UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 25, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER: 0-24466
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0945858
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Industrial Boulevard NE
Minneapolis, MN 55413
(Address of principal executive offices)
(612) 331-8500
(Registrant's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days
Yes _X_ No ___
On May 7, 1999, the registrant had 3,990,769 outstanding shares of
common stock, $. 10 par value.
<PAGE>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
INDEX
PART I - FINANCIAL INFORMATION
- ---- -------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings for the Quarter
Ended March 25, 1999 and March 26, 1998
Condensed Consolidated Statements of Financial Position at
March 25, 1999 and September 24, 1998
Condensed Consolidated Statements of Cash Flows for the
Quarter Ended March 25, 1999 and March 26, 1998
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
Item 4. Submission of Matters to Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
Exhibit 27 Financial Data Schedule
2
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THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
SECOND QUARTER F1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 25, March 26, March 25, March 26,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Franchise Royalties $ 2,233,825 $ 2,057,671 $ 4,413,341 $ 3,968,008
Franchise Fees 104,000 211,500 336,636 542,000
Company-Owned Salons 1,910,840 1,474,100 3,704,079 2,806,804
Beauty Products & Equipment 2,764,927 2,568,186 5,458,476 5,208,493
Other 91,503 131,642 316,292 354,621
------------ ------------ ------------ ------------
Total Revenues 7,105,095 6,443,099 14,228,824 12,879,926
COSTS & EXPENSES
Franchise Operations
Salaries & Benefits 590,109 555,869 1,132,245 1,109,174
General & Administrative 188,915 232,601 545,371 634,976
------------ ------------ ------------ ------------
Total 779,024 788,470 1,677,616 1,744,150
------------ ------------ ------------ ------------
Company-Owned Salons
Salaries & Benefits 1,121,579 794,945 2,064,256 1,484,186
General & Administrative 597,520 391,858 1,049,907 719,221
Cost of Products & Services 319,663 251,137 681,797 493,201
------------ ------------ ------------ ------------
Total 2,038,762 1,437,940 3,795,960 2,696,608
------------ ------------ ------------ ------------
Distribution & General Administration
Salaries & Benefits 961,346 850,796 1,862,718 1,648,512
General & Administrative 444,892 650,274 1,350,148 1,466,749
Cost of Products & Equipment 2,116,590 1,945,178 4,169,796 4,036,122
------------ ------------ ------------ ------------
Total 3,522,828 3,446,248 7,382,662 7,151,383
------------ ------------ ------------ ------------
OPERATING INCOME 764,481 770,441 1,372,586 1,287,785
OTHER INCOME (EXPENSE)
Interest Income 78,243 53,517 141,604 106,303
Interest Expense (25,685) (51,508) (52,651) (105,628)
Net Gain on Disposal of Assets 200 20,070 350 20,070
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 817,239 792,520 1,461,889 1,308,530
INCOME TAX EXPENSE 335,000 333,000 599,000 550,000
------------ ------------ ------------ ------------
NET INCOME $ 482,239 $ 459,520 $ 862,889 $ 758,530
============ ============ ============ ============
AVERAGE SHARES OUTSTANDING 3,988,894 3,913,886 3,983,901 3,902,762
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ 0.12 $ 0.12 $ 0.22 $ 0.19
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,503,665 4,338,734 4,481,611 4,315,419
============ ============ ============ ============
DILUTED EARNINGS PER SHARE $ 0.11 $ 0.11 $ 0.19 $ 0.18
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 25, September 24,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS (Unaudited) (Note 1)
Current assets:
Cash $ 2,483,864 $ 2,931,376
Trade receivable, less allowance for doubtful
accounts of $410,000 in March 1999 and
$400,000 in September 1998 3,056,260 2,693,108
Notes receivable 482,865 398,585
Inventories held for resale 2,193,279 2,166,420
Prepaid expenses 631,924 111,682
Deferred income taxes 419,000 419,000
------------ ------------
Total current assets 9,267,192 8,720,171
Notes receivable, less current portion and allowance for
doubtful notes of $200,000 in March 1999 and
September 1998 969,831 975,394
Property, equipment and leasehold impovements, at cost:
Equipment 3,333,909 2,807,858
Leasehold improvements 1,012,700 1,012,700
------------ ------------
4,346,609 3,820,558
Less accumulated depreciation 2,568,971 2,370,837
------------ ------------
Net property, equipment and leasehold improvements 1,777,638 1,449,721
Investment in franchise contracts, less accumulated
amortization of $690,903 in March 1999 and
$563,741 in September 1998 2,285,201 2,416,635
Deferred income taxes 417,000 417,000
Other assets 396,919 353,191
------------ ------------
Total assets $ 15,113,781 $ 14,332,112
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 196,002 $ 187,576
Accounts payable 837,655 858,097
Deferred franchise fees 101,000 60,500
Committed advertising 1,383,342 1,087,310
Accrued compensation and related payroll taxes 856,104 1,187,813
Other accrued expenses 256,511 264,853
Income taxes payable 44,211 101,983
------------ ------------
Total current liabilities 3,674,825 3,748,132
Long term debt 937,109 1,036,866
Deferred franchise fees 298,250 298,250
Deferred compensation 408,256 363,857
Shareholders' equity:
Common stock 399,077 397,524
Additional paid in capital 509,786 463,894
Retained earnings 8,886,478 8,023,589
------------ ------------
Total shareholder's equity 9,795,341 8,885,007
------------ ------------
Total liabilities and shareholders' equity $ 15,113,781 $ 14,332,112
============ ============
</TABLE>
Note 1: The balance sheet at September 24, 1998 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Certain fiscal 1998 items have been
reclassified to conform with the fiscal 1999 presentation.
See notes to condensed consolidated financial statements.
4
<PAGE>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 25, March 26,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 862,889 $ 758,530
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 329,568 235,494
Provision for losses on accounts and notes receivable 94,843 181,253
Gain on sales of property and equipment (350) (20,070)
Stock compensation 36,420 20,400
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts and notes receivable (536,712) (441,406)
Inventories held for resale (26,859) (64,648)
Prepaid expenses (520,242) 4,547
Other assets (43,728) (36,513)
(Decrease) increase in:
Payables and accrued expenses (20,062) (309,096)
Deferred franchise fees 40,500 54,750
Income taxes payable (57,772) (146,554)
------------ ------------
Net cash provided by operating activities 158,495 236,687
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 350 55,100
Capital expenditures (526,051) (538,463)
Investment in franchise contracts -- (271,904)
------------ ------------
Net cash used in investing activities (525,701) (755,267)
FINANCING ACTIVITIES
Principle payments on long-term debt (91,331) (148,484)
Proceeds from issuance of stock options 11,025 25,310
------------ ------------
Net cash used in financing activities (80,306) (123,174)
------------ ------------
Net decrease in cash and cash equivalents (447,512) (641,754)
Cash and cash equivalents at beginning of period 2,931,376 2,789,933
------------ ------------
Cash and cash equivalents at end of period $ 2,483,864 $ 2,148,179
============ ============
CASH PAID DURING PERIOD FOR:
Interest $ 52,651 $ 105,628
Taxes $ 656,772 $ 696,554
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring accruals) considered necessary for a fair
presentation of results have been included. Operating results for the six months
ended March 25, 1999, are not necessarily indicative of the results that may be
expected for the year ended September 30, 1999. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report for the fiscal year ended September 24, 1998.
NOTE B - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share as defined by the Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE:
<TABLE>
<CAPTION>
Quarter ended Six months ended
------------- ----------------
March 25, March 26, March 25, March 26,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 482,239 $ 459,520 $ 862,889 $ 758,530
========== ========== ========== ==========
Denominator:
Denominator for basic earnings
per share - weighted average
shares 3,988,894 3,913,886 3,983,901 3,902,762
Effect of dilutive stock options and
warrants 514,771 424,848 497,710 412,657
---------- ---------- ---------- ----------
Denominator for diluted earnings
per share - adjusted weighted
average shares 4,503,665 4,338,734 4,481,611 4,315,419
========== ========== ========== ==========
Basic earnings per share $ 0.12 $ 0.12 $ 0.22 $ 0.19
========== ========== ========== ==========
Diluted earnings per share $ 0.11 $ 0.11 $ 0.19 $ 0.18
========== ========== ========== ==========
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is in the business of franchising three different hair care
salon concepts that 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"), "City Looks Salons International(R)" ("City Looks")
and "We Care Hair(R)". The Company also has a limited number of franchises
operating under the names "The Barbers, Hairstyling for Men & Women(R)", "Family
Haircut Stores" and "The Hair Performers". The Company currently sells only
franchises in Cost Cutters, City Looks and We Care Hair.
The Company had 979 franchised and company-owned salons in operation as
of March 25, 1999, compared to 976 at March 26, 1998. The Company primarily
earns revenue through its franchise operations from initial franchise fees,
franchise royalties, and sales of beauty products and equipment to the
franchisees.
The Company operates on a 52/53 week year basis. The fiscal year 1999
includes 53 weeks of operations and 1998 included 52 weeks of operations.
RESULTS OF OPERATIONS
REVENUES: The Company's total revenues were $7,105,095 for the second quarter of
fiscal 1999 and $14,228,824 for the first six months of fiscal 1999, an increase
of 10.3% and 10.5% respectively over the comparable periods of the previous
year. Franchise royalties totaled $2,233,825 for the second quarter of fiscal
1999, which is an increase of 8.6% over the second quarter of the previous year.
Franchise royalties for the first six months increased 11.2% to $4,413,341
versus the comparable period of the previous year. The increase in franchise
royalties was due to an increase in average per store sales by franchised salons
as well as an increase in the number of salons in operation in the first six
months of fiscal 1999 as compared to the same period of fiscal 1998. Franchise
fee revenue (initial franchise fees) was $104,000 during the second quarter of
fiscal 1999, a decrease of 50.8% versus the second quarter of fiscal 1998. The
decrease in franchise fee revenue was due to a decrease in the number of
franchised salons opened during the comparable periods. A total of eleven
franchised and eight company-owned salons opened in the second quarter of fiscal
1999 versus twenty franchised and one company-owned salon in the second quarter
of the previous year. Year to date the franchise fee revenue has decreased
$205,364 or 37.9% over the prior year comparable period to $336,636. This
represents openings of 29 franchised locations and ten company-owned salons
versus 51 franchised locations and one company-owned salon for the first six
months of the previous year. Revenue from company-owned salons was $1,910,840
for the second quarter and $3,704,079 for the first six months of fiscal 1999,
an increase of 29.6% and 32.0% respectively over the comparable periods of the
previous year. The increase in revenue from company-owned salons is due
primarily to the addition of new Company-owned salons and sales growth at salons
opened last year. Beauty product and equipment sales for the second quarter of
fiscal 1999 were $2,764,927, an increase of $196,741 or 7.7% over the second
quarter of the previous year. Year to date revenue from beauty products and
equipment was $5,458,476, an increase of 4.8% over the first six months of the
previous year. Beauty product sales increased 15.3%, however equipment sales
decreased 8.9% because of fewer openings of new franchised salons versus the
first six months of last year.
COSTS & EXPENSES - FRANCHISE OPERATIONS: Total franchise operations expenses
were $779,024 for the second quarter and $1,677,616 for the first six months of
fiscal 1999. This was a decrease of 1.2% and 3.8% respectively over the
comparable periods of fiscal 1998. There was a decrease in franchise sales
7
<PAGE>
commissions paid due to the decrease in the number of franchised salons opened
during the same periods of the previous year
COSTS & EXPENSES - COMPANY-OWNED SALONS: The Company presently owns and operates
40 salons: 39 operate as Cost Cutters salons and one operates as a City Looks.
Thirty-three of the Cost Cutters salons operate inside Wal-Mart Supercenters.
Second quarter operating costs for the company-owned salons were $2,038,762 as
compared to $1,437,940 for the second quarter of the previous year, an increase
of 41.8%. Year to date operating costs were $3,795,960 versus $2,696,608 for the
comparable period of the previous year, an increase of 40.8%. This increase was
primarily due to an increase in the number salons in operation and the costs
associated with increased sales of services and beauty products. The Company
opened ten new company-owned salons during the first six months of fiscal 1999
compared to one new salon for the same period of the prior fiscal year. The
start-up costs associated with these new salons negatively impacted the
profitability of the company-owned salons division. The Company expects that
these new salons will be operating profitably by the end of the fiscal year.
COSTS & EXPENSES - DISTRIBUTION AND GENERAL ADMINISTRATION: Total operating
expenses for distribution and general administration for the second quarter of
fiscal 1999 were $3,522,828 which is an increase of $76,580 or 2.2% over the
second quarter of the prior year. Expenses for the first half of fiscal 1999
were $7,382,662 as compared to $7,151,383 in fiscal 1998, an increase of 3.2%.
Most of this increase was due to increased cost of products and equipment sold,
which corresponds to the increase in sales of products and equipment. The second
quarter cost of products and equipment sold was $2,116,590 versus a prior year
cost of $1,945,178, an increase of 8.8%. Year to date costs of products and
equipment were $4,169,796 versus $4,036,122 the previous year, an increase of
3.3%. Margins on the sale of products and equipment were 23.4% and 23.6% for the
second quarter and first six months respectively. This compares with 24.3% and
22.5% for the same periods of the previous year. The increase in the first six
months margins is primarily due to changes in product mix. Salaries and benefits
were $961,346 and $1,862,718 for the second quarter and first six months of
fiscal 1999. This compares with $850,796 and $1,648,512 for the comparable
periods of the previous year and represents increases of 13.0% for both periods.
The increase was due to increases in staff size, as well as an average increase
in salaries of 5.0%. General and administrative expenses for the second quarter
decreased 31.6% to $444,892. Year to date general and administrative expenses
decreased by $116,601 or 7.9% over the previous year to $1,350,148. A large
portion of the decrease is due to reduced expenses related to subleased salon
locations.
OPERATING INCOME: Operating income was $764,481 for the second quarter and
$1,372,586 for the first six months of fiscal 1999. This compares to $770,441
and $1,287,785 for the comparable periods of the prior year, a decrease of 0.8%
and an increase of 6.6% respectively. Operating income as a percent of revenue
was 10.8% for the second quarter and 9.6% for the first six months of fiscal
1999. This compares to 12.0% and 10.0% for the comparable periods of the
previous fiscal year.
INTEREST INCOME AND EXPENSE: Interest income was $78,243 for the second quarter
and $141,604 for the first six months of fiscal 1999, an increase versus the
previous year of 46.2% and 33.2% respectively. Interest expense was $25,685 for
the second quarter and $52,651 for the first six months of fiscal 1999. This
compares to $51,508 and $105,628 for the comparable periods of fiscal 1998. This
decrease in interest expense was due to early repayment of long-term debt
associated with the acquisition of We Care Hair.
NET GAIN ON DISPOSAL OF ASSETS: During the second quarter of fiscal 1998, the
Company sold two company-owned salons and miscellaneous assets. The Company
recorded a net gain on disposal of these assets of $20,070. Gains during the
first quarter and six months of fiscal 1999 were minimal.
8
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INCOME TAXES: The Company's effective tax rate for the second quarter and first
half of fiscal 1999 was 41.0%, versus a rate of 42.0% for the second quarter and
first half of fiscal 1998. The Company anticipates that the rate for the balance
of fiscal 1999 will be approximately 41%.
NET INCOME: The Company's net income for the second quarter of 1999 was $482,239
or $.11 per diluted share. This was an increase of $22,719 or 4.9% over the
second quarter of fiscal 1998 net income. Net income for the first six months of
fiscal 1999 was up 13.8% to $862,889. Diluted earnings per share for the first
six months were $.19 per share as compared to $.18 for the previous year.
LIQUIDITY AND CAPITAL RESOURCES: The Company has generally been able to produce
sufficient cash from operations to support expansion of its business, and
expects to continue to do the same in fiscal 1999. The Company expects capital
expenditures during fiscal 1999 to be approximately $1,000,000 primarily for the
addition of new company-owned salons.
The Company currently has a line of credit in the amount of $1,500,000, which
carries an interest rate at the bank's prime rate, which expires June 30, 1999.
In addition, the Company also has a term loan with this same lender. The loan
carries an interest rate of 8.82% and had a balance of $1,133,111 at March 25,
1999.
Management believes that cash generated from operating activities, together with
funds available from its line of credit will be sufficient to fund its
anticipated operations, capital expenditures, and required debt repayments for
the foreseeable future.
MERGER WITH REGIS CORPORATION
On January 25, 1999, the Company entered into a definitive Merger
Agreement with Regis Corporation whereby Regis would acquire The Barbers. Under
this agreement, the shareholders of The Barbers will receive one-half share of
Regis Corporation common stock for one share of The Barbers common stock. Proxy
materials have been sent to all shareholders with a recommendation from the
board of directors that they approve the Merger Agreement. A special meeting of
shareholders has been scheduled for May 20, 1999, for a vote of shareholders on
this matter. Florence Francis, the Chairman of the Board of Directors, and the
majority shareholder of the Company, beneficially owns approximately 59% of the
voting shares. She has agreed to vote all of these shares FOR the approval of
the Merger, therefore, the approval of the merger is assured.
YEAR 2000
The Year 2000 issue focuses on whether computer systems will properly
recognize date-sensitive information in the Year 2000 and beyond. Many installed
computer systems and software products are coded to accept only two digit
entries in the date code field. As the Year 2000 approaches, these code fields
will need to accept four digit entries to distinguish years beginning with "19"
from those beginning with "20." This inability to recognize or properly treat
the Year 2000 may cause systems to process financial and operational information
incorrectly. As a result, in the next year, computer systems and/or software
products used by many companies may need to be upgraded to comply with such Year
2000 requirements. The Company is dependent on computer processing in its
business activities and the Year 2000 issue creates risk for the Company from
unforeseen problems in the Company's computer system and from third parties with
whom the Company does business. The failure of the Company's computer system
and/or third parities computer systems from unforeseen problems could have a
material adverse effect on the Company's ability to conduct its business.
Due to the pending merger with Regis Corporation, all work on Year 2000
compliance has been curtailed. The Company has been assured by Regis Corporation
that all of their systems are Year 2000
9
<PAGE>
compliant and that all systems that the Company presently uses will be converted
to Regis' systems well before the end of the calendar year.
The following narrative has been supplied by Regis' management
regarding the impact of Year 2000 on their operations:
Regis Corporation initiated a comprehensive project to prepare
its computer systems for the Year 2000. Regis has completed
the awareness, assessment and remediation phases of the
project and is in the process of validation and
implementation. The validation and implementation phases have
been substantially completed by the end of Regis' third
quarter (March 31, 1999). Accordingly, Regis' management
believes the Year 2000 will not have a significant impact on
operations. As part of the overall project, Regis is in the
process of developing a contingency plan to mitigate Regis'
risk that primary vendors or other external forces could have
an impact on Regis' operations.
Costs associated with the Year 2000 are expensed as incurred
and are funded through operating cash flows. Regis has
incurred $4.4 million related to Year 2000 project costs from
the project's inception in fiscal 1998 through the first nine
months of fiscal 1999, of which $3.9 million was incurred and
charged to earnings during the first nine months of fiscal
1999. As Regis has completed the implementation and validation
phases of the project, no significant additional costs are
anticipated to be incurred.
Regis is in contact with critical suppliers of products and
services to assess whether the suppliers' operations and the
products and services they provide are Year 2000 capable or to
monitor their progress toward Year 2000 compliance. The
results of Regis' inquiries have indicated that the majority
of our critical suppliers are either compliant or have a plan
in place to be compliant by the end of 1999. There can be no
absolute assurance that another company's failure to ensure
Year 2000 compliance would not have an adverse effect on the
Regis Corporation.
The Barbers is also working with its franchisees to assist them in
identifying Year 2000 issues. Although the Company's current version of its
recommended point of sale software is Year 2000 compliant, the Company believes
that many of its franchisee's hardware systems are not Year 2000 compliant. The
Company is in the process of developing test procedures to assist its
franchisees in testing their hardware systems for Year 2000 compliance. The
Company does not anticipate incurring significant costs related to assisting its
franchisees in this manner.
FORWARD LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
quarterly report constitute "forward-looking statements' within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). These
forward-looking statements may be identified by the use of the terminology such
as "may", "will", "expect", "anticipate", "intend", "designed", estimate",
"should", or "continue" or the negatives of these words or other variations of
these words or comparable terminology. These forward-looking statements involve
known and unknown risks, uncertainties and other factors, which may cause the
actual results, performance or achievements expressed or implied by such
forward-looking statements to differ. Such factors include, among other things,
the following: (1) Increased competition from other hair salon chains in the
consumer marketplace could negatively affect sales volume at both franchised and
company-owned salons, reducing revenue from the franchise and company-owned
salons. (2) Increased competition for sites for new salons from hair care salons
or other retail concepts could increase occupancy costs and
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other operating expenses. (3) The Company's growth plans could be adversely
affected by changes in its relationship with Wal-Mart, including changes in
Wal-Mart's marketing or business plans. (4) An inability to find qualified
franchisees for new locations or the inability of franchisees to finance the
construction of new salons could limit the Company's ability to grow. (5)
Although the Company presently has no reason to believe it will occur, major
beauty product vendors could cancel their distribution agreements with the
Company thereby causing 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 the Company is victorious,
and may have a material adverse effect on the Company's results of operations in
any particular period.
Due to the factors noted above and elsewhere in this quarterly 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than as set forth below, the Company is not currently a party to
any material pending legal proceedings. From time to time the Company may become
involved in routine litigation incidental to its business.
LELA BISHOP, ET AL. V. DOCTOR'S ASSOCIATES, INC., FREDERICK DELUCA,
PETER H. BUCK, FRANCHISE WORLD HEADQUARTERS, INC., WE CARE HAIR
DEVELOPMENT, INC., JOHN AMICO, SR., FRED FLORIO, THE BARBERS,
HAIRSTYLING FOR MEN & WOMEN, INC., WE CARE HAIR REALTY, INC., FRANCHISE
REAL ESTATE LEASING CORP., JOHN F. AMICO & COMPANY, WCH, INC. AND JAMI
INTERNATIONAL, INC. (Circuit Court, Third Judicial Circuit, Madison
County, Illinois, Cause No. 97-L-231, filed February 4, 1997).
Approximately 58 present or former We Care Hair(R) franchisees have
joined in this lawsuit and requested certification of the lawsuit as a
class action pursuant to 735 ILCS Section 5/2-801 et seq. on behalf of
all past and present We Care Hair(R) franchisees. This lawsuit has been
brought against the above defendants for alleged breaches of fiduciary
duty. The plaintiffs further allege that We Care Hair Development, Inc.
and all other defendants in this lawsuit have violated the Illinois
Anti-trust Statute, 740 ILCS Section 10/3 (2) or (3), by requiring We
Care Hair(R) franchisees to purchase alleged unusable hair care
products. The plaintiffs further allege that We Care Development, Inc.
and all other defendants in this lawsuit have violated the Illinois
Franchise Disclosure Act by using a standard franchise agreement for We
Care Hair(R) franchises that violated the anti-waiver provisions of 815
ILCS Section 705/41, and by engaging in fraudulent practices and
selling franchises at certain times during which We Care Development,
Inc.'s registration with the Illinois Attorney General's Office had
lapsed. The Company and its subsidiary, WCH, Inc., have been named as
defendants in this lawsuit under the theory that they acted with all
other defendants pursuant to a civil conspiracy and/or mutual scheme
with concerted action for the purpose of constructively terminating the
We Care Hair(R) franchises throughout the country by convincing We Care
Hair(R) franchisees to execute new franchise agreements with the
Company to operate as Cost Cutters franchisees and decrease and/or
eliminate all services and advertising for the remaining We Care
Hair(R) franchisees in violation of the Illinois Franchise Disclosure
Act. We Care Hair Realty, Inc., a wholly-owned subsidiary of WCH, Inc.,
has been named as a defendant in this lawsuit under the theory that it
also participated in the conspiracy or scheme by attempting to transfer
the We Care Hair(R) subleases to the Company and WCH, Inc. The
plaintiffs seek to recover an award of actual damages,
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punitive damages, treble damages and attorneys fees in an amount not to
exceed, in the aggregate, under all counts of the complaint, against
all defendants, the sum of $74,950 for each franchisee, and for court
costs.
This case is in the early pretrial stage. The Company, WCH, Inc. and We Care
Hair Realty, Inc. have initiated an action in Illinois Federal District Court
seeking to compel arbitration of the claims of the plaintiffs and are awaiting
the Court's decision on their pending motion to compel arbitration. The
co-defendants have initiated a separate action in Illinois Federal District
Court also seeking to compel arbitration of the claims of the plaintiffs. By
order dated September 25, 1997, the Federal District Court, in the
co-defendants' action, compelled all non-Illinois plaintiffs to arbitrate their
disputes with the co-defendants, and enjoined all non-Illinois plaintiffs from
continuing the lawsuit against all defendants, including the Company, WCH, Inc.
and We Care Hair Realty, Inc. The plaintiffs have appealed this ruling. In
addition, on March 9, 1998, the Appellate Court of Illinois - Fifth District
ordered the State Court proceeding to be transferred to the Circuit Court of
Cook County, Illinois. The non-Illinois plaintiffs have filed a motion with the
Circuit Court of Cook County, Illinois seeking discovery from all defendants.
The Company and the co-defendants oppose this motion and have filed their own
motion seeking to stay the Cook County, Illinois state court proceedings until
the federal appeal has been determined. These motions are pending.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On December 30, 1998, proxy statements were mailed to the holders of
record of 3,983,269 shares of common stock to solicit proxies in connection with
the Annual Meeting of Shareholders on January 26, 1999. Two proposals were
submitted to a vote of shareholders, as follows:
(a) Election of Directors - the following Directors were nominated for
re-election for terms of one year: Florence F. Francis, Frederick A.
Huggins, Marcia J. Bystrom, David E. Emerson, Susan F. Goldstein, Richard
H. King, and James L. Reissner. All directors were re-elected with the
following votes:
Florence F. Francis 3,506,557 FOR 226 Withheld
Frederick A. Huggins 3,490,988 FOR 15,795 Withheld
Marcia J. Bystrom 3,506,557 FOR 226 Withheld
David E. Emerson 3,506,557 FOR 226 Withheld
Susan F. Goldstein 3,506,557 FOR 226 Withheld
Richard H. King 3,506,557 FOR 226 Withheld
James L. Reissner 3,506,557 FOR 226 Withheld
(b) Ratification and Appointment of Independent Auditors - Ernst & Young LLP
were auditors for the fiscal year ended September 24, 1998. The Company has
appointed Ernst & Young LLP as auditors for the year ending September 30,
1999. The appointment of Ernst & Young as auditors for fiscal 1999 was
ratified by a vote of shareholders with 3,495,959 shares voting yes, one
share voting no, and 10,823 shares abstaining.
ITEM 5. OTHER INFORMATION
On April 22, 1999, proxy statements were mailed to the holders of
record of 3,990,769 shares of common stock to solicit proxies in connection with
a Special Meeting of Shareholders on May 20, 1999. At this special meeting, the
following proposal will be submitted to a vote of shareholders:
To consider and vote upon a proposal to approve and adopt the Agreement and Plan
of Merger dated as of January 25, 1999 (the "Merger Agreement"), by and among
The Barbers, Regis Corporation, a Minnesota corporation ("Regis"), and Regis
Merger Sub, Inc., a Minnesota corporation and wholly-owned subsidiary of Regis
("Merger Sub").
Pursuant to the Merger Agreement,
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Merger Sub will merge with and into The Barbers, the separate existence
of Merger Sub will cease, and The Barbers will become a wholly-owned
subsidiary of Regis (the "Merger"), and
Each outstanding share of common stock of The Barbers will be converted
into the right to receive 1/2 of one share of common stock of Regis.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
The Company did not file any reports on Form 8-K during the period covered by
this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Registrant)
Date: May 7, 1999 By: /s/ Frederick A. Huggins
------------------------
Frederick A. Huggins, Jr.
President
By: /s/ J. Brent Hanson
-------------------
J. Brent Hanson
Chief Financial Officer
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