Supercuts 2002 Annual Report Download - page 147

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[BAR GRAPH]
OPERATING INCOME GROWTH
(Exclusive of nonrecurring items)
(Dollars in millions)
Compounded Annual
Growth Rate - 15.6%
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 concepts, 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.
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 2002 rose to a record $152.0 million compared to $110.3 million and $85.4 million in fiscal 2001
and 2000, respectively. The increases were primarily due to improved operating performance, as well as continued improvement related to
inventory management during fiscal 2002.
Capital Expenditures and Acquisitions
During fiscal 2002, the Company had worldwide capital expenditures of $73.3 million, of which $7.1 million related to acquisitions. The
Company constructed 349 new corporate salons in fiscal 2002, including 61 new Regis Salons, 42 new MasterCuts salons, 34 new Trade Secret
salons, 125 new SmartStyle salons, 69 new Strip Center Salons and 18 new International salons, and completed 134 major remodeling projects.
All capital expenditures during fiscal 2002 were funded by the Company's operations and borrowings under its revolving credit facility.
The Company anticipates its worldwide salon development program for fiscal 2003 will include approximately 435 new company-owned
salons, 300 to 350 new franchised salons, 175 major remodeling and conversion projects and 400 to 500 acquired salons. It is expected that
expenditures for these development activities will be approximately $125 million to $145 million, of which $75 million is allocated to new
salon construction and salon remodeling and conversions.
In April of fiscal 2002, the Company announced its acquisition of Jean Louis David. The acquisition was funded by a portion of the proceeds
from the Company's recent $125.0 million of private placement debt and the issuance of 800,000 shares of the Company's common stock.
Other acquisitions during fiscal 2002, as discussed in Note 3 to the Consolidated Financial Statements, were funded by the Company's
operations and borrowings under its revolving credit facility. See Note 4 to the Consolidated Financial Statements for additional information on
the Company's financing arrangements.
Contractual Obligations and Commercial Commitments The following table reflects a summary of obligations and commitments outstanding
by payment date as of June 30, 2002:
(a) In accordance with accounting principles generally accepted in the United States of America, these obligations are not reflected in the
accompanying audited Consolidated Balance Sheet.
Operating leases primarily represent long
-
term obligations for the rental of salon premises, including franchisee accommodation leases of
00 100
01 109
02 $134
Payments Due By Period
------------------------------------------------------------------------------------------------
Within 5 Years
(Dollars in thousands) 1 Year 1-2 Years 3-4 Years or After Total
------------------------------------------------------------------------------------------------
Contractual cash obligations:
Senior long-term debt ........ $ 4,369 $ 87,557 $ 35,345 $ 165,440 $ 292,711
Operating leases(a) .......... 170,626 268,361 153,275 127,235 719,497
Other long-term obligations... 4,050 7,361 12,068 1,872 25,351
------------------------------------------------------------------------------------------------
Total .......................... $ 179,045 $ 363,279 $ 200,688 $ 294,547 $1,037,559
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