-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pt6p6JK5XuRrHCFILak+GAG9lcb1QFrLBhPHyLUeM0kTV24Jbfd/JMw5TrC9w3Rg 8fSDSyml9W1tKfPrKJ6Vzg== 0000950124-00-000595.txt : 20000215 0000950124-00-000595.hdr.sgml : 20000215 ACCESSION NUMBER: 0000950124-00-000595 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000211 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGIS CORP CENTRAL INDEX KEY: 0000716643 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 410749934 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-11230 FILM NUMBER: 537123 BUSINESS ADDRESS: STREET 1: 7201 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6129477000 MAIL ADDRESS: STREET 1: 7201 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 11, 2000 REGIS CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA (State or Other Jurisdiction of Incorporation) 0-11230 41-0749934 (Commission File Number) (IRS Employer Identification No.) 7201 Metro Boulevard Minneapolis, MN 55439 (Address of principal executive offices and zip code) (612) 947-7000 (Registrant's telephone number, including area code) Not applicable (Former name or former address, if changed since last report) 2 Item 5. Other Events. Effective October 31, 1999, Regis Corporation (the Company) consummated a merger with Supercuts (Holdings) Limited (Supercuts UK) in a stock-for-stock transaction accounted for under the pooling-of-interests method of accounting. As a result of the merger, the Company's historical consolidated financial statements have been restated to retroactively give effect to the inclusion of the accounts and results of operations of Supercuts UK. The Company has included its retroactively restated consolidated financial statements in the Exhibits to this Form 8-K. Item 7. Financial Statements and Exhibits Exhibit No. Description Exhibit A Audited consolidated balance sheet as of June 30, 1999 and 1998 and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income and cash flows for the years ended June 30, 1999, 1998 and 1997 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations for the years ended June 30, 1999, 1998 and 1997. Exhibit B Unaudited consolidated balance sheet as of September 30, 1999 and the related consolidated statements of operations and cash flows for the three months ended September 30, 1999 and 1998 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations for the three months ended September 30, 1999 and 1998. Exhibit 15 Letter Re: Unaudited Interim Financial Information Exhibit 23 Consent of Independent Accountants Exhibit 27 Financial Data Schedule 3 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. REGIS CORPORATION Date: February 11, 2000 By: /s/ Randy L Pearce ------------------------- Randy L. Pearce Executive Vice President, Chief Administrative and Finance Officer Signing on behalf of the Registrant and principal EX-99.A 2 AUDITED CONSOLIDATED BALANCE SHEET 1 EXHIBIT A Audited consolidated balance sheet as of June 30, 1999 and 1998 and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income and cash flows for the years ended June 30, 1999, 1998 and 1997 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations for the years ended June 30, 1999, 1998 and 1997. 2 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of Regis Corporation: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income and cash flows present fairly, in all material respects, the consolidated financial position of Regis Corporation at June 30, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota February 8, 2000 3 REGIS CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in thousands, except per share amounts)
June 30 -------------------------- ASSETS 1999 1998 -------- -------- Current assets: Cash $ 10,353 $ 10,469 Receivables, net 16,598 14,536 Inventories 70,056 56,030 Deferred income taxes 8,596 6,429 Other current assets 11,780 7,634 -------- -------- Total current assets 117,383 95,098 Property and equipment, net 215,952 183,195 Goodwill 153,956 119,044 Other assets 13,291 11,396 -------- -------- Total assets $500,582 $408,733 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current portion $ 23,945 $ 20,359 Accounts payable 23,877 26,311 Accrued expenses 58,818 47,478 -------- -------- Total current liabilities 106,640 94,148 Long-term debt 143,041 106,601 Other noncurrent liabilities 16,682 10,717 Commitments (Note 5) Shareholders' equity: Common stock, $.05 par value; issued and outstanding, 40,419,122 and 40,016,121 common shares at June 30, 1999 and 1998, respectively 2,021 1,334 Additional paid-in capital 148,504 138,620 Accumulated other comprehensive loss (1,095) (1,707) Retained earnings 84,789 59,020 -------- -------- Total shareholders' equity 234,219 197,267 -------- -------- Total liabilities and shareholders' equity $500,582 $408,733 ======== ========
The accompanying notes are an integral part of the unaudited consolidated financial statements. 3 4 REGIS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (Dollars and shares in thousands, except per share amounts)
Years Ended June 30 --------------------------------------- 1999 1998 1997 ---- ---- ---- Revenues: Company-owned salons: Service $679,658 $588,142 $529,529 Product 264,511 226,513 192,105 -------- -------- -------- 944,169 814,655 721,634 Franchise income 47,731 45,965 43,536 -------- -------- -------- 991,900 860,620 765,170 -------- -------- -------- Operating expenses: Company-owned: Cost of service 388,339 336,585 308,648 Cost of product 142,643 123,757 105,560 Direct salon 81,107 72,609 67,010 Rent 131,943 114,688 101,186 Depreciation 31,368 26,547 24,178 -------- -------- -------- 775,400 674,186 606,582 Selling, general and administrative 112,392 99,286 89,857 Depreciation and amortization 12,983 10,012 8,403 Nonrecurring items 16,133 1,979 18,731 Other 9,657 9,299 8,419 -------- -------- -------- Total operating expenses 926,565 794,762 731,992 -------- -------- -------- Operating income 65,335 65,858 33,178 Other income (expense): Interest (11,588) (10,500) (10,685) Other, net 1,567 1,225 1,575 -------- -------- -------- Income before income taxes 55,314 56,583 24,068 Income taxes (23,109) (22,689) (14,691) -------- -------- -------- Net income $ 32,205 $ 33,894 $ 9,377 ======== ======== ======== Net income per share: Basic $.80 $.86 $.25 ==== ==== ==== Diluted $.78 $.83 $.24 ==== ==== ==== Weighted average common and common equivalent shares outstanding 41,518 40,604 39,267 ====== ====== ======
The accompanying notes are an integral part of the unaudited consolidated financial statements. 4 5 REGIS CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (Dollars in thousands)
Common Stock ---------------------- Shares Amount ------ ------- Balance, June 30, 1996 25,359,169 $1,268 Net income Foreign currency translation adjustments Proceeds from sale of common stock 500,000 25 Proceeds from exercise of stock options 271,082 14 Shares issued under company sponsored programs 15,058 1 Tax benefit realized upon exercise of stock options Dividends ---------- ------ Balance, June 30, 1997 26,145,309 1,308 Net income Foreign currency translation adjustments Proceeds from sale of common stock 400,000 20 Proceeds from exercise of stock options 124,605 6 Shares issued under company sponsored programs 4,415 Tax benefit realized upon exercise of stock options Dividends ---------- ------ Balance, June 30, 1998 26,674,329 1,334 Net income Foreign currency translation adjustments Less: Reclassification adjustment for translation losses realized in net income Stock split effected in the form of a stock dividend 13,334,156 667 Proceeds from exercise of stock options 309,929 15 Shares issued under company sponsored programs 17,941 1 Shares issued in connection with salon acquisitions 82,767 4 Tax benefit realized upon exercise of stock options Contribution of shareholder debt to capital Dividends ---------- ------ Balance, June 30, 1999 40,419,122 $2,021 ========== ======
The accompanying notes are an integral part of the unaudited consolidated financial statements. 5 6
Accumulated Additional Other Paid-In Comprehensive Retained Comprehensive Capital Income (Loss) Earnings Total Income ---------- ------------- --------- --------- ------------- $110,538 $(2,088) $22,715 $132,433 9,377 9,377 $ 9,377 717 717 717 11,100 11,125 3,696 3,710 237 238 853 853 (2,794) (2,794) -------- -------- ------- -------- ------- 126,424 (1,371) 29,298 155,659 $10,094 ======= 33,894 33,894 33,894 (336) (336) (336) 10,390 10,410 1,348 1,354 61 61 397 397 (4,172) (4,172) -------- ------- ------ -------- ------- 138,620 (1,707) 59,020 197,267 $33,558 ======= 32,205 32,205 32,205 612 612 612 (964) (667) 3,794 3,809 235 236 2,103 2,107 1,389 1,389 3,030 3,030 (6,436) (6,436) -------- ------- ------- -------- ------- $148,504 $(1,095) $84,789 $234,219 $31,853 ======== ======= ======= ======== =======
7 REGIS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands)
Years Ended June 30 ---------------------------------------- 1999 1998 1997 -------- -------- -------- Cash flows from operating activities: Net income $32,205 $33,894 $ 9,377 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 36,129 30,342 27,179 Amortization 8,296 6,455 5,808 Deferred income taxes (1,065) 7,143 1,059 Nonrecurring items 4,400 1,979 330 Other 1,638 233 537 Changes in operating assets and liabilities: Receivables (3,308) 2,044 (2,165) Inventories (9,988) (11,335) (8,385) Other current assets (4,041) (290) 2,358 Other assets (2,191) (2,074) (2,096) Accounts payable (2,914) (1,391) 6,419 Accrued expenses 12,680 5,368 (2,805) Other noncurrent liabilities 4,538 1,981 (358) -------- -------- -------- Net cash provided by operating activities 76,379 74,349 37,258 -------- -------- -------- Cash flows from investing activities: Capital expenditures (67,249) (58,727) (41,364) Proceeds from sale of assets 4,455 590 425 Purchases of salon assets, net of cash acquired and certain obligations assumed (51,017) (24,837) (10,370) -------- -------- -------- Net cash used in investing activities (113,811) (82,974) (51,309) -------- -------- -------- Cash flows from financing activities: Borrowings on revolving credit facilities 237,668 163,254 187,328 Payments on revolving credit facilities (225,075) (148,952) (203,425) Proceeds from issuance of long-term debt 46,533 9,006 47,145 Repayment of long-term debt (19,100) (25,506) (21,379) Increase (decrease) in negative book cash balances 602 (4,992) Dividends paid (6,436) (4,172) (2,794) Proceeds from issuance of common stock 3,700 11,825 15,073 -------- -------- -------- Net cash provided by financing activities 37,290 6,057 16,956 -------- -------- -------- Effect of exchange rate changes on cash 26 (85) (9) -------- -------- -------- (Decrease) increase in cash (116) (2,653) 2,896 Cash: Beginning of year 10,469 13,122 10,226 -------- -------- -------- End of year $ 10,353 $ 10,469 $ 13,122 ======== ======== ========
The accompanying notes are an integral part of the unaudited consolidated financial statements. 6 8 Notes to Consolidated Financial Statements 1. Business Description and Significant Accounting Policies: -------------------------------------------------------- BUSINESS DESCRIPTION: Regis Corporation (the Company) owns, operates and franchises hairstyling and hair care salons throughout the United States, the United Kingdom, Canada and Puerto Rico. Substantially all of the hairstyling and hair care salons owned and operated by the Company in the United States are located in leased space in enclosed mall shopping centers or strip shopping centers. Franchised salons are primarily located in strip shopping centers throughout the United States. At June 30, 1999, approximately 15 percent of the Company's outstanding common stock is owned by Curtis Squire, Inc. (CSI), which is a holding company controlled by the Chairman of the Board of Directors of the Company, and approximately 5 percent is owned by management and the Company's benefit plans. BASIS OF PRESENTATION: The consolidated financial statements for 1998 and 1997 have been restated to include the retroactive effects of the March 1999 merger with Heidi's, Inc. (Heidi's), the May 1999 merger with The Barbers, Hairstyling for Men & Women, Inc. (The Barbers), these transactions were accounted for as poolings-of-interests (Note 3). In October 1999, the Company consummated a merger with Supercuts UK in a stock-for-stock transaction. The acquisition has been accounted for under the pooling-of-interests basis of accounting and, accordingly, as discussed in Note 3, the Company's consolidated financial statements have been restated to retroactively include the accounts and results of operations of Supercuts UK for all periods presented. RECLASSIFICATION: Certain prior period amounts have been reclassified to conform to the current year presentation. CONSOLIDATION: The financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. In consolidation, all material intercompany accounts and transactions are eliminated. FOREIGN CURRENCY TRANSLATION: Financial position, results of operations and cash flows of the Company's international subsidiaries are measured using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates in effect at each fiscal year end. Income statement accounts are translated at the average rates of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) within shareholders' equity. 7 9 Notes to Consolidated Financial Statements, continued 1. Business Description and Significant Accounting Policies, -------------------------------------------------------- continued: INVENTORIES: Inventories consist principally of hair care products held either for use in salon services or for sale. Inventories are stated at the lower of cost or market with cost determined on the first-in, first-out method. PROPERTY AND EQUIPMENT: Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are computed on the straight-line method over estimated useful asset lives (shorter of asset life or lease term for leasehold improvements). Expenditures for maintenance and repairs and minor renewals and betterments which do not improve or extend the life of the respective assets are expensed. All other expenditures for renewals and betterments are capitalized. The assets and related depreciation accounts are adjusted for property retirements and disposals with the resulting gain or loss included in operations. Fully depreciated assets remain in the accounts until retired from service. Effective July 1, 1998, the Company adopted Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". The SOP requires the Company to capitalize both internal and external costs of developing or obtaining computer software for internal use based on certain criteria. Previously, the Company only capitalized costs associated with externally developed or purchased computer software. GOODWILL: Goodwill recorded in connection with the fiscal 1989 purchase of the publicly held minority interest in the Company, and acquisitions of business operations in which the Company has not previously been involved, is amortized on a straight-line basis, generally over 40 years. Goodwill recorded in connection with acquisitions which expand the Company's existing business activities (acquisitions of salon sites) is amortized on a straight-line basis, generally over 20 years. 8 10 Notes to Consolidated Financial Statements, continued 1. Business Description and Significant Accounting Policies, -------------------------------------------------------- continued: ASSET IMPAIRMENT ASSESSMENTS: The Company periodically measures and evaluates the recoverability of its tangible and intangible noncurrent assets using undiscounted cash flow analyses. FRANCHISE INCOME AND EXPENSES: Franchise income includes royalties, initial franchise fees from franchisees and sales of product and equipment to franchisees. Royalties are recognized as income in the month in which franchisee services are rendered or products are sold by franchisees. The Company recognizes income from initial franchise fees at the time franchisee salons are opened. Product sales by the Company to franchisees are recorded at the time product is shipped to franchise locations. Franchise expenses include all direct expenses such as the cost of product and equipment sold to franchisees, salaries, marketing costs, and an allocation of general corporate overhead and occupancy expenses. Cost of product and equipment sold to franchisees is included in other operating expenses in the Consolidated Statement of Operations. All other expenses described above associated with franchise operations are included in selling, general and administrative expenses in the Consolidated Statement of Operations. INCOME TAXES: Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse. Income tax expense is the current tax payable for the period and the change during the period in deferred tax assets and liabilities. NET INCOME PER SHARE: Basic earnings per share is calculated as net income divided by weighted-average common shares outstanding. The Company's only dilutive securities are issuable under the Company's stock option plan. Diluted earnings per share is calculated as net income divided by weighted-average common shares outstanding, increased to include assumed exercise of dilutive stock options (common equivalent shares). 9 11 Notes to Consolidated Financial Statements, continued 1. Business Description and Significant Accounting Policies, -------------------------------------------------------- continued: The following table sets forth a reconciliation of shares used in the computation of basic and diluted earnings per share:
1999 1998 1997 ---- ---- ---- Weighted average shares for basic earnings per share 40,204,712 39,490,951 38,180,041 Dilutive effect of stock options 1,312,886 1,112,825 1,087,282 ----------- ---------- ---------- Weighted average shares for diluted earnings per share 41,517,598 40,603,776 39,267,323 =========== ========== ==========
USE OF ESTIMATES: The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. COMPREHENSIVE INCOME: Effective July 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". This statement established standards for reporting and presenting comprehensive income and its components. Components of comprehensive income for the Company include net income and foreign currency translation adjustments and are presented in the Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income. 10 12 Notes to Consolidated Financial Statements, continued 2. Other Financial Statement Data Comprehensive income for the Company includes net income and foreign currency translation charged or credited to the cumulative translation account within shareholders' equity. Comprehensive income for the three months ended September 30, 1999 and 1998 was as follows:
(Dollars in thousands) ---------------------- 1999 1998 ---- ---- Property and equipment: Land $ 2,190 $ 2,190 Buildings and improvements 20,377 19,468 Equipment, furniture, software and leasehold improvements 344,246 288,666 Equipment, furniture and leasehold improvements under capital leases 14,093 13,718 ----------- ----------- 380,906 324,042 Less accumulated depreciation and amortization (159,316) (136,972) Less amortization of equipment, furniture and leasehold improvements under capital leases (5,638) (3,875) ------------- ------------ $ 215,952 $ 183,195 ========= ========= Goodwill $ 190,274 $ 147,125 Less accumulated amortization (36,318) (28,081) --------- --------- $ 153,956 $ 119,044 ========= ========= Accrued expenses: Payroll and payroll related costs $ 27,270 $ 25,120 Insurance 8,656 6,989 Transaction and restructuring 5,981 1,630 Other 16,911 13,739 --------- --------- $ 58,818 $ 47,478 ========= =========
Utilization ------------ July 1, 1999 June 30, 1998 Additions Cash Non-Cash 1999 ------- --------- ---- -------- -------- Transaction and Restructuring: Restructuring-International Severance $ 966 $ (404) $ 562 Salon closures and dispositions 3,806 193 $(2,812) 1,187 Other 844 (105) (388) 351 ------ ------- ------- ------ 5,616 (316) (3,200) 2,100 Restructuring-Mergers Severance $1,232 2,526 (875) 2,883 Salon closures and dispositions 398 430 (93) (620) 115 Other 1,400 (74) (580) 746 ------- ------- ------ ------- ------ 1,630 4,356 (1,042) (1,200) 3,744 Transaction Charges-Mergers 2,066 (1,929) 137 ------ ------- ------- ------ ------ $1,630 $12,038 $(3,287) $(4,400) $5,981 ====== ======= ======= ======= ======
11 13 Notes to Consolidated Financial Statements, continued 2. Other Financial Statement Data, continued: ------------------------------ The following provides supplemental disclosures of cash flow activity:
(Dollars in thousands) ---------------------- 1999 1998 1997 ---- ---- ---- Cash paid during the year for: Interest $11,269 $10,117 $10,996 Income taxes 24,352 14,696 14,183
Non-cash investing and financing activities include the following: . In 1999 and 1998, the Company financed capital expenditures totaling $3.5 million and $5.9 million, respectively, through the issuance of capital leases. . In 1999, in connection with the Company's merger with Heidi's, a shareholder contributed a $3.0 million note to equity. . In 1999 and 1998, in connection with various acquisitions, the Company entered into seller-financed payables and non-compete agreements as well as issuing 82,767 shares of the Company's stock (Note 3). . In 1997, in connection with various acquisitions, the Company entered into seller-financed notes payable of approximately $2.6 million. 12 14 Notes to Consolidated Financial Statements, continued 3. Mergers and Acquisitions: ------------------------ SUPERCUTS (HOLDINGS) LIMITED MERGER: Effective October 31, 1999, the Company consummated a merger with Supercuts (Holdings) Limited (Supercuts UK). Supercuts UK is a United Kingdom based company operating 68 hairstyling salons under the Supercuts brand name. Under the terms of the merger agreement, the shareholders of Supercuts UK, a privately held company, received 1,778,000 shares of Regis Corporation common stock. The transaction has been accounted for as a pooling-of-interests. Prior period financial statements have been restated to reflect this merger as if the merged companies had always been combined. Revenues and net income for each of the combining entities prior to the merger were as follows:
Year Ended Year Ended Year Ended June 30, 1999 June 30, 1998 June 30, 1997 ------------- ------------- ------------- Revenues: Regis $974,872 $848,444 $756,242 Supercuts UK 17,028 12,176 8,928 -------- -------- -------- Combined total $991,900 $860,620 $765,170 ======== ======== ======== Net Income: Regis $ 30,346 $ 32,699 $ 8,258 Supercuts UK 1,859 1,195 1,119 -------- -------- -------- Combined total $ 32,205 $ 33,894 $ 9,377 ======== ======== ========
Prior to the combination, Supercuts UK's fiscal year ended on the Saturday closest to August 31. In recording the pooling-of-interests combination, Supercuts UK's financial statements for the years ended September 4, 1999, August 29, 1998 and August 30, 1997, were combined with Regis' financial statements for the years ended June 30, 1999, 1998, and 1997, respectively. 13 15 Notes to Consolidated Financial Statements, continued 3. Mergers and Acquisitions, continued ------------------------ THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC. MERGER: Effective May 20, 1999, the Company consummated the merger with The Barbers, Hairstyling for Men & Women, Inc. (The Barbers) in a stock-for-stock transaction. The Barbers was a national operator and franchisor of 979 affordable hair care salons. Each shareholder of The Barbers received .50 shares of the Company's common stock in exchange for each share of The Barbers common stock, resulting in the issuance of approximately 2.0 million shares of the Company's common stock. The Barbers transaction has been accounted for as a pooling-of-interests. Prior period financial statements have been restated to reflect this merger as if the merged companies had always been combined. As a result of the merger, the Company recorded a nonrecurring charge of $4.8 million during the quarter ended June 30, 1999. This charge included $1.4 million for professional fees including investment banking, legal, accounting and miscellaneous transaction costs and $3.4 million for severance and other costs, principally associated with the closure of The Barbers headquarters. Severance expense of $2.1 million covered the termination of approximately 20 employees of The Barbers who had duplicate positions within the corporate office functions. These corporate overhead departments primarily included finance, accounting and human resources. Revenues and net income for each of the combining entities prior to the merger were as follows (dollars in thousands):
Nine Months Ended Year Ended Year Ended March 31, 1999 June 30, 1998 June 30, 1997 -------------- ------------- ------------- Revenues: Regis $693,063 $822,964 $735,415 The Barbers 20,984 25,480 20,827 -------- -------- -------- Combined total $714,047 $848,444 $756,242 ======== ======== ======== Net Income: Regis 24,321 30,988 7,034 The Barbers 1,472 1,711 1,224 -------- -------- -------- Combined total $ 25,793 $ 32,699 $ 8,258 ======== ======== ========
14 16 3. Mergers and Acquisitions, continued: ------------------------ HEIDI'S, INC. MERGER: Effective March 15, 1999, the Company consummated the merger with Heidi's, Inc. (Heidi's), a company based in Detroit, Michigan, which operated 24 salons in shopping malls. Under the terms of the merger agreement, the shareholders of Heidi's, a privately held company, received 537,937 shares of Regis Corporation common stock. The transaction has been accounted for as a pooling-of-interests. Prior period financial statements have been restated to reflect this merger as if the merged companies had always been combined. As a result of the merger, the Company recorded a nonrecurring charge of $1.2 million during the quarter ended March 31, 1999. This charge included $0.7 million for professional fees including investment banking, legal, accounting and miscellaneous transaction costs and $0.5 million for severance and other costs, principally associated with the closure of Heidi's headquarters. Severance expense of $0.4 million covered the termination of approximately ten Heidi's employees who had duplicate positions within corporate office functions. In addition, during the fourth quarter of 1999, the Company recorded a $0.4 million charge related to impaired salon assets. Revenues and net income for each of the combining entities prior to the merger were as follows (dollars in thousands):
Six Months Ended Year Ended Year Ended December 31, 1998 June 30, 1998 June 30, 1997 ----------------- ------------- ------------- Revenues: Regis $441,367 $798,144 $713,219 Heidi's 13,367 24,820 22,196 -------- -------- -------- Combined total $454,734 $822,964 $735,415 ======== ======== ======== Net Income: Regis 16,882 30,488 6,574 Heidi's 443 500 460 -------- -------- -------- Combined total $ 17,325 $ 30,988 $ 7,034 ======== ======== ========
SUPERCUTS, INC. MERGER: During October 1996, the Company received shareholder approval for its merger with Supercuts, Inc. (Supercuts) in a stock-for-stock transaction, resulting in the issuance of approximately 4.5 million shares of the Company's common stock. Supercuts was the national operator of approximately 430 company-owned and franchisor of approximately 740 affordable hair care salons at the acquisition date. As a result of the merger, the Company recorded a pre-tax merger restructuring and transaction charge of $14.3 million. 15 17 Notes to Consolidated Financial Statements, continued 3. Mergers and Acquisitions, continued: ------------------------ The Supercuts transaction has been accounted for as a pooling-of-interests. Prior period financial statements have been restated to reflect this merger as if the merged companies had always been combined. To effect the restatement, significant accounting adjustments were necessary to conform the accounting practices of Supercuts to those of Regis. OTHER ACQUISITIONS: During 1999 and 1998, the Company made numerous acquisitions in addition to its mergers with The Barbers and Heidi's. These acquisitions have been recorded using the purchase method of accounting. Accordingly, the purchase prices have been allocated to assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The acquisitions recorded using the purchase method of accounting, individually and in the aggregate, are not material to the Company's operations. Costs in excess of net tangible and identifiable intangible assets acquired and components of the aggregate purchase prices of the acquisitions were as follows:
(Dollars in thousands) 1999 1998 ---- ---- Costs in excess of net tangible and identifiable intangible assets acquired $45,147 $21,743 ======= ======= Components of aggregate purchase price: Cash $51,017 $24,837 Stock 2,107 Current and noncurrent payables 2,830 2,180 ------- ------- $55,954 $27,017 ======= =======
16 18 Notes to Consolidated Financial Statements, continued 4. Financing Arrangements: ---------------------- The Company's long-term debt consists of the following:
(Dollars in thousands) Interest Maturity Rate % Dates 1999 1998 ------ ----- ---- ---- Senior term notes 6.27-8.18 2000-2008 $109,919 $68,000 Revolving credit facilities 5.96-7.38 2000-2001 41,343 28,750 Equipment and leasehold notes payable 8.00-11.90 2000-2004 11,236 12,113 UK term notes 5.23-5.40 2001-2003 520 6,159 Other notes payable 5.00-11.90 2000-2007 3,968 11,938 -------- -------- 166,986 126,960 Less current portion (23,945) (20,359) -------- -------- Long-term portion $143,041 $106,601 ======== ========
In January 1999, the Company borrowed $15 million under a 6.27 percent senior term note due June 2003 and $10 million under a 6.83 percent senior term note due December 2005 to finance recent acquisitions by the Company. In September 1998, the Company borrowed $7.5 million under a 6.55 percent senior term note due September 2003 to refinance the Company's distribution center revolving line of credit established in fiscal 1998. In July 1998, the Company paid down its revolving credit facilities by $14.0 million with the proceeds of a 7.14 percent senior term note with interest due quarterly, and principal payments of $9.0 million and $5.0 million due in July 2007 and 2008, respectively. In March 1997, the Company entered into a treasury lock agreement for the purpose of establishing the effective interest rate on the refinancing of a $14.0 million senior term note which matured in June 1998. The contract was entered into to reduce the risk to the Company of future interest rate fluctuations. The contract had a notional amount of $14.0 million and was tied to the U.S. government ten-year treasury note rate. Upon settlement of the agreement in June 1998, the Company incurred a loss of $1.6 million on the contract. This loss is being amortized as additional interest expense through 2008. The Company does not enter into financial instruments for trading or speculative purposes. In March 1999, the Company retired the majority of its UK term notes due June 2001 with proceeds from its revolving line of credit. To facilitate this, the Company amended its existing working capital line of credit agreement to increase the amount available by $10 million to $45 million, eliminated covenants related to the Company's international operations and added a multi-currency provision to the existing revolving credit facility. This facility bears interest 17 19 Notes to Consolidated Financial Statements, continued 4. Financing Arrangements, continued: ---------------------- at the prime rate or LIBOR rate plus 1.00 to 1.25 percent based on the Company's debt to capitalization ratio. The prime rate at June 30, 1999 and 1998 was 7.75 percent and 8.5 percent, respectively. The revolving credit facility requires a quarterly commitment fee at the rate of 1/4 percent per year on the unused portion of the facility. Letters of credit totaling $0.9 million were outstanding at June 30, 1999 and 1998, which reduce the amount available under the revolving credit facility. The Company also has an additional revolving credit facility which, at the discretion of the lender, allows for borrowings up to $20.0 million and bears interest at the prime rate or LIBOR plus 1.0 percent. There were $10 million of borrowings under this facility as of June 30, 1999, and no borrowings as of June 30, 1998. In July 1999, the Company replaced both of its existing revolving credit facilities with a new senior credit facility which allows for borrowings of $180 million due in July, 2002, and bears interest at prime rate or LIBOR rate plus .50 to 1.00 percent, based on the Company's debt to capitalization ratio. The equipment and leasehold notes payable are primarily comprised of capital lease obligations totaling $8.9 million at June 30, 1999 and 1998, respectively. These capital lease obligations are payable in monthly installments over five years. The debt agreements contain covenants, including limitations on incurrence of debt, granting of liens, investments, merger or consolidation, and transactions with affiliates. In addition, the Company must maintain specified interest coverage and debt-to-equity ratios. The fair values of the senior term, equipment and leasehold and subordinated notes payable, based upon discounted cash flow analyses using the Company's current incremental borrowing rate, approximate their carrying values at June 30, 1999. Aggregate maturities of long-term debt at June 30, 1999 are as follows:
Fiscal Year (Dollars in thousands) 2000 $23,945 2001 17,043 2002 34,710 2003 10,545 2004 17,676 Thereafter 63,067 -------- $166,986 ========
18 20 5. Commitments: ----------- OPERATING LEASES: The Company is committed under long-term operating leases for the rental of most of its company-owned salon locations. The terms of the leases range from one to 20 years, with many leases renewable for an additional five to ten year term at the option of the Company, and certain leases include escalation provisions. For certain leases, the Company is required to pay additional rent based on a percent of sales and, in most cases, real estate taxes and other expenses. Rent expense for the Company's international department store salons is based primarily on a percent of sales. The Company also leases the premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with the franchisees. These leases, generally with terms of approximately five years, are expected to be renewed on expiration. Future minimum lease payments for the next five years, which are reimbursable from the franchisees under sublease arrangements, are approximately $22.6 million annually. All additional lease costs are passed through to the franchisees. Total rent expense, net of sublease income from franchisees, includes the following:
(Dollars in thousands) ----------------------- 1999 1998 1997 ---- ---- ---- Minimum rent $ 82,578 $ 75,589 $ 66,284 Percentage rent based on sales 22,513 16,912 16,799 Real estate taxes and other expenses 26,852 22,187 18,103 -------- -------- --------- $131,943 $114,688 $101,186 ======== ======== ========
FUTURE MINIMUM LEASE PAYMENTS: As of June 30, 1999, future minimum lease payments (excluding percentage rents based on sales and sublease rental obligations which are passed through to the franchisees) due under existing noncancellable operating leases with remaining terms of greater than one year are as follows: 19 21 Notes to Consolidated Financial Statements, continued 5. Commitments, continued: ----------------------
Fiscal Year (Dollars in thousands) ----------- ---------------------- 2000 $ 92,084 2001 79,165 2002 66,939 2003 55,342 2004 43,064 Thereafter 98,837 -------- Total minimum lease payments $435,431 ========
SALON DEVELOPMENT PROGRAM: As a part of its salon development program, the Company continues to negotiate and enter into leases and commitments for the acquisition of equipment and leasehold improvements related to future salon locations. 6. Income Taxes: ------------ The provision for income taxes consists of:
(Dollars in thousands) ---------------------- 1999 1998 1997 ---- ---- ---- Current: Federal $20,661 $12,401 $11,070 State 3,190 2,019 1,721 International 323 1,126 841 Deferred: United States (393) 7,039 1,083 International (672) 104 (24) ------- ------- ------- $23,109 $22,689 $14,691 ======= ======= =======
The components of the net deferred tax asset are as follows:
(Dollars in thousands) ---------------------- 1999 1998 ---- ---- Net current deferred tax asset: Insurance $ 2,587 $ 2,234 Payroll and payroll 2,624 2,200 related costs Nonrecurring items 2,581 2,065 Other, net 804 (70) -------- ------- $ 8,596 $ 6,429 ======== ======= Net noncurrent deferred tax asset: Depreciation and amortization $(3,496) $(1,235) Deferred rent 2,128 1,985 Payroll and payroll related costs 2,444 1,265 Other, net (268) (105) ------- ------- $ 808 $ 1,910 ======= =======
20 22 Notes to Consolidated Financial Statements, continued 6. Income Taxes, continued: ------------
(Dollars in thousands) ----------------------- 1999 1998 1997 ---- ---- ---- Income (loss) before income taxes: United States 58,567 54,437 23,034 International (3,253) 2,146 1,034 ------- -------- -------- $55,314 $56,583 $24,068 ======= ======= =======
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings before income taxes, as a result of the following:
(Dollars in thousands) ------------------------ 1999 1998 1997 ---- ---- ---- U.S. statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit 3.4 3.6 5.0 Nondeductible merger and transaction costs 2.5 9.9 Change in estimate 6.7 Other, principally non-deductible goodwill 0.9 1.5 4.4 ---- --- ---- 41.8% 40.1% 61.0% ===== ==== ====
During 1997, the Company recorded a $1.5 million change in estimate associated with income tax matters related to years prior to 1996 resulting from the completion of an Internal Revenue Service examination. 7. Employee Benefit Plans: ---------------------- EMPLOYEE STOCK OWNERSHIP PLAN: The Company has a qualified employee stock ownership plan (ESOP) covering substantially all field supervisors, warehouse and corporate office employees. Contributions to the ESOP are at the discretion of the Company. 21 23 Notes to Consolidated Financial Statements, continued 7. Employee Benefit Plans, continued: ---------------------- EXECUTIVE STOCK AWARD PLAN: The Company has a nonqualified executive stock award plan (ESAP) covering those employees not eligible to participate under the qualified ESOP. Contributions to the ESAP are at the discretion of the Company. STOCK PURCHASE PLAN: The Company has an employee stock purchase plan (SPP) available to substantially all employees. Under terms of the plan, eligible employees may purchase the Company's common stock through payroll deductions. The Company contributes an amount equal to 15 percent of the purchase price of the stock to be purchased on the open market, not to exceed an aggregate contribution of $2.2 million. Company contributions to the aforementioned plans, which are charged to earnings in the period contributed, included the following:
(Dollars in thousands) ------------------------ 1999 1998 1997 ---- ---- ---- ESOP $1,303 $1,146 $662 ESAP 248 301 257 SPP 341 274 223
REGIS 401(k)PLAN: Effective July 1, 1999, the Company established a qualified 401(k) defined contribution plan covering substantially all field supervisors, warehouse and corporate office employees. STOCK OPTIONS: The Company's Stock Option Plan (the Plan), as amended, provides for granting both incentive stock options and nonqualified stock options. A total of 3,300,000 shares of common stock may be granted under the Plan to employees of the Company for a term not to exceed 10 years from the date of grant. Options granted to employees generally vest over a five year period. Options may also be granted under this Plan to the Company's outside directors for a term not to exceed five years from the vesting date. Options granted to outside directors vest over a four year period. 22 24 Notes to Consolidated Financial Statements, continued 7. Employee Benefit Plans, continued: ---------------------- The Plan contains restrictions on transferability, time of exercise, exercise price and on disposition of any shares acquired through exercise of the options. Incentive stock options are granted at not less than fair market value on the date of grant. The Board of Directors determines the Plan participants and establishes the terms and conditions of each option. In May 1999, in connection with The Barbers merger (Note 3) and effective termination of The Barbers stock option plans, outstanding stock options and warrants of The Barbers were converted to options to purchase approximately 370,000 shares of Regis common stock on the basis of the exchange ratio established to effect the merger. In October 1996, in connection with the Supercuts merger (Note 3) and effective termination of the Supercuts stock option plans, outstanding Supercuts stock options were converted to options to purchase approximately 400,000 shares of Regis common stock on the basis of the exchange ratio established to effect the merger. Common shares available for grant as of June 30, 1999, 1998 and 1997, were 611,095, 579,820 and 895,275, respectively. 23 25 Notes to Consolidated Financial Statements, continued 7. Employee Benefit Plans, continued: ---------------------- Stock options outstanding and weighted average exercise prices are as follows:
Options Outstanding ------------------- Weighted Average Exercise Shares Price Balance, June 30, 1996 2,817,452 $ 8.18 Granted 485,250 13.47 Cancelled (150,924) 14.45 Exercised (412,100) 8.71 --------- ------ Balance, June 30, 1997 2,739,678 $ 8.69 Granted 538,505 17.24 Cancelled (272,163) 13.41 Exercised (191,748) 7.20 --------- ------ Balance, June 30, 1998 2,814,272 $ 9.97 Granted 28,500 $19.53 Cancelled (37,275) 14.30 Exercised (309,929) 11.29 --------- ------ Balance, June 30, 1999 2,495,568 $ 9.88 ========= ======
24 26 Notes to Consolidated Financial Statements, continued 7. Employee Benefit Plans, continued: ---------------------- At June 30, 1999, the weighted average exercise prices and remaining contractual lives of stock options are as follows:
$2.10- $5.45- $9.33- $16.67- Range of exercise prices $5.00 $8.25 $15.50 $24.25 Total ------------------------ ----- ----- ------ ------ ----- Total options outstanding 719,825 646,613 559,050 570,080 2,495,568 Weighted average exercise price $4.20 $6.52 $13.21 $17.64 $9.88 Weighted average remaining contractual life in years 3.97 5.13 7.15 8.49 6.01 Options exercisable 539,822 598,801 282,077 142,050 1,562,750 Weighted average price of exercisable options $3.93 $6.39 $12.75 $17.95 $7.74
The Company measures compensation cost for its incentive stock plans using the intrinsic value-based method of accounting. Had the Company used the fair-value-based method of accounting for its stock option and incentive plans beginning in 1996 and charged compensation cost against income, over the vesting period based on the fair value of options at the date of grant net income and net income per share would have been as follows:
(Dollars in thousands, except per share amounts) ---------------------------------------------- 1999 1998 1997 ---- ---- ---- Net income: As reported $32,205 $33,894 $9,377 Pro forma 31,072 33,241 8,728 Net income per diluted share: As reported $.78 $.83 $.24 Pro forma $.75 $.82 $.22
25 27 7. Employee Benefit Plans, continued: ---------------------- The pro forma information above only includes stock options granted in 1999, 1998 and 1997. Compensation expense under the fair-value-based method of accounting will increase over the next few years as additional stock option grants are considered. The weighted-average fair value per option granted during 1999, 1998 and 1997 was $12.23, $7.33 and $5.90, respectively, calculated by using the fair value of each option grant on the date of grant. The fair value of options was calculated utilizing the Black-Scholes option-pricing model and the following key assumptions:
1999 1998 1997 ---- ---- ---- Risk-free interest rate 5.60% 5.56% 6.41% Expected life in years 6.0 6.0 6.5 Expected volatility 37.35% 34.16% 35.50% Expected dividend yield .42% .38% .39%
OTHER: The Company has established unfunded deferred compensation plans which cover certain management and executive personnel. The Company maintains life insurance policies on the plans' participants. The amounts charged to earnings for these plans were $1.9 million, $0.6 million and $0.4 million in 1999, 1998 and 1997, respectively. The Company has a survivor benefit plan for the Chairman of the Board's spouse, payable upon his death, at a rate of $300,000 annually, adjusted for inflation, for the remaining life of his spouse. The Company has funded its future obligations under this plan through life insurance policies on the Chairman of the Board (the Chairman). 26 28 Notes to Consolidated Financial Statements, continued 7. Employee Benefit Plans, continued: ---------------------- The Company has entered into an agreement with the Chairman providing that the Chairman will continue to render services to the Company until at least May 2007, and for such further period as may be agreed upon mutually. The Company has agreed to pay the Chairman an annual amount of $0.6 million, adjusted for inflation, for the remainder of his life. The Chairman has agreed that during the period in which payments to him are made, as provided in the agreement, he will not engage in any business competitive with the business conducted by the Company. Compensation associated with this agreement is charged to expense as services are provided. Effective July 1, 1998, the Company established a survivor benefit plan for the Chief Executive Officer's spouse, payable upon his death, at a rate of one half of his deferred compensation benefit, adjusted for inflation, for the remaining life of his spouse. The Company has funded its future obligations under this plan through life insurance policies on the Chief Executive Officer. 8. Shareholders' Equity: -------------------- In addition to the shareholder equity activity described in Note 7, the following activity has taken place: STOCK SPLIT In February 1999, the board of directors approved a three-for-two stock split of its common stock in the form of a 50 percent stock dividend distributed on March 1, 1999 to shareholders of record on February 15, 1999. All share and per share amounts have been restated to reflect the stock split. AUTHORIZED SHARES AND DESIGNATION OF PREFERRED CLASS: The Company has 50 million shares of capital stock authorized, par value $.05, of which all outstanding shares, and shares available under the Stock Option Plan, have been designated as common. In addition, 250,000 shares of authorized capital stock have been designated as Series A Junior Participating Preferred Stock (preferred stock). None of the preferred stock has been issued. 27 29 Notes to Consolidated Financial Statements, continued 8. Shareholders' Equity, continued: -------------------- SHAREHOLDERS' RIGHTS PLAN: The Company has a shareholders' rights plan pursuant to which one preferred share purchase right is held by shareholders for each outstanding share of common stock. The rights become exercisable only following the acquisition by a person or group, without the prior consent of the Board of Directors, of 20 percent or more of the Company's voting stock, or following the announcement of a tender offer or exchange offer to acquire an interest of 20 percent or more. If the rights become exercisable, they entitle all holders, except the take-over bidder, to purchase one one-hundredth of a share of preferred stock at an exercise price of $120, subject to adjustment, or in lieu of purchasing the preferred stock, to purchase for the same exercise price common stock of the Company (or in certain cases common stock of an acquiring company) having a market value of twice the exercise price of a right. 9. Segment Information: Commencing with its 1999 fiscal year end reporting, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". This new standard requires that public companies report financial and descriptive information about their reportable operating segments, generally based on the way that management organized the segments within the enterprise for making operating decisions and assessing performance. Each of the Company's operating segments have generally similar products and services. The Company is organized to manage its operations based on geographical location. The Company's operating segments have been aggregated into two reportable segments: domestic salons and international salons. The Company operates or franchises 4,650 domestic salons located within high-profile regional malls and strip shopping centers under several different concepts including Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters brand names. The Company's International segment includes 372 salons operating in leading department stores, mass merchants, strip shopping centers and high street locations. 28 30 Notes to Consolidated Financial Statements, continued 9. Segment Information:, continued: -------------------- The accounting policies of the reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements. The Company evaluates the performance of its operating segments based on direct salon contribution, before supervision and corporate overhead expenses. Intersegment sales and transfers are not significant. Summarized financial information concerning the Company's reportable segments is shown in the following table.
(Dollars in thousands) ------------------------------------------- 1999 1998 1997 ------- ------- ------- Company-owned revenues: Domestic $826,169 $696,303 $613,358 International 118,000 118,352 108,276 -------- -------- -------- Total $944,169 $814,655 $721,634 ======== ======== ======== Salon contribution: Domestic $151,643 $124,137 $101,711 International 17,126 16,332 13,341 -------- -------- -------- Total $168,769 $140,469 $115,052 ======== ======== ======== Salon depreciation and amortization: Domestic $ 27,696 $ 23,108 $ 20,879 International 3,672 3,439 3,299 -------- -------- -------- Total $ 31,368 $ 26,547 $ 24,178 ======== ======== ======== Total assets: Domestic $372,956 $274,192 $226,703 International 26,208 32,227 34,094 Corporate 101,418 102,314 93,219 -------- -------- -------- Total $500,582 $408,733 $354,016 ======== ======== ======== Long-lived assets: Domestic $307,439 $239,423 $198,622 International 18,891 23,423 31,210 Corporate 43,578 39,393 20,359 -------- -------- -------- Total $369,908 $302,239 $250,191 ======== ======== ======== Capital expenditures: Domestic $ 50,445 $ 38,180 $ 32,063 International 4,326 3,728 3,744 Corporate 12,478 16,819 5,557 -------- -------- -------- Total $ 67,249 $ 58,727 $ 41,364 ======== ======== ======== Purchases of salon assets: Domestic $ 50,866 $24,837 $ 9,941 International 151 429 -------- -------- -------- Total $ 51,017 $ 24,837 $ 10,370 ======== ======== ========
29 31 Notes to Consolidated Financial Statements, continued 9. Segment Information:, continued: -------------------- In addition to the company-owned revenues detailed in the table above, the Company also recorded franchise income of $47.7 million, $46.0 million and $43.5 million, respectively, as part of consolidated revenues. The expenses associated with the Company's franchising activities are included in selling, general & administrative and other operating expenses within the Consolidated Statement of Operations, as described in Note 1 to the consolidated financial statements. Corporate assets detailed above are primarily comprised of fixed assets associated with the Company's headquarters and distribution centers, corporate cash, inventories located at corporate distribution centers, deferred income taxes, franchise receivables, and other corporate assets. 10. Nonrecurring Items: ------------------- Nonrecurring items included in operating income consist of gains or losses on assets and business dispositions and other items of a nonrecurring nature. The following table summarizes nonrecurring items recorded by the Company:
(Dollars in thousands) ---------------------- 1999 1998 1997 ---- ---- ---- Restructuring charge - International $5,616 Restructuring charge - Mergers (Note 3) 4,356 $1,500 Merger transaction costs (Note 3) 2,066 14,322 Year 2000 remediation 4,095 Loss on divestiture of Anasazi business and assets $1,979 Resolution of Supercuts officer litigation 2,909 ------- ------ ------- $16,133 $1,979 $18,731 ======= ====== =======
During the fourth quarter of fiscal 1999, the Company's Board of Directors approved a restructuring plan associated with its International operations headquartered in the United Kingdom. This plan includes relocating the headquarters out of London to Coventry, England with the majority of the accounting and information technology functions transferring to the Company's corporate headquarters in Minneapolis, Minnesota and divestiture of certain markets and salons which have been generating negative cash flows. 30 32 10. Nonrecurring Items, continued: - --------------------------- The restructuring charge related to the plan described above was $5.6 million. Of the total charge, $1.0 million related to severance payments due to the elimination of duplicative accounting and information technology functions, $0.2 million for legal, professional and other miscellaneous fees, $0.3 million for duplicate rent related to the relocation of operations to Coventry, and $0.3 million related to the write-off of assets, primarily at the prior London headquarters, and $3.8 million related to salon closing and dispositions. International salons identified for closure or disposition in the restructuring charge described above, contributed $8.0 million in annual revenues with associated after-tax annualized operating losses of approximately $0.9 million. During 1999, the Company recorded $4.1 million of expense associated with Year 2000 remediation. Anasazi Exclusive Salons, LLC, a salon products manufacturing company, was sold to Curtis Acquisition LLC, which is controlled by two members of the Company's Board of Directors, one of whom is the Chairman. In 1997, the Company recorded an additional $2.9 million charge to earnings to revise restructuring charge estimates made in 1996 related to resolution of Supercuts officer litigation. The Company also recorded a $1.5 million charge associated with identified Regis salon closures during 1997. Approximately $4.4 million, $2.0 million and $0.3 million of the nonrecurring items in 1999, 1998, and 1997, respectively, are non-cash in nature. 31 33 11. Quarterly Financial Data:
(Dollars in Thousands, Except Per Share Amounts) Quarter Ended Year September 30 December 31 March 31 June 30 Ended 1999 Revenues $231,997 $245,265 $249,660 $264,978 $991,900 Operating income 17,170 18,923 16,086 13,156 65,335 Net income 9,132 10,127 7,939 5,007 32,205 Net income per diluted share(a) .22 .24 .19 .12 .78(e) Dividends declared per share(b) .02 .02 .03 .03 .10 1998 Revenues $203,839 $214,928 $212,568 $229,285 $860,620 Operating income 13,731 17,043 15,354 19,730 65,858 Net income 6,790 8,472 7,630 11,002 33,894 Net income per diluted share(c) .17 .21 .19 .27 .83(e) Dividends declared per share(d) .013 .013 .013 .020 .060
(a) For the quarters ended September 30 and December 31, 1998, March 31 and June 30, 1999 and the full year 1999, exclusive of nonrecurring items (Note 10), net income per diluted share would have been $.24, $.27, $.23, $.32 and $1.05, respectively. (b) In addition, Supercuts UK declared dividends of $2,829 during fiscal year 1999. (c) For the quarter ended September 30, 1997 and the full year 1998, exclusive of nonrecurring items (Note 10), net income per diluted share would have been $.20 and $.86, respectively. (d) In addition, Supercuts UK declared dividends of $2,057 during fiscal year 1998. (e) The summation of quarterly net income per diluted share does not equate to the calculation for the full fiscal year as quarterly calculations are performed on a discrete basis. 32 34 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table sets forth, for the periods indicated, selected financial data derived from the Company's consolidated financial statements.
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Revenues $991,900 $860,620 $765,170 $661,383 $561,797 Operating income (a) 65,335 65,858 33,178 29,578 28,785 Net income (a) 32,205 33,894 9,377 11,690 12,794 Net income per diluted share (a) .78 .83 .24 .30 .34 Total assets 500,582 408,733 354,016 320,428 258,403 Long-term debt, including current portion 166,986 126,960 120,568 107,242 91,354 Dividends declared(b) $.10 $.06 $.05 $.05 --
(a) The following information is provided to facilitate comparisons of operating income, net income and net income per diluted share, absent the impact of certain nonrecurring activities (see Note 10 to the Consolidated Financial Statements). Exclusive of nonrecurring items, operating income would have been $81,468, $67,838, $51,909 and $42,401 in 1999, 1998, 1997 and 1996, respectively. Exclusive of nonrecurring items, net income and net income per diluted share, respectively, would have been $43,759 and $1.05 in 1999; $35,006 and $.86 in 1998; $24,140 and $.61 in 1997; $19,220 and $.50 in 1996; and $12,089 and $.32 in 1995. (b) In addition, Supercuts UK declared dividends of $2,829, $2,057, $1,072, $512 and $160 during 1999, 1998, 1997, 1996 and 1995, respectively. KEY RATIOS
FOR THE YEARS ENDED JUNE 30, 1999 1998 1997 ---- ---- ---- Net income per diluted share exclusive of goodwill amortization* 1.20 0.98 0.72 Gross margin percentage 43.8% 43.5% 42.6% Salon contribution percentage 17.9% 17.2% 15.9% Product sales mix 28.0% 27.8% 26.6% Operating income as percent of revenues* 8.2% 7.9% 6.8% Debt-to-capitalization ratio 41.6% 39.2% 43.6%
* Excludes nonrecurring items (see Note 10 to the Consolidated Financial Statements) 33 35 ANNUAL RESULTS The following table sets forth for the periods indicated certain information derived from the Company's Consolidated Statement of Operations expressed as a percent of revenues. The percentages are computed as a percent of total Company revenues, except as noted.
FOR THE YEARS ENDED JUNE 30, ---------------------------- 1999 1998 1997 ------ ------ ------ Company-owned service revenues (1) 72.0% 72.2% 73.4% Company-owned product revenues (1) 28.0 27.8 26.6 Franchise revenue 4.8 5.3 5.7 Company-owned operations: Profit margins on service (2) 42.9 42.8 41.7 Profit margins on product (3) 46.1 45.4 45.1 Direct salon (1) 8.6 8.9 9.3 Rent (1) 14.0 14.1 14.0 Depreciation (1) 3.3 3.3 3.4 Direct salon contribution (1) 17.9 17.2 15.9 Selling, general and administrative 11.3 11.5 11.7 Depreciation and amortization 1.3 1.2 1.1 Nonrecurring items 1.6 0.2 2.4 Operating income 6.6 7.7 4.3 Income before income taxes 5.6 6.6 3.1 Net income 3.2 3.9 1.2 Operating income, excluding nonrecurring items 8.2 7.9 6.8 Net income, excluding nonrecurring items 4.4 4.1 3.2
(1) Computed as a percent of company-owned revenues. (2) Computed as a percent of service revenues. (3) Computed as a percent of product revenues. 34 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SUMMARY Regis Corporation, based in Minneapolis, is the largest owner, operator, franchisor and consolidator of hair and retail product salons in the world. The Regis worldwide operations include 5,022 hairstyling salons at June 30, 1999 operating in two segments: domestic and international. The Company's domestic segment includes 4,650 salons operating primarily under the brand names of Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters. The Company's international operations include 372 salons located in the United Kingdom. The Company has more than 31,000 employees worldwide. During fiscal 1999, the Company's consolidated revenues increased 15.3 percent to $991.9 million. Exclusive of nonrecurring items, operating income grew 20.1 percent to $81.5 million and net income per diluted share increased 22.1 percent to $1.05 per share, compared to $.86 per share in the prior year. During fiscal 1998, the Company's consolidated revenues increased 12.5 percent to a record $860.6 million. Exclusive of nonrecurring items, operating income grew 30.7 percent to $67.8 million and net income increased 41.0 percent to $.86 per share, compared to $.61 per share in the prior year. The consolidated financial statements for 1998 and 1997 have been restated to include the retroactive effects of the March 1999 merger with Heidi's, Inc. (Heidi's), the May 1999 merger with The Barbers, Hairstyling for Men & Women, Inc. (The Barbers), these transactions were accounted for as poolings-of-interests (Note 3). In October 1999, the Company consummated a merger with Supercuts UK in a stock-for-stock transaction. The acquisition has been accounted for under the pooling-of-interests basis of accounting and, accordingly, as discussed in Note 3, the Company's consolidated financial statements have been restated to retroactively include the accounts and results of operations of Supercuts UK for all periods presented. RESULTS OF OPERATIONS REVENUES REVENUES. Revenues in fiscal 1999 grew to a record $991.9 million, an increase of $131.3 million, or 15.3 percent, over fiscal 1998. Approximately 30 percent of this increase is attributable to increases in same-store sales, with the remaining increase due to net salon openings and acquisitions occurring in fiscal 1999 and the full year impact of fiscal 1998 net salon openings and acquisitions. Mall based and strip center salon operations in the United States and Canada (Domestic salons) accounted for $129.9 million of the increase in total revenues. Franchise income increased $1.8 million due to an increase in sales of franchised salons. These increases were offset by a decrease in revenue from the Company's International operations. During fiscal 1999, the Company closed or disposed of its salon operations in South Africa, Mexico, Ireland, Switzerland and France which resulted in a decrease in revenues when compared to fiscal 1998. 35 37 Revenues by division for the years ended June 30, 1999, 1998 and 1997 are as follows:
(dollars in thousands) 1999 1998 1997 ---- ---- ---- Domestic: Regis $356,473 $319,404 $297,454 MasterCuts 123,454 107,821 94,963 Trade Secret 136,874 115,024 91,412 Wal-Mart 63,480 45,908 34,625 Strip Center 145,888 108,146 94,904 Franchise Income 47,731 45,965 43,536 International 118,000 118,352 108,276 --------- --------- --------- $991,900 $860,620 $765,170 ======== ======== ========
During fiscal 1999, same-store sales from all Domestic company-owned salons open more than 12 months increased 5.6 percent, compared to increases of 5.8 percent and 3.1 percent in fiscal 1998 and 1997, respectively. Same-store sales for the United Kingdom salons (U.K. salons) increased 1.2 percent in fiscal 1999. Same-store sales increases achieved during fiscal 1999, 1998 and 1997 were driven primarily by increased customer transactions and market based price increases in certain salon divisions. A total of 99 million customers were served in fiscal 1999 compared to 92 million and 86 million customers served in fiscal 1998 and 1997, respectively. The Company utilizes an audiovisual-based training system in its salons. Management believes this training system provides its employees with improved customer service and technical skills, and positively contributes to the increase in customers served. System-wide sales, inclusive of non-consolidated sales generated from franchisee salons, grew to $1.5 billion, $1.3 billion, and $1.1 billion in fiscal 1999, 1998 and 1997, representing increases of 15.4 percent, 18.2 percent and 10.0 percent, respectively. The increase in system-wide sales in fiscal 1999 and 1998 was the result of same-store sales increases from existing salons and net salon openings as well as the total number of salons added to the system through acquisitions. System-wide same-store sales increased 5.4 percent, 5.3 percent and 2.6 percent in fiscal 1999, 1998 and 1997, respectively. SERVICE REVENUES. Service revenues increased to $679.7 million, $588.1 million and $529.5 million for 1999, 1998 and 1997. The growth in service revenues of 15.6 percent and 11.1 percent in fiscal 1999 and 1998, respectively, was driven by acquisitions, same store-sales growth, and accelerated new salon construction. 36 38 PRODUCT REVENUES. Product revenues increased to $264.5 million, $226.5 million and $192.1 million in fiscal 1999, 1998 and 1997. The growth in product revenue of 16.8 percent and 17.9 percent in fiscal 1999 and 1998, respectively, continues a trend of escalating product revenues due to strong product same-store sales growth, a reflection of continuous focus on product awareness, training and acceptance of national label merchandise and opening an additional 108 Trade Secret salons through new construction or acquisitions between the two periods. In fiscal 1999, product revenues as a percent of total company-owned revenues increased to 28.0 percent of revenues, compared to 27.8 percent and 26.6 percent of revenues in 1998 and 1997, respectively. FRANCHISE INCOME. Franchise revenue, including royalties and initial franchise fees from franchisees, and product and equipment sales made by the Company to franchisees, increased 3.8 percent in fiscal 1999 to $47.7 million from $46.0 million in fiscal 1998. In fiscal 1998, franchise revenue increased 5.6 percent, or $2.4 million, compared to fiscal 1997. The increase in franchise revenue in 1999 and 1998 is primarily the result of an increased royalties on higher franchise sales, (which are not included in the Company's consolidated revenues) and an increase in product and equipment sales to franchisees. COST OF REVENUE The aggregate cost of product and service revenues in fiscal 1999 was $531.0 million, compared to $460.3 million and $414.2 million in fiscal 1998 and 1997, respectively. As discussed in the following paragraphs, the resulting gross margin percentage for fiscal 1999 improved to 43.8 percent of company-owned revenues compared to 43.5 percent and 42.6 percent of company-owned revenues in fiscal 1998 and 1997. SERVICE MARGINS for fiscal 1999 improved 10 basis points to 42.9 percent of company-owned revenues, compared to 42.8 percent and 41.7 percent in the two preceding fiscal years. This continued improvement was driven by ongoing efforts by the Company to control payroll costs in all operating divisions and growth in the mix of the Company's higher service margin salon concepts, primarily Supercuts, MasterCuts and Wal-Mart/SmartStyle. PRODUCT MARGINS for fiscal 1999 improved to 46.1 percent of company-owned revenues, compared to 45.4 percent and 45.1 percent in fiscal 1998 and 1997. This 70 basis point improvement was primarily driven by lower product costs in Supercuts and Trade Secret salons resulting from the benefit of Regis' purchasing power. Fiscal 1998 product margins also benefited from lower product costs, primarily in the Supercuts and Wal-Mart/SmartStyle salons. DIRECT SALON This expense category includes direct costs associated with salon operations such as advertising, promotion, insurance, telephone and utilities. Direct salon expenses were $81.1 million in fiscal 1999, compared to $72.6 million and $67.0 million in fiscal 1998 and 1997, and improved as a percent of company-owned revenue to 8.6 percent, compared to 8.9 percent and 9.3 percent in fiscal 1998 and 1997. The fiscal 1999 improvement in direct salon expenses is a result of the Company's increased ability to leverage these costs against strong same-store sales and a maturing salon base. The fiscal 1998 improvement in direct salon expenses was due to the closures of under-performing stores, primarily Supercuts salons, as well as sales leverage. 37 39 RENT Rent expense in fiscal 1999 was $131.9 million, compared to $114.7 million and $101.2 million in fiscal 1998 and 1997. Rent expense in fiscal 1999 increased 15.0 percent or $17.3 million from fiscal 1998. Rent expense in fiscal 1999 improved 10 basis points to 14.0 percent of company-owned revenues compared to 14.1 percent in fiscal 1998 and 1997, respectively. The slight improvement is a result of leveraging this fixed cost against same-store sales increases. DEPRECIATION - SALON LEVEL Depreciation expense at the salon level remained consistent in fiscal 1999 at 3.3 percent of revenues compared to 3.3 percent and 3.4 percent in fiscal 1998 and 1997. DIRECT SALON CONTRIBUTION For reasons previously discussed, direct salon contribution, representing company-owned salon revenues less associated operating expenses, improved in fiscal 1999 to $168.8 million or 17.9 percent of company-owned revenues, compared to $140.5 million or 17.2 percent in fiscal 1998 and $115.1 million or 15.9 percent in fiscal 1997. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative (SG&A) expenses include field supervision (payroll, related taxes and travel) and home office administration costs (such as warehousing, salaries, occupancy costs and professional fees). SG&A expenses increased $13.1 million in fiscal 1999 to $112.4 million, compared to $99.3 million in fiscal 1998, but improved as a percent of total revenue to 11.3 percent in 1999 from 11.5 percent and 11.7 percent in fiscal 1998 and 1997, respectively. The 20 basis point improvement in SG&A in 1999 is a result of the Company's ability to leverage the fixed cost components of this category against revenue increases. The 20 basis point improvement in SG&A in fiscal 1998 was primarily driven by cost reductions associated with the amalgamation of the Supercuts administrative office functions. DEPRECIATION AND AMORTIZATION - CORPORATE Depreciation and amortization-corporate was 1.3 percent of total revenues in 1999, compared to 1.2 percent and 1.1 percent of total revenues in fiscal 1999 and 1998, respectively. Amortization expense increased in fiscal 1998 and 1997 due to the increased level of goodwill, associated with the Company's salon acquisition activity. Fiscal 1999 depreciation expense increased over fiscal 1998 and 1997, primarily due to increased depreciation levels associated with the Company's fiscal 1998 purchases of additional corporate office buildings and new distribution center. NONRECURRING ITEMS See Note 10 to the Consolidated Financial Statements. 38 40 OPERATING INCOME Operating income in fiscal 1999 was $65.3 million, compared to $65.9 million in fiscal 1998. Fiscal 1999 operating income was impacted by merger and transaction costs associated with the Heidi's and The Barbers mergers, a nonrecurring charge related to restructuring the Company's International operations and nonrecurring costs associated with the Company's year 2000 remediation program. Operating income increased to $65.9 million in 1998 from $33.2 million in fiscal 1997. Fiscal 1997 was significantly affected by Supercuts-related merger and transaction costs, and restructuring charges (nonrecurring items). Exclusive of nonrecurring items, operating income in fiscal 1999 improved 20.1 percent to $81.5 million, or 8.2 percent of revenues, compared to $67.8 million and $51.9 million in fiscal 1998 and 1997, respectively. The annual improvements were driven by improved gross margins and the overall leveraging of fixed costs. INTEREST Interest expense in fiscal 1999 was $11.6 million, compared to $10.5 million and $10.7 million in fiscal 1998 and 1997, representing 1.2 percent, 1.2 percent and 1.4 percent of total revenues, respectively. Although debt levels have increased, interest expense as a percent of sales has remained relatively consistent due to the benefit of reduced interest rates and the Company's ability to leverage this cost against revenue increases. INCOME TAXES The Company's effective tax rate in fiscal 1999 was 41.8 percent of pre-tax income compared to 40.1 percent and 61.0 percent in fiscal 1998 and 1997. In fiscal 1999, the Company's effective tax rate was negatively impacted by nondeductible merger and transaction costs associated with the Company's mergers with Heidi's and The Barbers, and the UK restructuring charges. In fiscal 1997, the Company's effective tax rate was negatively affected by nondeductible merger and transaction costs associated with the Supercuts merger. Exclusive of nonrecurring items, the Company's effective tax rate was 38.7 percent, 40.1 percent and 42.3 percent, respectively, in fiscal 1999, 1998 and 1997. In fiscal 1999, the Company's effective tax rate benefited from net operating losses utilized by Heidi's prior to the merger and an increase in international pre-tax income during the fourth quarter of fiscal 1999 which is taxed at a lower rate. The fiscal 1997 effective tax rate was negatively affected by the Company's inability to fully utilize the income tax benefits of Supercuts operating costs in certain states. Additionally, as part of its June 30, 1997 income tax provision, the Company recorded a $1.5 million change in estimate associated with income tax matters related to years prior to 1997. 39 41 NET INCOME Net income in fiscal 1999 was $32.2 million, or $0.78 per diluted share, compared to net income of $33.9 million, or $.83 per diluted share, in fiscal 1998, and $9.4 million, or $.24 per diluted share, in fiscal 1997. Exclusive of nonrecurring items, net income in fiscal 1999 increased to a record $43.8 million, or $1.05 per diluted share, compared to net income exclusive of nonrecurring items $35.0 million, or $.86 per diluted share, in fiscal 1998 and $24.1 million, or $.61 per diluted share in fiscal 1997. Earnings per diluted share, exclusive of nonrecurring items, increased 22.1 percent and 41.0 percent in fiscal 1999 and 1998, respectively. These increases primarily resulted from sales increases, improved gross margins and leveraging of fixed costs, as previously discussed. EFFECTS OF INFLATION The Company compensates its Regis and International salon employees with percentage commissions based on sales they generate, thereby enabling salon payroll expense as a percent of revenues to remain relatively constant. Accordingly, this provides the Company certain protection against inflationary increases as payroll expense and related benefits (the Company's major expense components) are, with respect to these divisions, variable costs of sales. The Company does not believe inflation, due to its low rate, has had a significant impact on the results of operations associated with hourly paid hairstylists for the remainder of its mall-based and strip center salons. LIQUIDITY AND CAPITAL RESOURCES Customers pay for salon services and merchandise in cash at the time of sale, which reduces the Company's working capital requirements. Net cash provided by operating activities in fiscal 1999 rose to $76.4 million compared to $74.3 million in fiscal 1998. The increase in fiscal 1999 is due to improved operating performance during the year partially offset by cash paid for merger costs associated with The Barbers and Heidi's mergers of $3.0 million and the UK restructuring of $.3 million. Capital Expenditures and Acquisitions During fiscal 1999, the Company had worldwide capital expenditures of $77.1 million, of which $6.4 million related to acquisitions of 280 salons and $3.5 million for equipment acquired under capital leases. During fiscal 1999, the Company constructed 282 new salons. The Company also completed 95 major remodeling projects. All capital expenditures during fiscal 1999 were funded by the Company's operations and borrowings under its revolving credit facility. The Company anticipates its worldwide salon development program for fiscal 2000 will include approximately 360 new salons and 125 major remodeling and conversion projects. It is expected that expenditures for these new salons and other projects will be approximately $66.0 million in fiscal 2000, excluding capital expenditures associated with acquisitions. 40 42 Financing Financing activities are discussed in Note 4 to the Consolidated Financial Statements. Subsequent to the Company's fiscal 1999 year end, the Company replaced both of its existing revolving credit facilities with a new senior credit facility which allows for borrowings of $180 million due in July, 2002, and bears interest at prime rate or LIBOR rate plus .50 percent to 1.00 percent based on the company's debt to capitalization ratio. Merger and transaction costs are discussed in Note 3 to the Consolidated Financial Statements. Nonrecurring items are discussed in Note 10 to the Consolidated Financial Statements. The Company translates the financial statements of its international subsidiaries to U.S. dollars for financial reporting purposes, and accordingly is subject to fluctuations in currency exchange rates. Management believes that cash generated from operations and amounts available under its existing debt facilities will be sufficient to fund its anticipated capital expenditures and required debt repayments for the foreseeable future. Dividends In February 1999, the board of directors approved a three-for-two stock split of its common stock in the form of a 50 percent stock dividend distributed on March 1, 1999 to shareholders of record on February 15, 1999. All share and per share amounts have been restated to reflect the stock split. The Company paid dividends of $.10 per share during fiscal 1999 and $.06 per share during fiscal 1998. On August 24, 1999 the Board of Directors of the Company declared a $.03 per share quarterly dividend payable September 22, 1999 to shareholders of record on September 7, 1999. In addition, Supercuts UK declared and paid dividends of $2.8 million, $2.1 million and $1.1 million during fiscal 1999, 1998, and 1997, respectively. 41 43 Year 2000 The Company previously initiated a comprehensive project to prepare its computer systems for the Year 2000. The Company has completed all phases of the project including the awareness, assessment, validation and implementation phases. Accordingly, management believes the Year 2000 will not have a significant impact on operations. As part of the overall project, the Company is in the process of developing a contingency plan to mitigate the Company's risk that primary vendors or other external forces could have an impact on the Company's operations. Costs associated with the Year 2000 are expensed as incurred and are funded through operating cash flows. The Company has incurred $4.6 million related to Year 2000 project costs from the project's inception in fiscal 1998 through fiscal 1999, of which $4.1 million was incurred and charged to earnings during fiscal 1999. No significant additional costs are anticipated to be incurred in the future. The Company has contacted critical suppliers of products and services to assess whether the suppliers' operations and the products and services they provide are Year 2000 compliant or to monitor their progress toward Year 2000 compliance. The results of the Company's inquiries have indicated that the majority of our critical suppliers are either compliant or have a plan in place to be compliant by the end of 1999. There can be no absolute assurance that another company's failure to ensure Year 2000 compliance would not have an adverse effect on the Company. 42 EX-99.B 3 UNAUDITED CONSOLIDATED BALANCE SHEET 1 EXHIBIT B Unaudited consolidated balance sheet as of September 30, 1999 and the related consolidated statements of operations and cash flows for the three months ended September 30, 1999 and 1998 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations for the three months ended September 30, 1999 and 1998. 43 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS REGIS CORPORATION CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND JUNE 30, 1999 (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AND SHARE AMOUNTS)
(UNAUDITED) SEPTEMBER 30, 1999 JUNE 30, 1999 ------------------ -------------- ASSETS Current assets: Cash $ 14,817 $ 10,353 Accounts receivable, net 17,995 16,598 Inventories 73,720 70,056 Deferred income taxes 8,321 8,596 Other current assets 6,599 11,780 ----------- ---------- Total current assets 121,452 117,383 Property and equipment, net 227,044 215,952 Goodwill 166,038 153,956 Other assets 14,926 13,291 ---------- ---------- Total assets $529,460 $500,582 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current portion $ 13,157 $ 23,945 Accounts payable 32,163 23,877 Accrued expenses 60,110 58,818 --------- ---------- Total current liabilities 105,430 106,640 Long-term debt 159,825 143,041 Other noncurrent liabilities 18,642 16,682 Shareholders' equity: Common stock, $.05 par value; issued and outstanding, 40,492,172 and 40,419,112 common shares at September 30, 1999 and June 30, 1999, respectively 2,025 2,021 Additional paid-in capital 148,785 148,504 Accumulated other comprehensive income (850) (1,095) Retained earnings 95,603 84,789 ---------- ---------- Total shareholders' equity 245,563 234,219 --------- --------- Total liabilities and shareholders' equity $529,460 $500,582 ======== ========
44 3 REGIS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 1998 ---- ---- Revenues: Company-owned salons: Service $ 181,836 $ 159,995 Product 71,871 60,431 ---------- ---------- 253,707 220,426 Franchise income 12,401 11,571 ---------- ---------- 266,108 231,997 Operating expenses: Company-owned: Cost of service 102,948 90,478 Cost of product 38,554 32,473 Direct salon 22,294 19,133 Rent 35,360 30,761 Depreciation 8,608 7,386 ---------- ----------- 207,764 180,231 Selling, general and administrative 28,261 27,785 Depreciation and amortization 3,768 3,218 Nonrecurring items - 1,359 Other 2,599 2,234 ---------- ------------ Total operating expenses 242,392 214,827 --------- ---------- Operating income 23,716 17,170 Other income (expense): Interest (3,367) (2,722) Other, net 414 381 ---------- ------------- Income before income taxes 20,763 14,829 Income taxes (8,125) (5,697) ---------- ------------ Net income $ 12,638 $ 9,132 ========== =========== Net income per share: Basic $ .31 $ .23 ========== ============ Diluted $ .30 $ .22 ========== ============
45 4 REGIS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (DOLLARS IN THOUSANDS)
1999 1998 ---- ---- Cash flows from operating activities: Net income $12,638 $ 9,132 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 9,962 8,586 Amortization 2,404 1,959 Deferred income taxes 413 (143) Other (519) 1,031 Changes in assets and liabilities: Accounts receivable (1,243) 625 Inventories (3,149) (947) Other current assets 5,139 36 Other assets (1,859) (303) Accounts payable 6,759 (2,311) Accrued expenses 1,041 (540) Other noncurrent liabilities 1,955 1,816 -------- -------- Net cash provided by operating activities 33,541 18,941 -------- ------- Cash flows from investing activities: Capital expenditures (19,338) (16,223) Proceeds from sale of assets 51 19 Purchases of salon assets, net of cash acquired and certain obligations assumed (14,637) (10,506) -------- -------- Net cash used in investing activities (33,924) (26,710) -------- -------- Cash flows from financing activities: Borrowings on revolving credit facilities 86,361 67,987 Payments on revolving credit facilities (57,161) (66,695) Proceeds from issuance of long-term debt 21,392 Repayment of long-term debt (23,372) (13,842) Dividends paid (1,162) (715) Proceeds from issuance of common stock 216 281 -------- -------- Net cash provided by financing activities 4,882 8,408 -------- -------- Effect of exchange rate changes on cash (35) (15) -------- -------- Increase in cash 4,464 624 Cash: Beginning of period 10,353 10,469 -------- -------- End of period $14,817 $ 11,093 ======== ========
46 5 REGIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation of Unaudited Interim Consolidated Financial Statements: ----------------------------------------------------------------------------- The unaudited interim consolidated financial statements of Regis Corporation (the Company) as of September 30, 1999 and for the three months ended September 30, 1999 and 1998, reflect, in the opinion of management, all adjustments (which, with the exception of the matters discussed in Note 5 herein, include only normal recurring adjustments) necessary to fairly present the consolidated financial position of the Company as of September 30, 1999 and its consolidated results of operations and cash flows for the interim periods. The results of operations and cash flows for any interim period are not necessarily indicative of results of operations and cash flows for the full year. The year-end consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles. The unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended June 30, 1999, which are included in the Company's Form 8-K (presented in Exhibit A). PricewaterhouseCoopers LLP, the Company's independent accountants, have performed limited reviews of the interim consolidated financial data included herein. Their report on such reviews accompanies this filing. In October 1999, the Company consummated a merger with Supercuts (Holdings) Limited (Supercuts UK) in a stock-for-stock transaction. The acquisition has been accounted for under the pooling-of-interests basis of accounting and, accordingly, as discussed in Note 7, the Company's consolidated financial statements have been restated to retroactively include the accounts and results of operations of Supercuts UK. COST OF PRODUCT SALES. On an interim basis, product costs are determined by applying an estimated gross profit margin to product revenues. 2. Comprehensive Income Comprehensive income for the Company includes net income and foreign currency translation charged or credited to the cumulative translation account within shareholders' equity. Comprehensive income for the three months ended September 30, 1999 and 1998 was as follows:
THREE MONTHS ENDED SEPTEMBER 30, (Dollars in thousands) 1999 1998 ---- ---- Net income $12,638 $9,132 Change in cumulative foreign currency translation 245 1,021 Less reclassification adjustment for translation losses realized in net income (964) ------- ------ Total comprehensive income $12,883 $9,189 ======= ======
47 6 3. Net Income per Share: --------------------- Basic earnings per share (EPS) is calculated as net income divided by weighted average common shares outstanding. The Company's only dilutive securities are issuable under the Company's Stock Option Plan, as amended. Diluted EPS is calculated as net income divided by weighted average common shares outstanding, increased to include assumed conversion of dilutive securities. The following provides information related to the weighted average common shares used in the calculation of the Company's basic and diluted EPS:
THREE MONTHS ENDED SEPTEMBER 30, --------------------------- 1999 1998 ---- ---- Weighted average shares for basic earnings per share 40,441,552 40,036,057 Dilutive effect of stock options 1,143,202 1,138,606 ---------- ---------- Weighted average for shares for diluted earnings per share 41,591,622 41,174,663 ========== ==========
4. Nonrecurring Items: ------------------ Nonrecurring items included in operating income in the first quarter of fiscal 1999 consist of $1.4 million of expense associated with the Company's year 2000 remediation. 5. Transaction and Restructuring Liabilities: ------------------------------------------ The following provides additional information concerning the Company's transaction and restructuring liability related to its fiscal 1999 mergers with The Barbers and Heidi's and its restructuring liability related to its fiscal 1999 restructuring plan for its international operations.
June 30, Cash September 30, 1999 Payments 1999 -------- -------- ------------- Restructuring-International Severance $ 562 $ 378 $ 184 Salon closures and dispositions 1,187 177 1,010 Other 351 351 ------- ------- ------- 2,100 555 1,545 Restructuring-Mergers Severance 2,883 288 2,595 Salon closures and dispositions 115 32 83 Other 746 583 163 ------- ------- ------- 3,744 903 2,841 Transaction Charges-Mergers 137 110 27 ------- ------- ------- $ 5,981 $ 1,568 $ 4,413 ======= ======= =======
48 7 6. Segment Information: -------------------- Commencing with its 1999 fiscal year end reporting, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". This new standard requires public companies to report financial and descriptive information about their reportable operating segments, generally based on the way that management has organized the segments within the enterprise for making operating decisions and assessing performance. Each of the Company's operating segments have generally similar products and services. The Company is organized to manage its operations based on geographical location. The Company's operating segments have been aggregated into two reportable segments: domestic salons and international salons. The Company operates or franchises 4,810 domestic salons located within high-profile regional malls and strip shopping centers under several different concepts including Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters brand names. The Company's International segment includes 367 salons operating in leading department stores, mass merchants, strip shopping centers and high street locations. The accounting policies of the reportable segments are the same as those used for the Consolidated Financial Statements. The Company evaluates the performance of its operating segments based on direct salon contribution, before supervision and corporate overhead expenses. Intersegment sales and transfers are not significant Summarized financial information concerning the Company's reportable segments for the three months ended September 30, 1999 and 1998, respectively, is shown in the following table.
(Dollars in thousands) 1999 1998 ---- ---- Company-owned revenues: Domestic $227,717 $190,650 International 25,990 29,776 -------- -------- Total $253,707 $220,426 ======== ======== Salon contribution: Domestic $ 41,352 $ 35,586 International 4,591 4,609 --------- --------- Total $ 45,943 $ 40,195 ========= =========
49 8 7. Merger and Acquisitions: ----------------------- Effective October 31, 1999, the Company consummated a merger with Supercuts UK. Supercuts UK is a United Kingdom based company operating 68 hairstyling salons under the Supercuts brand name. Under the terms of the merger agreement, the shareholders of Supercuts UK, a privately held company, received 1,778,000 shares of Regis Corporation common stock. The transaction has been accounted for as a pooling-of-interests. Prior period financial statements have been restated to reflect this merger as if the merged companies had always been combined. Prior to the combination, Supercuts UK's fiscal year ended on the Saturday closest to August 31. In recording the pooling-of-interests combination, Supercuts UK's final statements for the three months ended September 30, 1999 were combined with Regis consolidated financial statements for the same period. Supercuts UK's financial statements for the years ended September 4, 1999 and August 29, 1998 were combined with Regis' financial statements for the years ended June 30, 1999 and 1998, respectively. An adjustment of $.7 million has been made to shareholders' equity in the period ended September 30, 1999 to eliminate the effects of including Supercuts UK's results of operations for the two months ended September 4, 1999 in the Company's consolidated financial statements for the three months ended September 30, 1999. 50 9 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of Regis Corporation: We have reviewed the accompanying consolidated balance sheet of Regis Corporation as of September 30, 1999, and the related consolidated statements of operations and cash flows for the three month periods ended September 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements referred to above for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of June 30, 1999, and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income and cash flows for the year then ended (presented in Exhibit A), and in our report dated February 8, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of June 30, 1999, is fairly stated, in all material respects in relation to the consolidated balance sheet from which it has been derived. PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota February 8, 2000 51 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY Regis Corporation, based in Minneapolis, is the world's largest owner, operator, franchisor and acquirer of hair and retail product salons all in 50 states, Puerto Rico, Canada and the United Kingdom. The Regis worldwide operations include 5,109 salons at September 30, 1999 operating in two segments: domestic and international. The Company's domestic segment includes 4,742 salons operating primarily under the brand names of Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters. The Company's international operations include 367 salons located in the United Kingdom. The Company has more than 32,000 employees worldwide. Consolidated financial data for all periods presented reflect the retroactive effects of the October 1999 merger with Supercuts UK which has been accounted for as a pooling-of-interests (See Notes 1 and 7 to the Consolidated Financial Statements). The financial statements have been prepared by combining current and historical financial statements of Regis Corporation with those of Supercuts UK for each period presented. During the first quarter of fiscal 2000, the Company's consolidated revenues grew to a record $266.1 million, including franchise income of $12.4 million, a 14.7 percent increase over first quarter fiscal 1999 consolidated revenues of $232.0 million. First quarter operating income grew to $23.7 million, a 38.1 percent increase over the first quarter of fiscal 1999. Net income in the first quarter of fiscal 2000, increased to $12.6 million, or $.30 per diluted share, an earnings per share increase of 25.0 percent from first quarter fiscal 1999 net income of $10.0 million, or $.24 per diluted share. Prior year fiscal 1999 results reflect the costs associated with the Company's year 2000 remediation program, which are nonrecurring in nature. Net income in the first quarter of fiscal 1999, including nonrecurring items, was $9.1 million, or $.22 per diluted share. 52 11 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain information derived from the Company's Consolidated Statement of Operations expressed as a percentage of total revenues, except as noted.
For the Three Months Ended SEPTEMBER 30, 1999 1998 ---- ----- Company-owned service revenues (1) 71.7% 72.6% Company-owned product revenues (1) 28.3 27.4 Franchise income 4.7 5.0 Company-owned operations: Profit margins on service (2) 43.4 43.4 Profit margins on product (3) 46.4 46.3 Direct salon (1) 8.8 8.7 Rent (1) 13.9 14.0 Depreciation (1) 3.4 3.4 Direct salon contribution (1) 18.1 18.2 Selling, general and administrative 10.6 12.0 Depreciation and amortization 1.4 1.4 Nonrecurring items 0.6 Other 1.0 1.0 Operating income 8.9 7.4 Income before income taxes 7.8 6.4 Net income 4.7 3.9 Operating income, excluding nonrecurring items 8.9 8.0 Net income, excluding nonrecurring items 4.7 4.3
(1) Computed as a percent of company-owned revenues (2) Computed as a percent of company-owned service revenues (3) Computed as a percent of company-owned product revenues 53 12 THREE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998: REVENUES REVENUES for the first quarter of fiscal 2000 grew to a record $266.1 million, an increase of $34.1 million or 14.7 percent, over the same period in fiscal 1999. System-wide sales, inclusive of non-consolidated sales generated from franchised salons, increased 11.7 percent in the first quarter of fiscal 2000 to $395.7 million. These increases in company-owned and system-wide sales are the result of the total number of salons added to the system through acquisitions, same-store sales increases as well as net salon openings. Revenues by division for the first quarter of fiscal 2000 and 1999 are as follows:
(Dollars in thousands) 2000 1999 ---- ---- Regis Salons $ 91,707 $ 83,849 Strip Center Salons (primarily Supercuts) 44,700 32,345 MasterCuts 34,227 29,418 Trade Secret 38,238 30,981 SmartStyle 18,845 14,057 International 25,990 29,776 Franchise income 12,401 11,571 -------- -------- $266,108 $231,997 ======== ========
Same-store sales for domestic company-owned salons increased 4.2 percent in the first quarter of fiscal 2000, compared to same-store sales increases of 5.8 reported in the first quarter of fiscal 1999. System-wide same-store sales for the first quarter of fiscal 2000 increased 4.2 percent, compared to 5.6 percent in the same period in fiscal 1999. Same-store sales increases achieved are primarily due to an increase in the number of customers served. A total of 26 million customers system-wide were served during the first quarter of fiscal 2000. The Company utilizes an audiovisual-based training system in its company-owned salons. Management believes this training system provides its employees with improved customer service and technical skills, and positively contributes to the increase in customers served. SERVICE REVENUES in the first quarter of fiscal 2000 grew to $181.8 million, an increase of $21.8 million, or 13.7 percent, over the same period in fiscal 1999. This increase is a result of salon acquisitions the Company has made during the past twelve months, strong service same-store sale increases of 4.0 percent, and accelerated new salon construction. 54 13 PRODUCT REVENUES in the first quarter of fiscal 2000 grew to $71.9 million, an increase of $11.4 million, or 18.9 percent, over the same period in fiscal 1999. This increase continues a trend of escalating product revenues due to strong product same-store sales growth of 4.8 percent, a reflection of the continuous focus on product awareness, training and acceptance of national label merchandise. Product revenues as a percent of total company-owned revenues increased to 28.3 percent of revenues compared to 27.4 percent of revenues in the same period of fiscal 1999. FRANCHISE INCOME, including royalties, initial franchise fees and product and equipment sales made by the Company to franchisees, increased slightly to $12.4 million in the first quarter of fiscal 2000. The increase in franchise income is a result of an increase in royalties on franchisee sales, which sales are not included in the Company's consolidated revenues, as well as an increase in product sales to franchisees. COST OF REVENUES The aggregate cost of revenues in the first quarter of fiscal 2000 was $141.5 million, compared to $123.0 million in the same period in fiscal 1999. The resulting combined gross margin percentage for the first quarter of fiscal 2000 was 44.2 percent of revenues, identical to that of the first quarter of fiscal 1999. SERVICE MARGINS remained consistent at 43.4 percent in the first quarter of fiscal 2000, compared to 43.4 percent in the same period in fiscal 1999. PRODUCT MARGINS remained fairly consistent at 46.4 percent in the first quarter of fiscal 2000, compared to 46.3 percent in the same period in fiscal 1999. DIRECT SALON This expense category includes direct costs associated with salon operations such as advertising, promotion, insurance, telephone and utilities. Direct salon expense of $22.3 million increased slightly as a percentage of company-owned revenues to 8.8 percent in the first quarter of fiscal 2000 from 8.7 percent in the same period in fiscal 1999. The slight increase is due to an increase in freight costs during the quarter resulting from the roll-out of the new Regis private label product line and, an increase in salon advertising related to the Company's development of the HairMasters and Style America strip center salon concepts. 55 14 RENT Rent expense in the first quarter of fiscal 2000 was $35.4 million or 13.9 percent of company-owned revenues, compared to $30.8 million or 14.0 percent of company-owned revenues, in the same period in fiscal 1999. The slight improvement in rate is primarily due to leveraging this fixed cost against sales increases in the Wal-Mart and International divisions. DEPRECIATION - SALON LEVEL Depreciation expense at the salon level remained consistent at 3.4 percent of revenues in both the first quarter of fiscal 2000 and 1999, primarily due to this fixed cost growing at relatively the same rate as sales due to accelerated new salon construction and acquisitions. DIRECT SALON CONTRIBUTION For the reasons described above, direct salon contribution, representing company-owned salon revenues less associated operating expenses, improved in the first quarter of fiscal 2000 to $45.9 million, or 18.1 percent of company-owned revenues, compared to $40.2 million or 18.2 percent of company-owned revenues in the same period of fiscal 1999. SELLING, GENERAL AND ADMINISTRATIVE Expenses in this category include field supervision (payroll, related taxes and travel) and home office administration costs (such as warehousing, salaries, occupancy costs and professional fees). Selling, general and administrative (SG&A) expenses were $28.3 million, or 10.6 percent of total revenues in the first quarter of fiscal 2000, compared to $27.8 million, or 12.0 percent of total revenues in the same period in fiscal 1999. This 140 basis point rate improvement is primarily related the Company's ability to leverage the fixed cost components of SG&A against sales growth and a decrease in SG&A expenses as a result of the amalgamation of The Barbers merger and implementation of the UK restructuring plan. DEPRECIATION AND AMORTIZATION - CORPORATE Depreciation and amortization remained constant at 1.4 percent of total revenues in the first quarter of fiscal 2000 and 1999, primarily due to increases in the level of goodwill amortization resulting from acquisitions in the past twelve months, offset by leveraging this fixed cost against revenue increases. 56 15 NONRECURRING ITEMS Nonrecurring items included in operating income in the first quarter of fiscal 1999 consist of expenses associated with the Company's year 2000 remediation efforts. See discussion of year 2000 remediation within Liquidity and Capital Resources. OPERATING INCOME Operating income in the first quarter of fiscal 2000 improved to $23.7 million, an increase of $6.5 million over the same period in fiscal 1999. Operating income as a percentage of total revenues grew to 8.9 percent in the first quarter of fiscal 2000 compared to 8.0 percent in the same period in fiscal 1999, excluding nonrecurring items. This improvement is attributable primarily to leveraging of SG&A expenses, partially offset by higher direct salon expenses as a percent of total revenues, excluding nonrecurring items. INTEREST Interest expense in the first quarter of fiscal 2000 grew to $3.4 million compared to $2.7 million for the same period in fiscal 1999, primarily due to an increase in debt levels over the prior year. INCOME TAXES The Company's annual effective income tax rate for fiscal 2000 is estimated to be approximately 39.5 percent, compared to 41.8 percent for fiscal year 1999. In fiscal 1999, the Company's effective tax rate was negatively impacted by nondeductible merger and transaction costs associated with the Company's mergers with Heidi's and The Barbers, and the U.K. restructuring charge. NET INCOME Net income in the first quarter of fiscal 2000 grew to a record $12.6 million or $.30 per diluted share, compared to net income of $9.1 million or $.22 per diluted share in the same period in fiscal 1999. Exclusive of nonrecurring items, net income in the first quarter of the previous 1999 fiscal year was $10.0 million or $.24 per share. 57 16 LIQUIDITY AND CAPITAL RESOURCES Customers generally pay for salon services and merchandise in cash at the time of sale, which reduces the Company's working capital requirements. Net cash provided by operating activities in the first three months of fiscal 2000 grew to $33.5 million compared to $18.9 million during the same period in fiscal 1999. The increase between the two periods is primarily due to improved operating performance. During the first three months of fiscal 2000, the Company had worldwide capital expenditures of $20.7 million, of which $1.4 million related to acquisitions of 92 salons. The Company constructed 18 new Regis Salons, 13 new MasterCuts salons, 11 new Trade Secret salons, 29 new Wal-Mart/SmartStyle salons, 15 new Strip Center Salons and 9 new International salons, and completed 22 major remodeling projects. All capital expenditures during the first three months of fiscal 2000 were funded by cash flow from the Company's operations and borrowings under its revolving credit facility. The Company anticipates its worldwide salon development program for fiscal 2000 will include the construction of approximately 360 new company-owned salons, and 125 major remodeling and conversion projects. It is expected that expenditures for these new salons and other projects will be approximately $70.0 million in fiscal 2000, excluding capital expenditures related to acquisitions. Financing Management believes that cash generated from operations and amounts available under its revolving credit facilities will be sufficient to fund its anticipated capital expenditures and required debt repayments for the foreseeable future. Dividends During the first quarter of fiscal 2000, the Company paid quarterly dividends of $1.2 million, or $.03 per share. On November 2, 1999 the Board of Directors of the Company declared a $.03 per share quarterly dividend payable November 30, 1999 to shareholders of record on November 15, 1999. Year 2000 The Company previously initiated a comprehensive project to prepare its computer systems for the year 2000. The Company has completed all phases of the project including the awareness, assessment, validation and implementation phases. Accordingly, management believes the year 2000 will not have a significant impact on operations. As part of the overall project, the Company is in the process of developing a contingency plan to mitigate the Company's risk that primary vendors or other external forces could have an impact on the Company's operations. 58 17 Costs associated with the year 2000 were expensed as incurred and funded through operating cash flows. The Company incurred $4.6 million related to year 2000 project costs from the project's inception in fiscal 1998 through its completion in fiscal 1999. No significant additional costs are anticipated to be incurred in the future. The Company has contacted critical suppliers of products and services to assess whether the suppliers' operations and the products and services they provide are year 2000 compliant or to monitor their progress toward year 2000 compliance. The results of the Company's inquiries have indicated that the majority of its critical suppliers are either compliant or have a plan in place to be compliant by the end of 1999. There can be no absolute assurance that another company's failure to ensure year 2000 compliance would not have an adverse effect on the Company. 59 EX-15 4 LETTER RE: UNAUDITED INTERIM FINANICAL INFORMATION 1 Exhibit No. 15 February 11, 2000 Securities and Exchange Commission 450 Fifth Street, N.W. Washington DC 20549 RE: Regis Corporation Registration Statements on Form S-3 (File No. 333-28511, No. 333-78793, No. 333-49165, No. 333-89279 and No. 333-90809), and Form S-8 (File No. 33-44867 and No. 33-89882) Commissioners: We are aware that our report dated February 8, 2000, on our review of the interim consolidated financial information of Regis Corporation for the period ended September 30, 1999, and included in this report on Form 8-K, is incorporated by reference in the above referenced registration statements. Yours very truly, /s/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP EX-23 5 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements of Regis Corporation on Form S-3 (Nos. 333-28511, 333-49165, 333-78793, 333-89279 and 333-90809), and Form S-8 (Nos. 33-44867 and 33-89882) of our report dated February 8, 2000 relating to the consolidated financial statements, which report is included in this Report on Form 8-K. /s/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota February 11, 2000 EX-27 6 FINANICAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGIS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1999 AND 1998 AND FOR THE PERIOD ENDED JUNE 30, 1999, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 8-K DATED AS OF SEPTEMBER 30, 1999 AND FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 8-K DATED FEBRUARY 11,2000 1,000 3-MOS 3-MOS YEAR YEAR YEAR JUN-30-2000 JUN-30-1999 JUN-30-1999 JUN-30-1998 JUN-30-1997 JUL-01-1999 JUL-01-1998 JUL-01-1998 JUL-01-1997 JUL-01-1996 SEP-30-1999 SEP-30-1998 JUN-30-1999 JUN-30-1998 JUN-30-1997 1 1 1 1 1 14,817 11,093 10,353 10,469 13,122 0 0 0 0 0 18,391 13,804 16,844 15,214 16,649 396 478 246 678 650 73,720 57,563 70,056 56,030 44,241 121,452 95,624 117,383 95,098 87,418 397,733 339,458 380,906 324,042 267,112 170,689 146,957 164,954 140,847 121,834 529,460 427,057 500,582 408,733 354,016 105,430 94,242 106,640 94,148 100,059 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,025 1,278 2,021 1,334 1,308 243,538 205,825 232,198 195,933 154,351 529,460 427,057 500,528 408,733 354,016 71,871 60,431 264,511 226,513 192,105 266,108 231,997 991,900 860,620 765,170 38,554 32,473 142,643 123,757 105,560 207,764 180,231 775,400 674,186 606,582 6,367 6,811 38,773 21,290 35,553 0 0 0 0 0 3,367 2,722 11,588 10,500 10,685 20,763 14,829 55,314 56,583 24,068 8,125 5,697 23,109 22,689 14,691 12,638 9,132 32,205 33,894 9,377 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12,638 9,132 32,205 33,894 9,377 0.31 0.23 0.80 0.86 0.25 0.30 0.22 0.78 0.83 0.24 FOOTNOTES: Includes nonrecurring year 2000 remediation costs of $1,359. Includes nonrecurring year 2000 remediation costs of $4,095, restructuring charges for international of $5,616, restructuring charges for mergers of $4,356 and merger and transaction costs of $2,066. Includes a charge of $1,979 associated with the divestiture of Anasazi Exclusive Salon Products, Inc. Includes merger and transaction costs of $18,731 associated with the merger of Supercuts, Inc. Excluding nonrecurring year 2000 remediation costs, fully diluted EPS would have been $.24. Excluding nonrecurring items, fully diluted EPS would have been $1.05. Excluding nonrecurring items, fully diluted EPS would have been $.86. Excluding nonrecurring items, fully diluted EPS would have been $.61.
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