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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1999
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
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Regis Corporation
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(Exact name of registrant as specified in its charter)
Minnesota 41-0749934
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State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
7201 Metro Boulevard, Edina, Minnesota 55439
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 947-7777
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $.05 per share
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(Title of class)
1
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. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
registrant (based upon closing price of $19.875 per share as of September 3,
1999, as quoted on the NASDAQ), was $769,245,420.
The number of outstanding shares of the registrant's common stock, par
value $.05 per share, as of September 3, 1999, was 38,704,172.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement dated September 15, 1999 and
Annual Report to Shareholders for the year ended June 30, 1999, are incorporated
by reference into Parts I, II and III.
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PART I
ITEM 1. BUSINESS
BACKGROUND
Regis Corporation (the Company), based in Minneapolis, Minnesota, is the largest
owner, operator, franchisor, and consolidator of hair and retail product salons
in the world. The Regis worldwide operations include 4,954 hairstyling salons
at June 30, 1999 operating in two segments: domestic and international. The
Company's domestic operations include 4,650 salons operated and franchised
primarily under the brand names of Regis Salons, MasterCuts, Trade Secret,
SmartStyle, Supercuts and Cost Cutters. The Company's international operations
include 304 salons located in the United Kingdom (U.K.). The Company has more
than 31,000 employees worldwide.
INDUSTRY OVERVIEW
Management estimates that annual revenues of the haircare industry are $45
billion in the United States and $90 billion worldwide. The industry is highly
fragmented with the vast majority of haircare 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 haircare services, such as coloring.
BUSINESS STRATEGY
The Company's goal is to provide high quality haircare services and products to
customers in different market groups through physically attractive salons
located in high profile 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
haircare 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. During fiscal 1999, the Company and its franchisees provided
services to approximately 98 million customers worldwide.
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MALL-BASED LOCATIONS. As the largest national mall-based operator in the hair
salon industry, the Company has the ability to obtain desirable locations in
high-profile, regional malls anchored by major department stores. 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. The Company's locations, which are aesthetically appealing and designed
to attract customers from mall shoppers, provide a steady source of new
business.
STRIP-CENTER-BASED LOCATIONS. The mergers with Supercuts, Inc. (Supercuts) in
October 1996 and The Barbers, Hairstyling for Men & Women, Inc. (The Barbers) in
May 1999 position the Company in the rapidly growing strip shopping center
segment of the retail haircare market in the United States. In the past three
years, the Company has grown this division to be a significant part of its
operations with 2,282 salons as of June 30, 1999. 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 seeks to locate its salons in so-called "power strips", anchored by the
number one or two grocery chain in the specific market or alternatively, a major
mass merchant. In addition, the Company has added 183 company-owned strip
center salons, operating primarily as Hair Masters or Style America Salons,
through acquisitions to its strip center salon base.
MULTIPLE SALON CONCEPTS. Regis operates salons primarily under six concepts:
Regis Salons, MasterCuts, Trade Secret, Wal-Mart/SmartStyle, Strip Center Salons
(primarily Supercuts and Cost Cutters) and International. Regis' various salon
concepts in the United States address the major segments of the salon market.
The Company's regional mall salon concepts provide the Company with the ability
to have multiple locations within a single mall. Regis Salons appeals primarily
to women and are positioned at the moderate-to-upscale end of the salon market.
MasterCuts appeal to the more value-conscious customer with promotional or
discount prices and have a higher percentage of men and children as customers.
Trade Secret provides hairstyling service and a broad selection of quality
haircare and beauty products sold only through professional salons. Because the
square footage for each of these concepts is approximately the same, the Company
has the ability to determine which salon concept is best suited to a new
location and change the concept of existing salons to meet customer preference
or demographic changes in the salon's market.
In addition, the Company also operates salons outside the mall, as previously
mentioned. The company's Strip Center Salons division includes salons operated
or franchised under the Supercuts, Cost Cutters, City Looks and We Care Hair,
Hair Masters and Style America brand names. Supercuts, the Company's most
recognized brand, targets the adult male looking for consistently high quality,
affordable hair cuts in a convenient, no appointment setting. Through its fiscal
1999 merger with The Barbers, the Company added 783 franchised strip center
salons operating under within three concepts: Cost Cutters, City Looks and We
Care Hair. Cost Cutters salons provide high quality, value-priced hair care
services for men, women and children. City Looks salons are higher-end, full
service concepts based in upper-end strip centers and regional
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centers. We Care Hair Salons offer full-service hair, nails, skincare and
tanning in strip centers at affordable prices. The Company has also added
183 other company-owned strip center salons through its acquisition strategy
in the past two years, which primarily operate under the Hair Masters and
Style America brands. Both concepts are full-service, however, Style America
caters to time-pressed, value-orientated families, while Hair Masters offers
moderately-priced services to a predominately female demographic.
SmartStyle Family Hair Salons located in Wal-Mart stores and supercenters offer
promotionally priced, family-oriented hair care. In fiscal 1999, Regis became
the primary provider of Wal-Mart salon services as a result of the merger with
The Barbers, adding 199 (158 franchised) Cost Cutter salons located in Wal-Mart
stores and supercenters. As of June 30, 1999, the Company operated or franchised
a total 544 salons in Wal-Marts. This market position, coupled with Wal-Mart's
renowned expansion provides an excellent opportunity for the Company.
The Company's International salons are located in department stores, hotels and
stand-alone locations and are primarily focused on the moderate-to-upscale
market.
EXPANSION. The Company has grown through increased revenues from existing
salons, constructing additional salons, and mergers and acquisitions. Since
1994, the Company has added 3,475 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 new salon
concepts, Trade Secret and SmartStyle, merged with Supercuts and The Barbers,
and expanded its Regis Salons and MasterCuts concepts. In addition to
continuing its salon acquisition strategy, the Company expects to construct
about 360 new company-owned salons and complete approximately 125 major
remodeling and conversion projects during fiscal 2000.
The Company intends to continue to focus future growth of salons in strip
shopping centers across the United States as it adds additional company-owned
salons and assists current and new franchisees in their expansion and market
development. The Company believes the growth opportunities in the strip
shopping center segment of the retail haircare market in the United States are
vast, and will complement the Company's continuing growth of its mall-based
concepts. The Company does not intend to refocus other concepts, located in
enclosed shopping malls throughout the United States, into the strip shopping
center segment of the retail haircare market, nor does it intend to refocus its
strip center salons into the enclosed shopping mall segment of the retail
haircare market in the United States. In addition, the company plans to
continue pursuing expansion opportunities through adding company-owned and
franchised salons in Wal-Mart stores and supercenters.
HIGH QUALITY HAIRCARE PRODUCTS. Through Trade Secret and the Company's other
salons, Regis sells nationally-recognized haircare products such as
Matrix-Registered Trademark-, Paul Mitchell-Registered Trademark-,
Sebastian-Registered Trademark-, Redken-Registered Trademark-, and
Nexxus-Registered Trademark- and a complete line of products sold under the
Regis label, which is one of the Company's best selling product lines. The
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 haircare products as well
as services such
5
as color treatments and manicures to their customers. Sales of haircare
products increased 16.7 percent in fiscal 1999 to $263.7 million and
represented 28.4 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 haircare 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 haircare 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.
DOMESTIC SALONS:
REGIS SALONS. Regis Salons are full-service salons providing complete haircare
and beauty services aimed at moderate to upscale, fashion-conscious consumers.
The customer mix at Regis Salons is approximately 70 percent women and 30
percent men. These salons offer a full range of custom hairstyling, cutting,
coloring, permanent wave and manicuring as well as haircare products. The
average sale at Regis Salons is approximately $23. 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, 1999, the Company operated 905 Regis Salons in shopping
malls in North America. Revenues from the Regis Salons were $356 million, or 37
percent of the Company's total revenues, in fiscal 1999. The Company expects to
construct about 50 new Regis Salons in fiscal 2000.
MASTERCUTS FAMILY HAIRCUTTERS. MasterCuts Family Haircutters salons serve a
broader customer base than Regis Salons and respond to competitive pressures for
lower cost haircare services. MasterCuts salons emphasize quality haircutting,
lower prices and time-saving services for the entire family. The customer mix
at MasterCuts salons contains a greater percentage of men and children than at
Regis Salons 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 $12.
The MasterCuts salons place more emphasis on discount or promotional pricing for
the services being offered in order to compete more effectively with the chains
of salons, primarily franchises, now offering such services at discount prices.
In certain markets, the Company has been able to improve a salon's performance
by converting it to a MasterCuts salon. At June 30, 1999, the Company operated
460 MasterCuts salons in North
6
America. Revenues from MasterCuts salons accounted for $123 million, or 13
percent of the Company's total revenues, in fiscal 1999. During fiscal 2000,
the Company plans to construct approximately 50 new MasterCuts salons.
TRADE SECRET. Trade Secret salons emphasize haircare and beauty product sales
in a retail setting while providing high-quality haircare services. Trade
Secret salons are designed to display and attract sales of haircare and beauty
products. Trade Secret salons offer the same products as the Regis Salons and
MasterCuts salons, but also have additional haircare items. The average sale at
Trade Secret salons is approximately $16. At June 30, 1999, the number of Trade
Secret salons totaled 459 in North America, including 27 franchised locations.
Revenues and franchise income from company-owned Trade Secret salons and
franchising activity during fiscal 1999 was $137 million and $2 million,
respectively, or 14 percent of the Company's total revenues. The Company
anticipates constructing approximately 45 new Trade Secret salons in fiscal
2000.
WAL-MART. The Company expanded into the mass merchant retail arena in May
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
cutting, 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 544 company-owned and franchised salons within Wal-Mart stores and
supercenters at June 30, 1999. Revenue from company-owned Wal-Mart salons
totaled $64 million, or 6 percent of the Company's total revenue. The
Company anticipates constructing about 120 new company-owned SmartStyle
salons and franchise 40 new Cost Cutters in Wal-Mart stores and supercenters
in fiscal 2000.
STRIP CENTER SALONS. The Company's Strip Center Salon division is comprised of
1,615 franchised and 667 company-owned salons operating under the following
concepts:
SUPERCUTS. The Supercuts concept provides consistent high quality
haircare services to its customers at convenient times and locations and at
a reasonable price. The services offered by Supercuts salons are limited
and standardized. The salons are designed for ease of operation and the
demand for basic haircare is believed to be recession resistant and
non-seasonal. This concept appeals to men, women and children, although
male customers account for over 75 percent of total haircuts. Consumer
research indicates that males get their hair cut slightly more often (8-9
times annually) than females (7-8 times annually) and their haircuts
generally take less time. The Supercuts concept targets a male audience.
At June 30, 1999, the Company operated 1,316 Supercuts in North America,
including 825 franchised locations. Revenues and franchise income from
company-owned Supercuts and franchising activity during fiscal 1999 was
$116 million and $24 million, respectively, or 14 percent of the Company's
total revenues. The Company plans to construct 65 new company-owned and 110
franchised Supercuts stores in fiscal 2000.
7
COST CUTTERS FAMILY HAIR CARE/CITY LOOKS SALONS/WE CARE HAIR. This group
of franchised salons were 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. In addition, Cost Cutters salons sell a complete line of
professional hair care products. City Looks Salons are more upscale,
full-service concepts located in regional centers and strip centers. We
Care Hair Salons offer full-service hair, nails, skin care and tanning in
strip centers at affordable prices. At June 30, 1999, the Company
franchised 783 salons generating franchise income during fiscal 1999 of $21
million, or 2 percent of the Company's total revenues. The Company plans
to add 40 franchise salons to the system in fiscal 2000.
COMPANY-OWNED STRIP CENTER SALONS. The Company-owned Strip Center Salons
is made up of successful salon groups acquired over the past two years.
These salons have typically been or will be converted to either the Hair
Masters or Style America brand names. Both concepts are full-service,
however Style America caters to time-pressed, value-orientated families,
while Hair Masters offers moderately-priced services to a predominately
female demographic. At June 30, 1999, the Company operated 183 salons with
fiscal 1999 revenues of $30 million. The Company anticipates adding 20 new
salons to this group in fiscal 2000.
INTERNATIONAL SALONS:
The Company operated 304 hair care salons in the United Kingdom at June 30,
1999. Canadian salons operate primarily under the Regis Salons, MasterCuts,
Supercuts and Trade Secret brand names and revenues are included within the
respective operating divisions. Salons in the U.K. operate in malls, leading
department stores, mass merchants, under license arrangements. During fiscal
1999, the International division divested its overseas salons outside the U.K.
in order to focus on the U.K., which offers the Company stronger growth
potential. Regis is the largest salon operator in the U.K. Revenues from the
International salon operations were $101 million, or 10 percent of the Company's
total revenues, in fiscal 1999. The Company expects to continue to modestly
increase its International salon base in fiscal 2000.
NEW SALON DEVELOPMENT
The table on the following pages sets forth the number of Company salons 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.
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SALON LOCATION SUMMARY
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
REGIS
Open at beginning of period 825 811 821 835 844
Salons constructed 17 31 28 33 41
Acquired 9 9 18 15 63
Less: Relocations 11 11 10 15 20
----- ----- ----- ----- -----
Net salon openings 15 29 36 33
Conversions (10) (4) (4)
Salons closed or sold (19) (15) (18) (24) (23)
----- ----- ----- ----- -----
Open at end of period 811 821 835 844 905
----- ----- ----- ----- -----
----- ----- ----- ----- -----
STRIP CENTERS (PRIMARILY SUPERCUTS AND COST CUTTERS)
Company-Owned:
Open at beginning of period 332 470 516 423 500
Salons constructed 107 47 2 7 60
Acquired 16 1 47 143
Less: Relocations 3
----- ----- ----- ----- -----
Net salon openings 123 48 6 54 200
Conversions (1) 21 9 (61) 38 (25)
Salon closed or sold (6) (13) (38) (15) (8)
----- ----- ----- ----- -----
Open at end of period 470 516 423 500 667
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Franchised Salons:
Open at beginning of period 1,234 1,269 1,328 1,566 1,579
Salons added 64 93 91 96 106
Acquired 3 104 30
Less: Relocations 3 4
----- ----- ----- ----- -----
Net salon openings 64 96 195 123 102
Conversions (1) (21) (9) 61 (38) (2)
Salon closed or sold (8) (28) (18) (72) (64)
----- ----- ----- ----- -----
Open at end of period 1,269 1,328 1,566 1,579 1,615
----- ----- ----- ----- -----
----- ----- ----- ----- -----
MASTERCUTS
Open at beginning of period 257 283 327 362 412
Salons constructed 21 33 36 50 47
Acquired 1 12 2 8 13
Less: Relocations 2 3 3 4 7
----- ----- ----- ----- -----
Net salon openings 20 42 35 54
Conversions 10 3 3
Salon closed or sold (4) (1) (3) (4) (5)
----- ----- ----- ----- -----
Open at end of period 283 327 362 412 460
----- ----- ----- ----- -----
----- ----- ----- ----- -----
9
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
TRADE SECRET
Company-Owned:
Open at beginning of period 106 152 219 302 340
Salons constructed 28 40 56 32 44
Acquired 19 11 11 14 64
Less: Relocations 1 4 4 4 9
----- ----- ----- ----- -----
Net salon openings 46 47 63 42
Conversions (1) 2 20 24 2 (7)
Salon closed or sold (2) (4) (6)
----- ----- ----- ----- -----
Open at end of period 152 219 302 340 432
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Franchised Salons:
Open at beginning of period 64 68 55 38 34
Salons added 7 8 6
Acquired
Less: Relocations 1
----- ----- ----- ----- -----
Net salon openings 77 6
Conversions (1) (2) (19) (23) (2) (7)
Salon closed or sold (1) (1) (2)
----- ----- ----- ----- -----
Open at end of period 68 55 38 34 27
----- ----- ----- ----- -----
----- ----- ----- ----- -----
WAL-MART/SMARTSTYLE/COST CUTTERS
Company-owned:
Open at beginning of period 0 3 168 198 293
Salons constructed 3 10 30 48 96
Acquired 154 47 0
Less: Relocations salons closed or sold 3
----- ----- ----- ----- -----
Net salon openings 3 164 30 95 93
Open at end of period 3 168 198 293 386
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Franchised Salons:
Open at beginning of period 31 81 117 136
Salons added 31 50 36 19 22
----- ----- ----- ----- -----
Net salon openings 31 81 117 136 158
----- ----- ----- ----- -----
Open at end of period 31 81 117 136 158
----- ----- ----- ----- -----
----- ----- ----- ----- -----
INTERNATIONAL (2)
Open at beginning of period 251 244 408 423 292
Salons constructed 9 9 26 17 12
Acquired 2 178 3 1
Less: Relocations 1
----- ----- ----- ----- -----
Net salon openings 11 186 29 17
----- ----- ----- ----- -----
Salons closed or sold (18) (22) (14) (48) (101)
----- ----- ----- ----- -----
Open at end of period 244 408 423 392 304
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Grand total, system-wide 3,331 3,923 4,264 4,530 4,954
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Major remodeling & conversions 46 65 72 97 95
----- ----- ----- ----- -----
----- ----- ----- ----- -----
(1) Represents primarily the acquisition of franchise locations.
(2) Canadian salons are included in the Regis, MasterCuts and Trade Secret
divisions and not included in the International salon totals.
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Of the 282 new company-owned salons constructed in fiscal 1999, 41 were Regis
Salons, 60 were Strip Center Salon (primarily Supercuts), 47 were MasterCuts,
44 were Trade Secret, 78 were SmartStyle and 12 were International salons.
In addition, 18 Cost Cutter Salon were constructed by The Barbers prior to
the merger in fiscal 1999. The Company intends to construct approximately
360 new company-owned salons during fiscal 2000. 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.
HAIRCARE PRODUCTS
In recent years, the Company has placed emphasis on the sales of
higher-margin haircare 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 28.4
percent in fiscal 1999. 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
haircare products offered are primarily shampoos, hair conditioners,
fixatives and hair sprays. Regis, MasterCuts, Cost Cutters, and Trade Secret
private label products, as well as lines of salon branded products are sold
only through licensed beauty salons, including Matrix-Registered Trademark-,
Paul Mitchell-Registered Trademark-, Redken-Registered Trademark-,
Sebastian-Registered Trademark-, and Nexxus-Registered Trademark-. The Regis
line continues to be one of the Company's best selling product lines. 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
The Company is the largest shopping mall tenant which operates haircare
salons in the United States and has attained national tenant status which
makes the Company an attractive tenant for shopping mall owners and
developers. In the United States, there are approximately 1,800 enclosed
malls which meet the Company's performance criteria with several new shopping
malls developed each year. At June 30, 1999, the Company's 1,824 United
States and Canadian mall-based salons were located in 1,164 shopping malls.
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 less than 50 percent.
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
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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 larger tenants are downsizing their leased areas to make better
use of costly space, thereby creating available floor space which can be
leased for other uses. Additionally, 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 locations.
In evaluating specific locations for Supercuts and Cost Cutter company-owned
and franchise stores, the Company seeks conveniently located, highly visible
strip shopping centers which allows customers adequate parking and quick and
easy store access. The Company believes strip shopping centers anchored by
the number one or two grocery chains in the specific market, or a major mass
merchant, provide a profitable customer flow. Strip center customers are
destination shoppers and, as a result, Supercuts and Cost Cutters is 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.
SUPERCUTS FRANCHISING PROGRAM
GENERAL
The Company provides its Supercuts 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. The
Company employs field staff personnel to assist franchisees in all aspects of
operations, training and supervision.
STANDARDS OF OPERATIONS
All Supercuts 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 Supercuts standards. In addition, to
further ensure such conformity, the Company enters into the lease for the
store site directly with the landlord, and subsequently subleases the site to
the franchisee. The sublease provides 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 5 of "Notes to the Consolidated Financial Statements" for further
information.
12
FRANCHISE TERMS
Supercuts franchisees pay monthly royalty fees based on service and product
revenues. In addition, franchisees pay an advertising fee of five percent of
service revenues, which is held in a separate account and administered by the
Company. In calendar 1998, franchisees contributed approximately $11.0
million to the advertising fund. All royalties and advertising fees are due
monthly.
The franchisees pay an initial franchise fee for each new franchise location.
Franchisees are responsible for the costs of leasehold improvement,
furniture, fixtures, equipment, supplies, inventory and certain other items,
including initial working capital. New franchisees also must pay an initial
fee for franchisee training.
The majority of existing 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. The Company has a comprehensive impact policy that resolves
potential conflicts among franchisees and/or the Company regarding proposed
salon site.
FRANCHISE SALES
Franchise expansion will continue to be a significant focus of the Company in
the future. Existing franchisees and new franchisees who open more than one
salon receive a reduction in initial franchise fees.
FRANCHISEE TRAINING
The Company provides new Supercuts 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. The mechanisms used for providing training include mail,
"800" number information lines and e-mail. In addition, the company provides
store manager and stylists with extensive training. For further description
of the Company's education and training programs, see the "Salon Training
Programs" section of this document.
COST CUTTER FRANCHISING PROGRAM
GENERAL
The Company provides, pursuant to each franchise agreement, initial and
ongoing operational training, advertising and marketing services, and
financial analysis services to all of its franchises. In addition, the
Company provides construction plans and sells all salon equipment necessary
to
13
equip a franchise store with retail consumer goods, such as beauty and hair
care products and appliances.
STANDARDS OF OPERATIONS
All Cost Cutters franchisees are required to conform to Company-established
operation 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 Cost Cutters standards.
FRANCHISE TERMS
Pursuant to their franchise agreement with the Company, each franchisee pays
an initial fee and ongoing royalty and advertising fees to the Company.
These fees vary depending upon the particular franchisee and the age of the
franchise location.
The franchisees pay an initial franchise fee for each new franchise location.
Franchisees are responsible for the costs of leasehold improvements,
furniture, fixtures, equipment, supplies, inventory and certain other items,
including initial working capital.
Cost Cutters franchisees pay monthly royalty fees based on service and
product revenues. In addition, franchisees pay an advertising fee of up to
six percent of gross revenues. All royalties and advertising fees are due
weekly from the franchises.
The majority of existing franchise agreements have a 15 year term with a 15
year option to reacquire. 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 encouraged through both existing and
new franchisees. Existing franchisees and new franchisees who open more than
one salon receive a reduction in initial franchise fees.
FRANCHISE TRAINING
The Company provides new Cost Cutters franchisees with training, focusing on
the various aspects of store management, including operations, personnel
management, stylists training, marketing fundamentals and financial controls.
Existing franchisees receive training, counseling and information from the
Company on a continuous basis. The mechanisms used for providing training
include mail and annual conventions.
14
MARKETS AND MARKETING
Approximately half of the Company's North American salons are situated in
"middle markets" with service area populations between 80,000 and 800,000.
Approximately one-fourth of the Company's salons are located in smaller
markets with a service area population below 80,000, and about one-fourth are
located in major metropolitan areas with populations in excess of 800,000.
The Company believes that the geographic dispersion of its salons throughout
the United States may diminish the impact of fluctuations in regional
business cycles.
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 and 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.
Supercuts maintains an Advertising Fund (the "Fund") that provides
comprehensive advertising and sales promotion support for the Supercuts
system. All Supercuts stores, company-owned and franchised, contribute five
percent of service revenues to the Fund, 80 percent of which is allocated to
the contributing market for media placement and local marketing activities
and 20 percent of which is allocated for national advertising campaigns and
system-wide activities. Each new franchised salon opened by a new franchisee
or by an existing franchisee in a new market, contributes $5,000 for grand
opening expenses. Additionally, stores may contribute supplemental funds to
pay for advertising costs above their total market contributions. The
Company's marketing department administers (at no additional cost to the
franchisees or the Fund) the development of system-wide advertising and
promotion, working with McCann-Erickson San Francisco, as agency of record.
This intensive advertising program creates significant consumer awareness, a
strong brand image and high loyalty. In calendar 1998, $16.2 million was
paid into the Fund, by both franchised and company-owned Supercuts stores.
Supercuts conducts regular, system-wide promotional programs for markets and
an initial grand opening program for new stores. Each includes broadcast,
print, direct mail and public relations campaigns.
Cost Cutters also maintains an advertising fund that supports advertising and
sales promotion for the Cost Cutter's system. Pursuant to the franchise
agreement, each franchisee, depending upon the particular franchise and the
age of the franchise agreement, pays up to six percent of their gross sales
into an advertising fund managed by the Company. The Company uses a portion
of the fund to provide market research, production materials, ad slicks,
brochures, radio and television commercials to all franchisees. The balance
of the fund is used for advertising and promotion development for
franchisees. In addition, each franchisee is also required to spend one
percent of its gross sales on local advertising.
In 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. In a
unique three-year agreement, the Company will support three postdoctoral
fellows known as Regis Scholars, to conduct research in the field of breast
cancer at the
15
Mayo Foundation, Rochester, MN. The goal of the Regis Scholars program is to
further the prevention, diagnosis and treatment of breast cancer, and to
recruit and train future leaders in the biology of the disease. The
Company's community involvement also includes a major sponsorship role for
the Susan G. Komen Breast Cancer Foundation 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. The Company
has reached nearly $2.5 million in fundraising for breast cancer charities.
SALON TRAINING PROGRAMS
The Company has an extensive hands-on training program for its salon managers
and hairstylist associates 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.
Supercuts provides extensive initial and ongoing training to stylists through
its system of field educators. Every stylist must attend a training course
at one of the Supercuts designated training centers at which they are taught
the Supercuts, haircutting technique and customer service principles.
Stylists may be recertified every six to nine months. For annual
re-certification each stylist must participate in a combination of store
seminars and studio visits.
STAFF RECRUITING AND RETENTION
Recruiting quality managers and hairstylists is essential to the
establishment and operation of successful salons. The Company's supervisory
team seeks to recruit entrepreneurial salon managers who display initiative
and imagination. The Company has been successful in recruiting capable
managers and stylists for a number of reasons. To employ and retain
qualified and productive employees, 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 in quality malls,
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
16
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 5000 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 $45,000 for a new Wal-Mart location to
$190,000 for a new Trade Secret location, which has higher inventory levels.
Of the total construction costs, approximately 70 percent of the cost is for
leasehold improvements and the balance is for salon fixtures, equipment, and
inventory.
The Company maintains its own construction and design department, and designs
and supervises the construction, furnishing and fixturing of all new
company-owned salons. The Company has developed considerable expertise in
designing upscale, 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. Haircare 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 Cutter salons are universally designed
to appeal to a broad range of customers, providing value-priced full services
in convenient locations. 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.
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 operations. All other salons, located in department stores and high
street locations 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 the United States. 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.
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.
17
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 haircare industry is highly competitive. In every area in which the
Company has a salon, there are competitors offering similar haircare 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.
18
Significant entry barriers exist for new chains due to the need to establish
brand identification, systems and infrastructure, recruitment of experienced
haircare management and adequate store staff, and leasing of quality sites.
The principal factors of competition in the affordable haircare 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 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
haircare 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 important are the trademarks "Regis
Salons," "Supercuts," "MasterCuts" "Trade Secret" and "Cost Cutters."
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, 1999, the Company had more than 31,000 full- and part-time
employees worldwide, of which approximately 27,000 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.
GOVERNMENTAL REGULATIONS
The Company is subject to various federal, state and local laws affecting its
business as well as a variety of regulatory provisions relating to the
conduct of its cosmetology business, including health and safety. As a
franchisor, 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 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 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
19
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.
The Company believes it is operating in substantial compliance with
applicable laws and regulations governing operations.
20
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 17, 1998, and is incorporated herein by reference.
Information relating to Executive Officers of the Company follows:
Name Age Position
- ------------------- --- -------------------------------------------------
Myron Kunin 70 Chairman of the Board of Directors
Paul D. Finkelstein 57 President, Chief Executive Officer and Director
Christopher A. Fox 49 Executive Vice President Real Estate and Director
Randy L. Pearce 44 Executive Vice President, Chief Administrative
Officer and Chief Financial Officer
Mary Andert 44 Executive Vice President, Merchandising and
Marketing
Bruce Johnson 46 Senior Vice President, Design and Construction
Mark Kartarik 43 Senior Vice President, President and Chief
Operating Officer, Supercuts Inc.
Gordon Nelson 48 Senior Vice President, Fashion and Education
Bert M. Gross 69 Senior Vice President, General Counsel and
Secretary
Raymond Duke 48 Senior Vice President, International Managing
Director, Europe
Sharon Kiker 54 Chief Operating Officer, Regis Salons
Kris Bergly 38 Chief Operating Officer, StyleAmerica and Hair
Masters
Robert Ribnick 38 Chief Operating Officer, MasterCuts
Norma Knudsen 41 Chief Operating Officer, Trade Secret
C. John Briggs 55 Chief Operating Officer, SmartStyle Family Hair
Salons
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.
21
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 from1998 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 has served as Chief Operating Officer of
Supercuts, Inc. since 1997.
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, StyleAmerica 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 in April 1998
and has served as Vice President, Salon Operations from 1993 to 1998.
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.
22
ITEM 2. PROPERTIES
The Company's corporate executive and administrative offices are
headquartered in a 100,000 square foot building in Edina, Minnesota owned by
the Company. In December 1997, the Company acquired two buildings, totaling
70,000 square feet of office space, located adjacent to the Company's current
headquarters in Edina. This office space is currently leased to several
tenants. As leases terminate and additional office space is required, the
Company plans to remove or relocate existing tenants to provide additional
administrative office space for its own purposes.
The Company also leases warehouse space in Eden Prairie, Minnesota for
storing and distributing inventory and two supplement facilities which
support the primary Eden Prairie facility. The Company completed
construction of a new distribution center in Chattanooga, Tennessee during
fiscal 1998. The Company anticipates that in addition to these two primary
facilities additional warehouse space will be needed by mid-2001.
The Company operates all of its salon locations under leases or licenses.
All of its North American locations 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. Salons
in the U.K. operations which are located in department stores operate under
license agreements with the host department stores.
The Company also leases the premises in which certain of its franchisees
operate and has entered into corresponding sublease arrangements with the
franchisees. These leases, generally with terms of approximately five years,
are expected to be renewed on expiration. Future minimum lease payments for
the next five years, which are reimbursable from the franchisees, are
approximately $22.6 million annually. 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 is 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 5 of "Notes to the
Consolidated Financial Statements".
ITEM 3. LEGAL PROCEEDINGS
None.
23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 13, 1998, at the annual meeting of the shareholders of the
Company, the elections of the Company's directors took place with the
following results:
Election of Directors:
FOR WITHHOLD AUTHORITY
Rolf Bjelland 20,791,168 162,527
Paul D. Finkelstein 20,769,516 184,179
Christopher A. Fox 20,769,611 184,084
Thomas L. Gregory 20,767,225 186,470
Van Zandt Hawn 20,791,171 162,524
Susan S. Hoyt 20,791,183 162,512
David B. Kunin 20,766,647 187,047
Myron Kunin 20,767,933 185,762
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 pages 34 to 35 of the Registrant's
1999 Annual Report to Shareholders, a copy of which is included as
Exhibit 13 hereto, are incorporated herein by reference.
As of June 30, 1999, Regis shares were owned by approximately 13,200
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
12 of the Registrant's 1999 Annual Report to Shareholders, a copy of
which is included as Exhibit 13 hereto, is incorporated herein by
reference.
24
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 13 to 19 of the
Registrant's 1999 Annual Report to Shareholders, a copy of which is
included as Exhibit 13 hereto, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants on page 34, the Consolidated
Financial Statements on pages 20 to 33 and the Quarterly Financial
Data on page 34 of the Registrant's 1999 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.
25
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 7 of the
Registrant's Proxy Statement dated September 15, 1999 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
13 of the Registrant's Proxy Statement dated September 15, 1999 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions is included on page 12 of the Registrant's Proxy
Statement dated September 15, 1999 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 20 to 34 of the Registrant's 1999 Annual Report
to Shareholders, are incorporated by reference in Item 8:
Report of Independent Accountants
Consolidated Balance Sheet as of June 30, 1999 and 1998
Consolidated Statement of Operations for each of the
three years in the period ended June 30, 1999
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income for each of the three years in
the period ended June 30, 1999
Consolidated Statement of Cash Flows for each of the
three years in the period ended June 30, 1999
Notes to Consolidated Financial Statements
(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
Schedules
Schedule II -- Valuation and Qualifying Accounts
as of June 30, 1999, 1998 and 1997
26
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 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.)
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.)
27
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) Employee Profit Sharing Plan and Trust agreement, amended June 22,
1994 between the registrant and Myron Kunin, Trustee. (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) 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(i) Private Shelf Agreement dated as of July 25, 1995 between the
registrant and the Prudential Insurance Company of America.
(Incorporated by reference to Exhibit 10(m) of the Company's report on
Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(j) 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(k) 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.)
28
10(l) Agreement and plan of merger between the Company and Supercuts, Inc.
(Incorporated by reference to Exhibit 2.1 to July 15, 1996, Form 8-K.)
10(m) 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.)
10(n) 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(o) 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(p) 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(q) 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(r) Modification of Private Shelf Agreement in 10(m) dated July 11, 1997.
(Incorporated by reference to Exhibit 10(bb) of the Company's report
on Form 10-K dated September 24, 1997, for the year ended June 30,
1997.)
10(s) 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(t) Modifications of Private Shelf Agreement in 10(bb) dated October 1,
1997. (Incorporated by reference to Exhibit 10(ff) of the Company's
report on Form 10-Q dated February 9, 1998, for the quarter ended
December 31, 1997.)
10(u) Revolving Credit Agreement dated December 30, 1997. (Incorporated
by reference to Exhibit 10(jj) of the Company's report on Form 10-Q
dated February 9, 1998, for the quarter ended December 31, 1997.)
10(v) 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.)
29
10(w) 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(x) 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(y) 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(z) Revolving Credit Agreement dated May 5, 1998 between the registrant
and Bank of America National Trust and Savings Associations.
(Incorporated by reference to Exhibit 10(ii) of the Company's
report on Form 10-K dated September 17, 1998, for the year ended
June 30, 1998.)
10(aa) Modifications to the Revolving Credit Agreement in 10(z) dated
September 1, 1998. (Incorporated by reference to Exhibit 10(kk) of
the Company's report on Form 10-K dated September 17, 1998, for
the year ended June 30, 1998.)
10(bb) 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.)
10(cc) Term Note Agreement between the registrant and Bank of America
National Trust and Savings Association dated December 31, 1998.
(Incorporated by reference to Exhibit 10(nn) of the Company's report
on Form 10-Q dated May 11, 1999, for the quarter ended March 31,
1999.)
10(dd) Term Note H-1 Agreement between the registrant and the 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(ee) Term Note H-2 Agreement between the registrant the 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.)
30
10(ff) Term Note H-3 Agreement between the registrant the 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(gg) Term Note H-4 Agreement between the registrant the 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(hh) Modifications to the Revolving Credit Agreement dated February 1,
1999. (Incorporated by reference to Exhibit 10(ss) of the Company's
Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(ii) Agreement and plan of merger between the Company and The Barbers,
Hairstyling for Men and Women (Incorporated by reference to the May
18, 1999, From S-4 (Reg. No. 333-75881)).
10(jj) 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
13 Select pages of the 1999 Annual Report to Shareholders.
23 Consent of Independent Accountants.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
The following reports on Form 8-K were filed during the three months
ended June 30, 1999:
Form 8-K dated May 21, 1999 related to the announcement of the
company's earnings for the one month period ended April 30, 1999.
31
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 Administrative Officer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
DATE: September 17, 1999
------------------------------
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
- -------------------------------
Myron Kunin, Chairman of the
Board of Directors
/s/ Paul D. Finkelstein
- --------------------------------
Paul D. Finkelstein, Director
/s/ Christopher A. Fox
- --------------------------------
Christopher A. Fox, Director
/s/ David B. Kunin
- --------------------------------
David B. Kunin, Director
/s/ Rolf Bjelland
- --------------------------------
Rolf Bjelland, Director
/s/ Van Zandt Hawn
- --------------------------------
Van Zandt Hawn, Director
/s/ Susan S. Hoyt
- --------------------------------
Susan S. Hoyt, Director
/s/Thomas L. Gregory
- --------------------------------
Thomas L. Gregory, Director
32
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 24, 1999 appearing in the 1999 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 24, 1999
33
REGIS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
as of June 30, 1999, 1998 and 1997
(dollars in thousands)
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
- ----------- --------- -------- -------------- ---------- --------
JUNE 30, 1999:
Valuation Account, Allowance for doubtful accounts $ 678 $ 35 $467 $246
JUNE 30, 1998:
Valuation Account, Receivable from Premier Salons $2,899 $2,899 (1) $0
Valuation Account, Premier Salons Preferred Stock $500 $500 (2) $0
Valuation Account, Allowance for doubtful accounts $ 650 $150 $122 $678
JUNE 30, 1997:
Valuation Account, Receivable from Premier Salons $3,800 $901(3) $2,899
Valuation Account, Premier Salons Preferred Stock $500 $500
Valuation Account, Allowance for doubtful accounts $ 689 $341 $380 $650
Notes:
- ------
(1) Includes a payment of $156,000 and salon assets totaling $629,000 received
in partial settlement of previously reserved balance.
(2) Redemption of Preferred Stock by Premier Salons.
(3) Payments received on previously reserved balance.
34