SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth, for the periods indicated, selected
financial data derived from the Company's consolidated financial
statements.
1997 1996 1995 1994 1993
Revenues $713,219 $617,307 $524,253 $453,561 $ 388,862
Operating income (a) 28,447 26,167 26,644 25,712 29,184
Net income (b) 6,574 9,451 11,590 3,883 8,805
Net income per share (b) .28 .42 .53 .20 .49
Total assets 331,535 303,954 244,836 226,944 183,062
Long-term debt, including
current portion 113,462 102,381 85,092 82,991 66,787
Dividends declared .08 .07 --- --- ---
(a) The following information is provided to facilitate operating income
comparisons, absent the impact of certain nonrecurring activity. The
Company reported nonrecurring charges in 1997 and 1996 of $18,731 and
$12,823, respectively. These charges related to restructuring
activities in 1997 and 1996 and additionally to merger and transaction
costs in 1997. Exclusive of these nonrecurring items, operating income
would have been $47,178 in 1997 and $38,990 in 1996.
(b) The following information is provided to facilitate earnings
comparisons, absent the impact of certain nonrecurring activity. The
Company reported nonrecurring gains (charges) in 1997, 1996, 1995,
1994 and 1993 of ($17,830), ($12,123), $1,195, ($10,000) and ($5,265),
respectively, primarily associated with the merger and transaction and
restructuring charges related to Supercuts in 1997 and 1996, and the
resolution of litigation with MEI Salons in 1995, 1994 and 1993.
Exclusive of these nonrecurring items, net income and net income per
share, respectively, would have been $21,337 and $.92 in 1997, $16,981
and $.75 in 1996, $10,885 and $.50 in 1995, $9,883 and $.50 in 1994
and $11,806 and $.66 in 1993.
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KEY RATIOS
FOR THE YEARS ENDED JUNE 30,
1997 1996
Cash flow per share* $1.77 $1.50
Gross margin percentage 42.8% 42.4%
Product sales mix 27.3% 25.3%
Operating income as a percent of revenues ** 6.6% 6.3%
* Represents net income, excluding nonrecurring charges and noncash items
** Excludes nonrecurring charges (see Notes 3 and 8 to the Consolidated
Financial Statements)
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ANNUAL RESULTS
The following table sets forth for the periods indicated certain
information derived from the Company's Consolidated Statement of Operations
expressed as a percent of revenues. The percentages are computed as a
percent of total Company revenues, except as noted.
FOR THE YEARS ENDED JUNE 30,
1997 1996 1995
Company-owned service revenues (1) 72.7% 74.7% 75.9%
Company-owned product revenues (1) 27.3 25.3 24.1
Franchise income 3.8 4.1 4.8
Company-owned operations:
Profit margins on service (2) 41.9 41.3 40.6
Profit margins on product (3) 45.0 45.7 46.2
Direct salon (1) 9.5 10.1 11.4
Rent (1) 14.0 13.8 12.9
Depreciation (1) 3.4 3.6 3.5
Direct salon contribution (1) 15.9 14.9 14.1
Selling, general and administrative 11.0 10.6 11.6
Depreciation and amortization 1.2 1.0 .8
Operating income 4.0 4.2 5.1
Income before income taxes 2.8 2.8 3.8
Net income .9 1.5 2.2
Operating income, excluding nonrecurring charges 6.6 6.3 5.1
Net income, excluding nonrecurring charges 3.0 2.8 2.1
(1) Computed as a percent of company-owned revenues
(2) Computed as a percent of service revenues
(3) Computed as a percent of product revenues
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SUMMARY
Regis Corporation, based in Minneapolis, is the largest owner, operator and
franchisor of mall-based hair and retail product salons in the world. The Regis
worldwide operations include 3,293 hairstyling salons at June 30, 1997 in six
divisions: Regis Hairstylists, Supercuts, MasterCuts, Trade Secret, Wal-Mart and
International. Worldwide operations include 757 franchised Supercuts salons and
52 other franchised salons operating primarily in the Trade Secret division. The
Company has more than 25,000 employees worldwide.
During fiscal 1997, the Company's consolidated revenues increased 15.5 percent
to a record $713,219,000. Operating income grew 21.0 percent to $47,178,000
before nonrecurring charges of $18,731,000 related to the Supercuts' merger and
restructuring activities. Exclusive of these nonrecurring items, fiscal 1997 net
income was $.92 per share, an increase of 22.7 percent, compared to $.75 per
share in the prior year.
Financial data for all periods presented reflect the retroactive effects of the
October 1996 merger with Supercuts which has been accounted for as a
pooling-of-interests (See Note 3 to the Consolidated Financial Statements). The
financial statements have been prepared by combining the current and historical
financial statements of Regis Corporation with those of Supercuts for each of
the periods presented and including adjustments to conform the historical
accounting policies and practices of Supercuts to those of Regis.
YEAR-END COMPARISONS
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996:
REVENUES
REVENUES in fiscal 1997 were a record $713,219,000, an increase of $95,912,000,
or 15.5 percent, over fiscal 1996. Nearly two-thirds of the increase is
attributable to acquisitions occurring in fiscal 1997 and the full year impact
of the fiscal 1996 acquisitions, with the remaining increase due to net salon
openings and increases in customers served and product sales. Regis
Hairstylists, Supercuts, MasterCuts, Trade Secret and Wal-Mart salons in the
United States and Canada (Domestic salons) accounted for $72,851,000 of the
increase in total revenues. The remainder of the revenue increase of $23,061,000
was primarily caused by the Company's mid-year fiscal 1996 acquisitions in the
United Kingdom. The Company's International salons are located in the United
Kingdom, South Africa, Switzerland, Mexico, Ireland, France and the United Arab
Emirates (International salons).
For fiscal 1997, revenues from Regis Hairstylists were $275,258,000, an increase
of 2.9 percent; revenues from Supercuts were $94,904,000 for company-owned
salons, a decrease of 2.4 percent (which was caused by the planned closing or
franchising of certain under-performing salons or markets as described in Note 8
to the Consolidated Financial Statements); income from Supercuts franchise
operations was $23,601,000, an increase of 14.2 percent; revenues from
MasterCuts salons were $94,963,000, an increase of 13.8 percent;
Trade Secret company-owned revenues were $91,412,000, an increase of 40.7
percent; fiscal 1997 revenues from Wal-Mart salons were $30,294,000, while
fiscal 1996 Wal-Mart salon revenues represented only one month of operations due
to the June 1996 acquisition date of that division; and International salon
revenues were $99,348,000, an increase of 30.2 percent.
During fiscal 1997, same-store sales from all Domestic company-owned salons open
more than 12 months increased 3.1 percent, compared to a 3.6 percent increase
the previous year, or 2.0 and 3.4 percent, respectively, excluding Supercuts.
Same-store sales for the United Kingdom salons (U.K. salons), the primary
component of International salons, increased 2.1 percent in fiscal 1997.
Same-store sales increases achieved during fiscal 1997 are primarily due to an
increase in the number of customers served, especially salon maturation in the
Supercuts division. A total of 70,600,000 customers were served in fiscal 1997,
an increase of 9.6 percent, from 64,400,000 customers served in fiscal 1996. 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.
System-wide sales, inclusive of non-consolidated sales generated from franchisee
salons, increased 13.0 percent in fiscal 1997 to $955,102,000 from $845,515,000
in fiscal 1996. These increases in system-wide sales are the result of the total
number of salons added to the system through acquisitions and net salon openings
as well as same-store sales increases from existing salons. System-wide
same-store sales for fiscal 1997 increased 2.6 percent.
SERVICE REVENUES in fiscal 1997 were $498,559,000, an increase of $56,193,000,
or 12.7 percent, over fiscal 1996. This increase was due to acquisitions, net
salon openings, and same-store sales growth.
PRODUCT REVENUES in fiscal 1997 were $187,620,000, an increase of $38,097,000,
or 25.5 percent, over fiscal 1996. This increase was due to acquisitions, net
salon openings, and same-store sales growth. Product revenues as a percent of
total company-owned revenues increased to 27.3 percent of revenues compared to
25.3 percent of revenues in 1996.
FRANCHISE INCOME, including royalties and initial franchise fees from
franchisees, and product sales made by the Company to franchisees, increased 6.4
percent in fiscal 1997 to $27,040,000 from $25,418,000 in fiscal 1996. This
increase is the result of an increase in franchisee sales, which are not
included in the Company's consolidated revenues.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
COST OF SERVICE
Cost of service revenues in fiscal 1997 was $289,621,000, compared to
$259,765,000 in fiscal 1996. The gross profit margins on service revenues for
fiscal 1997 improved 60 basis points to 41.9 percent. This improvement is
primarily due to sales maturation in the Supercuts division matched against
fixed cost payrolls.
COST OF PRODUCT
Cost of product revenues in fiscal 1997 was $103,181,000, compared to
$81,165,000 in fiscal 1996. The gross profit margins on product revenues for
fiscal 1997 declined 70 basis points to 45.0 percent. The decline in product
margins was due primarily to the increase in Trade Secret revenues as a percent
of total Company revenues, as Trade Secret product margins are somewhat lower
than the other divisions. Additionally, the Company responded to a disappointing
Christmas season by discounting retail products in the third quarter of 1997.
This bolstered the same-store sales growth but also reduced margins.
DIRECT SALON
This expense category includes direct costs associated with salon operations
such as advertising, promotion, insurance, telephone and utilities. Direct salon
expense increased $5,047,000 to $64,962,000 in fiscal 1997, but improved as a
percent of revenues to 9.5 percent in fiscal 1997 from 10.1 percent in fiscal
1996. The improvement resulted primarily from an increased ability to leverage
these costs against increased revenues from a maturing salon base as well as
controls maintained over advertising costs in the Regis and MasterCuts
divisions.
RENT
Rent expense in fiscal 1997 was $95,726,000, or 14.0 percent of revenues,
compared to $81,634,000, or 13.8 percent of revenues, in fiscal 1996. The
percentage increase is due to the mid-year fiscal 1996 acquisitions in the
United Kingdom, as well as the Wal-Mart acquisition in June 1996. When compared
to Domestic salon operations, the U.K. salons and the Wal-Mart salons have
higher rent expense and lower selling, general and administrative expense
because certain costs are absorbed by department and discount stores and passed
on as rent.
DEPRECIATION SALON LEVEL
Depreciation expense at the salon level remained fairly consistent at 3.4
percent of revenues, improving 20 basis points over fiscal 1996.
DIRECT SALON CONTRIBUTION
For reasons described above, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, improved in
fiscal 1997 to 15.9 percent of company-owned revenues, or $109,259,000, compared
to 14.9 percent of company-owned revenues, or $88,368,000, in fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expense increased to $78,666,000, or
11.0 percent of revenues, in fiscal 1997 from $65,133,000, or 10.6 percent of
revenues, in fiscal 1996. Expenses in this category include field supervision
(payroll, related taxes and travel) and home office administration costs (such
as warehousing, salaries, occupancy costs and professional fees). The increase
is primarily a result of higher warehouse expenses due to volume increases. In
addition, SG&A expense for the International division is higher than fiscal 1996
due to an extended transition period for the 1996 acquisitions.
All direct and indirect expenses associated with franchise operations, other
than the cost of products sold to franchisees, are included in SG&A expense. The
cost of products sold and associated franchise activities remained relatively
consistent in both 1997 and 1996.
DEPRECIATION AND AMORTIZATION CORPORATE
Depreciation and amortization increased slightly in fiscal 1997 to 1.2 percent
of revenues from 1.0 percent in fiscal 1996. Amortization expense has increased
due to the increased level of intangible assets associated with the Company's
salon acquisition activity. Depreciation expense within this category has
remained relatively consistent as a percent of revenues.
MERGER AND TRANSACTION COSTS
See Note 3 to the Consolidated Financial Statements.
RESTRUCTURING CHARGES
See Note 8 to the Consolidated Financial Statements.
OPERATING INCOME
Operating income in fiscal 1997 was $28,447,000 compared to $26,167,000 in
fiscal 1996. Both years were significantly affected by merger and transaction
costs and restructuring charges (nonrecurring charges).
Exclusive of nonrecurring charges, operating income in fiscal 1997 improved to
$47,178,000, or 6.6 percent of revenues, an increase of $8,188,000, or 21.0
percent, over fiscal 1996 operating income of $38,990,000, or 6.3 percent of
revenues. This improvement is attributable primarily to improved gross margins,
the leveraging of direct salon expense, partially offset by higher SG&A expenses
as a percent of revenues.
INTEREST
Interest expense in fiscal 1997 was $10,264,000, or 1.4 percent of revenues,
compared to $9,880,000, or 1.6 percent of revenues, in fiscal 1996. The decline
is primarily due to reduced interest rates.
NONRECURRING ITEMS
See Note 4 to the Consolidated Financial Statements.
INCOME TAXES
The Company's effective tax rate in fiscal 1997 was 66.6 percent of pre-tax
income compared to 45.6 percent of pre-tax income in fiscal 1996. The increase
in the effective rate is attributable to certain nondeductible merger and
transaction costs associated with the Supercuts merger. Additionally, as
reflected in the Statement of
Operations for Supercuts for the quarter ended September 30, 1996, Supercuts
recorded as part of its September 30, 1996 income tax provision, a $1,500,000
change in estimate associated with income tax matters related to years prior to
1996. This change in estimate includes tax changes resulting from the completion
of an Internal Revenue Service examination in the quarter ended September 30,
1996. Accordingly, this change in estimate is included in the financial results
for the combined companies of Regis and Supercuts for fiscal 1997.
NET INCOME
Net income in fiscal 1997 was $6,574,000, or $.28 per share, compared to net
income in fiscal 1996 of $9,451,000, or $.42 per share. Exclusive of
nonrecurring items, net income in fiscal 1997 increased to $21,337,000, or $.92
per share, compared to net income in fiscal 1996 of $16,981,000, or $.75 per
share, an earnings per share increase of 22.7 percent.
YEAR-END COMPARISONS
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995:
REVENUES
REVENUES in fiscal 1996 were a record $617,307,000, representing an increase of
$93,054,000, or 17.7 percent, over fiscal 1995. Nearly 50 percent of the
increase is attributable to acquisitions occurring in fiscal 1996 and the full
year impact of the fiscal 1995 acquisitions, with the remaining increase due to
net salon openings and increases in customers served and product sales. Domestic
salons accounted for $60,230,000 of the increase in total revenues. The
remainder of the revenue increase, or $32,824,000, was related to the Company's
International salon operations which was largely influenced by the Company's
fiscal 1996 acquisitions in the United Kingdom.
For fiscal 1996, revenues from Regis Hairstylists were $267,576,000, an increase
of 4.1 percent; revenues from Supercuts were $97,196,000 for company-owned
salons, an increase of 18.9 percent; income from Supercuts franchise operations
was $20,669,000, an increase of 1.6 percent; revenues from MasterCuts salons
were $83,411,000, an increase of 18.3 percent; Trade Secret company-owned
revenues were $64,960,000, an increase of 39.8 percent; and International salon
revenues were $76,287,000, an increase of 75.5 percent.
During fiscal 1996, same-store sales from Domestic company-owned salons,
exclusive of Supercuts, open for more than 12 months increased 3.4 percent
compared to a 4.2 percent increase the previous year. Same-store sales for the
U.K. salons increased 1.5 percent in fiscal 1996. A total of 64,400,000
customers were served in fiscal 1996, an increase of 10.1 percent, from
58,500,000 customers served in fiscal 1995. 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.
System-wide sales, inclusive of non-consolidated sales from franchisee salons,
increased 17.4 percent to $845,515,000 from $719,933,000 in fiscal 1996 and
1995, respectively. This increase in system-wide sales is the result of the
total number of salons in the system increasing over the past 12 months as well
as same-store sales increases. System-wide same-store sales for fiscal 1996
increased 3.3 percent.
SERVICE REVENUES in fiscal 1996 were $442,366,000, an increase of $63,423,000,
or 16.7 percent, over fiscal 1995. This increase was due to acquisitions, net
salon openings, and same-store sales growth.
PRODUCT REVENUES in fiscal 1996 were $149,523,000, an increase of $29,142,000,
or 24.2 percent, over fiscal 1995. The increase was due to acquisitions, net
salon openings, and same-store sales growth.
FRANCHISE INCOME increased 2.0 percent in fiscal 1996 to $25,418,000 from
$24,929,000 in fiscal 1995. This increase is the result of an increase in
franchise sales, partially offset by a lower level of franchisee openings in
1996 compared to 1995.
COST OF SERVICE
Cost of service revenues in fiscal 1996 was $259,765,000, compared to
$225,102,000 in fiscal 1995. The gross profit margins on service revenues in
fiscal 1996 improved 70 basis points to 41.3 percent, compared to 40.6 percent
in fiscal 1995. This improvement is primarily due to improved sales leverage on
the salaries and commissions structure at Regis Hairstylists, which is the major
component of cost of service. Improved service margin was also the result of
improved Supercuts margins, primarily due to fixed cost payroll matched against
maturing sales volume.
COST OF PRODUCT
Cost of product revenues in fiscal 1996 was $81,165,000, compared to $64,777,000
in fiscal 1995. The resulting gross product margin in fiscal 1996 declined 50
basis points to 45.7 percent, compared to 46.2 percent in fiscal 1995. One
primary factor for this change is due to the increase in Trade Secret revenues
as a percent of total Company revenues, as Trade Secret product margins are
somewhat lower than the other divisions. Also, Supercuts recognized a negative
physical inventory adjustment in fiscal 1996.
DIRECT SALON
Direct salon expenses increased $3,204,000 to $59,915,000 in fiscal 1996, but
decreased as a percent of revenues to 10.1 percent in fiscal 1996 down from 11.4
percent in fiscal 1995. Expenses include costs associated with salon operations
such as advertising, promotion, insurance, telephone and utilities. The
improvement came primarily from an increased ability to leverage these costs
against a maturing salon base in the Supercuts division, as well as controls
maintained over advertising costs in the Regis and MasterCuts divisions.
RENT
Rent expense in fiscal 1996 was $81,634,000, or 13.8 percent of revenues,
compared to $64,439,000, or 12.9 percent of revenues, in fiscal 1995. The
percentage increase is due to the fiscal 1996 acquisitions in the United
Kingdom. When compared to Domestic salon operations, the U.K. salon operations
have higher rent expense and lower selling, general and administrative expenses,
because certain costs are absorbed by department stores and passed on as rent.
DEPRECIATION SALON LEVEL
Depreciation expense at the salon level remained fairly consistent at 3.6
percent of revenues, increasing only 10 basis points over fiscal 1995.
DIRECT SALON CONTRIBUTION
For reasons described above, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, improved in
fiscal 1996 to 14.9 percent of company-owned revenues, or $88,368,000, compared
to 14.1 percent of company-owned revenues, or $70,593,000, in fiscal 1995.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense improved as a percent of total
revenues to 10.6 percent from 11.6 percent in fiscal 1996 and 1995,
respectively. These expenses totaled $65,133,000 in fiscal 1996 compared to
$60,685,000 in fiscal 1995. Expenses in this category include field supervision
(payroll, related taxes and travel) and home office administration costs (such
as warehousing, salaries, occupancy costs and professional fees). This
improvement as a percent of revenues is due to sales leveraging of the Supercuts
division. A portion of the improvement is also attributable to the fiscal 1996
U.K. salon acquisitions which, as described above, have a lower level of SG&A
expense. The balance of the rate improvement was due to continued sales
leveraging of fixed and semi-fixed costs. The direct and indirect costs
associated with franchise activities remained relatively consistent in both 1996
and 1995.
DEPRECIATION AND AMORTIZATION--CORPORATE
Depreciation and amortization increased slightly in fiscal 1996 to 1.0 percent
of revenues from .8 percent in fiscal 1995. Amortization costs have increased
due to the increased level of intangible assets associated with the Company's
salon acquisition activity. Depreciation expense within this category has
remained relatively consistent as a percent of revenues.
RESTRUCTURING CHARGES
See Note 8 to the Consolidated Financial Statements.
OPERATING INCOME
Operating income was $26,167,000 in fiscal 1996 compared to $26,644,000 in
fiscal 1995, with 1996 significantly affected by Supercuts restructuring
charges.
Exclusive of restructuring charges of $12,823,000, operating income in fiscal
1996 improved to $38,990,000, or 6.3 percent of revenues, an increase of
$12,346,000, or 46.3 percent, over fiscal 1995 operating income of $26,644,000,
or 5.1 percent of 1995 revenues. This improvement is attributable primarily to
improved gross margins and the leveraging of SG&A expense as a percent of
revenues.
INTEREST
Interest expense for fiscal 1996 was $9,880,000, or 1.6 percent of revenues,
compared to $8,774,000, or 1.7 percent of revenues, in fiscal 1995.
NONRECURRING ITEMS
See Note 4 to the Consolidated Financial Statements.
INCOME TAXES
The Company's effective income tax rate in fiscal 1996 was 45.6 percent of
pre-tax income compared to 41.6 percent of pre-tax income in fiscal 1995. The
increase in the effective rate is attributable to the Company's inability to
fully utilize the income tax benefits of the Supercuts operating losses in
certain states.
NET INCOME
Net income in fiscal 1996 was $9,451,000, or $.42 per share, compared to net
income in fiscal 1995 of $11,590,000, or $.53 per share. Exclusive of
nonrecurring items, net income in fiscal 1996 would have been $.75 per share,
compared to net income in fiscal 1995 of $.50 per share, an increase of 50
percent.
EFFECTS OF INFLATION
The Company compensates its Regis Hairstylists and International salon employees
with percentage commissions based on sales they generate, thereby enabling salon
payroll expense as a percent of revenues to remain relatively constant.
Accordingly, this provides the Company certain protection against inflationary
increases, as payroll expense and related benefits (the Company's major expense
components) are, with respect to these divisions, variable costs of sales. The
Company does not believe inflation, due to its low rate, has had a significant
impact on the results of operations associated with hourly paid hairstylists for
the Supercuts, MasterCuts, Trade Secret or Wal-Mart divisions.
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 in fiscal 1997 was $34,857,000, compared to
$38,806,000 during the same period the previous year. The decrease between the
two periods was primarily due to increased payments in fiscal 1997 associated
with the Supercuts merger and restructuring costs. Payments for these items were
$18,263,000 compared to $2,517,000 in 1997 and 1996, respectively.
CAPITAL EXPENDITURES AND ACQUISITIONS
During fiscal 1997, the Company had worldwide capital expenditures of
$42,185,000, of which $2,760,000 related to acquisitions. The Company
constructed 174 new salons (28 Regis Hairstylists,
4 Supercuts, 36 MasterCuts, 56 Trade Secret, 24 Wal-Mart and 26 International)
and added 1,229 salons through merger and acquisitions, 1,170 of which were
Supercuts (430 company-owned and 740 franchised salons). The Company also
completed 72 major remodeling projects, including eight conversions of existing
salons to another salon concept. All capital expenditures during fiscal 1997
were funded by the Company's operations and borrowings under its revolving
credit facility. Additional system-wide salon growth was achieved through the
opening of 31 Supercuts franchise salons since the merger date.
The Company anticipates its worldwide salon development program for fiscal 1998
will include approximately 200 new salons and 60 major remodeling and conversion
projects. It is expected that expenditures for these new salons and other
projects will be approximately $41,000,000 in fiscal 1998, excluding capital
expenditures for acquisitions and the Company's new distribution center.
FINANCING
In October 1996, the Supercuts facility was refinanced under terms and
conditions consistent with that of the Company's long-term borrowings with
$22,000,000 of additional long-term notes requiring repayments of $10,000,000
and $12,000,000 in fiscal 2005 and 2007. Also, in October and December 1996, the
Company borrowed an additional $10,000,000 and $5,000,000, under long-term
senior term notes with repayments required during the period fiscal 1998 through
2005, to fund merger-related costs and to pay down the Regis revolving credit
facility. In April 1997, the Company borrowed an additional $8,000,000 under
long-term senior term notes with repayment in fiscal 2007, to pay down 11.52
percent senior term notes. These additional term note borrowings bear interest
at fixed rates ranging from 7.16 to 8.18 percent.
In March 1997, the Company entered into a treasury lock agreement for the
purpose of establishing the effective interest rate on the $14,000,000 senior
term note expected to be refinanced in June 1998. The contract was entered into
to reduce the risk to the Company of future interest rate fluctuations. The
contract has a notional amount of $14,000,000 and is tied to the U.S. government
ten-year treasury note rate. At the settlement date in June 1998, the gain or
loss on the contract will be recognized. The deferred unrealized loss related to
this contract was not material at June 30, 1997. The Company does not enter into
financial instruments for trading or speculative purposes.
The Company increased its revolving credit facility in April 1997. The revolving
credit facility allows for borrowings up to $25,000,000, bears interest at the
prime rate, and matures in October 1998. The prime rate at June 30, 1997 and
1996 was 8.50 and 8.25 percent, respectively. The facility also allows for
borrowings bearing interest at LIBOR rates plus 1.50 percent. The average LIBOR
rate utilized by the Company was 5.78 percent at June 30, 1997. The revolving
credit facility requires a quarterly commitment fee at the rate of 1/4 percent
per year on the unused portion of the facility.
The weighted average interest rate on this facility was 7.67 percent and 8.25
percent, respectively, at June 30, 1997 and June 30, 1996.
As the Company continues to expand, the need for additional warehouse and
distribution capabilities also increases. In July 1997, in connection with the
construction of a new distribution center in Tennessee, the Company entered into
an additional credit facility. The credit facility allows for borrowings up to
$15,000,000, bears interest at the prime rate, and matures in December 1998. The
facility also allows for borrowings bearing interest at an adjusted LIBOR rate.
At June 30, 1997, the U.K. term notes have been classified as current as a
result of noncompliance with certain loan covenants. The Company is currently in
negotiations and intends to re-establish this financing as long-term during
fiscal 1998.
See merger and transaction costs discussed in Note 3 to the Consolidated
Financial Statements.
See restructuring activities discussed in Note 8 to the Consolidated Financial
Statements.
The Company translates the financial statements of its international
subsidiaries to U.S. dollars for financial reporting purposes, and accordingly
is subject to fluctuations in currency exchange rates.
The Company has already begun the necessary software conversion and programming
modifications necessary to comply with the Year 2000 computer software issues.
The Company does not expect these activities to materially impact earnings.
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.
DIVIDENDS
The Company paid dividends of $.08 per share during fiscal 1997 and $.07 per
share during fiscal 1996. On August 14, 1997, the Board of Directors of the
Company declared a $.02 per share quarterly dividend payable September 9, 1997,
to shareholders of record on August 25, 1997.
OTHER
During fiscal 1997, the Company resolved the litigation brought by David E.
Lipson and DEL Holding Corporation (DEL), a corporation controlled by Mr.
Lipson, against Supercuts. The Company paid Mr. Lipson and DEL $6,700,000 in
complete settlement of all claims of Mr. Lipson, DEL or any other entity
controlled by Mr. Lipson. See Note 4 to the Consolidated Financial Statements.
This was funded through the issuance of the Company's common stock.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30
------------------------------
ASSETS 1997 1996
Current assets:
Cash $8,935 $7,558
Accounts receivable, net 12,388 10,640
Inventories 42,596 32,507
Deferred income taxes 6,335 6,687
Other current assets 6,819 9,691
----------------------------
Total current assets 77,073 67,083
Property and equipment, net 139,573 126,821
Goodwill 99,818 93,352
Other assets 15,071 16,698
----------------------------
Total assets $331,535 $303,954
----------------------------
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $30,722 $19,168
Accounts payable 24,111 20,369
Accrued expenses 37,291 47,261
---------------------------
Total current liabilities 92,124 86,798
Long-term debt 82,740 83,213
Other noncurrent liabilities 7,557 6,308
Commitments (Note 6)
Shareholders' equity:
Common stock, $.05 par value; issued and
outstanding, 23,317,924 and 22,537,161
shares at June 30, 1997 and 1996,
respectively 1,166 1,127
Additional paid-in capital 120,483 104,634
Retained earnings 27,465 21,874
----------------------------
Total shareholders' equity 149,114 127,635
----------------------------
Total liabilities and shareholders' equity $331,535 $303,954
----------------------------
----------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED STATEMENT OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED JUNE 30
-------------------------------------------------------
1997 1996 1995
Revenues:
Company-owned salons:
Service $498,559 $442,366 $378,943
Product 187,620 149,523 120,38
----------------------------------------------------
686,179 591,889 499,324
Franchise income 27,040 25,418 24,929
----------------------------------------------------
713,219 617,307 524,253
----------------------------------------------------
Operating expenses:
Company-owned:
Cost of service 289,621 259,765 225,102
Cost of product 103,181 81,165 64,777
Direct salon 64,962 59,915 56,711
Rent 95,726 81,634 64,439
Depreciation 23,430 21,042 17,702
----------------------------------------------------
576,920 503,521 428,731
Selling, general and administrative 78,666 65,133 60,685
Depreciation and amortization 8,325 6,315 4,220
Merger and transaction costs 14,322
Restructuring charges 4,409 12,823
Other 2,130 3,348 3,973
----------------------------------------------------
Total operating expenses 684,772 591,140 497,609
----------------------------------------------------
Operating income 28,447 26,167 26,644
Other income (expense):
Interest (10,264) (9,880) (8,774)
Nonrecurring items 901 700 1,195
Other, net 618 390 793
----------------------------------------------------
Income before income taxes 19,702 17,377 19,858
Income taxes (13,128) (7,926) (8,268)
----------------------------------------------------
Net income $6,574 $9,451 $11,590
----------------------------------------------------
----------------------------------------------------
Net income per share $.28 $.42 $.53
----------------------------------------------------
----------------------------------------------------
Weighted average common and
common equivalent shares outstanding 23,255 22,791 22,111
----------------------------------------------------
----------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATE STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
Common Stock ADDITIONAL
---------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
Balance, June 30, 1994 13,965,664 $698 $87,741 $2,836 $91,275
Additional shares issued and adjustment of
amounts previously recorded in connection
with finalization of the 1994 resolution of
MEI Salons litigation 93,220 5 (505) (500)
Shares issued in connection with
salon acquisitions 184,442 9 2,886 2,895
Shares issued in connection with employee
benefit plans 10,333 1 433 434
Proceeds from exercise of stock options 9,736 1 134 135
Foreign currency translation adjustments (410) (410)
Net income 11,590 11,590
-------------------------------------------------------------------------
Balance, June 30, 1995 14,263,395 714 90,689 14,016 105,419
Stock split effected in the form of a
stock dividend 7,438,190 372 (372)
Shares issued in connection with
subordinated debt conversion 375,000 19 2,794 2,813
Proceeds from sale of common stock 370,000 18 10,013 10,031
Shares issued in connection with
employee benefit plans 12,842 1 101 102
Proceeds from exercise of stock options 77,734 3 819 822
Tax benefit realized upon
exercise of stock options 590 590
Dividends (1,235) (1,235)
Foreign currency translation adjustments (358) (358)
Net income 9,451 9,451
-------------------------------------------------------------------------
Balance, June 30, 1996 22,537,161 1,127 104,634 21,874 127,635
Proceeds from sale of common stock 500,000 25 11,100 11,125
Shares issued in connection with
employee benefit plans 13,056 1 240 241
Proceeds from exercise of stock options 267,707 13 3,656 3,669
Tax benefit realized upon exercise of
stock options 853 853
Dividends (1,722) (1,722)
Foreign currency translation adjustments 739 739
Net income 6,574 6,574
-------------------------------------------------------------------------
Balance, June 30, 1997 23,317,924 $1,166 $120,483 $27,465 $149,114
-------------------------------------------------------------------------
-------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
SATEMENTS.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 30
---------------------------------------
1997 1996 1995
Cash flows from operating activities:
Net income $6,574 $9,451 $11,590
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 32,084 27,789 22,402
Deferred income taxes 1,114 (3,059) (5,040)
Merger and transaction costs 14,322
Provision for restructuring charge 4,409 12,823
MEI Salons nonrecurring charge 1,805
Changes in assets and liabilities, exclusive of
investing and financing activities (23,905) (8,701) (1,944)
Other 259 503 1,225
----------------------------------------
Net cash provided by operating activities 34,857 38,806 30,038
----------------------------------------
Cash flows from investing activities:
Capital expenditures (39,425) (32,605) (30,388)
Purchases of salon assets, net of cash acquired
and certain obligations assumed (10,370) (29,343) (3,259)
Proceeds from sale of assets 7,725
Other 103
----------------------------------------
Net cash used in investing activities (49,795) (61,948) (25,819)
----------------------------------------
Cash flows from financing activities:
Borrowings on revolving credit facilities 187,328 150,758 88,166
Payments on revolving credit facilities (203,425) (147,158) (87,164)
Proceeds from issuance of long-term debt 45,000 29,435 440
Repayment of long-term debt (21,067) (17,164) (9,573)
(Decrease) increase in negative book cash balances (4,842) 1,957 1,153
Dividends paid (1,722) (1,235)
Proceeds from issuance of common stock 15,035 10,955 569
----------------------------------------
Net cash provided by (used in) financing activities 16,307 27,548 (6,409)
----------------------------------------
Effect of exchange rate changes on cash 8 (30) (109)
----------------------------------------
Increase (decrease) in cash 1,377 4,376 (2,299)
Cash:
Beginning of year 7,558 3,182 5,481
----------------------------------------
End of year $8,935 $7,558 $3,182
----------------------------------------
----------------------------------------
Changes in assets and liabilities, exclusive of investing
and financing activities:
Accounts receivable $(1,222) $(1,190) $ (1,106)
Inventories (8,376) (3,682) (2,723)
Other current assets 2,339 (3,299) 525
Other assets 13 (1,996) (336)
Accounts payable 6,487 1,948 784
Accrued expenses (22,396) (80) 1,820
Other noncurrent liabilities (750) (402) (908)
----------------------------------------
$(23,905) $(8,701) $(1,944)
----------------------------------------
----------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION:
Regis Corporation (the Company) owns, operates and franchises hairstyling and
hair care salons throughout the United States and in a number of other
countries, principally the United Kingdom (U.K.). Substantially all of the
hairstyling and hair care salons owned and operated by the Company in the United
States are located in leased space in enclosed mall shopping centers or strip
shopping centers. Franchised salons are primarily located in strip shopping
centers throughout the United States.
At June 30, 1997, approximately 25 percent of the Company's outstanding common
stock is owned by Curtis Squire, Inc. (CSI), which is a holding company
controlled by the Chairman of the Board of Directors of the Company, and
approximately 6 percent is owned by management and the Company's benefit plans.
BASIS OF PRESENTATION:
Financial and share data for all periods presented reflect the retroactive
effects of the October 1996 merger with Supercuts, Inc. (Supercuts) which has
been accounted for as a pooling-of-interests (see Note 3). The financial
statements have been restated by combining the current and historical financial
statements of Regis Corporation with those of Supercuts for each of the periods
presented and including adjustments to conform the historical accounting
policies and practices of Supercuts to those of Regis.
CONSOLIDATION:
The financial statements include the accounts of the Company and all of its
wholly-owned subsidiaries. In consolidation, all material intercompany accounts
and transactions are eliminated.
FOREIGN CURRENCY TRANSLATION:
Financial position, results of operations and cash flows of the Company's
international subsidiaries are measured using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rates in effect at each fiscal year end. Income statement accounts are
translated at the average rates of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation account grouped
within shareholders' equity.
FRANCHISE INCOME AND EXPENSES:
Franchise income includes royalties and initial franchise fees from franchisees,
and product sales made by the Company to franchisees. Royalties are recognized
as income in the month in which franchisee services are rendered or products are
sold by franchisees. The Company recognizes income from initial
franchise fees at the time franchisee salons are opened. Product sales by the
Company to franchisees are recorded at the time product is shipped to franchisee
locations. Franchise expenses include all direct expenses, such as the cost of
product sold to franchisees by the Company, salaries, marketing costs, and an
allocation of general corporate overhead and occupancy expenses. Cost of product
sold to franchisees is included in other operating expenses in the Consolidated
Statement of Operations. All other direct and indirect expenses associated with
franchise operations are included in selling, general and administrative
expenses in the Consolidated Statement of Operations.
INVENTORIES:
Inventories consist principally of hair care products held either for use in
salon services or for sale. Inventories are stated at the lower of cost or
market with cost determined on the first-in, first-out method.
PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (shorter
of asset life or lease term for leasehold improvements).
Expenditures for maintenance and repairs and minor renewals and betterments
which do not improve or extend the life of the respective assets are expensed.
All other expenditures for renewals and betterments are capitalized. The assets
and related depreciation accounts are adjusted for property retirements and
disposals with the resulting gain or loss included in operations. Fully
depreciated assets remain in the accounts until retired from service.
GOODWILL:
Goodwill recorded in connection with the fiscal 1989 purchase of the publicly
held minority interest in the Company and with the acquisitions of business
operations in which the Company has not previously been involved is amortized on
a straight-line basis, generally over 40 years. Goodwill recorded in connection
with acquisitions which expand the Company's existing business activities
(acquisition of salon sites) is amortized on a straight-line basis, generally
over 12 to 17 years depending upon the lease terms of the salon sites acquired.
ASSET IMPAIRMENT ASSESSMENTS:
The Company periodically measures and evaluates the recoverability of its
tangible and intangible noncurrent assets using undiscounted cash flow analyses.
PREOPENING COSTS:
Advertising, sales promotion and expenditures associated with the opening of new
salon locations are charged to operations as incurred.
INCOME TAXES:
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred income tax assets and liabilities are
determined based on the
differences between the financial statement and tax bases of assets and
liabilities using currently enacted tax rates in effect for the years in which
the differences are expected to reverse. Income tax expense is the tax payable
for the period and the change during the period in deferred tax assets and
liabilities.
NET INCOME PER SHARE:
Net income per share has been computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding for each
period presented using the modified treasury stock method. Common equivalent
shares relate primarily to incentive stock options granted to employees.
In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS No.
128), Earnings per Share (EPS) was issued by the Financial Accounting Standards
Board. This standard, which the Company must adopt effective with its second
quarter of fiscal 1998, requires dual presentation of basic and diluted EPS on
the face of the Consolidated Statement of Operations. Net income per share
currently presented by the Company is comparable to the diluted EPS required
under SFAS No. 128. Basic EPS for the Company would be calculated based on only
common shares outstanding without considering the dilutive effects of common
stock equivalents.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. OTHER FINANCIAL STATEMENT DATA:
The following provides additional information concerning selected balance sheet
accounts at June 30, 1997 and 1996:
(DOLLARS IN THOUSANDS)
1997 1996
Property and equipment:
Land $700 $700
Building and improvements 6,172 4,361
Equipment, furniture and lease-
hold improvements 237,845 213,982
Equipment, furniture and lease-
hold improvements under
capital leases 9,983 10,621
------------------------
254,700 229,664
Less accumulated depreciation
and amortization (113,228) (101,368)
Less amortization of equipment,
furniture and leasehold
improvements under
capital leases (1,899) (1,475)
------------------------
$139,573 $126,821
------------------------
------------------------
Goodwill $120,429 $108,955
Less accumulated amortization (20,611) (15,603)
------------------------
$99,818 $93,352
------------------------
------------------------
Accrued expenses:
Payroll and payroll related costs $19,923 $20,695
Taxes 3,725 5,670
Insurance 5,653 2,730
Restructuring 1,188 6,493
Other 6,802 11,673
------------------------
$37,291 $47,261
------------------------
------------------------
Negative book cash balances of $376,000 and $5,218,000 at June 30, 1997 and
1996, respectively, are included in accounts payable and represent checks
outstanding in excess of cash balances maintained at the respective banks.
The following provides supplemental disclosures of cash flow activity for the
years ended June 30, 1997, 1996 and 1995:
(DOLLARS IN THOUSANDS)
1997 1996 1995
Cash paid during the year for:
Interest $10,862 $9,052 $8,020
Income taxes 13,016 15,227 11,714
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-cash investing and financing activities include the following:
Year ended June 30, 1997:
* In connection with various acquisitions, the Company entered into
seller-financed notes payable (Note 3).
Year ended June 30, 1996:
* In connection with the conversion of the Company's $2,812,500 of
convertible debt, 562,500 shares of common stock were issued.
* In connection with various acquisitions, the Company entered into
seller-financed notes payable (Note 3).
Year ended June 30, 1995:
* Capital lease obligations of $7,725,000 were entered into during the year
under a sale-leaseback transaction. A gain of $506,000 was realized on this
transaction and is being recognized over the lease term.
* In connection with 1995 acquisitions, the Company issued 276,663 shares of
its common stock valued at $2,895,000.
* In connection with various acquisitions, the Company entered into
seller-financed notes payable.
3. MERGERS AND ACQUISITIONS:
SUPERCUTS, INC. MERGER:
Effective October 25, 1996, the Company received shareholder approval for the
merger agreement with Supercuts in a stock-for-stock merger transaction.
Supercuts was the national operator of approximately 430 company-owned, and
franchisor of approximately 740 affordable hair care salons at the acquisition
date. Each Supercuts shareholder received .40 shares of the Company's common
stock in exchange for each Supercuts common share, resulting in the issuance of
approximately 4,500,000 shares of the Company's common stock. The transaction
has been accounted for as a pooling-of-interests.
As a result of the merger, the Company recorded a merger and transaction charge
of $14,322,000, on a pre-tax basis, during the quarter ended December 31, 1996.
This charge included $7,717,000 for professional fees including investment
banking, legal, accounting and miscellaneous transaction costs, $3,465,000 for
severance, and a non-cash charge of $3,140,000 for the write-off of duplicative
operating assets, principally associated with the closure of the Supercuts
headquarters.
The severance expense of $3,465,000 covered the termination of approximately 105
Supercuts employees who had duplicate positions in corporate office functions.
These corporate overhead departments included finance and accounting, human
resources, legal, management information systems, purchasing, real estate and
marketing. There is $1,826,000 remaining for severance liabilities for
terminated employees at June 30,1997, which is included in accrued expenses.
The Supercuts transaction has been accounted for as a pooling-of-interests,
therefore prior period financial statements have been restated to reflect this
merger as if the merged companies had always been combined. To effect the
restatement, significant accounting adjustments were necessary to conform the
accounting practices of Supercuts to those of Regis.
Prior to the merger, Supercuts' fiscal year for financial reporting purposes
ended on December 31. No adjustment to retained earnings was necessary to
conform with Regis' year end.
Revenues and net income (loss) for the combining entities for the three years
ended June 30, 1997 were as follows (dollars in thousands):
SUPERCUTS,
YEAR ENDED JUNE 30 REGIS AS CONFORMED COMBINED
1997
Revenues $594,714 $118,505 $713,219
Net income (loss) 13,206 (6,632) 6,574
1996
Revenues 499,442 117,865 617,307
Net income (loss) 19,124 (9,673) 9,451
1995
Revenues 422,188 102,065 524,253
Net income (loss) 14,651 (3,061) 11,590
NATIONAL HAIR CARE CENTERS:
Effective June 1, 1996, the Company acquired 154 salons from National Hair Care
Centers, LLC. The salons are located within Wal-Mart stores and supercenters
throughout the United States and perform hairstyling services and offer hair
care products for sale. Of the $12,257,000 purchase price, $10,364,000 was paid
in cash at closing and the balance was settled by the Company's issuance of a
note for $1,797,000 and a $96,000 noncompete agreement. The cost in excess of
net tangible and identifiable intangible assets acquired was approximately
$6,900,000 and is being amortized on a straight-line basis over 17 years.
U.K. ACQUISITIONS:
In January 1996, the Company acquired 91 salons from Steiner Salons Limited and
Steiner Hairdressing Limited operating throughout the U.K. The $2,824,000
aggregate purchase price was paid in cash at closing. The cost in excess of net
tangible and identifiable intangible assets acquired is approximately $2,600,000
and is being amortized on a straight-line basis over 15 years.
In September 1995, the Company acquired the outstanding shares of common stock
of Essanelle Limited and S&L DuLac,
Inc. which operate 87 hairstyling salons in major department stores throughout
the U.K. (79 salons) and Switzerland (8 salons). The $6,300,000 aggregate
purchase price was paid in cash at closing. The cost in excess of net tangible
and identifiable intangible assets acquired was approximately $6,600,000 and is
being amortized on a straight-line basis over 15 years.
OTHER ACQUISITIONS:
During 1997 and 1996, the Company made numerous additional acquisitions. The
cost in excess of net tangible and identifiable intangible assets acquired was
approximately $9,700,000 and $7,900,000 in 1997 and 1996, respectively, and is
being amortized on a straight-line basis over periods of up to 17 years. Of the
aggregate purchase price of approximately $13,900,000 associated with these
acquisitions in 1997, approximately $11,300,000 was paid in cash during fiscal
1997; approximately $2,600,000 is payable during fiscal 1998. Of the aggregate
purchase price of approximately $11,600,000 associated with these acquisitions
in 1996, approximately $9,200,000 was paid in cash at closing and approximately
$2,400,000 was payable over three years.
The aforementioned acquisitions, except Supercuts, have been recorded using the
purchase method of accounting. Accordingly, the purchase prices have been
allocated to assets acquired and liabilities assumed based on their estimated
fair values at the date of acquisition. The acquisitions in 1997, 1996 and 1995
recorded using the purchase method are not material to the Company's operations.
4. RESOLUTION OF LITIGATION:
During fiscal 1994, the Company resolved its litigation with a former joint
venture partner, MEI Diversified Inc. (MEI). As part of the litigation
resolution, the Company advanced $5,850,000 to Premier Salons to finance that
company's acquisition of salons from the bankruptcy creditors of MEI. In return,
the Company received 1,000,000 shares of $6 par value per share preferred stock
of Premier Salons and a note receivable of $5,850,000, bearing interest at an
annual rate of prime plus
1/2 percent. Of the note receivable balance, $850,000 was paid in March 1994 and
the remaining balance of $5,000,000 is due in 60 monthly installments,
commencing in January 1995. The note is partially collateralized by a department
store license agreement and underlying operating assets.
During fiscal 1995, the Company received a $2,500,000 cash settlement associated
with its directors and officers insurance claim. Certain other negative events
also occurred in fiscal 1995 with respect to the Company's investment in and
advances to Premier Salons which caused the Company to re-evaluate and write off
the net carrying value ($2,305,000) of all remaining net assets associated with
the fiscal 1994 MEI litigation settlement. In addition, during fiscal 1995, the
Company issued 139,830 shares of its common stock to the bankruptcy creditors of
MEI as final resolution of a stock guarantee. This was fewer shares than the
Company originally estimated when the transaction was recorded the previous year
which resulted in a $500,000 gain. As a result of these transactions, the
Company recorded a $695,000 nonrecurring gain during fiscal 1995 and adjusted
the amounts previously recorded by decreasing
shareholders' equity by $500,000.
During fiscal 1997, 1996 and 1995, the Company received $901,000, $700,000 and
$500,000, respectively, of principal payments from Premier Salons under the note
agreement. The Company had previously written off the related receivable, and
accordingly, has recorded these recoveries as nonrecurring gains. There is no
assurance that such recoveries will continue.
During fiscal 1997, the Company resolved litigation brought by David E. Lipson
(former Supercuts Chairman and Chief Executive Officer) and DEL Holding
Corporation (DEL), a corporation controlled by Mr. Lipson, against Supercuts.
Mr. Lipson and DEL had brought legal action against Supercuts seeking damages
pursuant to a consulting agreement between DEL and Supercuts and damages
allegedly sustained by Mr. Lipson as a result of alleged defamation and a delay
in his ability to sell certain shares of Supercuts common stock. In
resolution, the Company paid Mr. Lipson and DEL $6,700,000 in complete
settlement of all claims of Mr. Lipson, DEL or any other entity controlled by
Mr. Lipson. This settlement and related costs approximated amounts accrued as
part of the Company's fiscal 1997 and 1996 restructuring charges (Note 8).
Supercuts paid DEL approximately $225,000 and $450,000 for Mr. Lipson's services
in 1996 and 1995, respectively.
5. FINANCING ARRANGEMENTS:
The Company's long-term debt consists of the following at June 30, 1997 and
1996:
(DOLLARS IN THOUSANDS)
1997 1996
Senior term notes $74,000 $39,000
Revolving credit facilities 14,448 30,545
Equipment and leasehold notes
payable 9,664 11,112
U.K. term notes 8,083 9,020
Other notes payable, principally
subordinated notes 7,267 12,704
-------------------
113,462 102,381
Less current portion (30,722) (19,168)
-------------------
Long-term portion $82,740 $83,213
-------------------
-------------------
At June 30, 1997, the senior term notes consist of $60,000,000 of individual
note agreements with interest rates ranging from 6.94 percent to 8.18 percent
and a $14,000,000 senior term note with an interest rate of 11.52 percent.
Repayment dates range from 1998 through 2007.
The Company increased its revolving credit facility in April 1997. The revolving
credit facility allows for borrowings up to $25,000,000, bears interest at the
prime rate, and matures in
October 1998. The prime rate at June 30, 1997 and 1996 was 8.50 percent and 8.25
percent, respectively. The facility also allows for borrowings bearing interest
at LIBOR rates plus 1.50 percent. The average LIBOR rate utilized by the Company
at June 30, 1997 was 5.78 percent. The revolving credit facility requires a
quarterly commitment fee at the rate of 1/4 percent per year on the unused
portion of the facility. The weighted average interest rate on this facility was
7.63 percent and 8.25 percent, respectively, at June 30, 1997 and June 30, 1996.
A letter of credit totaling approximately $700,000 was outstanding at June 30,
1997, which reduces the amount available under the revolving credit facility. At
June 30, 1996, the revolving credit facility included $21,200,000 outstanding
under a former Supercuts facility which was refinanced during fiscal 1997 as
part of new borrowings under senior term notes. The Company's U.K. subsidiary
also has a credit facility which allows for borrowings up to approximately
$5,000,000, bears interest at the LIBORrate plus 3.00 percent and is due on
demand. Amounts outstanding under this facility were $3,148,000 and $245,000 at
June 30, 1997 and 1996, respectively.
In March 1997, the Company entered into a treasury lock agreement for the
purpose of establishing the effective interest rate on the $14,000,000 senior
term note expected to be refinanced in June 1998. The contract was entered into
to reduce the risk to the Company of future interest rate fluctuations. The
contract has a notional amount of $14,000,000 and is tied to the U.S. government
10-year treasury note rate. At the settlement date in June 1998, the gain or
loss on the contract will be recognized. The deferred unrealized loss related to
this contract was not material at June 30, 1997. The Company does not enter into
financial instruments for trading or speculative purposes.
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.
The equipment and leasehold notes payable are primarily
comprised of capital lease obligations totaling $5,100,000 and $6,346,000 at
June 30, 1997 and 1996, respectively. These capital lease obligations bear an
average interest rate of approximately 12 percent and are payable in monthly
installments over five years. These balances exclude future interest payable of
$945,000 and $1,574,000 at June 30, 1997 and 1996, respectively.
In connection with the U.K. acquisitions (Note 3), the Company's U.K. subsidiary
has various term notes, denominated in pounds sterling, primarily with U.K.
banks bearing interest at rates varying from 4.00 percent to the LIBOR rate plus
2.50 percent which are subject to annual mandatory principal repayments until
final maturity in July 2000. The annual LIBOR rate at June 30, 1997 was 6.06
percent.
The U.K. term notes contain covenants applicable to the U.K. subsidiary,
including limitations on incurring debt, investments, merger or consolidation
and transactions with affiliates. In addition, the U.K. subsidiary must maintain
certain interest coverage and debt-to-equity ratios.
At June 30, 1997, the U.K. term notes have been classified as current as a
result of noncompliance with certain loan covenants. The Company is currently in
negotiations with the lender and intends to refinance this debt as long-term
during fiscal 1998.
The Company's subordinated notes consist primarily of notes associated with
various acquisitions, which bear interest in the range of 5.84 to 12.00 percent,
require monthly payments over terms ranging from two to seven years and are
generally subordinate to senior term notes and revolving credit facility
arrangements.
The fair value of the senior term, equipment and leasehold and subordinated
notes payable based upon a discounted cash flow analysis using the Company's
current incremental borrowing rate approximates their carrying values at June
30, 1997.
Aggregate maturities of long-term debt at June 30, 1997 are
as follows:
FISCAL YEAR (DOLLARS IN THOUSANDS)
1998 $30,722
1999 20,094
2000 9,271
2001 7,208
2002 1,123
Thereafter 45,044
-----------
$113,462
-----------
-----------
In July 1997, in connection with the construction of a new
distribution center, the Company entered into an additional credit facility. The
credit facility allows for borrowings up to $15,000,000, bears interest at the
prime rate, and matures in December 1998. The facility also allows for
borrowings bearing interest at an adjusted LIBOR rate.
6. COMMITMENTS:
OPERATING LEASES:
The Company is committed under long-term operating leases for the rental of most
of its company-owned salon locations. The terms of the leases range from one to
20 years, with many leases renewable for an additional five- to 10-year term at
the option of the Company, and certain leases include escalation provisions. For
certain leases, the Company is required to pay additional rent based on a
percent of sales and, in most cases, real estate taxes and other expenses. Rent
expense for the Company's international department store salons is based
primarily on a percent of sales.
The Company also leases the premises in which the majority of its franchisees
operate and has entered into corresponding sublease arrangements with the
franchisees. These leases, generally
with terms of approximately five years, are expected to be renewed on
expiration. Future minimum lease payments for the next five years, which are
reimbursable from the franchisees, are approximately $15,000,000 annually. All
additional lease costs are passed through to the franchisees.
Total rent expense, excluding sublease rental obligations which are passed
through to the franchisees, includes the following:
(DOLLARS IN THOUSANDS)
1997 1996 1995
Minimum rent $62,125 $49,667 $41,719
Percentage rent based
on sales 16,799 16,078 9,634
Real estate taxes and
other expenses 16,802 15,889 13,086
---------------------------------------
$95,726 $81,634 $64,439
---------------------------------------
---------------------------------------
FUTURE MINIMUM LEASE PAYMENTS:
As of June 30, 1997, future minimum lease payments (excluding percentage rents
based on sales and sublease rental obligations which are passed through to the
franchisees) due under existing noncancellable operating leases with remaining
terms of greater than one year are as follows:
FISCAL YEAR (DOLLARS IN THOUSANDS)
1998 $62,111
1999 56,054
2000 46,434
2001 35,586
2002 29,440
Thereafter 93,597
--------
Total minimum lease payments $323,222
--------
--------
SALON DEVELOPMENT PROGRAM:
As a part of its salon development program, the Company
continues to negotiate and enter into leases and commitments for the acquisition
of equipment and leasehold improvements related to future salon locations.
7. INCOME TAXES:
The provision for income taxes consists of:
(DOLLARS IN THOUSANDS)
1997 1996 1995
Current:
Federal $10,133 $9,142 $11,085
State 1,589 1,828 2,217
International 292 15 6
Deferred:
United States 1,138 (2,596) (5,040)
International (24) (463)
------------------------------
$13,128 $7,926 $8,268
------------------------------
------------------------------
The components of the net deferred tax asset and liability are as follows:
(DOLLARS IN THOUSANDS)
1997 1996
Net current deferred tax asset:
Nonrecurring items $378 $362
Insurance 1,756 632
Payroll and payroll related costs 1,313 1,513
Restructuring 463 2,532
Merger and transaction 702
Excess of tax over book basis
of certain assets associated
with restructuring 1,723 1,648
-------------------
$6,335 $6,687
-------------------
-------------------
Net noncurrent deferred tax asset
(liability):
Depreciation and amortization $(4,214) $(3,286)
Deferred rent 1,785 1,816
Nonrecurring items 947 1,359
Payroll and payroll related costs 1,115 851
Excess of tax over book basis
of certain assets associated
with salon development program 8,112 8,068
Other, net 777 476
-------------------
$8,522 $9,284
-------------------
Management believes no valuation allowance for the net deferred tax asset is
required due to its recoverability through carryback to income taxes paid in
prior years or reduction of future taxable income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the provision for income taxes and the amount computed by
applying the federal statutory income tax rate to income before income taxes is
as follows:
(DOLLARS IN THOUSANDS)
1997 1996 1995
Income (loss) before
income taxes:
United States $20,336 $16,709 $19,887
International (634) 668 (29)
---------------------------------------
$19,702 $17,377 $19,858
---------------------------------------
---------------------------------------
Computed income tax
expense at federal
statutory rate $6,945 $6,082 $6,950
Increase (decrease) in
income taxes
resulting from:
State income taxes, net
of federal income
tax benefit 1,033 953 971
Nondeductible
merger and
transaction costs 2,228
Change in estimate 1,500
Jobs tax credit (140) (486)
Other, principally
nondeductible
goodwill 1,562 891 833
---------------------------------------
Income tax
expense $13,128 $7,926 $8,268
---------------------------------------
---------------------------------------
As part of its September 30, 1996 income tax provision, the Company recorded a
$1,500,000 change in estimate associated with income tax matters related to
years prior to 1996 resulting from the completion of an Internal Revenue Service
examination.
8. RESTRUCTURING CHARGES:
During the three months ended December 31, 1995, a majority of the Board of
Directors of Supercuts concluded that it was appropriate to modify Supercuts'
strategic growth plans and to replace its Chairman of the Board and Chief
Executive Officer (Mr. Lipson). It was decided that future expansion efforts
would focus primarily on expanding with existing franchisees in existing
franchise markets. Additionally, because of the
significant operating losses and negative cash flow from certain salons, it was
decided that salons in certain markets would be closed or sold to franchisees or
other third parties.
The restructuring charge described above was $11,965,000
(as adjusted from the $18,925,000 originally reported due to conforming
accounting adjustments - Note 1).
Approximately $7,000,000 of this charge related to salon closings or
dispositions. The balance related principally to the Lipson litigation (Note
4). This charge was recorded in the quarter ended December 31, 1995.
In order to revise estimates included in the December 1995 restructuring charge
for legal and professional fees, an additional $858,000 was charged against
earnings in the quarter ended June 30, 1996. This additional charge resulted in
aggregate restructuring charges of $12,823,000 for the year ended June 30, 1996.
Of the $12,823,000 charge, $4,384,000 was related to non-cash activity (i.e.
primarily the write-off of assets that were purchased before the merger and do
not require a cash outlay for disposal).
In the quarter ended December 31, 1996, an additional $2,909,000 was charged
against earnings to revise restructuring charge estimates made in fiscal 1996
and $1,500,000 was charged against earnings associated with identified Regis
salon closures. The changes in the estimated June 30, 1996 restructuring charges
represent changes in accounting estimates associated with litigation matters,
legal and professional fees and lease obligations. Of the $4,409,000 charge
recorded in the quarter ended December 31, 1996, $330,000 was related to
non-cash activity.
The Supercuts and Regis salons identified for closure or disposition, related to
the December 1995 and 1996 restructuring charges described above, contributed
approximately $7,000,000 of annual revenues with associated after-tax
annualized operating losses of approximately $1,000,000.
During the third and fourth quarters of fiscal 1997, the Company finalized its
restructuring activities. The actual total restructuring costs approximated
amounts previously recorded.
9. EMPLOYEE BENEFIT PLANS:
EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has a qualified employee stock ownership plan (ESOP) covering
substantially all field supervisors, warehouse and corporate office employees.
Contributions to the ESOP are at the discretion of the Company.
PROFIT SHARING PLAN:
The Company has a qualified profit sharing plan (PSP) covering the same
employees as its ESOP. Contributions to the PSP are at the discretion of the
Company.
EXECUTIVE STOCK AWARD PLAN:
The Company has a nonqualified executive stock award plan (ESAP) covering those
employees not eligible to participate under the qualified ESOP and PSP.
Contributions to the ESAP are at the discretion of the Company.
STOCK PURCHASE PLAN:
The Company has an employee stock purchase plan (SPP) available to substantially
all employees. Under terms of the plan, eligible employees may purchase the
Company's common stock through payroll deductions. The Company contributes an
amount (not to exceed $1,200,000 in the aggregate) equal to 15 percent of the
purchase price of the stock to be purchased.
401(K) PLAN:
Supercuts had a 401(k) defined contribution plan. As a result of the merger, the
401(k) plan was terminated on October 20, 1996. Substantially all of the assets
remaining in the 401(k) plan have been distributed to participants.
Company contributions to the aforementioned plans, which
are charged to earnings in the period contributed, included the following:
(DOLLARS IN THOUSANDS)
1997 1996 1995
ESOP $662 $616 $428
PSP 119
ESAP 257 231 197
SPP 223 172 132
401(k) 64 212 173
STOCK OPTIONS:
The Company's Stock Option Plan (the Plan), as amended, provides for granting
both incentive stock options and nonqualified stock options. A total of
1,650,000 shares of common stock may be granted under the Plan to employees of
the Company for a term not to exceed 10 years from the date of grant. Options
granted to employees generally vest over a five-year period. Options may also be
granted under this Plan to the Company's outside directors for a term not to
exceed five years from the vesting date. Options granted to outside directors
vest over a four-year period, although the previous Supercuts Board
members were fully vested at time of merger.
The Plan contains restrictions on transferability, time of exercise, exercise
price and on disposition of any shares acquired through exercise of the options.
Incentive stock options are granted at not less than fair market value on the
date of grant. The Board of Directors determines the Plan participants and
establishes the terms and conditions of each option.
Separate from the Stock Option Plan described above, in an action approved by
shareholders on October 23, 1996 in connection with the merger (Note 3) and
effective termination of the Supercuts stock option plans, outstanding Supercuts
stock options were converted to options to purchase approximately 400,000 shares
of Regis common stock on the basis of the exchange ratio established to effect
the merger.
Common shares available for grant as of June 30 were 53,850, 405,356 and 799,494
for 1997, 1996 and 1995, respectively. The Board has authorized, subject to
shareholder approval on October 14, 1997, 550,000 additional shares be made
available for grant under the Plan.
Stock options outstanding and weighted average exercise prices are as follows:
OPTIONS OUTSTANDING
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
Balance, June 30, 1994 1,258,032 $12.60
Granted 179,100 12.54
Cancelled (63,233) 21.33
Exercised (20,082) 7.52
-------------------------
Balance, June 30, 1995 1,353,817 12.24
Granted 473,400 16.25
Cancelled (79,262) 20.62
Exercised (114,150) 7.34
-------------------------
Balance, June 30, 1996 1,633,805 13.32
Granted 307,500 20.44
Cancelled (102,117) 21.68
Exercised (271,357) 13.18
-------------------------
Balance, June 30, 1997 1,567,831 $14.20
-------------------------
-------------------------
At June 30, 1997, the weighted average exercise price and remaining contractual
life of stock options are as follows:
RANGE OF EXERCISE $4.00- $14.00- $23.25-
PRICES $12.38 $20.72 $34.38 TOTAL
Total options
outstanding 879,376 360,351 328,104 1,567,831
Weighted average
exercise price $8.52 $17.18 $26.15 $14.20
Weighted average
remaining
contractual life
in years 6.6 8.8 8.0 7.4
Options exercisable 401,493 62,485 151,604 615,582
Weighted average
price of exercisable
options $8.17 $17.36 $29.52 $14.36
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, a standard of accounting and reporting
for stock-based compensation plans. The Company adopted this standard in fiscal
1997. The Company has continued to measure compensation cost for its incentive
stock plans using the intrinsic value-based method of accounting it has
historically used and, therefore, the standard has no effect on the Company's
operating results.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Had the Company used the fair-value-based method of accounting for its stock
option and incentive plans beginning in 1996 and charged compensation cost
against income, over the vesting period, based on the fair value of options at
the date of grant, net income and net income per common share for 1997 and 1996
would have been reduced to the following
pro forma amounts:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996
Net income:
As reported $6,574 $9,451
Pro forma 6,000 8,528
Net income per common share:
As reported $.28 $.42
Pro forma .26 .37
The pro forma information above only includes stock options granted in 1997 and
1996. Compensation expense under the fair-value-based method of accounting will
increase over the next few years as additional stock option grants are
considered.
The weighted-average fair value per option granted during 1997 and 1996 was
$9.47 and $11.00, respectively. The weighted-average fair value was calculated
by using the fair value of each option grant on the date of grant. The fair
value of options was calculated utilizing the Black-Scholes option-pricing model
and the following key assumptions:
1997 1996
Risk-free interest rate 6.41% 5.91%
Expected life in years 6.5 7.0
Expected volatility 35.50% 41.43%
Expected dividend yield .39% .25%
OTHER:
The Company has established unfunded deferred compensation plans which cover
certain management and executive personnel. The Company maintains life insurance
policies on the plans' participants. The amounts charged to earnings for these
plans were $385,000, $379,000 and $128,000 in 1997, 1996 and 1995, respectively.
The Company has a survivor benefit plan for the Chairman of the Board's spouse,
payable upon his death, at a rate of $300,000 annually, adjusted for inflation,
for the remainder of his life. The Company has the ability and intent to fund
its future obligations under this plan through life insurance
policies on the Chairman of the Board (the Chairman).
The Company has entered into an agreement with the Chairman providing that the
Chairman will continue to render services to the Company until at least May
2007, and for such further period as may be agreed upon mutually. The Company
has agreed to pay the Chairman an annual amount of $600,000, adjusted for
inflation, for the remainder of his life.
The Chairman has agreed that during the period in which payments to him are made
as provided in the agreement, he will not engage in any business competitive
with the business conducted by the Company. Compensation associated with this
agreement is charged to expense as services are provided through May 2007.
10. GEOGRAPHIC BUSINESS OPERATIONS:
The Company owns and operates hairstyling and hair care salons throughout the
United States and in several other countries, principally the U.K. A summary of
the Company's operations for the United States and International is presented
below. All intercompany revenues and expenses have been eliminated.
(DOLLARS IN THOUSANDS)
1997 1996 1995
Revenues:
United States $603,170 $531,599 $472,316
International 110,049 85,708 51,937
---------------------------------------
$713,219 $617,307 $524,253
---------------------------------------
---------------------------------------
Operating income:
United States $26,584 $23,552 $25,543
International 1,863 2,615 1,101
---------------------------------------
$28,447 $26,167 $26,644
---------------------------------------
---------------------------------------
Total assets:
United States $300,814 $275,954 $238,083
International 30,721 28,000 6,753
---------------------------------------
$331,535 $303,954 $244,836
---------------------------------------
---------------------------------------
11. SHAREHOLDERS' EQUITY:
In addition to the shareholder equity activity described in Note 9, the
following activity has taken place:
STOCK SPLIT:
In May 1996, the Company's Board of Directors authorized a three-for-two stock
split in the form of a 50 percent stock
dividend distributed on June 4, 1996 to shareholders of record on May 20, 1996.
All per share and number of share data have been retroactively restated to
reflect the stock split, except for the Consolidated Statements of Changes in
Shareholders' Equity.
INCREASE IN AUTHORIZED SHARES AND
DESIGNATION OF PREFERRED CLASS:
On November 12, 1996, at the annual meeting of the shareholders of the Company,
the shareholders approved an increase in the authorized shares of capital stock
of the Company from 25,000,000 to 50,000,000, par value $.05, of which all
outstanding shares and shares available under the Stock Option Plan have been
designated as common.
On December 23, 1996, the Board of Directors designated 250,000 shares of
authorized capital stock as Series A Junior Participating Preferred Stock
(preferred stock). None of the preferred stock has been issued.
SHAREHOLDERS' RIGHTS PLAN:
In December 1996, the Board of Directors adopted a shareholders' rights plan and
declared a dividend of one preferred share purchase right on each outstanding
share of common stock.
The rights become exercisable only following the acquisition by a person or
group, without the prior consent of the Board of Directors, of 20 percent or
more of the Company's voting stock, or following the announcement of a tender
offer or exchange offer to acquire any interest of 20 percent or more. If the
rights become exercisable, they entitle all holders, except the take-over
bidder, to purchase one one-hundredth of a share of preferred stock at an
exercise price of $120, subject to adjustment, or in lieu of purchasing the
preferred stock, to purchase for the same exercise price common stock of the
Company (or in certain cases common stock of an acquiring company) having a
market value of twice the exercise price of a right.
12. SUPERCUTS 5% ADVERTISING FUND:
The Company administers the Supercuts 5% Advertising Fund (the Fund) to which
all Supercuts franchise salons and company-owned Supercuts salons are required
to contribute 5 percent of monthly service revenues. Voluntary supplemental
salon contributions are also collected for additional advertising and promotions
related specifically to the contributing salons. Such amounts are segregated
from the cash resources of the Company, accounted for separately and are not
included in the financial statements of the Company. Expenditures of the Fund
are used, as determined by the Supercuts Council, for system-wide expenditures
such as creative production, national advertising, consumer research, public
relations and agency fees and for local market expenditures such as television,
radio and print placement costs. The amounts charged to earnings, representing
the Company's 5 percent contributions to the Fund, were $4,266,000, $4,324,000
and $3,632,000 in 1997, 1996 and 1995, respectively.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
Regis Corporation:
We have audited the accompanying consolidated balance sheet of Regis Corporation
as of June 30, 1997 and 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the years ended
June 30, 1997, 1996 and 1995. These financial statements are the responsibility
of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated
financial position of Regis Corporation as of June 30, 1997 and 1996, and the
consolidated results of its operations and its cash flows for the years ended
June 30, 1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
Coopers & Lybrand, L.L.P.
Minneapolis, Minnesota
August 22, 1997
SHAREHOLDER INFORMATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED
----------------------------------------------------------- YEAR
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 ENDED
1997
Revenues $170,605 $176,458 $175,488 $190,668 $713,219
Operating income (loss) 12,360 (7,966) 9,773 14,280 28,447
Net income (loss) 4,541 (8,880) 4,251 6,662 6,574
Net income (loss) per share (a) .20 (.38) .18 .29 .28 (c)
Dividends declared per share .02 .02 .02 .02 .08
1996
Revenues $140,575 $155,316 $155,466 $165,950 $617,307
Operating income (loss) 9,053 (3,240) 8,966 11,388 26,167
Net income (loss) 4,018 (3,815) 3,957 5,291 9,451
Net income (loss) per share (b) .18 (.17) .17 .23 .42 (c)
Dividends declared per share .017 .017 .017 .02 .07
(a) For the quarters ended September 30, 1996, December 31, 1996, March 31,
1997, June 30, 1997 and the full year 1997, exclusive of nonrecurring gains
(Note 4), merger and transaction costs (Note 3) and restructuring charges
(Note 8), net income per share would have been $.25, $.21, $.18, $.28 and
$.92, respectively.
(b) For the quarters ended September 30, 1995, December 31, 1995, March 31,
1996, June 30, 1996 and the full year 1996, exclusive of nonrecurring gains
(Note 4) and restructuring charges (Note 8), net income per share would
have been $.18, $.16, $.17, $.25 and $.75, respectively.
(c) The summation of quarterly net income per share amounts does not equate to
the calculation for the full fiscal year, as quarterly calculations are
performed on a discrete basis.
- --------------------------------------------------------------------------------
STOCK DATA
Regis common stock is listed and traded on the Nasdaq National Market under the
symbol "RGIS".
The accompanying table sets forth the high and low closing bid quotations as
reported by Nasdaq for each quarter during the previous two fiscal years. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
As of June 30, 1997, Regis shares were owned by approximately 12,000
shareholders. The common stock price was $23.19 per share on August 15, 1997.
1997 1996
HIGH LOW HIGH LOW
1st quarter $34.00 $21.75 $14.33 $12.49
2nd quarter 27.50 15.25 16.67 13.83
3rd quarter 18.50 15.75 20.50 14.17
4th quarter 24.00 17.63 33.00 20.33
CORPORATE INFORMATION
BOARD OF DIRECTORS
Myron Kunin
CHAIRMAN OF THE BOARD
Regis Corporation
Paul D. Finkelstein
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Regis Corporation
Christopher A. Fox
EXECUTIVE VICE PRESIDENT
Regis Corporation
Frank E. Evangelist
SENIOR VICE PRESIDENT,
FINANCE
SECRETARY
Regis Corporation
Rolf Bjelland
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
Lutheran Brotherhood
Thomas L. Gregory
CONSULTANT
TLG Associates
Van Zandt Hawn
DIRECTOR AND FOUNDER
Goldner Hawn Johnson & Morrison Incorporated
Susan S. Hoyt
EXECUTIVE VICE PRESIDENT
HUMAN RESOURCES
Staples, Inc.
David B. Kunin
CHAIRMAN
Anasazi Exclusive Salon Products, LLC
CORPORATE OFFICERS
Myron Kunin
CHAIRMAN
Paul D. Finkelstein
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Christopher A. Fox
EXECUTIVE VICE PRESIDENT
Frank E. Evangelist
SENIOR VICE PRESIDENT,
FINANCE
SECRETARY
Bert M. Gross
SENIOR VICE PRESIDENT,
GENERAL COUNSEL
William E. Halfacre
SENIOR VICE PRESIDENT,
RETAIL AND PURCHASING
Bruce D. Johnson
SENIOR VICE PRESIDENT,
DESIGN AND CONSTRUCTION
Mark Kartarik
CHIEF OPERATING OFFICER,
SUPERCUTS, INC.
Gordon Nelson
SENIOR VICE PRESIDENT,
FASHION AND EDUCATION
Anthony W. E. Rammelt
SENIOR VICE PRESIDENT,
INTERNATIONAL MANAGING DIRECTOR, EUROPE
Randy L. Pearce
VICE PRESIDENT, FINANCE
INVESTOR RELATIONS
ANNUAL MEETING
The annual meeting of Regis shareholders will be held at The Minneapolis
Institute of Arts, 2400 Third Avenue South, Minneapolis, Minnesota, on
October 14, 1997, at 4:00 p.m.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended June 30, 1997, may be obtained without
charge by writing to:
Frank E. Evangelist, SECRETARY
Regis Corporation
7201 Metro Boulevard
Minneapolis, Minnesota 55439
TRANSFER AGENT
AND REGISTRAR
Norwest Bank Minnesota, N.A.
South St. Paul, Minnesota
INDEPENDENT
ACCOUNTANTS
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
CORPORATE
HEADQUARTERS
7201 Metro Boulevard
Minneapolis, Minnesota 55439
PHONE: (612) 947-7777
FAX: (612) 947-7700