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 September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to___________________
____________________
For Quarter Ended September 30, 1996 Commission file number 011230
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/ /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 24, 1996:
Common Stock, $.05 par value 18,095,955
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Class Number of Shares
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, 1996
and September 30, 1996 3
Statement of Operations for the three
months ended September 30, 1995 and 1996 4
Statement of Cash Flows for the three
months ended September 30, 1995 and 1996 5
Notes to Consolidated Financial Statements 6-7
Review Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
Part II. Other Information
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Item 6. Exhibits and Reports on Form 8-K 15-16
Signatures 17
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGIS CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996 AND SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
JUNE 30, 1996 SEPTEMBER 30, 1996
(UNAUDITED)
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,471 $ 1,871
Accounts receivable 6,991 4,590
Inventories 30,600 33,266
Deferred income taxes 1,806 1,868
Other current assets 4,501 5,777
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Total current assets 49,369 47,372
Property and equipment, net 95,089 98,779
Goodwill 70,732 73,465
Other assets 5,984 5,793
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Total assets $221,174 $225,409
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-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 13,668 $ 13,724
Accounts payable 13,875 16,621
Accrued expenses 29,392 26,978
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Total current liabilities 56,935 57,323
Long-term debt 49,717 48,273
Other noncurrent liabilities 6,308 6,227
Shareholders' equity:
Capital stock, $.05 par value; authorized,
25,000,000 shares; issued and outstanding,
18,061,292 common shares at June 30, 1996 and
18,094,792 common shares at September 30, 1996 903 905
Additional paid-in capital 79,378 79,616
Retained earnings 27,933 33,065
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Total shareholders' equity 108,214 113,586
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Total liabilities and shareholders'
equity $221,174 $225,409
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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 SEPTEMBER 30, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1996
---- ----
Sales:
Company-owned operations:
Service $ 79,417 $ 99,095
Product 30,882 39,802
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110,299 138,897
Franchise revenues 1,421 961
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111,720 139,858
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Operating expenses:
Cost of sales:
Service 45,844 57,657
Product 16,541 21,546
Rent 14,141 19,628
Selling, general and administrative 20,774 24,228
Depreciation and amortization 4,122 5,397
Other, primarily franchise expenses 1,856 1,077
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103,278 129,533
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Operating income 8,442 10,325
Other income (expense):
Interest (1,377) (1,454)
Nonrecurring gains 137 218
Other, net 43 135
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Income before income taxes 7,245 9,224
Income taxes (3,068) (3,862)
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Net income $ 4,177 $ 5,362
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--------- ---------
Net income per share $ .23 $ .29
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--------- ---------
Common and common equivalent shares
outstanding 17,947 18,766
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--------- ---------
See accompanying notes to unaudited consolidated financial statements.
4
REGIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1995 1996
---- ----
Cash flows from operating activities:
Net income $ 4,177 $ 5,362
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,229 5,478
Deferred income taxes (72) (16)
Changes in assets and liabilities, exclusive
of investing and financing activities (735) (818)
Other 512 249
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Net cash provided by operating activities 8,111 10,255
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Cash flows from investing activities:
Capital expenditures (5,856) (7,685)
Purchase of salon assets, net of cash acquired and
certain obligations assumed (8,517) (4,611)
--------- --------
Net cash used in investing activities (14,373) (12,296)
--------- --------
Cash flows from financing activities:
Borrowings on line of credit 34,766 34,083
Payments on line of credit (30,417) (33,900)
Proceeds from issuance of long-term debt 5,985
Repayment of long-term debt (227) (1,628)
Dividends paid (285) (361)
Proceeds from issuance of common stock 67 240
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Net cash provided by (used in) financing activities 9,889 (1,566)
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Effect of exchange rate changes on cash (17) 7
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Increase (decrease) in cash and cash equivalents 3,610 (3,600)
Cash and cash equivalents:
Beginning of period 1,244 5,471
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End of period $ 4,854 $ 1,871
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--------- --------
Changes in assets and liabilities, exclusive of
investing and financing activities:
Accounts receivable $ 960 $ 2,427
Inventories 301 (2,265)
Other current assets (957) (1,283)
Accounts payable (876) 2,748
Accrued expenses (163) (2,445)
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$ (735) $ (818)
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See accompanying notes to unaudited consolidated financial statements.
5
REGIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
The unaudited consolidated statement of operations for the three months
ended September 30, 1995 and 1996, reflects, 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 Company's
consolidated financial statements which are incorporated by reference
in the Company's Annual Report on Form 10-K for the year ended
June 30, 1996. 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 quarterly basis, the Company measures
and evaluates the recoverability of its tangible and intangible noncurrent
assets using undiscounted cash flow analyses.
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 adopted effective July 1, 1996, and did not have a significant
effect on the consolidated financial statement.
2. NONRECURRING GAINS:
During the first quarter of fiscal 1997 and 1996, the Company received
$218,000 and $137,000, 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. MERGERS AND ACQUISITIONS:
SUPERCUTS, INC.
Effective October 25, 1996, the Company received shareholder approval for
the merger agreement with Supercuts, Inc. (Supercuts) in a stock-for-stock
merger transaction. Supercuts is a national operator of approximately 450
company-owned/managed and franchisor of over 700 affordable hair care
salons. Each Supercuts shareholder received 0.40 shares of the Company's
common stock in exchange for each Supercuts, Inc. common share, or
approximately 4,600,000 shares of the Company's common stock on a
fully diluted basis. The transaction will be accounted for as a
pooling-of-interests.
Although unaudited pro forma information of the combined Regis/Supercuts
company is not available as of the date of filing this report on Form 10-Q,
unaudited pro forma information for periods ended June 30, 1996, has been
included in a registration statement filed by the Company on Form S-4
dated September 24, 1996 with the Securities and Exchange Commission.
6
As required under pooling-of-interests accounting, during the second
quarter, the Company will retroactively restate its consolidated
financial statements to include the financial position, results of
operations and cash flows of Supercuts. In the future, the Company will
report combined results of the merged companies and, in addition, expects
to record a nonrecurring pretax charge in the second quarter ended
December 31, 1996 in the range of approximately $18 million for
transaction, restructuring and other nonrecurring costs associated
with the merger. A significant portion of this charge will be nondeductible
for income tax purposes.
OTHER
The following represents the unaudited pro forma results of operations of
the Company as if acquisitions occurring in fiscal 1996, primarily the U.K.
and the Wal-Mart acquisitions, as more fully described under Management's
Discussion and Analysis, and the related common stock activity had
occurred at the beginning of fiscal 1996.
(Dollars in thousands, except per share amounts)
-----------------------------------------------
Three months ended
September 30, 1995
------------------
Sales $133,317
Income before income taxes 7,746
Net income 4,561
Net income per share $0.25
These pro forma results may not be indicative of results that actually
would have occurred had the acquisitions taken place at the beginning of
the periods presented or of results which may occur in the future.
4. OTHER FINANCIAL STATEMENT DATA:
The following provides supplemental disclosures of cash flow activity for
the three months ended September 30, 1995 and 1996:
1995 1996
---- ----
Cash paid during the period for:
Interest $1,332,000 $1,489,000
Income taxes 3,255,000 3,244,000
7
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 September 30, 1996, and the related consolidated statements of
operations and cash flows for the three months ended September 30, 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, 1996, 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 20, 1996, 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, 1996, 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
October 25, 1996
8
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 2,005 hairstyling salons at September 30, 1996 operating in
five divisions: REGIS HAIRSTYLISTS, MASTERCUTS, TRADE SECRET, WAL-MART and
INTERNATIONAL. Worldwide operations include 61 franchised salons operating
primarily in the TRADE SECRET division. The Company has more than 20,000
employees worldwide.
During the first quarter of fiscal 1997, the Company's consolidated sales
increased 25.2 percent to a record $139,858,000 and operating income grew
22.3 percent to $10,325,000. Exclusive of nonrecurring gains, earnings per
share increased 21.7 percent in the first quarter of fiscal 1997 to $.28 per
share, compared to $.23 per share in the same period the prior year.
SUPERCUTS, INC. MERGER - Effective October 25, 1996, the Company received
shareholder approval for the merger agreement with Supercuts, Inc.
(Supercuts) in a stock-for-stock merger transaction. Supercuts is a national
operator of approximately 450 company-owned/managed and franchisor of over
700 affordable hair care salons. Each Supercuts shareholder received 0.40
shares of the Company's common stock in exchange for each Supercuts, Inc.
common share, or approximately 4,600,000 shares of the Company's common stock
on a fully diluted basis. The transaction will be accounted for as a
pooling-of-interests.
Although unaudited pro forma information of the combined Regis/Supercuts
company is not available as of the date of filing this report on Form 10-Q,
unaudited pro forma information for periods ended June 30, 1996, has been
included in a registration statement filed by the Company on Form S-4 dated
September 24, 1996 with the Securities and Exchange Commission.
As required under pooling-of-interests accounting, during the second
quarter, the Company will retroactively restate its consolidated financial
statements to include the financial position, results of operations and cash
flows of Supercuts. In the future, the Company will report combined results
of the merged companies and, in addition, expects to record a nonrecurring
pretax charge in the second quarter ended December 31, 1996 in the range of
approximately $18 million for transaction, restructuring and other
nonrecurring costs associated with the merger. A significant portion of this
charge will be nondeductible for income tax purposes.
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 TRADE SECRET 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
less than 1 percent of total sales.
9
WORLDWIDE OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1995 1996
---- ----
Sales 100.0% 100.0%
Operating expenses:
Cost of sales 56.6 57.0
Rent 12.8 14.1
Selling, general and administrative 18.8 17.4
Depreciation and amortization 3.7 3.9
Other, including franchise revenues and expenses 0.4 0.2
92.3 92.6
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Operating income 7.7 7.4
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Other income (expense):
Interest (1.2) (1.0)
Nonrecurring gain 0.1 0.2
Other, net (0.1)
----- -----
Income before income taxes 6.5 6.6
Income taxes (2.8) (2.8)
----- -----
Net income 3.7% 3.8%
----- -----
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THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995:
SALES. Sales for the first quarter of fiscal 1997 grew to a record
$139,858,000, representing an increase of $28,138,000, or 25.2 percent, over the
same period in fiscal 1996. Approximately 80 percent of the increase is
attributable to salon acquisitions occurring subsequent to the first quarter of
fiscal 1996, with the remaining increase due to net salon openings, and
increases in customers served and product sales. REGIS HAIRSTYLISTS,
MASTERCUTS, TRADE SECRET and WAL-MART salons in the United States and Canada
(Domestic salons) accounted for $16,468,000 of the total sales increase. The
remainder of the sales increase of $11,670,000 was related to the Company's
salon operations in the United Kingdom, South Africa, Switzerland and Mexico
(International salons) and was largely influenced by the Company's salon
acquisitions subsequent to the first quarter of fiscal 1996 in the United
Kingdom.
For the first quarter of fiscal 1997, sales from REGIS HAIRSTYLISTS were
$67,172,000, an increase of 2.1 percent, sales from MASTERCUTS were
$22,783,000, an increase of 16.1 percent, TRADE SECRET company-owned sales
were $19,180,000, an increase of 35.1 percent, sales from WAL-MART salons
were $7,427,000, a newly acquired division compared to the same period a year
ago, and International salon sales were $22,335,000, an increase of more than
100 percent, principally due to acquisitions subsequent to the first quarter
of fiscal 1996.
10
During the first quarter of fiscal 1997, same-store sales from Domestic
salons open more than twelve months increased 1.4 percent, compared to a 3.8
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, increased 4.4 percent during the quarter.
Same-store sales increases achieved during the first quarter of fiscal 1997 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 first quarter of fiscal 1997 were
$99,095,000, an increase of $19,678,000 or 24.8 percent, over the same period in
fiscal 1996. This increase was primarily due to acquisitions, net salon
openings and same-store sales growth.
PRODUCT SALES. Product sales in the first quarter of fiscal 1997 were
$39,802,000, an increase of $8,920,000, or 28.9 percent, over the same period in
fiscal 1996. The TRADE SECRET retail product salon operations represented
$3,854,000 of this overall increase, reflecting salon acquisitions occurring
subsequent to the first quarter of fiscal 1996, net salon openings, and
same-store sales growth. Product sales for the Company's REGIS HAIRSTYLISTS,
MASTERCUTS and WAL-MART salons increased $3,468,000 and represented 20.5 percent
of their first quarter fiscal 1997 sales mix, compared to 19.3 percent in the
same period of fiscal 1996. This increase in product sales mix reflects the
impact of the WAL-MART salons acquisition, which have a higher percentage of
product sales, increased customer awareness, further acceptance of national
brand salon merchandise, and sales training of Company employees. The balance
of the product sales increase relates to International salons, largely caused by
fiscal 1996 salon acquisitions.
COST OF SALES
Cost of both service and product sales in the first quarter of fiscal
1997 was $79,203,000, compared to $62,385,000, in the same period the
previous year. The resulting combined gross margin percentage for the first
quarter of fiscal 1997 was 43.0 percent of sales compared to 43.4 percent of
sales in the same period the previous year. As further discussed below, this
slight decline in gross margin was primarily due to the impact of the
WAL-MART salons acquired in June 1996.
Service margins were 41.8 percent in the first quarter of fiscal 1997,
compared to 42.3 percent in the same period the previous year. This decline in
margin was primarily due to the WAL-MART salon division, which had higher fixed
cost payrolls as a percentage of sales due to lower average sales volume for
these maturing salons. Retail product margins also declined slightly to 45.9
percent in the first quarter of fiscal 1997, compared to 46.4 percent in the
same period the previous year. The WAL-MART salon division was the major factor
for the difference in margins between the comparable periods. The operating
statement reflects the sale of higher cost inventories purchased in connection
with the WAL-MART salons acquisition.
11
RENT EXPENSE
Rent expense in the first quarter of fiscal 1997 was $19,628,000, or 14.1
percent of sales, compared to $14,141,000, or 12.8 percent of sales, in the same
period the previous year. The primary reason for the increase as a percentage of
sales is due to fiscal 1996 department store salon acquisitions in the U.K.,
causing the international salon division to now comprise a larger percentage of
the overall results. When compared to Domestic salon operations, the U.K. salon
operations have higher rent expenses, offset by lower selling and administrative
expenses, because certain costs are absorbed by department stores and passed on
as rent.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative (SG&A) expense in the first quarter of
fiscal 1997 was $24,228,000, or 17.4 percent of sales, compared to $20,774,000,
or 18.8 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). As previously
discussed, the fiscal 1996 U.K. department store salon acquisitions had a
favorable effect on SG&A expense. The balance of the rate improvement was due
to continued sales leveraging of fixed and semi-fixed costs.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense in the first quarter of fiscal 1997
increased to 3.9 percent from 3.7 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
Operating income in the first quarter of fiscal 1997 improved to
$10,325,000, an increase of $1,883,000, or 22.3 percent, over the same period
the previous year. Operating income as a percentage of sales was 7.4 percent in
the first quarter of fiscal 1997 compared to 7.7 percent in the same period the
previous year. As a percent of sales, the slight decline is attributable
primarily to the gross margin decline as a percent of sales.
INTEREST EXPENSE
Interest expense for the first quarter of fiscal 1997 was $1,454,000, or
1.0 percent of sales, compared to $1,377,000, or 1.2 percent of sales in the
same period the previous year. The slight improvement as a percent of sales is
due to sales leveraging as the expense amount remains relatively consistent.
12
NONRECURRING GAINS
During the first quarters of fiscal 1997 and 1996, the Company received
$218,000 and $137,000, 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 a nonrecurring gain.
INCOME TAXES
The Company's effective income tax rate for fiscal 1997 is estimated to be
42.0 percent, consistent with that incurred during fiscal 1996.
NET INCOME
Net income for the first quarter of fiscal 1997 increased to $5,362,000,
or $.29 per share, compared to net income of $4,177,000, or $.23 per share in
the same period the previous year. Exclusive of the effect of the
nonrecurring income items in both periods, net income for the first quarter
fiscal 1997 would have been $5,231,000 or $.28 per share compared to net
income for the first quarter of fiscal 1996 of $4,095,000, or $.23 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 quarter of fiscal 1997 was $10,255,000,
compared to $8,111,000 during the same period the previous year. The increase
between the two periods is mainly due to improved operating performance.
During the first quarter of fiscal 1997, the Company had worldwide new
salon capital expenditures of $7,685,000, $895,000 of which relates to
acquisitions. The Company constructed 5 new REGIS HAIRSTYLISTS salons, 9 new
MASTERCUTS salons, 16 new TRADE SECRET salons, 6 new WAL-MART salons and 4 new
International salons, and completed 9 major remodeling projects. All capital
expenditures during the first quarter of fiscal 1997 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
1997 will include a minimum of 150 new salons, and 60 major remodeling and
conversion projects (including the 40 new salons opened and 9 remodeling
projects completed during the first quarter of fiscal 1997). It is expected
that expenditures for these new salons and other projects will be approximately
$28,000,000 to $30,000,000 in fiscal 1997, excluding acquisition activity.
13
The Company has a $20,000,000 revolving credit facility which bears
interest at the prime rate, and matures in October 1998. The facility also
allows for borrowings bearing interest at an adjusted LIBOR rate plus a LIBOR
margin up to 1.50 percent. The revolving credit facility requires a
quarterly commitment fee of 1/4 percent per annum on the unused portion of
the facility. As of September 30, 1996, borrowings of $8,700,000 were
outstanding under this credit facility.
At September 30, 1996, the Company had three outstanding senior term notes:
a $24,000,000 note bearing interest at a fixed rate of 11.52 percent which is
subject to annual mandatory payments of $10,000,000 on June 30, 1997 and
$14,000,000 on June 30, 1998; a $10,000,000 note, bearing interest at a fixed
6.94 percent, which is due in July 2005; and a $5,000,000 note bearing interest
at a fixed 7.99 percent which is due in July 2003.
The senior term notes and the revolving credit facility agreements
contain covenants, including limitations on incurrence of debt, granting of
liens, investments, merger or consolidation, and transactions with
affiliates. In addition, the Company must maintain specified interest
coverage and debt-to-equity ratios.
Transactions by the Company's International salons are invoiced and paid in
local currency. Accordingly, the Company is subject to risks associated with
fluctuations in currency exchange rates.
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.
In September 1996, the Company paid a quarterly dividend of $361,000 or 2
cents per share.
As previously discussed, on October 25, 1996, the Company completed the
merger with Supercuts, Inc. which will be accounted for as a
pooling-of-interests. Supercuts is a national operator and franchisor of over
1,150 affordable hair care salons. In connection with the merger, Regis has
entered into a $10,000,000 senior note to fund transaction costs and other
merger related costs, and $22,000,000 of senior notes to replace and repay
Supercuts existing revolving credit arrangements under terms and conditions
consistent with that of the company's long-term borrowings from financial
institutions.
The $10,000,000 term loan bears interest at a fixed 7.54 percent and is due
on July 1, 2000 with annual mandatory repayments of $3,000,000 on July 1, 1998
and 1999 and $4,000,000 on July 1, 2000. The $22,000,000 senior note bears
interest at a fixed 7.8 percent and is due on July 1, 2006 with annual mandatory
repayments of $10,000,000 on July 1, 2004 and $12,000,000 on July 1, 2006.
14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10(x) Note drawn from Private Shelf Agreement dated as of October 28,
1996, between the registrant and the Prudential Insurance Company
of America.
Exhibit 10(y) Term Note Agreement between the registrant and LaSalle National
Bank dated October 28, 1996.
Exhibit 15 Letter Re: Unaudited Interim Financial Information.
15
(b) Reports on Form 8-K:
The following report on Form 8-K was filed during the three months ended
September 30, 1996:
Form 8-K dated July 15, 1996 related to the agreement and plan of
merger between the Company and Supercuts, Inc.
16
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: November 5, 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
17