<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------------------- -------------------
--------------------
For Quarter Ended December 31, 1999 Commission file number 011230
----------------- --------
Regis Corporation
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0749934
------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7201 Metro Boulevard, Edina, Minnesota 55439
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612)947-7777
------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of February 4, 2000:
Common Stock, $.05 par value 40,726,264
- ---------------------------- ----------------------
Class Number of Shares
<PAGE> 2
REGIS CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page Nos.
--------------------- ---------
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Balance Sheet as of December 31, 1999
and June 30, 1999 3
Statement of Operations for the three
months ended December 31, 1999 and 1998 4
Statement of Operation for the six months
Ended December 31, 1999 and 1998 5
Statement of Cash Flows for the six
months ended December 31, 1999 and 1998 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 14-22
Part II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 23-24
Signature 25
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGIS CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999 AND JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, 1999 JUNE 30, 1999
------------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 29,182 $ 10,353
Accounts receivable, net 19,243 16,598
Inventories 77,742 70,056
Deferred income taxes 8,321 8,596
Other current assets 9,790 11,780
-------- --------
Total current assets 144,278 117,383
Property and equipment, net 237,688 215,952
Goodwill 201,880 153,956
Other assets 15,250 13,291
-------- --------
Total assets $599,096 $500,582
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 37,495 $ 23,945
Accounts payable 27,188 23,877
Accrued expenses 64,708 58,818
-------- --------
Total current liabilities 129,391 106,640
Long-term debt 191,847 143,041
Other noncurrent liabilities 20,445 16,682
Shareholders' equity:
Common stock, $.05 par value;
issued and outstanding, 40,633,251 and 40,419,122
common shares at December 31, 1999 and
June 30, 1999, respectively 2,031 2,021
Additional paid-in capital 150,902 148,504
Accumulated other comprehensive loss (1,009) (1,095)
Retained earnings 105,489 84,789
-------- --------
Total shareholders' equity 257,413 234,219
-------- --------
Total liabilities and shareholders' equity $599,096 $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 DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
Company-owned salons:
Service $192,476 $165,872
Product 81,129 67,622
-------- --------
273,605 233,494
Franchise income 12,250 11,771
-------- --------
285,855 245,265
Operating expenses:
Company-owned:
Cost of service 109,739 95,405
Cost of product 43,421 36,185
Direct salon 23,109 19,623
Rent 37,420 32,150
Depreciation 8,955 7,403
-------- --------
222,644 190,766
Selling, general and administrative 30,371 28,497
Depreciation and amortization 4,106 3,108
Nonrecurring items 3,145 1,532
Other 2,687 2,439
-------- --------
Total operating expenses 262,953 226,342
-------- --------
Operating income 22,902 18,923
Other income (expense):
Interest (3,988) (2,806)
Other, net 432 439
-------- --------
Income before income taxes 19,346 16,556
Income taxes (8,539) (6,429)
-------- --------
Net income $ 10,807 $ 10,127
======== ========
Net income per share:
Basic $ .27 $ .25
======== ========
Diluted $ .26 $ .24
======== ========
</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 SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
Company-owned salons:
Service $374,312 $325,867
Product 153,000 128,053
-------- --------
527,312 453,920
Franchise income 24,651 23,342
-------- --------
551,963 477,262
Operating expenses:
Company-owned:
Cost of service 212,687 185,883
Cost of product 81,975 68,658
Direct salon 45,403 38,756
Rent 72,780 62,911
Depreciation 17,563 14,789
-------- --------
430,408 370,997
Selling, general and administrative 58,632 56,282
Depreciation and amortization 7,874 6,326
Nonrecurring items 3,145 2,891
Other 5,286 4,673
-------- --------
Total operating expenses 505,345 441,169
Operating income 46,618 36,093
Other income:
Interest (7,355) (5,528)
Other, net 846 820
-------- --------
Income before income taxes 40,109 31,385
Income taxes (16,664) (12,126)
-------- --------
Net income $ 23,445 $ 19,259
======== =========
Net income per share:
Basic $ .58 $ .48
======== =========
Diluted $ .56 $ .47
======== =========
</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 SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,445 $ 19,259
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 20,415 17,339
Amortization 5,205 3,919
Deferred income taxes 503 (266)
Other (719) 1,131
Changes in assets and liabilities:
Accounts receivable (2,534) (1,545)
Inventories (6,272) (3,399)
Other current assets 1,803 (1,258)
Other assets (1,647) (1,652)
Accounts payable 1,505 (4,661)
Accrued expenses 3,827 3,210
Other noncurrent liabilities 3,882 2,511
-------- --------
Net cash provided by operating activities 49,413 34,588
Cash flows from investing activities:
Capital expenditures (37,648) (30,660)
Proceeds from sale of assets 134 74
Purchases of salon assets, net of cash acquired
and certain obligations assumed (31,734) (17,038)
-------- --------
Net cash used in investing activities (69,248) (47,624)
Cash flows from financing activities:
Borrowings on revolving credit facilities 163,047 118,787
Payments on revolving credit facilities (97,528) (107,629)
Proceeds from issuance of long-term debt - 21,500
Repayment of long-term debt (24,955) (17,486)
Dividends paid (2,745) (1,431)
Proceeds from issuance of common stock 670 1,936
-------- --------
Net cash provided by financing activities 38,489 15,677
-------- --------
Effect of exchange rate changes on cash 175 (102)
Increase in cash 18,829 2,539
Cash:
Beginning of period 10,353 10,469
-------- --------
End of period $ 29,182 $ 13,008
======== ========
</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 December 31, 1999 and for the three
and six months ended December 31, 1999 and 1998, 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 December 31, 1999 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
basis 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 six months ended December 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED DECEMBER 31,
THREE MONTHS SIX MONTHS
------------ ----------
(Dollars in thousands)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $10,807 $10,127 $23,445 $19,259
Change in cumulative foreign currency translation (159) (61) 86 1,081
Less: reclassification adjustment for translation
losses realized in net income (964)
------- ------- ------- -------
Total comprehensive income $10,648 $10,066 $23,531 $19,376
======= ======= ======= =======
</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.
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 DECEMBER 31,
THREE MONTHS SIX MONTHS
------------ ----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares for basic earnings per share 40,529,212 40,110,429 40,462,877 40,067,661
Effect of dilutive securities 1,115,457 1,258,738 1,139,903 1,198,671
---------- ---------- ---------- ----------
Weighted average shares for diluted earnings per share 41,644,669 41,369,167 41,602,780 41,266,332
========== ========== ========== ==========
</TABLE>
4. Nonrecurring Items:
Nonrecurring items included in operating income in the second quarter
and first six 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).
Nonrecurring items included in operating income in the second quarter
and first six months of fiscal 1999 consist of $1.5 million and $2.9
million, respectively, of expense associated with the Company's year
2000 remediation program.
8
<PAGE> 9
5. Transaction and Restructuring Liabilities:
The following provides additional information concerning the Company's
transaction and restructuring liability related to its fiscal 2000
merger with Supercuts UK, and 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 December 31,
1999 Charges Payments 1999
---- ------- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Restructuring-International
Severance $ 562 $ 421 $ 141
Salon closures and dispositions 1,187 154 1,033
Other 351 182 169
------- -------- -------
2,100 757 1,343
Restructuring-Mergers
Severance 2,883 $2,482 667 4,698
Salon closures and dispositions 115 43 72
Other 746 116 601 261
------- ------ -------- -------
3,744 2,598 1,311 5,031
Transaction Charges-Mergers 137 547 111 573
------- ------ -------- -------
$ 5,981 $3,145 $ 2,179 $ 6,947
======= ====== ======== =======
</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 4,950 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 367 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 six months ended December 31, 1999 and 1998,
respectively, is shown in the following table.
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED DECEMBER 31,
THREE MONTHS SIX MONTHS
------------ ----------
(Dollars in thousands)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Company-owned revenues:
Domestic $247,049 $204,497 $474,765 $395,147
International 26,556 28,997 52,547 58,773
-------- -------- -------- --------
Total $273,605 $233,494 $527,312 $453,920
======== ======== ======== ========
Salon contribution:
Domestic $ 47,030 $ 38,344 $ 88,383 $ 73,930
International 3,931 4,384 8,521 8,993
-------- -------- -------- --------
Total 50,961 $ 42,728 $ 96,904 $ 82,923
======== ======== ======== ========
</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 second quarter and first six months of fiscal 2000 of
$12.3 million and $24.7 million, respectively, as compared to $11.8
million and $23.3 million, respectively for the second quarter and
first six 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. Financing Arrangements
In November 1999, the Company entered into a $21.6 million promissory
note which bore interest at 5.0 percent and was due and paid in full
on January 3, 2000. The note was associated with an acquisition that
was recorded using the purchase method of accounting.
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>
FOR THE PERIODS ENDED DECEMBER 31
THREE MONTHS SIX MONTHS
------------ ----------
(Dollars in thousands)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Regis $281,206 $240,911 $542,468 $468,610
Supercuts UK 4,649 4,354 9,495 8,652
-------- -------- -------- --------
Combined $285,855 $245,265 $551,963 $477,262
======== ======== ======== ========
Net Income:
Regis $ 13,184 $ 9,653 $ 25,034 $ 18,314
Supercuts UK (2,377) 474 (1,589) 945
-------- -------- -------- --------
Combined $ 10,807 $ 10,127 $ 23,445 $ 19,259
======== ======== ======== ========
</TABLE>
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 final statements for the six months ended
December 31, 1999 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 December 31, 1999 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 six months ended December 31, 1999.
11
<PAGE> 12
OTHER ACQUISITONS
During the six month periods ended December 31, 1999 and 1998, 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.
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>
Six months
Ended December 31,
1999 1998
---- ----
<S> <C> <C>
Costs in excess of net tangible and
identifiable intangible assets acquired $52,963 $13,244
======= =======
Components of aggregate
purchase price:
Cash $31,734 $17,038
Stock 1,588
Current and noncurrent payables 25,141 850
------- -------
$58,463 $17,888
======= =======
</TABLE>
12
<PAGE> 13
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Regis Corporation:
We have reviewed the accompanying consolidated balance sheet of Regis
Corporation as of December 31, 1999, and the related consolidated statements of
operations for the three months and six months ended December 31, 1999 and 1998,
and cash flows for the six months ended December 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of June 30, 1999, and the related consolidated
statements of operations, changes in shareholders' equity and 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 information set forth in the accompanying
consolidated balance sheet 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
February 8, 2000
13
<PAGE> 14
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 5,317 salons at December 31, 1999 operating in two segments:
domestic and international. The Company's domestic segment includes 4,950 salons
operating primarily under the brand names of Regis Salons, MasterCuts, Trade
Secret, SmartStyle, Supercuts and Cost Cutters. The Company's international
operations include 367 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.
Second quarter fiscal 2000 revenues grew to a record $285.9 million, including
franchise income of $12.3 million, a 16.5 percent increase over fiscal 1999
second quarter total revenues of $245.3 million. Revenues for the six months
ended December 31, 1999 grew to a record $552.0 million, including franchise
income of $24.7 million, a 15.7 percent increase over total revenues of $477.3
million in the comparable fiscal 1999 period.
Fiscal 2000 results include merger and transaction costs associated with the
October 1999 merger with Supercuts UK which are nonrecurring in nature, while
fiscal 1999 results include nonrecurring costs associated with the Company's
year 2000 remediation program. Exclusive of these nonrecurring items, operating
income for the second quarter of fiscal 2000 grew 27.3 percent to $26.0 million.
Operating income for the six months ended December 31, 1999 grew 27.6 percent to
$49.8 million, exclusive of nonrecurring items.
Exclusive of nonrecurring items, net income in the second quarter of fiscal 2000
increased to a record $13.7 million, or $.33 per diluted share, an earnings per
share increase of 22.2 percent from second quarter fiscal 1999 net income of
$11.1 million, or $.27 per diluted share. For the first six months of fiscal
2000, the Company reported record net income of $26.3 million, or $.63 per
diluted share, compared to $21.0 million, or $.51 per diluted share, exclusive
of nonrecurring items.
Including nonrecurring items, net income in the second quarter of fiscal 2000
increased to a record $10.8 million, or $.26 per diluted share, compared to
second quarter fiscal 1999 net income of $10.1 million, or $.24 per diluted
share. For the first six months of fiscal 2000, the Company reported net income
of $23.4 million, or $.56 per diluted share, compared to a net income of $19.3
million, or $.47 per diluted share, in the first six 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 DECEMBER 31,
THREE MONTHS SIX MONTHS
------------ ----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Company-owned service revenues (1) 70.3% 71.0% 71.0% 71.8%
Company-owned product revenues (1) 29.7 29.0 29.0 28.2
Franchise income 4.3 4.8 4.5 4.9
Company-owned operations:
Profit margins on service (2) 43.0 42.5 43.2 43.0
Profit margins on product (3) 46.5 46.5 46.4 46.4
Direct salon (1) 8.4 8.4 8.6 8.5
Rent (1) 13.7 13.8 13.8 13.9
Depreciation (1) 3.3 3.2 3.3 3.3
Direct salon contribution (1) 18.6 18.3 18.4 18.3
Selling, general and administrative 10.6 11.6 10.6 11.8
Depreciation and amortization 1.4 1.3 1.4 1.3
Nonrecurring items 1.1 0.6 0.6 0.6
Other 0.9 1.0 1.0 1.0
Operating income 8.0 7.7 8.4 7.6
Income before income taxes 6.8 6.8 7.3 6.6
Net income 3.8 4.1 4.2 4.0
Operating income, excluding
nonrecurring items 9.1 8.3 9.0 8.2
Net income, excluding nonrecurring items 4.8 4.5 4.8 4.4
</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
15
<PAGE> 16
RESULTS OF OPERATIONS:
REVENUES
REVENUES for the second quarter of fiscal 2000 grew to a record $285.9 million,
an increase of $40.6 million or 16.5 percent, over the same period in fiscal
1999. Revenues for the first six months of fiscal 2000 were a record $552.0
million, an increase of $74.7 million or 15.7 percent, over the same period in
fiscal 1999. System-wide sales, inclusive of non-consolidated sales generated
from franchise salons, increased to $414.2 million and $810.3 million,
respectively, for the second quarter and first six months of fiscal 2000,
representing increases of 12.8 percent and 12.3 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 second quarters and first six months of fiscal 2000 and 1999,
respectively, revenues by division are as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
------------------ ------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Regis Salons $95,398 $90,581 $187,104 $174,431
Strip Center Salons (primarily Supercuts) 51,220 32,696 95,920 65,041
MasterCuts 36,108 30,790 70,335 60,208
Trade Secret 43,402 35,326 81,640 66,307
Wal-Mart/SmartStyle 20,921 15,104 39,766 29,160
International 26,556 28,997 52,547 58,773
Franchise income 12,250 11,771 24,651 23,342
-------- -------- -------- --------
$285,855 $245,265 $551,963 $477,262
======== ======== ======== ========
</TABLE>
Same-store sales for domestic company-owned salons increased 4.4 percent and 4.3
percent in the second quarter and first six months of fiscal 2000, respectively,
compared to 5.5 percent and 5.6 percent in the same periods in fiscal 1999.
System-wide same-store sales for the second quarter and first six months of
fiscal 2000 increased 4.0 percent and 3.9 percent, respectively, compared to 5.3
percent and 5.4 percent, respectively, 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 26 million and 52 million customers system-wide were served during the
second quarter and first six 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 second quarter of fiscal 2000 were $192.5 million, an
increase of $26.6 million or 16.0 percent, over the same period in fiscal 1999.
In the first six months of fiscal 2000, service revenues were $374.3
million, an increase of $48.4 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 increase of 4.2 percent and 4.1
percent in the second quarter and first six months of fiscal 2000, respectively.
16
<PAGE> 17
PRODUCT REVENUES in the second quarter of fiscal 2000 grew to $81.1 million, an
increase of $13.5 million or 20.0 percent, over the same period in fiscal 1999.
In the first six months of fiscal 2000, product revenues were $153.0 million, an
increase of $24.9 million or 19.5 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 4.8 percent in the second quarter and first six
months of fiscal 2000, 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 29.7 percent
and 29.0 percent of revenues for the second quarter and first six months of
fiscal 2000 compared to 29.0 percent and 28.2 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 $12.3
million and $24.7 million in the second quarter and first six 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 sales to franchisees.
COST OF REVENUES
The aggregate cost of service and product revenues in the second quarter of
fiscal 2000 were $153.2 million, compared to $131.6 million in the same period
in fiscal 1999. For the first six months of fiscal 2000, the aggregate cost of
service and product revenues were $294.7 million, compared to $254.5 million in
the same period a year ago. The resulting combined gross margin percentages for
the second quarter and first six months of fiscal 2000 improved 40 basis points
and 20 basis points to 44.0 percent and 44.1 percent of company-owned revenues,
respectively, compared to 43.6 percent and 43.9 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 and increased sales
leverage in the Company's fixed cost payroll divisions.
SERVICE MARGINS improved to 43.0 percent and 43.2 in the second quarter and
first six months of fiscal 2000, respectively, compared to 42.5 percent and 43.0
percent in the same periods in fiscal 1999. These 50 basis point and 20 basis
point increases are primarily due to leveraging fixed payroll costs against
strong service same-store sales increases and continued sales maturation.
PRODUCT MARGINS remained consistent at 46.5 percent and 46.4 percent in the
second quarter and first six months of fiscal 2000, compared to the same periods
a year ago.
17
<PAGE> 18
DIRECT SALON
This expense category includes direct costs associated with salon operations
such as advertising, promotion, insurance, telephone and utilities. Direct salon
expense of $23.1 million remained consistent as a percent of company-owned
revenues at 8.4 percent in the second quarter of fiscal 2000. For the first six
months of fiscal 2000, direct salon expense of $45.4 million increased slightly
as a percent of company-owned revenues to 8.6 percent from 8.5 percent in the
same period in fiscal 1999. This slight increase is primarily due to an increase
in freight costs resulting from the roll-out of the new Regis private label
product line and an increase in salon advertising related to the rapid growth in
the Company's HairMasters and Style America strip center salon concepts.
RENT
Rent expense in the second quarter of fiscal 2000 was $37.4 million, or 13.7
percent of company-owned revenues, compared to $32.2 million, or 13.8 percent of
company-owned revenues, in the same period in fiscal 1999. Rent expense in the
first six months of fiscal 2000 was $72.8 million or 13.8 percent of
company-owned revenues, compared to $62.9 million or 13.9 percent of
company-owned revenues in the same period in fiscal 1999. The percentage
improvements in both periods are primarily due to leveraging this fixed cost
against strong same-store sales increases.
DEPRECIATION - SALON LEVEL
For the second quarter of fiscal 2000, salon depreciation expense was 3.3
percent of company-owned revenues, comparable to the 3.2 percent in the same
period a year ago. Depreciation expense at the salon level remained consistent
at 3.3 percent of company-owned revenues in both the first six months of fiscal
2000 and 1999.
DIRECT SALON CONTRIBUTION
For the reasons described above, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, improved in the
second quarter of fiscal 2000 to $51.0 million, or 18.6 percent of company-owned
revenues, compared to $42.7 million or 18.3 percent of company-owned revenues in
the same period of fiscal 1999. For the first six months of fiscal 2000, direct
salon contribution improved to $96.9 million, or 18.4 percent of company-owned
revenues, compared to $82.9 million or 18.3 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 $30.4 million, or 10.6 percent of total revenues in the
second quarter of fiscal 2000, compared to $28.5 million, or 11.6 percent of
total revenues in the same period in fiscal 1999. For the first six months of
fiscal 2000, SG&A expenses were $58.6 million, or 10.6 percent of total
revenues, compared to $56.3 million, or 11.8 percent of total revenues in the
same period in fiscal 1999. These 100 basis point and 120 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
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 1.4 percent of total
revenues in both the second quarter and first six months of fiscal 2000,
compared to 1.3 percent in the same periods a year ago. This increase is
primarily related to 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 discussion of year 2000 remediation costs within Liquidity and Capital
Resources and Note 4 to the unaudited Consolidated Financial Statements for a
description of the nonrecurring items.
OPERATING INCOME
Operating income in the second quarter of fiscal 2000, excluding nonrecurring
items, improved to $26.0 million, an increase of $5.6 million or 27.3 percent
over the same period in fiscal 1999. Operating income, excluding nonrecurring
items, as a percentage of total revenues grew to 9.1 percent in the second
quarter of fiscal 2000 compared to 8.3 percent in the same period in fiscal
1999. Exclusive of nonrecurring items, operating income in the first six months
of fiscal 2000 improved to $49.8 million, or 9.0 percent of total revenues, an
increase of $10.8 million, or 27.6 percent over the prior year period operating
income of $39.0 million, or 8.2 percent of total revenues.
19
<PAGE> 20
INTEREST
Interest expense in the second quarter and first six months of fiscal 2000 was
$4.0 million and $7.4 million, respectively, representing 1.4 percent of total
revenues in the second quarter and 1.3 percent in the first six months of fiscal
2000, compared to $2.8 million and $5.5 million, or 1.1 percent and 1.2 percent
of total revenues, in the same periods in fiscal 1999. Interest expense as a
percent of total revenues has remained generally consistent between the two
periods despite higher debt levels resulting from the Company's acquisition
program and working capital needs.
INCOME TAXES
The Company's annual effective income tax rate for the first six months of
fiscal 2000 is 41.5 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%.
NET INCOME
Net income in the second quarter of fiscal 2000 grew to $10.8 million, or $.26
per diluted share, compared to a net income of $10.1 million, or $.24 per
diluted share in the same period in fiscal 1999. Exclusive of nonrecurring
items, net income in the second quarter of fiscal 2000 increased to a record
$13.7 million, or $.33 per diluted share, compared to net income in the same
period in fiscal 1999 of $11.1 million, or $.27 per diluted share, an earnings
per share increase of 22.2 percent.
For the first six months of fiscal 2000, net income grew to $23.4 million or
$.56 per diluted share, compared to net income of $19.3 million or $.47 per
diluted share in the same period in fiscal 1999. Exclusive of nonrecurring items
in both periods, net income in the first six months of fiscal 2000 increased to
a record $26.3 million or $.63 per diluted share, compared to net income in the
same period in fiscal 1999 of $21.0 million or $.51 per diluted share, an
earnings per share increase of 23.5 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 six months of fiscal 2000 grew to
$49.4 million compared to $34.6 million during the same period in fiscal 1999.
The increase between the two periods is primarily due to improved operating
performance.
During the first six months of fiscal 2000, the Company had worldwide capital
expenditures of $41.9 million, of which $4.3 million related to acquisitions of
92 salons. The Company constructed 30 new Regis Salons, 26 new MasterCuts
salons, 24 new Trade Secret salons, 52 new Wal-Mart/SmartStyle salons, 39 new
Strip Center Salons and 15 new International salons, and completed 53 major
remodeling projects. All capital expenditures during the first six 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 360 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 $70.0 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 six months of fiscal 2000, the Company paid normal quarterly
dividends of $2.4 million, or $.06 per share. In addition, prior to the merger
of Supercuts UK with Regis, Supercuts UK declared normal dividends of $.3
million which was paid during the first six months of fiscal 2000.
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 December 31, 1999. The rollover to year 2000 had no 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.
21
<PAGE> 22
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 1998 through its completion
in fiscal 1999.
22
<PAGE> 23
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 15 Letter Re: Unaudited Interim Financial Information.
Exhibit 27.1 Financial Data Schedule
Exhibit 27.2 Financial Data Schedule
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the three months ended
December 31, 1999:
Form 8-K dated December 16, 1999, related to the announcement of the
Company's consolidated revenues and net income for November 1999, including
the results of operations of the Supercuts (Holdings) Limited salons
located in the United Kingdom which were recently acquired in a
pooling-of-interests transaction.
23
<PAGE> 1
EXHIBIT NO.15
February 11, 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 and No.333-90809),
and Form S-8 (File No. 33-44867 and No.
33-89882)
Commissioners:
We are aware that our report dated February 8, 2000, on our review of the
interim consolidated financial information of Regis Corporation for the period
ended December 31, 1999, 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
24
<PAGE> 2
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: February 11, 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
25
<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 DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 29,182
<SECURITIES> 0
<RECEIVABLES> 19,556
<ALLOWANCES> 313
<INVENTORY> 77,742
<CURRENT-ASSETS> 144,278
<PP&E> 413,302
<DEPRECIATION> 175,614
<TOTAL-ASSETS> 599,096
<CURRENT-LIABILITIES> 129,391
<BONDS> 0
0
0
<COMMON> 2,031
<OTHER-SE> 255,382
<TOTAL-LIABILITY-AND-EQUITY> 599,096
<SALES> 153,000
<TOTAL-REVENUES> 551,963
<CGS> 81,975
<TOTAL-COSTS> 430,408
<OTHER-EXPENSES> 16,305<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,355
<INCOME-PRETAX> 40,109
<INCOME-TAX> 16,664
<INCOME-CONTINUING> 23,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,445
<EPS-BASIC> .58
<EPS-DILUTED> .56<F2>
<FN>
<F1>Includes $3,145 of nonrecurring merger and transaction costs.
<F2>Excluding nonrecurring costs, fully diluted EPS would have been $.63 for the
six months ended December 31, 1999.
</FN>
</TABLE>
<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
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,008
<SECURITIES> 0
<RECEIVABLES> 16,163
<ALLOWANCES> 488
<INVENTORY> 60,796
<CURRENT-ASSETS> 104,198
<PP&E> 352,651
<DEPRECIATION> 152,815
<TOTAL-ASSETS> 445,773
<CURRENT-LIABILITIES> 95,956
<BONDS> 0
0
0
<COMMON> 1,370
<OTHER-SE> 216,788
<TOTAL-LIABILITY-AND-EQUITY> 445,773
<SALES> 128,053
<TOTAL-REVENUES> 477,262
<CGS> 68,658
<TOTAL-COSTS> 370,997
<OTHER-EXPENSES> 13,890<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,528
<INCOME-PRETAX> 31,385
<INCOME-TAX> 12,126
<INCOME-CONTINUING> 19,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,259
<EPS-BASIC> .48
<EPS-DILUTED> .47<F2>
<FN>
<F1>INCLUDES $2,891 OF NONRECURRING YEAR 2000 REMEDIATION COSTS.
<F2>EXCLUDING NONRECURRING COSTS, FULLY DILUTED EPS WOULD HAVE BEEN $.51
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998.
</FN>
</TABLE>
