Regis Reports Second Quarter 2012 Results

  • 2Q12 GAAP net loss of $57.4 million; GAAP diluted loss per share of $1.01
  • 2Q12 operational diluted earnings per share of $0.32 up 24.8% from $0.25 in 2Q11

MINNEAPOLIS--(BUSINESS WIRE)--Regis Corporation (NYSE:RGS), the global leader in the $160 billion haircare industry, today reported a second quarter net loss of $1.01 per share. These results include non-operational after-tax items of $77.0 million primarily related to the non-cash write-down of goodwill in its Hair Restoration Centers segment. Absent non-operational items, second quarter operational earnings increased to $0.32 per diluted share.

Randy L. Pearce, President, commented, "Our second quarter operational earnings of $0.32 per share were the result of Regis' commitment to improving financial performance while continuing to develop and implement our strategy to drive new traffic and increase customer retention rates by enhancing the salon experience. "Our entire organization is focused on improving the salon experience and we are confident that our long-term plan will deliver improved financial results. However, the sales environment remains challenging and it will take time for our strategies to have a material impact on our top-line performance. As a result, we now believe that fiscal 2012 same-store sales will be in the range of negative 3.5% to negative 2.5%. At these lower same-store sales levels, our operational EBITDA should be in a range of $210 million to $220 million. We expect benefits from our previously announced cost saving initiatives to offset a significant portion of the impact from the decline in sales expectations. We continue to work hard to ensure Regis grows profitably and operates efficiently in order to enhance shareholder value."

FISCAL 2012 SECOND QUARTER FINANCIAL HIGHLIGHTS

Consolidated Highlights

  • Sales of $563.3 million, down 1.9% from $574.4 million in the second quarter of fiscal 2011.
  • Same-store sales declined 3.0% versus a decline of 1.3% in the second quarter of fiscal 2011.
  • Same-store customer counts for our salon businesses declined 2.4% in the second quarter of fiscal 2012.
  • Gross margin increased 30 basis points to 44.8% of sales from 44.5% in the second quarter of fiscal 2011.
  • Operational operating margins increased 20 basis points to 4.4% of sales from 4.2% in the second quarter of fiscal 2011. Operational net income of $19.6 million increased 28.4%, from $15.3 million in the second quarter of fiscal 2011.
  • Operational diluted earnings per share of $0.32 increased 24.8%, from $0.25 in the second quarter of fiscal 2011
  • Operational EBITDA of $51.9 million decreased 2.0%, from $52.9 million in the second quarter of fiscal 2011.
  • Net store base increased by 33 over the same period a year ago for a total store count of 12,777. This increase is primarily driven by growth in the number of franchise and affiliate locations.
  • The reported income tax rate was 5.2%, which includes the impact of the non-operational charges. The operational income tax rate was 25.8%.
  • As of December 31, 2011 the cash balance was $83.1 million, a decrease of $13.2 million since June 30, 2011.
  • Debt on the balance sheet was $292.9 million, a decrease of $20.5 million since June 30, 2011.

Segment Results:

North America Salons

Revenues: Second quarter 2012 revenues were $492.1 million, a decrease of 1.9% from the fiscal 2011 second quarter. Service revenues were $379.7 million, a decrease of 2.3% compared to the same period a year ago. Same-store service sales for the quarter declined 3.2%. Same-store service customer counts declined 2.1% and average ticket declined 1.1%. Retail product revenues were $103.2 million, a decrease of 0.6%. Retail product same-store sales declined 1.5%.

Service Margins: Service margin rate for the second quarter of fiscal 2012 was 42.4%, an improvement of 80 basis points over the second quarter of fiscal 2011. The improvement in service margin was driven largely by reduced service commissions. Labor costs improved due to increased hourly productivity in our salons, as well as the recently implemented leveraged pay plans for new salon employees.

Retail Product Margins: Product margin rate for the second quarter of fiscal 2012 was 49.8%, a decline of 50 basis points compared to the second quarter of fiscal 2011. Product margins were impacted by a shift in sales mix during the holiday season to slightly lower margin nail care and salon accessories.

Site Operating Expense: Site operating expense for the second quarter of 2012 was 30 basis points, or $2.3 million lower than the second quarter of 2011, coming in at $44.5 million or 9.0% of revenue. Several cost savings initiatives account for a large portion of this improvement, including reduced insurance and workers' compensation costs. We experienced lower salon claims this year and as a result, we recorded a favorable actuarial adjustment to our insurance reserves.

General and Administrative Expense: General and administrative expense for the second quarter of 2012 was 70 basis points, or $3.9 million lower than the second quarter of 2011, coming in at $28.6 million or 5.8% of North American revenue. A large portion of the decline in expense relates to the implementation of new portable technology for our field staff, which contributed to a decrease in travel. Additionally, last year's expenses were higher than normal due to a national salon manager meeting in our Regis Salon Division which was not conducted this year.

Rent Expense: Rent expense was $73.7 million, or 15.0% of North American revenue. The increase of 40 basis points over the same period a year ago was primarily the result of deleveraging due to negative same-store sales.

Depreciation and Amortization Expense: Depreciation and amortization was $17.7 million, or 3.6% of North American revenues; which included non-operational charges of $0.8 million related to the accelerated depreciation on our point-of-sale system. Operational depreciation and amortization was $16.9 million, or 3.4% of North American revenues, a decrease of 10 basis points over the second quarter of fiscal 2011.

Operating Margins: Second quarter 2012 GAAP operating margins were 11.7% of North American revenues. Excluding non-operational items, operational operating margins were 11.8% of North American revenues, an increase of 120 basis points over the second quarter of fiscal 2011.

International Salons

Revenues: Second quarter 2012 revenues were $34.1 million, a decrease of 8.1% from the fiscal 2011 second quarter. Service revenues were $24.3 million, a decrease of 5.1% compared to the same period a year ago. Same-store service sales for the quarter declined 6.7%. Retail product revenues were $9.7 million, a decrease of 14.9%. Retail product same-store sales declined 16.1%.

Service Margins: Service margin rate for the second quarter of fiscal 2012 was 46.1%, a decline of 200 basis points over the second quarter of fiscal 2011. The decline in service margin was primarily driven by lower salon productivity due to reduced sales levels.

Retail Product Margins: Product margin rate for the second quarter of fiscal 2012 was 46.0%, an increase of 80 basis points compared to the fiscal 2011 second quarter. The increase in product margins was the result of a shift in the mix of product sales away from lower margin salon appliances.

Rent Expense: Rent expense was $9.1 million, or 26.6% of International revenue. The increase of 260 basis points over the same period a year ago was primarily the result of deleveraging due to negative same-store sales.

Operating Margins: Second quarter 2012 GAAP operating margins were $0.2 million, or 0.6% of International revenues; which includes non-operational depreciation expense of $0.1 million related to the accelerated depreciation on our point-of-sale system. Operational operating margins were $0.3 million, or 0.9% of International revenues, a decrease of 340 basis points compared to the second quarter of fiscal 2011.

Hair Restoration Centers

Revenues: Second quarter 2012 revenues were $37.1 million, an increase of 3.6% from the second quarter of fiscal year 2011. Same-store sales for the quarter increased 1.7%.

Gross Margins: Gross margin rate for the second quarter of fiscal 2012 was 53.2%, a decline of 230 basis points over the second quarter of fiscal 2011. The decline in gross margin was primarily driven by labor costs in acquired and new stores, as well as increased hair system costs due to wage pressure in China.

Operating Margins: Second quarter 2012 GAAP operating margins were a loss of $73.6 million, or -198.0% of Hair Club revenues, which includes non-operational expense related to the write-down of goodwill of $78.4 million. Operational operating margins were $4.9 million, or 13.1% of Hair Club revenues, a decrease of 120 basis points compared to the second quarter of fiscal 2011.

Corporate

General and Administrative Expense: Corporate general and administrative expense for the second quarter of 2012 was $35.5 million, or 6.3% of consolidated revenues, which includes non-operational charges of $1.8 million. Operational general and administrative expense for the second quarter of 2012 was $33.7 million or 6.0% of consolidated revenue, an increase of 70 basis points over the second quarter of 2011. Contributing to the planned increase in this expense category were higher professional fees, largely due to the timing of costs incurred for tax, legal and other corporate initiatives. We continue to expect general and administrative expenses to be lower in the second half of the fiscal year than that incurred in the first six months.

Income Taxes

During the three months ended December 31, 2011, the Company recognized a tax benefit of $3.5 million with a corresponding effective tax rate of 5.2% utilizing the year-to-date method rather than utilizing its historical method of calculating an estimated annual effective tax rate. The Company's operational tax rate of 25.8% came in better than expected due to larger than planned job tax credits and the release of state income tax reserves.

Equity in Income of Affiliates

Income from equity method investments and affiliated companies was $5.3 million in the second quarter of 2012, an increase of $2.2 million over the second quarter of 2011. The majority of the improvement in this category relates to the increase in Regis' ownership percentage in Provalliance. In March 2011, Regis acquired an additional 17% percent of Provalliance and now owns 47% of the joint venture.

Updated Fiscal 2012 Outlook

  • The Company expects fiscal 2012 same-store sales to be in the range of negative 3.5% to negative 2.5%.
  • At these same-store levels, EBITDA is expected to be in a range of $210 million to $220 million and operational earnings are forecasted to be in a range of $1.11 to $1.21 per share.
  • Regis plans to spend approximately $100 million for salon and corporate capital expenditures and up to $15 million for acquisitions.
  • The Company expects to generate free cash flow of approximately $70 million to $80 million.
  • As previously announced, the Company has identified a new third party point-of-sale software alternative, which it is now planning to implement in all of its company-owned salons over the next year. The new point-of-sale system will replace the current point-of-sale system and enable the Company to accelerate its strategies and initiatives. As a result, the Company expects to incur in the remainder of fiscal 2012 pre-tax, non-operational expense of approximately $2 million related to the acceleration of depreciation on the current point-of-sale system.

Second Quarter Non-Operational Items

Second quarter non-operational items, which netted to $77.0 million on an after-tax basis, consisted of the following items:

  • As previously disclosed, the Company is reviewing alternatives for non-core assets and has retained an independent financial advisor. In connection with this review, the Company updated the Hair Restoration Centers projections used in the fiscal 2011 annual impairment test to reflect the impact of more recent industry developments including a slow down in revenue growth and increasing supply costs. As a result, the Company recorded a non-cash, after-tax goodwill impairment of $72.6 million.
  • Accelerated depreciation expense of $4.0 million after-tax related the replacement of the current point-of-sale system with a new third party point-of-sale software system.
  • $0.7 million of after-tax advisory fees and other costs related to the recent proxy contest.
  • Senior management restructuring costs of $0.4 million after-tax.
  • Legal settlement resulting in income of $0.7 million, after-tax.

A complete reconciliation of reported earnings to operational earnings is included in today's press release and is available on the Company's website at www.regiscorp.com.

Regis Corporation will host a conference call discussing second quarter results today, January 26, 2012 at 10 a.m., Central time. Interested parties are invited to listen by logging on to www.regiscorp.com or dialing 877-941-0843. A replay of the call will be available later that day. The replay phone number is 800-406-7325, access code 4504728#.

As of December 31, 2011 Regis Corporation owned, franchised, or held ownership interest in 12,777 worldwide locations.

About Regis Corporation

Regis Corporation (NYSE:RGS) is the beauty industry's global leader in beauty salons, hair restoration centers and cosmetology education. As of December 31, 2011, the Company owned, franchised or held ownership interests in approximately 12,800 worldwide locations. Regis' corporate and franchised locations operate under concepts such as Supercuts, Sassoon Salon, Regis Salons, MasterCuts, SmartStyle, Cost Cutters, Cool Cuts 4 Kids and Hair Club for Men and Women. In addition, Regis maintains an ownership interest in Provalliance, which operates salons primarily in Europe, under the brands of Jean Louis David, Franck Provost and Saint Algue. Regis also maintains ownership interests in Empire Education Group in the U.S. and the MY Style concepts in Japan. System-wide, these and other concepts are located in the U.S. and in over 30 other countries in North America, South America, Europe, Africa and Asia. For additional information about the company, including a reconciliation of certain non-GAAP financial information and certain supplemental financial information, please visit the Investor Information section of the corporate website at www.regiscorp.com. To join Regis Corporation's email alert list, click on this link: http://www.b2i.us/irpass.asp?BzID=913&to=ea&Nav=1&S=0&L=1

This press release 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. 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. Such forward-looking statements are often identified herein by use of words including, but not limited to, "may," "believe," "project," "forecast," "expect," "estimate," "anticipate," and "plan." In addition, the following factors could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include, competition within the personal hair care industry, which remains strong, both domestically and internationally, price sensitivity; changes in economic conditions; changes in consumer tastes and fashion trends; the ability of the Company to implement its planned spending and cost reduction plan and to continue to maintain compliance with financial covenants in its credit agreements; labor and benefit costs; legal claims; risk inherent to international development (including currency fluctuations); the continued ability of the Company and its franchisees to obtain suitable locations and financing for new salon development and to maintain satisfactory relationships with landlords and other licensors with respect to existing locations; governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; the ability of the Company to successfully identify, acquire and integrate salons that support its growth objectives; the ability of the Company to maintain satisfactory relationships with suppliers; or other factors not listed above. The ability of the Company to meet its expected revenue target is dependent on salon acquisitions, new salon construction and same-store sales increases, all of which are affected by many of the aforementioned risks. Additional information concerning potential factors that could affect future financial results is set forth in the Company's Annual Report on Form 10-K for the year ended June 30, 2011. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

         

REGIS CORPORATION (NYSE: RGS)

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

as of December 31, 2011 and June 30, 2011

(In thousands, except per share data)

         
    December 31, 2011   June 30, 2011
ASSETS        
Current assets:        
Cash and cash equivalents   $ 83,099   $ 96,263
Receivables, net     31,944     27,149
Inventories     170,551     150,804
Deferred income taxes     15,082     17,887
Income tax receivable     17,322     22,341
Other current assets     29,681     32,118
Total current assets     347,679     346,562
         
Property and equipment, net     327,381     347,811
Goodwill     604,097     680,512
Other intangibles, net     106,411     111,328
Investment in and loans to affiliates     251,573     261,140
Other assets     59,820     58,400
         
Total assets   $ 1,696,961   $ 1,805,753
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current liabilities:        
Long-term debt, current portion   $ 28,999   $ 32,252
Accounts payable     52,541     55,107
Accrued expenses     175,105     167,321
Total current liabilities     256,645     254,680
         
Long-term debt and capital lease obligations     263,882     281,159
Other noncurrent liabilities     216,077     237,295
         
Total liabilities     736,604     773,134
         
Commitments and contingencies        
         
Shareholders' equity:        
Common stock, $0.05 par value; issued and outstanding 57,650,228 and 57,710,811 common shares at December 31, 2011 and June 30, 2011, respectively     2,883     2,886
Additional paid-in capital     345,827     341,190
Accumulated other comprehensive income     55,661     77,946
Retained earnings     555,986     610,597
         
Total shareholders' equity     960,357     1,032,619
         
Total liabilities and shareholders' equity   $ 1,696,961   $ 1,805,753
             

REGIS CORPORATION (NYSE: RGS)

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

(In thousands, except per share data)

             
   

Three Months Ended
December 31,

   

Six Months Ended
December 31,

 
    2011     2010     2011     2010  
Revenues:                        
Service   $ 421,299     $ 430,939     $ 852,999     $ 870,468  
Product   132,208     133,824     259,125     262,429  
Royalties and fees   9,771     9,609     19,903     19,720  
    563,278     574,372     1,132,027     1,152,617  
Operating expenses:                        
Cost of service   242,341     249,705     488,352     499,206  
Cost of product   63,469     63,926     123,448     125,001  
Site operating expenses   48,425     50,597     100,880     99,606  
General and administrative   75,066     75,848     153,745     149,922  
Rent   85,473     85,235     169,920     170,343  
Depreciation and amortization   31,695     26,197     65,801     52,241  
Goodwill impairment   78,426     --     78,426     --  
Total operating expenses   624,895     551,508     1,180,572     1,096,319  
                         
Operating (loss) income   (61,617 )   22,864     (48,545 )   56,298  
                         
Other income (expense):                        
Interest expense   (7,203 )   (8,738 )   (14,563 )   (17,661 )
Interest income and other, net   2,659     2,604     3,975     3,381  
(Loss) income before income taxes and equity in income of affiliated companies   (66,161 )   16,730     (59,133 )   42,018  
Income taxes   3,453     (5,345 )   730     (14,992 )
Equity in income of affiliated companies, net of income taxes   5,281     3,120     9,313     5,799  
                         
Net (loss) income   $ (57,427 )   $ 14,505     $ (49,090 )   $ 32,825  
                         
Net (loss) income per share:                        
Basic   $ (1.01 )   $ 0.26     $ (0.86 )   $ 0.58  
Diluted   $ (1.01 )   $ 0.24     $ (0.86 )   $ 0.54  
                         
Weighted average common and common equivalent shares outstanding:                        
Basic   56,857     56,684     56,853     56,657  
Diluted   56,857     68,136     56,853     68,053  
                         
Cash dividends declared per common share   $ 0.06     $ 0.04     $ 0.12     $ 0.08  
       

REGIS CORPORATION (NYSE: RGS)

SELECTED CASH FLOW DATA (Unaudited)

(In thousands)

       
    Six Months Ended

December 31,

 
    2011     2010  
             
Net cash provided by operating activities   $ 61,947     $ 102,833  
Net cash used in investing activities   (42,877 )   (38,750 )
Net cash used in financing activities   (28,942 )   (46,433 )
Effect of exchange rate changes on cash and cash equivalents   (3,292 )   4,769  
(Decrease) increase in cash and cash equivalents   (13,164 )   22,419  
Cash and cash equivalents:            
Beginning of year   96,263     151,871  
End of year   $ 83,099    

$

174,290  
             
REGIS CORPORATION (NYSE: RGS)
Salon and Hair Restoration Center Counts and Revenues
             

SYSTEM-WIDE LOCATIONS:

 

December 31,
2011

   

June 30,
2011

 
             
Company-owned salons   7,851     7,883  
Franchise salons   2,007     1,936  
Company-owned hair restoration centers   68     67  
Franchise hair restoration centers   29     29  
Ownership interest locations   2,822     2,786  
Total, system-wide   12,777     12,701  
             
SALON LOCATION SUMMARY            
             
NORTH AMERICAN SALONS:  

December 31,
2011

   

June 30,
2011

 
REGIS SALONS            
Open at beginning of period   1,023     1,049  
Salons constructed   4     12  
Acquired  

―

    9  
Less relocations   (4 )   (10 )
Salon openings   ―     11  
Conversions   ―     (1 )
Salons closed   (21 )   (36 )
Total, Regis Salons   1,002     1,023  
             
MASTERCUTS            
Open at beginning of period   588     600  
Salons constructed   6     6  
Acquired   ―     ―  
Less relocations   (4 )   (5 )
Salon openings   2     1  
Conversions   ―     1  
Salons closed   (3 )   (14 )
Total, MasterCuts Salons   587     588  
             
SMARTSTYLE/COST CUTTERS IN WALMART            
Company-owned salons:            
Open at beginning of period   2,393     2,374  
Salons constructed   32     65  
Acquired   ―     ―  
Franchise buybacks   ―     ―  
Less relocations   (1 )   (1 )
Salon openings   31     64  
Conversions   ―     ―  
Salons closed   (1 )   (45 )
Total company-owned salons   2,423     2,393  
             
Franchise salons:            
Open at beginning of period   120     119  
Salons constructed   2     3  
Acquired  

―

    ―  
Less relocations   ―     ―  
Salon openings   2     3  
Conversions   ―     ―  
Franchise buybacks   ―     ―  
Salons closed   ―     (2 )
Total franchise salons   122     120  
             
Total, SmartStyle/Cost Cutters Salons in Walmart   2,545     2,513  
             
             
   

December 31,
2011

   

June 30,
2011

 
SUPERCUTS            
Company-owned salons:            
Open at beginning of period   1,158     1,100  
Salons constructed   26     24  
Acquired   1     ―  
Franchise buybacks   2     73  
Less relocations   (5 )   (3 )
Salon openings   24     94  
Conversions   56     13  
Salons closed   (26 )   (49 )
Total company-owned salons   1,212     1,158  
             
Franchise salons:            
Open at beginning of period   987     1,034  
Salons constructed   37     43  
Acquired   ―     ―  
Less relocations   (1 )   (7 )
Salon openings   36     36  
Conversions   5     10  
Franchise buybacks   (2 )   (73 )
Salons closed   (3 )   (20 )
Total franchise salons   1,023     987  
             
Total, Supercuts Salons   2,235     2,145  
             
PROMENADE            
Company-owned salons:            
Open at beginning of period   2,321     2,382  
Salons constructed   20     26  
Acquired   ―     18  
Franchise buybacks   6     5  
Less relocations   (7 )   (10 )
Salon openings   19     39  
Conversions   (56 )   (14 )
Salons sold to franchisees   (5 )   ―  
Salons closed   (57 )   (86 )
Total company-owned salons   2,222     2,321  
             
Franchise salons:            
Open at beginning of period   829     867  
Salons constructed   19     21  
Acquired (2)   31     ―  
Salons purchased from the Company   5     ―  
Less relocations   (2 )   (7 )
Salon openings   53     14  
Conversions   (5 )   (9 )
Franchise buybacks   (6 )   (5 )
Salons closed   (9 )   (38 )
Total franchise salons   862     829  
             
Total, Promenade Salons   3,084     3,150  
             
             
   

December 31,
2011

   

June 30,
2011

 
INTERNATIONAL SALONS (1):            
Company-owned salons:            
Open at beginning of period   400     404  
Salons constructed   12     13  
Acquired   ―     ―  
Franchise buybacks   ―     ―  
Less relocations   (1 )   (2 )
Salon openings   11     11  
Conversions   ―     ―  
Salons closed   (6 )   (15 )
Total company-owned salons   405     400  
             
Total franchise salons   ―     ―  
             
Total, International Salons   405     400  
             
TOTAL SYSTEM-WIDE SALONS:            
Company-owned salons:            
Open at beginning of period   7,883     7,909  
Salons constructed   100     146  
Acquired   1     27  
Franchise buybacks   8     78  
Less relocations   (22 )   (31 )
Salon openings   87     220  
Conversions   ―     (1 )
Salons sold to franchisees   (5 )   ―  
Salons closed   (114 )   (245 )
Total company-owned salons   7,851     7,883  
             
Franchise salons:            
Open at beginning of period   1,936     2,020  
Salons constructed   58     67  
Acquired (2)   31     ―  
Salons purchased from the Company   5     ―  
Less relocations   (3 )   (14 )
Salon openings   91     53  
Conversions   ―     1  
Franchise buybacks   (8 )   (78 )
Salons sold   ―     ―  
Salons closed   (12 )   (60 )
Total franchise salons   2,007     1,936  
             
Total, Salons   9,858     9,819  
             
HAIR RESTORATION CENTERS:            
Company-owned hair restoration centers:            
Open at beginning of period   67     62  
Salons constructed   3     3  
Acquired   ―     ―  
Franchise buybacks   ―     4  
Less relocations   (2 )   (1 )
Salon openings   1     6  
Conversions   ―     ―  
Sites closed   ―     (1 )
Total company-owned hair restoration centers   68     67  
             
             
   

December 31,
2011

   

June 30,
2011

 
Franchise hair restoration centers:            
Open at beginning of period   29     33  
Salons constructed   ―     ―  
Acquired   ―     ―  
Less relocations   ―     ―  
Salon openings   ―     ―  
Franchise buybacks   ―     (4 )
Sites closed   ―     --  
Total franchise hair restoration centers   29     29  
             
Total, Hair Restoration Centers   97     96  
             
Ownership interest locations   2,822     2,786  
             
Grand Total, System-wide   12,777     12,701  
             
(1) Canadian and Puerto Rican salons are included in the Regis, MasterCuts, SmartStyle, Supercuts, and Promenade salon totals and not included in the International salon totals.
(2) Represents the acquisition of a franchise network.
             
Relocations represent a transfer of location by the same salon concept.
Conversions represent the transfer of one salon concept to another concept.
             

REVENUES BY CONCEPT:

             
   

Three Months Ended
December 31,

   

Six Months Ended
December 31,

 
(Dollars in thousands)   2011     2010     2011     2010  
North American salons:                        
Regis   $ 104,629     $ 108,928     $ 209,496     $ 216,433  
MasterCuts   40,293     41,295     80,751     83,335  
SmartStyle   125,980     129,671     254,464     262,224  
Supercuts   85,031     78,310     168,634     157,633  
Promenade   136,136     143,245     276,581     288,757  
Total North American salons   492,069     501,449     989,926     1,008,382  
                         
International salons   34,069     37,077     67,558     72,135  
Hair restoration centers   37,140     35,846     74,543     72,100  
Consolidated revenues   $ 563,278     $ 574,372     $ 1,132,027     $ 1,152,617  
                         
Percentage change from prior year   (1.9

)%

  (0.2 )%   (1.8 )%   (2.4 )%
                         
Same-store sales decrease (1)   (3.0 )%   (1.3 )%   (3.1 )%   (1.4 )%

(1)

 

Same-store sales are calculated on a daily basis as the total change in sales for company-owned locations which were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date same-store sales are the sum of the same-store sales computed on a daily basis. Locations relocated within a one mile radius are included in same-store sales as they are considered to have been open in the prior period. International same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. Management believes that same-store sales, a component of organic growth, are useful in order to help determine the increase in revenues attributable to its organic growth (new locations construction and same-store sales growth) versus growth from acquisitions.

     

FINANCIAL INFORMATION BY SEGMENT:

Financial information concerning the Company's salon and hair restoration businesses is shown in the following tables.

       
    For the Three Months Ended December 31, 2011  
    Salons   Hair
Restoration
  Unallocated      
(Dollars in thousands)   North America   International   Centers   Corporate   Consolidated  
Revenues:                      
Service   $ 379,694   $ 24,331   $ 17,274   $ ―   $ 421,299  
Product     103,162     9,738     19,308   ―     132,208  
Royalties and fees     9,213   ―     558   ―     9,771  
      492,069     34,069     37,140   ―     563,278  
Operating expenses:                      
Cost of service     218,547     13,122     10,672   ―     242,341  
Cost of product     51,753     5,254     6,462   ―     63,469  
Site operating expenses     44,466     2,359     1,600   ―     48,425  
General and administrative     28,584     2,956     8,060     35,466     75,066  
Rent     73,686     9,060     2,224     503     85,473  
Depreciation and amortization     17,692     1,112     3,249     9,642     31,695  
Goodwill impairment   ―   ―     78,426   ―     78,426  
Total operating expenses     434,728     33,863     110,693     45,611     624,895  
                       
Operating income (loss)     57,341     206     (73,553 )   (45,611 )   (61,617 )
                       
Other income (expense):                      
Interest expense   ―   ―   ―     (7,203 )   (7,203 )
Interest income and other, net   ―   ―   ―     2,659     2,659  
Income (loss) before income taxes and equity in income of affiliated companies   $ 57,341   $ 206   $ (73,553 ) $ (50,155 ) $ (66,161 )
         
    For the Three Months Ended December 31, 2010  
    Salons   Hair
Restoration
  Unallocated      
(Dollars in thousands)   North America   International   Centers   Corporate   Consolidated  
Revenues:                      
Service   $ 388,656   $ 25,634   $ 16,649  

$

―

  $ 430,939  
Product     103,775     11,443     18,606  

―

  133,824  
Royalties and fees     9,018   ―     591   ―   9,609  
      501,449     37,077     35,846   ―   574,372  
Operating expenses:                      
Cost of service     226,739     13,314     9,652   ―   249,705  
Cost of product     51,622     6,266     6,038   ―   63,926  
Site operating expenses     46,739     2,593     1,265   ―   50,597  
General and administrative     32,485     3,259     8,276     31,828   75,848  
Rent     73,454     8,903     2,314     564   85,235  
Depreciation and amortization     17,423     1,161     3,169     4,444   26,197  
Total operating expenses     448,462     35,496     30,714     36,836   551,508  
                       
Operating income (loss)     52,987     1,581     5,132     (36,836 ) 22,864  
                       
Other income (expense):                      
Interest expense   ―   ―   ―     (8,738 ) (8,738

)

Interest income and other, net   ―   ―   ―     2,604   2,604  
Income (loss) before income taxes and equity in income of affiliated companies   $ 52,987   $ 1,581   $ 5,132   $ (42,970 ) $ 16,730  
       
    For the Six Months Ended December 31, 2011  
    Salons   Hair
Restoration
  Unallocated      
(Dollars in thousands)   North America   International   Centers   Corporate   Consolidated  
Revenues:                      
Service   $ 769,858   $ 49,184   $ 33,957  

$

―

  $ 852,999  
Product     201,299     18,374     39,452   ―     259,125  
Royalties and fees     18,769     --     1,134  

―

    19,903  
      989,926     67,558     74,543   ―     1,132,027  
Operating expenses:                      
Cost of service     441,826     25,812     20,714   ―     488,352  
Cost of product     100,197     9,833     13,418   ―     123,448  
Site operating expenses     92,762     5,034     3,084   ―     100,880  
General and administrative     58,290     5,881     17,333     72,241     153,745  
Rent     146,901     17,824     4,495     700     169,920  
Depreciation and amortization     35,662     2,418     6,558     21,163     65,801  
Goodwill impairment   ―   ―     78,426   ―     78,426  
Total operating expenses     875,638     66,802     144,028     94,104     1,180,572  
                       
Operating income (loss)     114,288     756     (69,485 )   (94,104 )   (48,545 )
                       
Other income (expense):                      
Interest expense   ―   ―   ―     (14,563 )   (14,563 )
Interest income and other, net   ―   ―   ―     3,975     3,975  
Income (loss) before income taxes and equity in income of affiliated companies   $ 114,288   $ 756   $ (69,485 ) $ (104,692 ) $ (59,133 )
       
    For the Six Months Ended December 31, 2010  
    Salons   Hair
Restoration
  Unallocated      
(Dollars in thousands)   North America   International   Centers   Corporate   Consolidated  
Revenues:                      
Service   $ 785,977   $ 50,997   $ 33,494  

$

―

  $ 870,468  
Product     203,895     21,138     37,396  

―

  262,429  
Royalties and fees     18,510     --     1,210   ―   19,720  
      1,008,382     72,135     72,100   ―   1,152,617  
Operating expenses:                      
Cost of service     454,036     26,042     19,128   ―   499,206  
Cost of product     101,355     11,511     12,135   ―   125,001  
Site operating expenses     93,068     4,783     1,755   ―   99,606  
General and administrative     62,363     6,211     16,855     64,493   149,922  
Rent     147,072     17,573     4,578     1,120   170,343  
Depreciation and amortization     34,655     2,248     6,312     9,026   52,241  
Total operating expenses     892,549     68,368     60,763     74,639   1,096,319  
                       
Operating income (loss)     115,833     3,767     11,337     (74,639 ) 56,298  
                       
Other income (expense):                      
Interest expense   ―   ―   ―     (17,661

)

(17,661 )
Interest income and other, net   ―   ―   ―     3,381   3,381  
Income (loss) before income taxes and equity in income of affiliated companies   $ 115,833   $ 3,767   $ 11,337   $ (88,919 ) $ 42,018  

Non-GAAP Reconciliations

We believe our presentation of non-GAAP operating income, net income and net income per diluted share provides meaningful insight into our ongoing operating performance and an alternative perspective of our results of operations. Presentation of the non-GAAP measures allows investors to review our core ongoing operating performance business from the same perspective as management and Board of Directors. These non-GAAP financial measures provide investors an enhanced understanding of our operations, facilitate investors' analysis and comparisons of our current and past results of operations and provide insight into the prospects of our future performance. We also believe that the non-GAAP measures are useful to investors because they provide supplemental information that research analysts frequently use to analyze financial performance.

The method we use to produce non-GAAP results is not in accordance with U.S. GAAP and may differ from methods used by other companies. These non-GAAP results should not be regarded as a substitute for the corresponding U.S. GAAP measures but instead should be utilized as a supplemental measure of operating performance in evaluating our business. Non-GAAP measures do have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. As such, these non-GAAP measures should be viewed in conjunction with both our financial statements prepared in accordance with U.S. GAAP and the reconciliation of the selected U.S. GAAP to non-GAAP financial measures, which are located in the Investor Information section of the corporate website at www.regiscorp.com.

Non-GAAP reconciling items for the three and six months ended December 31, 2011 and 2010:

The following information is provided to give qualitative and quantitative information related to items impacting comparability. Items impacting comparability are not defined terms within U.S. GAAP. Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies. We determine which items to consider as "items impacting comparability" based on how management views our business, makes financial, operating and planning decisions and evaluates the Company's ongoing performance.

Senior management restructure - We have excluded expense associated with senior management restructuring from our non-GAAP results. During the three and six months ended December 31, 2011, we incurred expense of $0.7 and $2.3 million, respectively, associated with senior management restructuring.

Proxy fees - We have excluded the advisory fees and other costs associated with the recent contested proxy from our non-GAAP results. During the three and six months ended December 31, 2011, we incurred $1.1 and $2.2 million, respectively, of advisory fees and other costs associated with the recent contested proxy.

Strategic alternative costs - We have excluded the fees associated our exploration of strategic alternatives during our second quarter of fiscal year 2011 from our non-GAAP results. During the three and six months ended December 31, 2010, we incurred $1.3 million, respectively, of expense related to the exploration of strategic alternatives.

Point-of-sale system accelerated depreciation - We have excluded the accelerated depreciation we recorded related to our point-of-sale system from our non-GAAP results. During the three and six months ended December 31, 2011, we recorded $6.3 and $15.0 million, respectively, in accelerated depreciation related to our point-of-sale system.

Goodwill impairment - We have excluded the goodwill impairment charge we recorded related to our Hair Restoration Centers reportable segment from our non-GAAP results. The Company recorded a goodwill impairment charge of $78.4 million related to our Hair Restoration Centers' reportable segment during the three and six months ended December 31, 2011.

Legal settlement - We have excluded income associated with a legal settlement from our non-GAAP results. During the three and six months ended December 31, 2011 we recorded income of $1.1 million associated with a legal settlement.

Tax provision adjustments - The non-GAAP tax provision adjustments are due to the change in non-GAAP taxable income as compared to U.S. GAAP taxable income or loss, resulting from the non-GAAP reconciling items addressed herein. The non-GAAP tax provision adjustments are made to reflect the year-to-date non-GAAP tax rate for each period.

Weighted average shares adjustments - The non-GAAP weighted average shares adjustments are due to the change in non-GAAP net income as compared to the U.S. GAAP net income or loss, resulting from the non-GAAP reconciling items addressed herein. Non-GAAP net income per share reflects the weighted average shares associated with non-GAAP net income, which includes the dilutive effect of common stock and convertible share equivalents.

                                     

REGIS CORPORATION

Reconciliation of selected U.S. GAAP to non-GAAP financial measures

(In thousands, except per share data)

(unaudited)

                                     
Reconciliation of U.S. GAAP operating (loss) income and net (loss) income to equivalent non-GAAP measures  
        Three Months Ended     Six Months Ended  
        December 31,     December 31,  
    U.S. GAAP financial line item   2011     2010     2011     2010  
U.S. GAAP revenue       $ 563,278     $ 574,372     $ 1,132,027     $ 1,152,617  
                                     
U.S. GAAP operating (loss) income       $ (61,617 )   $ 22,864     $ (48,545 )   $ 56,298  
                                     
Non-GAAP operating expense adjustments:                                    
Senior management restructure   General and administrative    

696

     

--

     

2,349

     

--

 
Proxy fees   General and administrative    

1,096

     

--

     

2,225

     

--

 
Strategic alternative costs   General and administrative    

--

     

1,253

     

--

     

1,253

 
Point-of-sale accelerated depreciation   Depreciation and amortization    

6,338

     

--

     

15,037

     

--

 
Goodwill impairment   Goodwill impairment    

78,426

     

--

     

78,426

     

--

 
Total non-GAAP operating expense adjustments        

86,556

     

1,253

     

98,037

     

1,253

 
Non-GAAP operating income (5)       $ 24,939     $ 24,117     $ 49,492     $ 57,551  
                                     
U.S. GAAP net (loss) income       $ (57,427 )   $ 14,505     $ (49,090 )   $ 32,825  
                                     
Non-GAAP net (loss) income adjustments:                                    
Non-GAAP operating expense adjustments        

86,556

     

1,253

     

98,037

     

1,253

 
Legal settlement   Interest income and other, net    

(1,098

)    

--

     

(1,098

)

   

--

 
Tax provision adjustments (1)   Income taxes    

(8,422

)    

(481

)    

(12,654

)    

(481

)
Total non-GAAP net income adjustments        

77,036

     

772

     

84,285

     

772

 
Non-GAAP net income      

$

19,609     $ 15,277     $ 35,195     $ 33,597  
                                     
                                     
Reconciliation of U.S. GAAP net (loss) income per diluted share to non-GAAP net income per diluted share  
        Three Months Ended     Six Months Ended  
        December 31,     December 31,  
        2011     2010     2011     2010  
U.S. GAAP net (loss) income per diluted share (2)       $ (1.010 )   $ 0.242     $ (0.863

)

 

$

0.542

 
Senior management restructure (1)        

0.006

     

--

     

0.022

     

--

 
Proxy fees (1)        

0.01

     

--

     

0.021

      --  
Strategic alternative costs (1)        

--

     

0.011

     

--

     

0.011

 
Point-of-sale accelerated depreciation (1)        

0.059

     

--

     

0.139

     

--

 
Goodwill impairment (1)        

1.061

     

--

     

1.062

      --  
Legal settlement (1)        

(0.010

)    

--

     

(0.010

)

    --  
Dilutive effect under if-converted method (4)        

0.201

     

--

     

0.204

      --  
Non-GAAP net income per diluted share (3) (6)      

$

0.317     $ 0.254     $

0.575

   

$

0.553

 
                                     
U.S. GAAP Weighted average shares - basic        

56,857

     

56,684

     

56,853

      56,657  
U.S. GAAP Weighted average shares - diluted        

56,857

     

68,136

     

56,853

      68,053  
Non-GAAP Weighted average shares - diluted (4)        

68,417

     

68,136

     

68,354

      68,053  
     

Notes:

 
     

(1)

Based on a year-to-date tax rate analysis, the non-GAAP tax provision was calculated to be approximately 37% for the three and six months ended December 31, 2011 for all non-GAAP operating expense adjustments, except the goodwill impairment. The goodwill impairment had a tax benefit of approximately $5.9 million for both the three and six months ended December 31, 2011, as the charge is only partially deductible for income tax purposes. The non-GAAP tax rate for the three months ended December 31, 2011 was 25.8%. The difference between the non-GAAP effective tax rate of 25.8% for the three months ended December 31, 2011 and the rate used for the tax provision adjustments is primarily the result of application of work opportunity tax credits and the release of state tax reserves during the three months ended December 31, 2011. Based on a projected statutory effective tax rate analysis, the non-GAAP tax provision was calculated to be approximately 38% for the three and six months ended December 31, 2010 for all non-GAAP operating expense adjustments.

     

(2)

For the three and six months ended December 31, 2010 U.S. GAAP net income per diluted share is calculated under the if-converted method. Under the if-converted method for the three and six months ended December 31, 2010, $2.0 and $4.0 million, respectively, of after tax interest expense on the convertible debt is added to net income to determine the net income for diluted earnings per share.

     

(3)

For the three and six months ended December 31, 2011 and 2010 non-GAAP net income per diluted share, has been calculated under the if-converted method. For the three and six months ended December 31, 2011 and 2010, $2.1, $4.1, $2.0 and $4.0 million, respectively, of after tax interest on the convertible debt is added to the non-GAAP net income to determine the non-GAAP net income per diluted earnings per share.

     

(4)

Non-GAAP net income per share reflects the weighted average shares associated with non-GAAP net income, which includes the dilutive effect of common stock and convertible share equivalents. The earnings per share impact of the adjustments for the three and six months ended December 31, 2011 included 0.4 and 0.3 million, respectively of common stock equivalents and convertible share equivalents of 11.2 million, for both periods, of additional shares under the if-converted method. The impact of the adjustments described above result in the effect of the common stock equivalents and convertible share equivalents to be dilutive to the non-GAAP net income per share.

     

(5)

Operational operating margins for the three months ended December 31, 2011, and 2010, was 4.4% and 4.2 %, respectively, and is calculated as non-GAAP operating income divided by U.S. GAAP revenue for each respective period.

     

(6)

Total is a recalculation; line items calculated individually may not sum to total due to rounding.

                   

REGIS CORPORATION

Summary of Pre-Tax, Income Taxes, and Net Income for Q2 FY12 Non-Operational Items

                   
    Pre-Tax     Income Taxes     Net Income  
                   
Senior management restructuring   $ 696     $ (254 )   $ 442  
Proxy fees   1,096     (404 )   692  
Point-of-sale accelerated depreciation   6,338     (2,315 )   4,023  
Goodwill impairment   78,426     (5,854 )   72,572  
Legal settlement   (1,098 )   405     (693 )
Total   $ 85,458     $ (8,422 )   $ 77,036  
   
REGIS CORPORATION  
Reconciliation of reported U.S. GAAP net loss to operational EBITDA, a non-GAAP financial measure  
($ In thousands)  
(unaudited)  
                   

Operational EBITDA

 

EBITDA represents U.S. GAAP net (loss) income for the respective period excluding interest expense, income taxes and depreciation and amortization expense. The Company defines operational EBITDA, as EBITDA excluding equity in income of affiliated companies, and identified items impacting comparability for each respective period. For the three months ended December 31, 2011, the items impacting comparability consisted of $0.7 million of pre-tax expense associated with our senior management restructuring, $1.1 million of pre-tax expense for advisory fees and other costs associated with the recent contested proxy, $78.4 million goodwill impairment charge related to our Hair Restoration Centers reportable segment, and $1.1 million of income associated with a legal settlement. The impact of the $6.3 million of pre-tax accelerated depreciation related to the point-of-sale system and the income tax provision adjustment is already included in the U.S. GAAP reported net loss income to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA. For the three months ended December 31, 2010, the items impacting comparability consisted $1.3 million of pre-tax expense for fees associated our exploration of strategic alternatives. The impact of the income tax provision adjustment is already included in the U.S. GAAP reported net loss income to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA.

         
      Three Months Ended  
     

December 31, 2011

   

December 31, 2010

 
      (Dollars in thousands)  

Consolidated reported net (loss) income, as reported (U.S. GAAP)

  $

(57,427

)

  $ 14,505  
Interest expense, as reported    

7,203

     

8,738

 
Income taxes, as reported    

(3,453

)

   

5,345

 
Depreciation and amortization, as reported    

31,695

     

26,197

 
EBITDA (as defined above)  

$

(21,982

)

  $ 54,785  
                   
                   
Equity in income of affiliated companies, net of income taxes, as reported    

(5,281

)

   

(3,120

)
Senior management restructuring    

696

     

--

 
Proxy fees      

1,096

     

--

 
Strategic alternatives costs    

--

     

1,253

 
Goodwill impairment, as reported    

78,426

     

--

 
Legal settlement    

(1,098

)

   

--

 
Operational EBITDA, non-GAAP financial measure   $ 51,857    

$

52,918  
                   

REGIS CORPORATION'S NORTH AMERICA REPORTABLE SEGMENT

Reconciliation of selected U.S. GAAP to non-GAAP financial measures

($ In thousands)

(unaudited)

                   
    As Reported    

Non-Operational
Adjustments (1)

    Non-GAAP  
   

Three
Months
Ended
December

31,
2011

 

% of
Revenues

       

Three
Months
Ended
December 31,
2011

 

% of
Revenues

 
                           
Service   $ 379,694   77.1 %   $ --            
Product   103,162   21.0     --            
Royalties and fees   9,213   1.9     --            
Total revenues   $ 492,069   100.0     $ --     $ 492,069   100.0 %
                           
Cost of service (2)   218,547   57.6     --            
Cost of product (3)   51,753   50.2     --            
Site operating expenses   44,466   9.0     --            
General and administrative   28,584   5.8     --            
Rent   73,686   15.0     --            
Depreciation and amortization   17,692   3.6     (828 )   16,864   3.4  
Goodwill impairment   --   --     --            
Total operating expenses   $ 434,728   88.3     $ (828 )   $ 433,900   88.2  
                           
Operating income   $ 57,341   11.7     $ 828     $ 58,169   11.8  
                                 
       

(1)

 

The three months ended December 31, 2011 included $0.8 million pre-tax expense for the accelerated depreciation related to our point-of-sale system.

       

(2)

 

Computed as a percent of service revenues and excludes depreciation expense.

       

(3)

 

Computed as a percent of product revenues and excludes depreciation expense.

                   

REGIS CORPORATION'S INTERNATIONAL REPORTABLE SEGMENT

Reconciliation of selected U.S. GAAP to non-GAAP financial measures

($ In thousands)

(unaudited)

                   
    As Reported    

Non-Operational
Adjustments (1)

    Non-GAAP  
   

Three
Months
Ended
December 31,
2011

 

% of
Revenues

       

Three
Months
Ended
December 31,
2011

 

% of
Revenues

 
                           
Service   $ 24,331   71.4 %   $ --            
Product   9,738   28.6     --            
Royalties and fees   --   --     --            
Total revenues   $ 34,069   100.0     $ --     $ 34,069   100.0 %
                           
Cost of service (2)   13,122   53.9     --            
Cost of product (3)   5,254   54.0     --            
Site operating expenses   2,359   6.9     --            
General and administrative   2,956   8.7     --            
Rent   9,060   26.6     --            
Depreciation and amortization   1,112   3.3     (95 )   1,017   3.0  
Goodwill impairment   --   --     --            
Total operating expenses   $ 33,863   99.4     $ (95 )   $ 33,768   99.1  
                           
Operating income   $ 206   0.6     $ 95     $ 301   0.9  
                                 
       

(1)

 

The three months ended December 31, 2011 included $0.1 million pre-tax expense for the accelerated depreciation related to our point-of-sale system.

       

(2)

 

Computed as a percent of service revenues and excludes depreciation expense.

       

(3)

 

Computed as a percent of product revenues and excludes depreciation expense.

                   

REGIS CORPORATION'S HAIR RESTORATION CENTERS REPORTABLE SEGMENT

Reconciliation of selected U.S. GAAP to non-GAAP financial measures

($ In thousands)

(unaudited)

                   
    As Reported    

Non-Operational
Adjustments (1)

    Non-GAAP  
   

Three
Months
Ended
December 31,
2011

 

% of
Revenues

       

Three
Months
Ended
December 31,
2011

 

% of
Revenues

 
                           
Service   $ 17,274   46.5 %   $ --            
Product   19,308   52.0     --            
Royalties and fees   558   1.5     --            
Total revenues   $ 37,140   100.0     $ --     $ 37,140   100.0 %
                           
Cost of service (2)   10,672   61.8     --            
Cost of product (3)   6,462   33.5     --            
Site operating expenses   1,600   4.3     --            
General and administrative   8,060   21.7     --            
Rent   2,224   6.0     --            
Depreciation and amortization   3,249   8.7     --            
Goodwill impairment   78,426   211.2     (78,426 )   --   --  
Total operating expenses   $ 110,693   298.0     $ (78,426 )   $ 32,267   86.9  
                           
Operating (loss) income   $ (73,553 ) (198.0 )   $ 78,426     $ 4,873   13.1  
                                 
       

(1)

 

The three months ended December 31, 2011 included $78.4 million pre-tax expense for the goodwill impairment related to the Company's Hair Restoration Centers' reportable segment.

       

(2)

 

Computed as a percent of service revenues and excludes depreciation expense.

       

(3)

 

Computed as a percent of product revenues and excludes depreciation expense.

                   

REGIS CORPORATION'S UNALLOCATED CORPORATE REPORTABLE SEGMENT

Reconciliation of selected U.S. GAAP to non-GAAP financial measures

($ In thousands)

(unaudited)

                   
   

As Reported

   

Non-Operational
Adjustments (2)

    Non-GAAP  
   

Three
Months
Ended
December 31,
2011

   

% of
Revenues (1)

       

Three
Months
Ended
December 31,
2011

   

% of
Revenues (1)

 
                               
Service   $ --     -- %   $ --              
Product   --     --     --              
Royalties and fees   --     --     --              
Total revenues   $ --     --     $ --     $ --     -- %
                               
Cost of service (3)   --     --     --              
Cost of product (4)   --     --     --              
Site operating expenses   --     --     --              
General and administrative   35,466     6.3     (1,792 )   33,674     6.0  
Rent   503     0.1     --              
Depreciation and amortization   9,642     1.7     (5,415 )   4,227     0.8  
Goodwill impairment   --     --     --              
Total operating expenses   $ 45,611     8.1     $ (7,207 )   $ 38,404     6.8  
                               
Operating loss   $ (45,611 )   (8.1 )   $ 7,207     $ (38,404 )   (6.8 )
                                     
       

(1)

 

Computed as a percent of consolidated revenues.

       

(2)

 

The three months ended December 31, 2011 included $0.7 million of pre-tax expense associated with senior management restructuring, $1.1 million of pre-tax expense associated with advisory fees and other costs associated with the recent contested proxy, and $5.4 million pre-tax expense for the accelerated depreciation related to our point-of-sale system.

       

(3)

 

Computed as a percent of service revenues and excludes depreciation expense.

       

(4)

 

Computed as a percent of product revenues and excludes depreciation expense.

                   
    As Reported    

Non-Operational
Adjustments (2)

    Non-GAAP  
   

Three
Months
Ended
December 31,
2010

   

% of
Revenues (1)

       

Three
Months
Ended
December 31,
2010

   

% of
Revenues (1)

 
                               
Service   $ --     -- %   $ --              
Product   --     --     --              
Royalties and fees   --     --     --              
Total revenues   $ --     --     $ --     $ --     -- %
                               
Cost of service (3)   --     --     --              
Cost of product (4)   --     --     --              
Site operating expenses   --     --     --              
General and administrative   31,828     5.5     (1,253 )   30,575     5.3  
Rent   564     0.1     --              
Depreciation and amortization   4,444     0.8     --              
Goodwill impairment   --     --     --              
Total operating expenses   $ 36,836     6.4     $ (1,253 )   $ 35,583     6.2  
                               
Operating loss   $ (36,836 )   (6.4 )   $ 1,253     $ (35,583 )   (6.2 )
                                     
       

(1)

 

Computed as a percent of consolidated revenues.

       

(2)

 

The three months ended December 31, 2010 included $1.3 million of pre-tax expense associated our exploration of strategic alternatives.

       

(3)

 

Computed as a percent of service revenues and excludes depreciation expense.

       

(4)

 

Computed as a percent of product revenues and excludes depreciation expense.

###

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