-----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, AfPaIVe0ainB0mmpj8w3ooXOFUYILXPMf689mRR9sxWQegTAwGaJrw5YUJEcgcs0 YfdTtJuQSgSKo+/mPjMnGQ== 0000896463-96-000174.txt : 19961111 0000896463-96-000174.hdr.sgml : 19961111 ACCESSION NUMBER: 0000896463-96-000174 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961108 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: 96656660 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 September 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 October 31, 1996 was 14,519,760 INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements: Consolidated Statements of Income - Three month periods ended September 30, 1996 and 1995 (unaudited) 3 Consolidated Statements of Income -- Nine month periods ended September 30, 1996 and 1995 (unaudited) 4 Consolidated Balance Sheets -- September 30, 1996 and 1995 (unaudited) and December 31, 1995 5 Consolidated Statements of Cash Flows -- Nine month periods ended September 30, 1996 and 1995 (unaudited) 7 Consolidated Statement of Shareholders' Equity- Interim period ended September 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 6. Exhibits and Report on Form 8-K - ----------- Note: Items 1 through 5 of Part II are omitted because they are not applicable. PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS BAREFOOT INC. CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 ---- ---- (unaudited) REVENUES: Customer service revenues $ 36,949,497 $ 35,243,489 Franchise fees and royalty income 701,676 709,243 ------------ ------------ Total revenues 37,651,173 35,952,732 ------------ ------------ COSTS AND EXPENSES: Costs of services provided 12,485,062 11,595,958 General and administrative 7,098,351 6,902,949 Marketing 4,659,454 4,337,199 Amortization of intangibles 558,308 562,644 ------------ ------------ Total costs and expenses 24,801,175 23,398,750 ------------ ------------ INCOME BEFORE INTEREST AND INCOME TAXES 12,849,998 12,553,982 Interest expense (268,897) (252,752) Interest income 82,033 161,101 ------------ ------------ INCOME BEFORE INCOME TAXES 12,663,134 12,462,331 Income tax expense 4,535,000 4,859,000 ------------ ------------ NET INCOME $ 8,128,134 $ 7,603,331 ------------ ------------ EARNINGS PER COMMON SHARE $ .56 $ .50 ------------ ------------ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,530,000 15,309,000 ------------ ------------ BAREFOOT INC. CONSOLIDATED STATEMENTS OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ---- ---- (unaudited) REVENUES: Customer service revenues $ 81,912,338 $ 80,033,056 Franchise fees and royalty income 1,514,645 1,466,955 ------------ ------------ Total revenues 83,426,983 81,500,011 ------------ ------------ COSTS AND EXPENSES: Costs of services provided 32,109,206 30,023,695 General and administrative 20,645,490 20,144,156 Marketing 9,658,909 8,941,700 Amortization of intangibles 1,630,007 1,664,558 ------------ ------------ Total costs and expenses 64,043,612 60,774,109 ------------ ------------ INCOME BEFORE INTEREST AND INCOME TAXES 19,383,371 20,725,902 Interest expense (825,510) (806,586) Interest income 274,309 600,238 ------------ ------------ INCOME BEFORE INCOME TAXES 18,832,170 20,519,554 Income tax expense 6,636,000 8,039,600 ------------ ------------ NET INCOME $ 12,196,170 $ 12,479,954 ------------ ------------ EARNINGS PER COMMON SHARE $ .83 $ .79 ------------ ------------ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,646,000 15,896,000 ------------ ------------ BAREFOOT INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 1996 1995 1995 ------ ------ ------ (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,218,304 $ 8,538,281 $10,877,039 Short-term investments 1,580,624 1,533,884 1,536,333 Receivables-- Customers, less allowance for doubtful accounts of $2,137,000, $1,919,000 and $1,516,000 respectively 12,508,342 12,299,054 5,371,272 Franchises 2,087,153 1,779,972 1,277,715 Branchises 1,222,142 815,324 856,680 Other 768,957 1,187,389 864,976 Refundable income taxes -- 333,000 -- Supplies 1,608,426 1,354,004 1,058,119 Prepaid advertising costs 4,885,264 6,957,000 -- Prepaid expenses 855,105 1,051,738 1,861,656 Deferred taxes -- 1,196,000 1,157,000 ----------- ----------- ----------- Total current assets 30,734,317 37,045,646 24,860,790 ----------- ----------- ----------- PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $19,741,000, $15,681,900 and $16,684,000 respectively 13,164,200 11,793,990 10,977,754 OTHER ASSETS Intangible assets, net of accumulated amortization of $9,244,300, $7,429,000, and $8,002,000, respectively 31,909,152 27,996,419 27,500,732 Deferred tax assets 2,954,000 -- 1,361,000 Other receivables 1,524,684 1,552,629 1,221,096 Deposits 334,415 299,735 306,967 ----------- ----------- ----------- Total other assets 36,722,251 29,848,783 30,389,795 ----------- ----------- ----------- Total assets $80,620,768 $78,688,419 $66,228,339 ----------- ----------- ----------- (Continued on next page) BAREFOOT INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 1996 1995 1995 ------ ------ ------ (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion, long-term debt $ 1,050,000 $ 1,060,000 $ 950,000 Current portion, capital lease obligations 3,114,306 3,535,663 3,084,777 Customer prepayments 3,854,874 4,157,572 4,089,776 Accrued taxes payable 6,397,760 5,545,000 5,739,500 Accounts payable 4,383,860 4,656,107 2,674,143 Accrued compensation and payroll taxes 2,054,996 1,917,782 1,602,500 Other accrued expenses 2,089,747 1,195,062 723,024 Deferred taxes 2,106,000 -- -- ------------ ------------ ------------ Total current liabilities 25,051,543 22,067,186 18,863,720 ------------ ------------ ------------ DEFERRED TAXES -- 1,877,500 -- CAPITAL LEASE OBLIGATIONS 8,603,335 6,673,205 6,319,410 LONG-TERM DEBT 1,736,619 2,204,516 1,900,000 ------------ ------------ ------------ Total liabilities 35,391,497 32,822,407 27,083,130 ------------ ------------ ------------ SHAREHOLDERS' EQUITY Preferred Stock - 5,000,000 shares authorized, $.01 par value -- -- -- Series A Junior Participating Preferred Stock, 400,000 shares authorized, per value $.01 per share -- -- -- Common Stock - 40,000,000 shares authorized, $.01 par value, shares issued - 16,796,760 16,771,760 and 16,776,260 respectively; shares out- standing - 14,519,760, 15,187,760 and 14,855,260, respectively 167,968 167,717 167,763 Additional paid-in capital 50,040,069 49,876,100 49,892,555 Treasury stock, at cost (26,868,009) (18,972,000) (22,801,634) Excess purchase price (5,285,649) (5,285,649) (5,285,649) Retained earnings 27,174,892 20,079,844 17,172,174 ------------ ------------ ------------ Total shareholders' equity 45,229,271 45,866,012 39,145,209 Total liabilities and share- ------------ ------------ ------------ holders' equity $ 80,620,768 $ 78,688,419 $ 66,228,339 ------------ ------------ ------------ BAREFOOT INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ------ ------ (unaudited) CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 12,196,170 $ 12,479,954 Adjustments to reconcile net income to net cash used in operating activities-- Deferred tax provision 2,602,495 502,000 Depreciation and amortization 4,689,192 4,402,532 Provision for uncollected customer receivables 1,231,657 1,164,733 Notes receivable collected 223,455 176,093 Franchise fees (150,000) (211,000) Changes in certain assets and liabilities-- (Increase) decrease in assets - Investments (44,291) 8,262,684 Receivables (9,795,269) (13,180,925) Supplies (475,476) (290,397) Prepaid expenses (3,878,713) (4,830,054) Other assets (27,448) (47,431) Refundable income taxes -- 1,500,000 Increase (decrease) in liabilities- Customer prepayments (1,086,975) (487,463) Accounts payable 1,709,717 119,468 Accrued taxes payable 658,260 4,065,994 Accrued expenses 1,597,769 1,941,998 ------------ ------------ Net cash provided by operating activities 9,450,543 15,568,186 ------------ ------------ (Continued on next page) BAREFOOT INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ------ ------ (unaudited) CASH FLOW FROM INVESTING ACTIVITIES: Cash paid for acquired assets, net of cash obtained $ (5,261,510) $ (630,769) Proceeds from investment in direct financing leases and notes receivable 343,907 215,065 Capital expenditures (661,519) (578,015) ------------ ------------ Net cash used in investing activities (5,579,122) (993,719) ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES: Dividends paid (2,193,452) (1,719,406) Treasury stock purchased (4,066,375) (18,972,000) Stock option exercises 147,719 28,011 Term loan debt payments (630,699) (692,151) Capital lease principal payments (2,787,349) (2,637,665) ------------ ------------ Net cash used in financing activities (9,530,156) (23,993,211) ------------ ------------ Net decrease in cash (5,658,735) (9,418,744) ------------ ------------ CASH AND CASH EQUIVALENTS, beginning of period 10,877,039 17,957,025 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 5,218,304 $ 8,538,281 ------------ ------------ Supplemental disclosure of cash flows information: Interest paid during the period $ 826,000 $ 807,000 Taxes paid during the period $ 3,376,000 $ 5,163,000 BAREFOOT INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (unaudited) DECEMBER 31, OPTIONS SHARES DIVIDENDS NET SEPT 30, 1995 EXERCISED REPURCHASED PAID INCOME 1996 COMMON SHARES ISSUED 16,776,260 20,500 -- -- -- 16,796,760 ------------ -------- ----------- ----------- ----------- ------------ TREASURY SHARES 1,921,000 -- 356,000 -- -- 2,277,000 ------------ -------- ----------- ----------- ----------- ------------ PREFERRED STOCK $ -- $ -- $ -- $ -- $ -- $ -- JUNIOR PARTICIPATING PREFERRED -- -- -- -- -- -- COMMON STOCK 167,763 205 -- -- -- 167,968 ADDITIONAL PAID-IN CAPITAL 49,892,555 147,514 -- -- -- 50,040,069 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 -- -- (2,193,452) 12,196,170 27,174,892 ------------ -------- ----------- ----------- ----------- ------------ TOTAL SHAREHOLDERS' EQUITY $ 39,145,209 $147,719 $(4,066,375) $(2,193,452) $12,196,170 $ 45,229,271 ------------ -------- ----------- ----------- ----------- ------------
BAREFOOT INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Unaudited Interim Consolidated Financial Statements The accompanying interim consolidated financial statements as of September 30, 1996 and September 30, 1995 and for the three-month and nine-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. 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 and nine-month periods ended September 30, 1996 and 1995, respectively. Percentage Increase (Decrease) Percentage of Three Months Total Revenue (1) Ended Three Months Ended September 30, September 30, 1996 vs 1996 1995 1995 ------ ------ ------ % % % ------ ------ ------ Customer service revenues 98.1 98.0 4.8 Franchise fee & royalty income 1.9 2.0 (1.1) ----- ----- Total revenues 100.0 100.0 4.7 ----- ----- Costs of services provided 33.8 32.9 7.7 General and administrative 18.9 19.2 2.8 Marketing 12.6 12.3 7.4 Amortization of intangibles 1.5 1.6 (.8) Total costs and expenses 65.9 65.1 6.0 ----- ----- Income before interest and income taxes 34.1 34.9 2.4 ----- ----- Interest expense (.7) (.7) 6.4 Interest income .2 .5 (49.1) ----- ----- Income before income taxes 33.6 34.7 1.6 Income taxes 12.0 13.5 6.7 ----- ----- Net income 21.6 21.2 6.9 ----- ----- Percentage Increase (Decrease) Percentage of Nine Months Total Revenue (1) Ended Nine Months Ended September 30, September 30, 1996 vs 1996 1995 1995 ------ ------ ------ % % % ------ ------ ------ Customer service revenues 98.2 98.2 2.3 Franchise fee & royalty income 1.8 1.8 3.3 ----- ----- Total revenues 100.0 100.0 2.4 ----- ----- Costs of services provided 39.2 37.5 6.9 General and administrative 24.8 24.7 2.5 Marketing 11.8 11.2 8.0 Amortization of intangibles 2.0 2.0 (2.1) Total costs and expenses 76.8 74.6 5.4 ----- ----- Income before interest and income taxes 23.2 25.4 (6.5) ----- ----- Interest expense (1.0) (1.0) 2.3 Interest income .3 .8 (54.3) ----- ----- Income before income taxes 22.5 25.2 (8.2) Income taxes 7.9 9.9 (17.5) ----- ----- Net income 14.6 15.3 (2.3) ----- ----- 1) Costs of services provided and marketing expenses are expressed as percentages of customer service revenues. THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1995 REVENUES Customer service revenues increased 4.8% to $36,950,000 for the three months ended September 30, 1996 from $35,243,000 for the three months ended September 30, 1995. Revenues from Hydro Lawn, which was acquired on July 15, 1996, accounted for over 50% of the increase between years. Franchise fees and royalty income declined 1.1% to $702,000 in 1996's third quarter from $709,000 in 1995's third quarter. The decrease is due to $61,000 less in initial franchise fees. Royalty income actually increased over 10% between the periods due to growth both in the number of locations open and service revenues done by the franchisees in the third quarter of 1996. Cost of services provided increased 7.7% to $12,485,000 in the three months ended September 30, 1996 from $11,596,000 in the three months ended September 30, 1995. Costs of services increased as percentage of customer service revenues between years to 33.8% in the third quarter of 1996 compared to 32.9% in the third quarter of 19995. Costs of services for Hydro Lawn were 35% of the increase. Higher products costs and increased insecticide usage during the 1996 quarter were also factors in the increase between years. General and administrative expenses increased 2.8% and were down slightly as a percent of total revenues at 18.9% in the 1996 period and 19.2% in the 1995 period. The modest decrease in general and administrative expenses as a percentage of revenues reflects moderation of employment related expenses due to better employee retention in most Barefoot markets. Marketing expenses were $4,659,000 for the three months ended September 30, 1996 and $4,337,000 for the three months ended September 30, 1995. For interim reporting purposes the Company defers the costs of its Spring and Fall marketing campaigns and expenses them over the treating season. The amounts expensed in the three month periods ended September 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 6.4% to $269,000 in the three months ended September 30, 1996 from $253,000 in the three months ended September 30, 1995 due to higher capital lease balances for additions to the vehicle fleet. Interest income declined 49.0% to $82,000 in the third quarter of 1996 from $161,000 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% rate in the third 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. Net income rose 6.9% to $8,128,000 for the three months ended September 30, 1996 from $7,603,000 for the three months ended September 30, 1995 on the 4.7% increase in revenues and the decrease in the effective tax rate. Earnings per share increased to $.56 per share for the three months ended September 30, 1996 from $.50 per share for the three months ended September 30, 1995. The per share earnings were computed on 14,530,000 weighted average shares outstanding in the 1996 quarter and 15,309,000 in 1995. The lower number of shares outstanding in 1996 reflects the repurchase of 2,277,000 shares since April 1, 1995. NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1995 REVENUES Customer service revenues increased 2.3% to $81,912,000 for the nine months ended September 30, 1996 from $80,033,000 for the nine months ended September 30, 1995. Excluding the July, 1996 Hydro Lawn acquisition, revenues were essentially flat between years which is in line with the lack of growth in customers from Spring 1995 to Spring 1996. Franchise fees and royalty income increased 3.3% to $1,515,000 in the 1996 period from $1,467,000 in the 1995. The increase reflects the added royalties from seven new franchise locations opened in 1996 and growth in customer service revenues generated by the franchisees offset by lower initial franchise fees in 1996. EXPENSES Costs of services provided increased 6.9% to $32,109,000 in the nine months ended September 30, 1996 from $30,024,000 in the nine months ended September 30, 1995. Costs of services increased as a percentage of customer service revenues to 39.2% in 1996 compared to 37.5% in 1995. The increase in costs of services was primarily from the weather causing lower productivity on treatments in the first six months of 1996, 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. 1996 costs were also affected by higher product costs. General and administrative expenses increased 2.5% and were up only slightly to 24.8% of total revenues in the 1996 period from 24.7% in the prior year period. 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 $9,659,000 for the nine months ended September 30, 1996 and $8,942,000 for the nine months ended September 30, 1995, an 8.0% 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 nine month periods ended September 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 2.3% to $826,000 in the nine months ended September 30, 1996 from $807,000 in the nine months ended September 30, 1995 due to the higher capital lease balances for additions to the vehicle fleet. Interest income declined over 54.0% to $274,000 in the first nine months of 1996 from $600,000 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 35.2% rate in 1996 versus 39% in prior years. The lower tax rate is due to tax benefits recorded in the second and third quarters of 1996. The effective tax rate for the entire 1996 year is expected to be approximately 36%. Primarily as a result of the flat lawn care revenues and lower productivity due to the weather, net income declined to $12,196,000 in the 1996 period from $12,480,000 in the 1995 period, a 2.3% decrease. Earnings per share increased to $.83 per share for the nine months ended September 30, 1996 from $.79 per share for the nine months ended September 30, 1995. The per share earnings were computed on 14,646,000 weighted average shares outstanding in the 1996 period and 15,896,000 in 1995. The lower number of shares outstanding in 1996 reflects the repurchase of 2,227,000 shares in 1995 and 1996. QUARTERLY RESULTS The following table sets forth certain unaudited operating results of each of the eleven consecutive quarters in the period ended September 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 $37,651 Costs of services provided 7,031 12,593 12,485 Net income (loss) (3,230) 7,298 8,128 Earnings (loss) per share $ (.22) $ .50 $ .56 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. 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 nine months ended September 30, 1996 Barefoot generated $9,450,000 of cash from operations. Cash provided by operations in the nine months ended September 30, 1995 was $15,568,000. The liquidation of investments to repurchase shares added over $8,262,000 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 $2,217,000 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 $2,787,000 in the nine months ended September 30, 1996 compared to $2,638,000 in the nine months ended September 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. 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, long-term deferred payments and new capital leases. 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 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. For a two week period following the Hydro Lawn 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. Starting in the second quarter the effective tax rate was reduced to 36% 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%. The lower tax rate does not affect the actual taxes payable in 1996 and beyond. DIVIDENDS AND SHARE REPURCHASES On March 15, 1996, June 14, 1996 and September 16, 1996 the Company paid $.05 per share dividends. On October 23, 1996 Barefoot's Board of Directors declared a $.05 per share dividend payable on December 16, 1996 to shareholders of record on December 2, 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. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Reports on Form 8-K None (b) Exhibits 11 Computation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedule 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 November 6, 1996 EXHIBIT INDEX Exhibit Number Description Page # - -------------- --------------- -------- 11 Computation of Earnings per Common and 21 Common Equivalent Share 27 Financial Data Schedule 22 EX-11 2 EXHIBIT 11 BAREFOOT INC. COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1996 1995 1996 1995 ------ ------ ------ ------ NET INCOME $ 8,128,134 $ 7,603,331 $12,196,170 $12,479,954 ----------- ----------- ----------- ----------- SHARES: Weighted average number of shares outstanding during the period 14,511,586 15,229,717 14,616,681 15,811,635 Shares issuable upon the exercise of stock options less shares repurchasable from the proceeds 18,395 78,733 29,079 83,975 ----------- ----------- ----------- ----------- Common and common equivalent shares outstanding 14,529,981 15,308,450 14,645,760 15,895,610 ----------- ----------- ----------- ----------- EARNINGS PER COMMON SHARE $ .56 $ .50 $ .83 $ .79 ----------- ----------- ----------- -----------
EX-27 3
5 1000 9-MOS DEC-31-1996 SEP-30-1996 5,218 1,581 18,723 2,137 1,608 30,734 32,905 19,741 80,621 25,052 0 0 0 168 45,061 80,621 0 83,427 0 64,044 0 0 826 18,832 6,636 12,196 0 0 0 12,196 .83 .83
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