UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 27, 1996
[ ] 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: 0-24466
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0945858
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Industrial Boulevard NE
Minneapolis, MN 55413
(Address of principal executive offices)
(612) 331-8500
(Registrant's telephone number, including area code)
Check whether the registrant: (1) 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__
On August 8, 1996, the registrant had 1,711,383 outstanding shares of
common stock, $. 10 par value.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings for the Quarter Ended
June 27, 1996 and June 29, 1995
Condensed Consolidated Statements of Financial Position at
June 27, 1996 and September 28, 1995
Condensed Consolidated Statements of Cash Flows for the
Quarter Ended June 27, 1996 and June 29, 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 11 Statement re: computation of earnings per share
Exhibit 27 Financial Data Schedule - For SEC use only
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Third Quarter F1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 27, June 29, June 27, June 29,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Franchise Royalties $ 1,588,490 $ 1,467,498 $ 4,481,948 $ 4,052,134
Franchise Fees 309,299 153,800 919,349 534,550
Company-Owned Salons 850,453 374,803 1,934,769 938,509
Beauty Products & Equipment 2,051,056 1,769,329 6,114,134 5,365,540
Other 113,319 59,879 313,867 133,949
------------ ------------ ------------ ------------
Total Revenues 4,912,617 3,825,309 13,764,067 11,024,682
COSTS & EXPENSES
Franchise Operations
Salaries & Benefits 456,051 373,317 1,362,568 1,110,757
General & Administrative 243,220 222,861 768,532 597,468
------------ ------------ ------------ ------------
Total 699,271 596,178 2,131,100 1,708,225
------------ ------------ ------------ ------------
Company-Owned Salons
Salaries & Benefits 510,638 210,808 1,149,402 515,493
General & Administrative 260,547 113,901 609,649 307,955
Cost of Products & Services 132,097 63,628 298,387 182,651
------------ ------------ ------------ ------------
Total 903,282 388,337 2,057,438 1,006,099
------------ ------------ ------------ ------------
Distribution & General Administration
Salaries & Benefits 674,939 604,835 1,931,364 1,748,346
General & Administrative 574,988 473,085 1,697,128 1,493,026
Cost of Products & Equipment 1,582,130 1,354,878 4,792,456 4,159,826
------------ ------------ ------------ ------------
Total 2,832,057 2,432,798 8,420,948 7,401,198
------------ ------------ ------------ ------------
OPERATING INCOME 478,007 407,996 1,154,581 909,160
OTHER INCOME (EXPENSE)
Interest Income 30,362 21,482 90,537 78,480
Interest Expense (15,903) (9,155) (28,465) (30,307)
Net Gain on Disposal of Assets -- 2,165 31,092 11,253
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 492,466 422,488 1,247,745 968,586
INCOME TAX EXPENSE 207,000 174,000 524,000 397,000
------------ ------------ ------------ ------------
NET INCOME $ 285,466 $ 248,488 $ 723,745 $ 571,586
============ ============ ============ ============
NET INCOME PER SHARE $ 0.16 $ 0.14 $ 0.40 $ 0.33
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,839,056 1,764,494 1,823,638 1,750,785
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements
<TABLE>
<CAPTION>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 27, September 28,
1996 1995
---------- ----------
ASSETS (Unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash $1,463,903 $2,121,310
Trade receivable, less allowance for doubtful
accounts of $345,000 in June 1996 and
$210,000 in September 1995 2,236,449 1,483,065
Notes receivable 149,951 113,699
Inventories held for resale 1,417,340 1,052,984
Prepaid expenses 98,248 36,837
Deferred income taxes 235,000 194,000
---------- ----------
Total current assets 5,600,891 5,001,895
Notes receivable, less current portion and allowance for
doubtful notes of $55,000 in June 1996 and
$35,000 in September 1995 778,788 481,583
Property, equipment and leasehold impovements, at cost:
Equipment 2,014,853 1,602,181
Leasehold improvements 867,796 903,822
---------- ----------
2,882,649 2,506,003
Less accumulated depreciation 1,909,522 1,764,896
---------- ----------
Net property, equipment and leasehold improvements 973,127 741,107
Investment in franchise contracts, less accumulated
amortization of $204,271 in June 1996 and
$159,038 in September 1995 738,631 753,688
Deferred income taxes 335,000 316,000
Other assets 212,705 287,454
---------- ----------
Total assets $8,639,142 $7,581,727
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes Payable $ 500,000 $ --
Current maturities of long-term debt and capital
lease obligations 90,129 96,965
Accounts payable 785,826 838,109
Deferred franchise fees 124,250 212,977
Committed advertising 493,564 751,795
Accrued compensation and related payroll taxes 641,327 635,323
Other accrued expenses 324,655 185,456
Income taxes payable 28,211 42,836
---------- ----------
Total current liabilities 2,987,962 2,763,461
Long term debt and capital lease obligations 75,000 142,924
Deferred franchise fees 277,500 269,000
Deferred compensation 191,967 119,022
Shareholders' equity:
Common stock 171,138 169,257
Additional paid in capital 455,257 361,490
Retained earnings 4,480,318 3,756,573
---------- ----------
Total shareholder's equity 5,106,713 4,287,320
---------- ----------
Total liabilities and shareholders' equity $8,639,142 $7,581,727
========== ==========
</TABLE>
Note 1: The balance sheet at September 28, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Certain 1995 items have been reclassified to
conform with the 1996 presentation.
See notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 27, June 29,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 723,745 $ 571,586
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 267,500 257,587
Provision for losses on accounts and notes receivable 204,646 110,000
Gain on sales of property and equipment (31,092) (916)
Deferred income taxes (60,000) 50,000
Stock compensation and exercise of options 56,198 9,135
Stock awarded to Franchisees under the Designer Salon Program 39,450 28,121
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts and notes receivable (1,196,487) (650,151)
Inventories held for resale (364,356) (260,993)
Prepaid expenses (61,411) (79,756)
Other assets (21,276) 8,970
(Decrease) increase in:
Payables and accrued expenses (92,366) (478,250)
Deferred franchise fees (80,227) 99,159
Income taxes payable (14,625) (149,275)
----------- -----------
Net cash provided by (used in) operating activities (630,301) (484,783)
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 35,880 4,205
Capital expenditures (458,049) (241,053)
Investment in franchise contracts (30,177) (38,195)
Payments received on notes receivable from related parties -- 126,373
----------- -----------
Net cash provided by (used in) investing activities (452,346) (148,670)
FINANCING ACTIVITIES
Line of Credit 500,000 0
Principle payments on long-term debt (56,250) (444,651)
Principle payments on capital lease obligations (18,510) (94,222)
Net sale (purchase) of Company stock -- 12,339
----------- -----------
Net cash provided by (used in) financing activities 425,240 (526,534)
----------- -----------
Net increase (decrease) in cash and cash equivalents (657,407) (1,159,987)
Cash and cash equivalents at beginning of period 2,121,310 1,673,980
----------- -----------
Cash and cash equivalents at end of period $ 1,463,903 $ 513,993
=========== ===========
CASH PAID DURING PERIOD FOR:
Interest $ 28,465 $ 30,307
Taxes $ 598,625 $ 496,275
</TABLE>
See notes to condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring accruals) considered necessary for a fair
presentation of results have been included. Operating results for the three
months ended June 27, 1996, are not necessarily indicative of the results that
may be expected for the year ended September 26, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report for the fiscal year ended September 28, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is in the business of franchising two different hair care
salon concepts that provide hair care products for men, women, and children.
Most franchises do business under the names "Cost Cutters Family Hair Care(R)"
("Cost Cutters") and "City Looks Salons International(R)" ("City Looks"). The
Company also has a limited number of franchises operating under the names "The
Barbers, Hairstyling for Men & Women(R)", "Family Haircut Stores" and "The Hair
Performers". The Company currently sells only franchises in Cost Cutters and
City Looks.
The Company had 768 franchised and company-owned salons in operation as
of June 27, 1996, compared to 680 at June 29, 1995. The Company primarily earns
revenue through its franchise operations from initial franchise fees, franchise
royalties, and sales of beauty products and equipment to the franchisees.
The Company operates on a 52/53 week year basis. The fiscal years 1996
and 1995 include 52 weeks of operations.
RESULTS OF OPERATIONS
REVENUES: The Company's total revenues were $4,912,617 for the third quarter of
fiscal 1996 and $13,764,067 for the first nine months of fiscal 1996, an
increase of 28.4% and 24.8% respectively over the comparable periods of the
previous year. Franchise royalties totaled $1,588,490 for the third quarter of
fiscal 1996 which is an increase of 8.2% over the third quarter of the previous
year. Franchise royalties for the first nine months increased 10.6% to
$4,481,948 versus the comparable period of the previous year. The increase in
franchise royalties was due to an increase in average per store sales by
franchised salons as well as an increase in the number of salons in operation in
the first nine months of fiscal 1996 as compared to the same period of fiscal
1995. Franchise fee revenue (initial franchise fees) was $309,299 during the
third quarter of fiscal 1996, an increase of 101.1% versus the third quarter of
fiscal 1996. Excluding salon relocations, the company opened 27 franchised
salons, including three in France, and three company-owned salons in the third
quarter of fiscal 1996 compared to opening 15 franchised salons and one
company-owned salon during the third quarter of the previous year. Year to date
the franchise fee revenue has increased $384,799 or 72.0% over the prior year
comparable period to $919,349. This represents openings of 78 franchised
locations and eight company-owned salons versus 51 franchised locations and
three company-owned salons for the first nine months of the previous year.
Revenue from company-owned salons was $850,453 for the third quarter and
$1,934,769 for the first nine months of fiscal 1996, an increase of 126.9% and
106.2% respectively over the comparable periods of the previous year. The
increase in revenue from company-owned salons is due primarily to the addition
of new company-owned salons. Beauty product and equipment sales for the third
quarter of fiscal 1996 were $2,051,056, an increase of $281,727 or 15.9% over
the third quarter of the previous year. Year to date revenue from beauty
products and equipment was $6,114,134, an increase of 14.0% over the first nine
months of the previous year. The increase in beauty product and equipment sales
was attributable to the success of the Company's product marketing programs and
an increase in the number of salons.
COSTS & EXPENSES - FRANCHISE OPERATIONS: Total franchise operations expenses
were $699,271 for the third quarter and $2,131,100 for the first nine months of
fiscal 1996. This was an increase of 17.3% and 24.8% respectively over the
comparable periods of fiscal 1995. The year-to-date operating expenses include
the travel and meeting costs for a franchisee convention held in the first
quarter of fiscal 1996; there were no convention costs in the previous year. In
addition, there were increases in sales commissions on new salon openings,
growth in the field staff to service new salons, and general salary increases
averaging about 4.0%.
COSTS & EXPENSES - COMPANY-OWNED SALONS: The Company presently owns and operates
18 salons: 17 operate as Cost Cutters salons and one operates as a City Looks.
During the first nine months of fiscal 1996, the Company sold one salon that had
operated under the name The Barbers, Hairstyling for Men & Women. Seven of the
Cost Cutters salons were opened in the later half of fiscal 1995; eight of the
Cost Cutters salons were opened in the first nine months of fiscal 1996, and one
salon was reaquired from a franchisee during fiscal 1996. Most of these new
salons operate inside Wal-Mart Supercenters. Third quarter operating costs for
the company-owned salons were $903,282 as compared to $388,337 for the third
quarter of the previous year, an increase of 132.6%. Year to date operating
costs were $2,057,438 versus $1,006,099 for the comparable period of the
previous year. The increase was primarily due to the addition of the new Cost
Cutters salons.
COSTS & EXPENSES - DISTRIBUTION AND GENERAL ADMINISTRATION: Total operating
expenses for distribution and general administration for the third quarter of
fiscal 1996 were $2,832,057 which is an increase of $399,259 or 16.4% over the
third quarter of the prior year. Expenses for the first nine months of fiscal
1996 were $8,420,948 as compared to $7,401,198 in fiscal 1995, an increase of
13.8%. Most of this increase was due to increased cost of products and equipment
sold, which corresponds to the increase in sales of products and equipment. The
third quarter cost of products and equipment sold was $1,582,130 versus a prior
year cost of $1,354,878, an increase of 16.8%. Year to date costs of products
and equipment were $4,792,456 versus $4,159,826 the previous year, an increase
of 15.2%. Margins on the sale of products and equipment were 22.9% and 21.6% for
the third quarter and first nine months respectively. This compares with 23.4%
and 22.5% for the same periods of the previous year. The decline in margins is
primarily to due to changes in product mix. Salaries and benefits were $674,939
and $1,931,364 for the third quarter and first nine months of fiscal 1996. This
compares with $604,835 and $1,748,346 for the comparable periods of the previous
year and represents an increase of 11.6% and 10.5% respectively. The increase
was due to increases in staff size, increases in the employee incentive plan as
a result of increased profits, as well as an average increase in salaries of
4.0%. General and administrative expenses for the third quarter increased 21.5%
to $574,988. Year to date general and administrative expenses increased by
$204,102 or 13.7% over the previous year to $1,697,128.
OPERATING INCOME: Operating income was $478,007 for the third quarter and
$1,154,581 for the first nine months of fiscal 1996. This compares to $407,996
and $909,160 for the comparable periods of the prior year, an increase of 17.2%
and 27.0% respectively. Operating income as a percent of revenue was 9.7% for
the third quarter and 8.4% for the first nine months of fiscal 1996. This
compares to 10.7% and 8.2% for the comparable periods of the previous fiscal
year.
INTEREST INCOME AND EXPENSE: Interest income was $30,362 for the third quarter
and $90,537 for the first nine months of fiscal 1996, an increase versus the
previous year of 41.3% and 15.4% respectively. Interest expense was $15,903 for
the third quarter and $28,465 for the first nine months of fiscal 1996. This
compares to $9,155 and $30,307 for the comparable periods of fiscal 1995.
NET GAIN ON DISPOSAL OF ASSETS: Gains on the disposal of assets during the third
quarter as well as the comparable periods of the previous year were minimal.
During the first quarter of fiscal 1996, the Company sold one company-owned
salon, one rental property, and miscellaneous assets. The Company recorded a net
gain on disposal of these assets of $31,017.
INCOME TAXES: The Company's effective tax rate for the third quarter and first
nine months of fiscal 1996 was 42.0% versus a rate of 41.2% for the third
quarter and 41.0% for the first nine months of fiscal 1995. The increase was
largely attributable to increases in state and local taxes. The Company
anticipates that the rate for the balance of fiscal 1996 will be approximately
42%.
NET INCOME: The Company's net income for the third quarter of 1996 was $285,466
or $.16 per share. This was an increase of $36,978 or 14.9% over the third
quarter of fiscal 1995 net income and an increase of $.02 per share. Net income
for the first nine months of fiscal 1996 was up 26.6% to $723,745. Earnings per
share for the first nine months were $.40 per share as compared to $.33 for the
previous year.
LIQUIDITY AND CAPITAL RESOURCES: The Company has generally been able to finance
the expansion of its business from current cash on hand, cash generated from
operations, and the Company's line of credit. The Company expects capital
expenditures during fiscal 1996 to be approximately $500,000, primarily due to
the addition of several new company-owned salons and routine replacement of
office equipment.
The Company currently has a line of credit in the amount of $1,000,000 which
carries an interest rate of .50% over the bank's prime rate which expires April
30, 1997. As of June 27, 1996, the Company had drawn $500,000 on this line. In
addition, the Company also has a term loan with this same lender. The interest
rate on this loan is .75% over the bank's prime rate. The balance on the loan as
of the end of the third quarter of fiscal 1996 was $150,000. All other long term
debt represents capital leases.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of June 27, 1996, the Company was not a party to any material litigation and
is not aware of any threatened litigation that would have a material adverse
effect upon its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit
Number Description
11 Statement re: computation of earnings per share
27 Financial Data Schedule - For SEC use only
(b) The Company did not file any reports on Form 8-K during the three months
ended June 27, 1996.
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 thereunto duly authorized.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Registrant)
Date: August 8, 1996 By: /s/ Frederick A. Huggins
-------------------------
Frederick A. Huggins
President
By: /s/ J. Brent Hanson
J. Brent Hanson
Chief Financial Officer
<TABLE>
<CAPTION>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
Three Months Ended Nine Months Ended
June 27, June 29, June 27, June 29,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE:
Average shares outstanding 1,701,473 1,690,199 1,696,619 1,685,345
Neteffect of dilutive stock options and
warrants -- based on the treasury stock
method using average market price 137,583 74,295 127,019 65,440
---------- ---------- ---------- ----------
Total 1,839,056 1,764,494 1,823,638 1,750,785
========== ========== ========== ==========
Net income $ 285,466 $ 248,488 $ 723,745 $ 571,586
========== ========== ========== ==========
Net income per share of Common
Stock $ 0.16 $ 0.14 $ 0.40 $ 0.33
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements for the Third Quarter of Fiscal 1996 contained in
the Company's report on Form 10-QSB and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-26-1996
<PERIOD-START> SEP-29-1995
<PERIOD-END> JUN-27-1996
<CASH> 1,463,903
<SECURITIES> 0
<RECEIVABLES> 2,731,400
<ALLOWANCES> 345,000
<INVENTORY> 1,417,340
<CURRENT-ASSETS> 5,600,891
<PP&E> 2,882,649
<DEPRECIATION> 1,909,522
<TOTAL-ASSETS> 8,639,142
<CURRENT-LIABILITIES> 2,987,962
<BONDS> 0
0
0
<COMMON> 171,138
<OTHER-SE> 4,935,575
<TOTAL-LIABILITY-AND-EQUITY> 8,639,142
<SALES> 6,114,134
<TOTAL-REVENUES> 13,764,067
<CGS> 4,792,456
<TOTAL-COSTS> 6,849,894
<OTHER-EXPENSES> 5,759,592
<LOSS-PROVISION> 204,646
<INTEREST-EXPENSE> 28,465
<INCOME-PRETAX> 1,247,745
<INCOME-TAX> 524,000
<INCOME-CONTINUING> 723,745
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 723,745
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
