-----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, GE5jD0FI7UzSPBAt/9Ywfv0Ya2w7TzzwE53ons2dmQmEOY9/nEV6KLbUpIxv+H20 crU+7Rcqgl479NGIrXQ4FQ== 0001047469-98-039619.txt : 19981110 0001047469-98-039619.hdr.sgml : 19981110 ACCESSION NUMBER: 0001047469-98-039619 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981109 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-11230 FILM NUMBER: 98740789 BUSINESS ADDRESS: STREET 1: 7201 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6129477777 MAIL ADDRESS: STREET 1: 7201 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 10-Q 1 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ----------------------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________________ to___________________ -------------------- For Quarter Ended September 30, 1998 Commission file number 011230 ------------------ ------- Regis Corporation ---------------------------------------------------------- (Exact name of registrant as specified in its charter) Minnesota 41-0749934 -------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7201 Metro Boulevard, Edina, Minnesota 55439 -------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (612)947-7777 --------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 30, 1998:
Common Stock, $.05 par value 23,842,380 - ----------------------------- ---------------- Class Number of Shares
1 REGIS CORPORATION INDEX
PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Consolidated Financial Statements: Balance Sheet as of September 30, 1998 and June 30, 1998 3 Statement of Operations for the three months ended September 30, 1998 and 1997 4 Statement of Cash Flows for the three months ended September 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6-7 Review Report of Independent Accountants 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 18 Signature 19
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS REGIS CORPORATION CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND JUNE 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED) SEPTEMBER 30, 1998 JUNE 30, 1998 ------------------ ------------- ASSETS Current assets: Cash $ 6,001 $ 4,774 Accounts receivable, net 10,184 10,556 Inventories 54,957 53,826 Deferred income taxes 5,652 6,069 Other current assets 5,401 6,688 --------- --------- Total current assets 82,195 81,913 Property and equipment, net 184,602 175,831 Goodwill 121,537 114,217 Other assets 10,981 10,389 --------- --------- Total assets $ 399,315 $ 382,350 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current portion $ 22,914 $ 19,741 Accounts payable 20,066 22,374 Accrued expenses 39,851 41,650 --------- --------- Total current liabilities 82,831 83,765 Long-term debt 108,582 100,995 Other noncurrent liabilities 10,136 8,329 Shareholders' equity: Common stock, $.05 par value; issued and outstanding, 23,839,680 and 23,820,362 common shares at September 30, 1998 and June 30, 1998, respectively 1,192 1,191 Additional paid-in capital 132,987 132,560 Accumulated other comprehensive income (669) (1,677) Retained earnings 64,256 57,187 --------- --------- Total shareholders' equity 197,766 189,261 --------- --------- Total liabilities and shareholders' equity $ 399,315 $ 382,350 --------- --------- --------- ---------
See accompanying notes to unaudited Consolidated Financial Statements. 3 REGIS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1998 1997 ---- ---- Revenues: Company-owned salons: Service $ 149,010 $ 130,078 Product 58,987 51,864 --------- --------- 207,997 181,942 Franchise income 6,522 6,739 --------- --------- 214,519 188,681 --------- --------- Operating expenses: Company-owned: Cost of service 83,985 74,520 Cost of product 31,636 28,594 Direct salon 18,460 17,275 Rent 28,729 25,470 Depreciation 7,161 6,037 --------- --------- 169,971 151,896 Selling, general and administrative 24,371 20,233 Depreciation and amortization 3,196 2,070 Nonrecurring items 1,359 1,979 Other 369 388 --------- --------- Total operating expenses 199,266 176,566 --------- --------- Operating income 15,253 12,115 Other income (expense): Interest (2,706) (2,417) Other, net 366 293 --------- --------- Income before income taxes 12,913 9,991 Income taxes (5,129) (4,195) --------- --------- Net income $ 7,784 $ 5,796 --------- --------- --------- --------- Net income per share: Basic $ .33 $ .25 --------- --------- --------- --------- Diluted $ .32 $ .24 --------- --------- --------- ---------
See accompanying notes to unaudited Consolidated Financial Statements. 4 REGIS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (DOLLARS IN THOUSANDS)
1998 1997 ---- ---- Cash flows from operating activities: Net income $ 7,784 $ 5,796 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 8,481 6,717 Amortization 1,894 1,474 Deferred income taxes (53) 667 Nonrecurring items 1,979 Other 1,060 269 Changes in assets and liabilities: Accounts receivable 485 1,741 Inventories (545) (2,565) Other current assets 1,284 (2,407) Other assets (293) (248) Accounts payable (2,947) (3,651) Accrued expenses (1,384) 2,965 Other noncurrent liabilities 1,832 210 -------- -------- Net cash provided by operating activities 17,598 12,947 -------- -------- Cash flows from investing activities: Capital expenditures (15,584) (10,995) Purchases of salon assets, net of cash acquired and certain obligations assumed (10,506) (2,004) -------- -------- Net cash used in investing activities (26,090) (12,999) -------- -------- Cash flows from financing activities: Borrowings on revolving credit facilities 67,987 25,694 Payments on revolving credit facilities (66,695) (31,275) Proceeds from issuance of long-term debt 21,500 2,543 Repayment of long-term debt (12,535) (1,482) Dividends paid (715) (467) Proceeds from issuance of common stock 205 409 -------- -------- Net cash provided by (used in) financing activities 9,747 (4,578) -------- -------- Effect of exchange rate changes on cash (28) (23) -------- -------- Increase (decrease) in cash 1,227 (4,653) Cash: Beginning of period 4,774 8,935 -------- -------- End of period $ 6,001 $ 4,282 -------- -------- -------- --------
See accompanying notes to unaudited Consolidated Financial Statements. 5 REGIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS: The unaudited consolidated statement of operations for the three months ended September 30, 1998 and 1997, reflects, 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 results of operations for the interim periods. The results of operations for any interim period are not necessarily indicative of results for the full year. The year-end balance sheet data was derived from audited 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 Regis Corporation's (the Company) consolidated financial statements which are incorporated by reference in the Company's Annual Report on Form 10-K for the year ended June 30, 1998. 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. COST OF PRODUCT SALES. On an interim basis, product costs are determined by applying an estimated gross profit margin. 2. COMPREHENSIVE INCOME In the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The standard requires the display and reporting of comprehensive income, which includes all changes in shareholders' equity with the exception of additional investments by shareholders or distributions to shareholders. The adoption of this standard had no impact on the Company's current or previously reported net income or shareholders' equity. 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, 1998 and 1997 was as follows:
THREE MONTHS ENDED SEPTEMBER 30, ------------- (Dollars in thousands) Comprehensive income: 1998 1997 ---- ---- Net income $ 7,784 $ 5,796 Change in cumulative translation 1,008 (128) Less: reclassification adjustment for translation losses realized in net income (964) ------- ------- Total comprehensive income $ 7,828 $ 5,668 ------- ------- ------- -------
6 3. NET INCOME PER SHARE: Basic 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 calculation of the Company's basic and diluted EPS:
THREE MONTHS ENDED SEPTEMBER 30, ------------- 1998 1997 ---- ---- Weighted average shares for basic earnings per share 23,833,826 23,333,206 Diluted effect of stock options 614,381 617,725 ---------- ---------- Weighted average for shares for diluted earnings per share 24,448,207 23,950,931 ---------- ---------- ---------- ----------
4. FINANCING ARRANGEMENTS: 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. 5. NONRECURRING ITEMS: Nonrecurring items included in operating income consist of gains(losses) on assets and business dispositions and other items of a nonrecurring nature. The more significant items included in the three months ended September 30, 1998 and 1997 are as follows: - In the first quarter of fiscal 1999, the Company recorded $1.4 million of expense associated with year 2000 remediation. - In the first quarter of fiscal 1998, the Company recorded a special charge of approximately $2.0 million associated with the divestiture of the business and assets of Anasazi Exclusive Salon Products, LLC (Anasazi). 7 REVIEW 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, 1998, and the related consolidated statements of operations and cash flows for the three months ended September 30, 1998 and 1997. 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 consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of June 30, 1998, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended (not fully presented herein); and in our report dated August 21, 1998, 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, 1998, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota October 27, 1998 8 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 consolidator of hair and retail product salons with 3,602 salons (824 franchised) in 50 states, Puerto Rico and Canada and five international countries at September 30, 1998. Regis operates and franchises salons in six divisions: Regis Hairstylists, Strip Center Salons (primarily Supercuts), MasterCuts, Trade Secret, Wal-Mart/SmartStyle and International, and has more than 28,000 employees worldwide. During the first quarter of fiscal 1999, the Company's consolidated revenues grew to a record $214.5 million, including franchise income of $6.5 million, a 13.7 percent increase over first quarter fiscal 1998 consolidated revenues of $188.7 million. First quarter operating income grew to $15.3 million, a 25.9 percent increase over the first quarter of fiscal 1998. Fiscal 1999 results include costs associated with the Company's year 2000 remediation program which are nonrecurring in nature. Fiscal 1998 results reflect the previously reported nonrecurring charge associated with disposition of Anasazi. Exclusive of these nonrecurring items, net income in the first quarter of fiscal 1999, increased to $8.6 million, or $.35 per diluted share, an earnings per share increase of 20.7 percent from first quarter fiscal 1998 net income of $6.9 million, or $.29 per diluted share. Including nonrecurring items, net income in the first quarter of fiscal 1999 increased to a record $7.8 million, or $.32 per diluted share, an earnings per share increase of 33.3 percent from first quarter fiscal 1998 net income of $5.8 million, or $.24 per diluted share. 9 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, -------------------------- 1998 1997 ---- ---- Company-owned service revenues (1) 71.6% 71.5% Company-owned product revenues (1) 28.4 28.5 Franchise income 3.0 3.6 Company-owned operations: Profit margins on service (2) 43.6 42.7 Profit margins on product (3) 46.4 44.9 Direct salon (1) 8.9 9.5 Rent (1) 13.8 14.0 Depreciation (1) 3.4 3.3 Direct salon contribution (1) 18.3 16.5 Selling, general and administrative 11.4 10.7 Depreciation and amortization 1.5 1.1 Nonrecurring items 0.6 1.0 Other 0.2 0.2 Operating income 7.1 6.4 Income before income taxes 6.0 5.3 Net income 3.6 3.1 Operating income, excluding nonrecurring items 7.7 7.5 Net income, excluding nonrecurring items 4.0 3.7
(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 10 THREE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997: REVENUES REVENUES for the first quarter of fiscal 1999 grew to a record $214.5 million, an increase of $25.8 million or 13.7 percent, over the same period in fiscal 1998. System-wide sales, including non-consolidated sales generated from franchise salons, increased 11.5 percent in the first quarter of fiscal 1999 to $282.4 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 1999 and 1998 are as follows:
(Dollars in thousands) 1999 1998 ---- ---- Regis Hairstylists $ 77,425 $ 71,430 Strip Center Salons (primarily Supercuts) 32,345 24,811 MasterCuts 29,418 25,938 Trade Secret 30,981 27,086 Wal-Mart 12,350 8,511 International 25,478 24,166 Franchise Income 6,522 6,739 -------- -------- $214,519 $188,681 -------- -------- -------- --------
Same-store sales for domestic company-owned salons increased 5.8 percent in the first quarter of fiscal 1999, consistent with the same-store sales increases reported in the first quarter of fiscal 1998. System-wide same-store sales for the first quarter of fiscal 1999 increased 5.6 percent, compared to 5.2 percent in the same period in fiscal 1998. Same-store sales increases achieved are primarily due to an increase in the number of customers served. A total of 18.5 million customers system-wide were served during the first quarter of fiscal 1999. 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 1999 grew to $149.0 million, an increase of $18.9 million, or 14.6 percent, over the same period in fiscal 1998. This increase is a result of salon acquisitions the Company has made during the past twelve months, strong service same-store sale increases of 6.5 percent, and accelerated new salon construction. 11 PRODUCT REVENUES in the first quarter of fiscal 1999 grew to $59.0 million, an increase of $7.1 million, or 13.7 percent, over the same period in fiscal 1998. This increase continues a trend of escalating product revenues due to strong product same-store sales growth of 4.3 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 remained fairly consistent at 28.4 percent of revenues compared to 28.5 percent of revenues in the same period of fiscal 1998. FRANCHISE INCOME, including royalties, initial franchise fees and product sales made by the Company to franchisees, decreased slightly to $6.5 million in the first quarter of fiscal 1999. The decrease in franchise income is a result of a reduction in royalty rates charged to franchisees, partially offset by increases in franchise sales, which are not included in the Company's consolidated revenues. The Company expects that the reduction in royalty rates will not have an adverse affect on earnings due to a corresponding decrease in the costs of services provided to franchisees. COST OF REVENUES The aggregate cost of revenues in the first quarter of fiscal 1999 was $115.6 million, compared to $103.1 million in the same period in fiscal 1998. The resulting combined gross margin percentage for the first quarter of fiscal 1999 improved 110 basis points to 44.4 percent of revenues compared to 43.3 percent of revenues in the same period in fiscal 1998. As discussed below, this improvement was primarily due to strong same-store sales and increased sales leverage in the Company's fixed cost payroll divisions. SERVICE MARGINS improved to 43.6 percent in the first quarter of fiscal 1999, compared to 42.7 percent in the same period in fiscal 1998. This 90 basis point improvement is primarily due to strong service same-store sale increases of 6.5 percent and continued sales maturation of Supercuts and Wal-Mart/SmartStyle salons. PRODUCT MARGINS improved to 46.4 percent in the first quarter of fiscal 1999, compared to 44.9 percent in the same period in fiscal 1998. This 150 basis point improvement is primarily a result of sales leveraging and decreases in product costs in Trade Secret and Supercuts salons resulting from the benefit of Regis' purchasing power. DIRECT SALON This expense category includes direct costs associated with salon operations such as advertising, promotion, insurance, telephone and utilities. Direct salon expense of $18.5 million improved as a percentage of company-owned revenues to 8.9 percent in the first quarter of fiscal 1999 from 9.5 percent in the same period in fiscal 1998. The improvement resulted from an increased ability to leverage these costs against strong same-store sales increases and a maturing salon base. 12 RENT Rent expense in the first quarter of fiscal 1999 was $28.7 million or 13.8 percent of company-owned revenues, compared to $25.5 million or 14.0 percent of company-owned revenues, in the same period in fiscal 1998. The slight improvement in rate is due to leveraging this fixed cost against sales increases in the Regis Hairstylists and International divisions, offset, to a lesser extent by this fixed cost growing faster than sales in the remaining operating divisions due to accelerated growth of newly acquired and constructed salons. DEPRECIATION - SALON LEVEL Depreciation expense at the salon level remained fairly consistent at 3.4 percent of revenues, compared to 3.3 percent of revenues in the first quarter in fiscal 1998. This fixed cost expense grew at a slightly faster rate than sales due to accelerated growth of newly acquired and constructed salons during the past twelve months. 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 1999 to $38.0 million, or 18.3 percent of company-owned revenues, compared to $30.0 million or 16.5 percent of company-owned revenues in the same period of fiscal 1998. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative (SG&A) expenses increased to $24.4 million, or 11.4 percent of total revenues in the first quarter of fiscal 1999, from $20.2 million or 10.7 percent of total revenues in the same period in fiscal 1998. 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). This 70 basis point deterioration is primarily related to this fixed cost growing at a faster rate than sales due primarily to the accelerated growth of newly acquired and constructed salons. DEPRECIATION AND AMORTIZATION - CORPORATE Depreciation and amortization increased to 1.5 percent of total revenues, compared to 1.1 percent in the first quarter of fiscal 1998. This increase is related to additional depreciation associated with the Company's fiscal 1998 purchase of additional corporate office buildings and a new distribution center as well as an increased level of intangible assets, primarily goodwill, associated with the Company's acquisition activity during the past twelve months. 13 NONRECURRING ITEMS Nonrecurring items included in operating income consist of gains(losses) on assets and business dispositions and other items of a nonrecurring nature. See discussion of year 2000 remediation within Liquidity and Capital Resources, and also see Note 5 to the unaudited Consolidated Financial Statements for a description of the nonrecurring items. OPERATING INCOME Operating income in the first quarter of fiscal 1999, excluding year 2000 costs and nonrecurring items, improved to $16.6 million, an increase of $2.5 million or 17.9 percent over the same period in fiscal 1998. Operating income, excluding nonrecurring items, as a percentage of total revenues grew to 7.7 percent in the first quarter of fiscal 1999 compared to 7.5 percent in the same period in fiscal 1998. This improvement is attributable primarily to improved gross margins and the leveraging of direct salon expenses, partially offset by higher SG&A expenses as a percent of total revenues. INTEREST Interest expense in the first quarter of fiscal 1999 was $2.7 million compared to $2.4 million for the same period in fiscal 1998. Interest expense has remained relatively consistent between the two periods because, although debt levels have increased, average interest rates were lower during the period. INCOME TAXES The Company's annual effective income tax rate for fiscal 1999 is estimated to be slightly less than 40.0 percent, compared to 40.2 percent for fiscal year 1998. The anticipated reduction in the annual effective tax rate is a result of reduced state income taxes. NET INCOME Net income in the first quarter of fiscal 1999 was $7.8 million or $.32 per diluted share, compared to net income of $5.8 million or $.24 per diluted share in the same period in fiscal 1998. Exclusive of nonrecurring items, net income in the first quarter of fiscal 1999 increased to $8.6 million or $.35 per diluted share, compared to net income in the same period in fiscal 1998 of $6.9 million or $.29 per share, a net income per share increase of 20.7 percent. 14 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 1999 grew to $17.6 million compared to $13.0 million during the same period in fiscal 1998. The increase between the two periods is primarily due to improved operating performance. During the first three months of fiscal 1999, the Company had worldwide capital expenditures of $17.5 million, of which $1.5 million related to acquisitions of 64 salons and $0.4 million for equipment acquired under capital leases. The Company constructed 9 new Regis Hairstylists salons, 13 new MasterCuts salons, 15 new Trade Secret salons, 22 new Wal-Mart/SmartStyle salons and 8 new Supercuts strip center salons, and completed 16 major remodeling projects. All capital expenditures during the first three months of fiscal 1999 were funded by cash flow from the Company's operations and borrowings under its revolving credit facilities. The Company anticipates its worldwide salon development program for fiscal 1999 will include the construction of approximately 275 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 $50.0 million in fiscal 1999, excluding capital expenditures for acquisitions. FINANCING See Note 4 to the unaudited Consolidated Financial Statements. 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 1999, the Company paid quarterly dividends of $0.7 million, or $.03 per share. On November 3, 1998, the Board of Directors of the Company declared a $.03 per share quarterly dividend payable November 30, 1998 to shareholders of record on November 16, 1998. YEAR 2000 The Company previously initiated a comprehensive project to prepare its computer systems for the year 2000. The Company has completed the awareness and assessment phases of the project and is in the process of remediation. The remediation, validation, and implementation phases are planned to be completed by late summer of calendar year 1999. Accordingly, management believes the year 2000 will not have a significant impact on operations. If necessary modifications and conversions are not completed on a timely basis, the year 2000 could have an adverse effect on the Company's operations. At this time, the Company believes it is unnecessary to adopt a contingency plan covering the possibility that the project will not be completed in a timely manner, but as part of the overall project, the Company will continue to assess the need for a contingency plan. 15 Costs associated with the year 2000 are expensed as incurred and are funded through operating cash flows. Based on the Company's most recent assessment, the associated expense to be incurred is estimated to be approximately $5.5 million. The Company has incurred $1.9 million related to year 2000 project costs from the project's inception in fiscal 1998 through the first quarter of fiscal 1999, of which $1.4 million was incurred and charged to earnings during the first quarter of fiscal 1999. The remaining $3.6 million is expected to be incurred and charged to earnings over the next 15 months. The Company is in contact with critical suppliers of products and services to assess whether the suppliers' operations and the products and services they provide are year 2000 capable or to monitor their progress toward year 2000 compliance. 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. Time and cost estimates are based on currently available information and are management's best estimates. However, there is no guarantee that these estimates will be achieved, and actual results may differ materially from those anticipated. Developments which could affect estimates include, but are not limited to, the availability and cost of trained personnel; the ability to locate and correct all relevant computer code and equipment; and planning and modification success of third party suppliers of products and services. The Company will continue to assess and evaluate cost estimates and target dates for completion of each phase of the year 2000 project on a periodic basis. 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 13, 1998, at the annual meeting of the shareholders of the Company, the elections of the Company's directors took place with the following results: Election of Directors:
FOR WITHHOLD AUTHORITY Rolf F. Bjelland 20,791,168 162,527 Paul D. Finkelstein 20,769,516 184,179 Christopher A. Fox 20,769,611 184,084 Thomas L. Gregory 20,767,225 186,470 Van Zandt Hawn 20,791,171 162,524 Susan Hoyt 20,791,183 162,512 David B. Kunin 20,766,647 187,047 Myron Kunin 20,767,933 185,762
17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 10(mm) Term Note C Agreement between the registrant and LaSalle National Bank dated September 1, 1998. Exhibit 15 Letter Re: Unaudited Interim Financial Information. Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the three months ended September 30, 1998. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REGIS CORPORATION Date: November 9, 1998 By: /s/ Randy L. Pearce ----------------------- Randy L. Pearce Senior Vice President, Finance Chief Financial Officer Signing on behalf of the registrant and as principal accounting officer 19 EX-10.MM 2 EXHIBIT 10(MM) TERM LOAN C NOTE $7,500,000 Chicago, Illinois September 1, 1998 FOR VALUE RECEIVED, the undersigned, REGIS CORPORATION, a Minnesota corporation (herein, together with its successors and assigns, called the "Borrower"), promises to pay to the order of LaSALLE NATIONAL BANK, a national banking association ("herein, together with its successors and assigns, called the "Bank"), the principal sum of SEVEN MILLION, FIVE HUNDRED THOUSAND DOLLARS ($7,500,000), together with interest on the unpaid principal amount of this Note outstanding from time to time. This Note is the Term Loan C Note referred to in, evidences indebtedness incurred under, and is subject to the terms and provisions of, that certain Amended and Restated Credit Agreement dated as of December 30, 1997, as amended, between the Borrower, the Lenders signatory thereto from time to time, and LaSalle National Bank, as Agent for the Lenders (the "Agent") (herein, as the same may be further amended, modified or supplemented from time to time, called the "Credit Agreement"), including, without limitation, the provisions in ARTICLE 5-1 therein. The Credit Agreement, to which reference is hereby made, sets forth said terms and provisions, including those under which this Term Loan C Note may or must be paid prior to its due date or may have its due date accelerated. Terms used but not otherwise defined herein are used herein as defined in the Credit Agreement. The Borrower further promises to pay to the order of the Bank interest on the aggregate unpaid principal amount hereof from time to time outstanding from the date hereof until paid in full at such rates and at such times as shall be determined in accordance with the provisions of the Credit Agreement. Accrued interest shall be payable on the dates specified in the Credit Agreement. The principal amount of the indebtedness evidenced hereby shall be payable in installments in the amounts and on the dates specified in the Credit Agreement and, if not sooner paid in full, on September 1, 2003. Payments of both principal and interest are to be made in the lawful money of the United States of America in immediately available funds at the Bank's principal office at 135 South LaSalle Street, Chicago, Illinois 60603, or at such other place as may be designated by the Bank to the Borrower in writing. In addition to, and not in limitation of, the foregoing and the provisions of the Credit Agreement hereinabove referred to, the Borrower further agrees, subject only to any limitation imposed by applicable law, to pay all expenses, including attorneys' fees and expenses, incurred by the holder of this Note in seeking to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment, demand, protest and notice of dishonor in connection with this Note. This Note is binding upon the undersigned and its successors and assigns, and shall inure to the benefit of the Bank and its successors and assigns. This Note is made under and governed by the laws of the State of Illinois without regard to conflict of laws principles. REGIS CORPORATION By: /s/ Randy L. Pearce -------------------------------------- Name: RANDY L. PEARCE --------------------------------- Title: SENIOR VICE PRESIDENT - FINANCE -------------------------------- CHIEF FINANCIAL OFFICER 2 EX-15 3 EXHIBIT 15 Exhibit 15 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION Securities and Exchange Commission 450 Fifth Street, North West Washington, D.C. 20549 RE: Regis Corporation on Form S-3 (File Nos. 333-28511, No. 33-82094, No. 33-86276, No. 33-89150, No. 33-92244, No. 33-96224, No. 33-80337, and No. 333-49165), Form S-4 (File No. 333-12099) and Form S-8 (File No. 33-44867 and No. 33-89882) We are aware that our report dated October 27, 1998, on our reviews of the interim financial information of Regis Corporation as of September 30, 1998 and for the three month periods ended September 30, 1998 and 1997, and included in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1998, is incorporated by reference in the registration statements referred to above. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of such registration statements prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Minneapolis, MN November 9, 1998 20 EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGIS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-30-1999 JUL-01-1998 SEP-30-1998 6,001 0 10,262 78 54,957 82,195 326,824 142,222 399,315 82,831 0 0 0 1,192 196,574 399,315 58,987 214,519 31,636 169,671 4,924 0 2,706 12,913 5,129 7,784 0 0 0 7,784 $.33 $.32 Includes nonrecurring year 2000 remediation costs of $1,359. Reflects basic EPS according to FAS No. 128. Excluding nonrecurring items, diluted EPS would have been $.35.
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