REGIS CORPORATION

INDEX



Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited):

		Condensed Consolidated Balance Sheet as of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017~~ 2019	3

		Condensed Consolidated Statement of Operations for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~ 2018	4

		Condensed Consolidated Statement of Comprehensive (Loss) Income ~~(Loss)~~ for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~ 2018	5

		Condensed Consolidated Statement of ~~Cash Flows~~Shareholders' Equity for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~ September 30, 2018	6

		~~Notes to~~ Condensed Consolidated ~~Financial Statements~~ Statement of Cash Flows for the three months ended September 30, 2019 and 2018	7

		~~Item 2.~~Notes to Condensed Consolidated Financial Statements	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	188

	Item 3.2.	~~Quantitative~~Management’s Discussion and ~~Qualitative Disclosures about Market Risk~~Analysis of Financial Condition and Results of Operations	3121

	Item 4.3.	~~Controls~~Quantitative and ~~Procedures~~Qualitative Disclosures about Market Risk	31

~~Part II.~~	~~Other Information~~		3132

	Item 1.4.	~~Legal Proceedings~~Controls and Procedures	3132

Part II.	Other Information		32

	Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	3132

	Item 2.1A.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~Risk Factors	3433

	Item 6.2.	~~Exhibits~~Unregistered Sales of Equity Securities and Use of Proceeds	3435

	Item 6.	Exhibits	36

	Signatures		3537

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

REGIS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

(Dollars in thousands, except share data)


	December 31, 2017		June 30, 2017		September 30, 2019		June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	163,300	$	171,044	$	58,902	$	70,141
Receivables, net	31,895		19,683		28,724		30,143
Inventories	87,347		98,392		74,634		77,322
Other current assets	47,814		48,114		32,194		33,216
Current assets held for sale (Note 1)	—		32,914
Total current assets	330,356		370,147		194,454		210,822

Property and equipment, net	109,448		123,281		71,442		78,090
Goodwill	417,709		416,987		313,251		345,718
Other intangibles, net	11,416		11,965		8,416		8,761
Right of use asset (Note 10)					930,784		—
Other assets	52,958		61,756		33,094		34,170
Noncurrent assets held for sale (Note 1)	—		27,352
Long term assets held for sale (Note 1)					5,276		5,276
Total assets	$	921,887	$	1,011,488	$	1,556,717	$	682,837

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	52,738	$	54,501	$	53,219	$	47,532
Accrued expenses	107,198		110,435		62,241		80,751
Current liabilities related to assets held for sale (Note 1)	—		13,126
Short-term lease liability (Note 10)					161,407		—
Total current liabilities	159,936		178,062		276,867		128,283

Long-term debt, net	121,096		120,599		90,000		90,000
Long-term lease liability (Note 10)					781,134		—
Long-term financing liabilities					28,719		28,910
Other noncurrent liabilities	112,284		197,374		96,258		111,399
Noncurrent liabilities related to assets held for sale (Note 1)	—		7,232
Total liabilities	393,316		503,267		1,272,978		358,592
Commitments and contingencies (Note 6)
Commitments and contingencies (Note 7)
Shareholders’ equity:
Common stock, $0.05 par value; issued and outstanding 46,688,423 and 46,400,367 common shares at December 31, 2017 and June 30, 2017, respectively	2,335		2,320
Common stock, $0.05 par value; issued and outstanding 35,548,036 and 36,869,249 common shares at September 30, 2019 and June 30, 2019, respectively					1,777		1,843
Additional paid-in capital	216,301		214,109		20,880		47,152
Accumulated other comprehensive income	11,789		3,336		8,939		9,342
Retained earnings	298,146		288,456		252,143		265,908

Total shareholders’ equity	528,571		508,221		283,739		324,245

Total liabilities and shareholders’ equity	$	921,887	$	1,011,488	$	1,556,717	$	682,837

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

For The Three ~~and Six~~ Months Ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018

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

Three Months Ended
December 31,

Six Months Ended
December 31,
2017 2016 2017 2016
Revenues:
Service $ 223,214
$ 235,609
$ 458,773
$ 478,700
Product 71,816
68,229
132,756
131,945
Royalties and fees 13,485
11,411
26,859
23,435
308,515
315,249
618,388
634,080
Operating expenses:
Cost of service 134,850
151,193
274,686
301,990
Cost of product 39,864
34,584
70,026
65,399
Site operating expenses 32,119
32,638
65,422
65,283
General and administrative 48,592
36,695
83,758
72,611
Rent 65,473
45,091
107,889
91,324
Depreciation and amortization 24,951
12,646
37,206
24,755
Total operating expenses 345,849
312,847
638,987
621,362

Operating (loss) income (37,334 ) 2,402
(20,599 ) 12,718

Other (expense) income:
Interest expense (2,169 ) (2,153 ) (4,307 ) (4,316 )
Interest income and other, net 2,362
1,452
3,389
1,779

(Loss) income from continuing operations before income taxes (37,141 ) 1,701
(21,517 ) 10,181

Income tax benefit (expense) 76,462
(719 ) 71,630
(3,459 )

Income from continuing operations 39,321

982
50,113
6,722

Loss from discontinued operations, net of taxes (Note 1) (6,601 ) (3,201 ) (40,368 ) (5,660 )

Net income (loss) $ 32,720
$ (2,219 ) $ 9,745
$ 1,062

Net income (loss) per share:
Basic:
Income from continuing operations $ 0.84
$ 0.02
$ 1.07
$ 0.15
Loss from discontinued operations (0.14 ) (0.07 ) (0.86 ) (0.12 )
Net income (loss) per share, basic (1) $ 0.70
$ (0.05 ) $ 0.21
$ 0.02
Diluted:
Income from continuing operations $ 0.83
$ 0.02
$ 1.07
$ 0.14
Loss from discontinued operations (0.14 ) (0.07 ) (0.86 ) (0.12 )
Net income (loss) per share, diluted (1) $ 0.69
$ (0.05 ) $ 0.21
$ 0.02

Weighted average common and common equivalent shares outstanding:
Basic 46,821
46,327
46,719
46,277
Diluted 47,314
46,774
47,053
46,751



	Three Months Ended September 30,
	2019			2018
Revenues:
Service	$	141,941		$	207,848
Product	45,656			57,591
Royalties and fees	28,017			22,396
Franchise rental income (Note 10)	31,424			—
	247,038			287,835
Operating expenses:
Cost of service	90,482			121,497
Cost of product	26,327			32,181
Site operating expenses	32,942			36,821
General and administrative	40,625			47,727
Rent (Note 10)	24,264			35,978
Franchise rent expense (Note 10)	31,424			—
Depreciation and amortization	9,380			10,202
TBG restructuring (Note 3)	1,500			—
Total operating expenses	256,944			284,406

Operating (loss) income	(9,906		)	3,429

Other (expense) income:
Interest expense	(1,439		)	(1,006		)
Loss on sale of salon assets to franchisees, net	(5,860		)	(3,960		)
Interest income and other, net	171			360

Loss from continuing operations before income taxes	(17,034		)	(1,177		)

Income tax benefit	2,856			714

Loss from continuing operations	(14,178		)	(463		)

Income (loss) from discontinued operations, net of income taxes (Note 3)	373			(264		)

Net loss	$	(13,805	)	$	(727	)

Net loss per share:

Basic and Diluted:
Loss from continuing operations	$	(0.39	)	$	(0.01	)
Income (loss) from discontinued operations	0.01			(0.01		)
Net loss per share (1)	$	(0.38	)	$	(0.02	)


Weighted average common and common equivalent shares outstanding:
Basic and Diluted	36,249			44,730


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

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~ (Unaudited)

For The Three ~~and Six~~ Months Ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018

(Dollars in thousands)

Three Months Ended December 31, Six Months Ended December 31,
2017 2016 2017 2016
Net income (loss) $ 32,720
$ (2,219 ) $ 9,745
$ 1,062
Foreign currency translation adjustments (381 ) (2,322 ) 2,301
(4,838 )
Reclassification adjustments for losses included in net income (loss) (Note 1) 6,152
—
6,152
—
Comprehensive income (loss) $ 38,491
$ (4,541 ) $ 18,198
$ (3,776 )



	Three Months Ended September 30,
	2019			2018
Net loss	$	(13,805	)	$	(727	)
Foreign currency translation adjustments	(403		)	1,081
Comprehensive (loss) income	$	(14,208	)	$	354

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)

For The Three Months Ended September 30, 2019 and 2018

(Dollars in thousands)



	Three Months Ended September 30, 2019
						Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total
	Common Stock
	Shares		Amount
Balance, June 30, 2019	36,869,249		$	1,843		$	47,152		$	9,342		$	265,908		$	324,245
Net loss	—		—			—			—			(13,805		)	(13,805		)
Foreign currency translation adjustments	—		—			—			(403		)	—			(403		)
Stock repurchase program	(1,504,000	)	(75		)	(26,281		)	—			—			(26,356		)
Exercise of SARs	276		—			—			—			—			—
Stock-based compensation	—		—			1,807			—			—			1,807
Net restricted stock activity	182,511		9			(1,798		)	—			—			(1,789		)
Minority interest	—		—			—			—			40			40
Balance, September 30, 2019	35,548,036		$	1,777		$	20,880		$	8,939		$	252,143		$	283,739



	Three Months Ended September 30, 2018
						Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings			Total
	Common Stock
	Shares		Amount
Balance, June 30, 2018	45,258,571		$	2,263		$	194,436		$	9,656	$	280,083		$	486,438
Net loss	—		—			—			—		(727		)	(727		)
Foreign currency translation adjustments	—		—			—			1,081		—			1,081
Stock repurchase program	(1,093,679	)	(54		)	(19,283		)	—		—			(19,337		)
Exercise of SARs	5,783		—			(42		)	—		—			(42		)
Stock-based compensation	—		—			2,335			—		—			2,335
Net restricted stock activity	157,452		8			(1,463		)	—		—			(1,455		)
Minority interest	—		—			—			—		64			64
Balance, September 30, 2018	44,328,127		$	2,217		$	175,983		$	10,737	$	279,420		$	468,357

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

For The ~~Six~~Three Months Ended ~~December 31, 2017~~September 30,2019 and ~~2016~~2018

(Dollars in thousands)



	Three Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(13,805	)	$	(727	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash adjustments related to discontinued operations	(470		)	(427		)
Depreciation and amortization	7,863			8,371
Deferred income taxes	(3,821		)	(875		)
Loss on sale of salon assets to franchisees, net	5,860			3,960
Salon asset impairments	1,517			1,831
Stock-based compensation	1,807			2,335
Amortization of debt discount and financing costs	69			69
Other items affecting earnings	(23		)	352
Changes in operating assets and liabilities, excluding the effects of asset sales (1)	(12,477		)	(32,053		)
Net cash used in operating activities	(13,480		)	(17,164		)

Cash flows from investing activities:
Capital expenditures	(4,899		)	(11,258		)
Proceeds from sale of salon assets to franchisees	37,945			12,422
Costs associated with sale of salon assets to franchisees	(1,019		)	—
Proceeds from company-owned life insurance policies	—			24,617
Net cash provided by investing activities	32,027			25,781

Cash flows from financing activities:
Repurchase of common stock	(28,247		)	(19,337		)
Taxes paid for shares withheld	(1,808		)	(1,918		)
Sale and leaseback payments	(248		)	—
Net cash used in financing activities	(30,303		)	(21,255		)

Effect of exchange rate changes on cash and cash equivalents	3			388

Decrease in cash, cash equivalents, and restricted cash	(11,753		)	(12,250		)

Cash, cash equivalents, and restricted cash:
Beginning of period	92,379			148,774
End of period	$	80,626		$	136,524

Six Months Ended December 31,
2017 2016
Cash flows from operating activities:

Net income $ 9,745
$ 1,062
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Non-cash impairment related to discontinued operations 25,095
—
Depreciation and amortization 20,492
20,369
Depreciation related to discontinued operations 3,038
7,220
Deferred income taxes (77,055 ) 3,297
Gain on life insurance (7,986 ) —
Gain from sale of salon assets to franchisees, net(1) (18 ) (121 )
Salon asset impairments 16,714
4,386
Accumulated other comprehensive income reclassification adjustments (Note 1) 6,152
—
Stock-based compensation 4,618
4,400
Amortization of debt discount and financing costs 703
703
Other non-cash items affecting earnings (104 ) 64
Changes in operating assets and liabilities, excluding the effects of asset sales (13,647 ) (13,775 )
Net cash (used in) provided by operating activities (12,253 ) 27,605

Cash flows from investing activities:
Capital expenditures (13,773 ) (15,510 )
Capital expenditures related to discontinued operations (1,171 ) (2,893 )
Proceeds from sale of assets to franchisees(1) 2,696
335
Change in restricted cash (542 ) 738
Proceeds from company-owned life insurance policies 18,108
—
Net cash provided by (used in) investing activities 5,318
(17,330 )

Cash flows from financing activities:
Taxes paid for shares withheld (2,039 ) (1,113 )
Cash settlement of equity awards (375 ) —
Net cash used in financing activities (2,414 ) (1,113 )

Effect of exchange rate changes on cash and cash equivalents 253
(866 )

(Decrease) increase in cash and cash equivalents (9,096 ) 8,296

Cash and cash equivalents:
Beginning of period 171,044
147,346
Cash and cash equivalents included in current assets held for sale 1,352
—
Beginning of period, total cash and cash equivalents

172,396
147,346
End of period $ 163,300
$ 155,642

~~_____________________________~~

(1) ~~Excludes transaction with The Beautiful Group.~~Changes in operating assets and liabilities exclude assets and liabilities sold.

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

REGIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The unaudited interim Condensed Consolidated Financial Statements of Regis Corporation (the ~~Company)~~"Company") as of ~~December 31, 2017~~September 30, 2019 and for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of ~~December 31, 2017~~September 30, 2019 and its consolidated results of operations, comprehensive (loss) income, ~~(loss)~~changes in equity and cash flows for the interim periods. Adjustments consist only of normal recurring items, except for any discussed in the notes below. The results of operations and cash flows for any interim period are not necessarily indicative of results of operations and cash flows for the full year.

The ~~Condensed Consolidated Balance Sheet data for June 30, 2017 was derived from audited Consolidated Financial Statements, but includes~~accompanying interim unaudited ~~adjustments for assets~~condensed consolidated financial statements have been prepared by the Company pursuant to the rules and ~~liabilities held for sale~~regulations of the Securities and ~~does~~Exchange Commission (SEC). Accordingly, they do not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2017~~2019 and other documents filed or furnished with the ~~Securities and Exchange Commission (SEC)~~SEC during the current fiscal year.

~~Discontinued Operations:~~Goodwill:

As of September 30, 2019 and June 30, 2019, the Franchise reporting unit had $227.8 million and $227.9 million of goodwill and the Company-owned reporting unit had $85.4 million and $117.8 million of goodwill, respectively. See Note 9 to the unaudited interim Condensed Consolidated Financial Statements. The Company assesses goodwill impairment on an annual basis, during the Company’s fourth fiscal quarter, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount. An interim impairment analysis was not required in the three months ended September 30, 2019.

The Company performs its annual impairment assessment as of April 30. For the fiscal year 2019 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optional Step 0 assessment and performed the quantitative impairment analysis on the Franchise and Company-owned reporting units. The Company compared the carrying value of the reporting units, including goodwill, to their estimated fair value. The results of these assessments indicated that the estimated fair value of the Company's reporting units exceeded their carrying value. The Franchise reporting unit had substantial headroom and the Company-owned reporting unit had headroom of approximately 20%. The fair value of the Company-owned reporting unit was determined based on a discounted cash flow analysis. The key assumptions used in determining fair value were the number and pace of salons sold to franchisees and proceeds from salon sales. We selected the assumptions by considering our historical financial performance and trends, historical salon sale proceeds and estimated future salon sale activities. The preparation of our fair value estimate includes uncertain factors and requires significant judgments and estimates which are subject to change.

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

Changes in the company-owned salon strategy,

Salon closures or other restructuring,

Franchise expansion and sales opportunities,

Future market earnings multiples deterioration,

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

Economic recession,

Reduced salon traffic,

Deterioration of industry trends,

Increased competition,

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

Other factors causing our cash flow to deteriorate.

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

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

Non-Current Assets Held for Sale:

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

Accounting Standards Recently Adopted by the Company:

Leases

The Company adopted ASU 2016-02, "Leases (Topic 842)” and all subsequent ASUs that modified Topic 842 as of July 1, 2019 using the modified retrospective method and elected the option to not restate comparative periods in the year of adoption. The Company also elected the package of practical expedients that do not require reassessment of whether existing contracts are or contain leases, lease classification or initial direct costs. The Company has also made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet.

Under adoption of Topic 842, the Company recorded a Right of Use Asset and Lease Liability of $980.8 million and $993.7 million, respectively upon adoption. The difference between the assets and liabilities are attributable to the reclassification of certain existing lease-related assets and liabilities as an adjustment to the right-of-use assets. The Lease Liability reflects the present value of the Company's estimated future minimum lease payments over the lease term, which includes one option period as options that are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate. The decrease in the Right of Use Asset and Lease Liability from July 1, 2019 to September 30, 2019 was due to lease modifications.

The accounting guidance for lessors remained largely unchanged from previous guidance, with the exception of the presentation of rent payments that the Company passes through to franchisees (lessees). Historically, these costs have been recorded on a net basis in the unaudited Condensed Consolidated Statements of Operations but are now presented on a gross basis upon adoption of the new guidance. The adoption of the new guidance resulted in the recognition of franchise rental income and rent expense of $31.4 million during the three months ended September 30, 2019. See Note 10 for further information about our transition to Topic 842 and the newly required disclosures.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which provides the option to reclassify to retained earnings the tax effects resulting from the Tax Act related to items in AOCI. The Company adopted this guidance on July 1, 2019 and did not elect to reclassify the income tax effects from the Tax Act from AOCI to retained earnings as the impact was not material.

2.REVENUE RECOGNITION:

Revenue Recognition and Deferred Revenue:

Revenue recognized at point in time

Company-owned salon revenues are recognized at the time when the services are provided. Product revenues for Company-owned salons are recognized when the guest receives and pays for the merchandise. Revenues from purchases made with gift cards are also recorded when the guest takes possession of the merchandise or services are provided. Gift cards issued by the Company are recorded as a liability (deferred revenue) upon sale and recognized as revenue upon redemption by the customer. Gift card breakage, the amount of gift cards which will not be redeemed, is recognized proportional to redemptions using estimates based on historical redemption patterns. Product sales by the Company to its franchisees are included within product revenues in the unaudited Condensed Consolidated Statement of Operations and recorded at the time product is delivered to the franchisee. Payment terms for franchisee product revenue are within 30 to 90 days of delivery.

Revenue recognized over time

Franchise revenues primarily include royalties, advertising fund fees, franchise fees and other fees. Royalty and advertising fund revenues represent sales-based royalties that are recognized in the period in which the sales occur. Generally, royalty and advertising fund revenue is billed and collected monthly in arrears. Advertising fund revenues and expenditures, which must be spent on marketing and related activities per the franchise agreements, are recorded on a gross basis within the unaudited Condensed Consolidated Statement of Operations. This increases both the gross amount of reported franchise revenue and site operating expense and generally has no impact on operating income and net income. Franchise fees are billed and received upon the signing of the franchise agreement. Recognition of these fees is deferred until the salon opening and is then recognized over the term of the franchise agreement, typically ten years. Franchise rental income is a result of the Company signing leases on behalf of franchisees and entering into a sublease arrangement with the franchisee. The Company recognizes franchise rental income and expense when it is due to the landlord.

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



	Three Months Ended September 30, 2019				Three Months Ended September 30, 2018
	Franchise		Company-owned		Franchise		Company-owned

Revenue recognized at a point in time:
Service	$	—	$	141,941	$	—	$	207,848
Product	13,105		32,551		15,629		41,962
Total revenue recognized at a point in time	$	13,105	$	174,492	$	15,629	$	249,810

Revenue recognized over time:
Royalty and other franchise fees	$	17,592	$	—	$	14,420	$	—
Advertising fund fees	10,425		—		7,976		—
Franchise rental income	31,424		—
Total revenue recognized over time	$	59,441	$	—	$	22,396	$	—
Total revenue	$	72,546	$	174,492	$	38,025	$	249,810

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



	September 30, 2019		June 30, 2019		Balance Sheet Classification
	(dollars in thousands)
Receivables from contracts with customers, net	$	18,715	$	23,210	Accounts receivable, net
Broker fees	$	18,706	$	17,819	Other assets

Deferred revenue:
Current
Gift card liability	$	2,686	$	3,050	Accrued expenses
Deferred franchise fees unopened salons	99		193		Accrued expenses
Deferred franchise fees open salons	4,748		4,164		Accrued expenses
Total current deferred revenue	$	7,533	$	7,407
Non-current
Deferred franchise fees unopened salons	$	13,230	$	15,173	Other non-current liabilities
Deferred franchise fees open salons	28,546		24,194		Other non-current liabilities
Total non-current deferred revenue	$	41,776	$	39,367

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, franchise product sales and sales of salon services and product paid by credit card. The receivables balance is presented net of an allowance for expected losses (i.e., doubtful accounts), primarily related to receivables from franchisees. As of September 30, 2019 and June 30, 2019, the balance in the allowance for doubtful accounts was approximately $2.0 million. Broker fees are the costs associated with using external brokers to identify new franchisees. These fees are paid upon the signing of the franchise agreement and recognized as General and Administrative expense over the term of the agreement.

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



Balance as of June 30, 2019	$	17,819
Additions	1,548
Amortization	(661		)
Write-offs	—
Balance as of September 30, 2019	$	18,706

Deferred revenue includes the gift card liability and deferred franchise fees for unopened salons and open salons. Gift card revenue for the three months ended September 30, 2019 and 2018 was $0.8 million and $1.0 million, respectively. Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement. Franchise fee revenue for the three months ended September 30, 2019 and 2018 was $1.2 million and $0.9 million, respectively. Estimated revenue expected to the recognized in the future related to deferred franchise fees for open salons as of September 30, 2019 is as follows (in thousands):



Remainder of 2020	$	3,327
2021	4,498
2022	4,378
2023	4,202
2024	3,967
Thereafter	12,922
Total	$	33,294


3.	TBG RESTRUCTURING AND DISCONTINUED OPERATIONS:

In October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, ~~and~~to The Beautiful Group (TBG),who operated these locations as franchise locations until June 2019. In addition, the Company entered into a share purchase agreement for substantially all of its International segment, representing approximately 250 salons in the UK, ~~to The Beautiful Group, an affiliate of Regent, a private equity firm based in Los Angeles, California,~~with TBG who ~~will operate~~operates these locations as franchise locations. ~~As part of the sale of the mall-based business, The Beautiful Group~~ ~~agreed to pay for the value of certain inventory and assumed specific liabilities, including lease liabilities. For the International segment,~~In June 2019, the Company entered into a ~~share purchase~~settlement agreement with ~~The Beautiful Group~~TBG regarding the US and Canadian salons, which, among other things, substitutes the master franchise agreement for ~~minimal consideration.~~

~~As of September 30, 2017, the~~a license agreement. The Company classified the results of its mall-based business and its International segment as discontinued operations for all periods presented in the Condensed Consolidated Statement of Operations. Included within discontinued operations are the impairment charge, results of operations and professional fees associated with the transaction, for the three and six months ended December 31, 2017. The operations of the mall-based business and International segment, which were previously recorded in the North American Value, North American Premium and International~~reporting segments, have been eliminated from ongoing operations of the Company.~~

In connection with the sale of the mall-based business and the International segment as part of our held for sale assessment at September 30, 2017, the Company performed an impairment assessment of the asset groups. The Company recognized net impairment charges within discontinued operations during the three and six months ended December 31, 2017, based on the difference between the expected sale prices and the carrying value of the asset groups.

~~The following summarizes the results of our discontinued operations for the periods presented:~~

For the Three Months Ended December 31, For the Six Months Ended December 31,
2017 2016 2017 2016
(Dollars in thousands)
Revenues $ 7,773
$ 108,793
$ 101,140
$ 221,005
Loss from discontinued operations, before income taxes (10,073 ) (3,201 ) (43,840 ) (5,660 )
Income tax benefit on discontinued operations 3,472
—
3,472
—
Loss from discontinued operations, net of income taxes (6,601 ) (3,201 ) (40,368 ) (5,660 )

For the three months ended ~~December 31, 2017, included within~~September 30, 2019 the ~~$6.6~~Company recorded $1.5 million ~~loss from~~of TBG restructuring charges which relate to the Company assisting TBG with operating expenses to mitigate the risk of default associated with TBG's lease obligations where Regis has potential contingent liability. Included in discontinued operations are $4.8 million of asset impairment charges, $1.1 million of loss from operations and $4.2 million of professional fees associated with the transaction, partly offset by a $3.5 million income tax benefit generated due to federal tax legislation enacted duringfor the three months ended December 31, 2017. For the six months ended December 31, 2017, included within the $40.4 million loss from discontinued operations are $29.1 million of asset impairment charges, $6.2 million of cumulative foreign currency translation adjustment associated with the Company's liquidation of substantially all foreign entities with British pound denominated entities, $2.8 million of loss from operationsSeptember 30, 2019 and ~~$5.8 million of~~September 30, 2018 is insurance reserve benefits and professional fees, ~~associated with the transaction, partly offset by a $3.5 million income tax benefit generated due to federal tax legislation enacted during the three months ended December 31, 2017.~~

Income taxes have been allocated to continuing and discontinued operations based on the methodology required by interim reporting and accounting for income taxes guidance. See Note 5 to the unaudited Condensed Consolidated Financial Statements for further discussion regarding Staff Accounting Bulletin ("SAB") 118.

Within salon asset impairments presented in the Consolidated Statement of Cash Flows for the six months ended December 31, 2016, $1.7 million of salon asset impairments were related to discontinued operations.respectively. Other than the ~~salon asset impairments and the other~~ items presented in the Consolidated Statement of Cash Flows, there were no other significant non-cash operating activities or any significant non-cash investing activities related to discontinued operations for the ~~six months ended December 31, 2017 and 2016.~~

~~SmartStyle~~^® ~~Salon Restructuring:~~

~~In December 2017 the Company committed to close 597 non-performing Company owned SmartStyle salons in January 2018.~~

~~A summary of costs associated with the SmartStyle salon restructuring for the three and six months ended December 31, 2017 is as follows:~~

Dollars in thousands
Inventory reserves $ 585
Long-lived fixed asset impairment 5,418
Asset retirement obligation 7,462
Lease termination and other related closure costs 27,290
Deferred rent (3,291 )
Total $ 37,464

As the operational restructuring plan was announced publicly on January 8, 2018, the Company expects to incur an additional $1.0 million in related severance expense in the third quarter of fiscal 2018.

~~Stock-Based Employee Compensation:~~

~~During the three and six months ended December 31, 2017, the Company granted various equity awards including restricted stock units (RSUs) and performance-based restricted stock units (PSUs).~~

~~A summary of equity awards granted is as follows:~~

For the Periods Ended December 31, 2017
Three Months Six Months
Restricted stock units 38,811
297,969
Performance-based restricted stock units 153,612
153,612

~~Total compensation cost for stock-based payment arrangements totaled $2.6 and $2.5 million for the~~ three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016, respectively,~~2018.

The Company utilized the consolidation of variable interest entities guidance to determine whether or not TBG was a variable interest entity (VIE), and $4.6 and $4.4 million for the six months ended December 31, 2017 and 2016, respectively, recorded within general and administrative expense on the unaudited Condensed Consolidated Statement of Operations. Total compensation cost for stock-based payment arrangements for the three and six months ended December 31,

~~2017 includes $1.0 and $1.2 million, respectively, related to the termination of former executive officers. In connection with the terminations of former executive officers,~~if so, whether the Company ~~settled certain PSUs for cash~~was the primary beneficiary of ~~$0.4 million during the three and six months ended December 31, 2017, respectively.~~

~~Long-Lived Asset Impairment Assessments, Excluding Goodwill:~~

TBG. The Company ~~assesses impairment of long-lived assets at the individual salon level, as this~~concluded that TBG is the lowest level for which identifiable cash flows are largely independent of other groups of assets and liabilities, when events or changes in circumstances indicate the carrying value of the assets or the asset grouping may not be recoverable. Factors considered in deciding when to perform an impairment review include significant under-performance of an individual salon in relation to expectations, significant economic or geographic trends, and significant changes or planned changes in our use of the assets. Impairment is evaluateda VIE, based on the ~~sum~~fact that the equity investment at risk in TBG is not sufficient. The Company determined that it is not the primary beneficiary of ~~undiscounted estimated future cash flows~~TBG based on its exposure to the expected ~~to result from use~~losses of TBG and as it is not the variable interest holder that is most closely associated within the relationship and the significance of the ~~long-lived assets. If the undiscounted estimated cash flows are less than the carrying value~~activities of ~~the assets, the Company calculates an impairment charge based on the estimated fair value of the assets.~~TBG. The fair value of the long-lived assets is estimated using a discounted cash flow model based on the best information available, including salon level revenues and expenses. Long-lived asset impairment charges of $14.4 and $2.5 million for the three months ended December 31, 2017 and 2016, respectively, and $16.7 and $4.4 million for the six months ended December 31, 2017~~and 2016, respectively, have been recorded within depreciation and amortization in the Consolidated Statement of Operations.~~

A~~ccounting Standards Recently Issued But Not Yet Adopted by the Company:~~

~~Leases~~

~~In February 2016, the FASB issued updated guidance requiring organizations that lease assets~~exposure to recognize the rights and obligations created by those leases on the consolidated balance sheet. The new standard is effective for the Company in the first quarter of fiscal year 2020, with early adoption permitted. The Company is currently evaluating the effect the new standard will have on the Company's consolidated financial statements but expects this adoption will result in a material increase in the assets and liabilities on the Company's consolidated balance sheet.

~~Revenue from Contracts with Customers~~

In May 2014, the FASB issued updated guidance for revenue recognition. The updated accounting guidance provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the exchange for goods or services to a customer 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 revenue and cash flows arising from customer contracts. The guidance is effective for the Company in the first quarter of fiscal year 2019, with early adoption permitted at the beginning of fiscal year 2018. 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 expects to adopt this guidance in fiscal year 2019 using the modified retrospective method of adoption.

The Company does not believe the standard will impact its recognition of point-of-sale revenue in company-owned salons, or royalties. The Company believes the standard will impact the recognition of initial franchise fees revenue and gift card breakage, although the impacts are not expected to be material to the Company’s consolidated financial statements. The Company licenses intellectual property and trademarks to franchisees through franchise agreements. As part of these agreements, the Company receives an initial franchise fee payment which is currently recognized as revenue when the salon opens. Upon adoption of the new standard initial franchise fees will generally be recognized as revenue over the life of the contract. The Company sells gift cards to customers and records the sale as a liability. The liability is released to revenue once the card is redeemed. Historically a portion of these gift card sales have never been redeemed by the customer (“breakage”). Currently the Company recognizes breakage when redemption is considered remote. Upon adoption of the new standard, expected breakage is anticipated to be recognized as customers redeem the gift cards rather than only when redemption is considered remote.

The Company is continuing its assessment, including the impact on internal controls, which may identify additional impacts this standard will have on its consolidated financial statements and related disclosures. The new standard is not expected to have any impact on the timing or classification of the Company’s cash flows as reported in the Consolidated Statement of Cash Flows.

~~Intra-Entity Transfers Other Than Inventory~~

In October 2016, the FASB issued guidance on the accounting for income tax effects of intercompany transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the assets have been sold to an outside party. The guidance is effective for the Company in the first quarter of fiscal year 2019, with early adoption permitted. The Company does not expect the adoption of this standard to have a material impact on the Company's consolidated financial statements.

~~Restricted Cash~~

In November 2016, the FASB issued updated cash flow guidance requiring restricted cash and restricted cash equivalents to be included in the cash and cash equivalent balances in the statement of cash flows. Transfers between cash and cash equivalents and restricted cash will no longer be presented in the statement of cash flows and a reconciliation between the balance sheet and statement of cash flows must be disclosed. The guidance is effective for the Company beginning in the first quarter of fiscal year 2019, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on the Company's consolidated statement of cash flows.

~~Statement of Cash Flows~~

In August 2016, the FASB issued updated cash flow guidance clarifying cash flow classification and presentation for certain items. The guidance is effective for the Company beginning in the first quarter of fiscal year 2019, with early adoption permitted. The Company does not expect the adoption of this standard to have a material impact on the Company's consolidated statement of cash flows.

2.~~INVESTMENT IN AFFILIATES:~~

~~Empire Education Group, Inc. (EEG)~~

As of December 31, 2017, the Company had a 54.6% ownership interest in EEG and no remaining investment value as the Company fully impaired its investment in EEG as of December 31, 2015. The Company has not recorded any equity income or losses related to its investment in EEG subsequent to the impairment. The Company will record equity incomeloss related to the Company's ~~investment in EEG once EEG's cumulative income exceeds its cumulative losses, measured from~~involvement with TBG is the ~~date~~guarantee of ~~impairment.~~

~~While~~the operating leases. As of September 30, 2019, prior to any mitigation efforts which may be available, the Company ~~could be responsible~~remains liable for ~~certain liabilities~~up to $35 million associated with ~~this venture, the Company does~~remaining TBG salon lease commitments, should TBG not ~~currently expect them to have a material impact on the Company's financial position.~~perform.

~~The table below presents the summarized Statement of Operations information for EEG:~~

For the Three Months Ended December 31, For the Six Months Ended December 31,
2017 2016 2017 2016
(Unaudited) (Dollars in thousands)
Gross revenues $ 32,962
$ 31,019
$ 65,599
$ 61,055
Gross profit 9,720
9,168
19,398
17,278
Operating income (loss) 1,053
488
861
(219 )
Net income (loss) 1,034
357
690
(472 )


3.4.	EARNINGS PER SHARE:

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

For the three months ended ~~December 31, 2017 and 2016, 492,889 and 446,877, respectively, and for the six months ended December 31, 2017 and 2016, 334,062 and 474,616, respectively,~~September 30, 2019, 902,478 common stock equivalents of dilutive common stock were ~~included~~excluded in the diluted earnings per share calculations due to the net ~~income~~loss from continuing operations. For the three months ended September 30, 2018, 930,666 common stock equivalents of dilutive common stock were excluded in the diluted earnings per share calculations due to the net loss from continuing operations.

The computation of weighted average shares outstanding, assuming dilution, excluded ~~2,373,110~~391,531 and ~~2,361,971~~357,468 of stock-based awards during the three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016, respectively, and 1,199,042 and 2,411,047 of stock-based award during the six months ended December 31, 2017 and 2016,~~2018, respectively, as they were not dilutive under the treasury stock method.


4.5.	SHAREHOLDERS’ EQUITY:

~~Additional Paid-In Capital:~~Stock-Based Employee Compensation:

During the three months ended September 30, 2019, the Company granted 186,076 restricted stock units (RSUs) and 51,018 performance-based restricted stock units (PSUs).

The RSUs granted to employees during the three months ended September 30, 2019 vest in equal amounts over a three-year period subsequent to the grant date, cliff vest after a three-year period or cliff vest after a five-year period subsequent to the grant date.

The PSUs granted to employees have a three-year performance period ending June 30, 2022 linked to the Company's stock price reaching a specified volume weighted average closing price for a 50-day period that ends on June 30, 2021. The PSUs granted have a maximum vesting percentage of 200% based on the level of performance achieved for the respective award.

Total compensation cost for stock-based payment arrangements totaling $1.8 million and $2.3 million for the three months ended September 30, 2019 and 2018, respectively was recorded within general and administrative expense on the unaudited Condensed Consolidated Statement of Operations.

Share Repurchases:

~~The $2.2 million increase in additional paid-in capital during~~During the ~~six~~three months ended ~~December 31, 2017 was primarily due to $4.6~~September 30, 2019 and 2018, the Company repurchased 1.5 million ~~of stock-based compensation, partly offset by other stock-based compensation activity of $2.4~~and 1.1 million ~~primarily~~ shares, ~~forfeited~~respectively, for ~~withholdings on vestings.~~$26.4 million and $19.3 million, respectively, under a previously approved stock repurchase program. At September 30, 2019, $54.6 million remains outstanding under the approved stock repurchase program.


5.6.	INCOME TAXES:

A summary of income tax benefit ~~(expense)~~ and corresponding effective tax rates is as follows:



	For the Three Months Ended September 30,
	2019			2018
	(Dollars in thousands)
Income tax benefit	$	2,856		$	714
Effective tax rate	16.8		%	60.7		%

For the Three Months
Ended December 31,
For the Six Months
Ended December 31,
2017 2016 2017 2016
(Dollars in thousands)
Income tax benefit (expense) $ 76,462
$ (719 ) $ 71,630
$ (3,459 )
Effective tax rate 205.9 % 42.3 % 332.9 % 34.0 %

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) changing rules related to net operating losses ("NOL") carryforwards and carrybacks; (3) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (4) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (5) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (6) allowing full expensing of qualified property; (7) creating a new base erosion anti-abuse minimum tax (“BEAT”) and provisions designed to tax global intangible low-taxed income (“GILTI”); (8) adding rules that limit the deductibility of interest expense; and (9) adding new provisions that further restrict the deductibility of certain executive compensation.

Due to our fiscal year end, different provisions of the Tax Act will become applicable at varying dates. Nonetheless, the Company is required to recognize the effects of the rate change and enacted legislation on its deferred tax assets and liabilities in the period of enactment.

The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification (ASC) 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In connection with our initial analysis of the impact of the Tax Act, we have recorded a provisional estimated net tax benefit of $68.9 million in continuing operations for the periods ended December 31, 2017. The net tax benefit is primarily attributable to the impact of the corporate rate reduction on our deferred tax assets and liabilities along with a partial release of the U.S. valuation allowance (“VA”). The VA release is solely attributable to tax reform and the law change that allows for the indefinite carryforward of NOLs arising in tax years ending after December 31, 2017. Prior law limited the carryforward period to 20 years. As a result of the change, the Company is able to release its VA on deferred tax assets that it expects to reverse in future periods. The Company continues to maintain a VA on the historical balance of its finite lived federal NOLs, tax credits and various state tax attributes. We are still analyzing certain aspects of the Tax Act and refining our calculations, which could

potentially affect the measurement of our deferred tax balances and ultimately cause us to revise our provisional estimate in future periods in accordance with SAB 118. In addition, changes in interpretations, assumptions, and guidance regarding the new tax legislation, as well as the potential for technical corrections to the Tax Act, could have a material impact to the Company’s effective tax rate in future periods.

The recorded tax provision and effective tax ~~rates~~rate for the three ~~and six~~ months ended ~~December 31, 2017 and three and six months ended December 31, 2016~~September 30, 2019 were different than what would normally be expected primarily due to the impact of the deferred tax valuation allowance and global intangible low-taxed income (“GILTI”). The Company includes GILTI as a current period expense when incurred. The recorded tax provision and effective tax rate for the three months ended September 30, 2018 were different than what would normally be expected primarily due to the impact of Tax Cuts and Jobs Act (“Tax Act”), state conformity of the new federal provisions and the deferred tax VA. Additionally, the majority of the tax provision in periods ended prior to December 31, 2017 related to non-cash tax expense for tax benefits on certain indefinite-lived assets the Company could not recognize for reporting purposes. Due to the Tax Act and the resulting partial release of the Company’s VA, the Company recorded $7.6 million of tax benefit in continuing operations during the three months ended December 31, 2017, exclusive of the $68.9 million benefit mentioned above. Furthermore, the non-cash tax expense is not expected to be material in future periods.valuation allowance.

The ~~Company’s U.S. federal income tax returns~~Company is no longer subject to IRS examinations for ~~the fiscal~~ years 2010 through 2013 have been examined by the Internal Revenue Service (IRS) and were moved to the IRS Appeals Division. The Company believes its income tax positions and deductions will be sustained and will continue to vigorously defend such positions. All earlier tax years are closed to examination. Withbefore 2013. Furthermore, with limited exceptions, the Company is no longer subject to state and international income tax examinations by tax authorities for years before 2012.


6.7.	COMMITMENTS AND CONTINGENCIES:

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

~~See Note 5 to~~

8. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:

The table below reconciles the cash and cash equivalents balances and restricted cash balances, recorded in other current assets from the unaudited Condensed Consolidated ~~Financial Statements for discussion regarding certain issues that have resulted from~~Balance Sheet to the ~~IRS' examination~~amount of ~~fiscal 2010 through 2013 federal income tax returns. Final resolution of these issues is not expected to have a material impact~~cash, cash equivalents and restricted cash reported on the ~~Company's financial position.~~unaudited Condensed Consolidated Statement of Cash flows:



	September 30, 2019		June 30, 2019
	(Dollars in thousands)
Cash and cash equivalents	$	58,902	$	70,141
Restricted cash, included in other current assets (1)	21,724		22,238
Total cash, cash equivalents and restricted cash	$	80,626	$	92,379


(1)	Restricted cash within other current assets primarily relates to consolidated advertising cooperatives funds which can only be used to settle obligations of the respective cooperatives and contractual obligations to collateralize the Company's self-insurance programs.

7.9. GOODWILL AND OTHER INTANGIBLES:

During the first quarter of fiscal year 2018, the Company experienced a triggering event due to the redefining of its operating segments as a result of the sale of the mall-based business and the International segment. See Note 10 to the unaudited Condensed Consolidated Financial Statements. The Company utilized the Step 0 goodwill impairment assessment during the first quarter. As part of this assessment, the Company evaluated qualitative factors to determine whether it was more likely than not that the fair value of the reporting units was less than its carrying value. The Company determined it was "more-likely-than-not" that the carrying values of the reporting units were less than the fair values. The Company now reports its operations in two reportable segments: Company-owned salons and Franchise salons. The Company considered whether any goodwill associated with the MasterCuts salons should be allocated as part of the sale of the mall-based business and considered for impairment. The Company determined no goodwill should be allocated to the mall-based business because the salons sold were projected to produce operating losses in the future and had minimal fair value. All goodwill associated with the North American Premium and International segments was previously impaired. Pursuant to the change in operating segments, the Company compared the fair value of the remaining salons in the Company-owned reporting unit to its carrying value and concluded the fair value exceeded its carrying value by a substantial margin, resulting in no goodwill impairment.

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


	Company-owned			Franchise		Consolidated			Franchise			Company-owned			Consolidated
	(Dollars in thousands)								(Dollars in thousands)
Goodwill, net at June 30, 2017	$	188,888		$	228,099	$	416,987
Goodwill, net at June 30, 2019									$	227,928		$	117,790		$	345,718
Translation rate adjustments	573			690		1,263			(85		)	(299		)	(384		)
Derecognition related to sale of salon assets to franchisees (1)	(541		)	—		(541		)	—			(32,083		)	(32,083		)
Goodwill, net at December 31, 2017	$	188,920		$	228,789	$	417,709
Goodwill, net at September 30, 2019									$	227,843		$	85,408		$	313,251

(1)

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

The table below presents other intangible assets:



	September 30, 2019							June 30, 2019
	Cost (1)		Accumulated Amortization (1)			Net		Cost (1)		Accumulated Amortization (1)			Net
	(Dollars in thousands)
Amortized intangible assets:
Brand assets and trade names	$	6,856	$	(3,687	)	$	3,169	$	6,909	$	(3,659	)	$	3,250
Franchise agreements	9,721		(8,088		)	1,633		9,783		(8,057		)	1,726
Lease intangibles	13,480		(10,226		)	3,254		13,490		(10,065		)	3,425
Other	881		(521		)	360		883		(523		)	360
	$	30,938	$	(22,522	)	$	8,416	$	31,065	$	(22,304	)	$	8,761

December 31, 2017 June 30, 2017
Cost (1)
Accumulated
Amortization (1)
Net Cost (1)
Accumulated
Amortization (1)
Net
(Dollars in thousands)
Amortized intangible assets:

Brand assets and trade names $ 8,356
$ (4,229 ) $ 4,127
$ 8,187
$ (4,013 ) $ 4,174
Franchise agreements 10,026
(7,744 ) 2,282
9,832
(7,433 ) 2,399
Lease intangibles 14,036
(9,449 ) 4,587
14,007
(9,077 ) 4,930
Other 2,030
(1,610 ) 420
1,994
(1,532 ) 462
$ 34,448
$ (23,032 ) $ 11,416
$ 34,020
$ (22,055 ) $ 11,965

~~_____________________________~~


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


8.	~~FINANCING ARRANGEMENTS:~~

10. RIGHT OF USE ASSET AND LEASE LIABILITIES

At contract inception, the Company determines whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. If the contract provides the Company the right to substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset, the Company considers it to be, or contain, a lease. The Company leases its company-owned salons and some of its corporate facilities under operating leases. The original terms of the salon leases range from 1 to 20 years with many leases renewable for additional 5 to 10 year terms at the option of the Company. The Company also has variable lease payments that are based on sales levels. For most leases, the Company is required to pay real estate taxes and other occupancy expenses. Total rent expense includes the following:




	For the three months ended
	September 30,
	2019		2018
	(dollars in thousands)
Minimum rent	$	19,561	$	29,915
Percentage rent based on sales	1,298		1,052
Real estate taxes and other expenses	3,405		5,011
	$	24,264	$	35,978

The Company also leases the premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees. These leases, generally with terms of approximately five years, are expected to be renewed on expiration. All additional lease costs are passed through to the franchisees. Upon adopting Topic 842 the Company now records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense in the Condensed Consolidated Statement of Operations. For the three months ended September 30, 2019 franchise rental income and franchise rent expense was $31.4 million.

For company-owned and franchise salon operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. The right of use (ROU) asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less any accrued lease payments and unamortized lease incentives received, if any. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Generally, the non-lease components such as real estate taxes and other occupancy expenses are separate from rent expense within the lease and not allocated to the lease liability.

The discount rate used to determine the present value of the lease payments is the Company's estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the interest rate implicit in the lease cannot generally be determined. The Company used the portfolio approach in applying the discount rate based on original lease term. The weighted average remaining lease term was 6.87 years and the weighted-average discount rate was 3.95 percent for all salon operating leases as of September 30, 2019.

As of September 30, 2019, future operating lease commitments to be paid and received by the Company were as follows:



Fiscal Year	Leases for Franchise Salons		Leases for Company-Owned Salons		Corporate Leases		Total Operating Leases Payments		Sublease Income To Be Received From Franchisees			Net Rent Commitments
Remainder of 2020	$	56,059	$	91,328	$	1,368	$	148,755	$	(56,059	)	$	92,696
2021	67,285		111,002		1,294		179,581		(67,285		)	112,296
2022	59,388		99,345		172		158,905		(59,388		)	99,517
2023	53,293		88,686		177		142,156		(53,293		)	88,863
2024	48,224		79,070		183		127,477		(48,224		)	79,253
Thereafter	125,524		194,746		821		321,091		(125,524		)	195,567
Total future obligations	$	409,773	$	664,177	$	4,015	$	1,077,965	$	(409,773	)	$	668,192
Less amount representing interest	31,329		103,420		675		135,424
Present value of lease liabilities	378,444		560,757		3,340		942,541
Less: current lease liabilities	68,725		91,414		1,268		161,407
Long-term lease liabilities	$	309,719	$	469,343	$	2,072	$	781,134

As of September 30, 2019, the Company had executed the lease for its new corporate headquarters which commences on October 1, 2019. The total expected lease payments of $13.5 million are not reflected in the tables above. The lease term is 10.75 years.

11.FINANCING ARRANGEMENTS:

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

Maturity Dates Interest Rate December 31,
2017 June 30,
2017
(fiscal year) (Dollars in thousands)
Senior Term Notes, net 2020 5.50% $ 121,096
$ 120,599
Revolving credit facility 2018 — —
—
$ 121,096
$ 120,599

~~Senior Term Notes~~

In December 2015, the Company exchanged its $120.0 million 5.75% senior notes due December 2017 for $123.0 million 5.5% senior notes due December 2019 (Senior Term Notes). The Senior Term Notes were issued at a $3.0 million discount which is being amortized to interest expense over the term of the notes. Interest on the Senior Term Notes is payable semi-annually in arrears on June 1 and December 1 of each year. The Senior Term Notes are unsecured and not guaranteed by any of the Company’s subsidiaries or any third parties.

~~The following table contains details related to the Company's Senior Term Notes:~~

December 31, 2017 June 30, 2017
(Dollars in thousands)
Principal amount on the Senior Term Notes $ 123,000
$ 123,000
Unamortized debt discount (1,439 ) (1,815 )
Unamortized debt issuance costs (465 ) (586 )
Senior Term Notes, net $ 121,096
$ 120,599

Revolving Credit Facility



	Maturity Date	Interest Rate	September 30, 2019		June 30, 2019
	(Fiscal Year)		(Dollars in thousands)
Revolving credit facility	2023	3.69%	$	90,000	$	90,000

~~The Company has a $200 million five-year unsecured revolving credit facility that expires in June 2018. The revolving credit facility has interest rates tied to LIBOR credit spread.~~

As of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, the Company ~~had no~~has $90 million of outstanding borrowings under ~~this~~a $295.0 million revolving credit facility. ~~The~~At September 30, 2019 and June 30, 2019, the Company ~~had~~has outstanding standby letters of credit under the revolving credit facility of ~~$1.5~~$21.5 million, ~~at December 31, 2017 and June 30, 2017,~~ primarily related to the Company's self-insurance ~~program, therefore,~~program. The unused available credit under the facility ~~at December 31, 2017~~was $183.5 million as of September 30, 2019 and June 30, ~~2017~~2019. Amounts outstanding under the revolving credit facility are due at maturity in March 2023.

Sale and Leaseback Transaction

The Company’s long-term financing liabilities consists of the following:



	Maturity Date	Interest Rate	September 30, 2019		June 30, 2019
	(Fiscal Year)		(Dollars in thousands)
Financial liability- Salt Lake City Distribution Center	2034	3.30%	$	17,187	$	17,354
Financial liability- Chattanooga Distribution Center	2034	3.70%	11,532		11,556
Long-term financing liability			$	28,719	$	28,910

In fiscal year 2019, the Company sold its Salt Lake City and Chattanooga Distribution Centers to an unrelated party. The Company is leasing the properties back for 15 years with the option to renew. As the Company plans to lease the property for more than 75% of its economic life, the sales proceeds received from the buyer-lessor are recognized as a financial liability. This financial liability is reduced based on the rental payments made under the lease that are allocated between principal and interest. As of September 30, 2019, the current portion of the Company’s financing liability was ~~$198.5~~$0.9 million which was recorded in accrued expenses on the unaudited Condensed Consolidated Balance Sheet. The weighted average remaining lease term was 14.4 years and the weighted-average discount rate was 3.46% percent for financing leases as of September 30, 2019.

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



Fiscal Year	Salt Lake City		Chattanooga
Remainder of 2020	$	818	$	604
2021	1,157		817
2022	1,171		829
2023	1,186		842
2024	1,200		854
Thereafter	11,952		9,282
Total	$	17,484	$	13,228

The financing liability does not include interest. Future lease payments above are due per the lease agreement and include embedded interest. Therefore, the total payments do not equal the financing liability. As of September 30, 2019, total interest expense for financing leases was $0.3 million.

The Company was in compliance with all covenants and requirements of its financing arrangements as of and during the three months ended ~~December 31, 2017.~~

September 30, 2019.


9.	~~FAIR VALUE MEASUREMENTS:~~

12.FAIR VALUE MEASUREMENTS:

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, the estimated fair value of the Company’s cash, cash equivalents, restricted cash, receivables, ~~and~~ accounts payable, debt and long-term financial liabilities approximated their carrying values. ~~As of December 31, 2017, the~~The estimated fair ~~value~~values of the Company's debt ~~was $125.4 million~~ and ~~the carrying value was $123.0 million, excluding the $1.4 million~~ unamortized debt discount and $0.5 million unamortized debt issuance costs. As of June 30, 2017, the estimated fair value of the Company's debt was $125.9 million and the carrying value was $123.0 million, excluding the $1.8 million unamortized debt discount and $0.6 million unamortized debt issuance costs. The estimated fair value of the Company's debt islong-term financial liability are based on Level 2 inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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



	For the Three Months Ended September 30,
	2019		2018
	(Dollars in thousands)
Long-lived assets	$	1,517	$	1,831

For the Three Months Ended December 31, For the Six Months Ended December 31,
2017 2016 2017 2016
(Dollars in thousands)
Long-lived assets (1) $ (14,434 ) $ (2,477 ) $ (16,714 ) $ (4,386 )

~~_____________________________~~


~~(1)~~	~~See Note 1 to the unaudited Condensed Consolidated Financial Statements.~~

~~10.~~13.SEGMENT INFORMATION:

Segment information is prepared on the same basis that the chief operating decision maker reviews financial information for operational decision-making purposes. During the first quarter of fiscal year 2018, the Company redefined its operating segments to reflect how the chief operating decision maker now evaluates the business as a result of the Company's Board of Directors' approval of the mall-based business and International segment sale. See Note 1 to the unaudited Condensed

Consolidated Financial Statements. The Company now reports its operations in two operating segments: Company-owned salons and Franchise salons. The Company's operating segments are its reportable operating segments. Prior to this change, the Company had four operating segments: North American Value, North American Premium, North American Franchise, and International. The Company did not operate under the realigned operating segment structure prior to the first quarter of fiscal year 2018.

The Company’s reportable operating segments consisted of the following salons:


	December 31, 2017		June 30, 2017		September 30, 2019		June 30, 2019
COMPANY-OWNED SALONS:

SmartStyle/Cost Cutters in Walmart Stores (1)	2,497		2,652
FRANCHISE SALONS:
SmartStyle/Cost Cutters in Walmart Stores					825		615
Supercuts	954		980		2,456		2,340
Signature Style	1,414		1,468		948		766
Mall locations (Regis and MasterCuts)	—		898
Total North American Salons	4,865		5,998		4,229		3,721
Total International Salons (2)	—		275
Total Company-owned Salons	4,865		6,273
Total International Salons (1)					227		230
Total Franchise Salons					4,456		3,951
as a percent of total Company-owned and Franchise salons	55.3	%	70.3	%	63.6	%	56.0	%

FRANCHISE SALONS:

SmartStyle in Walmart Stores	210		62
Cost Cutters in Walmart Stores	116		114
COMPANY-OWNED SALONS:
SmartStyle/Cost Cutters in Walmart Stores					1,333		1,550
Supercuts	1,730		1,687		312		403
Signature Style	754		770		906		1,155
Total non-mall franchise locations	2,810		2,633
Mall franchise locations (Regis and MasterCuts)	849		—
Total North American Salons	3,659		2,633
Total International Salons (2)	270		13
Total Franchise Salons	3,929		2,646
Total Company-owned salons					2,551		3,108
as a percent of total Company-owned and Franchise salons	44.7	%	29.7	%	36.4	%	44.0	%

OWNERSHIP INTEREST LOCATIONS:

Equity ownership interest locations	89		89		85		86

Grand Total, System-wide	8,883		9,008
Grand Total, System-Wide					7,092		7,145


(1)	~~In January 2018, the Company closed 597 non-performing Company owned SmartStyle salons.~~


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


(2)	As of September 30, 2019, the Company-owned operating segment is comprised primarily of SmartStyle^®, Supercuts^®, Cost Cutters^®, and other regional trade names and the Franchise operating segment is comprised primarily of Supercuts^®, SmartStyle^®, Cost Cutters^®, First Choice Haircutters^®, Roosters^® and Magicuts^® concepts.

~~As of December 31, 2017, the Company-owned operating segment is comprised primarily of SmartStyle~~^®~~, Supercuts~~^®~~, Cost Cutters~~^®~~, and other regional trade names and the Franchise operating segment is comprised primarily of Supercuts, Regis~~^®~~, MasterCuts~~^®~~, SmartStyle~~^®~~, Cost Cutters~~^®~~, First Choice Haircutters~~^®~~, Roosters~~^® ~~and Magicuts~~^® ~~concepts. The Corporate segment represents home office and other unallocated costs.~~

Concurrent with the change in reportable segments, the Company recast its prior period financial information to reflect comparable financial information for the new segment structure. Historical financial information shown in the following table and elsewhere in this filing reflects this change. Financial information concerning the Company's reportable operating segments is shown in the following table:


	For the Three Months Ended December 31, 2017											For the Three Months Ended September 30, 2019
	Company-owned			Franchise		Corporate			Consolidated			Franchise		Company - owned		Corporate			Consolidated
	(Dollars in thousands)											(Dollars in thousands)
Revenues:
Service	$	223,214		$	—	$	—		$	223,214		$	—	$	141,941	$	—		$	141,941
Product	56,748			15,068		—			71,816			13,105		32,551		—			45,656
Royalties and fees	—			13,485		—			13,485			28,017		—		—			28,017
Franchise rental income												31,424		—		—			31,424
	279,962			28,553		—			308,515			72,546		174,492		—			247,038
Operating expenses:
Cost of service	134,850			—		—			134,850			—		90,482		—			90,482
Cost of product	28,044			11,820		—			39,864			10,280		16,047		—			26,327
Site operating expenses	32,119			—		—			32,119			10,426		22,516		—			32,942
General and administrative	17,947			6,869		23,776			48,592			8,357		10,150		22,118			40,625
Rent	65,159			70		244			65,473			190		23,789		285			24,264
Franchise rent expense												31,424		—		—			31,424
Depreciation and amortization	22,054			91		2,806			24,951			160		6,107		3,113			9,380
TBG restructuring (Note 3)												1,500		—		—			1,500
Total operating expenses	300,173			18,850		26,826			345,849			62,337		169,091		25,516			256,944
Operating (loss) income	(20,211		)	9,703		(26,826		)	(37,334		)

Operating income (loss)												10,209		5,401		(25,516		)	(9,906		)

Other (expense) income:
Interest expense	—			—		(2,169		)	(2,169		)	—		—		(1,439		)	(1,439		)
Loss on sale of salon assets to franchisees, net												—		—		(5,860		)	(5,860		)
Interest income and other, net	—			—		2,362			2,362			—		—		171			171
(Loss) income from continuing operations before income taxes	$	(20,211	)	$	9,703	$	(26,633	)	$	(37,141	)

Income (loss) from continuing operations before income taxes												$	10,209	$	5,401	$	(32,644	)	$	(17,034	)

For the Three Months Ended December 31, 2016
Company-owned Franchise Corporate Consolidated
(Dollars in thousands)
Revenues:
Service $ 235,609
$ —
$ —
$ 235,609
Product 60,636
7,593
—
68,229
Royalties and fees —
11,411
—
11,411
296,245
19,004
—
315,249
Operating expenses:
Cost of service 151,193
—
—
151,193
Cost of product 28,783
5,801
—
34,584
Site operating expenses 32,638
—
—
32,638
General and administrative 11,889
4,968
19,838
36,695
Rent 44,881
41
169
45,091
Depreciation and amortization 10,203
89
2,354
12,646
Total operating expenses 279,587
10,899
22,361
312,847
Operating income (loss) 16,658
8,105
(22,361 ) 2,402
Other (expense) income:
Interest expense —
—
(2,153 ) (2,153 )
Interest income and other, net —
—
1,452
1,452
Income (loss) from continuing operations before income taxes $ 16,658
$ 8,105
$ (23,062 ) $ 1,701


	For the Six Months Ended December 31, 2017										For the Three Months Ended September 30, 2018
	Company-owned		Franchise		Corporate			Consolidated			Franchise		Company-owned		Corporate			Consolidated
	(Dollars in thousands)										(Dollars in thousands)
Revenues:
Service	$	458,773	$	—	$	—		$	458,773		$	—	$	207,848	$	—		$	207,848
Product	109,966		22,790		—			132,756			15,629		41,962		—			57,591
Royalties and fees	—		26,859		—			26,859			22,396		—		—			22,396
	568,739		49,649		—			618,388			38,025		249,810		—			287,835
Operating expenses:
Cost of service	274,686		—		—			274,686			—		121,497		—			121,497
Cost of product	52,491		17,535		—			70,026			12,413		19,768		—			32,181
Site operating expenses	65,422		—		—			65,422			7,976		28,845		—			36,821
General and administrative	33,771		12,415		37,572			83,758			7,664		16,381		23,682			47,727
Rent	107,282		117		490			107,889			94		35,686		198			35,978
Depreciation and amortization	31,948		183		5,075			37,206			158		8,057		1,987			10,202
Total operating expenses	565,600		30,250		43,137			638,987			28,305		230,234		25,867			284,406

Operating income (loss)	3,139		19,399		(43,137		)	(20,599		)	9,720		19,576		(25,867		)	3,429

Other (expense) income:
Interest expense	—		—		(4,307		)	(4,307		)	—		—		(1,006		)	(1,006		)
Loss on sale of salon assets to franchisees, net											—		—		(3,960		)	(3,960		)
Interest income and other, net	—		—		3,389			3,389			—		—		360			360

Income (loss) from continuing operations before income taxes	$	3,139	$	19,399	$	(44,055	)	$	(21,517	)	$	9,720	$	19,576	$	(30,473	)	$	(1,177	)

For the Six Months Ended December 31, 2016
Company-owned Franchise Corporate Consolidated
(Dollars in thousands)
Revenues:
Service $ 478,700
$ —
$ —
$ 478,700
Product 116,949
14,996
—
131,945
Royalties and fees —
23,435
—
23,435
595,649
38,431
—
634,080
Operating expenses:
Cost of service 301,990
—
—
301,990
Cost of product 54,130
11,269
—
65,399
Site operating expenses 65,283
—
—
65,283
General and administrative 23,431
10,365
38,815
72,611
Rent 90,893
83
348
91,324
Depreciation and amortization 19,798
179
4,778
24,755
Total operating expenses 555,525
21,896
43,941
621,362
Operating income (loss) 40,124
16,535
(43,941 ) 12,718
Other (expense) income:
Interest expense —
—
(4,316 ) (4,316 )
Interest income and other, net —
—
1,779
1,779
Income (loss) from continuing operations before income taxes $ 40,124
$ 16,535
$ (46,478 ) $ 10,181

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. This MD&A should be read in conjunction with the MD&A included in our June 30, ~~2017~~2019 Annual Report on Form 10-K and other documents filed or furnished with the Securities and Exchange Commission (SEC) during the current fiscal year.

MANAGEMENT’S OVERVIEW

Regis Corporation (RGS) franchises, owns ~~franchises~~ and operates beauty salons. As of ~~December 31, 2017,~~September 30, 2019, the Company franchised, owned ~~franchised~~ or held ownership interests in ~~8,883~~7,092 worldwide locations. Our locations consisted of ~~8,794~~7,007 system-wide North American and International salons, and in 8985 locations we ~~maintain~~maintained a non-controlling ownership interest less than 100 percent. Each of the Company’s salon concepts generally offer similar salon products and services and serve the mass market. As of ~~December 31, 2017,~~September 30, 2019, we had approximately ~~30,000~~16,000 corporate employees worldwide.

~~In October~~ ~~2017, the Company sold substantially all of~~ ~~its mall-based salon business in~~ North America, representing 858 company-owned salons, and substantially all of its International segment, representing approximately 250 company-owned salons, to The Beautiful Group, who will operate these locations as franchise locations. See Note 1 to the unaudited Condensed Consolidated Financial Statements as the results of operations for the mall-based business and International segment are accounted for as discontinued operations for all periods presented. ~~Discontinued operations are discussed at the end of this section.~~

In December 2017 the Company committed to close 597 non-performing Company owned SmartStyle salons in January 2018. The 597 non-performing salons generated negative cash flow of approximately $15 million during the twelve months ended September 30, 2017. The action delivers on the Company's commitment to restructure its salon portfolio to improve shareholder value and position the Company for long-term growth. The Company anticipates this action will allow the Company to reallocate capital and human resources to strategically grow its remaining SmartStyle salons with creative new offerings. A summary of costs associated with the SmartStyle salon restructuring for the three and six months ended December 31, 2017 is as follows:

~~See Note 1 to the unaudited Condensed Consolidated Financial statements for additional information.~~

CRITICAL ACCOUNTING POLICIES

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

Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of the June 30, ~~2017~~2019 Annual Report on Form 10-K, as well as ~~Note~~Notes 1 and 2 to the unaudited Condensed Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q. We believe the accounting policies related to ~~investment in affiliates,~~ the valuation of goodwill, the valuation and estimated useful lives of long-lived assets, estimates used in relation to tax liabilities, and deferred taxes ~~and legal contingencies~~ are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Discussion of each of these policies is contained under “Critical Accounting Policies” in Part II, Item 7 of our June 30, ~~2017~~2019 Annual Report on Form 10-K. Our updated policies on the amended revenue recognition guidance, ASC Topic 606, can be found in Note 2 to the unaudited Condensed Consolidated Financial Statements.

Recent Accounting Pronouncements

The Company adopted the amended leasing guidance, Topic 842, on July 1, 2019 using the modified retrospective method which required the adjustment of only the current reporting period presented. Recent accounting pronouncements are discussed in ~~Note~~detail in Notes 1 and 10 to the unaudited Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS

~~Beginning in the first quarter~~Impact of ~~fiscal year 2018, the Company redefined its operating segments~~salons sold to reflect how the chief operating decision maker evaluates the business as a result of the sale of the mall-based business (primarily comprised of MasterCuts and Regis branded salons) and International segment. The Company now reports its operations in two operating segments: Company-owned salons and Franchise salons. The Company's operating segments are its reportable operating segments. Prior to this change, the Company had four operating segments: North American Value, North American Premium, North American Franchise, and International.franchisees on operations.

Beginning with the period ended September 30, 2017, the mall-based business and International segment were accounted for as discontinued operations for all periods presented. Discontinued operations are discussed at the end of this section. ~~See Note 1 to the unaudited Condensed Consolidated Financial Statements for further discussion on this transaction.~~

Beginning in the first quarter of fiscal year 2018, costs associated with field leaders that were previously recorded within Cost of Service and Site Operating expense are now categorized within General and Administrative expense as a result of the field reorganization that took place in the first quarter of fiscal year 2018. The estimated impact of the field reorganization (decreased) increased Cost of Service, Site Operating expense and General and Administrative expense by ~~($7.2), ($1.7) and $8.9 million, respectively, for~~In the three months ended ~~December 31, 2017 and ($12.3), ($2.8) and $15.1 million, respectively, for~~September 30, 2019, the ~~six months ended December 31, 2017. This expense classification does not have a financial~~Company sold 545 company-owned salons to franchisees. The impact ~~on the Company's reported operating (loss) income, reported net income (loss) or cash flows from operations.~~of these transactions are as follows:

In the past field leaders were responsible for a geographical area that included a variety of brands, with different business models, services, pay plans and guest expectations. They also served as salon managers with a home salon that they spent a large portion of their time serving guests rather than field leadership. Post-reorganization, each field leader is dedicated



	Three Months Ended September 30,						Increase
(Dollars in thousands)	2019			2018			Increase

Salons sold to franchisees	545			124			421
Cash proceeds received in quarter	$	37,945		$	12,422		$	25,523

Gain on sale of venditions, excluding goodwill derecognition	26,223			7,132			19,091
Non-cash goodwill derecognition	(32,083		)	(11,092		)	20,991
Loss on sale of salon assets to franchisees, net	$	(5,860	)	$	(3,960	)	$	(1,900	)

System-wide results

As we transition to ~~a specific brand/concept, as well as geography, and are focused solely on field leadership.~~

~~The~~an asset-light franchise platform our results ~~of operations for the three and six months ended December 31, 2017 were~~will be more impacted by ~~Hurricanes Harvey, Irma~~our system-wide sales, which include sales by all points of distribution, whether owned by the Company or our franchisees. While we do not record sales by franchisees as revenue, and ~~Maria. A total~~such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of ~~3,697 salon days were lost as 768 salons were closed at least one day during the year. The Company estimates revenues~~our financial performance. We believe system-wide sales information aids in understanding how we derive royalty revenue and ~~expenses~~in evaluating performance.

System-wide same-store sales by concept are detailed in the ~~three and six months ended December 31, 2017 were (reduced) increased by ($0.2) and $0.1 million, respectively, and ($2.6) and $0.8 million, respectively.~~table below:



	Three Months Ended September 30,
	2019		2018
SmartStyle	(2.2	)%	1.0	%
Supercuts	0.2		0.8
Signature Style	(1.7	)	0.6

Consolidated system-wide same store sales	(1.1	)%	0.8	%

_____________________________

(1)

System-wide same-store sales are calculated as the total change in sales for system-wide company-owned and franchise locations for more than one year that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date system-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Locations relocated within a one-mile radius are included in same-store sales as they are considered to have been open in the prior period. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.

Condensed Consolidated Results of Operations (Unaudited)

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


	For the Periods Ended December 31,
	Three Months														Six Months														For the Three Months Ended September 30,
	2017			2016			2017		2016		2017		2016		2017			2016			2017		2016		2017		2016		2019			2018			2019		2018		2019		2018
	($ in millions)						% of Total Revenues (1)				Basis Point (Decrease) Increase				($ in millions)						% of Total Revenues (1)				Basis Point (Decrease) Increase				($ in millions)						% of Total Revenues (1)				Basis Point (Decrease) Increase
Service revenues	$	223.2		$	235.6		72.3	%	74.7	%	(240	)	(160	)	$	458.8		$	478.7		74.2	%	75.5	%	(130	)	30		$	141.9		$	207.8		57.5	%	72.2	%	(1,470	)	(250	)
Product revenues	71.8			68.2			23.3		21.7		160		170		132.8			131.9			21.5		20.8		70		(30	)	45.7			57.6			18.5		20.0		(150	)	70
Franchise royalties and fees	13.5			11.4			4.4		3.6		80		(10	)	26.9			23.4			4.3		3.7		60		—
Royalties and fees																													28.0			22.4			11.3		7.8		350		180
Franchise rental income																													31.4			—			12.7		—		1,270		—

Cost of service (2)	134.9			151.2			60.4		64.2		(380	)	110		274.7			302.0			59.9		63.1		(320	)	60		90.5			121.5			63.7		58.5		520		(80	)
Cost of product (2)	39.9			34.6			55.5		50.7		480		40		70.0			65.4			52.7		49.6		310		40		26.3			32.2			57.7		55.9		180		640
Site operating expenses	32.1			32.6			10.4		10.4		—		(50	)	65.4			65.3			10.6		10.3		30		(60	)	32.9			36.8			13.3		12.8		50		10
General and administrative	48.6			36.7			15.8		11.6		420		(150	)	83.8			72.6			13.5		11.5		200		(110	)	40.6			47.7			16.4		16.6		(20	)	550
Rent	65.5			45.1			21.2		14.3		690		10		107.9			91.3			17.4		14.4		300		10		24.3			36.0			9.8		12.5		(270	)	(90	)
Franchise rent expense																													31.4			—			12.7		—		1,270		—
Depreciation and amortization	25.0			12.6			8.1		4.0		410		(10	)	37.2			24.8			6.0		3.9		210		(30	)	9.4			10.2			3.8		3.5		30		(40	)
TBG restructuring																													1.5			—			0.6		—		60		—

Operating (loss) income	(37.3		)	2.4			(12.1	)	0.8		(1,290	)	100		(20.6		)	12.7			(3.3	)	2.0		(530	)	150
Operating loss (income)																													(9.9		)	3.4			(4.0	)	1.2		(520	)	(370	)

Interest expense	2.2			2.2			0.7		0.7		—		—		4.3			4.3			0.7		0.7		—		—		(1.4		)	(1.0		)	(0.6	)	(0.3	)	(30	)	40
Loss on sale of salon assets to franchisees, net																													(5.9		)	(4.0		)	(2.4	)	(1.4	)	(100	)	(140	)
Interest income and other, net	2.4			1.5			0.8		0.5		30		20		3.4			1.8			0.5		0.3		20		—		0.2			0.4			0.1		0.1		—		—

Income tax benefit (expense) (3)	76.5			(0.7		)	205.9		42.3		N/A		N/A		71.6			(3.5		)	332.9		34.0		N/A		N/A
Income tax benefit (3)																													2.9			0.7			16.8		25.7		N/A		N/A

Loss from discontinued operations, net of taxes	(6.6		)	(3.2		)	(2.1	)	(1.0	)	(110	)	(160	)	(40.4		)	(5.7		)	(6.5	)	(0.9	)	(560	)	(60	)
Income (loss) from discontinued operations, net of income taxes																													0.4			(0.3		)	0.2		(0.1	)	30		1,060

Franchise Salons



	For the Three Months Ended September 30,
	2019			2018			2019
	(Dollars in millions)						Increase/(Decrease)
Revenue
Product	$	11.8		$	10.1		$	1.7
Product sold to TBG	1.3			5.5			(4.2		)
Total product	$	13.1		$	15.6		$	(2.5	)
Royalties and fees (1)	28.0			22.4			5.6
Franchise rental income	31.4			—			31.4
Total franchise salons revenue (2)	$	72.5		$	38.0		$	34.5

Franchise same-store sales (3)	(0.1		)%	1.2		%	(1.3		)%

Operating income	$	10.2		$	9.1		$	1.1
Operating income from TBG	—			0.6			(0.6		)
Total operating income (2)	$	10.2		$	9.7		$	0.5

_______________________________________________________________________________

For the Three Months Ended December 31, For the Six Months Ended December 31,
2017 2016 2017 2016 2017 2016 2017 2016
(Dollars in millions) Increase (Decrease) (Dollars in millions) Increase (Decrease)
Revenue
Product $ 15.1
$ 7.6
$ 7.5
$ (0.7 ) $ 22.8
$ 15.0
$ 7.8
$ (0.8 )
Royalties and fees 13.5
11.4
2.1
(0.2 ) 26.9
23.4
3.4
(0.2 )
Total franchise salons revenue (1) $ 28.6
$ 19.0
$ 9.5
$ (0.9 ) $ 49.6
$ 38.4
$ 11.2
$ (1.0 )

Operating income $ 9.7
$ 8.1
$ 1.6
$ (0.1 ) $ 19.4
$ 16.5
$ 2.9
$ 0.4


(1)	Total includes $0.5 million of royalties related to TBG during the three months ended September 30, 2018.


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

(3)

Franchise same-store sales are calculated as the total change in sales for salons that have been a franchise location for more than one year that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Locations relocated within a one-mile radius are included in same-store sales as they are considered to have been open in the prior period. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. TBG is not included in either period same-store sales.

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



	Three Months Ended September 30,
	2019		2018
SmartStyle	(7.5	)%	(2.1	)%
Supercuts	1.1		1.2
Signature Style	(0.7	)	1.4

Total	(0.1	)%	1.2	%

Franchise Salon Revenues

Franchise salon revenues ~~increased $9.5 million and $11.2~~were $72.5 million during the three ~~and six~~ months ended ~~December 31, 2017, respectively,~~September 30, 2019 an increase of $34.5 million over the prior comparable period. The increase during the three months ended September 30, 2019, was primarily due to ~~increases~~revenue of ~~$7.5~~$31.4 million associated with the adoption of Topic 842 and ~~$7.8~~an increase of $5.6 million ~~respectively,~~in royalties, ad fund revenue, fees and product sales due to higher franchise salon counts, offset by a decrease of $4.2 million in franchise product sales ~~primarily due~~ to product sold to The Beautiful Group and $2.1 and $3.4 million, respectively, in increased royalties and fees, primarily as a result of increased franchised locations. The increase in royalties and fees was also due to an increase in the number of new salons opened in the first six months compared to the prior year.TBG. During the twelve months ended ~~December 31, 2017,~~September 30, 2019, franchisees constructed (net of relocations) and closed ~~108~~59 and ~~127~~170 franchise-owned salons, respectively, and purchased (net of Company buybacks) ~~266 salons from the Company and 1,134 salons previously included in the Company's previous mall-based business and International segment during the same period.~~

Franchise salon revenues decreased $0.9 and $1.0 million during the three and six months ended December 31, 2016, respectively, due to $0.7 and $0.8 million decreases in franchise product sales, respectively and $0.2 million decreases in royalties and fees. The decreases in royalties and fees were primarily due to lower franchise fees and a higher level of franchise termination fees in the prior year, partly offset by the increased number of franchised locations and same-store sales increases at franchised locations. During the twelve months ended December 31, 2016, franchisees constructed (net of relocations) and closed 165 and 70 franchise-owned salons, respectively, and purchased (net of Company buybacks) 271,143 salons from the Company during the same period. Additionally, in June 2019 the Company converted 569 TBG locations to license agreements.

Franchise Salon Operating Income

During the three months ended September 30, 2019, Franchise salon operations generated an operating income ~~increased $1.6 and $2.9~~of $10.2 million, an increase of $0.5 million compared to the prior comparable period. The increase during the three ~~and six~~ months ended ~~December 31, 2017, respectively,~~September 30, 2019 was primarily due to higher royalties, fees and product sales associated with the ~~increased number of new franchised locations. Franchise~~increase in salon ~~operating income~~count and higher costs associated with supporting the growing franchise segment.

Company-owned Salons



	For the Three Months Ended September 30,
	2019			2018			(Decrease) Increase
	(Dollars in millions)
Total revenue	$	174.5		$	249.8		(30.2	)%
Company-owned same-store sales	(2.0		)%	0.5		%

Operating income	$	5.4		$	19.6		(72.4	)%

Company-owned Salon Revenues

Company-owned same-store sales by concept are detailed in the table below:



	For The Three Months Ended September 30,
	2019		2018
SmartStyle	(1.2	)%	1.1	%
Supercuts	(3.9	)	0.2
Signature Style	(2.4	)	0.2

Total	(2.0	)%	0.5	%

Company-owned salon revenues decreased ~~$0.1~~by $75.3 million during the three months ended December 31, 2016 primarily due to lower franchise product sales and franchise fees, partly offset by timing of annual franchise convention. Franchise salon operating income increased $0.4 million during the six months ended December 31, 2016September 30, 2019 which was primarily due to the ~~prior year including bad debt expense~~sale of 1,143 company-owned salons (net of buybacks) to franchisees and ~~one-time compensation benefits~~the closure of 147 salons during the ~~period,~~twelve months ended September 30, 2019. The decrease was also due to company-owned same-store sale decreases of 2.0% during the three months ended September 30, 2019. The company-owned same-store sales decreases were due to decreases of 5.0% in same-store guest transactions, partly offset by ~~lower franchise product sales and franchise fees.~~increases of 3.0% in average ticket price during the three months ended September 30, 2019.

Company-owned Salon Operating Income

During the three months ended September 30, 2019, Company-owned salon operations generated operating income of $5.4 million compared to $19.6 million in the prior comparable period. The decrease during the three months ended September 30, 2019 was primarily due to the net reduction in company-owned salons.

Corporate

Corporate Operating Loss

Corporate operating loss ~~increased $4.5~~decreased $0.4 million during the three months ended ~~December 31, 2017~~September 30, 2019 primarily driven by ~~a year over year increase in incentive compensation accruals, severance associated with terminations of former executives~~lower general and ~~professional fees, partly~~administrative salaries and bonuses, partially offset by ~~savings realized from Company initiatives. Corporate operating loss decreased $0.8 during~~ the six months ended December 31, 2017 primarily driven by a gain associated with life insurance proceeds in connection with the passing of a former executive officer and savings realized from Company initiatives, partly offset by year over year increase in incentive compensation accruals, severance associated with terminations of former executives and professional fees.franchise convention.

Corporate operating loss decreased $4.1 and $6.5 million during the three and six months ended December 31, 2016 primarily due to the prior certain costs in the prior year quarter, timing, and cost savings, partly offset by planned strategic investments in Technical Education, partly offset by one-time compensation benefits.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

Funds generated by operating activities, available cash and cash equivalents, proceeds from sale of salon assets to franchisees, and ~~our~~ borrowing agreements are ~~our~~the Company's most significant sources of liquidity.

As of ~~December 31, 2017,~~September 30, 2019, cash and cash equivalents were ~~$163.3~~$58.9 million, with ~~$146.6, $16.6~~$47.3 million and ~~$0.1~~$11.6 million within the United States ~~Canada,~~ and ~~Europe,~~Canada, respectively.

The Company's borrowing ~~agreements~~arrangements include ~~$123.0 million 5.5% senior notes due December 2019 (Senior Term Notes) and~~ a ~~$200.0~~$295.0 million five-year unsecured revolving credit facility that expires in ~~June 2018,~~March 2023, of which ~~$198.5~~$183.5 million was ~~unused~~available as of ~~December 31, 2017.~~September 30, 2019. See Note 811 to the unaudited Condensed Consolidated Financial Statements.

Uses of Cash

The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the level of investment needed to support its business strategies, the performance of the business, capital expenditures, credit facilities and borrowing arrangements and working capital management. Capital expenditures are a component of the Company's cash flow and capital management strategy, which can be adjusted in response to economic and other changes to the Company's business environment. The Company has a disciplined approach to capital allocation, which focuses on investing in key priorities to support the Company's multi-year strategic plan as discussed within Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017.~~2019.

Cash Flows

Cash Flows from Operating Activities

During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, cash used in operating activities ~~of $12.3~~was $13.5 million, a decrease of ~~$39.9~~$3.7 million compared to the prior comparable ~~period,~~period. The decrease in cash used was primarily due to lower annual bonus payments in the ~~payment of lease termination and other related closure costs associated with the Company's SmartStyle restructuring.~~

~~During the six~~three months ended ~~December 31, 2016, cash provided by operating activities of $27.6 million increased $15.0 million~~September 30, 2019 compared to the ~~prior comparable period,~~three months ended September 30, 2018.Cash from operations was used primarily ~~due~~for strategic investments in general and administrative expenses to ~~higher inventory purchases in~~enhance the ~~prior year.~~Company's franchisor capabilities and support the increased volume and cadence of transactions and conversions into the Franchise portfolio, partially offset by the elimination of certain general and administrative costs.

Cash Flows from Investing Activities

During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, cash provided by investing activities of ~~$5.3~~$32.0 million, an increase of $6.2 million compared to the prior comparable period, was primarily from proceeds from company-owned life insurance policies of $18.1 million and cash proceeds from sale of salon assets of $2.7 million, partly offset by capital expenditures of $14.9 million and a change in restricted cash of $0.5 million.

During the six months ended December 31, 2016, cash used in investing activities of $17.3 million was primarily for capital expenditures of $18.4 million, partly offset by a change in restricted cash of $0.7 million and cash proceeds from the sale of salon assets of ~~$0.3~~$37.9 million, partly offset by capital expenditures of $4.9 million.

Cash Flows from Financing Activities

During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, cash used in financing activities of ~~$2.4~~$30.3 million, an increase of $9.0 million compared to the prior comparable period, was ~~for employee taxes paid for shares withheld~~primarily from the repurchase of ~~$2.0 million and settlement~~common stock of ~~equity awards of $0.4~~$28.2 million.

~~During the six months ended December 31, 2016, cash used in financing activities of $1.1 million was for employee taxes paid for shares withheld.~~

Financing Arrangements

See Note 811 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2017~~September 30, 2019 and Note 7 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017,~~2019, for additional information regarding our financing arrangements.

Debt to Capitalization Ratio

Our debt to capitalization ratio, calculated as the principal amount of debt as a percentage of the principal amount of debt and shareholders’ equity at fiscal quarter end, ~~were~~was as follows:

As of
Debt to
Capitalization

Basis Point
(Decrease) Increase (1)
December 31, 2017 18.9 % (60 )
June 30, 2017 19.5 % 40



As of	Debt to Capitalization (1)		Basis Point Increase (Decrease) (2)
September 30, 2019	29.5	%	270
June 30, 2019	26.8	%	1,120

_____________________________


(1)	Debt includes long-term debt and financing liabilities. It excludes the long-term lease liability as that liability is off-set by the right of use asset and does not impact the Company's debt covenants.

~~(1)~~(2) Represents the basis point change in debt to capitalization as compared to the prior fiscal year end (June 30, ~~2017)~~2019 and

June 30, 2018, respectively).

The 60 basis point decrease in the debt to capitalization ratio as of December 31, 2017 as compared to June 30, 2017 was primarily due to increases to shareholders equity resulting from the impact of changes in federal tax legislation during the six months ended December 31, 2017, partially offset by the non-cash impairment charge associated with the franchising the Company's previously owned mall-based and International segment and costs associated with the Company's restructuring of its SmartStyle portfolio.

~~The 40~~270 basis point increase in the debt to capitalization ratio as of ~~June~~September 30, ~~2017~~2019, as compared to June 30, ~~2016~~2019, was primarily due to ~~net reductions to~~decreases in shareholders' equity resulting from ~~net losses~~the repurchase of 1.5 million of the Company's shares for $26.3 million, and ~~foreign currency translation adjustments.~~the liability associated with the sale leasebacks of the Company's distribution centers.

Share Repurchase Program

In May 2000, the Company’s Board of Directors (Board) approved a stock repurchase program with no stated expiration date. Since that time and through ~~December 31, 2017,~~September 30, 2019, the Board has authorized ~~$450.0~~$650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depend on many factors, including the market price of the common stock and overall market conditions. ~~At December 31, 2017, 18.4~~During the three months ended September 30, 2019, the Company repurchased 1.5 million shares for $26.3 million. As of September 30, 2019, 30.0 million shares have been cumulatively repurchased for ~~$390.0~~$595.4 million, and ~~$60.0~~$54.6 million ~~remained~~remains outstanding under the approved stock repurchase program. ~~No shares were repurchased in the three months ended December 31, 2017.~~

SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain ~~“forward-looking statements”~~"forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect ~~management’s~~management's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, ~~“may,” “believe,” “project,” “forecast,” “expect,” “estimate,” “anticipate,”~~"may," "believe," "project," "forecast," "expect," "estimate," "anticipate," and ~~“plan.”~~"plan." In addition, the following factors could affect the ~~Company’s~~Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include the continued ability of the Company to implement its strategy, priorities and initiatives; our and our franchisee's ability to attract, train and retain talented stylists; financial performance of our franchisees; acceleration of sale of ~~certain~~ salons to franchisees; if our capital investments in improving technology do not achieve appropriate returns; our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, employees, vendors or Company information; The Beautiful Group's inability to operate its salons successfully, as well as maintain adequate working capital; the ability of the Company to maintain a satisfactory relationship with Walmart; ~~the success of The Beautiful Group, our largest franchisee;~~ marketing efforts to drive traffic; changes in regulatory and statutory laws including increases in minimum wages; our ability to ~~manage cyber threats~~maintain and ~~protect~~enhance the ~~security~~value of ~~sensitive information about~~ our ~~guests, employees, vendors or Company information;~~brands; premature termination of agreements with our franchisees; reliance on information technology systems; reliance on external vendors; consumer shopping trends and changes in manufacturer distribution channels; competition within the personal hair care industry; changes in tax exposure; changes in healthcare; changes in interest rates and foreign currency exchange rates; failure to standardize operating processes across brands; ~~consumer shopping trends and changes in manufacturer distribution channels;~~ financial performance of Empire Education Group; the continued ability of the Company to implement cost reduction initiatives; compliance with debt covenants; changes in economic conditions; changes in consumer tastes and fashion trends; exposure to uninsured or unidentified risks; ~~ability to attract and retain key management personnel;~~ reliance on our management team and other key personnel or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth in the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2019. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms ~~10-K, 10-Q~~10-K,10-Q and 8-K and Proxy Statements on Schedule 14A.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has been no material change to the factors discussed within Part II, Item 7A in the Company’s June 30, ~~2017~~2019 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period. Based on their evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of ~~December 31, 2017.~~September 30, 2019.

Changes in Internal Controls over Financial Reporting

During the three months ended September 30, 2019, we adopted new guidance for lease accounting. We implemented internal controls to ensure we adequately evaluated leasing arrangements and properly assessed the impact of the new guidance to facilitate the adoption. Additionally, we implemented new business processes, internal controls, and modified information technology systems to assist in the ongoing application of the new guidance. There were no other changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017,~~2019, except for the revisions to the ~~first five risk factors listed below and the addition of the last~~seventh risk factor listed below:

~~We are in the process of implementing a new strategy, priorities and initiatives under our recently appointed President and Chief Executive Officer, and any~~TBG’s inability to ~~execute and evolve our strategy over time~~operate its salons successfully could adversely ~~impact~~affect our business, financial condition and ~~results of operations.~~

Hugh E. Sawyer became our President and Chief Executive Officer and a member of the Board of Directors effective April 17, 2017. The transition has resulted in, and could further result in, changes in business strategy as Mr. Sawyer seeks to continue to improve the performance of company-owned salons while at the same time accelerate the growth of our franchise model. As part of our strategic transformation, we announced that we were reviewing strategic alternatives for our mall-based salons, which culminated in the sale and franchise of those salons announced on October 1, 2017; reorganized our field structure by brand/concept in August 2017; announced January 8, 2018 that we would be closing 597 non-performing company owned SmartStyle salons (including 8 TGF salons) as part of the operational restructuring of the SmartStyle portfolio; and implemented a 120-day plan and other initiatives, including investments in digital marketing and a SmartStyle mobile application designed to improve the guest experience.

Our success depends, in part, on our ability to grow our franchise model. We announced plans in fall 2016 to expand the franchise side of our business, including by selling certain company-owned salons to franchisees over time. In January 2017, we began franchising the SmartStyle brand throughout the U.S. for the first time, and during the second half of fiscal 2017, we entered into agreements to sell 233 of our company-owned salons across our brands to new and existing franchisees.

In October 2017, we sold substantially all of our mall-based salons, consisting of 858 Regis Salons and MasterCuts locations, and substantially all of our International business to a new, single franchisee, The Beautiful Group. Growth and development of our franchise model is ongoing. During the first half of fiscal year 2018 and through January 23, 2018, we entered into agreements to sell 310 of our company-owned salons across our brands to new and existing franchisees (of which 284 were SmartStyle salons). It will take time to execute, and may create additional costs, expose us to additional legal and compliance risks, cause disruption to our current business and impact our short-term operating results.

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

In addition to a new President and Chief Executive Officer, since May 2017 we have appointed a new President of Franchise, Chief Financial Officer, Chief Marketing Officer, Chief Human Resources Officer, General Counsel, Vice President of Walmart Relations and Vice President Creative, and over the next fiscal year we may add personnel in a number of key positions, which may further result in new strategies, priorities and initiatives. The process of implementing any new strategies, priorities and initiatives involves inherent risks and the changes we implement could harm our relationships with customers, suppliers, employees or other third parties and may be disruptive to our business. While we believe the pursuit of these changes will have a positive effect on our business in the long term, we cannot provide assurance that these changes will lead to the desired results. If we do not effectively and successfully execute on these changes, it could have a material adverse effect on our business.

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

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

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

During fiscal 2017, we accelerated the sale of company-owned salons to new and existing franchisees. Specifically, in January 2017, we began offering SmartStyle franchises for the first time, and during the second half fiscal 2017 we entered into agreements to refranchise 233 salons across our brands. During the first half of fiscal 2018 through January 23, 2018, we entered into agreements to sell 310 of our company-owned salons across our brands to new and existing franchisees (of which 284 were SmartStyle salons). In October 2017, we sold substantially all of our mall-based salons and substantially all of our International business to The Beautiful Group, who will operate these approximately 1,100 salons as our largest franchisee.

Success will depend on a number of factors, including franchisees’ ability to improve the results of the salons they purchase and their ability and interest in continuing to grow their business. We also must continue to attract qualified franchisees and work with them to make their business successful. Moving a salon from company-owned to franchise-owned is expected to reduce our consolidated revenues, increase our royalty revenue and decrease our operating costs; however, the actual benefit from a sale is uncertain and may not be sufficient to offset the loss of revenues.

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

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

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

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

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

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

~~A significant portion of our franchise business is dependent on the success of a new, single franchisee.~~

In October 2017, we sold substantially all of our mall-based salon business in North America and substantially all of our International segment to The Beautiful Group, an affiliate of Regent, who will operate them as our new, largest franchisee. The success of this franchise arrangement will depend upon a number of factors that are beyond our control, including, among other factors, market conditions, industry trends, the capabilities of the new franchisee, and technology and landlord issues. In particular, we remain liable under the leases for these salons until the end of their various terms, and so could be required to make payments if The Beautiful Group fails to do so, which could adversely impact our results of operations or cash flows.

~~Under the franchise agreement, we will receive franchise royalties, fees for certain transition services, and product sales revenue going forward; however, the amount of these items is tied~~TBG’s inability to the success of the business as operated by The Beautiful Group. It will take time for The Beautiful Group to implement the changes intended to improve the business of the mall-based salons and the International business, and there is no assurance that it will be successful in doing so. Under our agreements, the franchise royalties are based on annual salon revenue and they increase over time. As a result, this transaction will provide minimal revenues to us in the short term and such revenues are uncertain in future periods. We have also agreed to provide ongoing and transition services to The Beautiful Group and it is possible that our costs to provide these services may be greater than the fees that we have negotiated in return for them. The inability of The Beautiful Group to transition and operate ~~the~~its salons successfully could adversely affect our business, financial condition and results of operations or cash flows, and could prevent the transaction from delivering the anticipated benefits and enhancing shareholder value. In October 2017, we sold substantially all of our mall-based salon business in North America and substantially all of our International segment to TBG, an affiliate of Regent, which is operating the salons in North America as a licensee (from October 2017 to June 2019 TBG operated them as a franchisee) and the salons in the United Kingdom as a franchisee. The success of TBG depends upon a number of factors that are beyond our control, including, among other factors, market conditions, retail trends in mall locations, industry trends, stylist recruiting and retention, customer traffic, as defined by total transactions, the capabilities of TBG, the accuracy and reliability of TBG’s financial reporting systems, TBG 's ability to maintain adequate working capital, technology and landlord issues. In particular, as of September 30, 2019, prior to any mitigation efforts which may be available to us, we estimate that we remain liable for up to $35 million, which is a material reduction from October 1, 2017 of approximately $140 million, under the leases for certain of these salons until the end of their various terms, and we could be required to make cash payments if TBG fails to do so, which could materially adversely impact our results of operations or cash flows. TBG has struggled to make changes that improve the business of the mall-based salons and the International business. TBG’s same store sales have declined year over year. In addition, several of the services we provided to TBG under the transition services agreement ended in the fourth quarter of fiscal year 2018, thereby ending this income stream. In connection with the purchase agreements, subleases, transition services and other related agreements with the Company, TBG has been consistently delinquent on its payments to the Company and to third parties. TBG’s continued failure to pay landlords, suppliers, service providers and other third parties could adversely affect the Company’s relationships with such third parties and/or result in an allegation by such third parties that the Company should be responsible for TBG’s payment obligations, which in turn could adversely affect the Company’s operations and financial condition.

On June 27, 2019, the Company entered into a Second US and Canada Omnibus Settlement Agreement with TBG as previously disclosed, which, among other things, notes that TBG has entered into lease termination and concession agreements with certain landlords which had the effect of reducing the Company’s potential lease liability in connection with TBG operated salons and substituted the master franchise agreement for a license agreement in North America only. In addition, pursuant to the settlement agreement, the Company released and forgave TBG from, among other amounts, approximately $6.6 million in respect of amounts for inventory invoiced through January 17, 2019, $1.3 million in respect of continuing fees invoiced through April 5, 2019, $28,000 in respect of amounts for services under the transition services agreement, and the obligations under the United States and Canada Secured Promissory Notes dated August 2, 2018 representing approximately $11.7 million in working capital receivables and $8.0 million in accounts receivable, plus accrued interest, which had a maturity date of August 2, 2020. Based on TBG’s inability to meet the requirements of the promissory notes, the Company prior to the settlement agreement, recorded a full reserve against the promissory notes (including the remaining United Kingdom promissory note). Risks and other issues related to franchisees described elsewhere in these risk factors still apply to TBG for the most part even though the Company and TBG now have a licensor-licensee instead of a franchisor-franchisee relationship. Even with the settlement agreement and after its implementation, TBG has struggled to successfully turnaround its North America business. Based upon additional information received from TBG in October 2019, the Company expects TBG to default on its obligations under the subleases and to certain other third parties and the Company intends to make arrangements to satisfy its liabilities under the approximately 225 store leases. The Company believes this satisfaction could be achieved by, among other options, reverting the stores and operating them corporately, attempting to transition some or all the stores to one or more franchisees or licensees and/or negotiating lease termination and settlement agreements with one or more landlords.

With regard to TBG’s United Kingdom business, in October 2018, TBG filed a voluntary insolvency proceeding involving its United Kingdom business, which its creditors approved ("CVA"). In November 2018, a group of landlords filed a legal challenge to the CVA in United Kingdom’s High Court alleging material irregularity and unfair prejudice. If the CVA is overturned, or is otherwise not implemented, it is likely that TBG’s United Kingdom business will no longer be able to trade as a going concern, which is likely to result in bankruptcy and/or administrative proceedings. Even if the CVA is implemented and the challenge overturned or a settlement reached, TBG may still not successfully achieve the cost savings and other benefits contemplated by the CVA. Negative events associated with the CVA process and challenge could adversely affect TBG’s and/or our relationships with suppliers, service providers, customers, employees, and other third parties, which in turn could adversely affect TBG’s and/or our operations and financial condition. We had previously agreed in the note documents that a CVA filing would not constitute an item of default. TBG’s debt obligations in the United Kingdom to us currently remain intact and the Company has fully reserved against such obligations; however, TBG has failed to make required debt payments and the Company provided notice of default to TBG on October 22, 2019. On October 23, 2019, the Company, as holder of a qualifying secured position to TBG’s United Kingdom business entity (“TBG UK Entity”), filed a notice of appointment of an administrator over the TBG UK Entity and its holding company. Accordingly, TBG’s United Kingdom business is subject to the risks and uncertainties associated with administration proceedings in the United Kingdom. Based upon this development, there appears to be an increased likelihood that the Company may exercise one or more of its rights, which include, without limitation, reverting the approximately 200 stores based in the United Kingdom from TBG and operating such stores corporately, attempting to transition some or all such stores to one or more franchisees or licensees and/or or negotiating lease termination and settlement agreements with one or more landlords .

As a result of its current situations in the United States and United Kingdom, TBG may experience, without limitation, increased levels of employee attrition, customer losses, and supplier interruption. A loss of key personnel or material erosion of the employee base as well as fruition of other risks could adversely affect TBG’s business and results of operations making it difficult for TBG, the Company or a third party to attempt to turnaround all or a portion of the business at a future date. The Company has certain rights and remedies under the various agreements with TBG, including, but not limited to, utilization of collateral, litigation, and reversion of the leases in respect of certain divested salons back to the Company. If the divested salons were to revert as the Company expects may occur, we may have difficulty supporting the businesses because of the challenges involved in quickly and sufficiently staffing the salons and corporate functions to support an influx in company-owned stores, addressing the stores’ performance issues, implementing required data privacy requirements in the United Kingdom and resuming support for the salons’ IT and marketing requirements. The Company expects a default by TBG could adversely affect our business, including increased reputation risks, brand degradation, litigation risks, financial condition, results of operations or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase Program

In May 2000, the Company’s Board of Directors (Board) approved a stock repurchase program with no stated expiration date. Since that time and through ~~December 31, 2017,~~September 30, 2019, the Board has authorized ~~$450.0~~$650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depend on many factors, including the market price of ~~our~~the common stock and overall market conditions. ~~At December 31, 2017, 18.4~~During the three months ended September 30, 2019, the Company repurchased 1.5 million shares for $26.3 million. As of September 30, 2019, a total accumulated 30.0 million shares have been ~~cumulatively~~ repurchased for ~~$390.0~~$595.4 million. At September 30, 2019, $54.6 million ~~and $60.0 million remained~~remains outstanding under the approved stock repurchase program.

The following table shows the stock repurchase activity by the Company ~~did not repurchase~~or any “affiliated purchaser” of ~~its common stock through its share repurchase program during~~the Company, as defined in Rule 10b-18(a)(3) under the Exchange Act, by month for the three months ended ~~December 31, 2017.~~September 30, 2019:



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

7/1/19 - 7/31/19	908,200	$	17.71	29,378,857	$	64,818
8/1/19 - 8/31/19	—	—		29,378,857	64,818
9/1/19 - 9/30/19	595,800	17.19		29,974,657	54,573
Total	1,504,000	$	17.50	29,974,657	$	54,573

Item 6. Exhibits



Exhibit 10.1		Form of Restricted Stock Unit Award (Chad Kapadia September 1 and June 5, 2019)

Exhibit 31.1		President and Chief Executive Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

Exhibit 101		The following financial information from Regis Corporation's Quarterly Report on Form 10-Q for the quarterly and year-to-date periods ended ~~December 31, 2017,~~September 30, 2019, formatted in ~~Extensible~~Inline Xtensible Business Reporting Language ~~(XBRL)~~(iXBRL) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.

Exhibit 104		The cover page from Regis Corporation's Quarterly Report on Form 10-Q for the quarterly and year-to-date periods ended September 30, 2019, formatted in iXBRL (included as Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	REGIS CORPORATION

Date: ~~February 1, 2018~~October 29, 2019	By:	/s/ Andrew H. Lacko
		Andrew H. Lacko
		Executive Vice President and Chief Financial Officer
		(Signing on behalf of the registrant and as Principal Financial Officer)




Date: ~~February 1, 2018~~October 29, 2019	By:	/s/ Kersten D. Zupfer
		Kersten D. Zupfer
		Senior Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

3537



Minnesota			41-0749934
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

7201 Metro Boulevard	Edina	Minnesota	55439
(Address of principal executive offices)			(Zip Code)



Large ~~accelerated filer~~ x Accelerated Filer	☒	Accelerated filer ¨	☐

Non-accelerated filer ¨		~~Smaller reporting company~~ ¨
~~(Do~~(Do not check if a smaller reporting company)	☐
Smaller Reporting Company	☐	Emerging ~~growth company~~ ¨ Growth Company	☐



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Common Stock, $.05 par value		~~46,695,927~~35,548,036
Class		Number of Shares



	Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016
Revenues:
Service	$	223,214		$	235,609		$	458,773		$	478,700
Product	71,816			68,229			132,756			131,945
Royalties and fees	13,485			11,411			26,859			23,435
	308,515			315,249			618,388			634,080
Operating expenses:
Cost of service	134,850			151,193			274,686			301,990
Cost of product	39,864			34,584			70,026			65,399
Site operating expenses	32,119			32,638			65,422			65,283
General and administrative	48,592			36,695			83,758			72,611
Rent	65,473			45,091			107,889			91,324
Depreciation and amortization	24,951			12,646			37,206			24,755
Total operating expenses	345,849			312,847			638,987			621,362

Operating (loss) income	(37,334		)	2,402			(20,599		)	12,718

Other (expense) income:
Interest expense	(2,169		)	(2,153		)	(4,307		)	(4,316		)
Interest income and other, net	2,362			1,452			3,389			1,779

(Loss) income from continuing operations before income taxes	(37,141		)	1,701			(21,517		)	10,181

Income tax benefit (expense)	76,462			(719		)	71,630			(3,459		)

Income from continuing operations	39,321			982			50,113			6,722

Loss from discontinued operations, net of taxes (Note 1)	(6,601		)	(3,201		)	(40,368		)	(5,660		)

Net income (loss)	$	32,720		$	(2,219	)	$	9,745		$	1,062

Net income (loss) per share:
Basic:
Income from continuing operations	$	0.84		$	0.02		$	1.07		$	0.15
Loss from discontinued operations	(0.14		)	(0.07		)	(0.86		)	(0.12		)
Net income (loss) per share, basic (1)	$	0.70		$	(0.05	)	$	0.21		$	0.02
Diluted:
Income from continuing operations	$	0.83		$	0.02		$	1.07		$	0.14
Loss from discontinued operations	(0.14		)	(0.07		)	(0.86		)	(0.12		)
Net income (loss) per share, diluted (1)	$	0.69		$	(0.05	)	$	0.21		$	0.02

Weighted average common and common equivalent shares outstanding:
Basic	46,821			46,327			46,719			46,277
Diluted	47,314			46,774			47,053			46,751



	Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017		2016
Net income (loss)	$	32,720		$	(2,219	)	$	9,745	$	1,062
Foreign currency translation adjustments	(381		)	(2,322		)	2,301		(4,838		)
Reclassification adjustments for losses included in net income (loss) (Note 1)	6,152			—			6,152		—
Comprehensive income (loss)	$	38,491		$	(4,541	)	$	18,198	$	(3,776	)



	For the Three Months Ended December 31,						For the Six Months Ended December 31,
	2017			2016			2017			2016
	(Dollars in thousands)
Revenues	$	7,773		$	108,793		$	101,140		$	221,005
Loss from discontinued operations, before income taxes	(10,073		)	(3,201		)	(43,840		)	(5,660		)
Income tax benefit on discontinued operations	3,472			—			3,472			—
Loss from discontinued operations, net of income taxes	(6,601		)	(3,201		)	(40,368		)	(5,660		)



	Dollars in thousands
Inventory reserves	$	585
Long-lived fixed asset impairment	5,418
Asset retirement obligation	7,462
Lease termination and other related closure costs	27,290
Deferred rent	(3,291		)
Total	$	37,464



	For the Three Months Ended December 31,						For the Six Months Ended December 31,
	2017			2016			2017			2016
	(Dollars in thousands)
Income tax benefit (expense)	$	76,462		$	(719	)	$	71,630		$	(3,459	)
Effective tax rate	205.9		%	42.3		%	332.9		%	34.0		%



	Maturity Dates	Interest Rate	December 31, 2017		June 30, 2017
	(fiscal year)		(Dollars in thousands)
Senior Term Notes, net	2020	5.50%	$	121,096	$	120,599
Revolving credit facility	2018	—	—		—
			$	121,096	$	120,599


(1)	Cost of service is computed as a percent of service revenues. Cost of product is computed as a percent of product revenues.


(3)	Computed as a percent of ~~(loss) income~~loss from continuing operations before income taxes. The income taxes basis point change is noted as not applicable (N/A) as the discussion within MD&A is related to the effective income tax rate.



	For the Three Months Ended December 31,				For the Six Months Ended December 31,
Factor	2017		2016		2017		2016
Same-store sales	(0.7	)%	(2.5	)%	(0.2	)%	(1.1	)%
Closed salons	(4.8	)	(1.5	)	(4.2	)	(1.7	)
New stores and conversions	0.6		0.5		0.6		0.5
Franchise	2.5		(0.1	)	1.5		—
Foreign currency	0.4		—		0.3		—
Other	(0.1	)	1.4		(0.5	)	0.6
	(2.1	)%	(2.2	)%	(2.5	)%	(1.7	)%



As of	Debt to Capitalization		Basis Point (Decrease) Increase (1)
December 31, 2017	18.9	%	(60	)
June 30, 2017	19.5	%	40

For the Periods Ended December 31, 2017

Three Months

Six Months

Restricted stock units

Performance-based restricted stock units