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 September 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
October 31, 1996 was 14,519,760
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Page
No.
Item 1. Financial Statements:
Consolidated Statements of Income - Three month periods
ended September 30, 1996 and 1995 (unaudited) 3
Consolidated Statements of Income -- Nine month periods
ended September 30, 1996 and 1995 (unaudited) 4
Consolidated Balance Sheets -- September 30, 1996 and 1995
(unaudited) and December 31, 1995 5
Consolidated Statements of Cash Flows -- Nine month periods
ended September 30, 1996 and 1995 (unaudited) 7
Consolidated Statement of Shareholders' Equity-
Interim period ended September 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 6. Exhibits and Report on Form 8-K
- -----------
Note: Items 1 through 5 of Part II are omitted because they are not applicable.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BAREFOOT INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
(unaudited)
REVENUES:
Customer service revenues $ 36,949,497 $ 35,243,489
Franchise fees and royalty income 701,676 709,243
------------ ------------
Total revenues 37,651,173 35,952,732
------------ ------------
COSTS AND EXPENSES:
Costs of services provided 12,485,062 11,595,958
General and administrative 7,098,351 6,902,949
Marketing 4,659,454 4,337,199
Amortization of intangibles 558,308 562,644
------------ ------------
Total costs and expenses 24,801,175 23,398,750
------------ ------------
INCOME BEFORE INTEREST AND
INCOME TAXES 12,849,998 12,553,982
Interest expense (268,897) (252,752)
Interest income 82,033 161,101
------------ ------------
INCOME BEFORE INCOME TAXES 12,663,134 12,462,331
Income tax expense 4,535,000 4,859,000
------------ ------------
NET INCOME $ 8,128,134 $ 7,603,331
------------ ------------
EARNINGS PER COMMON SHARE $ .56 $ .50
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 14,530,000 15,309,000
------------ ------------
<PAGE>
BAREFOOT INC.
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
(unaudited)
REVENUES:
Customer service revenues $ 81,912,338 $ 80,033,056
Franchise fees and royalty income 1,514,645 1,466,955
------------ ------------
Total revenues 83,426,983 81,500,011
------------ ------------
COSTS AND EXPENSES:
Costs of services provided 32,109,206 30,023,695
General and administrative 20,645,490 20,144,156
Marketing 9,658,909 8,941,700
Amortization of intangibles 1,630,007 1,664,558
------------ ------------
Total costs and expenses 64,043,612 60,774,109
------------ ------------
INCOME BEFORE INTEREST AND
INCOME TAXES 19,383,371 20,725,902
Interest expense (825,510) (806,586)
Interest income 274,309 600,238
------------ ------------
INCOME BEFORE INCOME TAXES 18,832,170 20,519,554
Income tax expense 6,636,000 8,039,600
------------ ------------
NET INCOME $ 12,196,170 $ 12,479,954
------------ ------------
EARNINGS PER COMMON SHARE $ .83 $ .79
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 14,646,000 15,896,000
------------ ------------
<PAGE>
BAREFOOT INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
------ ------ ------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,218,304 $ 8,538,281 $10,877,039
Short-term investments 1,580,624 1,533,884 1,536,333
Receivables--
Customers, less allowance for
doubtful accounts of $2,137,000,
$1,919,000 and $1,516,000
respectively 12,508,342 12,299,054 5,371,272
Franchises 2,087,153 1,779,972 1,277,715
Branchises 1,222,142 815,324 856,680
Other 768,957 1,187,389 864,976
Refundable income taxes -- 333,000 --
Supplies 1,608,426 1,354,004 1,058,119
Prepaid advertising costs 4,885,264 6,957,000 --
Prepaid expenses 855,105 1,051,738 1,861,656
Deferred taxes -- 1,196,000 1,157,000
----------- ----------- -----------
Total current assets 30,734,317 37,045,646 24,860,790
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and
amortization of $19,741,000,
$15,681,900 and $16,684,000
respectively 13,164,200 11,793,990 10,977,754
OTHER ASSETS
Intangible assets, net of
accumulated amortization
of $9,244,300, $7,429,000,
and $8,002,000, respectively 31,909,152 27,996,419 27,500,732
Deferred tax assets 2,954,000 -- 1,361,000
Other receivables 1,524,684 1,552,629 1,221,096
Deposits 334,415 299,735 306,967
----------- ----------- -----------
Total other assets 36,722,251 29,848,783 30,389,795
----------- ----------- -----------
Total assets $80,620,768 $78,688,419 $66,228,339
----------- ----------- -----------
(Continued on next page)
<PAGE>
BAREFOOT INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
------ ------ ------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion, long-term debt $ 1,050,000 $ 1,060,000 $ 950,000
Current portion, capital lease
obligations 3,114,306 3,535,663 3,084,777
Customer prepayments 3,854,874 4,157,572 4,089,776
Accrued taxes payable 6,397,760 5,545,000 5,739,500
Accounts payable 4,383,860 4,656,107 2,674,143
Accrued compensation and
payroll taxes 2,054,996 1,917,782 1,602,500
Other accrued expenses 2,089,747 1,195,062 723,024
Deferred taxes 2,106,000 -- --
------------ ------------ ------------
Total current liabilities 25,051,543 22,067,186 18,863,720
------------ ------------ ------------
DEFERRED TAXES -- 1,877,500 --
CAPITAL LEASE OBLIGATIONS 8,603,335 6,673,205 6,319,410
LONG-TERM DEBT 1,736,619 2,204,516 1,900,000
------------ ------------ ------------
Total liabilities 35,391,497 32,822,407 27,083,130
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock - 5,000,000
shares authorized,
$.01 par value -- -- --
Series A Junior Participating
Preferred Stock, 400,000
shares authorized, per value
$.01 per share -- -- --
Common Stock - 40,000,000 shares
authorized, $.01 par value,
shares issued - 16,796,760
16,771,760 and 16,776,260
respectively; shares out-
standing - 14,519,760,
15,187,760 and 14,855,260,
respectively 167,968 167,717 167,763
Additional paid-in capital 50,040,069 49,876,100 49,892,555
Treasury stock, at cost (26,868,009) (18,972,000) (22,801,634)
Excess purchase price (5,285,649) (5,285,649) (5,285,649)
Retained earnings 27,174,892 20,079,844 17,172,174
------------ ------------ ------------
Total shareholders' equity 45,229,271 45,866,012 39,145,209
Total liabilities and share- ------------ ------------ ------------
holders' equity $ 80,620,768 $ 78,688,419 $ 66,228,339
------------ ------------ ------------
<PAGE>
BAREFOOT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------ ------
(unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 12,196,170 $ 12,479,954
Adjustments to reconcile net income
to net cash used in operating
activities--
Deferred tax provision 2,602,495 502,000
Depreciation and amortization 4,689,192 4,402,532
Provision for uncollected
customer receivables 1,231,657 1,164,733
Notes receivable collected 223,455 176,093
Franchise fees (150,000) (211,000)
Changes in certain assets and
liabilities--
(Increase) decrease in assets -
Investments (44,291) 8,262,684
Receivables (9,795,269) (13,180,925)
Supplies (475,476) (290,397)
Prepaid expenses (3,878,713) (4,830,054)
Other assets (27,448) (47,431)
Refundable income taxes -- 1,500,000
Increase (decrease) in liabilities-
Customer prepayments (1,086,975) (487,463)
Accounts payable 1,709,717 119,468
Accrued taxes payable 658,260 4,065,994
Accrued expenses 1,597,769 1,941,998
------------ ------------
Net cash provided by operating
activities 9,450,543 15,568,186
------------ ------------
(Continued on next page)
<PAGE>
BAREFOOT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------ ------
(unaudited)
CASH FLOW FROM INVESTING ACTIVITIES:
Cash paid for acquired assets,
net of cash obtained $ (5,261,510) $ (630,769)
Proceeds from investment in
direct financing leases and
notes receivable 343,907 215,065
Capital expenditures (661,519) (578,015)
------------ ------------
Net cash used in investing
activities (5,579,122) (993,719)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid (2,193,452) (1,719,406)
Treasury stock purchased (4,066,375) (18,972,000)
Stock option exercises 147,719 28,011
Term loan debt payments (630,699) (692,151)
Capital lease principal payments (2,787,349) (2,637,665)
------------ ------------
Net cash used in financing
activities (9,530,156) (23,993,211)
------------ ------------
Net decrease in cash (5,658,735) (9,418,744)
------------ ------------
CASH AND CASH EQUIVALENTS, beginning
of period 10,877,039 17,957,025
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 5,218,304 $ 8,538,281
------------ ------------
Supplemental disclosure of cash flows
information:
Interest paid during the period $ 826,000 $ 807,000
Taxes paid during the period $ 3,376,000 $ 5,163,000
<PAGE>
<TABLE>
BAREFOOT INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(unaudited)
DECEMBER 31, OPTIONS SHARES DIVIDENDS NET SEPT 30,
1995 EXERCISED REPURCHASED PAID INCOME 1996
<S> <C> <C> <C> <C> <C> <C>
COMMON SHARES
ISSUED 16,776,260 20,500 -- -- -- 16,796,760
------------ -------- ----------- ----------- ----------- ------------
TREASURY SHARES 1,921,000 -- 356,000 -- -- 2,277,000
------------ -------- ----------- ----------- ----------- ------------
PREFERRED STOCK $ -- $ -- $ -- $ -- $ -- $ --
JUNIOR PARTICIPATING
PREFERRED -- -- -- -- -- --
COMMON STOCK 167,763 205 -- -- -- 167,968
ADDITIONAL PAID-IN
CAPITAL 49,892,555 147,514 -- -- -- 50,040,069
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 -- -- (2,193,452) 12,196,170 27,174,892
------------ -------- ----------- ----------- ----------- ------------
TOTAL SHAREHOLDERS'
EQUITY $ 39,145,209 $147,719 $(4,066,375) $(2,193,452) $12,196,170 $ 45,229,271
------------ -------- ----------- ----------- ----------- ------------
</TABLE>
<PAGE>
BAREFOOT INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Unaudited Interim Consolidated Financial Statements
The accompanying interim consolidated financial statements as of
September 30, 1996 and September 30, 1995 and for the three-month and
nine-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.
<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
and nine-month periods ended September 30, 1996 and 1995, respectively.
Percentage Increase
(Decrease)
Percentage of Three Months
Total Revenue (1) Ended
Three Months Ended September 30,
September 30, 1996
vs
1996 1995 1995
------ ------ ------
% % %
------ ------ ------
Customer service revenues 98.1 98.0 4.8
Franchise fee & royalty income 1.9 2.0 (1.1)
----- -----
Total revenues 100.0 100.0 4.7
----- -----
Costs of services provided 33.8 32.9 7.7
General and administrative 18.9 19.2 2.8
Marketing 12.6 12.3 7.4
Amortization of intangibles 1.5 1.6 (.8)
Total costs and expenses 65.9 65.1 6.0
----- -----
Income before interest and
income taxes 34.1 34.9 2.4
----- -----
Interest expense (.7) (.7) 6.4
Interest income .2 .5 (49.1)
----- -----
Income before income taxes 33.6 34.7 1.6
Income taxes 12.0 13.5 6.7
----- -----
Net income 21.6 21.2 6.9
----- -----
<PAGE>
Percentage Increase
(Decrease)
Percentage of Nine Months
Total Revenue (1) Ended
Nine Months Ended September 30,
September 30, 1996
vs
1996 1995 1995
------ ------ ------
% % %
------ ------ ------
Customer service revenues 98.2 98.2 2.3
Franchise fee & royalty income 1.8 1.8 3.3
----- -----
Total revenues 100.0 100.0 2.4
----- -----
Costs of services provided 39.2 37.5 6.9
General and administrative 24.8 24.7 2.5
Marketing 11.8 11.2 8.0
Amortization of intangibles 2.0 2.0 (2.1)
Total costs and expenses 76.8 74.6 5.4
----- -----
Income before interest and
income taxes 23.2 25.4 (6.5)
----- -----
Interest expense (1.0) (1.0) 2.3
Interest income .3 .8 (54.3)
----- -----
Income before income taxes 22.5 25.2 (8.2)
Income taxes 7.9 9.9 (17.5)
----- -----
Net income 14.6 15.3 (2.3)
----- -----
1) Costs of services provided and marketing expenses are expressed as
percentages of customer service revenues.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES
Customer service revenues increased 4.8% to $36,950,000 for the three
months ended September 30, 1996 from $35,243,000 for the three months ended
September 30, 1995. Revenues from Hydro Lawn, which was acquired on July 15,
1996, accounted for over 50% of the increase between years.
Franchise fees and royalty income declined 1.1% to $702,000 in 1996's
third quarter from $709,000 in 1995's third quarter. The decrease is due to
$61,000 less in initial franchise fees. Royalty income actually increased over
10% between the periods due to growth both in the number of locations open and
service revenues done by the franchisees in the third quarter of 1996.
Cost of services provided increased 7.7% to $12,485,000 in the three
months ended September 30, 1996 from $11,596,000 in the three months ended
September 30, 1995. Costs of services increased as percentage of customer
service revenues between years to 33.8% in the third quarter of 1996 compared
to 32.9% in the third quarter of 19995. Costs of services for Hydro Lawn were
35% of the increase. Higher products costs and increased insecticide usage
during the 1996 quarter were also factors in the increase between years.
<PAGE>
General and administrative expenses increased 2.8% and were down slightly
as a percent of total revenues at 18.9% in the 1996 period and 19.2% in the
1995 period. The modest decrease in general and administrative expenses as a
percentage of revenues reflects moderation of employment related expenses due
to better employee retention in most Barefoot markets.
Marketing expenses were $4,659,000 for the three months ended September
30, 1996 and $4,337,000 for the three months ended September 30, 1995. For
interim reporting purposes the Company defers the costs of its Spring and Fall
marketing campaigns and expenses them over the treating season. The amounts
expensed in the three month periods ended September 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 6.4% to $269,000 in the three months ended
September 30, 1996 from $253,000 in the three months ended September 30, 1995
due to higher capital lease balances for additions to the vehicle fleet.
Interest income declined 49.0% to $82,000 in the third quarter of 1996 from
$161,000 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% rate in the third 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.
Net income rose 6.9% to $8,128,000 for the three months ended September
30, 1996 from $7,603,000 for the three months ended September 30, 1995 on the
4.7% increase in revenues and the decrease in the effective tax rate.
Earnings per share increased to $.56 per share for the three months ended
September 30, 1996 from $.50 per share for the three months ended September
30, 1995. The per share earnings were computed on 14,530,000 weighted average
shares outstanding in the 1996 quarter and 15,309,000 in 1995. The lower
number of shares outstanding in 1996 reflects the repurchase of 2,277,000
shares since April 1, 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES
Customer service revenues increased 2.3% to $81,912,000 for the nine
months ended September 30, 1996 from $80,033,000 for the nine months ended
September 30, 1995. Excluding the July, 1996 Hydro Lawn acquisition, revenues
were essentially flat between years which is in line with the lack of growth
in customers from Spring 1995 to Spring 1996.
Franchise fees and royalty income increased 3.3% to $1,515,000 in the
1996 period from $1,467,000 in the 1995. The increase reflects the added
royalties from seven new franchise locations opened in 1996 and growth in
customer service revenues generated by the franchisees offset by lower initial
franchise fees in 1996.
EXPENSES
Costs of services provided increased 6.9% to $32,109,000 in the nine
months ended September 30, 1996 from $30,024,000 in the nine months ended
September 30, 1995. Costs of services increased as a percentage of customer
<PAGE>
service revenues to 39.2% in 1996 compared to 37.5% in 1995. The increase in
costs of services was primarily from the weather causing lower productivity on
treatments in the first six months of 1996, 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. 1996 costs were also affected by higher
product costs.
General and administrative expenses increased 2.5% and were up only
slightly to 24.8% of total revenues in the 1996 period from 24.7% in the prior
year period. 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 $9,659,000 for the nine months ended September
30, 1996 and $8,942,000 for the nine months ended September 30, 1995, an 8.0%
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 nine month periods ended September 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 2.3% to $826,000 in the nine months ended
September 30, 1996 from $807,000 in the nine months ended September 30, 1995
due to the higher capital lease balances for additions to the vehicle fleet.
Interest income declined over 54.0% to $274,000 in the first nine months of
1996 from $600,000 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 35.2% rate in 1996 versus 39%
in prior years. The lower tax rate is due to tax benefits recorded in the
second and third quarters of 1996. The effective tax rate for the entire 1996
year is expected to be approximately 36%.
Primarily as a result of the flat lawn care revenues and lower
productivity due to the weather, net income declined to $12,196,000 in the
1996 period from $12,480,000 in the 1995 period, a 2.3% decrease.
Earnings per share increased to $.83 per share for the nine months ended
September 30, 1996 from $.79 per share for the nine months ended September 30,
1995. The per share earnings were computed on 14,646,000 weighted average
shares outstanding in the 1996 period and 15,896,000 in 1995. The lower number
of shares outstanding in 1996 reflects the repurchase of 2,227,000 shares in
1995 and 1996.
QUARTERLY RESULTS
The following table sets forth certain unaudited operating results of
each of the eleven consecutive quarters in the period ended September 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.
<PAGE>
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 $37,651
Costs of services provided 7,031 12,593 12,485
Net income (loss) (3,230) 7,298 8,128
Earnings (loss) per share $ (.22) $ .50 $ .56
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.
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
<PAGE>
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 nine months ended September 30, 1996 Barefoot generated
$9,450,000 of cash from operations. Cash provided by operations in the nine
months ended September 30, 1995 was $15,568,000. The liquidation of
investments to repurchase shares added over $8,262,000 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 $2,217,000 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 $2,787,000 in the nine months ended September
30, 1996 compared to $2,638,000 in the nine months ended September 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.
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, long-term deferred payments and new
capital leases.
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 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.
<PAGE>
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.
For a two week period following the Hydro Lawn 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. Starting in the second quarter the effective tax rate was reduced
to 36% 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%. The lower tax rate does not affect the actual
taxes payable in 1996 and beyond.
DIVIDENDS AND SHARE REPURCHASES
On March 15, 1996, June 14, 1996 and September 16, 1996 the Company paid
$.05 per share dividends. On October 23, 1996 Barefoot's Board of Directors
declared a $.05 per share dividend payable on December 16, 1996 to
shareholders of record on December 2, 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.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
None
(b) Exhibits
11 Computation of Earnings per Common and Common Equivalent Share
27 Financial Data Schedule
<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
November 6, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page #
- -------------- --------------- --------
11 Computation of Earnings per Common and 21
Common Equivalent Share
27 Financial Data Schedule 22
EXHIBIT 11
<TABLE>
BAREFOOT INC.
COMPUTATION OF EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET INCOME $ 8,128,134 $ 7,603,331 $12,196,170 $12,479,954
----------- ----------- ----------- -----------
SHARES:
Weighted average number of shares
outstanding during the period 14,511,586 15,229,717 14,616,681 15,811,635
Shares issuable upon the exercise of
stock options less shares
repurchasable from the proceeds 18,395 78,733 29,079 83,975
----------- ----------- ----------- -----------
Common and common equivalent
shares outstanding 14,529,981 15,308,450 14,645,760 15,895,610
----------- ----------- ----------- -----------
EARNINGS PER COMMON
SHARE $ .56 $ .50 $ .83 $ .79
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,218
<SECURITIES> 1,581
<RECEIVABLES> 18,723
<ALLOWANCES> 2,137
<INVENTORY> 1,608
<CURRENT-ASSETS> 30,734
<PP&E> 32,905
<DEPRECIATION> 19,741
<TOTAL-ASSETS> 80,621
<CURRENT-LIABILITIES> 25,052
<BONDS> 0
0
0
<COMMON> 168
<OTHER-SE> 45,061
<TOTAL-LIABILITY-AND-EQUITY> 80,621
<SALES> 0
<TOTAL-REVENUES> 83,427
<CGS> 0
<TOTAL-COSTS> 64,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 826
<INCOME-PRETAX> 18,832
<INCOME-TAX> 6,636
<INCOME-CONTINUING> 12,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,196
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
