SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19602
BAREFOOT INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1265715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 W. Wilson Bridge Road, Suite 160 43085
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 846-1800
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No ___
The number of shares of registrant's only class of Common Stock
outstanding on July 31, 1996 was 14,508,760
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<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Page
No.
Item 1. Financial Statements:
Consolidated Statements of Income - Three-month periods
ended June 30, 1996 and 1995 (unaudited) ........................ 3
Consolidated Income Statements -- Six month periods
ended June 30, 1996 and 1995 (unaudited) ........................ 4
Consolidated Balance Sheets -- June 30, 1996 and 1995
(unaudited) and December 31, 1995 ............................... 5
Consolidated Statements of Cash Flows -- Six month periods
ended June 30, 1996 and 1995 (unaudited) ........................ 7
Consolidated Statement of Changes in Shareholders' Equity-
Six-month period ended June 30, 1996 (unaudited) ................ 9
Notes to Consolidated Financial Statements (unaudited) ..........10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................11
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders .............18
Item 6. Exhibits and Reports on Form 8-K ................................18
- -----------
Note: Items 1 through 3 and Item 5 of Part II are omitted because they
are not applicable.
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<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BAREFOOT INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
JUNE 30,
1996 1995
---- ----
(unaudited)
REVENUES:
Customer service revenues ............... $ 35,611,725 $ 35,424,071
Franchise fees and royalty income ....... 583,312 538,451
------------ ------------
Total revenues ...................... 36,195,037 35,962,522
------------ ------------
COSTS AND EXPENSES:
Costs of services provided .............. 12,593,188 12,139,893
General and administrative .............. 7,170,651 6,879,084
Marketing ............................... 4,177,238 3,803,676
Amortization of intangibles ............. 541,477 560,144
------------ ------------
Total costs and expenses ............ 24,482,554 23,382,797
------------ ------------
INCOME BEFORE INTEREST AND
INCOME TAXES ............................... 11,712,483 12,579,725
Interest expense ........................ (310,865) (292,429)
Interest income ......................... 80,974 162,069
------------ ------------
INCOME BEFORE INCOME TAXES ................. 11,482,592 12,449,365
Income tax expense ...................... 4,185,000 4,869,000
------------ ------------
NET INCOME ................................. $7,297,592 $ 7,580,365
------------ ------------
EARNINGS PER COMMON SHARE .................. $ .50 $ .49
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ................................ 14,600,000 15,602,000
------------ ------------
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<PAGE>
BAREFOOT INC.
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED
JUNE 30,
1996 1995
---- ----
(unaudited)
REVENUES:
Customer service revenues ............... $ 44,962,841 $ 44,789,567
Franchise fees and royalty income ....... 812,969 757,712
------------ ------------
Total revenues ...................... 45,775,810 45,547,279
------------ ------------
COSTS AND EXPENSES:
Costs of services provided .............. 19,624,144 18,427,737
General and administrative .............. 13,547,139 13,241,207
Marketing ............................... 4,999,455 4,604,501
Amortization of intangibles ............. 1,071,699 1,101,914
------------ ------------
Total costs and expenses ............ 39,242,437 37,375,359
------------ ------------
INCOME BEFORE INTEREST AND
INCOME TAXES ............................... 6,533,373 8,171,920
Interest expense ........................ (556,613) (553,834)
Interest income ......................... 192,276 439,137
------------ ------------
INCOME BEFORE INCOME TAXES ................. 6,169,036 8,057,223
Income tax expense ...................... 2,101,000 3,180,600
------------ ------------
NET INCOME ................................. $4,068,036 $ 4,876,623
------------ ------------
EARNINGS PER COMMON SHARE .................. $ .28 $ .30
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ................................ 14,704,000 16,195,000
------------ ------------
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<PAGE>
BAREFOOT INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
JUNE 30, DECEMBER 31,
1996 1995 1995
---- ---- ----
(unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................. $ 4,723,949 $ 8,259,674 $10,877,039
Short-term investments .................... 1,563,022 1,470,000 1,536,333
Receivables--
Customers, less allowance for
doubtful accounts of $1,995,000,
$1,908,000 and $1,516,000 respectively . 12,496,751 10,578,300 5,371,272
Franchises ............................. 2,084,552 1,828,071 1,277,715
Branchises ............................. 1,244,211 866,871 856,680
Other 981,426 .......................... 1,204,308 864,976
Refundable income taxes ................ -- 333,000 --
Supplies 1,907,400 ........................ 1,356,575 1,058,119
Prepaid advertising costs ................. 7,484,831 8,925,524 --
Prepaid expenses .......................... 1,424,217 1,590,924 1,861,656
Deferred taxes ............................ -- 1,196,000 1,157,000
----------- ----------- -----------
Total current assets ................... 33,910,359 37,609,247 24,860,790
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and
amortization of $18,692,000, $14,691,500
and $16,684,000 respectively ........... 13,507,459 12,319,244 10,977,754
OTHER ASSETS
Intangible assets, net of accumulated
amortization of $8,740,800, $6,866,700,
and $8,002,000, respectively ........... 27,140,669 27,664,098 27,500,732
Deferred tax assets ....................... 2,550,000 -- 1,361,000
Other receivables ......................... 1,596,336 1,448,584 1,221,096
Deposits .................................. 316,277 299,109 306,967
----------- ----------- -----------
Total other assets ..................... 31,603,282 29,411,791 30,389,795
----------- ----------- -----------
Total assets ........................... $79,021,100 $79,340,282 $66,228,339
----------- ----------- -----------
</TABLE>
(Continued on next page)
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<PAGE>
<TABLE>
BAREFOOT INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995 1995
---- ---- ----
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES
Current portion, long-term debt .............. $ 989,166 $ 1,001,770 $ 950,000
Current portion, capital lease
obligations .............................. 3,114,306 3,147,080 3,084,777
Customer prepayments ......................... 10,967,136 10,232,287 4,089,776
Accrued taxes payable ........................ 4,192,090 4,915,600 5,739,500
Accounts payable ............................. 6,022,891 5,321,894 2,674,143
Accrued compensation and payroll taxes ....... 1,285,908 1,402,980 1,602,500
Other accrued expenses ....................... 1,651,915 976,254 723,024
Deferred taxes ............................... -- -- --
----------- ------------ ------------
Total current liabilities ................ 28,223,412 26,997,865 18,863,720
----------- ------------ ------------
DEFERRED TAXES ............................... 2,106,000 1,877,500 --
CAPITAL LEASE OBLIGATIONS .................... 9,209,912 7,755,927 6,319,410
LONG-TERM DEBT ............................... 1,742,467 2,691,673 1,900,000
----------- ------------ ------------
Total liabilities ........................ 41,281,791 39,322,965 27,083,130
----------- ------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock - 5,000,000 shares
authorized, $.01 par value ............... -- -- --
Common Stock - 40,000,000 shares
authorized, $.01 par value,
shares issued-16,785,760
16,771,760 and 16,776,260 respectively;
shares outstanding - 14,508,760
15,271,660 and 14,855,260, respectively .. 167,855 167,717 167,763
Additional paid-in capital ................... 49,957,916 49,876,100 49,892,555
Treasury stock, at cost ...................... (26,868,009) (17,825,875) (22,801,634)
Excess purchase price ........................ (5,285,649) (5,285,649) (5,285,649)
Retained earnings ............................ 19,767,196 13,085,024 17,172,174
------------ ------------ ------------
Total shareholders' equity ............... 37,739,309 40,017,317 39,145,209
------------ ------------ ------------
Total liabilities and shareholders' equity $ 79,021,100 $ 79,340,282 $ 66,228,339
------------ ------------ ------------
</TABLE>
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<PAGE>
BAREFOOT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
SIX MONTHS ENDED
JUNE 30,
1996 1995
---- ----
(unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income .............................................. $ 4,068,036 $ 4,876,623
Adjustments to reconcile net loss
to net cash used in operating
activities--
Deferred tax provision ............................ 3,006,500 502,000
Depreciation and amortization ..................... 3,080,463 2,851,196
Provision for uncollected customer receivables .... 536,693 784,013
Notes receivable collected ........................ 214,867 188,859
Changes in certain assets and liabilities--
(Increase) decrease in assets -
Investments .................................. (26,689) 8,326,568
Receivables .................................. (9,416,464) (9,829,931)
Supplies ..................................... (822,290) (304,651)
Prepaid expenses ............................. (7,047,392) (7,337,764)
Other assets ................................. (9,315) (42,382)
Increase (decrease) in liabilities--
Customer prepayments ......................... 6,783,118 5,587,252
Accounts payable ............................. 3,170,660 3,535,691
Accrued income taxes ......................... (1,547,410) 3,436,594
Accrued expenses ............................. 612,299 1,207,495
----------- ------------
Net cash provided by operating activities 2,603,076 13,772,701
----------- ------------
</TABLE>
(Continued on next page)
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<PAGE>
BAREFOOT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(consolidated)
<TABLE>
SIX MONTHS ENDED
JUNE 30,
1996 1995
---- -----
(unaudited)
CASH FLOW FROM INVESTING ACTIVITIES:
<S> <C> <C>
Cash paid for acquired assets,
net of cash obtained ................................ (1,207,423) (2,413,957)
Proceeds from investment in direct financing leases and
notes receivable .................................... 231,776 177,415
Capital expenditures .................................. (326,208) (342,946)
------------ ------------
Net cash used in investing activities ..... (1,301,855) (2,579,488)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid ........................................ (1,473,014) (1,110,895)
Treasury stock purchased .............................. (4,066,375) (17,825,875)
Stock option exercises ................................ 65,453 28,011
Term loan debt payments ............................... (157,935) (183,224)
Capital lease principal payments ...................... (1,822,440) (1,798,581)
------------ ------------
Net cash used in financing activities ...... (7,454,311) (20,890,564)
------------ ------------
Net decrease in cash ...................... (6,153,090) (9,697,351)
------------ ------------
CASH AND CASH EQUIVALENTS, beginning of
period ................................................ 10,877,039 17,957,025
------------ ------------
CASH AND CASH EQUIVALENTS, end of period .............. $ 4,723,949 $ 8,259,674
------------ ------------
Supplemental disclosure of cash flows
information:
Interest paid during the period ..................... $ 556,000 $ 554,000
Taxes paid during the period ........................ $ 249,000 $ 933,400
</TABLE>
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<PAGE>
<TABLE>
BAREFOOT INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(unaudited)
DECEMBER 31, OPTIONS SHARES DIVIDENDS NET MARCH 31,
1995 EXERCISED REPURCHASED PAID INCOME 1996
<S> <C> <C> <C> <C> <C> <C>
COMMON SHARES
ISSUED ...................... 16,776,260 9,500 -- -- -- 16,785,760
---------- ----- ----------- ----------- ---------- ----------
TREASURY SHARES ............. 1,921,000 -- 356,000 -- -- 2,277,000
---------- ------- ----------- ----------- ---------- ---------
PREFERRED STOCK ............. $ -- $ -- $ -- $ -- $ --
COMMON STOCK ................ 167,763 92 -- -- -- $ 167,855
ADDITIONAL PAID-IN
CAPITAL ..................... 49,892,555 65,361 -- -- -- 49,957,916
TREASURY STOCK .............. (22,801,634) -- (4,066,375) -- -- (26,868,009)
EXCESS PURCHASE
PRICE ....................... (5,285,649) -- -- -- -- (5,285,649)
RETAINED EARNINGS ........... 17,172,174 -- -- (1,473,014) 4,068,036 19,767,196
---------- ------- ----------- ---------- --------- ----------
TOTAL SHAREHOLDERS'
EQUITY ...................... $ 39,145,209 $65,453 $(4,066,375) $(1,473,014) $4,068,036 $ 37,739,309
------------ ------- ----------- ----------- ---------- ------------
</TABLE>
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<PAGE>
BAREFOOT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- Unaudited Interim Consolidated Financial Statements
The accompanying interim consolidated financial statements as of June 30,
1996 and June 30, 1995 and for the three-month and six-month periods then
ended are unaudited. However, in the opinion of management, these interim
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position,
results of operations and cash flows of Barefoot Inc. and subsidiaries
("Barefoot" or the "Company"). These financial statements should be read in
conjunction with the audited financial statements contained in Barefoot's
Transition Report on Form 10-K for the nine month period ended December 31,
1995.
Note 2 - Prepaid Advertising Costs
Barefoot's accounting policy for marketing expenses for interim reporting
purposes is to defer the expenses when incurred and expense these costs over
the treating season. The Company's business is highly seasonal and much of the
marketing expenses are incurred in the first quarter when revenues are lowest.
The revenues generated by the customers signed up from the marketing campaigns
occur over the entire season, generally March through November. Accordingly
the related marketing costs are expensed over that same period. For annual
financial reporting purposes the Company has adopted SOP 93-7 "Reporting on
Advertising Costs" and expenses all marketing costs which are not direct
response advertising costs in the year incurred.
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Barefoot provides lawn care service through periodic applications of
fertilizer and as-needed applications of weed and insect controls. Barefoot
also offers its lawn care customers additional service options including tree
and shrub care, lawn aeration, liming and seeding. Barefoot also generates
franchise fee and royalty income from its franchise system.
To assist in understanding Barefoot's operating results, the following
tables indicates the percentage relationships of various items of income and
expense included in the Consolidated Statements of Income for the three-month
period and six-month periods ended June 30, 1996 and 1995, respectively.
<TABLE>
Percentage Increase
(Decrease)
Three Months
Three Months Ended
Ended June 30, June 30,
($000's) 1996
1996 1995 vs
$ %(1) $ %(1) 1995
--- ------ --- ------ -----------
<S> <C> <C> <C> <C> <C>
Customer service revenues ............ $ 35,612 98.4 $ 35,424 98.5 .7
Franchise fee & royalty income ....... 583 1.6 539 1.5 6.8
-------- ------- -------- ------- ------
Total revenues .................. 36,195 100.0 35,963 100.0 .5
-------- ------- -------- ------- ------
Costs of services provided12,593 ..... 35.4 12,140 34.3 3.7
General and administrative7,171 ...... 19.8 6,879 19.1 4.2
Marketing ............................ 4,177 11.7 3,804 10.7 9.8
Amortization of intangibles .......... 541 1.5 560 1.6 (3.3)
-------- ------- -------- ------- ------
Total costs and expenses ........ 24,482 67.6 23,383 65.0 4.7
-------- ------- -------- ------- ------
Income before interest and income
taxes ......................... 11,713 32.4 12,580 35.0 (6.9)
-------- ------- -------- ------- ------
Interest expense ..................... (311) (.9) (292) (.8) 6.3
Interest income ...................... 81 .2 161 .5 (50.0)
-------- ------- -------- ------- ------
Income before income taxes ...... 11,483 31.7 12,449 34.7 (7.8)
Income taxes ......................... 4,185 11.5 4,869 13.6 14.0
-------- ------- -------- ------- ------
Net income ...................... $ 7,298 20.2 $ 7,580 21.1 (3.7)
-------- ------- -------- ------- ------
</TABLE>
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<PAGE>
<TABLE>
Percentage Increase
(Decrease)
Six Months
Six Months Ended
Ended June 30, June 30,
($000's) 1996
1996 1995 vs
$ %(1) $ %(1) 1995
--- ------ --- ------ ------------
<S> <C> <C> <C> <C> <C>
Customer service revenues ............ $ 44,693 98.2 $ 44,790 98.3 .4
Franchise fee & royalty income ....... 813 1.8 758 1. 7.3
--- --- --- --
Total revenues .................. 45,776 100.0 45,548 100.0 .5
------ ----- ------ -----
Costs of services provided ........... 19,624 43.7 18,428 41.1 6.5
General and administrative ........... 13,547 29.6 13,241 29.1 2.3
Marketing ............................ 4,999 11.1 4,605 10.3 8.6
Amortization of intangibles .......... 1,072 2.4 1,102 2.4 (2.7)
----- --- ----- ---
Total costs and expenses ........ 39,242 85.7 37,376 82.1 5.0
------ ---- ------ ----
Income before interest and income
taxes ......................... 6,534 14.3 8,172 17.9 (20.1)
----- ---- ----- ----
Interest expense ..................... (557) (1.2) (554) (1.2) .5
Interest income ...................... 192 .4 439 1.0 (56.2)
--- -- --- ---
Income before income taxes ...... 6,169 13.5 8,057 17.7 (23.4)
Income taxes ......................... 2,101 4.6 3,180 7.0 (33.9)
----- --- ----- --- -----
Net income ...................... $ 4,068 8.9 $ 4,877 10.7 (16.6)
-------- --- -------- ---- -----
</TABLE>
(1) Costs of services provided and marketing expenses are expressed as
percentages of customer service revenues.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995
REVENUES
Customer service revenues increased .7% to $35,612,000 for the three
months ended June 30, 1996 from $35,424,000 for the three months ended June
30, 1995. Cool wet weather during April and May reduced treatment revenues for
the quarter. Lawn care, tree shrub, extra services and interior plant revenues
were all essentially flat with the prior year quarter.
Franchise fees and royalty income increased 6.8% to $583,000 in 1996's
second quarter from $538,000 in 1995's second quarter. The increase reflects
the added royalties from seven new franchise locations opened in 1996.
EXPENSES
Costs of services provided increased 3.7% to $12,593,000 in the three
months ended June 30, 1996 from $12,140,000 in the three months ended June 30,
1995. Costs of services increased as a percentage of customer service revenues
between years to 35.4% in the second quarter of 1996 compared to 34.3% in the
second quarter of 1995. The increase in costs of services was at an acceptable
level given the weather difficulties encountered during the first two months
of the quarter.
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<PAGE>
General and administrative expenses increased 4.2% and were up slightly
as a percent of total revenues at 19.8% in the 1996 period and 19.1% in the
1995 period. The modest increase in general and administrative expenses
reflects moderation of employment related expenses due to better employee
retention in most Barefoot markets.
Marketing expenses were $4,177,000 for the three months ended June 30,
1996 and $3,804,000 for the three months ended June 30, 1995. For interim
reporting purposes the Company defers the costs of its Spring marketing
campaign and expenses them over the treating season. The amounts expensed in
the three month periods ended June 30, 1996 and 1995 were in proportion to the
revenues recognized in the periods compared to total expected revenues for the
seasons.
Interest expense increased 6.3% to $311,000 in the three months ended
June 30, 1996 from $292,000 in the three months ended June 30, 1995 due to
higher capital lease balances for additions to the vehicle fleet offset by the
lower balance on the Lawnmark acquisition note. Interest income declined 56.0%
to $81,000 in the second three months of 1996 from $162,000 for the same
period in 1995 due to lower cash balances available for investment in 1996
following the repurchase of nearly 2,277,000 shares of Barefoot Inc. common
stock in 1995 and thus far in 1996.
Income taxes were provided at an effective 36.5% rate in the second
quarter of 1996 versus 39% in prior years. The lower tax rate will be in
effect for 1996 due to changes to the values of tax benefits recorded in prior
years.
Primarily as a result of the flat customer service revenues and higher
expenses offset by a lower tax provision, net income declined to $7,298,000 in
1996's second quarter from $7,580,000 in the second quarter of 1995, a 3.7%
decrease.
Earnings per share increased to $.50 per share for the three months
ended June 30, 1996 from $.49 per share for the three months ended June 30,
1995. The per share earnings were computed on 14,600,000 weighted average
shares outstanding in the 1996 quarter and 15,602,000 in 1995. The lower
number of shares outstanding in 1996 reflects the repurchase of 2,277,000
shares in 1995 and 1996.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
REVENUES
Customer service revenues increased .4% to $44,963,000 for the six
months ended June 30, 1996 from $44,790,000 for the six months ended June 30,
1995. Cold and snow in many of Barefoot's larger markets in March 1996
followed by cool wet weather in April and May hampered treating efforts during
the first half of the year. Revenues from the interior plant business which
was acquired March 31, 1995 were nearly $560,000 in 1996's first quarter.
Thus, customer service revenues from lawn care and tree/shrub operations
actually declined slightly between the periods due to the weather.
Franchise fees and royalty income increased 7.3% to $813,000 in 1996's
first half from $758,000 in 1995's first six months. The increase reflects the
added royalties from seven new franchise locations opened in 1996.
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<PAGE>
EXPENSES
Costs of services provided increased 6.5% to $19,624,000 in the six
months ended June 30, 1996 from $18,428,000 in the six months ended June 30,
1995. Costs of services increased as a percentage of customer service revenues
to 43.7% in the first half of 1996 compared to 41.1% in the first half of
1995. The increase in costs of services was primarily from the weather causing
lower productivity on treatments and sales activities and the addition of four
branchise locations and the interior plant business at the end of the first
quarter of 1995. As a result, year-to-date 1996 operating expenses were higher
from the acquisitions in comparison to 1995.
General and administrative expenses increased 2.3% and were up only
slightly to 29.6% of total revenues in the 1996 period from 29.1% in the prior
year first half. Reductions in employment related taxes and fringes in the
1996 period were primarily responsible for offsetting increases from the
greater number of locations open in 1996 following the acquisitions on March
31, 1995.
Marketing expenses were $4,999,000 for the six months ended June 30,
1996 and $4,605,000 for the six months ended June 30, 1995, an 8.6% increase.
For interim reporting purposes the Company defers the costs of its marketing
campaigns and expenses them over the treating season. The amounts expensed in
the six month periods ended June 30, 1996 and 1995 were in proportion to the
revenues recognized in the periods compared to total expected revenues for the
seasons. Since revenues were flat between periods, marketing expenses incurred
thus far in 1996 are higher than 1995 due to a greater number of company
locations in 1996 compared to 1995 due to the March 31, 1995 acquisition of
four branchise locations, and higher costs per new sale generated.
Interest expense increased .5% to $557,000 in the six months ended June
30, 1996 from $554,000 in the six months ended June 30, 1995 due to the lower
balance on the Lawnmark acquisition note offset by higher capital lease
balances for addition to the vehicle fleet. Interest income declined over
56.0% to $192,000 in the first six months of 1996 from $439,000 for the same
period in 1995 due to lower cash balances available for investment in 1996
following the repurchase of 2,277,000 shares of Barefoot Inc. common stock in
1995 and thus far in 1996.
Income taxes were provided at an effective 34% rate in the first half
of 1996 versus 39% in prior years. The lower tax rate is due to tax benefits
recorded in the second quarter of 1996. The effective tax rate for the entire
year is expected to be approximately 36%.
Primarily as a result of the flat income lawn care revenues and lower
productivity due to the weather, the net income declined to $4,068,000 in
1996's first half from $4,877,000 in the first six months of 1995, a 16.6%
decrease.
Earnings per share decreased to $.28 per share for the six months ended
June 30, 1996 from $.30 per share for the six months ended June 30, 1995. The
per share earnings were computed on 14,704,000 weighted average shares
outstanding in the 1996 period and 16,195,000 in 1995. The lower number of
shares outstanding in 1996 reflects the repurchase of 2,227,000 shares in 1995
and 1996.
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<PAGE>
QUARTERLY RESULTS
The following table sets forth certain unaudited operating results of
each of the ten consecutive quarters in the period ended June 30, 1996. This
information is unaudited but, in the opinion of management includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations for such periods. This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto.
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(In thousands, except per share amounts)
Year Ended December 31, 1994
Total revenues ................... $ 6,412 $32,676 $33,961 $ 18,735
Costs of services provided ....... 4,847 11,279 10,629 7,849
Net income (loss) ................ (2,611) 6,909 8,010 1,658
Earnings (loss) per share ........ $ (.16) $ .41 $ .48 $ .10
Year Ended December 31, 1995
Total revenues ................... $ 9,585 $35,963 $35,953 $ 21,515
Costs of services provided ....... 6,288 12,140 11,596 10,141
Net income (loss) ................ (2,704) 7,580 7,603 (2,302)
Earnings (loss) per share ........ $ (.16) $ .49 $ .50 $ (.15)
Year Ended December 31, 1996
Total revenues ................... $ 9,581 $36,195
Costs of services provided ....... 7,031 12,593
Net income (loss) ................ (3,230) 7,298
Earnings (loss) per share ........ $ (.22) $ .50
Note: Quarterly per share results may not total to the annual earnings per
share due to changes in shares outstanding and the exclusion of common stock
equivalents in the quarterly periods when losses occur. All dollar amounts
except per share amounts are in thousands.
The Company's results of operations fluctuate on a quarterly basis, with
the total revenues and net income significantly higher in the Company's second
and third quarters (ending June 30 and September 30, respectively).
The Company believes that inflation has not had a material effect on the
results of its operations.
-15-
<PAGE>
Liquidity and Capital Resources
General
Barefoot's lawn care business generates significant cash flow during the
treating season - generally March through November. Cash built up during this
period is used to fund operations during the seasonally slow quarter ending
March 31 which is also when Barefoot incurs advertising costs for the Spring
marketing campaign. Barefoot also collects advance payments (prepayments) from
approximately 15% of its customers in December through April. The prepayment
receipts are important in financing operations during the winter months and
Spring advertising.
The seasonality of Barefoot's business causes wide variance in the
accounts which comprise working capital. In early Spring prepaid expenses and
customer prepayments are at their peaks. Over the treating season these
balances decline while receivables from customers build. By the end of the
calendar year these balances reach their seasonal lows.
Investment in supplies (fertilizers, pesticides, plants, etc.) is not
material to Barefoot's business. Short lead times for delivery of products
allow the Company to minimize its investment in supplies to just what is
needed for the next week or two. This allows the Company to minimize its
investment in warehouse space.
Cash Flows From Operations
For the six months ended June 30, 1996 Barefoot generated $2,603,000 of
cash from operations. Cash provided by operations in the six months ended June
30, 1995 was $13,773,000. The liquidation of investments to repurchase shares
added over $8,326,000 to cash flow from operations in 1995. The normal
seasonal factors discussed above accounted for the remainder of the increase
in cash flow from operations for both periods.
Debt, Acquisitions and Capital Expenditures
Currently Barefoot has $2,691,000 of term debt remaining from the
acquisition of Lawnmark on April 1, 1994. The Lawnmark note bears interest at
the prime rate plus 1% subject to a maximum rate of 9%. Principal payments on
the note of $158,333 each are due only during the months of June through
November. Interest is paid monthly.
Capital leases, primarily for lawn service vehicles, are the only other
significant long-term commitment. Near the end of March 1996 approximately
$4,800,000 was added to capital leases for the vehicles at Company locations,
franchises and branchises.
Capital lease payments were $1,822,000 in the six months ended June 30,
1996 compared to $1,799,000 in the six months ended June 30, 1995.
Capital expenditures, other than vehicle leases, are not material to
Barefoot's business.
Barefoot acquired a lawn care business in January, 1996 for a cash
payment of $561,000. In April, 1996 Barefoot acquired the assets of its
Richmond, VA franchise for total consideration (cash and assumed current
liabilities) of approximately $850,000. In June, 1996 Barefoot acquired its
Ft. Myers, Florida franchise for debt and assumed liabilities of $112,000.
-16-
<PAGE>
In September, 1995 Barefoot increased its $6,000,000 Revolving Credit
Facility to $20,000,000 ("the Facility"). Up to $2,500,000 of the Facility may
be used for letters of credit. Borrowings under the facility bear interest at
the prime rate (8.25% as of July 31, 1996) or at LIBOR plus 125 basis points.
The line of credit is for a three-year period. At the end of the three year
term, borrowings made for nonseasonal purchases may be converted to a
five-year term loan.
The Facility requires approval of acquisitions of businesses for amounts
in excess of $15,000,000 of cash and debt or $25,000,000 of Barefoot Common
Stock and subordinated debt. The Facility's covenants also limit annual
capital expenditures to $7,500,000 and require maintenance of consolidated net
worth of at least $25,000,000. Barefoot believes compliance with the
restrictions contained in the Facility will not hinder its operations or its
ability to acquire lawn care businesses to pay dividends or to repurchase
shares of its stock. No amounts, other than letters of credit for insurance
contracts, were borrowed on the revolving line of credit in the current or
prior year periods.
Hydro Lawn Acquisition and Short-term Borrowing
Effective July 12, 1996 Barefoot acquired the assets of Hydro Lawn, a
lawn care company with operations in the Washington D.C. and Columbia MD metro
areas. Total consideration for the assets was in excess of $5 million
including cash paid, liabilities assumed and new capital leases. For a two
week period following the acquisition Barefoot borrowed on its line of credit.
Maximum borrowings were $1,850,000 at the prime rate. All borrowings were
repaid prior to July 31, 1996.
Income Taxes
Tax benefits from revaluing certain deferred tax assets from prior years
will be recorded in 1996, 1997 and 1998. In the second quarter of 1996
deferred tax assets were increased by $932,000 while net goodwill was reduced
by $932,000. The effective tax rate for the second quarter was reduced to
36.5% from 39%. In 1996, 1997 and 1998 the Company estimates that the
recognition of the additional tax benefits will reduce the annual effective
tax rate to approximately 36%.
Dividends and Share Repurchases
On March 15, 1996 the Company paid a $.05 per share dividend; on June 14,
1996 the Company paid a $.05 per share dividend. On July 25, 1996 Barefoot's
Board of Directors declared a $.05 per share dividend payable on September 16,
1996 to shareholders of record on August 30, 1996.
Between April and December 1995 the Company repurchased 1,921,000 shares
of its Common Stock for a total cost of $22,801,634. In 1996 an additional
356,000 shares were repurchased at a cost of $4,066,375.
The Company is authorized to repurchase up to 723,000 additional shares
of its outstanding Common Stock. The Company will continue to evaluate its
cash position, borrowing capacity, acquisition opportunities and market
valuation in determining if it will acquire any or all of the shares
authorized.
-17-
<PAGE>
PART II OTHER INFORMATION
Item 4.Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Company (the "Annual Meeting")
was held on May 21, 1996. At the close of business on the record date of
April 10, 1996, 14,595,760 common shares were outstanding and entitled to
vote at the Annual meeting. At the Annual Meeting 12,305,352 or 84.3% of
the outstanding common shares entitled to vote were represented in person
or by proxy.
(b) All directors positions were up for election. Directors elected at the
Annual Meeting were:
Donald R. Brattain Patrick J. Norton
Stanley Golder J. Martin Erbaugh
William Griffin
The voting for each director was as follows:
For Withheld
---------- --------
Donald R. Brattain 12,109,065 196,287
J. Martin Erbaugh 11,826,845 478,507
Stanley Golder 12,117,445 187,907
William Griffin 12,117,445 187,907
Patrick J. Norton 11,826,695 478,387
(c) 1. See Item 4(b) for the voting results for directors.
2. Ratify the selection of Arthur Andersen LLP as independent accountants
for the Company for 1996:
For: 12,184,787 Abstain: 7,895
Against: 112,670
3. Ratify amendments to the Amended and Restated Barefoot Inc. 1989 Stock
Option Plan
For: 11,458,713 Abstain: 18,400
Against: 769,068 Broker non vote: 58,901
(d) Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
None
(b) Exhibits
-18-
<PAGE>
11 Computation of Earnings per Common and Common Equivalent Share
27 Financial Data Schedule
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BAREFOOT INC.
/s/ Michael R. Goodrich
_____________________________
Chief Financial Officer and
Authorized Signing Officer
July 31, 1996
-20-
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page #
11 Computation of Earnings per Common and ........ 21
Common Equivalent Share
27 Financial Data Schedule ....................... 22
-21-
EXHIBIT 11
BAREFOOT INC.
COMPUTATION OF EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
<TABLE>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income ............................. $ 7,297,592 $ 7,580,365 $ 4,068,036 $ 4,876,623
SHARES-PRIMARY:
Weighted average number of shares
outstanding during the period .... 14,565,212 15,548,737 14,669,795 16,107,419
Shares issuable upon the exercise of
stock options less shares
repurchasable from the proceeds .. 34,798 53,172 34,480 87,147
Common and common equivalent
shares outstanding ............... 14,600,010 15,601,909 14,704,275 16,194,566
----------- ----------- ----------- -----------
EARNINGS PER SHARE, PRIMARY .......... $ .50 $ .49 $ .28 $ .30
----------- ----------- ----------- -----------
</TABLE>
-22-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,723
<SECURITIES> 1,563
<RECEIVABLES> 18,802
<ALLOWANCES> 1,995
<INVENTORY> 1,907
<CURRENT-ASSETS> 33,910
<PP&E> 32,199
<DEPRECIATION> 18,692
<TOTAL-ASSETS> 79,021
<CURRENT-LIABILITIES> 28,223
<BONDS> 0
0
0
<COMMON> 168
<OTHER-SE> 37,571
<TOTAL-LIABILITY-AND-EQUITY> 79,021
<SALES> 0
<TOTAL-REVENUES> 45,776
<CGS> 0
<TOTAL-COSTS> 39,242
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 557
<INCOME-PRETAX> 6,169
<INCOME-TAX> 2,101
<INCOME-CONTINUING> 4,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,068
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
