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<SEC-DOCUMENT>0000950137-01-503527.txt : 20010913
<SEC-HEADER>0000950137-01-503527.hdr.sgml : 20010913
ACCESSION NUMBER: 0000950137-01-503527
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010912
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: REGIS CORP
CENTRAL INDEX KEY: 0000716643
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200]
IRS NUMBER: 410749934
STATE OF INCORPORATION: MN
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-11230
FILM NUMBER: 1735740
BUSINESS ADDRESS:
STREET 1: 7201 METRO BLVD
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55439
BUSINESS PHONE: 6129477000
MAIL ADDRESS:
STREET 1: 7201 METRO BLVD
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55439
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>c64912e10-k405.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------
Commission file number 0-11230
-----------
Regis Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0749934
- -------------------------------- -------------------
State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
7201 Metro Boulevard, Edina, Minnesota 55439
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (952) 947-7777
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
- ------------------- -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $.05 per share
-------------------------------------------------------------
(Title of class)
================================================================================
<PAGE> 2
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of
registrant (based upon closing price of $21.3000 per share as of September 7,
2001, as quoted on the Nasdaq Stock Exchange), was $888,626,500.
The number of outstanding shares of the registrant's common stock, par
value $.05 per share, as of September 7, 2001, was 41,719,554.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement dated September 21, 2001 and
Annual Report to Shareholders for the year ended June 30, 2001, are incorporated
by reference into Parts I, II and III.
2
<PAGE> 3
PART I
Item 1. Business
BACKGROUND
Regis Corporation (the Company), based in Minneapolis, Minnesota, is the largest
owner, operator, franchisor and acquirer of hair and retail product salons in
the world. The Regis worldwide operations include 6,681 hairstyling salons at
June 30, 2001 operating as six divisions, which have been aggregated into two
reporting segments based on business model commonalties: domestic and
international. The Company's domestic operations (which include the United
States, Canada and Puerto Rico) include 6,317 salons operated and franchised
primarily under the brand names of Regis Salons, MasterCuts, Trade Secret,
SmartStyle, Supercuts, Cost Cutters, Hair Masters, Style America, First Choice
Haircutters and Magicuts. The Company's international operations include 364
salons located in the United Kingdom (U.K.). During fiscal 2001, the Company and
its franchisees provided services to 118 million customers worldwide. The
Company has 41,000 employees worldwide.
INDUSTRY OVERVIEW
Management estimates that annual revenues of the hair care industry are $45
billion in the United States and $90 billion worldwide. The industry is highly
fragmented with the vast majority of hair care salons independently owned.
However, the influence of chains, both franchise and company-owned, has
increased substantially, although still accounting for a small percentage of
total locations. Management believes that chains will continue to increase their
presence. Management also believes that the demand for salon services and
products will increase in the next decade as the population ages and desires
additional hair care services, such as coloring.
BUSINESS STRATEGY
The Company's goal is to provide high quality affordable hair care services and
products to wide ranges of customers through physically attractive salons
located in high traffic and convenient locations. The key elements of the
Company's strategy to achieve these goals are the following:
Consistent, Quality Service. The Company is committed to meeting its customer's
hair care needs by providing competitively priced services and products in
convenient locations with professional and knowledgeable hairstylists. The
Company's operations and marketing emphasize high quality services to create
customer loyalty, to encourage referrals and to distinguish the Company's salons
from its competitors. The major services supplied by the Company's salons are
haircutting and styling, hair coloring, shampooing, conditioning and permanent
waving. To promote quality and consistency of services provided throughout the
Company's salons, Regis has full and part-time artistic directors whose duties
are to teach and train salon operators and to instruct the stylists in current
styling trends.
3
<PAGE> 4
Diversification. The Company has the ability to diversify its salon base through
location and concept. This provides the Company flexibility to meet consumer
demand and demographics within the market.
The majority of the Company's salons are in mall-based or strip center-based
locations. The mall locations, which are aesthetically appealing and designed to
attract customers from mall shoppers, provide a steady source of new business.
The Company's strip center salons are conveniently located in strip shopping
centers with adequate traffic, appropriate trade area demographics, good
visibility within the center or from adjoining streets, effective signage, easy
access and adequate parking. The Company also operates salons within Wal-Mart
stores and supercenters.
The Company operates salons under various concepts including Regis Salons,
MasterCuts, Trade Secret, SmartStyle, Supercuts, Cost Cutters, Hair Masters,
Style America, First Choice Haircutters and Magicuts. Regis' North American
salon concepts address the various customer preferences within the salon market.
The Company's regional mall salon concepts provide the Company with the ability
to have multiple locations within a single mall. Because the square footage for
each of the mall-based and strip center-based locations are approximately the
same, the Company has the ability to determine which salon concept is best
suited to a location or change the concept of existing salons to meet customer
preference or demographic changes in the salon's market.
The Company also has salons located internationally in malls, leading department
stores and stand-alone locations, and is consistently focused on the
moderate-to-upscale hair care and beauty market.
Expansion. The Company has grown through increasing revenues from existing
salons, constructing additional salons, and mergers and acquisitions. Since
1995, the Company has added 5,147 net units (including franchised salons) to its
worldwide salon base from new salon construction as well as mergers and
acquisitions. During this same period of time, the Company added several new
salon concepts, including SmartStyle, merged with Supercuts and The Barbers, and
expanded its Regis Salons and MasterCuts concepts. In fiscal 2000, the Company
through acquisition added 68 salons operating under the Supercuts name in the
United Kingdom. In addition to continuing its salon acquisition strategy, the
Company expects to construct about 410 new company-owned salons and complete
approximately 150 major remodeling and conversion projects during fiscal 2002.
The Company intends to focus future growth of salons in strip shopping centers
across North America by adding company-owned salons and assisting current and
new franchisees in their expansion and market development. The Company believes
its growth opportunities in strip shopping centers of the retail hair care
market in North America are vast and will complement the Company's continuing
growth of its mall-based concepts. The Company does not intend to expand
concepts located in enclosed shopping malls into strip shopping centers, nor
does it intend to expand its strip center salon concepts into enclosed shopping
malls. In addition, the Company plans to continue pursuing expansion
opportunities by adding company-owned and franchised salons in Wal-Mart stores
and supercenters.
4
<PAGE> 5
High Quality Hair care Products. Through Trade Secret and the Company's other
salons, Regis sells nationally-recognized hair care products such as Matrix(R),
Paul Mitchell(R), Sebastian(R), Redken(R), Tigi(R) and Back To Basics(R) and a
complete line of products sold under the Regis label. Salon branded products are
typically sold only through professional salons and generate slightly higher
gross margins than haircutting and other salon services. The Company's stylists
are trained to sell hair care products to their customers. Sales of hair care
products increased 15.6 percent in fiscal 2001 to $361.9 million and represented
28.8 percent of company-owned revenues.
Control Over Salon Operations. Regis controls the quality of operations and
enjoys certain economies of scale in terms of certain corporate and store level
expenses. The Company has an extensive training program, including the
production of training videos for use in the salons, to ensure that hairstylists
are knowledgeable and provide consistent quality hair care services.
Economies of Scale. Management believes that due to its size and number of
locations the Company has certain advantages which are not available to single
location salons or small chains. The Company uses its point-of-sale system to
track inventory at the salons and to accumulate and monitor service and product
sales. This product and customer information is used to evaluate salon
productivity and, in some cases, to determine the most appropriate salon use for
the location. Additionally, as a result of its volume purchases, the Company is
able to purchase hair care products and supplies and salon fixtures on an
advantageous basis. The Company is also able to gain national and local market
recognition for the Regis name and its salon concepts through national and local
advertising and promotional programs. Furthermore, the Company has training and
career path opportunities which the smaller owner cannot provide.
SALON CONCEPTS:
The Company operates six divisions, which have been aggregated into two
reporting segments based on business model commonalties: domestic and
international. The Company's domestic segment consists of 6,317 salons (2,230
franchised) within five operating divisions offering attractive and affordable
hair care products and services in the United States, Canada and Puerto Rico as
discussed below:
REGIS SALONS. Regis Salons are full-service, mall-based salons providing
complete hair care and beauty services aimed at moderate to upscale,
fashion-conscious consumers. The customer mix at Regis Salons is approximately
75 percent women. These salons offer a full range of custom hairstyling,
cutting, coloring, permanent wave and manicuring as well as hair care products.
The average sale at Regis Salons is approximately $26. Regis Salons compete in
their existing markets primarily by emphasizing the high quality of full
services provided. The Company actively monitors the prices charged by its
competitors in each area and makes every effort to maintain prices which,
although in the higher range of local prices, are not so high as to be
uncompetitive with prices of other salons offering similar, high quality
services. At June 30, 2001, the Company operated 981 Regis Salons primarily in
shopping malls in North America. Revenues from the Regis Salons were $401.8
million, or 30.6 percent of the Company's total revenues, in fiscal 2001. The
Company expects to construct about 55 new Regis Salons in fiscal 2002.
5
<PAGE> 6
MASTERCUTS FAMILY HAIRCUTTERS. MasterCuts Family Haircutters salons are
mall-based and serve a broader customer base than Regis Salons and respond to
competitive pressures for lower cost hair care services. MasterCuts salons
emphasize quality haircutting, lower prices and time-saving services for the
entire family. Hair coloring services have been a recent contributor to the
growth in MasterCuts service revenues. The customer mix at MasterCuts salons
contains a greater percentage of men and children than at Regis Salons.
MasterCuts salons cater to walk-in customers and provide a warm, inviting
atmosphere that is comfortable for all members of the family. Many of the same
product lines sold in Regis Salons are also available in MasterCuts salons. The
average sale at MasterCuts salons is approximately $13. The MasterCuts salons
place emphasis on discount or promotional pricing for the services being offered
in order to compete more effectively with other salons. At June 30, 2001, the
Company operated 523 MasterCuts salons in North America. Revenues from
MasterCuts salons accounted for $155.7 million, or 11.9 percent of the Company's
total revenues, in fiscal 2001. During fiscal 2002, the Company plans to
construct approximately 45 new MasterCuts salons.
TRADE SECRET. Trade Secret salons are designed to emphasize hair care and beauty
product sales in a mall-based retail setting while providing high quality hair
care services. Trade Secret salons offer the same products as the Regis Salons
and MasterCuts salons, but also have additional hair care, beauty, lip and skin
care and sundry items. The average sale at Trade Secret salons is approximately
$19. At June 30, 2001, the number of Trade Secret salons totaled 503 in North
America, including 25 franchised locations. Revenues from company-owned Trade
Secret salons and franchising activity during fiscal 2001 was $179.1 million and
$2.7 million, respectively, or 13.9 percent of the Company's total revenues. The
Company anticipates constructing approximately 35 new Trade Secret salons in
fiscal 2002.
WAL-MART. The Company expanded into the mass merchant retail arena in fiscal
1996 by acquiring 154 salons operating within Wal-Mart stores and supercenters.
Wal-Mart salons share many operating characteristics with MasterCuts: pricing is
promotional, services are focused on family hair services, and product revenues
contribute solidly to overall revenues. In fiscal 1998, the Company introduced a
new brand name, SmartStyle Family Hair Salons, for its company-owned Wal-Mart
salons and rapidly expanded this new brand name into its Wal-Mart salons in
fiscal 1999. As part of the merger with The Barbers in May 1999, the Company
acquired 199 (158 franchised) salons operating as Cost Cutters in Wal-Mart
stores and supercenters making Regis the primary provider of salon services in
Wal-Marts. The Company operated 916 company-owned and franchised salons within
Wal-Mart stores and supercenters at June 30, 2001. Revenue from company-owned
Wal-Mart salons totaled $125.9 million, or 9.6 percent of the Company's total
revenue. The average sale at Wal-Mart salons is approximately $15. The Company
anticipates constructing about 175 new company-owned SmartStyle salons and
franchising 40 new Cost Cutters in Wal-Mart stores and supercenters in fiscal
2002.
6
<PAGE> 7
STRIP CENTER SALONS. The Company's Strip Center Salon division is comprised of
2,011 franchised and 1,383 company-owned strip center based salons operating
under the following concepts, all offering generally similar products and
services, drawing on the Company strip center operating competencies and
synergies.
SUPERCUTS. The Supercuts concept provides consistent high quality hair
care services to its customers at convenient times and locations and at
a reasonable price. The services offered by Supercuts stores are limited
and standardized. The stores are designed for ease of operation and the
demand for basic hair care is believed to be recession resistant and
non-seasonal. This concept appeals to men, women and children, although
male customers account for over 65 percent of total haircuts. The
average sale at Supercuts salons is approximately $12. At June 30, 2001,
the Company operated 1,573 Supercuts stores in North America, including
908 franchised locations. Revenues and franchise income from
company-owned Supercuts and franchising activity during fiscal 2001 was
$155.3 million and $29.0 million, respectively, or 14.1 percent of the
Company's total revenues. The Company plans to construct 55 new
company-owned and 120 franchised Supercuts stores in fiscal 2002.
COST CUTTERS. This group of franchised salons was added to the Company's
salon base as a result of the merger with The Barbers in fiscal 1999, as
previously discussed. Cost Cutters salons provide value-priced hair care
services for men, women and children and sell a complete line of
professional hair care products. The average sale at Cost Cutters salons
is approximately $13. At June 30, 2001, the Company franchised 666
salons generating franchise revenues during fiscal 2001 of $21.8
million, or 1.7 percent of the Company's total revenues. The Company
plans to add 45 franchise salons to these systems in fiscal 2002. In
addition to the franchised salons, the Company operates company-owned
Cost Cutters salons, as discussed below.
OTHER FRANCHISE CONCEPTS. This group of franchised salons includes
primarily First Choice Haircutters, Magicuts and Haircrafters, as well
as other smaller brands which have been acquired in the past four years.
These concepts primarily provide value-priced hair care services for
men, women and children and sell a complete line of professional hair
care products. At June 30, 2001, the Company franchised 437 salons in
this group, generating franchise revenue during fiscal 2001 of $2.7
million, or 0.2 percent of the Company's total revenues. In addition to
these franchised salons, the Company operates company-owned First
Choice, Haircutters and Magicuts salons, as discussed below.
COMPANY-OWNED STRIP CENTER SALONS. Company-owned Strip Center Salons are
made up of successful salon groups acquired over the past four years
operating under the primary brands of Hair Masters, Style America, First
Choice Haircutters, Best Cuts, Cost Cutters and Magicuts, as well as
other regional brand names. All concepts offer a full range of custom
hairstyling, cutting, coloring and permanent wave as well as hair care
products. Hair Masters offers moderately-priced services to a
predominately female demographic, while the other brands primarily cater
to time-pressed, value-orientated families. The average sale at
company-owned strip centers is approximately $14. At June 30, 2001, the
Company operated 718 salons within this concept. Revenues from
company-owned Strip Center Salons during fiscal 2001 was $136.7 million
or 10.4 percent of the Company's total revenues. The Company anticipates
building 35 new salons in this group in fiscal 2002.
7
<PAGE> 8
INTERNATIONAL SALONS:
The Company operates 364 hair care salons in the United Kingdom at June 30,
2001, making Regis the largest salon operator in the U.K. Salons in the U.K.
operate in malls, leading department stores, and high-street locations under
license arrangements or real property leases, consistently focused on the
moderate-to-upscale hair care and beauty market. The average sale at an
International salon is approximately $35. During fiscal 1999, the International
division divested its overseas salons outside the U.K. in order to focus on its
existing U.K. salons, which offers the Company stronger growth potential. In
fiscal 2000, the Company added 68 salons operating under the Supercuts name in
the United Kingdom. Revenues from the International salon operations were $101.0
million, or 7.7 percent of the Company's total revenues, in fiscal 2001. The
Company expects to build approximately ten salons in fiscal 2002.
8
<PAGE> 9
NEW SALON DEVELOPMENT
The table on the following pages sets forth the number of system-wide salons
(company-owned and franchised) opened at the beginning and end of each of the
last five years, as well as the number of salons opened, closed, relocated,
converted and acquired during each of these periods.
SALON LOCATION SUMMARY
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REGIS SALONS
Open at beginning of period 821 835 844 905 912
Salons constructed 28 33 41 52 43
Acquired 18 15 63 14 65
Less relocations 10 15 20 29 17
---- ---- ---- ---- ----
Net salon openings 36 33 84 37 91
Conversions ( 4) (3) (1)
Salons closed or sold (18) (24) (23) (27) (21)
---- ---- ---- ---- ----
Open at end of period 835 844 905 912 981
==== ==== ==== ==== ====
MASTERCUTS
Open at beginning of period 327 362 412 460 502
Salons constructed 36 50 47 44 33
Acquired 2 8 13 7 2
Less relocations 3 4 7 5 10
---- ---- ---- ---- ----
Net salon openings 35 54 53 46 25
Conversions 3 1 1
Salon closed or sold (3) (4) (5) (5) (5)
---- ---- ---- ---- ----
Open at end of period 362 412 460 502 523
==== ==== ==== ==== ====
TRADE SECRET Company-owned Salons:
Open at beginning of period 219 302 340 432 460
Salons constructed 56 32 44 49 39
Acquired 11 14 64 13 3
Less relocations 4 4 9 8 7
---- ---- ---- ---- ----
Net salon openings 63 42 99 54 35
Conversions (1) 24 2 (7) 1 (2)
Salon closed or sold (4) (6) (27) (15)
---- ---- ---- ---- ----
Open at end of period 302 340 432 460 478
==== ==== ==== ==== ====
Franchised Salons:
Open at beginning of period 55 38 34 27 26
Salons added 6
Acquired
Less relocations
---- ---- ---- ---- ----
Net salon openings 6
Conversions (1) (23) (2) (7)
Salon closed or sold (2) (1) (1)
---- ---- ---- ---- ----
Open at end of period 38 34 27 26 25
==== ==== ==== ==== ====
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
WAL-MART: SMARTSTYLE/COST CUTTERS
Company-owned Salons:
Open at beginning of period 168 198 293 386 547
Salons constructed 30 48 96 126 152
Acquired 47 43 38
Less relocations 3 5 4
----- ----- ----- ----- -----
Net salon openings 30 95 93 64 186
Conversions (1) (9)
Salon closed or sold (3) (2)
----- ----- ----- ----- -----
Open at end of period 198 293 386 547 722
===== ===== ===== ===== =====
Franchised Salons:
Open at beginning of period 81 117 136 158 148
Salons constructed 36 19 22 33 39
Acquired 2
Less relocations 1
----- ----- ----- ----- -----
Net salon openings 36 19 22 33 40
Conversions (1) (43) 9
Salon closed or sold (3)
----- ----- ----- ----- -----
Open at end of period 117 136 158 148 194
===== ===== ===== ===== =====
STRIP CENTERS Company-owned Salons:
Open at beginning of period 516 423 500 667 982
Salons constructed 6 7 60 83 114
Acquired 47 143 276 341
Less relocations 3 3 8
----- ----- ----- ----- -----
Net salon openings 6 54 200 356 447
Conversions (1) (61) 38 (25) 3 (13)
Salon closed or sold (38) (15) (8) (44) (33)
----- ----- ----- ----- -----
Open at end of period 423 500 667 982 1,383
===== ===== ===== ===== =====
Franchised Salons:
Open at beginning of period 1,328 1,566 1,579 1,615 1,740
Salons constructed 91 96 106 164 131
Acquired 104 30 147 184
Less relocations 3 4 12 10
----- ----- ----- ----- -----
Net salon openings 195 123 102 299 305
Conversions (1) 61 (38) (2) (135) 15
Salon closed or sold (18) (72) (64) (39) (49)
----- ----- ----- ----- -----
Open at end of period 1,566 1,579 1,615 1,740 2,011
===== ===== ===== ===== =====
INTERNATIONAL (2)
Open at beginning of period 454 481 460 372 352
Salons constructed 38 27 12 17 35
Acquired 3 1 3
Less relocations
----- ----- ----- ----- -----
Net salon openings 41 27 13 17 38
Conversions (3)
Salons closed or sold (14) (48) (101) (37) (23)
----- ----- ----- ----- -----
Open at end of period 481 460 372 352 364
===== ===== ===== ===== =====
Grand total, system-wide 4,322 4,598 5,022 5,669 6,681
===== ===== ===== ===== =====
</TABLE>
- ----------
(1) Represents primarily the acquisition of franchise locations.
(2) Canadian and Puerto Rican salons are included in the Regis Salons, Strip
Center, MasterCuts and Trade Secret divisions and not included in the
International salon totals.
10
<PAGE> 11
Of the 416 new company-owned salons constructed in fiscal 2001, 43 were Regis
Salons, 114 were Strip Center, 33 were MasterCuts, 39 were Trade Secret, 152
were SmartStyle and 35 were International salons. The Company intends to
construct approximately 410 new company-owned salons during fiscal 2002. The
Company has a program of modernizing its existing salons, ranging from
redecoration to substantial reconstruction, in order to raise its older salons
to the standards of its newly constructed locations. This program is implemented
as management determines that a particular location will benefit from such
modernization, or as required by lease renewals. A total of 140 salons were
remodeled in fiscal 2001, and the Company anticipates completing approximately
150 projects in fiscal 2002.
RETAIL PRODUCTS
The Company continues to place emphasis on the sales of higher-margin hair care
products, with the result that such revenues have become an increasingly
important part of the Company's business, having grown from 5.4 percent of total
company-owned revenues in fiscal 1987 to 28.8 percent in fiscal 2001. A
significant portion of this growth has resulted from the introduction of
national brand merchandise in 1988, the acquisition of Beauty Express in
November 1992 and Trade Secret in December 1993. The hair care products offered
are primarily shampoos, hair conditioners and styling and finishing products.
The Company actively reviews its product line offerings and continuously
investigates the quality and sales potential of new products. The Company
utilizes its national salon network as a testing ground for new product
formulations. There are many potential sources of supply for the types of
products used or sold at the salons, and the Company is not dependent upon any
single supplier.
SITE SELECTION
STRIP CENTER LOCATIONS. There are more than 40,000 strip shopping centers in the
United States which provide the Company with vast growth opportunity for new
strip center salons. In evaluating specific locations for its non-mall brands
for both company-owned and franchise stores, the Company seeks conveniently
located, highly visible strip shopping centers which allow customers adequate
parking and quick and easy store access. The Company believes neighborhood
shopping centers anchored by the number one or two grocery chains in the
specific market, or a major mass merchant, provide access to a stable customer
flow. Customers of these types of shopping centers are destination shoppers and,
as a result, the Company's non-mall salons are not dependent upon expensive
regional shopping mall locations. Various other factors are considered in
evaluating sites, including trade area demographics, availability and cost of
space, location of competitors, traffic count, visibility, signage and other
leasehold factors in a given center or area. All franchisee sites must be
approved by the Company.
MALL LOCATIONS. The Company is the largest shopping mall tenant which operates
hair care salons in the United States and has attained national tenant status
which makes the Company an attractive tenant for shopping mall owners and
developers. Mall owners and developers typically seek retailers such as Regis
due to the Company's financial strength, successful salon operations and status
as a national mall tenant. In the United States, there are approximately 1,500
enclosed malls which meet the Company's size and performance criteria with six
to ten new shopping malls developed each year. Because the Company's different
salon concepts target different customer groups depending on the size and
location of the shopping malls, more than one of the Company's salon concepts
may be located in the same mall. As a result, there are numerous leasing
opportunities in shopping malls for its Regis, MasterCuts and Trade Secret
salons, of which the Company has penetrated approximately 70 percent.
11
<PAGE> 12
The Company generally locates its Regis, MasterCuts and Trade Secret salons in
fully enclosed, climate-controlled shopping malls classified as "regional"
having 400,000 or more square feet of leasable area and at least two full-line
department store anchor tenants. The Company's experience has been that
selecting the proper mall and obtaining a favorable, high-traffic location
within the mall are important determinants of the success of a new salon. For
existing malls, the Company evaluates the current sales per square foot of
selected tenants, the stature and strength of the anchor stores and the other
major tenants, the location and traffic patterns within the mall, and the
proximity of competitors. In addition, the Company may conduct site surveys and
physical observations to assess the location, traffic patterns and competitive
environment.
Several trends have enabled the Company to continue to lease high-profile space
in existing malls. Leasing velocity and turnover have increased because the
average length of shopping mall lease terms has steadily descended. Also, many
existing malls are being expanded, renovated and remerchandised. Because of
these factors, the Company believes that it has ample expansion opportunities
and therefore can be selective in establishing new mall locations.
FRANCHISING PROGRAM
GENERAL
The Company has various franchising programs supporting its 2,230 franchised
salons as of June 30, 2001, consisting mainly of Supercuts, Cost Cutters, First
Choice Haircutters, Magicuts and Haircrafters franchises.
The Company provides its franchisees with a comprehensive system of business
training, stylist education, site approval and lease negotiation, professional
marketing, promotion and advertising programs, and other forms of support
designed to help the franchisee build a successful business.
STANDARDS OF OPERATIONS
Franchisees are required to conform to Company-established operational policies
and procedures relating to quality of service, training, design and decor of
stores, and trademark usage. The Company's field personnel make periodic visits
to franchised stores to ensure that the stores are operating in conformity with
the standards for each franchising program.
To further ensure conformity with all Supercuts and certain other franchises,
the Company enters into the lease for the store site directly with the landlord,
and subsequently subleases the site to the franchisee. The franchise agreement
and sublease provide the Company with the right to terminate the sublease and
gain possession of the store if the franchisee fails to comply with the
Company's operational policies and procedures. See Note 6 of "Notes to
Consolidated Financial Statements" for further information.
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<PAGE> 13
FRANCHISE TERMS
Pursuant to their franchise agreement with the Company, each franchisee pays an
initial fee for each store and ongoing royalties to the Company. In addition,
for most franchise concepts, the Company collects advertising funds from
franchisees and administers the funds on behalf of the concept. Franchisees are
responsible for the costs of leasehold improvements, furniture, fixtures,
equipment, supplies, inventory and certain other items, including initial
working capital.
Supercuts
The majority of existing Supercuts franchise agreements have a perpetual term,
subject to termination of the underlying lease agreement or termination of the
franchise agreement by either the Company or the franchisee. The agreements also
provide the Company a right of first refusal if the store is to be sold. The
franchisee must obtain the Company's approval in all instances where there is a
sale of the franchise. The current franchisee agreement is site specific and
does not provide any territorial protection to a franchisee, although some older
franchise agreements do include limited territorial protection. During fiscal
2001, the Company began selling development agreements for new markets which
include limited territory protection for the Supercuts brand. The Company has a
comprehensive impact policy that resolves potential conflicts among franchisees
and/or the Company regarding proposed salon sites.
Cost Cutters, First Choice Haircutters and Magicuts
The majority of existing Cost Cutters' franchise agreements have a 15 year term
with a 15 year option to renew, while the majority of First Choice Haircutters'
franchise agreements have a ten year term with a five year option to renew. The
majority of Magicuts' franchise agreements have a term equal to the greater of
five years or the current initial term of the lease agreement with an option to
renew for two additional five year periods. All of the agreements also provide
the Company a right of first refusal if the store is to be sold. The franchisee
must obtain the Company's approval in all instances where there is a sale of the
franchise. The current franchise agreement is site specific. Franchisees may
enter into development agreements with the Company which provides limited
territorial protection.
FRANCHISE SALES
Franchise expansion will continue to be a significant focus of the Company in
the future. Existing franchisees and new franchisees who open multiple salons
may receive a reduction in initial franchise fees.
FRANCHISEE TRAINING
The Company provides new franchisees with training, focusing on the various
aspects of store management, including operations, personnel management,
marketing fundamentals and financial controls. Existing franchisees receive
training, counseling and information from the Company on a continuous basis. In
addition, the Company provides store managers and stylists with extensive
technical training for Supercuts franchises. For further description of the
Company's education and training programs, see the "Salon Training Programs"
section of this document.
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<PAGE> 14
MARKETS AND MARKETING
The Company maintains various advertising, sales and promotion programs for its
salons, budgeting a predetermined percent of revenues for such programs. The
Company has developed promotional tactics and institutional sales messages for
each of its divisions targeting certain customer types and positioning each
concept in the marketplace. Print, radio, television and billboard advertising
are developed and supervised at the Company's headquarters, but most advertising
is done in the immediate area of the particular salon.
The primary franchise brands maintain separate Advertising Funds (the "Funds"),
managed by the Company, that provide comprehensive advertising and sales
promotion support for each system. All stores, company-owned and franchised,
contribute to the Funds, the majority of which are allocated to the contributing
market for media placement and local marketing activities. The remainder is
allocated for the creation of national advertising campaigns and system-wide
activities. This intensive advertising program creates significant consumer
awareness, a strong brand image and high loyalty.
SALON TRAINING PROGRAMS
The Company has an extensive hands-on training program for its salon managers
and hairstylists which emphasizes both technical training in hairstyling and
cutting, perming, hair coloring and hair treatment regimes as well as customer
service and product sales. The objective of the training programs is to ensure
that customers receive professional and quality service which the Company
believes will result in more repeat customers, referrals and product sales.
The Company has full- and part-time artistic directors who teach and train the
salon operators in techniques for providing the salon services and who instruct
the stylists in current styling trends. The Company also has an audiovisual
based training system in its salons designed to enhance technical skills of
hairstylists.
The Company has a customer service training program to improve the interaction
between employees and customers. Staff members are trained in the proper
techniques of customer greeting, telephone courtesy and professional behavior
through a series of professionally designed video tapes and instructional
seminars.
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<PAGE> 15
STAFF RECRUITING AND RETENTION
Recruiting quality managers and hairstylists is essential to the establishment
and operation of successful salons. In search of salon managers, the Company's
supervisory team recruits or develops and promotes from within those stylists
that display initiative and imagination. The Company has been successful in
recruiting capable managers and stylists for a number of reasons. The Company
utilizes a broad compensation system including cash incentives, merchandise
awards, Company-sponsored trips and benefit programs. The Company believes that
its compensation structure for salon managers and hairstylists is competitive
within the industry. Stylists benefit from the Company's high-traffic locations,
as well as name-recognition from Supercuts and Wal-Mart, and receive a steady
source of new business from walk-in customers. In addition, the Company offers a
career path with the opportunity to move into managerial and training positions
within the Company.
SALON DESIGN
The Company's salons are designed, built and operated in accordance with uniform
standards and practices developed by the Company based on its experience. New
salons are designed and constructed according to the Company's standard
specifications, thereby reducing design and construction costs and enhancing
operating efficiencies. Salon fixtures and equipment are also uniform, allowing
the Company to place large orders for these items with attendant cost savings.
The size of the Company's salons ranges from 500 to 5,000 square feet, with the
typical salon having about 1,200 square feet. At present, the cost to the
Company of constructing and furnishing a new salon, including inventories,
ranges from approximately $40,000 for a new Wal-Mart location to $185,000 for a
Regis Salon. Of the total construction costs, approximately 70 percent of the
cost is for leasehold improvements and the balance is for salon fixtures,
equipment and inventories.
The Company maintains its own construction and design department, and designs
and supervises the construction, furnishing and fixturing of all new
company-owned salons and certain franchise locations. The Company has developed
considerable expertise in designing visually appealing salons. The design and
construction staff focuses on aesthetic appeal, efficient use of space, cost and
rapid completion times. The Company's salons are airy in appearance and have
limited partitions. Hair care products offered for sale are prominently and
attractively displayed in the salons.
Each of the Company's salon concepts has a different design related to the image
to be projected. Regis Salons are more upscale in design and utilize wood and
marble floors, mirrors and contrasting black and creme colors. Supercuts salons
are functional in design and tastefully furnished, consistent with its image of
a quality provider of affordable haircutting services. Cost Cutters and Style
America salons appeal to a broad range of customers, providing value-priced full
services in convenient locations. Hair Masters is a more upscale version of Cost
Cutters or Style America. MasterCuts salons are family oriented and include
extensive use of woodwork and warm, comfortable colors. Trade Secret salons use
many of the same design techniques as Regis Salons, and also have open and
easily accessible product displays. SmartStyle salons, which are strategically
located near the check out counters in the front of Wal-Mart stores and
supercenters, are efficiently designed and brightly colored to complement the
Wal-Mart retail environment.
15
<PAGE> 16
OPERATIONS
Company-owned and franchised salons located in the United States, Puerto Rico
and Canada, are operated and managed as part of the Company's North American
(domestic) operations. All other salons, located in the United Kingdom, are
operated and managed through the Company's International branch located in
England.
For each salon concept, the Company's operations are divided into geographic
regions throughout North America. Each region is headed by one of the Company's
salon directors, assisted by regional field managers and area supervisors, who
coordinate the operations of the salons in the particular region. The area
supervisors are responsible for hiring and training the managers for each salon.
The salon directors for each salon concept report to the division's Chief
Operating Officer.
Over the years, the Company has developed uniform procedures for opening new
salons in such a manner as to maximize revenues from a new location as rapidly
as possible. After opening, all salons are operated according to standard
procedures which the Company has learned are desirable for the operation of an
efficient, high quality, profitable salon.
MANAGEMENT INFORMATION SYSTEMS
The Company utilizes a retail point-of-sale information system in all its
salons. This system collects data daily from each salon and consolidates the
data into several management reports. The Company's automated system polls
terminals nightly and all salon cash receipts are transferred automatically into
a centralized bank account, thereby significantly reducing administrative
expenses. Point-of-sale information is also used both to monitor salon
performance and to generate customer data for use in identifying and
anticipating industry trends for purposes of pricing and marketing. The Company
has expanded the system to deliver on-line information as to sales of products
to improve its inventory and control system, including suggested monthly product
purchase recommendations for a salon, a monthly report of sales and a perpetual
inventory. Management believes that its information systems provide advantages
in planning and analysis which are not available to a majority of its
competitors which do not have management information systems.
COMPETITION
The hair care industry is highly competitive. In every area in which the Company
has a salon, there are competitors offering similar hair care services and
products at similar prices. The Company faces competition within malls from
companies which operate salons as departments within department stores and from
smaller chains of salons, independently owned salons and, to a lesser extent,
salons which, although independently owned, are operating under franchises from
a franchising company that may assist such salons in areas of training,
marketing and advertising.
Significant entry barriers exist for new chains due to the need to establish
brand identification, systems and infrastructure, recruitment of experienced
hair care management and adequate store staff, and leasing of quality sites. The
principal factors of competition in the affordable hair care category are
quality, consistency and convenience. The Company continually strives to improve
its performance in each of these areas and to create additional points of
difference versus the competition. In order to obtain locations in shopping
malls, the Company must be competitive as
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<PAGE> 17
to rentals and other customary tenant obligations. The Company believes that
because of its established relationships with many leading shopping center
developers throughout the country, its status in the hair care industry as a
national rather than a local tenant, and its financial resources, it will
encounter little difficulty in obtaining sufficient shopping center locations to
continue its historical pattern of growth.
TRADEMARKS
The Company holds numerous trademarks, both in the United States and in several
foreign countries. The most recognized trademarks are "Regis Salons",
"Supercuts", "MasterCuts", "Trade Secret", "SmartStyle", "Cost Cutters", "Hair
Masters", "First Choice Haircutters" and "Magicuts".
The Company believes the use of these trademarks is important in establishing
and maintaining its reputation as a national operator of high quality
hairstyling salons, and is committed to protecting these trademarks by
vigorously challenging any unauthorized use.
EMPLOYEES
As of June 30, 2001, the Company had 41,000 full- and part-time employees
worldwide, of which approximately 36,000 employees were located in the United
States. None of the Company's employees is subject to a collective bargaining
agreement and the Company believes that its employee relations are good.
COMMUNITY INVOLVEMENT
Many of the Company's stylists volunteer their time to support charitable events
for breast cancer research. Proceeds collected from such events are distributed
through the Regis Foundation for Breast Cancer Research. The Company's community
involvement also includes a major sponsorship role for the Susan G. Komen Twin
Cities Race for the Cure. This 5K run and one-mile walk is held in Minneapolis
on Mother's Day to help fund breast cancer research, education, screening and
treatment. To date, the Company has raised more than $3 million in fundraising
for breast cancer research.
GOVERNMENTAL REGULATIONS
The Company is subject to various federal, state, local and provincial laws
affecting its business as well as a variety of regulatory provisions relating to
the conduct of its cosmetology business, including health and safety.
In the U.S., the Company's franchise operations are subject to the Federal Trade
Commission's Trade Regulation Rule on Franchising (the "FTC Rule") and by state
laws and administrative regulations that regulate various aspects of franchise
operations and sales. The Company's franchises are offered to franchisees by
means of an offering circular/disclosure document containing specified
disclosures in accordance with the FTC Rule and the laws and regulations of
certain states. The Company has registered its offering of franchises with the
regulatory authorities of those states in which it offers franchises and in
which such registration is required. State laws that regulate the
franchisor-franchisee relationship presently exist in a substantial number of
states and, in certain cases, apply
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<PAGE> 18
substantive standards to this relationship. Such laws may, for example, require
that the franchisor deal with the franchisee in good faith, may prohibit
interference with the right of free association among franchisees, and may limit
termination of franchisees without payment of reasonable compensation. The
Company believes that the current trend is for government regulation of
franchising to increase over time. However, such laws have not had, and the
Company does not expect such laws to have, a significant effect on the Company's
operations.
In Canada, the Company's franchise operations are subject to both the Alberta
Franchise Act and the Ontario Franchise Act. The offering of franchises in
Canada occurs by way of a disclosure document, which contains certain
disclosures required by the Ontario and Alberta Franchise Acts. Both the Ontario
and Alberta Franchise Acts primarily focus on disclosure requirements, although
each requires certain relationship requirements such as a duty of fair dealing
and the right of franchisees to associate and organize with other franchisees.
The Company believes it is operating in substantial compliance with applicable
laws and regulations governing its operations.
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<PAGE> 19
Item 1a. Directors and Executive Officers of the Registrant
Information regarding the Directors of the Company and Exchange Act Section
16(a) filings is included on pages 3 and 4 of the Registrant's Proxy Statement
dated September 21, 2001, and is incorporated herein by reference.
Information relating to Executive Officers of the Company follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------- --- ------------------------------------------------------------
<S> <C>
Myron Kunin 72 Chairman of the Board of Directors
Paul D. Finkelstein 59 President, Chief Executive Officer and Director
Christopher A. Fox 51 Executive Vice President, Real Estate and Director
Randy L. Pearce 46 Executive Vice President, Chief Financial and Administrative
Officer
Mary Andert 46 Executive Vice President, Merchandising and Marketing
Bruce Johnson 48 Senior Vice President, Design and Construction
Mark Kartarik 45 Senior Vice President, President, Supercuts Inc.
Gordon Nelson 50 Senior Vice President, Fashion and Education
Bert M. Gross 71 Senior Vice President, General Counsel and Secretary
Raymond Duke 50 Senior Vice President, International Managing Director, Europe
Sharon Kiker 56 Chief Operating Officer, Regis Salons
Kris Bergly 40 Chief Operating Officer, Style America and Hair Masters
Robert Ribnick 40 Chief Operating Officer, MasterCuts Family Haircutters
Vicki Langan 45 Chief Operating Officer, Supercuts, Inc.
Norma Knudsen 43 Chief Operating Officer, Trade Secret
C. John Briggs 57 Chief Operating Officer, SmartStyle Family Hair Salons
</TABLE>
19
<PAGE> 20
Myron Kunin has served as Chairman of the Board of Directors of the Company
since 1983, as Chief Executive Officer of the Company from 1965 until July 1,
1996, as President of the Company from 1965 to 1987 and as a director of the
Company since its formation in 1954. He is also Chairman of the Board and holder
of the majority voting power of Curtis Squire, Inc., the Company's largest
shareholder. He is also a director of Nortech Systems Incorporated.
Paul D. Finkelstein has served as President, Chief Operating Officer and as a
director of the Company since December 1987, as Executive Vice President of the
Company from June 1987 to December 1987 and has served as Chief Executive
Officer since July 1, 1996.
Christopher A. Fox was elected Executive Vice President, Real Estate in 1994,
was Senior Vice President, Real Estate of the Company from 1988 to 1994, has
served as Vice President from 1984 to 1988 and has served as a director of the
Company since 1989.
Randy L. Pearce was elected Executive Vice President and Chief Administrative
Officer in 1999, has served as Chief Financial Officer since 1998, was Senior
Vice President, Finance from 1998 to 1999, has served as Vice President of
Finance from 1995 to 1997 and as Vice President of Financial Reporting from 1991
to 1994.
Mary Andert was elected Executive Vice President, Marketing and Merchandising in
February 1999, served as Senior Vice President, Marketing since 1998, and as
Vice President, Marketing since 1997.
Bruce Johnson was elected a Senior Vice President of Design and Construction in
1997 and has served as Vice President from 1988 to 1997.
Mark Kartarik has served as Senior Vice President of the Company since 1994 and
as Vice President from 1989 to 1994. He was elected President of Supercuts, Inc.
in 1998 and served as Chief Operating Officer of Supercuts, Inc. from 1997 to
April 2001.
Gordon Nelson has served as Senior Vice President, Fashion and Education of the
Company since 1994 and as Vice President from 1989 to 1994.
Bert M. Gross was elected Senior Vice President, General Counsel in 1997 and
acted as outside legal counsel to the Company from 1957 to 1997.
Raymond Duke was elected Senior Vice President, International Managing Director,
Europe in February, 1999 and has served as Vice President since 1992.
Sharon Kiker was elected Chief Operating Officer, Regis Salons in April 1998 and
has served as Vice President, Salon Operations from 1989 to 1998.
Kris Bergly was elected Chief Operating Officer, Style America in March 1999 and
has served as Chief Operating Officer, SmartStyle Family Hair Salons since April
1998 and as Vice President, Salon Operations from 1993 to 1998.
Robert Ribnick was elected Chief Operating Officer, MasterCuts Family
Haircutters in April 1998 and has served as Vice President, Salon Operations
from 1993 to 1998.
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<PAGE> 21
Vicki Langan was elected Chief Operating Officer, Supercuts in April 2001 and
has served as Vice President, Supercuts Operations since November 1997.
Norma Knudsen was elected Chief Operating Officer, Trade Secret in February 1999
and has served as Vice President, Trade Secret Operations since 1995.
C. John Briggs was elected Chief Operating Officer, SmartStyle Family Hair
Salons in March 1999, and has served as Vice President, Regis Operations since
1988.
Item 2. Properties
The Company's corporate executive and administrative offices are headquartered
in a 170,000 square foot three building complex in Edina, Minnesota owned by the
Company. As of June 30, 2001, the Company utilizes 133,000 square feet of the
available office space and leases the remaining 37,000 square feet to several
tenants. Should the Company require additional office space in the future, the
Company could remove or relocate existing tenants at the end of their lease term
in order to provide additional administrative office space for its own purposes.
The Company also leases warehouse space in Eden Prairie, Minnesota for storing
and distributing inventories and a supplemental facility which supports the
primary Eden Prairie facility. The Company completed construction of a new
distribution center in Chattanooga, Tennessee during fiscal 1998 and expanded
the facility in fiscal 2001. The Chattanooga facility currently utilizes the
maximum amount of space available, 250,000 square feet. During fiscal year 2001,
the Company completed the construction and development of a new 210,000 square
foot distribution center in Salt Lake City, Utah. This facility is leased and
may be expanded to 290,000 square feet to accommodate future growth.
The Company operates all of its salon locations under leases or license
agreements. Substantially all of its North American locations which opened in
regional malls during the past five years are operating under leases with an
original term of at least ten years. Salons operating within strip centers and
Wal-Mart stores and supercenters have leases with original terms of at least
five years, generally with an option to renew for an additional five years.
Salons in Canadian or U.K. department stores operate under license agreements
while freestanding or shopping center locations in those countries have real
property leases comparable to the Company's domestic locations.
The Company also leases the premises in which certain franchisees operate and
has entered into corresponding sublease arrangements with the franchisees. These
leases have a five year initial term and one or more five year renewal options.
All additional lease costs are passed through to the franchisees. Remaining
franchisees, who do not enter into sub-lease arrangements with the Company,
negotiate and enter into leases on their own behalf.
None of the Company's salon leases are individually material to the operations
of the Company, and the Company expects that it will be able to renew its leases
on satisfactory terms as they expire. See Note 6 of "Notes to Consolidated
Financial Statements".
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<PAGE> 22
Item 3. Legal Proceedings
The company is a defendant in various lawsuits and claims arising out of the
normal course of business. In the opinion of company counsel, uncertainty exists
with respect to the outcome of this litigation; therefore, the effect on future
financial results is not subject to reasonable estimation. While ultimate
liabilities resulting from such lawsuits and claims may be significant to
results of operations in the period recognized, management does not anticipate
they will have a material adverse effect on the consolidated financial position
or liquidity of the company.
Item 4. Submission of Matters to a Vote of Security Holders
On October 24, 2000, at the annual meeting of the shareholders of the Company,
votes on the elections of the Company's directors and a proposal to approve the
Company's 2000 Stock Option Plan took place with the following results:
1. Election of Directors:
<TABLE>
<CAPTION>
FOR WITHHOLD AUTHORITY
---------- ------------------
<S> <C> <C>
Rolf F. Bjelland 34,543,715 849,276
Paul D. Finkelstein 34,543,757 849,234
Christopher A. Fox 34,490,209 902,782
Thomas L. Gregory 34,488,410 904,581
Van Zandt Hawn 34,543,722 849,269
Susan Hoyt 34,543,077 849,914
David B. Kunin 34,541,429 851,562
Myron Kunin 34,542,507 850,484
</TABLE>
2. To approve the Company's 2000 Stock Option Plan:
<TABLE>
<S> <C>
For 16,882,423
Against 11,132,312
Abstain 288,269
</TABLE>
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<PAGE> 23
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Data relating to Market Stock Data Information and dividends as set forth in
the sections included on page 39 of the Registrant's 2001 Annual Report to
Shareholders, a copy of which is included as Exhibit 13 hereto, are
incorporated herein by reference.
As of June 30, 2001, Regis shares were owned by approximately 14,300
shareholders based on the number of record holders and an estimate of
individual participants in security position listings.
Item 6. Selected Financial Data
Five-Year Summary of Selected Financial Data which is included on page 18 of
the Registrant's 2001 Annual Report to Shareholders, a copy of which is
included as Exhibit 13 hereto, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Results of Operations and Financial
Condition of the Company on pages 19 to 22 of the Registrant's 2001 Annual
Report to Shareholders, a copy of which is included as Exhibit 13 hereto, is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2001, the Company had $142.1 million of total floating rate
debt outstanding. The Company manages its interest rate risk by balancing the
amount of fixed and variable debt. In addition, on occasion the Company uses
interest rate swaps to further mitigate the risk associated with changing
interest rates. Generally, the terms of the interest rate swap agreements
range from one to five years with settlement on a quarterly basis. As of June
30, 2001, the Company has entered into interest rate swaps agreements
covering $55.0 million of the floating rate debt above. The Company has
accounted for the above in accordance with FAS 133, which is described in
Note 5 of the Registrant's 2001 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The Report of Independent Accountants on page 40, the Consolidated Financial
Statements on pages 23 to 38 and the Quarterly Financial Data on page 39 of
the Registrant's 2001 Annual Report to Shareholders, a copy of which is
included as Exhibit 13 hereto, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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<PAGE> 24
PART III
Item 10. Directors and Executive Officers of the Registrant
See Part I for information regarding Directors and Executive Officers of the
Registrant.
Item 11. Executive Compensation
Executive compensation included on pages 6 through 8 of the Registrant's Proxy
Statement dated September 21, 2001, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners and Management on page 12 of the
Registrant's Proxy Statement dated September 21, 2001, is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is included
on page 11 of the Registrant's Proxy Statement dated September 21, 2001, and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1). The following Consolidated Financial Statements of Regis
Corporation, and the Report of Independent Accountants thereon,
included on pages 23 to 38 of the Registrant's 2001 Annual Report
to Shareholders, are incorporated by reference in Item 8:
Report of Independent Accountants
Consolidated Balance Sheet as of June 30, 2001 and 2000
Consolidated Statement of Operations for each of the
three years in the period ended June 30, 2001
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income for each of the three years in
the period ended June 30, 2001
Consolidated Statement of Cash Flows for each of the three
years in the period ended June 30, 2001
Notes to Consolidated Financial Statements
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<PAGE> 25
(2). The financial statement schedule required to be filed by Item 8
of this Form is as follows:
Report of Independent Accountants on Financial
Statement
Schedule
Schedule II -- Valuation and Qualifying Accounts as of
June 30, 2001, 2000 and 1999.
All other schedules are inapplicable to the Registrant, or
equivalent information has been included in the
consolidated financial statements or the notes thereto,
and have therefore been excluded.
(3). Listing of Exhibits:
Exhibit Number
- --------------
3(a) Election of the registrant to become governed by Minnesota Statutes
Chapter 302A and Restated Articles of Incorporation of the registrant,
dated March 11, 1983; Articles of Amendment to Restated Articles of
Incorporation, dated October 29, 1984; Articles of Amendment to Restated
Articles of Incorporation, dated August 14, 1987; Articles of Amendment
to Restated Articles of Incorporation, dated October 21, 1987. (Filed as
Exhibit 3(a) to the Registrant's Registration Statement on Form S-1 (Reg.
No. 40142) and incorporated herein by reference.)
3(b) By-Laws of the registrant. (Filed as Exhibit 3(c) to the Registrant's
Registration Statement on Form S-1 (Reg. No. 40142) and incorporated
herein by reference.)
4(a) Three-for-two stock split. (Incorporated by reference to Exhibit A of the
Company's Report on Form 8-K dated May 2, 1996.)
4(b) Shareholder Rights Agreement dated December 23, 1996 (Incorporated by
reference to Exhibit 4 of the Company's Report on Form 8-A12G dated
February 4, 1997)
4(c) Three-for-two stock split. (Incorporated by reference to Item 2 of the
Company's Report on Form 10-Q dated May 3, 1999 for the quarter ended
March 31, 1999.)
10(a) Employment and Deferred Compensation Agreement, Dated as of April 14,
1998, between the Company and Paul D. Finkelstein. (Incorporated by
reference to the Company's Report on Form 10-K dated September 17, 1998,
for the year ended June 30, 1998).
10(b) Form of Employment and Deferred Compensation Agreement between the
Company and six executive officers. (Incorporated by reference to Exhibit
10(b) of the Company's Report on Form 10-K date September 24, 1997.)
25
<PAGE> 26
10(c) Northwestern Mutual Life Insurance Company Policy Number 10327324, dated
June 1, 1987, face amount $500,000 owned by the registrant, insuring the
life of Paul D. Finkelstein and providing for division of death proceeds
between the registrant and the insured's designated beneficiary
(split-dollar plan). (Filed as Exhibit 10(g) to the Registrant's
Registration Statement on Form S-1 (Reg. No. 40142) and incorporated
herein by reference.)
10(d) Schedule of omitted split-dollar insurance policies. (Filed as Exhibit
10(h) to the Registrant's Registration Statement on Form S-1 (Reg. No.
40142) and incorporated herein by reference.)
10(e) Employee Stock Ownership Plan and Trust Agreement dated as of May 15,
1992 between the registrant and Myron Kunin and Paul D. Finkelstein,
Trustees (Incorporated by reference to Exhibit 10(q) as part of the
Company's Report on Form 10-K dated September 27, 1993, for the year
ended June 30, 1993).
10(f) Executive Stock Award Plan and Trust Agreement dated as of July 1, 1992
between the registrant and Myron Kunin, Trustee (Incorporated by
reference to Exhibit 10(r) as part of the Company's Report on Form 10-K
dated September 27, 1993, for the year ended June 30, 1993).
10(g) Survivor benefit agreement dated June 27, 1994 between the Company and
Myron Kunin. (Incorporated by reference to Exhibit 10(t) part of the
Company's Report on Form 10-K dated September 28, 1994, for the year
ended June 30, 1994.)
10(h) Series A Senior Note drawn from Private Shelf Agreement dated as of
February 21, 1996, between the registrant and the Prudential Insurance
Company of America. (Incorporated by reference to Exhibit 10(s) of the
Company's Report on Form 10-Q dated May 3, 1996, for the quarter ended
March 31, 1996.)
10(i) Series B Senior Note drawn from Private Shelf Agreement dated as of June
10, 1996, between the registrant and the Prudential Insurance Company of
America. (Incorporated by reference to Exhibit 10(v) of the Company's
Report on Form 10-K dated September 16, 1996, for the year ended June 30,
1996.)
10(j) Series C Senior Note drawn from Private Shelf Agreement dated as of
October 28, 1996, between the registrant and the Prudential Insurance
Company of America. (Incorporated by reference to Exhibit 10(x) of the
Company's Report on Form 10-K dated November 5, 1996, for the quarter
ended September 30, 1996.)
26
<PAGE> 27
10(k) Term Note A Agreement between the registrant and LaSalle National Bank
dated October 28, 1996. (Incorporated by reference to Exhibit 10(y) of
the Company's Report on Form 10-Q dated November 5, 1996, for the quarter
ended September 30, 1996)
10(l) Series D Senior Note drawn from Private Shelf Agreement dated as of
December 13, 1996, between the registrant and the Prudential Insurance
Company of America. (Incorporated by reference to Exhibit 10(w) of the
Company's Report on Form 10-K dated September 24, 1997, for the year
ended June 30, 1997.)
10(m) Series E Senior Note drawn from Private Shelf Agreement dated as of April
7, 1997, between the registrant and the Prudential Insurance Company of
America. (Incorporated by reference to Exhibit 10(y) of the Company's
Report on Form 10-K dated September 24, 1997, for the year ended June 30,
1997.)
10(n) Compensation and non-competition agreement dated May 7, 1997, between the
Company and Myron Kunin. (Incorporated by reference to Exhibit 10(z) of
the Company's Report on Form 10-K dated September 24, 1997, for the year
ended June 30, 1997.)
10(o) Series F Senior Note drawn from Private Shelf Agreement dated as of July
28, 1997, between the registrant and the Prudential Insurance Company of
America. (Incorporated by reference to Exhibit 10(cc) of the Company's
Report on Form 10-K dated September 24, 1997, for the year ended June 30,
1997.)
10(p) Private Shelf Agreement dated as of December 19, 1997 between the
registrant and ING Investment Management, Inc. (Incorporated by reference
to Exhibit 10(gg) of the Company's Report on Form 10-Q dated February 9,
1998, for the quarter ended December 31, 1997.)
10(q) Series R-1 Senior Note drawn from Private Shelf dated as of December 19,
1997, between registrant and ING Investment Management, Inc.
(Incorporated by reference to Exhibit 10(hh) of the Company's Report on
Form 10-Q dated February 9, 1998, for the quarter ended December 31,
1997.)
10(r) Series R-2 Senior Note drawn from Private Shelf dated as of December 19,
1997, between registrant and ING Investment Management, Inc.
(Incorporated by reference to Exhibit 10(ii) of the Company's Report on
Form 10-Q dated February 9, 1998, for the quarter ended December 31,
1997.)
10(s) Series G Senior Note dated as of July 10, 1998 between the registrant and
Prudential Insurance Company of America. (Incorporated by reference to
the Company's Report on Form 10-K dated September 17, 1998, for the year
ended June 30, 1998.)
10(t) Term Note C Agreement between the registrant and LaSalle National Bank
dated September 1, 1998. (Incorporated by reference to Exhibit 10(mm) of
the Company's Report on Form 10-Q dated November 9, 1998, for the quarter
ended September 30, 1998.)
27
<PAGE> 28
10(u) Term Note H-1 Agreement between the registrant and Prudential Insurance
Company of America dated March 26, 1999. (Incorporated by reference to
Exhibit 10(oo) of the Company's Report on Form 10-Q dated May 11, 1999,
for the quarter ended March 31, 1999.)
10(v) Term Note H-2 Agreement between the registrant and Prudential Insurance
Company of America dated March 26, 1999. (Incorporated by reference to
Exhibit 10(pp) of the Company's Report on Form 10-Q dated May 11, 1999,
for the quarter ended March 31, 1999.)
10(w) Term Note H-3 Agreement between the registrant and Prudential Insurance
Company of America dated March 26, 1999. (Incorporated by reference to
Exhibit 10(qq) of the Company's Report on Form 10-Q dated May 11, 1999,
for the quarter ended March 31, 1999.)
10(x) Term Note H-4 Agreement between the registrant and Prudential Insurance
Company of America dated March 26, 1999. (Incorporated by reference to
Exhibit 10(rr) of the Company's Report on Form 10-Q dated May 11, 1999,
for the quarter ended March 31, 1999.)
10(y) Revolving Credit Agreement dated August 2, 1999 between the registrant,
Bank of America, National Association, LaSalle Bank, N.A. and other
financial institutions arranged by Bank of America Securities LLC.
(Incorporated by reference to Exhibit 10(jj) of the Company's Report on
Form 10-K dated September 17, 1999, for the year ended June 30, 1999).
10(z) Private Shelf Agreement dated October 3, 2000. (Incorporated by reference
to Exhibit 10(ff) of the Company's Report on Form 10-Q dated November 13,
2000, for the quarter ended September 30, 2000.)
10(aa) Term Note I-1 agreement between the registrant and Prudential Insurance
Company of America dated October 3, 2000.
13 Selected pages of the 2001 Annual Report to Shareholders
23 Consent of PricewaterhouseCoopers LLP
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the three months ended
June 30, 2001:
None.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGIS CORPORATION
By /s/ Paul D. Finkelstein
-----------------------------------------------------------------------
Paul D. Finkelstein, President and Chief Executive Officer
By /s/ Randy L. Pearce
-----------------------------------------------------------------------
Randy L. Pearce, Executive Vice President, Chief Financial
and Administrative Officer (Principal Financial and Accounting Officer)
DATE: September 12, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Myron Kunin Date: September 12, 2001
- ------------------------------- ------------------
Myron Kunin, Chairman of the
Board of Directors
/s/ Paul D. Finkelstein Date: September 12, 2001
- ------------------------------- ------------------
Paul D. Finkelstein, Director
/s/ Christopher A. Fox Date: September 12, 2001
- ------------------------------- ------------------
Christopher A. Fox, Director
/s/ David B. Kunin Date: September 12, 2001
- ------------------------------- ------------------
David B. Kunin, Director
/s/ Rolf Bjelland Date: September 12, 2001
- ------------------------------- ------------------
Rolf Bjelland, Director
/s/ Van Zandt Hawn Date: September 12, 2001
- ------------------------------- ------------------
Van Zandt Hawn, Director
/s/ Susan S. Hoyt Date: September 12, 2001
- ------------------------------- ------------------
Susan S. Hoyt, Director
/s/Thomas L. Gregory Date: September 12, 2001
- ------------------------------- ------------------
Thomas L. Gregory, Director
29
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Regis Corporation:
Our audits of the consolidated financial statements referred to in our report
dated August 28, 2001 appearing in the 2001 Annual Report to Shareholders of
Regis Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 28, 2001
30
<PAGE> 31
REGIS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
as of June 30, 2001, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
----------- ---------- --------------------------- ---------- ----------
Balance at Charged to Balance at
beginning costs and Charged to end of
Description of period expenses Other Accounts Deductions period
----------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
JUNE 30, 2001:
Valuation Account, Allowance
for doubtful accounts $710 $807 $373(1) $277(2) $1,613
JUNE 30, 2000:
Valuation Account, Allowance
for doubtful accounts $246 $504(1) $40(2) $710
JUNE 30, 1999:
Valuation Account, Allowance
for doubtful accounts $678 $35 $467(2) $246
</TABLE>
Notes:
(1) Related to the acquisition of franchise receivables.
(2) Represents primarily the write off of uncollectible receivables.
31
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(AA)
<SEQUENCE>3
<FILENAME>c64912ex10-aa.txt
<DESCRIPTION>TERM NOTE I-1
<TEXT>
<PAGE> 1
EXHIBIT 10(a)(a)
REGIS CORPORATION
SENIOR SERIES I NOTE
No. 2000-I-1
ORIGINAL PRINCIPAL AMOUNT: $25,000,000
ORIGINAL ISSUE DATE: October 3, 2000
INTEREST RATE: 8.39% per annum
INTEREST PAYMENT DATES: January 3, April 3, July 3 and October 3 of each year
FINAL MATURITY DATE: October 3, 2010
PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $6,250,000 due on October 3, 2007,
October 3, 2008, October 3, 2009
and October 3, 2010
FOR VALUE RECEIVED, the undersigned, Regis Corporation herein called
the "Company", a corporation organized and existing under the laws of the State
of Minnesota, hereby promises to pay to The Prudential Insurance Company of
America, or registered assigns, the principal sum of TWENTY-FIVE MILLION DOLLARS
($25,000,000), payable on the Principal Prepayment Dates and in the amounts
specified above, and on the Final Maturity Date specified above in an amount
equal to the unpaid balance of the principal hereof, with interest (computed on
the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof at
the Interest Rate per annum specified above, payable on each Interest Payment
Date specified above and on the Final Maturity Date specified above, commencing
with the Interest Payment Date next succeeding the date hereof, until the
principal hereof shall have become due and payable, and (b) on any overdue
payment (including any overdue prepayment) of principal, any overdue payment of
Yield Maintenance Amount and any overdue payment of interest, payable on each
Interest Payment Date as aforesaid (or, at the option of the registered holder
hereof, on demand), at a rate per annum from time to time equal to the greater
of (i) 2% over the Interest Rate specified above or (ii) 2% over the rate of
interest publicly announced by Morgan Guaranty Trust Company of New York from
time to time in New York City as its Prime Rate.
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Bank of New York in New York City or at
such other place as the holder hereof shall designate to the Company in writing,
in lawful money of the United States of America.
A-1
<PAGE> 2
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to the Amended and Restated Private Shelf Agreement,
dated as of October 3, 2000 (herein called the "Agreement"), between the
Company, on the one hand, and The Prudential Insurance Company of America and
each Prudential Affiliate (as defined in the Agreement) which becomes party
thereto, on the other hand, and is entitled to the benefits thereof.
This Note is subject to optional prepayment, in whole or from time to
time in part, on the terms specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for the then outstanding principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the
principal of this Note may be declared or otherwise become due and payable in
the manner and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings (if any) provided in the Agreement.
This Note is intended to be performed in the State of Illinois and
shall be construed and enforced in accordance with the laws and decisions of
such State.
REGIS CORPORATION
By:
--------------------------------------
Title:
A-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>c64912ex13.txt
<DESCRIPTION>SELECTED PAGES OF THE 2001 REPORT TO SHAREHOLDERS
<TEXT>
<PAGE> 1
EXHIBIT 13
Regis Corporation
TABLE OF CONTENTS
FINANCIAL REVIEW
<TABLE>
<CAPTION>
Page
- ----
<S> <C>
18 Selected Financial Data
19 Management's Discussion and Analysis of Financial Condition and Results of Operations
23 Consolidated Balance Sheet
24 Consolidated Statement of Operations
25 Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income
26 Consolidated Statement of Cash Flows
27 Notes to Consolidated Financial Statements
39 Quarterly Financial Data
39 Stock Data
40 Report of Independent Accountants
</TABLE>
17
<PAGE> 2
Regis Corporation
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.
<TABLE>
<CAPTION>
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $1,311,621 $1,142,993 $991,900 $860,620 $765,170
Operating income(a) 109,281 97,216 65,335 65,858 33,178
Net income(a) 53,088 49,654 32,205 33,894 9,377
Net income per diluted share(a) 1.26 1.19 .78 .83 .24
Total assets 736,505 628,355 500,582 408,733 354,016
Long-term debt, including current portion 261,558 234,601 166,986 126,960 120,568
Dividends declared(b) $ .12 $ .12 $ .10 $ .06 $ .05
</TABLE>
(a) The following information is provided to facilitate comparisons of
operating income, net income and net income per diluted share, absent the
impact of certain nonrecurring activities (see Note 11 to the Consolidated
Financial Statements). Exclusive of nonrecurring items, operating income
would have been $100,156, $81,468, $67,837 and $51,909 in 2000, 1999, 1998
and 1997, respectively. Exclusive of nonrecurring items, net income would
have been $52,380, $43,759, $35,006 and $24,140 in 2000, 1999, 1998 and
1997, respectively. The nonrecurring items reduced reported net income per
diluted share by $.07 in 2000; $.27 in 1999; $.03 in 1998 and $.37 in 1997.
(b) In addition, Supercuts UK declared dividends of $367, $2,829, $2,057 and
$1,072 during 2000, 1999, 1998 and 1997, respectively.
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.
<TABLE>
<CAPTION>
For the Years Ended June 30,
----------------------------
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Company-owned service revenues(1) 71.2% 71.3% 72.0%
Company-owned product revenues(1) 28.8 28.7 28.0
Franchise revenues 4.3 4.4 4.8
Company-owned operations:
Profit margins on service(2) 43.0 43.3 42.9
Profit margins on product(3) 47.0 46.1 46.1
Direct salon(1) 9.0 8.5 8.6
Rent(1) 14.1 14.0 14.0
Depreciation(1) 3.4 3.4 3.3
Direct salon contribution(1) 17.7 18.2 17.9
Selling, general and administrative 10.2 10.7 11.3
Depreciation and amortization 1.7 1.5 1.3
Nonrecurring items 0.3 1.6
Operating income 8.3 8.5 6.6
Income before income taxes 6.8 7.3 5.6
Net income 4.0 4.3 3.2
Operating income, excluding nonrecurring items 8.3 8.8 8.2
Net income, excluding nonrecurring items 4.0 4.6 4.4
</TABLE>
(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.
18
<PAGE> 3
Regis Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[BAR GRAPH]
REVENUE GROWTH
(Dollars in millions)
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C>
$992 $1,143 $1,312
</TABLE>
Compounded Annual Growth Rate = 15.1%
SUMMARY
Regis Corporation, based in Minneapolis, Minnesota, is the world's largest
owner, operator, franchisor and acquirer of hair and retail product salons. The
Regis worldwide operations include 6,681 hairstyling salons at June 30, 2001
operating in two reportable segments: domestic and international. 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 domestic segment includes 6,317 salons operating primarily under
the trade names of Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts
and Cost Cutters. The Company's international operations include 364 salons
located in the United Kingdom. The Company has 41,000 employees worldwide.
RESULTS OF OPERATIONS
REVENUES
Revenues in fiscal 2001 grew to a record $1.3 billion, an increase of
$168.6 million, or 14.8 percent, over fiscal 2000. Approximately 56 percent of
this increase is attributable to salon acquisitions, with the remaining increase
primarily due to net salon openings and same-store sales increases. Mall and
strip center based salon operations in the United States and Canada (domestic
salons) accounted for $170.2 million of the increase in total revenues while
franchise revenues increased $6.0 million. These increases were offset by a
decrease of $7.6 million in revenue from the Company's International operations
due to adverse effects of changes in the exchange rate. In local currencies,
revenue from the Company's International operations increased L.1.1 million.
Revenues by division for the years ended June 30, 2001, 2000 and 1999 are
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000 1999
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Domestic:
Regis $ 401,756 $ 376,709 $356,473
MasterCuts 155,703 142,865 123,454
Trade Secret 179,070 164,254 136,874
SmartStyle 125,851 88,313 63,480
Strip Center Salons 291,998 212,020 145,888
Franchise Revenues 56,291 50,264 47,731
International 100,952 108,568 118,000
---------- ---------- --------
$1,311,621 $1,142,993 $991,900
</TABLE>
During fiscal 2001, same-store sales from all domestic company-owned salons
open more than 12 months increased 2.8 percent, compared to increases of 4.3
percent and 5.6 percent in fiscal 2000 and 1999, respectively. Same-store sales
increases achieved during fiscal 2001, 2000 and 1999 were driven primarily by
increased customer transactions and market based price increases in certain
salon divisions. A total of 118 million customers were served system-wide in
fiscal 2001 compared to 106 million and 99 million customers served in fiscal
2000 and 1999, respectively.
System-wide sales, inclusive of non-consolidated sales generated from
franchisee salons, grew to $1.9 billion, $1.7 billion and $1.5 billion in fiscal
2001, 2000 and 1999, representing increases of 13.7 percent and 12.1 percent,
respectively. The increase in system-wide sales in fiscal 2001 and 2000 was the
result of same-store sales increases from existing salons, net salon openings as
well as salons added to the system through acquisitions. System-wide same-store
sales increased 3.3 percent, 3.7 percent and 5.4 percent in fiscal 2001, 2000
and 1999, respectively.
Service Revenues. Service revenues increased to $893.5 million, $779.6 million
and $679.7 million for 2001, 2000 and 1999. The growth in service revenues of
14.6 percent and 14.7 percent in fiscal 2001 and 2000, respectively, was driven
by acquisitions, accelerated new salon construction and same-store sales growth.
Product Revenues. Product revenues increased to $361.9 million, $313.1 million
and $264.5 million in fiscal 2001, 2000 and 1999. The growth in product revenue
of 15.6 percent and 18.4 percent in fiscal 2001 and 2000, respectively,
continues a trend of escalating product revenues due to strong product
same-store sales growth, a reflection of continuous focus on product awareness,
training and acceptance of national label merchandise and opening an additional
42 Trade Secret salons through new construction or acquisitions between the two
periods. In fiscal 2001, product revenues as a percent of total company-owned
revenues increased to 28.8 percent of revenues, compared to 28.7 percent and
28.0 percent of revenues in 2000 and 1999, respectively.
Franchise Revenues. Franchise revenues, including royalties and initial
franchise fees from franchisees, and product and equipment sales made by the
Company to franchisees, increased 12.0 percent in fiscal 2001 to
19
<PAGE> 4
Regis Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
[BAR GRAPH]
GROSS MARGINS
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C>
43.8% 44.1% 44.2%
</TABLE>
$56.3 million from $50.3 million in fiscal 2000. In fiscal 2000, franchise
revenues increased 5.3 percent, or $2.6 million, compared to fiscal 1999. The
increase in franchise revenues in 2001 is primarily the result of increased
product sales generated by franchisee salons. The increase in franchise revenues
in fiscal 2000 is primarily due to increased royalties on increased sales
generated by franchisee salons which are not included in the Company's
consolidated revenues.
COST OF REVENUE
The aggregate cost of product and service revenues for company-owned salons
in fiscal 2001 was $700.8 million, compared to $611.0 million and $531.0 million
in fiscal 2000 and 1999, respectively. The resulting gross margin percentage for
fiscal 2001 improved to 44.2 percent of company-owned revenues compared to 44.1
percent and 43.8 percent of company-owned revenues in fiscal 2000 and 1999.
Service margins for fiscal 2001 decreased 30 basis points to 43.0 percent
of company-owned revenues, compared to 43.3 percent and 42.9 percent in the two
preceding fiscal years. The fiscal 2001 decline is primarily the result of
deleveraging in the fixed cost payroll divisions due to lower same-store sales
volumes. The improvement for fiscal 2000 was due to leveraging fixed payroll
costs against strong service same-store sales increases and continued sales
maturation.
Product margins for fiscal 2001, as a percent of company-owned revenues,
increased to 47.0 percent for fiscal 2001, compared to 46.1 percent in both
fiscal 2000 and 1999. The fiscal 2001 improvement was primarily the result of a
shift in the Company's mix of products sold. During fiscal 2001, the product mix
consisted more heavily of products with a higher profit margin.
DIRECT SALON
This expense category includes direct costs associated with salon
operations such as advertising, promotion, insurance, telephone and utilities.
Direct salon expenses were $112.7 million in fiscal 2001, compared to $92.8
million and $81.1 million in fiscal 2000 and 1999, and increased as a percent of
company-owned revenue to 9.0 percent compared to 8.5 percent and 8.6 percent in
fiscal 2000 and 1999, respectively. The fiscal 2001 costs increased as a
percentage of sales primarily due to higher utility and freight costs, increased
workers' compensation rates and lower same-store sales increases. The fiscal
2000 improvement in direct salon expenses as a percent of company-owned revenues
is a result of the Company's increased ability to leverage these costs against
strong same-store sales. In addition, in fiscal 2000 the Company had a slightly
lower level of salon advertising expenditures.
RENT
Rent expense in fiscal 2001 was $176.9 million, compared to $152.7 million and
$131.9 million in fiscal 2000 and 1999, respectively. Rent expense in fiscal
2001 increased slightly to 14.1 percent of company-owned revenues compared to
14.0 percent in both fiscal 2000 and 1999. The increase in fiscal 2001 as a
percent of sales is primarily due to lower same-store sales increases over which
to spread this relatively fixed cost. In fiscal 2000, cost grew at the same rate
as sales due to higher common area and real estate costs.
DEPRECIATION--SALON LEVEL
Depreciation expense at the salon level remained consistent in fiscal 2001
at 3.4 percent of revenues compared to fiscal 2000, which represented a ten
basis point increase from 3.3 percent of revenues in fiscal 1999.
DIRECT SALON CONTRIBUTION
For reasons previously discussed, direct salon contribution, representing
company-owned salon revenues less associated operating expenses, improved in
fiscal 2001 to $222.2 million, or 17.7 percent of company-owned revenues,
compared to $199.4 million or 18.2 percent in fiscal 2000 and $168.8 million or
17.9 percent in fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses include field
supervision (payroll, related taxes and travel) and home office administration
costs (such as warehousing, salaries, occupancy costs and professional fees).
SG&A expenses increased $12.1 million in fiscal 2001 to $133.8 million, compared
to $121.8 million in fiscal 2000, but improved as a percent of total revenue to
10.2 percent in 2001 from 10.7 percent and 11.3 percent in fiscal 2000 and 1999,
respectively. The 50 basis point improvement for fiscal 2001 is primarily due to
fiscal 2000 results including costs incurred related to the introduction of the
new Regis retail product line as well as costs related to the Company's
transition of the Supercuts UK home office. The 60 basis point improvement for
fiscal 2000 is primarily the result of eliminating redundant costs through the
amalgamation of The Barbers and Heidi's mergers and the successful
implementation of the UK restructuring plan.
20
<PAGE> 5
Regis Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
[BAR GRAPH]
OPERATING INCOME GROWTH
(Dollars in millions)
(Exclusive of nonrecurring items)
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C>
$81 $100 $109
</TABLE>
DEPRECIATION AND AMORTIZATION--CORPORATE
Depreciation and amortization--corporate was 1.7 percent of total revenues
in 2001, compared to 1.5 percent and 1.3 percent of total revenues in fiscal
2000 and 1999, respectively. The 20 basis point increases are primarily related
to increased amortization expense in fiscal 2001 and 2000 due to the increased
level of goodwill associated with the Company's salon acquisition activity, as
well as increases in corporate depreciation in fiscal 2001 related to
self-developed software placed in service between periods.
NONRECURRING ITEMS
See Note 11 to the Consolidated Financial Statements.
OPERATING INCOME
Operating income in fiscal 2001 increased to $109.3 million, compared to
$97.2 million in fiscal 2000. Fiscal 2000 operating income was impacted by
merger and transaction costs associated with the Supercuts UK merger.
Operating income was $97.2 million in 2000 compared to $65.3 million in
fiscal 1999. Fiscal 1999 operating income was impacted by merger and transaction
costs associated with the Heidi's and The Barbers mergers, a nonrecurring charge
related to restructuring the Company's International operations and
nonrecurring costs associated with the Company's year 2000 remediation program.
Exclusive of fiscal 2000 and 1999 nonrecurring items, operating income in
fiscal 2001 increased to $109.3 million, or 8.3 percent of revenues, compared to
$100.2 million, or 8.8 percent of revenues, in fiscal 2000 and $81.5 million, or
8.2 percent of revenues, in fiscal 1999. The decrease in operating income as a
percent of sales in 2001 was due to higher fixed payroll costs that were not
offset by same-store sales growth as well as increased direct salon expenses due
to higher utility and freight costs, increased workers' compensation rates and
lower same-store sales increases. The annual increase in operating income as a
percent of sales for fiscal 2000 was driven by improved gross margins, reduced
SG&A due to merger integration and international restructuring, and the overall
leveraging of fixed costs.
INTEREST
Interest expense in fiscal 2001 was $21.5 million, compared to $15.8
million and $11.6 million in fiscal 2000 and 1999, representing 1.6 percent, 1.4
percent and 1.2 percent of total revenues, respectively. Interest expense as a
percent of sales increased in fiscal 2001 and 2000 due to higher debt levels
primarily resulting from the Company's acquisition program as well as slightly
higher interest rates.
INCOME TAXES
The Company's effective tax rate was 40.3 percent of pre-tax income in both
fiscal 2001 and 2000, compared to 41.8 percent 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 UK restructuring charge in fiscal 1999.
Exclusive of fiscal 2000 and 1999 nonrecurring items, the Company's
effective tax rate was 39.3 percent and 38.7 percent, respectively. The increase
in the annual rate compared to fiscal 2000 (exclusive of nonrecurring items) is
due to discrete Canadian acquisitions which occurred during the second and third
quarters of fiscal 2001. In fiscal 1999, the Company's effective tax rate,
exclusive of nonrecurring items, benefited from net operating losses utilized by
Heidi's prior to the merger and an increase in international pre-tax income
during the fourth quarter of fiscal 1999 which is taxed at a lower rate.
NET INCOME
Net income in fiscal 2001 grew to $53.1 million, or $1.26 per diluted
share, compared to net income of $49.7 million, or $1.19 per diluted share, in
fiscal 2000, and $32.2 million, or $.78 per diluted share, in fiscal 1999. Net
income exclusive of nonrecurring items was $52.4 million in fiscal 2000 and
$43.8 million in fiscal 1999. Nonrecurring items in fiscal 2000 and 1999 reduced
reported net income per diluted share by $.07 and $.27, respectively. The
increase in earnings per diluted share primarily resulted from sales increases,
improved gross margins and leveraging of fixed costs against revenue increases,
as previously discussed.
EFFECTS OF INFLATION
The Company primarily compensates its Regis 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 remainder of its mall-based and strip center salons.
21
<PAGE> 6
Regis Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
[BAR GRAPH]
OPERATING CASH FLOW
(Dollars in millions)
(Net income before depreciation, amortization and nonrecurring items)
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C>
$93 $106 $118
</TABLE>
Compounded Annual Growth Rate = 17.9%
[BAR GRAPH]
EBITDA
(Dollars in millions)
(Exclusive of nonrecurring items in prior years)
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C>
$127 $156 $175
</TABLE>
Compounded Annual Growth Rate=18.2%
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements are discussed in Note 1 to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Customers 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 2001 rose to $110.3 million compared
to $85.4 million and $76.4 million in fiscal 2000 and 1999, respectively. The
increases in fiscal 2001 and 2000 are primarily due to improved operating
performance.
CAPITAL EXPENDITURES AND ACQUISITIONS
During fiscal 2001, the Company had worldwide capital expenditures of $92.3
million, of which $12.1 million related to acquisitions of 757 salons. The
Company constructed 416 new corporate salons in fiscal 2001, including 43 new
Regis Salons, 33 new MasterCuts salons, 39 new Trade Secret salons, 152 new
SmartStyle salons, 114 new Strip Center Salons and 35 new International salons,
and completed 140 major remodeling projects. All capital expenditures during
fiscal 2001 were funded by the Company's operations and borrowings under its
revolving credit facility.
The Company anticipates its worldwide salon development program for fiscal
2002 will include approximately 410 new salons and 150 major remodeling and
conversion projects. It is expected that expenditures for these new salons and
other projects will be approximately $70 million in fiscal 2002, excluding
capital expenditures associated with acquisitions.
FINANCING
Financing activities are discussed in Note 4 to the Consolidated Financial
Statements.
Management believes that cash generated from operations and amounts
available under its existing debt facilities will be sufficient to fund its
anticipated capital expenditures and required debt repayments for the
foreseeable future.
The Company operates in international markets and 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.
DIVIDENDS
The Company paid dividends of $.12 per share during fiscal 2001 and 2000, and
$.10 per share during fiscal 1999. On August 21, 2001, the Board of Directors of
the Company declared a $.03 per share quarterly dividend payable September 19,
2001 to shareholders of record on September 4, 2001.
In February 1999, the Board of Directors approved a three-for-two stock
split of the Company's common stock in the form of a 50 percent stock dividend
distributed on March 1, 1999 to shareholders of record on February 15, 1999. All
share and per share amounts have been restated to reflect the stock split.
In addition, Supercuts UK declared and paid dividends of $.4 million and
$2.8 million during fiscal 2000 and 1999, respectively.
SHARE REPURCHASE PROGRAM
In May 2000, the Company's Board of Directors approved a stock repurchase
program under which up to $50 million can be expended for the repurchase of the
Company's common stock. The timing and amounts of any repurchases will depend on
many factors, including the market price of the common stock and overall market
conditions. As of June 30, 2000, 115,000 shares have been repurchased for $1.4
million. No shares were repurchased during the fiscal year ended June 30, 2001.
All repurchased shares are immediately retired. This repurchase program has no
stated expiration date.
SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
This annual report on Form 10-K, as well as information included in, or
incorporated by reference from, future filings by the Company with the
Securities and Exchange Commission and information contained in written
material, press releases and oral statements issued by or on behalf of the
Company contains or may contain "forward-looking statements" within the meaning
of the federal securities laws, including statements concerning anticipated
future events and expectations that are not historical facts. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The forward-looking
statements in this document reflect management's best judgment at the time they
are made, but all such statements are subject to numerous risks and
uncertainties, which could cause actual results to differ materially from those
expressed in or implied by the statements herein. Additional information
concerning potential factors that could affect future financial results is
included in the Company's Form S-3 Registration Statement filed with the
Securities and Exchange Commission on March 15, 2001.
22
<PAGE> 7
Regis Corporation
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
--------------------
(Dollars in thousands, except per share amounts) 2001 2000
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 24,658 $ 14,888
Receivables, net 18,861 16,220
Inventories 110,247 91,823
Deferred income taxes 10,087 10,160
Other current assets 8,794 10,713
-------- --------
Total current assets 172,647 143,804
Property and equipment, net 300,990 260,532
Goodwill 246,144 208,724
Other assets 16,724 15,295
-------- --------
Total assets $736,505 $628,355
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 5,438 $ 9,983
Accounts payable 37,689 34,216
Accrued expenses 68,788 58,845
-------- --------
Total current liabilities 111,915 103,044
Long-term debt 256,120 224,618
Other noncurrent liabilities 28,969 21,552
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, $.05 par value; issued and outstanding,
41,726,787 and 40,702,707 common shares at June 30,
2001 and 2000, respectively 2,087 2,035
Additional paid-in capital 165,489 150,793
Accumulated other comprehensive loss (4,815) (2,274)
Retained earnings 176,740 128,587
-------- --------
Total shareholders' equity 339,501 279,141
-------- --------
Total liabilities and shareholders' equity $736,505 $628,355
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
23
<PAGE> 8
Regis Corporation
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------
(Dollars and shares in thousands, except per share amounts) 2001 2000 1999
<S> <C> <C> <C>
Revenues:
Company-owned salons:
Service $ 893,472 $ 779,604 $679,658
Product 361,858 313,125 264,511
---------- ---------- --------
1,255,330 1,092,729 944,169
Franchise revenues:
Royalties and fees 38,230 36,157 33,801
Product sales 18,061 14,107 13,930
---------- ---------- --------
56,291 50,264 47,731
---------- ---------- --------
1,311,621 1,142,993 991,900
Operating expenses:
Company-owned salons:
Cost of service 508,981 442,198 388,339
Cost of product 191,796 168,787 142,643
Direct salon 112,667 92,841 81,107
Rent 176,947 152,685 131,943
Depreciation 42,720 36,832 31,368
---------- ---------- --------
1,033,111 893,343 775,400
Selling, general and administrative 133,825 121,756 112,392
Depreciation and amortization 22,065 16,993 12,983
Nonrecurring items 2,940 16,133
Other 13,339 10,745 9,657
---------- ---------- --------
Total operating expenses 1,202,340 1,045,777 926,565
---------- ---------- --------
Operating income 109,281 97,216 65,335
Other income (expense):
Interest (21,487) (15,839) (11,588)
Other, net 1,085 1,857 1,567
---------- ---------- --------
Income before income taxes 88,879 83,234 55,314
Income taxes (35,791) (33,580) (23,109)
---------- ---------- --------
Net income $ 53,088 $ 49,654 $ 32,205
========== ========== ========
Net income per share:
Basic $ 1.29 $ 1.22 $ .80
========== ========== ========
Diluted $ 1.26 $ 1.19 $ .78
========== ========== ========
Weighted average common and potential common shares outstanding 42,031 41,602 41,518
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
24
<PAGE> 9
Regis Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
---------------------- Paid-In Comprehensive Retained Comprehensive
(Dollars in thousands) Shares Amount Capital Income (Loss) Earnings Total Income
---------- ------ ---------- ------------- -------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 26,674,329 $1,334 $138,620 $(1,707) $ 59,020 $197,267
Net income 32,205 32,205 $32,205
Foreign currency translation adjustments 612 612 612
Reclassification adjustment for
translation losses realized in net
income (964)
Stock split effected in the form of a
stock dividend 13,334,156 667 (667)
Proceeds from exercise of stock options 309,929 15 3,794 3,809
Shares issued under company sponsored
programs 17,941 1 235 236
Shares issued in connection with salon
acquisitions 82,767 4 2,103 2,107
Tax benefit realized upon exercise of
stock options 1,389 1,389
Contribution of shareholder debt to
capital 3,030 3,030
Dividends (6,436) (6,436)
---------- ------ -------- ------- -------- -------- -------
Balance, June 30, 1999 40,419,122 2,021 148,504 (1,095) 84,789 234,219 $31,853
=======
Net income 49,654 49,654 49,654
Foreign currency translation adjustments (1,179) (1,179) (1,179)
Pooling of interests adjustment (665) (665)
Stock repurchase plan (115,000) (6) (1,419) (1,425)
Proceeds from exercise of stock options 329,000 16 1,478 1,494
Shares issued in connection with salon
acquisitions 69,585 4 1,584 1,588
Tax benefit realized upon exercise of
stock options 646 646
Dividends (5,191) (5,191)
---------- ------ -------- ------- -------- -------- -------
Balance, June 30, 2000 40,702,707 2,035 150,793 (2,274) 128,587 279,141 $48,475
=======
Net income 53,088 53,088 53,088
Foreign currency translation adjustments (921) (921) (921)
Transition adjustment relating to the
adoption of FAS 133, net of taxes (160) (160) (160)
Changes in fair market value of financial
instruments designated as hedges of
interest rate exposure, net of taxes (1,460) (1,460) (1,460)
Proceeds from exercise of stock options 298,362 16 1,971 1,987
Shares issued through franchise stock
incentive program 10,662 149 149
Shares issued in connection with salon
acquisitions 715,056 36 11,860 11,896
Tax benefit realized upon exercise
of stock options 716 716
Dividends (4,935) (4,935)
---------- ------ -------- ------- -------- -------- -------
BALANCE, JUNE 30, 2001 41,726,787 $2,087 $165,489 $(4,815) $176,740 $339,501 $50,547
========== ====== ======== ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
25
<PAGE> 10
Regis Corporation
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------
(Dollars in thousands) 2001 2000 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 53,088 $ 49,654 $ 32,205
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 49,821 42,483 36,129
Amortization 15,097 11,634 8,296
Deferred income taxes 3,249 (1,003) (1,065)
Nonrecurring items 4,400
Other 120 (381) 1,638
Changes in operating assets and liabilities:
Receivables (5,010) 267 (3,308)
Inventories (16,724) (20,350) (9,988)
Other current assets 2,669 1,078 (4,041)
Other assets (3,295) (3,432) (2,191)
Accounts payable 1,369 1,799 (2,914)
Accrued expenses 7,766 (1,546) 12,680
Other noncurrent liabilities 2,159 5,181 4,538
--------- --------- ---------
Net cash provided by operating activities 110,309 85,384 76,379
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (80,224) (80,932) (67,249)
Proceeds from sale of assets 682 852 4,455
Purchases of salon net assets, net of cash acquired (45,165) (66,798) (51,017)
--------- --------- ---------
Net cash used in investing activities (124,707) (146,878) (113,811)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on revolving credit facilities 321,200 413,786 237,668
Payments on revolving credit facilities (313,900) (321,928) (225,075)
Proceeds from issuance of long-term debt 25,000 7,958 46,533
Repurchase of common stock (1,425)
Repayment of long-term debt (5,942) (33,842) (19,100)
Increase in negative book cash balances 695 5,054
Dividends paid (4,935) (5,191) (6,436)
Proceeds from issuance of common stock 1,987 1,494 3,700
--------- --------- ---------
Net cash provided by financing activities 24,105 65,906 37,290
--------- --------- ---------
Effect of exchange rate changes on cash 63 123 26
--------- --------- ---------
Increase (decrease) in cash 9,770 4,535 (116)
Cash:
Beginning of year 14,888 10,353 10,469
--------- --------- ---------
End of year $ 24,658 $ 14,888 $ 10,353
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
26
<PAGE> 11
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION:
Regis Corporation (the Company) owns, operates and franchises hairstyling
and hair care salons throughout the United States, the United Kingdom, Canada
and Puerto Rico. 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, strip shopping centers, or Wal-Mart
Supercenters. Franchised salons are primarily located in strip shopping centers
throughout the United States. The salons in the United Kingdom are owned and
operated in malls, leading department stores, mass merchants and high-street
locations.
At June 30, 2001, approximately six 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 five percent is owned by management and the Company's benefit
plans.
CONSOLIDATION:
The Consolidated 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.
USE OF ESTIMATES:
The preparation of Consolidated Financial Statements in conformity with
accounting principles generally accepted in the United States of America
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.
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 accumulated other comprehensive income (loss)
within shareholders' equity.
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 (30 to 39
years for buildings and improvements and five to ten years for equipment,
furniture, software and leasehold improvements).
The Company capitalizes both internal and external costs of developing or
obtaining computer software for internal use based on certain criteria.
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/amortization accounts are adjusted for property
retirements and disposals with the resulting gain or loss included in
operations. Fully depreciated/amortized 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 acquisitions of business
operations in which the Company has not previously been involved, is amortized
on a straight-line basis over 40 years. Goodwill recorded in connection with
acquisitions which expand the Company's existing business activities
(acquisitions of salon sites) is amortized on a straight-line basis, generally
over 20 years.
ASSET IMPAIRMENT ASSESSMENTS:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is evaluated based on the sum of undiscounted
estimated future cash flows expected to result from use of the assets compared
to its carrying value. If an impairment is recognized, the carrying value of the
impaired asset is reduced to its fair value, based on discounted estimated
future cash flows.
FRANCHISE REVENUES AND EXPENSES:
Franchise revenues include royalties, initial franchise fees from
franchisees and sales of product to franchisees. Royalties are recognized as
revenue in the month in which franchisee services are rendered or products are
sold by franchisees. The Company recognizes revenue 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 franchise locations.
Franchise expenses include all direct expenses such as the cost of product sold
to franchisees, 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 expenses described above associated with franchise operations are included
in selling, general and administrative expenses in the Consolidated Statement of
Operations.
27
<PAGE> 12
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ADVERTISING:
Advertising costs are expensed 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 income tax returns. Deferred income tax assets and liabilities are
determined based on the differences between the financial statement and tax
basis 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 current tax payable for the period and the change during the period in
deferred tax assets and liabilities.
NET INCOME PER SHARE:
Basic earnings per share (EPS) is calculated as net income divided by
weighted average common shares outstanding. The Company's dilutive securities
include shares issuable under the Company's stock option plan and shares
issuable under contingent stock agreements. Diluted EPS is calculated as net
income divided by weighted average common shares outstanding, increased to
include assumed exercise of dilutive securities. Stock options with exercise
prices greater than the average market value of the Company's common stock are
excluded from the computation of diluted EPS.
COMPREHENSIVE INCOME:
Components of comprehensive income for the Company include net income, the
transition adjustment for the adoption of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended and interpreted, changes in fair market value of
financial instruments designated as hedges of interest rate exposure and foreign
currency translation charged or credited to the cumulative translation account
within shareholders' equity. These amounts are presented in the Consolidated
Statements of Changes in Shareholders' Equity and Comprehensive Income.
RECENT ACCOUNTING PRONOUNCEMENTS:
In July 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets," which are effective for fiscal years
beginning after December 15, 2001, with early adoption permitted. These
statements, in summary, eliminate the use of the pooling method of accounting
for business combinations occurring in the future, and discontinue the
amortization of acquired goodwill, subject to periodic impairment testing. Based
on the Company's preliminary analysis of the accounting rule changes for
business combinations and goodwill, including its early adoption provisions,
implementation will occur in the first quarter of fiscal 2002 ending September
30, 2001 and have a potential annual impact of $0.20 per diluted share, as a
result of discontinuance of amortization charges of acquired goodwill. The
Company does not, based on its preliminary analysis, anticipate impairment
issues or charges in connection with the implementation, or in the foreseeable
future, based on the current performance of its reporting units.
2. OTHER FINANCIAL STATEMENT DATA:
The following provides additional information concerning selected balance
sheet accounts as of June 30, 2001 and 2000:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000
--------- ---------
<S> <C> <C>
Property and equipment:
Land $ 3,817 $ 3,691
Buildings and improvements 29,449 23,474
Equipment, furniture and leasehold improvements 433,374 374,128
Internal use software 39,635 31,481
Equipment, furniture and leasehold improvements
under capital leases 15,113 14,850
--------- ---------
521,388 447,624
Less accumulated depreciation and amortization (211,722) (179,788)
Less amortization of equipment, furniture and
leasehold improvements under capital leases (8,676) (7,304)
--------- ---------
$ 300,990 $ 260,532
========= =========
Goodwill $ 307,736 $ 256,201
Less accumulated amortization (61,592) (47,477)
--------- ---------
$ 246,144 $ 208,724
========= =========
Accounts payable* $ 37,689 $ 34,216
========= =========
Accrued expenses:
Payroll and payroll related costs* $ 34,344 $ 30,928
Insurance 15,021 10,398
Transaction and restructuring 1,056 3,677
Other 18,367 13,842
--------- ---------
$ 68,788 $ 58,845
========= =========
</TABLE>
*Accounts payable and accrued expenses include $5,762 and $5,067 of book
overdrafts in fiscal 2001 and 2000, respectively.
28
<PAGE> 13
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following provides additional information concerning the Company's
transaction and restructuring liabilities related to its fiscal 2000 merger with
Supercuts UK, its fiscal 1999 mergers and its restructuring liability related to
its fiscal 1999 restructuring plan for its international operations.
<TABLE>
<CAPTION>
Restructuring--International Restructuring--Mergers
---------------------------------------------- ----------------------------------------
Salon Salon Transaction
Closures and Closures and Charges--
(Dollars in thousands) Severance Dispositions Other Subtotal Severance Dispositions Other Subtotal Mergers Total
--------- ------------- ----- -------- --------- ------------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1999 $ 562 $1,187 $ 351 $2,100 $ 2,883 $115 $ 746 $ 3,744 $ 137 $ 5,981
Additions 2,482 116 2,598 547 3,145
Cash utilization (532) (542) (265) (1,339) (1,874) (92) (655) (2,621) (611) (4,571)
Non-cash utilization (30) (62) (19) (111) (173) (8) (181) (38) (330)
Change in estimate (494) (54) (548) (548)
----- ------ ----- ------ ------- ---- ----- ------- ----- -------
June 30, 2000 583 67 650 2,824 23 145 2,992 35 3,677
Additions
Cash utilization (534) (5) (539) (1,616) (27) (48) (1,691) (47) (2,277)
Non-cash utilization (19) (62) (81) (209) 31 (97) (275) 12 (344)
----- ------ ----- ------ ------- ---- ----- ------- ----- -------
June 30, 2001 $ 30 $ 30 $ 999 $ 27 $ 1,026 $ 1,056
===== ====== ===== ====== ======= ==== ===== ======= ===== =======
</TABLE>
During fiscal year 2001 and 2000, the non-cash utilization above relates to
the effect of the changes in the foreign currency exchange rates.
The following table sets forth a reconciliation of shares used in the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
2001 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares for basic earnings per share 41,220,925 40,611,928 40,204,712
Effect of dilutive securities:
Dilutive effect of stock options 638,153 880,056 1,299,287
Contingent shares issuable under contingent
stock agreements 171,895 110,298 13,599
---------- ---------- ----------
Weighted average shares for diluted earnings per share 42,030,973 41,602,282 41,517,598
========== ========== ==========
</TABLE>
Stock options of 2,819,000 and 1,070,000 were excluded from the shares used
in the computation of diluted earnings per share for fiscal year 2001 and 2000,
respectively, since they were anti-dilutive. All stock options for fiscal 1999
were included in the dilutive earnings per share computation.
The following provides additional information concerning selected
Consolidated Statement of Operations accounts for the fiscal years ended June
30, 2001, 2000 and 1999:
o Advertising costs expensed were $29.5 million, $24.9 million and $21.1
million in fiscal 2001, 2000 and 1999, respectively.
o Amortization expense related to capitalized computer software was $4.8
million, $3.3 million and $2.3 million in fiscal 2001, 2000 and 1999,
respectively.
The following provides supplemental disclosures of cash flow activity:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000 1999
------- ------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $20,534 $14,997 $11,269
Income taxes 37,447 36,866 24,352
</TABLE>
Significant non-cash investing and financing activities include the
following:
o In fiscal 2001, 2000 and 1999, the Company financed capital
expenditures totaling $0.1 million, $2.3 million and $3.5 million,
respectively, through capital leases.
o In fiscal 2001, 2000 and 1999, in connection with various
acquisitions, the Company entered into seller-financed payables and
non-compete agreements as well as issuing 715,056, 69,585 and 82,767
shares, respectively, of the Company's common stock (Note 3).
o In fiscal 1999, in connection with the Company's merger with Heidi's,
a shareholder contributed a $3.0 million note to equity (Note 3).
29
<PAGE> 14
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. MERGERS AND ACQUISITIONS:
SUPERCUTS (HOLDINGS) LIMITED MERGER:
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
approximately 1.8 million 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. As a result of the merger, the Company
recorded a pre-tax merger and transaction charge of $3.1 million in the second
quarter of fiscal 2000 comprised of $2.6 million of severance and other costs,
and $.5 million of professional fees. Revenue and net income for Supercuts UK
prior to the merger were $4.5 million and $.5 million, respectively, for the
three months ended September 30, 1999 and $17.0 million and $1.9 million,
respectively, for the year ended June 30, 1999.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, Inc. Merger:
Effective May 20, 1999, the Company consummated a merger with The Barbers,
Hairstyling for Men & Women, Inc. (The Barbers) in a stock-for-stock
transaction, resulting in the issuance of approximately 2.0 million shares of
the Company's common stock. The Barbers was a national operator and franchisor
of 979 affordable hair care salons. The Barbers transaction was accounted for as
a pooling-of-interests. The Financial Statements prior to this merger were
restated to reflect this merger as if the merged companies had always been
combined. As a result of the merger, the Company recorded a nonrecurring charge
of $4.8 million during the quarter ended June 30, 1999 comprised of $3.4 million
of severance and other costs, and $1.4 million of professional fees. Revenue and
net income for The Barbers prior to the merger were $21.0 million and $1.5
million, respectively, for the nine months ended March 31, 1999.
HEIDI'S, INC. MERGER:
Effective March 15, 1999, the Company consummated a merger with Heidi's,
Inc. (Heidi's), a company based in Detroit, Michigan, which operated 24 salons
in shopping malls. Under the terms of the merger agreement, the shareholders of
Heidi's, a privately held company, received approximately .5 million shares of
Regis Corporation common stock. The transaction was accounted for as a
pooling-of-interests. The Financial Statements prior to this merger were
restated to reflect this merger as if the merged companies had always been
combined. As a result of the merger, the Company recorded a nonrecurring charge
of $1.2 million during the quarter ended March 31, 1999 comprised of $.5 million
of severance and other costs, and $.7 million of professional fees. In addition,
during the fourth quarter of 1999, the Company recorded a $.4 million charge
related to impaired salon assets. Revenue and net income for Heidi's prior to
the merger were $13.4 million and $.4 million, respectively, for the six months
ended December 31, 1998.
OTHER ACQUISITIONS:
During fiscal 2001, 2000 and 1999, the Company made numerous acquisitions
in addition to its mergers with Supercuts UK, The Barbers and Heidi's. These
acquisitions 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 recorded using the purchase method of accounting,
individually and in the aggregate, are not material to the Company's operations.
Costs in excess of net tangible and identifiable intangible assets acquired
and components of the aggregate purchase prices of the acquisitions were as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000 1999
------- ------- --------
<S> <C> <C> <C>
Costs in excess of net tangible and identifiable
intangible assets acquired $52,767 $66,035 $45,147
======= ======= =======
Components of aggregate purchase price:
Cash $45,165 $66,798 $51,017
Stock 11,896 1,588 2,107
------- ------- -------
Current and noncurrent payables assumed 7,383 5,225 2,830
------- ------- -------
$64,444 $73,611 $55,954
======= ======= =======
</TABLE>
4. FINANCING ARRANGEMENTS:
The Company's long-term debt as of June 30, 2001 and 2000 consists of the
following:
<TABLE>
<CAPTION>
Interest Maturity
(Dollars in thousands) Rate % Dates 2001 2000
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Senior term notes 6.55-8.39 2002-2010 $113,163 $ 90,844
Revolving credit facilities 5.42-8.33 2003 140,500 133,200
Equipment and leasehold notes payable 7.57-11.56 2003-2006 6,391 7,762
Other notes payable 5.00-10.00 2002-2009 1,504 2,795
-------- --------
261,558 234,601
Less current portion (5,438) (9,983)
-------- --------
Long-term portion $256,120 $224,618
======== ========
</TABLE>
30
<PAGE> 15
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In October 2000, the Company borrowed $25 million under an 8.39 percent
senior term note due October 2010 to finance acquisitions by the Company. The
note contains certain debt covenant restrictions which are similar to the
Company's existing debt covenants.
In September 2000, the Company amended its senior revolving credit
agreement to increase the amount available from $180 million to $250 million,
extending the expiration date to August 2003, and modifying certain debt
covenant restrictions. The facility bears interest at the prime rate or LIBOR
plus 50 to 100 basis points based on the Company's debt-to-capitalization ratio
and allows for multi-currency borrowings. The prime rate at June 30, 2001 and
2000 was 6.75 percent and 9.50 percent, respectively. The revolving credit
facility requires a quarterly commitment fee of 15 to 25 basis points on the
unused portion of the facility. The commitment fee is also based on the
Company's debt-to-capitalization ratio at the end of each fiscal quarter. The
facility is used to finance the general working capital requirements of the
Company as well as the capital requirements for new salon and acquisition
growth.
In June 2000, the Company extended the term of a $4.0 million note payment
originally due July 1, 2000. The $4.0 million is the final payment due under a
$10.0 million senior term note entered into in October 1996. The maturity on the
term note has been extended to September 2003.
In August 1999, through the use of proceeds from its revolving credit
facility, the Company retired a $15.0 million term note due June 2003 and
retired its $45.0 million and $20.0 million revolving credit facilities due
October 2001 and August 1999, respectively.
In January 1999, the Company borrowed $15.0 million under a 6.27 percent
senior term note due June 2003 and $10.0 million under a 6.83 percent senior
term note due December 2005 to finance acquisitions by the Company. In September
1998, the Company borrowed $7.5 million under a 6.55 percent senior term note
due September 2003 to refinance the Company's distribution center revolving line
of credit established in fiscal 1998.
In July 1998, the Company paid down its revolving credit facilities by
$14.0 million with the proceeds of a 7.14 percent senior term note with interest
due quarterly. Principal payments of $9.0 million and $5.0 million are due in
July 2007 and 2008, respectively.
The equipment and leasehold notes payable are primarily comprised of
capital lease obligations totaling $5.9 million and $7.1 million at June 30,
2001 and 2000, respectively. These capital lease obligations are payable in
monthly installments through 2005.
All of the Company's debt instruments are unsecured, except for its capital
lease obligations which are collateralized by the assets purchased under the
agreement.
The debt 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
fixed charge coverage, leverage and debt-to-capitalization ratios.
The fair values of the Company's debt instruments, based upon discounted
cash flow analyses using the Company's current incremental borrowing rate,
approximate their carrying values at June 30, 2001.
Aggregate maturities of long-term debt at June 30, 2001 are as follows:
<TABLE>
<CAPTION>
Fiscal Year (Dollars in thousands)
- ----------- ----------------------
<S> <C>
2002 $ 5,438
2003 6,120
2004 160,094
2005 15,728
2006 12,545
Thereafter 61,633
--------
$261,558
========
</TABLE>
5. DERIVATIVE INSTRUMENTS:
Effective July 1, 2000, Regis adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended and interpreted (FAS 133). FAS 133 requires that all
derivative instruments, such as interest rate swap contracts, be recognized in
the financial statements and measured at their fair market value. Changes in the
fair market value of derivative instruments are recognized each period in
current earnings or shareholders' equity (as a component of other comprehensive
income or loss), depending on whether a derivative is designated as part of a
hedge transaction and, if it is, the type of hedge transaction. The adoption of
FAS 133 did not have a material impact on the Company's primary financial
statements, but did result in the recording of an unrealized loss of
approximately $160,000, net of tax, in other comprehensive income or loss.
In the normal course of business, the Company is exposed to changes in
interest rates. The Company has established policies and procedures that govern
the management of these exposures through the use of financial instruments. By
policy, the Company does not enter into such contracts for the purpose of
speculation.
The Company's objective in managing its exposure to interest rates is to
decrease the volatility that changes in interest rates might have on earnings
and cash flows. To achieve this objective, the Company uses interest rate swaps,
as determined by management, to adjust a portion of total debt that is subject
to variable interest rates. The Company designates these instruments as cash
31
<PAGE> 16
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
flow hedges. Under an interest rate swap contract, the Company agrees to pay
fixed rates of interest and receive variable rates of interest based upon a
notional amount of indebtedness. These contracts are considered to be a hedge
against changes in the amount of future cash flows associated with the Company's
interest payments related to its variable-rate debt obligations. Accordingly,
the interest rate swap contracts are reflected at fair value in the Company's
Consolidated Balance Sheet and the related gains or losses on these contracts
are deferred in shareholders' equity as a component of comprehensive income.
However, to the extent that any of these contracts are not effective in
offsetting the change in interest cash flows being hedged, their ineffective
portion is immediately recognized in earnings.
The net effect of this accounting on the Company's operating results is
that interest expense on the portion of variable-rate debt being hedged is
recorded based on the fixed interest rate stated within the swap agreement. No
other cash payments are made unless the contract is terminated prior to
maturity, in which case the amount paid or received in settlement is established
by agreement at the time of termination, and usually represents the net present
value, at current rates of interest, of the remaining obligations to exchange
payments under the terms of the contract. Any gains or losses upon the early
termination of the interest rate swap contracts are deferred in other
comprehensive income and recognized in income over the remaining life of the
contract.
At June 30, 2001, Regis had interest rate swap contracts to pay fixed rates
of interest (ranging from 7.07 percent to 7.20 percent) and receive variable
rates of interest based on the three-month LIBOR rate (ranging from 3.93 percent
to 6.80 percent during fiscal 2001) on $25 million and $30 million notional
amount of indebtedness through April 2003 and June 2003, respectively. During
the current year no hedge ineffectiveness occurred. Total net loss recorded in
other comprehensive income was $1.6 million at June 30, 2001.
6. COMMITMENTS AND CONTINGENCIES:
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 ten 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. All additional lease costs are
passed through to the franchisees.
Total rent expense, net of sublease rental obligations which are passed
through to the franchisees, includes the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Minimum rent $124,261 $105,876 $ 82,578
Percentage rent based on sales 14,270 14,996 22,513
Real estate taxes and other expenses 38,416 31,813 26,852
-------- -------- --------
$176,947 $152,685 $131,943
======== ======== ========
</TABLE>
FUTURE MINIMUM LEASE PAYMENTS:
As of June 30, 2001, future minimum lease payments (excluding percentage
rents based on sales) due under existing non-cancellable operating leases with
remaining terms of greater than one year are as follows:
<TABLE>
<CAPTION>
Corporate Reimbursable
Fiscal Year (Dollars in thousands) Leases Franchisee Leases
----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
2002 $127,338 $ 29,511
2003 112,524 25,313
2004 93,835 20,602
2005 73,060 14,192
2006 53,772 7,182
Thereafter 113,304 6,343
-------- --------
Total minimum lease payments $573,833 $103,143
======== ========
</TABLE>
The Company entered into a five year operating lease agreement in June 2000
related to its distribution center and various equipment in Salt Lake City,
Utah. The future minimum lease payments, which are included in the table above,
are estimated to be $3.2 million based on the cost of the distribution center
and the related equipment. Under the agreement, the Company is obligated to pay
the difference between the maximum amount of the residual value guarantee and
the fair market value at the termination of the agreement. The Company expects
the fair market value of the distribution center and related equipment, subject
to the purchase or remarket options, to substantially reduce or eliminate the
Company's potential liability under the residual value guarantee. Thus, the
impact of the guarantee is not included in the table of future minimum lease
payments.
32
<PAGE> 17
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, and continues to
enter into transactions to acquire established hair care salons and businesses.
CONTINGENCIES:
The Company is a defendant in various lawsuits and claims arising out of
the normal course of business. In the opinion of company counsel, uncertainty
exists with respect to the outcome of this litigation; therefore, the effect on
future financial results is not subject to reasonable estimation. While ultimate
liabilities resulting from such lawsuits and claims may be significant to
results of operations in the period recognized, management does not anticipate
they will have a material adverse effect on the consolidated financial position
or liquidity of the Company.
7. INCOME TAXES:
The provision for income taxes consists of:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $26,845 $27,003 $20,661
State 4,427 5,173 3,190
International 2,228 2,407 323
Deferred:
United States 2,291 (885) (393)
International (118) (672)
------- ------- -------
$35,791 $33,580 $23,109
======= ======= =======
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000
------- -------
<S> <C> <C>
Net current deferred tax asset:
Insurance $ 4,638 $ 3,641
Payroll and payroll related costs 2,538 3,478
Nonrecurring items 788 1,726
Other, net 2,123 1,315
------- -------
$10,087 $10,160
======= =======
Net noncurrent deferred tax (liability) asset:
Depreciation and amortization $(8,996) $(5,608)
Deferred rent 2,986 2,555
Payroll and payroll related costs 4,398 3,690
Other, net (359) (390)
------- -------
$(1,971) $ 247
======= =======
</TABLE>
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States $83,484 $79,041 $58,567
International 5,395 4,193 (3,253)
------- ------- -------
$88,879 $83,234 $55,314
======= ======= =======
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory rate to earnings before
income taxes, as a result of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 3.3 3.4 3.4
Nondeductible merger and
transaction costs 0.8 2.5
Other, primarily meals and
entertainment, and nondeductible
goodwill 2.0 1.1 0.9
------- ------- -------
40.3% 40.3% 41.8%
======= ======= =======
</TABLE>
33
<PAGE> 18
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. 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.
The ESOP is a noncontributory defined contribution plan and contributions to the
ESOP are at the discretion of the Company. Such contributions are invested in
common stock 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.
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 equal to 15 percent of the purchase price of the stock to
be purchased on the open market and pays all expenses of the SPP and its
administration, not to exceed an aggregate contribution of $4.0 million. At June
30, 2001, cumulative contributions to the SPP totaled $2.5 million.
FRANCHISE STOCK PURCHASE PLAN:
The Company has a franchise stock purchase plan (FSPP) available to
substantially all franchisee employees. Under the terms of the plan, eligible
franchisees and their employees may purchase the Company's common stock. The
Company contributes an amount equal to five percent of the purchase price of the
stock to be purchased on the open market and pays all expenses of the plan and
its administration, not to exceed an aggregate contribution of $.7 million. At
June 30, 2001, cumulative contributions to the FSPP totaled $43,000.
Company contributions to the aforementioned plans, excluding amounts paid
for expenses and administration of the plans, for the three years in the period
ended June 30, 2001, which are charged to earnings in the period contributed,
included the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
ESOP $1,900 $1,358 $1,303
ESAP 600 242 248
SPP 455 459 341
FSPP 6 7
</TABLE>
REGIS 401(k) PLAN:
Effective July 1999, the Company established a qualified 401(k) defined
contribution plan covering substantially all field supervisors, warehouse and
corporate office employees. Currently, the Company does not contribute to the
401(k) plan.
STOCK OPTIONS:
On October 24, 2000, the shareholders of Regis Corporation adopted the
Regis Corporation 2000 Stock Option Plan (2000 Plan), which allows the Company
to grant both incentive and nonqualified stock options and replaces the
Company's 1991 Stock Option Plan (1991 Plan).
A total of 3,500,000 shares of common stock may be granted under the 2000
Plan to employees of the Company for a term not to exceed ten years from the
date of grant. The term may not exceed five years for incentive stock options
granted to employees of the Company possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
subsidiary of the Company. Options may also be granted to the Company's outside
directors for a term not to exceed ten years from the grant date.
The 2000 Plan contains restrictions on transferability, time of exercise,
exercise price and on disposition of any shares acquired through exercise of the
options. Stock options are granted at not less than fair market value on the
date of grant. The Board of Directors determines the 2000 Plan participants and
establishes the terms and conditions of each option.
The Company also has stock options granted under the 1991 Plan. The terms
and conditions of the 1991 Plan are similar to the 2000 Plan. A total of
5,200,000 shares of common stock were available for grant under the 1991 Plan
and, as of June 30, 2001, all available shares have been granted.
In fiscal 2001, in addition to the regular options granted, the Board of
Directors approved a special grant of 2,263,000 options for shares of common
stock from the 2000 Plan. These options begin vesting in year three at a rate of
one-third per year for three years and expire ten years from the date of grant.
In addition to the regular options granted during fiscal 2000, a special
grant of 1,700,000 shares of common stock was approved by the Board of
Directors. These options are fully vested five years from the date of grant and
expire after ten years.
In May 1999, in connection with The Barbers merger (Note 3) and effective
termination of The Barbers stock option plans, outstanding stock options and
warrants of The Barbers were converted to options to purchase approximately
370,000 shares of Regis common stock on the basis of the exchange ratio
established to effect the merger.
Common shares available for grant under the 2000 Plan as of June 30, 2001
were 952,750. Common shares available for grant under the 1991 Plan as of June
30, 2000 and 1999 were 58,695 and 611,095, respectively.
34
<PAGE> 19
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock options outstanding and weighted average exercise prices are as
follows:
<TABLE>
<CAPTION>
Options Outstanding
----------------------
Weighted
Average
Exercise
Shares Price
--------- --------
<S> <C> <C>
Balance, June 30, 1998 2,814,272 $ 9.97
Granted 28,500 19.53
Cancelled (37,275) 14.30
Exercised (309,929) 11.29
--------- ------
Balance, June 30, 1999 2,495,568 $ 9.88
Granted 2,492,750 17.25
Cancelled (57,821) 16.87
Exercised (329,000) 4.61
--------- ------
Balance, June 30, 2000 4,601,497 $14.15
Granted 2,583,250 15.56
Cancelled (64,666) 15.54
Exercised (298,362) 6.68
--------- ------
Balance, June 30, 2001 6,821,719 $14.97
========= ======
</TABLE>
At June 30, 2001, the weighted average exercise prices and remaining
contractual lives of stock options are as follows:
<TABLE>
<CAPTION>
Range of exercise prices $2.56-$15.00 $15.13 $15.50-$16.50 $17.00-$22.92 Total
- ------------------------ ------------ ------ ------------- ------------- -----
<S> <C> <C> <C> <C> <C>
Total options outstanding 1,323,313 2,263,000 1,898,450 1,336,956 6,821,719
Weighted average exercise price $8.54 $15.13 $16.40 $19.02 $14.97
Weighted average remaining contractual life
in years 4.31 9.03 8.33 7.88 7.69
Options exercisable 1,022,910 -- 156,750 435,879 1,615,539
Weighted average price of exercisable options $7.79 -- $15.50 $18.36 $11.39
</TABLE>
The Company measures compensation cost for its incentive stock plans using
the intrinsic value-based method of accounting. 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 share would have been as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts) 2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Net income:
As reported $53,088 $49,654 $32,205
Pro forma $49,178 $47,371 $31,072
Net income per diluted share:
As reported $ 1.26 $ 1.19 $ .78
Pro forma $ 1.17 $ 1.14 $ .75
</TABLE>
The pro forma information above includes stock options granted from 1996
through 2001. 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 2001, 2000 and
1999 was $8.43, $7.86 and $12.23, respectively, 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 weighted average assumptions:
<TABLE>
<CAPTION>
2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate 5.80% 6.33% 5.60%
Expected life in years 6.55 6.00 6.00
Expected volatility 41.08% 39.34% 37.35%
Expected dividend yield .83% .64% .42%
</TABLE>
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 $1.0 million, $.9 million and $1.9 million in 2001, 2000
and 1999, respectively.
The Company has a survivor benefit plan for the Chairman of the Board of
Director's (the Chairman) spouse, payable upon his death, at a rate of $300,000
annually, adjusted for inflation, for the remaining life of his spouse. The
Company has funded its future obligations under this plan through company-owned
life insurance policies on the Chairman.
35
<PAGE> 20
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 $.6 million, 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. The Company has also agreed to pay the Chief Executive Officer an
amount equal to 60 percent of his salary, adjusted for inflation, for the
remainder of his life. Compensation associated with these agreements are charged
to expense as services are provided.
The Company has a survivor benefit plan for the Chief Executive Officer's
spouse, payable upon his death, at a rate of one half of his deferred
compensation benefit, adjusted for inflation, for the remaining life of his
spouse. The Company has funded its future obligations under this plan through
company-owned life insurance policies on the Chief Executive Officer.
9. SHAREHOLDERS' EQUITY:
In addition to the shareholders' equity activity described in Note 8, the
following activity has taken place:
STOCK SPLIT:
In February 1999, the Board of Directors approved a three-for-two stock
split of its common stock in the form of a 50 percent stock dividend distributed
on March 1, 1999 to shareholders of record on February 15, 1999. All share and
per share amounts reflect the stock split.
AUTHORIZED SHARES AND DESIGNATION OF PREFERRED CLASS:
The Company has 100 million shares of capital stock authorized, par value
$.05, of which all outstanding shares, and shares available under the Stock
Option Plans, have been designated as common.
In addition, 250,000 shares of authorized capital stock have been
designated as Series A Junior Participating Preferred Stock (preferred stock).
None of the preferred stock has been issued.
SHAREHOLDERS' RIGHTS PLAN:
The Company has a shareholders' rights plan pursuant to which one preferred
share purchase right is held by shareholders for 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 an 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.
STOCK REPURCHASE PLAN:
In May 2000, the Company's Board of Directors approved a stock repurchase
program under which up to $50 million can be expended for the repurchase of the
Company's common stock. The timing and amounts of any repurchases will depend on
many factors, including the market price of the common stock and overall market
conditions. As of June 30, 2000, 115,000 shares have been repurchased for $1.4
million. No shares were repurchased during the fiscal year ended June 30, 2001.
All repurchased shares are immediately retired. This repurchase program has no
stated expiration date.
10. 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 standard requires that public companies report financial and
descriptive information about their reportable operating segments, generally
based on the way that management 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 6,317 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 364 salons
operating in malls, leading department stores, mass merchants and high-street
locations.
The accounting policies of the reportable segments are the same as those
described in Note 1 to 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.
36
<PAGE> 21
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Summarized financial information concerning the Company's reportable
segments is shown in the following table as of June 30, 2001, 2000 and 1999:
<TABLE>
<CAPTION>
(Dollars in thousands) 2001 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Company-owned revenues:
Domestic $1,154,378 $ 984,161 $ 826,169
International 100,952 108,568 118,000
---------- ---------- ----------
Total $1,255,330 $1,092,729 $ 944,169
========== ========== ==========
Salon contribution:
Domestic $ 209,117 $ 182,698 $ 151,643
International 13,102 16,688 17,126
---------- ---------- ----------
Total $ 222,219 $ 199,386 $ 168,769
========== ========== ==========
Depreciation and amortization:
Domestic $ 39,947 $ 33,735 $ 27,696
International 2,773 3,097 3,672
Corporate 22,065 16,993 12,983
---------- ---------- ----------
Total $ 64,785 $ 53,825 $ 44,351
========== ========== ==========
Total assets:
Domestic $ 537,228 $ 456,316 $ 372,956
International 13,048 14,470 26,208
Corporate 186,229 157,569 101,418
---------- ---------- ----------
Total $ 736,505 $ 628,355 $ 500,582
========== ========== ==========
Long-lived assets:
Domestic $ 474,181 $ 402,631 $ 307,439
International 17,197 17,538 18,891
Corporate 55,756 49,087 43,578
---------- ---------- ----------
Total $ 547,134 $ 469,256 $ 369,908
========== ========== ==========
Capital expenditures:
Domestic $ 62,072 $ 48,944 $ 50,445
International 3,914 4,015 4,326
Corporate 14,238 27,973 12,478
---------- ---------- ----------
Total $ 80,224 $ 80,932 $ 67,249
========== ========== ==========
Purchases of salon assets:
Domestic $ 45,137 $ 66,798 $ 50,866
International 28 151
---------- ---------- ----------
Total $ 45,165 $ 66,798 $ 51,017
========== ========== ==========
</TABLE>
In addition to the table above, the Company recorded domestic franchise
revenues of $56.3 million, $50.3 million and $47.7 million during fiscal 2001,
2000 and 1999, respectively, as part of consolidated revenues. The expenses
associated with the Company's franchising activities are included in selling,
general and administrative and other operating expenses within the Consolidated
Statement of Operations, as described in Note 1 to the Consolidated Financial
Statements.
Corporate assets detailed above are primarily comprised of fixed assets
associated with the Company's headquarters and distribution centers, corporate
cash, inventories located at corporate distribution centers, deferred income
taxes, franchise receivables and other corporate assets.
37
<PAGE> 22
Regis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. NONRECURRING ITEMS:
Nonrecurring items included in operating income consist of gains or losses
on assets and business dispositions and other items of a nonrecurring nature.
The following table summarizes nonrecurring items recorded by the Company:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999
------ -------
<S> <C> <C>
Merger transaction costs (Note 3) $3,145 $ 2,066
Change in estimate (Note 2) (548)
Severance 343
Restructuring charge--International 5,616
Restructuring charge--Mergers 4,356
Year 2000 remediation 4,095
------ -------
$2,940 $16,133
====== =======
</TABLE>
In fiscal 2000, the Company evaluated the outstanding merger and
restructuring accruals and determined that an adjustment of $.5 million to the
Restructuring charge--Mergers was appropriate based on remaining expected
expenditures.
During fiscal 1999, the Company's Board of Directors approved a
restructuring plan associated with its International operations headquartered in
the United Kingdom. This plan included relocating the headquarters out of London
to Coventry, England with the majority of the accounting and information
technology functions being transferred to the Company's corporate headquarters
in Minneapolis, Minnesota and divestiture of certain markets and salons which
have been generating negative cash flows. The Company incurred a restructuring
charge of $5.6 million associated with the plan in fiscal 1999.
Approximately $4.4 million of the nonrecurring items in 1999 are non-cash
in nature.
38
<PAGE> 23
Regis Corporation
QUARTERLY FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
(Dollars in thousands, except per share amounts) September 30 December 31 March 31 June 30 Year Ended
<S> <C> <C> <C> <C> <C> <C>
2001
REVENUES $310,754 $324,049 $330,910 $345,908 $1,311,621
OPERATING INCOME 25,761 25,435 26,375 31,710 109,281
NET INCOME 12,715 12,087 12,533 15,753 53,088
NET INCOME PER DILUTED SHARE(a) .31 .29 .30 .37 1.26
DIVIDENDS DECLARED PER SHARE .03 .03 .03 .03 .12
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
(Dollars in thousands, except per share amounts) September 30 December 31 March 31 June 30 Year Ended
<S> <C> <C> <C> <C> <C> <C>
2000
Revenues $266,108 $285,855 $288,062 $302,968 $1,142,993
Operating income 23,716 22,902 22,782 27,816 97,216
Net income 12,638 10,807 11,617 14,592 49,654
Net income per diluted share(b) .30 .26 .28 .35 1.19
Dividends declared per share(c) .03 .03 .03 .03 .12
</TABLE>
(a) The summation of quarterly net income per share does not equate to the
calculation for the full fiscal year as quarterly calculations are
performed on a discrete basis.
(b) For the quarter ended December 31, 1999 and for the year ended June 30,
2000, certain nonrecurring items were incurred (Note 11) that reduced
reported net income per diluted share by $.07 for both periods.
(c) In addition, Supercuts UK declared dividends of $.4 million during fiscal
year 2000.
STOCK DATA
June 30, 2001
Regis common stock is listed and traded on the Nasdaq National Market3
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, 2001, Regis shares were owned by approximately 14,300
shareholders. The common stock price was $20.24 per share on August 17, 2001.
<TABLE>
<CAPTION>
2001 2000
---------------------- ----------------------
HIGH LOW High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
1st Quarter $15.72 $12.41 $21.19 $17.38
2nd Quarter 16.32 13.14 22.94 17.00
3rd Quarter 15.73 13.20 18.63 13.69
4th Quarter 20.99 13.92 17.81 10.81
</TABLE>
39
<PAGE> 24
Regis Corporation
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
Regis Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, changes in shareholders' equity and
comprehensive income and cash flows present fairly, in all material respects,
the consolidated financial position of Regis Corporation at June 30, 2001 and
2000, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended June 30, 2001, in conformity with
accounting principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 28, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>c64912ex23.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP
<TEXT>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos.333-51094, 333-28511, 333-49165, 333-89279,
333-90809, 333-31874, 333-57092 and 333-78793), and Form S-8 (Nos. 33-44867 and
33-89882) of Regis Corporation of our report dated August 28, 2001, relating to
the consolidated financial statements, which appears in the Annual Report to
Shareholders, which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated August 28, 2001,
relating to the financial statement schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 12, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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