REGIS CORP (Form: 10-K, Received: 08/27/2019 06:14:46)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended			6/30/2019
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from		to

Commission file number 1-12725

Regis Corporation

(Exact name of registrant as specified in its charter)



Minnesota			41-0749934
State or other jurisdiction of incorporation or organization			(I.R.S. Employer Identification No.)
7201 Metro Boulevard	Edina	Minnesota	55439
(Address of principal executive offices)			(Zip Code)

(952) 947-7777

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock, par value $0.05 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer (Do not check if a smaller reporting company)	☐	Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which common equity was last sold as of the last business day of the registrant's most recently completed second fiscal quarter, December 31, 2018, was approximately $520,254,859. The registrant has no non-voting common equity.

As of August 9, 2019, the registrant had 35,968,926 shares of Common Stock, par value $0.05 per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the annual fiscal 2019 meeting of shareholders (the "2019 Proxy Statement") (to be filed pursuant to Regulation 14A within 120 days after the registrant's fiscal year-end of June 30, 2019) are incorporated by reference into Part III.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report, 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," "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 the continued ability of the Company to implement its strategy, priorities and initiatives; our and our franchisee's ability to attract, train and retain talented stylists; financial performance of our franchisees; acceleration of sale of salons to franchisees; if our capital investments in improving technology do not achieve appropriate returns; our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, employees, vendors or Company information; The Beautiful Group's ability to operate its salons successfully, as well as maintain adequate working capital; the ability of the Company to maintain a satisfactory relationship with Walmart; marketing efforts to drive traffic; changes in regulatory and statutory laws including increases in minimum wages; our ability to maintain and enhance the value of our brands; premature termination of agreements with our franchisees; reliance on information technology systems; reliance on external vendors; consumer shopping trends and changes in manufacturer distribution channels; competition within the personal hair care industry; changes in tax exposure; changes in healthcare; changes in interest rates and foreign currency exchange rates; failure to standardize operating processes across brands; financial performance of Empire Education Group; the continued ability of the Company to implement cost reduction initiatives; compliance with debt covenants; changes in economic conditions; changes in consumer tastes and fashion trends; exposure to uninsured or unidentified risks; reliance on our management team and other key personnel or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth under Item 1A of this Form 10-K. 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-Q and 8-K and Proxy Statements on Schedule 14A.

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REGIS CORPORATION

FORM 10-K

FOR THE FISCAL YEAR ENDED June 30, 2019

INDEX



			Page(s)
Part I.
	Item 1.	Business	4
		Executive Officers of the Registrant	13
	Item 1A.	Risk Factors	15
	Item 1B.	Unresolved Staff Comments	23
	Item 2.	Properties	23
	Item 3.	Legal Proceedings	23
	Item 4.	Mine Safety Disclosures	23
Part II.
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Repurchase or Purchases of Equity Securities	24
	Item 6.	Selected Financial Data	26
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	44
	Item 8.	Financial Statements and Supplementary Data	45
		Report of Independent Registered Public Accounting Firm	46
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	90
	Item 9A.	Controls and Procedures	90
	Item 9B.	Other Information	91
Part III.
	Item 10.	Directors, Executive Officers and Corporate Governance	91
	Item 11.	Executive Compensation	91
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	91
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	91
	Item 14.	Principal Accounting Fees and Services	91
Part IV.
	Item 15.	Exhibits and Financial Statement Schedules	92
	Item 16.	Form 10-K Summary	94
	Signatures		95

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PART I

Item 1. Business

General:

Regis Corporation franchises, owns and operates hairstyling and hair care salons. The Company is listed on the NYSE under the ticker symbol "RGS." Unless the context otherwise provides, when we refer to the "Company," "we," "our," or "us," we are referring to Regis Corporation, the Registrant, together with its subsidiaries.

As of June 30, 2019, the Company franchised, owned or held ownership interests in 7,145 locations worldwide. The Company's locations consist of 3,951 franchised salons, 3,108 company-owned salons, and 86 locations in which we maintain a non-controlling ownership interest of less than 100%. Each of the Company's salon concepts generally offer similar salon products and services.

The major services supplied by the salons are haircutting and styling (including shampooing and conditioning), hair coloring and other services. Salons also sell a variety of hair care and other beauty products. We earn revenue for services and products sold at our company-owned salons, product sold to franchisees, and earn royalty revenue based on service and product sales at our franchise locations.

In fiscal year 2017, we announced plans to expand the franchise side of our business, through organic growth and by selling certain company-owned salons to franchisees over time where it made financial sense for the Company and shareholders, as well as our review of strategic alternatives for company-owned mall-based locations. In January 2017, we began franchising the SmartStyle brand throughout the U.S. for the first time. In fiscal year 2018, the Company began to further expand its franchise business by selling 449 non-mall salons to franchisees, including 33 Supercuts salons. In fiscal year 2019, the Company accelerated its sale of salons to franchisees by selling 767 salons across all brands.

Additionally, in October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, and substantially all of its previous International segment, representing 250 salons in the UK, to The Beautiful Group ("TBG"), an affiliate of Regent L.P., a private equity firm based in Los Angeles, California. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further discussion on the sale of our mall-based salon business and the previous International segment, which are now reported as a discontinued operation. As a result of the TBG transaction, the Company redefined its operating segments to reflect how the chief operating decision maker evaluates the business and reports its operations in two operating segments: Franchise and Company-owned salons. Prior to this change, the Company had four operating segments: North American Value, North American Premium, North American Franchise and International. See Note 14 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Additionally, on June 27, 2019, the Company entered into a settlement agreement with TBG as previously disclosed, which, among other things, was primarily responsible for reducing the Company’s potential lease liability in connection with TBG operated salons from approximately $65 million to $41 million in the fourth quarter of fiscal 2019.

The Company's Franchise salon operations are comprised of 3,951 franchised salons operating in the United States (U.S.), Canada, the United Kingdom and Puerto Rico. The Company's company-owned salon operations are comprised of 3,108 salons operating in the U.S., Canada, and Puerto Rico. Salons operate primarily under the trade names of SmartStyle, Supercuts and Cost Cutters, and they generally serve the value category within the industry. Salons are primarily located in strip center locations and Walmart Supercenters. During fiscal years 2019 and 2018, the number of guest visits at the Company's company-owned salons approximated 40 and 50 million, respectively.

Financial information about our segments and geographic areas for fiscal years 2019, 2018, and 2017 are included in Note 14 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Industry Overview:

The hair salon market is highly fragmented, with the vast majority of locations independently-owned and operated. However, the influence of salon chains, both franchised and company-owned, continues to grow within this market. Management believes salon chains will continue to have significant influence on this market and will continue to increase their presence.

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In every area in which the Company has a salon, there are competitors offering similar hair care services and products at similar prices. The Company faces competition from chains, such as Great Clips, Fantastic Sams, Sport Clips and Ulta Beauty, independently owned salons, department store salons located within malls, in-home hair services, booth rentals and blow dry bars.

At the individual salon level, barriers to entry are low; however, barriers exist for chains to expand nationally due to the need to establish systems and infrastructure, to recruit franchisees, experienced field and salon management and stylists, and to lease quality sites. The principal factors of competition in the hair care category are quality and consistency of the guest experience, convenience, location and price. The Company continually strives to improve its performance in each of these areas and to create additional points of brand differentiation versus the competition.

2019 Strategy:

The Company is focused on maximizing shareholder value. In order to successfully maximize shareholder value, we place a balanced approach on our guests, franchisees, employees, and shareholders. After carefully considering potential options to enhance shareholder value and based on the success of our vendition strategy in 2019, we reached a decision in August 2019 to fully transition our company-owned salons to a franchise platform. This strategic initiative is intended to facilitate an ongoing multi-year transformation to a capital-light business that we believe will be better positioned for sustainable growth. We believe the transformation of our salon platform coupled with the investments we are making in technology, marketing and advertising, merchandise and franchisor capabilities will be in the best long-term interests of our shareholders.

Key Elements of Our Strategy

In fiscal year 2019, the Company executed on various management initiatives to accelerate the growth of its franchise business and to stabilize and enhance performance in company-owned salons as we expand our franchise business and make thoughtful investments in the future state. The core components of the various management initiatives are focused on improving our performance by establishing core competencies to support franchise growth, eliminating non-essential costs, sourcing trend-driven professional beauty care products, optimizing our supply chain and distributor capabilities, creating industry-leading stylist recruiting and education, offering differentiated brands and consumer focused marketing and advertising and launching transformational technology to reduce friction and enhance the customer experience.

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In order to continue providing an exceptional guest experience, we opened our technology offices in Fremont, California during fiscal year 2019 where we have invested in a dedicated product engineering team. We have partnered with Google to improve and streamline the salon discovery and customer booking experience. We also launched Opensalon™, Regis' proprietary platform that allows customers to book salon services directly and enables customers to reserve and check-in for various salon services via mobile devices or desktops, for those salons that have chosen to adopt the utilization of such technology. These technology investments are meant to drive traffic to our franchise and company-owned salons.

We continue to evaluate our investments and disinvest in non-value generating programs while investing in other value generating initiatives. In addition to closing non-performing company owned salons, we repurposed certain corporate programs and have invested in our creative digital capabilities to re-position Regis as the leading operator of value brands and technical education.

Guests

Among other factors, consistent delivery of an exceptional guest experience, haircut quality, convenience, competitive pricing, salon location, inviting salon appearance and atmosphere, differentiating benefits and guest experience elements and comprehensive retail assortments, all drive guest traffic and improve guest retention.

Guest Experience. Our portfolio of salon concepts enables our guests to select different service scheduling options based upon their preference. We believe the ability to serve walk-in appointments and minimize guest wait times is an essential element in delivering an efficient guest experience. Our mobile applications and online check-in capabilities, including check-ins directly from Facebook Messenger and Google, allow us to capitalize on our guests' desire for convenience. We continue to focus on stylist staffing and retention, optimizing schedules and leveraging our POS systems to help us balance variable labor hours with guest traffic and manage guest wait times. Our salons are located in high-traffic strip centers and Walmart Supercenters, with guest parking and easy access, and are generally open seven days per week, offering guests a variety of convenient ways to fulfill their beauty needs.

Affordability. The Company strives to offer an exceptional value for its services. In the value category, our guests expect outstanding service at competitive prices. These expectations are met with average service transactions ranging from $19 to $21. During fiscal year 2018, we greatly reduced the complexity of the service offerings within our SmartStyle portfolio with the introduction of "Everyday Simple Pricing" while also introducing a new "Express Haircut" service targeted towards the male guests who shop at Walmart and simplified the service offerings within our Signature Style portfolio. Pricing decisions are considered on a salon level basis and established based on local conditions. Our franchisees control all pricing at their locations.

Salon Appearance and Atmosphere. The Company's salons range from 500 to 5,000 square feet, with the typical salon approximating 1,200 square feet. Our salon repairs and maintenance program is designed to ensure we invest in salon cleanliness and safety, as well as in maintaining the normal operation of our salons. Our annual capital expenditures include funds to refresh the appeal and comfort of our salons.

Retail Assortments. The Company's salons sell nationally recognized hair care and beauty products, as well as a complete assortment of owned brand products. The Company's stylists are compensated and regularly trained to sell hair care and beauty products to their guests. Additionally, guests are encouraged to purchase products after stylists demonstrate their efficacy by using them in the styling of our guests' hair. The top selling brands within the Company's retail assortment include Regis DESIGNLINE and Paul Mitchell. We also continued to expand our e-commerce initiative to distribute our Regis DESIGNLINE brand through new distribution channels, including amazon.com and walmart.com to supplement our existing in-salon sales and raise brand awareness.

Technology. Our point of sale (POS) systems have the ability to collect guest and transactional data and enable the Company to invest in guest relationship management, gaining insights into guest behavior, communicating with guests and incenting return visits. Leveraging this technology allows us to monitor guest retention and to survey our guests for feedback on improving the guest experience. Our mobile applications allow guests to view wait times and interact in other ways with salons. We are making further investments to improve the speed and capabilities of our POS technology, improving the overall guest experience and develop salon management systems to support our growing base of franchisees.

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Marketing. We are investing in advertising to drive traffic. This includes leveraging advertising and media, guest relationship management programs, digital programs, one-on-one communications and local tactical efforts (e.g., couponing), among other programs. Traffic driving efforts are targeted vs. a one-size-fits-all approach. Annual advertising and promotional plans are based on seasonality, consumer mindset, competitive positioning and return on investment. In fiscal year 2018, we entered into an industry-exclusive, multi-year sponsorship between Supercuts and Major League Baseball and select local club partnerships. Furthermore, we reinvigorated Supercuts creative approach to marketing by launching a new Supercuts® brand campaign in July 2019 with Michael Kelly as our spokesperson. We continually reallocate marketing investments into opportunities we believe represent the highest return to our shareholders.

Stylists

Our Company depends on its stylists to help deliver great guest experiences.

Field Leadership. Development of our field leaders is a high priority because stylists depend on their salons and field leaders for coaching, mentoring and motivation. Our training curriculum serves as the foundation for ongoing leadership development. Execution disciplines are used to drive accountability, execution and business performance. Incentives are designed to align field interests with those of the Company's shareholders by rewarding behaviors focused on revenue and EBITDA growth. This organization structure also provides a clear career path for our people who desire to ascend within the Company.

Technical Education. We place a tremendous amount of importance in ongoing development of our stylists' craft. We aim to be an industry leader in technical training, including the utilization of digital training that we enhanced significantly during fiscal year 2019. Our stylists deliver a superior experience for our guests when they are well trained technically and experientially. We employ technical trainers who provide new hire training for stylists joining the Company. We supplement internal training with targeted vendor training and external trainers who bring specialized expertise to our stylists. We utilize training materials to help all levels of field employees navigate the running of a salon and essential elements of guest service training within the context of brand positions.

Recruiting. Ensuring that we attract, train and retain our stylists is critical to our success. We compete with all service industries for our stylists; to that end, we continue to enhance our recruiting efforts across all levels within our organization and are focused on showing our stylists a path forward. We cultivate a pipeline of field leaders through succession planning and recruitment venues from within and outside the salon industry. We also leverage beauty school relationships and participate in job fairs and industry events.

Technology. Our POS systems and salon workstations throughout North America enable communication with salons and stylists, delivery of online and digital training to stylists, salon level analytics on guest retention, wait times, stylist productivity, and salon performance. We are currently making further investments in our POS hardware and salon technology to improve the speed of our systems allowing for stylists to be more productive and improve overall guest and stylist satisfaction.

Salon Support

Our corporate headquarters is referred to as Salon Support. This acknowledges that loving our guests and stylists mandates a service-oriented, guest and stylist-focused mentality in supporting our field operations.

Organization. Salon Support and our associated priorities are aligned to our field organization to enhance the effectiveness and efficiency of the service we provide and optimize the guest experience.

Simplification. Our ongoing simplification efforts focus on improving the way we plan and execute across our portfolio of brands. Every program, communication, and report that complicates our operations and takes time away from our guests is being assessed for simplification or elimination. Simplifying processes and procedures around scheduling, inventory management, day-to-day salon execution, communication and reporting improve salon service. Our organization also remains focused on eliminating non-essential costs and on profit enhancing initiatives that do not harm the guest experience.

New Location. In March 2019, we announced a relocation of Salon Support to a new location in Minneapolis, which relocation should occur by early 2020. We believe the new headquarters will facilitate collaboration amongst our internal teams, support our employee recruiting efforts and enhance shareholder value.

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Salon Concepts:

The Company's salon concepts focus on providing high quality hair care services and professional hair care products. A description of the Company's salon concepts is listed below:

SmartStyle. SmartStyle salons offer a full range of custom styling, cutting, and hair coloring, as well as professional hair care products and are currently located exclusively in Walmart Supercenters. SmartStyle has primarily a walk-in guest base with value pricing. The Company has 615 franchised and 1,550 company-owned SmartStyle and Cost Cutters salons located in Walmart Supercenters. Service revenues represent approximately 71% of total company-owned SmartStyle revenues.

Supercuts. Supercuts salons provide consistent, high quality hair care services and professional hair care products to its guests at convenient times and locations at value prices. This concept appeals to men, women, and children. The Company has 2,340 franchised and 403 company-owned Supercuts locations throughout North America and in the United Kingdom. Service revenues represent approximately 91% of total company-owned Supercuts revenues.

Signature Style. Signature Style salons are made up of acquired regional salon groups operating under the primary concepts of Hair Masters, Cool Cuts for Kids, Style America, First Choice Haircutters, Famous Hair, Cost Cutters, Magicuts, Holiday Hair, Fiesta Salons, Roosters and TGF, as well as other concept names. Most concepts offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 766 Signature Style franchised and 1,155 Company-owned locations throughout North America. Service revenues represent approximately 89% of total company-owned Signature Style salons revenues.

International Salons. International salons are franchised locations operating in the United Kingdom and Germany primarily under the Supercuts and Regis concepts. These salons offer similar levels of service as our North American salons. Salons are usually located in prominent high-traffic locations and offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products.

The tables on the following pages set forth the number of system-wide locations (company-owned and franchised) and activity within the various salon concepts.

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System-wide location counts



	June 30,
	2019		2018		2017
Company-owned salons:
SmartStyle/Cost Cutters in Walmart stores	1,550		1,660		2,652
Supercuts	403		928		980
Signature Style	1,155		1,378		1,468
Mall locations (1)	—		—		898
Total North American salons	3,108		3,966		5,998
Total International salons (1)(2)	—		—		275
Total, Company-owned salons	3,108		3,966		6,273
as a percent of total Company-owned and Franchise salons	44.0	%	49.1	%	70.3	%
Franchised salons:
SmartStyle/Cost Cutters in Walmart stores (3)	615		561		176
Supercuts	2,340		1,739		1,687
Signature Style	766		745		770
Total franchise locations, excluding TBG mall locations	3,721		3,045		2,633
Total North America TBG mall locations (1)	—		807		—
Total North American salons	3,721		3,852		2,633
Total International salons (1)(2)	230		262		13
Total, Franchised salons	3,951		4,114		2,646
as a percent of total Company-owned and Franchise salons	56.0	%	50.9	%	29.7	%
Ownership interest locations:
Equity ownership interest locations	86		88		89
Grand Total, System-wide	7,145		8,168		9,008

Constructed Locations (net relocations)



	Fiscal Years
	2019	2018	2017
Company-owned salons:
SmartStyle/Cost Cutters in Walmart stores	—	1	37
Supercuts	9	—	2
Signature Style	1	1	—
Total North American salons	10	2	39
Total International salons (1)(2)	—	1	2
Total, Company-owned salons	10	3	41
Franchised salons:
SmartStyle/Cost Cutters in Walmart stores (3)	3	1	—
Supercuts	55	68	111
Signature Style	6	8	27
Total North American salons	64	77	138
Total International salons (1)(2)	1	2	8
Total, Franchised salons	65	79	146

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Closed Locations



	Fiscal Years
	2019		2018		2017
Company-owned salons:
SmartStyle/Cost Cutters in Walmart stores (4)	(39	)	(605	)	(11	)
Supercuts	(21	)	(20	)	(51	)
Signature Style	(73	)	(76	)	(123	)
Mall locations (Regis and MasterCuts) (1)	—		(14	)	(226	)
Total North American salons	(133	)	(715	)	(411	)
Total International salons (1)(2)	—		(14	)	(50	)
Total, Company-owned salons	(133	)	(729	)	(461	)
Franchised salons:
SmartStyle/Cost Cutters in Walmart stores (3)	(18	)	(4	)	(6	)
Supercuts	(72	)	(72	)	(44	)
Signature Style	(33	)	(40	)	(43	)
Mall locations (Regis and MasterCuts) (1)	(807	)	(63	)	—
Total North American salons	(930	)	(179	)	(93	)
Total International salons (1)(2)	(33	)	(15	)	—
Total, Franchised salons	(963	)	(194	)	(93	)

Conversions (including net franchisee transactions) (5)



	Fiscal Years
	2019		2018		2017
Company-owned salons:
SmartStyle/Cost Cutters in Walmart stores	(71	)	(388	)	(57	)
Supercuts	(513	)	(32	)	(24	)
Signature Style	(151	)	(15	)	(13	)
Mall locations (1)	—		(884	)	—
Total North American salons	(735	)	(1,319	)	(94	)
Total International salons (1)(2)	—		(262	)	(5	)
Total, Company-owned salons	(735	)	(1,581	)	(99	)
Franchised salons:
SmartStyle/Cost Cutters in Walmart stores (3)	69		388		57
Supercuts	618		56		41
Signature Style	48		7		(6	)
Mall locations (1)	—		870		—
Total North American salons	735		1,321		92
Total International salons (1)(2)	—		262		5
Total, Franchised salons	735		1,583		97

_______________________________________________________________________________

(1)

In October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, and substantially all of its previous International segment, representing approximately 250 salons in the UK, to TBG, who operated these locations as franchise locations until June 2019. TBG has subsequently closed many of those salons and since June 2019, operates the North American salons under a license agreement. The mall-based business and the previous International segment have been reported as a discontinued operation. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further discussion.

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(2)	Canadian and Puerto Rican salons are included in the North American salon totals.


(3)	Franchised SmartStyle salons in Walmart stores includes salons originally opened as Magicuts locations in Canadian Walmart stores that were rebranded to SmartStyle.


(4)	In January 2018, the Company closed 597 non-performing company-owned SmartStyle locations.


(5)	During fiscal years 2019, 2018, and 2017, the Company acquired thirty-two, zero, and one salon locations, respectively, from franchisees. During fiscal years 2019, 2018, and 2017, the Company sold 767, 1,581, and 100 salon locations, respectively, to franchisees.

Salon Franchising Program:

General. We have various franchising programs supporting our 3,951 franchised salons as of June 30, 2019, consisting mainly of Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters and Roosters salons. We provide our franchisees with a comprehensive system of business training, stylist education, site approval and lease negotiation, construction management services, professional marketing, promotion, and advertising programs, and other forms of on-going support designed to help franchisees build successful businesses.

Standards of Operations. The Company does not control the day-to-day operations of its franchisees, including employment, benefits and wage determination, establishing prices to charge for products and services, business hours, personnel management, and capital expenditure decisions. However, the franchise agreements afford certain rights to the Company, such as the right to approve locations, suppliers and the sale of a franchise. Additionally, franchisees are required to conform to the Company's established operational policies and procedures relating to quality of service, training, salon design and decor, and trademark usage. The Company's field personnel make periodic visits to franchised salons to ensure they are operating in conformity with the standards for each franchising program. All of the rights afforded to the Company with regard to franchised operations allow the Company to protect its brands, but do not allow the Company to control the franchise operations or make decisions that have a significant impact on the success of the franchised salons. The Company’s franchise agreements do not give the Company any right, ability or potential to determine or otherwise influence any terms and/or conditions of employment of franchisees’ employees (except for those, if any, that are specifically related to quality of service, training, salon design, decor, and trademark usage), including, but not limited to, franchisees’ employees’ wages and benefits, hours of work, scheduling, leave programs, seniority rights, promotional or transfer opportunities, layoff/recall arrangements, grievance and dispute resolution procedures, dress code, and/or discipline and discharge.

Franchise Terms. Pursuant to a franchise agreement with the Company, each franchisee pays an initial fee for each store and ongoing royalties to the Company. In addition, for most franchise concepts, the Company collects advertising funds from franchisees and administers the funds on behalf of the concepts. Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures, equipment, supplies, inventory, payroll costs and certain other items, including initial working capital. The majority of franchise agreements provide the Company a right of first refusal if the store is to be sold and the franchisee must obtain the Company's approval in all instances where there is a sale of a franchise location.

Additional information regarding each of the major franchised brands is listed below:

Supercuts

Supercuts franchise agreements have a perpetual term, subject to termination of the underlying lease agreement or termination of the franchise agreement by either the Company or the franchisee. All new franchisees enter into development agreements, which give them the right to enter into a defined number of franchise agreements. These franchise agreements are site specific. The development agreement provides limited territorial protection for the stores developed under those franchise agreements. Older franchisees have grandfathered expansion rights which allow them to develop stores outside of development agreements and provide them with greater territorial protections in their markets. The Company has a comprehensive impact policy that resolves potential conflicts among Supercuts franchisees and/or the Company's Supercuts locations regarding proposed store sites.

SmartStyle and Cost Cutters in Walmart Supercenters

The majority of existing SmartStyle and Cost Cutters franchise agreements for salons located in Walmart Supercenters have a five year term with a five year option to renew. The franchise agreements are site specific.

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Cost Cutters (not located in Walmart Supercenters), First Choice Haircutters and Magicuts

The majority of existing Cost Cutters franchise agreements have a 15 year term with a 15 year option to renew (at the option of the franchisee), while the majority of First Choice Haircutters franchise agreements have a ten year term with a five year option to renew. The majority of Magicuts franchise agreements have a term equal to the greater of five years or the current initial term of the lease agreement with an option to renew for two additional five year periods. The current franchise agreement is site specific. Franchisees may enter into development agreements with the Company which provide limited territorial protection.

Roosters Men’s Grooming Center

Roosters franchise agreements have a ten-year term with a ten-year option to renew (at the option of the franchisee). New franchisees enter into a franchise agreement concurrent with the opening of their first store, along with a development agreement under which they have the right to open two additional locations.

Franchisee Training. The Company provides new franchisees with training, focusing on the various aspects of salon management, including operations, personnel management training, marketing fundamentals, and financial controls. Existing franchisees receive training, counseling and information from the Company on a regular basis. The Company provides salon managers and stylists with technical training for franchisees.

Salon Markets and Marketing:

Franchised Salons

Most franchise concepts maintain separate advertising funds that provide comprehensive marketing and sales support for each system. The Supercuts advertising fund is the Company's largest advertising fund and is administered by a council consisting of primarily franchisee representatives. The council has overall control of the advertising fund's expenditures and operates in accordance with terms of the franchise operating and other agreements. All stores, company-owned and franchised, contribute to the advertising funds. Depending on the brand, the funds are allocated to the brand contributing market for media placement and local marketing activities or to the creation of national advertising and system-wide activities.

Company-Owned Salons

The Company utilizes various marketing vehicles for its salons, including traditional advertising, guest relationship management, digital marketing programs and promotional/pricing based programs. Most marketing vehicles including radio, print, online, digital and television advertising are developed and supervised at the Company's Salon Support headquarters. The Company reviews its brand strategy with the intent to create more clear communication platforms, identities and differentiation points for our brands to drive consumer preference.

Affiliated Ownership Interest:

The Company maintains a noncontrolling 55.1% ownership interest in Empire Education Group, Inc. ("EEG"), which is accounted for as an equity method investment. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. EEG operates accredited cosmetology schools. Contributing the Company's beauty schools in fiscal 2008 to EEG leveraged EEG's management expertise, while enabling the Company to maintain a vested interest in the beauty school industry. Additionally, we utilize our EEG relationship to recruit stylists directly from beauty school.

Corporate Trademarks:

The Company holds numerous trademarks, both in the United States and in many foreign countries. The most recognized trademarks are "SmartStyle®," "Supercuts®," " "Regis Salons®," "Cost Cutters®," "First Choice Haircutters®," and "Magicuts®."

Corporate Employees:

As of June 30, 2019, the Company had approximately 20,000 full and part-time employees worldwide, of which approximately 17,000 employees were located in the United States. The Company believes its employee relations are amicable.

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Executive Officers:

Information relating to the Executive Officers of the Company follows:



Name	Age	Position
Hugh Sawyer	65	President and Chief Executive Officer
Eric Bakken	52	Executive Vice President and President of Franchise
Chad Kapadia	50	Executive Vice President and Chief Technology Officer
Andrew Lacko	49	Executive Vice President and Chief Financial Officer
Jim Lain	55	Executive Vice President and Chief Operating Officer
James Townsend	43	Executive Vice President and Chief Marketing Officer
Laura Alexander	36	Senior Vice President, Chief Merchandising Officer
Shawn Moren	52	Senior Vice President and Chief Human Resources Officer
Amanda Rusin	37	Senior Vice President and General Counsel and Secretary

Hugh Sawyer has served as President and Chief Executive Officer, as well as a member of the Board of Directors, since April 2017. Before joining Regis Corporation, he served as a Managing Director of Huron Consulting Group Inc. ("Huron") from January 2010 to April 2017. While at Huron, he served as Interim President and CEO of JHT Holdings, Inc. from January 2010 to March 2012, as the Chief Administrative Officer of Fisker Automotive Inc. from January 2013 to March 2013 and as Chief Restructuring Officer of Fisker Automotive from March 2013 to October 2013, and as Interim President of Euramax International, Inc. from February 2014 to August 2015. Mr. Sawyer has served as President or CEO of nine companies (including Regis) and on numerous Boards of Directors. In February 2018, Mr. Sawyer was appointed to the Board of Directors of Huron.

Eric Bakken has served as President of Franchise and Executive Vice President since April 2017. He also served as Executive Vice President, Chief Administrative Officer, Corporate Secretary and General Counsel from April 2013 to January 2018. He also served as Interim Chief Financial Officer from September 2016 to January 2017. He served as Executive Vice President, General Counsel and Business Development and Interim Corporate Chief Operating Officer from 2012 to April 2013 and performed the function of interim principal executive officer between July 2012 and August 2012. Mr. Bakken joined the Company in 1994 as a lawyer and became General Counsel in 2004.

Chad Kapadia was appointed to Executive Vice President and Chief Technology Officer in June 2018. Before joining Regis Corporation, he served as Head of Engineering at Target Corporation's New Ventures and Accelerators. Prior to Target Corporation, Mr. Kapadia served in technology positions of increasing responsibility including Chief Technology Officer and Product Head at Swissclear Global, Inc. and as an Engineering Leader and founding member of Netflix, Inc.'s Content Platform Engineering and Media Pipeline.

Andrew Lacko was appointed to Executive Vice President and Chief Financial Officer in July 2017. Before joining Regis Corporation, he served as Senior Vice President, Global Financial Planning, Analysis and Corporate Development, of Hertz Global Holdings, Inc. since 2015 and as Vice President - Financial Planning and Analysis of Hertz Global Holdings, Inc. beginning in January 2014. Before joining Hertz, Mr. Lacko served as Vice President, Financial Planning and Analysis at First Data Corp. from 2013 to January 2014. Prior to that, Mr. Lacko served in senior financial planning and analysis and investor relations roles at Best Buy Co., Inc. from 2008 to 2013.

Jim Lain has served as Executive Vice President and Chief Operating Officer since November 2013. Before joining Regis Corporation, he served as Vice President at Gap, Inc. from August 2006 to November 2013.

James Townsend was appointed as Executive Vice President and Chief Marketing Officer in April 2019. Before joining Regis Corporation, James was a Partner and Chief Development Officer for 72andSunny. Prior to 72andSunny, James served as Vice President of Client Services at Huge, Inc.; led the global Yahoo business for advertising agency, Goodby, Silverstein & Partners; led the San Francisco office of digital agency, Code and Theory; was the Executive Producer of the award-winning music company, The Rumor Mill; and started his career at Ogilvy in New York City.

Laura Alexander was appointed as Senior Vice President, Chief Merchandising Officer in June 2018. Ms. Alexander served as Vice President, Walmart Relations and SmartStyle Franchise Administration from July 2017 to June 2018. Ms. Alexander joined the Company in 2012 and served in various roles within the legal, franchise and Walmart Relations departments.

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Shawn Moren was appointed to Senior Vice President and Chief Human Resources Officer in August 2017. Before joining Regis Corporation, she served as Senior Vice President, Human Resources, for Bluestem Group, Inc. from July 2013 to August 2017. Prior to that, she served as Vice President, Human Resources, Retail, Supply Chain & Corporate for SUPERVALU during 2013 and as Group Vice President, Human Resources for SUPERVALU from March 2012 to March 2013.

Amanda Rusin was appointed as Senior Vice President and General Counsel and Secretary in January 2018. Before joining Regis Corporation, she served as Assistant General Counsel at Polaris Industries, Inc. from September 2015 to December 2017 and Senior Attorney at Polaris Industries, Inc. from June 2014 to September 2015. Before joining Polaris Industries, Inc. Ms. Rusin served as Commercial Director at Cargill, Incorporated from August 2013 to May 2014 and Attorney at Cargill, Incorporated from June 2008 to August 2013.

Governmental Regulations:

The Company is subject to various federal, state, local and provincial laws affecting its business as well as a variety of regulatory provisions relating to the conduct of its beauty related business, including health and safety.

In the United States, the Company's franchise operations are subject to the Federal Trade Commission's Trade Regulation Rule on Franchising (the FTC Rule) and by state laws and administrative regulations that regulate various aspects of franchise operations and sales. The Company's franchises are offered to franchisees by means of an offering circular/disclosure document containing specified disclosures in accordance with the FTC Rule and the laws and regulations of certain states. The Company has registered its offering of franchises with the regulatory authorities of those states in which it offers franchises and in which such registration is required. State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states and, in certain cases, apply substantive standards to this relationship. Such laws may, for example, require that the franchisor deal with the franchisee in good faith, may prohibit interference with the right of free association among franchisees and may limit termination of franchisees without payment of reasonable compensation. The Company believes that the current trend is for government regulation of franchising to increase over time. However, such laws have not had, and the Company does not expect such laws to have, a significant effect on the Company's operations.

In Canada, the Company's franchise operations are subject to franchise laws and regulations in the provinces of Ontario, Alberta, Manitoba, New Brunswick and Prince Edward Island. The offering of franchises in Canada occurs by way of a disclosure document, which contains certain disclosures required by the applicable provincial laws. The provincial franchise laws and regulations primarily focus on disclosure requirements, although each requires certain relationship requirements such as a duty of fair dealing and the right of franchisees to associate and organize with other franchisees.

The Company believes it is operating in substantial compliance with applicable laws and regulations governing all of its operations.

The Company maintains an ownership interest in EEG. Beauty schools derive a significant portion of their revenue from student financial assistance originating from the U.S. Department of Education's Title IV Higher Education Act of 1965. For the students to receive financial assistance at the school, the beauty schools must maintain eligibility requirements established by the U.S. Department of Education.

Financial Information about Foreign and North American Operations

Financial information about foreign and North American markets is incorporated herein by reference to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 and segment information in Note 14 to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

Available Information

The Company is subject to the informational requirements of the Securities and Exchange Act of 1934, as amended (Exchange Act). The Company therefore files periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC). Such reports may be obtained by visiting the Public Reference Room of the SEC at 100 F Street NE, Washington, DC 20549, or by calling the SEC at 1-800-SEC-0330. All of our reports, proxy and information statements and other information are available on the SEC's internet site (www.sec.gov).

Financial and other information can be accessed in the Investor Information section of the Company's website at www.regiscorp.com. The Company makes available, free of charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

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Item 1A. Risk Factors

We are in the process of implementing a new strategy, priorities and initiatives and any inability to execute and evolve our strategy over time could adversely impact our financial condition and results of operations.

The Company is in the middle of a strategic transformation in which we seek to accelerate the growth of our franchise model while at the same time improve the performance of company-owned salons. As part of our strategic transformation, we sold substantially all of our mall-based salon business in North America and substantially all of our previous International segment in the United Kingdom to the Beautiful Group ("TBG"); closed 597 non-performing company-owned SmartStyle salons (including 8 TGF salons) as part of the operational restructuring of the SmartStyle portfolio; and implemented various initiatives intended to stabilize performance and establish a platform for long-term growth, including investments in digital marketing and mobile applications designed to improve the guest experience and a multi-year sponsorship with Major League Baseball for our Supercuts brand designed to support the growth of both company-owned and franchised Supercuts salons.

Our success depends, in part, on our ability to grow our franchise model, including attracting and retaining qualified franchisees. We announced plans in fiscal year 2017 to expand the franchise side of our business, including by selling certain company-owned salons to franchisees over time. In August 2019, we announced that the Company plans to convert to a fully franchised platform over time. Growth and development of our franchise model is ongoing. During fiscal year 2019, new and existing franchisees opened 834 salons, of which 67 were organic and 767 were the sale of a company-owned salon to a franchisee. The growth of our franchise model will take time to execute and may create additional costs, expose us to additional legal and compliance risks, cause disruption to our current business and impact our short-term operating results. Further, in order to enhance services to its franchisees, the Company may need to invest in certain new capabilities and/or services.

Our success also depends, in part, on our ability to improve sales, as well as both cost of service and product and operating margins at our company-owned salons. Same-store sales are affected by average ticket and same-store guest visits. A variety of factors affect same-store guest visits, including the guest experience, salon locations, staffing and retention of stylists and salon leaders, price competition, fashion trends, competition, current economic conditions, product assortment, customer traffic at Walmart where our SmartStyle locations reside, marketing programs and weather conditions. These factors may cause our same-store sales to differ materially from prior periods and from our expectations.

In addition to a new President and Chief Executive Officer, since April 2017 we have appointed a new President of Franchise, Chief Financial Officer, Chief Marketing Officer, Chief Human Resources Officer, General Counsel, Chief Technology Officer, Chief Merchandising Officer and Vice President Creative. The process of integrating new talent and implementing any new strategies, priorities and initiatives involves inherent risks, including timing risks, and the changes we implement could harm our culture, relationships with customers, franchisees, suppliers, employees or other third parties and may be disruptive to our business. While we believe the pursuit of these changes will have a positive effect on our business in the long term, we cannot provide assurance that these changes will lead to the desired results. If we do not effectively and successfully execute on these changes, it could have a material adverse effect on our business.

It is important for us and our franchisees to attract, train and retain talented stylists and salon leaders.

Guest loyalty is dependent upon the stylists who serve our guests and the customer experience in our franchised and company-owned salons. Qualified, trained stylists are key to a memorable guest experience that creates loyal customers. In order to profitably grow our business, it is important for our franchisees and company-owned salons to attract, train and retain talented stylists and salon leaders and to adequately staff our salons. Because the salon industry is highly fragmented and comprised of many independent operators, the market for stylists is highly competitive. In addition, increases in minimum wage requirements may impact the number of stylists considering careers outside the beauty industry. There is also a low unemployment rate and high competition for employees in the service industry, particularly licensed employees, which drives increased competition for stylists and could result in retention and hiring difficulties. In some markets, we and our franchisees have experienced a shortage of qualified stylists. Offering competitive wages, benefits, education and training programs are important elements to attracting and retaining qualified stylists. In addition, due to challenges facing the for-profit education industry, cosmetology schools, including our investment in EEG, have experienced declines in enrollment, revenues and profitability in recent years. If the cosmetology school industry sustains further declines in enrollment or some schools close entirely, or if stylists leave the beauty industry, we expect that we and our franchisees would have increased difficulty staffing our salons in some markets. If our company-owned salons or franchisees are not successful in attracting, training and retaining stylists or in staffing our salons, our same-store sales or the performance of our franchise business could experience periods of variability or sales could decline and our results of operations could be adversely affected.

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Our continued success depends in part on the success of our franchisees, who operate independently.

As of June 30, 2019, approximately 56% of our salons were franchised locations and we intend to expand our number of franchised locations, where we believe it will enhance shareholder value. We derive revenues associated with our franchised locations from royalties, fees and product sales to franchised locations. Our financial results are therefore dependent in part upon the operational and financial success of our franchisees. As we increase our focus on our franchise business, our dependence on our franchisees grows.

We have limited control over how our franchisees’ businesses are run. Though we have established operational standards and guidelines, they own, operate and oversee the daily operations of their salon locations. If franchisees do not successfully operate their salons in compliance with our standards, our brand reputation and image could be harmed, and our financial results could be affected. We could experience greater risks as the scale of our franchise owners increases. Further, some franchise owners may not successfully execute the rebranding and/or turnaround of under-performing salons which we have transferred to them.

In addition, our franchisees are subject to the same general economic risks as our Company, and their results are influenced by competition for both guests and stylists, market trends, price competition and disruptions in their markets due to severe weather and other external events. Like us, they rely on external vendors for some critical functions and to protect their company data. They may also be limited in their ability to open new locations by an inability to secure adequate financing, especially since many of them are small businesses with much more limited access to financing than our Company, or by the limited supply of favorable real estate for new salon locations. They may experience financial distress as a result of over-leveraging, which could negatively affect our operating results as a result of delayed payments to us. The bankruptcy of a franchisee could also expose us to liability under leases, which are generally sub-leased by us to our franchisees.

A deterioration in the financial results of our franchisees, or a failure of our franchisees to renew their franchise agreements, could adversely affect our operating results through decreased royalty payments, fees and product revenues.

Acceleration of the sale of company-owned salons to franchisees may not improve our operating results and could cause operational difficulties.

During fiscal year 2019, we accelerated the sale of company-owned salons to new and existing franchisees and in August 2019 announced that we plan to convert to a fully franchised platform over time. The sales of our company-owned salons were across our brands to new and existing franchisees during fiscal year 2019.

Success will depend on a number of factors, including franchisees’ ability to improve the results of the salons they purchase and their ability and interest in continuing to grow their business. We also must continue to attract qualified franchisees and work with them to make their business successful. Moving a salon from company-owned to franchise-owned is expected to reduce our consolidated revenues, increase our royalty revenue and decrease our operating costs; however, the actual benefit from a sale is uncertain and may not be sufficient to offset the loss of revenues. Also, our gross margins on wholesale product sales are lower than our gross margins on retail product sales. Furthermore, the timing of decreasing operating costs may significantly lag the transfer to franchisees, because it takes time for us to reduce the general and administrative costs directly or indirectly associated with a transferred salon.

In addition, challenges in supporting our expanding franchise system could cause our operating results to suffer. If we are unable to effectively select and train new franchisees and support and manage our growing franchisee base, it could affect our brand standards, cause disputes between us and our franchisees, and potentially lead to material liabilities.

If our capital investments in developing new technology-enabled capabilities and improving current technology infrastructure do not achieve appropriate returns, our financial condition and results of operations may be adversely affected.

We are currently making, and expect to continue to make, strategic investments in technology to improve guest experiences and improve our back-office systems, including, without limitation, our Opensalon mobile application and platform that we launched in 2019. These investments might not provide the anticipated benefits or desired return and could expose us to additional legal and compliance risks. Furthermore, some of the Company’s technology capabilities and developments involve third party partnerships, on which we are dependent. If these partnerships are not successful, the capabilities may not fully achieve their anticipated returns. In addition, if we are unable to successfully protect any intellectual property rights resulting from our investments, the value received from those investments may be eroded, which could adversely affect our financial condition. Among other things, targeting the wrong investment opportunities, failing to successfully meet our strategic objectives when making the correct investments, being unable to make new concepts scalable or achieving appropriate market or franchisee adoption, and/or making an investment commitment significantly above or below our needs could adversely affect our financial condition and results of operations.

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Cybersecurity incidents could result in the compromise of potentially sensitive information about our guests, employees, vendors or company and expose us to business disruption, negative publicity, costly government enforcement actions or private litigation and our reputation could suffer.

The normal operations of our business and our new investments in technology involve processing, transmission and storage of potentially personal information about our guests as well as employees, vendors and our Company. Cyber-attacks designed to gain access to sensitive information by breaching mission critical systems of large organizations and their third party vendors are constantly evolving, and high profile electronic security breaches leading to unauthorized release of sensitive guest information have occurred at a number of large U.S. companies in recent years. Despite the security measures and processes we have in place, our efforts, and those of our third party vendors, to protect sensitive guest, Company and employee information may not be successful in preventing a breach in our systems or detecting and responding to a breach on a timely basis. As a result of a security incident or breach in our systems, our systems could be interrupted or damaged, or sensitive information could be accessed by third parties. If that happened, our guests could lose confidence in our ability to protect their information, which could cause them to stop visiting our salons altogether. Such events could lead to lost future sales and adversely affect our results of operations. In addition, as the regulatory environment relating to retailers and other companies' obligations to protect sensitive data becomes stricter, a material failure on our part to comply with applicable regulations could subject us to fines or other regulatory sanctions and potentially to lawsuits. These laws are changing rapidly and vary among jurisdictions. Furthermore, while our franchisees are independently responsible for data security at franchised locations, a breach of guest or vendor data at a franchised location could also negatively affect public perception of our brands. More broadly, our incident response preparedness and disaster recovery planning efforts may be inadequate or ill-suited for a security incident and we could suffer disruption of operations or adverse effects to our operating results.

TBG’s inability to operate its salons successfully could adversely affect our business, financial condition and results of operations or cash flows, and could prevent the transaction from delivering the anticipated benefits and enhancing shareholder value.

In October 2017, we sold substantially all of our mall-based salon business in North America and substantially all of our International segment to TBG, an affiliate of Regent, which is operating the salons in North America as a licensee (from October 2017 to June 2019 TBG operated them as a franchisee) and the salons in the United Kingdom as a franchisee. The success of TBG depends upon a number of factors that are beyond our control, including, among other factors, market conditions, retail trends in mall locations, industry trends, stylist recruiting and retention, customer traffic, as defined by total transactions, the capabilities of TBG, the accuracy and reliability of TBG’s financial reporting systems, TBG's ability to maintain adequate working capital, technology and landlord issues. In particular, as of July 31, 2019, prior to any mitigation efforts which may be available to us, we estimate that we remain liable for up to $39 million, which is a material reduction from October 1, 2017, under the leases for certain of these salons until the end of their various terms, and we could be required to make cash payments if TBG fails to do so, which could materially adversely impact our results of operations or cash flows. TBG has struggled to make changes that improve the business of the mall-based salons and the International business. TBG’s same store sales have declined year over year and there is no assurance that TBG will be successful in improving performance in the future. In addition, several of the services we provided to TBG under the transition services agreement ended in the fourth quarter of fiscal year 2018, thereby ending this income stream. In connection with the purchase agreements, subleases, transition services and other related agreements with the Company, TBG has been consistently delinquent on its payments to the Company and to third parties. TBG’s continued failure to pay landlords, suppliers, service providers and other third parties could adversely affect the Company’s relationships with such third parties and/or result in an allegation (albeit tenuous) by such third parties that the Company should be responsible for TBG’s payment obligations, which in turn could adversely affect the Company’s operations and financial condition. It is foreseeable that TBG may in the future continue to have cash flow and working capital issues, which could have significant adverse impacts on our business.

On June 27, 2019, the Company entered into a Second US and Canada Omnibus Settlement Agreement with TBG as previously disclosed, which, among other things, notes that TBG has entered into lease termination and concession agreements with certain landlords which had the effect of reducing the Company’s potential lease liability in connection with TBG operated salons and substituted the master franchise agreement for a license agreement in North America only. In addition, pursuant to the settlement agreement, the Company released and forgave TBG from, among other amounts, approximately $6.6 million in respect of amounts for inventory invoiced through January 17, 2019, $1.3 million in respect of continuing fees invoiced through April 5, 2019, $28,000 in respect of amounts for services under the transition services agreement, and the obligations under the United States and Canada Secured Promissory Notes dated August 2, 2018 representing approximately $11.7 million in working capital receivables and $8.0 million in accounts receivable, plus accrued interest, which had a maturity date of August 2, 2020. Based on TBG’s inability to meet the requirements of the promissory notes, the Company prior to the settlement agreement, recorded a full reserve against the promissory notes (including the remaining United Kingdom

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promissory note). Risks and other issues related to franchisees described elsewhere in these risk factors still apply to TBG for the most part even though the Company and TBG now have a licensor-licensee instead of a franchisor-franchisee relationship. Even with the settlement agreement and after its implementation, TBG may still not be able to successfully turnaround its North America business. With regard to TBG’s United Kingdom business, in October 2018, TBG filed a voluntary insolvency proceeding involving its United Kingdom business, which its creditors approved ("CVA"). In November 2018, a group of landlords filed a legal challenge to the CVA in United Kingdom’s High Court alleging material irregularity and unfair prejudice. If the CVA is overturned, or is otherwise not implemented, it is likely that TBG’s United Kingdom business will no longer be able to trade as a going concern, which is likely to result in bankruptcy and/or administrative proceedings. Even if the CVA is implemented and the challenge overturned or a settlement reached, TBG may still not successfully achieve the cost savings and other benefits contemplated by the CVA. Negative events associated with the CVA process and challenge could adversely affect TBG’s and/or our relationships with suppliers, service providers, customers, employees, and other third parties, which in turn could adversely affect TBG’s and/or our operations and financial condition. We had previously agreed in the note documents that a CVA filing would not constitute an item of default. TBG’s debt obligations in the United Kingdom to us currently remain intact and the Company has fully reserved against such obligations.

The Company foresees that TBG may in the future need to attempt to further restructure or even divest of (operationally, legally, or otherwise) its businesses, operations and obligations in order to remain a going concern. The Company has certain rights and remedies under the various agreements with TBG, including, but not limited to, utilization of collateral, litigation, and reversion of the leases in respect of certain divested salons back to the Company. If the divested salons were to revert, we may have difficulty supporting the businesses because of the challenges involved in quickly and sufficiently staffing the salons and corporate functions to support an influx in company-owned stores, addressing the stores’ performance issues, implementing required data privacy requirements in the United Kingdom and resuming support for the salons’ IT and marketing requirements. Overall, TBG’s inability to transition and operate the salons successfully, or its ability to make payments when due to the Company or third parties, could adversely affect our business, including increased reputation risks, litigation risks, financial condition and results of operations or cash flows, and could prevent the transaction from delivering the anticipated benefits and shareholder value.

Our ability to franchise our company-owned SmartStyle salons and successfully operate this business is dependent on our relationship with Walmart.

At June 30, 2019, we had 2,165 SmartStyle or Cost Cutters salons within Walmart locations, including 2 salons opened during fiscal year 2019 (net of relocations). Walmart is by far our largest landlord, and we believe we are Walmart’s largest tenant. Our business within each of those 2,165 salons relies primarily on the traffic of visitors to the Walmart in which it is located, so our success is tied to Walmart’s success in bringing shoppers into their stores. We have limited control over the locations and markets in which we open new SmartStyle locations, as we only have potential opportunities in locations offered to us by Walmart. Furthermore, Walmart has the right to close up to 100 of our salons per year for any reason, upon payment of certain penalties; to terminate lease agreements for breach, such as if we failed to conform with required operating hours, subject to a notice and cure period; and to terminate the lease if the Walmart store in which it sits is closed. In fiscal year 2017, we began franchising select SmartStyle branded locations. Future franchising activity will require and be limited by the approval of Walmart on a location by location basis. Walmart may not give their approval to franchise some or all of our company-owned salons. further, Walmart may attempt to impose changes to the terms and conditions of our agreements which are contrary to our economic interests. Operating both company-owned and franchised SmartStyle salons adds complexity in overseeing franchise compliance and coordination with Walmart.

Our future growth and profitability may depend, in part, on our ability to build awareness and drive traffic with advertising and marketing efforts, and on delivering a quality guest experience to drive repeat visits to our salons.

Our future growth and profitability may depend on the effectiveness, efficiency and spending levels of our marketing and advertising efforts to drive awareness and traffic to our salons. In addition, delivering a quality guest experience is crucial in order to drive repeat visits to our salons. We are developing our marketing and advertising strategies, including national and local campaigns, to build awareness, drive interest, consideration and traffic to our salons. We are also focusing on improving guest experiences to provide brand differentiation and preference, and to ensure we meet our guests’ needs. If our marketing, advertising and improved guest experience efforts do not generate sufficient customer traffic and repeat visits to our salons, our business, financial condition and results of operations may be adversely affected.

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Changes in regulatory and statutory laws, such as increases in the minimum wage and changes that make collective bargaining easier, and the costs of compliance and non-compliance with such laws, may result in increased costs to our business.

With 7,145 locations and approximately 20,000 employees worldwide, our financial results can be adversely impacted by regulatory or statutory changes in laws. Due to the number of people we employ, laws that increase minimum wage rates, employment taxes, overtime requirements or costs to provide employee benefits or administration may result in additional costs to our Company.

A number of U.S. states, Canadian provinces and municipalities in which we do business have recently increased or are considering increasing the minimum wage, with increases generally phased over several years depending upon the size of the employer. Increases in minimum wages and overtime pay increase our costs, and our ability to offset these increases through price increases may be limited. In fact, increases in minimum wages increased our costs over the last five years. In addition, a growing number of states, provinces, and municipalities have passed or are considering requirements for paid sick leave, family leave, predictive scheduling (which imposes penalties for changing an employee’s shift as it nears), and other requirements that increase the administrative complexity of managing our workforce. Finally, changes in labor laws, such as recent legislation in Ontario and Alberta designed to facilitate union organizing, could increase the likelihood of some of our employees being subjected to greater organized labor influence. If a significant portion of our employees were to become unionized, it would have an adverse effect on our business and financial results.

Increases in minimum wages, administrative requirements and unionization could also have an adverse effect on the performance of our franchisees, especially if our franchisees are treated as a "joint employer" with us by the National Labor Relations Board (NLRB) or as a large employer under minimum wage statutes because of their affiliation with us. In addition, we must comply with state employment laws, including the California Labor Code, which has stringent requirements and penalties for non-compliance.

Various state and federal laws govern our relationship with our franchisees and our potential sale of a franchise. If we fail to comply with these laws, we could be liable for damages to franchisees and fines or other penalties. A franchisee or government agency may bring legal action against us based on the franchisee/franchisor relationship. Also, under the franchise business model, we may face claims and liabilities based on vicarious liability, joint-employer liability, or other theories or liabilities. All such legal actions not only could result in changes to laws and interpretations, making it more difficult to appropriately support our franchisees and, consequently, impacting our performance, but, also, such legal actions could result in expensive litigation with our franchisees, third parties or government agencies that could adversely affect both our profits and our important relations with our franchisees. In addition, other regulatory or legal developments may result in changes to laws or the franchisor/franchisee relationship that could negatively impact the franchise business model and, accordingly, our profits.

In addition to employment and franchise laws, we are also subject to a wide range of federal, state, provincial and local laws and regulations, including those affecting public companies, product manufacture and sale, and governing the franchisor-franchisee relationship, in the jurisdictions in which we operate. Compliance with new, complex and changing laws may cause our expenses to increase. In addition, any non-compliance with laws or regulations could result in penalties, fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products or attract or retain employees, which could adversely affect our business, financial condition and results of operations.

Our success depends substantially on the value of our brands.

Our success is dependent, in large part, upon our ability to maintain and enhance the value of our brands, our customers’ connection to our brands, and a positive relationship with our franchisees. Brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity, including via social media, or result in litigation. Some of these incidents may relate to the way we manage our relationship with our franchisees, our growth strategies, our development efforts, or the ordinary course of our, or our franchisees’, business. Other incidents may arise from events that are or may be beyond our ability to control and may damage our brands, such as actions taken (or not taken) by one or more franchisees or their employees relating to health, safety, welfare, or otherwise; litigation and claims; security breaches or other fraudulent activities associated with our payment systems; and illegal activity targeted at us or others. Consumer demand for our products and services and our brands’ value could diminish significantly if any such incidents or other matters erode consumer confidence in us or our products or services, which would likely result in lower sales and, ultimately, lower royalty income, which in turn could materially and adversely affect our business and operating results.

Premature termination of franchise agreements can cause losses.

Our franchise agreements may be subject to premature termination in certain circumstances, such as failure of a franchisee to cure a monetary default or abandonment of the franchise. If terminations occur for this or other reasons, we may need to enforce our right to damages for breach of contract and related claims, which may cause us to incur significant legal fees and

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expenses and/or to take back and operate such salons as company-owned. Any damages we ultimately collect could be less than the projected future value of the fees and other amounts we would have otherwise collected under the franchise agreement. In addition, with many of our brands, we remain liable under the lease and, therefore, will be obligated to pay rent or enter into a settlement with the landlord, and we may not be made whole by the franchisee. A significant loss of franchisee agreements due to premature terminations could hurt our financial performance or our ability to grow our business.

We rely heavily on our information technology systems for our key business processes. If we experience an interruption in their operation, our results of operations may be affected.

The efficient operation of our business is dependent on our management information systems. We rely heavily on our management information systems to collect daily sales information and guest demographics, generate payroll information, monitor salon performance, manage salon staffing and payroll costs, manage our two distribution centers and other inventory and other functions. Such systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, hackers, security breaches, and natural disasters. In addition, certain of our management information systems are developed and maintained by external vendors, including our POS system, and some are outdated or of limited functionality, not owned by the Company or not exclusively provided by the Company. The failure of our management information systems to perform as we anticipate, meet the continuously evolving needs of our business, or provide an affordable long-term solution, could disrupt our business operations and result in other negative consequences, including remediation costs, loss of revenue, and reputational damage.

We rely on external vendors for products and services critical to our operations.

We rely on external vendors for the manufacture of our owned brand products, other retail products we sell, and products we use during salon services such as color and chemical treatments. We also rely on external vendors for various services critical to our operations and the security of certain Company data. Our dependence on vendors exposes us to operational, reputational, financial, and compliance risk.

If our product offerings do not meet our guests’ expectations regarding safety and quality, we could experience lost sales, increased costs, and exposure to legal and reputational risk. All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products and packages we buy, for either use on a guest during a service or resale to the public, comply with all safety and quality standards. Events that give rise to actual, potential, or perceived product safety concerns or mislabeling could expose us to government enforcement action and/or private litigation and result in costly product recalls and other liabilities. In addition, we do not own the formulas for certain of our owned brand products and could be unable to sell those products if the vendor decided to discontinue working with us.

Our vendors are also responsible for the security of certain Company data, as discussed above. In the event that one of our key vendors becomes unable to continue to provide products and services, or their systems fail, are compromised or the quality of their systems deteriorate, we may suffer operational difficulties and financial loss.

Consumer shopping trends and changes in manufacturer choice of distribution channels may negatively affect both service and product revenues.

Both our franchised and owned salons are partly dependent on the volume of traffic around their locations in order to generate both service and product revenues. Supercuts salons and most of our other brands are located mainly in strip center locations, and SmartStyle salons are located within Walmart Supercenters, so they are especially sensitive to Walmart traffic. Customer traffic may be adversely affected by changing consumer shopping trends that favor alternative shopping locations, such as the internet. In recent years we have experienced substantial declines in traffic in some shopping malls in particular. While we no longer own mall-based salons, as they are now operated by TBG, traffic patterns at those salons will affect our potential product sales revenues and impact the health of our brands.

In addition, we are experiencing a proliferation of alternative channels of distribution, like blow dry bars, booth rental facilities, discount brick-and-mortar and online professional products retailers, and manufacturers selling direct to consumers online, which may negatively affect our product and service revenue. Also, product manufacturers may decide to utilize these other distribution channels to a larger extent than in the past and they generally have the right to terminate relationships with us without much advance notice. These trends could reduce the volume of traffic around our salons, and in turn, our revenues may be adversely affected.

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If we are not able to successfully compete in our business markets, our financial results may be affected.

Competition on a market by market basis remains challenging as many smaller chain competitors are franchise systems with local operating strength in certain markets and the hair salon industry as a whole is fragmented and highly competitive for customers, stylists and prime locations. Therefore, our ability to attract guests, raise prices and secure suitable locations in certain markets can be adversely impacted by this competition. Our strategies for competing are complicated by the fact that we have multiple brands in multiple segments, which compete on different factors.

We also face significant competition for prime real estate, particularly in strip malls. We compete for lease locations not only with other hair salons, but with a wide variety of businesses looking for similar square footage and high-quality locations.

Furthermore, our reputation is critical to our ability to compete and succeed. Our reputation may be damaged by negative publicity on social media or other channels regarding the quality of services we provide. There has been a substantial increase in the use of social media platforms, which allow individuals to be heard by a broad audience of consumers and other interested persons. Negative or false commentary regarding us or the products or services we offer may be posted on social media platforms at any time. Customers value readily available information and may act on information without further investigation or regard to its accuracy. The harm to our reputation may be immediate, without affording us an opportunity for redress or correction. Our reputation may also be damaged by factors that are mostly or entirely out of our control, including actions by a franchisee or a franchisee’s employee. If we are not able to successfully compete, our ability to grow same-store sales and increase our revenue and earnings may be impaired.

We could be subject to changes in tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities.

We are subject to income taxes in the U.S. and other foreign jurisdictions. Significant judgment is required in determining our tax provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are subject to the examination of our income tax returns, payroll taxes and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for income taxes and payroll tax accruals. There can be no assurances as to the outcome of these examinations. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax provisions and employment taxes. The results of an audit or litigation could have a material effect on our consolidated financial statements in the period or periods for which that determination is made.

Our effective income tax rate in the future could be adversely affected by a number of factors, including changes in the mix of earnings in countries with different statutory tax rates, changes in tax laws, or the outcome of income examinations.

Changes to healthcare laws in the U.S. may increase the number of employees who participate in our healthcare plans, which may significantly increase our healthcare costs and negatively impact our operating results.

We offer comprehensive healthcare coverage to eligible employees in the United States. Historically, a majority of our eligible employees do not participate in our healthcare plans. Due to changes to healthcare laws in the United States, it is possible that enrollment in the Company’s healthcare plans may increase as individual penalties for failing to have insurance increase pursuant to the Affordable Care Act (ACA), and as employees continue to assess their changing healthcare alternatives, including if Medicaid coverage decreases or health insurance exchanges become less favorable. Furthermore, under the ACA, potential fees and or penalties may be assessed against us as a result of individuals either not being offered healthcare coverage within a limited timeframe or if coverage offered does not meet minimum care and affordability standards. An increase in the number of employees who elect to participate in our healthcare plans, changing healthcare-related requirements or if the Company fails to comply with one or more provisions of ACA may significantly increase our healthcare-related costs and negatively impact our operating results.

Changes to interest rates and foreign currency exchange rates may impact our results from operations.

Changes in interest rates and foreign currency exchange rates will have an impact on our expected results from operations. Historically, we have managed the risk related to fluctuations in these rates through the use of fixed rate debt instruments and other financial instruments.

Failure to simplify and standardize our operating processes across our brands could have a negative impact on our financial results.

Standardization of operating processes across our brands, marketing and products will enable us to simplify our operating model and decrease our costs. Failure to do so could adversely impact our ability to grow revenue and realize further efficiencies within our results of operations.

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Empire Education Group is unsuccessful, our financial results may be affected.

As of June 30, 2019, we maintain a 55% ownership stake in Empire Education Group (EEG), an operator of accredited cosmetology schools. Due to poor financial performance we fully impaired the investment in prior years. If EEG is unsuccessful in executing its business plan, or if economic, regulatory and other factors, including declines in enrollment, revenue and profitability continue for the for-profit secondary education market, our financial results may be affected by certain potential liabilities related to this investment.

Failure to control costs may adversely affect our operating results.

We must continue to control our expense structure. Failure to manage our cost of product, labor and benefit rates, advertising and marketing expenses, operating lease costs, other store expenses or indirect spending could delay or prevent us from achieving increased profitability or otherwise adversely affect our operating results.

If we fail to comply with any of the covenants in our financing arrangement, we may not be able to access our existing revolving credit facility, and we may face an accelerated obligation to repay our indebtedness.

We have a financing arrangement that contains financial and other covenants. If we fail to comply with any of the covenants, it may cause a default under our financing arrangement, which could limit our ability to obtain additional financing under our existing credit facility, require us to pay higher levels of interest or accelerate our obligation to repay our indebtedness.

Changes in the general economic environment may impact our business and results of operations.

Changes to the U.S., Canadian and United Kingdom economies have an impact on our business. General economic factors that are beyond our control, such as recession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, extreme weather patterns, other casualty events and other matters that influence consumer confidence and spending, may impact our business. In particular, visitation patterns to our salons can be adversely impacted by increases in unemployment rates and decreases in discretionary income levels.

Changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns may impact our revenue.

Our success depends in part on our ability to anticipate, gauge and react in a timely manner to changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns. If we do not timely identify and properly respond to evolving trends and changing consumer demands for hair care, our sales may decline significantly. Furthermore, we may accumulate additional inventory and be required to mark down unsold inventory to prices that are significantly lower than normal prices, which could adversely impact our margins and could further adversely impact our business, financial condition and results of operations.

Operational failure at one of our distribution centers would impact our ability to distribute product.

We operate two distribution centers, one near Chattanooga, Tennessee, and one near Salt Lake City, Utah. These supply our North America company-owned salons and many of our franchisees with retail products to sell and products used during salon services. A technology failure or natural disaster that caused one of the distribution centers to be inoperable would cause disruption in our business and could negatively impact our revenues.

Our enterprise risk management program may leave us exposed to unidentified or unanticipated risks.

We maintain an enterprise risk management program that is designed to identify, assess, mitigate, and monitor the risks that we face. There can be no assurance that our frameworks or models for assessing and managing known risks, compliance with applicable law, and related controls will effectively mitigate risk and limit losses in all market environments or against all types of risk in our business. If conditions or circumstances arise that expose flaws or gaps in our risk management or compliance programs, the performance and value of our business could be adversely affected.

Insurance and other traditional risk-shifting tools may be held by or available to Regis in order to manage certain types of risks, but they are subject to terms such as deductibles, retentions, limits and policy exclusions, as well as risk of denial of coverage, default or insolvency. If we suffer unexpected or uncovered losses, or if any of our insurance policies or programs are terminated for any reason or are not effective in mitigating our risks, we may incur losses that are not covered or that exceed our coverage limits and could adversely impact our results of operations, cash flows and financial position.

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The franchise arrangements require each franchisee to maintain certain insurance coverages and levels. Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks. Moreover, any loss incurred could exceed policy limits and policy payments made to franchisees may not be made on a timely basis. Any such loss or delay in payment could have a material and adverse effect on a franchisee’s ability to satisfy its obligations under its franchise arrangement, including its ability to make royalty payments.

We rely on our management team and other key personnel.

We depend on the skills, working relationships, and continued services of key personnel, including our management team and others throughout our organization. We are also dependent on our ability to attract and retain qualified personnel, for whom we compete with other companies both inside and outside our industry. Our business, financial condition or results of operations may be adversely impacted by the unexpected loss of any of our management team or other key personnel, or more generally if we fail to identify, recruit, train and/or retain talented personnel. Additionally, the Chief Executive Officer's employment agreement may end before the Company's multi-year strategic transformation is complete, and or a succession plan has formalized.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company's corporate offices are headquartered in a 139,000 square foot, two building complex in Edina, Minnesota that is owned by the Company. We announced in the third quarter of fiscal year 2019 that we have signed a lease for new corporate office space in Minneapolis, Minnesota and plan to sell the Edina campus.

The Company also operates offices in Edina, Minnesota; and Toronto, Canada under long-term leases.

In fiscal year 2019, the Company sold its distribution centers located in Chattanooga, Tennessee and Salt Lake City, Utah and signed long-term leases to continue to operate in the locations. The Chattanooga facility utilizes 230,000 square feet while the Salt Lake City facility utilizes 210,000 square feet.

The Company also leases the premises in which approximately 94% of our franchisees operate and has entered into corresponding sublease arrangements with the franchisees. Generally, these leases have a five year initial term and one or more five year renewal options. All lease costs are passed through to the franchisees. Remaining franchisees who do not enter into sublease arrangements with the Company negotiate and enter into leases on their own behalf.

The Company operates all of its salon company-owned locations under leases or license agreements. Salons operating within strip centers and Walmart Supercenters have leases with original terms of at least five years, generally with the ability to renew, at the Company's option, for one or more additional five year periods. Salons operating within department stores in Canada operate under license agreements, while freestanding or shopping center locations have real property leases comparable to the Company's company-owned locations.

None of the Company's salon leases are individually material to the operations of the Company and the Company expects that it will be able to renew its leases on satisfactory terms as they expire or identify and secure other suitable locations. See Note 8 to the Consolidated Financial Statements.

Item 3. Legal Proceedings

The Company is a defendant in various lawsuits and claims arising out of the normal course of business. Like certain other large retail employers, the Company has been faced with allegations of purported class-wide consumer and wage and hour violations. Litigation is inherently unpredictable and the outcome of these matters cannot presently be determined. Although the actions are being vigorously defended, the Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II


Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchase of Equity Securities

Regis common stock is listed and traded on the New York Stock Exchange under the symbol "RGS."

As of August 9, 2019, Regis shares were owned by approximately 10,000 shareholders based on the number of record holders and an estimate of individual participants in security position listings. The closing stock price was $18.00 per share on August 9, 2019.

In accordance with its capital allocation policy, the Company does not pay dividends.

The following graph compares the cumulative total shareholder return on the Company's stock for the last five years with the cumulative total return of the Standard and Poor's 500 Stock Index and the cumulative total return of a peer group index (the Peer Group) constructed by the Company. In addition, the Company has included the Standard and Poor's 400 Midcap Index and the Dow Jones Consumer Services Index in this analysis because the Company believes these two indices provide a comparative correlation to the cumulative total return of an investment in shares of Regis Corporation.

The Peer Group consists of the following companies: Boyd Gaming Corp., Brinker International, Inc., Cracker Barrel Old Country Store, DineEquity, Inc., Fossil Group, Inc., Fred's, Inc., Jack in the Box, Inc., Penn National Gaming, Inc., Revlon, Inc., Sally Beauty Holdings, Inc., Service Corporation International, The Cheesecake Factory, Inc. and Ulta Salon, Cosmetics & Fragrance Inc. The Peer Group is a self-constructed peer group of companies that have comparable annual revenues and market capitalization and are in the beauty industry or other industries where guest service, multi-unit expansion or franchise play a part. Information regarding executive compensation will be set forth in the 2019 Proxy Statement.

The comparison assumes the initial investment of $100 in the Company's common stock, the S&P 500 Index, the Peer Group, the S&P 400 Midcap Index and the Dow Jones Consumer Services Index on June 30, 2014 and that dividends, if any, were reinvested.

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Comparison of 5 Year Cumulative Total Return

Assumes Initial Investment of $100

June 2019



	June 30,
	2014		2015		2016		2017		2018		2019
Regis	$	100.00	$	111.93	$	88.42	$	72.94	$	117.47	$	117.90
S & P 500	100.00		107.42		111.71		131.70		150.64		166.33
S & P 400 Midcap	100.00		106.40		107.81		127.83		145.09		147.07
Dow Jones Consumer Services Index	100.00		117.44		119.59		138.70		165.84		188.79
Peer Group	100.00		128.99		135.51		142.07		142.60		162.03

In May 2000, the Company's Board of Directors (Board) approved a stock repurchase program with no stated expiration date. Since that time and through June 30, 2019, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. As of June 30, 2019, 28.5 million shares have been cumulatively repurchased for $569.1 million, and $80.9 million remained outstanding under the approved stock repurchase program.

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The Company repurchased the following common stock through its share repurchase program:



	Fiscal Years
	2019		2018		2017
Repurchased Shares	8,605,430		1,469,057		—
Average Price (per share)		$17.94		$16.86	$	—
Price range (per share)	$15.29 - $19.75		$15.55 - $17.90		$	—
Total	$154.4 million		$24.8 million		$	—

The following table shows the stock repurchase activity by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Exchange Act, by month for the three months ended June 30, 2019:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (in thousands)

4/1/19 - 4/30/19	204,451	$	19.41	26,093,201	$	125,166
5/1/19 - 5/31/19	1,444,752	18.91		27,537,953	97,846
6/1/19 - 6/30/19	932,704	18.17		28,470,657	80,899
Total	2,581,907	$	18.68	28,470,657	$	80,899

Item 6. Selected Financial Data

Beginning with the period ended September 30, 2017, the operations of the mall-based business and International segment were accounted for as a discontinued operation. All periods presented reflect the mall-based business and International segment as a discontinued operation.

The following table sets forth selected financial data derived from the Company's Consolidated Financial Statements in Part II, Item 8. The table should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Item 8, "Financial Statements and Supplementary Data", of this Report on Form 10-K.



	Fiscal Years
	2019			2018			2017			2016			2015
	(Dollars in thousands, except per share data)
Revenues	$	1,069,039		$	1,235,479		$	1,292,800		$	1,314,762		$	1,311,360
Operating (loss) income (a)	(22,119		)	(5,139		)	12,550			21,865			4,220
(Loss) income from continuing operations(a)	(20,122		)	59,621			(3,295		)	(8,085		)	(32,704		)
(Loss) Income from continuing operations per diluted share	(0.48		)	1.27			(0.07		)	(0.17		)	(0.59		)



	June 30,
	2019		2018		2017		2016		2015
	(Dollars in thousands)
Total assets, including discontinued operations	$	682,837	$	856,735	$	1,011,488	$	1,036,761	$	1,162,015
Long-term debt, including current portion	119,810		90,000		120,599		120,435		120,000

_______________________________________________________________________________


(a)	The following significant items affected each of the years presented:


•	During fiscal year 2019, the Company recorded a $21.8 million restructuring charge related to TBG mall locations (See Note 3 to the Consolidated Financial Statements), $4.6 million of non-cash fixed asset impairment charges and $2.9 million of net gain on salons sold to franchisees.

•

During fiscal year 2018, the Company recorded a $68.1 million income tax benefit resulting from the federal rate reduction and a partial release of the U.S. valuation allowance as a result of the Tax Cuts and Jobs Act (the “Tax Act”), $41.2 million ($32.5 million, net of taxes) of expenses associated with the January 2018 SmartStyle portfolio restructure and other related costs, $11.1 million of non-cash fixed asset impairment charges, $8.0 million of gain on company-owned life insurance policies, and $2.7 million ($2.2 million, net of taxes) of severance expense related to terminations.

•

During fiscal year 2017, the Company recorded $7.9 million of non-cash fixed asset impairment charges, $8.4 million of severance expense related to the termination of former executive officers including the Company's Chief Executive Officer, $7.7 million of non-cash tax expense related to tax benefits on certain indefinite-lived assets that the Company cannot recognize for reporting purposes and $5.3 million of expense for a one-time non-cash inventory expense related to salon tools.


•	During fiscal year 2016, the Company recorded a $13.0 million other than temporary non-cash impairment charge to fully impair its investment in EEG, $10.5 million of non-cash fixed asset impairment charges and $7.9 million of non-cash tax expense related to tax benefits on certain indefinite-lived assets that the Company cannot recognize for reporting purposes.

•

During fiscal year 2015, the Company recorded its share of a non-cash deferred tax asset valuation allowance recorded by EEG of $6.9 million, non-cash other than temporary impairment charges of its investment in EEG of $4.7 million, $7.9 million of non-cash fixed asset impairment charges, $8.9 million of non-cash tax expense related to tax benefits on certain indefinite-lived assets that the Company cannot recognize for reporting purposes and established a non-cash $2.1 million valuation allowance against its Canadian deferred tax assets.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

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BUSINESS DESCRIPTION

Regis Corporation (RGS) franchises, owns and operates beauty salons. As of June 30, 2019, the Company franchised, owned or held ownership interests in 7,145 worldwide locations. Our locations consisted of 7,059 system-wide North American and International salons, and in 86 locations we maintain a non-controlling ownership interest less than 100 percent. Each of the Company’s salon concepts generally offer similar salon products and services. As of June 30, 2019, we had approximately 20,000 corporate employees worldwide. See discussion within Part I, Item 1.

In October 2018, the Company sold substantially all of its mall-based salon business in North America, representing 858 company-owned salons, and substantially all of its International segment, representing approximately 250 company-owned salons, to TBG. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K as the results of operations for the mall-based business and International segment are accounted for as a discontinued operation for all periods presented.

In January 2018, the Company closed 597 non-performing company-owned SmartStyle salons. The 597 non-performing salons generated negative cash flow of approximately $15 million during the twelve months ended September 30, 2017. The action delivers on the Company's commitment to restructure its salon portfolio to improve shareholder value and position the Company for long-term growth. A summary of costs associated with the SmartStyle salon restructuring for fiscal year 2018 is as follows:



	Financial Line Item	Fiscal Year 2018
(Dollars in thousands)
Inventory reserves	Cost of Service	$	656
Inventory reserves	Cost of Product	586
Severance	General and administrative	897
Long-lived fixed asset impairment	Depreciation and amortization	5,460
Asset retirement obligation	Depreciation and amortization	7,680
Lease termination and other related closure costs	Rent	27,290
Deferred rent	Rent	(3,291		)
Total		$	39,278

In addition, the Company recorded approximately $1.9 million of other related costs to the SmartStyle restructuring, primarily warehouse related costs. Substantially all related costs associated with the SmartStyle salon restructuring requiring cash outflow were complete as of June 30, 2018.

As part of the Company's strategic transition to a franchise focused business the Company is selling salons to franchisees. The impact of these transactions are as follows:



	Twelve Months Ended June 30,								(Decrease) Increase
(Dollars in thousands)	2019			2018			2017		2019			2018

Salons sold to franchisees (1)	767			1,582			99		(815		)	1,483
Cash proceeds received	$	94,787		$	11,582		$	2,253	$	83,205		$	9,329

Gain on sale of venditions, excluding goodwill derecognition	$	69,973		$	4,140		$	492	$	65,833		$	3,648
Non-cash goodwill derecognition	(67,055		)	(3,899		)	—		63,156			(3,899		)
Gain from sale of salon assets to franchisees, net	$	2,918		$	241		$	492	$	2,677		$	(251	)

____________________________________

(1) In October 2017, the Company sold substantially all of its mall-based salon business in North America, representing

858 salons, and substantially all of its International segment, representing approximately 250 salons in the UK, to The Beautiful Group (TBG).

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RESULTS OF OPERATIONS

The Company reports its operations in two operating segments: Franchise salons and Company-owned salons, effective October 2017. The Company's operating segments are its reportable operating segments. Prior to this change, the Company had four operating segments: North American Value, North American Premium, North American Franchise, and International.

Beginning with the period ended September 30, 2017, the mall-based business and International segment were accounted for as discontinued operations for all periods presented. Discontinued operations are discussed at the end of this section. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further discussion on this transaction.

The Company realigned its field leadership team beginning in the first quarter of fiscal year 2018. An outcome of this reorganization is that the costs associated with senior district leaders were moved out of cost of goods sold and site operating expense and into G&A. This change affected one month of comparability during the fiscal year ended June 30, 2018. The estimated impact of the field reorganization (decreased) increased Cost of Service, Site Operating expense and General and Administrative expense by $(2.4), $(0.4) and $2.8 million, respectively, for fiscal year 2018. This expense classification does not have a financial impact on the Company's reported operating (loss) income, reported net (loss) income or cash flows from operations.

System-wide results

As we transition to an asset-light franchise platform our results will be more impacted by our system-wide sales, which include sales by all points of distribution, whether owned by the Company or our franchisees. While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe system-wide sales information aids in understanding how we derive royalty revenue and in evaluating performance.

System-wide same-store sales by concept are detailed in the table below:



	Twelve Months Ended June 30,
	2019		2018		2017
SmartStyle	1.0	%	(0.2	)%	(0.4	)%
Supercuts	(0.2	)	1.9		1.2
Signature Style	(0.8	)	0.5		(1.5	)
Total, excluding TBG mall-locations	(0.1	)%	NA		NA
TBG mall-locations	(4.5	)	NA		NA
Total	(0.5	)%	0.9	%	(0.2	)%

_____________________________

(1)

System-wide same-store sales are calculated as the total change in sales for system-wide company-owned and franchise locations for more than one year (including TBG mall locations in 2019) that were open on a specific day of the week during the current period and the corresponding prior period. Year-to-date system-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. 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. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.

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Consolidated Results of Operations

The following table sets forth, for the periods indicated, certain information derived from our Consolidated Statement of Operations. The percentages are computed as a percent of total revenues, except as otherwise indicated.



	Fiscal Years
	2019			2018			2017			2019		2018		2017		2019		2018
	(Dollars in millions)									% of Total Revenues (1)						Basis Point (Decrease) Increase
Service revenues	$	749.7		$	899.3		$	960.8		70.1	%	72.8	%	74.3	%	(270	)	(150	)
Product revenues	225.6			258.7			259.9			21.1		20.9		20.1		20		80
Franchise royalties and fees	93.8			77.4			72.1			8.8		6.3		5.6		250		70

Cost of service (2)	452.8			530.6			610.4			60.4		59.0		63.5		140		(450	)
Cost of product (2)	128.8			140.6			126.3			57.1		54.3		48.6		280		570
Site operating expenses	141.0			154.1			153.7			13.2		12.5		11.9		70		60
General and administrative	177.0			174.0			157.3			16.6		14.1		12.2		250		190
Rent	131.8			183.1			180.5			12.3		14.8		14.0		(250	)	80
Depreciation and amortization	37.8			58.2			52.1			3.5		4.7		4.0		(120	)	70
TBG restructuring	21.8			—			—			2.0		—		—		200		—

Operating (loss) income	(22.1		)	(5.1		)	12.6			(2.1	)	(0.4	)	1.0		(170	)	(140	)

Interest expense	(4.8		)	(10.5		)	(8.6		)	(0.4	)	(0.8	)	(0.7	)	40		(10	)
Gain on sale of salon assets to franchisees, net	2.9			0.2			0.5			0.3		—		—		30		—
Interest income and other, net	1.7			5.2			1.5			0.2		0.4		0.1		(20	)	30

Income tax benefit (expense) (3)	2.1			69.8			(9.2		)	9.6		685.0		155.6		N/A		N/A

____________________________________________________________________________


(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 income (loss) from continuing operations before income taxes. The income taxes basis point change is noted as not applicable (N/A) as the discussion below is related to the effective income tax rate.

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Fluctuations in major revenue categories, operating expenses and other income and expense were as follows:

Consolidated Revenues

Consolidated revenues primarily include revenues of company-owned salons, product and equipment sales to franchisees and franchise royalties and fees. The following tables summarize revenues and same-store sales by concept:



	Fiscal Years
	2019			2018			2017
	(Dollars in thousands)
Company-owned salons
SmartStyle	$	208,531		$	283,942		$	290,098
Supercuts	383,380			463,644			524,420
Signature Style	323,462			356,796			375,571
Total Company-owned salons	915,373			1,104,382			1,190,089
Company-owned salon same-store sales (decrease) increase (1)	(0.4		)%	0.3		%	(0.9		)%

Franchise salons
Product excluding TBG	42,915			34,638			30,623
TBG product	16,990			19,065			—
Total franchise product	59,905			53,703			30,623
Royalties and fees	93,761			77,394			72,088
Total franchise salons revenue	153,666			131,097			102,711
Franchise same-store sales, excluding TBG mall locations (2)	0.3		%	N/A			N/A
Franchise salon same-store sales (decrease) increase (2)	(0.7		)%	2.1		%	1.3		%

Consolidated revenues	$	1,069,039		$	1,235,479		$	1,292,800
Percent change from prior year	(13.5		)%	(4.4		)%	(1.7		)%

_______________________________________________________________________________

(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. Fiscal year 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. Same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.

(2)

Franchise same-store sales are calculated as the total change in sales for salons that have been a franchise location for more than one year that were open on a specific day of the week during the current period and the corresponding prior period. Franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. 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. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. TBG is not included in 2018 same-store sales as it was not a franchise location in the previous year. As of June 27, 2019, TBG North American mall locations are no longer franchise locations so they will not be included in same store sales going forward.

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Decreases in consolidated revenues were driven by the following:



	Fiscal Years
Factor	2019		2018
Company-owned same-store sales	(0.3	)%	0.4	%
Closed salons	(4.3	)	(3.9	)
Salons sold to franchisees	(9.1	)	(2.8	)
New company-owned stores	0.1		0.2
Franchise product and royalties and fees	0.2		—
Franchise same-store sales (1)	—		—
TBG product, royalties and fees	(0.1	)	1.6
Advertising fund	0.6		—
Foreign currency	(0.3	)	0.3
Other	(0.3	)	(0.2	)
Total	(13.5	)%	(4.4	)%

(1) Franchise same-store sales increase (decrease) franchise royalties. As we transition to the asset-light franchise platform, franchise same-store sales will become more significant to consolidated revenues.

Fiscal Year Ended June 30, 2019 Compared with Fiscal Year Ended June 30, 2018

Consolidated Revenues

Consolidated revenues are primarily comprised of service and product revenues, as well as franchise royalties and fees. Service revenue declined $149.7 million, or 16.6%, primarily due to the sale of salons to franchisees and a decline in company-owned same-store service sales of 0.3%. We closed 133 company-owned salons, constructed (net of relocations) 10 company-owned salons and sold (net of buybacks) 735 company-owned salons during fiscal year 2019 (2019 Net Salon Count Changes). Product revenue decreased $33.1 million or 12.8% due to lower sales to TBG and a system-wide decline of retail sales of 2.4% excluding TBG. Partially offsetting these decreases was an increase in royalty and fee revenue of $16.4 million, or 21.1%, due to the net addition of 644 non-TBG franchisees during the year.

Service Revenues

The $149.7 million decrease in service revenues during fiscal year 2019 was primarily due to the 2019 Net Salon Count Changes and a decrease in company-owned same-store service sales of 0.3% which was primarily a result of a 4.7% decrease in same-store guest visits, partially offset by a 4.4% increase in average ticket price. Service revenues were also unfavorably impacted by a cumulative adjustment in the prior year related to discontinuing a piloted loyalty program that occurred in the prior year.

Product Revenues

The $33.1 million decrease in product revenues during fiscal year 2019 was primarily due to 2019 Net Salon Count Changes, a decline in product sold to TBG, the lapping of a one-time benefit related to discounted close-out product sales as part of the SmartStyle operational restructuring in the prior year and a decline in system-wide same-store product sales excluding TBG of 2.4%. The decrease in system-wide same-store product sales excluding TBG was primarily a result of a 6.0% decrease in transactions, partially offset by an increase in average ticket price of 3.6%.

Royalties and Fees

The increase of $16.4 million in royalties and fees during fiscal year 2019 was primarily due to higher royalties and advertising fund revenue due to an increase of 644 non-TBG franchisees in fiscal year 2019 and an increase of 0.3% in same-store sales at franchised locations excluding TBG.

Cost of Service

The 140 basis point increase in cost of service as a percent of service revenues during fiscal year 2019 was primarily due to state minimum wage increases, a favorable shrink adjustment in the prior year and a one-time benefit from a settlement in fiscal year 2018.

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Cost of Product

The 280 basis point increase in cost of product as a percent of product revenues during fiscal year 2019 was primarily due to higher discounting, the shift to lower margin wholesale product sales, favorable shrink adjustment in the prior year and a one-time benefit from a settlement in the prior year, partially offset by inventory reserves in the prior year related to the January 2018 SmartStyle portfolio restructure and lower franchise product sold to TBG. Margins on retail product sales were 50.8% and 52.0% in fiscal years 2019 and 2018, respectively. Margins on wholesale product sales were 21.2% and 21.6% in fiscal years 2019 and 2018, respectively.

Site Operating Expenses

Site operating expenses decreased $13.0 million during fiscal year 2019 due primarily to the 2019 Net Salon Count Changes, partially offset by higher advertising fund expense due to the increase in franchise salon counts, higher employment litigation reserves and higher contract maintenance, repairs and services costs related to open salons.

General and Administrative

General and administrative expense (G&A) increased $3.0 million during fiscal year 2019 primarily due to an $8.0 million gain in the prior year associated with life insurance proceeds, increased stock compensation and professional fees, partially offset by lower administrative, corporate and field salaries and bonuses.

Rent

Rent expense decreased by $51.3 million during fiscal year 2019 primarily due to lease termination fees and other related closure costs associated with the January 2018 SmartStyle portfolio restructure and the 2019 Net Salon Count Changes, partially offset by rent inflation.

Depreciation and Amortization

Depreciation and amortization expense (D&A) decreased $20.4 million during fiscal year 2019, primarily due to costs in the prior year associated with returning certain SmartStyle locations to their pre-occupancy condition in connection with the January 2018 SmartStyle restructuring and lower depreciation due to a reduced salon base and lower salon asset impairments.

TBG Mall Location Restructuring

In fiscal year 2019, the Company recorded a reserve against a note receivable of $8.0 million and accounts receivables of $12.7 million due from TBG based on TBG’s inability to meet the requirements of the promissory notes, including non-payment of amounts due to the Company. The $8.0 million note relates to prior year inventory shipments and the $12.7 million of receivables primarily relates to current year inventory shipments. The remaining charge relates to reserves in connection with the settlement agreement with TBG in June 2019. There were no related TBG mall restructuring charges in fiscal year 2018.

Interest Expense

Interest expense decreased by $5.7 million during fiscal year 2019 primarily due to a lower outstanding principal and lower interest rates associated with the revolving credit facility compared to the retired senior term note and the lapping of the premium and unamortized debt discount expense associated with retirement of the senior term note in March 2018.

Gain from sale of salon assets to franchisees, net

In fiscal year 2019, the gain from sale of salon assets to franchisees was $2.9 million, including non-cash goodwill derecognition of $67.1 million. In fiscal year 2018, the gain from the sale of salons assets to franchisees was $0.2 million, including $3.9 million of non-cash goodwill derecognition.

Interest Income and Other, net

The $3.5 million decrease in interest income and other, net during fiscal year 2019 was primarily due to prior year income from transition services related to TBG and the lapping of interest income associated with life insurance contracts settled in June 2018.

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Income Taxes

During fiscal year 2019, the Company recognized an income tax benefit of $2.1 million on $22.3 million of loss from continuing operations before income taxes as compared to recognizing income tax benefit of $69.8 million on $10.2 million of loss from continuing operations before income taxes during fiscal year 2018. The recorded tax provision and effective tax rate for the twelve months ended June 30, 2019 were different than what would normally be expected primarily due to the deferred tax valuation allowance.

Additionally, the Company is currently paying taxes in Canada and certain states in which it has profitable entities.

See Note 9 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Income (Loss) from Discontinued Operations, Net of Income Taxes

Income from TBG discontinued operations was $5.9 million during fiscal year 2019 primarily due to tax benefits associated with the wind-down and transfer of legal entities. During fiscal year 2018, the Company recognized $53.2 million of loss, net of taxes from TBG discontinued operations, primarily due to asset impairment charges based on the sale prices and the carrying values of the mall-based salon business and the International segment, the recognition of net loss of amounts previously classified within accumulated other comprehensive income, professional fees associated with the transactions and losses from operations. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Fiscal Year Ended June 30, 2018 Compared with Fiscal Year Ended June 30, 2017

Consolidated Revenues

Consolidated revenues are primarily comprised of service and product revenues, as well as franchise royalties and fees. Service revenue declined $61.4 million, or 6.4%, and product revenue declined $1.2 million, or 0.5%, primarily due to salon count. Royalty and fee revenue increased $5.3 million or 7.4% due to the increase in franchise locations. We closed 701 company-owned salons, constructed (net of relocations) 3 company-owned salons and sold (net of buybacks) 448 company-owned salons during fiscal year 2018 (2018 Net Salon Count Changes). Our franchisees closed 194 salons and constructed (net of relocations) 79 salons during the same period. Consolidated revenues are primarily comprised of service and product revenues, as well as franchise royalties and fees.

Service Revenues

The $61.4 million decrease in service revenues during fiscal year 2018 was primarily due to the 2018 Net Salon Count Changes. The same-store service sales increase of 0.5% was primarily a result of a 3.8% increase in average ticket price, partly offset by a 3.3% decrease in same-store guest visits. Service revenues were also favorably impacted by a cumulative adjustment related to discontinuing a piloted loyalty program.

Product Revenues

The $1.2 million decrease in product revenues during fiscal year 2018 was primarily due to 2018 Net Salon Count Changes and an unfavorable impact of hurricanes in the southern United States, partly offset by product sold to TBG and same-store product sales increases of 0.2%. The increase in same-store product sales was primarily a result of a 3.7% increase in average ticket price, partly offset by a 3.5% decrease in same-store transactions.

Royalties and Fees

The increase of $5.3 million in royalties and fees during fiscal year 2018 was primarily due to the increase of 1,468 in franchised locations and same-store sales increases at franchised locations.

Cost of Service

The 450 basis point decrease in cost of service as a percent of service revenues during fiscal year 2018 was primarily due to the change in expense categorization as a result of the field reorganization that took place during the first quarter of fiscal year 2018. After considering the change in expense categorization, cost of service as a percent of service revenues decreased 170 basis points as a result of improved stylist productivity, one-time benefit from a settlement and cost savings associated with salon tools, partly offset by state minimum wage increases, higher commissions expense as a result of same-store sales increases and higher health insurances costs. Cost of service was also negatively impacted by hurricanes in the southern United States.

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Cost of Product

The 570 basis point increase in cost of product as a percent of product revenues during fiscal year 2018 was primarily due to franchise product sold to TBG, the shift to lower margin wholesale product sales and inventory reserves related to the January 2018 SmartStyle portfolio restructure, less favorable shrink as compared to the prior year and a promotional sale implemented in the fourth quarter, partly offset by a one-time benefit from a settlement. Margins on retail product sales were 52.0% and 54.8% in fiscal years 2018 and 2017, respectively. Margins on wholesale product sales were 21.6% and 25.9% in fiscal years 2018 and 2017, respectively.

Site Operating Expenses

Site operating expenses increased $0.4 million during fiscal year 2018. After considering the change in expense categorization as a result of the field reorganization that took place during the first quarter of fiscal year 2018, site operating expenses increased $5.2 million primarily due to higher marketing costs associated with the SmartStyle marketing campaign and fees associated with an industry exclusive sponsorship with Major League Baseball, unfavorable actuarial adjustments related to workers' compensation accruals and higher contract maintenance, repairs and services costs, partly offset by the 2018 Net Salon Count Changes.

General and Administrative

General and administrative expense (G&A) increased $16.7 million during fiscal year 2018. After considering the change in expense categorization as a result of the field reorganization that took place during the first quarter of fiscal year 2018, G&A decreased $15.6 million, primarily due to an $8.0 million gain associated with life insurance proceeds in connection with the passing of a former executive officer, lower severance expense due to the prior year including severance related to the termination of former executive officers including the Company's Chief Executive Officer and professional fees, partly offset by increases in incentive compensation accruals.

Rent

Rent expense increased by $2.6 million during fiscal year 2018 primarily due to lease termination fees and other related closure costs associated with the January 2018 SmartStyle portfolio restructure, rent inflation, partly offset by the 2018 Net Salon Count Changes and a deferred rent adjustment related to the January 2018 SmartStyle portfolio restructure.

Depreciation and Amortization

Depreciation and amortization expense (D&A) increased $6.1 million during fiscal year 2018, primarily due to costs associated with returning certain SmartStyle locations to their pre-occupancy condition in connection with the January 2018 SmartStyle restructuring and higher fixed asset impairment charges, partly offset by lower depreciation due to a reduced salon base.

Interest Expense

Interest expense increased by $1.9 million during fiscal year 2018 primarily due to the premium and unamortized debt discount expense associated with paying off the 5.5% senior term note originally due December 2019, partly offset by savings resulting from a reduced interest rate and lower debt levels.

Gain From Sale of Salon Assets to Franchisees, net

In fiscal year 2018, the gain from the sale of salons assets to franchisees was $0.2 million compared to $0.5 million in fiscal year 2017. The Company sold 1,581 and 100 salons to franchisees in 2018 and 2017, respectively. The decrease in the gain from sales is due to the mix of salons sold.

Interest Income and Other, net

The $3.7 million increase in interest income and other, net during fiscal year 2018 was primarily due to income from transition services related to TBG and incremental interest income, partly offset by a non-recurring insurance recovery benefit in the prior year.

Income Taxes

During fiscal year 2018, the Company recognized an income tax benefit of $69.8 million on $10.2 million of loss from continuing operations before income taxes as compared to recognizing income tax expense of $9.2 million on $5.9 million of income from continuing operations before income taxes during fiscal year 2017.

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On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). In connection with the Tax Act, the Company recorded a provisional net tax benefit of $68.1 million in continuing operations for the twelve months ended June 30, 2018. The net tax benefit is primarily attributable to the impact of the corporate rate reduction on our deferred tax assets and liabilities along with a partial release of the U.S. valuation allowance. The benefit recognized on current losses and the partial valuation allowance release is solely attributable to tax reform and the law change that allows for the indefinite carryforward of net operating losses ("NOLs") arising in tax years ending after December 31, 2017. Prior law limited the carryforward period to 20 years. As a result of the new tax rules, companies can now consider its indefinite lived deferred tax liabilities as a source of income to support the realization of its existing deferred tax assets that upon reversal are expected to generate indefinite lived NOLs. Consequently, the Company was able to remove the valuation allowance associated with these deferred tax assets. The Company continues to maintain a valuation allowance on the historical balance of its finite lived federal NOLs, tax credits and various state tax attributes. Changes in interpretations, assumptions, and guidance regarding the new tax legislation, as well as the potential for technical corrections to the Tax Act, could have a material impact to the Company’s effective tax rate in future periods.

The recorded tax provision and effective tax rate for the twelve months ended June 30, 2018 were different than what would normally be expected primarily due to the impact of the Tax Act and state conformity of the new federal provisions, closure of the IRS examination and the deferred tax valuation allowance.

Additionally, the Company is currently paying taxes in Canada and certain states in which it has profitable entities.

See Note 9 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Loss from Discontinued Operations, Net of Income Taxes

During fiscal year 2018, the Company recognized $53.2 million of loss, net of taxes from discontinued operations, primarily due to asset impairment charges based on the sale prices and the carrying values of the mall-based salon business and the International segment, the recognition of net loss of amounts previously classified within accumulated other comprehensive income, professional fees associated with the transactions and losses from operations. In fiscal year 2017 the loss from discontinued operations represents the mall-based and International segment's loss from operations. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

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Results of Operations by Segment

Based on our internal management structure, we report two segments: Company-owned salons and Franchise salons. See Note 14 to the Consolidated Financial Statements in in Part II, Item 8, of this Form 10-K. Significant results of operations are discussed below with respect to each of these segments.

Company-owned Salons



	Fiscal Years
	2019			2018			2017			2019			2018
	(Dollars in millions)									Increase (Decrease)
Total revenue	$	915.4		$	1,104.4		$	1,190.1		$	(189.0	)	$	(85.7	)
Same-store sales	(0.4		)%	0.4		%	(0.1		)%	(70 bps)			50 bps

Operating income	$	58.3		$	50.5		$	78.9		$	7.8		$	(28.4	)

Company-owned Salon Revenues

Decreases in Company-owned salon revenues were driven by the following:



	Fiscal Years
Factor	2019		2018
Same-store sales	(0.4	)%	0.4	%
Closed salons	(4.5	)	(4.1	)
Salons sold to franchisees	(11.8	)	(3.7	)
New stores	0.1		0.2
Foreign currency	(0.3	)	0.3
Other	(0.2	)	(0.3	)
Total	(17.1	)%	(7.2	)%

Fiscal Year Ended June 30, 2019 Compared with Fiscal Year Ended June 30, 2018

Company-owned Salons Revenues

Company-owned salon revenues decreased $189.0 million in fiscal year 2019 primarily due to the 2019 Net Salon Count Changes and same-store sales decrease of 0.4%. The same-store sales decrease was due to a 4.7% decrease in same-store guest visits, partially offset by a 4.3% increase in average ticket price.

Company-owned Salon Operating Income

Company-owned salon operating income increased $7.8 million during fiscal year 2019 primarily due to the January 2018 SmartStyle portfolio restructure consisting of lease termination and other related closure costs and costs associated with returning the salons to pre-occupancy condition, and field general and administrative savings primarily due to lower headcount. These increases were partially offset by the 2019 Net Salon Count Changes, state minimum wage increases, rent inflation and marketing investments.

Fiscal Year Ended June 30, 2018 Compared with Fiscal Year Ended June 30, 2017

Company-owned Salons Revenues

Company-owned salon revenues decreased $85.7 million in fiscal year 2018 primarily due to the 2018 Net Salon Count Changes, partly offset by same-store sales increase of 0.4%. The same-store sales decrease was due to a 3.4% increase in average ticket price, partly offset by a 2.9% decrease in same-store guest visits.

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Company-owned Salon Operating Income

Company-owned salon operating income decreased $28.4 million during fiscal year 2018 primarily due to the January 2018 SmartStyle portfolio restructure consisting of lease termination and other related closure costs and costs associated with returning the salons to pre-occupancy condition. Also contributing to the decrease were state minimum wage increases, costs associated with the SmartStyle marketing campaign, the hurricanes in the southern United States and higher health insurance costs, partly offset by improved stylist productivity, the 2018 Net Salon Count Changes and prior year inventory expense related to salon tools.

Franchise Salons



	Fiscal Years
	2019			2018		2017		2019			2018
	(Dollars in millions)							Increase (Decrease)
Revenue
Product	$	42.9		$	34.6	$	30.6	$	8.3		$	4.0
Product sold to TBG	17.0			19.1		—		(2.1		)	19.1
Total Product	$	59.9		$	53.7	$	30.6	$	6.2		$	23.1
Royalties and fees (1)	93.8			77.4		72.1		16.4			5.3
Total franchise salons revenue (2)	$	153.7		$	131.1	$	102.7	$	22.6		$	28.4

Operating income	$	36.4		$	34.0	$	32.4	$	2.4		$	1.6
Operating (loss) income from TBG	(20.2		)	1.6		—		(21.9		)	1.6
Total operating income (2)	$	16.1		$	35.6	$	32.4	$	(19.5	)	$	3.2

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(1)	Includes $1.6 million and $1.2 million of royalties related to TBG during the fiscal years 2019 and 2018, respectively.


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

Increases in Franchise revenues were driven by the following:



	Fiscal Years
Factor	2019		2018
Same-store sales	0.1	%	0.6	%
Franchise product	(0.6	)	(1.5	)
Franchise royalties and fees	1.9		0.6
TBG product, royalties and fees	(1.2	)	19.7
Closed salons	(1.5	)	(1.3	)
Advertising fund	5.5		0.6
Foreign currency	(0.4	)	0.4
Salons sold to franchisees and new salons	13.4		8.5
	17.2	%	27.6	%

Fiscal Year Ended June 30, 2019 Compared with Fiscal Year Ended June 30, 2018

Franchise Salon Revenues

Franchise salon revenues increased $22.6 million during fiscal year 2019 due to a $8.3 million increase in franchise product sales and a $16.4 million increase in royalties and fees as a result of higher franchise salons counts, partially offset by lower product sales to TBG. Our franchisees constructed (net of relocations) 65 salons, purchased (net of Company buybacks) 735 salons from the Company and closed 156 salons (excluding TBG mall locations).

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Franchise Salon Operating Income

Franchise salon operating income excluding TBG increased $2.4 million due to higher product and royalty revenue as a result of the increase in franchise salon count. Franchise salon operating income including TBG, decreased $19.5 million during fiscal year 2019 due to the TBG restructuring charge of $21.8 million related primarily related to notes and accounts receivable reserves.

Cash Generated from Salons Sold to Franchisees

During fiscal years 2019 and 2018, the Company generated $94.8 million and $11.6 million of cash respectively, from the sale of company-owned salons to franchisees.

Fiscal Year Ended June 30, 2018 Compared with Fiscal Year Ended June 30, 2017

Franchise Salon Revenues

Franchise salon revenues increased $28.4 million during fiscal year 2018 due to a $23.1 million increase in franchise product sales primarily due to product sold to TBG and a $5.3 million increase in royalties and fees. The increase in royalties and fees was primarily due to increased franchised locations and an increase in the number of new salons open during fiscal year 2018. Our franchisees closed 963 salons, constructed (net of relocations) 65 salons and purchased (net of Company buybacks) 767 salons from the Company, including 1,132 salons previously included in the Company's mall-based business and International segment.

Franchise Salon Operating Income

Franchise salon operating income increased $3.2 million during fiscal year 2018 primarily due to the increased number of new franchised locations and increased franchise product sales.

Cash Generated from Salons Sold to Franchisees

During fiscal years 2018 and 2017, the Company generated $11.6 million and $2.3 million of cash respectively, from the sale of company-owned salons to franchisees.

Corporate

Fiscal Year Ended June 30, 2019 Compared with Fiscal Year Ended June 30, 2018

Corporate Operating Loss (1)

Corporate operating loss of $96.6 million increased $5.3 million during fiscal year 2019 primarily driven by a prior year gain of $8.0 million associated with life insurance proceeds, partly offset by savings realized from Company initiatives, including lowering headcount and lower incentive compensation.

Fiscal Year Ended June 30, 2018 Compared with Fiscal Year Ended June 30, 2017

Corporate Operating Loss (1)

Corporate operating loss of $91.3 million decreased $7.5 million during fiscal year 2018 primarily driven by the prior year including severance related to the termination of former executive officers including the Company's Chief Executive Officer, a gain of $8.0 million associated with life insurance proceeds and savings realized from Company initiatives, partly offset by higher incentive compensation and severance associated with terminations of former executives and professional fees in 2018.

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(1)	The Corporate operating loss consists primarily of unallocated general and administrative expenses, including expenses associated with salon support, depreciation and amortization related to our corporate headquarters and unallocated insurance, benefit and compensation programs, including stock-based compensation.

Recent Accounting Pronouncements

Recent accounting pronouncements are discussed in Note 1 to the Consolidated Financial Statements.

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LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

Funds generated by salons sold to franchisees, operating activities, available cash and cash equivalents, and our borrowing agreements are our most significant sources of liquidity.

As of June 30, 2019, cash and cash equivalents were $70.1 million, with $65.4 million, $4.5 and $0.2 million within the United States, Canada and Europe, respectively.

The Company has a credit agreement which provides for a $295.0 million five-year unsecured revolving credit facility that expires in March 2023, of which $183.5 million was available as of June 30, 2019. See additional discussion under Financing Arrangements.

Uses of Cash

The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the level of investment needed to support its business strategies, the performance of the business, capital expenditures, credit facilities and borrowing arrangements and working capital management. Capital expenditures are a component of the Company's cash flow and capital management strategy which can be adjusted in response to economic and other changes to the Company's business environment. The Company has a disciplined approach to capital allocation, which focuses on investing in key priorities to support the Company's multi-year strategic plan as discussed within Part I, Item 1.

Cash Flows

Cash Flows (used in) provided by Operating Activities

During fiscal year 2019, cash used in operating activities was $17.5 million primarily a result of a decline in Company-owned operating margin, strategic investment in new retail product lines and planned strategic G&A investments to enhance the Company's franchisor capabilities and support the increase in volume and cadence of transactions and conversions into the Franchise portfolio, partially offset by the elimination of certain general and administrative costs.

During fiscal year 2018, cash provided by operating activities was $2.6 million primarily due to operating margin, partially offset by the payment of lease termination and other related closure costs associated with the Company's January 2018 SmartStyle portfolio restructures.

During fiscal year 2017, cash provided by operating activities of $58.3 million was primarily due to cash provided by salon operations.

Cash Flows from Investing Activities

During fiscal year 2019, cash provided by investing activities of $87.8 million, was primarily from cash proceeds from sale of salon assets of $94.8 million and proceeds from company-owned life insurance policies of $24.6 million, partially offset by

capital expenditures of $31.6 million.

During fiscal year 2018, cash used in investing activities of $1.1 million, was primarily from capital expenditures of $30.7 million, partly offset by cash proceeds from company-owned life insurance policies of $18.1 million and

cash proceeds from the sale of salon assets of $11.6 million.

During fiscal year 2017, cash used in investing activities of $30.2 million, was primarily from $33.8 million for capital expenditures, partly offset by cash proceeds from sale of salon assets of $2.3 million, cash proceeds from company-owned life insurance policies of $0.9 million and cash proceeds from the sale of the Company's ownership interest in MyStyle of $0.5 million.

Cash Flows from Financing Activities

During fiscal year 2019, cash used in financing activities of $126.7 million was primarily for repurchase of common stock of $152.7 million and employee taxes paid for shares withheld of $2.5 million, partly offset by proceeds from the sale and lease back of the Company's distribution centers of $28.8 million.

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During fiscal year 2018, cash used in financing activities of $62.2 million was primarily for repayments of long-term debt relating to the 5.5% senior term notes of $124.2 million, repurchase of common stock of $24.8 million, employee taxes paid for shares withheld of $2.4 million and settlement of equity awards of $0.8 million, partly offset by borrowings on the revolving credit facility of $90.0 million.

During fiscal year 2017, cash used in financing activities of $6.8 million was primarily for employee taxes paid for shares withheld of $3.7 million. and settlement of equity awards of $3.2 million.

Financing Arrangements

Financing activities are discussed in Note 7 to the Consolidated Financial Statements. Derivative activities are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk."

The Company's financing arrangements consists of the following:



		Interest rate %
		Fiscal Years		June 30,
	Maturity Dates	2019	2018	2019		2018
	(fiscal year)			(Dollars in thousands)
Revolving credit facility	2023	3.65%	3.34%	$	90,000	$	90,000
Long-term lease liability	2034	3.30%	—%	17,354		—
Long-term lease liability	2034	3.70%	—%	11,556		—
				$	118,910	$	90,000

As of June 30, 2019 and 2018, the Company had $90.0 million of outstanding borrowings under a $295.0 million revolving credit facility. The unsecured five-year revolving credit facility expires in March 2023 and includes, among other things, a maximum consolidated net leverage ratio covenant, a minimum fixed charge coverage ratio covenant, and certain restrictions on liens, investments and other indebtedness. The revolving credit facility includes a $30.0 million subfacility for the issuance of letters of credit and a $30.0 million sublimit for swingline loans. The Company may request an increase in revolving credit commitments under the facility of up to $150.0 million under certain circumstances. The revolving credit facility has variable interest rates tied to LIBOR plus 1.25% to 1.85% and includes a facility fee of 0.25% to 0.40%. Both the LIBOR credit spread and the facility fee are based on the Company's consolidated net leverage ratio.

In connection with entering into the Credit Agreement, the Company terminated its previous $200.0 million revolving credit facility.

In March 2018, the Company redeemed all of its 5.5% senior term notes that were due December 2019 (Senior Term Notes) for $124.2 million, which included a $1.2 million premium. The Company utilized $90.0 million under the Revolving Credit Facility and cash on hand of $34.2 million to repay the Senior Term Notes.

In fiscal year 2019, the Company sold its Salt Lake City and Chattanooga Distribution Centers to an unrelated party. The Company is leasing the properties back for 15 years with the option to renew. As the Company plans to lease the property for more than 75% of its economic life, the sales proceeds received from the buyer-lessor are recognized as a financial liability. This financial liability is reduced based on the rental payments made under the lease that are allocated between principal and interest.

Our debt to capitalization ratio, calculated as the principal amount of debt as a percentage of the principal amount of debt and shareholders' equity at fiscal year-end, was as follows:



As of June 30,	Debt to Capitalization		Basis Point (Decrease) Increase (1)
2019	26.8	%	1,120
2018	15.6	%	(400	)
2017	19.6	%	60

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(1)	Represents the basis point change in debt to capitalization as compared to prior fiscal year-end (June 30).

The basis point increase in the debt to capitalization ratio as of June 30, 2019 compared to June 30, 2018 was primarily due to the repurchase of 8.6 million shares of common stock for $152.7 million.

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The basis point decrease in the debt to capitalization ratio as of June 30, 2018 compared to June 30, 2017 was primarily due to the net decrease in the principal amount of debt from the redemption of the 5.5% Senior Term Notes, partly offset by utilizing $90.0 million of the Revolving Credit Facility and the repurchase of 1.5 million shares of common stock for $24.8 million.

Contractual Obligations and Commercial Commitments

The following table reflects a summary of obligations and commitments outstanding by payment date as of June 30, 2019:



			Payments due by period
Contractual Obligations	Total		Within 1 year		1 - 3 years		3 - 5 years		More than 5 years
			(Dollars in thousands)
On-balance sheet:
Debt obligations	$	90,000	$	—	$	—	$	90,000	$	—
Lease liabilities (a)	29,810		1,925		3,974		4,082		21,234
Other long-term liabilities	8,600		1,656		1,785		1,457		3,702
Total on-balance sheet	128,410		3,581		5,759		95,539		24,936
Off-balance sheet(b):
Operating lease obligations	617,814		202,159		267,120		109,678		38,857
Total off-balance sheet	617,814		202,159		267,120		109,678		38,857
Total	$	746,224	$	205,740	$	272,879	$	205,217	$	63,793

_______________________________________________________________________________


(a)	The total lease liability does not include interest. Payments due by period are the payments due per the lease agreement and include embedded interest. Therefore, the total payments do not equal the liability.


(b)	In accordance with accounting principles generally accepted in the United States of America as of June 30, 2019, these obligations are not reflected in the Consolidated Balance Sheet. See Note 1 new lease accounting standard discussion.

On-Balance Sheet Obligations

Our debt obligations are primarily composed of our revolving credit facility at June 30, 2019.

Lease liabilities are related to sale and leaseback transactions for two distribution centers at June 30, 2019.

Other long-term liabilities of $8.6 million include $5.8 million related to a Nonqualified Deferred Salary Plan and a salary deferral program of $2.8 million related to established contractual payment obligations under retirement and severance agreements for a small number of employees.

This table excludes short-term liabilities disclosed on our balance sheet as the amounts recorded for these items will be paid in the next year. We have no unconditional purchase obligations. Also excluded from the contractual obligations table are payment estimates associated with employee health and workers' compensation claims for which we are self-insured. The majority of our recorded liability for self-insured employee health and workers' compensation losses represents estimated reserves for incurred claims that have yet to be filed or settled.

The Company has unfunded deferred compensation contracts covering certain management and executive personnel. Because we cannot predict the timing or amount of future payments related to these contracts, such amounts were not included in the table above. See Note 10 to the Consolidated Financial Statements.

As of June 30, 2019, we have liabilities for uncertain tax positions. We are not able to reasonably estimate the amount by which the liabilities will increase or decrease over time; however, at this time, we do not expect a significant payment related to these obligations within the next fiscal year. See Note 9 to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements

Operating leases primarily represent long-term obligations for the rental of salons, including leases for company-owned locations, as well as salon franchisee lease obligations, which are reimbursed to the Company by franchisees. Regarding franchisee subleases, we generally retain the right to the related salon assets, net of any outstanding obligations, in the event of a default by a franchise owner. Management has not experienced and does not expect any material loss to result from these arrangements.

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Interest payments on long-term debt are calculated based on the revolving credit facility's rates tied to a LIBOR credit spread and a quarterly facility fee on the average daily amount of the facility (whether used or unused). Both the LIBOR credit spread and the facility fee are based on the Company's debt to EBITDA ratio at the end of each fiscal quarter.

We are a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters, which indemnities may be secured by operation of law or otherwise, in the ordinary course of business. These contracts primarily relate to our commercial contracts, operating leases and other real estate contracts, financial agreements, agreements to provide services and agreements to indemnify officers, directors and employees in the performance of their work. While our aggregate indemnification obligation could result in a material liability, we are not aware of any current matter that we expect to result in a material liability.

We do not have other unconditional purchase obligations or significant other commercial commitments such as standby repurchase obligations or other commercial commitments.

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes at June 30, 2019. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Dividends

In December 2013, the Board of Directors elected to discontinue declaring regular quarterly dividends.

Share Repurchase Program

CRITICAL ACCOUNTING POLICIES

The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Changes in these estimates could have a material effect on our Consolidated Financial Statements.

Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements. We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.

Goodwill

As of June 30, 2019 and 2018, the Company-owned reporting unit had $117.8 and $184.8 million of goodwill, respectively, and the Franchise reporting unit had $227.9 and $227.9 million of goodwill, respectively. See Note 5 to the Consolidated Financial Statements. The Company assesses goodwill impairment on an annual basis, during the Company’s fourth fiscal quarter, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

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Goodwill impairment assessments are performed at the reporting unit level, which is the same as the Company’s operating segments. The goodwill assessment involves a one-step comparison of the reporting unit’s fair value to its carrying value, including goodwill ("Step 1"). If the reporting unit’s fair value exceeds its carrying value, no further procedures are required. However, if the reporting unit’s fair value is less than the carrying value, an impairment charge is recorded for the difference between the fair value and carrying value of the reporting unit.

In applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting units is less than its carrying value (“Step 0”). Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors, and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is “more-likely-than-not” that the carrying value is less than the fair value, then performing Step 1 of the goodwill impairment assessment is unnecessary.

The carrying value of each reporting unit is based on the assets and liabilities associated with the operations of the reporting unit, including allocation of shared or corporate balances among reporting units. Allocations are generally based on the number of salons in each reporting unit as a percent of total company-owned salons or expenses of the reporting unit as a percentage of total company expenses.

The Company calculates estimated fair values of the reporting units based on discounted future cash flows utilizing estimates in annual revenue, service and product margins, fixed expense rates, allocated corporate overhead, corporate-owned and franchise salon counts, proceeds from the sale of Company-owned salons to franchisees and long-term growth rates for determining terminal value. Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows. The Company engages third-party valuation consultants to assist in evaluating the Company's estimated fair value calculations. See Note 1 to the Consolidated Financial Statements.

Long-Lived Assets, Excluding Goodwill

The Company assesses impairment of long-lived assets at the individual salon level, as this is the lowest level for which identifiable cash flows are largely independent of other groups of assets and liabilities, when events or changes in circumstances indicate the carrying value of the assets or the asset grouping may not be recoverable. Factors considered in deciding when to perform an impairment review include significant under-performance of an individual salon in relation to expectations, significant economic or geographic trends, and significant changes or planned changes in our use of the assets. Impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the long-lived assets. If the undiscounted estimated cash flows are less than the carrying value of the assets, the Company calculates an impairment charge based on the estimated fair value of the assets. The fair value of the long-lived assets is estimated using a discounted cash flow model based on the best information available, including salon level revenues and expenses. Long-lived asset impairment charges related to continuing operations of $4.6 million, $11.1 million and $7.9 million for fiscal years 2019, 2018 and 2017, respectively have been recorded within depreciation and amortization in the Consolidated Statement of Operations.

Judgments made by management related to the expected useful lives of long-lived assets and the ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance. As the ongoing expected cash flows and carrying amounts of long-lived assets are assessed, these factors could cause the Company to realize material impairment charges.

Income Taxes

Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Consolidated Financial Statements or income tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is established for any portion of deferred tax assets that are not considered more likely than not to be realized. The Company evaluates all evidence, including recent financial performance, the existence of cumulative year losses and our forecast of future taxable income, to assess the need for a valuation allowance against our deferred tax assets. While the determination of whether or not to record a valuation allowance is not fully governed by a specific objective test, accounting guidance places significant weight on recent financial performance.

The Company has a partial valuation allowance on its deferred tax assets amounting to $70.7 and $68.6 million at June 30, 2019 and 2018, respectively. The Company assesses the realizability of its deferred tax assets on a quarterly basis and will reverse the valuation allowance and record a tax benefit when the Company generates sufficient sustainable pretax earnings to make the realizability of the deferred tax assets more likely than not.

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The Company reserves for unrecognized tax benefits, interest and penalties related to anticipated tax audit positions in the U.S. and other tax jurisdictions based on an estimate of whether additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of these liabilities would result in tax benefits being recognized in the period in which it is determined that the liabilities are no longer necessary. If the estimate of unrecognized tax benefits, interest and penalties proves to be less than the ultimate assessment, additional expenses would result.

Inherent in the measurement of deferred balances are certain judgments and interpretations of tax laws and published guidance with respect to the Company's operations. Income tax expense is primarily the current tax payable for the period and the change during the period in certain deferred tax assets and liabilities.

See Note 9 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K

Item 7A. 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, specifically the revolving credit facility which bears interest at variable rates based on LIBOR plus an applicable borrowing margin. Additionally, the Company is exposed to foreign currency translation risk related changes in the Canadian dollar and to a lesser extent the British pound. The Company has established policies and procedures that govern the management of these exposures through the use of derivative financial instrument contracts. By policy, the Company does not enter into such contracts for the purpose of speculation. The following details the Company's policies and use of financial instruments.

Interest Rate Risk:

The Company has established an interest rate management policy that attempts to minimize its overall cost of debt, while taking into consideration earnings implications associated with volatility in short-term interest rates. In the past, the Company has used interest rate swaps to further mitigate the risk associated with changing interest rates and to maintain its desired balances of fixed and floating rate debt. In addition, access to variable rate debt is available through the Company's revolving credit facility. The Company reviews its policy and interest rate risk management quarterly and adjusts in accordance with market conditions and the Company's short and long-term borrowing needs. As of June 30, 2019, the Company had an outstanding variable rate debt of $90.0 million. As of June 30, 2019, the Company did not have any outstanding interest rate swaps.

Foreign Currency Exchange Risk:

Over 91% of the operations are transacted in United States dollars. However, because a portion of the Company's operations consists of activities outside of the United States, the Company has transactions in other currencies, primarily the Canadian dollar and British pound. In preparing the Consolidated Financial Statements, the Company is required to translate the financial statements of its foreign subsidiaries from the currency in which they keep their accounting records, generally the local currency, into United States dollars. Different exchange rates from period to period impact the amounts of reported income and the amount of foreign currency translation recorded in accumulated other comprehensive income (AOCI). As part of its risk management strategy, the Company frequently evaluates its foreign currency exchange risk by monitoring market data and external factors that may influence exchange rate fluctuations. As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and purchases denominated in foreign currencies. As of June 30, 2019, the Company did not have any derivative instruments to manage its foreign currency risk.

During fiscal years 2019, 2018 and 2017, the foreign currency gain (loss) included in income (loss) from continuing operations was $0.1, $(0.1) and $0.1 million, respectively. During fiscal year 2018, the Company recognized within discontinued operations a $6.2 million foreign currency translation loss in connection with the Company's liquidation of substantially all foreign entities with British pound denominated currencies.

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Item 8. Financial Statements and Supplementary Data




Index to Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm		46
Consolidated Balance Sheet as of June 30, 2019 and 2018		49
Consolidated Statement of Operations for each of the three years in the period ended June 30, 2019		50
Consolidated Statement of Comprehensive Income (Loss) for each of the three years in the period ended June 30, 2019		51
Consolidated Statement of Shareholders' Equity for each of the three years in the period ended June 30, 2019		52
Consolidated Statement of Cash Flows for each of the three years in the period ended June 30, 2019		53
Notes to Consolidated Financial Statements		54

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Regis Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Regis Corporation and its subsidiaries (the “Company”) as of June 30, 2019 and June 30, 2018, and the consolidated statements of operations, of comprehensive income (loss), of sharehoders’ equity, and of cash flows for each of the three years in the period ended June 30, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of June 30, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and June 30, 2018 and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment - Company-Owned Reporting Unit

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated goodwill balance was $345.7 million at June 30, 2019, and the goodwill associated with the Company-owned reporting unit was $117.8 million. The Company performs its annual impairment assessment as of April 30. For the fiscal year 2019 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optional Step 0 assessment and performed the quantitative impairment analysis on the Company-owned units. The Company compared the carrying value of the reporting units, including goodwill, to their estimated fair value. Management disclosed that the results of these assessments indicated that the estimated fair value of the Company’s reporting units exceeded their carrying value and the Company-owned reporting unit had headroom of approximately 20%. The fair value of the Company-owned reporting unit was determined based on a discounted cash flow analysis. The key assumptions used in determining fair value were the number and pace of salons sold to franchisees and proceeds for salon sales.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Company-owned reporting unit is a critical audit matter are there was significant judgment by management when developing the fair value measurement of the reporting unit. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s discounted future cash flow model and significant assumptions, including the number and pace of salons sold to franchisees and proceeds for salon sales. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting units. These procedures also included, among others, testing management’s process for determining fair value of the reporting unit; evaluating the appropriateness of the discounted future cash flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the significant assumptions used by management, including number and pace of salons sold to franchisees and proceeds for salon sales. Evaluating management’s assumptions related to the number and pace of salons sold to franchisees and proceeds for salon sales involved evaluating whether the assumptions used by management were reasonable considering current and past performance of the reporting unit and industry data and whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted future cash flow model.

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/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota

August 27, 2019

We have served as the Company’s auditor since at least 1990. We have not been able to determine the specific year we began serving as auditor of the Company.

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REGIS CORPORATION

CONSOLIDATED BALANCE SHEET

(Dollars in thousands, except per share data)



	June 30,
	2019		2018
ASSETS
Current assets:
Cash and cash equivalents	$	70,141	$	110,399
Receivables, net	30,143		52,430
Inventories	77,322		79,363
Other current assets	33,216		47,867
Total current assets	210,822		290,059

Property and equipment, net	78,090		99,288
Goodwill	345,718		412,643
Other intangibles, net	8,761		10,557
Other assets	34,170		37,616
Long-term assets held for sale (Note 1)	5,276		6,572
Total assets	$	682,837	$	856,735

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	47,532	$	57,738
Accrued expenses	80,751		100,716
Total current liabilities	128,283		158,454

Long-term debt, net	90,000		90,000
Long-term lease liability	28,910		—
Other noncurrent liabilities	111,399		121,843
Total liabilities	358,592		370,297

Commitments and contingencies (Note 8)
Shareholders' equity:
Common stock, $0.05 par value; issued and outstanding, 36,869,249 and 45,258,571 common shares at June 30, 2019 and 2018, respectively	1,843		2,263
Additional paid-in capital	47,152		194,436
Accumulated other comprehensive income	9,342		9,656
Retained earnings	265,908		280,083

Total shareholders' equity	324,245		486,438

Total liabilities and shareholders' equity	$	682,837	$	856,735

The accompanying notes are an integral part of the Consolidated Financial Statements.

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REGIS CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(Dollars and shares in thousands, except per share data)



	Fiscal Years
	2019			2018			2017
Revenues:
Service	$	749,660		$	899,345		$	960,781
Product	225,618			258,740			259,931
Royalties and fees	93,761			77,394			72,088
	1,069,039			1,235,479			1,292,800
Operating expenses:
Cost of service	452,827			530,582			610,384
Cost of product	128,816			140,623			126,297
Site operating expenses	141,031			154,067			153,668
General and administrative	177,004			174,045			157,335
Rent	131,816			183,096			180,478
Depreciation and amortization	37,848			58,205			52,088
TBG Restructuring (Note 3)	21,816			—			—
Total operating expenses	1,091,158			1,240,618			1,280,250

Operating (loss) income	(22,119		)	(5,139		)	12,550

Other (expense) income:
Interest expense	(4,795		)	(10,492		)	(8,584		)
Gain on sale of salon assets to franchisees	2,918			241			492
Interest income and other, net	1,729			5,199			1,471

(Loss) income from continuing operations before income taxes	(22,267		)	(10,191		)	5,929

Income tax benefit (expense)	2,145			69,812			(9,224		)

(Loss) Income from continuing operations	(20,122		)	59,621			(3,295		)
Income (loss) from discontinued operations, net of income taxes (Note 3)	5,896			(53,185		)	(15,244		)
Net (loss) income	$	(14,226	)	$	6,436		$	(18,539	)

Net income (loss) per share:
Basic:
(Loss) Income from continuing operations	$	(0.48	)	$	1.28		$	(0.07	)
Income (loss) from discontinued operations	0.14			(1.14		)	(0.33		)
Net (loss) income per share, basic (1)	$	(0.34	)	$	0.14		$	(0.40	)
Diluted:
(Loss) income from continuing operations	$	(0.48	)	$	1.27		$	(0.07	)
Income (loss) from discontinued operations	0.14			(1.13		)	(0.33		)
Net (loss) income per share, diluted (1)	$	(0.34	)	$	0.14		$	(0.40	)
Weighted average common and common equivalent shares outstanding:
Basic	41,829			46,517			46,359
Diluted	41,829			47,035			46,359

_______________________________________________________________________________


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

The accompanying notes are an integral part of the Consolidated Financial Statements.

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REGIS CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)



	Fiscal Years
	2019			2018			2017
Net (loss) income	$	(14,226	)	$	6,436		$	(18,539	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments during the period:
Foreign currency translation adjustments	185			(168		)	(1,889		)
Reclassification adjustments for losses included in net (loss) income (Note 2)	—			6,152			—
Net current period foreign currency translation adjustments	185			5,984			(1,889		)
Recognition of deferred compensation	(499		)	336			157
Other comprehensive (loss) income	(314		)	6,320			(1,732		)
Comprehensive (loss) income	$	(14,540	)	$	12,756		$	(20,271	)

The accompanying notes are an integral part of the Consolidated Financial Statements.

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REGIS CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Dollars in thousands, except share data)



	Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total
	Shares		Amount			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total
Balance, June 30, 2016	46,154,410		$	2,308		$	207,475		$	5,068		$	292,073		$	506,924
Net loss												(18,539		)	(18,539		)
Foreign currency translation adjustments									(1,889		)				(1,889		)
Exercise of SARs & stock options, net	4,370		—			(42		)							(42		)
Stock-based compensation						9,991									9,991
Shares issued through franchise stock incentive program	27,819		1			352									353
Recognition of deferred compensation (Note 10)									157						157
Net restricted stock activity	213,768		11			(3,667		)							(3,656		)
Minority interest (Note 1)						—						46			46
Balance, June 30, 2017	46,400,367		2,320			214,109			3,336			273,580			493,345
Net income												6,436			6,436
Foreign currency translation adjustments									5,984						5,984
Stock repurchase program	(1,469,057	)	(74		)	(24,724		)							(24,798		)
Exercise of SARs & stock options, net	33,342		2			(332		)							(330		)
Stock-based compensation						7,475									7,475
Shares issued through franchise stock incentive program	522		—			7									7
Recognition of deferred compensation (Note 10)									336						336
Net restricted stock activity	293,397		15			(2,099		)							(2,084		)
Minority interest (Note 1)												67			67
Balance, June 30, 2018	45,258,571		2,263			194,436			9,656			280,083			486,438
Net loss												(14,226		)	(14,226		)
Foreign currency translation adjustments (Note 1)									185						185
Stock repurchase program	(8,605,430	)	(431		)	(154,114		)							(154,545		)
Exercise of SARs & stock options, net	22,263		1			(222		)							(221		)
Stock-based compensation						9,003									9,003
Recognition of deferred compensation (Note 10)									(499		)				(499		)
Net restricted stock activity	193,845		10			(1,951		)							(1,941		)
Minority interest (Note 1)												51			51
Balance, June 30, 2019	36,869,249		$	1,843		$	47,152		$	9,342		$	265,908		$	324,245

The accompanying notes are an integral part of the Consolidated Financial Statements.

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REGIS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in thousands)



	Fiscal Years
	2019			2018			2017
Cash flows from operating activities:
Net income (loss)	$	(14,226	)	$	6,436		$	(18,539	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Non-cash impairment related to discontinued operations	306			38,826			—
Depreciation and amortization	33,261			39,433			40,722
Depreciation related to discontinued operations	—			3,738			14,239
Equity in loss of affiliated companies	—			—			81
Deferred income taxes	(9,812		)	(80,241		)	7,962
Gain on life insurance proceeds	—			(7,986		)	—
Gain from sale of salon assets to franchisees, net	(2,918		)	(241		)	(492		)
Non-cash TBG restructuring charge (Note 3)	21,008			—			—
Loss on write down of inventories	—			—			5,905
Salon asset impairments (2)	4,587			11,092			11,366
Accumulated other comprehensive income reclassification adjustments (Note 3)	—			6,152			—
Stock-based compensation	9,003			8,269			13,142
Amortization of debt discount and financing costs	275			4,080			1,403
Other non-cash items affecting earnings	(903		)	(294		)	935
Changes in operating assets and liabilities (1):
Receivables	(17,304		)	(12,081		)	724
Inventories	(8,492		)	13,940			4,010
Income tax receivable	(703		)	527			(535		)
Other current assets	(783		)	239			(899		)
Other assets	(5,546		)	(11,229		)	(2,586		)
Accounts payable	(5,836		)	(1,103		)	(684		)
Accrued expenses	(20,158		)	(10,940		)	(13,056		)
Other noncurrent liabilities	717			(6,027		)	(5,362		)
Net cash (used in) provided by operating activities	(17,524		)	2,590			58,336
Cash flows from investing activities:
Capital expenditures	(31,616		)	(29,571		)	(26,572		)
Capital expenditures related to discontinued operations	—			(1,171		)	(7,271		)
Proceeds from sale of salon assets to franchisees	94,787			11,582			2,253
Proceeds from company-owned life insurance policies	24,617			18,108			876
Proceeds from sale of investment	—			—			500
Net cash (used in) provided by investing activities	87,788			(1,052		)	(30,214		)
Cash flows from financing activities:
Borrowings on revolving credit facilities	—			90,000			—
Repayments of long-term debt	—			(124,230		)	—
Repurchase of common stock	(152,661		)	(24,798		)	—
Proceeds from sale and lease back transactions	28,821			—			—
Sale and lease back transaction payments	(378		)	—			—
Employee taxes paid for shares withheld	(2,477		)	(2,413		)	(3,698		)
Settlement of equity awards	—			(794		)	(3,151		)
Net cash used in financing activities	(126,695		)	(62,235		)	(6,849		)
Effect of exchange rate changes on cash and cash equivalents	35			(514		)	935
(Decrease) increase in cash and cash equivalents	(56,396		)	(61,211		)	22,208
Cash and cash equivalents:
Beginning of year	148,775			208,634			187,778
Cash and cash equivalents included in current assets held for sale	—			1,352			—
Beginning of year, total cash and cash equivalents	148,775			209,986			187,778
End of year	$	92,379		$	148,775		$	209,986


(1)	Changes in operating assets and liabilities exclude assets and liabilities sold or acquired.


(2)	In fiscal year 2017, $3.4 million of salon asset impairments were classified as discontinued operations. There were no other significant non-cash activities related to discontinued operations in the years presented.

The accompanying notes are an integral part of the Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description:

Regis Corporation (the "Company") franchises, owns and operates hairstyling and hair care salons throughout the United States (U.S.), the United Kingdom (U.K.), Canada and Puerto Rico. The business is evaluated in two segments, Franchise salons and Company-owned salons. See Note 14 to the Consolidated Financial Statements. Franchised salons throughout the U.S. and Canada are primarily located in strip shopping centers or Walmart Supercenters. All salons in the U.K. are franchised locations and operate in leading department stores, mass merchants and high-street locations. Substantially all of the hairstyling and hair care salons owned and operated by the Company in the U.S., Canada and Puerto Rico are located in leased space in strip shopping centers or Walmart Supercenters.

During the first quarter of fiscal year 2018, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, and substantially all of its previous International segment, representing 250 salons in the UK, to The Beautiful Group ("TBG"), an affiliate of Regent, a private equity firm based in Los Angeles, California who operated these locations as franchise locations until June 27, 2019. See additional discussion on these discontinued operations in Note 3 to the Consolidated Financial Statements.

Consolidation:

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries after the elimination of intercompany accounts and transactions. All material subsidiaries are wholly owned. The Company consolidates variable interest entities where it has determined it is the primary beneficiary of those entities' operations.

Variable Interest Entities:

The Company has interests in certain privately held entities through arrangements that do not involve voting interests. Such entities, known as a variable interest entity (VIE), are required to be consolidated by its primary beneficiary. The Company evaluates whether or not it is the primary beneficiary for each VIE using a qualitative assessment that considers the VIE's purpose and design, the involvement of each of the interest holders and the risk and benefits of the VIE.

As of June 30, 2019, the Company has one VIE, Roosters MGC International LLC (Roosters), where the Company is the primary beneficiary. The Company owns an 84.0% ownership interest in Roosters. As of June 30, 2019, total assets, total liabilities and total shareholders' equity of Roosters were $9.6, $1.7 and $7.9 million, respectively. As of June 30, 2018, total assets, total liabilities and total shareholders' equity of Roosters were $8.3, $0.6, and $7.7 million. Net income attributable to the non-controlling interest in Roosters was immaterial for fiscal years 2019, 2018 and 2017. Shareholders' equity attributable to the non-controlling interest in Roosters was $1.0 million as of June 30, 2019 and 2018, respectively and recorded within retained earnings on the Consolidated Balance Sheet.

The Company accounts for its investment in Empire Education Group, Inc. ("EEG") as an equity investment under the voting interest model, as the Company has granted the other shareholder of EEG an irrevocable proxy to vote a certain number of the Company’s shares such that the other shareholder of EEG has voting control of EEG’s common stock, as well as the right to appoint four of the five members of EEG’s Board of Directors. The Company wrote off its investment balance in EEG in fiscal year 2016.

Use of Estimates:

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) 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. Actual results could differ from those estimates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash and Cash Equivalents:

Cash equivalents consist of investments in short-term, highly liquid securities having original maturities of three months or less, which are made as a part of the Company's cash management activity. The carrying values of these assets approximate their fair market values. The Company primarily utilizes a cash management system with a series of separate accounts consisting of lockbox accounts for receiving cash, concentration accounts that funds are moved to, and several "zero balance" disbursement accounts for funding of payroll and accounts payable. As a result of the Company's cash management system, checks issued, but not presented to the banks for payment, may create negative book cash balances. There were no checks outstanding in excess of related book cash balances at June 30, 2019 and 2018.

The Company has restricted cash primarily related to contractual obligations to collateralize its self-insurance programs. The restricted cash arrangement can be canceled by the Company at any time if substituted with letters of credit. The restricted cash balance is classified within other current assets on the Consolidated Balance Sheet.

Receivables and Allowance for Doubtful Accounts:

The receivable balance on the Company's Consolidated Balance Sheet primarily includes credit card receivables, accounts and notes receivable from franchisees and receivables related to salons sold to franchisees. The balance is presented net of an allowance for expected losses (i.e., doubtful accounts), primarily related to receivables from the Company's franchisees. The Company monitors the financial condition of its franchisees and records provisions for estimated losses on receivables when it believes franchisees are unable to make their required payments based on factors such as delinquencies and aging trends. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses related to existing accounts and notes receivables. As of June 30, 2019, 2018 and 2017, the allowance for doubtful accounts was $2.0, $1.2 and $0.8 million, respectively. With the exception of the TBG restructuring (Note 3), activity in the allowance for doubtful accounts during fiscal years 2019, 2018 and 2017 was not significant.

At June 30, 2018, the receivable balance also included $24.6 million related to the cash surrender value of company-owned life insurance policies surrendered prior to June 30, 2018. The Company received these proceeds in July 2018.

Inventories:

Inventories of finished goods consist principally of hair care products for retail product sales. A portion of inventories are also used for salon services consisting of hair color, hair care products including shampoo and conditioner and hair care treatments including permanents, neutralizers and relaxers. Inventories are stated at the lower of cost or market, with cost determined on a weighted average cost basis.

Physical inventory counts are performed annually in the fourth quarter of the fiscal year for salons. Product and service inventories are adjusted based on the physical inventory counts. During the fiscal year, cost of retail product sold to salon guests is determined based on the weighted average cost of product sold, adjusted for an estimated shrinkage factor. The cost of product used in salon services is determined by applying an estimated percentage of total cost of service to service revenues. These estimates are updated quarterly based on cycle count results for the distribution centers, service sales mix, discounting, special promotions and other factors.

The Company has inventory valuation reserves for excess and obsolete inventories, or other factors that may render inventories unmarketable at their historical costs. Estimates of the future demand for the Company's inventory and anticipated changes in formulas and packaging are some of the other factors used by management in assessing the net realizable value of inventories. Activity in the inventory valuation reserves during fiscal years 2019, 2018 and2017 was not significant.

Property and Equipment:

Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over their estimated useful asset lives (30 to 39 years for buildings, 10 years for improvements and three to ten years for equipment, furniture and software). Depreciation expense was $31.9, $38.1 and $42.7 million in fiscal years 2019, 2018 and 2017, respectively.

The Company capitalizes both internal and external costs of developing or obtaining computer software for internal use. Costs incurred to develop internal-use software during the application development stage are capitalized, while data conversion, training and maintenance costs associated with internal-use software are expensed as incurred. Estimated useful lives range from three to seven years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Expenditures for maintenance and repairs and minor renewals and betterments, which do not improve or extend the life of the respective assets, are expensed. All other expenditures for renewals and betterments are capitalized. The assets and related depreciation and amortization accounts are adjusted for property retirements and disposals with the resulting gain or loss included in operating income. Fully depreciated or amortized assets remain in the accounts until retired from service.

Non-Current Assets Held for Sale:

In March 2019, the Company announced that it had entered into a ten year lease for a new corporate headquarters and would be selling the land and buildings currently used for its headquarters. The non-current assets held for sale represent the net book value of the land of $1.7 and $1.7 million and buildings of $3.6 and $4.9 million, as of June 30, 2019 and June 30, 2018, respectively. No impairments were identified as of June 30, 2019.

Long-Lived Asset Impairment Assessments, Excluding Goodwill:

The Company assesses impairment of long-lived assets at the individual salon level, as this is the lowest level for which identifiable cash flows are largely independent of other groups of assets and liabilities, when events or changes in circumstances indicate the carrying value of the assets or the asset grouping may not be recoverable. Factors considered in deciding when to perform an impairment review include significant under-performance of an individual salon in relation to expectations, significant economic or geographic trends, and significant changes or planned changes in our use of the assets. Impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the long-lived assets. If the undiscounted estimated cash flows are less than the carrying value of the assets, the Company calculates an impairment charge based on the estimated fair value of the assets. The fair value of the long-lived assets is estimated using a discounted cash flow model based on the best information available, including salon level revenues and expenses. Long-lived asset impairment charges are recorded within depreciation and amortization in the Consolidated Statement of Operations.

Long-lived asset impairment charges related to continuing operations of $4.6, $11.1 and $7.9 million were recorded during fiscal years 2019, 2018 and 2017, respectively.

Goodwill:

As of June 30, 2019 and 2018, the Franchise salons reporting unit had $227.9 and $227.9 million of goodwill and the Company-owned reporting unit had $117.8 and $184.8 million of goodwill, respectively. See Note 5 to the Consolidated Financial Statements. The Company assesses goodwill impairment on an annual basis, during the Company’s fourth fiscal quarter, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Following is a description of the goodwill impairment assessments for each of the fiscal years:

Fiscal 2019

During the fiscal year 2019, the Company did not experience any trigger events that required an interim goodwill analysis. The Company performed its annual impairment assessment as of April 30. For the fiscal year 2019 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optional Step 0 assessment and performed the quantitative impairment analysis on the Franchise and Company-owned reporting units. The Company compared the carrying value of the reporting units, including goodwill, to their estimated fair value. The results of these assessments indicated that the estimated fair value of the Company's reporting units exceeded their carrying value. The Franchise reporting unit had substantial headroom and the Company-owned reporting unit had headroom of approximately 20%. The fair value of the Company-owned reporting unit was determined based on a discounted cash flow analysis. The key assumptions used in determining fair value were the number and pace of salons sold to franchisees and proceeds from salon sales. We selected the assumptions by considering our historical financial performance and trends, historical salon sale proceeds and estimated future salon sale activities. The preparation of our fair value estimate includes uncertain factors and requires significant judgments and estimates which are subject to change.

There are a number of uncertain factors or events that exist which may result in a future triggering event and require an interim impairment analysis with respect to the carrying value of goodwill for the Company-owned reporting unit prior to our annual assessment. These internal and external factors include but are not limited to the following:


•	Changes in the company-owned salon strategy,


•	Franchise expansion and sales opportunities,


•	Future market earnings multiples deterioration,


•	Our financial performance falls short of our projections due to internal operating factors,


•	Economic recession,


•	Reduced salon traffic,


•	Deterioration of industry trends,


•	Increased competition,


•	Inability to reduce general and administrative expenses as company-owned salon count potentially decreases,


•	Other factors causing our cash flow to deteriorate.

If the triggering event analysis indicates the fair value of the Company-owned reporting unit has potentially fallen below more than the 20% headroom, we may be required to perform an updated impairment assessment which may result in a non-cash impairment charge to reduce the carrying value of goodwill.

As of June 30, 2019, the Company's estimated fair value, as determined by the sum of our reporting units' fair value, reconciled within a reasonable range of our market capitalization, which included an assumed control premium of approximately14%.

Assessing goodwill for impairment requires management to make assumptions and to apply judgment, including forecasting future sales and expenses, and selecting appropriate discount rates, which can be affected by economic conditions and other factors that can be difficult to predict. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it uses to calculate impairment losses of goodwill. However, if actual results are not consistent with the estimates and assumptions used in the calculations, or if there are significant changes to the Company's planned strategy for company-owned salons, the Company may be exposed to future impairment losses that could be material.

Fiscal Year 2018

During the first quarter of fiscal year 2018, the Company experienced a triggering event due to the redefining of its operating segments as the Company's mall-based business and International segment met the criteria to be classified as held for sale and as a discontinued operation as of September 30, 2017. The Company's reporting changed to two reporting units: Company-owned and Franchise. Prior to this change the Company had four reporting units: North American Value, North American Premium, North American Franchise and International.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Pursuant to the change in operating segments, the Company performed a goodwill impairment assessment on its North American Value reporting unit. The Company assessed qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit was less than their carrying values (“Step 0”). The Company determined it is “more-likely-than-not” that the carrying value of the reporting unit was less than the fair value. Accordingly, the Company did not perform a quantitative analysis. Based on the changes to the operating segment structure, there was no goodwill reallocated from the North American Value reporting unit related to the mall-based business that was subsequently sold as the mall-based business previously included in the North American Value reporting unit was projected to incur future losses. The Company did not perform a goodwill impairment assessment for the North American Franchise reporting unit during the first quarter of fiscal year 2018 as this reporting unit was not impacted by the triggering event. The North American Premium and International units did not have any goodwill.

The Company performed its annual impairment assessment as of April 30. For the fiscal year 2018 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optional Step 0 assessment and performed the quantitative impairment analysis on the Company-owned and Franchise reporting units. The Company compared the carrying value of the reporting units, including goodwill, to their estimated fair value. The results of these assessments indicated that the estimated fair value of our reporting units exceeded their carrying value. The Franchise reporting unit had substantial headroom and the Company-owned reporting unit had headroom of approximately 24%. The fair value of the Company-owned reporting unit was determined based on a discounted cash flow analysis and comparable market multiples. The assumptions used in determining fair value were similar to than those used in fiscal year 2019.

Fiscal Year 2017

During the fourth quarter of fiscal year 2017, the Company experienced a triggering event due to the redefining of its operating segments, which also coincided with the annual assessment date. In connection with the change in operating segment structure, the Company changed its North American reporting units from two reporting units: North American Value and North American Premium, to three reporting units: North American Value, North American Franchise and North American Premium.

Pursuant to the change in operating segments, the Company performed a goodwill impairment assessment on its North American Value reporting unit. The North American Premium and International units did not have any goodwill. The Company compared the carrying value of the North American Value reporting unit, including goodwill, to its estimated fair value. The fair value of the reporting unit exceeded its carrying value by a substantial margin, resulting in no goodwill impairment.

Investments In Affiliates:

The Company has equity investments in securities of certain privately held entities. The Company accounts for these investments under the equity or cost method of accounting. The Company's investments have no value as of June 30, 2019, 2018.

Self-Insurance Accruals:

The Company uses a combination of third party insurance and self-insurance for a number of risks including workers' compensation, health insurance, employment practice liability and general liability claims. The liability represents the Company's estimate of the undiscounted ultimate cost of uninsured claims incurred as of the balance sheet date.

The Company estimates self-insurance liabilities using a number of factors, primarily based on independent third-party actuarially-determined amounts, historical claims experience, estimates of incurred but not reported claims, demographic factors and severity factors.

Although the Company does not expect the amounts ultimately paid to differ significantly from the estimates, self-insurance accruals could be affected if future claims experience differs significantly from historical trends and actuarial assumptions. For fiscal years 2019, 2018 and 2017, the Company recorded (increases) decreases in expense for changes in estimates related to prior year open policy periods of $(1.3), $1.2 and $1.6 million, respectively. The Company updates loss projections quarterly and adjusts its liability to reflect updated projections. The updated loss projections consider new claims and developments associated with existing claims for each open policy period. As certain claims can take years to settle, the Company has multiple policy periods open at any point in time.

As of June 30, 2019, the Company had $10.1 and $23.6 million recorded in current liabilities and noncurrent liabilities, respectively, related to the Company's self-insurance accruals. As of June 30, 2018, the Company had $10.3 and $25.8 million recorded in current liabilities and noncurrent liabilities, respectively, related to the Company's self-insurance accruals.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred Rent and Rent Expense:

The Company leases its salon locations under operating leases. Rent expense is recognized on a straight-line basis over the lease term. Tenant improvement allowances funded by landlord incentives, rent holidays and rent escalation clauses which provide for scheduled rent increases during the lease term or for rental payments commencing at a date other than the date of initial occupancy are recorded in the Consolidated Statements of Operations on a straight-line basis over the lease term (including one renewal period if renewal is reasonably assured based on the imposition of an economic penalty for failure to exercise the renewal option). The difference between the rent due under the stated periods of the lease and the straight-line basis is recorded as deferred rent within accrued expenses and other noncurrent liabilities in the Consolidated Balance Sheet.

For purposes of recognizing incentives and minimum rental expenses on a straight-line basis, the Company uses the date it obtains the legal right to use and control the leased space to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation of its intended use.

Certain leases provide for contingent rents, which are determined as a percentage of revenues in excess of specified levels. The Company records a contingent rent liability in accrued expenses on the Consolidated Balance Sheet, along with the corresponding rent expense in the Consolidated Statement of Operations, when specified levels have been achieved or when management determines that achieving the specified levels during the fiscal year is probable.

Revenue Recognition and Deferred Revenue:

Franchise revenues primarily include royalties, advertising fund fees, and initial franchise fees. Royalties and advertising fund revenues represent sales-based royalties that are recognized as revenue in the period in which the sales occur. The Company defers franchise fees until the salon is open and then recognizes the revenue over the term of the franchise agreement. See Note 2.

Product sales by the Company to its franchisees are included within product revenues on the Consolidated Statement of Operations and recorded at the time product is delivered to franchise locations.

Company-owned salon revenues are recognized at the time when the services are provided. Product revenues are recognized when the guest receives and pays for the merchandise.

Classification of Expenses:

The following discussion provides the primary costs classified in each major expense category:

Beginning in the first quarter of fiscal year 2018, costs associated with field leaders that were previously recorded within Cost of Service and Site Operating expenses are now categorized within General and Administrative expense as a result of the field reorganization that took place in the first quarter of fiscal year 2018. Previously, field leaders spent most of their time on the salon floor leading and mentoring stylists and serving guests. As reorganized, field leaders now do not work on the salon floor daily. As a result, field leader labor costs are now reported within General and Administrative expenses rather than Cost of Service and their travel costs are reported within General and Administrative expenses rather than Site Operating expenses. This expense classification does not have a financial impact on the Company's reported operating income (loss), reported net (loss) income or cash flows from operations.

Cost of service— labor costs related to salon employees, costs associated with our field supervision (fiscal year 2017) and the cost of product used in providing service.

Cost of product— cost of product sold to guests, labor costs related to selling retail product and the cost of product sold to franchisees.

Site operating— direct costs incurred by the Company's salons, such as advertising, workers' compensation, insurance, utilities, travel costs associated with our field supervision (fiscal year 2017) and janitorial costs.

General and administrative— costs associated with field supervision (fiscal years 2019 and 2018), costs associated with salon training, distribution centers and corporate offices (such as salaries and professional fees), including cost incurred to support franchise operations.

Consideration Received from Vendors:

The Company receives consideration for a variety of vendor-sponsored programs. These programs primarily include volume rebates and promotion and advertising reimbursements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

With respect to volume rebates, the Company estimates the amount of rebate it will receive and accrues it as a reduction to the cost of inventory over the period in which the rebate is earned based upon historical purchasing patterns and the terms of the volume rebate program. A quarterly analysis is performed in order to ensure the estimated rebate accrued is reasonable and any necessary adjustments are recorded.

Shipping and Handling Costs:

Shipping and handling costs are incurred to store, move and ship product from the Company's distribution centers to franchise and company-owned locations and include an allocation of internal overhead. Such shipping and handling costs related to product shipped to company-owned locations are included in site operating expenses in the Consolidated Statement of Operations. Shipping and handling costs related to shipping product to franchise locations totaled $7.7, $6.1 and $3.7 million during fiscal years 2019, 2018 and 2017, respectively and are included within general and administrative expenses on the Consolidated Statement of Operations. Any amounts billed to franchisees for shipping and handling are included in product revenues within the Consolidated Statement of Operations.

Advertising and Advertising Funds:

Advertising costs consist of the Company’s corporate funded advertising costs, the Company’s advertising fund contributions and Franchisee’s advertising fund contributions. Corporate funded advertising costs are expensed as incurred. The Company has various franchising programs supporting certain of its franchise salon concepts. Most maintain advertising funds that provide comprehensive advertising and sales promotion support. Salons, both company-owned and franchise are required to participate in the advertising funds for the same salon concept. The Company assists in the administration of the advertising funds. However, a group of individuals consisting of franchisee representatives has control over all of the expenditures and operates the funds in accordance with franchise operating and other agreements. Advertising fund contributions are expensed when the contribution is made.

The Company's advertising costs are included in site operating expenses in the Consolidated Statement of Operations and consist of the following:



	Fiscal Years
	2019		2018		2017
	(Dollars in thousands)
Corporate funded advertising costs	$	21,581	$	19,803	$	13,139
Advertising fund contributions from company-owned salons	12,929		16,834		17,158
Advertising fund contributions from franchisees	34,073		26,818		25,871
Total advertising costs	$	68,583	$	63,455	$	56,168

The Company records all advertising funds as assets and liabilities within the Company's Consolidated Balance Sheet. As of June 30, 2019 and 2018, approximately $23.8 and $23.8 million, respectively, representing the advertising funds' assets and liabilities were recorded within total assets and total liabilities in the Company's Consolidated Balance Sheet.

Stock-Based Employee Compensation Plans:

The Company recognizes stock-based compensation expense based on the fair value of the awards at the grant date. Compensation expense is recognized on a straight-line basis over the requisite service period of the award (or to the date a participant becomes eligible for retirement, if earlier). The Company uses option pricing methods that require the input of subjective assumptions, including the expected term, expected volatility, dividend yield and risk-free interest rate.

The Company estimates the likelihood and the rate of achievement for performance sensitive stock-based awards at the end of each reporting period. Changes in the estimated rate of achievement can have a significant effect on the recorded stock-based compensation expense as the effect of a change in the estimated achievement level is recognized in the period the change occurs.

Sales Taxes:

Sales taxes are recorded on a net basis (rather than as both revenue and an expense) within the Company's Consolidated Statement of Operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income Taxes:

The Company has a partial valuation allowance on its deferred tax assets amounting to $70.7 million and $68.6 million at June 30, 2019 and 2018, respectively. The Company assesses the realizability of its deferred tax assets on a quarterly basis and will reverse the valuation allowance and record a tax benefit when the Company generates sufficient sustainable pretax earnings to make the realizability of the deferred tax assets more likely than not. In connection with the Tax Cuts and Jobs Act, the Company remeasured the deferred tax accounts for the federal rate reduction and recorded a partial valuation allowance release for a total benefit of $68.1 million during fiscal year 2018. See Note 9 to the Consolidated Financial Statements.

Net Income (Loss) Per Share:

The Company's basic earnings per share is calculated as net income (loss) divided by weighted average common shares outstanding, excluding unvested outstanding restricted stock awards and restricted stock units. The Company's dilutive earnings per share is calculated as net income (loss) divided by weighted average common shares and common share equivalents outstanding, which includes shares issuable under the Company's stock option plan and long-term incentive plan and dilutive securities. Stock-based awards with exercise prices greater than the average market value of the Company's common stock are excluded from the computation of diluted earnings per share.

Comprehensive Income (Loss):

Components of comprehensive income (loss) include net income (loss), foreign currency translation adjustments and recognition of deferred compensation, net of tax within shareholders' equity.

Foreign Currency Translation:

The balance sheet, statement of operations and statement of cash flows of the Company's international operations are measured using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates in effect at each balance sheet date. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income within shareholders' equity. Statement of Operations accounts are translated at the average rates of exchange prevailing during the year. During fiscal years 2019, 2018 and 2017, the foreign currency gain (loss) included in income (loss) from continuing operations was $0.1, $(0.1) and $0.1 million, respectively. During fiscal year 2018, the Company recognized within discontinued operations a $6.2 million foreign currency translation loss in connection with the Company's liquidation of substantially all foreign entities with British pound denominated currencies.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounting Standards Recently Adopted by the Company:

Revenue from Contracts with Customers

In May 2014, the FASB issued amended guidance for revenue recognition which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company retrospectively adopted these standards on July 1, 2018. The impact of these standards was applied to all periods presented and the cumulative effect of applying the standard was recognized at the beginning of the earliest period presented. See Note 2 to the unaudited Condensed Consolidated Financial Statements for additional information regarding the impact of the adoption of the revenue recognition guidance.

Restricted Cash

In November 2016, the FASB issued cash flow guidance requiring restricted cash and restricted cash equivalents to be included in the cash and cash equivalent balances in the statement of cash flows. Transfers between cash and cash equivalents and restricted cash are no longer presented in the statement of cash flows and a reconciliation between the balance sheet and statement of cash flows must be disclosed. The Company retrospectively adopted this guidance on July 1, 2018. The impact of this standard was applied to all periods presented. As a result of including restricted cash in the beginning and end of period balances, cash, cash equivalents and restricted cash presented in the statement of cash flows increased $22.2, $38.4 and $37.6 million as of June 30, 2019, 2018, and 2017, respectively.

Statement of Cash Flows

In August 2016, the FASB issued updated cash flow guidance clarifying cash flow classification and presentation for certain items. The Company retrospectively adopted this guidance on July 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated statement of cash flows.

Accounting Standards Recently Issued But Not Yet Adopted by the Company:

Leases

In February 2016, the FASB issued updated guidance requiring organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheet. The new standard is effective for the Company in the first quarter of fiscal year 2020, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11, which provides companies with the option to apply the new lease standard either at the beginning of the earliest comparative period presented or in the period of adoption. The Company will elect this optional transition relief amendment that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods. The Company will also elect the package of practical expedients that do not require reassessment of whether existing contracts are or contain leases, lease classification or initial direct costs. The Company has also made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. The Company is leveraging its lease management system to facilitate the adoption of this standard and is evaluating business processes and internal controls related to lease accounting to assist in the application of the new guidance.

The Company estimates adoption of the new standard will result in a right of use asset and lease liability of approximately $1.0 billion. The right of use asset and lease liability reflect a present value of the Company's current minimum lease payments for existing operating leases primarily relating to real estate leases, over a lease term, which includes one option as options are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate. The difference between the assets and liabilities will be attributable to the reclassification of certain existing lease-related assets and liabilities as an adjustment to the right-of-use assets. The Company will use the portfolio approach in applying the discount rate.

The accounting guidance for lessors will remain largely unchanged from previous guidance, with the exception of the presentation of rent expense that the Company passes through to certain franchisees. These costs are generally paid by the Company and reimbursed by the franchisee. Historically, these costs have been recorded on a net basis within rent expense in the consolidated statements of operations but will be presented gross upon adoption of the new guidance. The Company expects the adoption of the new guidance will result in the recognition of additional franchise rental income and franchise rent expense of approximately $110 million annually beginning in fiscal year 2020. The Company does not expect the adoption of the new guidance to have a material impact on net income, cash flows or compliance with debt agreements. The Company continues to evaluate the impact the adoption of this new guidance will have on financial statement disclosures, in addition to evaluating business processes and internal controls related to lease accounting to assist in the ongoing application of the new guidance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. REVENUE RECOGNITION:

In May 2014, the FASB issued amended guidance for revenue recognition which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted the amended revenue recognition guidance, ASC Topic 606, on July 1, 2018 using the full retrospective transition method which required the adjustment of each prior reporting period presented. As a result of adopting this new standard, the Company is providing its updated revenue recognition policies.

Revenue Recognition and Deferred Revenue:

Revenue recognized at point of sale

Company-owned salon revenues are recognized at the time when the services are provided. Product revenues for Company-owned salons are recognized when the guest receives and pays for the merchandise. Revenues from purchases made with gift cards are also recorded when the guest takes possession of the merchandise or services are provided. Gift cards issued by the Company are recorded as a liability (deferred revenue) upon sale and recognized as revenue upon redemption by the customer. Gift card breakage, the amount of gift cards which will not be redeemed, is recognized proportional to redemptions using estimates based on historical redemption patterns. Product sales by the Company to its franchisees are included within product revenues in the Condensed Consolidated Statement of Operations and recorded at the time product is delivered to the franchisee. Payment for franchisee product revenue is generally collected within 30 days of delivery.

Revenue recognized over time

Franchise revenues primarily include royalties, advertising fund fees, franchise fees and other fees. Royalty and advertising fund revenues represent sales-based royalties that are recognized in the period in which the sales occur. Generally, royalty and advertising fund revenue is billed and collected monthly in arrears. Advertising fund revenues and expenditures, which must be spent on marketing and related activities per the franchise agreements, are recorded on a gross basis within the Condensed Consolidated Statement of Operations. This increases both the gross amount of reported franchise revenue and site operating expense and generally has no impact on operating income and net income. Franchise fees are billed and received upon the signing of the franchise agreement. Upon adoption of the new revenue recognition guidance, recognition of these fees is deferred until the salon opening and is then recognized over the term of the franchise agreement, typically ten years. Under previous guidance, the initial franchise fees were recognized in full upon salon opening.

The following table disaggregates revenue by timing of revenue recognition and is reconciled to reportable segment revenues as follows:



	Year ended June 30, 2019				Year ended June 30, 2018
	Company-owned		Franchise		Company-owned		Franchise
	(in thousands)
Revenue recognized at a point in time:
Service	$	749,660	$	—	$	899,345	$	—
Product	165,713		59,905		205,037		53,703
Total revenue recognized at a point in time	$	915,373	$	59,905	$	1,104,382	$	53,703

Revenue recognized over time:
Royalty and other franchise fees	$	—	$	59,688	$	—	$	50,576
Advertising fund fees	—		34,073		—		26,818
Total revenue recognized over time	—		93,761		—		77,394
Total revenue	$	915,373	$	153,666	$	1,104,382	$	131,097

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Information about receivables, broker fees and deferred revenue subject to the amended revenue recognition guidance is as follows:



	June 30, 2019		June 30, 2018		Balance Sheet Classification
	(in thousands)
Receivables from contracts with customers, net	$	23,210	$	21,504	Accounts receivable, net
Broker fees	$	17,819	$	14,002	Other assets

Deferred revenue:
Current
Gift card liability	$	3,050	$	3,320	Accrued expenses
Deferred franchise fees unopened salons	193		2,306		Accrued expenses
Deferred franchise fees open salons	4,164		3,030		Accrued expenses
Total current deferred revenue	$	7,407	$	8,656
Non-current
Deferred franchise fees unopened salons	$	15,173	$	11,161	Other non-current liabilities
Deferred franchise fees open salons	24,194		18,346		Other non-current liabilities
Total non-current deferred revenue	$	39,367	$	29,507

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, and sales of salon services and product. The receivables balance is presented net of an allowance for expected losses (i.e., doubtful accounts), primarily related to receivables from franchisees. As of June 30, 2019 and June 30, 2018, the balance in the allowance for doubtful accounts was $2.0 million and $1.2 million, respectively. Broker fees are the costs associated with using external brokers to identify new franchisees. These fees are paid upon the signing of the franchise agreement and recognized as General and Administrative expense over the term of the agreement. The adoption of the amended revenue recognition guidance did not significantly change the Company's accounting for broker fees.

The following table is a rollforward of the broker fee balance for the periods indicated (in thousands):



Balance as of June 30, 2018	$	14,002
Additions	5,976
Amortization	(1,625		)
Write-offs	(534		)
Balance as of June 30, 2019	$	17,819

Deferred revenue includes the gift card liability and deferred franchise fees for unopened salons and open salons. Gift card revenue for the years ended June 30, 2019 and 2018 was $5.3 and $5.8 million, respectively. Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement. Franchise fee revenue for the twelve months ended June 30, 2019 and 2018 was $3.6 and $2.3 million, respectively. Estimated revenue expected to the recognized in the future related to deferred franchise fees for open salons as of June 30, 2019 is as follows (in thousands):



2020	$	4,164
2021	3,898
2022	3,778
2023	3,602
2024	3,367
Thereafter	9,549
Total	$	28,358

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The amended revenue recognition guidance impacted the Company's previously reported financial statements as follows:

CONSOLIDATED BALANCE SHEET

June 30, 2018

(Dollars in thousands)



			Adjustments for new revenue recognition guidance
	Previously		Franchise			Advertising		Gift Card
	Reported		Fees			Funds		Breakage			Taxes			As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	110,399	$	—		$	—	$	—		$	—		$	110,399
Receivables, net	52,430		—			—		—			—			52,430
Inventories	79,363		—			—		—			—			79,363
Other current assets	47,867		—			—		—			—			47,867
Total current assets	290,059		—			—		—			—			290,059

Property and equipment, net	99,288		—			—		—			—			99,288
Goodwill	412,643		—			—		—			—			412,643
Other intangibles, net	10,557		—			—		—			—			10,557
Other assets	37,616		—			—		—			—			37,616
Non-current assets held for sale	6,572		—			—		—			—			6,572
Total assets	$	856,735	$	—		$	—	$	—		$	—		$	856,735

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	57,738	$	—		$	—	$	—		$	—		$	57,738
Accrued expenses	97,630		3,030			—		56			—			100,716
Total current liabilities	155,368		3,030			—		56			—			158,454

Long-term debt	90,000		—			—		—			—			90,000
Other noncurrent liabilities	107,875		18,346			—		—			(4,378		)	121,843
Total liabilities	353,243		21,376			—		56			(4,378		)	370,297
Commitments and contingencies
Shareholders’ equity:			0
Common stock	2,263		—			—		—			—			2,263
Additional paid-in capital	194,436		—			—		—			—			194,436
Accumulated other comprehensive income	9,568		88			—		—			—			9,656
Retained earnings	297,225		(21,464		)	—		(56		)	4,378			280,083

Total shareholders’ equity	503,492		(21,376		)	—		(56		)	4,378			486,438

Total liabilities and shareholders’ equity	$	856,735	$	—		$	—	$	—		$	—		$	856,735

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONSOLIDATED STATEMENT OF OPERATIONS

For The Twelve Months Ended June 30, 2018

(Dollars and shares in thousands, except per share data amounts)



				Adjustments for new revenue recognition guidance
	Previously			Franchise			Advertising		Gift Card
	Reported			Fees			Funds		Breakage			Taxes		Adjusted
Revenues:
Service	$	899,051		$	—		$	—	$	294		$	—	$	899,345
Product	258,666			—			—		74			—		258,740
Royalties and fees	56,357			(5,781		)	26,818		—			—		77,394
	1,214,074			(5,781		)	26,818		368			—		1,235,479
Operating expenses:
Cost of service	530,582			—			—		—			—		530,582
Cost of product	140,623			—			—		—			—		140,623
Site operating expenses	127,249			—			26,818		—			—		154,067
General and administrative	174,045			—			—		—			—		174,045
Rent	183,096			—			—		—			—		183,096
Depreciation and amortization	58,205			—			—		—			—		58,205
Total operating expenses	1,213,800			—			26,818		—			—		1,240,618

Operating income (loss)	274			(5,781		)	—		368			—		(5,139		)
	274			-5781			0		368			0		-5139
Other (expense) income:
Interest expense	(10,492		)	—			—		—			—		(10,492		)
Gain from sale of salon assets to franchisees, net	241			—			—		—			—		241
Interest income and other, net	6,429			—			—		(1,230		)	—		5,199

Loss from continuing operations before income taxes	(3,548		)	(5,781		)	—		(862		)	—		(10,191		)

Income tax benefit	65,434			—			—		—			4,378		69,812

Income from continuing operations	61,886			(5,781		)	—		(862		)	4,378		59,621

Loss from TBG discontinued operations, net of taxes	(53,185		)	—			—		—			—		(53,185		)

Net income (loss)	$	8,701		$	(5,781	)	$	—	$	(862	)	$	4,378	$	6,436

Net loss per share:
Basic:
Income from continuing operations (1)	$	1.33		$	(0.12	)	$	0.00	$	(0.02	)	$	0.09	$	1.28
Loss from TBG discontinued operations	(1.14		)	0.00			0.00		0.00			0.00		(1.14		)
Net loss per share, basic (1)	$	0.19		$	(0.12	)	$	0.00	$	(0.02	)	$	0.09	$	0.14
Diluted:
Income from continuing operations (1)	$	1.32		$	(0.12	)	$	0.00	$	(0.02	)	$	0.09	$	1.27
Loss from TBG discontinued operations	(1.13		)	0.00			0.00		0.00			0.00		(1.13		)
Net loss per share, diluted (1)	$	0.18		$	(0.12	)	$	0.00	$	(0.02	)	$	0.09	$	0.14

Weighted average common and common equivalent shares outstanding:
Basic	46,517			46,517			46,517		46,517			46,517		46,517
Diluted	47,035			47,035			47,035		47,035			47,035		47,035

_____________________________________________________________________________

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. TBG DISCONTINUED OPERATIONS AND RESTRUCTURING

The Beautiful Group (TBG):

In October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons to The Beautiful Group (TBG), an affiliate of Regent, a private equity firm based in Los Angeles, California, who operated these locations as franchise locations until June 2019. In addition, the Company entered into a share purchase agreement for substantially all of its International segment, representing approximately 250 salons in the UK, with TBG who operates these locations as franchise locations.

The Company classified the results of its mall-based business and its International segment as a discontinued operation for all periods presented in the Condensed Consolidated Statement of Operations. The operations of the mall-based business and International segment, which were previously recorded in the North American Value, North American Premium and International reporting segments, have been eliminated from ongoing operations of the Company.

In fiscal 2018, the Company fully reserved for an $11.7 million promissory note due from TBG which related to amounts due as part of the original transaction (working capital and prepaid rent) as this promissory note included forgiveness clauses if certain conditions were met, that the Company believed would be met.

In fiscal 2019, the Company fully reserved for amounts due from TBG, primarily related to notes and accounts receivable for inventory TBG purchased from the Company and outstanding royalties due.

In June 2019, the Company entered into a settlement agreement with TBG regarding the US and Canadian salons, which, among other things, substitutes the master franchise agreement for a license agreement. Pursuant to the settlement agreement, the Company released and forgave TBG from amounts due related to inventory shipments, fees, services and accounts and notes receivables, plus accrued interest. The Company had previously reserved for such amounts due from TBG in fiscal 2018 and fiscal 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following summarizes the results of TBG related charges and TBG discontinued operations for the periods presented:



	Fiscal Years
	2019			2018			2017
	(Dollars in thousands)
Revenue	$	—		$	101,140		$	423,427

TBG Mall Restructuring:
Accounts and notes receivable reserves	$	20,711		$	—		$	—
Other charges	1,105			—			—
Total TBG mall restructuring	$	21,816		$	—		$	—

TBG Discontinued Operations:
Working capital and prepaid rent receivable reserve	$	—		$	11,697		$	—
Other charges (1) (2) (3)	1,221			47,848			15,244
Loss from TBG discontinued operations, before taxes	1,221			59,545			15,244
Income tax expense (benefit) on TBG discontinued operations (4)	(7,117		)	(6,360		)	—
Loss (income) from TBG discontinued operations, net of tax	$	(5,896	)	$	53,185		$	15,244


(1)	In fiscal year 2019, the Company recorded professional fees related to the transaction as well as insurance adjustments associated with the discontinued operations.


(2)	In fiscal year 2018, the Company recorded $43.0 million of asset impairment charges, $6.2 million of cumulative foreign currency translation adjustment, $3.6 million of loss from operations and $6.8 million of professional fees.


(3)	In fiscal year 2017, the Company recorded a loss from operations.


(4)	Income taxes have been allocated to continuing and discontinued operations based on the methodology required by accounting for income taxes guidance.

The Company utilized the consolidation of variable interest entities guidance to determine whether or not TBG was a variable interest entity (VIE), and if so, whether the Company was the primary beneficiary of TBG. The Company concluded that TBG is a VIE based on the fact that the equity investment at risk in TBG is not sufficient. The Company determined that it is not the primary beneficiary of TBG based on its exposure to the expected losses of TBG and as it is not the variable interest holder that is most closely associated within the relationship and the significance of the activities of TBG. The exposure to loss related to the Company's involvement with TBG is the carrying value of the amounts due from TBG and the guarantee of the operating leases. As of June 30, 2019, prior to any mitigation efforts which may be available, the Company remains liable for up to $41 million associated with remaining TBG salon lease commitments, should TBG not perform. The Company is also potentially liable for up to $2.2 million of payments to assist with operating expenses over the next six months.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Smartstyle restructuring:



	Financial Line Item	Fiscal Year 2018
		(Dollars in thousands)
Inventory reserves	Cost of Service	$	656
Inventory reserves	Cost of Product	586
Severance	General and administrative	897
Long-lived fixed asset impairment	Depreciation and amortization	5,460
Asset retirement obligation	Depreciation and amortization	7,680
Lease termination and other related closure costs	Rent	27,290
Deferred rent	Rent	(3,291		)
Total		$	39,278

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. OTHER FINANCIAL STATEMENT DATA

The following provides additional information concerning selected balance sheet accounts:



	June 30,
	2019			2018
	(Dollars in thousands)
Other current assets:
Prepaids	$	9,527		$	8,619
Restricted cash	22,238			38,375
Other	1,451			873
	$	33,216		$	47,867
Property and equipment:
Land	$	—		$	2,217
Buildings and improvements	29,165			48,265
Equipment, furniture and leasehold improvements	309,561			390,852
Internal use software	67,465			66,046
	406,191			507,380
Less accumulated depreciation and amortization	(328,101		)	(408,092		)
	$	78,090		$	99,288
Accrued expenses:
Payroll and payroll related costs	$	34,909		$	53,949
Insurance	12,935			12,891
Rent and related real estate costs	6,332			5,273
Other	26,575			28,603
	$	80,751		$	100,716
Other noncurrent liabilities:
Deferred income taxes	$	17,924		$	27,851
Deferred rent	14,006			20,613
Insurance	23,565			25,804
Deferred benefits	12,457			13,377
Deferred franchise fees	39,367			29,507
Other	4,080			4,691
	$	111,399		$	121,843

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following provides additional information concerning other intangibles, net:



	June 30,
	2019								2018
	Weighted Average Amortization Periods (1)	Cost (2)		Accumulated Amortization (2)			Net		Weighted Average Amortization Periods (1)	Cost (2)		Accumulated Amortization (2)			Net
	(In years)	(Dollars in thousands)							(In years)	(Dollars in thousands)
Brand assets and trade names	33	$	6,909	$	(3,659	)	$	3,250	31	$	8,128	$	(4,260	)	$	3,868
Franchise agreements	19	9,783		(8,057		)	1,726		19	9,763		(7,712		)	2,051
Lease intangibles	20	13,490		(10,065		)	3,425		20	13,997		(9,770		)	4,227
Other	20	883		(523		)	360		21	1,983		(1,572		)	411
Total	22	$	31,065	$	(22,304	)	$	8,761	22	$	33,871	$	(23,314	)	$	10,557

_______________________________________________________________________________


(1)	All intangible assets have been assigned an estimated finite useful life and are amortized on a straight-line basis over the number of years that approximate their expected period of benefit (ranging from three to 40 years).


(2)	The change in the gross carrying value and accumulated amortization of other intangible assets is impacted by foreign currency.

Total amortization expense related to intangible assets during fiscal years 2019, 2018 and 2017 was approximately $1.3 million in each year. As of June 30, 2019, future estimated amortization expense related to intangible assets is estimated to be:



Fiscal Year	(Dollars in thousands)
2020	$	1,265
2021	1,142
2022	1,096
2023	934
2024	777
Thereafter	3,547
Total	$	8,761

The following provides supplemental disclosures of cash flow activity:



	Fiscal Years
	2019		2018		2017
	(Dollars in thousands)
Cash paid (received) for:
Interest	$	4,408	$	7,022	$	7,293
Taxes and penalties, net	2,096		2,397		2,314
Noncash investing activities:
Unpaid capital expenditures	3,873		9,209		2,774

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. GOODWILL

The table below contains details related to the Company's goodwill:



	June 30,
	2019							2018
	Gross Carrying Value (2)		Accumulated Impairment (1)			Net		Gross Carrying Value (2)		Accumulated Impairment (1)			Net
	(Dollars in thousands)
Goodwill	$	419,818	$	(74,100	)	$	345,718	$	486,743	$	(74,100	)	$	412,643

_______________________________________________________________________________


(1)	In fiscal year 2011, the Company realized a $74.1 million goodwill impairment loss associated with the Company-owned reporting unit (the previous North American Value reporting unit).


(2)	The change in the gross carrying value of goodwill relates to goodwill derecognized for salons sold to franchisees and foreign currency translation adjustments.

The table below contains details related to the Company's goodwill



	Company-owned			Franchise			Consolidated
	(Dollars in thousands)
Goodwill, net at June 30, 2017	$	188,888		$	228,099		$	416,987
Translation rate adjustments	(201		)	(244		)	(445		)
Derecognition related to sale of salon assets to franchisees (1)	(3,899		)	—			(3,899		)
Goodwill, net at June 30, 2018	184,788			227,855			412,643
Translation rate adjustments	57			73			130
Derecognition related to sale of salon assets to franchisees (1)	(67,055		)	—			(67,055		)
Goodwill, net at June 30, 2019	$	117,790		$	227,928		$	345,718

_______________________________________________________________________________

(1)

Goodwill is derecognized for salons sold to franchisees with positive cash flows. The amount of goodwill derecognized is determined by a fraction (the numerator of which is the trailing-twelve months EBITDA of the salon being sold and the denominator of which is the estimated annualized EBITDA of the Company-owned reporting unit) that is applied to the total goodwill balance of the Company-owned reporting unit.

6. FAIR VALUE MEASUREMENTS

Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of June 30, 2019 and June 30, 2018, the estimated fair value of the Company’s cash, cash equivalents, restricted cash, receivables and accounts payable approximated their carrying values. As of June 30, 2019 and 2018, the estimated fair value of the Company's debt was $90.0 million which approximated its carrying value. As of June 30, 2019 the estimated fair value of the long-term financial liability was $28.9 million which approximated its carrying value. The estimated fair value of the Company's debt and long-term financial liability are based on Level 2 inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We measure certain assets, including the Company’s equity method investments, tangible fixed and other assets and goodwill, at fair value on a nonrecurring basis when they are deemed to be other than temporarily impaired. The fair values of these assets are determined, when applicable, based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. FAIR VALUE MEASUREMENTS (Continued)

The following impairment charges were based on fair values using Level 3 inputs:



	Fiscal Year
	2019		2018			2017
	(Dollars in thousands)
Long-lived assets (1)	(4,587	)	$	(11,092	)	$	(7,943	)

_____________________________


(1)	See Note 1 to the Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. FINANCING ARRANGEMENTS

The Company's long-term debt consists of the following:



		Interest rate %
		Fiscal Years		June 30,
	Maturity Date	2019	2018	2019		2018
	(fiscal year)			(Dollars in thousands)
Revolving credit facility	2023	3.65%	3.34%	$	90,000	$	90,000

The debt agreements contain covenants, including limitations on incurrence of debt, granting of liens, investments, merger or consolidation, certain restricted payments and transactions with affiliates. In addition, the Company must adhere to specified fixed charge coverage and leverage ratios. The Company was in compliance with all covenants and other requirements of our financing arrangements as of June 30, 2019.

Revolving Credit Facility

In connection with entering into the revolving credit facility, the Company terminated its previous $200.0 million revolving credit facility. As a result of terminating the $200.0 million revolving credit facility, the Company recognized $0.1 million of additional interest expense related to unamortized commitment fees during the fiscal year 2018.

At June 30, 2019, the Company has outstanding standby letters of credit under the Revolving Credit Facility of $21.5 million primarily related to the Company's self-insurance program, therefore, unused available credit under the facility was $183.5 million.

Senior Term Notes

In fiscal year 2018, the Company redeemed all of its 5.5% senior term notes that were due December 2019 (Senior Term Notes) for $124.2 million, which included a $1.2 million premium. The Company utilized $90.0 million under the revolving credit facility and cash on hand of $34.2 million to repay the Senior Term Notes. As a result of redeeming the Senior Term Notes, the Company recorded $1.7 million of additional interest expense related to the unamortized debt discount and debt issuance costs during the fiscal year 2018.

Sale and Leaseback Transactions

The Company’s long-term lease liability consists of the following:



	Maturity Date	Interest Rate	June 30, 2019		June 30, 2018
	(Fiscal Year)		(Dollars in thousands)
Financial liability - Salt Lake City Distribution Center	2034	3.30%	$	17,354	$	—
Financial liability - Chattanooga Distribution Center	2034	3.70%	11,556		—
Long-term lease liability			$	28,910	$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 30, 2019, future lease payments due are as follows:



	Salt Lake City		Chattanooga
2020	$	1,120	$	805
2021	1,157		817
2022	1,171		829
2023	1,186		842
2024	1,200		854
Thereafter	11,952		9,282
Total	$	17,786	$	13,429

The lease liability does not include interest. Future lease payments above are due per the lease agreement and include embedded interest. Therefore, the total payments do not equal the liability.

The Company was in compliance with all covenants and requirements of its financing arrangements as of and during the year ended June 30, 2019.

8. COMMITMENTS AND CONTINGENCIES

Operating Leases:

The Company leases most of its company-owned salons and some of its corporate facilities under operating leases. The original terms of the salon leases range from 1 to 20 years, with many leases renewable for additional 5 to 10 years terms at the option of the Company. For most leases, the Company is required to pay real estate taxes and other occupancy expenses.

The Company also leases the premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees. These leases, generally with terms of approximately five years, are expected to be renewed on expiration. All additional lease costs are passed through to the franchisees.

Sublease income was $37.3, $34.0 and $31.5 million in fiscal years 2019, 2018 and 2017, respectively. Rent expense on premises subleased was $37.0, $33.6 and $31.1 million in fiscal years 2019, 2018 and 2017, respectively. In most cases, the amount of rental income related to sublease arrangements with franchisees approximates the amount of rent expense from the primary lease, thereby having no net impact on rent expense or net (loss) income. However, in limited cases, the Company charges a 10.0% mark-up in its sublease arrangements. The net rental income resulting from such arrangements totaled $0.3, $0.4, and $0.4 million for fiscal years 2019, 2018 and 2017, respectively, and was classified in the royalties and fees caption of the Consolidated Statement of Operations.

The Company has a sublease arrangement for a leased building the Company previously occupied. The aggregate amount of lease payments to be made over the remaining lease term are approximately $2.3 million. The amount of rental income approximates the amount of rent expense, thereby having no material impact on rent expense or net income (loss).

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Total rent expense, excluding rent expense on premises subleased to franchisees, includes the following:



	Fiscal Years
	2019		2018		2017
	(Dollars in thousands)
Minimum rent (1)	$	108,892	$	157,828	$	154,417
Percentage rent based on sales	4,754		4,324		4,058
Real estate taxes and other expenses	18,170		20,944		22,003
	$	131,816	$	183,096	$	180,478

_______________________________________________________________________________


(1)	Fiscal year 2018 includes lease termination and other related closure costs of $27.3 million and a deferred rent benefit of $3.3 million related to the restructuring of the company-owned SmartStyle portfolio that occurred in January 2018.

As of June 30, 2019, future minimum lease payments (excluding percentage rents based on sales) due under existing noncancelable operating leases are as follows:



Fiscal Year	Corporate leases		Franchisee leases
	(Dollars in thousands)
2020	$	94,108	$	108,051
2021	71,362		85,265
2022	47,793		62,700
2023	29,665		41,973
2024	14,673		23,367
Thereafter	14,695		24,162
Total minimum lease payments	$	272,296	$	345,518

Contingencies:

The Company is self-insured for most workers' compensation, employment practice liability and general liability. Workers' compensation and general liability losses are subject to per occurrence and aggregate annual liability limitations. The Company is insured for losses in excess of these limitations. The Company is also self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations. The Company determines its liability for claims incurred but not reported on an actuarial basis.

Litigation and Settlements:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. INCOME TAXES

The components of continuing operations (loss) income before income taxes are as follows:



	Fiscal Years
	2019			2018			2017
	(Dollars in thousands)
(Loss) income before income taxes:
U.S.	$	(17,513	)	$	(16,604	)	$	2,467
International	(4,754		)	6,413			3,462
	$	(22,267	)	$	(10,191	)	$	5,929

The (benefit) provision for income taxes consists of:



	Fiscal Years
	2019			2018			2017
	(Dollars in thousands)
Current:
U.S.	$	(519	)	$	2,151		$	994
International	1,069			1,894			268
Deferred:
U.S.	(2,303		)	(73,728		)	7,901
International	(392		)	(129		)	61
	$	(2,145	)	$	(69,812	)	$	9,224

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings (loss) before income taxes, as a result of the following:



	Fiscal Years
	2019		2018		2017
U.S. statutory rate	21.0	%	28.0	%	35.0	%
State income taxes, net of federal income tax benefit	0.5		14.8		8.7
Valuation allowance (1)	(14.5	)	560.8		117.0
Foreign income taxes at other than U.S. rates	0.9		(0.5	)	(4.9	)
Work opportunity tax credits	7.2		15.2		(26.8	)
Deferred tax rate remeasurement	—		99.0		—
Uncertain tax positions	1.0		(15.9	)	—
Stock-based compensation	2.2		(15.8	)	25.2
Other, net (2)	(8.7	)	(0.6	)	1.4
	9.6	%	685.0	%	155.6	%

_______________________________________________________________________________

(1) See Note 1 to the Consolidated Financial Statements.

(2)

The (8.7)% of Other, net in fiscal year 2019 includes the rate impact of goodwill derecognition and miscellaneous items of (5.9)% and (2.8)%, respectively. Miscellaneous items do not include any items in excess of 5% of computed tax. The (0.6)% of Other, net in fiscal year 2018 does not include the rate impact of any items in excess of 5% of computed tax. The other 1.4% of Other, net in fiscal year 2017 includes the rate impact of meals and entertainment expense disallowance, adjustments resulting from charitable contributions, officer life insurance and miscellaneous items of 6.3%, 10.0%, (7.8)% and (7.1)%, respectively. Miscellaneous items do not include any items in excess of 5% of computed tax.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The components of the net deferred tax assets and liabilities are as follows:



	June 30,
	2019			2018
	(Dollars in thousands)
Deferred tax assets:
Deferred rent	$	3,816		$	5,251
Payroll and payroll related costs	11,696			14,083
Net operating loss carryforwards	48,208			41,570
Tax credit carryforwards	36,966			35,102
Deferred franchise fees	7,508			6,818
Financial lease liability	7,387			—
Other	8,709			17,416
Subtotal	$	124,290		$	120,240
Valuation allowance	(70,707		)	(68,610		)
Total deferred tax assets	$	53,583		$	51,630
Deferred tax liabilities:
Goodwill and intangibles	$	(62,378	)	$	(72,670	)
Other	(9,129		)	(6,811		)
Total deferred tax liabilities	$	(71,507	)	$	(79,481	)
Net deferred tax liability	$	(17,924	)	$	(27,851	)

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). In connection with the Tax Act, the Company recorded a provisional net tax benefit of $68.1 million in continuing operations for the twelve months ended June 30, 2018. During the six months ended December 31, 2018, the Company made no adjustments to this provisional tax benefit and finalized its accounting related to the Tax Act. The net tax benefit is primarily attributable to the impact of the corporate rate reduction on our deferred tax assets and liabilities along with a partial release of the U.S. valuation allowance. The benefit recognized on current losses and the partial valuation allowance release is solely attributable to tax reform and the law change that allows for the indefinite carryforward of net operating losses ("NOLs") arising in tax years ending after December 31, 2017. Prior law limited the carryforward period to 20 years. As a result of the new tax rules, companies can now consider its indefinite lived deferred tax liabilities as a source of income to support the realization of its existing deferred tax assets that upon reversal are expected to generate indefinite lived NOLs. Consequently, the Company was able to remove the valuation allowance associated with these deferred tax assets. The Company continues to maintain a valuation allowance on the historical balance of its finite lived federal NOLs, tax credits and various state tax attributes. Changes in interpretations, assumptions, and guidance regarding the new tax legislation, as well as the potential for technical corrections to the Tax Act, could have a material impact to the Company’s effective tax rate in future periods.

At June 30, 2019, the Company has tax effected federal, state, Canada and U.K. net operating loss carryforwards of approximately $31.4, $13.4, $2.8 and $0.6 million, respectively. The Company’s federal loss carryforward consists of $13.1 million that will expire from fiscal years 2034 to 2037 and $18.3 million that has no expiration. The state loss carryforwards will expire from fiscal years 2020 to 2039. The Canada loss carryforward will expire from fiscal years 2036 to 2039. The U.K. loss carryforward has no expiration.

The Company's tax credit carryforward of $36.9 million consists of $35.7 million that will expire from fiscal years 2030 to 2039, $0.5 million that will expire from fiscal years 2020 to 2029 and $0.7 million of carryforward that has no expiration date.

As of June 30, 2019, the Company has not provided deferred taxes on approximately $4.4 million of undistributed earnings of attributable to its international subsidiaries that have been considered to be reinvested indefinitely. The Company has multiple avenues to repatriate these earnings tax efficiently and therefore it does not expect to incur significant U.S. or foreign income taxes upon repatriation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company files tax returns and pays tax primarily in the U.S., Canada, the U.K. and Luxembourg as well as states, cities, and provinces within these jurisdictions. The Company is no longer subject to IRS examinations for years before 2014. With limited exceptions, the Company is no longer subject to state and international income tax examination by tax authorities for years before 2012.

A rollforward of the unrecognized tax benefits is as follows:



	Fiscal Years
	2019			2018			2017
	(Dollars in thousands)
Balance at beginning of period	$	3,027		$	1,388		$	1,357
Additions based on tax positions related to the current year	287			553			259
Additions/(reductions) based on tax positions of prior years	(154		)	1,608			80
Reductions on tax positions related to the expiration of the statute of limitations	(397		)	(177		)	(179		)
Settlements	—			(345		)	(129		)
Balance at end of period	$	2,763		$	3,027		$	1,388

If the Company were to prevail on all unrecognized tax benefits recorded, a net benefit of approximately $2.2 million would be recorded in the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the fiscal years 2019, 2018 and 2017, we recorded interest and penalties of approximately $0.1 million as additions to the accrual net of the respective reversal of previously accrued interest and penalties. As of June 30, 2019, the Company had accrued interest and penalties related to unrecognized tax benefits of $1.2 million. This amount is not included in the gross unrecognized tax benefits noted above.

It is reasonably possible the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next fiscal year. However, an estimate of the amount or range of the change cannot be made at this time.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. BENEFIT PLANS

Regis Retirement Savings Plan:

The Company maintains a defined contribution 401(k) plan, the Regis Retirement Savings Plan (RRSP). The RRSP is a defined contribution profit sharing plan with a 401(k) feature that is intended to qualify under Section 401(a) of the Internal Revenue Code (Code) and is subject to the Employee Retirement Income Security Act of 1974 (ERISA).

The 401(k) portion of the RRSP is a cash or deferred arrangement intended to qualify under section 401(k) of the Code and under which eligible employees may elect to contribute a percentage of their eligible compensation. Employees who are 18 years of age or older and who were not highly compensated employees as defined by the Code during the preceding RRSP year are eligible to participate in the RRSP commencing with the first day of the month following their completion of one month of service.

The discretionary employer contribution profit sharing portion of the RRSP is a noncontributory defined contribution component covering full-time and part-time employees of the Company who have at least one year of eligible service, defined as 1,000 hours of service during the RRSP year, are employed by the Company on the last day of the RRSP year and are employed at Salon Support, distribution centers, as field leaders, artistic directors or consultants, and that are not highly compensated employees as defined by the Code. Participants' interest in the noncontributory defined contribution component become 20.0% vested after completing two years of service with vesting increasing 20.0% for each additional year of service, and with participants becoming fully vested after six full years of service.

Nonqualified Deferred Salary Plan:

The Company maintains a Nonqualified Deferred Salary Plan (Executive Plan), which covers Company officers and all other employees who are highly compensated as defined by the Code. The discretionary employer contribution portion of the Executive Plan is a profit sharing component in which a participant's interest becomes 20.0% vested after completing two years of service with vesting increasing 20.0% for each additional year of service, and with participants becoming fully vested after six full years of service. Certain participants within the Executive Plan also receive a matching contribution from the Company.

Regis Individual Secured Retirement Plan (RiSRP):

The Company maintains a Regis Individual Secured Retirement Plan (RiSRP), pursuant to which eligible employees may use post-tax dollars to purchase life insurance benefits. Salon Support employees at the director level and above, as well as regional vice presidents, are eligible to participate. The Company may make discretionary contributions on behalf of participants within the RiSRP, which may be calculated as a matching contribution. The participant is the owner of the life insurance policy under the RiSRP.

Stock Purchase Plan:

The Company has an employee stock purchase plan (ESPP) available to qualifying employees. Under the terms of the ESPP, eligible employees may purchase the Company's common stock through payroll deductions. The Company contributes an amount equal to 15.0% of the purchase price of the stock to be purchased on the open market and pays all expenses of the ESPP and its administration, not to exceed an aggregate contribution of $11.8 million. As of June 30, 2019, the Company's cumulative contributions to the ESPP totaled $10.9 million.

Deferred Compensation Contracts:

The Company has unfunded deferred compensation contracts covering certain current and former key executives. Effective June 30, 2012, these contracts were amended and the benefits were frozen.

Expense associated with the deferred compensation contracts included in general and administrative expenses on the Consolidated Statement of Operations totaled zero, $0.2, and $0.2 million for fiscal years 2019, 2018 and 2017, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below presents the projected benefit obligation of these deferred compensation contracts in the Consolidated Balance Sheet:



	June 30,
	2019		2018
	(Dollars in thousands)
Current portion (included in accrued liabilities)	$	1,183	$	1,960
Long-term portion (included in other noncurrent liabilities)	4,416		4,342
	$	5,599	$	6,302

The accumulated other comprehensive income (loss) for the deferred compensation contracts, consisting of primarily unrecognized actuarial income, was $0.5 and $1.0 million at June 30, 2019 and 2018, respectively.

The Company had previously agreed to pay the former Vice Chairman and his spouse an annual benefit for life. Costs associated with this benefit included in general and administrative expenses on the Consolidated Statement of Operations totaled $0.4, $0.3 and $0.3 million for fiscal years 2019, 2018 and 2017, respectively. Related obligations totaled $2.6 million at June 30, 2019 and 2018, with $0.5 million within accrued expenses at June 30, 2019 and 2018, and the remainder included in other noncurrent liabilities in the Consolidated Balance Sheet.

In connection with the passing of former employees in fiscal years 2019, 2018 and 2017, the Company received 24.6, $18.1 and $0.9 million, respectively, in life insurance proceeds. The Company recorded gains of zero, $8.0 and $0.1 million in fiscal years 2019, 2018 and 2017, respectively, in general and administrative in the Consolidated Statement of Operations associated with the proceeds.

11. EARNINGS PER SHARE

The Company’s basic earnings per share is calculated as net income (loss) divided by weighted average common shares outstanding, excluding unvested outstanding restricted stock awards (RSAs), restricted stock units (RSUs) and stock-settled performance units (PSUs). The Company’s diluted earnings per share is calculated as net income (loss) divided by weighted average common shares and common share equivalents outstanding, which includes shares issued under the Company’s stock-based compensation plans. Stock-based awards with exercise prices greater than the average market price of the Company’s common stock are excluded from the computation of diluted earnings per share.

For fiscal years 2019 and 2017, 1,341,421 and 728,223 of common stock equivalents of dilutive common stock, respectively were not included in the diluted earnings per share calculation due to net loss from continuing operations. For fiscal year 2018, 518,236 common stock equivalents of dilutive common stock were included in the diluted earnings per share calculation due to net income from continuing operations.

The computation of weighted average shares outstanding, assuming dilution, excluded the following stock-based awards as they were not dilutive under the treasury stock method:



	Fiscal Year
	2019	2018	2017
Equity-based compensation awards	118,246	634,292	2,407,158

12. STOCK-BASED COMPENSATION

The Company grants long-term equity-based awards under the 2018 Long Term Incentive Plan (the 2018 Plan). The 2018 Plan, which was approved by the Company's shareholders at its 2018 Annual Meeting, provides for the granting of nonqualified stock options, equity-based stock appreciation rights (SARs), RSAs, RSUs and PSUs, as well as cash-based performance grants, to employees and non-employee directors of the Company. Under the 2018 Plan, a maximum of 3,818,895 shares are approved for issuance. The 2018 Plan incorporates a fungible share design, under which full value awards (such as RSUs and PSUs) count against the shares reserved for issuance at a rate 2.0 times higher than appreciation awards (such as SARs and stock options). As of June 30, 2019, a maximum of 3,747,822 shares were available for grant under the 2018 Plan. All unvested awards are subject to forfeiture in event of termination of employment, unless accelerated. SAR and RSU awards granted under the 2018 Plan generally include various acceleration terms, including upon retirement for participants aged sixty-two years or older or who are aged fifty-five or older and have 15 years of continuous service.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company also has outstanding awards under the 2016 Long Term Incentive Plan (the 2016 Plan), although the 2016 Plan terminated in October 2018 and no additional awards have since been or will be made under the 2016 Plan. The 2016 Plan provided for the granting of SARs, RSAs, RSUs and PSUs, as well as cash-based performance grants, to employees and non-employee directors of the Company.

The Company also has outstanding awards under the Amended and Restated 2004 Long Term Incentive Plan (the "2004 Plan"), although the 2004 Plan terminated in October 2016 and no additional awards have since been or will be made under the 2004 Plan. The 2004 Plan provided for the granting of nonqualified stock options, SARs, RSAs, RSUs and PSUs, as well as cash-based performance grants, to employees and non-employee directors of the Company.

Under the 2018 Plan, 2016 Plan and the 2004 Plan, stock-based awards are granted at an exercise price or initial value equal to the fair market value on the date of grant.

Using the fair value of each grant on the date of grant, the weighted average fair values per stock-based compensation award granted during fiscal years 2019, 2018 and 2017 were as follows:



	2019		2018		2017
SARs (1)	$	—	$	—	$	3.68
RSAs & RSUs (2)	21.12		13.43		11.73
PSUs (2)	14.05		15.74		12.28

(1) The fair value of SARs granted are estimated on the date of grant using the Black-Scholes-Merton (BSM) option valuation model. The significant assumptions used in determining the estimated fair value of SARs granted during fiscal year 2017 were as follows: Risk-free interest rate of 1.99%, expected term of 6.5 years, expected volatility of 31.5% and no dividend yield.

(2) The fair value of market-based RSUs and PSUs granted are estimated on the date of grant using a Monte Carlo valuation model. The significant assumptions used in determining the estimated fair value of the market-based awards granted during fiscal years 2019, 2018 and 2017 were as follows:



	2019	2018	2017
Risk-free interest rate	2.31 - 2.68%	1.66 - 2.59%	1.21%
Expected volatility	34.2 - 34.6%	33.4 - 37.1%	36.5%
Expected dividend yield	0%	0%	0%

The risk free interest rate is determined based on the U.S. Treasury rates approximating the expected life of the SARs and market-based RSUs and PSUs granted. Expected volatility is established based on historical volatility of the Company's stock price. Estimated expected life was based on an analysis of historical stock awards granted data which included analyzing grant activity including grants exercised, expired and canceled. The expected dividend yield is determined based on the Company's annual dividend amount as a percentage of the strike price at the time of the grant. The Company uses historical data to estimate pre-vesting forfeiture rates.

Stock-based compensation expense was as follows:



	2019			2018			2017
SARs	$	1,497		$	2,252		$	3,533
RSAs, RSUs, & PSUs	7,506			6,017			9,609
Total stock-based compensation expense (recorded in G&A)	9,003			8,269			13,142
Less: Income tax benefit⁽¹⁾	(1,891		)	(1,736		)	—
Total stock-based compensation expense, net of tax	$	7,112		$	6,533		$	13,142

(1) Federal statutory income tax rate of 21% utilized in fiscal years 2019 and 2018. No income tax benefit associated with fiscal year 2017 due to the full valuation allowance.

Total compensation cost for stock-based payment arrangements for fiscal years 2018 and 2017 includes $1.3 and $5.4 million related to the termination of former executive officers.

Stock Appreciation Rights & Stock Options:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SARs and stock options granted under the 2018 Plan, 2016 Plan and the 2004 Plan generally vest ratably over a three to five year period on each of the annual grant date anniversaries and expire ten years from the grant date. SARs granted subsequent to fiscal year 2012 vest ratably over a three year period with the exception of the April 2017 grant to the Chief Executive Officer, which vests in full after two years.

Activity for all of our outstanding SARs and stock options is as follows:



	Shares (in thousands)				Weighted Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value (in thousands)
	SARs		Stock Options		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value (in thousands)
Outstanding balance at June 30, 2018	1,518		15		$	12.44
Granted	—		—		—
Forfeited/Expired	(50	)	(3	)	19.13
Exercised	(147	)	(2	)	14.29
Outstanding balance at June 30, 2019	1,321		10		$	11.97	6.54	$	6,163
Exercisable at June 30, 2019	1,321		10		$	11.97	6.54	$	6,163
Unvested awards, net of estimated forfeitures	—		—		$	—	—	$	—

Restricted Stock Units:

RSUs granted to employees under the 2018 Plan, 2016 Plan and 2004 Plan generally vest ratably over a three to five year period on each of the annual grant date anniversaries or vest entirely after a three or five year period. RSUs granted to non-employee directors under the 2018 Plan, 2016 Plan and 2004 Plan generally vest in equal monthly amounts over a one year period from the Company's previous annual shareholder meeting date and distributions are deferred until the director's board service ends.

Activity for all of our RSUs is as follows:



	Shares/Units (in thousands)		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)
	RSUs		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)
Outstanding balance at June 30, 2018	705		$	12.82
Granted	405		21.12
Forfeited	(60	)	16.72
Vested	(200	)	19.98
Outstanding balance at June 30, 2019	850		$	16.42	$	14,110
Vested at June 30, 2019	317		$	13.13	$	5,262
Unvested awards, net of estimated forfeitures	509		$	18.39	$	8,449

As of June 30, 2019, there was $5.0 million of unrecognized expense related to RSUs that is expected to be recognized over a weighted-average period of 1.5 years.

Performance Share Units:

PSUs are grants of restricted stock units which are earned based on the achievement of performance goals established by the Compensation Committee over a performance period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Activity for all of our PSUs is as follows:



	Shares/Units (in thousands)		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands) (1)
	PSUs		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands) (1)
Outstanding balance at June 30, 2018	338		$	13.72
Granted	784		14.05
Forfeited	(62	)	17.16
Vested	(80	)	21.39
Outstanding balance at June 30, 2019	980		$	14.10	$	16,268
Vested at June 30, 2019	—		$	—	$	—
Unvested awards, net of estimated forfeitures	951		$	14.10	$	15,787

_______________________________________________________________________________


(1)	Includes actual or expected payout rates as set forth in the performance criteria.

In connection with the termination of former executive officers, the Company settled certain PSUs for cash of $0.8 million and $3.2 million during fiscal year 2018 and 2017, respectively.

PSUs granted in fiscal year 2019 have a performance period of three years, after which they will vest to the extent earned. Future compensation expense for these unvested awards could reach a maximum of $4.7 million to be recognized over 2.2 years, if the maximum performance metrics are achieved.

PSUs granted in fiscal year 2018 have a performance period of three years, after which they will vest to the extent earned. Future compensation expense for these unvested awards could reach a maximum of $1.1 million to be recognized over 1.2 years, if the maximum performance metrics are achieved.

PSUs granted in fiscal year 2017 had a performance period of three years. They have been earned and will vest three years from the initial grant date. As of June 30, 2019, there was less than $0.1 million of expense related to the fiscal 2017 PSUs that is expected to be recognized over a weighted-average period of 0.2 years.

13. SHAREHOLDERS' EQUITY

Authorized Shares and Designation of Preferred Class:

The Company has 100.0 million shares of capital stock authorized, par value $0.05, of which all outstanding shares, and shares available under the Stock Option Plans, have been designated as common.

Shareholders' Rights Plan:

The Company previously had a shareholders' rights plan, which expired by its terms in December 2016.

Share Repurchase Program:

In May 2000, the Company's Board approved a stock repurchase program with no stated expiration date. Originally, the program authorized up to $50.0 million to be expended for the repurchase of the Company's stock. The Board elected to increase this maximum to $100.0 million in August 2003, to $200.0 million in May 2005, to $300.0 million in April 2007, to $350.0 million in April 2015, to $400.0 million in September 2015, to $450.0 million in January 2016, and to $650.0 million in August 2018. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. As of June 30, 2019, 28.5 million shares have been cumulatively repurchased for $569.1 million, and $80.9 million remained outstanding under the approved stock repurchase program.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive Income:

The components of accumulated other comprehensive income are as follows:



	June 30,
	2019		2018		2017
	(Dollars in thousands)
Foreign currency translation	$	8,853	$	8,668	$	2,684
Unrealized gain on deferred compensation contracts	489		988		652
Accumulated other comprehensive income	$	9,342	$	9,656	$	3,336

14. SEGMENT INFORMATION

Segment information is prepared on the same basis the chief operating decision maker reviews financial information for operational decision-making purposes. During the first quarter of fiscal year 2018, the Company redefined its operating segments to reflect how the chief operating decision maker evaluates the business as a result of the sale of the mall-based business and International segment sale. See Note 1 to the Consolidated Financial Statements. The Company now reports its operations in two operating segments: Franchise salons and Company-owned salons. The Company's operating segments are its reportable operating segments. Prior to this change, the Company had four operating segments: North American Value, North American Premium, North American Franchise, and International. The Company did not operate under the realigned operating segment structure prior to the first quarter of fiscal year 2018.

The Franchise salons reportable operating segment is comprised of 3,951 franchised salons located mainly in strip center locations and Walmart Supercenters. Franchise salons offer high quality, convenient and value priced hair care and beauty services and retail products. This segment operates primarily in the United States and Canada and primarily includes the Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters, Roosters and Magicuts concepts.

The Company-owned salons reportable operating segment is comprised of 3,108 company-owned salons located mainly in strip center locations and Walmart Supercenters. Company-owned salons offer high quality, convenient and value priced hair care and beauty services and retail products. SmartStyle, Supercuts, Cost Cutters and other regional trade names operating in the United States, Canada and Puerto Rico are generally within the Company-owned salons segment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial information concerning the Company's reportable operating segments is shown in the following table:



	For the Year Ended June 30, 2019
	Company-owned		Franchise		Corporate⁽¹⁾			Consolidated
	(Dollars in thousands)
Revenues:
Service	$	749,660	$	—	$	—		$	749,660
Product	165,713		59,905		—			225,618
Royalties and fees	—		93,761		—			93,761
	915,373		153,666		—			1,069,039
Operating expenses:
Cost of service	452,827		—		—			452,827
Cost of product	81,597		47,219		—			128,816
Site operating expenses	106,932		34,099		—			141,031
General and administrative	57,219		32,888		86,897			177,004
Rent	130,214		740		862			131,816
Depreciation and amortization	28,263		762		8,823			37,848
TBG restructuring	—		21,816		—			21,816
Total operating expenses	857,052		137,524		96,582			1,091,158
Operating income (loss)	58,321		16,142		(96,582		)	(22,119		)
Other (expense) income:
Interest expense	—		—		(4,795		)	(4,795		)
Gain from sale of salon assets to franchisees, net	—		—		2,918			2,918
Interest income and other, net	—		—		1,729			1,729
Income (loss) from continuing operations before income taxes and equity in loss of affiliated companies	$	58,321	$	16,142	$	(96,730	)	$	(22,267	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	For the Year Ended June 30, 2018
	Company-owned		Franchise		Corporate⁽¹⁾			Consolidated
	(Dollars in thousands)
Revenues:
Service	$	899,345	$	—	$	—		$	899,345
Product	205,037		53,703		—			258,740
Royalties and fees	—		77,394		—			77,394
	1,104,382		131,097		—			1,235,479
Operating expenses:
Cost of service	530,582		—		—			530,582
Cost of product	98,495		42,128		—			140,623
Site operating expenses	127,249		26,818		—			154,067
General and administrative	67,163		25,880		81,002			174,045
Rent	181,869		269		958			183,096
Depreciation and amortization	48,508		365		9,332			58,205
Total operating expenses	1,053,866		95,460		91,292			1,240,618
Operating income (loss)	50,516		35,637		(91,292		)	(5,139		)
Other (expense) income:
Interest expense	—		—		(10,492		)	(10,492		)
Gain from sale of salon assets to franchisees, net	—		—		241			241
Interest income and other, net	—		—		5,199			5,199
Income (loss) from continuing operations before income taxes and equity in loss of affiliated companies	$	50,516	$	35,637	$	(96,344	)	$	(10,191	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	For the Year Ended June 30, 2017
	Company-owned		Franchise		Corporate⁽¹⁾			Consolidated
	(Dollars in thousands)
Revenues:
Service	$	960,781	$	—	$	—		$	960,781
Product	229,308		30,623		—			259,931
Royalties and fees	—		72,088		—			72,088
	1,190,089		102,711		—			1,292,800
Operating expenses:
Cost of service	610,384		—		—			610,384
Cost of product	103,611		22,686		—			126,297
Site operating expenses	127,797		25,871		—			153,668
General and administrative	47,673		21,222		88,440			157,335
Rent	179,463		171		844			180,478
Depreciation and amortization	42,273		357		9,458			52,088
Total operating expenses	1,111,201		70,307		98,742			1,280,250
Operating income (loss)	78,888		32,404		(98,742		)	12,550
Other (expense) income:
Interest expense	—		—		(8,584		)	(8,584		)
Gain from sale of salon assets to franchisees, net	—		—		492			492
Interest income and other, net	—		—		1,471			1,471
Income (loss) from continuing operations before income taxes and equity in loss of affiliated companies	$	78,888	$	32,404	$	(105,363	)	$	5,929

_______________________________________________________________________________

(1) Corporate consists primarily of unallocated general and administrative expenses, including expenses associated with salon support, depreciation and amortization related to our corporate headquarters and unallocated insurance, benefit and compensation programs, including stock-based compensation.

The Company's chief operating decision maker does not evaluate reportable segments using assets and capital expenditure information.

Total revenues and property and equipment, net associated with business operations in the U.S. and all other countries in aggregate were as follows:



	June 30,
	2019				2018				2017
	Total Revenues		Property and Equipment, Net		Total Revenues		Property and Equipment, Net		Total Revenues		Property and Equipment, Net
	(Dollars in thousands)
U.S.	$	972,994	$	75,789	$	1,132,041	$	95,956	$	1,197,085	$	119,649
Other countries	96,045		2,301		103,438		3,332		95,715		3,632
Total	$	1,069,039	$	78,090	$	1,235,479	$	99,288	$	1,292,800	$	123,281

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 in this Form 10-K for explanations of items which impacted fiscal years 2019 and 2018 revenues, operating and net income (loss).

Summarized quarterly data for fiscal years 2019 and 2018 follows:



	Quarter Ended
	September 30			December 31			March 31 (a)			June 30			Year Ended
	(Dollars in thousands, except per share amounts)
2019
Revenues	$	287,835		$	274,671		$	258,343		$	248,190		$	1,069,039
Cost of service and product revenues, excluding depreciation and amortization	153,678			151,281			142,799			133,885			581,643
Operating income (loss)	3,429			(1,551		)	(22,162		)	(1,835		)	(22,119		)
Income (loss) from continuing operations	(463		)	417			(14,811		)	(5,265		)	(20,122		)
Income (loss) from discontinued operations	(264		)	6,113			178			(131		)	5,896
Net income (loss)	(727		)	6,530			(14,633		)	(5,396		)	(14,226		)
Income (loss) from continuing operations per share, basic (e)	(0.01		)	0.01			(0.37		)	(0.14		)	(0.48		)
Income (loss) from discontinued operations per share, basic (e)	(0.01		)	0.14			—			—			0.14
Net income (loss) per share, basic (e)	(0.02		)	0.15			(0.36		)	(0.14		)	(0.34		)
Income (loss) from continuing operations per share, diluted (e)	(0.01		)	0.01			(0.37		)	(0.14		)	(0.48		)
Income (loss) from discontinued operations per share, diluted (e)	(0.01		)	0.14			—			—			0.14
Net income (loss) per share, diluted (e)	(0.02		)	0.15			(0.36		)	(0.14		)	(0.34		)



	Quarter Ended
	September 30 (b)			December 31 (c)			March 31			June 30(d)			Year Ended
	(Dollars in thousands, except per share amounts)
2018
Revenues	$	315,464		$	313,849		$	305,783		$	300,383		$	1,235,479
Cost of service and product revenues, excluding depreciation and amortization	169,998			174,714			169,220			157,273			671,205
Operating income (loss)	15,600			(38,479		)	4,339			13,401			(5,139		)
Income from continuing operations	8,445			42,092			3,585			5,499			59,621
Loss from discontinued operations(b)	(33,767		)	(6,601		)	(10,605		)	(2,212		)	(53,185		)
Net income (loss)	(25,322		)	35,491			(7,020		)	3,287			6,436
Income from continuing operations per share, basic	0.18			0.90			0.08			0.12			1.28
Loss from discontinued operations per share, basic	(0.72		)	(0.14		)	(0.23		)	(0.05		)	(1.14		)
Net income (loss) per share, basic (e)	(0.54		)	0.76			(0.15		)	0.07			0.14
Income (loss) from continuing operations per share, diluted (e)	0.18			0.89			0.08			0.12			1.27
Income (loss) from discontinued operations per share, diluted	(0.72		)	(0.14		)	(0.22		)	(0.05		)	(1.13		)
Net income (loss) per share, diluted (e)	(0.54		)	0.75			(0.15		)	0.07			0.14

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

_______________________________________________________________________________


(a)	During the third quarter of fiscal year 2019, the Company recorded a $20.7 million restructuring charge related to TBG mall locations. The reserve was a non-cash charge to reserve for notes and receivables due from TBG.

(b)

During the first quarter of fiscal year 2018, the Company recorded $33.8 million of one-time asset impairments and other non-recurring costs associated with the October 2017 sale of substantially all of its North American mall-based salons and its UK business. These impairments and costs and the result of operations for the salons sold, were classified in discontinued operations. Results of operations for the North American mall-based business and the UK have been classified as a discontinued operation for all periods presented.

(c)

During the second quarter of fiscal year 2018, the Company recorded $68.9 million of non-cash, one-time, tax benefits related to the enactment of the Tax Cuts and Jobs Act ("Tax Reform"), partially offset by $37.6 million of one-time lease termination and other non-recurring costs associated with the recently announced restructuring of the Company's SmartStyle salon portfolio, and $3.5 million of other one-time costs.

(d)

During the fourth quarter of fiscal year 2018, the Company identified and recorded $2.0 million in non-cash fixed asset impairment charges within discontinued operations. These fixed asset impairment charges should have been recorded in the first quarter of fiscal year 2018. Because this error was not material to the period in which it originated or the fourth quarter, the Company corrected it in the fourth quarter of fiscal year 2018.


(e)	Total is an annual recalculation; line items calculated quarterly may not sum to total.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.

Management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at the end of the period. Based on their evaluation, our CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2019.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including the CEO and the CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2019 using the criteria established in "Internal Control-Integrated Framework " (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this evaluation, management concluded the Company's internal controls over financial reporting were effective as of June 30, 2019 based on those criteria.

The effectiveness of the Company's internal control over financial reporting as of June 30, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report, which appears in Item 8.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. Other Information

On August 23, 2019, the Company entered into an amendment to the employment agreement with Jim Lain, the Company’s Chief Operating Officer, to designate his primary office as the Atlanta, Georgia area. In addition, the Agreement provides that Mr. Lain will be entitled to reimbursement of reasonable travel expenses between his primary office and the Company’s principal executive offices in Minneapolis, Minnesota beginning January 1, 2019.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information regarding the Directors of the Company and Exchange Act Section 16(a) filings will be set forth in the sections titled "Item 1—Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's 2019 Proxy Statement and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding the Company's executive officers is included under "Executive Officers" in Item 1 of this Annual Report on Form 10-K. Additionally, information regarding the Company's audit committee and audit committee financial expert, as well nominating committee functions, will be set forth in the section titled "Our Board's Committees" and shareholder communications with directors will be set forth in the section titled "Communications with the Board" of the Company's 2019 Proxy Statement, and are incorporated herein by reference.

The Company has adopted a code of ethics, known as the Code of Business Conduct & Ethics that applies to all employees, including the Company's chief executive officer, chief financial officer, directors and executive officers. The Code of Business Conduct & Ethics is available on the Company's website at www.regiscorp.com, under the heading "Corporate Governance - Policies and Disclosures" (within the "Investor Relations" section). The Company intends to disclose any substantive amendments to, or waivers from, its Code of Business Conduct & Ethics on its website or in a report on Form 8-K. In addition, the charters of the Company's Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee and the Company's Corporate Governance Guidelines may be found in the same section of the Company's website. Copies of any of these documents are available upon request to any shareholder of the Company by writing to the Company's Corporate Secretary at Regis Corporation, 7201 Metro Boulevard, Edina, Minnesota 55439.

Item 11. Executive Compensation

Information about executive and director compensation will be set forth in the sections titled "Executive Compensation," "How Our Directors Are Paid," "Fiscal 2019 Director Compensation Table," and "CEO Pay Ratio" of the Company's 2019 Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding the Company's equity compensation plans will be set forth in the section titled "Equity Compensation Plan Information" and information regarding the beneficial ownership of the Company will be set forth in the section titled "Security Ownership of Certain Beneficial Holders and Management" of the Company's 2019 Proxy Statement, and are incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information regarding certain relationships and related transactions will be set forth in the section titled "Certain Relationships and Related Transactions" of the Company's 2019 Proxy Statement and is incorporated herein by reference. Information regarding director independence will be set forth in the section titled "Our Board Governance" of the Company's 2019 Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

A description of the fees paid to the independent registered public accounting firm will be set forth in the section titled "Item 4—Ratification of Appointment of Independent Registered Public Accounting Firm" of the Company's 2019 Proxy Statement and is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedules


(b)	(1). All financial statements:

Consolidated Financial Statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K.


(c)	Exhibits:

The exhibits listed in the accompanying index are filed as part of this report. Except where otherwise indicated below, the SEC file number for each report and registration statement from which the exhibits are incorporated by reference is 1-12725. There are no financial statement schedules included with this filing for the reason they are not applicable, not required or the information is included in the financial statements or notes thereto.

Exhibit Number/Description



2(a)		Asset Purchase Agreement, dated October 1, 2017, between Regis Corporation, Regis Inc. and The Beautiful Group LLC. (Incorporated by reference to Exhibit 2.1 to the Company's Current Report on 8-K filed on October 5, 2017.
2(b)		Share Purchase Agreement, dated October 1, 2017, between Haircare Limited, Regis UK Limited and International Beauty Limited. (Incorporated by reference to Exhibit 2.2 to the Company's Current Report on 8-K filed on October 5, 2017.
3(a)		Articles of Amendment of Restated Articles of Incorporation, dated April 24, 2018. (Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q filed on May 1, 2018.)

3(b)		Bylaws of the Company. (Incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed on April 27, 2018.)

4(a)		Form of Stock Certificate. (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1 (Reg. No. 40142).) ^(P)

4(b)		Description of the Company's Securities

10(a)*		Regis Corporation Executive Retirement Savings Plan Adoption Agreement and Trust Agreement, dated November 15, 2008, between the Company and Fidelity Management Trust Company (The CORPORATE Plan for Retirement EXECUTIVE PLAN basic plan document is incorporated by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K filed on August 29, 2007). (Incorporated by reference to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q filed February 9, 2009.)

10(b)*		Form of Amendment and Restated Senior Officer Employment and Deferred Compensation Agreement, dated August 31, 2012, between the Company and certain senior executive officers. (Incorporated by reference to Exhibit 10(b) of the Company's Quarterly Report on Form 10-Q filed November 9, 2012.)




10(c)*		Employment Agreement, dated November 11, 2013, between the Company and Jim B. Lain. (Incorporated by reference to Exhibit 10(c) of the Company's Quarterly Report on Form 10-Q filed February 3, 2014.)

10(d)*		Employment Agreement, dated April 17, 2017, between the Company and Hugh E. Sawyer. (Incorporated by reference to Exhibit 10(m) of the Company's Annual Report on Form 10-K filed on August 23, 2017.)

10(e)*		Restricted Stock Unit Agreement, dated April 17, 2017, between the Company and Hugh E. Sawyer. (Incorporated by reference to Exhibit 10(n) of the Company's Annual Report on Form 10-K filed on August 23, 2017.)

10(f)*		Stock Appreciation Right Agreement, dated April 17, 2017, between the Company and Hugh E. Sawyer. (Incorporated by reference to Exhibit 10(o) of the Company's Annual Report on Form 10-K filed on August 23, 2017.)

10(g)*		Employment Offer Letter, dated June 16, 2017, between the Company and Andrew H. Lacko. (Incorporated by reference to Exhibit 10(r) of the Company's Annual Report on Form 10-K filed on August 23, 2017.)

10(h)*		Amended and Restated 2004 Long Term Incentive Plan, as amended and restated effective October 22, 2013. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on October 11, 2013.)

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10(i)*		Amendment to the Amended and Restated 2004 Long Term Incentive Plan, effective August 29, 2014. (Incorporated by reference to Exhibit 10(b) of the Company's Quarterly Report on Form 10-Q filed on November 4, 2014.)

10(j)*		Form of Restricted Stock Unit Award (Annual Fiscal 2018 Executive Grants). Incorporated by reference to Exhibit 10(v) of the Company's Annual Report on Form 10-K filed on August 23, 2018.)

10(k)*		Form of Stock Appreciation Right Award (Annual Executive Grants). (Incorporated by reference to Exhibit 10(w) of the Company's Annual Report on Form 10-K filed on August 23, 2018.)

10(l)*		Form of Performance Stock Unit Award (Fiscal 2018 Executive Grants). (Incorporated by reference to Exhibit 10(x) of the Company's Annual Report on Form 10-K filed on August 23, 2018.)

10(m)*		Form of Restricted Stock Unit Award (Annual Fiscal 2017 and 2016 Executive Grants). (Incorporated by reference to Exhibit 10(u) of the Company's Annual Report on Form 10-K filed on August 23, 2017.)

10(n)*		Form of Performance Stock Unit Award (Fiscal 2017 Executive Grants). (Incorporated by reference to Exhibit 10(w) of the Company's Annual Report on Form 10-K filed on August 23, 2017.)

10(o)*		Regis Corporation 2016 Long Term Incentive Plan, effective October 18, 2016. (Incorporated by reference to Appendix A of the Company’s Proxy Statement on Definitive Form 14A filed on September 7, 2016.)

10(p)*		Regis Corporation Amended and Restated 1991 Contributory Stock Purchase Plan, as amended and restated effective October 18, 2016. (Incorporated by reference to Appendix B of the Company’s Proxy Statement on Definitive Form 14A filed on September 7, 2016.)

10(q)*		Changes to Severance Program, dated January 23, 2017. (Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2017.)

10(r)		Credit Agreement dated as of March 26, 2018 among Regis Corporation, the various financial institutions party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Keybank Capital Markets Inc., as Joint Lead Arrangers and Joint Bookrunners. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on March 30, 2018.)

10(s)		Amendment No. 1 to Credit Agreement dated as of April 25, 2018 by and among Regis Corporation, various financial institutions and Bank of America, N.A. as Administrative Agent. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on April 27, 2018.)

10(t)		Secured Promissory Note (US Working Capital) of The Beautiful Group Management, LLC in favor of Regis Corp., dated as of August 2, 2018. (Incorporated by reference to Exhibit 10(ii) of the Company's Annual Report on Form 10-K filed on August 23, 2018.)

10(u)		Secured Promissory Note (UK Working Capital) of International Beauty Limited in favor of Regis Corp., dated as of August 2, 2018. (Incorporated by reference to Exhibit 10(jj) of the Company's Annual Report on Form 10-K filed on August 23, 2018.)

10(v)		Secured Promissory Note (Canada Working Capital) of The Beautiful Group Salons (Canada), Ltd. in favor of Regis Corp., dated as of August 2, 2018. (Incorporated by reference to Exhibit 10(kk) of the Company's Annual Report on Form 10-K filed on August 23, 2018.)

10(w)		Secured Promissory Note (US Receivables) of The Beautiful Group Management, LLC in favor of Regis Corp., dated as of August 2, 2018. (Incorporated by reference to Exhibit 10(ll) of the Company's Annual Report on Form 10-K filed on August 23, 2018.)

10(x)		Secured Promissory Note (Canada Receivables) of The Beautiful Group Salons (Canada), Ltd. in favor of Regis Corp., dated as of August 2, 2018. (Incorporated by reference to Exhibit 10(mm) of the Company's Annual Report on Form 10-K filed on August 23, 2018.)

10(y)*		Form of Letter Agreement with Executive Officers (August 31, 2018). (Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on October 30, 2018.)

10(z)*		Form of Restricted Stock Unit Award (Annual Fiscal 2019 Executive Grants, Excluding Hugh E. Sawyer). (Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on October 30, 2018.)

10(aa)*		Form of Restricted Stock Unit Award (Annual Fiscal 2019 Grant, Hugh E. Sawyer). (Incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on October 30, 2018.)

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10(bb)*		Form of Performance Stock Unit Award (Annual Fiscal 2019 Executive Grants, Excluding Hugh E. Sawyer). (Incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed on October 30, 2018.)

10(cc)*		Form of Performance Stock Unit Award (Annual Fiscal 2019, Hugh E. Sawyer). (Incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed on October 30, 2018.)

10(dd)*		Form of Restricted Stock Unit Agreement (Non-Employee Director Grants). (Incorporated by reference to Exhibit 10.7 of the Company’s Quarterly Report on Form 10-Q filed on October 30, 2018.)

10(ee)*		Regis Corporation Amended and Restated Short Term Incentive Compensation Plan, effective February 27, 2019. (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on April 30, 2019.)

10(ff)*		Regis Corporation Stock Purchase and Matching RSU Program as amended and restated effective March 20, 2019, including form of SPMP and forms of Matching RSU Award Agreements. (Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on April 30, 2019.)

10(gg)*		Regis Corporation 2018 Long Term Incentive Plan, effective October 23, 2018. (Incorporated by reference to Appendix A of the Company’s Proxy Statement on Definitive Form 14A filed on September 6, 2018.)

10(hh)*		Separation Agreement, dated March 21, 2019 between the Company and Rachel Endrizzi

10(ii)		Second US and Canada Omnibus Settlement Agreement dated as of June 27, 2019, among Regis Corp., Regis, Inc., Regis Holdings (Canada), Ltd., and The Barbers, Hairstyling for Men & Women, Inc. (“Regis Entities”), on the one hand, and The Beautiful Group Management, LLC, The Beautiful Group Salons (Canada) Ltd., The Beautiful Group Holdings, LLC, Archetype Capital Group, LLC, The Beautiful Group Ventures, LLC, TBG IP Holder, LLC, and Regent Companies, LLC (“TBG Entities”), on the other hand. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on July 3, 2019.)

10(jj)		Amendment to Employment Agreement, dated August 23, 2019, between the Company and Jim B. Lain.

21		List of Subsidiaries of the Company.

23		Consent of PricewaterhouseCoopers LLP.

31.1		Chief Executive Officer of the Company: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Executive Vice President and Chief Financial Officer of the Company: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Chief Executive Officer and Chief Financial Officer of the Company: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

(*) Management contract, compensatory plan or arrangement required to be filed as an exhibit to the Company's Report on Form 10-K.


(P)	This Exhibit was originally filed in paper format. Accordingly, a hyperlink has not been provided.

Item 16. Form 10-K Summary

Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.



	REGIS CORPORATION
	By	/s/ HUGH. E SAWYER
		Hugh E. Sawyer, President and Chief Executive Officer (Principal Executive Officer)

	By	/s/ ANDREW H. LACKO
		Andrew H. Lacko, Executive Vice President and Chief Financial Officer (Principal Financial Officer)

	By	/s/ KERSTEN D. ZUPFER
		Kersten D. Zupfer, Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)
	DATE: August 27, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



/s/ DAVID P. WILLIAMS
David P. Williams, Chairman of the Board of Directors		Date: August 27, 2019

/s/ HUGH E. SAWYER
Hugh E. Sawyer, Director		Date: August 27, 2019

/s/ DANIEL G. BELTZMAN
Daniel G. Beltzman, Director		Date: August 27, 2019

/s/ M. ANN RHOADES
M. Ann Rhoades, Director		Date: August 27, 2019

/s/ MICHAEL J. MERRIMAN
Michael J. Merriman, Director		Date: August 27, 2019

/s/ VIRGINIA GAMBALE
Virginia Gambale, Director		Date: August 27, 2019

/s/ DAVID J. GRISSEN
David J. Grissen, Director		Date: August 27, 2019

/s/ MARK LIGHT
Mark Light, Director		Date: August 27, 2019

Exhibit 4(b)

DESCRIPTION OF SECURITIES

The summary of the general terms and provisions of the capital stock of Regis Corporation (the “Company”) set forth below does not purport to be complete and is subject to and qualified by reference to the Company’s 2018 Restated Articles of Incorporation (the “Articles”) and Bylaws (“Bylaws,” and together with the Articles, the “Charter Documents”), each of which is incorporated herein by reference and attached as an exhibit to the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. For additional information, please read the Company’s Charter Documents and the applicable provisions of the Minnesota Business Corporation Act (the “MBCA”).

Capital Stock

The Company is authorized to issue up to 100,000,000 shares of capital stock, par value $0.05 per share. The Company’s board of directors has the power and authority to fix by resolution any designation, class, series, voting power, preference, right, qualification, limitation, restriction, dividend, time and price of redemption and conversion right with respect to the capital stock. As of June 30, 2019, 36,869,249 shares of the Company’s common stock, par value $0.05 per share (the “Common Stock”), were issued and outstanding and no shares of preferred stock were issued and outstanding.

Voting Rights

The holders of shares of the Company’s Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders, including the election of directors. The Articles do not permit cumulative voting in the election of directors. So long as no other class of stock is outstanding, in an uncontested election at a shareholders meeting at which a quorum is present, a director of the Company shall be elected if the votes of Common Stock cast for such director exceeds the votes cast against such director. If the number of nominees exceeds the number of directors to be elected, then directors shall be elected by a plurality of the votes present and entitled to vote. Significant corporate actions, such as certain mergers and dispositions of substantially all of the Company’s assets, plans for the Company’s liquidation, and certain amendments to the Articles, require the affirmative vote of the holders of at least 80 percent of the outstanding shares of the Company entitled to vote.

Dividend Rights

All holders of shares of Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion from funds legally available therefor and as permitted by the MBCA.

Liquidation Rights

In the event of the Company’s liquidation, dissolution or winding-up, the holders of shares of Common Stock are entitled to receive ratably the net assets of the Company that are available after the payment of all debts and liabilities, subject to the distribution rights of shares of preferred stock, if any, then outstanding.

No Preemptive Rights

No shareholder of the Company has any preferential, preemptive or other rights of subscription to any shares of the Company allotted or sold or to be allotted or sold, or to any obligations or securities convertible into any class or series of shares of the Company, nor any right of subscription to any part thereof.

Listing

The Company’s Common Stock is currently traded on the New York Stock Exchange under the symbol “RGS.”

Anti-Takeover Provisions

The Charter Documents and the MBCA contain certain provisions that may discourage an unsolicited takeover of the Company or make an unsolicited takeover of the Company more difficult. The following are some of the more significant anti-takeover provisions that are applicable to the Company:

Mergers and other Transactions with 10% Shareholders

The Articles provide that, in addition to any vote required by law, any merger of the Company with or into any 10% shareholder or any exchange, lease, transfer or other disposition of all or substantially all of the Company’s property or assets with or to any 10% shareholder, or any adoption of any plan for the liquidation of the Company, shall require the affirmative vote of the holders of at least 80% of the outstanding shares of the Company entitled to vote. The foregoing restriction does not apply to transactions unanimously approved by the directors of the Company who were directors before the 10% shareholder became a 10% shareholder or successor directors designated by a majority of such directors or their direct or indirect designated successors.

Special Meetings of Shareholders; Shareholder Action by Unanimous Written Consent; and Advance Notice of Shareholder Business Proposals and Nominations

Section 302A.433 of the MBCA provides that special meetings of the Company’s shareholders may be called by the Company’s chief executive officer, chief financial officer, two or more directors, or shareholders holding 10% or more of the voting power of all shares entitled to vote, except that a special meeting demanded by shareholders for the purpose of considering any action to directly or indirectly facilitate or effect a business combination, including any action to change or otherwise affect the composition of the board of directors for that purpose, must be called by 25% or more of the voting power of all shares entitled to vote. Section 302A.441 of the MBCA also provides that action may be taken by shareholders without a meeting only by unanimous written consent. The Bylaws provide an advance written notice procedure with respect to shareholder proposals of business and shareholder nominations of candidates for election as directors. Shareholders at an annual meeting are able to consider only the proposals and nominations specified in the notice of meeting or otherwise brought before the meeting by or at the direction of the board of directors or by a shareholder that has delivered timely written notice in proper form to the Company’s secretary of the business to be brought before the meeting.

Control Share Provision

Section 302A.671 of the MBCA applies, with certain exceptions, to any acquisition of the Company’s voting stock (from a person other than the Company and other than in connection with certain mergers and exchanges to which the Company is a party) resulting in the acquiring person owning 20% or more of the Company’s voting stock then outstanding. Section 302A.671 requires approval of any such acquisitions by both (i) the affirmative vote of the holders of a majority of the shares entitled to vote, including shares held by the acquiring person, and (ii) the affirmative vote of the holders of a majority of the shares entitled to vote, excluding all interested shares. In general, shares acquired in the absence of such approval are denied voting rights and are redeemable at their then fair market value by the Company within 30 days after the acquiring person has failed to give a timely information statement to the Company or the date the shareholders voted not to grant voting rights to the acquiring person’s shares. The control share provision applies to any corporation that has not expressly provided to the contrary in its articles or in its bylaws approved by its shareholders. The Company has not opted out of this provision.

Business Combination Provision

Section 302A.673 of the MBCA generally prohibits the Company or any of its subsidiaries from entering into any merger, share exchange, sale of material assets or similar transaction with a 10% shareholder within four years following the date the person became a 10% shareholder, unless either the transaction or the person’s acquisition of shares is approved prior to the person becoming a 10% shareholder by a committee of all of the disinterested members of the Board. The business combination provision applies to any corporation that has not expressly provided to the contrary in its articles or its bylaws. The Company has not opted out of this provision.

Takeover Offer; Fair Price

Under Section 302A.675 of the MBCA, an offeror may not acquire shares of a publicly held corporation within two years following the last purchase of shares pursuant to a takeover offer with respect to that class, including acquisitions made by purchase, exchange, merger, consolidation, partial or complete liquidation, redemption, reverse stock split, recapitalization, reorganization, or any other similar transaction, unless (i) the acquisition is approved by a committee of the board’s disinterested directors before the purchase of any shares by the offeror pursuant to the earlier takeover offer, or (ii) shareholders are afforded, at the time of the proposed acquisition, a reasonable opportunity to dispose of the shares to the offeror upon substantially equivalent terms as those provided in the earlier takeover offer.

Greenmail Restrictions

Under Section 302A.553 of the MBCA, a corporation is prohibited from buying shares at an above-market price from a greater than 5% shareholder who has held the shares for less than two years unless (i) the purchase is approved by holders of a majority of the outstanding shares entitled to vote or (ii) the corporation makes an equal or better offer to all shareholders for all other shares of that class or series and any other class or series into which they may be converted.

Authority of the Board of Directors

Under the Articles, the Company’s board of directors has the power to issue any or all of the shares of the Company’s capital stock, including the authority to establish one or more series and to fix the powers, preferences, rights and limitations of such class or series, without seeking shareholder approval. In addition, under the Bylaws, the Company’s board of directors has the right to fill vacancies of the board of directors (including a vacancy created by an increase in the size of the board of directors).

AMENDED SEPARATION AND NON-DISPARAGEMENT AGREEMENT

AND GENERAL RELEASE

TO: Rachel Endrizzi

FROM: Regis Corp.

DATE: March 21, 2019

Please read this document carefully. You are giving up certain legal claims that you might have against Regis Corp. by signing this agreement. You are advised to consult an attorney before signing this agreement.

This Separation and Non-Disparagement Agreement and General Release (“Agreement”) is between Rachel Endrizzi (“you” or “your” or “Employee”) and Regis Corporation (“Regis” or “Company” or “Corporation”) collectively, the “parties”. This Agreement sets out the terms of your separation from Regis. The term “Regis” includes Regis Corporation, Regis Corp., Regis, Inc., and any and all subsidiaries, affiliates, predecessors, successors and/or assigns. Under this Agreement, Regis will provide you with certain benefits as set forth in the Employment Agreement made by and between Regis Corporation, a Minnesota corporation and Rachel Endrizzi as of August 31, 2012 (hereafter referred to as the “Employment Agreement.”). Such benefits will be provided in exchange for your Agreement to the terms set forth below including, but not limited to, waiving and releasing certain past or present legal claims you may have against Regis. Except as provided and/or modified herein, this Agreement incorporates all terms of the Employment Agreement made by and between Regis Corporation, a Minnesota corporation, and Rachel Endrizzi including any terms which may not be specifically referenced in this Agreement.

TERMS OF AGREEMENT


1.	Termination. Regis is terminating your employment effective March 31, 2019 (“Departure Date”).

Compensation and Benefits. This Agreement terminates the Employer/Employee relationship between you and Regis and closes out past or present claims as set forth in this Agreement that you might have against Regis arising from that relationship. In return for your release of claims, the Agreement provides you with benefits to which you otherwise would not be entitled. Accordingly, you and Regis agree as follows:


a.	Whether or not you sign this Agreement, Regis will pay you all wages you have earned through and including March 31, 2019.

By signing this Agreement, you agree that you have already been paid all of these sums, specifically including all of your wages and PTO benefits due to you as a result of your employment with Regis and that no other sums are due to you as a result of your employment, except as may be due as set forth in paragraph 2.b.

b. In addition to the payments set forth in 2.a., Regis shall pay you:


1)	Any medical expenses incurred under the ExecMed Program that are incurred on or before the Departure Date, which reimbursements shall be made in the normal course upon timely presentation of claims;

2) Reimbursement for all necessary business expenses you have incurred through the Departure Date, if any, for which you seek reimbursement. Any such

request for reimbursement must be submitted by April 15, 2019 to comply with Regis’ policies regarding reimbursement requests and be directed to Shawn Moren at Regis Corp., 7201 Metro Boulevard, Minneapolis, MN 55439. Thereafter, you agree that you will be ineligible for further expense reimbursement from Regis, unless otherwise required by law. Upon submission of timely request for reimbursement, Regis will reimburse you for all necessary business expenses you incurred pursuant to the Company’s regular business practices.

All compensation accrued as of the date of your termination under each plan or program of the corporation in which you may be participating at the time of termination in accordance with the terms of such plan or program, including but not limited to the Executive Retirement Savings Plan and the Long-Term Incentive Plans and equity awards thereunder. This Agreement has no effect on such plans and the amount to which Employee is entitled under the foregoing is subject to each plan’s terms and conditions and Employee is not releasing any rights she has to compensation under these plans. For sake of clarity “all compensation accrued as of the date of your termination under each plan or program of the corporation” shall specifically include Employee’s contributions and all matching contributions made by Regis to the Executive Retirement Savings Plan. No deductions or withholdings will be made for contributions to employment plans such as 401(k) or any employee stock purchase plan. Regis shall issue an IRS Form W-22 for the full amount of this payment.


2)	Equity Compensation in accordance with the plan documents.

Severance Payment. Subject to Employee signing and not revoking this Agreement, to include a Release of all Claims, and the Employee remaining in strict compliance with the terms of this Agreement and any other written agreements between Regis and Employee, you will receive the following amount as severance pay subject to such amounts being reduced as provided for in the Employment Agreement entered into between Employee and Regis Corporation on August 31, 2012 except as provided and/or modified herein. In exchange for the General Release set forth below, Regis agrees to provide:

Severance. The amount of Three Hundred Thousand and 00/100 Dollars ($300,000.00) which is the equivalent of one times your base salary as of the date of your termination. This amount shall be paid in substantially equal installments in accordance with the Corporation’s normal payroll policies following the expiration of the rescission periods referred to in paragraphs 11 and 12 and commencing on the first payroll date that is more than sixty (60) days after the Date of Termination. Any instalments that otherwise would be paid during the first sixty (60) days will be included in the first installment paid to the Employee which is more than sixty (60) days after the Date of Termination. All payments shall be subject to statutory payroll deductions and other legally required withholdings; no deductions or withholdings will be made for contributions to employment plans such as 401(k) or any employee stock purchase plan. Regis shall issue an IRS Form W-2 for the full amount of this payment.

Notwithstanding the provision of your Employment Agreement to the contrary, Regis will not offset cash severance with the earnings from other employment, so long as the other employment is non-competitive employment as determined according to Section 9(a) of your Employment Agreement and paragraphs 6 (a) and (b) of this Agreement.


2)	Bonus. The amount of One Hundred Twelve Thousand Six Hundred Two and 74/100 Dollars ($112,602.74) representing your pro rata bonus (274/365^th) paid at 100% for the Fiscal Year ending June 30, 2019. This amount will be paid regardless of whether

you meet the eligibility requirements for the Bonus or whether or not the Corporation determines to grant bonuses for Fiscal Year ending June 30, 2019 and you agree that this payment fully satisfies any obligation Regis may have to pay a bonus under paragraphs 4(b) and / or 6(b)(iii)(A) of the Employment Agreement. Payment shall be subject to all statutory deductions and other legally required withholdings. No deductions or withholdings will be made for contributions to employment plans such as 401(k) or any employee stock purchase plan. Regis shall issue an IRS Form W-2 for the full amount of this payment.

The payment in this paragraph 2.c.2 will be paid in a single lump sum within 10 business days after all of the following have occurred: (a) receipt of the fully executed Agreement by Regis; and (b) expiration of the rescission period referred to in paragraphs 11 and 12 of this Agreement.

Benefits Continuation. The Employer portion of your COBRA premiums for health and dental insurance coverage under the Corporation’s group health and dental insurance plans for twelve months from your Departure Date. Notwithstanding the foregoing, the Corporation will discontinue COBRA premium payments if, and at such time as, Employee (A) is eligible to be covered under the health and/or dental insurance policy of a new employer or (B) ceases to participate, for whatever reason, in the Corporation’s group insurance plan. Regis shall issue an IRS Form W-2 for the full amount of this payment. The amount shall be paid in substantially equal installments in accordance with the Corporation’s normal payroll policies following the expiration of the rescission periods referred to in paragraphs 11 and 12 and commencing on the first payroll date that is more than sixty (60) days after the Departure Date. All payments shall be subject to payroll deductions and other legally required withholdings.

Medical Expenses. Continuation of coverage under the Group Executive Medical Expense Reimbursement Policy through March 31, 2020, subject to the limits, terms and conditions of that policy. Any such request for reimbursement must be submitted in the normal course of business. Upon submission of a timely request for such reimbursement, Regis will reimburse you pursuant to the Company’s regular business practices.


5)	Career Transitions Services. Career Transition Services through September 30, 2019 to be provided by a vendor selected by you in an amount not to exceed $10,000. All invoices for these services must be billed to Regis Corporation and submitted to Shawn Moren, Regis Corporation, 7201 Metro Boulevard, Minneapolis, MN 55439 for payment on or before October 31, 2019.

Provided, however, that if the period during which you have discretion to execute or revoke this Agreement and General Release straddles two calendar years, then the Company will make the severance payments starting in the second of such years, regardless of which year you actually deliver the signed Agreement and General Release to the Company, subject to the Agreement and General Release first becoming effective. You may not, in any circumstance, directly or indirectly, designate the calendar year of payment.

If you do not sign this Agreement, you will not receive the payments and benefits referred to in paragraph 2.c. of this Agreement. If you sign this Agreement, you agree that the payments and benefits referred to in paragraph 2.c of this Agreement fully and adequately compensate you for everything released in this Agreement and fully meet the Severance Payment requirements in paragraph 6(b) of your Employment Agreement.

Confidentiality and Non-Disparagement. To the fullest extent permitted by law, you will not, directly or indirectly, disclose the terms of this Agreement to anyone other than your attorney, spouse, or significant other, or except as required for accounting, tax, or other legally-mandated or legally-permitted purposes, provided that, unless there is a legal reason for the disclosure, any such person to whom disclosure is made shall, prior to disclosure, specifically agree to keep this Agreement confidential. To the fullest extent permitted by law, you also agree not to make or endorse any disparaging or negative remarks or statements (whether oral, written, or otherwise) concerning Regis or its predecessors, successors, and/or assigns, as well as past and present officers, directors, agents, and/or employees. Nothing in this paragraph shall prevent you from providing truthful testimony and/or information in response to a lawful subpoena, court order or governmental inquiry

Non-Disclosure of Confidential Information. Employee shall not disclose to any third party any confidential or proprietary information of the Company and/or its clients regardless of how acquired or learned. By way of example and not limitation, including, without limitation, plans, programs and non-public information relating to customers of the Corporation or its subsidiaries, except as may be required to perform the Employee’s duties hereunder. The provisions of this section shall survive the termination of the Employee’s employment and consulting with the Corporation, if any, provided that after the termination of the Employee’s employment with the Corporation, the restrictions contained in this section shall not apply to any such trade secret or confidential information which becomes generally known in the trade. All confidential information protected by your Employment Agreement, including but not limited to strategic initiatives and related negotiating, and general corporate, compliance, transactional and operating matters regarding Regis, remain Confidential and cannot be disclosed. This paragraph shall not restrict Employee’s obligation to disclose such information pursuant to legal requirements provided Employee first give the Company prompt notice of such legal process in order that it shall have the opportunity to object to the disclosure of such information.


5.	Return of Corporate Property. By signing below, you represent and warrant that all Regis property has been returned to Regis, and that you have not retained any copies, electronic or otherwise of any Regis property. Notwithstanding this paragraph of this Agreement, you may keep documents pertaining to your compensation and/or benefits.


6.	Non-Competition and Non-Solicitation.

(a)

Non-Competition. For a period of twelve (12) months immediately following the Employee’s termination of employment hereunder (the “Non-Competition Period”), the Employee shall not enter into endeavors that are competitive with the business or operations of the Corporation in the beauty industry, and shall not own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, director, partner, member, stockholder, (except for passive investments of not more than a one percent (1%) interest in the securities of a publicly held corporation regularly traded on a national securities exchange or in any over-the-counter securities market), consultant, independent contractor, or otherwise, any individual, partnership, firm, corporation or other business organization or entity that engages in a business which competes with the Corporation.

(b)

Non-solicitation. During the Non-Competition Period, the Employee shall not (i) hire or attempt to hire any employee of the Corporation, assist in such hiring by any person or encourage any employee to terminate the Employee’s relationship with the Corporation; or (ii) solicit, induce, or influence any proprietor, franchisee, partner, stockholder, lender, director, officer, employee, joint venture, investor, consultant, agent, lessor, supplier, customer or any other person or entity which has a business relationship with the Corporation or its affiliates at any time during the Non-Competition Period, to discontinue or reduce or modify the extent of such relationship with the Corporation or any of its subsidiaries.


(c)	Employee agrees that if she violates these non-competition and/or non-solicitation covenants she must repay to Regis the Severance Payment detailed in 2.c prorated to reflect the portion of the Non-Competition Period after which the violation occurred and that she would not be entitled to any further Severance Payments under this agreement.

Litigation and Other Legal Matters. Employee agrees, without additional consideration other than provided in this Agreement, to cooperate fully and completely with the Company at its request in all pending and future litigation, investigations, arbitrations, and/or other fact-finding or adjudicative proceedings, public or private, or any of the other Released Parties and relating to matters of which you have knowledge, or should have knowledge, by virtue of your actual or alleged employment with the Company or any other Released Parties. Regis will cooperate with Employee’s reasonable scheduling needs; will reimburse Employee for her reasonable expenses incurred in connection with Employee’s obligations under this paragraph; and will negotiate in good faith and agree upon an appropriate per diem or hourly rate for any cooperation and/or assistance provided by Employee after January 31, 2019.


8.	References. You agree that you will refer any and all reference checks regarding your employment with Regis to Shawn Moren 952-947-7563. For all reference checks that are referred to such person, references will be limited to confirmation of your dates of employment and last position held.

General Release. In exchange for the benefits promised you in this Agreement, you agree to irrevocably and unconditionally release and discharge Regis, its predecessors, successors, and assigns, as well as past and present officers, directors, employees, and agents (“Released Parties”), from any and all claims, liabilities, or promises, whether known or unknown, arising out of or relating to your employment with Regis through the date you sign this Agreement. You waive these claims on behalf of yourself and your heirs, assigns, and anyone making a claim through you. The claims waived and discharged include, but are not limited to all causes of action that may be brought by you under the following statutes:


•	Title VII of the Civil Rights Act of 1964;


•	Sections 1981 through 1988 of Title 42 of the United Sates Code;


•	Civil Rights Act of 1991;


•	The Employee Retirement Income Security Act of 1974 (except for any vested benefits under any tax qualified benefit plan);


•	The Age Discrimination in Employment Act of 1967;


•	The Rehabilitation Act of 1973;


•	The Immigration Reform and Control Act;


•	The Americans with Disabilities Act of 1990;


•	The Americans with Disabilities Amendments Act of 2008;


•	The Fair Credit Reporting Act;


•	The Sarbanes-Oxley Act of 2002, to the extent permitted by law;


•	The Occupational Safety and Health Act;


•	The Family and Medical Leave Act of 1993;


•	The Equal Pay Act;


•	The Genetic Information Nondiscrimination Act;


•	The Worker Adjustment and Retraining Notification Act;


•	The Minnesota Human Rights Act;


•	The Minnesota Whistleblower Protection Act;


•	The Minnesota Statutory Provisions regarding Retaliation for Filing a Workers’ Compensation Claim;


•	The Minnesota Parental Leave Act;


•	The Minnesota Age Discrimination Act;


•	The Minnesota Equal Pay For Equal Work Law;


•	The Minnesota Fair Labor Standards Act;


•	The Minnesota Discrimination for Lawful Activities Law;


•	The Minnesota Wage-Hour and Wage-Payment Laws;


•	The Minnesota Occupational Safety and Health Act;


•	The Minnesota Personnel Record Review Statute;


•	Laws enacted under the Minnesota Women’s Economic Security Act;


•	Any other federal, state or local civil or human rights law or any other local, state or federal law, rule, regulation, code, guideline or ordinance, including but not limited to those relating to bias, whistleblower, discrimination, retaliation, compensation, employment or labor;


•	Any public policy, contract (oral or written, express or implied), tort, or common law;


•	Any claims for vacation, sick or personal leave, pay or payment pursuant to any practice, policy, handbook, or manual of Regis; or


•	Any statute, common law, agreement or other basis for recovering any costs, fees, or other expenses, including attorneys’ fees and/or costs.

This release does not include claims that cannot, by law, be waived, such as unemployment compensation.


10.	Binding Nature of Agreement. This agreement is binding on the parties and their heirs, administrators, representatives, executors, successors, and assigns.


11.	Compliance with the Age Discrimination in Employment Act (“ADEA”) and Notice of Right to Consider and Rescind Agreement. You understand that this Agreement has to meet certain requirements to validly release any claims you might have under the ADEA (including under the Older Workers’ Benefit Protection Act), and you represent that all such requirements have been satisfied, including that:


a.	The Agreement is written in a manner that is understandable to you;


b.	You are specifically waiving ADEA rights;


c.	You are not waiving ADEA rights arising after the date of your signing this Agreement;


d.	You are receiving valuable consideration in exchange for execution of this Agreement that you would not otherwise be entitled to receive;


e.	Regis is hereby, in writing, encouraging you to consult with an attorney before signing this Agreement; and


f.	You received 21 days to consider this Agreement and at least 7 days to rescind it (you are actually receiving 15 days to rescind).

12.

Notice of Right to Consider and Rescind Agreement. You have twenty-one (21) days to consider this Agreement and decide whether to sign it, however, you cannot sign this Agreement before April 1, 2019. Regis hereby advises Employee to consult with an attorney of her choice before signing this agreement releasing any rights or claims that she believes she may have under the Minnesota Human Rights Act (MHRA) or the Age Discrimination in Employment Act (“ADEA”). Once this Separation Agreement is executed, Employee may rescind this Separation Agreement within fifteen (15) calendar days to reinstate any claims under the ADEA. To be effective, any rescission within the relevant time period must be in writing and delivered to Regis, in care of Ms. Mary L. Senkbeil, 7201 Metro Boulevard, Minneapolis, MN 55439, by hand or by mail within the fifteen (15) day period. If delivered by mail, the rescission must be: (1) postmarked within the fifteen (15) day period; (2) properly addressed to Regis; and (3) sent by certified mail, return receipt requested.


13.	No Assignment. Employee warrants that she has not assigned, transferred nor purported to assign or transfer any claim against Regis or the Released Parties, and that she will not assign or transfer nor purport to assign or transfer hereafter any claim against Regis or the Released Parties.

14.

No Unlawful Restriction. You understand that nothing in this agreement is intended to or shall: (a) impose any condition, penalty, or other limitation affecting your right to challenge this agreement; (b) constitute an unlawful release of any of your rights; or (c) prevent or interfere with your ability and/or right to: (i) provide truthful testimony if under subpoena to do so; (ii) file any charge with or participate in any investigation or proceeding conducted by the Equal Employment Opportunity Commission or any other federal, state, and/or local governmental entity; and/or (iii) respond as otherwise provided by law.


15.	Severability. The provisions of this agreement are severable. If any provision (excluding the General Release above) is held to be invalid or unenforceable, it shall not affect the validity or enforceability of any other provision.

16.

Entire Agreement. Except to the extent that you have an arbitration agreement with Regis, this agreement sets out the entire agreement between you and Regis and supersedes any and all prior oral or written agreements or understandings between you and Regis concerning your termination of employment. Any arbitration agreement that you have with Regis will continue in full force and effect. You acknowledge you have not relied on any representations, promises, or agreements of any kind made to you in connection with your decision to accept this Agreement and General Release, except for those set forth in this Agreement and General Release.


17.	Employee Affirmations. You represent that you:

a. have not filed, caused to be filed, or presently are a party to any claim against Regis or any other Released Parties;

b. with the exception of the compensation and benefits described in Paragraph “2.c” above, affirm that you have been paid all compensation, wages, bonuses, commissions, and/or benefits to which you may be entitled from Regis, and, if applicable, you have reported all of the hours you worked as of the date you sign this Agreement and General Release. You further affirm that Regis has granted you any leave to which you were entitled from Regis under the Family and Medical Leave Act or related state or local leave or disability accommodation laws;

c. affirm that you have no known workplace injuries or occupational diseases;

d. affirm that you have not divulged any financial, proprietary or confidential information of Regis and will continue to maintain the confidentiality of such information consistent with Regis’s policies, your agreement(s) with Regis and/or any applicable common law, with the exception of any voluntary communication with the Securities and Exchange Commission;

e. affirm that you have not been retaliated against for reporting any allegations of wrongdoing by Regis, any of Regis’s officers or any other Released Parties, including any allegations of corporate fraud. Both Parties acknowledge that this Agreement and General Release does not limit either party’s right, where applicable, to file or to participate in an investigation proceeding of any federal, state or local governmental agency, including providing documents or other information. This Agreement does not limit your right to receive an award for information provided to any government agency;

f. affirm that all of Regis’s decisions regarding your pay and benefits through your termination date were not discriminatory based on age, disability, race, color, sex, religion, national origin or any other classification protected by law.

18.

Competence to Waive Claims. You affirm that at the time you considered or signed this Agreement and General Release, you were not affected or impaired by illness, use of alcohol, drugs or other substances, or otherwise impaired. You further affirm that you are competent to execute this Agreement and General Release, and knowingly and voluntarily waive any and all claims you may have against Regis and as described in this Agreement and General Release. You certify that you are not a party to any bankruptcy, lien, creditor-debtor or any other action or proceeding which would impair your right or ability to waive all claims you may have against Regis or any other Released Parties.


19.	Effective Date of Agreement. This agreement will become effective on the sixteenth day after you sign it, provided that you have not rescinded the agreement.


20.	Valid Agreement. As stated above, you agree that this agreement and its releases fully comply with the ADEA. You also agree that this agreement and its releases fully comply with the Minnesota Human Rights Act and all other laws, statutes, ordinances, regulations, and/or principles of common law governing releases.


21.	No Admission of Liability. Regis denies any and all liability to you. You understand and agree that this agreement is not an admission of wrongdoing or liability, including, but not limited to, any violation of any federal, state, and/or local law, statute, ordinance, contract, and/or principle of common law by Regis and/or any individuals and/or entities associated with Regis.


22.	Attorneys’ Fees. You agree that you are responsible for your own attorneys’ fees and costs, if any, incurred in any respect, including but not limited to in connection: with your employment with Regis; with the termination of your employment with Regis; and with negotiating and executing this agreement.


23.	Governing Law. This agreement shall be construed and enforced in accordance with the laws of the State of Minnesota and the laws of the United States, where applicable.

24.

Enforcement of Agreement. Any dispute concerning the interpretation and application of this Agreement shall be settled by expedited arbitration in Minneapolis, MN. The arbitrator selected by the Parties shall be a lawyer or former judge and shall have at least ten years’ legal experience with employment law. The decision of the arbitrator shall be final. Any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The prevailing party shall be entitled to recover costs and expenses, including reasonable attorneys’ fees incurred.

25.

Expiration of Offer and Effective Date of Agreement. You understand that the offer contained in this Agreement and General Release will be considered withdrawn if you have not signed and returned to Regis signed duplicate originals of this Agreement and General Release on or before the conclusion of the 21-day consideration period. This Agreement and General Release becomes effective after you and Regis have signed the Agreement and General Release and the revocation period described above has expired, provided you have not revoked your acceptance of this Agreement and General Release during the revocation period.

YOU ARE HEREBY ADVISED THAT YOU HAVE TWENTY-ONE (21) CALENDAR DAYS TO REVIEW THIS AGREEMENT, BUT YOU CANNOT SIGN THIS AGREEMENT BEFORE APRIL 1, 2019. YOU ARE ALSO HEREBY ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY OF YOUR CHOOSING PRIOR TO SIGNING THIS AGREEMENT.

YOU AGREE THAT ANY MODIFICATIONS MADE TO THIS AGREEMENT, MATERIAL OR OTHERWISE, DO NOT RESTART OR AFFECT IN ANY MANNER THE ORIGINAL TWENTY-ONE (21) CALENDAR DAY CONSIDERATION PERIOD.

YOU FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTER INTO THIS AGREEMENT INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS YOU HAVE OR MIGHT HAVE AGAINST REGIS AND ANY OTHER RELEASED PARTIES AS OF THE DATE YOU SIGN THIS AGREEMENT.

HAVING ELECTED TO EXECUTE THIS AGREEMENT AND GENERAL RELEASE, AND TO FULFILL THE PROMISES AND TO RECEIVE THE SUMS AND BENEFITS SET FORTH IN PARAGRAPH “2.c” ABOVE, YOU FREELY AND KNOWINGLY, AFTER DUE CONSIDERATION, ENTER INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS YOU HAVE OR MIGHT HAVE AGAINST REGIS AND ANY OTHER RELEASED PARTIES AS OF THE DATE YOU SIGN THIS AGREEMENT.

IN WITNESS WHEREOF, the parties hereto have executed this Separation and Non-Disparagement Agreement and General Release as of the day and year first above written.

Dated: 4/8/19 /s/ Rachel Endrizzi

Employee (print name): Rachel Endrizzi

REGIS CORPORATION:

Dated: 4/24/19 By: K. Shawn Moren

Its: SVP, Human Resources

-15-

AMENDMENT TO EMPLOYMENT AGREEMENT

This document amends the Employment Agreement entered into between Regis Corporation (“Regis”) and Jim B. Lain (“Lain”) dated November 11, 2013 (the “Agreement”) wherein Lain agreed to have his primary office in Minneapolis, Minnesota and Regis agreed to, and did, reimburse Lain for certain expenses related to his relocation to Minneapolis, Minnesota.

Whereas, Regis and Lain hereby agree to amend the Agreement, effective January 1, 2019, to designate Lain’s primary office in the Atlanta, Georgia area and to additionally provide Lain with access to an office where Regis’ principal executive offices are, and which are currently located at 7201 Metro Boulevard in Edina, Minnesota. Regis and Lain agree that there will be no relocation expenses paid to Lain in connection with his relocation to Atlanta. Regis further agrees to reimburse Lain for his reasonable travel expenses between his primary office in the Atlanta, Georgia area and the Corporation’s principal executive offices in Minneapolis, Minnesota beginning January 1, 2019 and continuing through the remainder of the Employment Period.

The parties intend this document to constitute an Amendment of the Employment Agreement in accordance with section 11(e) of the Employment Agreement solely with respect to the matters addressed in this document; the Employment Agreement shall remain in effect in accordance with its terms in all other respects.

Date: August 23, 2019 By: /s/ Hugh Sawyer

Its: President and CEO

Date: August 23, 2019 By: /s/ Jim B. Lain

Name: Jim B. Lain

Exhibit No. 21

Regis Corporation

List of Subsidiaries



Company Name		Country or State of Incorporation/Formation
The Barbers, Hairstyling for Men & Women, Inc.		Minnesota
WCH, Inc.*		Minnesota
We Care Hair Realty, Inc.*		Delaware
Roosters MGC International LLC		Michigan
Supercuts, Inc.		Delaware
Supercuts Corporate Shops, Inc.		Delaware
Tulsa’s Best Haircut LLC		Oklahoma
RPC Acquisition Corp.		Minnesota
RPC Corporate Shops, Inc.		Minnesota
Regis Corp.		Minnesota
Regis Insurance Group, Inc.		Vermont
Regis, LLC		Minnesota
First Choice Haircutters International, LLC		Delaware
Cutco Acquisition Corp.		Minnesota
Regis International Ltd.		Minnesota
N.A.H.C. Acquisition LLC*		Minnesota
EEG, Inc.		Delaware
Regis Netherlands, Inc*		Minnesota
Roger Merger Subco LLC		Delaware
RGS International SNC		Luxemburg
Regis International Holdings SARL		Luxemburg
Regis Holdings (Canada), Ltd		Nova Scotia
First Choice Haircutters, Ltd		Nova Scotia
Magicuts, Ltd		Nova Scotia
RHS UK Holdings Ltd		United Kingdom
HCUK Hair, Ltd*		United Kingdom
Supercuts UK (Franchise) Ltd		United Kingdom
Mark Anthony, Inc.		North Carolina
RG International, LLC		Delaware
RG International Holdings, LLC		Delaware
Haircare Ltd		United Kingdom
Haircare Gmbh		Germany
York Ave Beauty Salons, Ltd.		Canada
Sagestyle Ltd*		United Kingdom
Haircare UK Ltd*		United Kingdom
RG Salon Management LLC		California
Salon Management Corporation of New York*		New York
*Inactive Entities

Exhibit No. 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-125631, 333-100327, 333-102858, 333-116170, 333-87482, 333-51094, 333-78793, 333-89279, 333-90809, 333-31874, 333-57092 and 333-72200) and Form S-8 (Nos. 333-214270, 333-214269, 333-170517, 333-163350, 333-123737 and 333-88983) of Regis Corporation of our report dated August 27, 2019 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.




/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota
August 27, 2019

Exhibit No. 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Hugh E. Sawyer, certify that:


1.	I have reviewed this annual report on Form 10-K 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.



August 27, 2019

/s/ Hugh E. Sawyer
Hugh E. Sawyer, President and Chief Executive Officer

Exhibit No. 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew H. Lacko, certify that:


1.	I have reviewed this annual report on Form 10-K 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.



August 27, 2019

/s/ Andrew H. Lacko
Andrew H. Lacko, Executive Vice President and Chief Financial Officer

Exhibit No. 32

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Regis Corporation (the Registrant) on Form 10-K for the fiscal year ended June 30, 2019 filed with the Securities and Exchange Commission on the date hereof, Hugh E. Sawyer, President and Chief Executive Officer of the Registrant, and Andrew H. Lacko, Executive Vice President and Chief Financial Officer of the Registrant, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Annual Report on Form 10-K 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 Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Registrant.



August 27, 2019

/s/ Hugh E. Sawyer
Hugh E. Sawyer, President and Chief Executive Officer

August 27, 2019

/s/ Andrew H. Lacko
Andrew H. Lacko, Executive Vice President and Chief Financial Officer