UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
|
|
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended
December 31, 2013
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)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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
x
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 be submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer
x
|
|
Accelerated filer
¨
|
|
|
|
|
|
Non-accelerated filer
¨
|
|
Smaller reporting company
¨
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes
¨
No
x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of
January 24, 2014
:
|
|
|
|
|
|
|
Common Stock, $.05 par value
|
|
56,698,587
|
|
Class
|
|
Number of Shares
|
REGIS CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
REGIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
June 30,
2013
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
339,418
|
|
|
$
|
200,488
|
|
|
Receivables, net
|
|
24,584
|
|
|
33,062
|
|
|
Inventories
|
|
147,188
|
|
|
139,607
|
|
|
Deferred income taxes
|
|
381
|
|
|
24,145
|
|
|
Income tax receivable
|
|
19,768
|
|
|
33,346
|
|
|
Other current assets
|
|
57,189
|
|
|
57,898
|
|
|
Total current assets
|
|
588,528
|
|
|
488,546
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
290,378
|
|
|
313,460
|
|
|
Goodwill
|
|
425,332
|
|
|
460,885
|
|
|
Other intangibles, net
|
|
20,642
|
|
|
21,496
|
|
|
Investment in affiliates
|
|
44,967
|
|
|
43,319
|
|
|
Other assets
|
|
64,219
|
|
|
62,786
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,434,066
|
|
|
$
|
1,390,492
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Long-term debt, current portion
|
|
$
|
174,143
|
|
|
$
|
173,515
|
|
|
Accounts payable
|
|
54,348
|
|
|
66,071
|
|
|
Accrued expenses
|
|
141,095
|
|
|
137,226
|
|
|
Total current liabilities
|
|
369,586
|
|
|
376,812
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
|
120,010
|
|
|
1,255
|
|
|
Other noncurrent liabilities
|
|
200,832
|
|
|
155,011
|
|
|
Total liabilities
|
|
690,428
|
|
|
533,078
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
Common stock, $0.05 par value; issued and outstanding 56,698,587 and 56,630,926 common shares at December 31, 2013 and June 30, 2013, respectively
|
|
2,835
|
|
|
2,832
|
|
|
Additional paid-in capital
|
|
335,379
|
|
|
334,266
|
|
|
Accumulated other comprehensive income
|
|
21,539
|
|
|
20,556
|
|
|
Retained earnings
|
|
383,885
|
|
|
499,760
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
743,638
|
|
|
857,414
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,434,066
|
|
|
$
|
1,390,492
|
|
The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.
REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Three and
Six Months Ended December 31, 2013
and
2012
(Dollars and shares in thousands, except per share data amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
360,959
|
|
|
$
|
388,286
|
|
|
$
|
732,686
|
|
|
$
|
781,702
|
|
|
Product
|
|
97,769
|
|
|
108,236
|
|
|
184,512
|
|
|
210,520
|
|
|
Royalties and fees
|
|
9,639
|
|
|
9,643
|
|
|
19,752
|
|
|
19,303
|
|
|
|
|
468,367
|
|
|
506,165
|
|
|
936,950
|
|
|
1,011,525
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
223,413
|
|
|
234,265
|
|
|
448,428
|
|
|
466,793
|
|
|
Cost of product
|
|
50,461
|
|
|
55,064
|
|
|
94,485
|
|
|
108,196
|
|
|
Site operating expenses
|
|
50,204
|
|
|
49,872
|
|
|
101,045
|
|
|
102,219
|
|
|
General and administrative
|
|
40,205
|
|
|
55,795
|
|
|
84,638
|
|
|
111,667
|
|
|
Rent
|
|
79,164
|
|
|
80,555
|
|
|
158,174
|
|
|
162,054
|
|
|
Depreciation and amortization
|
|
24,641
|
|
|
21,891
|
|
|
48,472
|
|
|
42,600
|
|
|
Goodwill impairment
|
|
34,939
|
|
|
—
|
|
|
34,939
|
|
|
—
|
|
|
Total operating expenses
|
|
503,027
|
|
|
497,442
|
|
|
970,181
|
|
|
993,529
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
(34,660
|
)
|
|
8,723
|
|
|
(33,231
|
)
|
|
17,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(5,166
|
)
|
|
(6,649
|
)
|
|
(9,657
|
)
|
|
(13,478
|
)
|
|
Interest income and other, net
|
|
339
|
|
|
601
|
|
|
883
|
|
|
35,213
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and equity in income (loss) of affiliated companies
|
|
(39,487
|
)
|
|
2,675
|
|
|
(42,005
|
)
|
|
39,731
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
(72,338
|
)
|
|
(1,085
|
)
|
|
(71,955
|
)
|
|
(4,071
|
)
|
|
Equity in income (loss) of affiliated companies, net of income taxes
|
|
2,740
|
|
|
(17,709
|
)
|
|
4,739
|
|
|
(17,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
(109,085
|
)
|
|
(16,119
|
)
|
|
(109,221
|
)
|
|
18,528
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
—
|
|
|
3,853
|
|
|
—
|
|
|
7,630
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(109,085
|
)
|
|
$
|
(12,266
|
)
|
|
$
|
(109,221
|
)
|
|
$
|
26,158
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
(1.93
|
)
|
|
(0.28
|
)
|
|
(1.94
|
)
|
|
0.32
|
|
|
Income from discontinued operations
|
|
—
|
|
|
0.07
|
|
|
—
|
|
|
0.13
|
|
|
Net (loss) income per share, basic (1)
|
|
$
|
(1.93
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(1.94
|
)
|
|
$
|
0.46
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
(1.93
|
)
|
|
(0.28
|
)
|
|
(1.94
|
)
|
|
0.32
|
|
|
Income from discontinued operations
|
|
—
|
|
|
0.07
|
|
|
—
|
|
|
0.13
|
|
|
Net (loss) income per share, diluted (1)
|
|
$
|
(1.93
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(1.94
|
)
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
56,437
|
|
|
56,794
|
|
|
56,427
|
|
|
57,043
|
|
|
Diluted
|
|
56,437
|
|
|
56,794
|
|
|
56,427
|
|
|
57,125
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
__________________________
(1)
Total is a recalculation; line items calculated individually may not sum to total.
The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.
REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS (Unaudited)
For The Three and
Six Months Ended December 31, 2013
and
2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Net (loss) income
|
|
$
|
(109,085
|
)
|
|
$
|
(12,266
|
)
|
|
$
|
(109,221
|
)
|
|
$
|
26,158
|
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments during the period
|
|
(2,052
|
)
|
|
(2,178
|
)
|
|
983
|
|
|
4,860
|
|
|
Reclassification adjustments for gains included in net income (Note 1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(33,842
|
)
|
|
Net current period foreign currency translation adjustments
|
|
(2,052
|
)
|
|
(2,178
|
)
|
|
983
|
|
|
(28,982
|
)
|
|
Change in fair market value of financial instruments designated as cash flow hedges
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
Other comprehensive (loss) income
|
|
(2,052
|
)
|
|
(2,178
|
)
|
|
983
|
|
|
(29,005
|
)
|
|
Comprehensive loss
|
|
$
|
(111,137
|
)
|
|
$
|
(14,444
|
)
|
|
$
|
(108,238
|
)
|
|
$
|
(2,847
|
)
|
The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.
REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For The
Six Months Ended December 31, 2013
and
2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(109,221
|
)
|
|
$
|
26,158
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
42,119
|
|
|
39,730
|
|
|
Equity in (income) loss of affiliated companies
|
|
(4,739
|
)
|
|
16,692
|
|
|
Deferred income taxes
|
|
67,741
|
|
|
11,352
|
|
|
Salon asset impairment
|
|
6,353
|
|
|
3,359
|
|
|
Loss on write down of inventories
|
|
854
|
|
|
—
|
|
|
Goodwill impairment
|
|
34,939
|
|
|
—
|
|
|
Accumulated other comprehensive income reclassification adjustments (Note 1)
|
|
—
|
|
|
(33,842
|
)
|
|
Stock-based compensation
|
|
3,557
|
|
|
3,307
|
|
|
Amortization of debt discount and financing costs
|
|
3,933
|
|
|
3,527
|
|
|
Other non-cash items affecting earnings
|
|
136
|
|
|
593
|
|
|
Changes in operating assets and liabilities, excluding the effects of acquisitions
|
|
3,557
|
|
|
(11,907
|
)
|
|
Net cash provided by operating activities
|
|
49,229
|
|
|
58,969
|
|
|
|
|
|
|
\
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Capital expenditures
|
|
(23,913
|
)
|
|
(43,200
|
)
|
|
Proceeds from sale of assets
|
|
8
|
|
|
152
|
|
|
Asset acquisitions, net of cash acquired
|
|
(15
|
)
|
|
—
|
|
|
Proceeds from loans and investments
|
|
5,056
|
|
|
131,054
|
|
|
Net cash (used in) provided by investing activities
|
|
(18,864
|
)
|
|
88,006
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Borrowings on revolving credit facilities
|
|
—
|
|
|
5,200
|
|
|
Payments on revolving credit facilities
|
|
—
|
|
|
(5,200
|
)
|
|
Proceeds from issuance of long-term debt, net of fees
|
|
118,058
|
|
|
—
|
|
|
Repayments of long-term debt and capital lease obligations
|
|
(3,452
|
)
|
|
(21,298
|
)
|
|
Repurchase of common stock
|
|
—
|
|
|
(14,868
|
)
|
|
Dividends paid
|
|
(6,793
|
)
|
|
(6,905
|
)
|
|
Net cash provided by (used in) financing activities
|
|
107,813
|
|
|
(43,071
|
)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
752
|
|
|
2,496
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
138,930
|
|
|
106,400
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
Beginning of period
|
|
200,488
|
|
|
111,943
|
|
|
End of period
|
|
$
|
339,418
|
|
|
$
|
218,343
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.
REGIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
1.
|
BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
The unaudited interim Condensed Consolidated Financial Statements of Regis Corporation (the Company) as of
December 31, 2013
and for the three and
six
months ended
December 31, 2013
and
2012
, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of
December 31, 2013
and the consolidated results of its operations and its cash flows for the interim periods. Adjustments consist only of normal recurring items, except for any discussed in the notes below. The results of operations and cash flows for any interim period are not necessarily indicative of results of operations and cash flows for the full year.
The Condensed Consolidated Balance Sheet data for
June 30, 2013
was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2013 and other documents filed or furnished with the Securities and Exchange Commission (SEC) during the current fiscal year.
Stock-Based Employee Compensation:
During the three and six months ended
December 31, 2013
, the Company granted restricted stock units (RSUs), equity-based stock appreciation rights (SARs), and performance share units (PSUs). There were no significant changes to the assumptions used in calculating the fair value of SARs. All grants relate to stock incentive plans that have been approved by the shareholders of the Company.
The following is a table of shares granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Periods Ended December 31, 2013
|
|
|
|
Three Months
|
|
Six Months
|
|
Restricted stock units
|
|
124,860
|
|
|
350,083
|
|
|
Equity-based stock appreciation rights
|
|
30,959
|
|
|
469,482
|
|
|
Performance share units
|
|
19,946
|
|
|
304,550
|
|
Total compensation cost for stock-based payment arrangements totaled
$1.7
and
$1.5 million
for the three months ended
December 31, 2013
and
2012
, respectively, and
$3.6
and
$3.3 million
for the six months ended December 31, 2013 and 2012, respectively, recorded within general and administrative expense on the Condensed Consolidated Statement of Operations.
Long-Lived Asset Impairment Assessments, Excluding Goodwill:
The Company assesses the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Impairment is evaluated based on the sum of undiscounted estimated cash flows expected to result from the use of long-lived assets that do not recover their carrying values. The fair value of the long-lived asset is estimated based on the best information available, including market data. During the
six
months ended
December 31, 2013
and 2012, the Company recorded
$6.4
and
$3.4 million
, respectively, of long-lived asset impairment. During the three months ended December 31, 2013, the Company recorded
$3.0 million
of impairment charges associated with the Regis salon concept reporting unit. See Goodwill discussion within this Note 1 and Note 8, and change in reporting units discussion in Note 11 to the Condensed Consolidated Financial Statements.
Goodwill:
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired. Goodwill is tested for impairment annually during the Company’s fourth fiscal quarter or at the time of a triggering event. The fair value of the Regis salon concept reporting unit exceeded its carrying value by approximately
9.0%
and the Company's
other reporting units exceeded their carrying value by greater than
20.0%
as of the fiscal year 2013 annual impairment test.
During the second quarter of fiscal year 2014, the Company experienced
two
triggering events that resulted in the Company testing its goodwill for impairment. First, the Company redefined its operating segments to reflect how the chief operating decision maker evaluates the business as a result of restructuring the Company's North American field organization. The field reorganization, which impacted all North American salons except for salons in the mass premium category, was announced in the fourth quarter of fiscal year 2013 and completed in the second quarter of fiscal year 2014. The Company did not completely operate under the realigned operating structure prior to the second quarter of fiscal year 2014. See Note 11 to the Condensed Consolidated Financial Statements.
Second, the Regis and Promenade salon concepts reported same-store sales of negative
6.4%
and
7.0%
respectively, during the three months ended
December 31, 2013
. These results were unfavorable compared to the Company’s projections used in the fiscal year 2013 annual goodwill impairment test. The disruptive impact of strategic initiatives announced in the fourth quarter of fiscal year 2013 on the first two fiscal quarters of 2014 was greater than the Company had anticipated.
Pursuant to the change in operating segments and the lower than projected same-store sales, the Company performed interim goodwill impairment tests on its Regis and Promenade salon concept reporting units. The Company updated its projections to reflect the Company’s current expectations for these businesses and compared the carrying value of the respective reporting units, including goodwill, to their estimated fair values. As a result of the interim goodwill impairment tests performed during the three months ended
December 31, 2013
, a
$34.9 million
non-cash impairment charge was recorded for the excess carrying value of goodwill over the implied fair value of goodwill for the Regis salon concept reporting unit. The estimated fair value of the Promenade salon concept reporting unit exceeded its carrying value by approximately
12.0%
and was not impaired.
The Company considered the negative impact of the fourth quarter fiscal year 2013 strategic initiatives on the results of the remaining reporting units for the three and
six
months ended
December 31, 2013
and determined that their fair values were significantly greater than their carrying values at December 31, 2013. Therefore, the Company did not perform interim goodwill impairment tests on these reporting units.
In connection with the change in operating segment structure, the Company changed its North American reporting units from
five
reporting units: SmartStyle, Supercuts, MasterCuts, Regis and Promenade to
two
reporting units: North American Value and North American Premium. Subsequent to the interim impairment test of goodwill, the Company compared the carrying value, including goodwill, of the reporting units under the new reporting unit structure to their estimated fair values. The fair values of the North American Value reporting unit exceeded its carrying value by greater than
20.0%
. The North American Premium reporting unit does not have any goodwill, as it was fully impaired as of December 31, 2013. Based on the changes to the Company's operating segment structure, goodwill has been reallocated to the new reporting units at December 31, 2013 and June 30, 2013.
As of December 31, 2013, the Company’s estimated fair value, as determined by the sum of the Company’s reporting units’ fair values, reconciled to within a reasonable range of the Company’s market capitalization which included an assumed control premium of
30.0%
.
A summary of the Company’s goodwill balance by reporting unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting Unit
|
|
December 31,
2013
|
|
June 30,
2013
|
|
|
|
(Dollars in thousands)
|
|
North American Value
|
|
$
|
425,332
|
|
|
$
|
425,932
|
|
|
North American Premium
|
|
—
|
|
|
34,953
|
|
|
Total
|
|
$
|
425,332
|
|
|
$
|
460,885
|
|
Income Taxes:
In the United States, after excluding certain deferred tax liabilities related to assets with indefinite lives, the Company had net deferred tax assets of approximately
$83.7 million
as of
December 31, 2013
, which generally expire many
years into the future or have no definite expiration period. Realization of deferred tax assets is ultimately dependent upon future taxable income. On a quarterly basis, the Company is required to assess the likelihood that deferred tax assets will be recovered.
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. During the second quarter of fiscal year 2014, the impacts from strategic initiatives implemented late in fiscal year 2013 were continuing to negatively impact the Company’s financial performance. Accordingly, the Company incurred a non-cash charge in the amount of
$83.1 million
to establish a valuation allowance against its United States deferred tax assets. The Company will continue to assess the recovery of its United States deferred tax assets on a quarterly basis, and will reverse this valuation allowance and record a tax benefit when the Company generates sufficient sustainable United States pre-tax earnings to make the realizability of the deferred tax assets more likely than not.
Foreign Currency Translation:
During the
six
months ended December 31, 2012, the Company completed the sale of its investment in Provalliance and subsequently liquidated all foreign entities with Euro denominated operations. As a result, the Company recognized a net
$33.8 million
foreign currency translation gain within interest income and other, net in the Condensed Consolidated Statement of Operations for amounts previously classified within accumulated other comprehensive income.
Accounting Standards Recently Issued But Not Yet Adopted by the Company:
Accounting for Cumulative Translation Adjustment upon Derecognition of Foreign Entities
In March 2013, the Financial Accounting Standards Board (FASB) updated the accounting guidance related to the release of cumulative translation adjustments. The updated accounting guidance clarified when to release cumulative translation adjustments into net income. The updated guidance is effective for the Company beginning in the first quarter of fiscal year 2015 with early adoption permitted. The Company does not expect the adoption of this update to have a material impact on the Company’s consolidated financial statements.
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
In July 2013, the FASB issued new accounting requirements which provide guidance on the financial statement presentation of unrecognized tax benefits when a net operating loss, a similar tax loss, or a tax credit carryforward exists. The requirements are effective for the Company beginning in the first quarter of fiscal year 2015 with early adoption permitted. The Company does not expect the adoption of these requirements to have a material impact on the Company’s consolidated financial statements.
2.
DISCONTINUED OPERATIONS:
Hair Restoration Centers
On April 9, 2013, the Company sold its Hair Club for Men and Women business (Hair Club), a provider of hair restoration services. The Company received
$162.8 million
during fiscal year 2013, which was the purchase price of
$163.5 million
adjusted for the preliminary working capital provision. During the
six
months ended
December 31, 2013
, the Company received the
$3.0 million
of cash recorded as a receivable as of
June 30, 2013
, of which
$2.0 million
was a result of the final working capital provision, resulting in a final purchase price of
$164.8 million
, and
$1.0 million
was excess cash from the transaction completion date.
The Company classified the results of operations of Hair Club as discontinued operations for all periods presented in the Condensed Consolidated Statement of Operations.
The following summarizes the results of operations of the discontinued Hair Club operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Periods Ended December 31, 2012
|
|
|
Three Months
|
|
Six Months
|
|
|
(Dollars in thousands)
|
|
Revenues
|
$
|
38,230
|
|
|
$
|
77,180
|
|
|
Income from discontinued operations, before income taxes
|
5,994
|
|
|
11,866
|
|
|
Income tax provision on discontinued operations
|
(2,378
|
)
|
|
(4,676
|
)
|
|
Equity in income of affiliated companies, net of income taxes
|
237
|
|
|
440
|
|
|
Income from discontinued operations, net of income taxes
|
$
|
3,853
|
|
|
$
|
7,630
|
|
Income taxes have been allocated to continuing and discontinued operations based on the methodology required by interim reporting and accounting for income taxes guidance. Depreciation and amortization ceased during the three months ended September 30, 2012 in accordance with accounting for discontinued operations.
3.
INVESTMENT IN AFFILIATES:
Investment in affiliates
The table below presents the carrying amount of investments in affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
June 30,
2013
|
|
|
|
(Dollars in thousands)
|
|
Empire Education Group, Inc.
|
|
$
|
44,760
|
|
|
$
|
43,098
|
|
|
MY Style
|
|
207
|
|
|
221
|
|
|
|
|
$
|
44,967
|
|
|
$
|
43,319
|
|
Empire Education Group, Inc.
During the three months ended
December 31, 2013
and
2012
, the Company recorded
$0.7
and
$0.2 million
, respectively, of equity earnings related to its investment in Empire Education Group, Inc. (EEG). During the
six
months ended
December 31, 2013
and
2012
, the Company recorded
$1.7
and
$0.1 million
, respectively, of equity earnings related to its investment in EEG. The exposure to loss related to the Company’s involvement with EEG is the carrying value of the investment.
During the three months ended December 31, 2012, the Company recorded an other than temporary impairment charge on its investment in EEG of
$17.9 million
. This non-cash charge was the result of EEG updating its financial projections for future periods to reflect the declining enrollment, revenue and profitability in the for-profit secondary educational market during the three months ended December 31, 2012.
Based on the Company’s fiscal year 2013 assessment of the carrying value of its investment in EEG, the Company’s estimate of EEG’s fair value exceeds carrying value by approximately
5 percent
. During the
six
months ended
December 31, 2013
, the Company monitored and assessed the performance of EEG and comparable companies and noted an improvement in EEG’s financial performance and overall industry trends. The Company will continue to closely monitor EEG’s performance and trends in the for-profit secondary educational market to assess the carrying value of its investment. In the event these favorable trends reverse in the future, EEG could be required to impair its goodwill. As of
December 31, 2013
, the Company’s share of EEG’s goodwill balance is approximately
$16 million
.
The table below presents the summarized Statement of Operations information for EEG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Periods Ended December 31,
|
|
|
|
Three Months
|
|
Six Months
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
(Unaudited)
|
|
(Dollars in thousands)
|
|
Gross revenues
|
|
$
|
41,928
|
|
|
$
|
40,543
|
|
|
$
|
85,893
|
|
|
$
|
81,894
|
|
|
Gross profit
|
|
13,197
|
|
|
12,909
|
|
|
28,109
|
|
|
25,659
|
|
|
Operating income
|
|
2,190
|
|
|
1,119
|
|
|
5,094
|
|
|
891
|
|
|
Net income
|
|
989
|
|
|
603
|
|
|
2,927
|
|
|
422
|
|
MY Style
During the three and
six
months ended
December 31, 2013
, the Company recovered
$2.1
and
$3.1 million
on its previously impaired investments in MY Style’s parent company, Yamano Holding Corporation (Yamano), which is reported in equity in income (loss) of affiliated companies on the Condensed Consolidated Statement of Operations. During fiscal year 2011, the Company had estimated the fair values of the Yamano Class A and Class B Preferred Stock to be negligible and recorded an other than temporary non-cash impairment.
4.
EARNINGS PER SHARE:
The Company’s basic earnings per share is calculated as net (loss) income divided by weighted average common shares outstanding, excluding unvested outstanding restricted stock awards, RSUs and PSUs. The Company’s dilutive earnings per share is calculated as net (loss) income 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 value of the Company’s common stock are excluded from the computation of diluted earnings per share. The Company’s dilutive earnings per share will also reflect the assumed conversion under the Company’s convertible debt if the impact is dilutive, along with the exclusion of interest expense, net of taxes. The impact of the convertible debt is excluded from the computation of diluted earnings per share when interest expense per common share obtainable upon conversion is greater than basic earnings per share.
The following table sets forth a reconciliation of the net (loss) income from continuing operations available to common shareholders and the net (loss) income from continuing operations for diluted earnings per share under the if-converted method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Periods Ended December 31,
|
|
|
|
Three Months
|
|
Six Months
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(Dollars in thousands)
|
|
Net (loss) income from continuing operations available to common shareholders (1)
|
|
$
|
(109,085
|
)
|
|
$
|
(16,119
|
)
|
|
$
|
(109,221
|
)
|
|
$
|
18,528
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on convertible debt, net of taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net (loss) income from continuing operations for diluted earnings per share
|
|
$
|
(109,085
|
)
|
|
$
|
(16,119
|
)
|
|
$
|
(109,221
|
)
|
|
$
|
18,528
|
|
____________________________
|
|
|
|
(1)
|
During the three months ended September 30, 2013, the Company recorded certain errors that related to prior periods. The errors related to an overstatement of inventory and self-insurance accruals and an understatement of cash in prior periods. Because these errors were not material to the Company’s consolidated financial statements for any prior periods or the three months ended September 30, 2013, the Company recorded a cumulative adjustment to correct the errors during the first quarter of fiscal year 2014. The impact of these items on the Company’s Consolidated Statement of Operations for the
six
months ended
December 31, 2013
, decreased Site
|
Operating expenses by
$1.3 million
, increased Cost of Product by
$0.3 million
and decreased net loss by
$0.6 million
.
The following table sets forth a reconciliation of shares used in the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Periods Ended December 31,
|
|
|
|
Three Months
|
|
Six Months
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(Shares in thousands)
|
|
Weighted average shares for basic earnings per share
|
|
56,437
|
|
|
56,794
|
|
|
56,427
|
|
|
57,043
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock-based compensation (1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
82
|
|
|
Weighted average shares for diluted earnings per share
|
|
56,437
|
|
|
56,794
|
|
|
56,427
|
|
|
57,125
|
|
_____________________________
|
|
|
|
(1)
|
For the three months ended
December 31, 2013
and
2012
,
110,759
, and
98,637
common stock equivalents of potentially dilutive common stock, respectively, were excluded in the diluted earnings per share calculation due to the net loss from continuing operations. For the six months ended
December 31, 2013
,
117,546
common stock equivalents of potentially dilutive common stock were excluded in the diluted earnings per share calculation due to the net loss from continuing operations.
|
The computation of weighted average shares outstanding, assuming dilution, excluded
1,732,575
and
1,759,864
of stock-based awards during the three months ended
December 31, 2013
and
2012
, respectively, and
1,452,639
and
1,587,934
of stock-based awards during the
six
months ended
December 31, 2013
and
2012
, respectively, as they were not dilutive under the treasury stock method. The computation of weighted average shares outstanding, assuming dilution, also excluded
11,308,502
and
11,254,999
of shares from convertible debt as they were not dilutive for the three months ended
December 31, 2013
and
2012
, respectively, and
11,299,204
and
11,246,854
for the
six
months ended
December 31, 2013
and
2012
, respectively.
5.
SHAREHOLDERS’ EQUITY:
Additional Paid-In Capital:
The
$1.1 million
increase in additional paid-in capital during the
six
months ended
December 31, 2013
was primarily due to stock-based compensation expense, partially offset by the tax impact of vested and distributed RSAs and RSUs and the expiration of unexercised stock options and stock appreciation rights.
6.
INCOME TAXES:
During the three and
six
months ended
December 31, 2013
, the Company recognized tax expense of
$72.3
and
$72.0 million
, respectively, with corresponding effective tax rates of
(183.2)%
and
(171.3)%
. During the three and
six
months ended
December 31, 2012
, the Company recognized tax expense of
$1.1
and
$4.1 million
, respectively, with corresponding effective tax rates of
40.6%
and
10.2%
.
The recorded tax expense and effective tax rate for the three and
six
months ended
December 31, 2013
were higher than would be expected due primarily to the non-cash valuation allowance established against the Company’s United States deferred tax assets and the recording of a non-cash goodwill impairment charge which was only partly deductible for income tax purposes. See Note 1 to the Condensed Consolidated Financial Statements.
The Company’s United States federal income tax returns for the fiscal years 2010 and 2011 are currently under audit. All earlier tax years are closed to examination. For state tax audits, the statute of limitations generally runs three to four years resulting in a number of returns being open for tax audits dating back to fiscal year 2009. The Company is currently under audit in a number of states in which the statute of limitations has been extended for fiscal years 2007 and forward.
7.
COMMITMENTS AND CONTINGENCIES:
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. In addition, the Company is a nominal defendant, and
nine
current and former directors and officers of the Company are named defendants, in a shareholder derivative action in Minnesota state court. The derivative shareholder action alleges that the individual defendants breached their fiduciary duties to the Company in connection with their approval of certain executive compensation arrangements and certain related party transactions. The Board of Directors appointed a Special Litigation Committee to investigate the claims and allegations made in the derivative action, and to decide on behalf of the Company whether the claims and allegations should be pursued. The derivative action has been stayed by the court pending the decision of the Special Litigation Committee. It is not known when the Special Litigation Committee will complete its work, or what it will decide. 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.
The exposure to loss related to the Company’s discontinued Trade Secret salon concept is the guarantee of certain operating leases that have future minimum rents. The Company has determined the exposure to the risk of loss on the guarantee of the operating leases to be immaterial to the financial statements.
8.
GOODWILL AND OTHER INTANGIBLES:
The table below contains details related to the Company’s recorded goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
June 30, 2013
|
|
|
|
Gross
Carrying
Value
|
|
Accumulated
Impairment (1)
|
|
Net (2)
|
|
Gross
Carrying
Value
|
|
Accumulated
Impairment
|
|
Net
|
|
|
|
(Dollars in thousands)
|
|
Goodwill
|
|
$
|
678,993
|
|
|
$
|
(253,661
|
)
|
|
$
|
425,332
|
|
|
$
|
679,607
|
|
|
$
|
(218,722
|
)
|
|
$
|
460,885
|
|
_____________________________
(1) The table below contains additional information regarding the Company’s
$(253.7) million
accumulated impairment losses:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Impairment Charge
|
|
Reporting Unit (3)
|
|
|
|
(Dollars in thousands)
|
|
|
|
2009
|
|
$
|
(41,661
|
)
|
|
International
|
|
2010
|
|
(35,277
|
)
|
|
North American Premium
|
|
2011
|
|
(74,100
|
)
|
|
North American Value
|
|
2012
|
|
(67,684
|
)
|
|
North American Premium
|
|
2013
|
|
—
|
|
|
N/A
|
|
2014 (4)
|
|
(34,939
|
)
|
|
North American Premium
|
|
Total
|
|
$
|
(253,661
|
)
|
|
|
_____________________________
(2) Remaining net goodwill relates to the Company’s North American Value reporting unit.
(3) See Notes 1 and 11 to the Condensed Consolidated Financial Statements.
(4) See Note 1 to the Condensed Consolidated Financial Statements.
The table below presents other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
June 30, 2013
|
|
|
|
Cost
|
|
Accumulated
Amortization (1)
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization (1)
|
|
Net
|
|
|
|
(Dollars in thousands)
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand assets and trade names
|
|
$
|
9,214
|
|
|
$
|
(3,354
|
)
|
|
$
|
5,860
|
|
|
$
|
9,310
|
|
|
$
|
(3,226
|
)
|
|
$
|
6,084
|
|
|
Franchise agreements
|
|
11,076
|
|
|
(6,974
|
)
|
|
4,102
|
|
|
11,187
|
|
|
(6,839
|
)
|
|
4,348
|
|
|
Lease intangibles
|
|
14,762
|
|
|
(6,951
|
)
|
|
7,811
|
|
|
14,754
|
|
|
(6,582
|
)
|
|
8,172
|
|
|
Non-compete agreements
|
|
198
|
|
|
(163
|
)
|
|
35
|
|
|
201
|
|
|
(147
|
)
|
|
54
|
|
|
Other
|
|
4,799
|
|
|
(1,965
|
)
|
|
2,834
|
|
|
4,614
|
|
|
(1,776
|
)
|
|
2,838
|
|
|
|
|
$
|
40,049
|
|
|
$
|
(19,407
|
)
|
|
$
|
20,642
|
|
|
$
|
40,066
|
|
|
$
|
(18,570
|
)
|
|
$
|
21,496
|
|
_____________________________
|
|
|
|
(1)
|
Balance sheet accounts are converted at the applicable exchange rates effective as of the reported balance sheet dates, while income statement accounts are converted at the average exchange rates for the year-to-date periods presented.
|
9.
FINANCING ARRANGEMENTS:
The Company’s long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts outstanding
|
|
|
|
Maturity Dates
|
|
Interest Rate
|
|
December 31,
2013
|
|
June 30,
2013
|
|
|
|
(fiscal year)
|
|
|
|
(Dollars in thousands)
|
|
Convertible senior notes
|
|
2015
|
|
5.00%
|
|
$
|
169,289
|
|
|
$
|
166,454
|
|
|
Senior term notes
|
|
2018
|
|
5.75
|
|
120,000
|
|
|
—
|
|
|
Revolving credit facility
|
|
2018
|
|
—
|
|
—
|
|
|
—
|
|
|
Equipment and leasehold notes payable
|
|
2015 - 2016
|
|
4.90 - 8.75
|
|
4,864
|
|
|
8,316
|
|
|
|
|
|
|
|
|
294,153
|
|
|
174,770
|
|
|
Less current portion
|
|
|
|
|
|
(174,143
|
)
|
|
(173,515
|
)
|
|
Long-term portion
|
|
|
|
|
|
$
|
120,010
|
|
|
$
|
1,255
|
|
Convertible Senior Notes
In July 2009, the Company issued
$172.5 million
aggregate principal amount of
5.0%
convertible senior notes due July 2014. The notes are unsecured, senior obligations of the Company and interest is payable semi-annually in arrears on January 15 and July 15 of each year at a rate of
5.0%
per year. As of
December 31, 2013
, the conversion rate was
65.6019
shares of the Company’s common stock per
$1,000
principal amount of notes, representing a conversion price of approximately
$15.24
per share of the Company’s common stock. Interest expense related to the
5.0%
contractual interest coupon was
$4.3 million
during the
six
months ended
December 31, 2013
and
2012
. Interest expense related to the amortization of the debt discount was
$2.8
and
$2.6 million
during the
six
months ended
December 31, 2013
and
2012
, respectively.
Senior Term Notes
In November 2013, the Company issued
$120.0 million
aggregate principal amount of
5.75%
senior notes due December 2017 (Senior Term Notes). Net proceeds from the issuance of the Senior Term Notes were
$118.1 million
, after underwriting and issuance costs of
$1.9 million
. Interest on the Senior Term Notes is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2014, at a rate of
5.75%
per year. The Senior Term Notes rank equally with the Company’s existing and future unsubordinated unsecured debt. The Senior Term Notes are effectively subordinated to any of the Company’s existing and future secured debt. The Senior Term Notes are unsecured and not guaranteed by any of the Company’s subsidiaries or any third party.
The Senior Term Notes contain maintenance covenants, including limitations on incurrence of debt, granting of liens, investments, merger or consolidation, certain restricted payments and transactions with affiliates, none of which are more restrictive than those under the Company’s credit facility.
Revolving Credit Facility
As of
December 31, 2013
and
June 30, 2013
, the Company had
no
outstanding borrowings under this facility. Additionally, the Company had outstanding standby letters of credit under the facility of
$2.2 million
at
December 31, 2013
and
June 30, 2013
primarily related to the Company's self-insurance program. Unused available credit under the facility at
December 31, 2013
and
June 30, 2013
was
$397.8 million
.
The Company was in compliance with all covenants and requirements of its financing arrangements as of and during the three months ended
December 31, 2013
.
10.
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 that are Measured at Fair Value on a Recurring Basis
As of
December 31, 2013
, the Company’s financial instruments included cash, cash equivalents, receivables, accounts payable and debt. The fair value of these instruments approximated their carrying values as of
December 31, 2013
and
June 30, 2013
.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We measure certain assets, including the Company’s equity method investments, tangible fixed assets and goodwill, at fair value on a nonrecurring basis when they are deemed to be other than temporarily impaired. The fair values of the Company’s investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. During the three months ended
December 31, 2013
, goodwill of the Regis salon concept reporting unit with a carrying value of
$34.9 million
was written down to its implied fair value of
zero
, resulting in a non-cash impairment charge of
$34.9 million
. The Company calculated the estimated fair value of the Regis salon concept reporting unit based on discounted future cash flows that utilized estimates in annual revenues, cost of service and product rates, fixed expense rates, allocated corporate overhead, long-term growth rates for determining terminal value, discount rate based on the weighted average cost of capital and comparative market multiples. See Notes 1 and 8 to the Condensed Consolidated Financial Statements.
11.
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 second quarter of fiscal year 2014, the Company redefined its operating segments to reflect how the chief operating decision maker evaluates the business as a result of the restructuring of the Company's North American field organization. The field reorganization, which impacted all North American salons except for salons in the mass premium category, was announced in the fourth quarter of fiscal year 2013 and completed in the second quarter of fiscal year 2014. The Company now reports its operations in
three
operating segments: North American Value, North American Premium and International. The Company's operating segments are its reportable operating segments. Prior to this change in organizational structure, the Company had
two
reportable operating segments: North American salons and International salons. The Company did not completely operate under the realigned operating segments structure prior to the second quarter of fiscal year 2014.
The North American Value reportable operating segment is comprised of
8,311
company-owned and franchised salons located mainly in strip center locations and Walmart Supercenters. North American Value salons offer high quality, convenient and value priced hair care and beauty services and retail products. SmartStyle, Supercuts, MasterCuts, Cost Cutters, and other regional trade names operating in the United States, Canada and Puerto Rico are generally within the North American Value segment.
The North American Premium reportable operating segment is comprised of
835
company-owned salons primarily in mall based locations. North American Premium salons offer upscale hair care and beauty services and retail products at reasonable prices. This segment operates in the United States, Canada and Puerto Rico and primarily includes the Regis salons concept, among other trade names.
The International reportable operating segment is comprised of
365
company-owned salons located in malls, leading department stores, and high-traffic locations. International salons offer a full range of custom hair care and beauty services and retail products. This segment operates in the United Kingdom primarily under the Supercuts, Regis and Sassoon concepts.
Concurrent with the change in reportable operating segments, the Company revised its prior period financial information to reflect comparable financial information for the new segment structure. Historical financial information shown in the following table and elsewhere in this filing reflects this change.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended December 31,
|
|
For the Six Months
Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(Dollars in thousands)
|
|
Revenues (1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Value
|
|
$
|
351,987
|
|
|
$
|
378,889
|
|
|
$
|
707,328
|
|
|
$
|
756,920
|
|
|
North American Premium
|
|
84,794
|
|
|
94,513
|
|
|
168,984
|
|
|
190,364
|
|
|
International
|
|
31,586
|
|
|
32,763
|
|
|
60,638
|
|
|
64,241
|
|
|
|
|
$
|
468,367
|
|
|
$
|
506,165
|
|
|
$
|
936,950
|
|
|
$
|
1,011,525
|
|
|
Operating (loss) income (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Value
|
|
$
|
26,790
|
|
|
$
|
37,357
|
|
|
$
|
56,841
|
|
|
$
|
74,017
|
|
|
North American Premium (2)
|
|
(38,909
|
)
|
|
(2,155
|
)
|
|
(40,152
|
)
|
|
(4,837
|
)
|
|
International
|
|
495
|
|
|
233
|
|
|
238
|
|
|
655
|
|
|
Total segment operating (loss) income
|
|
(11,624
|
)
|
|
35,435
|
|
|
16,927
|
|
|
69,835
|
|
|
Unallocated Corporate
|
|
(23,036
|
)
|
|
(26,712
|
)
|
|
(50,158
|
)
|
|
(51,839
|
)
|
|
Operating (loss) income (1)
|
|
$
|
(34,660
|
)
|
|
$
|
8,723
|
|
|
$
|
(33,231
|
)
|
|
$
|
17,996
|
|
_____________________________
|
|
|
|
(1)
|
See Note 2 to the Condensed Consolidated Financial Statements for discussion of the classification of the results of operations of Hair Club as a discontinued operation.
|
(2) Includes a non-cash goodwill impairment charge of
$34.9 million
for the Regis salon concept reporting unit. See Notes 1 and 8 to the Condensed Consolidated Financial Statements.
Item 2. 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. This MD&A should be read in conjunction with the MD&A included in our
June 30, 2013
Annual Report on Form 10-K and other documents filed or furnished with the Securities and Exchange Commission (SEC) during the current fiscal year.
MANAGEMENT’S OVERVIEW
Regis Corporation (RGS) owns, franchises and operates beauty salons. Our mission is to create guests for life. Our strategies underlying our mission are focused in two main areas: guest experience and salon support. We plan to execute these strategies by putting guests and stylists first, focusing on technology and connectivity, building a winning team with a performance-driven culture, simplifying our operating model, and reviewing our non-core assets. Since fiscal year 2012, the Company has been evaluating its portfolio of assets, investments and businesses, with the strategic objective of simplifying our business model, focusing on our core business of operating beauty salons and improving our long-term profitability and maximizing shareholder value. The disposal or sale of any non-core assets may impact our operations by decreasing total revenues, operating expenses and income or loss from equity method investments. This evaluation led to the sale of our Hair Club and Provalliance businesses during fiscal year 2013.
As of
December 31, 2013
, we owned, franchised or held ownership interests in
9,757
worldwide locations. Our locations consisted of
9,511
system-wide North American and International salons, and
246
locations in which 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 and serve the mass market. As of
December 31, 2013
, we had approximately 50,000 corporate employees worldwide.
CRITICAL ACCOUNTING POLICIES
The interim Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the interim Condensed 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 interim Condensed 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 interim Condensed Consolidated Financial Statements.
Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of the
June 30, 2013
Annual Report on Form 10-K, as well as Note 1 to the Condensed Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q. We believe the accounting policies related to investment in affiliates, the valuation of goodwill, the valuation and estimated useful lives of long-lived assets, estimates used in relation to tax liabilities and deferred taxes and legal contingencies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Discussion of each of these policies is contained under “Critical Accounting Policies” in Part II, Item 7 of our
June 30, 2013
Annual Report on Form 10-K.
See discussion of potential impairment of a portion or all of the carrying value of our investment in EEG within Note 3, respectively, to the Condensed Consolidated Financial Statements.
Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in Note 1 to the Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
Beginning with the period ended September 30, 2012, the Hair Restoration Centers reportable segment was accounted for as a discontinued operation. All comparable periods reflect Hair Restoration Centers as a discontinued operation. Discontinued operations is discussed at the end of this section.
Beginning in the first quarter of fiscal year 2014, costs associated with field leaders, excluding salons within the mass premium category, that were previously recorded within General and Administrative expense are now categorized within Cost of Service and Site Operating expense as a result of the field reorganization that took place in the fourth quarter of fiscal year 2013. Previously, field leaders did not work on the salon floor daily. As reorganized, field leaders now spend most of their time on the salon floor leading and mentoring stylists, and serving guests. Accordingly, field leader costs, including their labor and travel costs, now directly arise from the management of salon operations. As a result, district and senior district leader labor costs are reported within Cost of Service rather than General and Administrative expenses, and their travel costs are reported within Site Operating expenses rather than General and Administrative expenses. This expense classification does not have a financial impact on the Company’s reported operating income (loss), reported net income (loss) or cash flows from operations.
Beginning in the second quarter of fiscal year 2014, the Company redefined its operating segments to reflect how the chief operating decision maker evaluates the business subsequent to the restructuring of its North American field organization that took place in the fourth quarter of fiscal year 2013 and was completed during the second quarter of fiscal year 2014. See Notes 1 and 11 to the Condensed Consolidated Financial Statements.
Recent Developments
During the fourth quarter of fiscal year 2013, the Company made significant investments in strategies to turn around its business and drive improved long-term sustainable revenue and profitability growth. These initiatives included rolling out a new point-of-sale (POS) system and salon workstations in our North American salons, restructuring our North American field organization and standardizing plan-o-grams and reducing our retail product assortment. However, as a result of these transformational changes, the Company’s financial performance during the three and six months ended December 31, 2013 was negatively impacted.
Management’s focus continues to be on reversing the negative impact of the disruption caused by the strategic investments made during the fourth quarter of fiscal year 2013 and expects our business performance to improve over time.
In December 2013, the Company announced the implementation of a new capital allocation policy. The three key principles underlying this new strategy focus on preserving a strong balance sheet and enhancing operating flexibility, preventing unnecessary dilution so the benefits of future value accrue to existing shareholders and deploying capital to the highest and best use by optimizing the tradeoff between risk and after-tax returns.
As a result of this new strategy, the Company intends to retain excess cash during its ongoing turnaround efforts and focus primarily on growing the number of franchised locations and continuing to expand its company-owned locations through its partnership with WalMart. In addition, while no definitive decision has been made, the Company intends to utilize the proceeds from the Senior Term Notes, along with existing cash and cash equivalents, to settle the
$172.5 million
of
5.0%
convertible senior notes due in July 2014.
Condensed Consolidated Results of Operations
The following table sets forth, for the periods indicated, certain information derived from our Condensed Consolidated Statement of Operations. The percentages are computed as a percent of total consolidated revenues, except as otherwise indicated. Subsequent to our earnings release on January 27, 2014, we recorded an adjustment of $0.9 million to decrease unemployment tax expense, thereby reducing cost of service and general and administrative expense by $0.8 and $0.1 million, respectively, from the amounts reported in our earnings release. As a result of the foregoing adjustment, net losses were
$109.1
and
$109.2 million
and diluted net loss per share were
$1.93
and
$1.94
for the three and six months ended December 31, 2013, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Periods Ended December 31,
|
|
|
Three Months
|
|
Six Months
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
($ in millions)
|
|
% of Total
Revenues
|
|
Basis Point
Increase
(Decrease)
|
|
($ in millions)
|
|
% of Total
Revenues
|
|
Basis Point
Increase
(Decrease)
|
|
Service revenues
|
$
|
361.0
|
|
|
$
|
388.3
|
|
|
77.1
|
%
|
|
76.7
|
%
|
|
40
|
|
|
(10
|
)
|
|
$
|
732.7
|
|
|
$
|
781.7
|
|
|
78.2
|
%
|
|
77.3
|
%
|
|
90
|
|
|
(10
|
)
|
|
Product revenues
|
97.8
|
|
|
108.2
|
|
|
20.9
|
|
|
21.4
|
|
|
(50
|
)
|
|
(10
|
)
|
|
184.5
|
|
|
210.5
|
|
|
19.7
|
|
|
20.8
|
|
|
(110
|
)
|
|
—
|
|
|
Franchise royalties and fees
|
9.6
|
|
|
9.6
|
|
|
2.0
|
|
|
1.9
|
|
|
10
|
|
|
20
|
|
|
19.8
|
|
|
19.3
|
|
|
2.1
|
|
|
1.9
|
|
|
20
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (1)
|
223.4
|
|
|
234.3
|
|
|
61.9
|
|
|
60.3
|
|
|
160
|
|
|
300
|
|
|
448.4
|
|
|
466.8
|
|
|
61.2
|
|
|
59.7
|
|
|
150
|
|
|
270
|
|
|
Cost of product (2)
|
50.5
|
|
|
55.1
|
|
|
51.6
|
|
|
50.9
|
|
|
70
|
|
|
40
|
|
|
94.5
|
|
|
108.2
|
|
|
51.2
|
|
|
51.4
|
|
|
(20
|
)
|
|
130
|
|
|
Site operating expenses
|
50.2
|
|
|
49.9
|
|
|
10.7
|
|
|
9.9
|
|
|
80
|
|
|
10
|
|
|
101.0
|
|
|
102.2
|
|
|
10.8
|
|
|
10.1
|
|
|
70
|
|
|
10
|
|
|
General and administrative
|
40.2
|
|
|
55.8
|
|
|
8.6
|
|
|
11.0
|
|
|
(240
|
)
|
|
(90
|
)
|
|
84.6
|
|
|
111.7
|
|
|
9.0
|
|
|
11.0
|
|
|
(200
|
)
|
|
(120
|
)
|
|
Rent
|
79.2
|
|
|
80.6
|
|
|
16.9
|
|
|
15.9
|
|
|
100
|
|
|
10
|
|
|
158.2
|
|
|
162.1
|
|
|
16.9
|
|
|
16.0
|
|
|
90
|
|
|
40
|
|
|
Depreciation and amortization
|
24.6
|
|
|
21.9
|
|
|
5.3
|
|
|
4.3
|
|
|
100
|
|
|
(110
|
)
|
|
48.5
|
|
|
42.6
|
|
|
5.2
|
|
|
4.2
|
|
|
100
|
|
|
(140
|
)
|
|
Goodwill impairment
|
34.9
|
|
|
—
|
|
|
7.5
|
|
|
—
|
|
|
750
|
|
|
—
|
|
|
34.9
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
370
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
5.2
|
|
|
6.6
|
|
|
1.1
|
|
|
1.3
|
|
|
(20
|
)
|
|
(10
|
)
|
|
9.7
|
|
|
13.5
|
|
|
1.0
|
|
|
1.3
|
|
|
(30
|
)
|
|
(10
|
)
|
|
Interest income and other, net
|
0.3
|
|
|
0.6
|
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
(40
|
)
|
|
0.9
|
|
|
35.2
|
|
|
0.1
|
|
|
3.5
|
|
|
(340
|
)
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (3)
|
(72.3
|
)
|
|
(1.1
|
)
|
|
(183.2
|
)
|
|
40.6
|
|
|
(22,380
|
)
|
|
3,320
|
|
|
(72.0
|
)
|
|
(4.1
|
)
|
|
(171.3
|
)
|
|
10.2
|
|
|
(18,150
|
)
|
|
(670
|
)
|
|
Equity in income (loss) of affiliated companies, net of income taxes
|
2.7
|
|
|
(17.7
|
)
|
|
0.6
|
|
|
(3.5
|
)
|
|
410
|
|
|
(450
|
)
|
|
4.7
|
|
|
(17.1
|
)
|
|
0.5
|
|
|
(1.7
|
)
|
|
220
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
—
|
|
|
3.9
|
|
|
—
|
|
|
0.8
|
|
|
(80
|
)
|
|
1,400
|
|
|
—
|
|
|
7.6
|
|
|
—
|
|
|
0.8
|
|
|
(80
|
)
|
|
710
|
|
_____________________________
(1) Computed as a percent of service revenues and excludes depreciation and amortization expense.
(2)
Computed as a percent of product revenues and excludes depreciation and amortization expense.
(3)
Computed as a percent of (loss) income before income taxes and equity in income (loss) of affiliated companies.
Consolidated revenues primarily include revenues of company-owned salons, product and equipment sales to franchisees, and franchise royalties and fees. As compared to their respective prior periods, consolidated revenues decreased
7.5%
and
3.8%
during the three months ended
December 31, 2013
and 2012, respectively, and decreased
7.4%
and
4.3%
during the
six
months ended
December 31, 2013
and 2012, respectively. The following tables summarize revenues and same-store sales by concept as well as the reasons for the percentage change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
For the Six Months Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(Dollars in thousands)
|
|
North American Value salons:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SmartStyle
|
|
$
|
118,783
|
|
|
$
|
127,369
|
|
|
$
|
236,259
|
|
|
$
|
250,367
|
|
|
Supercuts
|
|
84,250
|
|
|
85,109
|
|
|
169,569
|
|
|
172,177
|
|
|
MasterCuts
|
|
32,486
|
|
|
37,604
|
|
|
64,461
|
|
|
75,535
|
|
|
Promenade
|
|
116,468
|
|
|
128,807
|
|
|
237,039
|
|
|
258,841
|
|
|
Total North American Value salons
|
|
351,987
|
|
|
378,889
|
|
|
707,328
|
|
|
756,920
|
|
|
North American Premium salons
|
|
84,794
|
|
|
94,513
|
|
|
168,984
|
|
|
190,364
|
|
|
International salons
|
|
31,586
|
|
|
32,763
|
|
|
60,638
|
|
|
64,241
|
|
|
Consolidated revenues
|
|
$
|
468,367
|
|
|
$
|
506,165
|
|
|
$
|
936,950
|
|
|
$
|
1,011,525
|
|
|
Percent change from prior year
|
|
(7.5
|
)%
|
|
(3.8
|
)%
|
|
(7.4
|
)%
|
|
(4.3
|
)%
|
|
Salon same-store sales decrease (1)
|
|
(6.2
|
)%
|
|
(1.9
|
)%
|
|
(5.8
|
)%
|
|
(2.5
|
)%
|
_____________________________
(1)
Same-store sales are calculated on a daily basis as the total change in sales for company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly same-store sales are the sum of the same-store sales computed on a daily basis. Locations relocated within a one-mile radius are included in same-store sales as they are considered to have been open in the prior period. International same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.
Decreases of
7.5%
and
3.8%
in consolidated revenues during the three months ended
December 31, 2013
and
2012
, respectively, and
7.4%
and
4.3%
in consolidated revenues during the
six
months ended
December 31, 2013
and
2012
, respectively, were driven by the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
For the Six Months Ended
December 31,
|
|
Factor
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Same-store sales
|
|
(6.2
|
)%
|
|
(1.9
|
)%
|
|
(5.8
|
)%
|
|
(2.5
|
)%
|
|
Closed salons
|
|
(2.7
|
)
|
|
(3.4
|
)
|
|
(2.9
|
)
|
|
(3.2
|
)
|
|
New stores and conversions
|
|
0.7
|
|
|
1.2
|
|
|
0.8
|
|
|
1.4
|
|
|
Other
|
|
0.7
|
|
|
0.3
|
|
|
0.5
|
|
|
—
|
|
|
|
|
(7.5
|
)%
|
|
(3.8
|
)%
|
|
(7.4
|
)%
|
|
(4.3
|
)%
|
Same-store sales by concept for the three and
six
months ended
December 31, 2013
and
2012
, respectively, are detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
For the Six Months Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
SmartStyle
|
|
(7.9
|
)%
|
|
0.5
|
%
|
|
(6.7
|
)%
|
|
(1.9
|
)%
|
|
Supercuts
|
|
(1.6
|
)
|
|
0.3
|
|
|
(1.7
|
)
|
|
0.7
|
|
|
MasterCuts
|
|
(10.3
|
)
|
|
(4.2
|
)
|
|
(11.1
|
)
|
|
(4.2
|
)
|
|
Promenade
|
|
(7.0
|
)
|
|
(2.9
|
)
|
|
(6.0
|
)
|
|
(3.0
|
)
|
|
North American Value same-store sales
|
|
(6.5
|
)
|
|
(1.1
|
)
|
|
(5.9
|
)
|
|
(1.9
|
)
|
|
North American Premium same-store sales
|
|
(6.4
|
)
|
|
(3.6
|
)
|
|
(6.8
|
)
|
|
(3.8
|
)
|
|
International same-store sales
|
|
(1.1
|
)
|
|
(6.6
|
)
|
|
(1.3
|
)
|
|
(5.8
|
)
|
|
Consolidated same-store sales
|
|
(6.2
|
)%
|
|
(1.9
|
)%
|
|
(5.8
|
)%
|
|
(2.5
|
)%
|
The same-store sales decrease of
6.2%
and
5.8%
during the three and
six
months ended
December 31, 2013
, respectively, were due to decreases of 7.4% and 7.3%, respectively, in guest visits, partially offset by increases of 1.2% and 1.5%, respectively, in average ticket. The Company constructed (net of relocations) and closed 124 and 319 company-owned salons, respectively, during the twelve months ended
December 31, 2013
.
The same-store sales decreases of
1.9%
and
2.5%
during the three and
six
months ended
December 31, 2012
, respectively, were due to decreases of 3.0% and 2.8%, respectively, in guest visits, partially offset by increases of 1.1% and 0.3%, respectively, in average ticket. The Company acquired five salons (including four franchise salon buybacks) during the twelve months ended
December 31, 2012
. The Company constructed (net of relocations) and closed 188 and 434 company-owned salons, respectively, during the twelve months ended
December 31, 2012
.
Consolidated revenues are primarily comprised of service and product revenues, as well as franchise royalties and fees. Fluctuations in these three major revenue categories, operating expenses and other income and expense were as follows:
Service Revenues
Decreases of
$27.3
and
$49.0 million
in service revenues during the three and
six
months ended
December 31, 2013
, respectively, were primarily due to same-store service sales decreases of 5.5% and 4.3%, respectively. Decreases in same-store service sales were primarily the result of 6.6% and 6.2% decreases in same-store guest visits, respectively, partly offset by 1.1% and 1.9% increases in average ticket, respectively, during the three and
six
months ended
December 31, 2013
. The closure of 319 company-owned salons during the twelve months ended
December 31, 2013
, partly offset by newly constructed salons during the same period, drove the remaining declines in service sales compared to the prior year.
Decreases of
$15.7
and
$37.3 million
in service revenues during the three and six months ended
December 31, 2012
, respectively, were primarily due to same-store service sales decreases of 1.5% and 2.3%, respectively. Decreases in same-store service sales were primarily the result of 2.2% decreases in same-store guest visits during both periods. The three months ended
December 31, 2012
benefited from a 0.7% increase in average ticket. The six months ended
December 31, 2012
reported a 0.1% decrease in average ticket. The three months ended
December 31, 2012
were negatively impacted by Hurricane Sandy. The closure of 434 company-owned salons during the twelve months ended
December 31, 2012
, partly offset by new salons opened during the same period, drove the remaining declines in service sales compared to the prior year.
Product Revenues
Decreases of
$10.5
and
$26.0 million
in product revenues during the three and
six
months ended
December 31, 2013
, respectively, were primarily due to same-store product sales decreases of 9.2% and 11.9%, respectively. Decreases in same-store product sales were primarily the result of 12.8% and 15.1% decreases in same-store guest visits, respectively, partly offset by 3.6% and 3.2% increases in average ticket, respectively. The closure of 319 company-owned salons during the twelve months ended
December 31, 2013
, partly offset by newly constructed salons during the same period, drove the remaining declines in product sales compared to the prior year.
Decreases of
$4.7
and
$9.2 million
in product revenues during the three and
six
months ended
December 31, 2012
, respectively, were primarily due to same-store product sales decreases of 3.6% and 3.4%, respectively. Decreases in same-store
product sales were the result of 7.4% and 6.8% decreases in same-store guest visits, respectively, partly offset by 3.8% and 3.4% increases in average ticket, respectively. The closure of 434 company-owned salons during the twelve months ended December 31, 2012, partly offset by new salons opened during the same period, drove remaining declines in product sales compared to the prior year.
Royalties and Fees
Total franchised locations open at
December 31, 2013
were
2,123
as compared to 2,039 at
December 31, 2012
. Royalties and fees for the three months ended
December 31, 2013
were flat to the comparable prior period. The increase of
$0.4 million
in royalties and fees for the
six
months ended
December 31, 2013
compared to the prior year period was primarily due to the increase in franchised locations.
Total franchised locations open at
December 31, 2012
were 2,039, as compared to 2,007, at December 31, 2011. The increases of
$0.4
and
$0.5 million
in royalties and fees, respectively, were primarily due to franchise positive same-store sales and the increase in franchised locations during the twelve months ended
December 31, 2012
.
Cost of Service
The
160
and
150
basis point increases in cost of service as a percent of service revenues during the three and
six
months ended
December 31, 2013
, respectively, were primarily due to the change in expense categorization as a result of the field reorganization that took place during the fourth quarter of fiscal year 2013. The change in expense categorization accounted for 140 basis points of the increases for the three and
six
months ended
December 31, 2013
. The remaining increases of 20 and 10 basis points for the three and
six
months ended
December 31, 2013
, respectively, were primarily the result of negative leverage from stylist hours caused by same-store service sales declines and increased health care costs, partially offset by cost reductions due to the field reorganization, reduced labor costs associated with lower levels of bonuses and a full commission coupon event that was not repeated this year.
The
300
and
270
basis point increases in cost of service as a percent of service revenues during the three and
six
months ended
December 31, 2012
, respectively, were primarily due to increased labor costs in our North American Value salons, a result of increased hours, compensating stylists on the gross sales amount during certain coupon events and a new manager bonus program.
Cost of Product
The
70
basis point increase in cost of product as a percent of product revenues during the three months ended
December 31, 2013
was primarily due to an increase in retail promotions, partially offset by a vendor volume rebate and reduced sales commissions and bonuses due to lower sales. The
20
basis point decrease in cost of product as a percent of product revenues during the
six
months ended
December 31, 2013
was primarily due to reduced sales commissions and bonuses from lower sales, partly offset by an increase in retail promotions.
The
40
and
130
basis point increases in cost of product as a percent of product revenues during the three and
six
months ended
December 31, 2012
, respectively, were primarily a result of inventory write-offs associated with salon locations that closed during the twelve months ended
December 31, 2012
and donations associated with Hurricane Sandy. In addition, the basis point increase during the six months ended
December 31, 2012
, was also due to higher commissions paid to stylists in our North American Value salons as a result of a service and retail combined ticket commission incentive and a shift in mix to promotionally discounted items.
Site Operating Expenses
The
80
and
70
basis point increases in site operating expenses as a percent of consolidated revenues during the three and
six
months ended
December 31, 2013
were primarily due to the change in expense categorization as a result of the field reorganization and negative leverage caused by same-store sales declines. The change in expense categorization accounted for 40 and 50 basis points of the increases in site operating for the three and
six
months ended
December 31, 2013
, respectively. Site operating expenses increased (decreased)
$0.3
and
$(1.2) million
for the three and
six
months ended
December 31, 2013
, respectively. After considering the prior year change in expense categorization, site operating expense decreased $2.0 and $5.9 million during the three and
six
months ended
December 31, 2013
, respectively, primarily as a result of cost savings initiatives to lower utilities and repairs and maintenance expenses, lower travel expense due to the field reorganization, and reduced freight and self-insurance expenses, partly offset by increased salon connectivity costs to support the Company’s new POS system and salon workstations.
The
10
basis point increases in site operating expenses as a percent of consolidated revenues during the three and
six
months ended
December 31, 2012
were primarily due to negative leverage as a result of the decrease in same-store sales. Site operating expenses decreased due to a reduction in advertising expense partly offset by higher charges for salon internet connectivity.
General and Administrative
General and administrative (G&A) decreased
$15.6 million
, or
240
basis points as a percent of consolidated revenues during the three months ended
December 31, 2013
and
$27.0 million
, or
200
basis points as a percent of consolidated revenues during the
six
months ended
December 31, 2013
. These improvements were primarily due to the change in expense categorization as a result of the field reorganization. The change in expense categorization accounted for $7.8 and $15.7 million of the decreases for the three and
six
months ended
December 31, 2013
, respectively. The remaining decreases of $7.8 and $11.3 million during the three and
six
months ended
December 31, 2013
, respectively, were primarily due to reduced levels of incentive compensation in our North American Value and Unallocated Corporate segments, cost savings initiatives and savings from the field reorganization and a favorable deferred compensation adjustment within our Unallocated Corporate segment, partly offset by legal and professional fees associated with the Company's ongoing review of non-core assets. The Company remains focused on simplification to drive further cost efficiencies.
The
90
and
120
basis point decreases in G&A costs as a percent of consolidated revenues during the three and
six
months ended
December 31, 2012
were primarily due to the comparable prior period including costs associated with the Company’s senior management restructuring and professional fees incurred in connection with the contested proxy within our Unallocated Corporate segment. In addition, salary expense decreased due to the January 2012 corporate workforce reduction and lower warehouse costs.
Rent
Rent expense decreased
$1.4
and
$3.9 million
during the three and
six
months ended
December 31, 2013
due to salon closures, primarily within our North American Premium segment. The
100
and
90
basis point increases in rent expense as a percent of consolidated revenues for the three and
six
months ended
December 31, 2013
, respectively, and the
10
and
40
basis point increases in rent expense as a percent of consolidated revenues for the three and
six
months ended
December 31, 2012
, respectively, were due to negative leverage caused by same-store sales declines.
Depreciation and Amortization
The
100
basis point increases in depreciation and amortization (D&A) as a percent of consolidated revenues during the three and
six
months ended
December 31, 2013
, were primarily due to increased fixed asset impairment charges recorded in our North American Premium segment, depreciation expense related to the Company’s POS and salon workstations installed in the fourth quarter of fiscal year 2013, accelerated depreciation expense associated with a leased building in conjunction with the Company’s headquarters consolidation recorded in our Unallocated Corporate segment and negative leverage caused by same-store sales declines.
The
110
and
140
basis point decreases in D&A as a percent of consolidated revenues during the three and
six
months ended
December 31, 2012
were primarily due to the comparable prior period including $6.3 and $15.0 million, respectively, of accelerated depreciation expense, primarily in our Unallocated Corporate segment, associated with the Company's previously internally developed POS system.
Goodwill Impairment
The Company recorded a goodwill impairment charge of
$34.9 million
related to the Company's Regis salon concept reporting unit during the three and
six
months ended
December 31, 2013
. Because we redefined our operating segments during the quarter, and our performance trends were down, we were required to perform this goodwill assessment. As a result of this non-cash charge, we have no further goodwill on our balance sheet associated with the Regis salon concept (North American Premium). We remain focused on improving the performance of this business as we stabilize and turn around the business. See Notes 1, 8 and 11 to the Condensed Consolidated Financial Statements.
Interest Expense
The decreases of
$1.5
and
$3.8 million
in interest expense for the three and
six
months ended
December 31, 2013
, respectively, and
$0.6
and
$1.1 million
in interest expense for the three and
six
months ended
December 31, 2012
, respectively, were primarily due to decreased average debt levels as compared to the prior year comparable period.
Interest Income and Other, net
Interest income and other, net as a percent of consolidated revenues during the three months ended
December 31, 2013
was flat. The
40
basis point decrease in interest income and other, net as a percent of consolidated revenues during the three months ended
December 31, 2012
was primarily due to the prior year comparable period including a favorable legal settlement and the foreign currency impact on the Company's investment in MY Style.
The
340
basis point decrease and
310
basis point increase in interest income and other, net as a percent of consolidated revenues during the
six
months ended
December 31, 2013
and 2012, respectively, was primarily due to the recognition of a
$33.8 million
foreign currency translation gain in connection with the sale of Provalliance during the six months ended
December 31, 2012
.
Income Taxes
During the three months ended
December 31, 2013
and 2012, the Company recognized tax expense of
$72.3
and
$1.1
million, respectively, with corresponding effective tax rates of
(183.2)%
and
40.6%
, respectively, and for the
six
months ended
December 31, 2013
and 2012,
$72.0
and
$4.1 million
, respectively, with corresponding effective tax rates of
(171.3)%
and
10.2%
, respectively.
The recorded tax expense and the effective tax rate for the three and six months ended December 31, 2013 were higher than would be expected due primarily to the $83.1 million non-cash charge to establish a valuation allowance against the Company’s United States deferred tax assets and a
$34.9 million
non-cash goodwill impairment charge which was only partly deductible for tax purposes. The Company's United States deferred tax assets generally expire many years into the future, or have no definite expiration period. On a quarterly basis, the Company is required to assess the likelihood that deferred tax assets will be recovered. 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. During the second quarter of fiscal year 2014, the impacts from strategic initiatives implemented late in fiscal year 2013 were continuing to negatively impact the Company’s financial performance. Accordingly, the Company incurred this non-cash charge to establish a valuation allowance against its United States deferred tax assets. A large portion of the Company’s recent losses related to our turnaround strategy, and have included material discrete charges, mainly non-cash in nature. We believe our business model is sound, our balance sheet is strong and our business continues to generate positive cash flow. We are focused on restoring the Company to sustainable growth and improved profitability. When this occurs, the Company will reverse this allowance. See Notes 1 and 6 to the Condensed Consolidated Financial Statements.
Equity in Income of Affiliated Companies, Net of Income Taxes
The equity in income of affiliated companies of
$2.7
and
$4.7 million
during the three and
six
months ended
December 31, 2013
, respectively, was primarily due to the recovery of $2.1 and $3.1 million, respectively, on previously impaired investments in Yamano and the Company’s share of EEG’s net income. See Note 3 to the Condensed Consolidated Financial Statements.
The equity in losses of affiliated companies during the three and
six
months ended
December 31, 2012
of
$17.7
and
$17.1 million
, respectively, were primarily a result of the Company's $17.9 million other than temporary impairment charge recorded on its investment in EEG in the three months ended
December 31, 2012
.
Income from Discontinued Operations, Net of Income Taxes
During the three and
six
months ended
December 31, 2012
, the Company recognized
$3.9
and
$7.6 million
of income, net of taxes from Hair Club operations. See Note 2 to the Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents, and our borrowing agreements are our most significant sources of liquidity. We believe these sources of liquidity will be sufficient to sustain operations and to finance strategic initiatives. However, in the event our liquidity is insufficient, we may be required to limit or delay our strategic initiatives. There can be no assurance that we will continue to generate cash flows at or above current levels.
As of
December 31, 2013
, cash and cash equivalents were
$339.4
million, with $307.2, $11.2 and $21.0 million within the United States, Canada, and Europe, respectively.
We have a $400.0 million five-year senior unsecured revolving credit facility with a syndicate of banks that expires in June 2018. As of
December 31, 2013
, the Company had no outstanding borrowings under the facility and had outstanding standby letters of credit under the facility of $2.2 million. Accordingly, unused available credit under the facility at
December 31, 2013
was $397.8 million.
Our ability to access our revolving credit facility is subject to our compliance with the terms and conditions of such facility including a maximum leverage ratio, a minimum fixed charge ratio and other covenants and requirements. At
December 31, 2013
, we were in compliance with all covenants and other requirements of our credit agreement and senior notes.
Uses of Cash
We intend to retain excess cash as we continue to execute on the strategic initiatives implemented during the fourth quarter of fiscal year 2013. Once the business stabilizes, excess cash will be directed to its highest and best use to maximize shareholder value.
In addition, while no definitive decision has been made, the Company intends to utilize the proceeds from the Senior Term Notes, along with existing cash and cash equivalents, to settle the
$172.5 million
of
5.0%
convertible senior notes due in July 2014.
Cash Flows
Cash Flows from Operating Activities
During the
six
months ended
December 31, 2013
, cash provided by operating activities of
$49.2
million decreased by
$9.7
million compared to the prior comparable period, primarily as a result of the decrease in revenues and operating income and a
$3.6 million
increase in working capital.
During the
six
months ended
December 31, 2012
, cash provided by operating activities of
$59.0 million
decreased by $3.0 million compared to the prior comparable period, primarily as a result of decreased revenues and increased cost of service and product.
Cash Flows from Investing Activities
During the
six
months ended
December 31, 2013
, cash used in investing activities of
$18.9
million was primarily for capital expenditures of
$23.9 million
, partly offset by cash provided from the recovery of $3.1 million on the Company’s previously impaired investments in Yamano and the receipt of $2.0 million for the final working capital adjustment on the sale of Hair Club.
During the
six
months ended
December 31, 2012
, cash provided by investing activities of
$88.0 million
was due to the receipt of $103.4 million for the sale of Provalliance and $26.4 million from EEG related to principal payments on outstanding notes and a revolving line of credit, partially offset by cash used for capital expenditures of
$43.2 million
.
Cash Flows from Financing Activities
During the
six
months ended
December 31, 2013
and 2012, cash provided by (used in) financing activities of
$107.8
and
$(43.1) million
, respectively, were for dividends paid of
$6.8
and
$6.9 million
, respectively, and net borrowings (repayments)
of long-term debt of
$114.6
and
$(21.3) million
, respectively. In addition, during the
six
months ended
December 31, 2012
, the Company repurchased
$14.9 million
of common stock.
Financing Arrangements
In November 2013, the Company issued
$120.0 million
aggregate principal amount of
5.75%
senior notes due December 2017. Net proceeds from the issuance of the Senior Term Notes were
$118.1 million
. Interest on the Senior Term Notes is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2014. All of the outstanding principal is due at maturity.
See Note 9 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended
December 31, 2013
and Note 7 of the Notes to Condensed Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended
June 30, 2013
, for additional information regarding our financing arrangements.
Debt to Capitalization Ratio
Our debt to capitalization ratio, calculated as total debt as a percentage of total debt and shareholders’ equity at fiscal quarter end, was as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
Debt to
Capitalization
|
|
Basis Point
Increase
(Decrease)(1)
|
|
December 31, 2013
|
|
28.3
|
%
|
|
1,140
|
|
|
June 30, 2013
|
|
16.9
|
%
|
|
(750
|
)
|
_____________________________
(1)
Represents the basis point change in debt to capitalization as compared to prior fiscal year end (June 30).
The
1,140
basis point increase in the debt to capitalization ratio as of
December 31, 2013
compared to
June 30, 2013
, is primarily due to the issuance of the $120.0 million Senior Term Notes, the
$34.9
million non-cash goodwill impairment charge for the Regis salon concept and the $83.1 million non-cash valuation allowance established against the United States deferred tax assets during the
six
months ended
December 31, 2013
.
The
750
basis point decrease in the debt to capitalization ratio as of
June 30, 2013
compared to June 30, 2012 was primarily due to the prepayment of
$89.3 million
in private placement debt.
Dividends
We paid dividends of
$0.12
per share during the
six
months ended
December 31, 2013
and 2012. In December 2013, the Company announced a new capital allocation policy. As a result of this policy, the Board of Directors elected to discontinue declaring regular quarterly dividends.
Share Repurchase Program
There were no share repurchases during the three months ended
December 31, 2013
. At
December 31, 2013
, $58.7 million remains outstanding under the approved stock repurchase program.
SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain “forward-looking statements” within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect management’s best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, “may,” “believe,” “project,” “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 impact of significant initiatives and changes in our management and organizational structure; negative same-store sales; the success of our stylists and our ability to attract and retain talented stylists; the effect of changes to healthcare laws; changes in regulatory and statutory laws; the Company’s reliance on management information systems; competition within the personal hair care industry, which remains strong, both domestically and internationally; changes in economic conditions; the continued ability of the Company to implement cost reduction initiatives; certain of the terms and provisions of the outstanding convertible notes; failure to optimize our brand portfolio; the ability of the Company to maintain satisfactory relationships with certain companies and suppliers; financial performance of our joint ventures; changes in interest rates and foreign currency exchange rates; changes in consumer tastes and fashion trends; our ability to protect the security of personal information about our guests; or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth in the Company’s Annual Report on Form 10-K for the year ended
June 30, 2013
. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change to the factors discussed within Part II, Item 7A in the Company’s June 30, 2013 Annual Report on Form 10-K.
Item 4. 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 in its Exchange Act reports 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 and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
With the participation of management, the Company’s chief executive officer and chief financial officer evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-5(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period. Our management, including our chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective as of
December 31, 2013
.
Changes in Internal Controls over Financial Reporting
Based on management’s most recent evaluation of the Company’s internal control over financial reporting, management determined that there were no changes in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
For a description of legal proceedings, see Note 7 to the Condensed Consolidated Financial Statements in Part I, Item 1.
Item 1A. Risk Factors
We have updated the risk factors affecting our business since those presented in our Annual Report on Form 10-K, Part I, Item 1A, for the fiscal year ended
June 30, 2013
. The following is not an exclusive list of all risk factors the Company faces. You should consider the risks and uncertainties more fully discussed under Part I, Item 1A, Risk Factors within the Company’s 2013 Annual Report on Form 10-K and in any of the Company’s subsequent Securities and Exchange Commission filings.
Significant initiatives implemented and changes in our management and organizational structure may continue to adversely impact our operating results.
Mr. Daniel J. Hanrahan was appointed President and Chief Executive Officer of the Company, effective August 6, 2012. During fiscal year 2013, the Company began executing upon a number of significant strategic initiatives to support and focus on its business strategies to return the Company to sustainable long-term growth and profitability. The Company rolled out a new point-of-sale system and salon workstations in over 95% of its North American salons, restructured the Company’s North American field organization and is standardizing plan-o-grams and eliminating retail products. In addition, the Company’s management is engaged in a strategic review of non-core assets to focus on our core business of operating beauty salons, improving long-term profitability and maximizing shareholder value.
For the three and
six
months ended
December 31, 2013
our operating results were negatively impacted as a result of the strategic changes the Company implemented in the fourth quarter of fiscal year 2013. During the three and
six
months ended
December 31, 2013
, our same-store sales declined
6.2%
and
5.8%
from the comparable prior periods. During the three and
six
months ended
December 31, 2013
, we recorded a non-cash goodwill impairment charge of
$34.9 million
associated with the Regis salon concept and an $83.1 million non-cash valuation allowance established against the United States deferred tax assets. If we are unable to reverse these trends and effectively execute upon these strategic initiatives, our financial results may continue to be negatively affected and we may be required to take future impairment charges. Such impairments could be material to our consolidated balance sheet and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In May 2000, our Board of Directors approved a stock repurchase program. To date, a total of $300.0 million has been authorized to be expended for the repurchase of the Company’s stock. All repurchased shares become authorized but unissued shares of the Company. This repurchase program has no stated expiration date. The timing and amounts of any repurchases will depend on many factors, including the market price of the common stock and overall market conditions. As of
December 31, 2013
, a total accumulated 7.7 million shares have been repurchased for $241.3 million. At
December 31, 2013
, $58.7 million remains outstanding under the approved stock repurchase program.
The Company did not repurchase any of its common stock through its share repurchase program during the three months ended
December 31, 2013
.
Item 6. Exhibits
|
|
|
|
|
|
|
Exhibit 10(a)(*)
|
|
Amended and Restated 2004 Long Term Incentive Plan. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 11, 2013).
|
|
|
|
|
|
Exhibit 10(b)(*)
|
|
Employment Agreement, dated October 21, 2013, between the Company and Carmen Thiede.
|
|
|
|
|
|
Exhibit 10(c)(*)
|
|
Employment Agreement, dated November 11, 2013, between the Company and Jim B. Lain.
|
|
|
|
|
|
Exhibit 10(d)
|
|
Purchase Agreement dated November 27, 2013 by and between Regis Corporation and an Initial Purchaser. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 4, 2013).
|
|
|
|
|
|
Exhibit 10(e)
|
|
Purchase Agreement dated November 27, 2013 by and between Regis Corporation and an Initial Purchaser. (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on December 4, 2013).
|
|
|
|
|
|
Exhibit 10(f)
|
|
Purchase Agreement dated November 27, 2013 by and between Regis Corporation and an Initial Purchaser. (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on December 4, 2013).
|
|
|
|
|
|
Exhibit 10(g)
|
|
Indenture dated November 27, 2013 by and between Regis Corporation and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on December 4, 2013).
|
|
|
|
|
|
Exhibit 31.1
|
|
President and Chief Executive Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Exhibit 31.2
|
|
Executive Vice President and Chief Financial Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Exhibit 32
|
|
Chief Executive Officer and Chief Financial Officer of Regis Corporation: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Exhibit 101.INS (**)
|
|
XBRL Instance Document
|
|
|
|
|
|
Exhibit 101.SCH (**)
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
|
Exhibit 101.CAL (**)
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
|
|
Exhibit 101.LAB (**)
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
|
|
Exhibit 101.PRE (**)
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
|
|
|
|
Exhibit 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-Q.
|
|
|
|
|
(**)
|
The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
REGIS CORPORATION
|
|
|
|
|
Date: February 3, 2014
|
By:
|
/s/ Steven M. Spiegel
|
|
|
|
Steven M. Spiegel
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
Signing on behalf of the registrant and as principal accounting officer
|
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “
Agreement
) is made by and between Regis Corporation, a Minnesota corporation (the “
Corporation
”), and Carmen Thiede (the “
Employee
”) as of this 21
st
day of October, 2013 (the “
Effective Date
”).
WHEREAS, the Employee has been employed by the Corporation.
WHEREAS, in connection with the Employee’s employment with the Corporation, the Employee will have access to confidential, proprietary and trade secret information of the Corporation and its affiliates and relating to the business of the Corporation and its affiliates, which confidential, proprietary and trade secret information the Corporation and its affiliates desire to protect from disclosure and unfair competition.
WHEREAS, the Employee specifically acknowledges that executing this Agreement makes the Employee eligible for incentive compensation and severance opportunities for which the Employee would not be eligible if the Employee did not enter into this Agreement with the Corporation.
NOW, THEREFORE, in consideration of the mutual agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Corporation and the Employee hereby agree as follows:
1.
EMPLOYMENT COMMENCEMENT DATE; PERIOD OF EMPLOYMENT
.
(a)
Period of Employment
. The Corporation agrees to employ the Employee, and the Employee agrees to serve the Corporation, upon the terms and conditions hereinafter set forth. The employment of the Employee by the Corporation pursuant to this Agreement shall be for a period beginning on the Effective Date and continuing until the Executive’s employment is terminated as provided in Section 5 herein (the “
Employment Period
”).
(c)
Definitions
. Various terms are defined either where they first appear underlined in this Agreement or in Section 7.
2.
DUTIES
. During the Employment Period, the Employee agrees to serve the Corporation faithfully and to the best of the Employee’s ability under the direction of the Chief Executive Officer and the Board of Directors of the Corporation (the “
Board
”), devoting the Employee’s entire business time, energy and skill to such employment, and to perform from time to time such services and act in such office or capacity as the President and the Board shall request. The Employee shall follow applicable policies and procedures adopted by the Corporation from time to time, including without limitation policies relating to business ethics, conflicts of interest, non-discrimination, and confidentiality and protection of trade secrets.
3.
OFFICE FACILITIES
. During the Employment Period under this Agreement, the Employee shall have the Employee’s office where the Corporation’s principal executive offices are located from time to time, which currently are at 7201 Metro Boulevard, Edina, Minnesota.
4.
COMPENSATION, BENEFITS AND EXPENSE REIMBURSEMENTS
. As compensation for the Employee’s services performed as an officer and employee of the Corporation, the Corporation shall pay or provide to the Employee the following compensation, benefits and expense reimbursements during the Employment Period:
(a)
Base Salary
. The Corporation shall pay the Employee a base salary (the “
Base Salary
”) initially at the rate of $315,000, payable monthly, semi-monthly or weekly according to the Corporation’s general practice for its officers. For the fiscal year beginning July 1, 2014 and thereafter, such Base Salary may be modified by the Chief Executive Officer or the Compensation Committee of the Board of Directors (or, if the Employee is an “Executive Officer” under regulations of the Securities and Exchange Commission, then only by the Compensation Committee of the Board of Directors) in their sole discretion. Following any such modification, any then-current Base Salary shall be the “Base Salary” for purposes of this Agreement.
(b)
Special One Time
Bonus
. The employee shall receive a sign on bonus of $108,250 (the “Sign-On Bonus”) which shall be paid to employee in February, 2014. Notwithstanding anything in this Agreement to the contrary, if the employee terminates employment with the Corporation for any reason other than death, disability, Change in Control or for Good Reason at any time prior to the third anniversary of the Effective Date, then, upon such the Corporation’s receipt of such notice of termination, the full amount of the Sign-On Bonus shall be immediately due and payable by the employee to the Corporation. In this event, the Corporation may exercise any right of offset available to it.
(c)
Bonus
. The Corporation shall grant the Executive an award under the Regis Corporation Short Term Incentive Plan (“Short Term Plan”) for the fiscal year ending June 30, 2014, with a guaranteed payout equal to $141,750, which is 45% of the Executive’s initial Base Salary (the “FY14 Bonus Award”). For each successive year thereafter during the Employment Period, the Executive shall be eligible for an annual performance bonus (the “Bonus”) as determined under the provisions of the then-applicable Short Term Plan, as amended from time to time, any successor to such plan, or such other annual incentive compensation program developed for the Corporation’s senior executive officers, with performance goals and other terms consistent with other senior executive officers of the Corporation, and with a target payout of no less than 45% of the Executive’s then current Base Salary. The FY14 Bonus Award and any Bonus for other years shall be paid at the same time as bonuses are paid to other senior executive officers of the Corporation under the then-applicable Short Term Plan.
(d)
Special One Time Restricted Stock Awards
. Effective as of October 21, 2013 (the “Equity Grant Date”), the Executive will receive an award of: (i) such number of restricted stock units as are equal to $435,000 divided by the closing price of a share of the Corporation’s common stock on the Equity Grant Date with such units vesting in full on the five (5) year anniversary of the Equity Grant Date, provided the Executive is an employee of the Corporation on that date (except as otherwise provided in the award agreement), and (ii) such number of performance units as are equal to $124,500 divided by the closing price of a share of the Corporation’s common stock on the Equity Grant Date to be earned as described in the Exhibit A to this Employment Agreement. The awards will be granted under the Regis Corporation 2004 Long Term Incentive Plan (“Long Term Plan”), subject to the Executive’s execution of each of a restricted stock unit agreement and a performance units agreement approved by the Committee and subject to the terms and conditions of the Long Term Plan.
(e)
Stock Incentive Awards
. Effective as of the Employment Commencement Date, the Executive shall receive an equity award under, and in accordance with the terms and provisions of each of (i) the Regis Corporation 2004 Long Term Incentive Plan (“Long Term Plan”) and (ii) the Corporation’s equity award agreements with its executive officers for its fiscal 2014 awards granted on August 30, 2013 (the “FY2014 Equity Award”). For the FY2014 Equity Award, the Executive will be awarded equity with a projected total value of $250,000 comprised of the following: (i) twenty percent (20% or approximately $50,000) in an award of restricted stock units vesting ratably over a three (3) year period, (ii) forty percent (40% or approximately $100,000) in a performance share award that will cliff vest on the three (3) year anniversary subject to attainment of performance goals during the Corporation’s 2014 fiscal year, as determined by the Committee, and (iii) forty percent (40% or approximately $100,000) in an award of stock appreciation rights vesting ratably over a three (3) year period. To determine the number of shares for each type of award, the projected total value will be multiplied by the applicable percentage, and then, in the case of the restricted stock units and performance shares, divided by the fair market value of a share of the Corporation’s stock on the date of grant and, in the case of the stock appreciation rights, divided by the Black-Scholes value of a share of the Corporation’s stock on the date of grant. The above-described award is subject to the Executive’s execution of applicable award agreements approved by the Committee and terms and conditions of the Long Term Plan. Notwithstanding the foregoing or anything to the contrary in the Long Term Plan, the Special One Time Restricted Stock Awards referred to in Section 4(d) and all awards of time-based equity compensation granted to the Executive during the Employment Period shall provide for full acceleration of vesting of such awards upon a Change in Control (as defined in the Long Term Plan), and all awards of performance-based equity compensation shall provide for full acceleration of vesting at the target level of performance, prorated for the portion of the performance period prior to such Change in Control, upon such a Change in Control.
(f) Health, Welfare and Retirement Plans; Vacation
. To the extent the Employee meets the eligibility requirements for such arrangements, plans or programs, the Employee shall be entitled to:
(i) participate in such retirement, health (medical, hospital and/or dental) insurance, life insurance, disability insurance, flexible benefits arrangements and accident insurance plans and programs as are maintained in effect from time to time by the Corporation for its headquarters employees;
(ii) participate in other non-duplicative benefit programs which the Corporation may from time to time offer generally to officers
of the Corporation; and
(iii) take vacations and be entitled to sick leave in accordance with the Corporation’s policy for officers
of the Corporation.
For the sake of clarity, the Corporation may modify its health, welfare, retirement and other benefit plans and vacation and sick leave policies from time to time and the Employee’s rights under these plans are subject to change in the event of any such modifications, provided that he will receive the benefits generally provided to other officers
of the Corporation. In addition, the Employee acknowledges that the Corporation has frozen
its Employee Retirement Savings Plan effective June 30, 2012 and, the Employee will have no right to participate in that plan.
(g)
Other Incentive Plans, Benefits and Perquisites
. The Executive shall be offered any additional employee benefits and perquisites the Corporation offers to other senior executive officers of the Corporation (to the extent the Executive otherwise satisfies the eligibility criteria for such benefits), including receipt of an annual perquisite account that includes an automobile allowance of $25,000. The Executive also shall be eligible to participate in such other incentive compensation programs in accordance with their terms as the Corporation may have in effect from time to time for its senior executive officers and all compensation and other entitlements earned thereunder shall be in addition to, and shall not in any way reduce, the amount payable to the Executive as Base Salary and Bonus.
(h)
Expenses
. During the Employment Period, the Employee shall be reimbursed for reasonable business expenses incurred in connection with the performance of the Employee’s duties hereunder consistent with the Corporation’s policy regarding reimbursement of such expenses, including submission of appropriate receipts. With respect to any benefits or payments received or owed to the Employee hereunder, the Employee shall cooperate in good faith with the Corporation to structure such benefits or payments in the most tax-efficient manner to the Corporation.
5.
TERMINATION OF EMPLOYMENT
. The employment of the Employee by the Corporation pursuant to this Agreement may be terminated by the Corporation or the Employee at any time as follows:
(a)
Death
. In the event of the Employee’s death, such employment shall terminate on the date of death.
(b)
Permanent Disability
. In the event of the Employee’s physical or mental disability or health impairment which prevents the effective performance by the Employee of the Employee’s duties hereunder on a full time basis, with such termination to occur (i) with respect to disability, on or after the time which the Employee becomes entitled to disability compensation benefits under the Corporation’s long term disability insurance policy or program as then in effect or (ii) with respect to health impairment, after Employee has been unable to substantially perform the Employee’s services hereunder for six consecutive months. Any dispute as to the Employee’s physical or mental disability or health impairment shall be settled by the opinion of an impartial physician selected by the parties or their representatives or, in the event of failure to make a joint selection after request therefor by either party to the other, a physician selected by the Corporation, with the fees and expenses of any such physician to be borne by the Corporation.
(c)
Cause
. The Corporation, by giving written notice of termination to the Employee, may terminate such employment hereunder for Cause.
(d)
Without Cause
. The Corporation may terminate such employment without Cause (which shall be for any reason not covered by preceding Sections 5(a) through (c)), with such termination to be effective upon the date specified by the Corporation in a written notice delivered to the Employee.
(e)
By the Employee For Good Reason
. The Employee may terminate such employment for an applicable Good Reason, subject to the process described in the Good Reason definition in Section 7.
(f)
By the Employee Without Good Reason
. The Employee may terminate such employment for any reason other than Good Reason upon thirty (30) days advance notice to the Corporation.
(g)
Notice of Termination
. Any termination of the Employee’s employment by the Corporation or by the Employee (other than termination based on the Employee’s death) shall be communicated by a written Notice of Termination to the other party hereto. For purposes of this Agreement, a “
Notice of Termination
” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provision so indicated. For purposes of this Agreement, no purported termination shall be effective without the delivery of such Notice of Termination.
(h)
Date of Termination
. The date upon which the Employee’s termination of employment with the Corporation occurs is the “
Date of Termination
.” For purposes of Sections 6(b) and 6(c) of this Agreement only, with respect to the timing of any payments thereunder, the Date of Termination shall mean the date on which a “
separation from service
” has occurred for purposes of Section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the “
Code
”), and Treas. Reg. Section 1.409A-1(h).
6.
PAYMENTS UPON TERMINATION
.
(a)
Death or Disability
. If the Employee’s employment is terminated by reason of the Employee’s death or permanent disability, he (or the legal representative of the Employee’s estate in the event of the Employee’s death) shall be entitled to the following:
(i)
Accrued Compensation
. All compensation due the Employee under this Agreement and under each plan or program of the Corporation in which he may be participating at the time shall cease to accrue as of the date of such termination, except (A) as specifically provided in this Agreement or (B) in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program or by applicable law. All such compensation accrued as of the date of such termination but not previously paid shall be paid to the Employee at the time such payment otherwise would be due.
(ii)
Accrued Obligations
. In addition, the Employee shall be entitled to payment of all accrued vacation pay.
(b)
Termination Without Cause or for Good Reason Prior to a Change in Control or More Than Twenty-Four Months After a Change in Control
. If, prior to a Change in Control or more than twenty-four (24) months after a Change in Control, the Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause or the Executive terminates his employment for Good Reason, then the Executive shall be entitled to and shall receive the following:
(i)
Accrued Compensation
. All compensation due the Executive under this Agreement and under each plan or program of the Corporation in which he may be participating at the time shall cease to accrue as of the date of such termination, except (A) as specifically provided in this Agreement or (B) in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program or by applicable law. All such compensation accrued as of the date of such termination but not previously paid shall be paid to the Executive at the time such payment otherwise would be due.
(ii)
Accrued Obligations
. In addition, the Executive shall be entitled to payment of all accrued vacation pay.
(iii)
Severance Payment
. Subject to the Executive signing and not revoking a release of claims in a form prescribed by the Corporation and the Executive remaining in strict compliance with the terms of this Agreement and any other written agreements between the Corporation and the Executive, the Executive shall be entitled to receive the following amount as severance pay, subject to such amount being reduced as provided below (referred to in this Section 6(b)(iii) as the “Severance Payment”): (A) if the Executive’s Date of Termination occurs prior to the date the Executive is paid her FY14 Bonus Award, the amount of the Executive’s FY14 Bonus Award payable at the same time as bonuses for the Corporation’s fiscal year ending June 30, 2014 are paid to other then-current officers of the Corporation under the then-applicable Short Term Plan, plus (B) if the Executive’s Date of Termination occurs after June 30, 2014, an amount equal to the pro rata Bonus for the fiscal year in which the Date of Termination occurs, determined by pro rating the Bonus the Executive would have received had the Executive remained employed through the payment date of any such Bonus (the proration shall be a fraction whose numerator is the number of days the Executive was employed by the Corporation that fiscal year through and including the Date of Termination and the denominator is 365), payable at the same time as bonuses are paid to other then-current officers of the Corporation under the then-applicable Short Term Plan for the fiscal year in which the Date of Termination occurs, plus (C) an amount equal to one times the Executive’s Base Salary as of the Date of Termination, payable in substantially equal installments in accordance with the Corporation’s normal payroll policies commencing on the Date of Termination and continuing for twelve (12) consecutive months; provided, however, that any installments that otherwise would be paid during the first sixty (60) days after the Date of Termination will be delayed and included in the first installment paid to the Executive on the first payroll date that is more than sixty (60) days after the Date of Termination, and provided further that if the Executive is considered a “specified employee” (as defined in Treasury Regulation Section 1.409A-1(i)) as of the Date of Termination, then no payments of deferred compensation payable due to Executive’s separation from service for purposes of section 409A of the Code shall be made under this Agreement until the Corporation’s first regular payroll date that is after the first day of the seventh (7th) month following the Date of Termination and included with the installment payable on such payroll date, if any, without adjustment for interest or earnings during the period of delay.
Furthermore, any Severance Payment owed to the Executive under subsections (B) or (C) above will be reduced by the amount of any compensation earned by the Executive for any consulting or employment services provided on a substantially full-time basis during the 12-month period immediately following the Date of Termination, to the extent such compensation is payable by an entity unrelated to the Corporation.
(iv)
Benefits Continuation
. Subject to the Executive signing and not revoking a release of claims in a form prescribed by the Corporation and the Executive remaining in strict compliance with the terms of this Agreement and any other written agreements between the Corporation and the Executive, the Corporation will pay the employer portion of the Executive’s COBRA premiums for health and dental insurance coverage under the Corporation’s group health and dental insurance plans for the same period of time the Executive remains eligible to receive the Severance Payment installments under Section 6(b)(iii) (up to a maximum of twelve (12) months), provided the Executive timely elects COBRA coverage. Notwithstanding the foregoing, the Corporation will discontinue COBRA premium payments if, and at such time as, the Executive (A) is covered or eligible to be covered under the health and/or dental insurance policy of a new employer, (B) ceases to participate, for whatever reason, in the Corporation’s group insurance plans, or (C) ceases to be eligible to receive the Severance Payment installments under Section 6(b)(iii).
(c)
Termination Without Cause or for Good Reason Within Twenty-Four Months After a Change in Control
. If a Change in Control occurs during the Employment Period and if within twenty-four (24) months after the Change in Control the Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause or the Executive terminates his employment for Good Reason, then the Executive shall be entitled to and shall receive the following:
(i)
Accrued Compensation
. All compensation due the Executive under this Agreement and under each plan or program of the Corporation in which he may be participating at the time shall cease to accrue as of the date of such termination, except (A) as specifically provided in this Agreement or (B) in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program or by applicable law. All such compensation accrued as of the date of such termination but not previously paid shall be paid to the Executive at the time such payment otherwise would be due.
(ii)
Accrued Obligations
. In addition, the Executive shall be entitled to payment of all accrued vacation pay.
(iii)
Severance Payment
. Subject to the Executive signing and not revoking a release of claims in a form prescribed by the Corporation and the Executive remaining in strict compliance with the terms of this Agreement and any other written agreements between the Corporation and the Executive, the Executive shall be entitled to receive the following amount as severance pay, subject to such amount being reduced as provided below (referred to in this Section 6(c)(iii) as the
“Severance Payment”): (A) if the Executive’s Date of Termination occurs prior to the date the Executive is paid her FY14 Bonus Award, the amount of the Executive’s FY14 Bonus Award payable at the same time as bonuses for the Corporation’s fiscal year ending June 30, 2014 are paid to other then-current officers of the Corporation under the then-applicable Short Term Plan, plus (B) if the Executive’s Date of Termination occurs after June 30, 2013, an amount equal to two times the Executive’s Base Salary as of the Date of Termination, plus (C) an amount equal to two times the Executive’s target Bonus for the fiscal year in which the Date of Termination occurs. The Severance Payment described in subsections (B) and (C) above shall be added together and will be paid in substantially equal installments in accordance with the Corporation’s normal payroll policies based on a 24-month payment schedule commencing on the Date of Termination. Notwithstanding the forgoing, any installments that otherwise would be payable on the regular payroll dates between the Date of Termination and first day of the seventh (7th) month following the Date of Termination shall be delayed until the Corporation’s first regular payroll date that is after the first day of the seventh (7th) month following the Date of Termination and included with the installment payable on such payroll date, if any, without adjustment for interest or earnings during the period of delay. Furthermore, any Severance Payment owed to the Executive will be reduced by the amount of any compensation earned by the Executive for any consulting or employment services provided on a substantially full-time basis for the period to which the corresponding Severance Payment relates.
(iv)
Benefits Continuation
. Subject to the Executive signing and not revoking a release of claims in a form prescribed by the Corporation and the Executive remaining in strict compliance with the terms of this Agreement and any other written agreements between the Corporation and the Executive, the Corporation will pay the employer portion of the Executive’s COBRA premiums for health and dental insurance coverage under the Corporation’s group health and dental insurance plans for the same period of time the Executive remains eligible to receive the Severance Payment installments under Section 6(c)(iii) (up to a maximum of eighteen (18) months), provided the Executive timely elects COBRA coverage. Notwithstanding the foregoing, the Corporation will discontinue COBRA premium payments if, and at such time as, the Executive (A) is covered or eligible to be covered under the health and/or dental insurance policy of a new employer, (B) ceases to participate, for whatever reason, in the Corporation’s group insurance plans, or (C) ceases to be eligible to receive the Severance Payment installments under Section 6(c)(iii).
(d)
Termination for Cause or Without Good Reason.
If the Employee’s employment pursuant to this Agreement is terminated pursuant to subsection (c) of Section 5 hereof, or the Employee terminates this Agreement without Good Reason, then the Employee shall be entitled to and shall receive:
(i)
Accrued Compensation
. All compensation due the Employee under this Agreement and under each plan or program of the Corporation in which he may
be participating at the time shall cease to accrue as of the date of such termination, except (A) as specifically provided in this Agreement or (B) in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program or by applicable law. All such compensation accrued as of the date of such termination but not previously paid shall be paid to the Employee at the time such payment otherwise would be due.
(ii)
Accrued Obligations
. In addition, the Employee shall be entitled to payment of all accrued vacation pay.
7.
DEFINITIONS
. Certain terms are defined where they first appear in this Agreement and are underlined for ease of reference. In addition, the following definitions shall apply for purposes of this Agreement.
“
Cause
” shall mean (a) acts during the Employment Period (i) resulting in a felony conviction under any Federal or state statute, or (ii) willful non-performance by the Employee of the Employee’s material employment duties required by this Agreement (other than by reason of the Employee’s physical or mental incapacity) after reasonable notice to the Employee and reasonable opportunity (not less than thirty (30) days) to cease such non-performance, or (b) the Employee willfully engaging in fraud or gross misconduct which is detrimental to the financial interests of the Corporation.
“
Change in Control
” shall have the same meaning ascribed to that term in the Long-Term Plan.
“
Good Reason
” shall mean the occurrence during the Employment Period, without the express written consent of the Employee, of any of the following:
(a)
any adverse alteration in the nature of the Employee's reporting responsibilities, titles, or offices, or any removal of the Employee from, or any failure to reelect the Employee to, any such positions, except in connection with a termination of the employment of the Employee for Cause, permanent disability, or as a result of the Employee’s death or a termination of employment by the Employee other than for Good Reason;
(b)
a material reduction by the Corporation in the Employee's Base Salary then in effect (other than any such reduction that is part of an across-the-board reduction of base salaries for all officers
provided the percentage reduction in the Employee’s Base Salary is commensurate with the percentage reduction in the base salaries for all other officers);
(c) failure by the Corporation to continue in effect (without substitution of a substantially equivalent plan or a plan of substantially equivalent value) any compensation plan, bonus or incentive plan, stock purchase plan, stock option plan, life insurance plan, health plan, disability plan or other benefit plan or arrangement in which the Employee is then participating;
(d) any material breach by the Corporation of any provisions of this Agreement;
(e) the requirement by the Corporation that the Employee's principal place of employment be relocated more than thirty (30) miles from the Corporation’s address for notice in Section 11(i); or
(f) the Corporation's failure to obtain a satisfactory agreement from any successor to assume and agree to perform Corporation's obligations under this Agreement;
provided that the Employee notifies the Corporation of such condition set forth in clause (a), (b), (c), (d), (e) or (f) within ninety (90) days of its initial existence and the Corporation fails to remedy such condition within thirty (30) days of receiving such notice.
8.
CONFIDENTIAL INFORMATION
. The Employee shall not at any time during the Employment Period or thereafter disclose to others or use any trade secrets or any other confidential information belonging to the Corporation or any of its subsidiaries, 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 8 shall survive the termination of the Employee’s employment and consulting with the Corporation, provided that after the termination of the Employee’s employment with the Corporation, the restrictions contained in this Section 8 shall not apply to any such trade secret or confidential information which becomes generally known in the trade.
9.
NON-COMPETITION
.
(a)
Non-competition
. For a period of twenty-four (24) 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 an 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 venturer, 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.
10.
ACKNOWLEDGMENT; REMEDIES; LITIGATION EXPENSES
.
(a)
Acknowledgment
. The Employee has carefully read and considered the provisions of Sections 8 and 9 hereof and agrees that the restrictions set forth in such sections are fair and reasonable and are reasonably required for the protection of the interests of the Corporation, its officers, directors, shareholders, and other employees, for the protection of the business of the Corporation, and to ensure that the Employee devotes the Employee’s entire professional time, energy, and skills to the business of the Corporation. The Employee
acknowledges that he is qualified to engage in businesses other than that described in Section 9. It is the belief of the parties, therefore, that the best protection that can be given to the Corporation that does not in any way infringe upon the rights of the Employee to engage in any unrelated businesses is to provide for the restrictions described in Section 9. In view of the substantial harm which would result from a breach by the Employee of Sections 8 or 9, the parties agree that the restrictions contained therein shall be enforced to the maximum extent permitted by law as more particularly set forth in Section 10(b) below. In the event that any of said restrictions shall be held unenforceable by any court of competent jurisdiction, the parties hereto agree that it is their desire that such court shall substitute a reasonable judicially enforceable limitation in place of any limitation deemed unenforceable and that as so modified, the covenant shall be as fully enforceable as if it had been set forth herein by the parties.
(b)
Remedies
. If the Employee violates any of the restrictive covenants set forth in Sections 8 or 9 above, and such violation continues after the Employee is notified in writing by the Corporation that he is in violation of the restrictive covenant, then (i) the Corporation shall have no further obligation to pay any portion of any Severance Payment and all such future payments shall be forfeited, and (ii) the Employee shall immediately return to the Corporation any Severance Payment previously paid to the Employee. The Employee acknowledges that any breach or threatened breach of Sections 8 or 9 would damage the Corporation irreparably and, consequently, the Corporation, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunction, without having to post any bond or other security.
(c)
Attorneys Fees
. The Corporation shall be entitled to receive from the Employee reimbursement for reasonable attorneys' fees and expenses incurred by the Corporation in successfully enforcing these provisions to final judgment and the Employee shall be entitled to receive from the Corporation reasonable attorney's fees and expenses incurred by the Employee in the event the Corporation is found to be not entitled to enforcement of these provisions.
11.
MISCELLANEOUS
.
(a)
Successors and Assigns
. This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation, including any party with which the Corporation may merge or consolidate or to which it may transfer substantially all of its assets. As used in this Agreement, the term “
successor
” shall include any person, firm, corporation or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the capital stock or assets of the Corporation.
(b)
Non-assignability and Non-transferability
. The rights and obligations of the Employee under this Agreement are expressly declared and agreed to be personal, nonassignable and nontransferable during the Employee’s life.
(c)
Limitation of Waiver
. The waiver by either party hereto of its rights with respect to a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any rights with respect to any subsequent breach.
(d)
Complete Agreement
. This Agreement is the entire agreement of the parties with respect to the subject matter hereof, and supersedes and replaces any and all prior agreements among the Corporation and the Employee with respect to the matters covered herein.
(e)
Amendments
. No modification, amendment, addition, alteration or waiver of any of the terms, covenants or conditions hereof shall be effective unless made in writing and duly executed by the Corporation and the Employee.
(f)
Counterparts
. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute but one and the same agreement.
(g)
Governing Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, without regard to the conflicts of law principles thereof.
(h)
Severability
. If any provision of this Agreement is determined to be invalid or unenforceable under any applicable statute or rule of law, it is to that extent to be deemed omitted and it shall not affect the validity or enforceability of any other provision.
(i)
Notices
. Any notice required or permitted to be given under this Agreement shall be in writing, and shall be deemed given when sent by registered or certified mail, postage prepaid, addressed as follows:
If to the Employee: Carmen Thiede
_______________________________
_______________________________
If to the Corporation: Regis Corporation
7201 Metro Boulevard
Edina, Minnesota 55439
Attn: General Counsel
or mailed to such other person and/or address as the party to be notified may hereafter have designated by notice given to the other party in a similar manner.
(j)
Tax Withholding
. The Corporation may withhold from any amounts payable under this Agreement such federal, state and local income and employment taxes as the Corporation shall determine are required or authorized to be withheld pursuant to any applicable law or regulation.
(k)
Section 409A
. This Agreement is intended to provide for payments that satisfy, or are exempt from, the requirements of Sections 409A(a)((2), (3) and (4) of the Code, including current and future guidance and regulations interpreting such provisions, and should be interpreted accordingly. Except for any tax amounts withheld by the Corporation from the payments or other consideration hereunder and any employment taxes required to be paid by the Corporation, the Employee shall be responsible for payment of any and all taxes owed in connection with the consideration provided for in this Agreement.
(l)
Mandatory Arbitration
. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration in the manner set forth in this Section 11(l). Either party may submit any claim arising under or in connection with this Agreement for binding arbitration before an arbitrator in Hennepin County, Minnesota, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “
arbitration
”). The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; the arbitrator shall not change, add to, or subtract from, any of its provisions. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having competent jurisdiction may enter a judgment based upon such arbitration. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a national reputation for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.
IN WITNESS WHEREOF
, the parties hereto have duly executed this Agreement as of the date first set forth above.
REGIS CORPORATION
By:
/s/ Eric Bakken
Its: EVP
/s/ Carmen Thiede
Carmen Thiede
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “
Agreement
) is made by and between Regis Corporation, a Minnesota corporation (the “
Corporation
”), and Jim B. Lain (the “
Employee
”) as of this 11th day of November, 2013 (the “
Effective Date
”).
WHEREAS, the Employee has been employed by the Corporation.
WHEREAS, in connection with the Employee’s employment with the Corporation, the Employee will have access to confidential, proprietary and trade secret information of the Corporation and its affiliates and relating to the business of the Corporation and its affiliates, which confidential, proprietary and trade secret information the Corporation and its affiliates desire to protect from disclosure and unfair competition.
WHEREAS, the Employee specifically acknowledges that executing this Agreement makes the Employee eligible for incentive compensation and severance opportunities for which the Employee would not be eligible if the Employee did not enter into this Agreement with the Corporation.
NOW, THEREFORE, in consideration of the mutual agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Corporation and the Employee hereby agree as follows:
1.
EMPLOYMENT COMMENCEMENT DATE; PERIOD OF EMPLOYMENT
.
(a)
Period of Employment
. The Corporation agrees to employ the Employee, and the Employee agrees to serve the Corporation, upon the terms and conditions hereinafter set forth. The employment of the Employee by the Corporation pursuant to this Agreement shall be for a period beginning on the Effective Date and continuing until the Executive’s employment is terminated as provided in Section 5 herein (the “
Employment Period
”).
(c)
Definitions
. Various terms are defined either where they first appear underlined in this Agreement or in Section 7.
2.
DUTIES
. During the Employment Period, the Employee agrees to serve the Corporation faithfully and to the best of the Employee’s ability under the direction of the Chief Executive Officer and the Board of Directors of the Corporation (the “
Board
”), devoting the Employee’s entire business time, energy and skill to such employment, and to perform from time to time such services and act in such office or capacity as the President and the Board shall request. The Employee shall follow applicable policies and procedures adopted by the Corporation from time to time, including without limitation policies relating to business ethics, conflicts of interest, non-discrimination, and confidentiality and protection of trade secrets.
3.
OFFICE FACILITIES
. During the Employment Period under this Agreement, the Employee shall have the Employee’s office where the Corporation’s principal executive offices are located from time to time, which currently are at 7201 Metro Boulevard, Edina, Minnesota.
4.
COMPENSATION, BENEFITS AND EXPENSE REIMBURSEMENTS
. As compensation for the Employee’s services performed as an officer and employee of the Corporation, the Corporation shall pay or provide to the Employee the following compensation, benefits and expense reimbursements during the Employment Period:
(a)
Base Salary
. The Corporation shall pay the Employee a base salary (the “
Base Salary
”) initially at the rate of $400,000, payable monthly, semi-monthly or weekly according to the Corporation’s general practice for its officers. For the fiscal year beginning July 1, 2014 and thereafter, such Base Salary may be modified by the Chief Executive Officer or the Compensation Committee of the Board of Directors (or, if the Employee is an “Executive Officer” under regulations of the Securities and Exchange Commission, then only by the Compensation Committee of the Board of Directors) in their sole discretion. Following any such modification, any then-current Base Salary shall be the “Base Salary” for purposes of this Agreement.
(b)
Special One Time
Bonus
. The employee shall receive a sign on bonus of $130,000 (the “Sign-On Bonus”) which shall be paid to employee on the Effective Date. Notwithstanding anything in this Agreement to the contrary, if the employee terminates employment with the Corporation for any reason other than death, disability, Change in Control or for Good Reason at any time prior to the third anniversary of the Effective Date, then, upon such the Corporation’s receipt of such notice of termination, the full amount of the Sign-On Bonus shall be immediately due and payable by the employee to the Corporation. In this event, the Corporation may exercise any right of offset available to it.
(c)
Bonus
. To the extent the Employee meets the eligibility requirements, the Employee shall be eligible for an annual performance bonus (the “
Bonus
”) as determined under the provisions of the then-applicable Regis Corporation Short Term Incentive Plan (“
Short Term Plan
”), as amended from time to time, any successor to such plan, or such other annual incentive compensation program developed for the Corporation’s officers, with performance goals and other terms consistent with other officers
of the Corporation. Any Bonus shall be paid at the same time as bonuses are paid to other officers
of the Corporation under the then-applicable Short Term Plan.
(d)
Special One Time Restricted Stock Awards
. On the Effective Date (the “Equity Grant Date”), the Executive will receive an award of: (i) such number of restricted stock units as are equal to $560,000 divided by the closing price of a share of the Corporation’s common stock on the Equity Grant Date with such units vesting in full on the five (5) year anniversary of the Equity Grant Date, provided the Executive is an employee of the Corporation on that date (except as otherwise provided in the award agreement). The award will be granted under the Regis Corporation 2004 Long Term Incentive Plan (“Long Term Plan”), subject to the Executive’s execution of a restricted stock unit agreement as approved by the Committee and subject to the terms and conditions of the Long Term Plan.
(e)
Stock Incentive Awards
. Effective as of the Effective Date, the Executive shall receive an equity award under, and in accordance with the terms and provisions of each of (i) the Regis Corporation 2004 Long Term Incentive Plan (“Long Term Plan”) and (ii) the Corporation’s equity award agreements with its executive officers for its fiscal 2014 awards granted on August 30, 2013 (the “FY2014 Equity Award”). For the FY2014 Equity Award, the Executive will be awarded equity with a projected total value of $190,685 comprised of the following: (i) twenty percent (20% or approximately $38,137) in an award of restricted stock units vesting ratably over a three (3) year period, (ii) forty percent (40% or approximately $76,274) in a performance share award that will cliff vest on the three (3)
year anniversary subject to attainment of performance goals during the Corporation’s 2014 fiscal year, as determined by the Committee, and (iii) forty percent (40% or approximately $76,274) in an award of stock appreciation rights vesting ratably over a three (3) year period. To determine the number of shares for each type of award, the projected total value will be multiplied by the applicable percentage, and then, in the case of the restricted stock units and performance shares, divided by the fair market value of a share of the Corporation’s stock on the date of grant and, in the case of the stock appreciation rights, divided by the Black-Scholes value of a share of the Corporation’s stock on the date of grant. The above-described award is subject to the Executive’s execution of applicable award agreements approved by the Committee and terms and conditions of the Long Term Plan. Notwithstanding the foregoing or anything to the contrary in the Long Term Plan, the Special One Time Restricted Stock Awards referred to in Section 4(d) and all awards of time-based equity compensation granted to the Executive during the Employment Period shall provide for full acceleration of vesting of such awards upon a Change in Control (as defined in the Long Term Plan), and all awards of performance-based equity compensation shall provide for full acceleration of vesting at the target level of performance, prorated for the portion of the performance period prior to such Change in Control, upon such a Change in Control.
(f) Relocation Expenses. The Corporation shall reimburse the Executive for the following costs associated with the relocation of the Executive and his immediate family sharing his household to the Minneapolis/St. Paul, Minnesota metropolitan area: (i) the actual travel costs for up to two round trips by the Executive and his spouse or significant other from Chicago, Illinois to the Minneapolis/St. Paul, Minnesota metropolitan area (provided such travel arrangements, including airfare and lodging, are made in accordance with the Corporation’s travel policies and procedures), plus (ii) the reasonable costs of moving the household goods and personal effects of the Executive and his immediate family to the Minneapolis/St. Paul, Minnesota metropolitan area by one or more vendors agreed upon by the Executive and the Corporation, plus (iii) the reasonable cost for temporary housing for the Executive and his immediate family for up to six (6) months after the Effective Date; plus, (iv) the actual costs of the Executive’s real estate brokerage and related fees and closing costs in connection with the sale of the Executive’s current primary residence in Chicago, Illinois. The Corporation’s relocation reimbursement obligations under this Section 4(f) are subject to any withholdings required under applicable law and the Executive’s submission of appropriate receipts, and do not include any reimbursement for any relocation expenses not specifically identified above.
(g)
Health, Welfare and Retirement Plans; Vacation
. To the extent the Employee meets the eligibility requirements for such arrangements, plans or programs, the Employee shall be entitled to:
(i) participate in such retirement, health (medical, hospital and/or dental) insurance, life insurance, disability insurance, flexible benefits arrangements and accident insurance plans and programs as are maintained in effect from time to time by the Corporation for its headquarters employees;
(ii) participate in other non-duplicative benefit programs which the Corporation may from time to time offer generally to officers
of the Corporation; and
(iii) take vacations and be entitled to sick leave in accordance with the Corporation’s policy for officers
of the Corporation.
For the sake of clarity, the Corporation may modify its health, welfare, retirement and other benefit plans and vacation and sick leave policies from time to time and the Employee’s rights under these plans are subject to change in the event of any such modifications, provided that he will receive the benefits generally provided to other officers
of the Corporation. In addition, the Employee acknowledges that the Corporation has frozen its Employee Retirement Savings Plan effective June 30, 2012 and, the Employee will have no right to participate in that plan.
(h)
Other Incentive Plans, Benefits and Perquisites
. The Executive shall be offered any additional employee benefits and perquisites the Corporation offers to other senior executive officers of the Corporation (to the extent the Executive otherwise satisfies the eligibility criteria for such benefits), including receipt of an annual perquisite account on the terms and conditions provided to other executive officers of the Company and that currently includes an automobile allowance of $25,000. The Executive also shall be eligible to participate in such other incentive compensation programs in accordance with their terms as the Corporation may have in effect from time to time for its senior executive officers and all compensation and other entitlements earned thereunder shall be in addition to, and shall not in any way reduce, the amount payable to the Executive as Base Salary and Bonus.
(i)
Expenses
. During the Employment Period, the Employee shall be reimbursed for reasonable business expenses incurred in connection with the performance of the Employee’s duties hereunder consistent with the Corporation’s policy regarding reimbursement of such expenses, including submission of appropriate receipts. With respect to any benefits or payments received or owed to the Employee hereunder, the Employee shall cooperate in good faith with the Corporation to structure such benefits or payments in the most tax-efficient manner to the Corporation.
5.
TERMINATION OF EMPLOYMENT
. The employment of the Employee by the Corporation pursuant to this Agreement may be terminated by the Corporation or the Employee at any time as follows:
(a)
Death
. In the event of the Employee’s death, such employment shall terminate on the date of death.
(b)
Permanent Disability
. In the event of the Employee’s physical or mental disability or health impairment which prevents the effective performance by the Employee of the Employee’s duties hereunder on a full time basis, with such termination to occur (i) with respect to disability, on or after the time which the Employee becomes entitled to disability compensation benefits under the Corporation’s long term disability insurance policy or program as then in effect or (ii) with respect to health impairment, after Employee has been unable to substantially perform the Employee’s services hereunder for six consecutive months. Any dispute as to the Employee’s physical or mental disability or
health impairment shall be settled by the opinion of an impartial physician selected by the parties or their representatives or, in the event of failure to make a joint selection after request therefor by either party to the other, a physician selected by the Corporation, with the fees and expenses of any such physician to be borne by the Corporation.
(c)
Cause
. The Corporation, by giving written notice of termination to the Employee, may terminate such employment hereunder for Cause.
(d)
Without Cause
. The Corporation may terminate such employment without Cause (which shall be for any reason not covered by preceding Sections 5(a) through (c)), with such termination to be effective upon the date specified by the Corporation in a written notice delivered to the Employee.
(e)
By the Employee For Good Reason
. The Employee may terminate such employment for an applicable Good Reason, subject to the process described in the Good Reason definition in Section 7.
(f)
By the Employee Without Good Reason
. The Employee may terminate such employment for any reason other than Good Reason upon thirty (30) days advance notice to the Corporation.
(g)
Notice of Termination
. Any termination of the Employee’s employment by the Corporation or by the Employee (other than termination based on the Employee’s death) shall be communicated by a written Notice of Termination to the other party hereto. For purposes of this Agreement, a “
Notice of Termination
” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provision so indicated. For purposes of this Agreement, no purported termination shall be effective without the delivery of such Notice of Termination.
(h)
Date of Termination
. The date upon which the Employee’s termination of employment with the Corporation occurs is the “
Date of Termination
.” For purposes of Sections 6(b) and 6(c) of this Agreement only, with respect to the timing of any payments thereunder, the Date of Termination shall mean the date on which a “
separation from service
” has occurred for purposes of Section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the “
Code
”), and Treas. Reg. Section 1.409A-1(h).
6.
PAYMENTS UPON TERMINATION
.
(a)
Death or Disability
. If the Employee’s employment is terminated by reason of the Employee’s death or permanent disability, he (or the legal representative of the Employee’s estate in the event of the Employee’s death) shall be entitled to the following:
(i)
Accrued Compensation
. All compensation due the Employee under this Agreement and under each plan or program of the Corporation in which he may be participating at the time shall cease to accrue as of the date of such termination, except (A) as specifically provided in this Agreement or (B) in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program or by applicable law. All such compensation accrued as of the date of
such termination but not previously paid shall be paid to the Employee at the time such payment otherwise would be due.
(ii)
Accrued Obligations
. In addition, the Employee shall be entitled to payment of all accrued vacation pay.
(b)
Termination Without Cause or for Good Reason Prior to a Change in Control or More Than Twenty-Four Months After a Change in Control
. If, prior to a Change in Control or more than twenty-four (24) months after a Change in Control, the Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause or the Executive terminates his employment for Good Reason, then the Executive shall be entitled to and shall receive the following:
(i) Accrued Compensation. All compensation due the Executive under this Agreement and under each plan or program of the Corporation in which he may be participating at the time shall cease to accrue as of the date of such termination, except (A) as specifically provided in this Agreement or (B) in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program or by applicable law. All such compensation accrued as of the date of such termination but not previously paid shall be paid to the Executive at the time such payment otherwise would be due.
(ii) Accrued Obligations. In addition, the Executive shall be entitled to payment of all accrued vacation pay.
(iii) Severance Payment. Subject to the Executive signing and not revoking a release of claims in a form prescribed by the Corporation and the Executive remaining in strict compliance with the terms of this Agreement and any other written agreements between the Corporation and the Executive, the Executive shall be entitled to receive the following amount as severance pay, subject to such amount being reduced as provided below (referred to in this Section 6(b)(iii) as the “Severance Payment”): (A) an amount equal to the pro rata Bonus for the fiscal year in which the Date of Termination occurs, determined by pro rating the Bonus the Executive would have received had the Executive remained employed through the payment date of any such Bonus (the proration shall be a fraction whose numerator is the number of days the Executive was employed by the Corporation that fiscal year through and including the Date of Termination and the denominator is 365), payable at the same time as bonuses are paid to other then-current officers of the Corporation under the then-applicable Short Term Plan for the fiscal year in which the Date of Termination occurs, plus (B) an amount equal to one times the Executive’s Base Salary as of the Date of Termination, payable in substantially equal installments in accordance with the Corporation’s normal payroll policies commencing on the Date of Termination and continuing for twelve (12) consecutive months; provided, however, that any installments that otherwise would be paid during the first sixty (60) days after the Date of Termination will be delayed and included in the first installment paid to the Executive on the first payroll date that is more than sixty (60) days after the Date of Termination, and provided further that if the Executive is considered a “specified employee” (as defined in Treasury Regulation Section
1.409A-1(i)) as of the Date of Termination, then no payments of deferred compensation payable due to Executive’s separation from service for purposes of section 409A of the Code shall be made under this Agreement until the Corporation’s first regular payroll date that is after the first day of the seventh (7th) month following the Date of Termination and included with the installment payable on such payroll date, if any, without adjustment for interest or earnings during the period of delay. Furthermore, any Severance Payment owed to the Executive under subsections (A) or (B) above will be reduced by the amount of any compensation earned by the Executive for any consulting or employment services provided on a substantially full-time basis during the 12-month period immediately following the Date of Termination, to the extent such compensation is payable by an entity unrelated to the Corporation.
(iv) Benefits Continuation. Subject to the Executive signing and not revoking a release of claims in a form prescribed by the Corporation and the Executive remaining in strict compliance with the terms of this Agreement and any other written agreements between the Corporation and the Executive, the Corporation will pay the employer portion of the Executive’s COBRA premiums for health and dental insurance coverage under the Corporation’s group health and dental insurance plans for the same period of time the Executive remains eligible to receive the Severance Payment installments under Section 6(b)(iii) (up to a maximum of twelve (12) months), provided the Executive timely elects COBRA coverage. Notwithstanding the foregoing, the Corporation will discontinue COBRA premium payments if, and at such time as, the Executive (A) is covered or eligible to be covered under the health and/or dental insurance policy of a new employer, (B) ceases to participate, for whatever reason, in the Corporation’s group insurance plans, or (C) ceases to be eligible to receive the Severance Payment installments under Section 6(b)(iii).
(c)
Termination Without Cause or for Good Reason Within Twenty-Four Months After a Change in Control
. If a Change in Control occurs during the Employment Period and if within twenty-four (24) months after the Change in Control the Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause or the Executive terminates his employment for Good Reason, then the Executive shall be entitled to and shall receive the following:
(i) Accrued Compensation. All compensation due the Executive under this Agreement and under each plan or program of the Corporation in which he may be participating at the time shall cease to accrue as of the date of such termination, except (A) as specifically provided in this Agreement or (B) in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program or by applicable law. All such compensation accrued as of the date of such termination but not previously paid shall be paid to the Executive at the time such payment otherwise would be due.
(ii) Accrued Obligations. In addition, the Executive shall be entitled to payment of all accrued vacation pay.
(iii) Severance Payment. Subject to the Executive signing and not revoking a release of claims in a form prescribed by the Corporation and the Executive remaining in strict compliance with the terms of this Agreement and any other written agreements between the Corporation and the Executive, the Executive shall be entitled to receive the following amount as severance pay, subject to such amount being reduced as provided below (referred to in this Section 6(c)(iii) as the “Severance Payment”): (A) an amount equal to two times the Executive’s Base Salary as of the Date of Termination, plus (B) an amount equal to two times the Executive’s target Bonus for the fiscal year in which the Date of Termination occurs. The Severance Payment described in subsections (A) and (B) above shall be added together and will be paid in substantially equal installments in accordance with the Corporation’s normal payroll policies based on a 24-month payment schedule commencing on the Date of Termination. Notwithstanding the forgoing, any installments that otherwise would be payable on the regular payroll dates between the Date of Termination and first day of the seventh (7th) month following the Date of Termination shall be delayed until the Corporation’s first regular payroll date that is after the first day of the seventh (7th) month following the Date of Termination and included with the installment payable on such payroll date, if any, without adjustment for interest or earnings during the period of delay. Furthermore, any Severance Payment owed to the Executive will be reduced by the amount of any compensation earned by the Executive for any consulting or employment services provided on a substantially full-time basis for the period to which the corresponding Severance Payment relates.
(iv) Benefits Continuation. Subject to the Executive signing and not revoking a release of claims in a form prescribed by the Corporation and the Executive remaining in strict compliance with the terms of this Agreement and any other written agreements between the Corporation and the Executive, the Corporation will pay the employer portion of the Executive’s COBRA premiums for health and dental insurance coverage under the Corporation’s group health and dental insurance plans for the same period of time the Executive remains eligible to receive the Severance Payment installments under Section 6(c)(iii) (up to a maximum of eighteen (18) months), provided the Executive timely elects COBRA coverage. Notwithstanding the foregoing, the Corporation will discontinue COBRA premium payments if, and at such time as, the Executive (A) is covered or eligible to be covered under the health and/or dental insurance policy of a new employer, (B) ceases to participate, for whatever reason, in the Corporation’s group insurance plans, or (C) ceases to be eligible to receive the Severance Payment installments under Section 6(c)(iii).
(d)
Termination for Cause or Without Good Reason.
If the Employee’s employment pursuant to this Agreement is terminated pursuant to subsection (c) of Section 5 hereof, or the Employee terminates this Agreement without Good Reason, then the Employee shall be entitled to and shall receive:
(i)
Accrued Compensation
. All compensation due the Employee under this Agreement and under each plan or program of the Corporation in which he may be participating at the time shall cease to accrue as of the date of such termination, except (A) as specifically provided in this Agreement or (B) in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program or by applicable law. All such compensation accrued as of the date of such termination but not previously paid shall be paid to the Employee at the time such payment otherwise would be due.
(ii)
Accrued Obligations
. In addition, the Employee shall be entitled to payment of all accrued vacation pay.
7.
DEFINITIONS
. Certain terms are defined where they first appear in this Agreement and are underlined for ease of reference. In addition, the following definitions shall apply for purposes of this Agreement.
“
Cause
” shall mean (a) acts during the Employment Period (i) resulting in a felony conviction under any Federal or state statute, or (ii) willful non-performance by the Employee of the Employee’s material employment duties required by this Agreement (other than by reason of the Employee’s physical or mental incapacity) after reasonable notice to the Employee and reasonable opportunity (not less than thirty (30) days) to cease such non-performance, or (b) the Employee willfully engaging in fraud or gross misconduct which is detrimental to the financial interests of the Corporation.
“
Change in Control
” shall have the same meaning ascribed to that term in the Long-Term Plan.
“
Good Reason
” shall mean the occurrence during the Employment Period, without the express written consent of the Employee, of any of the following:
(a)
any adverse alteration in the nature of the Employee's reporting responsibilities, titles, or offices, or any removal of the Employee from, or any failure to reelect the Employee to, any such positions, except in connection with a termination of the employment of the Employee for Cause, permanent disability, or as a result of the Employee’s death or a termination of employment by the Employee other than for Good Reason;
(b)
a material reduction by the Corporation in the Employee's Base Salary then in effect (other than any such reduction that is part of an across-the-board reduction of base salaries for all officers
provided the percentage reduction in the Employee’s Base Salary is commensurate with the percentage reduction in the base salaries for all other officers);
(c) failure by the Corporation to continue in effect (without substitution of a substantially equivalent plan or a plan of substantially equivalent value) any compensation plan, bonus or incentive plan, stock purchase plan, stock option plan, life insurance plan, health plan, disability plan or other benefit plan or arrangement in which the Employee is then participating;
(d) any material breach by the Corporation of any provisions of this Agreement;
(e) the requirement by the Corporation that the Employee's principal place of employment be relocated more than thirty (30) miles from the Corporation’s address for notice in Section 11(i); or
(f) the Corporation's failure to obtain a satisfactory agreement from any successor to assume and agree to perform Corporation's obligations under this Agreement;
provided that the Employee notifies the Corporation of such condition set forth in clause (a), (b), (c), (d), (e) or (f) within ninety (90) days of its initial existence and the Corporation fails to remedy such condition within thirty (30) days of receiving such notice.
8.
CONFIDENTIAL INFORMATION
. The Employee shall not at any time during the Employment Period or thereafter disclose to others or use any trade secrets or any other confidential information belonging to the Corporation or any of its subsidiaries, 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 8 shall survive the termination of the Employee’s employment and consulting with the Corporation, provided that after the termination of the Employee’s employment with the Corporation, the restrictions contained in this Section 8 shall not apply to any such trade secret or confidential information which becomes generally known in the trade.
9.
NON-COMPETITION
.
(a)
Non-competition
. For a period of twenty-four (24) 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 an 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 venturer, 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.
10.
ACKNOWLEDGMENT; REMEDIES; LITIGATION EXPENSES
.
(a)
Acknowledgment
. The Employee has carefully read and considered the provisions of Sections 8 and 9 hereof and agrees that the restrictions set forth in such sections
are fair and reasonable and are reasonably required for the protection of the interests of the Corporation, its officers, directors, shareholders, and other employees, for the protection of the business of the Corporation, and to ensure that the Employee devotes the Employee’s entire professional time, energy, and skills to the business of the Corporation. The Employee acknowledges that he is qualified to engage in businesses other than that described in Section 9. It is the belief of the parties, therefore, that the best protection that can be given to the Corporation that does not in any way infringe upon the rights of the Employee to engage in any unrelated businesses is to provide for the restrictions described in Section 9. In view of the substantial harm which would result from a breach by the Employee of Sections 8 or 9, the parties agree that the restrictions contained therein shall be enforced to the maximum extent permitted by law as more particularly set forth in Section 10(b) below. In the event that any of said restrictions shall be held unenforceable by any court of competent jurisdiction, the parties hereto agree that it is their desire that such court shall substitute a reasonable judicially enforceable limitation in place of any limitation deemed unenforceable and that as so modified, the covenant shall be as fully enforceable as if it had been set forth herein by the parties.
(b)
Remedies
. If the Employee violates any of the restrictive covenants set forth in Sections 8 or 9 above, and such violation continues after the Employee is notified in writing by the Corporation that he is in violation of the restrictive covenant, then (i) the Corporation shall have no further obligation to pay any portion of any Severance Payment and all such future payments shall be forfeited, and (ii) the Employee shall immediately return to the Corporation any Severance Payment previously paid to the Employee. The Employee acknowledges that any breach or threatened breach of Sections 8 or 9 would damage the Corporation irreparably and, consequently, the Corporation, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunction, without having to post any bond or other security.
(c)
Attorneys Fees
. The Corporation shall be entitled to receive from the Employee reimbursement for reasonable attorneys' fees and expenses incurred by the Corporation in successfully enforcing these provisions to final judgment and the Employee shall be entitled to receive from the Corporation reasonable attorney's fees and expenses incurred by the Employee in the event the Corporation is found to be not entitled to enforcement of these provisions.
11.
MISCELLANEOUS
.
(a)
Successors and Assigns
. This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation, including any party with which the Corporation may merge or consolidate or to which it may transfer substantially all of its assets. As used in this Agreement, the term “
successor
” shall include any person, firm, corporation or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the capital stock or assets of the Corporation.
(b)
Non-assignability and Non-transferability
. The rights and obligations of the Employee under this Agreement are expressly declared and agreed to be personal, nonassignable and nontransferable during the Employee’s life.
(c)
Limitation of Waiver
. The waiver by either party hereto of its rights with respect to a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any rights with respect to any subsequent breach.
(d)
Complete Agreement
. This Agreement is the entire agreement of the parties with respect to the subject matter hereof, and supersedes and replaces any and all prior agreements among the Corporation and the Employee with respect to the matters covered herein.
(e)
Amendments
. No modification, amendment, addition, alteration or waiver of any of the terms, covenants or conditions hereof shall be effective unless made in writing and duly executed by the Corporation and the Employee.
(f)
Counterparts
. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute but one and the same agreement.
(g)
Governing Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, without regard to the conflicts of law principles thereof.
(h)
Severability
. If any provision of this Agreement is determined to be invalid or unenforceable under any applicable statute or rule of law, it is to that extent to be deemed omitted and it shall not affect the validity or enforceability of any other provision.
(i)
Notices
. Any notice required or permitted to be given under this Agreement shall be in writing, and shall be deemed given when sent by registered or certified mail, postage prepaid, addressed as follows:
If to the Employee: Jim B. Lain
_______________________________
_______________________________
If to the Corporation: Regis Corporation
7201 Metro Boulevard
Edina, Minnesota 55439
Attn: General Counsel
or mailed to such other person and/or address as the party to be notified may hereafter have designated by notice given to the other party in a similar manner.
(j)
Tax Withholding
. The Corporation may withhold from any amounts payable under this Agreement such federal, state and local income and employment taxes as the Corporation shall determine are required or authorized to be withheld pursuant to any applicable law or regulation.
(k)
Section 409A
. This Agreement is intended to provide for payments that satisfy, or are exempt from, the requirements of Sections 409A(a)((2), (3) and (4) of the Code, including current and future guidance and regulations interpreting such provisions, and should be interpreted accordingly. Except for any tax amounts withheld by the Corporation from the payments or other consideration hereunder and any employment taxes
required to be paid by the Corporation, the Employee shall be responsible for payment of any and all taxes owed in connection with the consideration provided for in this Agreement.
(l)
Mandatory Arbitration
. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration in the manner set forth in this Section 11(l). Either party may submit any claim arising under or in connection with this Agreement for binding arbitration before an arbitrator in Hennepin County, Minnesota, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “
arbitration
”). The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; the arbitrator shall not change, add to, or subtract from, any of its provisions. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having competent jurisdiction may enter a judgment based upon such arbitration. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a national reputation for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.
IN WITNESS WHEREOF
, the parties hereto have duly executed this Agreement as of the date first set forth above.
REGIS CORPORATION
By:
/s/ Eric Bakken
Its:
EVP
/s/ Jim B. Lain
Jim B. Lain
Exhibit No. 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel J. Hanrahan, certify that:
|
|
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Regis Corporation;
|
|
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
|
|
|
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
|
|
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
(c)
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
|
(d)
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
|
|
|
|
5.
|
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors:
|
|
|
|
|
(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.
|
|
|
|
|
|
|
|
February 3, 2014
|
|
|
|
|
|
|
|
/s/ Daniel J. Hanrahan
|
|
|
|
Daniel J. Hanrahan, President and Chief Executive Officer
|
|
|
Exhibit No. 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven M. Spiegel, certify that:
|
|
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Regis Corporation;
|
|
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
|
|
|
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
|
|
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
(c)
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
|
(d)
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
|
|
|
|
5.
|
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors:
|
|
|
|
|
(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.
|
|
|
|
|
|
|
|
February 3, 2014
|
|
|
|
|
|
|
|
/s/ Steven M. Spiegel
|
|
|
|
Steven M. Spiegel, 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 Quarterly Report of Regis Corporation (the Registrant) on Form 10-Q for the fiscal quarter ending
December 31, 2013
filed with the Securities and Exchange Commission on the date hereof, Daniel J. Hanrahan, President and Chief Executive Officer of the Registrant, and Steven M. Spiegel, 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 Quarterly Report on Form 10-Q complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
|
|
|
(2)
|
The information contained in the Quarter Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
|
|
|
|
|
|
|
February 3, 2014
|
|
|
|
|
|
|
|
/s/ Daniel J. Hanrahan
|
|
|
|
Daniel J. Hanrahan, President and Chief Executive Officer
|
|
|
|
|
|
|
|
February 3, 2014
|
|
|
|
|
|
|
|
/s/ Steven M. Spiegel
|
|
|
|
Steven M. Spiegel, Executive Vice President and Chief Financial Officer
|
|
|