Supercuts 2002 Annual Report Download - page 149

Regis Corporation
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Other long-term obligations that are included in the table above are composed of the following components:
- $10.2(a) million related to the residual value guarantee of a five-year operating lease agreement for the Company's distribution center and
various equipment in Salt Lake City, Utah. Under the agreement, the Company is obligated to pay the deficiency between the residual value
guarantee and the fair market value at the termination of the agreement. Although the residual value guarantee is included in the table above,
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.
- The Company is the guarantor on $8.9(a) million in lease agreements between its franchisees and leasing companies. This represents the
undiscounted value of the remaining lease obligations. As of June 30, 2002, the discounted obligation the Company would be liable for is $7.1
million. Under the agreements, the leasing companies may elect to hold the Company liable if the franchisee defaults on the agreement. In such
cases, the Company retains the right to possess the related salon operations. Management does not expect any material loss to result from these
agreements.
- $4.0 million related to capital leases and other.
- $2.3 million related primarily to assumed debt from acquisitions.
(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.
The Company does not have other unconditional purchase obligations, or significant other commercial commitments such as commitments
under lines of credit, standby letters of credit and standby repurchase obligations or other commercial commitments.
The Company is in compliance with all covenants and other requirements of its credit agreements and indentures. Additionally, the credit
agreements do not include rating triggers or subjective clauses that would accelerate maturity dates.
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.
Financing
Financing activities are discussed in Note 4 and derivative activities in Note 5 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, acquisitions and required debt repayments for the foreseeable future. Additionally, the Company received an
investment grade "2" rating in December 2001 from the NAIC, the rating agency that regulates insurance companies in the private placement
debt market. The change in rating has proven to provide the Company with greater and less expensive access to long-term senior debt during
the third quarter, and the Company expects this benefit to continue in the 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 2002, 2001 and 2000. On August 16, 2002, the Board of Directors of the Company
declared a $.03 per share quarterly dividend payable September 13, 2002 to shareholders of record on August 30, 2002.
In addition, Supercuts UK declared and paid dividends of $0.4 million during fiscal 2000.
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, 2002, 393,700 shares have been repurchased for $9.2 million. All
repurchased shares are immediately retired. This repurchase program has no stated expiration date.
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