<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
----------------
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 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)
(952) 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 May 4, 2000:
--
Common Stock, $.05 par value 40,751,715
- --------------------------- ----------------
Class Number of Shares
1
<PAGE> 2
REGIS CORPORATION
-----------------
INDEX
-----
<TABLE>
<CAPTION>
Part I. Financial Information Page Nos.
--------------------- ---------
<S> <C> <C> <C>
Item 1. Consolidated Financial Statements:
Balance Sheet as of March 31, 2000
and June 30, 1999 3
Statement of Operations for the three
months ended March 31, 2000 and 1999 4
Statement of Operations for the nine months
ended March 31, 2000 and 1999 5
Statement of Cash Flows for the nine
months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-12
Review Report of Independent Accountants 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-21
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 22
Part II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGIS CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000 AND JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 2000 JUNE 30, 1999
---------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $11,336 $ 10,353
Accounts receivable, net 16,605 16,598
Inventories 81,641 70,056
Deferred income taxes 9,089 8,596
Other current assets 12,345 11,780
-------- --------
Total current assets 131,016 117,383
Property and equipment, net 245,570 215,952
Goodwill 205,677 153,956
Other assets 14,853 13,291
-------- --------
Total assets $597,116 $500,582
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 13,833 $ 23,945
Accounts payable 20,873 23,877
Accrued expenses 63,820 58,818
-------- --------
Total current liabilities 98,526 106,640
Long-term debt 210,430 143,041
Other noncurrent liabilities 20,577 16,682
Shareholders' equity:
Common stock, $.05 par value;
issued and outstanding, 40,731,589 and 40,419,122
common shares at March 31, 2000 and
June 30, 1999, respectively 2,036 2,021
Additional paid-in capital 151,842 148,504
Accumulated other comprehensive loss (1,514) (1,095)
Retained earnings 115,219 84,789
-------- --------
Total shareholders' equity 267,583 234,219
-------- --------
Total liabilities and shareholders' equity $597,116 $500,582
======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
3
<PAGE> 4
REGIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues:
Company-owned salons:
Service $ 196,156 $ 170,579
Product 79,111 67,414
--------- ---------
275,267 237,993
Franchise income 12,795 11,667
--------- ---------
288,062 249,660
Operating expenses:
Company-owned:
Cost of service 112,256 98,635
Cost of product 42,913 36,647
Direct salon 24,146 20,572
Rent 38,639 33,329
Depreciation 9,346 7,887
--------- ---------
227,300 197,070
Selling, general and administrative 30,843 28,260
Depreciation and amortization 4,310 3,577
Nonrecurring items 2,207
Other 2,827 2,460
--------- ---------
Total operating expenses 265,280 233,574
Operating income 22,782 16,086
Other income (expense):
Interest (4,187) (3,089)
Other, net 608 382
--------- ---------
Income before income taxes 19,203 13,379
Income taxes (7,586) (5,440)
--------- ---------
Net income $ 11,617 $ 7,939
======== =========
Net income per share:
Basic $ .29 $ .20
======== =========
Diluted $ .28 $ .19
======== =========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
4
<PAGE> 5
REGIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
for the nine months ended March 31, 2000 and 1999
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues:
Company-owned salons:
Service $570,468 $496,446
Product 232,111 195,467
-------- --------
802,579 691,913
Franchise income 37,446 35,009
-------- --------
840,025 726,922
Operating expenses:
Company-owned:
Cost of service 324,943 284,518
Cost of product 124,888 105,305
Direct salon 69,533 59,328
Rent 111,419 96,240
Depreciation 26,909 22,676
-------- --------
657,692 568,067
Selling, general and administrative 89,491 84,542
Depreciation and amortization 12,184 9,903
Nonrecurring items 3,145 5,098
Other 8,113 7,133
-------- ---------
Total operating expenses 770,625 674,743
Operating income 69,400 52,179
Other income:
Interest (11,542) (8,617)
Other, net 1,454 1,202
-------- --------
Income before income taxes 59,312 44,764
Income taxes (24,250) (17,566)
-------- --------
Net income $ 35,062 $ 27,198
======== ========
Net income per share:
Basic .86 $ .68
======== ========
Diluted $ .84 $ .66
========= ========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
5
<PAGE> 6
REGIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 35,062 $ 27,198
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 31,140 26,505
Amortization 8,167 6,328
Deferred income taxes 374 (713)
Nonrecurring items - 1,175
Other (641) 1,850
Changes in assets and liabilities:
Accounts receivable 242 (1,775)
Inventories (10,101) (5,709)
Other current assets (801) (2,739)
Other assets (2,742) (1,793)
Accounts payable (5,141) (5,279)
Accrued expenses 3,764 5,130
Other noncurrent liabilities 4,078 3,154
-------- ---------
Net cash provided by operating activities 63,401 53,332
Cash flows from investing activities:
Capital expenditures (55,998) (48,284)
Proceeds from sale of assets 147 546
Purchases of salon assets, net of cash acquired (60,867) (47,190)
-------- ---------
Net cash used in investing activities (116,718) (94,928)
Cash flows from financing activities:
Borrowings on revolving credit facilities 277,585 182,287
Payments on revolving credit facilities (191,485) (161,519)
Proceeds from issuance of long-term debt - 49,312
Repayment of long-term debt (28,995) (19,322)
Dividends paid (3,968) (2,532)
Proceeds from issuance of common stock 1,143 3,418
-------- ---------
Net cash provided by financing activities 54,280 51,644
Effect of exchange rate changes on cash 20 (121)
Increase in cash 983 9,927
Cash:
Beginning of period
End of period 10,353 10,469
-------- ---------
$ 11,336 $ 20,396
======== =========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
6
<PAGE> 7
REGIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation of Unaudited Interim Consolidated Financial
Statements:
The unaudited interim consolidated financial statements of Regis
Corporation (the Company) as of March 31, 2000 and for the three and
nine months ended March 31, 2000 and 1999, reflect, in the opinion of
management, all adjustments (which, with the exception of the matters
discussed in Note 4 herein, include only normal recurring adjustments)
necessary to fairly present the consolidated financial position of the
Company as of March 31, 2000 and its consolidated results of
operations and cash flows for the interim periods. The results of
operations and cash flows for any interim period are not necessarily
indicative of results of operations and cash flows for the full year.
The year-end consolidated balance sheet data was derived from audited
consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles. The
unaudited interim consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements for
the year ended June 30, 1999, which are included in the Company's Form
8-K dated February 11, 2000. PricewaterhouseCoopers LLP, the Company's
independent accountants, have performed limited reviews of the interim
consolidated financial data included herein. Their report on such
reviews accompanies this filing.
In October 1999, the Company consummated a merger with Supercuts
(Holdings) Limited (Supercuts UK) in a stock-for-stock transaction.
The acquisition has been accounted for under the pooling-of-interests
method of accounting and, accordingly, as discussed in Note 8, the
Company's consolidated financial statements have been restated to
retroactively include the accounts and results of operations of
Supercuts UK.
COST OF PRODUCT SALES. On an interim basis, product costs are
determined by applying an estimated gross profit margin to product
revenues.
7
<PAGE> 8
2. Comprehensive Income
Comprehensive income for the Company includes net income and foreign
currency translation charged or credited to the cumulative translation
account within shareholders' equity. Comprehensive income for the
three and nine months ended March 31, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED MARCH 31,
THREE MONTHS NINE MONTHS
------------ -----------
(Dollars in thousands)
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $11,617 $7,939 $35,062 $27,198
Change in cumulative foreign currency translation (441) (573) (419) 471
Reclassification adjustment for translation
losses realized in net income (964)
------- ------ ------- -------
Total comprehensive income $11,176 $7,366 $34,643 $26,705
======= ====== ======= =======
</TABLE>
3. Net Income per Share:
Basic earnings per share (EPS) is calculated as net income divided by
weighted average common shares outstanding. The Company's primary
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. Stock options with exercise
prices greater than the average market value of the Company's common
stock were excluded from the computation of diluted earnings per share
for the third quarter and nine month periods ended March 31, 2000 and
1999. The number of excluded stock options were approximately
2,798,000 and 32,000 for the third quarter and 594,000 and 11,000 for
the nine months ended March 31, 2000 and 1999, respectively.
The following provides information related to the weighted average
common shares used in the calculation of the Company's basic and
diluted EPS:
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED MARCH 31,
THREE MONTHS NINE MONTHS
------------ -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares for basic earnings per share 40,717,771 40,289,386 40,563,429 40,145,418
Effect of dilutive securities 1,131,691 1,446,688 1,130,111 1,280,137
----------- ----------- ----------- -----------
Weighted average shares for diluted earnings per share 41,849,462 41,736,074 41,693,540 41,425,555
========== ========== ========== ==========
</TABLE>
8
<PAGE> 9
4. Nonrecurring Items:
Nonrecurring items included in operating income in the first nine
months of fiscal 2000 consist of $3.1 million of merger and
transaction costs associated with the October 1999 merger with
Supercuts UK (Note 8). There were no nonrecurring items during the
third quarter of fiscal 2000.
Nonrecurring items included in operating income in the third quarter
and first nine months of fiscal 1999 consist of $2.2 million and $5.1
million, respectively, of expense associated with the Company's year
2000 remediation program and merger and transaction costs associated
with the March 1999 merger with Heidi's, Inc.
5. Transaction and Restructuring Liabilities:
The following provides additional information concerning the Company's
transaction and restructuring liabilities related to its fiscal 2000
merger with Supercuts UK, fiscal 1999 mergers with The Barbers,
Hairstyling for Men and Women, Inc. (The Barbers) and Heidi's Inc.
(Heidi's) and its restructuring liability related to its fiscal 1999
restructuring plan for its international operations.
<TABLE>
<CAPTION>
June 30, 2000 Cash March 31,
1999 Charges Payments 2000
---- ------- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Restructuring-International
Severance $ 562 $ 471 $ 91
Salon closures and dispositions 1,187 268 919
Other 351 217 134
------- ------- -------
2,100 956 1,144
Restructuring-Mergers
Severance 2,883 $ 2,482 941 4,424
Salon closures and dispositions 115 52 63
Other 746 116 633 229
------- ------- ------- -------
3,744 2,598 1,626 4,716
Transaction Charges-Mergers 137 547 517 167
------- ------- ------- -------
$ 5,981 $ 3,145 $ 3,099 $ 6,027
======= ======= ======= =======
</TABLE>
6. Segment Information:
Each of the Company's operating segments have generally similar
products and services. The Company is organized to manage its
operations based on geographical location. The Company's operating
segments have been aggregated into two reportable segments generally
based on the way that management has organized the segments within the
enterprise for making operating decisions and assessing performance:
domestic salons and international salons. The Company operates or
franchises 5,175 domestic salons located within high-profile regional
malls and strip shopping centers under several different concepts
including Regis Salons, MasterCuts, Trade Secret, SmartStyle,
Supercuts and Cost Cutters brand names. The Company's International
segment includes 359 salons operating in leading department stores,
strip shopping centers, mass merchants and high street locations.
9
<PAGE> 10
6. Segment Information, continued:
Summarized financial information of the Company's reportable segments
for the three and nine months ended March 31, 2000 and 1999,
respectively, is shown in the following table.
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED MARCH 31,
THREE MONTHS NINE MONTHS
------------ -----------
(Dollars in thousands)
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Company-owned revenues:
Domestic $250,445 $211,379 $725,210 $606,526
International 24,822 26,614 77,369 85,387
-------- -------- -------- --------
Total $275,267 $237,993 $802,579 $691,913
======== ======== ======== ========
Salon contribution:
Domestic $ 44,867 $ 37,463 $133,266 $111,393
International 3,100 3,460 11,621 12,453
--------- -------- -------- --------
Total $ 47,967 $ 40,923 $144,887 $123,846
======== ======== ======== ========
</TABLE>
In addition to the company-owned revenues detailed in the table above,
the Company also recorded franchise income as part of consolidated
revenues for the third quarter and first nine months of fiscal 2000 of
$12.8 million and $37.4 million, respectively, as compared to $11.7
million and $35.0 million, respectively for the third quarter and
first nine months of fiscal 1999. The expenses associated with the
company's franchising activities are included in selling, general and
administrative and other operating expenses.
7. Share Repurchase Program
In May 2000, the Company's Board of Directors approved a stock
repurchase program under which up to $50 million can be expended for
the repurchase of the Company's common stock. The timing and amounts
of any repurchases will depend on many factors, including the market
price of the common stock and overall market conditions. As of May 8,
2000, no shares have been repurchased. This repurchase program has no
stated expiration date.
10
<PAGE> 11
8. Mergers and Acquisitions
SUPERCUTS UK
Effective October 31, 1999, the Company consummated a merger with
Supercuts UK. Supercuts UK is a United Kingdom based company operating
68 hairstyling salons under the Supercuts brand name. Under the terms
of the merger agreement, the shareholders of Supercuts UK, a privately
held company, received 1,778,000 shares of Regis Corporation common
stock. The transaction has been accounted for as a
pooling-of-interests. Prior period financial statements have been
restated to reflect this merger as if the merged companies had always
been combined.
As a result of the merger, the Company recorded a pre-tax merger and
transaction charge of $3.1 million in the second quarter of fiscal
2000. This charge included approximately $2.6 million for severance
and other costs, principally associated with the closure of Supercuts
UK's headquarters. Severance expense covered the termination of
approximately 11 employees of Supercuts UK who had duplicate positions
within the corporate office functions. The charge also included
approximately $.5 million for professional fees including investment
banking, legal, accounting and miscellaneous transaction costs.
Revenues and net income for each of the combining entities prior to
the merger were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended March 31,
----------------------- ---------------
(Dollars in thousands)
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Regis $261,632 $227,773 $714,045
Supercuts UK 4,476 4,224 12,877
-------- -------- --------
Combined $266,108 $231,997 $726,922
======== ======== ========
Net Income:
Regis $ 12,138 $ 8,673 $ 25,794
Supercuts UK 500 459 1,404
-------- -------- --------
Combined $ 12,638 $ 9,132 $ 27,198
======== ======== ========
</TABLE>
11
<PAGE> 12
8. Mergers and Acquisitions, continued:
Prior to the combination, Supercuts UK's fiscal year ended on the
Saturday closest to August 31. In recording the pooling-of-interests
combination, Supercuts UK's financial statements for the nine months
ended March 31, 2000 were combined with Regis consolidated financial
statements for the same period. Supercuts UK's financial statements
for the years ended September 4, 1999 and September 5, 1998 were
combined with Regis' financial statements for the years ended June 30,
1999 and 1998, respectively.
An adjustment of $.7 million has been made to shareholders' equity in
the period ended March 31, 2000 to eliminate the effects of including
Supercuts UK's results of operations for the two months ended
September 4, 1999 in the Company's consolidated financial statements
for the nine months ended March 31, 2000.
OTHER ACQUISITIONS
During the nine month periods ended March 31, 2000 and 1999, the
Company made numerous acquisitions in addition to its merger with
Supercuts UK. These acquisitions have been recorded using the purchase
method of accounting. Accordingly, the purchase prices have been
allocated to assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. The acquisitions
recorded using the purchase method of accounting, individually and in
the aggregate, are not material to the Company's operations.
Operations of the acquired companies have been included in the
operations of the Company since the date of the respective
acquisition.
Costs in excess of net tangible and identifiable intangible assets
acquired and components of the aggregate purchase prices of the
acquisitions were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
---------------
2000 1999
---- ----
<S> <C> <C>
Costs in excess of net tangible and
identifiable intangible assets acquired $59,814 $43,607
======= =======
Components of aggregate purchase price:
Cash $60,867 $47,190
Stock 1,588 2,058
Current and noncurrent payables 3,969 5,081
------- -------
$66,424 $54,329
======= =======
</TABLE>
12
<PAGE> 13
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 March 31, 2000, and the related consolidated statements of
operations for the three-month and nine-month periods ended March 31, 2000 and
1999, and of cash flows for the nine-month periods ended March 31, 2000 and
1999. 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 auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We previously audited in accordance with auditing standards generally accepted
in the United States, the consolidated balance sheet as of June 30, 1999, and
the related consolidated statements of operations, of changes in shareholders'
equity and of cash flows for the year then ended (not presented herein), and in
our report dated February 8, 2000, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the accompanying consolidated
balance sheet information as of June 30, 1999, is fairly stated, in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
April 25, 2000
13
<PAGE> 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
The interim management's discussion and analysis should be read in conjunction
with the Company's consolidated financial statements for the year ended June 30,
1999, which are included in the Company's Form 8-K dated February 11, 2000.
Regis Corporation, based in Minneapolis, Minnesota, is the world's largest
owner, operator, franchisor and acquirer of hair and retail product salons in
all 50 states, Puerto Rico, Canada and the United Kingdom. The Regis worldwide
operations include 5,534 salons at March 31, 2000 operating in two segments:
domestic and international. The Company's domestic segment includes 5,175 salons
operating primarily under the brand names of Regis Salons, MasterCuts, Trade
Secret, SmartStyle, Supercuts and Cost Cutters. The Company's international
operations include 359 salons located in the United Kingdom.
The Company has more than 34,000 employees worldwide.
Consolidated financial data for all periods presented reflect the retroactive
effects of the October 1999 merger with Supercuts UK which has been accounted
for as a pooling-of-interests (See Notes 1 and 8 to the Consolidated Financial
Statements). The financial statements have been prepared by combining current
and historical financial statements of Regis Corporation with those of Supercuts
UK for each period presented.
Third quarter fiscal 2000 revenues grew to a record $288.1 million, including
franchise income of $12.8 million, a 15.4 percent increase over fiscal 1999
third quarter total revenues of $249.7 million. Revenues for the nine months
ended March 31, 2000 grew to a record $840.0 million, including franchise income
of $37.4 million, a 15.6 percent increase over total revenues of $726.9 million
in the comparable fiscal 1999 period.
Fiscal 2000 results for the nine months ended March 31, 2000 include merger and
transaction costs associated with the October 1999 merger with Supercuts UK
which are nonrecurring in nature. Fiscal 1999 results for the quarter and nine
months ended March 31, 1999 include nonrecurring costs associated with the
Company's year 2000 remediation program and merger and transaction costs
associated with the March 1999 merger with Heidi's, Inc. Exclusive of these
nonrecurring items, operating income for the third quarter of fiscal 2000 grew
24.5 percent to $22.8 million. Operating income for the nine months ended March
31, 2000 grew 26.7 percent to $72.5 million, exclusive of nonrecurring items.
Net income in the third quarter of fiscal 2000 increased to a record $11.6
million, or $.28 per diluted share, an earnings per share increase of 21.7
percent from third quarter fiscal 1999 net income of $9.5 million, or $.23 per
diluted share, exclusive of nonrecurring items. For the first nine months of
fiscal 2000, the Company reported record net income of $37.9 million, or $.91
per diluted share, compared to $30.5 million, or $.74 per diluted share,
exclusive of nonrecurring items.
Net income in the third quarter of fiscal 2000 increased to a record $11.6
million, or $.28 per diluted share, compared to third quarter fiscal 1999 net
income of $7.9 million, or $.19 per diluted share, including nonrecurring items.
For the first nine months of fiscal 2000, the Company reported net income of
$35.1 million, or $.84 per diluted share, compared to a net income of $27.2
million, or $.66 per diluted share, in the first nine months of fiscal 1999.
14
<PAGE> 15
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.
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED MARCH 31,
THREE MONTHS NINE MONTHS
------------ -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Company-owned service revenues (1) 71.3% 71.7% 71.1% 71.7%
Company-owned product revenues (1) 28.7 28.3 28.9 28.3
Franchise income 4.4 4.7 4.5 4.8
Company-owned operations:
Profit margins on service (2) 42.8 42.2 43.0 42.7
Profit margins on product (3) 45.8 45.6 46.2 46.1
Direct salon (1) 8.8 8.6 8.7 8.6
Rent (1) 14.0 14.0 13.9 13.9
Depreciation (1) 3.4 3.3 3.4 3.3
Direct salon contribution (1) 17.4 17.2 18.1 17.9
Selling, general and administrative 10.7 11.3 10.7 11.6
Depreciation and amortization 1.5 1.4 1.5 1.4
Nonrecurring items - 0.9 0.4 0.7
Other 1.0 1.0 1.0 1.0
Operating income 7.9 6.4 8.3 7.2
Income before income taxes 6.7 5.4 7.1 6.2
Net income 4.0 3.2 4.2 3.7
Operating income, excluding
nonrecurring items 7.9 7.3 8.6 7.9
Net income, excluding nonrecurring items 4.0 3.8 4.5 4.2
</TABLE>
(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
<PAGE> 16
RESULTS OF OPERATIONS:
REVENUES
REVENUES for the third quarter of fiscal 2000 grew to a record $288.1 million,
an increase of $38.4 million or 15.4 percent, over the same period in fiscal
1999. Revenues for the first nine months of fiscal 2000 were a record $840.0
million, an increase of $113.1 million or 15.6 percent, over the same period in
fiscal 1999. System-wide sales, inclusive of non-consolidated sales generated
from franchise salons, increased to $416.1 million and $1.2 billion,
respectively, for the third quarter and first nine months of fiscal 2000,
representing increases of 11.2 percent and 12.0 percent over the same periods
last year. These increases in company-owned and system-wide sales are the result
of the total number of salons added to the system through acquisitions and net
salon openings, as well as same-store sales increases from existing salons.
For the third quarters and first nine months of fiscal 2000 and 1999,
respectively, revenues by division are as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------------ -------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Regis Salons $94,246 $ 90,347 $281,350 $264,778
Strip Center Salons (primarily Supercuts) 55,783 38,993 151,703 104,034
MasterCuts 36,084 31,176 106,419 91,384
Trade Secret 41,029 34,444 122,669 100,751
Wal-Mart/SmartStyle 23,303 16,419 63,069 45,579
International 24,822 26,614 77,369 85,387
Franchise income 12,795 11,667 37,446 35,009
--------- --------- ---------- ----------
$288,062 $249,660 $840,025 $726,922
======== ======== ======== ========
</TABLE>
Same-store sales for domestic company-owned salons increased 3.2 percent and 4.0
percent in the third quarter and first nine months of fiscal 2000, respectively,
compared to 6.0 percent and 5.8 percent in the same periods in fiscal 1999.
System-wide same-store sales for the third quarter and first nine months of
fiscal 2000 increased 2.6 percent and 3.5 percent, respectively, compared to 5.5
percent in the same periods a year ago. Same-store sales increases achieved are
due to an increase in the number of customers served and market based price
increases in certain salon divisions. A total of 27 million and 79 million
customers system-wide were served during the third quarter and first nine months
of fiscal 2000, respectively. 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 third quarter of fiscal 2000 grew to $196.2 million, an
increase of $25.6 million or 15.0 percent, over the same period in fiscal 1999.
In the first nine months of fiscal 2000, service revenues were
$570.5 million, an increase of $74.0 million or 14.9 percent, over the same
period a year ago. The increase in service revenues is a result of salon
acquisitions the Company has made during the past twelve months, accelerated new
salon construction and strong service same-store sales increases of 2.9 percent
and 3.8 percent in the third quarter and first nine months of fiscal 2000,
respectively.
16
<PAGE> 17
PRODUCT REVENUES in the third quarter of fiscal 2000 grew to $79.1 million, an
increase of $11.7 million or 17.4 percent, over the same period in fiscal 1999.
In the first nine months of fiscal 2000, product revenues were $232.1 million,
an increase of $36.6 million or 18.7 percent, over the same period in fiscal
1999. These increases continue a trend of escalating product revenues due to
product same-store sales growth of 4.0 percent and 4.6 percent in the third
quarter and first nine months of fiscal 2000, respectively, a reflection of the
continuous focus on product awareness, training and acceptance of national label
merchandise. Product revenues as a percent of total company-owned revenues
increased to 28.7 percent and 28.9 percent of revenues for the third quarter and
first nine months of fiscal 2000 compared to 28.3 percent in the same periods a
year ago.
FRANCHISE INCOME, including royalties, initial franchise fees and product and
equipment sales made by the Company to franchisees, increased slightly to $12.8
million and $37.4 million in the third quarter and first nine months of fiscal
2000, respectively. The increase in franchise income is a result of an increase
in franchise sales, which are not included in the Company's consolidated
revenues, as well as an increase in product purchases by franchisees from
the Company.
COST OF REVENUES
The aggregate cost of service and product revenues in the third quarter of
fiscal 2000 were $155.2 million compared to $135.3 million in the same period in
fiscal 1999. For the first nine months of fiscal 2000, the aggregate cost of
service and product revenues were $449.8 million compared to $389.8 million in
the same period a year ago. The resulting combined gross margin percentages for
the third quarter and first nine months of fiscal 2000 improved 40 basis points
and 30 basis points to 43.6 percent and 44.0 percent of company-owned revenues,
respectively, compared to 43.2 percent and 43.7 percent of company-owned
revenues in the same periods in fiscal 1999. As discussed below, these
improvements were primarily due to strong same-store sales, increased sales
leverage in the Company's fixed cost payroll divisions and lower cost of product
revenues.
SERVICE MARGINS improved to 42.8 percent and 43.0 percent in the third quarter
and first nine months of fiscal 2000, respectively, compared to 42.2 percent and
42.7 percent in the same periods in fiscal 1999. These 60 basis point and 30
basis point increases are primarily due to leveraging fixed payroll costs
against strong service same-store sales increases and continued sales
maturation.
PRODUCT MARGINS improved to 45.8 percent and 46.2 percent in the third quarter
and first nine months of fiscal 2000 compared to 45.6 percent and 46.1 percent
in the same periods in fiscal 1999. These 20 basis point and 10 basis point
increases are primarily due to lower cost of product for salons acquired in the
prior year which are benefiting from the purchasing power of Regis.
17
<PAGE> 18
DIRECT SALON
This expense category includes direct costs associated with salon operations
such as advertising, promotion, insurance, telephone and utilities. For the
third quarter of fiscal 2000, direct salon expense of $24.1 million increased as
a percent of company-owned revenues to 8.8 percent from 8.6 percent in the third
quarter of fiscal 1999. For the first nine months of fiscal 2000, direct salon
expense of $69.5 million increased slightly as a percent of company-owned
revenues to 8.7 percent from 8.6 percent in the same period in fiscal 1999. This
increase is primarily due to an increase in freight costs resulting from higher
diesel fuel prices.
RENT
Rent expense for the third quarter of fiscal 2000 of $38.6 million remained
consistent as a percent of company-owned revenues at 14.0 percent in the same
period in fiscal 1999. Rent expense for the first nine months of fiscal 2000 of
$111.4 million remained consistent as a percent of company-owned revenues at
13.9 percent in the same period in fiscal 1999.
DEPRECIATION - SALON LEVEL
For the third quarter and first nine months of fiscal 2000, salon depreciation
expense was 3.4 percent of company-owned revenues compared to 3.3 percent in the
same periods a year ago.
DIRECT SALON CONTRIBUTION
For the reasons described above, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, improved in the
third quarter of fiscal 2000 to $48.0 million, or 17.4 percent of company-owned
revenues, compared to $40.9 million or 17.2 percent of company-owned revenues in
the same period of fiscal 1999. For the first nine months of fiscal 2000, direct
salon contribution improved to $144.9 million, or 18.1 percent of company-owned
revenues, compared to $123.8 million or 17.9 percent of company-owned revenues
in the same period a year ago.
18
<PAGE> 19
SELLING, GENERAL AND ADMINISTRATIVE
Expenses in this category include field supervision (payroll, related taxes and
travel) and home office administration costs (such as warehousing, salaries,
occupancy costs and professional fees). Selling, general and administrative
(SG&A) expenses were $30.8 million, or 10.7 percent of total revenues in the
third quarter of fiscal 2000, compared to $28.3 million, or 11.3 percent of
total revenues in the same period in fiscal 1999. For the first nine months of
fiscal 2000, SG&A expenses were $89.5 million, or 10.7 percent of total
revenues, compared to $84.5 million, or 11.6 percent of total revenues in the
same period in fiscal 1999. These 60 basis point and 90 basis point,
respectively, improvements are primarily related to a decrease in SG&A expense
as a result of the amalgamation of The Barbers and Heidi's mergers and the
successful implementation of the UK restructuring plan, as well as the Company's
ability to leverage the fixed cost components of SG&A against sales growth.
DEPRECIATION AND AMORTIZATION - CORPORATE
Corporate depreciation and amortization increased to 1.5 percent of total
revenues in both the third quarter and first nine months of fiscal 2000,
compared to 1.4 percent in the same periods a year ago. This increase is
primarily related to an increase in the level of intangible assets, primarily
goodwill and non-compete agreements, associated with the Company's acquisition
activity during the past twelve months.
NONRECURRING ITEMS
Nonrecurring items included in operating income consist of merger and
transaction costs, restructuring gains(losses) on assets and business
dispositions and other items of a nonrecurring nature.
See Note 4 to the unaudited Consolidated Financial Statements for a description
of the nonrecurring items and Liquidity and Capital Resources for a discussion
of year 2000 remediation costs.
OPERATING INCOME
Operating income in the third quarter of fiscal 2000, excluding nonrecurring
items, improved to $22.8 million, an increase of $4.5 million or 24.5 percent
over the same period in fiscal 1999. Operating income, excluding nonrecurring
items, as a percentage of total revenues grew to 7.9 percent in the third
quarter of fiscal 2000 compared to 7.3 percent in the same period in fiscal
1999. Exclusive of nonrecurring items, operating income in the first nine months
of fiscal 2000 improved to $72.5 million, or 8.6 percent of total revenues, an
increase of $15.3 million, or 26.7 percent over the prior year period operating
income of $57.3 million, or 7.9 percent of total revenues.
19
<PAGE> 20
INTEREST
Interest expense in the third quarter and first nine months of fiscal 2000 was
$4.2 million and $11.5 million, respectively, representing 1.5 percent of total
revenues in the third quarter and 1.4 percent in the first nine months of fiscal
2000, compared to $3.1 million and $8.6 million, or 1.2 percent of total
revenues in the same periods in fiscal 1999. Interest expense as a percent of
total revenues has increased slightly between the two periods because of higher
debt levels primarily resulting from the Company's acquisition program.
INCOME TAXES
The Company's annual effective income tax rate for the first nine months of
fiscal 2000 is 40.9 percent compared to 41.8 percent for fiscal year 1999.
Fiscal 2000 and 1999 effective tax rates have been negatively impacted by
nondeductible merger and transaction costs associated with the Company's merger
with Supercuts UK in fiscal 2000 and mergers with Heidi's and The Barbers as
well as the UK restructuring charge in fiscal 1999. Management expects the
underlying effective tax rate for all of fiscal 2000 to be approximately 39.5
percent, exclusive of nonrecurring items.
NET INCOME
Net income in the third quarter of fiscal 2000 grew to $11.6 million, or $.28
per diluted share, compared to a net income of $7.9 million, or $.19 per diluted
share in the same period in fiscal 1999. Exclusive of nonrecurring items, net
income in the third quarter of fiscal 2000 increased to a record $11.6 million,
or $.28 per diluted share, compared to net income in the same period in fiscal
1999 of $9.5 million, or $.23 per diluted share, an earnings per share increase
of 21.7 percent.
For the first nine months of fiscal 2000, net income grew to $35.1 million or
$.84 per diluted share, compared to net income of $27.2 million or $.66 per
diluted share in the same period in fiscal 1999. Exclusive of nonrecurring items
in both periods, net income in the first nine months of fiscal 2000 increased to
a record $37.9 million or $.91 per diluted share, compared to net income in the
same period in fiscal 1999 of $30.5 million or $.74 per diluted share, an
earnings per share increase of 23.0 percent.
The Company's salon count has grown from over 1,900 to more than 5,500 in the
past four years. The Company expects to have as many as 10,000 salons within
the next five to six years and is committed to make the necessary investments
to support this endeavor. As a result of these investments, as well as
anticipated expenses in other areas, the Company expects to incur higher costs
in the fourth quarter of fiscal 2000 and in fiscal 2001, thereby reducing
earnings growth to approximately ten percent in both periods. The Company's
3-year average annual earnings growth is expected to be between 13 to 16
percent.
20
<PAGE> 21
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 for the first nine months of fiscal 2000 grew
to $63.4 million compared to $53.3 million during the same period in fiscal
1999. The increase between the two periods is primarily due to improved
operating performance.
During the first nine months of fiscal 2000, the Company had worldwide capital
expenditures of $60.9 million, of which $4.9 million related to acquisitions of
362 salons. The Company constructed 40 new Regis Salons, 32 new MasterCuts
salons, 32 new Trade Secret salons, 91 new Wal-Mart/SmartStyle salons, 60 new
Strip Center Salons and 15 new International salons, and completed 71 major
remodeling projects. All capital expenditures during the first nine months of
fiscal 2000 were funded by cash flow from the Company's operations and
borrowings under its revolving credit facility.
The Company anticipates its worldwide salon development program for fiscal 2000
will include the construction of approximately 375 new company-owned salons, and
125 major remodeling and conversion projects. It is expected that expenditures
for these new salons and other projects will be approximately $70 to $75 million
in fiscal 2000, excluding capital expenditures related to acquisitions.
Financing
Management believes that cash generated from operations and amounts available
under its revolving credit facilities will be sufficient to fund its anticipated
capital expenditures and required debt repayments for the foreseeable future.
Dividends
During the first nine months of fiscal 2000, the Company paid normal quarterly
dividends of $3.6 million, or $.12 per share. In addition, prior to the merger
of Supercuts UK with Regis, Supercuts UK declared normal dividends of $.3
million which were paid during the period from July 1, 1999 through November
1999.
Share Repurchase Program
See discussion in footnote 7 to the Consolidated Financial Statements.
Year 2000
The Company previously initiated a comprehensive project to prepare its computer
systems for the year 2000. The Company completed all phases of the project
including the awareness, assessment, validation and implementation phases prior
to March 31, 1999. The rollover to year 2000 did not have a significant impact
on the operations of the Company and its computers systems, nor were there
disruptions as a result of vendors noncompliance or other factors.
Costs associated with the year 2000 were expensed as incurred and funded through
operating cash flows. The Company incurred $4.6 million related to year 2000
project costs from the project's inception in fiscal 1999 through its completion
in fiscal 2000.
SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the federal securities laws, including statements concerning
anticipated future events and expectations that are not historical facts. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The forward-looking
statements in this document reflect management's best judgement at the time
they are made, but all such statements are subject to numerous risks and
uncertainties, which could cause actual results to differ materially from those
expressed in or implied by the statements herein. Additional information
concerning potential factors that could affect future financial results is
included in the Company's Form S-3 Registration Statement filed with the
Securities and Exchange Commission on March 7, 2000.
21
<PAGE> 22
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk exposure of the Company relates to changes in interest
rates in connection with its debt, some of which bears interest at floating
rates based on LIBOR plus an applicable borrowing margin.
As of March 31, 2000, the Company had $121.9 million of total floating rate debt
outstanding. The Company manages its interest rate risk by balancing the amount
of fixed and variable debt. In addition, on occasion the Company uses interest
rate swaps to further mitigate the risk associated with changing interest rates.
Generally, the terms of the interest rate swap agreements range from one to five
years with settlement on a quarterly basis.
22
<PAGE> 23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 15 Letter Re: Unaudited Interim Financial Information.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
The following report on Form 8-K was filed during the three months ended
March 31, 2000:
Form 8-K dated February 11, 2000 restating the Company's historical
consolidated financial statements to retroactively give effect to the
inclusion of the accounts and results of operations of Supercuts UK.
23
<PAGE> 24
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: May 8, 2000 By: /s/ Randy L. Pearce
------------------------
Randy L. Pearce
Executive Vice President
Chief Financial and Administrative Officer
Signing on behalf of the
registrant and as principal
accounting officer
24
<PAGE> 1
EXHIBIT NO. 15
May 8, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington DC 20549
RE: Regis Corporation Registration Statements
on Form S-3
(File No. 333-28511, No. 333-78793, No.
333-49165, No. 333-89279, No.333-90809 and
333-31874), and Form S-8 (File No. 33-44867
and No. 33-89882)
Commissioners:
We are aware that our report dated April 25, 2000, on our review of the interim
consolidated financial information of Regis Corporation for the period ended
March 31, 2000, and included in the Company's quarterly report on Form 10-Q for
the quarter then ended, is incorporated by reference in the above referenced
registration statements.
Yours very truly,
PRICEWATERHOUSECOOPERS LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGIS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD
ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-1999
<PERIOD-START> JUL-01-1999 JUL-01-1998
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 11,336 20,396
<SECURITIES> 0 0
<RECEIVABLES> 17,223 15,929
<ALLOWANCES> 618 488
<INVENTORY> 81,641 66,220
<CURRENT-ASSETS> 131,016 118,769
<PP&E> 426,858 368,121
<DEPRECIATION> 181,288 158,095
<TOTAL-ASSETS> 597,116 496,614
<CURRENT-LIABILITIES> 98,526 104,927
<BONDS> 0 0
0 0
0 0
<COMMON> 2,036 1,234
<OTHER-SE> 265,547 229,182
<TOTAL-LIABILITY-AND-EQUITY> 597,116 496,614
<SALES> 232,111 195,467
<TOTAL-REVENUES> 840,025 726,922
<CGS> 124,888 105,305
<TOTAL-COSTS> 657,692 568,067
<OTHER-EXPENSES> 23,442<F1> 22,134<F2>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,542 8,617
<INCOME-PRETAX> 59,312 44,764
<INCOME-TAX> 24,250 17,566
<INCOME-CONTINUING> 35,062 27,198
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 35,062 27,198
<EPS-BASIC> .86 .68
<EPS-DILUTED> .84<F3> .66<F3>
<FN>
<F1>INCLUDES $3,145 OF NONRECURRING MERGER AND TRANSACTION COSTS.
<F2>INCLUDES $5,098 OF NONRECURRING YEAR 2000 REMEDIATION COSTS AND MERGER AND
TRANSACTION COSTS.
<F3>EXCLUDING NONRECURRING COSTS, FULLY DILUTED EPS WOULD HAVE BEEN $.91 AND
$.74 FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999, RESPECTIVELY.
</FN>
</TABLE>
