FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter Ended Commission file number 011230
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Regis Corporation
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(Exact name of registrant as specified in its charter)
Minnesota 41-0749934
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7201 Metro Boulevard, Edina, Minnesota 55439
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(Address of principal executive offices) (Zip Code)
(612)947-7777
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 30, 1996:
Common Stock, $.05 par value 11,884,128
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Class Number of Shares
This document consists of 23 pages.
The Exhibit Index is located on page 20.
1
REGIS CORPORATION
INDEX
PART I. Financial Information Page No.
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Item 1. Consolidated Financial Statements:
Balance Sheet as of June 30, 1995
and March 31, 1996 3
Statement of Operations for the three
months ended March 31, 1995 and 1996 4
Statement of Operations for the nine
months ended March 31, 1995 and 1996 5
Statement of Cash Flows for the nine
months ended March 31, 1995 and 1996 6
Notes to Consolidated Financial Statements 7-8
Review Report of Independent Accountants 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-20
Part II. Other Information
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Item 6. Exhibits and Reports on Form 8-K 20-22
Signatures 23
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGIS CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1995 AND MARCH 31, 1996
(DOLLARS IN THOUSANDS)
June 30, 1995 March 31, 1996
(Unaudited)
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,244 $ 7,786
Accounts receivable 3,931 4,119
Inventories 23,406 26,383
Deferred income taxes 2,204 1,651
Other current assets 4,271 4,483
-------- --------
Total current assets 35,056 44,422
Property and equipment, net 73,939 88,316
Goodwill 51,421 61,253
Other assets 5,907 5,707
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Total assets $166,323 $199,698
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-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Long-term debt, current portion $ 11,990 $ 12,242
Accounts payable 9,163 12,573
Accrued expenses 23,985 27,426
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Total current liabilities 45,138 52,241
Long-term debt 37,969 44,518
Deferred income taxes 109 344
Other noncurrent liabilities 6,680 6,380
Shareholders' equity:
Common stock, $.05 par value;
authorized, 25,000,000 shares;
issued and outstanding, 11,288,044
shares at June 30, 1995 and
11,866,128 at March 31, 1996 565 593
Additional paid-in capital 65,460 72,631
Retained earnings 10,402 22,991
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Total shareholders' equity 76,427 96,215
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Total liabilities and
shareholders' equity $166,323 $199,698
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-------- --------
See accompanying notes to unaudited consolidated financial statements.
3
REGIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1996
---- ----
Sales:
Company-owned operations:
Service $ 74,477 $ 89,984
Product 27,008 35,169
-------- --------
101,485 125,153
Franchise revenues 1,172 1,046
-------- --------
102,657 126,199
-------- --------
Operating expenses:
Cost of sales:
Service 44,100 53,026
Product 14,419 18,735
Rent 13,284 17,333
Selling, general and administrative 19,374 22,441
Depreciation and amortization 3,739 4,731
Other, including franchise expenses 1,084 1,092
-------- --------
96,000 117,358
-------- --------
Operating income 6,657 8,841
Other income (expense):
Interest (1,576) (1,583)
Nonrecurring gains 250 209
Other, net 47 24
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Income before income taxes 5,378 7,491
Income taxes (2,162) (3,082)
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Net income $ 3,216 $ 4,409
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-------- --------
Net income per share:
Primary $ .28 $ .36
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-------- --------
Fully diluted $ .27 $ .36
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-------- --------
Common and common equivalent shares
outstanding:
Primary 11,455 12,170
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-------- --------
Fully diluted 11,863 12,266
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-------- --------
See accompanying notes to unaudited consolidated financial statements.
4
REGIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1996
---- ----
Sales:
Company-owned operations:
Service $ 227,326 $ 258,172
Product 82,784 102,580
--------- ---------
310,110 360,752
Franchise revenues 3,282 3,771
--------- ---------
313,392 364,523
Operating expenses:
Cost of sales:
Service 133,681 150,586
Product 44,129 54,694
Rent 40,065 48,311
Selling, general and administrative 58,928 65,757
Depreciation and amortization 10,986 13,303
Other, including franchise expenses 3,861 4,236
--------- ---------
291,650 336,887
Operating income 21,742 27,636
Other income (expense):
Interest (4,926) (4,504)
Nonrecurring gains 945 486
Other, net 137 108
--------- ---------
Income before income taxes 17,898 23,726
Income taxes (7,516) (9,965)
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Net income $ 10,382 $ 13,761
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--------- ---------
Net income per share:
Primary $ .92 $ 1.16
--------- --------
--------- --------
Fully diluted $ .89 $ 1.14
--------- --------
--------- --------
Common and common equivalent shares
outstanding:
Primary 11,311 11,875
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Fully diluted 11,716 12,115
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See accompanying notes to unaudited consolidated financial statements.
5
REGIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1995 1996
---- ----
Cash flows from operating activities:
Net income $ 10,382 $ 13,761
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,258 13,626
Deferred income taxes (1,237) (254)
Nonrecurring items 1,805
Changes in assets and liabilities, exclusive
of investing and financing activities 125 830
Other 1,402 1,356
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Net cash provided by operating activities 23,735 29,319
--------- --------
Cash flows from investing activities:
Capital expenditures (10,593) (18,778)
Purchase of salon assets, net of cash acquired and
certain obligations assumed (1,160) (14,921)
Other 103
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Net cash used in investing activities (11,650) (33,699)
--------- --------
Cash flows from financing activities:
Borrowings on line of credit 65,424 77,595
Payments on line of credit (77,461) (83,575)
Proceeds from issuance of long-term debt 17,528
Repayment of long-term debt (390) (3,908)
Dividends paid (871)
Proceeds from issuance of common stock 4,300
--------- --------
Net cash provided by (used in) financing activities (12,427) 11,069
--------- --------
Effect of exchange rate changes on cash (134) (147)
--------- --------
Increase (decrease) in cash and cash equivalents (476) 6,542
Cash and cash equivalents:
Beginning of period 3,455 1,244
--------- --------
End of period $ 2,979 $ 7,786
--------- --------
--------- --------
Changes in assets and liabilities, exclusive of
investing and financing activities:
Accounts receivable $ 55 $ 1,733
Inventories 1,051 (1,327)
Other current assets 525 (182)
Accounts payable (3,149) 1,763
Accrued expenses 1,643 (1,157)
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$ 125 $ 830
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See accompanying notes to unaudited consolidated financial statements.
6
REGIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
The unaudited consolidated statements of operations for the three and nine
months ended March 31, 1995 and 1996, reflect, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the results of operations for the
interim periods. The results of operations for any interim period are not
necessarily indicative of results for the full year.
The year-end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. The unaudited interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Annual
Report on Form 10-K for the year ended June 30, 1995. Coopers & Lybrand
L.L.P., the Company's independent accountants, have performed a limited
review of the financial data included herein. Their report on such review
accompanies this filing.
COST OF PRODUCT SALES. On an interim basis, product costs are determined
by applying an estimated gross profit margin.
ASSET IMPAIRMENT ASSESSMENTS. On a periodic basis, the Company measures
and evaluates the recoverability of its tangible and intangible noncurrent
assets using undiscounted cash flow analyses.
2. NONRECURRING GAINS:
During the first, second and third quarters of fiscal 1996, the Company
received $137,000, $140,000 and $209,000, respectively, of principal
payments from Premier Salons. The Company had previously written off the
related receivable, and accordingly, is recording all subsequent principal
payments as nonrecurring gains.
3. ACQUISITIONS:
In September 1995, the Company completed the acquisitions of Essanelle
Limited (Essanelle) and S&L du Lac. The $6,300,000 aggregate purchase
price was paid to the selling shareholder in cash at closing.
Additionally, the Company made a $992,000 cash payment at closing to
Essanelle to facilitate the payoff of existing debt of Essanelle. The
purchase price has been funded through a combination of proceeds from the
issuance of the Company's common stock and proceeds from long-term debt
issued by banks.
In January 1996, the Company announced the acquisitions of Steiner Salons
Limited and Steiner Hairdressing Limited. The $2,800,000 aggregate
purchase price was paid to the selling shareholder in cash at closing. The
purchase price has been funded with borrowing under the Company's revolving
credit facility and long-term debt from banks.
In addition, the Company made numerous other acquisitions during 1996 with
an aggregate purchase price of approximately $5,000,000.
These acquisitions have been accounted for as purchases, and their results
have been recorded from the date of their acquisitions. These acquisitions
are not significant to the Company's overall results.
4. FINANCING ARRANGEMENTS:
In February 1996, the Company borrowed $10,000,000 of Senior Notes which
bear interest at 6.9 percent and are due in July 2005.
5. EMPLOYEE BENEFIT PLANS
In March 1996, the Company granted incentive stock options to purchase
approximately 150,000 shares of common stock granted for fair market
value at the date of grant.
7
6. OTHER FINANCIAL STATEMENT DATA:
The following provides supplemental disclosures of cash flow activity for
the nine months ended March 31, 1995 and 1996:
Cash paid during the period for: 1995 1996
---- ----
Interest $4,929,000 $4,390,000
Income taxes 7,278,000 9,807,000
8
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Regis Corporation:
We have reviewed the accompanying consolidated balance sheet of Regis
Corporation as of March 31, 1996, and the related consolidated statements of
operations for the three and nine months ended March 31, 1995 and 1996, and the
consolidated statement of cash flows for the nine months ended March 31, 1995
and 1996. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of June 30, 1995, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the year then ended (not fully presented herein); and in our report
dated August 18, 1995, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of June 30, 1995, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 22, 1996
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
Regis Corporation, based in Minneapolis, is the largest owner and operator
of mall-based hair and retail product salons in the world. The Regis worldwide
operations include 1,793 hairstyling salons at March 31, 1996 operating in four
divisions: REGIS HAIRSTYLISTS, MASTERCUTS, TRADE SECRET and INTERNATIONAL.
Worldwide operations include 81 franchised salons operating primarily in the
TRADE SECRET division. The Company has more than 18,000 employees worldwide.
During the third quarter of fiscal 1996, the Company's sales increased
22.9 percent to a record $126,199,000 and operating income increased
32.8 percent to $8,841,000. Exclusive of nonrecurring gains, fully diluted
earnings per share increased 34.6 percent in the third quarter of fiscal
1996 to $.35 per share, compared to $.26 per share in the same period the prior
year.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
information derived from the Company's Consolidated Statement of Operations
expressed as a percentage of sales. All percentages were computed as a
percentage of total revenue from company-owned salon operations. For purposes
of this analysis, revenues from the Company's franchise operations have been
netted against the related franchise expenses, as included in the cost category
"Other, including franchise revenues and expenses." This was done to facilitate
a meaningful comparison of the historical expense ratios of the Company.
Franchise revenues are not material to the Company as they represent
approximately 1 percent of total sales.
10
WORLDWIDE OPERATIONS
FOR THE PERIODS ENDED MARCH 31,
-------------------------------
THREE MONTHS NINE MONTHS
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1995 1996 1995 1996
---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of sales 57.7 57.3 57.3 56.9
Rent 13.1 13.8 12.9 13.4
Selling, general and administrative 19.1 17.9 19.0 18.2
Depreciation and amortization 3.7 3.8 3.5 3.7
Other, including franchise revenues and
expenses (0.2) 0.1 0.3 0.1
---- ---- ---- ----
93.4 92.9 93.0 92.3
---- ---- ---- ----
Operating income 6.6 7.1 7.0 7.7
Other income (expense):
Interest (1.5) (1.3) (1.6) (1.2)
Nonrecurring gains 0.2 0.2 0.3 0.1
Other, net (0.1) (0.1) (0.1)
---- ---- ---- ----
Income before income taxes 5.2 5.9 5.7 6.5
Income taxes (2.1) (2.4) (2.4) (2.7)
---- ---- ---- ----
Net income 3.1% 3.5% 3.3% 3.8%
---- ---- ---- ----
---- ---- ---- ----
SALES
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
SALES. Sales for the third quarter of fiscal 1996 grew to a record
$126,199,000 representing an increase of $23,542,000, or 22.9 percent, over the
same period in fiscal 1995. More than one-half of the increase is attributable
to acquisitions occurring subsequent to the third quarter of fiscal 1995, with
the remaining increase due to net salon openings and increases in customers
served and product sales. REGIS HAIRSTYLISTS, MASTERCUTS and TRADE SECRET
retail product salons in the United States and Canada (Domestic salons)
accounted for $12,766,000 of the total sales increase, with the balance of the
overall revenue growth generated from the Company's United Kingdom, South
Africa, Switzerland and Mexico salon operations (International salons), largely
influenced by the Company's recent salon acquisitions in the United Kingdom.
11
For the third quarter of fiscal 1996, sales from REGIS HAIRSTYLISTS were
$66,724,000, an increase of 6.1 percent, sales from MASTERCUTS were $20,998,000,
an increase of 22.1 percent, TRADE SECRET company-owned sales were $16,422,000,
an increase of 46.6 percent and International salon sales were $21,009,000, an
increase of 105 percent.
During the third quarter of fiscal 1996, same store sales from Domestic
salons open more than twelve months increased 4.8 percent compared to a
2.0 percent same store sales increase during the same period the previous year.
Same store sales for the United Kingdom salons (U.K. salons), the primary
component of International salons, decreased 0.4 percent. Same store sales
increases achieved for Domestic salons during the third quarter of fiscal
1996 are primarily due to an increase in the number of customers served. The
Company utilizes an audiovisual-based training system in its salons.
Management believes this training system provides its employees with improved
customer service and technical skills and positively contributes to the
increase in customers served.
SERVICE SALES. Service sales in the third quarter of fiscal 1996 were
$89,984,000, an increase of $15,507,000, or 20.8 percent, over the same period
in fiscal 1995. This increase was primarily due to acquisitions occurring
subsequent to the third quarter of fiscal 1995, net salon openings and increases
in customers served worldwide.
PRODUCT SALES. Product sales in the third quarter of fiscal 1996 were
$35,169,000, an increase of $8,161,000, or 30.2 percent, over the same period in
fiscal 1995. Of the increase, the TRADE SECRET retail product salon operations
represented $4,066,000, increased product sales from REGIS HAIRSTYLISTS and
MASTERCUTS salons represented $2,604,000, and increased product sales from
INTERNATIONAL salons represented $1,491,000. Product sales for REGIS
HAIRSTYLISTS and MASTERCUTS salons represented 20.2 percent of their third
quarter fiscal 1996 sales mix, compared to 18.8 percent in the same period of
fiscal 1995. This increase continues to be primarily volume driven. This
growth reflects continuing increased customer awareness and acceptance of
national brand salon merchandise and sales training of Company employees.
NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995:
SALES. Sales for the first nine months of fiscal 1996 were a record
$364,523,000 representing an increase of $51,131,000 or 16.3 percent, over the
same period in fiscal 1995. More than one-half of this increase is attributable
to acquisitions occurring subsequent to the third quarter of fiscal 1995, with
the remaining increase due to net salon openings and increases in customers
served and product sales. Domestic salons accounted for $31,949,000 of the
total sales increase. The remaining sales growth was generated from the
Company's International salons primarily due to recent acquisitions.
12
For the first nine months of fiscal 1996, sales from REGIS HAIRSTYLISTS
were $199,720,000, an increase of 4.1 percent, sales from MASTERCUTS were
$61,904,000, an increase of 19.4 percent, TRADE SECRET company-owned sales were
$47,315,000, an increase of 40.4 percent and International salon sales were
$51,813,000, an increase of 58.8 percent.
During the first nine months of fiscal 1996, same store sales from Domestic
salons open more than twelve months increased 3.7 percent compared to a
3.7 percent same store sales increase during the same period the previous year.
Same store sales for the U.K. salons, the primary component of International
salons, increased 0.4 percent during the first nine months. Same store sales
increases achieved for domestic salons during the first nine months of fiscal
1996 are primarily due to an increase in the number of customers served.
SERVICE SALES. Service sales in the first nine months of fiscal 1996 were
$258,172,000, an increase of $30,846,000, or 13.6 percent, over the same period
in fiscal 1995. This increase was primarily due to acquisitions occurring
subsequent to the third quarter of fiscal 1995, net salon openings and increases
in customers served worldwide.
PRODUCT SALES. Product sales in the first nine months of fiscal 1996 were
$102,580,000, an increase of $19,796,000, or 23.9 percent, over the same period
in fiscal 1995. Of the increase, the TRADE SECRET retail product salon
operations represented $10,751,000, and increased product sales from REGIS
HAIRSTYLISTS and MASTERCUTS salons represented $6,426,000. Product sales for
REGIS HAIRSTYLISTS and MASTERCUTS salons represented 20.3 percent of their sales
mix for the first nine months of fiscal 1996 sales, compared to 19.1 percent in
the same period of fiscal 1995. This increase continues to be primarily volume
driven.
COST OF SALES
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
Cost of sales in the third quarter of fiscal 1996 was $71,761,000, compared
to $58,519,000, in the same period the previous year. The resulting combined
gross margin percentage for the third quarter of fiscal 1996 improved to
42.7 percent compared to 42.3 percent in the same period the previous year.
This improvement is due to several factors, the most significant of which is an
improved utilization of salary and commissions at REGIS HAIRSTYLISTS, the major
component of cost of sales. Improved gross margin was also the result of
favorable mix changes, primarily an increase in sales from MASTERCUTS salons
which have lower payroll costs as a percentage of sales compared to REGIS
HAIRSTYLISTS salons, and an increase in the percentage of product sales at
REGIS HAIRSTYLISTS and MASTERCUTS which have higher gross margins than
service sales.
13
Service margins improved to 41.1 percent in the third quarter of fiscal
1996, compared to 40.8 percent in the same period the previous year. As
previously noted, this improvement was due to improved payroll utilization and
favorable sales mix changes. Retail product margins improved to 46.7 percent in
the third quarter of fiscal 1996, compared to 46.6 percent in the same period
the previous year. The improvement in product margins is due to favorable
product mix changes and improved product purchasing power, partially offset by
an increasing percentage of product sales from TRADE SECRET and INTERNATIONAL
salons which have a slightly higher effective mix of product cost than the
Company's other salon divisions.
NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995:
Cost of sales in the first nine months of fiscal 1996 was $205,280,000,
compared to $177,810,000, in the same period the previous year. The resulting
combined gross margin percentage for the first nine months of fiscal 1996
improved to 43.1 percent compared to 42.7 percent in the same period the
previous year. This improvement is due to several factors, the most significant
of which is an improved utilization of salary and commissions at REGIS
HAIRSTYLISTS, the major component of cost of sales. Improved gross margin was
also the result of favorable mix changes, primarily an increase in sales from
MASTERCUTS salons which have lower payroll costs as a percentage of sales
compared to REGIS HAIRSTYLISTS salons, and an increase in the percentage of
product sales at REGIS HAIRSTYLISTS and MASTERCUTS which have higher gross
margins than service sales.
Service margins improved to 41.7 percent in the first nine months of fiscal
1996, compared to 41.2 percent in the same period the previous year. As
previously noted, this improvement was due to improved payroll utilization and
favorable sales mix changes. Retail product margins remained consistent at
46.7 percent in the third quarter of fiscal 1996, compared to 46.7 percent in
the same period the previous year. The stable product margins are due to
favorable product mix changes and improved product purchasing power, offset by
an increasing percentage of product sales from TRADE SECRET and International
salons which have a slightly higher effective mix of product cost than the
Company's other salon divisions.
RENT EXPENSE
14
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
Rent expense in the third quarter of fiscal 1996 was $17,333,000, or
13.8 percent of sales, compared to $13,284,000, or 13.1 percent of sales, in
the same period the previous year. The percentage increase is due to the
recent U.K. acquisitions of the Essanelle department store salons and the
Steiner salons in September 1995 and January 1996, respectively. When compared
to Domestic salon operations, the U.K. salon operations have higher rent
expenses and lower selling and administrative expenses because certain costs
are absorbed by department stores and passed on as rent. Rent expense as a
percentage of sales for the Company's REGIS HAIRSTYLISTS, MASTERCUTS and TRADE
SECRET salons improved slightly between the two periods primarily due to sales
leveraging of this fixed cost.
NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995:
Rent expense in the first nine months of fiscal 1996 was $48,311,000, or
13.4 percent of sales, compared to $40,065,000, or 12.9 percent of sales, in the
same period the previous year. As noted above, the increase is due to the
recent U.K. acquisitions of the Essanelle department store salons and the
Steiner salons. Exclusive of the impact of the recent U.K. acquisitions rent as
a percentage of sales would have been 12.8% for the first nine months of
fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
Selling, general and administrative expense in the third quarter of fiscal
1996 was $22,441,000, or 17.9 percent of sales, compared to $19,374,000, or
19.1 percent of sales, in the same period the previous year. Such expenses
include costs directly related to salon operations (such as advertising,
promotion, insurance, telephone and utilities), field supervision costs
(payroll, related taxes and travel) and home office administration costs (such
as warehousing, salaries, occupancy costs and professional fees). The
improvement is primarily attributable to the U.K. acquisitions for the
reasons described under rent expenses above, and continued sales leveraging
of fixed and semi-fixed costs during the period.
NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995:
Selling, general and administrative expense in the first nine months of
fiscal 1996 was $65,757,000, or 18.2 percent of sales, compared to $58,928,000,
or 19.0 percent of sales, in the same period the previous year. The improvement
is primarily attributable to the U.K. acquisitions and continued sales
leveraging of fixed and semi-fixed costs during the period.
DEPRECIATION AND AMORTIZATION
15
THREE AND NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE AND NINE MONTHS
ENDED MARCH 31, 1995:
Depreciation and amortization expense in the third quarter of fiscal 1996
increased to 3.8 percent from 3.7 percent of sales last year. Depreciation and
amortization expense in the first nine months of fiscal 1996 increased to
3.7 percent from 3.5 percent of sales last year. Amortization costs have
increased in connection with the Company's salon acquisition activity and the
related intangibles. Depreciation expense, the major component within this
category, has remained relatively consistent as a percentage of sales.
OPERATING INCOME
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
Operating income in the third quarter of fiscal 1996 improved to
$8,841,000, an increase of $2,184,000, or 32.8 percent, over the same period the
previous year. Operating income as a percentage of sales increased to
7.1 percent in the third quarter of fiscal 1996 compared to 6.6 percent in the
same period the previous year. Such increase is attributable primarily to a
reduction in cost of sales and the leveraging of selling, general and
administrative expense as a percentage of sales.
NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995:
Operating income in the first nine months of fiscal 1996 improved to
$27,636,000, an increase of $5,894,000, or 27.1 percent, over the same period
the previous year. Operating income as a percentage of sales increased to
7.7 percent in the first nine months of fiscal 1996 compared to 7.0 percent
in the same period the previous year. Such increase is attributable primarily
to a reduction in cost of sales and the leveraging of selling, general and
administrative expense as a percentage of sales.
INTEREST EXPENSE
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
Interest expense of $1,583,000 for the third quarter of fiscal 1996 was
consistent with $1,576,000, in the same period the previous year. The amount
of interest expense was consistent with the same period the previous year due to
slightly higher levels of average outstanding debt offset by slightly lower
weighted average interest rates.
NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995:
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Interest expense for the first nine months of fiscal 1996 declined to
$4,504,000, or 1.2 percent of sales, compared to $4,926,000, or 1.6 percent of
sales, in the same period the previous year. This improvement reflects the
effects of sales leveraging and lower average debt balances during the first
nine months of fiscal 1996.
NONRECURRING GAINS
THREE AND NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE AND NINE MONTHS
ENDED MARCH 31, 1995:
During the first, second and third quarters of fiscal 1996, the Company
received $137,000, $140,000 and $209,000 respectively, of principal payments
from Premier Salons. As discussed in the following paragraph, the Company
had previously written off the related receivable, and accordingly, is
recording all subsequent principal payments as nonrecurring gains.
During the first quarter of fiscal 1995, the Company received a $2,500,000
cash settlement with respect to its directors and officers insurance claim
arising from resolution of the MEI Salons litigation matter. Based on certain
events also occurring in the first quarter with respect to the Company's
investment in and advances to Premier Salons, the Company re-evaluated and wrote
off all remaining net assets associated with the fiscal 1994 MEI litigation
settlement as a result of these two transactions, the Company recorded a net
nonrecurring pre-tax gain of $195,000 in the first quarter of fiscal 1995.
During the second quarter of fiscal 1995, the Company issued an incremental
93,220 shares of its common stock to the creditors of MEI Diversified as final
resolution of the MEI Salons settlement guarantee. The incremental number of
shares issued in December 1994 was less that the Company originally estimated
based on its stock price guarantee which was issued when the transaction was
recorded in December 1993 (the second quarter of fiscal 1994). As a result, the
Company recorded a $500,000 adjustment of its previous estimate as a
nonrecurring gain in the second quarter of fiscal 1995.
During the third quarter of fiscal 1995, the Company received $250,000 of
principal payments from Premier Salons and recorded a corresponding
nonrecurring gain.
INCOME TAXES
THREE AND NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE AND NINE MONTHS
ENDED MARCH 31, 1995:
The Company's effective income tax rate for fiscal 1996 is estimated to be
approximately 42.0 percent, consistent with fiscal 1995. The estimated effective
rate reflects
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higher levels of pretax earnings expected in fiscal 1996, offset by the
discontinuance of targeted job credits; therefore the Company expects the
effective tax rate in fiscal 1996 to be comparable with fiscal 1995.
NET INCOME
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
Net income for the third quarter of fiscal 1996 increased to a record
$4,409,000, or $.36 per share computed on a fully diluted basis, compared to net
income of $3,216,000, or $.27 per share in the same period the previous year.
Exclusive of the effect of nonrecurring gains, net income for the third quarter
fiscal 1996 would have been $4,284,000 or $.35 per share on a fully diluted
basis, compared to net income for the third quarter of fiscal 1995 of
$3,068,000, or $.26 per share.
NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995:
Net income for the first nine months of fiscal 1996 increased to
$13,761,000, or $1.14 per share computed on a fully diluted basis, compared to
net income of $10,382,000, or $.89 per share in the same period the previous
year. Exclusive of the effect of nonrecurring gains, net income for the first
nine months of fiscal 1996 would have been $13,469,000 or $1.12 per share on a
fully diluted basis, compared to net income for the same period of fiscal 1995
of $9,824,000, or $.85 per share.
LIQUIDITY AND CAPITAL RESOURCES
Customers generally pay for salon services and merchandise in cash at the
time of sale, which reduces the Company's working capital requirements. Net
cash provided by operating activities (before capital expenditures and debt
principal repayments) in the first nine months of fiscal 1996 increased to
$29,319,000 compared to $23,735,000 during the same period the previous year.
The increase between the two periods is mainly due to improved operating
performance during the first nine months of fiscal 1996 and increased levels of
depreciation and amortization.
During the first nine months of fiscal 1996, the Company had worldwide
capital expenditures of $27,636,000, of which $8,858,000 relates to
acquisitions. The Company constructed 26 new REGIS HAIRSTYLISTS salons, 28 new
MASTERCUTS salons, 33 new TRADE SECRET salons and 7 new International salons,
and completed 38 major remodeling projects, including 8 conversions of existing
salons to other salon concepts. All capital expenditures during the first nine
months of fiscal 1996 were funded by cash flow from the Company's operations and
borrowings under its revolving credit facilities.
The Company anticipates its worldwide salon development program for fiscal
1996 will
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include approximately 110 new salons and 50 major remodeling and conversion
projects (including the 94 new salons opened and 38 remodeling projects
completed during the first nine months of fiscal 1996). It is expected that
expenditures for these new salons and other projects will be approximately
$22,000,000 in fiscal 1996, excluding acquisition activity.
In September 1995, the Company completed the acquisitions of Essanelle
Limited (Essanelle) and S&L du Lac. The $6,300,000 aggregate purchase price was
paid to the selling shareholder in cash at closing. Additionally, the Company
made a $992,000 cash payment at closing to Essanelle to facilitate the payoff of
existing debt of Essanelle. The purchase price has been funded through a
combination of proceeds from the issuance of the Company's common stock and
long-term debt issued by banks.
In January 1996, the Company announced the acquisitions of Steiner Salons
Limited and Steiner Hairdressing Limited. The $2,800,000 aggregate purchase
price was paid to the selling shareholder in cash at closing. The purchase
price has been funded with borrowing under the Company's revolving credit
facility and long-term debt from banks.
The Company has $20,000,000 in revolving credit facilities which mature
on June 30, 1997. The Company may borrow on a revolving basis under these
credit facilities to provide working capital and fund capital expenditures.
As of March 31, 1996, there were no outstanding balances under these credit
facilities. Borrowings under these credit facilities bear interest at a rate
per annum equal to the prime rate. Effective April 1, 1996, these credit
facilities allow the Company to borrow funds at interest rates based on an
adjusted LIBOR-based rate. The agreements contain certain financial and
restrictive covenants and require a quarterly commitment fee at the rate of
1/2 percent per annum on the unused portion of the facility.
In January 1996, the Company repaid the outstanding principal amount of
$2,187,500 of subordinated debt associated with the financing of the Beauty
Express acquisition. In a related transaction, the Company's subordinated
convertible debenture of $2,062,500 was converted to 275,000 shares of the
Company's common stock.
In February 1996, the Company borrowed $10,000,000 of 6.9 percent senior
notes which are due in July 2005. Proceeds associated with this borrowing
although utilized to pay off borrowings under the revolving credit
facilities are intended and will effectively refinance the $10,000,000
principal payment due on the 11.5 percent senior notes on June 30, 1996. The
agreement under which the notes were issued contains financial and
restrictive covenants identical in all material respects to those contained
in the Company's existing senior notes.
At March 31, 1996, the Company had outstanding $34,000,000 of 11.5 percent
senior notes. The notes require annual mandatory payments of $10,000,000 on
June 30, 1996 and 1997, and $14,000,000 on June 30, 1998. The agreement under
which the notes were issued contains financial and restrictive covenants that
are identical in all material respects to those contained in the Company's
revolving credit facilities, and provides for a penalty based on yield
maintenance in the event of voluntary prepayment.
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Management believes that cash generated from operations and amounts
available under its revolving credit facilities will be sufficient to fund its
anticipated capital expenditures and required debt repayments for the
foreseeable future.
The Company has paid quarterly dividends of $285,000, $289,000 and
$297,000, 2 1/2 cents per share in each quarter this year.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" was
issued in March 1995 and is effective for fiscal years beginning after December
15, 1995. The Company believes implementation of this accounting standard in
fiscal 1997 will not have a material impact on earnings.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. The Company has elected to continue following the guidance of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, for measurement and recognition of stock-based transactions with
employees. The Company will adopt the disclosure provisions of SFAS No. 123
in fiscal 1997.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10(s) $10,000,000 Note drawn from Private Shelf Agreement dated as of
February 21, 1996, between the registrant and the Prudential
Insurance Company of America.
Exhibit 10(t) Modification to Senior Revolving Credit Agreement between the
registrant and LaSalle National Bank and Bank Hapoalim dated
March 19, 1996.
Exhibit 11 Computation of Earnings per Share.
Exhibit 15 Letter Re: Unaudited Interim Financial Information.
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SIGNATURE
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.
REGIS CORPORATION
Date: May 3, 1996 By:/s/ Frank E. Evangelist
--------------------------------------
Frank E. Evangelist
Senior Vice President, Finance
Chief Financial Officer
Signing on behalf of the
registrant and as principal
accounting officer
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