-----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, Sh+JsHjRViCH7hfxqVCidjWflsTSJ17X1EeeKq1MI9l5C3G9DQJd8dTaS5PFXXaZ UgDNI4V02GqKHWIgWPoCgQ== 0000896463-96-000118.txt : 19960806 0000896463-96-000118.hdr.sgml : 19960806 ACCESSION NUMBER: 0000896463-96-000118 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960805 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAREFOOT INC /DE CENTRAL INDEX KEY: 0000878944 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 311265715 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19602 FILM NUMBER: 96603506 BUSINESS ADDRESS: STREET 1: 450 W WILSON BRIDGE RD STREET 2: STE 160 CITY: WORTHINGTON STATE: OH ZIP: 43085 BUSINESS PHONE: 6148461800 MAIL ADDRESS: STREET 2: 450 WILSON BRIDGE RD CITY: WORTHINGTON STATE: OH ZIP: 43085 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-19602 BAREFOOT INC. (Exact name of registrant as specified in its charter) Delaware 31-1265715 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 450 W. Wilson Bridge Road, Suite 160 43085 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (614) 846-1800 N/A (Former name, former address and former fiscal year, if changed since last report) 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 ___ The number of shares of registrant's only class of Common Stock outstanding on July 31, 1996 was 14,508,760 -1- INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements: Consolidated Statements of Income - Three-month periods ended June 30, 1996 and 1995 (unaudited) ........................ 3 Consolidated Income Statements -- Six month periods ended June 30, 1996 and 1995 (unaudited) ........................ 4 Consolidated Balance Sheets -- June 30, 1996 and 1995 (unaudited) and December 31, 1995 ............................... 5 Consolidated Statements of Cash Flows -- Six month periods ended June 30, 1996 and 1995 (unaudited) ........................ 7 Consolidated Statement of Changes in Shareholders' Equity- Six-month period ended June 30, 1996 (unaudited) ................ 9 Notes to Consolidated Financial Statements (unaudited) ..........10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................11 Part II Other Information Item 4. Submission of Matters to a Vote of Security Holders .............18 Item 6. Exhibits and Reports on Form 8-K ................................18 - ----------- Note: Items 1 through 3 and Item 5 of Part II are omitted because they are not applicable. -2- PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS BAREFOOT INC. CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED JUNE 30, 1996 1995 ---- ---- (unaudited) REVENUES: Customer service revenues ............... $ 35,611,725 $ 35,424,071 Franchise fees and royalty income ....... 583,312 538,451 ------------ ------------ Total revenues ...................... 36,195,037 35,962,522 ------------ ------------ COSTS AND EXPENSES: Costs of services provided .............. 12,593,188 12,139,893 General and administrative .............. 7,170,651 6,879,084 Marketing ............................... 4,177,238 3,803,676 Amortization of intangibles ............. 541,477 560,144 ------------ ------------ Total costs and expenses ............ 24,482,554 23,382,797 ------------ ------------ INCOME BEFORE INTEREST AND INCOME TAXES ............................... 11,712,483 12,579,725 Interest expense ........................ (310,865) (292,429) Interest income ......................... 80,974 162,069 ------------ ------------ INCOME BEFORE INCOME TAXES ................. 11,482,592 12,449,365 Income tax expense ...................... 4,185,000 4,869,000 ------------ ------------ NET INCOME ................................. $7,297,592 $ 7,580,365 ------------ ------------ EARNINGS PER COMMON SHARE .................. $ .50 $ .49 ------------ ------------ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ................................ 14,600,000 15,602,000 ------------ ------------ -3- BAREFOOT INC. CONSOLIDATED STATEMENTS OF INCOME SIX MONTHS ENDED JUNE 30, 1996 1995 ---- ---- (unaudited) REVENUES: Customer service revenues ............... $ 44,962,841 $ 44,789,567 Franchise fees and royalty income ....... 812,969 757,712 ------------ ------------ Total revenues ...................... 45,775,810 45,547,279 ------------ ------------ COSTS AND EXPENSES: Costs of services provided .............. 19,624,144 18,427,737 General and administrative .............. 13,547,139 13,241,207 Marketing ............................... 4,999,455 4,604,501 Amortization of intangibles ............. 1,071,699 1,101,914 ------------ ------------ Total costs and expenses ............ 39,242,437 37,375,359 ------------ ------------ INCOME BEFORE INTEREST AND INCOME TAXES ............................... 6,533,373 8,171,920 Interest expense ........................ (556,613) (553,834) Interest income ......................... 192,276 439,137 ------------ ------------ INCOME BEFORE INCOME TAXES ................. 6,169,036 8,057,223 Income tax expense ...................... 2,101,000 3,180,600 ------------ ------------ NET INCOME ................................. $4,068,036 $ 4,876,623 ------------ ------------ EARNINGS PER COMMON SHARE .................. $ .28 $ .30 ------------ ------------ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ................................ 14,704,000 16,195,000 ------------ ------------ -4- BAREFOOT INC. CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31, 1996 1995 1995 ---- ---- ---- (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents ................. $ 4,723,949 $ 8,259,674 $10,877,039 Short-term investments .................... 1,563,022 1,470,000 1,536,333 Receivables-- Customers, less allowance for doubtful accounts of $1,995,000, $1,908,000 and $1,516,000 respectively . 12,496,751 10,578,300 5,371,272 Franchises ............................. 2,084,552 1,828,071 1,277,715 Branchises ............................. 1,244,211 866,871 856,680 Other 981,426 .......................... 1,204,308 864,976 Refundable income taxes ................ -- 333,000 -- Supplies 1,907,400 ........................ 1,356,575 1,058,119 Prepaid advertising costs ................. 7,484,831 8,925,524 -- Prepaid expenses .......................... 1,424,217 1,590,924 1,861,656 Deferred taxes ............................ -- 1,196,000 1,157,000 ----------- ----------- ----------- Total current assets ................... 33,910,359 37,609,247 24,860,790 ----------- ----------- ----------- PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $18,692,000, $14,691,500 and $16,684,000 respectively ........... 13,507,459 12,319,244 10,977,754 OTHER ASSETS Intangible assets, net of accumulated amortization of $8,740,800, $6,866,700, and $8,002,000, respectively ........... 27,140,669 27,664,098 27,500,732 Deferred tax assets ....................... 2,550,000 -- 1,361,000 Other receivables ......................... 1,596,336 1,448,584 1,221,096 Deposits .................................. 316,277 299,109 306,967 ----------- ----------- ----------- Total other assets ..................... 31,603,282 29,411,791 30,389,795 ----------- ----------- ----------- Total assets ........................... $79,021,100 $79,340,282 $66,228,339 ----------- ----------- -----------
(Continued on next page) -5- BAREFOOT INC. CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31, 1996 1995 1995 ---- ---- ---- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion, long-term debt .............. $ 989,166 $ 1,001,770 $ 950,000 Current portion, capital lease obligations .............................. 3,114,306 3,147,080 3,084,777 Customer prepayments ......................... 10,967,136 10,232,287 4,089,776 Accrued taxes payable ........................ 4,192,090 4,915,600 5,739,500 Accounts payable ............................. 6,022,891 5,321,894 2,674,143 Accrued compensation and payroll taxes ....... 1,285,908 1,402,980 1,602,500 Other accrued expenses ....................... 1,651,915 976,254 723,024 Deferred taxes ............................... -- -- -- ----------- ------------ ------------ Total current liabilities ................ 28,223,412 26,997,865 18,863,720 ----------- ------------ ------------ DEFERRED TAXES ............................... 2,106,000 1,877,500 -- CAPITAL LEASE OBLIGATIONS .................... 9,209,912 7,755,927 6,319,410 LONG-TERM DEBT ............................... 1,742,467 2,691,673 1,900,000 ----------- ------------ ------------ Total liabilities ........................ 41,281,791 39,322,965 27,083,130 ----------- ------------ ------------ SHAREHOLDERS' EQUITY Preferred Stock - 5,000,000 shares authorized, $.01 par value ............... -- -- -- Common Stock - 40,000,000 shares authorized, $.01 par value, shares issued-16,785,760 16,771,760 and 16,776,260 respectively; shares outstanding - 14,508,760 15,271,660 and 14,855,260, respectively .. 167,855 167,717 167,763 Additional paid-in capital ................... 49,957,916 49,876,100 49,892,555 Treasury stock, at cost ...................... (26,868,009) (17,825,875) (22,801,634) Excess purchase price ........................ (5,285,649) (5,285,649) (5,285,649) Retained earnings ............................ 19,767,196 13,085,024 17,172,174 ------------ ------------ ------------ Total shareholders' equity ............... 37,739,309 40,017,317 39,145,209 ------------ ------------ ------------ Total liabilities and shareholders' equity $ 79,021,100 $ 79,340,282 $ 66,228,339 ------------ ------------ ------------
-6- BAREFOOT INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 1995 ---- ---- (unaudited) CASH FLOW FROM OPERATING ACTIVITIES: Net income .............................................. $ 4,068,036 $ 4,876,623 Adjustments to reconcile net loss to net cash used in operating activities-- Deferred tax provision ............................ 3,006,500 502,000 Depreciation and amortization ..................... 3,080,463 2,851,196 Provision for uncollected customer receivables .... 536,693 784,013 Notes receivable collected ........................ 214,867 188,859 Changes in certain assets and liabilities-- (Increase) decrease in assets - Investments .................................. (26,689) 8,326,568 Receivables .................................. (9,416,464) (9,829,931) Supplies ..................................... (822,290) (304,651) Prepaid expenses ............................. (7,047,392) (7,337,764) Other assets ................................. (9,315) (42,382) Increase (decrease) in liabilities-- Customer prepayments ......................... 6,783,118 5,587,252 Accounts payable ............................. 3,170,660 3,535,691 Accrued income taxes ......................... (1,547,410) 3,436,594 Accrued expenses ............................. 612,299 1,207,495 ----------- ------------ Net cash provided by operating activities 2,603,076 13,772,701 ----------- ------------
(Continued on next page) -7- BAREFOOT INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (consolidated) SIX MONTHS ENDED JUNE 30, 1996 1995 ---- ----- (unaudited) CASH FLOW FROM INVESTING ACTIVITIES: Cash paid for acquired assets, net of cash obtained ................................ (1,207,423) (2,413,957) Proceeds from investment in direct financing leases and notes receivable .................................... 231,776 177,415 Capital expenditures .................................. (326,208) (342,946) ------------ ------------ Net cash used in investing activities ..... (1,301,855) (2,579,488) ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES: Dividends paid ........................................ (1,473,014) (1,110,895) Treasury stock purchased .............................. (4,066,375) (17,825,875) Stock option exercises ................................ 65,453 28,011 Term loan debt payments ............................... (157,935) (183,224) Capital lease principal payments ...................... (1,822,440) (1,798,581) ------------ ------------ Net cash used in financing activities ...... (7,454,311) (20,890,564) ------------ ------------ Net decrease in cash ...................... (6,153,090) (9,697,351) ------------ ------------ CASH AND CASH EQUIVALENTS, beginning of period ................................................ 10,877,039 17,957,025 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period .............. $ 4,723,949 $ 8,259,674 ------------ ------------ Supplemental disclosure of cash flows information: Interest paid during the period ..................... $ 556,000 $ 554,000 Taxes paid during the period ........................ $ 249,000 $ 933,400
-8- BAREFOOT INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1996 (unaudited) DECEMBER 31, OPTIONS SHARES DIVIDENDS NET MARCH 31, 1995 EXERCISED REPURCHASED PAID INCOME 1996 COMMON SHARES ISSUED ...................... 16,776,260 9,500 -- -- -- 16,785,760 ---------- ----- ----------- ----------- ---------- ---------- TREASURY SHARES ............. 1,921,000 -- 356,000 -- -- 2,277,000 ---------- ------- ----------- ----------- ---------- --------- PREFERRED STOCK ............. $ -- $ -- $ -- $ -- $ -- COMMON STOCK ................ 167,763 92 -- -- -- $ 167,855 ADDITIONAL PAID-IN CAPITAL ..................... 49,892,555 65,361 -- -- -- 49,957,916 TREASURY STOCK .............. (22,801,634) -- (4,066,375) -- -- (26,868,009) EXCESS PURCHASE PRICE ....................... (5,285,649) -- -- -- -- (5,285,649) RETAINED EARNINGS ........... 17,172,174 -- -- (1,473,014) 4,068,036 19,767,196 ---------- ------- ----------- ---------- --------- ---------- TOTAL SHAREHOLDERS' EQUITY ...................... $ 39,145,209 $65,453 $(4,066,375) $(1,473,014) $4,068,036 $ 37,739,309 ------------ ------- ----------- ----------- ---------- ------------
-9- BAREFOOT INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1- Unaudited Interim Consolidated Financial Statements The accompanying interim consolidated financial statements as of June 30, 1996 and June 30, 1995 and for the three-month and six-month periods then ended are unaudited. However, in the opinion of management, these interim statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows of Barefoot Inc. and subsidiaries ("Barefoot" or the "Company"). These financial statements should be read in conjunction with the audited financial statements contained in Barefoot's Transition Report on Form 10-K for the nine month period ended December 31, 1995. Note 2 - Prepaid Advertising Costs Barefoot's accounting policy for marketing expenses for interim reporting purposes is to defer the expenses when incurred and expense these costs over the treating season. The Company's business is highly seasonal and much of the marketing expenses are incurred in the first quarter when revenues are lowest. The revenues generated by the customers signed up from the marketing campaigns occur over the entire season, generally March through November. Accordingly the related marketing costs are expensed over that same period. For annual financial reporting purposes the Company has adopted SOP 93-7 "Reporting on Advertising Costs" and expenses all marketing costs which are not direct response advertising costs in the year incurred. -10- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Barefoot provides lawn care service through periodic applications of fertilizer and as-needed applications of weed and insect controls. Barefoot also offers its lawn care customers additional service options including tree and shrub care, lawn aeration, liming and seeding. Barefoot also generates franchise fee and royalty income from its franchise system. To assist in understanding Barefoot's operating results, the following tables indicates the percentage relationships of various items of income and expense included in the Consolidated Statements of Income for the three-month period and six-month periods ended June 30, 1996 and 1995, respectively. Percentage Increase (Decrease) Three Months Three Months Ended Ended June 30, June 30, ($000's) 1996 1996 1995 vs $ %(1) $ %(1) 1995 --- ------ --- ------ ----------- Customer service revenues ............ $ 35,612 98.4 $ 35,424 98.5 .7 Franchise fee & royalty income ....... 583 1.6 539 1.5 6.8 -------- ------- -------- ------- ------ Total revenues .................. 36,195 100.0 35,963 100.0 .5 -------- ------- -------- ------- ------ Costs of services provided12,593 ..... 35.4 12,140 34.3 3.7 General and administrative7,171 ...... 19.8 6,879 19.1 4.2 Marketing ............................ 4,177 11.7 3,804 10.7 9.8 Amortization of intangibles .......... 541 1.5 560 1.6 (3.3) -------- ------- -------- ------- ------ Total costs and expenses ........ 24,482 67.6 23,383 65.0 4.7 -------- ------- -------- ------- ------ Income before interest and income taxes ......................... 11,713 32.4 12,580 35.0 (6.9) -------- ------- -------- ------- ------ Interest expense ..................... (311) (.9) (292) (.8) 6.3 Interest income ...................... 81 .2 161 .5 (50.0) -------- ------- -------- ------- ------ Income before income taxes ...... 11,483 31.7 12,449 34.7 (7.8) Income taxes ......................... 4,185 11.5 4,869 13.6 14.0 -------- ------- -------- ------- ------ Net income ...................... $ 7,298 20.2 $ 7,580 21.1 (3.7) -------- ------- -------- ------- ------
-11- Percentage Increase (Decrease) Six Months Six Months Ended Ended June 30, June 30, ($000's) 1996 1996 1995 vs $ %(1) $ %(1) 1995 --- ------ --- ------ ------------ Customer service revenues ............ $ 44,693 98.2 $ 44,790 98.3 .4 Franchise fee & royalty income ....... 813 1.8 758 1. 7.3 --- --- --- -- Total revenues .................. 45,776 100.0 45,548 100.0 .5 ------ ----- ------ ----- Costs of services provided ........... 19,624 43.7 18,428 41.1 6.5 General and administrative ........... 13,547 29.6 13,241 29.1 2.3 Marketing ............................ 4,999 11.1 4,605 10.3 8.6 Amortization of intangibles .......... 1,072 2.4 1,102 2.4 (2.7) ----- --- ----- --- Total costs and expenses ........ 39,242 85.7 37,376 82.1 5.0 ------ ---- ------ ---- Income before interest and income taxes ......................... 6,534 14.3 8,172 17.9 (20.1) ----- ---- ----- ---- Interest expense ..................... (557) (1.2) (554) (1.2) .5 Interest income ...................... 192 .4 439 1.0 (56.2) --- -- --- --- Income before income taxes ...... 6,169 13.5 8,057 17.7 (23.4) Income taxes ......................... 2,101 4.6 3,180 7.0 (33.9) ----- --- ----- --- ----- Net income ...................... $ 4,068 8.9 $ 4,877 10.7 (16.6) -------- --- -------- ---- -----
(1) Costs of services provided and marketing expenses are expressed as percentages of customer service revenues. THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995 REVENUES Customer service revenues increased .7% to $35,612,000 for the three months ended June 30, 1996 from $35,424,000 for the three months ended June 30, 1995. Cool wet weather during April and May reduced treatment revenues for the quarter. Lawn care, tree shrub, extra services and interior plant revenues were all essentially flat with the prior year quarter. Franchise fees and royalty income increased 6.8% to $583,000 in 1996's second quarter from $538,000 in 1995's second quarter. The increase reflects the added royalties from seven new franchise locations opened in 1996. EXPENSES Costs of services provided increased 3.7% to $12,593,000 in the three months ended June 30, 1996 from $12,140,000 in the three months ended June 30, 1995. Costs of services increased as a percentage of customer service revenues between years to 35.4% in the second quarter of 1996 compared to 34.3% in the second quarter of 1995. The increase in costs of services was at an acceptable level given the weather difficulties encountered during the first two months of the quarter. -12- General and administrative expenses increased 4.2% and were up slightly as a percent of total revenues at 19.8% in the 1996 period and 19.1% in the 1995 period. The modest increase in general and administrative expenses reflects moderation of employment related expenses due to better employee retention in most Barefoot markets. Marketing expenses were $4,177,000 for the three months ended June 30, 1996 and $3,804,000 for the three months ended June 30, 1995. For interim reporting purposes the Company defers the costs of its Spring marketing campaign and expenses them over the treating season. The amounts expensed in the three month periods ended June 30, 1996 and 1995 were in proportion to the revenues recognized in the periods compared to total expected revenues for the seasons. Interest expense increased 6.3% to $311,000 in the three months ended June 30, 1996 from $292,000 in the three months ended June 30, 1995 due to higher capital lease balances for additions to the vehicle fleet offset by the lower balance on the Lawnmark acquisition note. Interest income declined 56.0% to $81,000 in the second three months of 1996 from $162,000 for the same period in 1995 due to lower cash balances available for investment in 1996 following the repurchase of nearly 2,277,000 shares of Barefoot Inc. common stock in 1995 and thus far in 1996. Income taxes were provided at an effective 36.5% rate in the second quarter of 1996 versus 39% in prior years. The lower tax rate will be in effect for 1996 due to changes to the values of tax benefits recorded in prior years. Primarily as a result of the flat customer service revenues and higher expenses offset by a lower tax provision, net income declined to $7,298,000 in 1996's second quarter from $7,580,000 in the second quarter of 1995, a 3.7% decrease. Earnings per share increased to $.50 per share for the three months ended June 30, 1996 from $.49 per share for the three months ended June 30, 1995. The per share earnings were computed on 14,600,000 weighted average shares outstanding in the 1996 quarter and 15,602,000 in 1995. The lower number of shares outstanding in 1996 reflects the repurchase of 2,277,000 shares in 1995 and 1996. SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995 REVENUES Customer service revenues increased .4% to $44,963,000 for the six months ended June 30, 1996 from $44,790,000 for the six months ended June 30, 1995. Cold and snow in many of Barefoot's larger markets in March 1996 followed by cool wet weather in April and May hampered treating efforts during the first half of the year. Revenues from the interior plant business which was acquired March 31, 1995 were nearly $560,000 in 1996's first quarter. Thus, customer service revenues from lawn care and tree/shrub operations actually declined slightly between the periods due to the weather. Franchise fees and royalty income increased 7.3% to $813,000 in 1996's first half from $758,000 in 1995's first six months. The increase reflects the added royalties from seven new franchise locations opened in 1996. -13- EXPENSES Costs of services provided increased 6.5% to $19,624,000 in the six months ended June 30, 1996 from $18,428,000 in the six months ended June 30, 1995. Costs of services increased as a percentage of customer service revenues to 43.7% in the first half of 1996 compared to 41.1% in the first half of 1995. The increase in costs of services was primarily from the weather causing lower productivity on treatments and sales activities and the addition of four branchise locations and the interior plant business at the end of the first quarter of 1995. As a result, year-to-date 1996 operating expenses were higher from the acquisitions in comparison to 1995. General and administrative expenses increased 2.3% and were up only slightly to 29.6% of total revenues in the 1996 period from 29.1% in the prior year first half. Reductions in employment related taxes and fringes in the 1996 period were primarily responsible for offsetting increases from the greater number of locations open in 1996 following the acquisitions on March 31, 1995. Marketing expenses were $4,999,000 for the six months ended June 30, 1996 and $4,605,000 for the six months ended June 30, 1995, an 8.6% increase. For interim reporting purposes the Company defers the costs of its marketing campaigns and expenses them over the treating season. The amounts expensed in the six month periods ended June 30, 1996 and 1995 were in proportion to the revenues recognized in the periods compared to total expected revenues for the seasons. Since revenues were flat between periods, marketing expenses incurred thus far in 1996 are higher than 1995 due to a greater number of company locations in 1996 compared to 1995 due to the March 31, 1995 acquisition of four branchise locations, and higher costs per new sale generated. Interest expense increased .5% to $557,000 in the six months ended June 30, 1996 from $554,000 in the six months ended June 30, 1995 due to the lower balance on the Lawnmark acquisition note offset by higher capital lease balances for addition to the vehicle fleet. Interest income declined over 56.0% to $192,000 in the first six months of 1996 from $439,000 for the same period in 1995 due to lower cash balances available for investment in 1996 following the repurchase of 2,277,000 shares of Barefoot Inc. common stock in 1995 and thus far in 1996. Income taxes were provided at an effective 34% rate in the first half of 1996 versus 39% in prior years. The lower tax rate is due to tax benefits recorded in the second quarter of 1996. The effective tax rate for the entire year is expected to be approximately 36%. Primarily as a result of the flat income lawn care revenues and lower productivity due to the weather, the net income declined to $4,068,000 in 1996's first half from $4,877,000 in the first six months of 1995, a 16.6% decrease. Earnings per share decreased to $.28 per share for the six months ended June 30, 1996 from $.30 per share for the six months ended June 30, 1995. The per share earnings were computed on 14,704,000 weighted average shares outstanding in the 1996 period and 16,195,000 in 1995. The lower number of shares outstanding in 1996 reflects the repurchase of 2,227,000 shares in 1995 and 1996. -14- QUARTERLY RESULTS The following table sets forth certain unaudited operating results of each of the ten consecutive quarters in the period ended June 30, 1996. This information is unaudited but, in the opinion of management includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for such periods. This information should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto. First Second Third Fourth quarter quarter quarter quarter ------- ------- ------- ------- (In thousands, except per share amounts) Year Ended December 31, 1994 Total revenues ................... $ 6,412 $32,676 $33,961 $ 18,735 Costs of services provided ....... 4,847 11,279 10,629 7,849 Net income (loss) ................ (2,611) 6,909 8,010 1,658 Earnings (loss) per share ........ $ (.16) $ .41 $ .48 $ .10 Year Ended December 31, 1995 Total revenues ................... $ 9,585 $35,963 $35,953 $ 21,515 Costs of services provided ....... 6,288 12,140 11,596 10,141 Net income (loss) ................ (2,704) 7,580 7,603 (2,302) Earnings (loss) per share ........ $ (.16) $ .49 $ .50 $ (.15) Year Ended December 31, 1996 Total revenues ................... $ 9,581 $36,195 Costs of services provided ....... 7,031 12,593 Net income (loss) ................ (3,230) 7,298 Earnings (loss) per share ........ $ (.22) $ .50 Note: Quarterly per share results may not total to the annual earnings per share due to changes in shares outstanding and the exclusion of common stock equivalents in the quarterly periods when losses occur. All dollar amounts except per share amounts are in thousands. The Company's results of operations fluctuate on a quarterly basis, with the total revenues and net income significantly higher in the Company's second and third quarters (ending June 30 and September 30, respectively). The Company believes that inflation has not had a material effect on the results of its operations. -15- Liquidity and Capital Resources General Barefoot's lawn care business generates significant cash flow during the treating season - generally March through November. Cash built up during this period is used to fund operations during the seasonally slow quarter ending March 31 which is also when Barefoot incurs advertising costs for the Spring marketing campaign. Barefoot also collects advance payments (prepayments) from approximately 15% of its customers in December through April. The prepayment receipts are important in financing operations during the winter months and Spring advertising. The seasonality of Barefoot's business causes wide variance in the accounts which comprise working capital. In early Spring prepaid expenses and customer prepayments are at their peaks. Over the treating season these balances decline while receivables from customers build. By the end of the calendar year these balances reach their seasonal lows. Investment in supplies (fertilizers, pesticides, plants, etc.) is not material to Barefoot's business. Short lead times for delivery of products allow the Company to minimize its investment in supplies to just what is needed for the next week or two. This allows the Company to minimize its investment in warehouse space. Cash Flows From Operations For the six months ended June 30, 1996 Barefoot generated $2,603,000 of cash from operations. Cash provided by operations in the six months ended June 30, 1995 was $13,773,000. The liquidation of investments to repurchase shares added over $8,326,000 to cash flow from operations in 1995. The normal seasonal factors discussed above accounted for the remainder of the increase in cash flow from operations for both periods. Debt, Acquisitions and Capital Expenditures Currently Barefoot has $2,691,000 of term debt remaining from the acquisition of Lawnmark on April 1, 1994. The Lawnmark note bears interest at the prime rate plus 1% subject to a maximum rate of 9%. Principal payments on the note of $158,333 each are due only during the months of June through November. Interest is paid monthly. Capital leases, primarily for lawn service vehicles, are the only other significant long-term commitment. Near the end of March 1996 approximately $4,800,000 was added to capital leases for the vehicles at Company locations, franchises and branchises. Capital lease payments were $1,822,000 in the six months ended June 30, 1996 compared to $1,799,000 in the six months ended June 30, 1995. Capital expenditures, other than vehicle leases, are not material to Barefoot's business. Barefoot acquired a lawn care business in January, 1996 for a cash payment of $561,000. In April, 1996 Barefoot acquired the assets of its Richmond, VA franchise for total consideration (cash and assumed current liabilities) of approximately $850,000. In June, 1996 Barefoot acquired its Ft. Myers, Florida franchise for debt and assumed liabilities of $112,000. -16- In September, 1995 Barefoot increased its $6,000,000 Revolving Credit Facility to $20,000,000 ("the Facility"). Up to $2,500,000 of the Facility may be used for letters of credit. Borrowings under the facility bear interest at the prime rate (8.25% as of July 31, 1996) or at LIBOR plus 125 basis points. The line of credit is for a three-year period. At the end of the three year term, borrowings made for nonseasonal purchases may be converted to a five-year term loan. The Facility requires approval of acquisitions of businesses for amounts in excess of $15,000,000 of cash and debt or $25,000,000 of Barefoot Common Stock and subordinated debt. The Facility's covenants also limit annual capital expenditures to $7,500,000 and require maintenance of consolidated net worth of at least $25,000,000. Barefoot believes compliance with the restrictions contained in the Facility will not hinder its operations or its ability to acquire lawn care businesses to pay dividends or to repurchase shares of its stock. No amounts, other than letters of credit for insurance contracts, were borrowed on the revolving line of credit in the current or prior year periods. Hydro Lawn Acquisition and Short-term Borrowing Effective July 12, 1996 Barefoot acquired the assets of Hydro Lawn, a lawn care company with operations in the Washington D.C. and Columbia MD metro areas. Total consideration for the assets was in excess of $5 million including cash paid, liabilities assumed and new capital leases. For a two week period following the acquisition Barefoot borrowed on its line of credit. Maximum borrowings were $1,850,000 at the prime rate. All borrowings were repaid prior to July 31, 1996. Income Taxes Tax benefits from revaluing certain deferred tax assets from prior years will be recorded in 1996, 1997 and 1998. In the second quarter of 1996 deferred tax assets were increased by $932,000 while net goodwill was reduced by $932,000. The effective tax rate for the second quarter was reduced to 36.5% from 39%. In 1996, 1997 and 1998 the Company estimates that the recognition of the additional tax benefits will reduce the annual effective tax rate to approximately 36%. Dividends and Share Repurchases On March 15, 1996 the Company paid a $.05 per share dividend; on June 14, 1996 the Company paid a $.05 per share dividend. On July 25, 1996 Barefoot's Board of Directors declared a $.05 per share dividend payable on September 16, 1996 to shareholders of record on August 30, 1996. Between April and December 1995 the Company repurchased 1,921,000 shares of its Common Stock for a total cost of $22,801,634. In 1996 an additional 356,000 shares were repurchased at a cost of $4,066,375. The Company is authorized to repurchase up to 723,000 additional shares of its outstanding Common Stock. The Company will continue to evaluate its cash position, borrowing capacity, acquisition opportunities and market valuation in determining if it will acquire any or all of the shares authorized. -17- PART II OTHER INFORMATION Item 4.Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders of the Company (the "Annual Meeting") was held on May 21, 1996. At the close of business on the record date of April 10, 1996, 14,595,760 common shares were outstanding and entitled to vote at the Annual meeting. At the Annual Meeting 12,305,352 or 84.3% of the outstanding common shares entitled to vote were represented in person or by proxy. (b) All directors positions were up for election. Directors elected at the Annual Meeting were: Donald R. Brattain Patrick J. Norton Stanley Golder J. Martin Erbaugh William Griffin The voting for each director was as follows: For Withheld ---------- -------- Donald R. Brattain 12,109,065 196,287 J. Martin Erbaugh 11,826,845 478,507 Stanley Golder 12,117,445 187,907 William Griffin 12,117,445 187,907 Patrick J. Norton 11,826,695 478,387 (c) 1. See Item 4(b) for the voting results for directors. 2. Ratify the selection of Arthur Andersen LLP as independent accountants for the Company for 1996: For: 12,184,787 Abstain: 7,895 Against: 112,670 3. Ratify amendments to the Amended and Restated Barefoot Inc. 1989 Stock Option Plan For: 11,458,713 Abstain: 18,400 Against: 769,068 Broker non vote: 58,901 (d) Not Applicable. Item 6. Exhibits and Reports on Form 8-K (a) Reports on Form 8-K None (b) Exhibits -18- 11 Computation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedule -19- SIGNATURES 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 hereunto duly authorized. BAREFOOT INC. /s/ Michael R. Goodrich _____________________________ Chief Financial Officer and Authorized Signing Officer July 31, 1996 -20- EXHIBIT INDEX Exhibit Number Description Page # 11 Computation of Earnings per Common and ........ 21 Common Equivalent Share 27 Financial Data Schedule ....................... 22 -21- EX-11 2 EXHIBIT 11 BAREFOOT INC. COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1996 1995 1996 1995 Net income ............................. $ 7,297,592 $ 7,580,365 $ 4,068,036 $ 4,876,623 SHARES-PRIMARY: Weighted average number of shares outstanding during the period .... 14,565,212 15,548,737 14,669,795 16,107,419 Shares issuable upon the exercise of stock options less shares repurchasable from the proceeds .. 34,798 53,172 34,480 87,147 Common and common equivalent shares outstanding ............... 14,600,010 15,601,909 14,704,275 16,194,566 ----------- ----------- ----------- ----------- EARNINGS PER SHARE, PRIMARY .......... $ .50 $ .49 $ .28 $ .30 ----------- ----------- ----------- -----------
-22- EX-27 3
5 1000 6-MOS DEC-31-1996 JUN-30-1996 4,723 1,563 18,802 1,995 1,907 33,910 32,199 18,692 79,021 28,223 0 0 0 168 37,571 79,021 0 45,776 0 39,242 0 0 557 6,169 2,101 4,068 0 0 0 4,068 .28 .28
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