Minnesota State or other jurisdiction of incorporation or organization | 41-0749934 (I.R.S. Employer Identification No.) | |
7201 Metro Boulevard, Edina, Minnesota (Address of principal executive offices) | 55439 (Zip Code) | |
Title of each class Name of each exchange on which registered Common Stock, par value $0.05 per share New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange ýo (Do 2012,2014, was approximately $737,540,488.$734,315,533. The registrant has no non-voting common equity.9, 2013,24, 2015, the registrant had 56,627,33452,998,021 shares of Common Stock, par value $0.05 per share, issued and outstanding.to be held on October 22, 2013 (the "2013"2015 Proxy Statement") (to be filed pursuant to Regulation 14A within 120 days after the registrant's fiscal year-end of June 30, 2013)2015) are incorporated by reference into Part III.
impactcontinued ability of significantthe Company to execute on our strategy and build on the foundational initiatives and changes in our management and organizational structure; negative same-store sales;that we have implemented; the success of our stylists and our ability to attract, train and retain talented stylists; changes in regulatory and statutory laws; changes in tax rates; the effect of changes to healthcare laws; changes in regulatoryour ability to manage cyber threats and statutory laws;protect the Company'ssecurity of sensitive information about our guests, employees, vendors or Company information; reliance on management information systems; reliance on external vendors; changes in distribution channels of manufacturers; financial performance of our franchisees; internal control over the accounting for leases; competition within the personal hair care industry, which remains strong, both domestically and internationally;industry; changes in economic conditions; the continued ability of the Company to implement cost reduction initiatives; certain of the termsinterest rates and provisions of the outstanding convertible notes;foreign currency exchange rates; failure to optimize our brand portfolio;standardize operating processes across brands; the ability of the Company to maintain satisfactory relationships with certain companies and suppliers; the continued ability of the Company to implement cost reduction initiatives; compliance with debt covenants; changes in economic conditions; financial performance of our joint ventures; changes in interest rates and foreign currency exchange rates;investment with Empire Education Group; 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 under Item 1A of this Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-Q and 8-K and Proxy Statements on Schedule 14A.
Executive Officers of the Registrant Item 1B. Item 4. Item 6. Item 7. Item 7A. Item 8. Report of Independent Registered Public Accounting Firm Item 9. Item 9A. Part III. Item 12. Item 13. Item 14. Haircutting and styling Hair coloring Hair waving Other Concurrent with the change in reportable operating segments, the Company revised its prior period financial information to conform comparable financial information to the new segment structure. Historical financial information presented herein reflects this change. Consolidated Financial well aligned, focusing on people, processes and metrics to drive execution and performance. Our key strategies follow: Convenience. Our different salon concepts enable our guests to select different service scheduling options based upon their preference. In the Salon Appearance and Atmosphere. The Company's salons range from 500 to 5,000 square feet, with the typical salon approximating 1,200 square feet. Our salon repairs and maintenance program is designed to ensure We multi-unit organization. Company-owned salons: SmartStyle/Cost Cutters in Walmart Stores Supercuts MasterCuts Regis salons Promenade Total North American Salons Total International Salons(1) Total, Company-owned salons Franchised salons: SmartStyle/Cost Cutters in Walmart Stores Supercuts Promenade Total North American Salons Total International Salons(1) Total, Franchised salons Ownership interest locations: Equity ownership interest locations(4) Grand Total, System-wide Company-owned salons: SmartStyle/Cost Cutters in Walmart Stores Supercuts MasterCuts Regis salons Promenade Total North American Salons Total International Salons(1) Total, Company-owned salons Franchised salons: SmartStyle/Cost Cutters in Walmart Stores Supercuts Promenade Total North American Salons Total International Salons(1) Total, Franchised salons Company-owned salons: SmartStyle/Cost Cutters in Walmart Stores Supercuts MasterCuts Regis salons Promenade Total North American Salons Total International Salons(1) Total, Company-owned salons Franchised salons: SmartStyle/Cost Cutters in Walmart Stores Supercuts Promenade Total North American Salons Total International Salons(1) Total, Franchised salons Company-owned salons: SmartStyle/Cost Cutters in Walmart Stores Supercuts MasterCuts Regis salons Promenade Total North American Salons Total International Salons(1) Total, Company-owned salons Franchised salons(2): SmartStyle/Cost Cutters in Walmart Stores Supercuts Promenade Total North American Salons Total International Salons(1) Total, Franchised salons Company-owned salons: SmartStyle/Cost Cutters in Walmart Stores Supercuts MasterCuts Regis salons Promenade Total North American Salons Total International Salons(1) Total, Company-owned salons Franchised salons: SmartStyle/Cost Cutters in Walmart Stores Supercuts Promenade Total North American Salons Total International Salons(1) Total, Franchised salons usage. The Company's field personnel make periodic visits to franchised salons to ensure that they are operating in conformity with the standards for each franchising program. All of the rights afforded to the Company with regard to franchised operations allow the Company to protect its brands, but do not allow the Company to control the franchise operations or make decisions that have a significant impact on the success of the franchised salons. The Company’s franchise agreements do not give the Company any right, ability or potential to determine or otherwise influence any terms and/or conditions of employment of franchisees’ employees (except for those, if any, that are specifically related to quality of service, training, salon design, decor, and trademark usage), including, but not limited to, franchisees’ employees’ wages, employee benefits, hours of work, scheduling, leave programs, seniority rights, promotional or transfer opportunities, layoff/recall arrangements, grievance and dispute resolution procedures, uniforms, and/or discipline and discharge. Additionally, we utilize our EEG relationship to recruit stylists straight from beauty school. Finance at Unilever (formerly Alberto Culver) from May 2005 to May 2012. 2014. Before joining Regis Corporation, she served as Senior Vice President of Merchandising, Grocery at Target from 2010 to 2014. 2013 to February 2014 and Director of Loss Prevention at CVS Health Corporation from January 2010 to January 2013. Financial Information about Foreign and North American Operations operating results. business. stylists and salon leaders. adversely affected. sales to franchised locations. Our financial results are therefore dependent in part upon the operational and financial success of our franchisees. As we increase our focus on our franchise business, our dependence on our franchisees grows. impaired. Statements. pending. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter dividends. The Peer Group is the same group of companies the Company utilized as its peer group for executive compensation purposes in fiscal years 2015, 2014 and 2013. Information regarding executive compensation will be set forth in the 2015 Proxy statement. Regis S & P 500 S & P 400 Midcap Dow Jones Consumer Service Index Peer Group Revenues Operating income (loss)(a) Income (loss) from continuing operations(a) Income (loss) from continuing operations per diluted share Dividends declared, per share Total assets, including discontinued operations Long-term debt and capital lease obligations, including current portion Service revenues Product revenues Franchise royalties and fees Cost of service(1) Cost of product(2) Site operating expenses General and administrative Rent Depreciation and amortization Goodwill impairment Interest expense Interest income and other, net Income taxes(3) Equity in (loss) income of affiliated companies, net of income taxes Income (loss) from discontinued operations, net of taxes North American salons: SmartStyle Supercuts MasterCuts Regis Promenade Total North American Salons International salons Consolidated revenues Percent change from prior year Salon same-store sales decrease(1) Decreases Same-store sales Closed salons New stores and conversions Acquisitions Other Same-store sales by concept by fiscal year are detailed in the table below: SmartStyle Supercuts MasterCuts Regis Promenade Total North American Salons International salons Consolidated same-store sales The $24.3 million decrease in product revenues during fiscal year 2013 was primarily due to same-store product sales decreasing 3.9%, the closure of 423 company-owned salons and the comparable prior period including an additional day from leap year, average ticket. increases at franchised locations. a full commission coupon event that was not repeated. product revenues. Value and Premium segments, lower self-insurance reserves, reduced marketing expenses, a sales and use tax refund and cost savings. The same-store sales. initiatives in cost category. Goodwill Impairment prior year. During fiscal year 2013, the Company recognized an income tax benefit of Statements. As of June 30, 2015, $16.4 million of cash was returned to the U.S. through the repayment of intercompany notes. Financing Arrangements. Cash Flows from Financing Activities aggregate principal amount of senior unsecured notes due December 2017. We were in compliance with all covenants and other requirements of our credit agreement and senior notes as of June 30, 2015. Senior term notes Convertible senior notes(1) Revolving credit facility Equipment and leasehold notes payable Other notes payable Less current portion(1) Long-term portion certain circumstances. Events of default under the Credit Agreement include a change of control of the Company. 2013 2012 2011 On-balance sheet: Debt obligations Capital lease obligations Other long-term liabilities Total on-balance sheet Off-balance sheet(a): Operating lease obligations Interest on long-term debt and capital lease obligations Total off-balance sheet Total On-Balance Sheet Obligations As of June 30, Statements. dividends. the $14.8 million carrying value of the investment. See Note 5 to the Consolidated Financial Statements. Discount Rate Same-Store Sales units. Accordingly, the Company did not perform any further analysis. Regis MasterCuts SmartStyle Supercuts Promenade Total Long-Lived Assets, Excluding Goodwill data and salon level revenues and expenses. Long-lived asset impairment charges are recorded within depreciation and amortization in the Consolidated Statement of Operations. its results of operations in any particular period. Company’s financial position. short-term interest rates. On occasion, the Company uses interest rate swaps to further mitigate the risk associated with changing interest rates and to maintain its desired balances of fixed and floating rate debt. In addition, access to variable rate debt is available through the Company's revolving credit facility. The Company reviews its policy and interest rate risk management quarterly and makes adjustments in accordance with market conditions and the Company's short and long-term borrowing needs. As of June 30, ASSETS Current assets: Cash and cash equivalents Receivables, net Inventories Deferred income taxes Income tax receivable Other current assets Current assets held for sale (Note 2) Total current assets Property and equipment, net Goodwill Other intangibles, net Investment in and loans to affiliates Other assets Long-term assets held for sale (Note 2) Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current portion Accounts payable Accrued expenses Current liabilities related to assets held for sale (Note 2) Total current liabilities Long-term debt and capital lease obligations Other noncurrent liabilities Long-term liabilities related to assets held for sale (Note 2) Total liabilities Commitments and contingencies (Note 8) Shareholders' equity: Common stock, $0.05 par value; issued and outstanding, 56,630,926 and 57,415,241 common shares at June 30, 2013 and 2012, respectively Additional paid-in capital Accumulated other comprehensive income Retained earnings Total shareholders' equity Total liabilities and shareholders' equity Revenues: Service Product Royalties and fees Operating expenses: Cost of service Cost of product Site operating expenses General and administrative Rent Depreciation and amortization Goodwill impairment Total operating expenses Operating income (loss) Other income (expense): Interest expense Interest income and other, net Income (loss) from continuing operations before income taxes and equity in (loss) income of affiliated companies Income taxes Equity in (loss) income of affiliated companies, net of income taxes Income (loss) from continuing operations Income (loss) from discontinued operations, net of taxes (Note 2) Net income (loss) Net income (loss) income per share: Basic: Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) per share, basic Diluted: Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) per share, diluted Weighted average common and common equivalent shares outstanding: Basic Diluted Cash dividends declared per common share Net income (loss) Other comprehensive loss: Foreign currency translation adjustments: Foreign currency translation adjustments during the period Reclassification adjustments for gains included in net income (loss) Net current period foreign currency translation adjustments Recognition of deferred compensation and other, net of tax expense of $411, $644, and $232, respectively Change in fair market value of financial instruments designated as cash flow hedges, net of tax (benefit) expense of $(12), $210 and $86, respectively Other comprehensive (loss) income Comprehensive (loss) income Balance, June 30, 2010 Net loss Foreign currency translation adjustments Proceeds from exercise of SARs & stock options Stock-based compensation Shares issued through franchise stock incentive program Recognition of deferred compensation and other, net of taxes (Note 10) Tax benefit realized upon exercise of stock options Net restricted stock activity Vested stock option expirations Dividends Balance, June 30, 2011 Net loss Foreign currency translation adjustments Proceeds from exercise of SARs& stock options Stock-based compensation Shares issued through franchise stock incentive program Recognition of deferred compensation and other, net of taxes (Note 10) Net restricted stock activity Vested stock option expirations Cumulative minority interest (Note 1) Dividends Balance, June 30, 2012 Net income Foreign currency translation adjustments Stock repurchase plan Proceeds from exercise of SARs & stock options Stock-based compensation Shares issued through franchise stock incentive program Recognition of deferred compensation and other, net of taxes (Note 10) Net restricted stock activity Vested stock option expirations Minority interest (Note 1) Dividends Balance, June 30, 2013 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Equity in loss (income) of affiliated companies Dividends received from affiliated companies Deferred income taxes Accumulated other comprehensive income reclassification adjustments (Note 5) Gain on from sale of discontinued operations Loss on write down of inventories Goodwill impairment Salon asset impairments Note receivable bad debt (recovery) expense Stock-based compensation Amortization of debt discount and financing costs Other noncash items affecting earnings Changes in operating assets and liabilities(1): Receivables Inventories Income tax receivable Other current assets Other assets Accounts payable Accrued expenses Other noncurrent liabilities Net cash provided by operating activities Cash flows from investing activities: Capital expenditures Proceeds from sale of assets Asset acquisitions, net of cash acquired Proceeds from loans and investments Disbursements for loans and investments Change in restricted cash Net cash provided by (used in) investing activities Cash flows from financing activities: Borrowings on revolving credit facilities Payments on revolving credit facilities Repayments of long-term debt and capital lease obligations Repurchase of common stock Proceeds from issuance of common stock Dividends paid Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Increase (decrease) in cash and cash equivalents Cash and cash equivalents: Beginning of year End of year Prior to this change, the Company had two reportable operating segments: North American salons and International salons. See Note 14 to the Consolidated Statement of Operations. Concurrent with the change in reportable operating segments, the Company revised its prior period financial information to conform to the new segment structure. Historical financial information presented herein reflects this change. : Cost of service Site operating expenses General and administrative Cost of service Site operating expenses General and administrative Depreciation and amortization Operating income (loss) Depreciation and amortization Operating income (loss) Use of Estimates: 2014. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses related to existing accounts and notes receivables. As of June 30, Expenditures for maintenance and repairs and minor renewals and betterments, which do not improve or extend the life of the respective assets, are expensed. All other expenditures for renewals and betterments are capitalized. The assets and related depreciation and amortization accounts are adjusted for property retirements and disposals with the resulting gain or loss included in operating income. Fully depreciated or amortized assets remain in the accounts until retired from service. salon level revenues and expenses. Long-lived asset impairment charges are recorded within depreciation and amortization in the Consolidated Statement of Operations. a reporting unit below its carrying amount. did not perform any further analysis. Regis MasterCuts SmartStyle Supercuts Promenade Total For purposes of recognizing incentives and minimum rental expenses on a straight-line basis, use. Consideration Received from Vendors: The Company records all advertising funds as assets and liabilities within the Company's Consolidated Balance Sheet. As of June 30, Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse. Accounting Standards Recently Issued But Not Yet Adopted by the Company: Disposals of Components of an Entity The following summarizes the results of operations of our discontinued Hair Club operations for the periods presented: Revenues Income (loss) from discontinued operations, before income taxes Income tax (provision) benefit on discontinued operations Equity in income of affiliated companies, net of tax Income (loss) from discontinued operations, net of income taxes Other current assets: Prepaids Restricted cash Notes receivable Property and equipment: Land Buildings and improvements Equipment, furniture and leasehold improvements Internal use software Equipment, furniture and leasehold improvements under capital leases Less accumulated depreciation and amortization Less amortization of equipment, furniture and leasehold improvements under capital leases Investment in and loans to affiliates: Equity-method investments Cost method investment Other assets: Notes receivable, net Other noncurrent assets Accrued expenses: Payroll and payroll related costs Insurance Deferred compensation Deferred revenues Taxes payable Other Other noncurrent liabilities: Deferred income taxes Deferred rent Deferred benefits Insurance Other Amortized intangible assets: Brand assets and trade names Franchise agreements Lease intangibles Non-compete agreements Other Amortized intangible assets: Brand assets and trade names Franchise agreements Lease intangibles Non-compete agreements Other Total Total amortization expense related to 2014 2015 2016 2017 2018 Thereafter Total The following provides supplemental disclosures of cash flow activity: Cash paid (received) during the year for: Interest Income taxes, net Goodwill 2009 2010 2011 2012 2013 Total Goodwill, net at June 30, 2011 Goodwill acquired Translation rate adjustments Goodwill impairment Goodwill, net at June 30, 2012 Translation rate adjustments Goodwill, net at June 30, 2013 Empire Education Group, Inc. Provalliance MY Style Empire Education Group, Inc. MY Style Summarized Balance Sheet Information: Current assets Noncurrent assets Current liabilities Noncurrent liabilities Summarized Statement of Operations Information: Gross revenue Gross profit Operating (loss) income Net (loss) income investment. The Company previously provided EEG with a $15.0 million revolving credit facility and outstanding loan Class B Preferred Stock for $3.1 million. The Company had previously 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. The Company reported the gain associated with Yamano's redemption within equity in loss of affiliated companies on the Consolidated Statement of Operations. 2015. As of June 30, 2015 and 2014, the estimated fair value of the Company's debt was $119.7 and $292.5 million, respectively, and the carrying value was $120.0 and $293.5 million, respectively. The estimated fair value of the Company's debt is based on Level 2 inputs. Assets Investment in affiliates—EEG(1) Total Assets Goodwill—Regis(1) Investment in affiliates—EEG(2) Investment in affiliates—Provalliance(3) Total Senior term notes Convertible senior notes(1) Revolving credit facility Equipment and leasehold notes payable Other notes payable Less current portion(1) Long-term portion 2015. 2014 2015 2016 2017 2018 Thereafter Convertible Senior Notes Principal amount on the convertible senior notes Unamortized debt discount Net carrying amount of convertible debt Interest cost related to contractual interest coupon—5.0% Interest cost related to amortization of the discount Total interest cost $1.3 million. CONTINGENCIES Sublease income was Minimum rent Percentage rent based on sales Real estate taxes and other expenses 2014 2015 2016 2017 2018 Thereafter Total minimum lease payments pending. During fiscal During fiscal year Company’s financial position. Income (loss) before income taxes: U.S. International The provision (benefit) Current: U.S. International Deferred: U.S. International U.S. statutory rate (benefit) State income taxes, net of federal income tax benefit Tax effect of goodwill impairment Foreign income taxes at other than U.S. rates Tax effect of foreign currency translation gain Work Opportunity and Welfare-to-Work Tax Credits Other, net The components of the net deferred tax assets and liabilities are as follows: Deferred tax assets: Deferred rent Payroll and payroll related costs Net operating loss carryforwards Tax credit carryforwards Salon asset impairment Inventories Federal and state benefit on uncertain tax positions Allowance for doubtful accounts/notes Insurance Other Total deferred tax assets Deferred tax liabilities: Depreciation Amortization of intangibles Deferred debt issuance costs Other Total deferred tax liabilities Net deferred tax (liability) asset from fiscal years 2028 to 2035, $0.5 million that will expire from fiscal years 2020 to 2025 and $1.5 million of carryforward that has no expiration date. The Company files tax returns and pays tax primarily in the U.S., Canada, the U.K. Balance at beginning of period Additions based on tax positions related to the current year (Reductions)/additions based on tax positions of prior years Reductions on tax positions related to the expiration of the statute of limitations Settlements Balance at end of period their eligible compensation. Employees who are 18 years of age or older and who were not highly compensated employees as defined by the Code during the preceding RRSP year are eligible to participate in the RRSP commencing with the first day of the month following their completion of one month of service. Effective June 30, 2012, these contracts were amended and the benefits were frozen as of June 30, 2012. Related obligations totaled $3.3 and $2.5 million at June 30, 2015 and 2014, respectively, with $0.5 million within accrued expenses at June 30, 2015 and 2014, respectively and the remainder included in other noncurrent liabilities in the Consolidated Balance Sheet. RRSP Plan profit sharing Executive Plan (including profit sharing) ESPP FSPP Deferred compensation contracts Income (loss) from continuing operations available to common shareholders Effect of dilutive securities: Interest on convertible debt(1) Income (loss) from continuing operations for diluted earnings per share Weighted average shares for basic earnings per share Effect of dilutive securities: Dilutive effect of convertible debt Dilutive effect of stock-based compensation(1) Weighted average shares for diluted earnings per share The computation of weighted average shares outstanding, assuming dilution, excluded June 30, 2015, a maximum of 2,465,276 shares of RSAs, RSUs and PSUs were available for grant under the 2004 Plan. All unvested awards Stock options & SARs RSAs & RSUs PSUs Risk-free interest rate Expected term (in years) Expected volatility Expected dividend yield Stock-based compensation expense SARs & stock options RSAs, RSUs, & PSUs Total stock-based compensation expense Less: Income tax benefit Total stock-based compensation expense, net of tax period with the exception of the January 2015 grant which vests entirely after five years and expires seven years from the grant date. Outstanding balance at June 30, 2012 Granted Forfeited/Expired Exercised Outstanding balance at June 30, 2013 Exercisable at June 30, 2013 Unvested options, net of estimated forfeitures Activity for all of our RSAs and RSUs is as follows: Outstanding balance at June 30, 2012 Granted Forfeited Vested Outstanding balance at June 30, 2013 Vested at June 30, 2013 Unvested awards, net of estimated forfeitures metrics are earned. Share Repurchase Program: Income: Foreign currency translation Unrealized gains (losses) on derivatives Unrealized gain (loss) on deferred compensation contracts Accumulated other comprehensive income Revenues(1): North American Salons International Salons Depreciation and amortization expense(1): North American Salons International Salons Total segment depreciation and amortization expense Unallocated Corporate Operating income (loss)(1): North American Salons(2) International Salons Total segment operating income Unallocated Corporate Operating income (loss)(1) Interest expense Interest income and other, net Income (loss) from continuing operations before income taxes and equity in income (loss) of affiliated companies Total revenues and property and equipment, net associated with business operations in the U.S. and all other countries in aggregate were as follows: U.S. Other countries Total 2013 Revenues Cost of service and product revenues, excluding depreciation and amortization Operating income (loss)(a) Income (loss) from continuing operations(a)(b) Income from discontinued operations(c) Net income (loss)(a)(b)(c) Income (loss) from continuing operations per share, basic Income from discontinued operations per share, basic(d) Net income (loss) per basic share(d) Income (loss) from continuing operations per share, diluted(d) Income from discontinued operations per share, diluted Net income (loss) per diluted share(d) Dividends declared per share Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 in this Form 10-K for explanations of items, which impacted fiscal 2012 Revenues Cost of service and product revenues, excluding depreciation and amortization Operating income (loss)(a) Income (loss) from continuing operations(a)(b) Income (loss) from discontinued operations(c) Net income (loss)(a)(b)(c) Income (loss) from continuing operations per share, basic Income (loss) from discontinued operations per share, basic Net income (loss) per basic share(d) Income (loss) from continuing operations per share, diluted Income (loss) from discontinued operations per share, diluted Net income (loss) per diluted share(d) Dividends declared per share in Item 8. material weakness and developing a plan of remediation to strengthen our overall internal control over accounting for leases. The remediation plan will include the following actions: There are no financial statement schedules included with this filing for the reason they are not applicable, not required or the information is included in the financial statements or notes thereto.20132015Page(s)Part I. Page(s) Business Risk Factors15 Properties19Item 3.Legal Proceedings19 Management's Statement of Responsibility for Financial Statements and Report on Internal Control over Financial Reporting44 Other Information90 Executive Compensation91 Signatures952013,2015, the Company owned, franchised or held ownership interests in 9,7639,556 locations worldwide. The Company's locations consist of 9,5179,349 company-owned and franchised salons and 246207 locations in which we maintain a non-controlling ownership interest of less than 100 percent.100%. Each of the Company's salon concepts generally offer similar salon products and services and serve the mass marketplace.waving.other services. The percentage of company-owned service revenues in each fiscal year 2015, 2014, and 2013 attributable to eachhaircutting and styling, hair coloring and other services were 72%, 19% and 9%, respectively.these services wasfiscal year 2014, the Company redefined its operating segments to reflect how the chief operating decision maker evaluates the business as follows: Fiscal Years 2013 2012 2011 72 % 72 % 72 % 19 19 18 3 3 3 6 6 7 100 % 100 % 100 % Salona result of restructuring the Company's North American field organization. The Company now reports its operations are managed geographically—in three operating segments: North AmericaAmerican Value, North American Premium and International. Prior to this change in organizational structure, the Company had two reportable operating segments: North American salons and International salons.7,0845,923 company-owned salons and 2,0822,324 franchised salons operating in the United States, Canada, and Puerto Rico. The Company's North American Premium salon operations are comprised of 746 company-owned salons operating in the United States, Canada, and Puerto Rico. The Company's International operations are comprised of 351356 company-owned salons in the United Kingdom. The Company's salons operate primarily under the trade names of SmartStyle, Supercuts, MasterCuts, Regis Salons, and Cost Cutters, and they generally serve two categories within the industry.industry, value and premium. SmartStyle, Supercuts, MasterCuts, Cost Cutters, and other regional trade names are generally within the affordablevalue category, offering high quality, convenience, and valueaffordably priced hair care and beauty services and retail products. Regis Salons, among other trade names, are in the mass premium category offering upscale hair care and beauty services and retail products. The Company's North American Value business is comprised of 6,222 company-owned salons operating in the affordable category, located mainly in strip center locations and Walmart Supercenters and 862 company-owned salons operating in the premium category,North American Premium business is primarily in mall based locations. During fiscal years 20132015 and 2012,2014, the number of guest visits at the Company's company-owned salons approximated 8576 and 8979 million, respectively.segmentsegments and geographic areas for fiscal years 2013, 20122015, 2014, and 20112013 are included in Note 14 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.has led to several disposalssales during fiscal year 2013. In April 2013, the Company sold Hair Club for Men and Women (Hair Club) for approximately $165$164.8 million. See Note 2 to the Consolidated Financial Statements for further discussion on Hair Club.Statements. In September 2012, the Company sold its 46.7 percent equity interest in Provalliance for $103.4 million. See Note 5 to theStatements for further discussion on Provalliance. As the Company continues this strategic evaluation, futureStatements. Future sales of non-core assets could impact our operations by decreasing total revenues, operating expenses, and income or loss from equity method investments.that salon chains will continue to have significant influencesinfluence on this market and will continue to increase their presence.and within malls from companies that operate salons within department stores, independently owned salons and to a lesser extent,department store salons which, although independently owned, are operating under franchises from a franchising company that may assist such salons in areaslocated within malls.Strategies underlyingTo successfully achieve our mission and build a winning organization, we must be the place where stylists can have successful and satisfying careers, which will drive great guest experiences and in turn, guests for life. Our key strategies and priorities remain the same and are focused in two main areas, as follows:Guest Experience:1.Drive Loyalty One Guest At A Time2.Earn The Hearts And Minds Of Stylists3.Strengthen Guest Traffic CapabilitiesSalon Support:4.Build A Winning Organization5.Improve Operating Margins To Grow The BusinessGuest Experience1. Earn the Hearts and Minds of Our Team 2. Develop High Performing Leaders 3. Drive Guest Loyalty through Experience 4. Operational Excellence through Simplicity professionally.and upgrade field leadership. Execution disciplines are used to drive accountability, execution and business performance. Incentives are designed to align field interests with those of the Company's shareholders by rewarding behaviors focused on profitable revenue growth. This organization structure also provides a clear career path for our people who desire to ascend within the Company.Guestsaffordablevalue category, the ability to serve walk-in appointments and minimize guest wait times is an essential element in delivering upon convenience. We have made investments incontinue to focus on staffing by increasing stylists hoursand retention and have begun to optimize schedules and leverage scheduling optimization techniques and recently installed point-of-saleour POS systems to help us balance stylist hours with guest traffic and manage guest wait times. In the mass premium category, our salons generally schedule appointments in advance of service. Our salons are located in high-traffic strip centers, Walmart Supercenters and shopping malls, with guest parking and easy access, and are generally open seven days per week, offering guests a variety of convenient ways to fulfill their beauty needs.affordablevalue category, our guests expect outstanding service at valueaffordable prices. These expectations are met with average service transactions ranging from $15$16 to $20.$21. In the mass premium category, our guests expect upscale, full service beauty services at reasonable prices. Average service transactions approximate $44$45 in this category. The Company is conducting price elasticity research that will ultimately serve to guide the Company's ongoing pricing decisions. Technology. In North America, the Company recently installed new point-of-sale (POS) systems in over 95% of its salons. Increasing our ability to collect guestPricing decisions are considered on a market-by-market basis and transactional data will enable the Company to invest in Guest Relationship Management, gaining insights into guest behavior, communicating with guests and incenting return visits. Leveraging this technology will also allow us to monitor guest retention and to survey our guests for feedbackestablished based on improving the guest experience, and will allow guests to use mobile apps to schedule appointments, view wait times and interact in other ways with salons.local conditions. Marketing. The Company is repurposing its marketing resources and investments to become more localized and guest facing, by shifting emphasis from marketing within the salon to traffic-generating marketing programs. that we invest annually in salon cleanliness and safety, as well as in maintaining the normal operation of our salons. Our annual capital expenditures include funds to refresh the appeal and comfort of our salons.lineassortment of private labelowned-brand products. Retail products offered by the Company are intended to be sold only through professional salons, and complement its salon services business. The Company's stylists are compensated and regularly trained to sell hair care and beauty products to their guests. Additionally, guests are encouraged to purchase products after stylists demonstrate their efficacy by using them in the styling of our guests' hair. The top selling brands within the Company's retail assortment include Biolage, Paul Mitchell, Regis designLINE, Redken, Nioxin, Tigi, It's a 10, Sexy Hair Concepts, Kenra, and Moroccanoil.standardizing plan-o-grams and eliminating products in order to make it easier for guests to shop and stylists to sell retail products, to engage key vendors to provide product training to our stylists and to improve salon appearance.Stylists Training. We strive to offer stylist training programs that educate both technically and experientially. We employ full and part-time artistic directors whose duties are to train salon stylists in current styling trends. We utilize training materials to help all levels of field employees navigate the running of a salon. Our guests' experiential training program provides stylists with essential elements of guest service training. We supplement these training programs and lead by example with field leaders who are present in salons providing coaching and mentoring. Organization. We recently reorganized our field organization, excluding salons within the mass premium category, to enable localized mentoring and decision making, improve geographic proximity and increase local market efficiency. Incentives have been redesigned to align field interests with those of the Company's shareholders by rewarding ownership behaviors focused on profitable revenue growth.driving local traffic at the most efficient cost. This new organization structure providesincludes leveraging media, guest relationship management programs, digital channels, and local tactical efforts (e.g., couponing), among other programs. Traffic driving efforts are targeted vs. a career path for our people who desire to ascend within the Company. Technology. The recent installation of POS systemsone-size-fits all approach. Annual marketing plans are based on seasonality, consumer mindset, competitive positioning and salon workstations throughout North America enables communicationreturn on investment. We continually reallocate marketing investments into vehicles with salons and stylists, delivery of online and digital training to stylists, real-time salon level analytics on guest retention, wait times, stylist productivity and salon performance.known, strong returns. In addition to investments made by the Company to reorganize the field organization and to help our stylists develop professionally, we are aligning Salon Support and our associated objectives and priorities aroundare aligned to our field structure to enhance the effectiveness and efficiency of the service provided to our field organization. Simplification. Since During fiscal year 2012,2014, we created a human resources organization to help transform the Company has been evaluating its portfolio of assets, investmentsinto the place where stylists can have successful and satisfying careers and enhanced our asset protection capabilities by building a strong asset protection team and establishing standard operating procedures to support field and salon leaders.with the strategic objective of simplifyingin order to simplify our business model, focusingfocus on our core business of operating beauty salons, and improvingimprove our long-term profitability and maximizingmaximize shareholder value. This evaluation has led to the sale of our Hair Club and Provalliance businesses during fiscal year 2013.are standardizingalso standardized retail plan-o-grams and eliminatingeliminated products in an effort to simplify and manage our ongoing retail inventory assortment. Simplification and standardization will reducereduces inventory management time in our salons and throughout our supply chain and enableenables distribution efficiencies. Operating Margins. We continuelearn fromlead and view our franchise business asexecute in a means to strengthening our brand leverage and growing our revenues and profitability. We have dedicated resources selling new franchises, as well as converting underperforming salons to franchisees. As a result we will generate additional royalties and fees which we can reinvest in our core salon business. and waving services, as well as professional hair care products and are located exclusively in Walmart Supercenters. SmartStyle has a walk-in guest base pricing is promotional and services are focused on the family. Professional retail product sales contribute considerably to overallwith value pricing. Service revenues atrepresent approximately 33 percent.69% of total company-owned SmartStyle revenues. Additionally, the Company has 123127 franchised Cost Cutters salons located in Walmart Supercenters.and at value prices. This concept appeals to men, women, and children, although male guests account for approximately 64 percent of the guest mix.children. Service revenues represent approximately 89 percent90% of total company-owned Supercuts revenues. Additionally, the Company has 1,393 franchised Supercuts locations. and waving services, as well as professional hair care products. Service revenues comprise approximately 80 percent82% of the concept's total revenues. Regis Salons.Other Value. Regis Salons are primarily mall based, full serviceOther Value salons providing complete hair care and beauty services aimed at moderate to upscale, fashion conscious consumers. The guest mix at Regis Salons is approximately 80 percent women, and both appointments and walk-in guests are common. These salons offer a full range of custom styling, cutting, hair coloring and waving services, as well as professional hair care products. Service revenues represent approximately 81 percent of the concept's total revenues. Regis Salons compete in their existing markets primarily by providing high quality services. Included within the Regis Salon concept are various other trade names, including Carlton Hair, Sassoon, Hair by Stewarts, Hair Excitement, and Renee Beauty. Promenade. Promenade Salons are made up of acquired regional company-owned salon groups operating under the primary concepts of Hair Masters, Cool Cuts for Kids, Style America, First Choice Haircutters, Famous Hair, Cost Cutters, BoRics, Magicuts, Holiday Hair, Head Start, Fiesta Salons, and TGF, as well as other concept names. Most concepts offer a full range of custom hairstyling, cutting and coloring and waving,services, as well as hair care products. Hair Masters offers moderately-priced services, to a predominately female demographic, while the other concepts primarily cater to time-pressed, value-oriented families. Service revenues represent approximately 89 percent89% of total company-owned Other Value salons revenues. Additionally, the Company has 804 franchised locations of Other Value salons. Other Value salons were previously referred to as Promenade revenues.salons. The Company's International salons are comprised of company-owned salons operating in the United Kingdom primarily under the Supercuts, Regis, and Sassoon concepts. These salons offer similar levels of service as our North American salons. Sassoon is one of the world's most recognized names in hair fashion and appeals to women and men looking for a prestigious full service hair salon. Salons are usually located in prominent high-traffic locations and offer a full range of custom hairstyling, cutting and coloring and waving,services, as well as professional hair care products. Service revenues comprise approximately 75% of total company-owned international locations.counts(5)
counts June 30, 2013 2012 2011 2,490 2,441 2,393 1,210 1,228 1,158 532 569 588 862 953 1,023 1,990 2,133 2,321 7,084 7,324 7,483 351 398 400 7,435 7,722 7,883 123 122 120 1,116 1,040 987 843 854 829 2,082 2,016 1,936 — — — 2,082 2,016 1,936 246 2,811 2,786 9,763 12,549 12,605 June 30, 2015 2014 2013 Company-owned salons: SmartStyle/Cost Cutters in Walmart stores 2,639 2,574 2,490 Supercuts 1,092 1,176 1,210 MasterCuts 466 505 532 Other Value 1,711 1,846 1,990 Regis 761 816 862 Total North American salons(1) 6,669 6,917 7,084 Total International salons(2) 356 360 351 Total, Company-owned salons 7,025 7,277 7,435 Franchised salons: SmartStyle/Cost Cutters in Walmart stores 127 126 123 Supercuts 1,393 1,213 1,116 Other Value 804 840 843 Total North American salons 2,324 2,179 2,082 Total International salons(2) — — — Total, Franchised salons 2,324 2,179 2,082 Ownership interest locations: Equity ownership interest locations 207 218 246 Grand Total, System-wide 9,556 9,674 9,763 Fiscal Years 2013 2012 2011 51 49 64 45 56 21 3 2 1 3 3 2 39 43 16 141 153 104 12 13 11 153 166 115 1 2 3 70 65 36 47 37 14 118 104 53 — — — 118 104 53 Fiscal Years 2015 2014 2013 Company-owned salons: SmartStyle/Cost Cutters in Walmart stores 68 85 51 Supercuts 7 13 45 MasterCuts — 1 3 Other Value 1 4 39 Regis — 1 3 Total North American salons(1) 76 104 141 Total International salons(2) 15 23 12 Total, Company-owned salons 91 127 153 Franchised salons: SmartStyle/Cost Cutters in Walmart stores 1 3 1 Supercuts 126 94 70 Other Value 13 37 47 Total North American salons(1) 140 134 118 Total International salons(2) — — — Total, Franchised salons 140 134 118 Fiscal Years 2013 2012 2011 (2 ) (1 ) (45 ) (49 ) (48 ) (49 ) (40 ) (21 ) (14 ) (94 ) (73 ) (36 ) (179 ) (174 ) (86 ) (364 ) (317 ) (230 ) (59 ) (16 ) (15 ) (423 ) (333 ) (245 ) — — (2 ) (11 ) (12 ) (20 ) (58 ) (39 ) (38 ) (69 ) (51 ) (60 ) — — — (69 ) (51 ) (60 ) Fiscal Years 2015 2014 2013 Company-owned salons: SmartStyle/Cost Cutters in Walmart stores (3 ) (1 ) (2 ) Supercuts (36 ) (44 ) (49 ) MasterCuts (39 ) (27 ) (40 ) Other Value (114 ) (126 ) (179 ) Regis (55 ) (47 ) (94 ) Total North American salons(1) (247 ) (245 ) (364 ) Total International salons(2) (19 ) (14 ) (59 ) Total, Company-owned salons (266 ) (259 ) (423 ) Franchised salons: SmartStyle/Cost Cutters in Walmart Stores — — — Supercuts (22 ) (19 ) (11 ) Other Value (50 ) (44 ) (58 ) Total North American salons(1) (72 ) (63 ) (69 ) Total International salons(2) — — — Total, Franchised salons (72 ) (63 ) (69 ) Fiscal Years 2013 2012 2011 — — — — 1 — — — — — — 9 — — 18 — 1 27 — 1 — — 2 27 — — — — — — — 31 — — 31 — — — — — 31 —
Conversions (including net franchisee transactions)(3) Fiscal Years 2015 2014 2013 Company-owned salons: SmartStyle/Cost Cutters in Walmart stores — — — Supercuts (55 ) (3 ) (14 ) MasterCuts — (1 ) — Other Value (22 ) (22 ) (3 ) Regis — — — Total North American salons(1) (77 ) (26 ) (17 ) Total International salons(2) — — — Total, Company-owned salons (77 ) (26 ) (17 ) Franchised salons: SmartStyle/Cost Cutters in Walmart Stores — — — Supercuts 76 22 17 Other Value 1 4 — Total North American salons(1) 77 26 17 Total International salons(2) — — — Total, Franchised salons 77 26 17 Fiscal Years 2013 2012 2011 — — — (14 ) 61 86 — — 1 — — (1 ) (3 ) (57 ) (9 ) (17 ) 4 77 — — — (17 ) 4 77 — — — 17 — (63 ) — (4 ) (14 ) 17 (4 ) (77 ) — — — 17 (4 ) (77 ) (1) The North American Value operating segment is comprised primarily of the SmartStyle, Supercuts, MasterCuts and Other Value salon brands. The North American Premium operating segment is comprised primarily of the Regis salon brands. (2) Canadian and Puerto Rican salons are included in the North American salon totals. (1)Canadian and Puerto Rican salons are included in the North American salon totals.(2)Represents the acquisition(3)During fiscal years 2013, 2012 and 2011, the Company acquired zero, 11 and 78 salon locations, respectively, from franchisees. During fiscal years 2013, 2012 and 2011, the Company sold 17, 7 and 1 salon locations, respectively, to franchisees.(4)On September 27, 2012, the Company sold its equity interest in Provalliance.(5)In April 2013, the Company sold Hair Club that operated 98 and 96 locations as of June 30, 2012 and 2011, respectively. These locations are excluded from system-wide location counts.(3) During fiscal years 2015, 2014, and 2013, the Company acquired zero, two, and zero salon locations, respectively, from franchisees. During fiscal years 2015, 2014, and 2013, the Company sold 77, 28, and 17 salon locations, respectively, to franchisees. The Company hasWe have various franchising programs supporting its 2,0822,324 franchised salons as of June 30, 2013,2015, consisting mainly of Supercuts, Cost Cutters, First Choice Haircutters, and Magicuts. These salons have been included in the discussions regarding salon counts and concepts. The Company provides itshiringemployment, benefits and firing,wage determination, establishing prices to charge for products and services, business hours, personnel management, and capital expenditure decisions. However, the franchise agreements afford certain rights to the Company, such as the right to approve locations, suppliers and the sale of a franchise. Additionally, franchisees are required to conform to the Company's established operational policies and procedures relating to quality of service, training, salon design and decor, and trademarktheira franchise agreement with the Company, each franchisee pays an initial fee for each store and ongoing royalties to the Company. In addition, for most franchise concepts, the Company collects advertising funds from franchisees and administers the funds on behalf of the concept.concepts. Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures, equipment, supplies, inventory, payroll costs and certain other items, including initial working capital. The majority of franchise agreements provide the Company a right of first refusal if the store is to be sold and the franchisee must obtain the Company's approval in all instances where there is a sale of a franchise location.franchiseefranchised brands is listed below:salon local markets. In the past year, theThe Company completed significant research to enhance our understanding of guest expectations and needs so we are well positioned to create affinity for our salons. Utilizing thisresearch, the Company will be reviewingreviews its brand strategy with the intent to create more clear communication platforms, identities and differentiation points for our brands to drive consumer preference.Franchise Brandssystem widesystem-wide activities.55.1 percent54.6% interest in Empire Education Group, Inc. (EEG), which is accounted for as an equity method investment. See Note 1 to the Consolidated Financial Statements. EEG operates accredited cosmetology schools. Contributing the Company's beauty schools in fiscal year 2008 to EEG leveraged EEG's management expertise, while enabling the Company to maintain a vested interest in the beauty school industry.Haircutters"Haircutters," and "Magicuts." "Sassoon"2013,2015, the Company had approximately 50,00047,000 full and part-time employees worldwide, of which approximately 44,00040,000 employees were located in the United States. None of the Company's employees is subject to a collective bargaining agreement and the Company believes that its employee relations are amicable.Name AgePositionDaniel Hanrahan Age 56Position Daniel Hanrahan 58 President and Chief Executive Officer Eric Bakken 53 46Executive Vice President, Chief Administrative Officer and General CounselNorma Knudsen55Executive Vice President, MerchandisingSteven Spiegel51 Executive Vice President and Chief Financial Officer Heather Passe 48 42Executive Vice President, Chief Administrative Officer, Corporate Secretary and General Counsel Jim Lain 51 Executive Vice President and Chief Operating Officer Andrew Dulka 41 Senior Vice President and Chief Information Officer Annette Miller 53 Senior Vice President and Chief Merchandising Officer Heather Passe 44 Senior Vice President and Chief Marketing Officer Doug Reynolds 48 57 Senior Vice President and Chief InformationHuman Resources OfficerKen Warfield 44 Senior Vice President of Premium and Asset Protection boardBoard of directorsDirectors of Cedar Fair, L.P., an amusement-resort operator, since 2012 and is a member of its Audit Committee.and Compensation Committees.2012, Executive Vice President from 2010 to 2012, Senior Vice President from 2006 to 2009, General Counsel from 2004 to 2006, as Vice President, Law from 1998 to 2004 and2012. Mr. Bakken joined the Company in 1994 as a lawyer to the Company from 1994 to 1998. Norma Knudsen has served as Executive Vice President, Merchandising since 2006. She served as Chief Operating Officer, Trade Secret from 1999 through 2009 and as Vice President, Trade Secret Operations from 1995 to 1999. Steven Spiegelbecame General Counsel in 2004.FinancialOperating Officer since November 2013. Previously Mr. Lain served as Vice President at Gap, Inc. from August 2006 to November 2013.2012. Doug Reynolds Before joining Regis Corporation, she served as Vice President Marketing, Customer Relationship Marketing (CRM) and E-Commerce at Carlson from February 2009 to July 2012.InformationHuman Resources Officer since October 2013. Before joining Regis Corporation, Ms. Thiede served as Senior Vice President of Human Resources at Ameriprise Financial from October 2006 to October 2013.2012.U.SU.S. Department of Education's Title IV Higher Education Act of 1965. For the students to receive financial assistance at the school, the beauty schools must maintain eligibility requirements established by the U.SU.S. Department of Education.information regarding issuers that file electronically.information.Significantand changes in our management and organizational structure may continue tocould 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. Initiatives and changes of this magnitude and scope, both individually and collectively, may continue to affect our operating results.If we continue to have negative same-store sales our business and results of operations may be affected.uponon our ability to improve sales, as well as both cost of service and product and operating margins. Comparable same-storeSame-store sales are affected by average ticket and same-store guest visits. A variety of factors affect same-store guest visits, including the guest experience, staffing and retention of stylists and salon leaders, fashion trends, competition, current economic conditions, changes in our product assortment, the effectiveness of marketing programs and weather conditions. These factors may cause our comparable same-store sales to differ materially from prior periods and from our expectations. Our comparable same-store sales results for2.4 percent4.8% compared to the prior year. While fiscal year 2012.2015 same-store sales declines of 0.3% represent improved trends, there can be no assurance we will be able to successfully execute on our business strategy in fiscal 2016 and beyond to achieve long-term growth, profitability and a broader scale turn. Such impairment charges could be material to our consolidated balance sheet and resultsfinancial results mayof operations will be furthernegatively impacted affected and we may be required to take impairment charges. Such impairmentsbe material toadversely affect the momentum we have achieved in executing on our consolidated balance sheetbusiness strategies and results of operations. Duringfiscal year 2013 we did not record any goodwill impairment charges. During fiscal years 2012 and 2011, we recorded goodwill impairment charges of $67.7 and $74.1 million associated withcould adversely affect our Regis and Promenade salon concepts, respectively. During fiscal years 2013, 2012 and 2011, we recorded fixed asset impairment charges of $8.2, $6.6 and $6.5 million, respectively. The concept that has the highest likelihood of impairment is Regis. Furthermore, continued declines in same-store sales performance may cause us to be in default of certain covenants in our financing arrangements. the success of our salons which is driven by the success of our stylists. It is important for us to attract, train and retain talented stylists.styliststylists who is providing services toserve our guests. Our main objectiveIn order to profitably grow our business, it is important for us to haveattract, train and retain talented stylists and salon leaders and to adequately staff our guests leave feeling satisfiedsalons. Because the salon industry is highly-fragmented and wanting to return. To ensure our guests are receivingcomprised of many independent operators, the best possible care, we need to focus on retaining and attractingmarket for stylists is highly qualified stylists. To continue to be successful in the future we will need to continue to offercompetitive. Offering competitive wages, benefits, and education and training programs are important elements to attractattracting and retain talentedretaining great stylists. Any shortcomings byIf we are not successful in attracting, training and retaining stylists or the trainingin staffing our salons, our same-store sales could continue to decline and guidance they receive, particularly an issue affecting the quality of the guest service experience or compliance with safety and health regulations, may be attributed to the Company as a whole, thus damaging our reputation and brand equity and potentially affecting our results of operations.The effect of changes to healthcare laws in the United States may increase the number of employees who participate in our healthcare plans, which may significantly increase our healthcare costs and negatively impact our operating results. We offer comprehensive healthcare coverage to eligible full-time and part-time employees in the United States. While we have relatively low minimum work hour requirements for United States employees tooperations could be eligible for healthcare coverage under our healthcare plans, for various reasons a majority of our eligible employees do not participate in our plans. However, many eligible employees who do not participate in our healthcare plans may find it more advantageous to do so when recent changes to healthcare laws in the United States become effective. Such changes include potential fees to individuals for not obtaining healthcare coverage and being denied certain healthcare subsidies if an eligible employee declines healthcare coverage under an employer's plan. The possibility of increased enrollment when or after the law becomes effective and clarification around uncertainties with respect to this pending legislation may significantly increase our healthcare coverage costs and negatively impact our operating results.9,7639,556 locations and 50,000approximately 47,000 employees worldwide, our financial results can be adversely impacted by regulatory or statutory changes in laws. Due to the number of people we employ, laws that increase minimum wage rates, employment taxes, overtime requirements or increase costs to provide employee benefits may result in additional costs to our company. NoneCompany.currentlytreated as a "joint employer" with us by the National Labor Relations Board (NLRB) or as a large employer under minimum wage statutes because of their affiliation with us. With respect to the NLRB, it is anticipated that its current standard for joint employer relationships may become more lenient and, as such, we may face an increased risk of being alleged to be a joint employer with our franchisees. In addition, we must comply with state employment laws, including the California Labor Code, which has stringent requirements and penalties for non-compliance.collective bargaining arrangements. If we become subject to one or more collective bargaining agreementsa wide range of federal, state, provincial and local laws and regulations, including those affecting public companies, product manufacture and sale, and governing the franchisor-franchisee relationship, in the future, it could adversely impact our labor costs.jurisdictions in which we operate. Compliance with new, complex and changing laws may cause our expenses to increase. In addition, any non-compliance with these laws or regulations could result in penalties, fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products or attract or retain employees, which could adversely affect our business, financial condition and results of operations.also subject to lawsincome taxes in the U.S. and other foreign jurisdictions. Significant judgment is required in determining our tax provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are subject to the examination of our income tax returns, payroll taxes and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for income taxes and payroll tax accruals. There can be no assurances as to the outcome of these examinations. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax provisions and payroll accruals. The results of an audit or litigation could have a material effect on our consolidated financial statements in the period or periods for which that affect the franchisor-franchisee relationship.determination is made.If we are not able to successfully compete in our business markets, our financial results may be affected. Competitiona market by market basis remains strong as many smaller chain competitors are franchise systems with local operating strength in certain markets. Therefore, our ability to raise prices in certain markets can be adversely impacted by this competition. If we are not able to raise or maintain prices, our ability to grow same-store salesexternal vendors for products and increase our revenue and earnings may be impaired.Changes in the general economic environment may impact our business and results of operations. Changes to the United States, Canadian and United Kingdom economies have an impact on our business. General economic factors that are beyond our control, such as interest rates, exchange rates, recession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, and other matters that influence consumer confidence and spending, may impact our business. In particular, visitation patternsservices critical to our salons can be adversely impacted by increases in unemployment ratesoperations.decreases in discretionary income levels.Failurecompliance risk. Our vendors are also responsible for the security of certain Company data. In the event that one of our key vendors becomes unable to control costs may adversely affect our operating results. We must continue to control our expense structure. Failure to manage our costprovide products and services, or their systems fail, are compromised or the quality of product, labortheir systems deteriorate, we may suffer operational difficulties and benefit rates, advertising and marketing expenses, operating lease costs, other store expenses or indirect spending could delay or prevent us from achieving increased profitability or otherwise adversely affect our operating results.Certain of the terms and provisions of the convertible notes we issued in July 2009 may adversely affect our financial condition and operating results and impose other risks. In July 2009, we issued $172.5 million aggregate principal amount of our 5.0 percent convertible senior notes due 2014 in a public offering. Certain terms of the notes we issued may adversely affect our financial condition and operating results or impose other risks, such as the following:•Under certain circumstances, holders of notes may convert their notes into shares of our common stock, which may dilute the ownership interest of our shareholders,loss.•If we elect to settle all or a portion of the conversion obligation exercised by holders of the notes through the payment of cash, it could adversely affect our liquidity,•Holders of notes may require us to purchase their notes upon certain fundamental changes, and any failure by us to purchase the notes in such event would result in an event of default with respect to the notes.Failure to optimize our brand portfolio could have a negative impact on our financial results. To be successful in the future, we must focus on optimizing our brands to increase their value and growth. Optimization of our brands will enable us to simplify our operating model. Failure to do socould adversely impact our ability to grow revenue and realize further efficiencies within our results of operations.Changes in our key relationships may adversely affect our operating results. We maintain key relationships with certain companies, including Walmart. Termination or modification of any of these relationships could significantly reduce our revenues and have a material and adverse impact on our business, our operating results and our ability to grow.revenue earnedsuccess of our franchisees, who operate independently.sales.joint venturesstandards, our brand reputation and image could be harmed and our financial results could be affected.unsuccessfulsubject to the same general economic risks as our Company, and their results are influenced by competition, market trends, and disruptions in their markets due to severe weather and other external events. They may also be limited in their ability to open new locations by an inability to secure adequate financing, especially since many of them are small businesses with much more limited access to financing than our Company, or by the limited supply of favorable real estate for new salon locations. A deterioration in the financial results of our franchisees, or a failure of our franchisees to renew their franchise agreements, could adversely affect our operating results through decreased royalty payments, fees and product revenues. We have entered into joint venture arrangementsother companieslocal operating strength in certain markets and the hair salon industry as a whole is fragmented and beauty school businesses.highly competitive for customers, stylists and prime locations. Therefore, our ability to attract guests, raise prices and secure suitable locations in certain markets can be adversely impacted by this competition. If our joint venture partnerswe are unwilling or unable to devote their financial resources or marketing and operational capabilities to our joint venture businesses, or if any of our joint ventures are terminated, we may not be able to realize anticipated profits in the countries wheresuccessfully compete, our joint ventures operate and our business could be materially adversely affected. If our joint venture arrangements are not successful, we may have a limited ability to terminate or modify these arrangements. If any ofgrow same-store sales and increase our joint ventures are terminated, there can be no assurance that we will be able to attract new joint venture partners to continue the activities of the terminated joint venture or to operate independently in the countries in which the terminated joint venture conducted business. During fiscal years 2013revenue and 2012, we recorded noncash impairments of $17.9 and $19.4 million related to our investment in EEG. Due to economic, regulatory and other factors, weearnings may be required to take additional noncash impairment charges related to our investments and such noncash impairments could be material to our consolidated balance sheet and results of operations. In addition, our joint venture partners may be required to take noncash impairment charges related to long-lived assets and goodwill, and our share of such noncash impairment charges could be material to our consolidated balance sheet and results of operations. Our share of EEG's goodwill balances as of June 30, 2013 is approximately $16 million.If we fail to protect the security of personal information about our guests, we could be subject to costly government enforcement actions or private litigation and our reputation could suffer. The nature of our business involves processing, transmission and storage of personal information about our guests. If we experience a data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our guests could lose confidence in our abilityto protect their personal information, which could cause them to stop visiting our salons altogether. Such events could lead to lost future sales and adversely affect our results of operations. None.270,000170,000 square foot, fourthree building complex in Edina, Minnesota that is owned or leased by the Company.small offices in New York, New York;Edina, Minnesota; Toronto, Canada; and Coventry and London, England; and Chattanooga, Tennessee.England. These offices are occupied under long-term leases.80 percent85% of our franchisees operate and has entered into corresponding sublease arrangements with the franchisees. These leases have a five year initial term and one or more five year renewal options. All lease costs are passed through to the franchisees. Remaining franchisees who do not enter into sublease arrangements with the Company negotiate and enter into leases on their own behalf.expire.expire or identify and secure other suitable locations. See Note 8 to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.iswas a nominal defendant, and nine current and former directors and officers of the Company arewere named defendants, in a shareholder derivative action in Minnesota state court. The derivative shareholder action allegesalleged 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. We do not know whenIn April 2014, the Special Litigation Committee will complete its work, or what it will decide. Litigationissued a report and concluded the claims and allegations should not be pursued, and in September 2014 the case was dismissed by court order. In a collateral proceeding, the plaintiff filed a motion for an award of fees in November 2014. The Company has opposed the motion and this collateral proceeding is inherently unpredictable and the outcome of these matters cannot presently be determined. Although the actions are being vigorously defended, the Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchase of Equity SecuritiesItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchase of Equity Securities 20132015 and 20122014 as reported by the New York Stock Exchange (under the symbol "RGS"). The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.9, 2013,17, 2015, Regis shares were owned by approximately 19,00015,000 shareholders based on the number of record holders and an estimate of individual participants in security position listings. The commonclosing stock price was $17.76$14.40 per share on August 9, 2013.17, 2015. Fiscal Years Fiscal Years 2013 2012 2015 2014 High Low High Low High Low High Low $ 19.54 $ 16.26 $ 15.90 $ 12.46 $ 17.51 $ 13.50 $ 17.97 $ 14.50 19.59 15.79 17.36 13.79 17.76 14.58 16.15 13.99 18.69 16.34 18.65 15.02 17.41 14.70 14.64 11.48 19.14 16.04 18.91 17.04 17.91 15.76 14.20 12.62 quarterly dividends of $0.06 per share per quarter during the first and second quarters of fiscal year 2014. In December 2013, and 2012. Thethe Company expectsannounced a new capital allocation policy. As a result of this policy, the Board of Directors elected to continue payingdiscontinue declaring regular quarterly dividends in the foreseeable future.Coffee Roasters,Inc., H&R Block, Inc., Jack in the Box, Inc., Panera Bread Co., Penn National Gaming, Inc., Revlon, Inc., Sally Beauty Holdings, Inc., Service Corporation International, The Cheesecake Factory, Inc., and Ulta Salon, Cosmetics & Fragrance Inc. The Peer Group is a self-constructed peer group of companies that have comparable annual revenues, the guest service element is a critical component to the business and a target of moderate guests in terms of income and style, excluding apparel companies.2008,2010 and that dividends, if any, were reinvested.20132015
June 30, June 30, 2008 2009 2010 2011 2012 2013 2010 2011 2012 2013 2014 2015 $ 100.00 $ 66.78 $ 60.31 $ 60.04 $ 71.43 $ 66.19 $ 100.00 $ 99.51 $ 118.36 $ 109.68 $ 94.79 $ 106.10 100.00 73.78 84.43 110.34 116.33 140.29 100.00 130.69 137.81 166.20 207.10 222.47 100.00 71.98 89.92 125.33 122.40 153.23 100.00 139.38 136.14 170.42 213.43 227.08 100.00 82.53 101.45 139.69 158.27 203.28 100.00 137.70 156.01 200.38 244.94 287.66 100.00 93.56 109.53 197.37 177.00 257.49 100.00 180.20 161.60 235.08 281.80 298.58 (BOD)(Board) approved a stock repurchase program. Originally, the program authorized up to $50.0 million to be expended for the repurchase of the Company's stock. The BODBoard elected to increase this maximum to $100.0 million in August 2003, to $200.0 million on May 3, 2005, and to $300.0 million on April 26, 2007.2007 and to $350.0 million on April 21, 2015. The timing and amounts of any repurchases will depend on many factors, including the market price of the common stock and overall market conditions. Historically, the repurchases to date have been made primarily to eliminate the dilutive effect of shares issued in conjunction with acquisitions, restricted stock grants and stock option exercises. In fiscal year 2015, repurchases were made in accordance with the Company's capital allocation policy issued in 2013. All repurchased shares become authorized but unissued shares of the Company. This repurchase program has no stated expiration date. As of June 30, 2013,2015, a total accumulated 7.710.7 million shares have been repurchased for $241.3$289.1 million. As of June 30, 2013, $58.72015, $60.9 million remainsremained outstanding under the approved stock repurchase program.did not repurchase any of itsrepurchased the following common stock through its share repurchase program duringprogram: Fiscal Years 2015 2014 2013 Repurchased Shares 3,054,387 — 909,175 Average Price (per share) $15.64 $ — $16.32 Price range (per share) $13.72 - $17.32 $ — $15.99 - $16.84 Total $47.9 million $ — $14.9 million three monthsstock repurchase activity by the Company or any "affiliated purchaser" of the Company, as defined in Rule 10b-18(a)(3) under the Exchange Act, by month for the quarter ended June 30, 2013. The Company repurchased 909,175 shares of common stock at an average price of $16.32 per share, ranging from $15.99 to $16.84 per share, through its share repurchase program during fiscal year 2013 for a total of $14.9 million. The Company did not repurchase any of its common stock through its share repurchase program during fiscal years 2012 and 2011.2015:Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (in thousands) 4/1/15 - 4/30/15 — $ — 9,841,708 $ 75,865 5/1/15 - 5/31/15 489,252 16.57 10,330,960 67,760 6/1/15 - 6/30/15 417,391 16.43 10,748,351 60,903 Total 906,643 $ 16.50 10,748,351 $ 60,903 Beginning with the period ended December 31, 2008, the operations of the Trade Secret concept within the North American reportable segment were accounted for as discontinued operations. Trade Secret andthe Hair Restoration Centers as discontinued operations. Fiscal Years Fiscal Years 2013 2012 2011 2010 2009 2015 2014 2013 2012 2011 (Dollars in thousands, except per share data) (Dollars in thousands, except per share data) $ 2,018,713 $ 2,122,227 $ 2,180,181 $ 2,216,648 $ 2,289,267 $ 1,837,287 $ 1,892,437 $ 2,018,713 $ 2,122,227 $ 2,180,181 12,326 (2,167 ) (14,282 ) 76,881 85,202 3,531 (34,958 ) 13,359 (2,226 ) (14,990 ) 4,166 (51,743 ) (20,939 ) 25,728 (6,819 ) 0.07 (0.91 ) (0.37 ) 0.46 (0.16 ) (Loss) income from continuing operations(a) (33,212 ) (139,874 ) 5,478 (51,950 ) (21,503 ) (Loss) income from continuing operations per diluted share (0.60 ) (2.48 ) 0.10 (0.91 ) (0.38 ) 0.24 0.24 0.20 0.16 0.16 — 0.12 0.24 0.24 0.20 June 30, 2015 2014 2013 2012 2011 (Dollars in thousands) Total assets, including discontinued operations $ 1,162,015 $ 1,415,949 $ 1,391,399 $ 1,572,725 $ 1,806,460 Long-term debt and capital lease obligations, including current portion 120,002 293,503 174,770 287,674 313,411 (a) The following significant items affected operating income (loss) and (loss) income from continuing operations: June 30, 2013 2012 2011 2010 2009 (Dollars in thousands) $ 1,390,492 $ 1,571,846 $ 1,805,753 $ 1,919,572 $ 1,892,486 174,770 287,674 313,411 440,029 634,307 (a)The followingitems affected operating income (loss)disruption as result of foundational initiatives implemented at the end of fiscal year 2013 to turn around our business. As a result, the Company's financial performance during fiscal year 2014 was negatively impacted. During fiscal year 2014, the Company recorded a goodwill impairment charge of $34.9 million associated with Company's Regis salon concept, fixed asset impairment charges of $18.3 million, $15.9 million, net of tax for the Company's share of goodwill and income (loss) from continuing operations:fixed asset impairment charges recorded by EEG and established an $86.6 million valuation allowance against the U.S. and U.K. deferred tax assets.•a POS system and salon workstations in 95% of our North American salons, restructuring our North American Value field organization and standardizing plan-o-grams and eliminating retail products. As a result, during fiscal year 2013, the Company recorded $7.4 million in restructuring charges and a $12.6 million inventory reserve.write-down. In addition, the Company recognized a net $33.8 million foreign currency translation gain in connection with the sale of Provalliance, recorded net other than temporary impairment charges of $17.9 million associated with the Company's investment in Empire Education GroupEEG and incurred a $10.6 million make-whole payment in connection with the prepayment of $89.3 million of senior term notes in June 2013.•$8.7$8.9 million for the Company's share of an intangible and fixed asset impairmentimpairments recorded byEmpire Education Group EEG and $36.6 million of other than temporary impairment charges associated with the Company's investments in affiliated companies.••During fiscal year 2010, the Company recorded a goodwill impairment charge of $35.3 million associated with the Company's Regis salon concept, $18.0 million for make-whole and other fees associated with the repayment of private placement debt and $5.2 million of expense related to the settlement of two legal claims regarding certain guest and employee matters.•During fiscal year 2009, the Company recorded a goodwill impairment charge of $41.7 million associated with the Company's United Kingdom salon division, $33.5 million of other than temporary impairment charges associated with the Company's investments in Provalliance and Intelligent Nutrients, LLC, a favorable $9.9 million change in the estimate of the Company's self-insurance accruals, primarily prior years' workers' compensation claims reserves, $5.7 million of expense associated with disposal charges and lease termination fees related to the closure of salons other than in the normal course of business and a $3.8 million income tax charge associated with an adjustment to correct the prior years deferred income tax balances.2013,2015, the Company owned, franchised or held ownership interests in 9,7639,556 locations worldwide. The Company's locations consist of 9,5179,349 company-owned and franchised salons and 246207 locations in which we maintain a non-controlling ownership interest of less than 100 percent.100%. Each of the Company's salon concepts generally offer similar salon products and services and serve the mass market. See discussion within Part I, Item 1. The following discussion of results of operations reflects results from continuing operations and reclassifications of fiscal yearsand 2011 cost of service, site operating expenses and general and administrative expenses to conform to current year presentation, see further discussion within Note 1 to the Consolidated Financial Statements. Hair Club has beenRestoration Centers reportable segment was accounted for as a discontinued operation for all periods presented, see discussion withinoperation. See Note 2 to the Consolidated Financial Statements. All comparable periods reflect the reclassification of Hair Club's results from continuing operations.Restoration Centers as a discontinued operation. Explanations are primarily for North American salons,Value, unless otherwise noted. Discontinued operations are discussed at the end of this section. Fiscal Years 2014 2013 (Dollars in thousands) (Loss) income from continuing operations, as reported $ (137,080 ) $ 4,166 Revisions: Deferred rent, pre-tax (1) (157 ) (471 ) Previous out of period items, pre-tax (2) (811 ) 2,154 Tax impact (1,826 ) (371 ) Total revision impact (2,794 ) 1,312 (Loss) income from continuing operations, as revised $ (139,874 ) $ 5,478 (1) The Company recognizes rental expense on a straight-line basis at the time the leased space becomes available to the Company. During the fourth quarter of fiscal year 2015, the Company determined its deferred rent balance was understated by $5.3 million. Accordingly, the Consolidated Financial Statements have been revised to correctly state its deferred rent balances and rent expense. The revisions resulted in an increase in net loss from continuing operations of $0.2 million for fiscal year 2014 and a decrease in net income from continuing operations of $0.5 million for fiscal year 2013. Accrued expenses and other noncurrent liabilities increased $1.0 and $4.2 million, respectively, at June 30, 2014 and retained earnings at June 30, 2014 decreased $5.2 million as a result of the cumulative adjustment for prior periods. This revision had no impact on cash provided by operations or net increase (decrease) in cash and cash equivalents for any year. (2) Also in the fourth quarter of fiscal year 2015, the Company revised certain prior year amounts in the Consolidated Balance Sheet and Statement of Operations to correctly recognize understatements of self-insurance accruals, interest expense, uncertain tax positions and cash and overstatements of inventory. The impact of these revisions resulted in an increase in net loss from continuing operations of $0.8 million for fiscal year 2014 and an increase in net income from continuing operations of $2.2 million for fiscal year 2013. Accrued expenses and other noncurrent liabilities increased $0.8 and $0.8 million, respectively, at June 30, 2014 and retained earnings at June 30, 2014 decreased by $1.6 million as a result of the cumulative adjustment for prior periods. In addition, cash and cash equivalents at June 30, 2013 increased by $0.6 million due to the revisions. Operations in Item 8.Operations. The percentages are computed as a percent of total revenues, except as otherwise indicated. Fiscal Years 2015 2014 2013 2015 2014 2013 2015 2014 2013 (Dollars in millions) % of Total Revenues Service revenues $ 1,429.4 $ 1,480.1 $ 1,563.9 77.8 % 78.2 % 77.5 % (40 ) 70 — Product revenues 363.2 371.5 415.7 19.8 19.6 20.6 20 (100 ) (10 ) Franchise royalties and fees 44.6 40.9 39.1 2.4 2.2 1.9 20 30 10 Cost of service(1) 882.7 907.3 930.7 61.8 61.3 59.5 50 180 220 Cost of product(2) 180.6 186.9 228.9 49.7 50.3 55.1 (60 ) (480 ) 470 Site operating expenses 192.4 203.5 202.1 10.5 10.8 10.0 (30 ) 80 20 General and administrative 186.1 172.8 226.7 10.1 9.1 11.2 100 (210 ) (60 ) Rent 309.1 322.3 325.2 16.8 17.0 16.1 (20 ) 90 50 Depreciation and amortization 82.9 99.7 91.8 4.5 5.3 4.5 (80 ) 80 (40 ) Goodwill impairment — 34.9 — — 1.8 — (180 ) 180 (320 ) Interest expense 10.2 22.3 36.9 0.6 1.2 1.8 (60 ) (60 ) 50 Interest income and other, net 1.7 2.0 35.4 0.1 0.1 1.8 — (170 ) 160 Income tax (provision) benefit(3) (14.6 ) (73.0 ) 9.7 (293.4 ) (131.9 ) 81.9 N/A N/A N/A Equity in loss of affiliated companies, net of income taxes (13.6 ) (11.6 ) (16.0 ) (0.7 ) (0.6 ) (0.8 ) (10 ) 20 70 (Loss) income from discontinued operations, net of income taxes (0.6 ) 1.4 25.0 — 0.1 1.2 (10 ) (110 ) 410 (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 from continuing operations before income taxes and equity in loss of affiliated companies. The income tax (provision) benefit basis point change is noted as not applicable (N/A) as the discussion below is related to the effective income tax rate. Fiscal Years 2013 2012 2011 2013 2012 2011 2013 2012 2011
(Dollars in millions)
% of Total Revenues Basis Point
(Decrease) Increase $ 1,563.9 $ 1,643.9 $ 1,695.4 77.5 % 77.5 % 77.8 % — (30 ) 30 415.7 440.0 447.5 20.6 20.7 20.5 (10 ) 20 (30 ) 39.1 38.3 37.3 1.9 1.8 1.7 10 10 —
930.7
941.7
972.9
59.5
57.3
57.4
220
(10
)
50 228.6 221.6 225.2 55.0 50.4 50.3 460 10 (220 ) 203.9 207.0 211.2 10.1 9.8 9.7 30 10 30 226.7 249.6 285.8 11.2 11.8 13.1 (60 ) (130 ) 210 324.7 331.8 333.1 16.1 15.6 15.3 50 30 20 91.8 105.0 92.2 4.5 4.9 4.2 (40 ) 70 (20 ) — 67.7 74.1 — 3.2 3.4 (320 ) (20 ) 180
37.6
28.2
34.4
1.9
1.3
1.6
60
(30
)
(90
) 35.4 5.1 4.7 1.8 0.2 0.2 160 — (30 )
10.0
4.4
16.3
99.3
17.5
37.2
N/A
N/A
N/A (16.0 ) (30.9 ) 6.7 (0.8 ) (1.5 ) 0.3 70 (180 ) (20 )
25.0
(62.4
)
12.0
1.2
(2.9
)
0.6
410
(350
)
(20
)(1)Computed as a percent(2)Computed as a percent of product revenues and excludes depreciation and amortization expense.(3)Computed as a percent of income (loss) from continuing operations before income taxes and equity in (loss) income of affiliated companies. The income tax benefit basis point change is noted as not applicable (N/A) as the discussion below is related to the effective income tax rate.As compared to the prior fiscal year, consolidated revenues decreased 4.9% during fiscal year 2013 and decreased 2.7% during fiscal year2012. The following tables summarize revenues and same-store sales by concept, as well as the reasons for the percentage change: Fiscal Years 2015 2014 2013 (Dollars in thousands) North American Value salons: SmartStyle $ 500,562 $ 487,722 $ 509,537 Supercuts 343,299 343,372 343,464 MasterCuts 117,246 127,758 146,506 Other Value 442,312 471,231 516,074 Total North American Value salons 1,403,419 1,430,083 1,515,581 North American Premium salons 309,600 333,858 373,820 International salons 124,268 128,496 129,312 Consolidated revenues $ 1,837,287 $ 1,892,437 $ 2,018,713 Percent change from prior year (2.9 )% (6.3 )% (4.9 )% Salon same-store sales decrease(1) (0.3 )% (4.8 )% (2.4 )% (1) Same-store sales are calculated on a daily basis as the total change in sales for company-owned locations which were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and fiscal year same-store sales are the sum of the same-store sales computed on a daily basis. Locations relocated within a one mile radius are included in same-store sales as they are considered to have been open in the prior period. International same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. Fiscal Years 2013 2012 2011 (Dollars in thousands) $ 509,537 $ 514,050 $ 531,090 343,464 343,764 321,881 146,506 159,627 165,729 377,635 414,752 434,249 512,259 548,912 576,995 1,889,401 1,981,105 2,029,944 129,312 141,122 150,237 $ 2,018,713 $ 2,122,227 $ 2,180,181 (4.9 )% (2.7 )% (1.6 )% (2.4 )% (3.5 )% (1.9 )% (1)Same-store sales are calculated on a daily basis as the total change in sales for company-owned locations which were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date same-store sales are the sum of the same-store sales computed on a daily basis. Locations relocated within a one mile radius are included in same-store sales as they are considered to have been open in the prior period. International same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. of 4.9%, 2.7% and 1.6% in consolidated revenues during fiscal years 2013, 2012, and 2011, respectively, were driven by the following: Fiscal Years Fiscal Years 2013 2012 2011 2015 2014 2013 (2.4 )% (3.5 )% (1.9 )% (0.3 )% (4.8 )% (2.4 )% (3.3 ) (2.3 ) (1.6 ) (2.7 ) (2.6 ) (3.3 ) 1.3 1.3 0.6 0.6 0.8 1.3 — 0.7 1.1 (0.5 ) 1.1 0.2 (0.5 ) 0.3 (0.5 ) (2.9 )% (6.3 )% (4.9 )% (4.9 ) (2.7 )% (1.6 )% Fiscal Years Fiscal Years 2013 2012 2011 2015 2014 2013 (1.1 )% (4.3 )% (1.9 )% 1.6 % (5.4 )% (1.1 )% (0.7 ) (0.3 ) 0.1 1.3 % 0.5 % (0.7 )% (5.1 ) (3.3 ) (0.7 ) (4.0 )% (9.4 )% (5.1 )% (3.1 ) (4.2 ) (2.5 ) (2.8 ) (2.7 ) (2.6 ) (2.3 ) (3.2 ) (1.8 ) Other Value (0.7 )% (5.4 )% (2.8 )% Total North American Value salons 0.3 % (4.5 )% (2.0 )% North American Premium salons (3.0 )% (6.7 )% (3.1 )% (4.3 ) (9.1 ) (3.1 ) 0.6 % (1.5 )% (4.3 )% (2.4 )% (3.5 )% (1.9 )% (0.3 )% (4.8 )% (2.4 )% partiallypartly offset by a 0.6% increase in average ticket. We closed 492 and 384 salons (including 69 and 51 franchisefranchised salons) during fiscal years 2013 and 2012, respectively. The Company constructed (net of relocations) 153 company-owned salons during fiscal year 2013. We did not acquire any company-owned salons during fiscal year 2013 compared to 13 company-owned salons (including 11 franchise buybacks) during fiscal year 2012. The same-store sales decrease of 3.5% during fiscal year 2012 was due to a 3.4% decrease in guest visits and 0.1% decrease in average ticket. We acquired 13 company-owned salons (including 11 franchise buybacks) during fiscal year 2012 compared to 105 company-owned salons (including 78 franchise buybacks) during fiscal year 2011. The Company constructed (net of relocations) 166 company-owned salons during fiscal year 2012. We closed 384 and 305 salons (including 51 and 60 franchise salons) during fiscal years 2012 and 2011, respectively. The same-store sales decrease of 1.9% during fiscal year 2011 was due to a 3.8% decrease in guest visits partially offset by a 1.9% increase in average ticket. We acquired 105 company-owned salons (including 78 franchise buybacks) during fiscal year 2011 compared to 26 company-owned salons (including 23 franchise buybacks) during fiscal year 2010. The Company constructed (net of relocations) 115 company-owned salons during fiscal year 2011. We closed 305 and 269 salons (including 60 and 65 franchise salons) during fiscal years 2011 and 2010, respectively.PartiallyPartly offsetting the decrease was growth due to newly constructedfrom construction (net of relocations) of 153 company-owned salons during fiscal year 2013.$51.5$8.2 million decrease in serviceproduct revenues during fiscal year 20122015 was primarily due to the closure of 333266 company-owned salons, partly offset by an increase in product sales to 145 additional franchisee locations and 91 newly constructed company-owned salons (net of relocations) during fiscal year 2015. Same-store product sales were flat primarily a result of a 1.7% increase in same-store serviceguest visits, partly offset by a 1.7% decrease in average ticket.3.7%.10.3% and the closure of 259 company-owned salons. This was partly offset by an increase in product sales to franchisees primarily due to 97 additional franchisee locations and 127 newly constructed company-owned salons (net of relocations) during fiscal year 2014. The decrease in same-store servicesproduct sales was primarily a result of a 3.1%14.7% decrease in same-store guest visits, andpartly offset by a 0.6% decrease4.4% increase in average ticket due to promotional programs designed to generate additional guest visits. Partially offsetting the decrease was growth due to new and acquired salons during fiscal year 2012 and the additional day from leap year.ticket. The $22.4 million decrease in service revenues during fiscal year 2011 was due to same-store service sales decreasing 2.4%, as a result of a decline in same-store guest visits. Partially offsetting the decrease was growth due to new and acquired salons during fiscal year 2011, price increases, sales mix as the company increased hair color and waxing services, and the weakening of the United States dollar against the Canadian dollar.Product Revenuespartiallypartly offset by an increase in product sales to franchisees asprimarily due to increases in franchised locations and product sales from 153 newly constructed company-owned salons (net of relocations) during fiscal year 2013. The decrease in same-store product sales was primarily a result of ana 6.5% decrease in same-store guest visits, partly offset by a 2.6% increase in franchise locations.$7.4$3.8 million decreaseincrease in product revenuesroyalties and fees was due to increased franchised locations during fiscal year 20122015 and same-store sales increases at franchised locations. primarily due to same-store product sales decreasing 2.7%, and the closure of 333 company-owned salons, partially offset by the additional day from leap year and an increase in product sales to franchisees as a result of an increase in franchise locations. The $14.2 million decrease in product revenuesincreased franchised locations during fiscal year 2011 was primarily due to the decrease in product2014 and same-store sales to the purchaser of Trade Secret from $20.0 million in fiscal year 2010 to zero in fiscal year 2011. Partially offsetting the decrease was same-store product sales increasing 0.2 percent, product sales from new and acquired salons, and the weakening of the United States dollar against the Canadian dollar during fiscal year 2011.Royalties and Feesthe increase inincreased franchised locations during fiscal year 2013 and same-store sales increases at franchise locations. Total franchised locations open at June 30, 2012 and 2011 were 2,016 and 1,936, respectively. During fiscal year 2012, we purchased a 60.0 percent ownership interest in a franchise network, consisting of 31 franchised locations.$1.0 million50 basis point increase in royalties and fees was also due to same-store sales increases at franchise locations, partially offset by the Company purchasing 11cost of our franchised salonsservice as a percent of service revenues during fiscal year 2012. Total franchised locations open at June 30, 20112015 was primarily due to state minimum wage increases, higher field incentives as the Company anniversaries an incentive-lite year and 2010 were 1,936the lapping of a prior year rebate, partly offset by improved stylist productivity and 2,020, respectively. The 84 salona decrease in franchised locationshealthcare costs.impactfield reorganization and lower levels of bonuses and the weakeninglapping of the United States dollar against the Canadian dollar.Cost of Service The Company made slight improvement during the year in optimizing salon schedules to align with guest traffic. Also contributing to the basis point increase was the Company's decision earlier in the year to compensate stylists on the gross sales amount during certain coupon events and an increase in health insurance expense due to higher claims.1060 basis point decrease in cost of serviceproduct as a percent of serviceproduct revenues during fiscal year 20122015 was due to lower commissions as aprimarily the result of leveraged pay plans for new stylistsimproved salon-level inventory management and a decrease in salon health insurancecompliance, closure of salons with higher product costs due to lower claims, partially offset by decreased productivity in our North American segment. The 50 basis point increase in cost of service as a percent of serviceproduct revenues and lapping of an inventory write-down in the prior year. These were partly offset by increased promotional activity and lapping of vendor rebates in the prior year.20112014 was dueprimarily the result of lapping a $12.6 million non-cash impairment charge recorded in the prior year. Prior year clearance sales in connection with standardizing plan-o-grams and reducing retail product assortments and reduced sales commissions in fiscal year 2014 further contributed to an increasethe decrease in salon health insurance costs due to several unusually large claims and an increase in payroll taxescost of product as a resultpercent of states increasing unemployment taxes.Cost of Product460470 basis point increase in cost of product as a percent of product revenues during fiscal year 2013 was mainly attributed to our inventory simplification program, which standardizesstandardized retail plan-o-grams, eliminateseliminated retail products and consolidatesconsolidated from four owned-brand product lines to one private label brand. Historically,one. In connection with these activities, the Company has been able to recover its cost on discontinued retail inventorysold through in-store promotional discounts, and during the fourth quarter of fiscal 2013, the Company clearancedclearance approximately $8$8.0 million of product. However, given the change in the Company's strategic direction to standardize plan-o-grams, the scopeproduct and sizeliquidated $12.6 million of this simplification program and the negative impact continued clearance sales would have on future product sales and cost of product as a percent of product revenues, the Company immediately liquidated any remaining inventory into non Regis distribution channels within the parameters of existing supply agreements. This resulted in a noncash inventory charge of $12.6 million in the fourth quarter. While negatively impacting cost of product as a percent of product revenues, clearance sales and liquidation of inventories generated higher cash returns than past practices of repackaging and returning products to distribution centers for restocking, disposal or return to vendors. Further impacting cost of product as a percent of product sales were Hurricane Sandy product donations, partiallypartly offset by reductions to commissions paid on retail sales. The 10point increase in cost of productpoints as a percentagepercent of productconsolidated revenues during fiscal year 2012 was2015 primarily due to increases in freight costs due to higher fuel prices partially offset by a reduction in commissions paid to new employees on retail product sales instore closures, mainly within our North American segment.220change in basis point decrease in cost of productpoints during fiscal year 2015 was negatively impacted from negative leverage as a percentageresult of producta decline in same-store sales.2011 was2014. After considering the prior year change in expense categorization as a result of the field reorganization that took place during the fourth quarter of fiscal year 2013, site operating expense decreased $7.3 million during fiscal year 2014, primarily from increased salon connectivity costs to support the Company’s POS system and salon workstations and increased marketing costs. These were partly offset by cost savings initiatives to lower utilities, janitorial and repairs and maintenance expenses, lower travel expense due to previousthe field reorganization and reduced incentive compensation from lower same-store sales, lower self-insurance reserves and reduced freight. The change in basis points during fiscal year including $20.0 million of product sold at cost to the purchaser of Trade Secret. Partially offsetting the basis point decrease2014 was an increase in sales of appliances that have a higher costnegatively impacted by negative leverage as a percentresult of revenuesa decline in our International segment.Site Operating Expenses3020 basis point increase in site operating expenses as a percent of consolidated revenues during fiscal year 2013 was primarily due to negative leverage from the decrease in same-store sales. Site operating expenses declined $3.1$5.4 million primarily within our North American segmentValue and Premium segments due to a decrease in advertising costs, utilities and janitorial expense, partiallypartly offset by increases in salon connectivity costs to support the Company's new POS system and salon workstations and higher salon repairs and maintenance expense. The 10point increase in site operating expensespoints as a percent of consolidated revenues, during fiscal year 20122015. This increase was primarily due todriven by higher incentive compensation levels as the Company anniversaries an incentive-lite year, planned strategic investments in Asset Protection and Human Resource initiatives and the lapping of a favorable deferred compensation adjustment within our Unallocated corporate segment. These items were partly offset by cost savings and reduced legal and professional fees. The change in basis points during fiscal year 2015 was also negatively impacted by negative leverage from the decreaseas a result of a decline in same-store sales. The 30point increase in site operating expensespoints as a percent of consolidated revenues, during fiscal year 20112014. This improvement was primarily due to an increasethe change in advertising expense categorization as a result of the field reorganization. The change in expense categorization accounted for $29.6 million of the decrease for fiscal year 2014. The remaining decrease of $24.3 million during fiscal year 2015 was primarily due to reduced levels of incentive compensation in our North American Value and Unallocated Corporate segments, cost savings from various initiatives and the field reorganization, reduced health insurance costs and a favorable deferred compensation adjustment within the Company's Promenade concept and an increase in self-insurance accruals, partiallyour Unallocated Corporate segment, partly offset by a reduction in legal claims expense.General and Administrative General and administrative (G&A)professional fees.percentagepercent of consolidated revenues, during fiscal year 2013. This improvement was primarily due to reductions in salaries and benefits from our corporate reorganization executed lastin the prior year, certain cost savingsthe currentfiscal year 2013 and reduced levels of incentive pay in the currentfiscal year 2013, partly offset by costs associated with rolling out our new POS system. The Company remains focused on simplification to drive further costs efficiencies. The 130point improvement in G&A costspoints as a percentagepercent of consolidated revenues, during fiscal year 2012 was the result of lapping a $31.2 million valuation reserve on the note receivable with the purchaser of Trade Secret2015 primarily due to salon closures, mainly within our North American Value and Premium segments. The change in fiscal year 2011. Also contributing to the improvementbasis points during fiscal year 20122015 was a reduction in salaries and other employee benefits as a result of the reduction in salon support workforce that occurred in January 2012. Partially offsetting these improvements were incremental costsalso impacted by negative leverage associated with the Company's senior management restructuring, severance charges, and professional fees incurred in connection with the contested proxy and the exploration of alternatives for non-core assets. The 210 basis point increase in G&A costs as a percentage of consolidated revenues during fiscal year 2011 was primarily due to the $31.2 million valuation reserve on the note receivable with the purchaser of Trade Secret, incremental costs associated with the Company's senior management restructure, expenditures associated with the Regis salon concept re-imaging project, professional fees incurred related to the exploration of strategic alternatives and information technology projects, legal claims and negative leverage onthis fixed costs within this category due to negative same-store sales.Rent$7.1$2.9 million during fiscal year 20132014 primarily due to salon closures, primarilymainly within our North American segment.Value and Premium segments. The 5090 basis point increase in rent expense as a percent of consolidated revenues during fiscal year 2014 was primarily due to negative leverage associated with this fixed asset category. The 30point increase in rent expensepoints as a percent of consolidated revenues, during fiscal year 20122015. This decrease was primarily due to negative leverage in thisdriven by lower depreciation expense on a reduced salon base and reduced fixed cost category due to negative same-store sales, partially offset by favorable common area maintenance adjustments from landlords and salon closures. The 20asset impairment charges.point increase in rent expensepoints as a percent of consolidated revenues during fiscal year 20112014. This increase was primarily due to negative leverageincreased fixed asset impairment charges recorded in this fixed cost category due to negative same-store sales, partiallyour North American Premium and Value segments, partly offset by declines in depreciation expense on a favorable reduction to our common area maintenance expenses.Depreciation and Amortization Thereduced salon base.point decrease in depreciation and amortization (D&A)points as a percent of consolidated revenues during fiscal year 20132013. This decrease was primarily due to our lapping $16.2 million of accelerated amortization associated with the adjustment to thePartiallyPartly offsetting the 40 basis point improvement was $1.9 million ($1.2 million net of tax or $0.02 per diluted share) of accelerated depreciation expense in the currentfiscal year 2013 associated with exiting a leased building in conjunction with consolidating the Company's headquarters and negative leverage from the decrease in same-store sales. The 70 basis point increase in D&A as a percent of consolidated revenues during fiscal year 2012 was primarily due to $16.2 million ($10.2 million net of tax or $0.18 per diluted share) of accelerated amortization expense in the current year resulting from the useful life adjustment of the Company's internally developed POS system and negative leverage from the decrease in same-store sales. Partially offsetting the basis point increase was the continuation of a decrease in depreciation expense from the reduction in salon construction beginning in fiscal year 2009 as compared to historical levels prior to fiscal year 2009. The 20 basis point decrease in D&A as a percent of consolidated revenues during fiscal year 2011 was primarily due to a decrease in depreciation expense from a reduction in salon construction beginning in fiscal year 2009 as compared to historical levels prior to fiscal year 2009. The basis point decrease was partially offset by negative leverage from the decrease in same-store sales.$67.7$34.9 million related to the Regis salon concept during fiscal year 2012. Due2014. The Company redefined its operating segments during the second quarter of fiscal year 2014. In addition, overall performance trends were down. For these reasons, the Company was required to perform this goodwill assessment in the continuationsecond quarter of decreased same-store sales,fiscal year 2014. As a result of this non-cash charge, the estimated fair value ofCompany has no further goodwill on its balance sheet associated with the Regis salon operations was less thanconcept (North American Premium). The Company remains focused on improving the carrying valueperformance of this concept's net assets, including goodwill. The $67.7 million impairment charge wasbusiness as it stabilizes and turns around the excess of the carrying value of goodwill over the implied fair value of goodwill for the Regis salon concept. The Company recorded a $74.1 million goodwill impairment charge relatedbusiness. See Notes 1 and 4 to the Promenade salon conceptConsolidated Financial Statements.2011. Due to lower than expected earnings and same-store sales,2015 primarily due the estimated fair valuesettlement of the Promenade salon operations was less than$172.5 million convertible senior notes in July 2014, partly offset by interest on the carrying value$120.0 million Senior Term Notes issued in November 2013.this concept's net assets, including goodwill. The $74.1consolidated revenues during fiscal year 2014 primarily due to a $10.6 million impairment charge wasmake-whole payment associated with the excessprepayment of private placement debt in June 2013 and decreased average outstanding debt and related interest rates compared to the carrying value of goodwill over the implied fair value of goodwill for the Promenade salon concept.Interest Expense$9.3$8.7 million, or 50 basis points as a percent of consolidated revenues during fiscal year 2013 primarily due to a $10.6 million make-whole payment associated with the prepayment of private placement debt in June 2013, partiallypartly offset by decreased debt levels as compared to fiscal year 2012. The 30point improvement in interestpoints as a percent of consolidated revenues, during fiscal year 2012 was primarily due to decreased debt levels as compared to fiscal year 2011. The 90 basis point improvement in interest as a percent of consolidated revenues during fiscal year 2011 was primarily due to a reduction in interest expense due to fiscal year 2010 including $18.0 million of make-whole payments and other fees associated with the repayment of private placement debt, and decreased debt levels during fiscal year 2011.Interest Income and Other, net The 160 basis point increase in interest income and other, net as a percent of consolidated revenues during fiscal year 20132014. This decrease was primarily due to the recognition of a $33.8 million foreign currency translation gain in connection with the sale of Provalliance partiallyduring fiscal year 2013. Interest income and other, net as a percent of consolidated revenues during2012, was consistent with2015, the comparable prior period as there was a favorable foreign currency impact related to the Company's investmentCompany recognized income tax expense of $14.6 million on $5.0 million of loss from continuing operations before income taxes and equity in MY Styleloss of affiliated companies, for an effective tax rate of (293.4)%. The recorded tax expense and a favorable legal settlement duringeffective tax rate for fiscal year 2012 that were offset by the prior year comparable period including2015 are higher fees received for warehousing services provided to the purchaser of Trade Secret. The 30 basis point decrease in the interest income and other, net as a percent of consolidated revenues during fiscal year 2011 wasthan would be expected primarily due to the foreign currency impactestablishment of a $2.1 million valuation allowance against the majority of the Canadian deferred tax assets and $8.9 million non-cash tax expense relating to tax benefits on certain indefinite-lived assets that the Company cannot recognize for reporting purposes. This non-cash tax expense will continue as long as we have a valuation allowance in place and will cause our effective tax rate to fluctuate from quarter to quarter.investment in MY Style, $1.9U.S. and U.K. deferred tax assets and the tax effect of the $34.9 million received from the purchaser of Trade Secret in the comparable prior periodgoodwill impairment charge, which was partly non-deductible for administrative services, and $1.9 million in interest income recorded in the comparable prior period on the outstanding note receivable due from the purchaser of Trade Secret.tax purposes.Income Taxes$10.0$9.7 million on $10.1$11.8 million of income from continuing operations before income taxes and equity in loss of affiliated companies, for an effective tax rate of (99.3)%81.9%. The larger than expected effective tax rate benefit was because the $33.8 million foreign currency translation gain recognized at the time of the sale of Provalliance was primarily non-taxable, and the Company benefittedalong with a benefit from Work Opportunity Tax Credits. During fiscal year 2012, the Company recognized an income tax benefit(Loss) IncomeLoss of Affiliated Companies, Net of Income Taxespartiallypartly offset by the Company's share of EEG's net income and a $0.6 million gain on the Provalliance equity putEquity Put that automatically terminated as a result of the sale of the Company's investment in Provalliance. See Note 5 to the Consolidated Financial Statements for further discussion of each respective affiliated company. The loss in affiliated companies, net of taxes for fiscal year 2012 was primarily due to the impairment losses of $17.2 and $19.4 million recorded on our investments in Provalliance and EEG, respectively. In conjunction with entering into a purchase agreement to sell Provalliance, the Company recorded a $37.4 million other than temporary impairment charge on its investment in Provalliance and $20.2 million reduction in the fair value of the Equity Put, resulting in a net impairment charge of $17.2 million. The Company recorded a $19.4 million other than temporary impairment charge for the excess of the carrying value of its investment in EEG over the fair value. The Company also recorded its $8.7 million share of an intangible asset impairment recorded directly by EEG. These impairments recorded during fiscal year 2012 were partially offset by our share of earnings of $9.7 and $4.7 million recorded for our investments in Provalliance and EEG, respectively. Equity in income of affiliated companies, net of taxes for fiscal year 2011 was due to equity in income of $7.8 and $5.5 million recorded for our investments in Provalliance and EEG, respectively. In addition, the Company recorded a $9.0 million impairment loss related to the Company's investment in MY Style. The impairment charge was based on the decline in equity value of MY Style as a result of changes in projected revenue growth after the natural disasters that occurred in Japan during March 2011. The Company also recorded a $2.4 million net gain related to the settlement of a portion of the Company's equity put liability and additional ownership of the Frank Provost Group in Provalliance.netNet of Income Taxespartiallypartly offset by$5.4 $5.4 million of expense, net of income taxes, associated with professional and transaction fees. See Note 2 to the Consolidated Financial Statements for further discussion on discontinued operations. During fiscal year 2012, the Company recognized $62.4 million of loss, net of taxes from discontinued operations, primarily from a $61.9 million loss, net of taxes from Hair Club operations, as a result of the $78.4 million goodwill impairment charge, and $1.6 million of expense, net of taxes associated with professional and transaction fees, partially offset by $1.1 million tax benefit related to the release of tax reserves associated with the disposition of our Trade Secret salon concept. During fiscal year 2011, the Company recognized $12.0 of income, net of taxes, from Hair Club operations.Recent DevelopmentsFirst Quarter-to-Date Fiscal 2014 Sales Trends As of August 25, 2013, first quarter-to-date same store service sales and product sales were down 3.4% and 14.9%, respectively. The Company believes these declines are short-term in nature, and we have seen improvement in August same-store service sales which are down 2.4%, a 180 basis point improvement since July. We expect these trends to further improve as our new field teams transition from reorganizing and hiring activities to focusing on their salons, and as we become more comfortable with and optimize our use of the new POS system. The Company has taken a number of steps to reverse this short-term trend, including providing an incentive for stylists to gain traction on our first quarter promotion and accelerating by two weeks the delivery of items within our new product assortment so that salon shelves could be reset sooner. Since salon resets were just completed several weeks ago, product sales trends have yet to show improvement.Field Reorganization—Financial Statement Expense Classification Beginning in the first quarter of fiscal year 2014, the field reorganization, excluding salons within the mass premium category, will result in a change in expense classifications on our Statement of Operations. Previously, field leaders did not work on the salon floor daily. As reorganized, field leaders will spend most of their time on the salon floor leading, mentoring and serving guests. Accordingly, field leader costs, including their labor and travel costs, will directly arise from the management of salon operations. As a result, district and senior district leader labor costs will be reported within Cost of Service rather than General and Administrative expenses, and their travel costs will be reported within Site Operating expenses rather than General and Administrative expenses. This expense classification will have no financial impact on the Company's reported operating income (loss), reported net income (loss) or cash flows from operations.initiatives.initiatives for at least the next twelve months. We also anticipate having access to long-term financing. However, in the event our liquidity is insufficient and we are not able to access long-term financing, 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.2013,2015, cash and cash equivalents were $200.5$212.3 million, with $176.4, $11.7$198.0, $4.2 and $12.4$10.1 million in the United States,U.S., Canada and Europe, respectively. As of June 30, 2013, the Company has a $33.3 million income tax receivable of which approximately $11 million is expected to be collected during the first quarter ofDuring fiscal year 2014.2013,2015, the Company had no outstanding borrowings under the facility and had outstanding standby letters of credit under the facility of $2.2$2.1 million, primarily related to its self-insurance program. Accordingly, unused available credit under the facility at June 30, 20132015 was $397.8$397.9 million. The credit under this facility could be used to fund the convertible senior term notes should the Company choose to settle these notes in cash. Refer to additional discussion under financing arrangements.2013,2015, we were in compliance with all covenants and other requirements of our credit agreement and senior notes.$69.1$69.8 million declined by $84.6$83.9 million compared to the previous fiscal year. Despite higher earnings in the currentfiscal year 2013, the decrease iswas attributable to decreases in revenues and increased cost of service and product resulting in changes in working capital. Cash payments of deferred compensation and income taxes also contributed to declines in cash provided by operating activities. Fiscal year 2012 cash provided by operating activities of $153.7 million declined by $75.5 million compared to the previous fiscal year, $51.8 million of this decrease related to the timing of accruals and a reduction in the amount received for income taxes, as fiscal year 2011 included a tax refund related to the fiscal year 2009 loss on discontinued operations. Cash provided by operating activities was also lower due to a decrease of $6.0 million in dividends received from affiliated companies. Fiscal year 2011 cash provided by operating activities of $229.2 million increased by $37.0 million mainly due to an increase of $7.6 million in dividends received from affiliated companies and a $23.9 million reduction in income tax receivables.the sales of Hair Club and Provalliance and $26.4 million from EEG related to principal payments on the outstanding note receivable and revolving line of credit. These were partiallypartly offset by the Company placing $24.5 million into restricted cash to collateralize its self-insurance program, enabling the Company to reduce fees associated with previously utilized standby letters of credit and increased capital expenditures primarily related to the Company's POS system implementation. Cash used by investing activities of $90.9 million during fiscal year 2012 was less than fiscal year 2011 of $144.3 million due to the comparable prior period including the acquisition of approximately 17 percent additional equity interest in Provalliance for $57.3 million, a decrease in the amount of cash paid for acquisitions during fiscal year 2012, partially offset by an increase in capital expenditures during fiscal year 2012 for a POS system and new salon construction. Cash used by investing activities of $144.3 million during fiscal year 2011 was greater compared to fiscal year 2010 of $44.6 million due to the acquisition of approximately 17 percent additional equity interest in Provalliance for $57.3 million, a disbursement of $15.0 million on the revolving credit facility with EEG and planned increases in acquisitions and capital expenditures.2012 and 2011, the primary use of cash within(used in) provided by financing activities waswere for repaymentsnet (repayments) borrowings of long-term debt of $118.2, $29.7$(173.8), $111.0 and $137.7$(118.2) million, respectively and dividendsdividend payments of $13.7, $13.9$0.0, $6.8 and $11.5$13.7 million, respectively. During fiscal yearyears 2015 and 2013, the Company usedrepurchased $47.9 and $14.9 million to repurchaseof common stock, under its share repurchase program and prepaid $89.3respectively. During fiscal year 2014, the Company issued $120.0 million in private placement debt.Statements in Part II, Item 8.Statements. Derivative activities are discussed in Note 1 to the Consolidated Financial Statements in Part II, Item 8 and Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk." that cash generated from operations and amounts available under existing debt facilities will be sufficient to fund its anticipated capital expenditures and required debt repayments for the foreseeable future. As of June 30, 2013,2015, we have $397.8$397.9 million available under our existing revolving credit facility. Interest rate % Fiscal Years June 30, Maturity Dates 2013 2012 2013 2012 (fiscal year) (Dollars in thousands) 2013 6.69 - 8.50% 6.69 - 8.50% $ — $ 111,429 2015 5.00 5.00 166,454 161,134 2018 — — — — 2015 - 2016 4.90 - 8.75 4.90 - 8.75 8,316 14,780 2013 5.75 - 8.00 5.75 - 8.00 — 331 174,770 287,674 (173,515 ) (28,937 ) $ 1,255 $ 258,737 (1)On or after April 15, 2014, holders may convert each of their senior convertible notes at their option at any time prior to the July 10, 2014 maturity date. As a result, the Company has included the convertible senior notes within long-term debt, current portion on the Consolidated Balance Sheet. Interest rate % Fiscal Years June 30, Maturity Dates 2015 2014 2015 2014 (fiscal year) (Dollars in thousands) Convertible senior notes 2015 5.0% 5.0% $ — $ 172,246 Senior term notes 2018 5.75 5.75 120,000 120,000 Revolving credit facility 2018 — — — — Equipment and leasehold notes payable 2015 - 2016 4.90 - 8.75 4.90 - 8.75 2 1,257 120,002 293,503 Less current portion (2 ) (173,501 ) Long-term portion $ 120,000 $ 120,002 JuneNovember 2013, the Company entered into a Sixth Amendedissued $120.0 million aggregate principal amount of 5.75% unsecured 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 Restated Credit Agreement (Credit Agreement), which amended and restated in its entirety, the Company's existing Fifth Amended and Restated Credit Agreement that was entered into during fiscalDecember 1 of each year, 2011.beginning on June 1, 2014. The Credit Agreement provides forentire outstanding principal is due at maturity. We were in compliance with all covenants and other requirements of our credit agreement and senior notes as of June 30, 2013. Beginning in April 2014, the holders of our convertible senior term notes may convert their notes at their option. The Company has the choice of net-cash settlement, settlement in its own shares or a combination of both. As of June 30, 2013, the notes are convertible at a conversion rate of 65.4357 shares of the Company's common stock per $1,000 principal amount of notes, representing a conversion price of approximately $15.28 per share of the Company's common stock.As of June 30, 2015 16.1 % (1,300 ) 2014 29.1 1,210 2013 17.0 (760 ) Debt to
Capitalization Basis Point
(Decrease)
Increase(1) 16.9 % (750 ) 24.4 110 23.3 (700 ) (1)(1) Represents the basis point change in debt to capitalization as compared to prior fiscal year-end (June 30). prior fiscal year end (June 30).June 30, 2014 was primarily due to the $173.8 million repayment of long-term debt, which included $172.5 million for the repayment of the convertible notes. This was partly offset by the repurchase of 3.1 million shares of common stock for $47.9 million. The basis point increase in the debt to capitalization ratio as of June 30, 2012 compared to June 30, 2011 was primarily due to the decrease in shareholders' equity as a result of the non-cash goodwill impairment charges related to the Regis salon concept and Hair Restoration Centers reporting unit and a $36.6 million net impairment charge associated with our investments in Provalliance and EEG. Partially offsetting the impact of the decrease in shareholders' equity was a decrease in debt levels. The basis point improvement in the debt to capitalization ratio as of June 30, 2011 compared to June 30, 2010 was primarily due to the repayment of an $85.0 million term loan during fiscal year 2011 and foreign currency translation adjustments due to the weakening of the United States dollar against the Canadian dollar and British Pound.2013:2015: Payments due by period Contractual Obligations Total 1 - 3 years 3 - 5 years (Dollars in thousands) On-balance sheet: Debt obligations $ 120,000 $ — $ — $ 120,000 $ — Capital lease obligations 2 2 — — — Other long-term liabilities 15,308 2,652 3,889 1,690 7,077 Total on-balance sheet 135,310 2,654 3,889 121,690 7,077 Off-balance sheet(a): Operating lease obligations 937,509 294,540 404,968 183,777 54,224 Interest on long-term debt and capital lease obligations 24,246 6,900 13,800 3,546 — Total off-balance sheet 961,755 301,440 418,768 187,323 54,224 Total $ 1,097,065 $ 304,094 $ 422,657 $ 309,013 $ 61,301 (a) In accordance with accounting principles generally accepted in the United States of America, these obligations are not reflected in the Consolidated Balance Sheet. Payments due by period Within
1 years 1 - 3 years 3 - 5 years More than
5 years Total (Dollars in thousands) $ 166,454 $ — $ — $ — $ 166,454 7,061 1,255 — — 8,316 4,651 4,958 3,266 7,870 20,745 178,166 6,213 3,266 7,870 195,515 297,328 412,332 181,277 65,992 956,929 9,035 422 — — 9,457 306,363 412,754 181,277 65,992 966,386 $ 484,529 $ 418,967 $ 184,543 $ 73,862 $ 1,161,901 (a)In accordance with accounting principles generally accepted in the United States of America, these obligations are not reflected in the Consolidated Balance Sheet.convertible debt.senior term notes. There were no outstanding borrowings under our revolving credit facility at June 30, 2013.2015. Interest payments on long-term debt and capital lease obligations are estimated based on each debt obligation's agreed upon rate as of June 30, 20132015 and scheduled contractual repayments.$20.8$15.3 million include $14.5$11.8 million related to the Executive Profit Sharinga Nonqualified Deferred Salary Plan and a salary deferral program $6.3of $3.6 million (including $0.1 million in interest) related to established contractual payment obligations under retirement and severance payment agreements for a small number of retired employees.performancelevel within the Company. Because we cannot predict the timing or amount of our future payments related to these contracts, such amounts were not included in the table above. Related obligations totaled $3.5$2.8 and $9.5$5.9 million and are included in accrued liabilities and other noncurrent liabilities, respectively, in the Consolidated Balance Sheet at June 30, 2013. Refer to2015. See Note 10 to the Consolidated Financial Statements for additional information.Statements.2013,2015, we have liabilities for uncertain tax positions. We are not able to reasonably estimate the amount by which the liabilities will increase or decrease over time; however, at this time, we do not expect a significant payment related to these obligations within the next fiscal year. See Note 9 to the Consolidated Financial Statements for more information on our uncertain tax positions.$160.2$207.4 million, which are reimbursed to the Company by franchisees, and the guarantee of operating leases of salons operated by the purchaser of Trade Secret with future minimum lease payments of less than $3.0 million.franchisees. Regarding franchisee subleases, we generally retain the right to the related salon assets, net of any outstanding obligations, in the event of a default by a franchise owner. Management has not experienced and does not expect any material loss to result from these arrangements.2013.2015. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.and 2012 and $0.20 per share during fiscal year 2011. On August 20,respectively. In December 2013, the Company announced a new capital allocation policy. As a result of this policy, the Board of Directors of the Company declared a $0.06 per shareelected to discontinue declaring regular quarterly dividend payable September 17, 2013 to shareholders of record on September 3, 2013.(BOD)(Board) approved a stock repurchase program. Originally, the program authorized up to $50.0 million to be expended for the repurchase of the Company's stock. The BODBoard elected to increase this maximum to $100.0 million in August 2003, to $200.0 million on May 3, 2005, and to $300.0 million on April 26, 2007.2007 and to $350.0 million on April 21, 2015. The timing and amounts of any repurchases will depend on many factors, including the market price of the common stock and overall market conditions. Historically, the repurchases to date have been made primarily to eliminate the dilutive effect of shares issued in conjunction with acquisitions, restricted stock grants and stock option exercises. In fiscal year 2015, repurchases were made in accordance with the Company's capital allocation policy issued in 2013. All repurchased shares become authorized but unissued shares of the Company. This repurchase program has no stated expiration date. The Company repurchased 3,054,387 shares for $47.9 million and 909,175 shares of common stockfor $14.9 million through its share repurchase program during fiscal yearyears 2015 and 2013, for $14.9 million.respectively. The Company did not repurchase any shares during fiscal year 2012 or 2011.2014. As of June 30, 20132015, a total accumulated 7.710.7 million shares have been repurchased for $241.3$289.1 million. As of June 30, 2013, $58.72015, $60.9 million remainsremained outstanding under the approved stock repurchase program.Statements contained in Part II, Item 8 of this Form 10-K.Statements. We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.Investmentand Loans to Affiliatesand 2012, wethe Company recorded noncashnon-cash impairments of $4.7 and $17.9 and $19.4 million, respectively, related to ourits investment in EEG. Due to economic, regulatory and other factors, weincluding declines in enrollment, revenue and profitability in the for-profit secondary educational market, the Company may be required to take additional noncashnon-cash impairment charges related to ourits investments and such noncashnon-cash impairments could be material to ourits consolidated balance sheet and results of operations. In addition, our joint venture partners may be required to take noncashDuring fiscal year 2015, the Company recorded its share, $6.9 million, of a non-cash deferred tax valuation allowance recorded directly by EEG. During fiscal years 2014 and 2013, the Company recorded its share, $21.2 and $2.1 million, respectively, of non-cash impairment charges related to long-lived assets andrecorded directly by EEG for goodwill and our share of such noncash impairment charges could be material to our consolidated balance sheetlong-lived and results of operations. Our share of EEG's goodwill balances asintangible assets. EEG has no remaining goodwill. As of June 30, 20132015, the exposure to loss related to the Company's involvement with EEG is approximately $16 million.tested for impairment annually orperformed at the timereporting unit level, which are the same as the Company’s operating segments. The goodwill test involves a two-step process. The first step is a comparison of a triggering event. In evaluating whether goodwillthe reporting unit’s fair value to its carrying value, including goodwill. If the reporting unit’s fair value exceeds its carrying value, no further procedures are required. However, if the reporting unit’s fair value is impaired, the Company comparesless than the carrying value, an impairment of each reporting unit, including goodwill may exist, requiring a second step to measure the estimatedamount of impairment loss. If the implied fair value of goodwill is less than the recorded goodwill, an impairment charge is recorded for the difference. Thethe estimated fair valuevalues of the reporting units based on discounted future cash flows that utilizeutilizing estimates in annual revenue, grossservice and product margins, fixed expense rates, allocated corporate overhead, and long-term growth rates for determining terminal value. Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows. The Company considers its various concepts to be reporting units when testing for goodwill impairment because that is where the goodwill resides. The Company periodically engages third-party valuation consultants to assist in evaluation ofevaluating the Company's estimated fair value calculations. In situations whereFollowing is a reporting unit's carrying value exceeds its estimated fair value, the amountdescription of the goodwill impairment loss must be measured. The measurementanalyses for each of the fiscal years:calculated by determining the implied fair value of a reporting unit's goodwill. In calculating the implied fair value of goodwill,more likely than not that the fair value of the reporting unitunits is allocated to all other assets and liabilities ofless than its carrying value (“Step 0”). The Company determined it is “more-likely-than-not” that unit based on the relative fair values under the assumption of a taxable transaction. The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities is the implied fair value of goodwill. The goodwill impairment is measured as the excess of the carrying value of goodwill over its impliedis less than the fair value. No goodwill impairment charges were recorded during Accordingly, the Company did not perform a two-step quantitative analysis.2013. We impaired $67.7 and $74.1 million2014, 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. Based on the changes to the Company's operating segment structure, goodwill associated with ourhas been reallocated to the new reporting units at June 30, 2014. See Note 14 to the Consolidated Financial Statements.salon concepts during fiscal year 2012 and 2011, respectively. Forreporting units reported lower than projected same-store sales that were unfavorable compared to the Company’s projections used in the fiscal year 2013 annual goodwill impairment testingtest.of the Regis salon concept exceeded its respective carrying value by approximately 9.0 percent. As it is reasonably likely that there could be impairment of12.0%. See Note 9 to the Regis salon concept's goodwill in future periods along withConsolidated Financial Statements.sensitivity of the Company's critical assumptions in estimating fair value of this reporting unit, the Company has provided additional information related to this reporting unit. A summary of the critical assumptions utilized during the fiscal year 2013Company’s annual impairment test, the Company performed the first step of the Regis salon concept are outlined below: Annual revenue growth. Annual revenue growth is primarily driven by assumed same-store sales rates of approximately negative 2.0 to positive 3.0 percent. Other considerations include anticipated economic conditionsquantitative goodwill impairment test and moderate new salon growth. Gross margin. Adjusted for anticipated salon closures, new salon construction estimated future gross margins were held constant. Fixed expense rates. Fixed expense rate increases of approximately 1.0 to 2.0 percent based on anticipated inflation. Fixed expenses consisted of rent, site operating, and allocated general and administrative corporate overhead. Allocated corporate overhead. Corporate overhead incurred by the home office based on the number of Regis company-owned salons as a percent of total company-owned salons. Long-term growth. A long-term growth rate of 2.5 percent was applied to terminal cash flow based on anticipated economic conditions and business plans. Discount rate. A discount rate of 13.5 percent based on the weighted average cost of capitaldetermined that equals the rate of return on debt capital and equity capital weighted in proportion to the capital structure common to the industry, risk adjusted for the Regis salon concept. The following table summarizes the approximate impact that a change in certain critical assumptions would have on the estimated fair value of our Regis salon concept goodwill balance (the approximate impact of the change in the critical assumptions assumes all other assumptions and factors remain constant): Increase
(Decrease) Approximate
Decrease in
Fair Value (In thousands) 1.0 % $ 4,500 (1.0 ) 500 The respective fair values of the Company's remaining reporting units exceeded fair value by greater than 20.0 percent at June 30, 2013. While the Company has determined the estimated fair values of Regis to be appropriate based on the historical level of revenue growth, operating income and cash flows, it is reasonably likely that Regis may experience additional impairment in future periods. The term "reasonably likely" refers to an occurrence that is more than remote but less than probable in the judgment of the Company. Because some of the inherent assumptions and estimates used in determining the fair value of the reportable segment are outside the control of management, changes in these underlying assumptions can adversely impact fair value. Potential impairment of a portion or all ofexceeded the carrying value for each of goodwill for the RegisCompany’s reporting unit is dependent on many factors and cannot be predicted with certainty.2013,2015, the Company's estimated fair value, as determined by the sum of our reporting units' fair value, reconciled to within a reasonable range of our market capitalization, which included an assumed control premium. A summarypremium of the Company's goodwill balance by reporting unit is as follows: June 30, 2013 2012 (Dollars in thousands) $ 34,953 $ 34,992 4,652 4,652 49,286 49,476 129,610 129,621 242,384 243,538 $ 460,885 $ 462,279 We assesswhen events or changes in circumstances indicate thatat the carrying value of the assets or the asset grouping may not be recoverable. Our impairment analysis on salon property and equipment is performed on a salon by salon basis. The Company's test for impairment is performed at aindividual salon level, as this is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.liabilities, when events or changes in circumstances indicate the carrying value of the assets or the asset grouping may not be recoverable. Factors considered in deciding when to perform an impairment review include significant under-performance of an individual salon in relation to expectations, significant economic or geographic trends, and significant changes or planned changes in our use of the assets. Impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the related salonlong-lived assets that doesdo not recover the carrying values. If the undiscounted estimated cash flows are less than the carrying value of the salon assets.assets, the Company calculates an impairment charge based on the assets' estimated fair value. The fair value estimateof the long-lived assets is estimated using a discounted cash flow model based on the best information available, including market data.usthe Company to realize material impairment charges. During fiscal years 2013, 2012 and 2011, $8.2, $6.6 and $6.5 million, respectively,impairments were recorded within depreciation and amortization in the Consolidated Statement of Operations.long-lived asset impairment charges follows: Fiscal Years 2015 2014 2013 (Dollars in thousands) North American Value $ 9,612 $ 11,714 $ 5,031 North American Premium 4,804 5,014 3,042 International 188 1,599 151 Total $ 14,604 $ 18,327 $ 8,224 In the United States, after excluding certain deferred tax liabilities related to assets with indefinite lives, the Company has net deferred tax assets of approximately $56.3 million. RealizationA valuation allowance is established for any portion of deferred tax assets is ultimately dependent uponthat are not considered more likely than not to be realized. The Company evaluates all evidence, including recent financial performance, the existence of cumulative year losses and our forecast of future taxable income. Weincome, to assess the likelihoodneed for a valuation allowance against our deferred tax assets. While the determination of whether or not to record a valuation allowance is not fully governed by a specific objective test, accounting guidance places significant weight on recent financial performance.willwould be recovered. If recovery is not likely, we must increase our provision for income taxes by recordingfully realized and established a reserve, in the form of a$2.1 million valuation allowance on these deferred tax assets. The primary cause for the Canadian valuation allowance was due to the recent negative financial performance in Canada and cumulative losses incurred in recent years. During fiscal year 2014, the Company established an $86.6 million valuation allowance on its U.S. and U.K. deferred tax assets.that will not ultimately be recoverable. Should the Company's present financial trends continue, it is reasonably possible that themore likely than not.could determine that a valuation allowance against the United States deferredreserves for unrecognized tax assets will be required. We recognize a reserve for potential liabilities forbenefits, interest and penalties related to anticipated tax audit issues in the United StatesU.S. and other tax jurisdictions based on ouran estimate of whether additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of thethese liabilities would result in tax benefits being recognized in the period when we determinein which it is determined that the liabilities are no longer necessary. If ourthe estimate of unrecognized tax liabilitiesbenefits, interest and penalties proves to be less than the ultimate assessment, a further charge to expenseadditional expenses would result. Inherent in the measurement of deferred balances are certain judgments and interpretations of tax laws and published guidance with respect to the Company's operations. Income tax expense is primarily the current tax payable for the period and the change during the period in certain deferred tax assets and liabilities. We are involvedthat arise from time to time inarising out of the ordinarynormal course of our business. Accruals are recorded for such contingencies based on our assessment thatLike certain other large retail employers, the occurrence is probableCompany has been faced with allegations of purported class-wide consumer and can be reasonably estimated. Management considers many factors in making these assessments including past historywage and the specifics of each case. However, litigationhour violations. Litigation is inherently unpredictable and excessive verdicts do occur, whichthe 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 impactadverse effect on our Consolidated Financial Statements.yearyears 2015, 2014 and 2013, the Company incurred $0.7, $3.3 and $1.2 million of expense in conjunction with the derivative shareholder action. During fiscal year 2012,2015, the Company was awarded $1.1received insurance reimbursement of $1.0 million for legal fees previously paid in conjunction with a class-action lawsuit. Duringthe derivative shareholder action.2011,2010 and 2011. In addition, the Company settledis currently under payroll tax examination by the IRS for calendar years 2012 and 2013. Final resolution of these issues is not expected to have a legal claim withmaterial impact on the former owner of Hair Club for $1.7 million.to its net investments in its foreign subsidiaries and, to a lesser extent, changes in the Canadian dollar and British Pound exchange rates.Pound. The Company has established policies and procedures that govern the management of these exposures through the use of derivative financial instrument contracts. By policy, the Company does not enter into such contracts for the purpose of speculation. The following details the Company's policies and use of financial instruments.2013,2015, the Company did not have any outstanding variable rate debt as there were no amounts outstanding on the revolving credit facility. The Company had outstanding fixed rate debt balances of $174.8$120.0 and $287.7$293.5 million at June 30, 20132015 and June 30, 2012,2014, respectively.2013,2015, the Company did not have any derivative instruments to manage its foreign currency risk.2013, 2012,2015, 2014 and 20112013, the foreign currency (loss) gain (loss) included in net income was $33.4, $0.4,$(1.3), $0.1 and ($1.5)$33.4 million, respectively. During fiscal year 2013, Company recognized a $33.8 million foreign currency translation gain in connection with the sale of Provalliance and subsequent liquidation of all foreign entities with Euro denominated operations.Provalliance.Index to Consolidated Financial Statements: Management's Statement of Responsibility forIndex to Consolidated Financial Statements and Report on Internal Control over Financial Reporting 44 Management's Statement of Responsibility for Financial Statements andReport on Internal Control over Financial ReportingFinancial Statements Management is responsible for preparation of the consolidated financial statements and other related financial information included in this annual report on Form 10-K. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, incorporating management's reasonable estimates and judgments, where applicable.Management's Report on Internal Control over Financial Reporting This report is provided by management pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the SEC rules promulgated thereunder. Management, including the chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting and for assessing effectiveness of internal control over financial reporting. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the Company's internal control over financial reporting as of June 30, 2013, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment of the Company's internal control over financial reporting, management has concluded that, as of June 30, 2013, the Company's internal control over financial reporting was effective. The Company's independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company's internal control over financial reporting as of June 30, 2013, as stated in their report which follows in Item 8 of this Form 10-K.
Report of Independent Registered Public Accounting Firmincome,loss, shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Regis Corporation and its subsidiaries at June 30, 20132015 and June 30, 2012,2014, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 20132015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained,did not maintain, in all material respects, effective internal control over financial reporting as of June 30, 2013,2015, based on criteria established inInternal Control—Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). because a material weakness in internal control over financial reporting related to the accounting for leases existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2015 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Statement of Responsibility for Financial Statements and Report on Internal Control over Financial Reporting.management's report referred to above. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.27, 201328, 2015 June 30, June 30, 2013 2012 2015 2014 $ 200,488 $ 111,943 $ 212,279 $ 378,627 33,062 28,954 24,631 25,808 139,607 142,276 128,610 137,151 24,145 14,503 33,346 14,098 993 6,461 57,898 55,903 61,769 65,219 — 17,000 488,546 384,677 428,282 613,266
313,460
305,799 218,157 266,538 460,885 462,279 418,953 425,264 21,496 23,395 17,069 19,812 43,319 160,987 Investment in affiliates 15,321 28,611 62,786 59,488 64,233 62,458 — 175,221 $ 1,390,492 $ 1,571,846 $ 1,162,015 $ 1,415,949 $ 173,515 $ 28,937 Long-term debt and capital lease obligations, current $ 2 $ 173,501 66,071 47,890 63,302 68,491 137,226 157,026 153,362 144,544 — 18,120 376,812 251,973 216,666 386,536
1,255
258,737 Long-term debt 120,000 120,002 155,011 143,972 197,905 195,419 — 28,007 533,078 682,689 534,571 701,957 2,832 2,871 Common stock, $0.05 par value; issued and outstanding, 53,664,366 and 56,651,166 common shares at June 30, 2015 and 2014, respectively 2,683 2,833 334,266 346,943 298,396 337,837 20,556 55,114 9,506 22,651 499,760 484,229 316,859 350,671 857,414 889,157 627,444 713,992 $ 1,390,492 $ 1,571,846 $ 1,162,015 $ 1,415,949 InDollars in thousands, except per share data) Fiscal Years Fiscal Years 2013 2012 2011 2015 2014 2013 $ 1,563,890 $ 1,643,891 $ 1,695,424 $ 1,429,408 $ 1,480,103 $ 1,563,890 415,707 440,048 447,465 363,236 371,454 415,707 39,116 38,288 37,292 44,643 40,880 39,116 2,018,713 2,122,227 2,180,181 1,837,287 1,892,437 2,018,713 930,687 941,671 972,894 882,717 907,294 930,687 228,577 221,635 225,191 180,558 186,924 228,857 203,912 207,031 211,223 192,442 203,450 202,128 226,740 249,634 285,845 186,051 172,793 226,740 324,716 331,769 333,059 309,125 322,262 325,187 91,755 104,970 92,151 82,863 99,733 91,755 — 67,684 74,100 — 34,939 — 2,006,387 2,124,394 2,194,463 1,833,756 1,927,395 2,005,354 12,326 (2,167 ) (14,282 ) 3,531 (34,958 ) 13,359 Other (expense) income: (37,594 ) (28,245 ) (34,374 ) (10,206 ) (22,290 ) (36,944 ) 35,366 5,098 4,723 1,697 1,952 35,366 10,098 (25,314 ) (43,933 ) (Loss) income from continuing operations before income taxes and equity in loss of affiliated companies (4,978 ) (55,296 ) 11,781
10,024
4,430
16,333 (14,605 ) (72,955 ) 9,653 (15,956 ) (30,859 ) 6,661 4,166 (51,743 ) (20,939 ) 25,028 (62,350 ) 12,034 $ 29,194 $ (114,093 ) $ (8,905 ) 0.07 (0.91 ) (0.37 ) 0.44 (1.09 ) 0.21 $ 0.51 $ (2.00 ) $ (0.16 ) 0.07 (0.91 ) (0.37 ) 0.44 (1.09 ) 0.21 $ 0.51 $ (2.00 ) $ (0.16 ) Equity in loss of affiliated companies, net of income taxes (13,629 ) (11,623 ) (15,956 ) (Loss) income from continuing operations (33,212 ) (139,874 ) 5,478 (Loss) income from discontinued operations, net of income taxes (Note 2) (630 ) 1,353 25,028 Net (loss) income $ (33,842 ) $ (138,521 ) $ 30,506 Net (loss) income per share: Basic and diluted: (Loss) income from continuing operations (0.60 ) (2.48 ) 0.10 (Loss) income from discontinued operations (0.01 ) 0.02 0.44 Net (loss) income per share, basic and diluted (1) $ (0.62 ) $ (2.45 ) $ 0.54 56,704 57,137 56,704 54,992 56,482 56,704 56,846 57,137 56,704 54,992 56,482 56,846 $ 0.24 $ 0.24 $ 0.20 $ — $ 0.12 $ 0.24 (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding. (LOSS) INCOME
LOSS Fiscal Years 2013 2012 2011 $ 29,194 $ (114,093 ) $ (8,905 ) (1,349 ) (24,254 ) 30,405 (33,842 ) — — (35,191 ) (24,254 ) 30,405 656 1,029 377 (23 ) 393 132 (34,558 ) (22,832 ) 30,914 $ (5,364 ) $ (136,925 ) $ 22,009 Fiscal Years 2015 2014 2013 Net (loss) income $ (33,842 ) $ (138,521 ) $ 30,506 Other comprehensive (loss) income: Foreign currency translation adjustments: Foreign currency translation adjustments during the period (13,515 ) 1,930 (1,349 ) Reclassification adjustments for gains included in net (loss) income(1) — — (33,842 ) Net current period foreign currency translation adjustments (13,515 ) 1,930 (35,191 ) Recognition of deferred compensation and other, net of tax expense of $411 in fiscal year 2013(2) 370 165 656 Change in fair market value of financial instruments designated as cash flow hedges, net of tax benefit of $12 in fiscal year 2013(2) — — (23 ) Other comprehensive (loss) income (13,145 ) 2,095 (34,558 ) Comprehensive loss $ (46,987 ) $ (136,426 ) $ (4,052 ) (1) During fiscal year 2013, the Company recognized a $33.8 million foreign currency translation gain in connection with the sale of Provalliance and subsequent liquidation of all foreign entities with Euro denominated operations within interest income and other, net in the Consolidated Statement of Operations. (2) During fiscal year 2014, the Company recorded a valuation allowance against the majority of its deferred tax assets. Any subsequent other comprehensive (loss) income adjustments were not tax effected. Common Stock Accumulated
Other
Comprehensive
Income Additional
Paid-In
Capital Retained
Earnings Common Stock Additional
Paid-In
Capital Total Shares Amount Accumulated
Other
Comprehensive
Income Shares Amount 57,561,180 $ 2,878 $ 332,372 $ 47,032 $ 631,011 Balance, June 30, 2012 57,415,241 $ 2,871 $ 346,943 $ 55,114 $ 478,922 $ 883,850 (8,905 ) (8,905 ) 30,506 30,506 30,405 30,405 (35,191 ) (35,191 ) 45,933 2 680 682 9,596 9,596 24,472 1 397 398 509 509 67 67 79,226 5 (1,795 ) (1,790 ) (127 ) (127 ) (11,509 ) (11,509 ) 57,710,811 2,886 341,190 77,946 610,597 1,032,619 (114,093 ) (114,093 ) (24,254 ) (24,254 ) 60 — — — 7,597 7,597 18,844 1 305 306 1,422 1,422 (314,474 ) (16 ) (1,426 ) (1,442 ) (723 ) (723 ) 1,580 1,580 (13,855 ) (13,855 ) 57,415,241 2,871 346,943 55,114 484,229 889,157 29,194 29,194 (35,191 ) (35,191 ) (909,175 ) (45 ) (14,823 ) (14,868 ) Stock repurchase program (909,175 ) (45 ) (14,823 ) (14,868 ) 3,051 — 41 41 3,051 — 41 41 5,881 5,881 5,881 5,881 19,583 1 356 357 19,583 1 356 357 633 633 633 633 102,226 5 (2,728 ) (2,723 ) 102,226 5 (2,728 ) (2,723 ) (1,404 ) (1,404 ) (1,404 ) (1,404 ) 45 45 45 45 (13,708 ) (13,708 ) (13,708 ) (13,708 ) 56,630,926 $ 2,832 $ 334,266 $ 20,556 $ 499,760 $ 857,414 56,630,926 2,832 334,266 20,556 495,765 853,419 Net income (138,521 ) (138,521 ) Foreign currency translation adjustments 1,930 1,930 Proceeds from exercise of SARs & stock options 11 — — — Stock-based compensation 6,400 6,400 Shares issued through franchise stock incentive program 20,095 1 289 290 Recognition of deferred compensation and other, net of taxes (Note 10) 165 165 Net restricted stock activity 134 — (2,603 ) (2,603 ) Vested stock option expirations (515 ) (515 ) Minority interest (Note 1) 220 220 Dividends (6,793 ) (6,793 ) Balance, June 30, 2014 56,651,166 2,833 337,837 22,651 350,671 713,992 Net loss (33,842 ) (33,842 ) Foreign currency translation adjustments (13,515 ) (13,515 ) Stock repurchase program (3,054,387 ) (153 ) (47,735 ) (47,888 ) Proceeds from exercise of SARs & stock options 623 — — — Stock-based compensation 8,647 8,647 Shares issued through franchise stock incentive program 27,276 1 460 461 Recognition of deferred compensation (Note 10) 370 370 Net restricted stock activity 39,688 2 (813 ) (811 ) Minority interest (Note 1) 30 30 Balance, June 30, 2015 53,664,366 $ 2,683 $ 298,396 $ 9,506 $ 316,859 $ 627,444 Fiscal Years 2013 2012 2011 $ 29,194 $ (114,093 ) $ (8,905 ) 84,018 111,435 98,428 15,328 30,043 (7,228 ) 1,095 4,047 10,023 10,322 (14,171 ) (14,711 ) (33,842 ) — — (17,827 ) — — 12,557 — — — 146,110 74,100 8,224 6,636 6,681 (333 ) (805 ) 31,227 5,881 7,597 9,596 7,346 6,696 6,469 394 31 1,511 (4,332 ) (4,502 ) (2,358 ) (10,745 ) 2,644 4,629 (23,421 ) 2,809 23,855 (8,064 ) (5,272 ) 4,725 239 (841 ) (11,050 ) 19,086 (4,856 ) (2,973 ) (26,431 ) (8,657 ) 3,341 459 (11,151 ) 1,818 69,148 153,700 229,178 (105,857 ) (85,769 ) (71,469 ) 163,916 502 626 — (2,587 ) (17,990 ) 131,581 11,995 16,804 — (15,000 ) (72,301 ) (24,500 ) — — 165,140 (90,859 ) (144,330 ) 5,200 471,500 — (5,200 ) (471,500 ) — (118,223 ) (29,693 ) (137,671 ) (14,868 ) — — — — 749 (13,708 ) (13,855 ) (11,509 ) (146,799 ) (43,548 ) (148,431 ) 1,056 (3,613 ) 7,975 88,545 15,680 (55,608 ) 111,943 96,263 151,871 $ 200,488 $ 111,943 $ 96,263 (1)Changes in operating assets and liabilities exclude assets acquired and liabilities assumed through acquisitions. Fiscal Years 2015 2014 2013 Cash flows from operating activities: Net (loss) income $ (33,842 ) $ (138,521 ) $ 30,506 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 68,259 81,406 84,018 Equity in loss of affiliated companies 13,629 11,623 15,328 Dividends received from affiliated companies — — 1,095 Deferred income taxes 11,154 70,635 10,901 Gain from sale of salon assets (1,210 ) — — Accumulated other comprehensive income reclassification adjustments (Note 5) — — (33,842 ) Gain from sale of discontinued operations — — (17,827 ) Loss on write down of inventories — 854 12,557 Goodwill impairment — 34,939 — Salon asset impairments 14,604 18,327 8,224 Stock-based compensation 8,647 6,400 5,881 Amortization of debt discount and financing costs 1,722 8,152 7,346 Other non-cash items affecting earnings 257 224 61 Changes in operating assets and liabilities(1): Receivables 446 5,681 (4,332 ) Inventories 6,197 2,275 (10,465 ) Income tax receivable 5,298 26,884 (23,421 ) Other current assets 3,049 (5,979 ) (7,724 ) Other assets (4,480 ) (88 ) 239 Accounts payable (3,261 ) 1,907 18,436 Accrued expenses 8,249 3,955 (27,162 ) Other noncurrent liabilities (4,756 ) (11,919 ) (23 ) Net cash provided by operating activities 93,962 116,755 69,796 Cash flows from investing activities: Capital expenditures (38,257 ) (49,439 ) (105,857 ) Proceeds from sale of assets 2,986 14 163,916 Asset acquisitions, net of cash acquired — (15 ) — Proceeds from loans and investments — 5,056 131,581 Change in restricted cash (312 ) — (24,500 ) Net cash (used in) provided by investing activities (35,583 ) (44,384 ) 165,140 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 (173,751 ) (7,059 ) (118,223 ) Repurchase of common stock (47,888 ) — (14,868 ) Dividends paid — (6,793 ) (13,708 ) Net cash (used in) provided by financing activities (221,639 ) 104,206 (146,799 ) Effect of exchange rate changes on cash and cash equivalents (3,088 ) 914 1,056 (Decrease) increase in cash and cash equivalents (166,348 ) 177,491 89,193 Cash and cash equivalents: Beginning of year 378,627 201,136 111,943 End of year $ 212,279 $ 378,627 $ 201,136 (1) Changes in operating assets and liabilities exclude assets and liabilities sold. twothree reportable segments: North American Value, North American Premium and internationalInternational salons. Fiscal Years 2014 2013 (Dollars in thousands) (Loss) income from continuing operations, as reported $ (137,080 ) $ 4,166 Revisions: Deferred rent, pre-tax (1) (157 ) (471 ) Previous out of period items, pre-tax (2) (811 ) 2,154 Tax impact (1,826 ) (371 ) Total revision impact (2,794 ) 1,312 (Loss) income from continuing operations, as revised $ (139,874 ) $ 5,478 (1) The Company recognizes rental expense on a straight-line basis at the time the leased space becomes available to the Company. During the fourth quarter of fiscal year 2015, the Company determined its deferred rent balance was understated by $5.3 million. Accordingly, the Consolidated Financial Statements have been revised to correctly state its deferred rent balances and rent expense. The revisions resulted in an increase in net loss from continuing operations of $0.2 million for fiscal year 2014 and a decrease in net income from continuing operations of $0.5 million for fiscal year 2013. Accrued expenses and other noncurrent liabilities increased $1.0 and $4.2 million, respectively, at June 30, 2014 and retained earnings at June 30, 2014 decreased $5.2 million as a result of the cumulative adjustment for prior periods. This revision had no impact on cash provided by operations or net increase (decrease) in cash and cash equivalents for any year. (2) Also in the fourth quarter of fiscal year 2015, the Company revised certain prior year amounts in the Consolidated Balance Sheet and Statement of Operations to correctly recognize understatements of self-insurance accruals, interest expense, uncertain tax positions and cash and overstatements of inventory. The impact of these revisions resulted in an increase in net loss from continuing operations of $0.8 million for fiscal year 2014 and an increase in net income from REGIS CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in thousands) June 30, 2014 As Previously Reported Revision As Revised LIABILITIES AND SHAREHOLDERS' EQUITY Accrued expenses $ 142,720 $ 1,824 $ 144,544 Total current liabilities 384,712 1,824 386,536 Other noncurrent liabilities 190,454 4,965 195,419 Total liabilities 695,168 6,789 701,957 Retained earnings 357,460 (6,789 ) 350,671 Total shareholders' equity 720,781 (6,789 ) 713,992 Total liabilities and shareholders' equity $ 1,415,949 $ — $ 1,415,949 REGIS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in thousands, except per share data) Fiscal Years 2014 2013 As Previously Reported Revision As Revised As Previously Reported Revision As Revised Cost of product $ 187,204 $ (280 ) $ 186,924 $ 228,577 $ 280 $ 228,857 Site operating expenses 202,359 1,091 203,450 203,912 (1,784 ) 202,128 Rent 322,105 157 322,262 324,716 471 325,187 Interest expense (22,290 ) — (22,290 ) (37,594 ) 650 (36,944 ) (Loss) income from continuing operations before income taxes and equity in loss of affiliated companies (54,328 ) (968 ) (55,296 ) 10,098 1,683 11,781 Income taxes (71,129 ) (1,826 ) (72,955 ) 10,024 (371 ) 9,653 (Loss) income from continuing operations (137,080 ) (2,794 ) (139,874 ) 4,166 1,312 5,478 Net (loss) income $ (135,727 ) $ (2,794 ) $ (138,521 ) $ 29,194 $ 1,312 $ 30,506 (Loss) income per share from continuing operations: Basic and diluted earnings per share(1) $ (2.43 ) $ (0.05 ) $ (2.48 ) $ 0.07 $ 0.02 $ 0.10 Net (loss) income per share: Basic and diluted earnings per share(1) $ (2.40 ) $ (0.05 ) $ (2.45 ) $ 0.51 $ 0.02 $ 0.54 (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding. REGIS CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Dollars in thousands) Fiscal Years 2014 2013 As Previously Reported Revision As Revised As Previously Reported Revision As Revised Net (loss) income $ (135,727 ) $ (2,794 ) $ (138,521 ) $ 29,194 $ 1,312 $ 30,506 Comprehensive loss $ (133,632 ) $ (2,794 ) $ (136,426 ) $ (5,364 ) $ 1,312 $ (4,052 ) REGIS CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Dollars in thousands) Fiscal Years Retained Earnings Total As Previously Reported Revision As Revised As Previously Reported Revision As Revised Balance, June 30, 2012 $ 484,229 $ (5,307 ) $ 478,922 $ 889,157 $ (5,307 ) $ 883,850 Net income 29,194 1,312 30,506 29,194 1,312 30,506 Balance, June 30, 2013 499,760 (3,995 ) 495,765 857,414 (3,995 ) 853,419 Net loss (135,727 ) (2,794 ) (138,521 ) (135,727 ) (2,794 ) (138,521 ) Balance, June 30, 2014 $ 357,460 $ (6,789 ) $ 350,671 $ 720,781 $ (6,789 ) $ 713,992 REGIS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) Fiscal Years 2014 2013 As Previously Reported Revision As Revised As Previously Reported Revision As Revised Cash flows from operating activities: Net (loss) income $ (135,727 ) $ (2,794 ) $ (138,521 ) $ 29,194 $ 1,312 $ 30,506 Deferred income taxes 68,781 1,854 70,635 10,322 579 10,901 Changes in operating assets and liabilities: Inventories 2,555 (280 ) 2,275 (10,745 ) 280 (10,465 ) Other current assets (6,503 ) 524 (5,979 ) (8,064 ) 340 (7,724 ) Other assets (103 ) 15 (88 ) 239 — 239 Accounts payable 1,907 — 1,907 19,086 (650 ) 18,436 Accrued expenses 3,505 450 3,955 (26,431 ) (731 ) (27,162 ) Other noncurrent liabilities (11,502 ) (417 ) (11,919 ) 459 (482 ) (23 ) Net cash provided by operating activities 117,403 (648 ) 116,755 69,148 648 69,796 Cash: Beginning of Year 200,488 648 201,136 111,943 — 111,943 Cash: End of Year 378,627 — 378,627 200,488 648 201,136 Entities:Entities2013,2015, the Company has one VIE, Roosters MGC International LLC (Roosters), where the Company is the primary beneficiary. The Company owns a 60.0% ownership interest in Roosters. As of June 30, 2013,2015, total assets, total liabilities and total shareholders' equity of Roosters were $6.2, $2.1,$6.6, $1.5 and $4.1$5.1 million, respectively. Net income attributable to the non-controlling interest in Roosters was immaterial for fiscal years 20132015, 2014 and 2012.2013. Shareholders' equity attributable to the non-controlling interest in Roosters was $1.6$1.9 million and $1.8 million as of June 30, 20132015 and 2012,2014 and recorded within retained earnings on the Consolidated Balance Sheet.Reclassifications: Beginning in the first quarter of fiscal year 2013, salon marketing and advertising expenses that were presented within cost of service and general and administrative operating expense line items in prior filings were reclassified to site operating expenses within the Consolidated Statement of Operations. Reclassifications were made to better present how management of the Company views the respective salon marketing and advertising expenses. Prior period amounts have been reclassified toconformcurrent year presentation. These reclassifications had no impact on operating income, net income or cash flows from operations. The tables below presentsCompany was the impactprimary beneficiary of the reclassification: Fiscal Year 2012 Prior
Presentation(1) Reclassification As Presented (Dollars in thousands) $ 942,461 $ (790 ) $ 941,671 192,246 14,785 207,031 263,629 (13,995 ) 249,634 Fiscal Year 2011 Prior Presentation(1) Reclassification As Presented (Dollars in thousands) $ 973,739 $ (845 ) $ 972,894 193,404 17,819 211,223 302,819 (16,974 ) 285,845 (1)Excludes amounts relatedVIE. The Company concluded that EEG was not a VIE based on the fact that EEG had sufficient equity at risk. The Company accounts for EEG as an equity investment under the voting interest model, as the Company has granted the other shareholder of EEG an irrevocable proxy to discontinued operations. See Note 2 to the Consolidated Statement of Operations. In addition, expenses associated with our distribution centers were reclassified from Corporate to North America reportable segment. Reclassifications were made to better present how managementvote a certain number of the Company viewsCompany’s shares such that the respective distribution centers expenses. This reclassification had no impact on our Consolidated Statementother shareholder of Operations and Consolidated StatementEEG has voting control of Cash Flows. Prior period amounts have been reclassified51.0% of EEG’s common stock, as well as the right to conform to the current year presentation. The table below presents the impactappoint four of the reclassificationfive members of depreciation and amortization expenses and operating income (loss) between the Company's Corporate and North America reportable segments: Fiscal Year 2012 North America Unallocated Corporate Prior
Presentation Reclassification As
Presented(2) Prior
Presentation(1) Reclassification As
Presented(2) (Dollars in thousands) $ 68,983 $ 2,270 $ 71,253 $ 30,690 $ (2,270 ) $ 28,420 165,368 (25,394 ) 139,974 (170,040 ) 25,394 (144,646 ) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fiscal Year 2011 North America Unallocated Corporate Prior
Presentation Reclassification As
Presented(2) Prior
Presentation Reclassification As
Presented(2) (Dollars in thousands) $ 69,763 $ 2,444 $ 72,207 $ 17,638 $ (2,444 ) $ 15,194 166,683 (26,726 ) 139,957 (187,703 ) 26,726 (160,977 ) (1)Excludes amounts related to discontinued operations. See Note 2 to the Consolidated Statement of Operations.(2)See Note 14 to the Consolidated Statement of Operations for presentation of segment information.20132015 and 2012.cancelledcanceled by the Company at any time if substituted with letters of credit. The restricted cash balance is classified within other current assets on the Consolidated Balance Sheet.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2013,2015 and 20122014, the allowance for doubtful accounts was $0.6$1.3 and $0.7$0.9 million, respectively.annually.annually in the fourth quarter of the fiscal year. Product and service inventories are adjusted based on the results of the physical inventory counts. BetweenDuring the physical inventory counts,fiscal year, cost of retail product sold to salon guests is determined based on the weighted average cost of product sold, adjusted for an estimated shrinkage factor and the cost of product used in salon services is determined by applying estimated percentage of total cost of service and product to service revenues. The estimated percentage related to service inventories areis updated quarterly based on thecycle count results of cycle counts and other factors that could impact the Company's margin rate estimates such as mix of service sales mix, discounting and special promotions. Actual results for the estimated percentage as compared to the quarterly estimates have not historically resulted in material adjustments to our Statement of Operations.obsolescenceand obsolete inventories, or other factors that may render inventories unmarketable at their historical costs. Estimates of the future demand for the Company's inventory and anticipated changes in formulas and packaging are some of the other factors used by management in assessing the net realizable value of inventories. During fiscal yearyears 2014 and 2013, the Company recorded an inventory reservewrite-downs of $0.9 and $12.6 million, respectively, associated with standardizing plan-o-grams, and eliminating retail products and consolidating itsfrom four private label brandsowned-brand product lines to one.$81.8, $96.4,$66.6, $79.7 and $83.5$81.8 million in fiscal years 2015, 2014 and 2013, 2012, and 2011, respectively.Amortization expense related to capitalized software was $6.8, $22.3, and $8.4 million in fiscal years 2013, 2012, and 2011, respectively, which has been determined based on an estimatedEstimated useful lives rangingrange from five to seven years. The Company implemented a third party point-of-sale (POS) information system in fiscal year 2013. The Company recorded $16.2 million of accelerated amortization expense in fiscal year 2012 associated with a previously developed POS system that became fully depreciated as of June 30, 2012.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)assessedassesses the impairment of long-lived assets when events or changes in circumstances indicate thatat the carrying value of the assets or the asset grouping may not be recoverable. The Company's impairment analysis on salon property and equipment is performed on a salon by salon basis. The Company's test for impairment is performed at aindividual salon level, as this is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.liabilities, when events or changes in circumstances indicate the carrying value of the assets or the asset grouping may not be recoverable. Factors considered in deciding when to perform an impairment review include significant under-performance of an individual salon in relation to expectations, significant economic or geographic trends, and significant changes or planned changes in our use of the assets. Impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the related salonlong-lived assets that doesdo not recover the carrying values. If the undiscounted estimated cash flows are less than the carrying value of the salon assets.assets, the Company calculates an impairment charge based on the assets' estimated fair value. The fair value estimateof the long-lived assets is estimated using a discounted cash flow model based on the best information available, including market data.usthe Company to realize material impairment charges. During fiscal years 2013, 2012 Fiscal Years 2015 2014 2013 (Dollars in thousands) North American Value $ 9,612 $ 11,714 $ 5,031 North American Premium 4,804 5,014 3,042 International 188 1,599 151 Total $ 14,604 $ 18,327 $ 8,224 2011, $8.2, $6.62014, the North American Value reporting unit had $419.0 and $6.5$425.3 million of goodwill, respectively of impairments were recorded within depreciation and amortization inthe North American Premium and International reporting units had no goodwill. See Note 4 to the Consolidated StatementFinancial Statements. The Company tests goodwill impairment on an annual basis, during the Company’s fourth fiscal quarter, and between annual tests if an event occurs, or circumstances changes, that would more likely than not reduce the fair value of Operations.Goodwill:tested for impairment annually orperformed at the timereporting unit level, which are the same as the Company’s operating segments. The goodwill test involves a two-step process. The first step is a comparison of a triggering event. In evaluating whether goodwillthe reporting unit’s fair value to its carrying value, including goodwill. If the reporting unit’s fair value exceeds its carrying value, no further procedures areimpaired, the Company comparesless than the carrying value, an impairment of each reporting unit, including goodwill may exist, requiring a second step to measure the estimatedamount of impairment loss. If the implied fair value of goodwill is less than the recorded goodwill, an impairment charge is recorded for the difference. Thethe estimated fair valuevalues of the reporting units based on discounted future cash flows that utilizeutilizing estimates in annual revenue, grossservice and product margins, fixed expense rates, allocated corporate overhead, and long-term growth rates for determining terminal value, and a discount rate based on the weighted average cost of capital.value. Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows. The Company considers its various concepts to be reporting units when testing for goodwill impairment because that is where the goodwill resides. The Company periodically engages third-party valuation consultants to assist in evaluation ofevaluating the Company's estimated fair value calculations.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In situations wherereporting unit's carrying value exceeds its estimated fair value, the amountdescription of the goodwill impairment loss must be measured. The measurementanalyses for each of the fiscal years:calculated by determining the implied fair value of a reporting unit's goodwill. In calculating the implied fair value of goodwill,more likely than not that the fair value of the reporting unitunits is allocated to all other assets and liabilities ofless than its carrying value (“Step 0”). The Company determined it is “more-likely-than-not” that unit based on the relative fair values under the assumption of a taxable transaction. The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities is the implied fair value of goodwill. The goodwill impairment is measured as the excess of the carrying value of goodwill over its impliedis less than the fair value. For Accordingly, the Company did not perform a two-step quantitative analysis.testingtest.Regis salon concept reporting unitquantitative goodwill impairment test and determined that the fair value exceeded the carrying value by approximately 9.0 percent. The respective fair valuesfor each of the Company's remainingCompany’s reporting units exceeded carrying value by greater than 20.0 percent at June 30, 2013. Whileunits. Accordingly, the Company has determined the estimated fair value of Regis to be appropriate based on the historical level of revenue growth, operating income and cash flows, it is reasonably likely that Regis may experience additional impairment in future periods. The term "reasonably likely" refers to an occurrence that is more than remote but less than probable in the judgment of the Company. Because some of the inherent assumptions and estimates used in determining the fair value of the reportable segment are outside the control of management, changes in these underlying assumptions can adversely impact fair value. Potential impairment of a portion or all of the carrying value of goodwill for the Regis salon concept reporting unit is dependent on many factors and cannot be predicted with certainty.2013,2015, the Company's estimated fair value, as determined by the sum of our reporting units' fair value, reconciled to within a reasonable range of our market capitalization, which included an assumed control premium. A summarypremium of the Company's goodwill balance by reporting unit is as follows: June 30, 2013 2012 (Dollars in thousands) $ 34,953 $ 34,992 4,652 4,652 49,286 49,476 129,610 129,621 242,384 243,538 $ 460,885 $ 462,279 No goodwill impairment charges were recorded during fiscal year 2013. As a result of the goodwill impairment analyses performed in fiscal years 2012 and 2011, the Company recorded $67.7 and $74.1 million, respectively, of impairment charges within continuing operations for the excess of the carrying value of goodwill over the implied fair value of goodwill for the Regis salon concept in fiscal year 2012 and the Promenade salon concept in fiscal year 2011.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)InvestmentInvestments In and Loans to Affiliates: further discussion within Note 5 to the Consolidated Financial Statements.2013, 20122015, 2014 and 2011,2013, the Company recorded increases (decreases) increases in expense from changes in estimates related to prior year open policy periods of ($1.1), $0.9$0.1, $(2.0) and $1.4$(1.1) million, respectively. A 10.0% change in the self-insurance reserve would affect (loss) income (loss) from continuing operations before income taxes and equity in (loss) incomeloss of affiliated companies by $4.7,approximately $4.8 and $4.6 million for fiscal years 2013, 2012year 2015, 2014 and 2011, respectively.2013. The Company updates loss projections twice each yearquarterly and adjusts its recorded liability to reflect the currentupdated projections. The updated loss projections consider new claims and developments associated with existing claims for each open policy period. As certain claims can take years to settle, the Company has multiple policy periods open at any point in time.2013,2015, the Company had $14.8$18.3 and $32.4$29.9 million recorded in current liabilities and noncurrent liabilities, respectively, related to the Company's self-insurance accruals. As of June 30, 2012,2014, the Company had $15.5$14.9 and $32.5$32.7 million recorded in current liabilities and noncurrent liabilities, respectively, related to the Company's self-insurance accruals.compared to that ofand the straight-line basis is recorded as deferred rent within accrued expenses and other noncurrent liabilities in the Consolidated Balance Sheet.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) over the lease terms, the Company uses the date it obtains the legal right to use and control the leased space to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation of its intended use of the leased space.have beenare provided. Product revenues are recognized when the guest receives and pays for the merchandise. Revenues from purchases made with gift cards are also recorded when the guest takes possession of the merchandise or services are provided. Gift cards issued by the Company are recorded as a liability (deferred revenue) until they are redeemed.income (see Note 8).income. Royalties are recognized as revenue in the month in which franchisee services are rendered. The Company recognizes revenue from initial franchise fees at the time franchise locations are opened, as this is generally when the Company has performed all initial services required under the franchise agreement.Operating—operating—direct costs incurred by the Company's salons, such as advertising, workers' compensation, insurance, utilities, and janitorial costs. General and administrative—travel costs associated with our field supervision (fiscal years 2015 and 2014) and janitorial costs.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Promotion and advertising reimbursements are discussed under Advertising within this Note 1 to the Consolidated Financial Statements.$3.8,$3.2 and $3.5$3.6 million during fiscal years 2013, 2012,2015, 2014 and 2011,2013, respectively and are included within general and administrative expenses on the Consolidated Statement of Operations. Any amounts billed to franchisees for shipping and handling are included in product revenues within the Consolidated Statement of Operations.2012was $38.7, $40.6 and 2011 was $39.2 $42.1, and $45.1 million, respectively. The Company participates in cooperative advertising programs under which vendors reimburse the Company for costs related to advertising its products. The Company records such reimbursements as a reduction of advertising expense when the expense is incurred. During fiscal years 2013, 2012, and 2011, no amounts were received in excess of the Company's related expense.2013, 2012,2015, 2014 and 2011,2013, total contributions to the franchise advertising funds totaled $19.0, $19.2,$18.0, $18.6 and $18.3,$19.0 million, respectively.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)20132015 and 2012,2014, approximately $20.8$24.1 and $15.3$26.8 million, respectively, representing the advertising funds' assets and liabilities were recorded within total assets and total liabilities in the Company's Consolidated Balance Sheet. In determining income for financial statement purposes, management must make certain estimates and judgments. These estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets which arise from temporary differences between the tax and financial statement recognition of revenue and expense. Management must assess the likelihood that deferred tax assets will be recovered. If recovery is not likely, we must increase our provision for income taxes by recording a reserve, in the form of a valuation allowance, for the deferred tax assets that will not ultimately be recoverable. In addition, the calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. Management recognizes a reserve for potential liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)RealizationA valuation allowance is established for any portion of deferred tax assets is ultimately dependent uponthat are not considered more likely than not to be realized. The Company evaluates all evidence, including recent financial performance, the existence of cumulative year losses and our forecast of future taxable income.income, to assess the need for a valuation allowance against our deferred tax assets. While the determination of whether or not to record a valuation allowance is not fully governed by a specific objective test, accounting guidance places significant weight on recent financial performance. (Loss) Per Share: (loss) divided by weighted average common shares outstanding, excluding unvested outstanding restricted stock awards and restricted stock units. The Company's dilutive earnings per share is calculated as net (loss) income (loss) divided by weighted average common shares and common share equivalents outstanding, which includes shares issuable under the Company's stock option plan and long-term incentive plan and dilutive securities. Stock-based awards with exercise prices greater than the average market value of the Company's common stock are excluded from the computation of diluted earnings per share. The Company's diluted 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 related 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. (loss), foreign currency translation adjustments, changes in fair value of derivative instruments, recognition of deferred compensation and reclassification adjustments, net of tax within shareholders' equity.2013, 2012,2015, 2014 and 2011,2013, the foreign currency (loss) gain (loss) recorded within interest income and other, net in the Consolidated Statement of Operations was $33.4, $0.4,$(1.3), $0.1 and ($1.5)$33.4 million, respectively. During fiscal year 2013, the Company recognized a $33.8 million foreign currency translation gain in connection with the sale of Provalliance and subsequent liquidation of all foreign entities with Euro denominated operations within interest income and other, net in the Consolidated Statement of Operations.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Derivative Instruments: As of June 30, 2013, the Company did not have any outstanding derivative instruments. As of June 30, 2012, the fair value of the Company's derivative instruments designated as a cash flow hedge was less than $0.1 million. During fiscal years 2012 and 2011, the Company reclassified less than $0.1 million of gain on the Company's derivative instruments designated as hedging instruments from AOCI into the respective fiscal year's earnings. During fiscal years 2012 and 2011, the Company recorded (loss) gain of ($0.1) and $0.6 million, respectively, on derivative instruments not designated as hedging instruments within interest income and other, net in the Consolidated Statement of Operations.Recent Accounting Standards Adopted by the Company:Comprehensive Income In June 2011, and as subsequently amended in December 2011, the FASB issued final guidance on the presentation of comprehensive income. Under this guidance, net income and comprehensive income may only be presented either as one continuous statement or in two separate, but consecutive statements. The Company retrospectively adopted this guidance in the first quarter of fiscal year 2013, with comprehensive income shown as a separate statement immediately following the Consolidated Statements of Operations. Since the new guidance relates only to presentation, its adoption did not impact the Company's balance sheet, results of operations or cash flows.Reclassifications Out of Accumulated Other Comprehensive Income In February 2013, the FASB issued guidance on the reporting of reclassifications out of accumulated other comprehensive income. The updated accounting guidance requires an entity to provide information about the amounts reclassified out of accumulated comprehensive income by component. The Company adopted this guidance in the third quarter of fiscal year 2013 by disclosing the components reclassified out of accumulated comprehensive income on the Consolidated Statement of Comprehensive (Loss) Income.Testing Indefinite-Lived Intangible AssetsImpairment In July 2012, the FASB updated the accounting guidance related to annual and interim indefinite-lived intangible asset impairment testing.revenue recognition. The updated accounting guidance allows entitiesprovides a comprehensive new revenue recognition model that requires a Company to first assess qualitative factors before performingrecognize revenue to depict the exchange for goods or services to a quantitative assessmentcustomer at an amount that reflects the consideration it expects to receive for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of the fair value of indefinite-lived intangible assets. If it is determined on the basis of qualitative factors that the fair value of indefinite-lived intangible assets is more likely than not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required.revenue and cash flows arising from customer contracts. The updated guidance iswas effective for the Company beginning in the first quarter of fiscal year 2014.2018. In July 2015, the FASB deferred the effective date one year and is now effective for the Company in the first quarter of fiscal year 2019. Early adoption as of the original effective date will be permitted. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. The Company does not expect the adoption of this update to have a material impact on the Company's consolidated financial statements.Accounting for Cumulative Translation Adjustment upon DerecognitionForeign EntitiesMarch 2013,April 2014, the FASB updated the accounting guidance related to the releasedefinition of cumulative translation adjustments (CTA) recorded in AOCI associated with a foreign entity.discontinued operation and related disclosures. The updated accounting guidance clarified whendefines a discontinued operation as a disposal of a component or a group of components that is to release cumulative translation adjustments into net income.be disposed of or is classified as held for sale and represents a strategic shift that has or will have a major effect on an entity's operations and financial results. The updated guidance is effective for the Company beginning in the first quarter of fiscal year 20152016 with early adoption permitted. The Company does not expect the adoption of this update to have a material impact on the Company'sCompany’s consolidated financial statements.50.0 percent50.0% interest in Hair Club for Men, Ltd., which was previously accounted for under the equity method. TheAt the closing of the sale, the Company received $162.8 million, which represented the purchase price of $163.5 million adjusted for the preliminary working capital provision. TheDuring fiscal year 2014, the Company has sincecollected $3.0 million of cash recorded aas receivable of $2.0 million as of June 30, 2013, based uponof which $2.0 million was a result of the final working capital provision, that increased theresulting in a final purchase price to approximately $165 million.of $164.8 million and $1.0 million was excess cash from the transaction completion date. The Company recorded an after-tax gain of $17.8 million upon the sale of Hair Club and incurred $5.4 million in professional and transaction fees during fiscal year 2013 associated with the sale. has been presented as discontinued operations for all periods presented in the Consolidated Statement of Operations. The assets and liabilities have been aggregated and reported as current assets held for sale, long-term assets held for sale, current liabilities related to assets held for sale and long-term liabilities related to assets held for sale in the Consolidated Balance Sheet for all periods presented. Long-term assets held for sale as of June 30, 2012, included $74.4 million of goodwill related to Hair Club. In addition, there will beThere was no significant continuing involvement by the Company in the operations of Hair Club after the disposal. The Company also reclassified professional fees of $2.5 million in fiscal year 2012 related to the sale of Hair Club, which were previously included in unallocated corporate costs, to discontinued operations.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)2. DISCONTINUED OPERATIONS (Continued) Fiscal Years 2013 2012 2011 (Dollars in thousands) $ 115,734 $ 151,552 $ 145,688 28,643 (65,114 ) 18,304 (4,242 ) 849 (6,837 ) 627 816 567 $ 25,028 $ (63,449 ) $ 12,034 Fiscal Year 2013 (Dollars in thousands) Revenues $ 115,734 Income from discontinued operations, before income taxes $ 28,643 Income tax provision on discontinued operations (4,242 ) Equity in income of affiliated companies, net of tax 627 Income from discontinued operations, net of income taxes $ 25,028 Hair Club depreciation and amortization expense for fiscal years 2012 and 2011 was $13.1 and $12.8 million, respectively. During the three months ended December 31, 2011, the Company performed an interim impairment test of goodwill related to Hair Club and recorded a $78.4 million impairment charge for the excess of the carrying value of goodwill over the implied fair value.the fiscal year 2012,2015, the Company recorded a $1.1expenses of $0.6 million in discontinued operations related to Trade Secret legal fees. During fiscal year 2014, the Company recorded tax benefitbenefits of $1.4 million in discontinued operations related to the release of tax reserves associated with the disposition of the Trade Secret. The Company has a note receivable agreement with the purchaser of Trade Secret. The Company recorded a valuation reserve of $31.2 million during fiscal year 2011. As of June 30, 2013 the carrying value of the note receivable continues to be fully reserved. June 30, June 30, 2013 2012 2015 2014(1) (Dollars in thousands) (Dollars in thousands) $ 29,629 $ 22,360 $ 33,184 $ 36,951 27,500 4,500 27,811 27,500 769 29,043 $ 57,898 $ 55,903 Other 774 768 $ 61,769 $ 65,219 $ 3,864 $ 3,864 $ 3,864 $ 3,864 47,842 48,017 48,563 48,108 789,737 756,051 748,737 797,757 118,093 106,264 97,740 122,826 81,489 84,757 73,492 77,223 972,396 1,049,778 1,041,025 998,953 (665,924 ) (635,471 ) (689,128 ) (718,959 ) (61,641 ) (57,683 ) (65,111 ) (64,281 ) $ 313,460 $ 305,799 $ 43,098 $ 160,987 221 — $ 43,319 $ 160,987 $ 2,107 $ 1,584 60,679 57,904 $ 62,786 $ 59,488 $ 218,157 $ 266,538 $ 74,940 $ 75,615 $ 79,778 $ 69,319 19,035 19,410 21,145 19,493 4,881 26,055 2,147 2,503 4,895 5,406 31,328 28,037 52,439 55,732 $ 137,226 $ 157,026 $ 153,362 $ 144,544 $ 36,399 $ 13,497 $ 91,197 $ 83,201 39,389 49,537 39,417 41,121 Insurance 29,910 33,530 29,378 39,064 20,710 25,965 32,435 32,459 17,410 9,415 16,671 11,602 $ 197,905 $ 195,419 $ 155,011 $ 143,972 (1) Prior year amounts for fiscal year 2014 have been revised. See Note 1 to the Consolidated Financial Statements. June 30, June 30, 2013 2012 2015 2014 Cost Accumulated
Amortization Net Cost Accumulated
Amortization Net Weighted Average Amortization Periods (1) Cost Net Weighted Average Amortization Periods (1) Cost Net (Dollars in thousands) (In years) (Dollars in thousands) (In years) (Dollars in thousands) $ 9,310 $ (3,226 ) $ 6,084 $ 9,494 $ (2,960 ) $ 6,534 32 $ 8,415 $ (3,551 ) $ 4,864 32 $ 9,203 $ (3,510 ) $ 5,693 11,187 (6,839 ) 4,348 11,398 (6,494 ) 4,904 19 10,093 (6,934 ) 3,159 19 11,063 (7,163 ) 3,900 14,754 (6,582 ) 8,172 14,796 (5,862 ) 8,934 20 14,601 (7,960 ) 6,641 20 14,775 (7,326 ) 7,449 201 (147 ) 54 207 (117 ) 90 4,614 (1,776 ) 2,838 4,533 (1,600 ) 2,933 20 6,115 (3,710 ) 2,405 20 5,074 (2,304 ) 2,770 22 $ 39,224 $ (22,155 ) $ 17,069 22 $ 40,115 $ (20,303 ) $ 19,812 $ 40,066 $ (18,570 ) $ 21,496 $ 40,428 $ (17,033 ) $ 23,395 All intangible assets have been assigned an estimated finite useful life, and are amortized on a straight-line basis over the number of years that approximate their expected period of benefit (ranging from one to 40 years). The weighted average amortization periods, in total and by major intangible asset class, are as follows:(1) All intangible assets have been assigned an estimated finite useful life and are amortized on a straight-line basis over the number of years that approximate their expected period of benefit (ranging from one to 40 years). June 30, 2013 2012 (In years) 32 33 19 19 20 20 6 6 20 21 22 23 amortizable intangible assets during fiscal years 2013, 2012,2015, 2014 and 20112013 was approximately $1.8, $1.9,$1.7, $1.7 and $2.1$1.8 million, respectively. As of June 30, 2013,2015, future estimated amortization expense related to amortizable intangible assets is estimated to be: (Dollars in
thousands) $ 1,714 1,703 1,640 $ 1,558 1,589 1,507 1,577 1,495 2019 1,495 2020 1,495 13,273 9,519 $ 21,496 $ 17,069 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3. OTHER FINANCIAL STATEMENT DATA (Continued) Fiscal Years 2015 2014 2013 (Dollars in thousands) Cash paid (received) for: Interest $ 12,336 $ 21,173 $ 38,990 (1) Income taxes, net (1,371 ) (16,266 ) 1,088 Fiscal Years 2013 2012 2011 (Dollars in thousands) $ 38,990 (1) $ 28,448 $ 33,493 1,088 14,754 (15,083 ) (1) Includes $10.6 million of cash paid for make-whole associated with prepayment of senior notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(1)Includes $10.6 million of cash paid for make-whole associated with prepayment of senior notes. Significant non-cash investing and financing activities include the following: The Company did not finance capital expenditures through capital leases during fiscal years 2013 and 2012. In fiscal year 2011, the Company financed capital expenditures totaling $6.0 million through capital leases. June 30, 2013 2012 Gross
Carrying
Value Accumulated
Impairment(1) Net Gross
Carrying
Value Accumulated
Impairment(1) Net (Dollars in thousands) $ 679,607 $ (218,722 ) $ 460,885 $ 681,001 $ (218,722 ) $ 462,279 (1)The table below contains additional information regarding the Company's $218.7 million accumulated impairment losses: Impairment Charge Reporting Unit (Dollars in thousands) $ 41,661 International 35,277 Regis 74,100 Promenade 67,684 Regis — N/A $ 218,722 June 30, 2015 2014 Net Gross
Carrying
Value (3) Net (Dollars in thousands) Goodwill $ 672,614 $ (253,661 ) $ 418,953 $ 678,925 $ (253,661 ) $ 425,264 (1) The table below contains additional information regarding accumulated impairment losses: Fiscal Year Impairment Charge Reporting Unit (2) (Dollars in thousands) 2009 $ (41,661 ) International 2010 (35,277 ) North American Premium 2011 (74,100 ) North American Value 2012 (67,684 ) North American Premium 2014 (34,939 ) North American Premium Total $ (253,661 ) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)4. GOODWILL (Continued)(2) See Notes 1 and 14 to the Consolidated Financial Statements. (3) The change in the gross carrying value of goodwill relates to foreign currency. Consolidated(1) (Dollars in thousands) $ 527,716 4,978 (2,731 ) (67,684 ) 462,279 (1,394 ) $ 460,885 (1)All goodwill relates to the Company's North American salons.5. INVESTMENTS IN AND LOANS TO AFFILIATES The table below presents the carrying amount of investments in and loans to affiliates: June 30, 2013 2012 (Dollars in thousands) $ 43,098 $ 59,683 — 101,304 221 — $ 43,319 $ 160,987 North American Value North American Premium Consolidated (Dollars in thousands) Goodwill, net at June 30, 2013 $ 425,932 $ 34,953 $ 460,885 Goodwill impairment — (34,939 ) (34,939 ) Goodwill acquired 130 — 130 Translation rate adjustments (798 ) (14 ) (812 ) Goodwill, net at June 30, 2014 425,264 — 425,264 Translation rate adjustments (6,311 ) — (6,311 ) Goodwill, net at June 30, 2015 $ 418,953 $ — $ 418,953 The table below presents the notes receivable from affiliates recorded within other current assets on the Consolidated Balance Sheet: June 30, 2013 2012 (Dollars in thousands) $ — $ 26,412 — 2,251 $ — $ 28,663 AND LOANS TO AFFILIATES (Continued) Greater Than 50 Percent Owned Less Than 50 Percent Owned Greater Than 50 Percent Owned (1) 2013 2012 2011 2013 2012 2011 2015 2014 2013 (Dollars in thousands) (Dollars in thousands) $ 35,900 $ 56,516 $ 34,715 $ — $ 84,700 $ 93,072 $ 46,438 $ 54,774 $ 35,900 91,847 96,639 113,249 — 316,282 313,508 44,921 57,803 91,847 25,317 61,074 29,340 — 106,995 108,708 18,782 24,797 25,317 21,560 13,947 33,658 — 78,815 98,269 34,770 33,004 21,560 $ 170,964 $ 182,326 $ 192,864 $ — $ 305,515 $ 271,747 $ 154,997 $ 166,540 $ 170,964 58,457 67,201 73,068 — 132,647 116,354 38,557 52,440 58,457 4,981 (1,335 ) 18,994 — 35,569 30,084 (4,264 ) (33,526 ) 4,981 2,359 (7,211 ) 11,023 — 24,067 21,154 (16,738 ) (26,699 ) 2,359 (1) Represents the summarized financial information of EEG. As EEG is a significant subsidiary for the fiscal year 2015 financial statements, the separate financial statements of EEG are included subsequent to the Company's financial statements. Gross profit includes depreciation and amortization expense of $4.1, $5.8, and $7.4 million for fiscal years 2015, 2014 and 2013, respectively. 20132015 and 2012,2014, the Company's ownership interest in Empire Education Group, Inc. (EEG) was 55.1 percent.54.6% and 54.5%, respectively, and the carrying amount of the investment in EEG as of June 30, 2015 was $14.8 million. EEG operates accredited cosmetology schools and is overseenmanaged by the Empire Beauty School managementexecutive team. The Company accounts for EEG as an equity investment under the voting interest model.2012,fixed and intangible asset impairments of $21.2 and $2.1 million, respectively. In addition, during fiscal years 2015 and 2013, the companyCompany recorded other than temporary impairment charges onof its investment in EEG of $17.9$4.7 and $19.4$17.9 million, respectively, to reflectaccount for the negative business impacts associated withresulting from regulatory changes including declines in enrollment, revenue and profitability in the for-profit secondary educational market. The Company did not receive a tax benefit on these impairment charges. The Company did not record an impairment charge during the fiscal year 2011. In addition, during fiscal years 2013 and 2012 the Company recorded its share, $2.1 and $8.7 million, respectively, of fixed and intangible asset impairments recorded directly by EEG.noncashnon-cash impairment charges related to its investment in EEG and such noncashnon-cash impairments could be material to the Company's consolidated balance sheet and results of operations. In addition, EEG may be required to record noncash impairment charges related to long-lived assets anddoes not have any goodwill and our share of such noncash impairment charges could be material to the Company's consolidated balance sheet and results of operations. The Company's share of EEG's goodwill balancesrecorded as of June 30, 2013 is approximately $16 million. Based on2015. The exposure to loss related to the Company's work associatedinvolvement with the investment impairment recorded during the fiscal year 2013, the Company's estimate of EEG's fair value exceeds carrying value by approximately 5 percent. Any meaningful underperformance against plan or reduced outlook by EEG changes tois the carrying value of EEG or further erosion in valuations of the for-profit secondary educational market could lead to a goodwill impairment charge recorded by EEG for which the Company would record 55.1 percent of the impairment given the Company's present ownership.2013, 2012,2015, 2014 and 2011,2013, the Company recorded $1.3, $(4.0)$(2.0), $(14.5) and $5.5$1.3 million, respectively, of equity (loss) earnings (loss) related to its investment in EEG.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)5. INVESTMENTS IN AND LOANS TO AFFILIATES (Continued)bothfor which the Company received payments of which matured$26.4 million during fiscal year 2013. At June 30, 2012, there was $15.0 and $11.4 million outstanding on the revolving credit facility and loan outstanding, respectively. The Company received $15.0 million in payments on the revolving credit facility during the fiscal year 2013. The Company received $11.4 and $10.0 million in principal payments on the loan during the fiscal years 2013 and 2012, respectively. During fiscal years 2013, 2012, and 2011, the Company recorded less than $0.1, $0.5, and $0.7 million, respectively,46.7 percent46.7% equity interest in Provalliance for $103.4 million. The Company previously had a right (Provalliance Equity Put), which if exercised, would require the Company to purchase an additional ownership interest in Provalliance between specified dates in 2010 to 2018. The Provalliance Equity Put was classified as a Level 3 fair value measurement as the fair value was determined based on unobservable inputs that could not be corroborated by observable market data. During fiscal year 2013, the Company recorded a $0.6 million decrease in the fair value of the Provalliance Equity Put that automatically terminated upon the sale. In connection with the sale of Provalliance, the Company recorded a $37.4 million other than temporary impairment charge during fiscal year 2012. In addition, the fair value of the Provalliance Equity Put decreased by $20.2 million to $0.6 million as of June 30, 2012. The other than temporary impairment charge and reduction in the fair value of the Provalliance Equity Put resulted in a net impairment charge of $17.2 million that is recorded within the equity in (loss) income of affiliated companies during fiscal year 2012. Regis did not receive a tax benefit on the net impairment charge. During fiscal years 2012 and 2011, the Company recorded $9.8, and $7.8 million, respectively, of equity earnings related to its investment in Provalliance. During fiscal years 2012 and 2011, the Company received $2.8 and $4.8 million, of cash dividends.the 27.1 percentits 27.1% ownership interest in MY Style as a cost method investment. The Company previously had an outstanding note with MY Style, which matured during the fiscal year 2013. The Company recorded less than $0.1 million in interest income related to the note during fiscal years 2013, 2012,year 2013.2011, respectively.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6. FAIR VALUE MEASUREMENTS (Continued) The following methodsAssets and assumptions were used to estimate the fair value of each class of financial instrument: Equity put option—Provalliance. The $0.6 million Provalliance Equity Put was classified as Level 3 as the fair value was determined basedLiabilities Measured at Fair Value on unobservable inputs that could not be corroborated by observable market data. On September 27, 2012 the Company sold its interest in Provalliance and the Provalliance Equity Put automatically terminated upon closing of the sale. Financial Instruments. In addition to the financial instruments listed above, thea Recurring Basis also include cash, cash equivalents, receivables, accounts payable and debt. The fair valuevalues of cash and cash equivalents, receivables and accounts payable and debt approximated the carrying values as of June 30, 2013.Company'sCompany’s equity method investments, tangible fixed and other assets and goodwill, at fair value on a nonrecurring basis when they are deemed to be other than temporarily impaired. The fair values of ourthe 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. The following tables presentfair valuesCompany recorded $14.6, $18.3 and $8.2 million of our assets measured at fairlong-lived asset impairment charges, respectively. See Note 1 to the Consolidated Financial Statements.a nonrecurring basis: Fiscal Year
2013 Level 1 Level 2 Level 3 Total Losses (Dollars in thousands) $ 41,997 $ — $ — $ 41,997 $ (17,899 ) $ 41,997 $ — $ — $ 41,997 $ (17,899 ) (1)The Company'sits investment in EEG with a carrying value of $59.9$4.7 and $17.9 million, was written down to its implied fair value of $42.0 million, resulting in an impairment charge of $17.9 million.respectively. See Note 5 to the Consolidated Financial Statements for further information. Fiscal Year
2012 Level 1 Level 2 Level 3 Total Losses (Dollars in thousands) $ 35,083 $ — $ — $ 35,083 $ (67,684 ) 59,683 — — 59,683 (19,426 ) 101,304 — — 101,304 (37,383 ) $ 196,070 $ — $ — $ 196,070 $ (124,493 )
Statements.(1)Goodwill of the Regis salon concept with a carrying value of $102.8 million was written down to its implied fair value, resulting in an impairment charge of $67.7 million. See Note 4 to the Consolidated Financial Statements for further information.
values using Level 3 inputs.(2)The Company's investment in EEG with a carrying value of $79.1 million was written down to its impliedThese impairment charges are based on fair value of $59.7 million, resulting in an impairment charge of $19.4 million. See Note 5 to the Consolidated Financial Statements for further information.(3)The Company's investment in Provalliance was written down to its implied fair value, resulting in an impairment charge of $37.4 million. See Note 5 to the Consolidated Financial Statements for further information. Interest rate % Fiscal Years June 30, Maturity Dates 2013 2012 2013 2012 (fiscal year) (Dollars in thousands) 2013 6.69 - 8.50% 6.69 - 8.50% $ — $ 111,429 2015 5.00 5.00 166,454 161,134 2018 — — — — 2015 - 2016 4.90 - 8.75 4.90 - 8.75 8,316 14,780 2013 5.75 - 8.00 5.75 - 8.00 — 331 174,770 287,674 (173,515 ) (28,937 ) $ 1,255 $ 258,737 (1)On or after April 15, 2014, holders may convert each of their senior convertible notes at their option at any time prior to the July 10, 2014 maturity date. As a result, the Company has included the convertible senior notes within long-term debt, current portion on the Consolidated Balance Sheet. Interest rate % Fiscal Years June 30, Maturity Dates 2015 2014 2015 2014 (fiscal year) (Dollars in thousands) Convertible senior notes 2015 5.00% 5.00% $ — $ 172,246 Senior term notes 2018 5.75 5.75 120,000 120,000 Revolving credit facility 2018 — — — — Equipment and leasehold notes payable 2015 - 2016 4.90 - 8.75 4.90 - 8.75 2 1,257 120,002 293,503 Less current portion (2 ) (173,501 ) Long-term portion $ 120,000 $ 120,002 2013.including associated capital lease obligations of $8.3 million at June 30, 2013,2015 are as follows: (Dollars in thousands) (Dollars in thousands) $ 173,515 1,253 2 $ 2 — — — 120,000 2019 — 2020 — — — $ 120,002 $ 174,770 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7. FINANCING ARRANGEMENTS (Continued)Senior Term NotesPrivate Shelf Agreement During fiscal year 2013, the Company prepaid $89.3 million of unsecured, fixed rate, senior term notes outstanding under a private shelf agreement. As a result of the prepayment, the Company incurred a make-whole payment of $10.6 million that was recorded in interest expense within the Consolidated Statement of Operations.5.0 percent5.0% convertible senior notes duewhich were settled in July 2014. The notes arewere unsecured, senior obligations of the Company and interest iswas payable semi-annually in arrears on January 15 and July 15 of each year at a rateyear.5.0 percent per year. As of June 30, 2013,issuance, the notes are convertible at a conversion rate of 65.4357 shares of the Company's common stock per $1,000 principal amount of notes, representing a conversion price of approximately $15.28 per share of the Company's common stock. Holders may convert their notes at their option prior to April 15, 2014 if the Company's stock price meets certain price triggers or upon the occurrence of specified corporate events as defined in the convertible senior note agreement. On or after April 15, 2014, holders may convert each of their notes at their option at any time prior to the maturity date of the notes. The Company hashad the choice of net-cash settlement, settlement in its own shares or a combination thereof and concluded the conversion option iswas indexed to its own stock. As a result, the Company allocated $24.7 million of the $172.5 million principal amount of the convertible senior notes to equity, which resultedresulting in a $24.7 million debt discount. The $24.7 million debt discount is beingwas amortized as additional non-cash interest expense over the period the convertible senior notes are expected to be outstanding, which is five years, as additional non-cash interest expense.were outstanding. At June 30, 2014, the remaining unamortized discount was $0.3 million. The combined debt discount amortization and the contractual interest coupon resulted in an effective interest rate on the convertible debt of 8.9 percent. The following table provides equity and debt information for the convertible senior notes: June 30, 2013 2012 (Dollars in thousands) $ 172,500 $ 172,500 (6,046 ) (11,366 ) $ 166,454 $ 161,134 Fiscal Years Fiscal Years 2013 2012 2015 2014 (Dollars in thousands) (Dollars in thousands) $ 8,625 $ 8,625 $ 358 $ 8,625 5,320 4,886 254 5,792 $ 13,945 $ 13,511 $ 612 $ 14,417
Senior Term NotesNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7. FINANCING ARRANGEMENTS (Continued)Revolving Credit Facility On June 11,amended itsissued $120.0 million aggregate principal amount of 5.75% senior unsecured notes due December 2017 (Senior Term Notes). 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. The Senior Term Notes rank equally with the Company's existing senior unsecured debt. The Senior Term Notes are unsecured and not guaranteed by any of the Company's subsidiaries or any third party.agreement, which nowthat expires in June 2018. The revolving credit facility has rates tied to a LIBOR credit spread and a quarterly facility fee on the average daily amount of the facility (whether used or unused). Both the LIBOR credit spread and the facility fee are based on the Company's debt to EBITDA ratio at the end of each fiscal quarter. In addition, the Company may request an increase in revolving credit commitments under the facility of up to $200.0 million under certain circumstances. Events of default under the Credit Agreementcredit agreement include change of control of the Company and the Company's default with respect to other debt exceeding $10.0 million. As of June 30, 20132015 and 2012,2014, the Company had no outstanding borrowings under this revolving credit facility. Additionally, the Company had outstanding standby letters of credit under the revolving credit facility of $2.2$2.1 and $26.1$2.2 million at June 30, 20132015 and 2012,2014, respectively, primarily related to its self-insurance program. Unused available credit under the facility at June 30, 20132015 and 20122014 was $397.8$397.9 and $373.9$397.8 million, respectively. The decrease in the outstanding standby letters of credit was due to the Company using $24.5 million of restricted cash to collateralize its self-insurance program during the fiscal year 2013, enabling the Company to reduce fees associated with the standby letters of credit.In September 2011, the Company entered into an agreement to refinance existing capital leases to a three year term with a contract rate of 4.9 percent. As of June 30, 20132015 and 2014, the capital lease balance was $8.3 million$0.0 and will be amortized at the historical rate of 9.2 percent. There was no gain or loss recorded on the refinance. The Company entered into the refinancing to reduce cash interest payments.Other Notes Payable The Company had $0.3 million in unsecured outstanding notes at June 30, 2012, related to debt assumed in acquisitions.CONTINGENCIES:an additional five to ten year termterms at the option of the Company. For most leases, the Company is required to pay real estate taxes and other occupancy expenses. Rent expense for the Company's international department store salons is based primarily on a percentage of sales. During fiscal year 2005, the Company entered into a lease agreement for a 102,448 square foot building, located in Edina, Minnesota. The original lease term ends in May 2016 and the aggregate amount of lease payments to be made over the remaining lease term are approximately $3.4 million. InNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)8. COMMITMENTS AND CONTINGENCIES: (Continued)fiscal year 2013, the Company began consolidating its corporate headquarters and expects to exit this building during fiscal year 2014. The Company also has guarantees associated with approximately 20 operating leases associated with the Company's former Trade Secret concept. As the Company has not experienced and does not expect any material loss to result from these arrangements, 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.$29.1, $28.3,$30.9, $29.5 and $28.4$29.1 million in fiscal years 2013, 20122015, 2014 and 2011,2013, respectively. Rent expense on premises subleased was $28.7, $27.9,$30.5, $29.1 and $27.9$28.7 million in fiscal years 2013, 20122015, 2014 and 2011,2013, respectively. Rent expense and related rental income on sublease arrangements with franchisees is netted within the rent expense line item on the Consolidated Statement of Operations. In most cases, the amount of rental income related to sublease arrangements with franchisees approximates the amount of rent expense from the primary lease, thereby having no net impact on rent expense or net income (loss). income. However, in limited cases, the Company charges a ten percent10.0% mark-up in its sublease arrangements. The net rental income resulting from such arrangements totaled $0.4 $0.4, and $0.5 million for each fiscal year 2013, 20122015, 2014 and 2011, respectively,2013 and was classified in the royalties and fees caption of the Consolidated Statement of Operations. Fiscal Years Fiscal Years 2013 2012 2011 2015 2014(1) 2013(1) (Dollars in thousands) (Dollars in thousands) $ 246,787 $ 250,487 $ 251,417 $ 236,137 $ 246,844 $ 247,258 7,566 8,938 9,225 8,238 7,164 7,566 70,363 72,344 72,417 64,750 68,254 70,363 $ 309,125 $ 322,262 $ 325,187 $ 324,716 $ 331,769 $ 333,059 (1) Fiscal years 2014 and 2013 have been revised. See Note 1 to the Consolidated Financial Statements. 2013,2015, future minimum lease payments (excluding percentage rents based on sales) due under existing noncancelable operating leases with remaining terms of greater than one year are as follows: Corporate
leases Franchisee
leases Guaranteed
leases (Dollars in thousands) $ 248,458 $ 47,958 $ 912 197,170 39,751 729 Fiscal Year (Dollars in thousands) 143,330 30,798 554 $ 235,404 $ 58,789 94,772 20,989 422 184,069 49,575 53,569 11,304 221 131,968 39,132 2019 88,495 28,747 2020 50,403 16,132 56,431 9,436 125 39,159 15,065 $ 793,730 $ 160,236 $ 2,963 $ 729,498 $ 207,440
Contingencies:NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)8. COMMITMENTS AND CONTINGENCIES: (Continued)Contingencies:iswas a nominal defendant, and nine current and former directors and officers of the Company arewere named defendants, in a shareholder derivative action in Minnesota state court. The derivative shareholder action allegesalleged 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. We do not know whenIn April 2014, the Special Litigation Committee will complete its work, or what it will decide. Litigationissued a report and concluded the claims and allegations should not be pursued, and in September 2014 the case was dismissed by court order. In a collateral proceeding, the plaintiff filed a motion for an award of fees in November 2014. The Company has opposed the motion and this collateral proceeding 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.yearyears 2015, 2014 and 2013, the Company incurred $0.7, $3.3 and $1.2 million of expense in conjunction with the derivative shareholder action.2012,2015, the Company was awarded $1.1a class-action lawsuit. Duringthe derivative shareholder action.2011,2010 and 2011. In addition, the Company settledis currently under payroll tax examination by the IRS for calendar years 2012 and 2013. Final resolution of these issues is not expected to have a legal claim withmaterial impact on the former owner of Hair Club for $1.7 million. (loss) before income taxes are as follows: Fiscal Years 2013 2012 2011 Fiscal Years (Dollars in thousands) 2015 2014 2013 (Dollars in thousands) (Loss) income before income taxes: $ (25,177 ) $ (35,430 ) $ (49,669 ) $ (6,630 ) $ (52,815 ) $ (23,526 ) 35,275 10,116 5,736 1,652 (2,481 ) 35,307 $ (4,978 ) $ (55,296 ) $ 11,781 $ 10,098 $ (25,314 ) $ (43,933 ) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. INCOME TAXES (Continued) provision for income taxes consists of: Fiscal Years Fiscal Years 2013 2012 2011 2015 2014 2013 (Dollars in thousands) (Dollars in thousands) $ (21,053 ) $ (1,095 ) $ (4,409 ) $ 1,670 $ 1,430 $ (21,264 ) 707 2,261 1,106 1,781 890 710 10,405 (5,519 ) (16,283 ) 9,439 69,854 10,996 (83 ) (77 ) 3,253 1,715 781 (95 ) $ 14,605 $ 72,955 $ (9,653 ) $ (10,024 ) $ (4,430 ) $ (16,333 ) Fiscal Years Fiscal Years 2013 2012 2011 2015 2014 2013 35.0 % (35.0 )% (35.0 )% (35.0 )% (35.0 )% 35.0 % 3.6 3.5 (1.7 ) 3.7 (0.3 ) 3.6 Valuation allowance (1) 362.8 161.9 — — 47.7 6.5 — 11.3 — 4.1 (0.5 ) 4.7 5.3 1.4 3.5 (107.0 ) — — — — (91.8 ) (42.8 ) (19.4 ) (8.8 ) (53.3 ) (5.2 ) (36.7 ) Expiration of capital loss carryforward 9.5 — — 7.8 (13.8 ) (2.9 ) 0.4 (2.2 ) 4.5 293.4 % 131.9 % (81.9 )% (99.3 )% (17.5 )% (37.2 )% 7.8 percent0.4% of Other, net in fiscal year 2015 includes the rate impact of meals and entertainment expense disallowance, officer’s life insurance and miscellaneous items of 6.0%, (9.6)% and 4.0%, respectively.4.9, (3.4)4.2%, 5.5,(2.9)%, 2.3% and 0.8 percent,0.9%, respectively. The (13.8) percent of Other, net in fiscal year 2012 includes the rate impact of meals and entertainment expense disallowance, unrecognized tax benefits, and miscellaneous items of 2.1, (9.1), and (6.8) percent, respectively. The (2.9) percent of Other, net in fiscal year 2011 includes the rate impact of unrecognized tax benefits and miscellaneous items of (1.8) and (1.1) percent, respectively.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. INCOME TAXES (Continued) June 30, June 30, 2013 2012 2015 2014 (Dollars in thousands) (Dollars in thousands) $ 12,953 $ 14,725 $ 14,561 $ 14,507 34,073 43,717 27,646 24,857 2,484 759 17,946 16,977 4,366 — 25,296 20,134 720 5,038 7,920 2,118 2,684 2,926 1,888 2,113 7,004 5,144 Accrued advertising 4,853 2,707 6,106 6,439 6,779 6,801 11,745 6,362 6,329 6,323 Subtotal $ 106,094 $ 95,232 Valuation allowance (103,240 ) (86,119 ) $ 89,259 $ 86,415 $ 2,854 $ 9,113 $ (20,684 ) $ (17,831 ) (72,635 ) (61,139 ) (2,303 ) (4,336 ) Fixed assets $ (2,372 ) $ (8,086 ) Goodwill and intangibles (87,383 ) (77,650 ) (4,903 ) (2,102 ) (6,309 ) (5,690 ) $ (100,525 ) $ (85,408 ) $ (96,064 ) $ (91,426 ) $ (11,266 ) $ 1,007 Net deferred tax liability $ (93,210 ) $ (82,313 ) 2013,2015, the Company has tax effected federal, state, Canada and U.K. net operating loss carryforwards of approximately $1.8$12.4, $4.7, $0.5 and $0.3 million, (net of $0.1 million of valuation allowance) and $0.7 million, respectively. The federal loss carryforward will expire from fiscal years 2034 to 2035. The state loss carryforwards will expire from fiscal years 2016 to 2033.2035. The Canada loss carryforward will expire in fiscal year 2035. The U.K. loss carryforward has no expiration.$4.4$25.3 million consists of $23.3 million that will expire in 2033.2013,2015, undistributed earnings of international subsidiaries of approximately $25.2$21.8 million were considered to have been reinvested indefinitely and, accordingly, the Company has not provided for U.S. income taxes on such earnings. It is not practicable for the Company to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. INCOME TAXES (Continued), and Luxembourg as well as states, cities, and provinces within these jurisdictions. In the U.S., fiscal years 2010 and beyond remain open for federal tax audit. The Company'sCompany’s U.S. federal income tax returns for fiscal year 2010 through 2014 are currently under audit by the Internal Revenue Service (IRS). All earlier tax years are closed to examination. The Company has outstanding audit issues with the IRS for fiscal years 2010 and 2011 are currently under examination byfor which the Internal Revenue Service.IRS has proposed additional adjustments. The Company believes its income tax positions and deductions will be sustained and intends to vigorously defend its position on these issues and, accordingly, has appealed to the IRS Appeals Division. Final resolution of these issues is not2009. However, the2011. The Company is currently under audit in a number of states in which the statute of limitations has been extended back for fiscal years 2007 and forward. Internationally, including Canada, the statute of limitations for tax audits varies by jurisdiction, but generally ranges from three to five years. Fiscal Years Fiscal Years 2013 2012 2011 2015 2014 2013 (Dollars in thousands) (Dollars in thousands) $ 4,381 $ 13,493 $ 16,856 $ 1,468 $ 10,015 $ 4,381 44 482 796 (Reductions)/additions based on tax positions related to the current year 37 (2,114 ) 44 7,132 (7 ) (759 ) 352 (505 ) 7,132 (1,403 ) (1,571 ) (2,718 ) (361 ) (994 ) (1,403 ) (139 ) (8,016 ) (682 ) — (4,934 ) (139 ) $ 10,015 $ 4,381 $ 13,493 $ 1,496 $ 1,468 $ 10,015 $2.8$1.0 million would be recorded in the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the fiscal years 2013, 2012,2015, 2014 and 20112013, we recorded interest and penalties of approximately $0.7, $(1.2),$0.1, $0.1 and $(0.6)$0.7 million, respectively, for the fiscal yearsas additions to the accrual net of the respective reversal of previously accrued interest and penalties. As of June 30, 2013,2015, the Company had accrued interest and penalties related to unrecognized tax benefits of $2.2$1.2 million. This amount is not included in the gross unrecognized tax benefits noted above.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10. BENEFIT PLANS (Continued)EmployerCompany on the last day of the RRSP year and are employed at the home office orSalon Support, distribution centers, or as area or regional supervisors,field leaders, artistic directors or educators,consultants, and that are not highly compensated employees as defined by the Code. Participants' interest in the noncontributory defined contribution component become 20.0 percent20.0% vested after completing two years of service with vesting increasing 20.0 percent20.0% for each additional year of service, and with participants becoming fully vested after six full years of service.field supervisors, warehouse and corporate officeall other employees who are highly compensated.compensated as defined by the Code. The discretionary employer contribution portion of the Executive Plan is a profit sharing component in which a participants interest becomes 20.0 percent20.0% vested after completing two years of service with vesting increasing 20.0 percent20.0% for each additional year of service, and with participants becoming fully vested after six full years of service. Certain participants within the Executive Plan also receive a matching contribution from the Company.15.0 percent15.0% of the purchase price of the stock to be purchased on the open market and pays all expenses of the ESPP and its administration, not to exceed an aggregate contribution of $11.8 million. As of June 30, 2013,2015, the Company's cumulative contributions to the ESPP totaled $9.3$10.0 million.Franchise Stock Purchase Plan: The Company has a franchise stock purchase plan (FSPP) available to franchisee employees. Under the terms of the plan, eligible franchisees and their employees may purchase the Company's common stock. The Company contributes an amount equal to five percent of the purchase price of the stock to be purchased on the open market and pays all expenses of the plan and its administration, not to exceed an aggregate contribution of $0.7 million. As of June 30, 2013, the Company's cumulative contributions to the FSPP totaled $0.2 million.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10. BENEFIT PLANS (Continued)$1.6, $5.9$0.4, $0.9 and $2.5$1.6 million for fiscal years 2015, 2014 and 2013, 2012, and 2011, respectively.totaled $13.0 and $21.3 million at June 30, 2013 and 2012, respectively, in the Consolidated Balance Sheet. As of June 30, 2013 and 2012, $9.5 and $11.8 million is included in other noncurrent liabilities, respectively. As of June 30, 2013 and 2012, $3.5 and $9.5 million of the balance is included in accrued liabilities, respectively. Sheet: June 30, 2015 2014 (Dollars in thousands) Current portion (included in Accrued liabilities) $ 2,845 $ 2,913 Long-term portion (included in Other noncurrent liabilities) 5,853 7,677 $ 8,698 $ 10,590 (loss), was $0.1$0.7 and $(0.5)$0.3 million at June 30, 2015 and 2014, respectively.2012,the Company began paying survivor benefits to his spouse. At this time, the Company reduced the accrual for future obligations to account for the reduction in benefits to the survivor. In connection with the passing of the former Vice Chairman, the Company received $5.8 million in life insurance proceeds. The Company recorded a gain of $1.0 million recorded in general and administrative in the Consolidated Statement of Operations associated with the proceeds. Estimated associated costs (benefits) included in general and administrative expenses on the Consolidated Statement of Operations totaled $0.8, $(2.1) and $0.7 million for fiscal years 2015, 2014 and 2013, respectively. Associated compensation expense included in general and administrative expenses on the Consolidated Statement(loss) incomeloss of affiliated companies related to the aforementioned plans, excluding amounts paid for expenses and administration of the plans included the following: Fiscal Years 2013 2012 2011 Fiscal Years (Dollars in thousands) 2015 2014 2013 $ — $ — $ 1,907 (Dollars in thousands) 311 394 933 $ 224 $ 203 $ 311 441 449 494 325 347 441 7 9 8 2,370 10,452 4,977 1,195 1,641 2,370 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table sets forth a reconciliation of the (loss) from continuing operations available to common shareholders and thenet (loss) income (loss) from continuing operations for the diluted earnings per share under the if-converted method: Fiscal Years 2013 2012 2011 (Dollars in thousands) $ 4,166 $ (51,743 ) $ (20,939 ) — — — $ 4,166 $ (51,743 ) $ (20,939 ) (1) (loss) from continuing operations for diluted earnings per share as the convertible debt was not dilutive. Fiscal Years 2015 2014 2013 (Shares in thousands) Weighted average shares for basic earnings per share 54,992 56,482 56,704 Effect of dilutive securities: Dilutive effect of stock-based compensation(1) — — 142 Weighted average shares for diluted earnings per share 54,992 56,482 56,846 Fiscal Years 2013 2012 2011 (Shares in thousands) 56,704 57,137 56,704 — — — 142 — — 56,846 57,137 56,704 (1) For fiscal year 2015 and 2014, 251,763 and 119,750 common stock equivalents of potentially dilutive common stock were not included in the diluted earnings per share calculation due to the net loss from continuing operations. (1)For fiscal year 2012 and 2011, 182,270 and 333,595 common stock equivalents of potentially dilutive common stock were not included in the diluted earnings per share calculation because to do so would have been anti-dilutive.1,593,228, 1,987,7841,948,507, 1,799,352 and 2,553,6421,593,228 of equity-based compensation awards during the fiscal years 2013, 2012,2015, 2014 and 2011,2013, respectively. These amounts were excluded because they were not dilutive under the treasury stock method. The computation of weighted average shares outstanding, assuming dilution also excluded 11,260,261, 11,208,552,465,055, 11,307,605 and 11,163,05611,260,261 of shares from convertible debt for fiscal years 2013, 2012,2015, 2014 and 2011,2013, respectively. These amounts were excluded as they were not dilutive., and stock-settled performance share units (PSUs), as well as cash-based performance grants, to employees and non-employee directors of the Company. AUnder the 2004 Plan, a maximum of 6,750,000 shares were approved for issuance. In October 2013, the 2004 Plan was amended to limit the aggregate RSAs, RSUs and PSUs that are available for issuanceTablegrant to 3,465,701. As of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. STOCK-BASED COMPENSATION (Continued) granted prior to July 1, 2012 are subject to forfeiture in the event of termination of employment. Foremployment, unless accelerated. SAR and RSU awards granted subsequent to July 1, 2012 SAR and RSU awards generally include various acceleration terms for participants aged sixty-two years or older and employeesor who are aged fifty-five or older and have fifteen years of continuous service.Plan)Plan"), although the plan terminated in 2010 and no additional awards have since been or will be made under the 2000 Plan. The 2000 Plan allowed the Company to grant both incentive and nonqualified stock options and replaced the Company's 1991 Stock Option Plan.2013, 20122015, 2014 and 20112013 were as follows: 2013 2012 2011 2015 2014 2013 6.63 N/A 6.26 $ 6.16 $ 6.00 $ 6.63 17.40 16.94 16.60 15.95 15.50 17.40 18.33 N/A N/A 15.15 15.73 18.33 isprior to June 30, 2013 was estimated on the date of grant using a lattice option valuation model. Effective July 1, 2013, the Company changed from the lattice option valuation model to the Black-Scholes-Merton (BSM) option valuation model for valuing SARs. The Company elected to make the change in valuation methodology because the Company's historical grants of SARs lacked complex vesting conditions or maximum payout limitations on the value of the awards. The Company does not expect a material difference in future valuations as a result of the change in models. The fair value of market-based RSUs isgranted during fiscal year 2013 was estimated on the date of grant using a Monte Carlo simulation model. The significant assumptions used in determining the estimated fair value of stock options, SARs and market-based RSUs granted during fiscal years 2013, 2012,2015, 2014 and 20112013 were as follows: 2013 2012 2011 2015 2014 2013 0.66 - 0.87 % N/A 2.29 % 1.53 - 1.84% 1.67 - 1.96% 0.66 - 0.87% 6.00 N/A 5.50 6.00 6.00 6.00 44.00 - 47.00 % N/A 44.00 % 38.00 - 44.00% 44.00% 44.00 - 47.00% 1.33 - 1.46 % N/A 1.45 % 0% 1.52 - 1.61% 1.33 - 1.46% Effective July 1, 2013, the Company changed from the lattice option valuation model to the Black-Scholes-Merton (BSM) option valuation model for valuing SARs. The Company elected to make the change in valuation methodology because the Company's historical grants of SARs lacked any complex vesting conditions or maximum payout limitations on the value of the awards. The Company does not expect a material difference in future valuations as a result of the change in models. Shares issued under the 2004 Plan and 2000 Plan are issued from new shares. As of June 30, 2013 there were 4,620,934 shares available for grant under the 2004 Plan.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. STOCK-BASED COMPENSATION (Continued)recorded within General and Administrative expense in the Consolidated Statement of Operations, was as follows: 2013 2012 2011 2015 2014 2013 $ 1,986 $ 1,447 $ 2,283 $ 2,652 $ 2,145 $ 1,986 3,895 6,150 7,313 5,995 4,255 3,895 5,881 7,597 9,596 (2,235 ) (2,898 ) (3,670 ) Total stock-based compensation expense within General and Administrative expense 8,647 6,400 5,881 Less: Income tax benefit(1) — — (2,235 ) $ 3,646 $ 4,699 $ 5,926 $ 8,647 $ 6,400 $ 3,646 (1) During fiscal year 2014, the Company recorded a valuation allowance against the majority of its deferred tax assets. Any subsequent stock-based compensation expense was not tax effected. yearyears period on each of the annual grant date anniversaries and expire ten years from the grant date. SARs granted subsequent to fiscal year 2012 vest ratably over a three year period. Shares
(in thousands) Weighted-
Average
Remaining
Contractual Life SARs Stock
Options Weighted
Average
Exercise Price Aggregate
Intrinsic Value
(in thousands) 734 652 $ 29.08 596 — 17.97 (456 ) (220 ) 26.84 (14 ) (3 ) 17.69 860 429 $ 25.26 5.6 — 325 413 $ 30.68 3.2 — 494 15 $ 18.01 8.8 — SARs Outstanding balance at June 30, 2014 1,140 252 $ 20.80 Granted 814 — 15.99 Forfeited/Expired (189 ) (73 ) 24.26 Exercised (10 ) — 15.66 Outstanding balance at June 30, 2015 1,755 179 $ 19.16 6.9 287 Exercisable at June 30, 2015 609 179 $ 21.62 5.5 19 Unvested awards, net of estimated forfeitures 1,069 — $ 17.59 7.9 245 intrinsic value, cash proceeds and income tax benefit associated with the exercise of SARs and stock options during fiscal years 2013, 20122015, 2014 and 20112013 were immaterial. As of June 30, 2013,2015, there was $2.3$4.2 million of unrecognized expense related to SARs and stock options that is to be recognized over a weighted-average period of 2.12.9 years.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. STOCK-BASED COMPENSATION (Continued) Shares/Units
(in thousands) Weighted
Average
Grant Date
Fair Value Aggregate Intrinsic
Value
(in thousands) RSAs RSUs RSAs RSUs 403 257 $ 25.44 Outstanding balance at June 30, 2014 186 512 $ 16.34 118 232 17.40 — 478 15.95 (84 ) (23 ) 18.24 (19 ) (72 ) 15.42 (122 ) (216 ) 32.77 (34 ) (109 ) 16.32 315 250 $ 17.46 $ 9,276 — 70 $ 17.70 $ 1,142 Outstanding balance at June 30, 2015 133 809 $ 15.86 $ 14,830 Vested at June 30, 2015 — 129 $ 16.10 $ 2,029 300 160 $ 17.43 $ 7,554 132 639 $ 16.31 $ 12,149 2013,2015, there was $6.5$7.8 million of unrecognized expense related to RSAs and RSUs that is expected to be recognized over a weighted-average period of 2.62.8 years.goals. PSUs granted to employees under the 2004 Plan generally cliff vest after two years following a one year performance period. For PSUs granted in the fiscal year 2013, the Company's performance goals related to the Company achieving specified levels of same-store sales and earnings before interest, taxes, depreciation and amortization, as adjusted for("adjusted EBITDA"). The fiscal year 2013.2015 PSUs vest after three years from the grant date upon achievement of the performance criteria. PSUs Outstanding balance at June 30, 2014 307 $ 15.73 Granted 199 15.15 Forfeited (207 ) 14.09 Vested — — Outstanding balance at June 30, 2015 299 $ 15.28 $ 5,020 Vested at June 30, 2015 — $ — $ — Unvested awards, net of estimated forfeitures 179 $ 15.15 $ 4,656 (1) Includes actual or expected payout rates as set forth in the performance criteria. achieve thresholds relatedexpect the three year performance period PSUs to be earned. Future compensation expense for these unvested awards could reach a maximum of $1.7 million to be recognized over 1.2 years, if the target performance goals for fiscal year 2013, no PSUs were earned during fiscal year 2013. As of June 30, 2013 there was no unrecognized expense related to PSUs.(preferred stock)("Preferred Stock"). None of the preferred stockPreferred Stock has been issued.20.0 percent20.0% or more of the Company's voting stock, or following the announcement of a tender offer or exchange offer to acquire an interest of 20.0 percent20.0% or more. If the rights become exercisable, they entitle all holders, except the takeover bidder, to purchase one one-thousandth of a share of preferred stockPreferred Stock at an exercise price of $140, subject to adjustment, or in lieu of purchasing the preferred stock,Preferred Stock, to purchase for the same exercise price common stock of the Company (or in certain cases common stock of an acquiring company) having a market value of twice the exercise price of a right.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)13. SHAREHOLDERS' EQUITY (Continued)(BOD)(Board) approved a stock repurchase program. Originally, the program authorized up to $50.0 million to be expended for the repurchase of the Company's stock. The BODBoard elected to increase this maximum to $100.0 million in August 2003, to $200.0 million on May 3, 2005, and to $300.0 million on April 26, 2007.2007 and to $350.0 million on April 21, 2015. The timing and amounts of any repurchases will depend on many factors, including the market price of the common stock and overall market conditions. Historically, the repurchases to date have been made primarily to eliminate the dilutive effect of shares issued in conjunction with acquisitions, restricted stock grants and stock option exercises. In fiscal year 2015, repurchases were made in accordance with the Company's capital allocation policy issued in 2013. All repurchased shares become authorized but unissued shares of the Company. This repurchase program has no stated2013,2015, a total accumulated 7.710.7 million shares have been repurchased for $241.3$289.1 million. As of June 30, 2013, $58.72015, $60.9 million remainsremained outstanding under the approved stock repurchase program.Income June 30, June 30, 2013 2012 2015 2014 2013 (Dollars in thousands) (Dollars in thousands) $ 20,434 $ 55,628 $ 8,849 $ 22,364 20,434 — 21 122 (535 ) Unrealized gain on deferred compensation contracts 657 287 122 $ 20,556 $ 55,114 $ 9,506 $ 22,651 20,556 AsJune 30, 2013,fiscal year 2014, the Company owned, franchised, or held ownership interests in 9,763 locations worldwide.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 Company's locations consisted of 9,166field reorganization, which impacted all North American salons including 2,082except 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.(locatedlocated 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), 351 international salons (located primarily in the United Kingdom), and approximately 246 locations in which the Company maintains an ownership interest through the Company's investment in affiliates. See Note 5 to the Consolidated Financial Statements for discussion of the Company's investment in affiliates. Based on the way the Company manages its business, it has reported its North American salons and international salons as two separate reportable segments. The accounting policies of the reportable segmentsRico are the same as those described in Note 1 to the Consolidated Financial Statements. The Company operates its North American salon operations through five primary concepts: SmartStyle, Supercuts, MasterCuts, Regis Salons, and Promenade salons. The concepts offer similar products and services, concentrate on the mass market and have consistent distribution channels. All of the company-owned and franchise salonsgenerally within the North American salon concepts areValue segment.high traffic,malls, department stores and high-traffic locations. International salons offer a full range of custom hair care and beauty services and retail shopping locations that attract mass market consumers, and the individual salons display similar long-term economic characteristics. The salons share interdependencies and a common support base. The Companyproducts. This segment operates its International salon operations, primarily in the United Kingdom through three primary concepts:primarily under the Supercuts, Regis Supercuts, and Sassoon salons. Consistent with the North American concepts, the international concepts offer similar products and services, concentrate on the mass market and have consistent distribution channels. All of the international salon concepts arecompany-owned and are located in malls, leading department stores, and high-traffic locations. Individual salons display similar long-term economic characteristics. The salons share interdependencies and a common support base. Fiscal Years 2015 2014 2013 (Dollars in thousands) Revenues(1): North American Value salons $ 1,403,419 $ 1,430,083 $ 1,515,581 North American Premium salons 309,600 333,858 373,820 International salons 124,268 128,496 129,312 $ 1,837,287 $ 1,892,437 $ 2,018,713 Depreciation and amortization expense(1): North American Value salons $ 56,832 $ 66,038 $ 56,364 North American Premium salons 13,094 15,859 15,893 International salons 3,148 5,227 5,222 Total segment depreciation and amortization expense 73,074 87,124 77,479 Unallocated Corporate 9,789 12,609 14,276 $ 82,863 $ 99,733 $ 91,755 Operating income (loss)(1)(2): North American Value salons $ 122,597 $ 117,832 $ 142,260 North American Premium salons(3) (14,238 ) (46,419 ) (13,694 ) International salons 313 (3,076 ) (1,660 ) Total segment operating income 108,672 68,337 126,906 Unallocated Corporate(2) (105,141 ) (103,295 ) (113,547 ) Operating income (loss)(1)(2) $ 3,531 $ (34,958 ) $ 13,359 Interest expense (10,206 ) (22,290 ) (36,944 ) Interest income and other, net 1,697 1,952 35,366 Loss from continuing operations before income taxes and equity in loss of affiliated companies(2) $ (4,978 ) $ (55,296 ) $ 11,781 (1) See Note 2 to the Consolidated Financial Statements for discussion of the classification of the results of operations of Hair Club as discontinued operations. (2) Amounts for fiscal years 2014 and 2013 have been revised. See Note 1 to the Consolidated Financial Statements. (3) Included in the North American Premium salons segment's operating loss for fiscal year 2014 is a goodwill impairment charge of 34.9 million. Fiscal Years 2013 2012 2011 (Dollars in thousands) $ 1,889,401 $ 1,981,105 $ 2,029,944 129,312 141,122 150,237 $ 2,018,713 $ 2,122,227 $ 2,180,181 $ 72,257 $ 71,253 $ 72,207 5,222 5,297 4,750 77,479 76,550 76,957 14,276 28,420 15,194 $ 91,755 $ 104,970 $ 92,151 $ 127,253 $ 139,974 $ 139,957 (1,380 ) 2,505 6,738 125,873 142,479 146,695 (113,547 ) (144,646 ) (160,977 ) $ 12,326 $ (2,167 ) $ (14,282 ) (37,594 ) (28,245 ) (34,374 ) 35,366 5,098 4,723 $ 10,098 $ (25,314 ) $ (43,933 )
The Company's chief operating decision maker does not evaluate reportable segments using assets and capital expenditure information.(1)See Note 2 to the Consolidated Financial Statements for discussion of the classification of the results of operations of Hair Club as discontinued operations.(2)Included in the North American salons segments operating income for fiscal years 2012 and 2011 are goodwill impairment charges of $67.7 and $74.1 million, respectively.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)14. SEGMENT INFORMATION (Continued) June 30, June 30, 2013 2012 2011 2015 2014 2013 Total
Revenues Property and
Equipment, Net Total
Revenues Property and
Equipment, Net Total
Revenues Property and
Equipment, Net (Dollars in thousands) (Dollars in thousands) $ 1,737,517 $ 285,111 $ 1,815,797 $ 274,711 $ 1,861,354 $ 296,622 $ 1,585,672 $ 198,471 $ 1,626,794 $ 240,460 $ 1,737,517 $ 285,111 281,196 28,349 306,430 31,088 318,827 33,405 251,615 19,686 265,643 26,078 281,196 28,349 $ 2,018,713 $ 313,460 $ 2,122,227 $ 305,799 $ 2,180,181 $ 330,027 $ 1,837,287 $ 218,157 $ 1,892,437 $ 266,538 $ 2,018,713 $ 313,460 Summarized quarterly data for fiscal years 2013 and 2012 follows: Quarter Ended September 30(e) December 31 March 31 June 30(f) Year Ended (Dollars in thousands, except per share amounts) $ 505,360 $ 506,165 $ 504,937 $ 502,251 $ 2,018,713 285,660 289,329 287,597 296,678 1,159,264 9,273 8,723 3,308 (8,978 ) 12,326 34,647 (16,119 ) 896 (15,258 ) 4,166 3,777 3,853 1,465 15,933 25,028 38,424 (12,266 ) 2,361 675 29,194 0.60 (0.28 ) 0.02 (0.27 ) 0.07 0.07 0.07 0.03 0.28 0.44 0.67 (0.22 ) 0.04 0.01 0.51 0.54 (0.28 ) 0.02 (0.27 ) 0.07 0.06 0.07 0.03 0.28 0.44 0.59 (0.22 ) 0.04 0.01 0.51 0.06 0.06 0.06 0.06 0.24 year 2013years 2015 and 2014 revenues, operating and net income (loss). Quarter Ended September 30(a) December 31(a) March 31(a) June 30 Year Ended(a) (Dollars in thousands, except per share amounts) 2015 Revenues $ 464,551 $ 455,887 $ 453,960 $ 462,889 $ 1,837,287 Cost of service and product revenues, excluding depreciation and amortization 268,664 268,049 261,947 264,615 1,063,275 Operating (loss) income (754 ) (671 ) 5,402 (446 ) 3,531 Loss from continuing operations(c) (9,843 ) (16,663 ) (4,763 ) (1,943 ) (33,212 ) Loss from discontinued operations(d) — — — (630 ) (630 ) Net loss(c)(d) (9,843 ) (16,663 ) (4,763 ) (2,573 ) (33,842 ) Loss from continuing operations per share, basic and diluted(e) (0.18 ) (0.30 ) (0.09 ) (0.04 ) (0.60 ) Loss from discontinued operations per share, basic and diluted — — — (0.01 ) (0.01 ) Net loss per basic and diluted share(e) (0.18 ) (0.30 ) (0.09 ) (0.05 ) (0.62 ) Quarter Ended September 30(a) December 31(a) March 31(a) June 30(a) Year Ended(a) (Dollars in thousands, except per share amounts) 2014 Revenues $ 468,583 $ 468,367 $ 471,561 $ 483,926 $ 1,892,437 Cost of service and product revenues, excluding depreciation and amortization 268,759 273,874 272,490 279,095 1,094,218 Operating income (loss)(b) 35 (34,233 ) (3,218 ) 2,458 (34,958 ) Loss from continuing operations(b)(c) (1,153 ) (110,889 ) (10,090 ) (17,742 ) (139,874 ) Income from discontinued operations(d) — — 609 744 1,353 Net loss(b)(c)(d) (1,153 ) (110,889 ) (9,481 ) (16,998 ) (138,521 ) Loss from continuing operations per share, basic and diluted(e) (0.02 ) (1.96 ) (0.18 ) (0.31 ) (2.48 ) Income from discontinued operations per share, basic and diluted — — 0.01 0.01 0.02 Net loss per basic and diluted share(e) (0.02 ) (1.96 ) (0.17 ) (0.30 ) (2.45 ) Dividends declared per share 0.06 0.06 — — 0.12 Quarter Ended September 30 December 31 March 31 June 30 Year Ended (Dollars in thousands, except per share amounts) $ 531,346 $ 526,138 $ 535,901 $ 528,842 $ 2,122,227 288,688 288,399 296,277 289,942 1,163,306 9,004 11,936 22,950 (46,057 ) (2,167 ) 5,622 11,900 (3,878 ) (65,387 ) (51,743 ) 2,715 (69,327 ) 2,509 1,753 (62,350 ) 8,337 (57,427 ) (1,369 ) (63,634 ) (114,093 ) 0.10 0.21 (0.07 ) (1.14 ) (0.91 ) 0.05 (1.22 ) 0.04 0.03 (1.09 ) 0.15 (1.01 ) (0.02 ) (1.11 ) (2.00 ) 0.10 0.20 (0.07 ) (1.14 ) (0.91 ) 0.05 (1.01 ) 0.04 0.03 (1.09 ) 0.15 (0.81 ) (0.02 ) (1.11 ) (2.00 ) 0.06 0.06 0.06 0.06 0.24 Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 in this Form 10-K for explanations of items, which impacted fiscal year 2012 revenues, operating and net income.(a)During the fourth quarter of fiscal year 2013, the Company recorded a $12.6 million ($7.7 million net of tax) inventory reserve associated with the Company's implementation of standardized plan-o-grams in fiscal year 2014. During the fourth quarter of fiscal year 2012, the Company recorded a goodwill impairment charge of $67.7 million ($55.2 million net of tax).(b)During the first quarter of fiscal year 2013, the Company recorded a $32.2 million net of tax foreign currency gain associated with the sale of Provalliance. During the second quarter of fiscal year 2013, the Company recorded a $17.9 million impairment charge net of tax related to the impairment of EEG. During the fourth quarter of fiscal year 2013, the Company incurred $6.7 million net of tax of expense for a make-whole payment associated with the prepayment of debt. Expense of $17.2 million net of tax was recorded during fiscal year 2012 related to the impairment of our investment in Provalliance. Expense of $19.4 million net of tax was recorded during fiscal year 2012 related to the impairment of our investment in EEG.(c)During the fourth quarter of fiscal year 2013, the Company recorded a $15.4 million gain, net professional and transaction fees and taxes, associated with the disposition of Hair Club. During the second quarter of quarter of fiscal year 2012, the Company recorded a goodwill impairment charge of $72.6 million net of tax.(d)Total is an annual recalculation; line items calculated quarterly may not sum to total.(e)As filed within the 10-Q/A for the period ended September 30, 2012.(f)During the fourth quarter of fiscal year 2013, the Company identified certain errors that related to prior periods. The errors related to an understatement of interest expense and certain uncertain tax positions in prior periods. Because these errors are not material to the Company's consolidated financial statements for any prior periods, the current year fourth quarter, or fiscal 2013, the Company recorded a cumulative adjustment to correct the errors during the fourth quarter of fiscal 2013. The impact of these items on the Company's Consolidated Statement of Operations increased interest expense by $0.4 million, increased income tax expense by $0.3 million and decreased net income by $0.7 million.(a) Amounts for fiscal years 2015 and 2014 have been revised from what was previously filed. As a result of this revision, net loss as previously presented for the three months ended September 30, 2014, December 31, 2014 and March 31, 2015 increased (decreased) by $0.8, $(2.4) and $1.1 million, respectively. Net loss as previously presented for the three months ended September 30, 2013, December 31, 2013, March 31, 2014 and June 30, 2014 increased by $1.0, $1.8, $0 and $0 million, respectively. The Company plans to reflect the revised amounts in its quarterly Condensed Consolidated Financial Statements for fiscal 2015 in future filings containing such information. See Note 1 to the Consolidated Financial Statements. (b) During the second quarter of fiscal year 2014, the Company recorded a goodwill impairment charge of $34.9 million and a $4.7 million non-cash salon asset impairment charge. During the third quarter of fiscal 2014, the Company recorded non-cash salon impairment of $8.9 million. (c) During the second quarter of fiscal year 2015, the Company recorded a $4.7 million other than temporary impairment charge and $6.9 million of its share of the of a deferred tax valuation allowance on its investment in EEG. During the fourth quarter of fiscal year 2014, the Company recorded a $12.6 million charge representing its share of goodwill impairment charges recorded by EEG. During the second quarter of fiscal year 2014, the Company recorded an $86.6 million non-cash charge to establish a valuation allowance against the Company’s U.S. and U.K. deferred tax assets. (d) During the fourth quarter of fiscal year 2015, the Company recorded expenses of $0.6 million in discontinued operations related to legal fees related to Trade Secret. During fiscal year 2014, the Company recorded tax benefits of $1.4 million in discontinued operations related to the release of tax reserves associated with the disposition of Trade Secret. (e) Total is an annual recalculation; line items calculated quarterly may not sum to total. in itsunder the Securities Exchange Act reportsof 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the chief executive officerChief Executive Officer (CEO) and chief financial officer,Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. Our Disclosure Committee, consistingmanagement, the Company's chief executive officerCEO and chief financial officerCFO, 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), at the conclusion of the period ended June 30, 2013.2015. Based upon thison their evaluation, the chief executive officerour CEO and chief financial officerCFO, concluded that the Company'sour disclosure controls and procedures were effective.Management'snot effective as of June 30, 2015 because of the material weakness in our internal control over financial reporting described below. In Part II, Item 8 above,provided a report onis responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including the CEO and the CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2015 using the criteria established in "Internal Control-Integrated Framework " (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).management concluded thatrelated to fiscal year 2010 and prior. These errors were corrected in the revision of the Company’s Consolidated Financial Statements for all periods presented in the Company’s Form 10-K for the fiscal year ended June 30, 2015. Because this could have resulted in a material misstatement to our accounts and disclosures and not have been prevented or detected, this constitutes a material weakness. Until the material weakness is fully remediated, the Company could have material misstatements to the non-cash deferred rent account, and related accounts and disclosures which would not be prevented or detected.was effective as of June 30, 2013. In addition,2015 has been audited by PricewaterhouseCoopers LLP, the Company'san independent registered public accounting firm, provided aas stated in their report on the Company's effectiveness of internal control over financial reporting. The full text of management's report and PricewaterhouseCoopers' reportwhich appears on pages 44 and 45 herein. During the fourth quarter of fiscal year 2013, the Company made substantial progress with the implementation of a new POS system for our salon operations. The Company expects to complete this implementation over the course of the next fiscal year. Management has taken the necessary steps to monitor and maintain appropriate internal controls during this period of change and will continue to evaluate the operating effectiveness of related key controls during subsequent periods. With the exception of the implementation of the system described above, thereother changes in the Company'sour internal control over financial reporting during the most recent fiscal quarter that hashave materially affected, or isare reasonably likely to materially affect, the Company'sour internal control over financial reporting that occurred duringreporting.Company's most recent fiscal quarter. None.20132015 Proxy, and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding the Company's executive officers is included under "Executive Officers" in Item 1 of this Annual Report on Form 10-K. Additionally, information regarding the Company's audit committee and audit committee financial expert, as well nominating committee functions, will be set forth in the section titled "Committees of the Board" and shareholder communications with directors will be set forth in the section titled "Communications with the Board" of the Company's 20132015 Proxy Statement, and is incorporated herein by reference./- Guidelines" (within the "Investor Information" section). The Company intends to disclose any substantive amendments to, or waivers from, its Code of Business Conduct & Ethics on its website or in a report on Form 8-K. In addition, the charters of the Company's Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee and the Company's Corporate Governance Guidelines may be found on the Company's website. Copies of any of these documents are available upon request to any shareholder of the Company by writing to the Company's Secretary at Regis Corporation, 7201 Metro Boulevard, Edina, Minnesota 55439.Executiveexecutive and director compensation will be set forth in the section titled "Executive Compensation" of the Company's 20132015 Proxy Statement, and is incorporated herein by reference.20132015 Proxy Statement, and isare incorporated herein by reference.20132015 Proxy Statement, and is incorporated herein by reference. Information regarding director independence will be set forth in the section titled "Corporate Governance—Director Independence" of the Company's 20132015 Proxy Statement, and is incorporated herein by reference.20132015 Proxy Statement and is incorporated herein by reference.(b)(1). All financial statements:(b) (1). All financial statements: (c)Exhibits:(c) Exhibits: 2(a)Contribution Agreement, dated April 18, 2007, between the Company and Empire Beauty School Inc. (Incorporated by reference to Exhibit 2.1 of the Company's Report on Form 8-K filed on April 24, 2007.)3(a) 2(b)Stock Purchase Agreement dated as of January 26, 2009 between Regis Corporation, Trade Secret, Inc. and Premier Salons Beauty Inc. (Incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K filed on January 27, 2009.)2(c)Share Purchase Agreement, dated as of April 9, 2012, between Regis Merger S.A.R.L. and Mr. Yvon Provost, Mrs. Olivia Provost and Mr. Fabien Provost. (Incorporated by reference to Exhibit 2.1 of the Company's Report on Form 8-K filed on April 13, 2012.)2(d)Stock Purchase Agreement, dated as of July 13, 2012, between Regis Corporation and Aderans Co., Ltd. (Incorporated by reference to Exhibit 10.1 of the Company's Report on Form 8-K filed on July 17, 2012).3(a)Election of the Company to become governed by Minnesota Statutes Chapter 302A and Restated Articles of Incorporation of the Company, dated March 11, 1983; Articles of Amendment to Restated Articles of Incorporation, dated October 29, 1984; Articles of Amendment to Restated Articles of Incorporation, dated August 14, 1987; Articles of Amendment to Restated Articles of Incorporation, dated October 21, 1987; Articles of Amendment to Restated Articles of Incorporation, dated November 20, 1996; Articles of Amendment to Restated Articles of Incorporation, dated July 25, 2000.2000; Articles of Amendment to Restated Articles of Incorporation, dated October 22, 2013. (Incorporated by reference to Exhibit 3(a) of the Company's Report on Form 10-Q10-K/A filed on February 8, 2006, for the quarter ended December 31, 2005.September 26, 2014.) 3(b) 3(b)By-Laws of the Company. (Incorporated by reference to Exhibit 3.1 of the Company's Report on Form 8-K filed on October 31, 2006.) 3(c) 3(c)Certificate of the Voting Powers, Designations, Preferences and Relative Participating, Optional and Other Special Rights and Qualifications, Limitations or Restrictions of Series A Junior Participating Preferred Stock of the Company. (Attached as Exhibit A to the Rights Agreement dated December 26, 2006, and incorporated by reference to Exhibit 2 of the Company's Registration Statement on Form 8-A12B filed on December 26, 2006.) 4(a) 4(a)Shareholder Rights Agreement, dated December 23, 1996, between the Company and Norwest Bank Minnesota, N.A. as Rights Agent. (Incorporated by reference to Exhibit 4 of the Company's Report on Form 8-A12G filed on February 4, 1997.) 4(b) 4(b)Rights Agreement, dated December 26, 2006, between the Company and Wells Fargo Bank, N.A., as Rights Agent, and Form of Right Certificate attached as Exhibit B to the Rights Agreement. (Incorporated by reference to Exhibits 1 and 3 of the Company's Registration Statement on Form 8-A12B, filed on December 26, 2006.) 4(c) Amendment No. 1, dated as of October 29, 2008, to Rights Agreement, dated December 26, 2006, between Regis Corporation and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4 to the Company’s Form 8-A12B/A filed on October 29, 2008.) 4(c)4(d) Amendment No. 2, dated as of June 13, 2013, to Rights Agreement, dated December 26, 2006, between Regis Corporation and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form 8-A12B/A filed on June 19, 2013.) 4(e) 4(d)Form of Stock Certificate. (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1 (Reg. No. 40142).) 4(f) 4(e)Indenture dated July 14, 2009November 27, 2013 by and between the Company and Wells Fargo Bank, N.A, as TrusteeTrustee. (Incorporated by reference to Exhibit 4.110.4 of the Company's Report on Form 8-K filed July 17, 2009.December 4, 2013.) 10(a)Lease Agreement commencing October 1, 2005, between the Company and France Edina, Property, LLP. (Incorporated by reference to Exhibit 99 of the Company's Report on Form 8-K filed on May 6, 2005.)10(a)* 10(b)(*)Amendment to Amended and Restated Compensation Agreement, dated December 23, 2008, between the Company, and Myron Kunin (Incorporated by reference to Exhibit 10(f) of the Company's Report on Form 10-Q filed February 9, 2009.)10(c)(*)Short Term Incentive Compensation Plan, effective August 19, 2009.2014. (Incorporated by reference to Appendix A of the Company's Proxy Statement on Definitive Form 14A filed on September 15, 2009,10, 2014, for the year ended June 30, 2009.2014.) 10(d)Consulting Agreement, dated April 18, 2007, between the Company and Empire Beauty School Inc. (Incorporated by reference to Exhibit 10.1 of the Company's Report on Form 8-K filed on April 24, 2007.)10(b)* 10(e)(*)10(c)* 10(f)(*)Employment Agreement, dated August 31, 2012, between the Company and Daniel J. Hanrahan. (Incorporated by reference to Exhibit 10(a) of the Company's Report on Form 10-Q filed November 9, 2012)2012.) 10(d)* Amendment to Employment Agreement, dated January 13, 2015, between the Company and Daniel J. Hanrahan. (Incorporated by reference to Exhibit 10(b) of the Company's Report on Form 10-Q filed January 29, 2015.) 10(g)(*)10(e)* Employment Agreement, dated November 28, 2012, between the Company and Steven M. Spiegel. (Incorporated by reference to Exhibit 10(a) of the Company's Report on Form 10-Q filed February 4, 2013.) 10(f)* 10(h)(*)Form of Amended and Restated Senior Officer Employment and Deferred Compensation Agreement, dated August 31, 2012, between the Company and certain senior executive officers. (Incorporated by reference to Exhibit 10(b) of the Company's Report on Form 10-Q filed November 9, 2012.) 10(g)* Employment Agreement, dated November 11, 2013, between the Company and Jim B. Lain. (Incorporated by reference to Exhibit 10(c) of the Company's Report on Form 10-Q filed February 3, 2014.) 10(i)(*10(h)* 10(i)* Employment Agreement, dated December 15, 2014, between the Company and Annette Miller. (Incorporated by reference to Exhibit 10(a) of the Company's Report on Form 10-Q filed January 29, 2015.) 10(j)* Amended and Restated Employment Agreement, effective February 1, 2015, between the Company and Ken Warfield. (Incorporated by reference to Exhibit 10(a) of the Company's Report on Form 10-Q filed April 30, 2015.) 10(k)* Amended and Restated Employment Agreement, dated May 1, 2015, between the Company and Andrew Dulka. 10(l)* Amended and Restated 2004 Long Term Incentive Plan, as Amendedamended and Restated,restated effective October 28, 2011,22, 2013. (Incorporated by reference to Appendix AExhibit 10.1 of the Company's Report on Form DEF14A8-K filed September 14, 2010.on October 11, 2013.) 10(m)* Amendment to the Amended and Restated 2004 Long Term Incentive Plan, effective August 29, 2014. (Incorporated by reference to Exhibit 10(b) of the Company's Report on Form 10-Q filed November 4, 2014.) 10(j)10(n) Sixth Amended and Restated Credit Agreement, dated June 11, 2013, among the Company, and various financial institutions party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender, and Issuer, Bank of America, as Syndication Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., U.S. Bank National Association, and Wells Fargo Bank, N.A., as Documentation AgentsAgents. (Incorporated by reference to Exhibit 10.1 of the Company's Report on Form 8-K filed June 14, 2013.) 10(o) 10(p) 10(q) 21 List of Subsidiaries of Regis Corporation 2323.1 Consent of PricewaterhouseCoopers LLP 23.2 Consent of Baker Tilly Virchow Krause, LLP 31.1 Chief Executive Officer of the Company: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Executive Vice President and Chief Financial Officer of the Company: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Chief Executive Officer and Chief Financial Officer of the Company: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS (**)XBRL Instance Document 101.SCH (**)XBRL Taxonomy Extension Schema 101.CAL (**)XBRL Taxonomy Extension Calculation Linkbase 101.LAB (**)XBRL Taxonomy Extension Label Linkbase 101.PRE (**)XBRL Taxonomy Extension Presentation Linkbase 101.DEF (**)XBRL Taxonomy Extension Definition Linkbase (*) Management contract, compensatory plan or arrangement required to be filed as an exhibit to the Company's Report on Form 10-K. (*)Management contract, compensatory plan or arrangement required to be filed as an exhibit to the Company's Report on Form 10-K.(**)The XBRL related information in Exhibit 101 to this Annual Report on Form 10-K 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. REGIS CORPORATION
ByBy
/s/ DANIEL J. HANRAHAN
By
By
/s/ STEVEN M. SPIEGELBy /s/ KERSTEN D. ZUPFER
DATE: August 27, 201328, 2015/s/ STEPHEN E. WATSON Date: August 27, 201328, 2015/s/ DANIEL J. HANRAHAN Director
Date: August 27, 201328, 2015/s/ JOSEPH L. CONNERJoseph L. Conner,Director
Date: August 27, 2013
/s/ DANIEL G. BELTZMANDirector
Date: August 27, 201328, 2015/s/ JAMES P. FOGARTY Director
Date: August 27, 201328, 2015/s/ MICHAEL J. MERRIMAN Date: August 28, 2015 /s/ DAVID P. WILLIAMS Date: August 28, 2015 /s/ DAVID J. GRISSEN Date: August 28, 2015 /s/ MARK LIGHT Date: August 28, 2015 /s/ MICHAEL J. MERRIMANMichael J. Merriman,Director Date: August 27, 2013Page /s/ JEFFREY C. SMITHJeffrey C. Smith,Director
Date: August 27, 2013/s/ DAVID P. WILLIAMSDavid P. Williams,Director
Date: August 27, 2013Consolidated Financial Statements 2015 2014 2015 2014 Assets Liabilities and Shareholders' Equity Current Assets Current liabilities Cash and cash equivalents $ 34,151,811 $ 37,891,769 Current maturities, capital lease obligation Restricted cash, trust liabilities 449,243 104,079 and long term debt $ 458,722 $ 465,312 Accounts receivable: Accounts payable, trade 2,389,701 2,977,521 Students (net of allowance of $8,664,840 and Accounts payable, accrued 3,431,053 3,452,460 $6,710,886 in 2015 and 2014, respectively) 6,367,681 3,238,576 Accrued payroll 1,535,836 2,726,493 Other 80,833 94,329 Accrued expenses 1,284,163 1,361,940 Affiliates, unsecured 45,859 17,165 Trust liabilities 199,181 104,079 Inventories 2,632,618 3,971,048 Unearned tuition 9,483,511 13,708,876 Prepaid expenses 1,278,926 2,457,756 Prepaid corporate income taxes 1,431,345 3,863,741 Total current liabilities 18,782,167 24,796,681 Deferred tax asset, net — 3,135,326 Capital Lease Obligation 7,031,094 7,268,653 Total current assets 46,438,316 54,773,789 Long-Term Debt 20,642,677 21,278,840 Property and Equipment, Net 34,907,422 36,528,003 Deferred Rent 6,878,714 4,238,890 Other Assets Intangibles, not subject to amortization 8,704,186 8,704,186 Deferred Compensation 217,768 217,768 Intangibles, net 157,641 234,355 Prepublication costs (net of accumulated amortization Total liabilities 53,552,420 57,800,832 of $85,522 and $24,408 in 2015 and 2014, respectively) 231,120 279,134 Commitments and Contingencies (Notes 11, 14) Notes receivable, employees, secured 215,701 269,754 Deposits and other assets 704,756 744,082 Shareholders' Equity Deferred tax asset, net — 11,043,038 Preferred stock: Series A, 8% cumulative, redeemable, $0.001 Total other assets 10,013,404 21,274,549 par value, 150 shares authorized, none issued and outstanding Series B, 8% cumulative, redeemable, $0.001 par value, 114 shares authorized, none issued and outstanding Common stock, $0.001 par value; 10,000 shares authorized, 897.938 and 899.938 shares Issued and outstanding in 2015 and 2014, respectively 1 1 Additional paid-in capital 66,400,281 66,595,868 Accumulated deficit (28,593,560 ) (11,820,360 ) Total shareholders' equity 37,806,722 54,775,509 Total $ 91,359,142 $ 112,576,341 Total $ 91,359,142 $ 112,576,341
See Notes to Consolidated Financial Statements 2015 2014 2013 Revenue Educational services $ 132,946,719 $ 146,462,085 $ 150,474,847 Products 22,050,047 20,078,121 20,489,289 Total revenue 154,996,766 166,540,206 170,964,136 Operating Expenses Cost of educational services 97,804,550 95,493,987 91,750,973 Cost of product sales 14,545,443 12,815,299 13,337,935 General, selling, and administrative 38,269,157 42,850,496 43,816,472 Depreciation and amortization 5,352,592 7,385,895 9,327,185 Other operating expenses 2,902,235 3,052,561 4,126,347 Loss (gain) on disposal and sale of assets 167,942 14,026 (256,898 ) Impairment loss 218,950 38,454,344 3,881,298 Total operating expenses 159,260,869 200,066,608 165,983,312 (Loss) Income from Operations (4,264,103 ) (33,526,402 ) 4,980,824 Other Income (Expense) Interest expense (655,523 ) (661,863 ) (670,607 ) Interest income 73,156 38,702 11,960 Miscellaneous income 733,594 185,167 704,531 Total other income (expense), net 151,227 (437,994 ) 45,884 (Loss) Income Before Provision (Benefit) for Income Taxes (4,112,876 ) (33,964,396 ) 5,026,708 Provision (Benefit) for Income Taxes 12,625,065 (7,265,186 ) 2,667,765 Net (Loss) Income $ (16,737,941 ) $ (26,699,210 ) $ 2,358,943
See Notes to Consolidated Financial Statements Additional Retained Earnings Common Stock Paid-in (Accumulated Shares Amount Capital Deficit) Total Balance, June 30, 2012 889.938 $ 1 $ 65,614,530 $ 12,519,907 $ 78,134,438 Net Loss — — 2,358,943 2,358,943 Compensation Costs from Stock Options — 375,541 — 375,541 Balance, June 30, 2013 889.938 1 65,990,071 14,878,850 80,868,922 Net Loss — — (26,699,210 ) (26,699,210 ) Stock Option Exercise 10 — 234,020 — 234,020 Compensation Costs from Stock Options — 371,777 — 371,777 Balance, June 30, 2014 899.938 1 66,595,868 (11,820,360 ) 54,775,509 Net Loss — — (16,737,941 ) (16,737,941 ) Repurchase & Cancellation of Shares (2 ) — (46,804 ) (35,259 ) (82,063 ) Cancellation of Non-Qualified Stock Option — (179,764 ) — (179,764 ) Compensation Costs from Stock Options — 30,981 — 30,981 Balance, June 30, 2015 897.938 1 66,400,281 (28,593,560 ) 37,806,722
See Notes to Consolidated Financial Statements 2015 2014 2013 Cash Flows from Operating Activities Net (loss) income $ (16,737,941 ) $ (26,699,210 ) $ 2,358,943 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 5,214,764 7,269,278 8,925,160 Amortization of intangibles 76,714 92,210 145,686 Amortization of prepublication costs 61,114 24,408 286,261 Impairment loss 218,950 38,454,344 3,881,298 Compensation cost from stock options 30,981 371,777 375,541 Loss (gain) on disposal and sale of equipment 167,942 14,026 (256,898 ) Changes in assets and liabilities: Accounts receivable, student (5,083,059 ) (178,954 ) 345,548 Deferred income taxes 13,998,601 (6,772,707 ) 62,005 Provision for uncollectible accounts 1,953,954 (1,114,546 ) (558,967 ) Inventories 1,338,430 (1,776,362 ) 867,656 Prepaid expenses and other assets 3,635,353 (1,472,144 ) (193,142 ) Restricted cash (250,062 ) — Notes receivable, employee, secured (1,156 ) (35,734 ) — Accounts payable and accrued expenses (1,904,515 ) 760,895 (423,604 ) Unearned tuition (4,225,365 ) (1,249,956 ) (382,903 ) Deferred rent 2,639,824 (5,857 ) 200,851 Total adjustments 17,872,470 34,380,678 13,274,492 Net cash provided by operating activities 1,134,529 7,681,468 15,633,435 Cash Flows from Investing Activities Purchases of property and equipment (4,223,078 ) (4,336,333 ) (8,503,783 ) Proceeds from disposal and sale of equipment 242,003 54,626 401,049 Investment in prepublication costs (13,100 ) (254,010 ) (49,532 ) Net cash used in investing activities (3,994,175 ) (4,535,717 ) (8,152,266 ) Cash Flows from Financing Activities Net (repayment) proceeds of long-term debt (636,163 ) 11,653,536 (27,232,983 ) Repayment of capital lease obligation (244,149 ) (225,701 ) (208,648 ) Net cash (used in) provided by financing activities (880,312 ) 11,427,835 (27,441,631 ) Net (Decrease) Increase in Cash and Cash Equivalents (3,739,958 ) 14,573,586 (19,960,462 ) Cash and Cash Equivalents, Beginning 37,891,769 23,318,183 43,278,645 Cash and Cash Equivalents, End $ 34,151,811 $ 37,891,769 $ 23,318,183 Supplemental Disclosure of Cash Flow Information Interest paid, net of capitalized interest $ 648,105 $ 667,278 $ 655,464 Income taxes paid, net of refunds $ (3,736,501 ) $ 81,264 $ 3,711,969
See Notes to Consolidated Financial Statements 2015 2014 2013 Supplemental Disclosure of Non-Cash Operating and Financing Activities Shareholders note receivable exchanged for common stock $ — $ 234,020 $ — Additional paid-in capital - repurchase and cancellation of shares $ 101,757 $ — $ — Retained earnings - repurchase and cancellation of shares $ 35,259 $ — $ — Notes receivable, employee, secured - repurchase and cancellation of shares $ (110,163 ) $ — $ — Accrued expenses - repurchase and cancellation of shares $ (26,853 ) $ — $ — Additional paid-in capital - non-qualifying stock option cancellation after vesting $ 179,764 $ — $ — Deferred tax asset - non-qualifying stock option cancelled after vesting $ (179,764 ) $ — $ —
See Notes to Consolidated Financial Statements1. Nature of Operations and Summary of Significant Accounting Policies 1. Nature of Operations and Summary of Significant Accounting Policies (Continued) 1. Nature of Operations and Summary of Significant Accounting Policies (Continued) 1. Nature of Operations and Summary of Significant Accounting Policies (Continued) 1. Nature of Operations and Summary of Significant Accounting Policies (Continued) 2. Restricted Cash 2015 2014 Certificate of deposit $ 250,062 $ — Title IV program funds 2,180 225 State agencies student funds 16,090 12,092 Third party scholarship funds 113,000 — Charitable contribution pledges 67,774 91,693 Other 137 69 Total restricted cash $ 449,243 $ 104,079 3. Property and Equipment, Net 2015 2014 Land $ 900,000 $ 950,000 Building 200,000 415,000 Capital lease asset (Note 5) 8,200,000 8,200,000 Leasehold improvements 42,964,878 43,997,366 Furniture, fixtures, and equipment 24,832,102 26,558,285 Automotive equipment 275,235 349,809 Audio-video equipment 2,377,130 2,563,610 Signs 1,519,957 1,655,237 Construction in progress 577,327 1,263,836 Total cost 81,846,629 85,953,143 Less accumulated depreciation and amortization 46,939,207 49,425,140 Property and equipment, net $ 34,907,422 $ 36,528,003 4. Intangible Assets 4. Intangible Assets (Continued) 2015 Cost Accumulated Amortization Copyrights and trade names $ 2,623,883 $ 2,601,200 $ 22,683 Below market rate leases 1,100,614 978,181 122,433 Business covenants 730,100 717,575 12,525 Customer lists 50,000 50,000 — Total $ 4,504,597 $ 4,346,956 $ 157,641 2014 Cost Accumulated Amortization Copyrights and trade names $ 2,763,883 $ 2,738,358 $ 25,525 Below market rate leases 1,372,503 1,206,218 166,285 Business covenants 730,100 687,555 42,545 Customer lists 50,000 50,000 — Total $ 4,916,486 $ 4,682,131 $ 234,355 Years ending June 30: 2016 $ 46,901 2017 26,154 2018 15,596 2019 15,595 2020 12,289 Total $ 116,535 5. Capital Lease Obligation Years ending June 30: 2016 $ 891,522 2017 891,522 2018 891,522 2019 891,522 2020 891,522 Thereafter 8,915,224 Total future minimum lease payments 13,372,834 Less amounts representing interest 6,104,181 Present value of minimum lease payments 7,268,653 Less current portion 237,559 Long-term obligation $ 7,031,094 6. Long-Term Debt 7. Deferred Compensation 8. Income Taxes 2015 2014 2013 U.S. $ (4,112,876 ) $ (33,964,396 ) $ 5,026,708 8. Income Taxes (Continued) 2015 2014 2013 Current Federal $ (1,570,540 ) $ (157,680 ) $ 2,054,682 State 197,006 (334,799 ) 551,078 Deferred Federal 10,264,661 (5,698,153 ) 106,827 State 3,733,938 (1,074,554 ) (44,822 ) Total $ 12,625,065 $ (7,265,186 ) $ 2,667,765 Fiscal Year 2015 Balance, June 20, 2014 $ — Establishment of valuation allowance on deferred tax assets 12,564,735 Changes to deferred tax asset valuation allowance 126,461 Balance, June 30, 2015 $ 12,691,196 2015 2014 Current assets $ 3,752,805 $ 3,135,326 Less: valuation allowance (3,752,805 ) — Net current deferred income taxes — 3,135,326 Noncurrent assets 8,938,391 11,043,038 Less: valuation allowance (8,938,391 ) — Net noncurrent deferred income taxes $ — $ 11,043,038 8. Income Taxes (Continued) 2015 2014 2013 Statutory U.S. federal income tax rate (34.0 )% (34.0 )% 34.0 % State and local income taxes 6.6 % (2.4 )% 10.8 % Nondeductible goodwill — 15.7 % — Deferred tax valuation allowance 308.6 % — — Business Interruption insurance proceeds — — 5.8 % Estimate to actual rate true up 19.6 % — — Other 6.2 % (0.7 )% 2.5 % Effective income tax rate 307.0 % (21.4 )% 53.1 % 2015 2014 Deferred tax assets: Deferred rent $ 2,681,882 $ 1,681,362 Payroll and payroll related costs 860,321 1,063,691 Allowance for doubtful accounts 3,377,935 2,668,017 State deferred bonus depreciation 722,034 876,271 Depreciation and amortization 1,422,115 4,507,000 Capital lease 2,858,920 3,005,350 Other 767,989 376,673 Less: valuation allowance (12,691,196 ) — Total deferred income taxes assets $ — $ 14,178,364 8. Income Taxes (Continued) 10. Stock Transactions 10. Stock Transactions (Continued) 11. Commitments Years ending June 30: 2016 $ 14,018,945 2017 12,863,796 2018 11,948,785 2019 9,588,790 2020 6,462,633 Thereafter 12,406,476 Total minimum future rental payments $ 67,289,425 13. Related Party Transactions 14. Contingencies 15. Concentrations of Credit Risk 16. Stock Options Outstanding, June 30, 2014 50 $ 129,400 4.00 Less: Options cancelled after vesting, September 26, 2014 10 $ 129,400 0.00 Total Outstanding, June 30, 2015 40 $ 129,400 3.00 Weighted Average fair value of options granted: $55,929 Option Price Range (Fair Value): $45,233 - $109,408 2015 2014 Fair Value Fair Value Assets: Cash, cash equivalents, and restricted cash $ 34,604,054 $ 34,604,054 $ 37,995,848 $ 37,995,848 Accounts receivable, net 6,448,514 6,448,514 3,332,905 3,332,905 Accounts receivable, affiliates 45,859 N/A 17,165 N/A Liabilities: Long Term Debt, other 20,863,840 20,863,840 21,500,003 21,500,003 Accounts payable, trade 2,389,701 2,389,701 2,977,521 2,977,521 Deferred rent 2,634,351 2,634,351 N/A N/A ▪ Cash, cash equivalents, and restricted cash; accounts receivable, net; and accounts payable, trade - the carrying amounts approximate fair value because of the short-term maturity of these instruments and they are considered level 2 inputs under Fair Value Measurements. ▪ Accounts receivable, affiliate; accounts payable, affiliates; and long-term debt, affiliate - estimating the fair value of these instruments is not practicable because the terms of these transactions would not necessarily be duplicated in the market. ▪ Long-term debt, other - the carrying amounts of long-term debt, other approximate fair value based on borrowing rates available to the Company for debt with similar terms and they are considered level 2 inputs under Fair Value Measurements. ▪ Deferred rent - the values are the component of Deferred Rent liability which represents the carrying value and estimated fair value of the future rent liabilities associated with school closings in advance of lease terminations. These values have been determined via discounted cash flow models and are classified as level 3 Fair Value Measurements. Description Value Level 3 Impairment $ — $ — $ 218,950 $ 2,634,351 $ 2,634,351 N/A Description Value Level 3 Impairment $ — $ — $ 28,582,562 $ 8,704,186 $ 8,704,186 $ 273,274 $ 139,763 $ 139,763 $ 9,598,508