<PAGE> 1
EXHIBIT 13
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth, for the periods indicated, selected financial
data derived from the Company's Consolidated Financial Statements.
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $1,142,993 $ 991,900 $ 860,620 $ 765,170 $ 661,383
Operating income(a) 97,216 65,335 65,858 33,178 29,578
Net income(a) 49,654 32,205 33,894 9,377 11,690
Net income per diluted share(a) 1.19 .78 .83 .24 .30
Total assets 628,355 500,582 408,733 354,016 320,428
Long-term debt, including current portion 234,601 166,986 126,960 120,568 107,242
Dividends declared(b) $ .12 $ .10 $ .06 $ .05 $ .05
</TABLE>
(a) The following information is provided to facilitate comparisons of
operating income, net income and net income per diluted share, absent the
impact of certain nonrecurring activities (see Note 10 to the Consolidated
Financial Statements). Exclusive of nonrecurring items, operating income
would have been $100,156, $81,468, $67,837, $51,909 and $42,401 in 2000,
1999, 1998, 1997 and 1996, respectively. Exclusive of nonrecurring items,
net income and net income per diluted share, respectively, would have been
$52,380 and $1.26 in 2000; $43,759 and $1.05 in 1999; $35,006 and $.86 in
1998; $24,140 and $.61 in 1997; and $19,220 and $.50 in 1996.
(b) In addition, Supercuts UK declared dividends of $367, $2,829, $2,057,
$1,072 and $512 during 2000, 1999, 1998, 1997 and 1996, respectively.
KEY RATIOS
<TABLE>
<CAPTION>
For the Years Ended June 30,
2000 1999 1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per diluted share exclusive of goodwill amortization* $ 1.45 $ 1.20 $ .98
Gross margin percentage 44.1% 43.8% 43.5%
Salon contribution percentage 18.2% 17.9% 17.2%
Product sales mix 28.7% 28.0% 27.8%
Operating income as percent of revenues* 8.8% 8.2% 7.9%
Debt-to-EBITDA ratio* 1.51x 1.31x 1.20x
</TABLE>
*Also, excludes nonrecurring items (see Note 10 to the Consolidated Financial
Statements)
ANNUAL RESULTS
The following table sets forth for the periods indicated certain information
derived from the Company's Consolidated Statement of Operations expressed as a
percent of revenues. The percentages are computed as a percent of total Company
revenues, except as noted.
<TABLE>
<CAPTION>
For the Years Ended June 30,
2000 1999 1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Company-owned service revenues(1) 71.3% 72.0% 72.2%
Company-owned product revenues(1) 28.7 28.0 27.8
Franchise revenue 4.4 4.8 5.3
Company-owned operations:
Profit margins on service(2) 43.3 42.9 42.8
Profit margins on product(3) 46.1 46.1 45.4
Direct salon(1) 8.5 8.6 8.9
Rent(1) 14.0 14.0 14.1
Depreciation(1) 3.4 3.3 3.3
Direct salon contribution(1) 18.2 17.9 17.2
Selling, general and administrative 10.7 11.3 11.5
Depreciation and amortization 1.5 1.3 1.2
Nonrecurring items 0.3 1.6 0.2
Operating income 8.5 6.6 7.7
Income before income taxes 7.3 5.6 6.6
Net income 4.3 3.2 3.9
Operating income, excluding nonrecurring items 8.8 8.2 7.9
Net income, excluding nonrecurring items 4.6 4.4 4.1
</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> 2
REVENUE GROWTH
[BAR GRAPH]
<TABLE>
<CAPTION>
(in millions)
'98 '99 '00
<S> <C> <C>
$ 861 $ 992 $1,143
</TABLE>
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. The
Regis worldwide operations include 5,669 hairstyling salons at June 30, 2000
operating in two segments: domestic and international. The Company's domestic
segment includes 5,317 salons operating primarily under the brand names of Regis
Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters. The
Company's international operations include 352 salons located in the United
Kingdom. The Company has more than 35,000 employees worldwide.
During fiscal 2000, the Company's consolidated revenues increased 15.2 percent
to a record $1.1 billion. Exclusive of nonrecurring items, operating income grew
22.9 percent to $100.2 million and net income per diluted share increased 20.0
percent to $1.26 per share, compared to $1.05 per share in the prior year.
During fiscal 1999, the Company's consolidated revenues increased 15.3 percent
to a record $991.9 million. Exclusive of nonrecurring items, operating income
grew 20.1 percent to $81.5 million and net income per diluted share increased
22.1 percent to $1.05 per share, compared to $.86 per share in the prior year.
The consolidated financial data for all periods have been restated to include
the retroactive effect of the October 1999 pooling-of-interests with Supercuts
(Holdings) Limited (Supercuts UK) (See Note 3 to the Consolidated Financial
Statements).
RESULTS OF OPERATIONS
REVENUES
Revenues in fiscal 2000 grew to a record $1.1 billion, an increase of $151.1
million, or 15.2 percent, over fiscal 1999. Approximately 51 percent of this
increase is attributable to salon acquisitions, with the remaining increase due
to net salon openings and same-store sales increases. Mall and strip center
based salon operations in the United States and Canada (Domestic salons)
accounted for $158.0 million of the increase in total revenues while franchise
income increased $2.5 million. These increases were offset by a decrease of $9.4
million in revenue from the Company's International operations due to the
implementation of its international restructuring plan.
Revenues by division for the years ended June 30, 2000, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic:
Regis $ 376,709 $ 356,473 $ 319,404
MasterCuts 142,865 123,454 107,821
Trade Secret 164,254 136,874 115,024
Wal-Mart 88,313 63,480 45,908
Strip Center Salons 212,020 145,888 108,146
Franchise Income 50,264 47,731 45,965
International 108,568 118,000 118,352
----------------------------------------
$1,142,993 $ 991,900 $ 860,620
----------------------------------------
</TABLE>
During fiscal 2000, same-store sales from all Domestic Company-owned salons open
more than 12 months increased 4.3 percent, compared to increases of 5.6 percent
and 5.8 percent in fiscal 1999 and 1998, respectively. Same-store sales
increases achieved during fiscal 2000, 1999 and 1998 were driven primarily by
increased customer transactions and market based price increases in certain
salon divisions. A total of 106 million customers were served in fiscal 2000
compared to 99 million and 92 million customers served in fiscal 1999 and 1998,
respectively.
System-wide sales, inclusive of non-consolidated sales generated from franchisee
salons, grew to $1.7 billion, $1.5 billion and $1.3 billion in fiscal 2000, 1999
and 1998, representing increases of 12.1 percent, 15.4 percent and 18.2 percent,
respectively. The increase in system-wide sales in fiscal 2000 and 1999 was the
result of same-store sales increases from existing salons and net salon openings
as well as the total number of salons added to the system through acquisitions.
System-wide same-store sales increased 3.7 percent, 5.4 percent and 5.3 percent
in fiscal 2000, 1999 and 1998, respectively.
<PAGE> 3
GROSS MARGINS
[BAR GRAPH]
<TABLE>
<CAPTION>
'98 '99 '00
<S> <C> <C> <C>
43.5% 43.8% 44.1%
</TABLE>
SERVICE REVENUES. Service revenues increased to $779.6 million, $679.7 million
and $588.1 million for 2000, 1999 and 1998. The growth in service revenues of
14.7 percent and 15.6 percent in fiscal 2000 and 1999, respectively, was driven
by acquisitions, accelerated new salon construction and same store-sales growth.
PRODUCT REVENUES. Product revenues increased to $313.1 million, $264.5 million
and $226.5 million in fiscal 2000, 1999 and 1998. The growth in product revenue
of 18.4 percent and 16.8 percent in fiscal 2000 and 1999, respectively,
continues a trend of escalating product revenues due to strong product
same-store sales growth, a reflection of continuous focus on product awareness,
training and acceptance of national label merchandise and opening an additional
63 Trade Secret salons through new construction or acquisitions between the two
periods. In fiscal 2000, product revenues as a percent of total Company-owned
revenues increased to 28.7 percent of revenues, compared to 28.0 percent and
27.8 percent of revenues in 1999 and 1998, respectively.
FRANCHISE INCOME. Franchise income, including royalties and initial franchise
fees from franchisees, and product and equipment sales made by the Company to
franchisees, increased 5.3 percent in fiscal 2000 to $50.3 million from $47.7
million in fiscal 1999. In fiscal 1999, franchise revenue increased 3.8 percent,
or $1.8 million, compared to fiscal 1998. The increase in franchise revenue in
2000 and 1999 is primarily the result of increased royalties on increased sales
generated by franchisee salons which are not included in the Company's
consolidated revenues.
COST OF REVENUE
The aggregate cost of product and service revenues in fiscal 2000 was $611.0
million, compared to $531.0 million and $460.3 million in fiscal 1999 and 1998,
respectively. As discussed in the following paragraphs, the resulting gross
margin percentage for fiscal 2000 improved to 44.1 percent of Company-owned
revenues compared to 43.8 percent and 43.5 percent of Company-owned revenues in
fiscal 1999 and 1998.
Service margins for fiscal 2000 improved 40 basis points to 43.3 percent of
Company-owned revenues, compared to 42.9 percent and 42.8 percent in the two
preceding fiscal years. This continued improvement was due to leveraging fixed
payroll costs against strong service same-store sales increases and continued
sales maturation.
Product margins for fiscal 2000 remained consistent at 46.1 percent of
Company-owned revenues compared to fiscal 1999 which was an improvement from
45.4 percent in fiscal 1998. The fiscal 1999 improvement was primarily due to
lower product costs for salons acquired in the prior year which benefited from
Regis' purchasing power.
DIRECT SALON
This expense category includes direct costs associated with salon operations
such as advertising, promotion, insurance, telephone and utilities. Direct salon
expenses were $92.8 million in fiscal 2000, compared to $81.1 million and $72.6
million in fiscal 1999 and 1998, and improved as a percent of Company-owned
revenue to 8.5 percent compared to 8.6 percent and 8.9 percent in fiscal 1999
and 1998. The fiscal 2000 and 1999 improvement in direct salon expenses is a
result of the Company's increased ability to leverage these costs against strong
same-store sales and a maturing salon base. In addition, in fiscal 2000 the
Company had a slightly lower level of salon advertising expenditures.
RENT
Rent expense in fiscal 2000 was $152.7 million, compared to $131.9 million and
$114.7 million in fiscal 1999 and 1998. Rent expense in fiscal 2000 increased
15.7 percent or $20.7 million from fiscal 1999. Rent expense in fiscal 2000
remained consistent at 14.0 percent of Company-owned revenues compared to fiscal
1999, and improved from 14.1 percent in fiscal 1998. In fiscal 2000, cost grew
at the same rate as sales due to higher common area and real estate costs. The
slight improvement in fiscal 1999 is a result of leveraging this fixed cost
against same-store sales increases.
DEPRECIATION--SALON LEVEL
Depreciation expense at the salon level increased slightly in fiscal 2000 to 3.4
percent of revenues compared to 3.3 percent in fiscal 1999 and 1998.
<PAGE> 4
OPERATING INCOME GROWTH
(exclusive of nonrecurring items)
[BAR GRAPH]
<TABLE>
<CAPTION>
(in millions)
1998 1999 2000
---- ---- ----
<S> <C> <C>
$68 $81 $100
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DIRECT SALON CONTRIBUTION
For reasons previously discussed, direct salon contribution, representing
Company-owned salon revenues less associated operating expenses, improved in
fiscal 2000 to $199.4 million or 18.2 percent of Company-owned revenues,
compared to $168.8 million or 17.9 percent in fiscal 1999 and $140.5 million or
17.2 percent in fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses include field supervision
(payroll, related taxes and travel) and home office administration costs (such
as warehousing, salaries, occupancy costs and professional fees). SG&A expenses
increased $9.4 million in fiscal 2000 to $121.8 million, compared to $112.4
million in fiscal 1999, but improved as a percent of total revenue to 10.7
percent in 2000 from 11.3 percent and 11.5 percent in fiscal 1999 and 1998,
respectively. The 60 basis point improvement in SG&A in 2000 is primarily the
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. The 20 basis
point improvement in SG&A in 1999 is a result of the Company's ability to
leverage the fixed cost components of this category against revenue increases.
DEPRECIATION AND AMORTIZATION--CORPORATE
Depreciation and amortization--corporate was 1.5 percent of total revenues in
2000, compared to 1.3 percent and 1.2 percent of total revenues in fiscal 1999
and 1998, respectively. The 20 basis point increase is primarily related to
increased amortization expense in fiscal 2000 due to the increased level of
goodwill associated with the Company's salon acquisition activity. Fiscal 1999
depreciation expense increased over fiscal 1998 primarily due to increased
depreciation levels associated with the Company's fiscal 1998 purchases of
additional corporate office buildings and new distribution center.
NONRECURRING ITEMS
See Note 10 to the Consolidated Financial Statements.
OPERATING INCOME
Operating income in fiscal 2000 was $97.2 million, compared to $65.3 million in
fiscal 1999. Fiscal 2000 operating income was impacted by merger and transaction
costs associated with the Supercuts UK merger.
Operating income was $65.3 million in 1999 compared to $65.9 million in fiscal
1998. Fiscal 1999 operating income was impacted by merger and transaction costs
associated with the Heidi's and The Barbers mergers, a nonrecurring charge
related to restructuring the Company's International operations and nonrecurring
costs associated with the Company's year 2000 remediation program.
Exclusive of nonrecurring items, operating income in fiscal 2000 improved 22.9
percent to $100.2 million, or 8.8 percent of revenues, compared to $81.5 million
and $67.8 million in fiscal 1999 and 1998, respectively. The annual improvements
were driven by improved gross margins, reduced SG&A due to merger integration
and international restructuring and the overall leveraging of fixed costs.
INTEREST
Interest expense in fiscal 2000 was $15.8 million, compared to $11.6 million and
$10.5 million in fiscal 1999 and 1998, representing 1.4 percent, 1.2 percent and
1.2 percent of total revenues, respectively. Interest expense as a percent of
sales has increased in fiscal 2000 due to higher debt levels primarily resulting
from the Company's acquisition program and higher interest rates.
INCOME TAXES
The Company's effective tax rate in fiscal 2000 was 40.3 percent of pre-tax
income compared to 41.8 percent and 40.1 percent in fiscal 1999 and 1998. The
Company's effective tax rate was 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 and the UK restructuring
charge in fiscal 1999.
<PAGE> 5
EARNINGS PER DILUTED SHARE
(exclusive of nonrecurring items)
[BAR GRAPH]
<TABLE>
<CAPTION>
(in millions)
1998 1999 2000
---- ---- ----
<S> <C> <C>
$.86 $1.05 $1.26
</TABLE>
OPERATING CASH FLOW
(net income before depreciation,
amortization and nonrecurring items)
[BAR GRAPH]
<TABLE>
<CAPTION>
(in millions)
1998 1999 2000
---- ---- ----
<S> <C> <C>
$72 $93 $106
</TABLE>
Exclusive of nonrecurring items, the Company's effective tax rate was 39.3
percent, 38.7 percent and 40.1 percent, respectively, in fiscal 2000, 1999 and
1998. In fiscal 1999, the Company's effective tax rate benefited from net
operating losses utilized by Heidi's prior to the merger and an increase in
international pre-tax income during the fourth quarter of fiscal 1999 which is
taxed at a lower rate.
NET INCOME
Net income in fiscal 2000 was $49.7 million, or $1.19 per diluted share,
compared to net income of $32.2 million, or $.78 per diluted share, in fiscal
1999, and $33.9 million, or $.83 per diluted share, in fiscal 1998. Exclusive of
nonrecurring items, net income in fiscal 2000 increased to a record $52.4
million, or $1.26 per diluted share, compared to net income exclusive of
nonrecurring items of $43.8 million, or $1.05 per diluted share, in fiscal 1999
and $35.0 million, or $.86 per diluted share in fiscal 1998. Earnings per
diluted share, exclusive of nonrecurring items, increased 20.0 percent and 22.1
percent in fiscal 2000 and 1999, respectively. These increases primarily
resulted from sales increases, improved gross margins and leveraging of fixed
costs against revenue increases, as previously discussed.
The Company's salon count has grown from over 1,900 to more than 5,600 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 fiscal
2001, thereby reducing earnings growth to approximately ten percent. The
Company's 3-year average annual earnings growth is expected to be between 13 to
16 percent.
EFFECTS OF INFLATION
The Company primarily compensates its Regis and International salon employees
with percentage commissions based on sales they generate, thereby enabling salon
payroll expense as a percent of revenues to remain relatively constant.
Accordingly, this provides the Company certain protection against inflationary
increases as payroll expense and related benefits (the Company's major expense
components) are, with respect to these divisions, variable costs of sales. The
Company does not believe inflation, due to its low rate, has had a significant
impact on the results of operations associated with hourly paid hairstylists for
the remainder of its mall-based and strip center salons.
LIQUIDITY AND CAPITAL RESOURCES
Customers 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 in fiscal 2000 rose to $85.4 million compared to $76.4
million and $74.3 million in fiscal 1999 and 1998, respectively. The increase in
fiscal 2000 is primarily due to improved operating performance.
CAPITAL EXPENDITURES AND ACQUISITIONS
During fiscal 2000, the Company had worldwide capital expenditures of $86.7
million, of which $5.8 million related to acquisitions of 421 salons. The
Company constructed 52 new Regis Salons, 44 new MasterCuts salons, 49 new Trade
Secret salons, 126 new Wal-Mart/SmartStyle salons, 83 new Strip Center Salons
and 17 new International salons, and completed 110 major remodeling projects.
All capital expenditures during fiscal 2000 were funded by the Company's
operations and borrowings under its revolving credit facility.
The Company anticipates its worldwide salon development program for fiscal 2001
will include approximately 430 new salons and 60 major remodeling and conversion
projects. It is expected that expenditures for these new salons and other
projects will be approximately $90-$95 million in fiscal 2001, excluding capital
expenditures associated with acquisitions.
FINANCING
Financing activities are discussed in Note 4 to the Consolidated Financial
Statements.
Management believes that cash generated from operations and amounts available
under its existing debt facilities will be sufficient to fund its anticipated
capital expenditures and required debt repayments for the foreseeable future.
The Company translates the financial statements of its international
subsidiaries to U.S. dollars for financial reporting purposes, and accordingly
is subject to fluctuations in currency exchange rates.
<PAGE> 6
EARNINGS PER DILUTED SHARE EXCLUDING GOODWILL AMORTIZATION
[BAR GRAPH]
<TABLE>
<CAPTION>
'98 '99 '00
<S> <C> <C> <C>
$.98 $1.20 $1.45
</TABLE>
EBITDA
(earnings before interest, taxes, depreciation, amortization and nonrecurring
items)
[BAR GRAPH]
<TABLE>
<CAPTION>
(in millions)
'98 '99 '00
<S> <C> <C> <C>
$106 $127 $156
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
DIVIDENDS
The Company paid dividends of $.12 per share during fiscal 2000 and $.10 per
share during fiscal 1999. On August 23, 2000 the Board of Directors of the
Company declared a $.03 per share quarterly dividend payable September 20, 2000
to shareholders of record on September 5, 2000.
In February 1999, the Board of Directors approved a three-for-two stock split of
the Company's common stock in the form of a 50 percent stock dividend
distributed on March 1, 1999 to shareholders of record on February 15, 1999. All
share and per share amounts have been restated to reflect the stock split.
In addition, Supercuts UK declared and paid dividends of $.4 million, $2.8
million and $2.1 million during fiscal 2000, 1999 and 1998, respectively.
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 June 30, 2000, 115,000 shares have been repurchased for $1.4
million. This repurchase program has no stated expiration date.
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 computer systems, nor were there
disruptions as a result of vendor 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 annual report on Form 10-K, as well as information included in, or
incorporated by reference from, future filings by the Company with the
Securities and Exchange Commission and information contained in written
material, press releases and oral statements issued by or on behalf of the
Company contains or may contain "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.
<PAGE> 7
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
(Dollars in thousands, except per share amounts) 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 14,888 $ 10,353
Receivables, net 16,220 16,598
Inventories 91,823 70,056
Deferred income taxes 10,160 8,596
Other current assets 10,713 11,780
-------- --------
Total current assets 143,804 117,383
Property and equipment, net 260,532 215,952
Goodwill 208,724 153,956
Other assets 15,295 13,291
-------- --------
Total assets $628,355 $500,582
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 9,983 $ 23,945
Accounts payable 34,216 23,877
Accrued expenses 58,845 58,818
-------- --------
Total current liabilities 103,044 106,640
Long-term debt 224,618 143,041
Other noncurrent liabilities 21,552 16,682
Commitments (Note 5)
Shareholders' equity:
Common stock, $.05 par value; issued and outstanding, 40,702,707 and 40,419,122
common shares at June 30, 2000 and 1999, respectively 2,035 2,021
Additional paid-in capital 150,793 148,504
Accumulated other comprehensive loss (2,274) (1,095)
Retained earnings 128,587 84,789
-------- --------
Total shareholders' equity 279,141 234,219
-------- --------
Total liabilities and shareholders' equity $628,355 $500,582
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE> 8
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30,
(Dollars and shares in thousands, except per share amounts) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Company-owned salons:
Service $ 779,604 $ 679,658 $ 588,142
Product 313,125 264,511 226,513
----------- --------- ---------
1,092,729 944,169 814,655
Franchise income 50,264 47,731 45,965
----------- --------- ---------
1,142,993 991,900 860,620
----------- --------- ---------
Operating expenses:
Company-owned:
Cost of service 442,198 388,339 336,585
Cost of product 168,787 142,643 123,757
Direct salon 92,841 81,107 72,609
Rent 152,685 131,943 114,688
Depreciation 36,832 31,368 26,547
----------- --------- ---------
893,343 775,400 674,186
Selling, general and administrative 121,756 112,392 99,286
Depreciation and amortization 16,993 12,983 10,012
Nonrecurring items 2,940 16,133 1,979
Other 10,745 9,657 9,299
----------- --------- ---------
Total operating expenses 1,045,777 926,565 794,762
----------- --------- ---------
Operating income 97,216 65,335 65,858
Other income (expense):
Interest (15,839) (11,588) (10,500)
Other, net 1,857 1,567 1,225
----------- --------- ---------
Income before income taxes 83,234 55,314 56,583
Income taxes (33,580) (23,109) (22,689)
----------- --------- ---------
Net income $ 49,654 $ 32,205 $ 33,894
=========== ========= =========
Net income per share:
Basic $ 1.22 $ .80 $ .86
=========== ========= =========
Diluted $ 1.19 $ .78 $ .83
=========== ========= =========
Weighted average common and common equivalent shares outstanding 41,602 41,518 40,604
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE> 9
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Accumulated
Common Common Additional Other Compre-
Stock Stock Paid-In Comprehensive Retained hensive
(Dollars in thousands) Shares Amount Capital Income (Loss) Earnings Total Income
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997,
as previously reported 24,959,975 $ 1,249 $ 126,481 $ (1,349) $ 29,499 $ 155,880
Pooling-of-interests-Supercuts
(Holdings) Limited (Note 3) 1,185,334 59 (57) (22) (201) (221)
---------- -------- --------- -------- --------- --------- ---------
Balance, June 30, 1997, as restated 26,145,309 1,308 126,424 (1,371) 29,298 155,659
Net income 33,894 33,894 $ 33,894
Foreign currency translation
adjustments (336) (336) (336)
Proceeds from sale of common stock 400,000 20 10,390 10,410
Proceeds from exercise of stock options 124,605 6 1,348 1,354
Shares issued under company
sponsored programs 4,415 61 61
Tax benefit realized upon exercise
of stock options 397 397
Dividends (4,172) (4,172)
---------- -------- --------- -------- --------- --------- ---------
Balance, June 30, 1998 26,674,329 1,334 138,620 (1,707) 59,020 197,267 $ 33,558
=========
Net income 32,205 32,205 32,205
Foreign currency translation adjustments 612 612 612
Reclassification adjustment for
translation losses realized
in net income (964)
Stock split effected in the form
of a stock dividend 13,334,156 667 (667)
Proceeds from exercise of
stock options 309,929 15 3,794 3,809
Shares issued under company
sponsored programs 17,941 1 235 236
Shares issued in connection with
salon acquisitions 82,767 4 2,103 2,107
Tax benefit realized upon exercise
of stock options 1,389 1,389
Contribution of shareholder debt to capital 3,030 3,030
Dividends (6,436) (6,436)
---------- -------- --------- -------- --------- --------- ---------
Balance, June 30, 1999 40,419,122 2,021 148,504 (1,095) 84,789 234,219 $ 31,853
=========
Net income 49,654 49,654 49,654
Foreign currency translation adjustments (1,179) (1,179) (1,179)
Pooling-of-interests adjustment
(Note 3) (665) (665)
Stock repurchase plan (115,000) (6) (1,419) (1,425)
Proceeds from exercise of stock options 329,000 16 1,478 1,494
Shares issued in connection with
salon acquisitions 69,585 4 1,584 1,588
Tax benefit realized upon exercise of
stock options 646 646
Dividends (5,191) (5,191)
---------- -------- --------- -------- --------- --------- ---------
Balance, June 30, 2000 40,702,707 $ 2,035 $ 150,793 $ (2,274) $ 128,587 $ 279,141 $48,475
========== ======== ========= ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE> 10
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
(Dollars in thousands) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 49,654 $ 32,205 $ 33,894
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 42,483 36,129 30,342
Amortization 11,634 8,296 6,455
Deferred income taxes (1,003) (1,065) 7,143
Nonrecurring items 4,400 1,979
Other (381) 1,638 233
Changes in operating assets and liabilities:
Receivables 267 (3,308) 2,044
Inventories (20,350) (9,988) (11,335)
Other current assets 1,078 (4,041) (290)
Other assets (3,432) (2,191) (2,074)
Accounts payable 1,799 (2,914) (1,391)
Accrued expenses (1,546) 12,680 5,368
Other noncurrent liabilities 5,181 4,538 1,981
--------- --------- ---------
Net cash provided by operating activities 85,384 76,379 74,349
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (80,932) (67,249) (58,727)
Proceeds from sale of assets 852 4,455 590
Purchases of salon net assets, net of cash acquired (66,798) (51,017) (24,837)
--------- --------- ---------
Net cash used in investing activities (146,878) (113,811) (82,974)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on revolving credit facilities 413,786 237,668 163,254
Payments on revolving credit facilities (321,928) (225,075) (148,952)
Proceeds from issuance of long-term debt 7,958 46,533 9,006
Repurchase of common stock (1,425)
Repayment of long-term debt (33,842) (19,100) (25,506)
Increase in negative book cash balances 5,054 602
Dividends paid (5,191) (6,436) (4,172)
Proceeds from issuance of common stock 1,494 3,700 11,825
--------- --------- ---------
Net cash provided by financing activities 65,906 37,290 6,057
--------- --------- ---------
Effect of exchange rate changes on cash 123 26 (85)
--------- --------- ---------
Increase (decrease) in cash 4,535 (116) (2,653)
Cash:
Beginning of year 10,353 10,469 13,122
--------- --------- ---------
End of year $ 14,888 $ 10,353 $ 10,469
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION:
Regis Corporation (the Company) owns, operates, franchises and acquires
hairstyling and hair care salons throughout the United States, the United
Kingdom, Canada and Puerto Rico. Substantially all of the hairstyling and hair
care salons owned and operated by the Company in the United States are located
in leased space in enclosed mall shopping centers or strip shopping centers.
Franchised salons are primarily located in strip shopping centers throughout the
United States. The salons in the United Kingdom are owned and operated in malls,
leading department stores, mass merchants and high-street locations.
At June 30, 2000, approximately 10 percent of the Company's outstanding common
stock is owned by Curtis Squire, Inc. (CSI), which is a holding company
controlled by the Chairman of the Board of Directors of the Company, and
approximately five percent is owned by management and the Company's benefit
plans.
CONSOLIDATION:
The financial statements include the accounts of the Company and all of its
wholly-owned subsidiaries. In consolidation, all material intercompany accounts
and transactions are eliminated. The Consolidated Financial Statements for all
periods have been restated to include the retroactive effects of the October
1999 pooling-of-interests with Supercuts (Holdings) Limited (Supercuts UK) (Note
3).
USE OF ESTIMATES:
The preparation of Consolidated Financial Statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FOREIGN CURRENCY TRANSLATION:
Financial position, results of operations and cash flows of the Company's
international subsidiaries are measured using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rates in effect at each fiscal year end. Income statement accounts are
translated at the average rates of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in accumulated other comprehensive income (loss)
within shareholders' equity.
INVENTORIES:
Inventories consist principally of hair care products held either for use in
salon services or for sale. Inventories are stated at the lower of cost or
market with cost determined on the first-in, first-out method.
PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (30 to 39
years for buildings and improvements and 5 to 10 years for equipment, furniture,
software and leasehold improvements).
The Company capitalizes both internal and external costs of developing or
obtaining computer software for internal use based on certain criteria.
Expenditures for maintenance and repairs and minor renewals and betterments
which do not improve or extend the life of the respective assets are expensed.
All other expenditures for renewals and betterments are capitalized. The assets
and related depreciation accounts are adjusted for property retirements and
disposals with the resulting gain or loss included in operations. Fully
depreciated assets remain in the accounts until retired from service.
GOODWILL:
Goodwill recorded in connection with the fiscal 1989 purchase of the publicly
held minority interest in the Company, and acquisitions of business operations
in which the Company has not previously been involved, is amortized on a
straight-line basis over 40 years. Goodwill recorded in connection with
acquisitions which expand the Company's existing business activities
(acquisitions of salon sites) is amortized on a straight-line basis, generally
over 20 years.
ASSET IMPAIRMENT ASSESSMENTS:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. If an impairment is recognized, the
carrying value of the impaired asset is reduced to its fair value.
FRANCHISE INCOME AND EXPENSES:
Franchise income includes royalties, initial franchise fees from franchisees and
sales of product to franchisees. Royalties are recognized as income in the month
in which franchisee services are rendered or products are sold by franchisees.
The Company recognizes income from initial franchise fees at the time franchisee
salons are opened. Product sales by the Company to
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
franchisees are recorded at the time product is shipped to franchise locations.
Franchise expenses include all direct expenses such as the cost of product sold
to franchisees, salaries, marketing costs and an allocation of general corporate
overhead and occupancy expenses. Cost of product sold to franchisees is included
in other operating expenses in the Consolidated Statement of Operations. All
other expenses described above associated with franchise operations are included
in selling, general and administrative expenses in the Consolidated Statement of
Operations.
ADVERTISING:
Advertising costs are expensed as incurred.
INCOME TAXES:
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred income tax assets and liabilities are
determined based on the differences between the financial statement and tax
basis of assets and liabilities using currently enacted tax rates in effect for
the years in which the differences are expected to reverse. Income tax expense
is the current tax payable for the period and the change during the period in
deferred tax assets and liabilities.
NET INCOME PER SHARE:
Basic earnings per share (EPS) is calculated as net income divided by weighted
average common shares outstanding. The Company's dilutive securities include
shares issuable under the Company's stock option plan and shares issuable under
contingent stock agreements. Diluted EPS is calculated as net income divided by
weighted average common shares outstanding, increased to include assumed
exercise of dilutive securities. Stock options with exercise prices greater than
the average market value of the Company's common stock are excluded from the
computation of diluted EPS.
COMPREHENSIVE INCOME:
Components of comprehensive income for the Company include net income and
foreign currency translation adjustments and are presented in the Consolidated
Statements of Changes in Shareholders' Equity and Comprehensive Income.
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No.133, "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted for fiscal
years beginning after June 15, 2000. This statement requires the Company to
recognize all derivatives on the balance sheet at fair value. The Company
occasionally uses interest rate swaps in connection with its variable rate debt.
Generally, the terms of the interest rate swap agreements have settlement on a
quarterly basis, therefore, this statement is not expected to materially impact
the Company's Consolidated Financial Statements.
2. OTHER FINANCIAL STATEMENT DATA
The following provides additional information concerning selected balance sheet
accounts as of June 30, 2000 and 1999:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment:
Land $ 3,691 $ 2,190
Buildings and improvements 23,474 20,377
Equipment, furniture and leasehold improvements 374,128 324,157
Internal use software 31,481 20,089
Equipment, furniture and leasehold improvements under capital leases 14,850 14,093
--------- ---------
447,624 380,906
Less accumulated depreciation and amortization (179,788) (159,316)
Less amortization of equipment, furniture and leasehold improvements under capital leases (7,304) (5,638)
--------- ---------
$ 260,532 $ 215,952
========= =========
Goodwill $ 256,201 $ 190,274
Less accumulated amortization (47,477) (36,318)
--------- ---------
$ 208,724 $ 153,956
========= =========
Accounts payable* $ 34,216 $ 23,877
========= =========
Accrued expenses:
Payroll and payroll related costs $ 30,928 $ 27,270
Insurance 10,398 8,656
Transaction and restructuring 3,677 5,981
Other 13,842 16,911
--------- ---------
$ 58,845 $ 58,818
========= =========
</TABLE>
*Accounts payable includes $4,399 of book overdrafts in fiscal 2000.
<PAGE> 13
The following provides additional information concerning the Company's
transaction and restructuring liabilities related to its fiscal 2000 merger with
Supercuts UK, its fiscal 1999 mergers and its restructuring liability related to
its fiscal 1999 restructuring plan for its international operations.
<TABLE>
<CAPTION>
Restructuring-International Restructuring-Mergers
------------------------------------------ -----------------------------------------------
Salon Salon
Closures and Closures and
(Dollars in thousands) Severance Dispositions Other Subtotal Severance Dispositions Other Subtotal
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1998 $ 1,232 $ 398 $ 1,630
Additions $ 966 $ 3,806 $ 844 $ 5,616 2,526 430 $ 1,400 4,356
Cash utilization (404) 193 (105) (316) (875) (93) (74) (1,042)
Non-cash utilization (2,812) (388) (3,200) (620) (580) (1,200)
--------------------------------------------------------------------------------------------
June 30, 1999 562 1,187 351 2,100 2,883 115 746 3,744
Additions 2,482 116 2,598
Cash utilization (532) (542) (265) (1,339) (1,874) (92) (655) (2,621)
Non-cash utilization (30) (62) (19) (111) (173) (8) (181)
Change in estimate (494) (54) (548)
--------------------------------------------------------------------------------------------
June 30, 2000 $ 583 $ 67 $ 650 $ 2,824 $ 23 $ 145 $ 2,992
============================================================================================
<CAPTION>
Transaction
Charges-
Mergers Total
--------------------------
<C> <C>
June 30, 1998 $ 1,630
Additions $ 2,066 12,038
Cash utilization (1,929) (3,287)
Non-cash utilization (4,400)
-----------------------
June 30, 1999 137 5,981
Additions 547 3,145
Cash utilization (611) (4,571)
Non-cash utilization (38) (330)
Change in estimate (548)
-----------------------
June 30, 2000 $ 35 $ 3,677
=======================
</TABLE>
During fiscal year 2000, the non-cash utilization above relates to the effect of
the change in the foreign currency exchange rate.
The following table sets forth a reconciliation of shares used in the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average shares for basic earnings per share 40,611,928 40,204,712 39,490,951
Effect of dilutive securities:
Dilutive effect of stock options 880,056 1,299,287 1,112,825
Contingent shares issuable under contingent stock agreements 110,298 13,599
-----------------------------------------
Weighted average shares for diluted earnings per share 41,602,282 41,517,598 40,603,776
=========================================
</TABLE>
Stock options of 1,070,000 were excluded from the shares used in the computation
of diluted earnings per share for fiscal year 2000 since they were
anti-dilutive. All stock options for fiscal 1999 and 1998 were included in their
respective dilutive earnings per share computation.
The following provides additional information concerning selected statement of
operation accounts for the fiscal years ended June 30, 2000, 1999 and 1998:
Advertising costs expensed were $24.9 million, $21.1 million and $18.5 million
in fiscal 2000, 1999 and 1998, respectively.
The following provides supplemental disclosures of cash flow activity:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
---------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
<S> <C> <C> <C>
Interest $14,997 $11,269 $10,117
Income taxes 36,866 24,352 14,696
</TABLE>
The significant non-cash investing and financing activities include the
following:
* In fiscal 2000, 1999 and 1998, the Company financed capital expenditures
totaling $2.3 million, $3.5 million and $5.9 million, respectively, through
capital leases.
* In fiscal 2000 and 1999, in connection with various acquisitions, the
Company entered into seller-financed payables and non- compete agreements
as well as issuing 69,585 and 82,767 shares, respectively, of the Company's
stock (Note 3).
* In fiscal 1999, in connection with the Company's merger with Heidi's, a
shareholder contributed a $3.0 million note to equity.
3. MERGERS AND ACQUISITIONS:
SUPERCUTS (HOLDINGS) LIMITED MERGER:
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 approximately
1.8 million shares of Regis Corporation common
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
September 30, 1999 June 30, 1999 June 30, 1998
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Regis $261,632 $974,872 $848,444
Supercuts UK 4,476 17,028 12,176
-------------------------------------------------------
Combined total $266,108 $991,900 $860,620
=======================================================
Net income:
Regis $ 12,138 $ 30,346 $ 32,699
Supercuts UK 500 1,859 1,195
-------------------------------------------------------
Combined total $ 12,638 $ 32,205 $ 33,894
=======================================================
</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 financial statements for the years ended September 4, 1999 and
August 29, 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 year
ended June 30, 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 year ended June 30, 2000.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC. MERGER:
Effective May 20, 1999, the Company consummated a merger with The Barbers,
Hairstyling for Men & Women, Inc. (The Barbers) in a stock-for-stock
transaction, resulting in the issuance of approximately 2.0 million shares of
the Company's common stock. The Barbers was a national operator and franchisor
of 979 affordable hair care salons. The Barbers transaction was accounted for as
a pooling-of-interests. Prior period financial statements were restated to
reflect this merger as if the merged companies had always been combined.
As a result of the merger, the Company recorded a nonrecurring charge of $4.8
million during the quarter ended June 30, 1999. This charge included $1.4
million for professional fees including investment banking, legal, accounting
and miscellaneous transaction costs and $3.4 million for severance and other
costs, principally associated with the closure of The Barbers' headquarters.
Severance expense of $2.1 million covered the termination of approximately 20
employees of The Barbers who had duplicate positions within the corporate office
functions. These corporate overhead departments primarily included finance,
accounting and human resources.
Revenues and net income for each of the combining entities prior to the merger
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
March 31, 1999 June 30, 1998
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Regis $693,063 $822,964
The Barbers 20,984 25,480
--------------------------------
Combined total $714,047 $848,444
================================
Net income:
Regis 24,321 30,988
The Barbers 1,472 1,711
--------------------------------
Combined total $ 25,793 $ 32,699
================================
</TABLE>
HEIDI'S, INC. MERGER:
Effective March 15, 1999, the Company consummated a merger with Heidi's, Inc.
(Heidi's), a company based in Detroit, Michigan, which operated 24 salons in
shopping malls. Under the terms of the merger agreement, the shareholders of
Heidi's, a privately held company, received approximately .5 million shares of
Regis Corporation common stock. The transaction was
<PAGE> 15
accounted for as a pooling-of-interests. Prior period financial statements were
restated to reflect this merger as if the merged companies had always been
combined.
As a result of the merger, the Company recorded a nonrecurring charge of $1.2
million during the quarter ended March 31, 1999. This charge included $.7
million for professional fees including investment banking, legal, accounting
and miscellaneous transaction costs and $.5 million for severance and other
costs, principally associated with the closure of Heidi's headquarters.
Severance expense of $.4 million covered the termination of approximately ten
Heidi's employees who had duplicate positions within corporate office functions.
In addition, during the fourth quarter of 1999, the Company recorded a $.4
million charge related to impaired salon assets.
Revenues and net income for each of the combining entities prior to the merger
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1998 June 30, 1998
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Regis $441,367 $798,144
Heidi's 13,367 24,820
-------------------------------------
Combined total $454,734 $822,964
=====================================
Net income:
Regis 16,882 30,488
Heidi's 443 500
-------------------------------------
Combined total $ 17,325 $ 30,988
=====================================
</TABLE>
OTHER ACQUISITIONS:
During fiscal 2000, 1999 and 1998, the Company made numerous acquisitions in
addition to its mergers with Supercuts UK, The Barbers and Heidi's. 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>
(Dollars in thousands) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Costs in excess of net tangible and identifiable intangible assets acquired $ 66,035 $ 45,147 $ 21,743
=====================================
Components of aggregate purchase price:
Cash $ 66,798 $ 51,017 $ 24,837
Stock 1,588 2,107
Current and noncurrent payables 5,225 2,830 2,180
-------------------------------------
$ 73,611 $ 55,954 $ 27,017
=====================================
</TABLE>
4. FINANCING ARRANGEMENTS:
The Company's long-term debt as of June 30, 2000 and 1999 consists of the
following:
<TABLE>
<CAPTION>
Fiscal
Interest Maturity
(Dollars in thousands) Rate % Dates 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior term notes 6.55- 8.33 2001-2009 $ 90,844 $ 109,919
Revolving credit facilities 7.64- 8.26 2002-2003 133,200 41,343
Equipment and leasehold notes payable 7.57-11.50 2004-2005 7,762 11,236
Other notes payable 5.00-11.90 2001-2009 2,795 4,488
----------------------
234,601 166,986
Less current portion (9,983) (23,945)
----------------------
Long-term portion $224,618 $ 143,041
======================
</TABLE>
In June 2000, the Company extended the term of a $4.0 million note payment
originally due July 1, 2000. The $4.0 million is the final payment due under a
$10.0 million senior term note entered into in October 1996. The maturity on the
term note has been extended to September 2003.
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In August 1999, the Company entered into a $180.0 million revolving credit
facility. The facility has a term of three years, bears interest at the prime
rate or LIBOR plus 50 to 100 basis points based on the Company's
debt-to-capitalization ratio and allows for multi-currency borrowings. The prime
rate at June 30, 2000 and 1999 was 9.50 percent and 7.75 percent, respectively.
The revolving credit facility requires a quarterly commitment fee of 15 to 25
basis points on the unused portion of the facility. The commitment fee is also
based on the Company's debt-to-capitalization ratio at the end of each fiscal
quarter. The facility will be used to finance the general working capital
requirements of the Company as well as the capital requirements for new salon
and acquisition growth.
In August 1999, through the use of proceeds from its new revolving credit
facility, the Company retired a $15.0 million term note due June 2003 and
retired its $45.0 million and $20.0 million revolving credit facilities due
October 2001 and August 1999, respectively.
In January 1999, the Company borrowed $15.0 million under a 6.27 percent senior
term note due June 2003 and $10.0 million under a 6.83 percent senior term note
due December 2005 to finance acquisitions by the Company. In September 1998, the
Company borrowed $7.5 million under a 6.55 percent senior term note due
September 2003 to refinance the Company's distribution center revolving line of
credit established in fiscal 1998.
In July 1998, the Company paid down its revolving credit facilities by $14.0
million with the proceeds of a 7.14 percent senior term note with interest due
quarterly. Principal payments of $9.0 million and $5.0 million are due in July
2007 and 2008, respectively.
The equipment and leasehold notes payable are primarily comprised of capital
lease obligations totaling $7.1 million and $8.9 million at June 30, 2000 and
1999, respectively. These capital lease obligations are payable in monthly
installments over five years.
All of the Company's debt instruments are unsecured, except for its capital
lease obligations which are collateralized by the assets purchased under the
agreement.
The debt agreements contain covenants, including limitations on incurrence of
debt, granting of liens, investments, merger or consolidation, and transactions
with affiliates. In addition, the Company must maintain specified fixed charge
coverage and debt-to-capitalization ratios.
The fair values of the Company's debt instruments, based upon discounted cash
flow analyses using the Company's current incremental borrowing rate,
approximate their carrying values at June 30, 2000.
Aggregate maturities of long-term debt at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Fiscal Year (Dollars in thousands)
----------------------------------------------------------------------------------------------------
<S> <C>
2001 $ 9,983
2002 138,568
2003 5,982
2004 15,354
2005 15,562
Thereafter 49,152
------------------
$234,601
==================
</TABLE>
5. COMMITMENTS:
OPERATING LEASES:
The Company is committed under long-term operating leases for the rental of most
of its Company-owned salon locations. The terms of the leases range from one to
20 years, with many leases renewable for an additional five to ten year term at
the option of the Company, and certain leases include escalation provisions. For
certain leases, the Company is required to pay additional rent based on a
percent of sales and, in most cases, real estate taxes and other expenses. Rent
expense for the Company's international department store salons is based
primarily on a percent of sales.
The Company also leases the premises in which the majority of its franchisees
operate and has entered into corresponding sublease arrangements with the
franchisees. These leases, generally with terms of approximately five years, are
expected to be renewed on expiration. All additional lease costs are passed
through to the franchisees.
Total rent expense, net of sublease rental obligations which are passed through
to the franchisees, includes the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rent $ 105,876 $ 82,578 $ 75,589
Percentage rent based on sales 14,996 22,513 16,912
Real estate taxes and other expenses 31,813 26,852 22,187
-------------------------------------
$ 152,685 $ 131,943 $ 114,688
=====================================
</TABLE>
<PAGE> 17
FUTURE MINIMUM LEASE PAYMENTS:
As of June 30, 2000, future minimum lease payments (excluding percentage rents
based on sales) due under existing noncancellable operating leases with
remaining terms of greater than one year are as follows:
<TABLE>
<CAPTION>
Corporate Reimbursable
Fiscal Year (Dollars in thousands) Leases Franchisee Leases
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2001 $ 105,320 $ 22,873
2002 93,278 18,279
2003 79,667 14,475
2004 64,630 10,663
2005 48,238 5,224
Thereafter 107,156 4,529
---------------------------------
Total minimum lease payments $ 498,289 $ 76,043
=================================
</TABLE>
The Company entered into a five year operating lease agreement in June 2000
related to a distribution center and various equipment to be built in Salt Lake
City, Utah. The future minimum lease payments, which are not included in the
table above, are estimated to be $4.7 million based on the anticipated cost of
the distribution center and related equipment and the expected borrowing rate of
8.1 percent. Under the agreement, the Company is obligated to pay the difference
between the maximum amount of the residual value guarantee and the fair market
value at the termination of the agreement. The potential impact of the residual
value guarantee is not estimable at June 30, 2000 as the building has not yet
been constructed. Thus, the impact of the guarantee is not included in the table
of future minimum lease payments. The Company expects the fair market value of
the distribution center and related equipment, subject to the purchase or
remarket options, to substantially reduce or eliminate the Company's potential
liability under the residual value guarantee.
SALON DEVELOPMENT PROGRAM:
As a part of its salon development program, the Company continues to negotiate
and enter into leases and commitments for the acquisition of equipment and
leasehold improvements related to future salon locations.
6. INCOME TAXES:
The provision for income taxes consists of:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 27,003 $ 20,661 $ 12,401
State 5,173 3,190 2,019
International 2,407 323 1,126
Deferred:
United States (885) (393) 7,039
International (118) (672) 104
------------------------------------
$ 33,580 $ 23,109 $ 22,689
====================================
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net current deferred tax asset:
Insurance $ 3,641 $ 2,587
Payroll and payroll related costs 3,478 2,624
Nonrecurring items 1,726 2,581
Other, net 1,315 804
----------------------
$ 10,160 $ 8,596
======================
Net noncurrent deferred tax asset:
Depreciation and amortization $ (5,608) $ (3,496)
Deferred rent 2,555 2,128
Payroll and payroll related costs 3,690 2,444
Other, net (390) (268)
----------------------
$ 247 $ 808
======================
</TABLE>
<PAGE> 18
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States $ 79,041 $ 58,567 $ 54,437
International 4,193 (3,253) 2,146
-----------------------------------
$ 83,234 $ 55,314 $ 56,583
===================================
</TABLE>
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory rate to earnings before income taxes,
as a result of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit 3.4 3.4 3.6
Nondeductible merger and transaction costs 0.8 2.5
Other 1.1 0.9 1.5
--------------------------------
40.3% 41.8% 40.1%
================================
</TABLE>
7. BENEFIT PLANS:
EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has a qualified employee stock ownership plan (ESOP) covering
substantially all field supervisors, warehouse and corporate office employees.
Contributions to the ESOP are at the discretion of the Company.
EXECUTIVE STOCK AWARD PLAN:
The Company has a nonqualified executive stock award plan (ESAP) covering those
employees not eligible to participate under the qualified ESOP. Contributions to
the ESAP are at the discretion of the Company.
STOCK PURCHASE PLAN:
The Company has an employee stock purchase plan (SPP) available to substantially
all employees. Under terms of the plan, eligible employees may purchase the
Company's common stock through payroll deductions. The Company contributes an
amount equal to 15 percent of the purchase price of the stock to be purchased on
the open market, not to exceed an aggregate contribution of $4.0 million. At
June 30, 2000, cumulative contributions to the SPP totaled $2.0 million.
FRANCHISE STOCK PURCHASE PLAN:
The Company has a franchise stock purchase plan (FSPP) available to
substantially all franchisee employees. Under the terms of the plan, eligible
franchisees and their employees may purchase the Company's common stock. The
Company contributes an amount equal to 5 percent of the purchase price of the
stock to be purchased on the open market, not to exceed an aggregate
contribution of $.7 million. At June 30, 2000, cumulative contributions to the
FSPP totaled $33,000.
Company contributions to the aforementioned plans for the three years in the
period ended June 30, 2000, which are charged to earnings in the period
contributed, included the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ESOP $ 1,358 $ 1,303 $ 1,146
ESAP 242 248 301
SPP 459 341 274
FSPP 7
</TABLE>
REGIS 401(K) PLAN:
Effective July 1999, the Company established a qualified 401(k) defined
contribution plan covering substantially all field supervisors, warehouse and
corporate office employees. Currently, the Company does not contribute to the
401(k) plan.
STOCK OPTIONS:
The Company's Stock Option Plan (the Plan), as amended, provides for granting
both incentive stock options and nonqualified stock options. A total of
5,200,000 shares of common stock, increased from 3,300,000 in fiscal 1999, may
be granted under the Plan to employees of the Company for a term not to exceed
ten years from the date of grant. Options granted to employees generally vest
over a five year period. Options may also be granted under this Plan to the
Company's outside directors for a term not to exceed five years from the vesting
date. Options granted to outside directors vest over a four year period.
In addition to the regular options granted during fiscal 2000, a special grant
of 1,700,000 shares common stock was approved by the Board of Directors. These
options are fully vested five years from the date of grant and expire after ten
years.
<PAGE> 19
The Plan contains restrictions on transferability, time of exercise, exercise
price and on disposition of any shares acquired through exercise of the options.
Incentive stock options are granted at not less than fair market value on the
date of grant. The Board of Directors determines the Plan participants and
establishes the terms and conditions of each option.
In May 1999, in connection with The Barbers merger (Note 3) and effective
termination of The Barbers stock option plans, outstanding stock options and
warrants of The Barbers were converted to options to purchase approximately
370,000 shares of Regis common stock on the basis of the exchange ratio
established to effect the merger.
Common shares available for grant as of June 30, 2000, 1999 and 1998 were
58,695, 611,095 and 579,820, respectively.
Stock options outstanding and weighted average exercise prices are as follows:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------
Weighted
Average
Exercise
Shares Price
-----------------------------------------------------------------------------------
<S> <C> <C>
Balance, June 30, 1997 2,739,678 $ 8.69
Granted 538,505 17.24
Cancelled (272,163) 13.41
Exercised (191,748) 7.20
--------- ---------
Balance, June 30, 1998 2,814,272 $ 9.97
Granted 28,500 19.53
Cancelled (37,275) 14.30
Exercised (309,929) 11.29
--------- ---------
Balance, June 30, 1999 2,495,568 $ 9.88
Granted 2,492,750 17.25
Cancelled (57,821) 16.87
Exercised (329,000) 4.61
--------- ---------
Balance, June 30, 2000 4,601,497 $ 14.15
========= =========
</TABLE>
At June 30, 2000, the weighted average exercise prices and remaining contractual
lives of stock options are as follows:
<TABLE>
<CAPTION>
Range of exercise prices $2.34-$11.25 $11.78-$16.17 $16.50 $17.00-$22.92 Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total options outstanding 1,095,928 706,913 1,700,000 1,098,656 4,601,497
Weighted average exercise price $5.84 $13.90 $16.50 $18.95 $14.15
Weighted average remaining contractual life in years 3.83 7.18 9.63 8.23 7.54
Options exercisable 949,112 356,826 0 261,674 1,567,612
Weighted average price of exercisable options $5.96 $13.23 $ 0 $18.05 $ 9.63
</TABLE>
The Company measures compensation cost for its incentive stock plans using the
intrinsic value-based method of accounting. Had the Company used the
fair-value-based method of accounting for its stock option and incentive plans
beginning in 1996 and charged compensation cost against income, over the vesting
period based on the fair value of options at the date of grant, net income and
net income per share would have been as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts) 2000 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $49,654 $32,205 $33,894
Pro forma $47,371 $31,072 $33,241
Net income per diluted share:
As reported $ 1.19 $ .78 $ .83
Pro forma $ 1.14 $ .75 $ .82
</TABLE>
The pro forma information above includes stock options granted from 1996 through
2000. Compensation expense under the fair-value-based method of accounting will
increase over the next few years as additional stock option grants are
considered.
The weighted average fair value per option granted during 2000, 1999 and 1998
was $7.86, $12.23 and $7.33, respectively, calculated by using the fair value of
each option grant on the date of grant. The fair value of options was calculated
utilizing the Black-Scholes option-pricing model and the following key weighted
average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.33% 5.60% 5.56%
Expected life in years 6.0 6.0 6.0
Expected volatility 39.34% 37.35% 34.16%
Expected dividend yield .64% .42% .38%
</TABLE>
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
OTHER:
The Company has established unfunded deferred compensation plans which cover
certain management and executive personnel. The Company maintains life insurance
policies on the plans' participants. The amounts charged to earnings for these
plans were $.9 million, $1.9 million and $.6 million in 2000, 1999 and 1998,
respectively.
The Company has a survivor benefit plan for the Chairman of the Board of
Director's (the Chairman) spouse, payable upon his death, at a rate of $300,000
annually, adjusted for inflation, for the remaining life of his spouse. The
Company has funded its future obligations under this plan through Company-owned
life insurance policies on the Chairman.
The Company has entered into an agreement with the Chairman providing that the
Chairman will continue to render services to the Company until at least May
2007, and for such further period as may be agreed upon mutually. The Company
has agreed to pay the Chairman an annual amount of $.6 million, adjusted for
inflation, for the remainder of his life. The Chairman has agreed that during
the period in which payments to him are made, as provided in the agreement, he
will not engage in any business competitive with the business conducted by the
Company. Compensation associated with this agreement is charged to expense as
services are provided.
The Company has a survivor benefit plan for the Chief Executive Officer's
spouse, payable upon his death, at a rate of one half of his deferred
compensation benefit, adjusted for inflation, for the remaining life of his
spouse. The Company has funded its future obligations under this plan through
life insurance policies on the Chief Executive Officer.
8. SHAREHOLDERS' EQUITY:
In addition to the shareholders' equity activity described in Note 7, the
following activity has taken place:
STOCK SPLIT:
In February 1999, the Board of Directors approved a three-for-two stock split of
its common stock in the form of a 50 percent stock dividend distributed on March
1, 1999 to shareholders of record on February 15, 1999. All share and per share
amounts have been restated to reflect the stock split.
AUTHORIZED SHARES AND DESIGNATION OF PREFERRED CLASS:
The Company has 50 million shares of capital stock authorized, par value $.05,
of which all outstanding shares, and shares available under the Stock Option
Plan, have been designated as common.
In addition, 250,000 shares of authorized capital stock have been designated as
Series A Junior Participating Preferred Stock (preferred stock). None of the
preferred stock has been issued.
SHAREHOLDERS' RIGHTS PLAN:
The Company has a shareholders' rights plan pursuant to which one preferred
share purchase right is held by shareholders for each outstanding share of
common stock. The rights become exercisable only following the acquisition by a
person or group, without the prior consent of the Board of Directors, of 20
percent or more of the Company's voting stock, or following the announcement of
a tender offer or exchange offer to acquire an interest of 20 percent or more.
If the rights become exercisable, they entitle all holders, except the take-over
bidder, to purchase one one-hundredth of a share of preferred stock at an
exercise price of $120, subject to adjustment, or in lieu of purchasing the
preferred stock, to purchase for the same exercise price common stock of the
Company (or in certain cases common stock of an acquiring company) having a
market value of twice the exercise price of a right.
STOCK REPURCHASE PLAN:
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 June 30, 2000, 115,000 shares have been repurchased for $1.4
million. All repurchased shares are immediately retired. This repurchase program
has no stated expiration date.
9. SEGMENT INFORMATION:
Commencing with its 1999 fiscal year end reporting, the Company adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
standard requires that public companies report financial and descriptive
information about their reportable operating segments, generally based on the
way that management organized the segments within the enterprise for making
operating decisions and assessing performance.
<PAGE> 21
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: domestic salons and international salons. The
Company operates or franchises 5,317 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 352 salons
operating in malls, leading department stores, mass merchants and high-street
locations.
The accounting policies of the reportable segments are the same as those
described in Note 1 to the Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on direct salon
contribution, before supervision and corporate overhead expenses. Intersegment
sales and transfers are not significant.
Summarized financial information concerning the Company's reportable segments is
shown in the following table as of June 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Company-owned revenues:
Domestic $ 984,161 $826,169 $696,303
International 108,568 118,000 118,352
---------- -------- --------
Total $1,092,729 $944,169 $814,655
========== ======== ========
Salon contribution:
Domestic $ 182,698 $151,643 $124,137
International 16,688 17,126 16,332
---------- -------- --------
Total $ 199,386 $168,769 $140,469
========== ======== ========
Depreciation and amortization:
Domestic $ 33,735 $ 27,696 $ 23,108
International 3,097 3,672 3,439
Corporate 16,993 12,983 10,012
---------- -------- --------
Total $ 53,825 $ 44,351 $ 36,559
========== ======== ========
Total assets:
Domestic $ 456,316 $372,956 $274,192
International 14,470 26,208 32,227
Corporate 157,569 101,418 102,314
---------- -------- --------
Total $ 628,355 $500,582 $408,733
========== ======== ========
Long-lived assets:
Domestic $ 402,631 $307,439 $239,423
International 17,538 18,891 23,423
Corporate 49,087 43,578 39,393
---------- -------- --------
Total $ 469,256 $369,908 $302,239
========== ======== ========
Capital expenditures:
Domestic $ 48,944 $ 50,445 $ 38,180
International 4,015 4,326 3,728
Corporate 27,973 12,478 16,819
---------- -------- --------
Total $ 80,932 $ 67,249 $ 58,727
========== ======== ========
Purchases of salon assets:
Domestic $ 66,798 $ 50,866 $ 24,837
International 151
---------- -------- --------
Total $ 66,798 $ 51,017 $ 24,837
========== ======== ========
</TABLE>
In addition to the Company-owned revenues detailed in the table above, the
Company also recorded franchise income of $50.3 million, $47.7 million and $46.0
million, respectively, as part of consolidated revenues. The expenses associated
with the Company's franchising activities are included in selling, general and
administrative and other operating expenses within the Consolidated Statement of
Operations, as described in Note 1 to the Consolidated Financial Statements.
Corporate assets detailed above are primarily comprised of fixed assets
associated with the Company's headquarters and distribution centers, corporate
cash, inventories located at corporate distribution centers, deferred income
taxes, franchise receivables and other corporate assets.
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. NONRECURRING ITEMS:
Nonrecurring items included in operating income consist of gains or losses on
assets and business dispositions and other items of a nonrecurring nature. The
following table summarizes nonrecurring items recorded by the Company:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merger transaction costs (Note 3) $3,145 $ 2,066
Change in estimate (Note 2) (548)
Severance 343
Restructuring charge-International 5,616
Restructuring charge-Mergers (Note 3) 4,356
Year 2000 remediation 4,095
Loss on divestiture of Anasazi business and assets $1,979
------ ------- ------
$2,940 $16,133 $1,979
====== ======= ======
</TABLE>
During the fourth quarter of fiscal 2000, the Company evaluated the outstanding
merger and restructuring accruals and determined that an adjustment of $.5
million to the Restructuring charge-Mergers was appropriate based on remaining
expected expenditures.
During the fourth quarter of fiscal 1999, the Company's Board of Directors
approved a restructuring plan associated with its International operations
headquartered in the United Kingdom. This plan includes relocating the
headquarters out of London to Coventry, England with the majority of the
accounting and information technology functions transferring to the Company's
corporate headquarters in Minneapolis, Minnesota and divestiture of certain
markets and salons which have been generating negative cash flows.
The restructuring charge related to the plan described above was $5.6 million.
Of the total charge, $1.0 million related to severance payments due to the
elimination of duplicative accounting and information technology functions, $.2
million for legal, professional and other miscellaneous fees, $.3 million for
duplicate rent related to the relocation of operations to Coventry, $.3 million
related to the write-off of assets, primarily at the prior London headquarters,
and $3.8 million related to salon closings and dispositions.
International salons identified for closure or disposition in the restructuring
charge described above contributed $8.0 million in annual revenues with
associated after-tax annualized operating losses of approximately $.9 million.
Approximately $4.4 million and $2.0 million of the nonrecurring items in 1999
and 1998, respectively, are non-cash in nature.
<PAGE> 23
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------ Year
(Dollars in thousands, except per share amounts) September 30 December 31 March 31 June 30 Ended
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Revenues $266,108 $285,855 $288,062 $302,968 $1,142,993
Operating income 23,716 22,902 22,782 27,816 97,216
Net income 12,638 10,807 11,617 14,592 49,654
Net income per diluted share(a) .30 .26 .28 .35 1.19
Dividends declared per share(b) .03 .03 .03 .03 .12
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------ Year
(Dollars in thousands, except per share amounts) September 30 December 31 March 31 June 30 Ended
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Revenues $231,997 $245,265 $249,660 $264,978 $ 991,900
Operating income 17,170 18,923 16,086 13,156 65,335
Net income 9,132 10,127 7,939 5,007 32,205
Net income per diluted share(d) .22 .24 .19 .12 .78(c)
Dividends declared per share(e) .02 .02 .03 .03 .10
</TABLE>
(a) For the quarter ended December 31, 1999 and for the year ended June 30,
2000, exclusive of nonrecurring items (Note 10), net income per diluted
share would have been $.33 and $1.26, respectively.
(b) In addition, Supercuts UK declared dividends of $.4 million during fiscal
year 2000.
(c) The summation of quarterly net income per diluted share does not equate to
the calculation for the full fiscal year as quarterly calculations are
performed on a discrete basis.
(d) For the quarters ended September 30 and December 31, 1998, March 31 and
June 30, 1999 and the full year 1999, exclusive of nonrecurring items (Note
10), net income per diluted share would have been $.24, $.27, $.23, $.32
and $1.05, respectively.
(e) In addition, Supercuts UK declared dividends of $2.8 million during fiscal
year 1999.
STOCK DATA
June 30, 2000
Regis common stock is listed and traded on the Nasdaq National Market(R) under
the symbol "RGIS."
The accompanying table sets forth the high and low closing bid quotations as
reported by Nasdaq for each quarter during the previous two fiscal years. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
As of June 30, 2000, Regis shares were owned by approximately 13,200
shareholders. The common stock price was $12.9375 per share on August 18, 2000.
<TABLE>
<CAPTION>
2000 1999
High Low High Low
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter $21.19 $17.38 $21.00 $15.17
2nd Quarter 22.94 17.00 26.67 17.33
3rd Quarter 18.63 13.69 28.44 23.17
4th Quarter 17.81 10.81 26.88 19.19
</TABLE>
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
Regis Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, changes in shareholders' equity and
comprehensive income and cash flows present fairly, in all material respects,
the consolidated financial position of Regis Corporation at June 30, 2000 and
1999, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended June 30, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 22, 2000
