	)	$	31,677

Condensed Consolidating Statement of Earnings and Comprehensive Income
Three Months Ended March 31, 2014

(In thousands)

	Parent			Sally Holdings LLC and Sally Capital Inc.			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Consolidating Eliminations			Sally Beauty Holdings, Inc. and Subsidiaries

Net sales	$	—		$	—		$	741,271	$	178,200		$	—		$	919,471
Related party sales	—			—			656		—			(656		)	—
Cost of products sold and distribution expenses	—			—			368,230		95,501			(656		)	463,075
Gross profit	—			—			373,697		82,699			—			456,396
Selling, general and administrative expenses	2,512			83			236,085		74,133			—			312,813
Depreciation and amortization	—			—			14,028		5,467			—			19,495
Operating earnings (loss)	(2,512		)	(83		)	123,584		3,099			—			124,088
Interest expense	—			29,184			2		72			—			29,258
Earnings (loss) before provision for income taxes	(2,512		)	(29,267		)	123,582		3,027			—			94,830
Provision (benefit) for income taxes	(949		)	(11,365		)	46,752		1,900			—			36,338
Equity in earnings of subsidiaries, net of tax	60,055			77,957			1,127		—			(139,139		)	—
Net earnings	58,492			60,055			77,957		1,127			(139,139		)	58,492

Other comprehensive income (loss), net of tax	—			—			—		(2,715		)	—			(2,715		)
Total comprehensive income (loss)	$	58,492		$	60,055		$	77,957	$	(1,588	)	$	(139,139	)	$	55,777

Condensed Consolidating Statement of Earnings and Comprehensive Income
Six Months Ended March 31, 2015

(In thousands)

	Parent			Sally Holdings LLC and Sally Capital Inc.			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Consolidating Eliminations			Sally Beauty Holdings, Inc. and Subsidiaries

Net sales	$	—		$	—		$	1,540,756	$	361,466		$	—		$	1,902,222
Related party sales	—			—			1,401		—			(1,401		)	—
Cost of products sold and distribution expenses	—			—			770,732		191,670			(1,401		)	961,001
Gross profit	—			—			771,425		169,796			—			941,221
Selling, general and administrative expenses	4,720			193			504,227		145,270			—			654,410
Depreciation and amortization	—			—			30,153		11,414			—			41,567
Operating earnings (loss)	(4,720		)	(193		)	237,045		13,112			—			245,244
Interest expense	—			58,378			3		88			—			58,469
Earnings (loss) before provision for income taxes	(4,720		)	(58,571		)	237,042		13,024			—			186,775
Provision (benefit) for income taxes	(1,833		)	(22,700		)	89,465		5,399			—			70,331
Equity in earnings of subsidiaries, net of tax	119,331			155,202			7,625		—			(282,158		)	—
Net earnings	116,444			119,331			155,202		7,625			(282,158		)	116,444

Other comprehensive income (loss), net of tax	—			—			—		(47,159		)	—			(47,159		)
Total comprehensive income (loss)	$	116,444		$	119,331		$	155,202	$	(39,534	)	$	(282,158	)	$	69,285

Condensed Consolidating Statement of Earnings and Comprehensive Income
Six Months Ended March 31, 2014

(In thousands)

	Parent			Sally Holdings LLC and Sally Capital Inc.			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Consolidating Eliminations			Sally Beauty Holdings, Inc. and Subsidiaries

Net sales	$	—		$	—		$	1,484,547	$	375,388		$	—		$	1,859,935
Related party sales	—			—			1,459		—			(1,459		)	—
Cost of products sold and distribution expenses	—			—			742,911		201,561			(1,459		)	943,013
Gross profit	—			—			743,095		173,827			—			916,922
Selling, general and administrative expenses	4,975			195			477,966		149,155			—			632,291
Depreciation and amortization	—			—			27,898		10,852			—			38,750
Operating earnings (loss)	(4,975		)	(195		)	237,231		13,820			—			245,881
Interest expense	—			57,609			3		135			—			57,747
Earnings (loss) before provision for income taxes	(4,975		)	(57,804		)	237,228		13,685			—			188,134
Provision (benefit) for income taxes	(1,881		)	(22,445		)	90,732		5,241			—			71,647
Equity in earnings of subsidiaries, net of tax	119,581			154,940			8,444		—			(282,965		)	—
Net earnings	116,487			119,581			154,940		8,444			(282,965		)	116,487

Other comprehensive income (loss), net of tax	—			—			—		(148		)	—			(148		)
Total comprehensive income (loss)	$	116,487		$	119,581		$	154,940	$	8,296		$	(282,965	)	$	116,339

Condensed Consolidating Statement of Cash Flows
Six months ended March 31, 2015

(In thousands)

	Parent			Sally Holdings LLC and Sally Capital Inc.		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations		Sally Beauty Holdings, Inc. and Subsidiaries

Net cash (used) provided by operating activities	$	(6,807	)	$	121,503	$	54,036		$	5,720		$	—	$	174,452
Cash Flows from Investing Activities:
Capital expenditures, net of proceeds from sale of property and equipment	(1		)	—		(25,027		)	(12,309		)	—		(37,337		)
Acquisitions, net of cash acquired	—			—		(2,028		)	—			—		(2,028		)
Net cash used by investing activities	(1		)	—		(27,055		)	(12,309		)	—		(39,365		)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	—			—		14			969			—		983
Repayments of long-term debt	—			—		(89		)	(1,307		)	—		(1,396		)
Repurchases of common stock	(67,524		)	—		—			—			—		(67,524		)
Proceeds from exercises of stock options	51,765			—		—			—			—		51,765
Excess tax benefit from share-based compensation	22,567			—		—			—			—		22,567
Net cash provided (used) by financing activities	6,808			—		(75		)	(338		)	—		6,395
Effect of foreign exchange rate changes on cash and cash equivalents	—			—		—			(2,030		)	—		(2,030		)
Net increase (decrease) in cash and cash equivalents	—			121,503		26,906			(8,957		)	—		139,452
Cash and cash equivalents, beginning of period	—			27,000		40,042			39,533			—		106,575
Cash and cash equivalents, end of period	$	—		$	148,503	$	66,948		$	30,576		$	—	$	246,027

Condensed Consolidating Statement of Cash Flows
Six Months Ended March 31, 2014

(In thousands)

	Parent			Sally Holdings LLC and Sally Capital Inc.			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Eliminations		Sally Beauty Holdings, Inc. and Subsidiaries

Net cash provided by operating activities	$	92,573		$	5,397		$	41,125		$	19,805		$	—	$	158,900
Cash Flows from Investing Activities:
Capital expenditures, net of proceeds from sale of property and equipment	—			—			(18,723		)	(11,620		)	—		(30,343		)
Net cash used by investing activities	—			—			(18,723		)	(11,620		)	—		(30,343		)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	—			232,500			219			—			—		232,719
Repayments of long-term debt	—			(108,500		)	(78		)	(971		)	—		(109,549		)
Debt issuance costs	—			(3,893		)	—			—			—		(3,893		)
Repurchases of common stock	(125,644		)	—			—			—			—		(125,644		)
Proceeds from exercises of stock options	21,389			—			—			—			—		21,389
Excess tax benefit from share-based compensation	11,682			—			—			—			—		11,682
Net cash (used) provided by financing activities	(92,573		)	120,107			141			(971		)	—		26,704
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			—			75			—		75
Net increase in cash and cash equivalents	—			125,504			22,543			7,289			—		155,336
Cash and cash equivalents, beginning of period	—			—			16,337			30,778			—		47,115
Cash and cash equivalents, end of period	$	—		$	125,504		$	38,880		$	38,067		$	—	$	202,451