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 December 26, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER: 0-24466
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0945858
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Industrial Boulevard NE
Minneapolis, MN 55413
(Address of principal executive offices)
(612) 331-8500
(Registrant's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days
Yes __X__ No____
On February 7, 1997, the registrant had 2,571,454 outstanding shares of
common stock, $.10 par value.
Exhibit Index Located on Page 9.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings for the Quarter
Ended December 26, 1996 and December 28, 1995
Condensed Consolidated Statements of Financial Position at
December 26, 1996 and September 26, 1996
Condensed Consolidated Statements of Cash Flows for the
Quarter Ended December 26, 1996 and December 28, 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 11 Statement re: computation of earnings per share
Exhibit 10.1 Term Loan and Credit Agreement between The Barbers,
Hairstyling for Men & Women, Inc. and Norwest Bank Minnesota, N.A.
dated January 22, 1997.
Exhibit 10.2 Revolving Note between The Barbers, Hairstyling for Men &
Women, Inc. and Norwest Bank Minnesota, N.A. dated January 22,
1997.
Exhibit 10.3 Term Note A between The Barbers, Hairstyling for Men & Women,
Inc. and Norwest Bank Minnesota, N.A. dated January 22, 1997.
Exhibit 10.4 Term Note B between The Barbers, Hairstyling for Men & Women,
Inc. and Norwest Bank Minnesota, N.A. dated January 22, 1997.
Exhibit 10.5 Arbitration Agreement between The Barbers, Hairstyling for Men
& Women, Inc. and Norwest Bank Minnesota, N.A. dated January 22,
1997.
Exhibit 27 Financial Data Schedule - For SEC use only
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FIRST QUARTER F1997
(UNAUDITED)
Three Months Ended
December 26, December 28,
1996 1995
------------ ------------
REVENUES
Franchise Royalties $ 1,497,065 $ 1,416,834
Franchise Fees 231,118 393,050
Company-Owned Salons 1,082,049 520,611
Beauty Products & Equipment 1,845,292 2,028,671
Other 187,529 128,436
----------- -----------
Total Revenues 4,843,053 4,487,602
COSTS & EXPENSES
Franchise Operations
Salaries & Benefits 450,085 457,141
General & Administrative 302,903 300,013
----------- -----------
Total 752,988 757,154
----------- -----------
Company-Owned Salons
Salaries & Benefits 581,208 301,385
General & Administrative 318,282 158,966
Cost of Products & Services 160,896 85,887
----------- -----------
Total 1,060,386 546,238
----------- -----------
Distribution & General Administration
Salaries & Benefits 660,009 635,701
General & Administrative 604,197 640,750
Cost of Products & Equipment 1,412,890 1,612,916
----------- -----------
Total 2,677,096 2,889,367
----------- -----------
OPERATING INCOME 352,583 294,843
OTHER INCOME (EXPENSE)
Interest Income 29,838 30,595
Interest Expense (5,698) (5,871)
Net Gain on Disposal of Assets 590 31,017
----------- -----------
INCOME BEFORE INCOME TAXES 377,313 350,584
INCOME TAX EXPENSE 158,000 147,000
----------- -----------
NET INCOME $ 219,313 $ 203,584
=========== ===========
NET INCOME PER SHARE $ 0.08 $ 0.07
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 2,805,833 2,715,962
=========== ===========
See notes to condensed consolidated financial statements.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 28, September 26,
1996 1996
------------ -------------
ASSETS (Unaudited) (Note 1)
Current assets:
Cash $1,038,224 $1,317,448
Trade receivable, less allowance for doubtful
accounts of $350,000 in December 1996 and
$315,000 in September 1996 2,435,302 2,163,968
Notes receivable 449,614 235,206
Inventories held for resale 1,323,794 1,199,939
Prepaid expenses 106,413 74,372
Deferred income taxes 287,000 287,000
---------- ----------
Total current assets 5,640,347 5,277,933
Notes receivable, less current portion and allowance for
doubtful notes of $100,000 in December 1996 and
$100,000 in September 1996 657,968 733,924
Property, equipment and leasehold impovements, at cost:
Equipment 1,971,434 1,918,682
Leasehold improvements 852,109 852,109
---------- ----------
2,823,543 2,770,791
Less accumulated depreciation 1,886,516 1,816,151
---------- ----------
Net property, equipment and leasehold improvements 937,027 954,640
Investment in franchise contracts, less accumulated
amortization of $238,077 in December 1996 and
$221,805 in September 1996 733,282 733,419
Deferred income taxes 338,000 338,000
Other assets 228,887 210,287
---------- ----------
Total assets $8,535,511 $8,248,203
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital
lease obligations $ 83,123 $ 86,675
Accounts payable 388,185 481,897
Deferred franchise fees 177,250 113,750
Committed advertising 483,276 521,208
Accrued compensation and related payroll taxes 633,074 741,704
Other accrued expenses 465,051 287,011
Income taxes payable 138,609 82,943
---------- ----------
Total current liabilities 2,368,568 2,315,188
Long term debt and capital lease obligations 37,500 56,250
Deferred franchise fees 226,000 226,000
Deferred compensation 218,563 204,278
Shareholders' equity:
Common stock 257,145 256,827
Additional paid in capital 394,495 375,733
Retained earnings 5,033,240 4,813,927
---------- ----------
Total shareholder's equity 5,684,880 5,446,487
---------- ----------
Total liabilities and shareholders' equity $8,535,511 $8,248,203
========== ==========
Note 1: The balance sheet at September 26, 1996 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 1996 items have been
reclassified to conform with the fiscal 1997 presentation.
See notes to condensed consolidated financial statements.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
December 26, December 28,
1996 1995
------------ ------------
OPERATING ACTIVITIES
Net income $ 219,313 $ 203,584
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 95,124 79,765
Provision for losses on accounts and notes receivable 34,618 66,394
Gain on sales of property and equipment (590) (31,017)
Stock compensation 19,080 12,150
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts and notes receivable (444,404) (844,900)
Inventories held for resale (123,855) (148,018)
Prepaid expenses (32,041) (71,150)
Other assets (18,600) 13,133
(Decrease) increase in:
Payables and accrued expenses (47,949) (285,831)
Deferred franchise fees 63,500 (47,000)
Income taxes payable 55,666 45,448
----------- -----------
Net cash used in operating activities (180,138) (1,007,442)
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 590 35,805
Capital expenditures (61,239) (104,729)
Investment in franchise contracts (16,135) (14,746)
----------- -----------
Net cash used in investing activities (76,784) (83,670)
FINANCING ACTIVITIES
Principle payments on long-term debt (18,750) (18,750)
Principle payments on capital lease obligations (3,552) (8,288)
----------- -----------
Net cash used in financing activities (22,302) (27,038)
----------- -----------
Net decrease in cash and cash equivalents (279,224) (1,118,150)
Cash and cash equivalents at beginning of period 1,317,448 2,121,310
----------- -----------
Cash and cash equivalents at end of period $ 1,038,224 $ 1,003,160
=========== ===========
CASH PAID DURING PERIOD FOR:
Interest $ 5,698 $ 5,871
Taxes $ 102,334 $ 101,552
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring accruals) considered necessary for a fair
presentation of results have been included. Operating results for the three
months ended December 26, 1996, are not necessarily indicative of the results
that may be expected for the year ended September 25, 1997. 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 26, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is in the business of franchising two different hair care
salon concepts that provide hair care products for men, women, and children.
Most franchises do business under the names "Cost Cutters Family Hair Care(R)"
("Cost Cutters") or "City Looks Salons International(R)" ("City Looks"). The
Company also has a limited number of franchises operating under the names "The
Barbers, Hairstyling for Men & Women(R)", "Family Haircut Stores" and "The Hair
Performers". The Company currently sells only franchises in Cost Cutters and
City Looks.
The Company had 801 franchised and Company-owned salons in operation as
of December 26, 1996, compared to 721 at December 28, 1995. The Company
primarily earns revenue through its franchise operations from initial franchise
fees, franchise royalties, and sales of beauty products and equipment to the
franchisees.
The Company operates on a 52/53 week year basis. The fiscal years 1997
and 1996 include 52 weeks of operations.
RESULTS OF OPERATIONS
REVENUES: The Company's total revenues were $4,843,053 for the first quarter of
fiscal 1997, an increase of $355,451 or 7.9% over the first quarter of the
previous year. Franchise royalties totaled $1,497,065 for the first quarter of
fiscal 1997 which is an increase of 5.7% over the comparable period for the
previous year. This increase was due to an increase in per store sales by
franchised salons as well as an increase in the number of salons in operation in
fiscal 1997 as compared to fiscal 1996. Franchise fee revenue (initial franchise
fees) decreased $161,932 or 41.2% to $231,118 for the first quarter of fiscal
1997. The decrease in franchise fee revenue was due to a decrease in the number
of salons opened during the comparable periods. A total of nineteen new salons
opened in the first quarter of fiscal 1997 versus thirty-three new salons in the
first quarter of the previous year. Revenue from Company-owned salons was
$1,082,049 for the first quarter, an increase of 107.8% over the first quarter
of the previous year. The increase in revenue from Company-owned salons are due
primarily to the addition of fifteen new Company-owned salons; thirteen during
the later half of fiscal 1996 and two during the first quarter of fiscal 1997.
During the first quarter of fiscal 1996, the Company operated nine Company-owned
salons. Beauty product and equipment sales for the first quarter of fiscal 1997
were $1,845,292, a decrease of $183,379 or 9.0% from the first quarter of the
previous year. The decrease in beauty product and equipment sales was
attributable to a decrease in the total number of new salons opened during the
first quarter of fiscal 1997 compared to the same period for the previous year.
COSTS & EXPENSES - FRANCHISE OPERATIONS: Total franchise operations expenses
were $752,988 for the first quarter of fiscal 1997. This was a decrease of 0.6%
from the first quarter of fiscal 1996. The operating expenses of the first
quarter of fiscal 1996 include the travel and meeting costs for a franchisee
convention held at a remote location. The franchisee convention was held locally
during the first quarter of fiscal 1997.
COSTS & EXPENSES - COMPANY-OWNED SALONS: The Company presently owns and operates
twenty-four salons: twenty-three operate as Cost Cutters salons and one operates
as a City Looks. Thirteen of the Cost Cutters salons were opened in the later
half of fiscal 1996 and two were opened in the first quarter of fiscal 1997.
Twenty-one of the Cost Cutters operate inside Wal-Mart Supercenters. First
quarter operating costs for the Company-owned salons were $1,060,386 as compared
to $546,238 for the first quarter of the previous year, an increase of 94.1%.
This increase was primarily due to the costs associated with opening and
operating the new Cost Cutters salons.
COSTS & EXPENSES - DISTRIBUTION AND GENERAL ADMINISTRATION: Total operating
expenses for distribution and general administration for the first quarter of
fiscal 1997 were $2,677,096 which is a decrease of $212,271 or 7.3% from the
first quarter of the prior year. Most of this decrease was due to decreased cost
of products and equipment sold, which corresponds to the decrease in sales of
products and equipment. The first quarter cost of products and equipment sold
was $1,412,890 versus a prior year cost of $1,612,916, a decrease of 12.4%.
Margins on the sale of products and equipment were 23.4% versus 20.5% the
previous year. Salaries and benefits were $660,009 for the first quarter of
fiscal 1997 versus $635,701 for the first quarter of fiscal 1996, an increase of
3.8%. This increase was due to increases in staff size and an average increase
in salaries of 4.0%. General and administrative expenses for the first quarter
decreased by $36,553 or 5.7% from the previous year to $604,197. The majority of
the decreases were in the areas of reserves for bad debts and travel expenses.
OPERATING INCOME: Operating income was $352,583 for the first quarter of fiscal
1997 as compared to $294,843 for the comparable period of the prior year, an
increase of 19.6%. Operating income as a percent of revenue was 7.3% for the
first quarter of fiscal 1997 versus 6.6% for the comparable period of the
previous fiscal year.
INTEREST INCOME AND EXPENSE: Interest income was $29,838 for the first quarter
of fiscal 1997, which is a decrease of $757 or 2.5% from the interest income of
the first quarter of fiscal 1996. Interest expense was $5,698 for the first
quarter of fiscal 1997 compared to $5,871 for the comparable period of fiscal
1996. This decrease in interest expense was due to decreases in long term debt.
NET GAIN ON DISPOSAL OF ASSETS: During the first quarter of fiscal 1997 the
Company sold miscellaneous assets. The Company recorded a net gain on disposal
of these assets of $590. During the comparable period of the previous year, the
$31,017 gain on the disposal of assets was due to the sale of one Company-owned
salon, one rental property, and miscellaneous assets.
INCOME TAXES: The Company's effective tax rates for the first quarter of fiscal
1997 and fiscal 1996 were 41.9%. The Company anticipates that the rate for the
balance of fiscal 1997 will be approximately 42%.
NET INCOME: The Company's net income for the first quarter of 1997 was $219,313
or $.08 per share. This was an increase of $15,729 or 7.7% over the first
quarter of fiscal 1996 net income and an increase of $.01 per share.
LIQUIDITY AND CAPITAL RESOURCES: The Company has generally been able to produce
sufficient cash from operations to support the routine expansion of its
business, and expects to continue to do the same in fiscal 1997. The Company
expects capital expenditures during fiscal 1997 to be approximately $400,000,
primarily due to the addition of several new Company-owned salons and routine
replacement of office equipment.
The Company as of December 26, 1996, had a line of credit in the amount of
$1,000,000 which carried an interest rate of .50% over the bank's prime rate
which expires April 30, 1997. In addition, the Company also had a term loan with
this same lender. The interest rate on this loan was .75% over the bank's prime
rate. The balance on the loan as of the end of the first quarter of fiscal 1997
was $112,500. All other long term debt represents capital leases. See Item 5 for
information regarding new debt.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company announced on December 26, 1996, that it had entered into a
preliminary agreement to acquire the trademark and franchise agreements of We
Care Hair Development, Inc., a Chicago-based chain of value-priced hair care
salons. This acquisition was completed on January 24, 1997. The purchase price
was $2 million plus a percentage of future royalties. We Care Hair(R) has
approximately 140 franchised salons operating throughout the United States and
Mexico with a concentration in Illinois, Indiana, and Ohio. Details of this
acquisition are included in the Company's form 8-K which was filed February 6,
1997. The Company negotiated term loans totaling $2.5 million from Norwest Bank
Minnesota, N.A. to finance this acquisition. In addition, Norwest Bank
Minnesota, N.A. agreed to increase the Company's line of credit to $1.5 million.
Details of these loan agreements are included in the exhibits to this document.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit
Number Description
- ------ -----------
11 Statement re: computation of earnings per share
10.1 Term Loan and Credit Agreement between The Barbers, Hairstyling
for Men & Women, Inc. and Norwest Bank Minnesota, N.A. dated
January 22, 1997.
10.2 Revolving Note between The Barbers, Hairstyling for Men & Women,
Inc. and Norwest Bank Minnesota, N.A. dated January 22, 1997.
10.3 Term Note A between The Barbers, Hairstyling for Men & Women, Inc.
and Norwest Bank Minnesota, N.A. dated January 22, 1997.
10.4 Term Note B between The Barbers, Hairstyling for Men & Women, Inc.
and Norwest Bank Minnesota, N.A. dated January 22, 1997.
10.5 Arbitration Agreement between The Barbers, Hairstyling for Men &
Women, Inc. and Norwest Bank Minnesota, N.A. dated January 22,
1997.
27 Financial Data Schedule - For SEC use only
(b) The Company did not file any reports on Form 8-K during the three
months ended December 26, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Registrant)
Date: February 7, 1997 By: /s/ J. Brent Hanson
-------------------
J. Brent Hanson
Vice President
By: /s/ J. Brent Hanson
-------------------
J. Brent Hanson
Chief Financial Officer