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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Minnesota
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41-0749934
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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7201 Metro Boulevard, Edina, Minnesota
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55439
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
¨
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(Do not check if a smaller reporting company)
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Emerging growth company
¨
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Common Stock, $.05 par value
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46,308,537
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Class
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Number of Shares
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March 31, 2017 (Unaudited)
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June 30,
2016 |
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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168,689
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$
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147,346
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Receivables, net
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22,893
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24,691
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Inventories
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127,307
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134,212
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Other current assets
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48,402
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51,765
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Total current assets
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367,291
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358,014
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Property and equipment, net
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155,689
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183,321
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Goodwill
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416,140
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417,393
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Other intangibles, net
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14,027
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15,185
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Other assets
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62,182
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62,019
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Total assets
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$
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1,015,329
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$
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1,035,932
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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53,171
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$
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59,884
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Accrued expenses
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130,050
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135,431
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Total current liabilities
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183,221
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195,315
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Long-term debt, net
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120,351
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119,606
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Other noncurrent liabilities
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206,228
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201,610
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Total liabilities
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509,800
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516,531
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Commitments and contingencies (Note 6)
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Shareholders’ equity:
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Common stock, $0.05 par value; issued and outstanding 46,305,679 and 46,154,410 common shares at March 31, 2017 and June 30, 2016, respectively
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2,315
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2,308
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Additional paid-in capital
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215,610
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207,475
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Accumulated other comprehensive income
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456
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5,068
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Retained earnings
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287,148
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304,550
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Total shareholders’ equity
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505,529
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519,401
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Total liabilities and shareholders’ equity
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$
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1,015,329
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$
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1,035,932
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Three Months Ended March 31,
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Nine Months Ended March 31,
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||||||||||||
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2017
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2016
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2017
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2016
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Revenues:
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Service
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$
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319,470
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$
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344,063
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$
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978,222
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$
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1,034,751
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Product
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81,497
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86,722
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254,395
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272,977
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Royalties and fees
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11,636
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11,780
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35,071
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35,434
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412,603
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442,565
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1,267,688
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1,343,162
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Operating expenses:
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Cost of service
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207,816
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217,046
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626,690
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651,486
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Cost of product
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40,693
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43,000
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127,902
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136,420
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Site operating expenses
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40,339
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42,912
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126,981
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138,145
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General and administrative
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49,783
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42,606
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130,780
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134,554
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Rent
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69,758
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74,388
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212,278
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223,666
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Depreciation and amortization
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16,998
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16,992
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48,973
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51,877
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Total operating expenses
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425,387
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436,944
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1,273,604
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1,336,148
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Operating (loss) income
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(12,784
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)
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5,621
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(5,916
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)
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7,014
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Other (expense) income:
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Interest expense
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(2,156
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)
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(2,405
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)
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(6,526
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)
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(7,141
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)
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Interest income and other, net
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393
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1,017
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2,416
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2,958
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||||||||
(Loss) income before income taxes and equity in loss of affiliated companies
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(14,547
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)
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4,233
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(10,026
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)
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2,831
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||||
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Income tax expense
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(3,858
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)
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(6,317
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)
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(7,317
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)
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(4,926
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)
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Equity in loss of affiliated companies, net of income taxes
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(50
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)
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—
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(50
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)
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(14,783
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)
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||||
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Net loss
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$
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(18,455
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)
|
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$
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(2,084
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)
|
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$
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(17,393
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)
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$
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(16,878
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)
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||||||||
Net loss per share:
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Basic and diluted
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$
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(0.40
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)
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$
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(0.04
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)
|
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$
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(0.38
|
)
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$
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(0.34
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)
|
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||||||||
Weighted average common and common equivalent shares outstanding:
|
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|||||||
Basic and diluted
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46,360
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46,991
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|
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46,304
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|
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49,287
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Three Months Ended March 31,
|
|
Nine Months Ended March 31,
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||||||||||||
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2017
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2016
|
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2017
|
|
2016
|
||||||||
Net loss
|
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$
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(18,455
|
)
|
|
$
|
(2,084
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)
|
|
$
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(17,393
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)
|
|
$
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(16,878
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments
|
|
248
|
|
|
1,806
|
|
|
(4,590
|
)
|
|
(4,801
|
)
|
||||
Recognition of deferred compensation
|
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
|
—
|
|
||||
Other comprehensive income (loss)
|
|
226
|
|
|
1,806
|
|
|
(4,612
|
)
|
|
(4,801
|
)
|
||||
Comprehensive loss
|
|
$
|
(18,229
|
)
|
|
$
|
(278
|
)
|
|
$
|
(22,005
|
)
|
|
$
|
(21,679
|
)
|
|
|
Nine Months Ended March 31,
|
||||||
|
|
2017
|
|
2016
|
||||
Cash flows from operating activities:
|
|
|
|
|
|
|
||
Net loss
|
|
$
|
(17,393
|
)
|
|
$
|
(16,878
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|||
Depreciation and amortization
|
|
41,351
|
|
|
44,261
|
|
||
Equity in loss of affiliated companies
|
|
50
|
|
|
14,783
|
|
||
Deferred income taxes
|
|
6,419
|
|
|
3,607
|
|
||
Gain from sale of salon assets, net
|
|
(53
|
)
|
|
(827
|
)
|
||
Salon asset impairments
|
|
7,622
|
|
|
7,616
|
|
||
Stock-based compensation
|
|
9,498
|
|
|
7,492
|
|
||
Amortization of debt discount and financing costs
|
|
1,054
|
|
|
1,249
|
|
||
Other non-cash items affecting earnings
|
|
150
|
|
|
195
|
|
||
Changes in operating assets and liabilities, excluding the effects of asset sales
|
|
(1,884
|
)
|
|
(21,908
|
)
|
||
Net cash provided by operating activities
|
|
46,814
|
|
|
39,590
|
|
||
|
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
|
|
|||
Capital expenditures
|
|
(25,420
|
)
|
|
(22,689
|
)
|
||
Proceeds from sale of assets
|
|
594
|
|
|
1,472
|
|
||
Change in restricted cash
|
|
999
|
|
|
6,985
|
|
||
Proceeds from company-owned life insurance policies
|
|
876
|
|
|
2,948
|
|
||
Net cash used in investing activities
|
|
(22,951
|
)
|
|
(11,284
|
)
|
||
|
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
|||
Repayments of long-term debt and capital lease obligations
|
|
—
|
|
|
(2
|
)
|
||
Repurchase of common stock
|
|
—
|
|
|
(97,033
|
)
|
||
Purchase of noncontrolling interest
|
|
—
|
|
|
(684
|
)
|
||
Employee taxes paid for shares withheld
|
|
(1,228
|
)
|
|
(698
|
)
|
||
Settlement of equity awards
|
|
(440
|
)
|
|
—
|
|
||
Net cash used in financing activities
|
|
(1,668
|
)
|
|
(98,417
|
)
|
||
|
|
|
|
|
||||
Effect of exchange rate changes on cash and cash equivalents
|
|
(852
|
)
|
|
(1,037
|
)
|
||
|
|
|
|
|
||||
Increase (decrease) in cash and cash equivalents
|
|
21,343
|
|
|
(71,148
|
)
|
||
|
|
|
|
|
||||
Cash and cash equivalents:
|
|
|
|
|
|
|||
Beginning of period
|
|
147,346
|
|
|
212,279
|
|
||
End of period
|
|
$
|
168,689
|
|
|
$
|
141,131
|
|
1.
|
BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
|
|
For the Periods Ended March 31, 2017
|
||||
|
|
Three Months
|
|
Nine Months
|
||
Restricted stock units
|
|
—
|
|
|
427,217
|
|
Performance-based restricted stock units (1)
|
|
—
|
|
|
393,045
|
|
(1)
|
Includes
66,082
incremental PSUs earned in connection with the achievement of fiscal year 2016 performance metrics.
|
|
For the Three Months Ended March 31,
|
|
For the Nine Months Ended March 31,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
(Dollars in thousands)
|
||||||||||||||
North American Value
|
$
|
2,939
|
|
|
$
|
1,807
|
|
|
$
|
6,216
|
|
|
$
|
6,015
|
|
North American Premium
|
267
|
|
|
761
|
|
|
1,149
|
|
|
1,513
|
|
||||
International
|
30
|
|
|
7
|
|
|
257
|
|
|
88
|
|
||||
Total
|
$
|
3,236
|
|
|
$
|
2,575
|
|
|
$
|
7,622
|
|
|
$
|
7,616
|
|
2.
|
INVESTMENT IN AFFILIATES:
|
|
|
For the Three Months Ended March 31,
|
|
For the Nine Months Ended March 31,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
Equity losses
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,832
|
)
|
Other than temporary impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,954
|
)
|
||||
Total losses related to EEG
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(14,786
|
)
|
|
|
For the Three Months Ended March 31,
|
|
For the Nine Months Ended March 31,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
(Unaudited)
|
|
(Dollars in thousands)
|
||||||||||||||
Gross revenues
|
|
$
|
32,660
|
|
|
$
|
31,573
|
|
|
$
|
93,715
|
|
|
$
|
101,237
|
|
Gross profit
|
|
10,287
|
|
|
2,851
|
|
|
27,429
|
|
|
18,257
|
|
||||
Operating income (loss)
|
|
554
|
|
|
(3,288
|
)
|
|
336
|
|
|
(6,578
|
)
|
||||
Net income (loss)
|
|
425
|
|
|
(2,784
|
)
|
|
(48
|
)
|
|
(6,142
|
)
|
3.
|
EARNINGS PER SHARE:
|
4.
|
SHAREHOLDERS’ EQUITY:
|
5.
|
INCOME TAXES:
|
6.
|
COMMITMENTS AND CONTINGENCIES:
|
|
|
March 31, 2017
|
|
June 30, 2016
|
||||||||||||||||||||
|
|
Gross
Carrying Value (3) |
|
Accumulated
Impairment (1)
|
|
Net
|
|
Gross
Carrying Value |
|
Accumulated
Impairment (1) |
|
Net
|
||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||
Goodwill
|
|
$
|
669,801
|
|
|
$
|
(253,661
|
)
|
|
$
|
416,140
|
|
|
$
|
671,054
|
|
|
$
|
(253,661
|
)
|
|
$
|
417,393
|
|
Fiscal Year
|
|
Impairment Charge
|
|
Reporting Unit (2)
|
||
|
|
(Dollars in thousands)
|
|
|
||
2009
|
|
$
|
(41,661
|
)
|
|
International
|
2010
|
|
(35,277
|
)
|
|
North American Premium
|
|
2011
|
|
(74,100
|
)
|
|
North American Value
|
|
2012
|
|
(67,684
|
)
|
|
North American Premium
|
|
2014
|
|
(34,939
|
)
|
|
North American Premium
|
|
Total
|
|
$
|
(253,661
|
)
|
|
|
(3)
|
The change in the gross carrying value of goodwill is impacted by foreign currency.
|
|
|
March 31, 2017
|
|
June 30, 2016
|
||||||||||||||||||||
|
|
Cost (1)
|
|
Accumulated
Amortization (1)
|
|
Net
|
|
Cost (1)
|
|
Accumulated
Amortization (1)
|
|
Net
|
||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Brand assets and trade names
|
|
$
|
8,058
|
|
|
$
|
(3,887
|
)
|
|
$
|
4,171
|
|
|
$
|
8,206
|
|
|
$
|
(3,746
|
)
|
|
$
|
4,460
|
|
Franchise agreements
|
|
9,683
|
|
|
(7,243
|
)
|
|
2,440
|
|
|
9,853
|
|
|
(7,116
|
)
|
|
2,737
|
|
||||||
Lease intangibles
|
|
14,463
|
|
|
(9,149
|
)
|
|
5,314
|
|
|
14,535
|
|
|
(8,649
|
)
|
|
5,886
|
|
||||||
Other
|
|
5,546
|
|
|
(3,444
|
)
|
|
2,102
|
|
|
5,748
|
|
|
(3,646
|
)
|
|
2,102
|
|
||||||
|
|
$
|
37,750
|
|
|
$
|
(23,723
|
)
|
|
$
|
14,027
|
|
|
$
|
38,342
|
|
|
$
|
(23,157
|
)
|
|
$
|
15,185
|
|
(1)
|
The change in the gross carrying value and accumulated amortization of other intangible assets is impacted by foreign currency.
|
8.
|
FINANCING ARRANGEMENTS:
|
|
|
|
|
|
|
Amounts Outstanding
|
||||||
|
|
Maturity Dates
|
|
Interest Rate
|
|
March 31,
2017 |
|
June 30,
2016 |
||||
|
|
(fiscal year)
|
|
|
|
(Dollars in thousands)
|
||||||
Senior Term Notes, net
|
|
2020
|
|
5.50%
|
|
$
|
120,351
|
|
|
$
|
119,606
|
|
Revolving credit facility
|
|
2018
|
|
—
|
|
—
|
|
|
—
|
|
||
|
|
|
|
|
|
$
|
120,351
|
|
|
$
|
119,606
|
|
|
|
March 31, 2017
|
|
June 30, 2016
|
||||
|
|
(Dollars in thousands)
|
||||||
Principal amount on the Senior Term Notes
|
|
$
|
123,000
|
|
|
$
|
123,000
|
|
Unamortized debt discount
|
|
(2,002
|
)
|
|
(2,565
|
)
|
||
Unamortized debt issuance costs
|
|
(647
|
)
|
|
(829
|
)
|
||
Senior Term Notes, net
|
|
$
|
120,351
|
|
|
$
|
119,606
|
|
9.
|
FAIR VALUE MEASUREMENTS:
|
|
|
For the Three Months Ended March 31,
|
|
For the Nine Months Ended March 31,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
Long-lived assets (1)
|
|
$
|
(3,236
|
)
|
|
$
|
(2,575
|
)
|
|
$
|
(7,622
|
)
|
|
$
|
(7,616
|
)
|
Investment in EEG (2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,954
|
)
|
(1)
|
See Note 1 to the unaudited Condensed Consolidated Financial Statements.
|
(2)
|
See Note 2 to the unaudited Condensed Consolidated Financial Statements.
|
|
|
Company-owned
|
|
Franchised
|
|
Total
|
|||
North American Value
|
|
5,601
|
|
|
2,550
|
|
|
8,151
|
|
North American Premium
|
|
573
|
|
|
—
|
|
|
573
|
|
International
|
|
301
|
|
|
11
|
|
|
312
|
|
Total
|
|
6,475
|
|
|
2,561
|
|
|
9,036
|
|
|
|
For the Three Months
Ended March 31, |
|
For the Nine Months
Ended March 31, |
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
Revenues
:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
North American Value
|
|
$
|
335,173
|
|
|
$
|
347,976
|
|
|
$
|
1,017,385
|
|
|
$
|
1,046,198
|
|
North American Premium
|
|
57,150
|
|
|
69,451
|
|
|
184,741
|
|
|
215,628
|
|
||||
International
|
|
20,280
|
|
|
25,138
|
|
|
65,562
|
|
|
81,336
|
|
||||
|
|
$
|
412,603
|
|
|
$
|
442,565
|
|
|
$
|
1,267,688
|
|
|
$
|
1,343,162
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
||||||||
North American Value
|
|
$
|
12,251
|
|
|
$
|
11,268
|
|
|
$
|
33,994
|
|
|
$
|
35,486
|
|
North American Premium
|
|
1,945
|
|
|
2,457
|
|
|
6,106
|
|
|
6,694
|
|
||||
International
|
|
510
|
|
|
551
|
|
|
1,803
|
|
|
2,013
|
|
||||
Total segment depreciation and amortization expense
|
|
14,706
|
|
|
14,276
|
|
|
41,903
|
|
|
44,193
|
|
||||
Unallocated Corporate
|
|
2,292
|
|
|
2,716
|
|
|
7,070
|
|
|
7,684
|
|
||||
|
|
$
|
16,998
|
|
|
$
|
16,992
|
|
|
$
|
48,973
|
|
|
$
|
51,877
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
||||||
North American Value
|
|
$
|
25,636
|
|
|
$
|
35,706
|
|
|
$
|
85,047
|
|
|
$
|
94,316
|
|
North American Premium
|
|
(6,269
|
)
|
|
(4,580
|
)
|
|
(14,173
|
)
|
|
(10,903
|
)
|
||||
International
|
|
(917
|
)
|
|
(629
|
)
|
|
(1,651
|
)
|
|
(1,130
|
)
|
||||
Total segment operating income
|
|
18,450
|
|
|
30,497
|
|
|
69,223
|
|
|
82,283
|
|
||||
Unallocated Corporate
|
|
(31,234
|
)
|
|
(24,876
|
)
|
|
(75,139
|
)
|
|
(75,269
|
)
|
||||
Operating (loss) income
|
|
(12,784
|
)
|
|
5,621
|
|
|
(5,916
|
)
|
|
7,014
|
|
||||
Interest expense
|
|
(2,156
|
)
|
|
(2,405
|
)
|
|
(6,526
|
)
|
|
(7,141
|
)
|
||||
Interest income and other, net
|
|
393
|
|
|
1,017
|
|
|
2,416
|
|
|
2,958
|
|
||||
(Loss) income before income taxes and equity in loss of affiliated companies
|
|
$
|
(14,547
|
)
|
|
$
|
4,233
|
|
|
$
|
(10,026
|
)
|
|
$
|
2,831
|
|
|
For the Periods Ended March 31,
|
||||||||||||||||||||||||||||||||||||||
|
Three Months
|
|
Nine Months
|
||||||||||||||||||||||||||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||||||||||
|
($ in millions)
|
|
% of Total
Revenues (1) |
|
Basis Point
(Decrease)
Increase
|
|
($ in millions)
|
|
% of Total
Revenues (1) |
|
Basis Point
(Decrease) Increase |
||||||||||||||||||||||||||||
Service revenues
|
$
|
319.5
|
|
|
$
|
344.1
|
|
|
77.4
|
%
|
|
77.7
|
%
|
|
(30
|
)
|
|
20
|
|
|
$
|
978.2
|
|
|
$
|
1,034.8
|
|
|
77.1
|
%
|
|
77.1
|
%
|
|
—
|
|
|
(50
|
)
|
Product revenues
|
81.5
|
|
|
86.7
|
|
|
19.8
|
|
|
19.6
|
|
|
20
|
|
|
(50
|
)
|
|
254.4
|
|
|
273.0
|
|
|
20.1
|
|
|
20.3
|
|
|
(20
|
)
|
|
30
|
|
||||
Franchise royalties and fees
|
11.6
|
|
|
11.8
|
|
|
2.8
|
|
|
2.7
|
|
|
10
|
|
|
30
|
|
|
35.1
|
|
|
35.4
|
|
|
2.8
|
|
|
2.6
|
|
|
20
|
|
|
20
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Cost of service (2)
|
207.8
|
|
|
217.0
|
|
|
65.1
|
|
|
63.1
|
|
|
200
|
|
|
150
|
|
|
626.7
|
|
|
651.5
|
|
|
64.1
|
|
|
63.0
|
|
|
110
|
|
|
120
|
|
||||
Cost of product (2)
|
40.7
|
|
|
43.0
|
|
|
49.9
|
|
|
49.6
|
|
|
30
|
|
|
10
|
|
|
127.9
|
|
|
136.4
|
|
|
50.3
|
|
|
50.0
|
|
|
30
|
|
|
(60
|
)
|
||||
Site operating expenses
|
40.3
|
|
|
42.9
|
|
|
9.8
|
|
|
9.7
|
|
|
10
|
|
|
(70
|
)
|
|
127.0
|
|
|
138.1
|
|
|
10.0
|
|
|
10.3
|
|
|
(30
|
)
|
|
(20
|
)
|
||||
General and administrative
|
49.8
|
|
|
42.6
|
|
|
12.1
|
|
|
9.6
|
|
|
250
|
|
|
(10
|
)
|
|
130.8
|
|
|
134.6
|
|
|
10.3
|
|
|
10.0
|
|
|
30
|
|
|
10
|
|
||||
Rent
|
69.8
|
|
|
74.4
|
|
|
16.9
|
|
|
16.8
|
|
|
10
|
|
|
—
|
|
|
212.3
|
|
|
223.7
|
|
|
16.7
|
|
|
16.7
|
|
|
—
|
|
|
(10
|
)
|
||||
Depreciation and amortization
|
17.0
|
|
|
17.0
|
|
|
4.1
|
|
|
3.8
|
|
|
30
|
|
|
(40
|
)
|
|
49.0
|
|
|
51.9
|
|
|
3.9
|
|
|
3.9
|
|
|
—
|
|
|
(50
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Interest expense
|
2.2
|
|
|
2.4
|
|
|
0.5
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
6.5
|
|
|
7.1
|
|
|
0.5
|
|
|
0.5
|
|
|
—
|
|
|
(10
|
)
|
||||
Interest income and other, net
|
0.4
|
|
|
1.0
|
|
|
0.1
|
|
|
0.2
|
|
|
(10
|
)
|
|
10
|
|
|
2.4
|
|
|
3.0
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
10
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Income taxes (3)
|
(3.9
|
)
|
|
(6.3
|
)
|
|
(26.5
|
)
|
|
149.2
|
|
|
N/A
|
|
|
N/A
|
|
|
(7.3
|
)
|
|
(4.9
|
)
|
|
(73.0
|
)
|
|
174.0
|
|
|
N/A
|
|
|
N/A
|
|
||||
Equity in loss of affiliated companies, net of income taxes
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
0.1
|
|
|
14.8
|
|
|
—
|
|
|
1.1
|
|
|
(110
|
)
|
|
20
|
|
(1)
|
Cost of service is computed as a percent of service revenues. Cost of product is computed as a percent of product revenues.
|
(2)
|
Excludes depreciation and amortization expense.
|
(3)
|
Computed as a percent of loss before income taxes and equity in loss of affiliated companies. The income taxes basis point change is noted as not applicable (N/A) as the discussion within MD&A is related to the effective income tax rate.
|
|
|
For the Three Months
Ended March 31, |
|
For the Nine Months
Ended March 31, |
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
North American Value salons:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
SmartStyle
|
|
$
|
132,007
|
|
|
$
|
132,671
|
|
|
$
|
391,832
|
|
|
$
|
392,195
|
|
Supercuts
|
|
83,200
|
|
|
85,562
|
|
|
253,794
|
|
|
257,304
|
|
||||
MasterCuts
|
|
22,677
|
|
|
26,441
|
|
|
72,689
|
|
|
81,453
|
|
||||
Other Value
|
|
97,289
|
|
|
103,302
|
|
|
299,070
|
|
|
315,246
|
|
||||
Total North American Value salons
|
|
335,173
|
|
|
347,976
|
|
|
1,017,385
|
|
|
1,046,198
|
|
||||
North American Premium salons
|
|
57,150
|
|
|
69,451
|
|
|
184,741
|
|
|
215,628
|
|
||||
International salons
|
|
20,280
|
|
|
25,138
|
|
|
65,562
|
|
|
81,336
|
|
||||
Consolidated revenues
|
|
$
|
412,603
|
|
|
$
|
442,565
|
|
|
$
|
1,267,688
|
|
|
$
|
1,343,162
|
|
Percent change from prior year
|
|
(6.8
|
)%
|
|
(2.5
|
)%
|
|
(5.6
|
)%
|
|
(2.3
|
)%
|
||||
Salon same-store sales (decrease) increase (1)
|
|
(2.9
|
)%
|
|
(0.4
|
)%
|
|
(2.5
|
)%
|
|
0.8
|
%
|
(1)
|
Same-store sales are calculated on a daily basis as the total change in sales for company-owned locations that 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.
|
|
|
For the Three Months
Ended March 31, |
|
For the Nine Months
Ended March 31, |
||||||||
Factor
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
Same-store sales
|
|
(2.9
|
)%
|
|
(0.4
|
)%
|
|
(2.5
|
)%
|
|
0.8
|
%
|
Closed salons
|
|
(3.9
|
)
|
|
(2.7
|
)
|
|
(3.1
|
)
|
|
(2.8
|
)
|
New stores and conversions
|
|
0.4
|
|
|
0.5
|
|
|
0.4
|
|
|
0.6
|
|
Foreign currency
|
|
(0.6
|
)
|
|
(0.7
|
)
|
|
(0.8
|
)
|
|
(1.3
|
)
|
Other
|
|
0.2
|
|
|
0.8
|
|
|
0.4
|
|
|
0.4
|
|
|
|
(6.8
|
)%
|
|
(2.5
|
)%
|
|
(5.6
|
)%
|
|
(2.3
|
)%
|
|
|
For the Three Months
Ended March 31, |
|
For the Nine Months
Ended March 31, |
||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
SmartStyle
|
|
(1.5
|
)%
|
|
1.7
|
%
|
|
(1.2
|
)%
|
|
4.0
|
%
|
Supercuts
|
|
(1.0
|
)
|
|
2.9
|
|
|
(0.4
|
)
|
|
2.7
|
|
MasterCuts
|
|
(3.9
|
)
|
|
(5.6
|
)
|
|
(4.5
|
)
|
|
(3.8
|
)
|
Other Value
|
|
(2.5
|
)
|
|
0.5
|
|
|
(2.1
|
)
|
|
0.4
|
|
North American Value same-store sales
|
|
(1.9
|
)
|
|
1.0
|
|
|
(1.6
|
)
|
|
1.9
|
|
North American Premium same-store sales
|
|
(7.0
|
)
|
|
(6.2
|
)
|
|
(6.4
|
)
|
|
(3.4
|
)
|
International same-store sales
|
|
(8.6
|
)
|
|
(2.2
|
)
|
|
(5.9
|
)
|
|
(1.6
|
)
|
Consolidated same-store sales
|
|
(2.9
|
)%
|
|
(0.4
|
)%
|
|
(2.5
|
)%
|
|
0.8
|
%
|
As of
|
|
Debt to
Capitalization
|
|
Basis Point
Increase (1)
|
||
March 31, 2017
|
|
19.6
|
%
|
|
50
|
|
June 30, 2016
|
|
19.1
|
%
|
|
300
|
|
Exhibit 10.1
|
|
Letter Agreement with Huron Consulting Services LLC for CFO Services, dated January 25, 2017.
|
|
|
|
Exhibit 10.2
|
|
Supplemental Performance-Based Cash Retention Bonus Plan, dated January 2017.
|
|
|
|
Exhibit 10.3
|
|
Changes to Severance Program, dated January 23, 2017.
|
|
|
|
Exhibit 31.1
|
|
President and Chief Executive Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
Exhibit 31.2
|
|
Interim Chief Financial Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
Exhibit 32
|
|
Chief Executive Officer and Interim Chief Financial Officer of Regis Corporation: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
Exhibit 101
|
|
The following financial information from Regis Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, formatted in Extensible Business Reporting Language (XBRL) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.
|
|
REGIS CORPORATION
|
|
|
|
|
Date: May 4, 2017
|
By:
|
/s/ Michael C. Pomeroy
|
|
|
Michael C. Pomeroy
|
|
|
Interim Chief Financial Officer
|
|
|
(Signing on behalf of the registrant and as Principal Financial Officer)
|
|
|
|
|
|
|
Date: May 4, 2017
|
By:
|
/s/ Kersten D. Zupfer
|
|
|
Kersten D. Zupfer
|
|
|
Vice President, Controller and Chief Accounting Officer
|
|
|
(Principal Accounting Officer)
|
|
|
|
1. Our Services and Deliverables
We will provide the services and furnish the deliverables (the “Services”) as described in our Engagement Letter and any attachments thereto, as may be modified from time to time by mutual consent.
2. Independent Contractor
We are an independent contractor and not your employee, agent, joint venturer or partner, and will determine the method, details and means of performing our Services. We assume full and sole responsibility for the payment of all compensation and expenses of our employees and for all of their state and federal income tax, unemployment insurance, Social Security, payroll and other applicable employee withholdings.
3. Fees and Expenses
(a)
Our fees and payment terms are set out in our Engagement Letter. Those fees do not include taxes and other governmental charges (which will be separately identified in our invoices.) In the event you request that we perform some or all of the Services outside of the United States, we may issue the resulting invoice from a Huron affiliate located in the country where such Services are performed.
(b) You acknowledge that where out-of-town personnel are assigned to any project on a long-term basis (as defined from time to time in the applicable provisions of the Internal Revenue Code and related IRS regulations, and currently defined, under IRC Section 162, as a period of time reasonably expected to be greater than one year), the associated compensatory tax costs applied to out-of-town travel and living expenses also shall be calculated on an individual basis, summarized, and assessed to such personnel. In such cases, the expenses for which you shall reimburse us hereunder shall be deemed to include the estimated incremental compensatory tax costs associated with the out-of-town travel and living expenses of our personnel, including tax gross-ups. We shall use reasonable efforts to limit such expenses.
|
|
(c) We reserve the right to suspend Services if invoices are not timely paid, in which event we will not be liable for any resulting loss, damage or expense connected with such suspension.
4. Taxes
(a)
You will be responsible for and pay all applicable sales, use, excise, value added, services, consumption and other taxes and duties associated with our performance or your receipt of our Services, excluding taxes on our income generally. You will provide us with a copy of your certificate of tax-exemption, if applicable.
(b) If you are required by the laws of any foreign tax jurisdiction to withhold income or profits taxes from our payment, then the amount payable by you upon which the withholding is based shall be paid to us net of such withholding. You shall pay any such withholding to the applicable tax authority. However, if after 120 days of the withholding, you do not provide us with official tax certificates documenting remittance of the taxes, you shall pay to us an amount equal to such withholding. The tax certificates shall be in a form sufficient to document qualification of the taxes for the foreign tax credit allowable against our corporation income tax.
5. Confidentiality and Privacy
(a) With respect to any information supplied in connection with this engagement and designated by either of us as confidential, or which the other should reasonably believe is confidential based on its subject matter or the circumstances of its disclosure (“Confidential Information”), the other agrees to protect the confidential information in a reasonable and appropriate manner, and use confidential information only to perform its obligations under this engagement and for no other purpose. This will not apply to information which is: (i) publicly known, (ii) already known to the recipient, (iii) lawfully disclosed by a third party, (iv) independently developed, (v) disclosed pursuant to legal requirement or order, or (vi) disclosed to taxing authorities or to representatives and advisors
|
in connection with tax filings, reports, claims, audits and litigation.
(b) Confidential Information made available hereunder, including copies thereof, shall be returned or destroyed upon request by the disclosing party; provided that the receiving party may retain other archival copies for recordkeeping or quality assurance purposes and receiving party shall make no unauthorized use of such copies.
(c) We agree to use any personally identifiable information and data you provide us only for the purposes of this engagement and as you direct, and we will not be liable for any third-party claims related to such use. You agree to take necessary actions to ensure that you comply with applicable laws relating to privacy and/or data protection, and acknowledge that we are not providing legal advice on compliance with the privacy and/or data protection laws of any country or jurisdiction.
(d) At the conclusion of the engagement, we have the right to use your name, logo and a general description of the engagement in our marketing materials and traditional tombstone advertising. The specific language utilized in the tombstone will be subject to your prior written approval.
6. Our Deliverables and Your License
Upon full and final payment of all amounts due us in connection with this engagement, all right, title and interest in the deliverables set out in our Engagement Letter will become your sole and exclusive property, except as set forth below. We will retain sole and exclusive ownership of all right, title and interest in our work papers, proprietary information, processes, methodologies, know-how and software (“Huron Property”), including such information as existed prior to the delivery of our Services and, to the extent such information is of general application, anything which we may discover, create or develop during our provision of Services for you. To the extent our deliverables to you contain Huron Property, upon full and final payment of all amounts due us in connection with this engagement, we grant you a non-exclusive, non-assignable, royalty-free, perpetual license to use it in connection with the deliverables and the subject of the engagement and for no other or further use without our express, prior written consent. If our deliverables are subject to any third party rights in software or intellectual property, we will notify you of such rights. Our deliverables are to be used solely for the purposes intended by this
|
|
engagement and may not be disclosed, published or used in whole or in part for any other purpose.
7.Your Responsibilities.
To the extent applicable, you will cooperate in providing us with office space, equipment, data and access to your personnel as necessary to perform the Services. You shall provide reliable, accurate and complete information necessary for us to adequately perform the Services and will promptly notify us of any material changes in any information previously provided. You acknowledge that we are not responsible for independently verifying the truth or accuracy of any information supplied to us by or on behalf of you.
8.Our Warranty
We warrant that our Services will be performed with reasonable care in a diligent and competent manner. Our sole obligation will be to correct any non-conformance with this warranty, provided that you give us written notice within 10 days after the Services are performed or delivered. The notice will specify and detail the non-conformance and we will have a reasonable amount of time, based on its severity and complexity, to correct the non-conformance.
We do not warrant and are not responsible for any third party products or services. Your sole and exclusive rights and remedies with respect to any third party products or services are against the third party vendor and not against us.
THIS WARRANTY IS OUR ONLY WARRANTY CONCERNING THE SERVICES AND ANY DELIVERABLE, AND IS MADE EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OR OTHERWISE, ALL OF WHICH ARE HEREBY DISCLAIMED.
9.Liability and Indemnification
(a) This engagement is not intended to shift risk normally borne by you to us. To the fullest extent permitted under applicable law, you agree to indemnify and hold us and our personnel, agents and contractors harmless against all costs, fees, expenses, damages, and liabilities (including reasonable defense costs and legal fees), associated with any legal proceeding or other claim brought against us by a third party, including a subpoena or court order, arising from or relating to any Services that you use or disclose, or this engagement generally. This
|
indemnity shall not apply to the extent a claim arises out of our gross negligence or willful misconduct, as finally adjudicated by a finder of fact.
(b) We will not be liable for any special, consequential, incidental, indirect or exemplary damages or loss (nor any lost profits, savings or business opportunity). Further, our liability relating to this engagement will in no event exceed
an amount equal to the fees (excluding taxes and expenses) we receive from you for the portion of the engagement giving rise to such liability.
(c) Neither of us will be liable for any delays or failures in performance due to circumstances beyond our reasonable control.
10. Non-Solicitation
During the term of this engagement, and for a period of one year following its expiration or termination, you will not directly or indirectly solicit, employ or otherwise engage any of our employees (including former employees) or contractors who were involved in the engagement.
11. Termination
(a) Termination for Convenience. Either party may terminate this Agreement for convenience at any time on 30 days’ prior written notice to the other.
(b) Termination for Breach. Either party may terminate this Agreement for breach if, within 15 days’ notice, the breaching party fails to cure a material breach of this Agreement.
(c) To the extent you terminate this Agreement for convenience, you will pay us for all Services rendered, effort expended, expenses incurred, contingent fees (if any), or commitments made by us to the effective date of termination. To the extent you terminate this Agreement for breach, you will pay us for all conforming Services rendered and reasonable expenses incurred by us to the effective date of the termination.
(d) Further, we reserve the right to terminate this Agreement at any time, upon providing written notice to you, if conflicts of interest arise or become known to us that, in our sole judgment, would impair our ability to perform the Services objectively.
(e) The terms of this Agreement which relate to confidentiality, ownership and use, limitations of
|
|
liability and indemnification, non-solicitation and payment obligations shall survive its expiration or termination.
12. General
(a) This Agreement supersedes all prior oral and written communications between us, and may be amended, modified or changed only in a writing when signed by both parties.
(b)
No term of this Agreement will be deemed waived, and no breach of this agreement excused, unless the waiver or consent is in writing signed by the party granting such waiver or consent.
(c)
We each acknowledge that we may correspond or convey documentation via Internet e-mail and that neither party has control over the performance, reliability, availability, or security of Internet e-mail. Therefore, neither party will be liable for any loss, damage, expense, harm or inconvenience resulting from the loss, delay, interception, corruption, or alteration of any Internet e-mail due to any reason beyond our reasonable control.
(d) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without giving effect to conflict of law rules. The parties hereto agree that any and all disputes or claims arising hereunder shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Any arbitration will be conducted in Chicago, Illinois. Any arbitration award may be entered in and enforced by any court having jurisdiction thereof, and the parties consent and commit themselves to the jurisdiction of the courts of the State of Illinois for purposes of any enforcement of any arbitration award. Except as may be required by law, neither a party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties.
(e) If any portion of this Agreement is found invalid, such finding shall not affect the enforceability of the remainder hereof, and such portion shall be revised to reflect our mutual intention.
(f) This Agreement shall not provide third parties with any remedy, cause, liability, reimbursement, claim of action or other right in law or in equity for any matter governed by or subject to the provisions of this Agreement.
|
Performance Measure
|
Performance Towards Goal
|
Cash Award
|
|
|
|
Participant’s Max Award
|
|
|
|||
|
75% of Max Award
|
||
|
50% of Max Award
|
||
|
25% of Max Award
|
||
|
0
|
1)
|
Equity Acceleration
: If an employee is involuntarily terminated without Cause (or terminates for Good Reason, each as defined in that employee’s employment agreement, if any, and otherwise pursuant to the Company’s policies), then they are entitled to acceleration of vesting of their unvested restricted stock units (RSUs) and stock appreciation rights (SARs). This is a temporary policy change that applies to involuntary terminations without Cause effective on or before August 31, 2018. This does not affect any other terms of the equity agreements or the Company’s Long-Term Incentive Plans.
|
2)
|
Lump Sum Severance
.
|
3)
|
No Offset for Full-Time Employment
. We will no longer offset cash severance with the earnings from other employment, as long as the other employment is non-competitive employment, as determined according to the terms of the employment agreement. The employment agreement provisions regarding covenant not to compete and the Company’s right to claw back severance amounts, including any lump sum payment, for violation of the non-compete and non-solicitation covenants remain in place.
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Regis Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors or persons performing the equivalent functions:
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
May 4, 2017
|
|
|
|
|
|
/s/ Hugh E. Sawyer
|
|
|
Hugh E. Sawyer, President and Chief Executive Officer
|
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Regis Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors or persons performing the equivalent functions:
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
May 4, 2017
|
|
|
|
|
|
/s/ Michael C. Pomeroy
|
|
|
Michael C. Pomeroy, Interim Chief Financial Officer
|
|
|
(1)
|
The Quarterly Report on Form 10-Q complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Quarter Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
May 4, 2017
|
|
|
|
|
|
/s/ Hugh E. Sawyer
|
|
|
Hugh E. Sawyer, President and Chief Executive Officer
|
|
|
|
|
|
May 4, 2017
|
|
|
|
|
|
/s/ Michael C. Pomeroy
|
|
|
Michael C. Pomeroy, Interim Chief Financial Officer
|
|
|