UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2002
OR
For the transition period from to
Commission file number 011230
Regis Corporation(Exact name of registrant as specified in its charter)
(952)947-7777(Registrant’s telephone number, including area code)
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 No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of May 2, 2002:
TABLE OF CONTENTS
REGIS CORPORATION
INDEX
PART I — FINANCIAL INFORMATIONItem 1. Financial Statements
REGIS CORPORATIONCONSOLIDATED BALANCE SHEETas of March 31, 2002 and June 30, 2001(Dollars in thousands, except par value)
The accompanying notes are an integral part of the unaudited Consolidated Financial Statements.
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REGIS CORPORATIONCONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)for the three months ended March 31, 2002 and 2001(Dollars in thousands, except per share amounts)
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REGIS CORPORATIONCONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)for the nine months ended March 31, 2002 and 2001(Dollars in thousands, except per share amounts)
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REGIS CORPORATIONCONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)for the nine months ended March 31, 2002 and 2001(Dollars in thousands)
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REGIS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
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REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Regis Corporation:
We have reviewed the accompanying consolidated balance sheet of Regis Corporation as of March 31, 2002, and the related consolidated statements of operations for the three and nine month periods ended March 31, 2002 and 2001 and the consolidated statement of cash flows for the nine month periods ended March 31, 2002 and 2001. These financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of June 30, 2001, and the related consolidated statements of operations, of changes in shareholders’ equity and of cash flows for the year then ended (not presented herein), and in our report dated August 28, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the accompanying consolidated balance sheet information as of June 30, 2001, is fairly stated, in all material respects in relation to the consolidated balance sheet from which it has been derived.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, MinnesotaApril 23, 2002
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
Regis Corporation (the Company), based in Minneapolis, Minnesota, is the world’s largest owner, operator, franchisor and acquirer of hair and retail product salons. The Regis worldwide operations include 7,402 salons at March 31, 2002 operating in two reportable segments: domestic and international. Each of the Company’s operating segments have generally similar products and services. The Company is organized to manage its operations based on geographical location. The Company’s domestic segment includes 6,488 salons operating primarily under the trade names of Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters. The Company’s international operations include 914 salons located primarily in the United Kingdom and France. The Company has over 41,000 employees worldwide.
Third quarter fiscal 2002 revenues grew to a record $361.6 million, including franchise revenues of $19.6 million, a 9.3 percent increase over the third quarter of fiscal 2001. Revenues for the nine months ended March 31, 2002 grew to a record $1.1 billion, including franchise revenues of $53.4 million, a 10.8 percent increase over total revenues in the comparable fiscal 2001 period.
Operating income in third quarter of fiscal 2002 increased to $32.9 million, a 24.6 percent increase over the corresponding period of fiscal 2001. For the first nine months of fiscal 2002, operating income increased to $95.6 million, a 23.2 percent increase over the same period of fiscal 2001.
Fiscal 2002 results for the quarter and nine months ended March 31, 2002 include a one-time income tax benefit of $1.8 million resulting from the implementation of certain tax planning strategies. This benefit was recorded as a reduction to income tax expense. Exclusive of this nonrecurring benefit, net income in the third quarter of fiscal 2002 increased to a record $17.6 million, or $.40 per diluted share, a net income and earnings per share increase of 40.3 percent and 33.3 percent, respectively, over the prior year. For the nine months ended March 31, 2002, net income exclusive of the nonrecurring benefit grew to a record $49.9 million, or $1.14 per diluted share. This represents net income and earnings per share increases of $12.6 million, or 33.7 percent, and $.25, or 28.1 percent, respectively.
Inclusive of the nonrecurring benefit, net income in the third quarter of fiscal 2002 increased to $19.3 million, or $.44 per diluted share, a net income and earnings per share increase of 54.3 percent and 46.7 percent, respectively, from third quarter fiscal 2001. For the nine months ended March 31, 2002, net income including the nonrecurring benefit grew to $51.7 million, or $1.18 per diluted share. This represents a net income and earnings per share increase of $14.3 million, or 38.4 percent, and $.29, or 32.6 percent, respectively.
The Company completed the implementation of the new accounting standard associated with the discontinuance of amortization of goodwill, effective July 1, 2001, as discussed in Note 2 to the Consolidated Financial Statements.
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Results of Operations
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CRITICAL ACCOUNTING POLICIES
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. However, actual results could differ from these estimates.
Management believes the Company’s critical accounting policies and areas that require more significant judgments and estimates used in the preparation of its Consolidated Financial Statements to be:
Depreciation and amortization are recognized using the straight-line method over the long-lived assets’ estimated useful lives. The Company estimates useful lives based on historical data and industry trends. The Company periodically reassesses the estimated useful lives of its long-lived and intangible assets. Changes to estimated useful lives would impact the amount of depreciation and amortization expense recorded in earnings and potentially the need to record an impairment charge.
The Company reviews long-lived and intangible assets, including goodwill, for impairment annually, or at any time events or circumstances indicate that the carrying value of such assets may not be fully recoverable. For long-lived assets and amortizable intangible assets, impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the assets compared to its carrying value. If an impairment is recognized, the carrying value of the impaired asset is reduced to its fair value based on discounted estimated future cash flows. For goodwill, impairment is evaluated based on the fair value of the division to which the goodwill relates.
The Company makes numerous acquisitions that are recorded using the purchase method of accounting. Accordingly, the purchase prices are allocated to assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values at the dates of acquisition. Fair value is estimated based on the amount for which the asset or liability could be bought or sold in a current transaction between willing parties.
In the normal course of business, the Company must make continuing estimates of potential future loss accruals related to legal, tax, self-insurance accruals and uncollectible accounts. These accruals require the use of management’s judgment on the outcome of various issues. Management’s estimates for these items are based on the best available evidence, but due to changes in facts and circumstances, the ultimate outcomes of these accruals could be different than management estimates.
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On an interim basis, product costs are determined by applying an estimated gross profit margin to product revenues. The estimated gross profit margins are based primarily on historical factors. Management also incorporates into the margin its best estimate of the current product mix impact. On a semi-annual basis, the Company performs physical inventories and adjusts product costs to actual as determined under the lower of cost or market determined on the first-in, first-out method, and updates its gross profit margins accordingly.
RESULTS OF OPERATIONS
RevenuesRevenues for the third quarter of fiscal 2002 grew to a record $361.6 million, an increase of $30.7 million or 9.3 percent, over the same period in fiscal 2001. Revenues for the first nine months of fiscal 2002 grew to a record $1.1 billion, an increase of $104.1 million, or 10.8 percent, over the corresponding period in fiscal 2001. For the third quarter and first nine months of fiscal 2002, approximately 55 percent and 49 percent, respectively, of these increases were attributable to new salon construction, with the remaining increases primarily due to same-store sales increases and salon acquisitions.
For the third quarter and first nine months of fiscal 2002 and 2001, respectively, revenues by division were as follows:
Included in the table above are franchise revenues of $19,608 and $53,389 for the three and nine months ended March 31, 2002, respectively, and $14,263 and $41,223 for the three and nine months ended March 31, 2001, respectively.
During the third quarter and first nine months of fiscal 2002, same-store sales from all domestic company-owned salons open more than 12 months increased 3.8 percent and 3.4 percent, respectively, compared to increases of 2.7 and 3.0 percent, respectively, in the same periods of fiscal 2001. Same-store sales increases achieved during the three and nine months ended March 31, 2002 and 2001 were driven primarily by higher product sales and a shift in the mix of service sales toward higher priced salon services, such as hair color, as well as increased customer transactions. A total of 30.5 million and 91.7 million customers were served system-wide in the third quarter and first nine months of fiscal 2002, respectively, compared to 28.8 million and 85.2 million customers served during the same periods of fiscal 2001.
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System-wide sales, inclusive of non-consolidated sales generated from franchisee salons, increased to $543.6 million for the third quarter and $1.6 billion for the first nine months of fiscal 2002, representing increases of 13.1 percent for both the quarter and year-to-date over the same periods last year. System-wide same-store sales increased 4.0 percent and 3.7 percent in the third quarter and first nine months of fiscal 2002, respectively, compared to 3.2 percent and 3.4 percent in the same periods of fiscal 2001.
Service Revenues. Service revenues in the third quarter of fiscal 2002 grew to $238.9 million, an increase of $12.6 million or 5.6 percent, over the same period in fiscal 2001. In the first nine months of fiscal 2002, service revenues were $707.1 million, an increase of $52.6 million or 8.0 percent, over the same period a year ago. The increase in service revenues was a result of new salon construction, same-store sales growth and salon acquisitions.
Product Revenues. Product revenues in the third quarter of fiscal 2002 grew to $103.1 million, an increase of $12.7 million, or 14.1 percent, over the same period in fiscal 2001. In the first nine months of fiscal 2002, product revenues increased $39.3 million, or 14.5 percent, to $309.3 million. These increases continue a trend of escalating product revenues due to strong product same-store sales growth of 8.3 percent in the third quarter and 7.3 percent during the first nine months of fiscal 2002, a reflection of the continuous focus on product awareness, training and acceptance of national label merchandise. Product revenues as a percent of total company-owned revenues increased to 30.1 percent and 30.4 percent for the third quarter and first nine months of fiscal 2002, respectively, compared to 28.5 percent and 29.2 percent for the same periods a year ago.
Franchise Revenues. Franchise revenues, including royalties and initial franchise fees from franchisees, and product and equipment sales made by the Company to franchisees, increased to $19.6 million in the third quarter and $53.4 million in the first nine months of fiscal 2002, compared to $14.3 million and $41.2 million, respectively, for the corresponding periods of fiscal 2001. The increase in franchise revenues was primarily the result of increased franchise royalties and fees related to the French franchise company, GGG, which was acquired in September 2001 and increased sales of product to franchisee salons.
Cost of RevenueThe aggregate cost of service and product revenues for company-owned salons in the third quarter of fiscal 2002 was $191.1 million compared to $177.9 million in the same period in fiscal 2001. During the first nine months of fiscal 2002, the aggregate cost of service and product revenues were $566.3 million compared to $520.4 million in the same period a year ago. The resulting combined gross margin percentages for the third quarter and first nine months of fiscal 2002 improved 30 basis points to 44.1 percent and 60 basis points to 44.3 percent of company-owned revenues, respectively.
Service margins improved 30 basis points and 50 basis points in the third quarter and first nine months of fiscal 2002, respectively, to 43.1 percent of company-owned revenues. These improvements were primarily a result of leveraging payroll costs due to increased same-store sales gains, as well as increased efforts to control payroll and payroll related costs.
Product margins improved 20 basis points to 46.6 percent and 80 basis points to 47.1 percent of company-owned revenues in the third quarter and first nine months of fiscal 2002, respectively. These improvements were the result of a shift in the Company’s mix of products sold. Beginning in the latter portion of fiscal 2001, the product mix changed to consist more heavily of products with a higher profit margin. The improvement for the quarter was partially offset by a discount promotion on the MasterCuts private label product line.
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Direct SalonThis expense category includes direct costs associated with salon operations such as salon advertising, insurance, telephone, utilities and janitorial costs. For the third quarter of fiscal 2002, direct salon expense of $30.6 million decreased to 8.9 percent of company-owned revenues from 9.1 percent in the same period a year ago. For the first nine months of fiscal 2002, direct salon expense increased to $92.0 million, or 9.0 percent of company-owned revenues, from 8.9 percent in the corresponding period of fiscal 2001. The 20 basis point decrease as a percent of company-owned revenues during the third quarter was primarily the result of lower utilities expense due to a mild winter and decreased freight costs due to savings stemming from the new Salt Lake City, Utah distribution center, which opened in May 2001. The year-to-date increase of ten basis points was primarily a result of higher workers’ compensation costs.
RentRent expense for the third quarter and first nine months of fiscal 2002 was $48.4 million and $143.8 million, respectively, compared to $44.5 million and $129.0 million in the same periods of fiscal 2001. Rent expense increased 20 basis points as a percentage of company-owned revenues in both the third quarter and first nine months of fiscal 2002 primarily due to higher common area maintenance costs. In regional malls, landlords are experiencing higher maintenance, insurance and security costs which they are passing on to their tenants such as Regis.
Depreciation — Salon LevelDepreciation expense at the salon level increased 20 basis points to 3.6 percent of company-owned revenues during the third quarter and ten basis points to 3.5 percent during the first nine months of fiscal 2002. The increase as a percent of sales was the result of salon asset write-offs during the quarter due to the timing of salon closures and relocations.
Direct Salon ContributionFor reasons previously discussed, direct salon contribution, representing company-owned salon revenues less associated operating expenses, increased in the third quarter and first nine months of fiscal 2002 to $59.7 million and $179.1 million, respectively, compared to $54.8 million and $161.6 million during the same periods of fiscal 2001. As a percent of sales, direct salon contribution increased 20 basis points to 17.5 percent and ten basis points to 17.6 percent of company-owned revenues during the third quarter and first nine months of fiscal 2002, respectively.
Selling, General and AdministrativeExpenses in this category include field supervision (payroll, related taxes and travel) and home office administration costs (such as warehousing, salaries, occupancy costs and professional fees). Selling, general and administrative (SG&A) expenses were $38.5 million in the third quarter of fiscal 2002, compared to $33.4 million in the same period in fiscal 2001. For the first nine months of fiscal 2002, SG&A expenses were $115.7 million, compared to $99.7 million in the corresponding period of fiscal 2001. As a percent of total revenues, SG&A expenses increased 50 basis points for the three and nine months ended March 31, 2002 to 10.6 percent and 10.8 percent, respectively. These increases were primarily due to franchise support costs associated with the September 2001 acquisition of the French franchise Company, GGG. Also, duplicative costs incurred during the first half of fiscal 2002 associated with operating three distribution centers, prior to closing the Company’s Minneapolis distribution center in December 2001, contributed to the year-to-date increase.
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Depreciation and Amortization — CorporateCorporate depreciation and amortization decreased to 0.7 percent of total revenues in the third quarter and first nine months of fiscal 2002, compared to 1.7 percent in the same periods of fiscal 2001. These 100 basis point decreases were primarily related to the implementation of FAS No. 142 in July 2001, which discontinues the amortization of acquired goodwill, as discussed in Note 2 to the Consolidated Financial Statements.
Operating IncomeOperating income in the third quarter of fiscal 2002 improved to $32.9 million, or 9.1 percent of total revenues, an increase of $6.5 million or 24.6 percent over the same period in fiscal 2001. For the first nine months of fiscal 2002, operating income increased $18.0 million, or 23.2 percent, to $95.6 million, or 8.9 percent of total revenues.
InterestInterest expense in the third quarter and first nine months of fiscal 2002 declined to $4.5 million and $14.0 million, respectively, representing 1.2 percent of total revenues in the third quarter and 1.3 percent in the first nine months of fiscal 2002. The 50 basis point and 40 basis point decreases as a percent of total revenues for the third quarter and first nine months of fiscal 2002, respectively, were due to significantly lower interest rates during fiscal 2002 as compared to the same periods a year ago.
Income TaxesThe Company’s annual effective income tax rate for the first nine months of fiscal 2002 was 37.1 percent, including 32.6 percent in the third quarter, compared to 40.0 percent in the first nine months of fiscal 2001. Management recognized a one-time income tax benefit of approximately $1.8 million during the third quarter of fiscal 2002 resulting from the implementation of certain tax planning strategies. Exclusive of this nonrecurring benefit, the Company’s annual underlying effective tax rate was 38.7 percent for the third quarter and 39.2 percent for the nine months ended March 31, 2002. The decrease in the effective rate, exclusive of the nonrecurring income tax benefit, was primarily due to the change in accounting for goodwill, as the permanent add-back for non-deductible goodwill amortization for stock acquisitions was eliminated. Management expects the Company’s recurring underlying effective tax rate for all of fiscal 2002, exclusive of the one-time benefit, to be approximately 39.2 percent and the actual fiscal 2002 effective tax rate to be approximately 37.7 percent as a result of the aforementioned one-time benefit.
Net IncomeNet income, exclusive of the fiscal 2002 nonrecurring income tax benefit, in the third quarter of fiscal 2002 grew to $17.6 million, or $.40 per diluted share, compared to $12.5 million, or $.30 per diluted share in the same period in fiscal 2001. Inclusive of the nonrecurring benefit, net income for the quarter ended March 31, 2002 was $19.3 million, or $.44 per diluted share.
For the first nine months of fiscal 2002, net income exclusive of the fiscal 2002 nonrecurring income tax benefit grew to $49.9 million, or $1.14 per diluted share, compared to $37.3 million, or $.89 per diluted share, in the corresponding period last year. For the nine months ended March 31, 2002, inclusive of the nonrecurring benefit, net income and earnings per diluted share increased to $51.7 million and $1.18 per diluted share.
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The increases in earnings per diluted share primarily resulted from sales increases, improved gross margins and the change in accounting for goodwill. On a pro forma basis, assuming goodwill had not been amortized during fiscal 2001 and excluding the fiscal 2002 nonrecurring income tax benefit, net income increased to $17.6 million, or $.40 per diluted share, in the third quarter of fiscal 2002 compared to $14.8 million, or $.35 per diluted share, in the same period of fiscal 2001. On a pro forma basis for the year-to-date, net income increased to $49.9 million, or $1.14 per diluted share, during fiscal 2002 compared to $43.6 million, or $1.04 per diluted share, during the corresponding period of fiscal 2001. See Note 2 to the Consolidated Financial Statements.
Effects of InflationThe Company primarily compensates its Regis Salon and International salon employees with percentage commissions based on the sales they generate, thereby enabling salon payroll expense as a percent of revenues to remain relatively constant. Accordingly, this provides the Company certain protection against inflationary increases as payroll expense and related benefits (the Company’s major expense components) are, with respect to these divisions, variable costs of sales. The Company does not believe inflation, due to its low rate, has had a significant impact on the results of operations associated with hourly paid hairstylists for the remainder of its mall-based and strip center salons.
Recent Accounting PronouncementsRecent accounting pronouncements are discussed in Note 2 to the Consolidated Financial Statements.
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LIQUIDITY AND CAPITAL RESOURCESCustomers 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 for the first nine months of fiscal 2002 increased to $106.0 million compared to $79.2 million during the same period in fiscal 2001. The increase between the two periods was primarily due to improved operating performance, the timing of payments to vendors, the timing of income tax remittances, and continued improvement related to inventory management.
Capital Expenditures and AcquisitionsDuring the first nine months of fiscal 2002, the Company had worldwide capital expenditures of $53.0 million, of which $2.5 million related to acquisitions. The Company constructed 269 new corporate salons in the first nine months of fiscal 2002, including 47 new Regis Salons, 33 new MasterCuts salons, 26 new Trade Secret salons, 92 new SmartStyle salons, 55 new Strip Center Salons and 16 new International salons, and completed 100 major remodeling projects. All capital expenditures during the first nine months of 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 2002 will include approximately 375 new salons and 150 major remodeling and conversion projects. It is expected that expenditures for these new salons and other projects will be approximately $70 million in fiscal 2002, excluding capital expenditures associated with acquisitions.
During the first nine months of fiscal 2002, the Company had worldwide expenditures of $19.1 million related to the acquisition of 569 salons, including 517 franchised salons.
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. See Notes 6 and 11 to the Consolidated Financial Statements.
Contractual Obligations and Commercial CommitmentsThe following tables reflect a summary of obligations and commitments outstanding by payment date as of March 31, 2002 (Dollars in thousands).
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Operating leases represents long-term obligations for the rental of salon premises, which include franchisee accommodation leases of approximately $102.0 million, which are funded by franchisees. In the event of default by a franchise owner, the Company generally retains the right to acquire the related salon assets net of any outstanding obligations. Management has not experienced and does not expect any material loss to result from these instruments.
Other long-term obligations are composed of the following components.
The Company does not have 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.
FinancingSee Note 6 to the Consolidated Financial Statements.
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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 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.
DividendsDuring the first nine months of fiscal 2002, the Company paid dividends totaling $3.8 million, or $.09 per share. On May 8, 2002, the Board of Directors of the Company declared a $.03 per share quarterly dividend payable on June 6, 2002 to shareholders of record on May 23, 2002.
SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report on Form 10-Q, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain “forward-looking statements” within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward—looking statements in this document reflect management’s best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, “may,” “believe,” “project,” “expect,” “estimate,” “anticipate,” and “plan.” Additional information concerning potential factors that could affect future financial results is included in the Company’s Form S-3 Registration Statement filed with the Securities and Exchange Commission on May 3, 2002.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk exposure of the Company relates to changes in interest rates in connection with its debt, some of which bears interest at floating rates based on LIBOR plus an applicable borrowing margin. To a lesser extent, the Company is also exposed to foreign currency translation risk related to its net investments in its foreign subsidiaries.
As of March 31, 2002, the Company had $55.0 million of floating and $242.1 million of fixed rate debt outstanding. The Company manages its interest rate risk by balancing the amount of fixed and variable debt. In addition, on occasion the Company uses interest rate swaps to further mitigate the risk associated with changing interest rates. Generally, the terms of the interest rate swap agreements range from two to three years with settlement on a quarterly basis. As of March 31, 2002, the Company has entered into interest rate swap agreements covering $66.8 million of the floating rate obligations and $111.0 million of the fixed rate debt obligations, as discussed in Note 3 to the Consolidated Financial Statements.
The Company has also entered into a cross currency swap with a notional amount of $21.8 million to hedge its foreign currency exposure in certain of its net investments.
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Part II — Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 15 Letter Re: Unaudited Interim Financial Information.
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SIGNATURE
Pursuant to the requirements 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.
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