UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Amendment No. 1 to
FORM 10-KSB
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 26, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 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, MINNESOTA 55413
(Address and zip code of principal executive offices)
612-331-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 ___.
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the year ended September 26, 1996: $18,565,751
Aggregate market value of Common Stock held by non-affiliates as of
December 20, 1996: $6,581,978
Number of Shares of Common Stock outstanding as of the close of business
December 20, 1996: 2,571,454
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders, January 28, 1997
("Proxy Statement") Part III.
Transitional Small Business Disclosure Format- Yes ___ No __X__.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
A. BUSINESS DEVELOPMENT
GENERAL. The Barbers, Hairstyling for Men & Women, Inc. (the "Company")
is engaged in the business of franchising two different hair care salon concepts
which provide hair care services and products for men, women and children. The
Company also owns and operates 22 salons in the United States. The Company
implements its retail concepts through a nationwide franchise system that the
Company supports with a comprehensive package of centralized services. The
Company primarily earns revenue through its franchise operations from franchise
initial fees, franchise royalties and sales of beauty products, salon equipment
and consumer appliances.
Although the Company currently does business under the names "Cost
Cutters Family Hair Care(R)" ("Cost Cutters"), "City Looks Salons
International(R)" ("City Looks"), "The Barbers(R)" ("The Barbers"), "The
Barbers, Hairstyling for Men & Women(R)", "The Hair Performers(R)" and "Family
Haircut Stores(R)", it sells only Cost Cutters and City Looks franchises. Each
type of franchise is specifically tailored to satisfy a particular market niche.
Cost Cutters franchises provide value-priced hair care services to their
customers. Cost Cutters franchises target price sensitive customers. City Looks
franchises provide full service, high-fashion hair care as well as various
personal grooming and spa services, including facials, manicures, massages and
tanning facilities to customers. City Looks franchises target customers who
place a premium on full service.
The Company's principal executive offices are located at 300 Industrial
Boulevard Northeast, Minneapolis, Minnesota 55413. Its telephone number is (612)
331-8500.
HISTORY. After the Company was incorporated under the laws of Minnesota
on October 1, 1968, it quickly established a chain of company-owned, full
service hairstyling businesses throughout the United States under the name "The
Barbers, Hairstyling for Men". In 1970, the Company began selling franchises for
the operation of hairstyling businesses doing business under the names "The
Barbers" and "The Barbers, Hairstyling for Men & Women". Recognizing the need to
update the market focus and decor of the salons, the Company began selling
franchises for the operation of hairstyling businesses under the name "City
Looks(R) By The Barbers" in 1987 and the Company began to convert the existing
"The Barbers" locations to this business format. This trade name was later
revised to "City Looks(R) Salons" in 1991 and to City Looks Salons
International" in 1993, although some salons continue to operate under the older
names.
The Company began selling franchises for the operation of hairstyling
businesses doing business under the name "Cost Cutters Family Hair Care" in
1982. In 1986, the Company decided to focus principally on doing business as a
franchisor and reduced its number of company-owned stores in the United States
from 69 in 1986 to 3 in 1994. Capitalizing on the opportunity of developing the
Cost Cutters chain within major mass merchandisers, the Company has built 20 new
company-owned stores since 1995. All but one of these new stores are located
within Wal-mart Supercenters.
The Company currently offers for sale two different franchise
businesses, operates 22 company-owned salons in the United States and sells
beauty products, salon equipment and consumer appliances. In addition, the
Company has acquired two franchise systems which were converted into the
Company's primary franchises. See "Material Acquisitions."
MATERIAL ACQUISITIONS. The Company has made two significant
acquisitions which complement its Cost Cutters and City Looks franchises.
THE HAIR PERFORMERS. On April 1, 1992, the Company acquired the
franchise contract rights of certain The Hair Performers salons in exchange for
a $50,000 down payment and conditional future payments based solely on a
percentage of the royalties collected by the Company during the five year
contract period based on ongoing sales of the operating salons which were
acquired, whether or not converted to City Looks salons. Under the terms of the
purchase agreement, the Company is obligated to pay the seller 60 percent of the
first $833,000 of royalties collected, 40 percent of the next $1,250,000 of
royalties collected and 20 percent of royalties collected thereafter from the
date of acquisition through April 1, 1997. The $50,000 down payment is credited
against the amount of the conditional payments due at a rate of $10,000 per year
through 1997. All payments to the seller cease as of April 1, 1997. As of
September 26, 1996, the Company had paid $317,681 to the seller under this
contract. As of September 26, 1996, the Company had converted 12 of The Hair
Performers franchises into City Looks franchises. Three salons chose to remain
operating as The Hair Performers. The Company will continue to collect royalties
from these three salons pursuant to The Hair Performers royalty fee schedule.
FAMILY HAIRCUT STORES. On June 1, 1993, the Company acquired the
franchise contract rights of 22 Family Haircut Store salons in exchange for
$120,000 cash and a note payable of $479,214, payable by the Company to the
seller, Rancar Corporation. As of September 26, 1996, 20 Family Haircut Stores
franchises had been converted into Cost Cutters franchises; one location closed
and one salon chose to remain operating as a Family Haircut Store. The Company
will continue to collect royalties from this salon pursuant to the Family
Haircut Stores royalty fee schedule.
RETAIL STORE OPERATIONS. The Company provides franchise services,
including initial and ongoing operational training, financial analysis services,
advertising and marketing services and sells beauty products, salon equipment
and consumer appliances to a total of 786 salons worldwide. In the revenue
figures below, "system revenue" refers to revenue received at the store level
from retail sales of products and services at all locations, whether franchised
or company-owned, of a particular franchise type (i.e., Cost Cutters or City
Looks). Company revenue refers to all sales of products and services by the
Company directly, including, but not limited to, franchise fees and royalties,
beauty products and equipment as well as revenue generated by the operation of
the company-owned salons. The remaining The Barbers, The Hair Performers, and
the Family Haircut Stores are few in number. As a result, they are treated
substantially similar to City Looks or Cost Cutters franchises. The information
with respect to system revenue and royalty payments to the Company from The
Barbers and The Hair Performers is combined for financial reporting purposes
with that of the City Looks franchise system. The information with respect to
system revenue and royalty payments to the Company from the remaining Family
Haircut Store is combined for financial reporting purposes with that of the Cost
Cutters franchise system.
COST CUTTERS FAMILY HAIR CARE. Cost Cutters franchises provide
value-priced hair care services for men, women and children, with each hair care
service, including cutting, perming and coloring, being offered at a separate
price. In addition, Cost Cutters franchises sell a complete line of hair care
products, merchandise and appliances. The Company created the Cost Cutters
business system to meet the demand for providing the general public with high
quality, value-priced hair care services and products. At the fiscal year ended
September 29, 1994, the Company had 559 franchised and company-owned Cost
Cutters salons producing $109,600,000 in system revenue and $4,263,000 in
royalties paid to the Company. For the fiscal year ended September 28, 1995, the
Company had 626 franchised and company-owned Cost Cutters producing $122,200,000
in system revenue and $4,926,000 in royalties paid to the Company. For the
fiscal year ended September 26, 1996, the Company had 713 franchised and
company-owned Cost Cutters producing $138,100,000 in system revenue and
$5,535,000 in royalties paid to the Company. Cost Cutters franchises operate
throughout the United States.
CITY LOOKS SALONS INTERNATIONAL. City Looks franchises provide men,
women and children with high-fashion, full service hair care including, but not
limited to, cutting, perming, coloring, shampooing, conditioning, hairstyling,
and other hair care services. City Looks franchises also provide spa services
and personal grooming services such as nail care, manicures, make-overs and sell
related products. The Company developed the City Looks business system to meet
the demand for providing the general public with a complete line of high-fashion
hair care services and products. At fiscal year ended September 29, 1994, the
Company had 82 City Looks including company-owned salons producing $20,500,000
in system revenue and $582,000 in royalties paid to the Company. For the year
ended September 28, 1995, the Company had 74 City Looks including company-owned
salons producing $19,900,000 in system revenue and $566,000 in royalties paid to
the Company. For the year ended September 26, 1996, the Company had 73 City
Looks including company-owned salons producing $18,800,000 in system revenue and
$500,000 in royalties paid to the Company. City Looks, The Barbers, and The Hair
Performers franchises operate primarily in the Midwest. City Looks also has 13
franchised locations in France and one franchised location in Russia.
COMPANY-OWNED SALONS. The Company currently owns and operates 21 Cost
Cutters and one City Looks. All of these salons are located in the United
States. The company-owned salons produced $1,025,239 of revenue in fiscal 1994
with three salons, $1,364,164 of revenue in fiscal 1995 with ten salons, and
$2,939,756 of revenue in fiscal 1996 with 22 salons. While recognizing that the
Company is fundamentally a franchising company, the Company intends to
selectively expand its base of company-owned salons, primarily in Wal-Mart
Supercenters and product outlet locations.
BEAUTY PRODUCT AND EQUIPMENT DISTRIBUTION. The Company distributes
beauty products, salon equipment and consumer appliances primarily to its
franchisees. The beauty products, which include shampoos, conditioners and
finishing products, consist of private label and nationally recognized licensed
brands, both of which the Company purchases from third party suppliers. The
Company does not own or operate any product manufacturing or labeling
operations. Private label products are available under the names of Cost Cutters
Family Hair Care(R), City Looks Salons International(R) and The Barbers(R) and
are designed to be sold by the franchise bearing that particular product's name.
The ingredients of the Company's private label products are widely available
from a number of suppliers, and thus, the Company is not dependent upon any one
supplier. The licensed brands available from the Company include Paul
Mitchell(R), Sebastian(R), KMS(R), Joico(R), and Hairpothics(R) by Zotos. Due to
the great diversity of licensed products currently offered to franchisees
through the Company, the Company is not dependent upon any one brand, and
continually reviews and adds to its licensed brand product lines. The
franchisees are required to maintain a minimum inventory of private label
products. Although the franchisees are not required to purchase any national
brand product from the Company, the franchisees may enjoy significant discounts
as a result of the Company's purchasing power. The Company carries $1,000,000 of
product liability insurance with an additional $20,000,000 provided as excess
coverage.
The Company has implemented the "Designer Salon Program" for both the
City Looks and Cost Cutters systems. The purpose of the Designer Salon Program
is to encourage franchisees to purchase beauty products through the Company.
Each salon that participates in the Designer Salon Program is eligible for
additional training, special merchandising kits, and product rebates. The
Company also rewards franchisees for their loyalty based on each franchisee's
historical purchases of beauty products from the Company in relation to the
franchisees retail sales of merchandise. If the franchisee exceeds a minimum
goal, the franchisee receives a rebate on purchases which is paid in shares of
the Company's Common Stock based on the fair market value of the stock at the
fiscal year-end. The Company issued 9,102 shares of Company stock under this
program in fiscal 1995, and issued 9,123 shares in fiscal 1996. The Company will
issue approximately 6,500 shares in fiscal 1997 based on the franchisees' fiscal
1996 purchases.
The Company also sells salon equipment and consumer appliances to
franchisees. Salon equipment available for purchase from the Company includes
everything necessary to equip a franchise store, such as chairs, work stations,
shampoo bowls, store displays and point of sale material. In addition to
franchise store equipment, the Company provides consumer appliances such as blow
dryers, styling combs and curling irons. The consumer appliances are sold to
franchisees, who in turn sell them to their retail customers.
Total revenue from beauty products, salon equipment and consumer
appliances was $5,939,469 in fiscal 1994, $7,137,495 in fiscal 1995, and
$8,018,860 in fiscal 1996.
B. BUSINESS
The Company is engaged in the business of franchising two different
hair care salon concepts which provide hair care services and products for men,
women and children. The Company also owns and operates 21 Cost Cutters Family
Hair Care and one City Looks Salons International. The Company implements its
retail concepts through a nationwide franchise system that the Company supports
with a comprehensive package of centralized services. The Company primarily
earns revenue through its franchise operations from franchise initial fees,
franchise royalties and sales of beauty products, salon equipment and consumer
appliances.
Pursuant to their franchise agreement with the Company, each franchisee
pays an initial fee and ongoing royalty and advertising fees to the Company.
These fees vary depending upon the particular franchise and the age of the
franchise agreement, but are generally as follows: initial fees for the first
franchise location are currently $19,500 for both Cost Cutters and City Looks
franchises; initial fees for each additional franchise location are $12,500 for
both Cost Cutters and City Looks franchises; royalty fees are generally four to
six percent of gross revenues for Cost Cutters franchises and are generally two
to four percent of gross revenues for City Looks franchises; and advertising
fees are generally four to six percent of gross revenues for Cost Cutters
franchises and are generally up to three percent of gross revenues for City
Looks franchises.
FRANCHISING OVERVIEW. Franchising is a method of distributing goods and
services which has experienced rapid growth in recent years. The franchisor
typically develops the business concept and operations systems for the
franchised business. Franchisees are granted rights to use the franchisor's
service marks and must operate their businesses in accordance with the systems,
specifications, standards and formats developed by the franchisor. Virtually all
types of retail businesses are currently franchised, including clothing,
computers and electronics, sporting goods and various specialty retail
businesses.
BUSINESS STRATEGY. The Company's business strategy is to develop
value-oriented retail salon concepts based on a mix of the value-priced hair
care market and the full service, high-fashion hair and body care market and to
implement these concepts through a nationwide franchise system that provides
comprehensive support services to its franchisees. The key elements of this
strategy include:
NICHE MARKET MERCHANDISING. The Company, promoting both Cost Cutters and
City Looks franchises, reaches two distinct market niches. Cost Cutters
provides its customers with high quality services at low, a la carte
prices. Cost Cutters customers may choose from numerous services and
select one or any combination of them. City Looks provides high-fashion,
full service hair and body care and hair and body products as well as
personal grooming services such as nail care, manicures, facials,
massages, tanning facilities and make-overs to customers who prefer full
service hair and body care.
FRANCHISE SUPPORT. The Company provides, pursuant to each franchise
agreement, initial and ongoing operational training, advertising and
marketing services, and financial analysis services to all of its
franchises. In addition, the Company offers a full range of franchise
product services. The Company sells all salon equipment necessary to equip
a franchise store as well as supplying franchise stores with retail
consumer goods, such as beauty and hair care products and appliances.
NATIONAL AND LOCAL ADVERTISING. Pursuant to the franchise agreement, each
franchisee, depending upon the particular franchise and the age of the
franchise agreement, pays up to four percent of their gross sales into an
advertising fund managed by the Company. The Company uses a portion of the
fund to provide market research, production materials, ad slicks,
brochures, radio and television commercials to all franchisees. The
balance of the fund is used for advertising and promotion development for
franchisees. In addition, each franchisee is also required to spend one
percent of its gross sales on local advertising.
CONVENIENT LOCATIONS. The Company's franchises are typically located in
grocery anchored strip shopping centers, regional malls, power shopping
centers (shopping centers which include one grocery store and one major
softgoods store) and inside of major mass merchandisers. This location
strategy insures that each franchise will be easily accessible by a large
number of potential customers.
COMPETITION. The hair care business is highly competitive and
fragmented, with limited barriers to entry. The Company's franchised and
company-owned salons compete with traditional, independent hair care stores,
regional and national chains, regional and national franchises and various other
businesses which offer spa services similar to that of the Company's franchises.
The principal bases of competition in the hair care industry are price,
convenience, quality and name recognition. The Company believes that it competes
favorably in these areas.
EMPLOYEES. As of September 26, 1996, the Company employed 235 people.
The Company employed 75 full-time and 1 part-time employees at its corporate
headquarters and 78 full-time and 81 part-time employees at its company-owned
salons. The Company considers its employee relations to be good. None of the
Company's employees are covered under a collective bargaining agreement.
GOVERNMENTAL REGULATIONS. The Company is subject to various federal,
state and local laws affecting its business as well as a variety of regulatory
provisions relating to zoning of store sites, sanitation, health and safety of
its company-owned salons. The Company must also satisfy various federal and
state franchise laws and regulations. The Company has registered its offering of
franchises with the regulatory authorities of those states in which it offers
franchises and in which such registration is required. Although the Company
believes it is currently in material compliance with existing federal and state
laws, there is a trend toward increased government regulation of franchising.
Eighteen states and the Federal Trade Commission impose pre-sale
franchise registration and/or some type of disclosure or notice of intent
requirement on franchisors. In addition, a number of states and the District of
Columbia have statutes which regulate substantive aspects of the
franchisor-franchisee relationship such as termination, nonrenewal, transfer,
discrimination among franchisees and competition with franchisees.
Additional legislation is currently pending both at the federal and
state levels which could expand pre-sale disclosure requirements, further
regulate substantive aspects of the franchise relationship, and require the
Company to file its franchise offering circular with additional states and the
United States Department of Commerce. The Company cannot predict the effect of
future franchise legislation, but does not believe that legislation currently
under consideration will have a material adverse impact on its operations.
FRANCHISE LOCATIONS AND DEVELOPMENT. As of September 26, 1996, there
were 713 franchised and company-owned Cost Cutters and Family Haircut Store
locations in operation and 73 franchised and company-owned City Looks, The
Barbers and Hair Performers locations in operation. Franchised and company-owned
salons operate in diverse locations throughout the United States; in addition,
thirteen are located in France and one salon operates in Russia.
The Company's growth strategy focuses on development from existing
franchisees. All but five of the new salons opened during fiscal 1996 resulted
from expansion by existing franchisees. The Company signed development
agreements with four new franchisees in fiscal 1996 As of the date of this
report the Company has a total of 798 salons. The Company expects to open a
total of approximately 80 new locations in the United States during fiscal 1997,
of which roughly 30 to 40 will be in Wal-Mart Supercenters.
TRADEMARKS AND SERVICE MARKS. The Company holds numerous trademarks and
service marks registered on the principal register of the United States Patent
and Trademark Office and registered in several foreign countries. The Company
believes that its trademarks and service marks have significant value and are
important to the marketing of Cost Cutters and City Looks franchises. There are
no agreements currently in effect which significantly limit the rights of the
Company to use or license the use of its trademarks, service marks, trade names,
logotypes or other commercial symbols in any manner material to the Company. The
Company has expended considerable resources to insure that its franchise
identity is protected.
ITEM 2. DESCRIPTION OF PROPERTY.
PROPERTIES. The Company does not own any real estate. The Company
creates revenue from franchise related activities and does not anticipate
directing its resources toward investment in real estate nor in equity interests
in those entities which primarily invest in real estate.
The Company's interest in real estate is limited to the lease of its
corporate headquarters, the lease of commercial property for its company-owned
salons and the lease of commercial properties subleased to franchisees.
The Company leases from its Chairman of the Board and major
shareholder, Florence F. Francis, approximately 65,400 square feet of commercial
property for its corporate headquarters. The amount of rent increases each year
and the Company is required to pay real estate taxes and insurance. The lease
will expire on October 31, 1997. The rental payments, including real estate
taxes and insurance, for the corporate headquarters were $385,000 in fiscal
1994, $399,000 in fiscal 1995, and $426,000 in fiscal 1996. The current
corporate headquarters and warehouse space is sufficient to meet the Company's
needs for the remaining lease period. The Company expects to renew this lease
during fiscal 1997 at competitive market rates. The Company subleases 29,100
square feet of its corporate headquarters office space to a third party. As a
result, the Company earned rental income of $88,000 in fiscal 1994, $84,000 in
fiscal 1995, and $101,000 in fiscal 1996. The sublease expires in December 2000.
See Notes 8 and 9 of the Notes to Consolidated Financial Statements, Part II,
Item 7.
The Company leases property of approximately 21,750 square feet from a
third party for use as a parking lot for its corporate headquarters. The lease
will expire September 1, 2000. Rental payments were $13,800 in each of the
fiscal years 1994, 1995, and 1996.
The Company leases commercial property for its 22 company-owned stores.
The Company paid $160,388 for 4,598 square feet in fiscal 1994, $210,051 for
10,473 square feet in fiscal 1995, and $396,381 for 21,344 square feet in fiscal
1996. The leases expire at various times between 1997 and 2002. Most of these
leases are renewable for an additional term of five years. See Note 9 of the
Notes to Consolidated Financial Statements, Part II, item 7.
The Company also leases commercial property for 106 retail stores,
which it subleases to franchisees. The Company is the primary obligor or
guarantor on leases for these salons. Generally, the franchisee personally
guarantees the sublease to the Company. The Company subleases the space to the
franchisees with substantially the same terms as the primary lease. However on
90% of these subleases, the Company receives an upcharge from the franchisee
over and above the amount of rent paid to the landlord. Most of these sublease
agreements call for the Company to pay the landlord and invoice the rent to the
franchisee, although in some circumstances, the franchisee may pay the landlord
directly. The Company is liable for the rent payments on these locations, even
if a franchisee defaults on the payment of rent. The Company incurred a loss of
$24,000 in fiscal 1996 due to a default on a sublease. In 1995 and 1994, there
were no defaults on the subleases. The Company expects that it will be able to
renew its leases on satisfactory terms as they expire. See Note 9 of the Notes
to Consolidated Financial Statements, Part II, item 7.
Total facility lease obligations for the Company, including properties
subleased to franchisees for which the Company is liable if the franchisee
defaults, for fiscal years ending September 1997, 1998, 1999, 2000, and 2001 are
approximately $3,625,000, $3,309,000, $3,157,000, $2,550,000, and $1,162,000
respectively.
ITEM 3. LEGAL PROCEEDINGS.
As of September 26, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security-holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY-HOLDER
MATTERS.
MARKET INFORMATION. The Common Stock of the company is listed on The
Nasdaq National Market(R) and traded under the symbol BBHF. As of December 9,
1996, there were 2,571,454 outstanding shares with 494 shareholders of record
and an estimated 474 beneficial owners whose stock was held in street name at
brokerage firms. Based upon quotes obtained from Dow Jones Trade Line and NASDAQ
(which reflect inter-dealer prices, without retail mark-up, mark-down, or
commissions and may not represent actual transactions), the following table sets
forth for the periods indicated the high ask and low bid prices for the
Company's Common Stock, as adjusted to reflect the 3-for-2 stock split which was
effective October 31, 1996:
High Ask Low Bid
Fiscal Year Ended September 29, 1994
First Quarter $2.33 $1.50
Second Quarter $2.66 $2.00
Third Quarter $3.33 $2.33
Fourth Quarter $3.33 $2.00
Fiscal Year Ended September 28, 1995
First Quarter $3.50 $2.66
Second Quarter $3.50 $2.66
Third Quarter $4.09 $3.00
Fourth Quarter $6.00 $3.42
Fiscal Year Ended September 26, 1996
First Quarter $6.00 $5.00
Second Quarter $6.83 $4.83
Third Quarter $8.67 $5.50
Fourth Quarter $8.33 $5.83
DIVIDENDS. On September 19, 1996, The Company declared a 3-for-2 stock
split effected in the form of a stock dividend to holders of record October 15,
1996 and distributed October 31, 1996. The Company does not pay cash dividends
on its Common Stock. The Company presently intends to retain earnings for
working capital and general corporate purposes and does not have any present
plans to pay cash dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS.
GENERAL. The Company is engaged in the business of franchising two
different hair care salon concepts which provide hair care services and 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"), although the Company also has a limited number
of franchises operating under the names "The Barbers, Hairstyling for Men &
Women(R)", "The Hair Performers(R)" and "Family Haircut Stores(R)". The Company
currently only sells franchises in Cost Cutters and City Looks. Each franchise
is specifically tailored to satisfy a particular market niche. Cost Cutters
franchises provide value priced hair care services to their customers. Cost
Cutters franchises target price sensitive customers. City Looks franchises
provide full service, high-fashion hair care to their customers as well as
various personal grooming and spa services, including facials, manicures,
massages, and tanning facilities. City Looks franchises target customers who
place a premium on full service.
The Company had a total of 786 salons as of September 26, 1996. This
consisted of 764 franchised locations and twenty-two company-owned locations.
The Company primarily earns revenue through its franchise operations from
franchise initial fees, franchise royalties, and sales of beauty products and
equipment to the franchisees.
The Company uses a 52-53 week reporting period. The years ended
September 26, 1996, September 28, 1995, and September 29, 1994, each included 52
weeks of operations.
RESULTS OF OPERATIONS. The following table sets forth the percentage
relationship to total revenues, unless otherwise indicated, of certain items
included in the Company's Consolidated Statements of Income:
<TABLE>
<CAPTION>
September 26, September 28, September 29,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Franchise royalties 32.5% 36.8% 38.9%
Franchise fees 6.4% 5.1% 3.6%
Company-owned salons 15.8% 9.1% 8.2%
Beauty products & equipment 43.2% 47.9% 47.6%
Other 2.1% 1.1% 1.7%
------ ------ ------
Total revenues 100.0% 100.0% 100.0%
COSTS AND EXPENSES:
Franchise operations:
Salaries and benefits 9.6% 10.0% 10.6%
General and administrative 5.1% 5.4% 6.4%
------ ------ ------
14.7% 15.4% 17.0%
Company-owned salons:
Salaries and benefits 9.2% 5.1% 3.7%
General and administrative 5.0% 3.1% 2.8%
Cost of products sold 2.6% 1.8% 1.7%
------ ------ ------
16.8% 10.0% 8.2%
Distribution and general administration:
Salaries and benefits 14.0% 15.6% 16.8%
General and administrative 12.3% 12.9% 14.0%
Cost of products sold 33.2% 37.1% 36.5%
----- ----- -----
59.5% 65.6% 67.3%
OPERATING INCOME 9.0% 9.0% 7.5%
OTHER INCOME (EXPENSE):
Interest income 0.7% 0.7% 0.8%
Interest expense ( 0.2%) ( 0.2%) ( 0.8%)
Net gain on disposal of assets 0.3% 0.0% 0.7%
NET INCOME BEFORE INCOME TAXES 9.8% 9.5% 8.2%
INCOME TAXES 4.1% 3.9% 3.3%
------ ------ ------
NET INCOME 5.7% 5.6% 4.9%
====== ====== ======
</TABLE>
YEAR ENDED SEPTEMBER 26, 1996 COMPARED TO YEAR ENDED SEPTEMBER 28, 1995:
SYSTEM-WIDE REVENUES. System-wide revenues of all salons, franchised and
company-owned, were $156.9 million for fiscal 1996, an increase of $14.8 million
or 10.4% over fiscal 1995. This increase was attributable to the addition of new
stores as well as new promotional programs and service price increases. Same
store sales increased approximately 2.5%. During fiscal year 1996, the Company
opened 115 new salons, including 12 company-owned salons. This compares to 79
new salon openings in fiscal 1995. System-wide there were 786 salons as of
September 26, 1996; this compares to 700 salons as of the end of the prior year.
REVENUES. The Company's total revenues were $18,565,751 for fiscal 1996, an
increase of $3,649,438 or 24.5% over fiscal 1995. Franchise royalties increased
$542,460, or 9.9% which was due to new salon openings and increases in same
store sales. Franchise fees increased by $425,539, or 56.3%, due to the increase
in the number of new salons opened in fiscal 1996 versus fiscal 1995. Revenue
from company-owned salons increased $1,575,592, or 115.5% due to the maturing of
salons built in the previous year and the addition of 12 new company-owned
salons during fiscal 1996. Revenue from beauty products and equipment increased
$881,365 or 12.3% from fiscal 1995. The increases in beauty products and
equipment revenue were attributable to the addition of new salons and volume
increases at existing salons.
COSTS AND EXPENSES - FRANCHISE OPERATIONS. Total expenses of franchise
operations were $2,725,188, an increase of $430,500, or 18.8% over fiscal 1995.
Salaries and benefits for fiscal 1996 were $1,781,787, an increase of $283,974
or 19.0% over fiscal 1995. This increase was due to the growth in field staff to
service the new salons, increased sales commissions on the opening of new salons
and general salary increases which averaged about 4.0%. General and
administrative expenses for fiscal 1996 were $943,401, an increase of $146,526
or 18.4% over fiscal 1995.
COSTS AND EXPENSES - COMPANY-OWNED SALONS. The Company owned and operated 22
salons as of the end of fiscal 1996, including 12 new salons opened during
fiscal 1996. All but one of these new salons are located in Wal-Mart
Supercenters. The Company also bought back one salon from a franchisee and sold
one salon. The total cost of operations for the company-owned salons in fiscal
1996 was $3,124,741, an increase of $1,635,188, or 109.8%. Salaries and benefits
for fiscal 1996 were $1,702,949, an increase of $935,467, or 121.9% from fiscal
1995. Most salon employees are paid on a commission basis against the services
they perform and the retail products they sell. The increase in salaries and
benefits in fiscal 1996 reflects the increase in the number of salons owned as
well as sales increases at the salons built in prior years. General and
administrative expenses in fiscal 1996 were $931,634, an increase of $471,648 or
102.5% from fiscal 1995. This was due to the increase in the number of salons
owned. Costs of products sold in fiscal 1996 were $490,158, an increase of
$228,073, or 87.0% over fiscal 1995. Margins on product sales increased about 3%
due to an increased emphasis on the sale of private label products.
COSTS AND EXPENSES - DISTRIBUTION AND GENERAL ADMINISTRATION. The total
operating expenses for distribution and general administration for fiscal 1996
were $11,043,282, an increase of $1,257,353, or 12.8% from fiscal 1995. Most of
this increase was in the cost of products and equipment sold which was
$6,162,530 in fiscal 1996. This increased $621,952, or 11.2% from fiscal 1995.
Gross margins on the sale of products and equipment were 23.1% in fiscal 1996
compared to 22.4% in fiscal 1995. Salaries and benefits were $2,600,808, an
increase of $280,726, or 12.1% versus fiscal 1995. This increase was due to the
addition of staff in the distribution operation, increases in incentive
compensation for employees and general salary increases which averaged 4.0%.
General and administrative expenses for fiscal 1996 were $2,279,944, an increase
of $354,675, or 18.4% versus fiscal 1995. Included in this amount is a $170,000
increase in bad debt reserves which relates to the increase in notes and
accounts receivable. Also included is a charitable donation of excess inventory
of approximately $82,000.
OPERATING INCOME. Operating income for fiscal 1996 was $1,672,540, a 24.2%
increase over fiscal 1995. Operating income as a percent of sales was 9.0% for
both fiscal 1996 and fiscal 1995.
INTEREST INCOME AND EXPENSE. Interest income for fiscal 1996 was $134,013, an
increase of $32,929, or 32.6% over fiscal 1995. Interest expense for fiscal 1996
was $39,368, an increase of $6,555, or 20.0% from fiscal 1995.
NET GAIN ON DISPOSAL OF ASSETS. The Company recorded a gain on disposal of
assets in fiscal 1996 of $55,169, which was a increase of $45,673 from the
previous year. The gains recorded in fiscal 1996 were due to the sale of one
company-owned salon, one piece of real estate, and miscellaneous assets. The
gains recorded in fiscal 1995 were from the sales of miscellaneous assets.
INCOME TAXES. The Company's effective income tax rate for fiscal 1996 was 42.0%,
this compares to 41.0% for the previous year.
NET INCOME. The Company's net income for fiscal 1996 was $1,057,354, or $.39 per
share. This is an increase of $217,444 or 25.9% over fiscal 1995 net income and
an increase per share of $.07. Earnings per share have been adjusted to reflect
the 3-for-2 stock split which was approved by the Board of Directors on
September 19, 1996.
YEAR ENDED SEPTEMBER 28, 1995 COMPARED TO YEAR ENDED SEPTEMBER 29, 1994:
SYSTEM-WIDE REVENUES. System-wide revenues of all salons, franchised and
company-owned, were $142.1 million for fiscal 1995, an increase of $12.0 million
or 9.2% over fiscal 1994. This increase was attributable to the addition of new
stores as well as new promotional programs and service price increases. Same
store sales increased approximately 3%. During fiscal year 1995, the Company
opened 79 new salons, including seven company-owned salons. This compares to 55
new salon openings in fiscal 1994. System-wide there were 700 salons as of
September 28, 1995; this compares to 641 salons as of the end of the prior year.
REVENUES. The Company's total revenues were $14,916,313 for fiscal 1995, an
increase of $2,451,243 or 19.7% over fiscal 1994. Franchise royalties increased
$647,137, or 13.4% which was due to new salon openings and increases in same
store sales. Franchise fees increased by $305,542, or 67.9%, due to the increase
in the number of new salons opened in fiscal 1995 versus fiscal 1994. Revenue
from company-owned salons increased $338,925, or 33.1% due primarily to the
addition of seven new company-owned salons during fiscal 1995. Revenue from
beauty products and equipment increased $1,198,026 or 20.2% from fiscal 1994.
The increases in beauty products and equipment revenue were attributable to the
addition of new salons and volume increases at existing salons.
COSTS AND EXPENSES - FRANCHISE OPERATIONS. Total expenses of the franchise
operations were $2,294,688, an increase of $175,349, or 8.3% over fiscal 1994.
Salaries and benefits for fiscal 1995 were $1,497,813, an increase of $170,909
or 12.9% over fiscal 1994. This increase was due to the growth in field staff to
service the new salons, increased sales commissions on the opening of new salons
and general salary increases which averaged about 4.0%. General and
administrative expenses for fiscal 1995 were $796,875, an increase of only
$4,440 or .6% over fiscal 1994.
COSTS AND EXPENSES - COMPANY-OWNED SALONS. The Company owned and operated three
salons as of the end of fiscal 1994. The Company built seven new salons during
fiscal 1995; all of these new salons were located in Wal-Mart Supercenters. The
total cost of operations for the company-owned salons in fiscal 1995 was
$1,489,553, an increase of $473,111, or 46.5%. Salaries and benefits for fiscal
1995 were $767,482, an increase of $312,295, or 68.6% from fiscal 1994. Most
salon employees are paid on a commission basis against the services they perform
and the retail products they sell. The increase in salaries and benefits in
fiscal 1995 reflects the increase in the number of salons owned. General and
administrative expenses in fiscal 1995 were $459,986, an increase of $110,651 or
31.7% from fiscal 1994, again this was due to the increase in the number of
salons owned. Costs of products sold in fiscal 1995 were $262,085, an increase
of $50,165, or 23.7% over fiscal 1994. Margins on product sales were consistent
with prior years, the increase in costs of products sold was due to increased
sales volume of retail products at the new salons.
COSTS AND EXPENSES - DISTRIBUTION AND GENERAL ADMINISTRATION. The total
operating expenses for distribution and general administration for fiscal 1995
were $9,785,929, an increase of $1,389,620, or 16.6% from fiscal 1994. Most of
this increase was in the cost of products and equipment sold which was
$5,540,578 in fiscal 1995. This increased $987,889, or 21.7% from fiscal 1994.
Gross margins on the sale of products and equipment were 22.4% in fiscal 1995
compared to 23.3% in fiscal 1994. The margin decrease primarily resulted from a
change in sales mix, with more sales coming from lower margin equipment.
Salaries and benefits were $2,320,082, an increase of $224,025, or 10.7% versus
fiscal 1994. This increase was due to the addition of staff in the distribution
operation, increases in incentive compensation for employees and general salary
increases which averaged 4.0%. General and administrative expenses increased in
the area of professional fees and travel costs. General and administrative
expenses for fiscal 1995 were $1,925,269, an increase of $177,706, or 10.2%
versus fiscal 1994.
OPERATING INCOME. Operating income for fiscal 1995 was $1,346,143, an increase
of $413,163 over fiscal 1994. Operating income as a percentage of revenue
increased to 9.0% versus 7.5% in the previous year. This increase is
attributable to increases in royalty revenues and initial franchise fees due to
system growth.
INTEREST INCOME AND EXPENSE. Interest income for fiscal 1995 was $101,084, an
increase of $1,738, or 1.7% over fiscal 1994. Interest expense for fiscal 1995
was $32,813, a decrease of $65,265, or 66.5% from fiscal 1994. These changes
reflect the net effect of reductions in debt and capital lease obligations and
reductions in the need for short-term borrowings.
NET GAIN ON DISPOSAL OF ASSETS. The Company recorded a gain on disposal of
assets in fiscal 1995 of $9,496, which was a decrease of $83,011 from the
previous year. The gains recorded in fiscal 1995 were primarily due to the sales
of miscellaneous assets. The gains recorded in fiscal 1994 were from the sales
of real estate.
INCOME TAXES. The Company's effective income tax rate for fiscal 1995 was 41.0%,
this compares to 40.4% for the previous year.
NET INCOME. The Company's net income for fiscal 1995 was $839,910, or $.32 per
share. This is an increase of $228,155 or 37.3% over fiscal 1994 net income and
an increase per share of $.08. Earnings per share have been restated to reflect
the 3-for-2 stock split which was approved by the Board of Directors on
September 19, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generally been able to produce adequate amounts of cash from
operations to support the expansion of the business. Cash generated from
operating activities, net of interest expense, totaled $1,056,468, and $993,421
in fiscal years 1995 and 1994 respectively. During fiscal 1996, the Company
invested a portion of its capital to fund accounts receivable and promissory
notes to franchisees' who were developing new salons. This resulted in a net use
of cash by operations of $169,684 for the fiscal year.
Capital expenditures were $576,813, $361,434, and $136,108 in fiscal years 1996,
1995, and 1994 respectively. Capital expenditures for the next year are
anticipated to be about $300,000 to $400,000.
The Company has a bank credit agreement which provides for a maximum line of
credit of $1,000,000. The line bears interest at .5% over the prime lending rate
(8.75% at September 26, 1996), expires April 30, 1997, is secured by accounts
receivable, inventories, general intangibles, and property and equipment, and
requires the Company to maintain certain financial ratios. There are no
compensating balance requirements. As of September 26, 1996, there are no
borrowings against this line of credit. Management believes that the lender will
renew this line of credit for another full year at generally the same terms.
The Company secured a $300,000 four-year term loan with the same lender in
fiscal 1994. The interest rate on the loan is .75% above the prime lending rate.
The loan is payable in monthly installments of $6,250 plus interest, and is
secured by all personal property assets of the Company. The balance remaining on
this loan as of September 26, 1996, was $131,250.
Management believes that cash generated from operating activities, together with
available funds from its operating line of credit or replacement financing will
be sufficient to fund its anticipated operations, capital expenditures and
required debt repayments for the foreseeable future.
FORWARD LOOKING STATEMENTS
The Company anticipates opening 80 new Cost Cutters salons in fiscal 1997,
including 30 to 40 located within Wal-Mart Supercenters. Also included in this
total, the Company plans to open four company-owned salons. Additionally, the
Company expects to open 12 franchised salons in France under the City Looks
Salons International name. The Company also continues to seek and evaluate
opportunities to acquire other operating stores or franchise operations. The
anticipated growth in number of salons coupled with increased sales in existing
salons is expected to provide an increase in system-wide sales to the range of
$170 to $175 million. This in turn should provide for increases in royalty
revenue and company-salon revenues. Beauty products and equipment sales are
expected to increase due to the growth in number of salons, increased sales at
existing salons, and the addition of new product lines. These increases in
revenue should allow the Company to continue to increase its profits and
earnings per share in the range of 20% in fiscal 1997.
The preceding statement and any other statements in this annual report not based
on historical information are forward-looking statements that are based on
management's goals, estimates, assumptions and projections. Important factors
could cause results to differ materially from those expected by management. Some
of these factors are: 1) Increased competition from other hair salon chains in
the consumer marketplace could negatively impact sales volume at both franchised
and company-owned salons. This would reduce royalty revenue from franchised
locations and reduce company-owned salons' revenue and profits. 2) Increased
competition for sites for new salons from other retail concepts, including other
hair salons, could impede the Company's ability to meet its growth objectives.
3) The Company's near-term growth plans in Wal-Mart Supercenters could be
affected by changes in Wal-Mart's marketing or business plans. 4) The inability
to find qualified franchisees for new locations or the inability of franchisees
to finance the creation of new salons could also prevent the Company from
meeting its growth objectives. 5) Although the Company presently has no reason
to believe it will occur, major beauty products vendors could cancel their
distribution agreements with the Company. This would cause reductions in the
sale of beauty products and the loss of those corresponding margins. 6)
Litigation to protect trademarks or enforce franchise agreements is extremely
expensive, even if victorious, and may have a material adverse effect on the
Company's results of operations in any particular period.
Due to factors noted above and elsewhere in this annual report, the Company's
future earnings and Common Stock price may be subject to volatility. Any
shortfall in revenue or earnings from the levels anticipated could have a
significant effect on the trading price of the Company's Common Stock in any
given period.
ITEM 7. FINANCIAL STATEMENTS.
CONSOLIDATED FINANCIAL STATEMENTS
THE BARBERS, HAIRSTYLING FOR
MEN & WOMEN, INC.
YEARS ENDED SEPTEMBER 26, 1996,
SEPTEMBER 28, 1995 AND SEPTEMBER 29, 1994
The Barbers, Hairstyling for Men & Women, Inc.
Consolidated Financial Statements
Years ended September 26, 1996,
September 28, 1995 and September 29, 1994
CONTENTS
Report of Independent Auditors................................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets...................................................2
Consolidated Statements of Income.............................................4
Consolidated Statement of Shareholders' Equity................................5
Consolidated Statements of Cash Flows.........................................6
Notes to Consolidated Financial Statements....................................7
Report of Independent Auditors
The Board of Directors and Shareholders
The Barbers, Hairstyling for Men & Women, Inc.
We have audited the accompanying consolidated balance sheets of The Barbers,
Hairstyling for Men & Women, Inc. at September 26, 1996, September 28, 1995 and
September 29, 1994, and the related consolidated statements of income,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Barbers,
Hairstyling for Men & Women, Inc. at September 26, 1996, September 28, 1995 and
September 29, 1994, and the consolidated results of its operations and its cash
flows for each of the years then ended in conformity with generally accepted
accounting principles.
November 1, 1996
<TABLE>
<CAPTION>
The Barbers, Hairstyling for Men & Women, Inc.
Consolidated Balance Sheets
SEPTEMBER 26, SEPTEMBER 28, SEPTEMBER 29,
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,317,448 $2,121,310 $1,673,980
Trade receivables, less allowance for
doubtful accounts of $315,000 in 1996
and $210,000 in 1995 and 1994 2,163,968 1,483,065 1,256,421
Notes receivable from related parties - - 14,417
Notes receivable 235,206 113,699 196,433
Inventories held for resale 1,199,939 1,052,984 866,738
Prepaid expenses 74,372 36,837 27,448
Deferred income taxes 287,000 194,000 328,000
---------------------------------------------------------
Total current assets 5,277,933 5,001,895 4,363,437
Notes receivable from related parties, less
current portion - - 383,439
Notes receivable, less current portion and
allowance for doubtful notes of $100,000
in 1996 and $35,000 in 1995 and 1994 733,924 481,583 297,449
Equipment and leasehold improvements,
at cost:
Equipment 1,918,682 1,602,181 1,426,064
Leasehold improvements 852,109 903,822 877,635
---------------------------------------------------------
2,770,791 2,506,003 2,303,699
Less accumulated depreciation 1,816,151 1,764,896 1,539,960
---------------------------------------------------------
Net equipment and leasehold improvements 954,640 741,107 763,739
Investment in franchise contracts, less
accumulated amortization of $221,805 in
1996, $159,038 in 1995 and $97,622
in 1994 733,419 753,688 758,506
Deferred income taxes 338,000 316,000 165,000
Other assets 210,287 287,454 169,399
---------------------------------------------------------
Total assets $8,248,203 $7,581,727 $6,900,969
=========================================================
</TABLE>
<TABLE>
<CAPTION>
The Barbers, Hairstyling for Men & Women, Inc.
Consolidated Balance Sheets (continued)
SEPTEMBER 26, SEPTEMBER 28, SEPTEMBER 29,
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 86,675 $ 96,965 $ 301,700
Accounts payable 481,897 838,109 428,114
Deferred franchise fees 113,750 212,977 231,818
Committed advertising 521,208 751,795 735,284
Accrued compensation and related payroll
taxes
741,704 635,323 624,026
Deferred gain on sale of property - - 28,135
Other accrued expenses 287,011 185,456 118,490
Income taxes payable 82,943 42,836 131,452
---------------------------------------------------------
Total current liabilities 2,315,188 2,763,461 2,599,019
Long-term debt and capital lease obligations 56,250 142,924 633,564
Deferred franchise fees 226,000 269,000 188,250
Deferred compensation 204,278 119,022 86,623
Commitments and contingencies
Shareholders' equity:
Common stock, $.10 par value:
Authorized shares - 7,500,000
Issued and outstanding shares -
2,568,274 in 1996, 2,538,826 in 1995
and 2,520,859 in 1994 256,827 253,883 252,087
Additional paid-in capital 375,733 276,864 224,763
Retained earnings 4,813,927 3,756,573 2,916,663
---------------------------------------------------------
Total shareholders' equity 5,446,487 4,287,320 3,393,513
---------------------------------------------------------
Total liabilities and shareholders' equity $8,248,203 $7,581,727 $6,900,969
=========================================================
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
The Barbers, Hairstyling for Men & Women, Inc.
Consolidated Statements of Income
YEAR ENDED
SEPTEMBER 26, SEPTEMBER 28, SEPTEMBER 29,
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Franchise royalties $ 6,034,862 $ 5,492,402 $ 4,845,265
Franchise fees 1,181,239 755,700 450,158
Company-owned salons 2,939,756 1,364,164 1,025,239
Beauty products and equipment 8,018,860 7,137,495 5,939,469
Other 391,034 166,552 204,939
-----------------------------------------------------
Total revenues 18,565,751 14,916,313 12,465,070
Costs and expenses:
Franchise operations:
Salaries and benefits 1,781,787 1,497,813 1,326,904
General and administrative 943,401 796,875 792,435
-----------------------------------------------------
2,725,188 2,294,688 2,119,339
Company-owned salons:
Salaries and benefits 1,702,949 767,482 455,187
General and administrative 931,634 459,986 349,335
Cost of products sold 490,158 262,085 211,920
-----------------------------------------------------
3,124,741 1,489,553 1,016,442
Distribution and general administration:
Salaries and benefits 2,600,808 2,320,082 2,096,057
General and administrative 2,279,944 1,925,269 1,747,563
Cost of products and equipment sold 6,162,530 5,540,578 4,552,689
-----------------------------------------------------
11,043,282 9,785,929 8,396,309
-----------------------------------------------------
Operating income 1,672,540 1,346,143 932,980
Other income (expense):
Interest income 134,013 101,084 99,346
Interest expense (39,368) (32,813) (98,078)
Net gain on disposal of assets 55,169 9,496 92,507
-----------------------------------------------------
Income before income taxes 1,822,354 1,423,910 1,026,755
Income tax expense 765,000 584,000 415,000
-----------------------------------------------------
Net income $ 1,057,354 $ 839,910 $ 611,755
=====================================================
Net income per common share $ .39 $ .32 $ .24
=====================================================
Weighted average number of common shares 2,742,134 2,643,438 2,566,864
=====================================================
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
The Barbers, Hairstyling for Men & Women, Inc.
Consolidated Statement of Shareholders' Equity
ADDITIONAL
NUMBER OF COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 2,518,954 $251,896 $220,684 $2,304,908 $2,777,488
Net income for 1994 - - - 611,755 611,755
Issuance of common stock to outside directors 2,175 218 3,769 - 3,987
Sale of common stock to officer 2,250 225 4,275 - 4,500
Reacquisition and retirement of common stock (10,509) (1,051) (20,246) - (21,297)
Issuance of common stock to participants of
the 401(k) plan 7,989 799 16,281 - 17,080
--------------------------------------------------------------------------------
Balance at September 29, 1994 2,520,859 252,087 224,763 2,916,663 3,393,513
Net income for 1995 - - - 839,910 839,910
Issuance of common stock to outside directors 3,000 300 8,700 - 9,000
Issuance of common stock to employee 45 4 131 - 135
Issuance of common stock under Designer
Salon Program 9,102 910 26,396 - 27,306
Issuance of common stock to participants of
the 401(k) plan 5,820 582 16,874 - 17,456
--------------------------------------------------------------------------------
Balance at September 28, 1995 2,538,826 253,883 276,864 3,756,573 4,287,320
Net income for 1996 - - - 1,057,354 1,057,354
Issuance of common stock to outside directors 2,400 240 11,760 - 12,000
Issuance of common stock to employees 2,925 292 15,781 - 16,073
Issuance of common stock under Designer
Salon Program 9,123 912 44,703 - 45,615
Issuance of common stock under stock option
plan 15,000 1,500 26,625 - 28,125
--------------------------------------------------------------------------------
Balance at September 26, 1996 2,568,274 $256,827 $375,733 $4,813,927 $5,446,487
================================================================================
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
The Barbers, Hairstyling for Men & Women, Inc.
Consolidated Statements of Cash Flows
YEAR ENDED
SEPTEMBER 26, SEPTEMBER 28, SEPTEMBER 29,
1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $1,057,354 $ 839,910 $ 611,755
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 384,158 362,115 379,698
Provision for losses on accounts and notes receivable 232,578 158,157 105,312
Gain on disposal of assets (35,883) (9,496) (92,507)
Deferred income taxes (115,000) (17,000) (65,000)
Stock compensation 28,073 9,135 3,987
Stock awarded to franchisees under the Designer Salon
Program 45,615 27,306 -
Changes in operating assets and liabilities:
Accounts and notes receivable (1,168,529) (610,361) (238,487)
Inventories held for resale (146,955) (186,246) (164,917)
Prepaid expenses (37,535) (9,389) 65,521
Other assets (17,833) (22,030) 88,894
Payables and accrued expenses (293,607) 541,074 378,708
Deferred franchise fees (142,227) 61,909 (144,932)
Income taxes payable 40,107 (88,616) 65,389
----------------------------------------------------
Net cash (used in) provided by operating activities (169,684) 1,056,468 993,421
INVESTING ACTIVITIES
Proceeds from disposal of assets 53,975 7,206 12,500
Capital expenditures (576,813) (361,434) (136,108)
Investment in franchise contracts (42,501) (54,894) (110,015)
Payments received on notes receivable from related parties - 397,856 22,707
----------------------------------------------------
Net cash used in investing activities (565,339) (11,266) (210,916)
FINANCING ACTIVITIES
Principal payments on long-term debt (75,000) (472,325) (290,129)
Principal payments on capital lease obligations (21,964) (143,003) (155,159)
Proceeds from issuance of stock options 28,125 - -
Proceeds from issuance of long-term debt - - 300,000
Net issuance of Company stock - 17,456 283
----------------------------------------------------
Net cash used in financing activities (68,839) (597,872) (145,005)
----------------------------------------------------
Net (decrease) increase in cash and cash equivalents (803,862) 447,330 637,500
Cash and cash equivalents at beginning of year 2,121,310 1,673,980 1,036,480
----------------------------------------------------
Cash and cash equivalents at end of year $1,317,448 $2,121,310 $1,673,980
====================================================
Cash paid during the year for:
Interest $ 39,368 $ 36,725 $ 98,560
Income taxes 839,893 689,148 349,611
Non-cash transactions affecting account balances:
Fixed assets acquired through capital leases - - 109,864
SEE ACCOMPANYING NOTES.
</TABLE>
The Barbers, Hairstyling for Men & Women, Inc.
Notes to Consolidated Financial Statements
September 26, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
The Barbers, Hairstyling for Men & Women, Inc. (the Company) operates and sells
franchises to operate Cost Cutters Family Hair Care salons, City Looks salons,
Hair Performers salons and Family Haircut Store salons. The Company operates
primarily in the United States with a limited number of franchisees in France
and Russia.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Barbers,
Hairstyling for Men & Women, Inc. and its wholly-owned subsidiaries, Barbers
International, Ltd. and Hair Performers International, Inc.
The Company uses a 52-53 week reporting period. Under this method, certain years
will include 53 weeks of operations as opposed to 52 weeks. The years ended
September 26, 1996, September 28, 1995 and September 29, 1994 each include 52
weeks of operations.
BUSINESS SEGMENT INFORMATION
The Company is engaged in principally one business segment: developing,
licensing, franchising, and servicing several systems of retail hair salons.
CASH AND CASH EQUIVALENTS
All investments with a maturity of three months or less at the time of purchase
are considered cash equivalents. Cash equivalents are carried at cost which
approximates market value.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of accounts and notes receivable.
Accounts receivable are generally unsecured but are personally guaranteed by the
respective franchisees. Concentrations of credit risk with respect to these
receivables are limited due to the large numbers of customers and their
dispersion across many geographic areas. Notes receivable are generally secured
by equipment or the existing franchise agreements. (See Notes 2 and 8.)
INVENTORIES
Inventories, principally goods held for resale, are carried at the lower of cost
(first-in, first-out) or market.
INVESTMENT IN FRANCHISE CONTRACTS
On June 1, 1993, the Company acquired the franchise contract rights of 22 Family
Haircut Store salons in exchange for $120,000 cash and a note payable of
$479,214. The total investment balance of $599,214 is amortized on a
straight-line basis over 15 years, which represents the estimated average
remaining life at the time of acquisition of the franchise agreements assumed.
During 1992, the Company acquired the franchise contract rights of certain Hair
Performers salons in exchange for a $50,000 down payment and conditional future
payments based upon royalties collected by the Company. Under the terms of the
purchase agreement, the Company is obligated to pay the seller 60% of the first
$833,000 of royalties collected, 40% of the next $1,250,000 of royalties
collected and 20% of royalties collected thereafter through April 1, 1997. The
$50,000 down payment is to be subtracted from the amount of the conditional
payments at a rate of $10,000 per year through 1997. All payments to the seller
cease as of April 1, 1997. An investment in franchise contracts is recorded
based upon the amount of actual payments to the seller. The investment balance
is amortized on a straight-line basis over 15 years.
The investment balance in franchise contract rights is individually allocated to
specific contracts. On a monthly basis, individual valuations are reviewed and
at any time the value of a contract is deemed permanently impaired, a write-down
is recorded to the extent the contract value exceeds the future revenues
expected to be realized related to the contract.
DEPRECIATION
Equipment and leasehold improvements are stated at cost. Depreciation of
equipment is provided on the straight-line method over estimated useful lives of
3 to 7 years. Leasehold improvements are being depreciated over the related
lease terms or estimated useful life, whichever is shorter.
REVENUE RECOGNITION OF FRANCHISE, DEVELOPMENT AND ROYALTY FEES
All fees from franchised operations are included in revenue as earned. The
Company enters into area development agreements with franchisees which require
fees based upon the number of salons to be opened within the specified
development area. Development and initial franchise fees are earned when the
related salon opens, with the development fees being recognized ratably as the
salons within the development area open. Development and initial franchise fees
paid prior to salon openings are recorded as deferred franchise fees. Royalty
fees are based on the franchised salons' revenues and are recorded by the
Company in the period the related franchised salons' revenues are earned.
As of September 26, 1996, the Company owned and operated 22 salons.
INCOME TAXES
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109. Accordingly, deferred tax assets and liabilities
are recorded based on the "temporary differences" between the assets and
liabilities recorded for financial reporting purposes and such amounts as
measured by tax laws and regulations.
COMMITTED ADVERTISING
Committed advertising represents unexpended amounts received from franchisees to
finance national and regional advertising programs.
ACCOUNTING FOR STOCK OPTIONS
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," (APB 25) and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company has not determined the impact of the new statement on
its financial statements.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of common
and common equivalent shares outstanding during the period. Common stock
equivalents include dilutive stock options and warrants using the treasury stock
method. All per share amounts have been restated to reflect the 3-for-2 stock
split that was approved by the Board of Directors on September 19, 1996 for
holders of record October 15, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from the estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses of long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
2. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
10% franchise development notes, secured by franchise
development licenses, due upon salon opening $ 17,000 $ 19,000 $ 58,500
9.25% to 14% notes, due in varying monthly
installments, secured by salon equipment, leasehold
improvements and inventory 556,621 462,978 253,845
8% to 14% notes, unsecured 480,823 146,750 208,239
Unsecured, non-interest bearing note 12,500 - -
Accrued interest 2,186 1,554 8,298
---------------------------------------------
1,069,130 630,282 528,882
Less allowance for doubtful notes 100,000 35,000 35,000
---------------------------------------------
969,130 595,282 493,882
Less current portion 235,206 113,699 196,433
---------------------------------------------
$ 733,924 $ 481,583 $ 297,449
=============================================
</TABLE>
3. LINE OF CREDIT
The Company has a credit agreement which provides for a maximum line of credit
of $1 million. The line bears interest at .5% over the prime lending rate (8.75%
at September 26, 1996), expires April 30, 1997, is secured by accounts
receivable, inventories, general intangibles, and property and equipment and
requires the Company to maintain certain financial ratios. There are no
compensating balance requirements for this credit facility. As of September 26,
1996, there were no outstanding borrowings under this line of credit.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
.75% above the prime lending rate note payable
due in monthly installments of $6,250, plus
interest, with the remaining balance due in June
1998, secured by all personal property assets $131,250 $206,250 $281,250
Obligations under capitalized leases (NOTE 9) 11,675 33,639 256,690
Note payable, interest imputed at 8% - - 397,324
--------------------------------------------
142,925 239,889 935,264
Less current maturities 86,675 96,965 301,700
--------------------------------------------
$ 56,250 $142,924 $633,564
============================================
</TABLE>
Approximate maturities of long-term debt are as follows:
1997 $86,675
1998 56,250
Thereafter -
The carrying amount of the Company's debt instruments in the balance sheet at
September 26, 1996 approximates fair value.
5. SHAREHOLDERS' EQUITY
The Company's 1991 Stock Option Plan has reserved 450,000 shares of common stock
for key employees and 150,000 shares of common stock for non-employee directors.
The Plan requires the option price to be the average of the bid and ask prices
of the common stock on the date of grant. The employee options vest and become
exercisable at the rate of 25% on each anniversary from the date of grant.
Non-employee directors' options vest and become exercisable on the six month
anniversary of the date of grant. The options expire ten years from date of
grant.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OPTIONS -------------------------------
AVAILABLE PRICE OPTIONS
FOR GRANT NUMBER PER SHARE EXERCISABLE
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance September 30, 1993 97,500 127,500 $1.580 - $2.170 78,750
Additional shares reserved 375,000 -
Granted (22,500) 22,500 2.000
------------------------------
Balance September 29, 1994 450,000 150,000 1.580 - 2.170 108,750
Granted (72,000) 72,000 3.000 - 3.250
------------------------------
Balance September 28, 1995 378,000 222,000 1.580 - 3.250 147,000
Granted (30,000) 30,000 5.250
Exercised - (15,000) 1.750 - 2.000
------------------------------
Balance September 26, 1996 348,000 237,000 $1.580 - $5.250 169,500
==============================
</TABLE>
In July 1991, the Company granted warrants to the President to purchase 75,000
shares of the Company's common stock at an exercise price of $1.58 per share. On
October 13, 1994, the Company granted warrants to the Chairman and President to
purchase 75,000 shares, respectively, of the Company's common stock at an
exercise price of $2.67 per share. The warrants would expire one year after
termination of employment with the Company. 135,000 warrants were exercisable at
September 26, 1996.
The Company issued 2,400, 3,000 and 2,175 shares of stock to outside directors
as part of their compensation plan in 1996, 1995 and 1994, respectively.
All share numbers and per share prices have been adjusted to reflect the 3-for-2
stock split authorized by the Board of Directors September 19, 1996.
6. INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
Current $880,000 $601,000 $480,000
Deferred (115,000) (17,000) (65,000)
------------------------------------------------------
$765,000 $584,000 $415,000
======================================================
The Company's provision for income taxes differs from the federal rate of 34% for the following reasons:
1996 1995 1994
------------------------------------------------------
Federal income tax at statutory rate $620,000 $484,000 $350,000
State income tax, net 107,000 81,000 62,000
Expenses not deductible for tax purposes 38,000 19,000 3,000
------------------------------------------------------
$765,000 $584,000 $415,000
======================================================
Components of deferred tax assets and liabilities are:
1996 1995 1994
------------------------------------------------------
Deferred tax assets:
Deferred franchise deposits $116,000 $164,000 $143,000
Bad debt reserves 141,000 83,000 83,000
Depreciation 86,000 84,000 59,000
Inventory capitalization adjustment 35,000 37,000 35,000
Payroll related 163,000 87,000 128,000
Other reserves 89,000 55,000 43,000
Deferred gains on asset sales - - 10,000
Deferred tax liabilities:
Prepaid commissions - - (8,000)
Installment sales gains (5,000) - -
------------------------------------------------------
Net deferred tax assets $625,000 $510,000 $493,000
======================================================
</TABLE>
7. DEFERRED COMPENSATION
The Company has entered into employment agreements with the Chairman of the
Board and President which include deferred compensation equal to 10% of their
base salaries. Additionally, certain key executives may voluntarily elect to
defer up to $25,000 of their annual compensation.
8. TRANSACTIONS WITH RELATED PARTIES
The Company leases space for its headquarters from its Chairman, the majority
shareholder. Rental payments, including real estate taxes and insurance, were
$426,000, $399,000 and $385,000 in 1996, 1995 and 1994, respectively.
The Company had one note receivable from the majority shareholder bearing
interest at 1.5% above prime and totaling $387,856 at September 29, 1994. During
1995, the majority shareholder paid this note in full.
The Company also had notes receivable from the majority shareholder bearing
interest at 10% and totaling $10,000 at September 29, 1994. These notes were for
franchise development agreements. The development agreements and related notes
were canceled during 1995.
Interest income earned during 1995 and 1994 on these notes approximated $29,000
each year.
The Company recognized revenue from franchises owned by the majority shareholder
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Product sales $210,000 $272,000 $272,000
Equipment sales 25,000 77,000 59,000
Royalty fees 168,000 240,000 231,000
Franchise fees 3,000 26,000 28,000
$406,000 $615,000 $590,000
===============================================
</TABLE>
Trade receivables for 1996, 1995 and 1994 include approximately $48,000,
$120,000 and $117,000, respectively, from franchises owned by the majority
shareholder.
During 1996, the majority shareholder sold 20 franchised salons to another
franchisee. The majority shareholder continues to be a minority investor in a
company which operates 17 franchised salons.
9. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company leases equipment under several capital leases. Future minimum lease
payments and the present value of the remaining minimum lease payments at
September 26, 1996 are as follows:
Years ending:
1997 $12,246
1998 -
---------------
Total minimum payments required 12,246
Less amount representing interest 571
---------------
Present value of net minimum lease payments $11,675
===============
Equipment under capital leases is summarized as follows:
<TABLE>
<CAPTION>
ASSET BALANCE
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Equipment $118,672 $130,655 $644,884
Less accumulated depreciation 88,622 75,733 405,507
------------------------------------------------
$ 30,050 $ 54,922 $239,377
================================================
</TABLE>
Amortization of assets recorded under capital leases is included with
depreciation expense.
OPERATING LEASES
The Company conducts its operations in leased facilities. The initial lease
periods are generally five to ten years. Some of the lease agreements contain
renewal options for additional periods up to five years. The Company also has
entered into operating leases for equipment over various periods. Minimum annual
commitments under these operating leases are approximately as follows:
COMPANY
COMPANY-OWNED HEADQUARTERS
SALONS (SEE NOTE 8) EQUIPMENT
----------------------------------------------------
Years ending:
1997 $ 649,932 $297,358 $220,457
1998 659,061 24,859 179,791
1999 663,121 - 121,411
2000 604,243 - 53,049
2001 309,812 - 42,120
Thereafter 194,145 - -
----------------------------------------------------
$3,080,314 $322,217 $616,828
====================================================
Certain of the salon leases provide for payment of additional rentals based on a
percentage of sales over a fixed amount and for the payment of taxes, insurance
and other charges.
Total rent expense is as follows:
MINIMUM LESS
RENTALS SUBLEASE TOTAL
AND OTHER CHARGES RENTALS EXPENSE
----------------------------------------------------
1996 $881,525 $(111,901) $769,624
1995 615,550 (108,751) 506,799
1994 562,590 (94,478) 468,112
The Company also is the primary obligor on leases for the salons operated by
certain franchisees. The Company subleases the space to the franchisees, and
generally the franchisees personally guarantee the subleases. On 90% of these
subleases, the Company receives an upcharge from the franchisee over and above
the amount of rent paid to the landlord. In 1996, the Company incurred a $24,000
loss due to defaults on subleases. In 1995 and 1994, there were no defaults on
the subleases. The Company's remaining commitments, should the franchisees fail
to make the scheduled rental payments, are approximately as follows:
Years ending:
1997 $ 2,677,786
1998 2,624,918
1999 2,493,940
2000 1,945,865
2001 852,200
Thereafter 178,776
------------------
$10,773,485
==================
Included above is approximately $523,104 of leases held by the majority
shareholder and guaranteed by the Company. These leases were originally
guaranteed by the Company for Company-owned salons which were sold to the
majority shareholder in 1986. Generally, as renewals of leases occur, the
guarantees are withdrawn.
RENTAL INCOME
The Company is subleasing office space to another party through December 2000.
As a result, the Company earned rental income of approximately $101,000, $84,000
and $88,000 during 1996, 1995 and 1994, respectively.
10. 401(k) PROFIT SHARING PLAN
During fiscal 1991, the Company established The Barbers, Hairstyling for Men &
Women, Inc. 401(k) Plan (the Plan), a profit sharing plan. All employees who
meet certain eligibility requirements may join the Plan. Plan participants elect
to have a percentage of their salary contributed to the Plan. The Company makes
a matching contribution to the Plan of 100% of the first one percent and 25% of
the next four percent of salary contributed by employees. In addition, the
Company may elect to make a discretionary contribution to the Plan. The
Company's contributions vest based on the employee's length of service with the
Company and are 100% vested after three years of service if hired before March
1, 1996 and 100% vested after five years of service if hired on or after March
1, 1996. In 1996, 1995 and 1994, the Company made matching contributions of
$51,057, $42,982 and $39,581, respectively, and no discretionary contributions.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR 1994
Revenue $2,908 $2,974 $3,214 $3,369 $12,465
Operating income 175 101 255 402 933
Net income 117 95 150 250 612
Net income per share .05 .04 .06 .09 .24
FISCAL YEAR 1995
Revenue $3,407 $3,792 $3,826 $3,891 $14,916
Operating income 227 274 408 437 1,346
Net income 142 181 248 269 840
Net income per share .05 .07 .09 .10 .32
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR 1996
Revenue $4,488 $4,363 $4,913 $4,802 $18,566
Operating income 295 382 478 517 1,672
Net income 204 234 286 333 1,057
Net income per share $.07 $.09 $.10 $.12 $.39
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information called for in this item is incorporated by reference to
the Sections of the Proxy Statement entitled "Information Concerning Directors
and Nominees," "Information Regarding Executive Officers Who Are Not Directors"
and "Compliance with Section 16(a) of the Exchange Act."
ITEM 10. EXECUTIVE COMPENSATION.
The information required in this item is incorporated by reference to
the Section of the Proxy Statement entitled "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for in this item is incorporated by reference to
the Section of the Proxy Statement entitled "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for in this item is incorporated by reference to
the Section of the Proxy Statement entitled "Certain Relationships and Related
Transactions."
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) EXHIBIT LIST.
Exhibit
Number Description
- ------ -----------
3.1 Articles of Incorporation, dated September 30, 1968 (incorporated by
reference to the registrant's registration statement on Form 10-SB
dated June 28, 1994)
3.2 Amended and Restated By-laws, dated January 21, 1993 (incorporated by
reference to the registrant's registration statement on Form 10-SB
dated June 28, 1994)
4.1 Specimen of Common Stock (incorporated by reference to the
registrant's registration statement on Form 10-SB dated June 28,
1994)
10.1 Form of Cost Cutters Family Hair Care Franchise Agreement
(incorporated by reference to the registrant's quarterly report on
Form 10-QSB for the quarter ended December 28, 1995)
10.3 Form of Cost Cutters Family Hair Care Development Agreement
(incorporated by reference to the registrant's quarterly report on
Form 10-QSB for the quarter ended December 28, 1995)
10.4 Form of City Looks Salons International Franchise Agreement
(incorporated by reference to the registrant's quarterly report on
Form 10-QSB for the quarter ended December 28, 1995)
* 10.6 1990 Stock Option Plan For Directors, as Amended and Restated on
June 23, 1994 (incorporated by reference to the registrant's
registration statement on Form 10-SB dated June 28, 1994)
* 10.6a Resolutions amending the 1990 Stock Option Plan For Directors adopted
December 1, 1994 (incorporated by reference to the registrant's
Annual Report on Form 10-KSB for the year ended September 29, 1994)
* 10.6b Amendment to 1990 Stock Option Plan for Directors adopted September
21, 1995 (incorporated by reference to the registrant's registration
statement on Form S-8 dated October 13, 1995)
* 10.7 1990 Stock Option Plan For Key Employees, as Amended and Restated on
June 23, 1994 (incorporated by reference to the registrant's
registration statement on Form 10-SB dated June 28, 1994)
* 10.7a Resolutions amending the 1990 Stock Option Plan For Key Employees
adopted December 1, 1994 (incorporated by reference to the
registrant's Annual Report on Form 10-KSB for the year ended
September 29, 1994)
* 10.7b Amendment to 1990 Stock Option Plan for Key Employees adopted
September 21, 1995 (incorporated by reference to the registrant's
registration statement on Form S-8 dated October 13, 1995)
10.8 Agreement of Lease for Company Headquarters (incorporated by
reference to the registrant's registration statement on Form 10-SB
dated June 28, 1994)
* 10.9 Employment Agreement between Frederick A. Huggins, Jr. and The
Barbers, Hairstyling for Men & Women, Inc., dated effective April 2,
1990 (incorporated by reference to the registrant's registration
statement on Form 10-SB dated June 28, 1994)
* 10.10 Addendum to Employment Agreement between Frederick A. Huggins, Jr.
and The Barbers, Hairstyling for Men & Women, Inc., dated effective
January 1993 (incorporated by reference to the registrant's
registration statement on Form 10-SB dated June 28, 1994)
* 10.11 Common Stock Purchase Warrant of Frederick A. Huggins, Jr. dated
April 2, 1990 (incorporated by reference to the registrant's
registration statement on Form 10-SB dated June 28, 1994)
*10.14 Salary Continuation Agreement between Patricia D. Kessler and The
Barbers, Hairstyling for Men & Women, Inc., dated effective February
9, 1988 (incorporated by reference to the registrant's registration
statement on Form 10-SB dated June 28, 1994)
10.16 Term Loan and Credit Agreement between The Barbers, Hairstyling for
Men & Women, Inc. and Norwest Bank Minnesota, N.A. (incorporated by
reference to Amendment No 1 to the registrant's registration
statement on Form 10-SB dated August 5, 1994)
10.16a Amendments to Term Loan and Credit Agreement between The Barbers,
Hairstyling for Men & Women, Inc. and Norwest Bank Minnesota, N.A.
(incorporated by reference to the registrant's quarterly report on
Form 10-QSB for the quarter ended March 30, 1995)
10.16b Amendments to Term Loan and Credit Agreement between The Barbers,
Hairstyling for Men & Women, Inc. and Norwest Bank Minnesota, N.A.
(incorporated by reference to the registrant's quarterly report on
Form 10-QSB for the quarter ended March 28, 1996)
* 10.17 Employment Agreement between Frederick A. Huggins, Jr. and The
Barbers, Hairstyling for Men and Women, Inc., effective October 1,
1994 (incorporated by reference to the registrant's Annual Report on
Form 10-KSB for the year ended September 29, 1994)
* 10.17a Amendment to Employment Agreement between Frederick A. Huggins, Jr.
and The Barbers, Hairstyling for Men & Women, Inc., effective
February 6, 1996 (incorporated by reference to the registrant's
quarterly report on Form 10-QSB for the quarter ended December 28,
1995)
* 10.18 Common Stock Purchase Warrant of Frederick A. Huggins, Jr. dated
October 13, 1994 (incorporated by reference to the registrant's
Annual Report on Form 10-KSB for the year ended September 29, 1994)
* 10.18a Amendment to Common Stock Purchase Warrant of Frederick A. Huggins,
Jr. dated September 21, 1995 (incorporated by reference to the
registrant's registration statement on Form S-8 dated October 13,
1995)
* 10.19 Employment Agreement between Florence F. Francis and The Barbers,
Hairstyling for Men & Women, Inc. effective October 1, 1994
(incorporated by reference to the registrant's Annual Report on Form
10-KSB for the year ended September 29, 1994)
* 10.20 Common Stock Purchase Warrant of Florence F. Francis dated October
13, 1994 (incorporated by reference to the registrant's Annual Report
on Form 10-KSB for the year ended September 29, 1994)
* 10.20a Amendment to Common Stock Purchase Warrant of Florence F. Francis
dated September 21, 1995 (incorporated by reference to the
registrant's registration statement on Form S-8 dated October 13,
1995)
* 10.21 The Barbers, Hairstyling for Men & Women, Inc. Incentive Compensation
Plan (incorporated by reference to the registrant's Annual Report on
Form 10-KSB for the year ended September 29, 1994)
* 10.24 The Barbers Hairstyling for Men & Women, Inc. Deferred Compensation
Plan as adopted August 17, 1995 (incorporated by reference to the
registrant's Annual Report on Form 10-KSB for the year ended
September 28, 1995.)
* 10.25 Special Termination Allowance dated September 21, 1995 (incorporated
by reference to the registrant's quarterly report on Form 10-QSB for
the quarter ended December 28, 1995)
+ 23.1 Consent of Ernst & Young LLP, independent auditors dated December 26,
1996
+ 11 Statement regarding Computation of Per Share Earnings
+ 27 Financial Data Schedule - For SEC use only
- -------------------
* Management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-KSB pursuant to Item 13(a).
+ Filed herewith
(b) REPORTS ON FORM 8-K.
The registrant did not file any reports on Form 8-K during the
fourth quarter of fiscal 1996.
SIGNATURES
In accordance with the requirements of Sections 13 and 15 of the
Securities Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
Date: December 24, 1996 By: /s/ Frederick A. Huggins, Jr.
------------------------------
Frederick A. Huggins, Jr.
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this 10-KSB has been signed below by the following persons on behalf of the
registrant on December 24, 1996 in the capacities indicated.
/s/ Florence F. Francis Chairman of the Board of Directors
- ---------------------------------
Florence F. Francis
/s/ Frederick A. Huggins, Jr. Chief Executive Officer and Director
- ---------------------------------
Frederick A. Huggins, Jr.
/s/ J. Brent Hanson Vice President and Chief Financial Officer
- ---------------------------------
J. Brent Hanson
/s/ Marcia J. Bystrom Director
- ---------------------------------
Marcia J. Bystrom
/s/ David E. Emerson Director
- ---------------------------------
David E. Emerson
/s/ Susan F. Goldstein Director
- ---------------------------------
Susan F. Goldstein
/s/ Richard H. King Director
- ---------------------------------
Richard H. King
/s/ James L. Reissner Director
- ---------------------------------
James L. Reissner
EXHIBIT 11
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended
SEPTEMBER 26, SEPTEMBER 28, SEPTEMBER 29,
1996 1995 1994
<S> <C> <C> <C>
Primary and fully diluted earnings per share:
Weighted average number of issued shares
outstanding...................................... 2,544,929 2,530,662 2,518,806
Dilution......................................... 197,205 112,776 48,057
Shares outstanding used to compute fully
diluted earnings per share....................... 2,742,134 2,643,438 2,566,863
============ ============ ===========
Net Income........................................... $ 1,057,354 $ 839,910 $ 611,755
============ ============ ===========
Earnings per share -- primary and fully
diluted.......................................... $ 0.39 $ 0.32 $ 0.24
============ ============ ===========
</TABLE>
Exhibit 23.1
Consent Of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-98126) pertaining to the 1990 Stock Option Plan for Directors; and
1990 Stock Option Plan for Key Employees; the Chairman's Compensation Program
and Employment Agreement; and the President's Compensation Program and
Employment Agreement of our report dated November 1, 1996, with respect to the
consolidated financial statements of The Barbers, Hairstyling for Men & Women,
Inc. included in the Annual Report (Form 10-KSB) for the year ended September
26, 1996.
Ernst & Young LLP
Minneapolis, Minnesota
December 26, 1996
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<PERIOD-START> SEP-29-1995
<PERIOD-END> SEP-26-1996
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