1
EXHIBIT B
Unaudited consolidated balance sheet as of September 30, 1999 and the related
consolidated statements of operations and cash flows for the three months ended
September 30, 1999 and 1998 and the related Management's Discussion and Analysis
of Financial Condition and Results of Operations for the three months ended
September 30, 1999 and 1998.
43
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGIS CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 AND JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AND SHARE AMOUNTS)
(UNAUDITED)
SEPTEMBER 30, 1999 JUNE 30, 1999
------------------ --------------
ASSETS
Current assets:
Cash $ 14,817 $ 10,353
Accounts receivable, net 17,995 16,598
Inventories 73,720 70,056
Deferred income taxes 8,321 8,596
Other current assets 6,599 11,780
----------- ----------
Total current assets 121,452 117,383
Property and equipment, net 227,044 215,952
Goodwill 166,038 153,956
Other assets 14,926 13,291
---------- ----------
Total assets $529,460 $500,582
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 13,157 $ 23,945
Accounts payable 32,163 23,877
Accrued expenses 60,110 58,818
--------- ----------
Total current liabilities 105,430 106,640
Long-term debt 159,825 143,041
Other noncurrent liabilities 18,642 16,682
Shareholders' equity:
Common stock, $.05 par value;
issued and outstanding, 40,492,172 and 40,419,112
common shares at September 30, 1999 and
June 30, 1999, respectively 2,025 2,021
Additional paid-in capital 148,785 148,504
Accumulated other comprehensive income (850) (1,095)
Retained earnings 95,603 84,789
---------- ----------
Total shareholders' equity 245,563 234,219
--------- ---------
Total liabilities and shareholders' equity $529,460 $500,582
======== ========
44
3
REGIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 1998
---- ----
Revenues:
Company-owned salons:
Service $ 181,836 $ 159,995
Product 71,871 60,431
---------- ----------
253,707 220,426
Franchise income 12,401 11,571
---------- ----------
266,108 231,997
Operating expenses:
Company-owned:
Cost of service 102,948 90,478
Cost of product 38,554 32,473
Direct salon 22,294 19,133
Rent 35,360 30,761
Depreciation 8,608 7,386
---------- -----------
207,764 180,231
Selling, general and administrative 28,261 27,785
Depreciation and amortization 3,768 3,218
Nonrecurring items - 1,359
Other 2,599 2,234
---------- ------------
Total operating expenses 242,392 214,827
--------- ----------
Operating income 23,716 17,170
Other income (expense):
Interest (3,367) (2,722)
Other, net 414 381
---------- -------------
Income before income taxes 20,763 14,829
Income taxes (8,125) (5,697)
---------- ------------
Net income $ 12,638 $ 9,132
========== ===========
Net income per share:
Basic $ .31 $ .23
========== ============
Diluted $ .30 $ .22
========== ============
45
4
REGIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
1999 1998
---- ----
Cash flows from operating activities:
Net income $12,638 $ 9,132
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,962 8,586
Amortization 2,404 1,959
Deferred income taxes 413 (143)
Other (519) 1,031
Changes in assets and liabilities:
Accounts receivable (1,243) 625
Inventories (3,149) (947)
Other current assets 5,139 36
Other assets (1,859) (303)
Accounts payable 6,759 (2,311)
Accrued expenses 1,041 (540)
Other noncurrent liabilities 1,955 1,816
-------- --------
Net cash provided by operating activities 33,541 18,941
-------- -------
Cash flows from investing activities:
Capital expenditures (19,338) (16,223)
Proceeds from sale of assets 51 19
Purchases of salon assets, net of cash acquired
and certain obligations assumed (14,637) (10,506)
-------- --------
Net cash used in investing activities (33,924) (26,710)
-------- --------
Cash flows from financing activities:
Borrowings on revolving credit facilities 86,361 67,987
Payments on revolving credit facilities (57,161) (66,695)
Proceeds from issuance of long-term debt 21,392
Repayment of long-term debt (23,372) (13,842)
Dividends paid (1,162) (715)
Proceeds from issuance of common stock 216 281
-------- --------
Net cash provided by financing activities 4,882 8,408
-------- --------
Effect of exchange rate changes on cash (35) (15)
-------- --------
Increase in cash 4,464 624
Cash:
Beginning of period 10,353 10,469
-------- --------
End of period $14,817 $ 11,093
======== ========
46
5
REGIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation of Unaudited Interim Consolidated Financial Statements:
-----------------------------------------------------------------------------
The unaudited interim consolidated financial statements of Regis
Corporation (the Company) as of September 30, 1999 and for the three
months ended September 30, 1999 and 1998, reflect, in the opinion of
management, all adjustments (which, with the exception of the matters
discussed in Note 5 herein, include only normal recurring
adjustments) necessary to fairly present the consolidated financial
position of the Company as of September 30, 1999 and its consolidated
results of operations and cash flows for the interim periods. The
results of operations and cash flows for any interim period are not
necessarily indicative of results of operations and cash flows for
the full year.
The year-end consolidated balance sheet data was derived from audited
consolidated 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 for
the year ended June 30, 1999, which are included in the Company's
Form 8-K (presented in Exhibit A). PricewaterhouseCoopers LLP, the
Company's independent accountants, have performed limited reviews of
the interim consolidated financial data included herein. Their report
on such reviews accompanies this filing.
In October 1999, the Company consummated a merger with Supercuts
(Holdings) Limited (Supercuts UK) in a stock-for-stock transaction.
The acquisition has been accounted for under the pooling-of-interests
basis of accounting and, accordingly, as discussed in Note 7, the
Company's consolidated financial statements have been restated to
retroactively include the accounts and results of operations of
Supercuts UK.
COST OF PRODUCT SALES. On an interim basis, product costs are
determined by applying an estimated gross profit margin to product
revenues.
2. Comprehensive Income
Comprehensive income for the Company includes net income and foreign
currency translation charged or credited to the cumulative
translation account within shareholders' equity. Comprehensive income
for the three months ended September 30, 1999 and 1998 was as
follows:
THREE MONTHS ENDED
SEPTEMBER 30,
(Dollars in thousands)
1999 1998
---- ----
Net income $12,638 $9,132
Change in cumulative foreign currency translation 245 1,021
Less reclassification adjustment for translation
losses realized in net income (964)
------- ------
Total comprehensive income $12,883 $9,189
======= ======
47
6
3. Net Income per Share:
---------------------
Basic earnings per share (EPS) is calculated as net income divided by
weighted average common shares outstanding. The Company's only
dilutive securities are issuable under the Company's Stock Option
Plan, as amended. Diluted EPS is calculated as net income divided by
weighted average common shares outstanding, increased to include
assumed conversion of dilutive securities.
The following provides information related to the weighted average
common shares used in the calculation of the Company's basic and
diluted EPS:
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
---- ----
Weighted average shares for basic
earnings per share 40,441,552 40,036,057
Dilutive effect of stock options 1,143,202 1,138,606
---------- ----------
Weighted average for shares for diluted
earnings per share 41,591,622 41,174,663
========== ==========
4. Nonrecurring Items:
------------------
Nonrecurring items included in operating income in the first quarter
of fiscal 1999 consist of $1.4 million of expense associated with the
Company's year 2000 remediation.
5. Transaction and Restructuring Liabilities:
------------------------------------------
The following provides additional information concerning the
Company's transaction and restructuring liability related to its
fiscal 1999 mergers with The Barbers and Heidi's and its
restructuring liability related to its fiscal 1999 restructuring plan
for its international operations.
June 30, Cash September 30,
1999 Payments 1999
-------- -------- -------------
Restructuring-International
Severance $ 562 $ 378 $ 184
Salon closures and dispositions 1,187 177 1,010
Other 351 351
------- ------- -------
2,100 555 1,545
Restructuring-Mergers
Severance 2,883 288 2,595
Salon closures and dispositions 115 32 83
Other 746 583 163
------- ------- -------
3,744 903 2,841
Transaction Charges-Mergers 137 110 27
------- ------- -------
$ 5,981 $ 1,568 $ 4,413
======= ======= =======
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7
6. Segment Information:
--------------------
Commencing with its 1999 fiscal year end reporting, the Company
adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This new standard requires public companies to
report financial and descriptive information about their reportable
operating segments, generally based on the way that management has
organized the segments within the enterprise for making operating
decisions and assessing performance.
Each of the Company's operating segments have generally similar
products and services. The Company is organized to manage its
operations based on geographical location. The Company's operating
segments have been aggregated into two reportable segments: domestic
salons and international salons. The Company operates or franchises
4,810 domestic salons located within high-profile regional malls and
strip shopping centers under several different concepts including
Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost
Cutters brand names. The Company's International segment includes 367
salons operating in leading department stores, mass merchants, strip
shopping centers and high street locations.
The accounting policies of the reportable segments are the same as
those used for the Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on direct
salon contribution, before supervision and corporate overhead
expenses. Intersegment sales and transfers are not significant
Summarized financial information concerning the Company's reportable
segments for the three months ended September 30, 1999 and 1998,
respectively, is shown in the following table.
(Dollars in thousands)
1999 1998
---- ----
Company-owned revenues:
Domestic $227,717 $190,650
International 25,990 29,776
-------- --------
Total $253,707 $220,426
======== ========
Salon contribution:
Domestic $ 41,352 $ 35,586
International 4,591 4,609
--------- ---------
Total $ 45,943 $ 40,195
========= =========
49
8
7. Merger and Acquisitions:
-----------------------
Effective October 31, 1999, the Company consummated a merger with
Supercuts UK. Supercuts UK is a United Kingdom based company operating
68 hairstyling salons under the Supercuts brand name. Under the terms of
the merger agreement, the shareholders of Supercuts UK, a privately held
company, received 1,778,000 shares of Regis Corporation common stock.
The transaction has been accounted for as a pooling-of-interests. Prior
period financial statements have been restated to reflect this merger as
if the merged companies had always been combined.
Prior to the combination, Supercuts UK's fiscal year ended on the
Saturday closest to August 31. In recording the pooling-of-interests
combination, Supercuts UK's final statements for the three months ended
September 30, 1999 were combined with Regis consolidated financial
statements for the same period. Supercuts UK's financial statements for
the years ended September 4, 1999 and August 29, 1998 were combined with
Regis' financial statements for the years ended June 30, 1999 and 1998,
respectively.
An adjustment of $.7 million has been made to shareholders' equity in
the period ended September 30, 1999 to eliminate the effects of
including Supercuts UK's results of operations for the two months ended
September 4, 1999 in the Company's consolidated financial statements for
the three months ended September 30, 1999.
50
9
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, 1999, and the related consolidated statements of
operations and cash flows for the three month periods ended September 30, 1999
and 1998. 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 interim financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of June 30, 1999, and the related consolidated
statements of operations, changes in shareholders' equity and comprehensive
income and cash flows for the year then ended (presented in Exhibit A), and in
our report dated February 8, 2000, 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, 1999, is fairly
stated, in all material respects in relation to the consolidated balance sheet
from which it has been derived.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
February 8, 2000
51
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
Regis Corporation, based in Minneapolis, is the world's largest owner,
operator, franchisor and acquirer of hair and retail product salons all
in 50 states, Puerto Rico, Canada and the United Kingdom. The Regis
worldwide operations include 5,109 salons at September 30, 1999
operating in two segments: domestic and international. The Company's
domestic segment includes 4,742 salons operating primarily under the
brand names of Regis Salons, MasterCuts, Trade Secret, SmartStyle,
Supercuts and Cost Cutters. The Company's international operations
include 367 salons located in the United Kingdom. The Company has more
than 32,000 employees worldwide.
Consolidated financial data for all periods presented reflect the
retroactive effects of the October 1999 merger with Supercuts UK which
has been accounted for as a pooling-of-interests (See Notes 1 and 7 to
the Consolidated Financial Statements). The financial statements have
been prepared by combining current and historical financial statements
of Regis Corporation with those of Supercuts UK for each period
presented.
During the first quarter of fiscal 2000, the Company's consolidated
revenues grew to a record $266.1 million, including franchise income of
$12.4 million, a 14.7 percent increase over first quarter fiscal 1999
consolidated revenues of $232.0 million. First quarter operating income
grew to $23.7 million, a 38.1 percent increase over the first quarter of
fiscal 1999.
Net income in the first quarter of fiscal 2000, increased to $12.6
million, or $.30 per diluted share, an earnings per share increase of
25.0 percent from first quarter fiscal 1999 net income of $10.0 million,
or $.24 per diluted share. Prior year fiscal 1999 results reflect the
costs associated with the Company's year 2000 remediation program, which
are nonrecurring in nature. Net income in the first quarter of fiscal
1999, including nonrecurring items, was $9.1 million, or $.22 per
diluted share.
52
11
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 total revenues, except as noted.
For the Three Months Ended
SEPTEMBER 30,
1999 1998
---- -----
Company-owned service revenues (1) 71.7% 72.6%
Company-owned product revenues (1) 28.3 27.4
Franchise income 4.7 5.0
Company-owned operations:
Profit margins on service (2) 43.4 43.4
Profit margins on product (3) 46.4 46.3
Direct salon (1) 8.8 8.7
Rent (1) 13.9 14.0
Depreciation (1) 3.4 3.4
Direct salon contribution (1) 18.1 18.2
Selling, general and administrative 10.6 12.0
Depreciation and amortization 1.4 1.4
Nonrecurring items 0.6
Other 1.0 1.0
Operating income 8.9 7.4
Income before income taxes 7.8 6.4
Net income 4.7 3.9
Operating income, excluding nonrecurring items 8.9 8.0
Net income, excluding nonrecurring items 4.7 4.3
(1) Computed as a percent of company-owned revenues
(2) Computed as a percent of company-owned service revenues
(3) Computed as a percent of company-owned product revenues
53
12
THREE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998:
REVENUES
REVENUES for the first quarter of fiscal 2000 grew to a record $266.1 million,
an increase of $34.1 million or 14.7 percent, over the same period in fiscal
1999. System-wide sales, inclusive of non-consolidated sales generated from
franchised salons, increased 11.7 percent in the first quarter of fiscal 2000 to
$395.7 million. These increases in company-owned and system-wide sales are the
result of the total number of salons added to the system through acquisitions,
same-store sales increases as well as net salon openings.
Revenues by division for the first quarter of fiscal 2000 and 1999 are as
follows:
(Dollars in thousands)
2000 1999
---- ----
Regis Salons $ 91,707 $ 83,849
Strip Center Salons (primarily Supercuts) 44,700 32,345
MasterCuts 34,227 29,418
Trade Secret 38,238 30,981
SmartStyle 18,845 14,057
International 25,990 29,776
Franchise income 12,401 11,571
-------- --------
$266,108 $231,997
======== ========
Same-store sales for domestic company-owned salons increased 4.2 percent in the
first quarter of fiscal 2000, compared to same-store sales increases of 5.8
reported in the first quarter of fiscal 1999. System-wide same-store sales for
the first quarter of fiscal 2000 increased 4.2 percent, compared to 5.6 percent
in the same period in fiscal 1999. Same-store sales increases achieved are
primarily due to an increase in the number of customers served. A total of 26
million customers system-wide were served during the first quarter of fiscal
2000. The Company utilizes an audiovisual-based training system in its
company-owned 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 REVENUES in the first quarter of fiscal 2000 grew to $181.8 million, an
increase of $21.8 million, or 13.7 percent, over the same period in fiscal 1999.
This increase is a result of salon acquisitions the Company has made during the
past twelve months, strong service same-store sale increases of 4.0 percent, and
accelerated new salon construction.
54
13
PRODUCT REVENUES in the first quarter of fiscal 2000 grew to $71.9 million, an
increase of $11.4 million, or 18.9 percent, over the same period in fiscal 1999.
This increase continues a trend of escalating product revenues due to strong
product same-store sales growth of 4.8 percent, a reflection of the continuous
focus on product awareness, training and acceptance of national label
merchandise. Product revenues as a percent of total company-owned revenues
increased to 28.3 percent of revenues compared to 27.4 percent of revenues in
the same period of fiscal 1999.
FRANCHISE INCOME, including royalties, initial franchise fees and product and
equipment sales made by the Company to franchisees, increased slightly to $12.4
million in the first quarter of fiscal 2000. The increase in franchise income is
a result of an increase in royalties on franchisee sales, which sales are not
included in the Company's consolidated revenues, as well as an increase in
product sales to franchisees.
COST OF REVENUES
The aggregate cost of revenues in the first quarter of fiscal 2000 was $141.5
million, compared to $123.0 million in the same period in fiscal 1999. The
resulting combined gross margin percentage for the first quarter of fiscal 2000
was 44.2 percent of revenues, identical to that of the first quarter of fiscal
1999.
SERVICE MARGINS remained consistent at 43.4 percent in the first quarter of
fiscal 2000, compared to 43.4 percent in the same period in fiscal 1999.
PRODUCT MARGINS remained fairly consistent at 46.4 percent in the first quarter
of fiscal 2000, compared to 46.3 percent in the same period in fiscal 1999.
DIRECT SALON
This expense category includes direct costs associated with salon operations
such as advertising, promotion, insurance, telephone and utilities. Direct salon
expense of $22.3 million increased slightly as a percentage of company-owned
revenues to 8.8 percent in the first quarter of fiscal 2000 from 8.7 percent in
the same period in fiscal 1999. The slight increase is due to an increase in
freight costs during the quarter resulting from the roll-out of the new Regis
private label product line and, an increase in salon advertising related to the
Company's development of the HairMasters and Style America strip center salon
concepts.
55
14
RENT
Rent expense in the first quarter of fiscal 2000 was $35.4 million or 13.9
percent of company-owned revenues, compared to $30.8 million or 14.0 percent of
company-owned revenues, in the same period in fiscal 1999. The slight
improvement in rate is primarily due to leveraging this fixed cost against sales
increases in the Wal-Mart and International divisions.
DEPRECIATION - SALON LEVEL
Depreciation expense at the salon level remained consistent at 3.4 percent of
revenues in both the first quarter of fiscal 2000 and 1999, primarily due to
this fixed cost growing at relatively the same rate as sales due to accelerated
new salon construction and acquisitions.
DIRECT SALON CONTRIBUTION
For the reasons described above, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, improved in the
first quarter of fiscal 2000 to $45.9 million, or 18.1 percent of company-owned
revenues, compared to $40.2 million or 18.2 percent of company-owned revenues in
the same period of fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE
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). Selling, general and administrative
(SG&A) expenses were $28.3 million, or 10.6 percent of total revenues in the
first quarter of fiscal 2000, compared to $27.8 million, or 12.0 percent of
total revenues in the same period in fiscal 1999. This 140 basis point rate
improvement is primarily related the Company's ability to leverage the fixed
cost components of SG&A against sales growth and a decrease in SG&A expenses as
a result of the amalgamation of The Barbers merger and implementation of the UK
restructuring plan.
DEPRECIATION AND AMORTIZATION - CORPORATE
Depreciation and amortization remained constant at 1.4 percent of total revenues
in the first quarter of fiscal 2000 and 1999, primarily due to increases in the
level of goodwill amortization resulting from acquisitions in the past twelve
months, offset by leveraging this fixed cost against revenue increases.
56
15
NONRECURRING ITEMS
Nonrecurring items included in operating income in the first quarter of fiscal
1999 consist of expenses associated with the Company's year 2000 remediation
efforts. See discussion of year 2000 remediation within Liquidity and Capital
Resources.
OPERATING INCOME
Operating income in the first quarter of fiscal 2000 improved to $23.7 million,
an increase of $6.5 million over the same period in fiscal 1999. Operating
income as a percentage of total revenues grew to 8.9 percent in the first
quarter of fiscal 2000 compared to 8.0 percent in the same period in fiscal
1999, excluding nonrecurring items. This improvement is attributable primarily
to leveraging of SG&A expenses, partially offset by higher direct salon expenses
as a percent of total revenues, excluding nonrecurring items.
INTEREST
Interest expense in the first quarter of fiscal 2000 grew to $3.4 million
compared to $2.7 million for the same period in fiscal 1999, primarily due to an
increase in debt levels over the prior year.
INCOME TAXES
The Company's annual effective income tax rate for fiscal 2000 is estimated to
be approximately 39.5 percent, compared to 41.8 percent for fiscal year 1999. In
fiscal 1999, the Company's effective tax rate was negatively impacted by
nondeductible merger and transaction costs associated with the Company's mergers
with Heidi's and The Barbers, and the U.K. restructuring charge.
NET INCOME
Net income in the first quarter of fiscal 2000 grew to a record $12.6 million or
$.30 per diluted share, compared to net income of $9.1 million or $.22 per
diluted share in the same period in fiscal 1999. Exclusive of nonrecurring
items, net income in the first quarter of the previous 1999 fiscal year was
$10.0 million or $.24 per share.
57
16
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 the first three months of fiscal 2000 grew
to $33.5 million compared to $18.9 million during the same period in fiscal
1999. The increase between the two periods is primarily due to improved
operating performance.
During the first three months of fiscal 2000, the Company had worldwide capital
expenditures of $20.7 million, of which $1.4 million related to acquisitions of
92 salons. The Company constructed 18 new Regis Salons, 13 new MasterCuts
salons, 11 new Trade Secret salons, 29 new Wal-Mart/SmartStyle salons, 15 new
Strip Center Salons and 9 new International salons, and completed 22 major
remodeling projects. All capital expenditures during the first three months of
fiscal 2000 were funded by cash flow from the Company's operations and
borrowings under its revolving credit facility.
The Company anticipates its worldwide salon development program for fiscal 2000
will include the construction of approximately 360 new company-owned salons, and
125 major remodeling and conversion projects. It is expected that expenditures
for these new salons and other projects will be approximately $70.0 million in
fiscal 2000, excluding capital expenditures related to acquisitions.
Financing
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
During the first quarter of fiscal 2000, the Company paid quarterly dividends of
$1.2 million, or $.03 per share. On November 2, 1999 the Board of Directors of
the Company declared a $.03 per share quarterly dividend payable November 30,
1999 to shareholders of record on November 15, 1999.
Year 2000
The Company previously initiated a comprehensive project to prepare its computer
systems for the year 2000. The Company has completed all phases of the project
including the awareness, assessment, validation and implementation phases.
Accordingly, management believes the year 2000 will not have a significant
impact on operations. As part of the overall project, the Company is in the
process of developing a contingency plan to mitigate the Company's risk that
primary vendors or other external forces could have an impact on the Company's
operations.
58
17
Costs associated with the year 2000 were expensed as incurred and funded through
operating cash flows. The Company incurred $4.6 million related to year 2000
project costs from the project's inception in fiscal 1998 through its completion
in fiscal 1999. No significant additional costs are anticipated to be incurred
in the future.
The Company has contacted critical suppliers of products and services to assess
whether the suppliers' operations and the products and services they provide are
year 2000 compliant or to monitor their progress toward year 2000 compliance.
The results of the Company's inquiries have indicated that the majority of its
critical suppliers are either compliant or have a plan in place to be compliant
by the end of 1999. There can be no absolute assurance that another company's
failure to ensure year 2000 compliance would not have an adverse effect on the
Company.
59