<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 September 30, 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 November 2, 2000:
Common Stock, $.05 par value 40,776,592
---------------------------- --------------------------------
Class Number of Shares
<PAGE> 2
REGIS CORPORATION
INDEX
Part I. Financial Information Page Nos.
--------------------- ---------
Item 1 Consolidated Financial Statements:
Balance Sheet as of September 30, 2000
and June 30, 2000 3
Statement of Operations for the three
months ended September 30, 2000 and 1999 4
Statement of Cash Flows for the three
months ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-11
Report of Independent Accountants 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-19
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 20
Part II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGIS CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000 AND JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<S> <C> <C>
(UNAUDITED)
SEPTEMBER 30, 2000 JUNE 30, 2000
------------------- --------------
ASSETS
Current assets:
Cash $ 23,119 $ 14,888
Accounts receivable, net 16,879 16,220
Inventories 99,677 91,823
Deferred income taxes 8,558 10,160
Other current assets 5,923 10,713
-------- --------
Total current assets 154,156 143,804
Property and equipment, net 271,823 260,532
Goodwill, net 222,182 208,724
Other assets 17,982 15,295
-------- --------
Total assets $666,143 $628,355
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 5,802 $ 9,983
Accounts payable 41,304 34,216
Accrued expenses 59,058 58,845
-------- --------
Total current liabilities 106,164 103,044
Long-term debt 246,106 224,618
Other noncurrent liabilities 23,978 21,552
Shareholders' equity:
Common stock, $.05 par value;
issued and outstanding, 40,770,863 and 40,702,707
common shares at September 30, 2000 and
June 30, 2000, respectively 2,038 2,035
Additional paid-in capital 151,289 150,793
Accumulated other comprehensive loss (3,510) (2,274)
Retained earnings 140,078 128,587
-------- --------
Total shareholders' equity 289,895 279,141
-------- --------
Total liabilities and shareholders' equity $666,143 $628,355
======== ========
</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 SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues:
Company-owned salons:
Service $209,896 $181,836
Product 87,408 71,871
-------- --------
297,304 253,707
Franchise income 13,450 12,401
-------- --------
310,754 266,108
Operating expenses:
Company-owned:
Cost of service 120,163 102,948
Cost of product 47,309 38,554
Direct salon 26,072 22,294
Rent 41,337 35,360
Depreciation 9,834 8,608
-------- --------
244,715 207,764
Selling, general and administrative 32,280 28,261
Depreciation and amortization 5,063 3,768
Other 2,935 2,599
-------- --------
Total operating expenses 284,993 242,392
Operating income 25,761 23,716
Other income (expense):
Interest (5,095) (3,367)
Other, net 350 414
-------- --------
Income before income taxes 21,016 20,763
Income taxes (8,301) (8,125)
-------- --------
Net income $ 12,715 $ 12,638
======== ========
Net income per share:
Basic $ .31 $ .31
======== ========
Diluted $ .31 $ .30
======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
4
<PAGE> 5
REGIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED) FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $12,715 $12,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,626 9,962
Amortization 3,350 2,404
Deferred income taxes 1,528 413
Other 379 (519)
Changes in assets and liabilities:
Accounts receivable (1,305) (1,243)
Inventories (7,856) (3,149)
Other current assets 4,433 5,139
Other assets (2,456) (1,859)
Accounts payable 3,456 6,759
Accrued expenses 254 1,041
Other noncurrent liabilities 1,905 1,955
------- -------
Net cash provided by operating activities 28,029 33,541
Cash flows from investing activities:
Capital expenditures (20,519) (19,338)
Proceeds from sale of assets 3 51
Purchases of salon assets, net of cash acquired (19,799) (14,637)
------- -------
Net cash used in investing activities (40,315) (33,924)
Cash flows from financing activities:
Borrowings on revolving credit facilities 78,300 86,361
Payments on revolving credit facilities (60,500) (57,161)
Repayment of long-term debt (833) (23,372)
Increase in negative book cash 4,820
Dividends paid (1,224) (1,162)
Proceeds from issuance of common stock 411 216
------- -------
Net cash provided by financing activities 20,974 4,882
Effect of exchange rate changes on cash (457) (35)
------- -------
Increase in cash 8,231 4,464
Cash:
Beginning of period 14,888 10,353
------- -------
End of period $23,119 $14,817
======= =======
</TABLE>
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
5
<PAGE> 6
REGIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation of Unaudited Interim Consolidated Financial Statements:
The unaudited interim consolidated financial statements of Regis Corporation
(the Company) as of September 30, 2000 and for the three months ended September
30, 2000 and 1999, reflect, in the opinion of management, all adjustments
necessary to fairly present the consolidated financial position of the Company
as of September 30, 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, 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.
COST OF PRODUCT SALES. On an interim basis, product costs are determined by
applying an estimated gross profit margin to product revenues.
2. New Accounting Pronouncement:
Effective July 1, 2000, Regis adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended and interpreted (FAS 133). FAS 133 requires that all
derivative instruments, such as interest rate swap contracts, be recognized in
the financial statements and measured at their fair market value. Changes in the
fair market value of derivative instruments are recognized each period in
current earnings or shareholders equity (as a component of other comprehensive
income), depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The adoption of FAS
133 did not have a material impact the Company's primary financial statements,
but did result in the recording of a pre-tax unrealized loss of approximately
$265,000 in other comprehensive income.
In the normal course of business, the Company is exposed to changes in interest
rates. The Company has established policies and procedures that govern the
management of these exposures through the use of financial instruments. By
policy, the Company does not enter into such contracts for the purpose of
speculation.
6
<PAGE> 7
2. New Accounting Pronouncement, continued:
The Company's objective in managing its exposure to interest rates is to
decrease the volatility that changes in interest rates might have on earnings
and cash flows. To achieve this objective, the Company uses interest rate swaps
to adjust a portion of total debt, as determined by management, that is subject
to variable interest rates. The Company designates these instruments as cash
flow hedges. Under an interest rate swap contract, Regis agrees to pay
fixed-rates of interest. These contracts are considered to be a hedge against
changes in the amount of future cash flows associated with the Company's
interest payments related to its variable-rate debt obligations. Accordingly,
the interest rate swap contracts are reflected at fair value in the Company's
consolidated balance sheet and the related gains or losses on these contracts
are deferred in shareholders' equity as a component of comprehensive income.
These deferred gains and losses are then amortized as an adjustment to interest
expense over the same period in which the related interest payments being hedged
are recognized in income. However, to the extent that any of these contracts are
not effective in offsetting the change in interest cashflows being hedged, their
effective portion is immediately recognized in earnings. The net effect of this
accounting on the Company's operating results is that interest expense on the
portion of variable-rate debt being hedged is generally recorded based on fixed
interest rates. No other cash payments are made unless the contract is
terminated prior to maturity, in which case the amount paid or received in
settlement is established by agreement at the time of termination, and usually
represents the net present value, at current rates of interest, of the remaining
obligations to exchange payments under the terms of the contract. Any gains or
losses upon the early termination of the interest rate swap contracts are
deferred and recognized in income over the remaining life of the contract.
At September 30, 2000, Regis had interest rate swap contracts to pay fixed rates
of interest (ranging from 7.04% to 7.50%) and receive variable rates of interest
based on the three-month LIBOR rate (ranging from 6.65% to 6.79% during the
quarter) on $30 million and $25 million notional amount of indebtedness through
June 2002 and April 2003, respectively.
7
<PAGE> 8
3. Comprehensive Income:
Comprehensive income for the Company includes net income, transition adjustment
for the adoption of FAS 133, changes in fair market value of financial
instruments designated as hedges of interest rate exposure and foreign currency
translation charged or credited to the cumulative translation account within
shareholders' equity. Comprehensive income for the three months ended September
30, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
(Dollars in thousands)
2000 1999
---- ----
<S> <C> <C>
Net income $12,715 $12,638
Other comprehensive income:
Transition adjustment relating to the
adoption of FAS No. 133, net of taxes (160)
Changes in fair market value of financial
instruments designated as hedges of
interest rate exposure, net of taxes (298)
Change in cumulative foreign currency translation (778) 245
------- -------
Total comprehensive income $11,479 $12,883
======= =======
</TABLE>
4. 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 first quarter ended September 30, 2000 as they are considered to be
anti-dilutive. The number of excluded stock options were approximately 3,204,309
and 496,419 in the first quarter of fiscal 2001 and fiscal 2000, respectively.
8
<PAGE> 9
4. Net Income per Share, continued:
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 THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Weighted average shares for basic earnings per share 40,720,731 40,448,420
Effect of dilutive securities 744,588 1,143,202
---------- ----------
Weighted average shares for diluted earnings per share 41,465,319 41,591,622
========== ==========
</TABLE>
5. Financing:
In September 2000, the Company amended its senior revolving credit agreement to
increase the amount available from $180 million to $250 million, extending the
expiration date to August 2003 and modify certain debt covenant restrictions.
6. Transaction and Restructuring Liabilities:
The following provides additional information concerning the Company's
transaction and restructuring liabilities (dollars in thousands):
<TABLE>
<CAPTION>
Restructuring - International Restructuring - Mergers
-------------------------------- -----------------------------------------
Salon Salon Transaction
Closures & Closures & Charges
Dispositions Other Subtotal Severance Disposition Other Subtotal Mergers Total
------------ ----- -------- --------- ----------- ----- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 2000 $583 $67 $650 $2,824 $23 $145 $2,992 $35 $3,677
Cash utilization 58 5 63 408 9 35 452 12 527
Non-cash utilization 100 2 102 111 6 117 219
---- --- ---- ------ --- ---- ------ --- ------
September 30, 2000 $425 $60 $485 $2,305 $14 $104 $2,423 $23 $2,931
==== === ==== ====== === ==== ====== === ======
</TABLE>
9
<PAGE> 10
7. 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 5,445 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 362 salons
operating in leading department stores, strip shopping centers, mass merchants
and high street locations.
Summarized financial information of the Company's reportable segments for the
three months ended September 30, 2000 and 1999, respectively, is shown in the
following table.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
(Dollars in thousands)
2000 1999
---- ----
<S> <C> <C>
Company-owned revenues:
Domestic $273,752 $227,717
International 23,552 25,990
-------- --------
Total $297,304 $253,707
======== ========
Salon contribution:
Domestic $ 49,863 $ 41,352
International 2,726 4,591
-------- --------
Total $ 52,589 $ 45,943
======== ========
</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
first quarter of fiscal 2001 of $13.5 million compared to $12.4 million for the
first quarter of fiscal 2000. The expenses associated with the company's
franchising activities are included in selling, general and administrative and
other operating expenses.
10
<PAGE> 11
8. Acquisitions:
During the three month period ended September 30, 2000 and 1999, the Company
made numerous acquisitions. 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>
THREE MONTHS
ENDED SEPTEMBER 30,
--------------------------------
(Dollars in thousands)
2000 1999
---- ----
<S> <C> <C>
Costs in excess of net tangible and
identifiable intangible assets acquired $17,125 $14,301
======= =======
Components of aggregate purchase price:
Cash $19,776 $14,601
Current and noncurrent payables 517 1,622
------- -------
$20,293 $16,223
======= =======
</TABLE>
11
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Regis Corporation:
We have reviewed the accompanying consolidated balance sheet of Regis
Corporation as of September 30, 2000, and the related consolidated statements of
operations and of cash flows for the three-month periods ended September 30,
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 of
America, 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 for them
to be in conformity with accounting principles generally accepted in the United
States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of June 30,
2000, 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 August 22, 2000, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
accompanying consolidated balance sheet information as of June 30, 2000, is
fairly stated, in all material respects in relation to the consolidated balance
sheet from which it has been derived.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
October 24, 2000
12
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
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 5,807 salons at September 30, 2000 operating in two segments:
domestic and international. The Company's domestic segment includes 5,445 salons
operating primarily under the brand names of Regis Salons, MasterCuts, Trade
Secret, SmartStyle, Supercuts and Cost Cutters. The Company's international
operations include 362 salons located in the United Kingdom. The Company has
more than 37,000 employees worldwide.
First quarter fiscal 2001 revenues grew to a record $310.8 million, including
franchise income of $13.5 million, a 16.8 percent increase over fiscal 2000
first quarter total revenues of $266.1 million.
Net income in the first quarter of fiscal 2001 increased to a record $12.7
million, or $.31 per diluted share, an earnings per share increase of 3.3
percent from first quarter fiscal 2000 net income of $12.6 million, or $.30 per
diluted shares.
13
<PAGE> 14
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 THREE MONTHS
ENDED SEPTEMBER 30,
--------------------
2000 1999
---- ----
<S> <C> <C>
Company-owned service revenues (1) 70.6% 71.7%
Company-owned product revenues (1) 29.4 28.3
Franchise income 4.3 4.7
Company-owned operations:
Profit margins on service (2) 42.8 43.4
Profit margins on product (3) 45.9 46.4
Direct salon (1) 8.8 8.8
Rent (1) 13.9 13.9
Depreciation (1) 3.3 3.4
Direct salon contribution (1) 17.7 18.1
Selling, general and administrative 10.4 10.6
Depreciation and amortization 1.6 1.4
Other .9 1.0
Operating income 8.3 8.9
Income before income taxes 6.8 7.8
Net income 4.1 4.7
</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
14
<PAGE> 15
RESULTS OF OPERATIONS:
REVENUES
REVENUES for the first quarter of fiscal 2001 grew to a record $310.8 million,
an increase of $44.7 million or 16.8 percent, over the same period in fiscal
2000. System-wide sales, inclusive of non-consolidated sales generated from
franchise salons, increased to $455.5 million for the first quarter of fiscal
2001, representing increases of 15.1 percent over the same period 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 first quarter of fiscal 2001 and 2000, respectively, revenues by
division are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
2001 2000
---- ----
<S> <C> <C>
Regis Salons $ 96,327 $ 91,707
Strip Center Salons (primarily Supercuts) 65,917 44,700
MasterCuts 38,398 34,227
Trade Secret 44,948 38,238
Wal-Mart/SmartStyle 28,162 18,845
International 23,552 25,990
Franchise income 13,450 12,401
-------- --------
$310,754 $266,108
</TABLE>
Same-store sales for domestic company-owned salons increased 5.0 percent in the
first quarter of fiscal 2001, compared to 4.2 percent in the same period in
fiscal 2000. System-wide same-store sales for the first quarter of fiscal 2001
increased 5.2 percent, compared to 4.2 percent in the same period 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 28.0 million customers were served system-wide during the first quarter
of fiscal 2001. The Company utilizes an audiovisual-based training system in its
company-owned salons. Management believes this training system provides its
employees with improved customer service and technical skills, and positively
contributes to the increase in customers served.
SERVICE REVENUES in the first quarter of fiscal 2001 grew to $209.9 million, an
increase of $28.1 million or 15.4 percent, over the same period in fiscal 2000.
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 3.2 percent in the first quarter of
fiscal 2001.
15
<PAGE> 16
PRODUCT REVENUES in the first quarter of fiscal 2001 grew to $87.4 million, an
increase of $15.5 million or 21.6 percent, over the same period in fiscal 2000.
This increase continues a trend of escalating product revenues due to product
same-store sales growth of 9.4 percent in the first quarter of fiscal 2001, a
reflection of the continuous focus on product awareness and promotions, training
and acceptance of national label merchandise. Product revenues as a percent of
total company-owned revenues increased to 29.4 percent of revenues for the first
quarter of fiscal 2001 compared to 28.3 percent in the same period a year ago.
FRANCHISE INCOME, including royalties, initial franchise fees and product and
equipment sales made by the Company to franchisees, increased slightly to $13.5
million in the first quarter of fiscal 2001. The increase in franchise income is
a result of an increase royalties due to increase in sales of the Company's
franchisees, 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 first quarter of
fiscal 2001 were $167.5 million compared to $141.5 million in the same period in
fiscal 2000. The resulting combined gross margin percentages for the first
quarter of fiscal 2001 declined 50 basis points to 43.7 percent of company-owned
revenues, compared to 44.2 percent of company-owned revenues in the same period
in fiscal 2000.
SERVICE MARGINS declined to 42.8 percent in the first quarter of fiscal 2001,
compared to 43.4 percent in the same period in fiscal 2000. This 60 basis point
decrease is primarily due to a decline in the Company's international service
margins.
PRODUCT MARGINS declined to 45.9 percent in the first quarter of fiscal 2001
compared to 46.4 percent in the same periods in fiscal 2000. This 50 basis point
decrease is primarily due to an increase in retail discounting associated with
the introductions of new packaging in several product lines.
DIRECT SALON
This expense category includes direct costs associated with salon operations
such as advertising, promotion, insurance, telephone and utilities. For the
first quarter of fiscal 2001, direct salon expense of $26.1 million remained
consistent as a percent of company-owned revenues at 8.8 percent when compared
to the prior period.
RENT
Rent expense for the first quarter of fiscal 2001 was $41.3 million or 13.9
percent of company-owned revenues, compared to $35.4 million or 13.9 percent of
company-owned revenues in the same period in fiscal 2000.
16
<PAGE> 17
DEPRECIATION - SALON LEVEL
For the first quarter of fiscal 2001, salon depreciation expense was 3.3 percent
of company-owned revenues compared to 3.4 percent in the same period a year ago.
DIRECT SALON CONTRIBUTION
For the reasons described above, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, increased in
the first quarter of fiscal 2001 to $52.6 million, or 17.7 percent of
company-owned revenues, compared to $45.9 million or 18.1 percent of
company-owned revenues in the same period of fiscal 2000.
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 $32.3 million, or 10.4 percent of total revenues in the
first quarter of fiscal 2001, compared to $28.3 million, or 10.6 percent of
total revenues in the same period in fiscal 2000. This 20 basis point
improvement is primarily related to 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 1.6 percent of total
revenues in the first quarter of fiscal 2001, compared to 1.4 percent in the
same period a year ago. This increase is primarily related to an increase in the
level of intangible assets, primarily goodwill, associated with the Company's
acquisition activity during the past twelve months and an increase in
depreciation related to enhancements to the corporate intrastructure.
OPERATING INCOME
Operating income in the first quarter of fiscal 2001 increased to $25.8
million, an increase of $2.0 million or 8.6 percent over the same period in
fiscal 2000. Operating income, as a percentage of total revenues was 8.3 percent
in the first quarter of fiscal 2001 compared to 8.9 percent in the same period
in fiscal 2000.
INTEREST
Interest expense in the first quarter of fiscal 2001 was $5.1 million
representing 1.6 percent of total revenues in the first quarter of fiscal 2001,
compared to $3.4 million, or 1.3 percent of total revenues in the same period in
fiscal 2000. Interest expense as a percent of total revenues has increased
slightly because of higher debt levels primarily resulting from the Company's
acquisition program and an increase in interest rates between the two periods.
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INCOME TAXES
The Company's annual effective income tax rate for the first three months of
fiscal 2001 is 39.5 percent compared to 39.1 percent in the same period a year
ago. Management expects the underlying effective tax rate for all of fiscal 2001
to be between 40 and 41 percent, influenced by acquisitions occurring subsequent
to the first quarter.
NET INCOME
Net income in the first quarter of fiscal 2001 grew to $12.7 million, or $.31
per diluted share, compared to a net income of $12.6 million, or $.30 per
diluted share in the same period in fiscal 2000.
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 three months of fiscal 2001 was
$28.0 million compared to $33.5 million during the same period in fiscal 2000.
The decrease between the two periods is primarily due to an increase in net
working capital needs in the first quarter of fiscal 2001 primarily related to
financing seasonal growth in inventory.
During the first three months of fiscal 2001, the Company had worldwide capital
expenditures of $23.9 million, of which $3.4 million related to acquisitions of
118 salons. The Company constructed 10 new Regis Salons, 8 new MasterCuts
salons, 14 new Trade Secret salons, 36 new Wal-Mart/SmartStyle salons, 29 new
Strip Center Salons and 15 new International salons, and completed 35 major
remodeling projects. All capital expenditures during the first three months of
fiscal 2001 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 2001
will include the construction of approximately 430 to 500 new company-owned
salons, and 150 major remodeling and conversion projects. It is expected that
expenditures for these new salons and other projects will be approximately $90
million to $95 million in fiscal 2001, 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.
See discussion in footnote 5 to the Consolidated Financial Statements.
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Dividends
During the first three months of fiscal 2001, the Company paid a regular
quarterly dividend of $1.2 million, or $.03 per share. On October 24, 2000 the
Board of Directors of the Company declared a $.03 per share quarterly dividend
payable November 22, 2000 to shareholders of record on November 7, 2000.
Share Repurchase Program
See discussion in footnote 7 to the Consolidated Financial Statements.
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 different 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.
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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 September 30, 2000, the Company had $151 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 two to three years with settlement on a quarterly basis. As of September
30, 2000, the Company has entered into interest rate swap agreements covering
$55 million of the floating rate debt, as discussed in Note 2 to the
Consolidated Financial Statements.
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Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.(FF) Amended and Restated Private Shelf Agreement
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
September 30, 2000:
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGIS CORPORATION
Date: November 13, 2000 By: /s/ Randy L. Pearce
------------------------
Randy L. Pearce
Executive Vice President
Chief Administrative and
Financial Officer
Signing on behalf of the
registrant and as principal
accounting officer
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